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Pursuing growth: Enough on its own?

15 February 2013
by Brian Keeley
Going for Growth 2013

Going for Growth 2013

Does money make us happy? Phrased a little more subtly, this question has been bugging economists for years. For much of the 20th century, most of them would probably have replied yes. But in the 1970s, doubts began to show, in part because of the work of the American economist Richard Easterlin.

The “Easterlin paradox” appeared to show that as economies developed there was very little change in “self-reported (or “subjective”) well-being” – in other words, even though countries were getting richer, people didn’t seem to be getting happier. Significantly, the appearance of Easterlin’s work in the 1970s coincided with a period of rising environmental concern. Not only did the social benefits of growth come to be questioned but so too did the cost to the planet.

In the years since, all this has fed into an argument that pursuing economic growth – as measured in rising GDP – is not enough in itself. It needs to be balanced against other issues, such as access to health and education, inequality, environmental sustainability and people’s own judgement of the quality of their lives.

If you want an example of how these ideas have now entered the mainstream, look no further than the latest edition of the OECD’s Going for Growth, released today in Moscow. Since it began in 2005, the OECD project has sought to identify ways to promote growth in leading economies, focusing on areas such as employment policies, education and regulation. But as well as offering policy recommendations, this year’s report examines their wider implications – these policies may be good for growth, but are they also good for society and the environment?

These issues are reflected in another OECD project – the Better Life Index. The BLI reflects a shift in thinking on well-being and progress, based on the notion that while economic growth is necessary for development, it’s not sufficient. Accept that, and you also have to accept that, to establish the state of a society, you need to do more than just measure its GDP (which simply represents the total of the goods and services a country produces).

But what should you measure? Here’s where things get complicated. Over the past 20 years or so, several indices have emerged aimed at measuring the progress of societies, nationally and internationally, encompassing a range of measures, such as levels of health, education, inequality, personal happiness, safety, and so on. Are such indices useful? Debate rages. Advocates say they present a balanced, nuanced picture; critics say they’re too subjective, and depend too much on what researchers decide is important and not important. By contrast, they argue, at least GDP is a hard, objective number.

Those critics may feel buoyed by what looks to be a bit of an academic backlash to Easterlin’s work: “The fact is, the richer you are, the happier you are,” crowed one critic;  “Can We Kill The Easterlin Paradox Now Please: It’s Wrong,” added another. Such rejoicing may be premature: There’s a lot of honest difference of opinion among academics over how best to research this area, which is generating a great deal of diverse work. As of now, the consensus seems to be that, once a society reaches a certain level of development, more money doesn’t add up to much more happiness.

Still, it is interesting to see how – for all its flaws – many of us can’t help but link GDP (and related numbers like GNP and GNI) to wider issues. Indeed, we may have reasonable grounds for doing so: As the German researchers Jan Delhey and Christian Kroll reported last year, “for an economic indicator never intended to assess national well-being, the GDP is surprisingly successful in predicting a population’s subjective well-being.”

But, interestingly, the two researchers did find an indicator they liked even more: “One measure actually does a better job: the OECD’s Better Life Index which is particularly effective when it comes to predicting subjective well-being in the richest OECD countries.”

Useful Links

OECD Better Life Index Blog

OECD and the G20

5 Responses
  1. srinivasa murty permalink
    February 19, 2013

    As we know, the true measure of overall ‘well being’ is composed of a ‘subjective’ (self assessed) component and an ‘objective’ (measurable value in real terms) component.

    As GDP is found to empirically exhibit a correlation with the ‘overall well being’, it is worth exploring the relation between GDP and the components (of objective and subjective nature) constituting the overall well being.

    The ‘objective’ components can be directly related to level of earning and consumption of goods and services etc., which are the constituents of GDP.

    Logically we can state – either the significance of ‘objective’ assessment is very low or the ‘objective’ assessment of individuals is significant but strongly related to GDP in an indirect manner.

    The dispersion of spending / consumption of an individual with respect to the GDP divided per capita (GDP / total population), could be a factor that makes one assign a position for own self in a stratified economic environment. The standard deviation of the spending patterns could probably give an insight in to this correlation. Mean and standard deviation of spending / earning / investment patterns can be correlated with ‘subjective’ components.

  2. Abhimanyu Singh Sisodia permalink
    July 10, 2013

    I’m not going to comment on the Easterlin paradox, which may or may not be true. But GDP in my opinion is a useless indicator to gauge how much wealthier or happier people are. The reason is simple: In countries like India, where corruption and elitism go hand in hand, despite producing exceedingly more goods and services, the money does not trickle down to those who need it most. So the country as a whole generates more money, but the employer does not see fit to share his earnings. This is largely because the supply of workers is high relative to demand because of the large population. Only 2.5% of the population pays enough taxes to support the whole country. So while this 2.5% may indeed be getting wealthier and life may be getting better in the metropolitan cities, these are few and their number is not growing.

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