Today, most nations judge their yearly progress by the measure called Gross Domestic Product (GDP). This measure captures the dollar value of all the goods produced by its businesses, and as we have written about previously at The Sarasota Institute, the concept of GDP needs to be scrapped or revised. The assumption is that if a nation’s GDP rises, happiness or well-being rises as well. This is a mistake for three reasons:

 

1. GDP growth says nothing about how the benefits of higher growth are distributed. We can imagine high GDP growth with the poor becoming poorer and the rich becoming richer. Only if GDP growth produces income growth for everyone could we say that the general welfare has been increased.
2. GDP growth does not say anything about the composition or quality of the output. GDP will grow with higher cigarette and alcohol consumption and more guns sold but this says little about well-being growth. In addition, GDP would grow even if the average quality of goods declined.
3. GDP growth ignores the costs that have been incurred in achieving that growth. Consider that more GDP probably increases air and water pollution and more traffic congestion. Consider that GDP growth could be the result of more people working longer hours and having less leisure time.  

 

 

Clearly, we need a more direct measure than GDP of solid increases in general welfare. There are two such measures, happiness and well-being. Different countries have started to craft these measures.

 

 

Happiness as the Measure

 

 

Happiness is the harder condition to measure. Happiness can fluctuate from day to day. Happiness is adversely affected by major events such as losing one’s job, getting divorced, or having a major health problem. Happiness is positively improved when someone has good friends, is involved in meaningful activities, and is making a difference in the lives of others.

 

 

Yet we can ask people to indicate their general level of happiness on a five-point scale where one equals very unhappy and five equals very happy. “Would you describe yourself as generally a very unhappy person (1) or a very happy person (5) or something in between (2), (3) or (4), most of the time?”  Then we can try to measure how people’s level of happiness correlates with various personal factors, such as their background, religion, occupation, age, education, and income. We are neglecting whether the happiness is of the hedonic kind (pleasure) or of the eudemonic kind (contentment).

 

 

Economist Richard Easterlin published a famous paper in 1974 entitled “Does Economic Growth Improve the Human Lot?” After comparing per-capita incomes and self-reported levels of happiness across several countries, he did not find a correlation between income and happiness. He even found countries where some of the poorest people were the happiest. Yet in his subsequent research, he found that within most societies, the very poor are generally unhappy and the very rich are quite happy, but he found little correlation at intermediate levels. Happiness does not necessarily increase with added wealth once people have enough money to satisfy their needs.

 

First, happiness is partly conditioned by the person’s genes, with some people born with a positive outlook on life and others with a negative or depressed view of life.

 

Second, happiness is partly conditioned by the religious and cultural character of the country. A person’s outlook on life may have something to do with whether the person is Catholic, Protestant, Jewish, Hindu, Muslim, Buddhist, some other religion or no religion at all. I even have a friend who keeps changing his religion hoping to find the one that will keep him happy the longest time.

 

As a U.S. family’s income approaches (say) $75,000, the family’s happiness increases. The family members are less worried about having enough income to acquire sufficient food, clothing, and shelter. As incomes rise above $75,000, however, the likely level of happiness is no longer highly correlated with income. A millionaire may be unhappy because he wants to reach a much higher level of income. A billionaire may be unhappy because he needs to spend a lot of time managing his money and making sure that his assistants are not cheating him.

 

In spite of the weak correlation between happiness and income, there is growing interest to measure Gross National Happiness (GNH). In 1972, King Jigme Singye Wangchuck of the little nation of Bhutan proposed using a new measure called the (GNH Gross National Happiness) along with the GDP measure. The GNH received a lot of publicity and today England, France, Denmark, Brazil, and others are engaged in developing or using a GNH measure.

 

King Wangchuck took the point of view that happiness occurs when material and spiritual development occur together and reinforce each other. He postulated four pillars of GNH:  sustainable development; preservation and promotion of cultural values; conservation of the natural environment; and establishment of good governance. This says that a person is likely to be happier if the economy grows, if cultural values are satisfying, if the natural environment is pleasurable, and if the government operates in the interests of the citizens.

 

 

Well-Being as the Measure

 

It would be easier to measure the level of well-being than the level of happiness in a community or nation. Is the person healthy?  Is the person educated?  Does the person have a livable income?  All of these would be social indicators of personal wellness.

 

In 2006, Med Jones, the President of International Institute of Management, proposed tracking seven wellness areas:

 

1. Economic Wellness: Indicated by economic metrics such as consumer debt, average income to consumer price index ratio and income distribution.
2. Environmental Wellness: Indicated by environmental metrics such as pollution, noise and traffic.
3. Physical Wellness: Indicated physical health metrics such as severe illnesses.
4. Mental Wellness: Indicated by mental health metrics such as usage of antidepressants and rise or decline of psychotherapy patients.
5. Workplace Wellness: Indicated by labor metrics such as jobless claims, job change, workplace complaints, and lawsuits.
6. Social Wellness: Indicated by social metrics such as discrimination, safety, divorce rates, complaints of domestic conflicts and family lawsuits, public lawsuits, and crime rates.
7. Political Wellness: Indicated by political metrics such as the quality of local democracy, individual freedom, and foreign conflicts.

 

Assessing a person’s wellness rather than the person’s happiness puts the question on a more solid ground. Wellness is a function of having a sufficient level of food, clothing and shelter; being healthy; being educated; having a job and skills; and so on. We would expect that persons who have a high level of wellness would also show a high level of happiness. However, other factors may intervene:

 

• Persons with a high level of well-being may be unhappy when comparing themselves with other people. Thorsten Veblen, the famous U.S. economist, talked about the pain of envying the social standing of others. Many wealthy people engage in conspicuous consumption to impress others.
• Persons with a high level of well-being may be unhappy because they have not found a higher purpose in life or they have not developed certain desired skills or certain relationships they wanted.

 

 

Human Development and Social Progress as Indicators

 

In 1990, a Pakistan economist Mahbub Ul Haq, introduced the concept of Human Development Indicator or HDI, to shift the focus from national income to people centered policy. This index started to gain momentum when between 2002 and 2006, personal income in United States fell but GDP continued to increase. Western governments started to seriously look beyond GDP as an indicator of welfare and happiness. In 2010, the Indian economist, Nobel Laureate Amartya Sen, strongly argued not to be blinded by a single measure to gauge human development and a satisfied society.

 

Michael Green in 2012 proposed developing a Social Progress Index (SPI) that focused on social and environmental needs. Countries and companies standing high on this index would have an edge because they are able to combine a quality of life promise with a mission imbued with positive values.

 

The latest suggested measure is the Happy Planet Index. A nation’s standing on this index would rise if the people are happier, if people live longer lives, if the income distribution is only moderately skewed, and if people have a low carbon footprint. On this index, Costa Rica ranks number 1.

 

 

Conclusion

 

Citizens have to decide whether they think that increasing the Gross Domestic Product (GDP) is the key goal of a society. The good news is that a growing number of nations are trying to add to GDP a second measure, either Gross National Happiness (GNH), Gross National Well-Being (GNW), Human Development Index, Social Progress Index, or Happy Planet Index. A rise in these newer measures would indicate an increase in the Common Good. A nation should aim to use the best measures that reflect the growth of the Common Good.