/ 13 January 2008

Economists in search for keys to happiness index

President Nicolas Sarkozy’s talk of creating a new growth and well-being index for France is part of a mounting global campaign that many economists believe will shape civilisation and democracy in the 21st century.

Sarkozy presented his recruitment of Nobel prize-winning economists Jospeh Stiglitz and Amartya Sen to work on a quality-of-life index as part of a “policy of civilisation” to reform French institutions.

“We must change the way we measure growth,” he declared last week.

This puts France among well over 100 countries in which work is being done on putting quality-of-life, or so-called “happiness” indicators, into the measurement of growth. The list ranges from the Himalayan kingdom of Bhutan to the United States, and the European Union is doing extensive work on the subject. Australia has taken a lead.

The main measurement of growth is gross domestic product quantifying the production of goods and services. Many organisations also produce indicators of well-being on such matters as damage to the environment, corruption, respect for Parliament and the law, religious and family life, education and personal fulfilment.

Stiglitz said economists have felt for a long time that GDP is not a good measure because “it doesn’t measure changes in well-being … It doesn’t necessarily mean that there will be a replacement of current measures, but maybe a construction of complementary measures.

“I think that on all sides of the political spectrum there is a recognition of these deficiencies … no matter whether you are on the left or the right,” he said.

The Paris-based Organisation for Economic Cooperation and Development has been working for three years on ways to make economic statistics meaningful to people and is engaged with other international bodies on a global project on “measuring the progress of society”.

The project began with a conference organised by the OECD in November 2004 attended by 540 people from 43 countries, including the president of the European Central Bank Jean-Claude Trichet and the comptroller general of the United States David Walker.

A second conference in Istanbul in June 2007 was organised by the OECD with the UN, World Bank, European Commission and the Organisation of the Islamic Conference, and 1 200 people from 130 countries attended. A central conclusion was that citizens should be enabled to work out the measures on national progress they consider important: in this way the data would be meaningful and would be publicly accepted.

Australia has done this and its statistics office now provides the data.

The OECD project is led by chief statistician Enrico Giovannini who said: “We think that in the 21st century this subject is so important because it goes to the core of the functioning of a democracy in the information age. It’s a question of accountability.

“If people are electing policymakers but don’t understand and don’t believe in the statistics the policymakers talk about and use, then they could become just slaves of propaganda.”

Giovannini, remarking that “statistics” originally meant “science of the state”, said the world was now in a form of “mid-life crisis”. Since World War II efforts had concentrated on increasing output but new conditions, new perspectives, and damage to the environment were leading people to ask new questions.

“Some things we took for granted, can’t be. People are feeling lost and want new indications, and what we are saying is we should try to reach a consensus of what it is we want to know about where we should be going.

“There is a world movement in this attempt to make statistics stronger, more relevant and more legitimate as a matter of civilisation: a joint effort for common goals.”

According to European Union research, about 65% of people in Europe have little or no idea of the figures for the main statistics such as growth, inflation and unemployment for their country even though they think statistics are important.

In northern Europe, for example, people have faith in the statistics and believe policymakers use them. In Eastern Europe, people do not believe the data and think that policymakers ignore them anyway.

Many countries had realised that the ever greater quantity of statistics was less and less credible because either the data did not match perceptions of reality or because the figures were misunderstood.

“People feel bombarded and are having great difficulty in understanding the messages,” Giovannini said.

A declaration drawn up by the Istanbul conference called for a small set of key indicators, defined by citizens.

The importance of the way individuals relate to society and institutions is one of the main findings of a two-year quality-of-life research programme carried out under Dr Luisa Corrado, Marie-Curie fellow at the economics department of Cambridge University in Britain.

The research analysed European Social Survey data for 20 000 people in 15 EU countries on topics ranging from life satisfaction to trust in Parliament, the police and legal system, to altruism and citizenship.

People in Denmark and northern Europe gave the highest so-called happiness scores and those in southern Europe the lowest.

Corrado said countries which reform their institutions raise the ambitions for fulfilment of their people.

“In France there seems to be an attitude of doing the least and holding on to what we’ve got. In southern Europe there hasn’t been enough institutional reform.

“Spain has escaped this because it reformed but Italy stopped on joining the eurozone, as if it had won the lottery. This makes a fundamental difference.

“For example, the United States has a pioneer philosophy, there is always the next mountain to climb, and this can be a powerful driver of satisfaction.

“Common goals and a sense of belonging are also important. It is often said that in Britain during the war, people were bound by a tremendous sense of purpose and felt exhilarated despite the material hardships and casualties.”

Commenting on her research, she also observed: “Many of the happiest and richest countries, the Scandinavian members, Luxembourg and The Netherlands, also come top of the World Bank governance indicators.

“Likewise, those EU 15 countries that in our research scored worst in terms of governance [most of the Mediterranean countries] tended to come bottom in the well-being survey as well … There is a clear geographical divide between northern and southern European countries.

“Therefore, the message to policy-makers is that it is not enough for governments to focus on improving wealth and material standards of living. Our well-being would be more likely to flourish in a mutually supportive and trusting society.”

Of those questioned in Denmark, 64% said they trusted their Parliament, in Portugal the comparable figure was only 19%.

Studies show that well-being goes beyond the maximisation of each individual’s pleasure or wealth, said Corrado.

“Governments need to measure and address this wider measure of well-being…Public contentment is the outcome of both individual, social and institutional factors.”

Policies which strengthen individual well-being could encourage “more productive workers and more social cohesion” and “fostering well-being could also lead to fostering growth.”

Corrado concludes that among the driving forces of well-being are the level of trust connecting the individual to institutions and society. “For example, low-corruption countries are those which also report the highest level of well-being.”

Some other important factors determining well-being are: Social cohesion and an effective welfare state; social mobility; low unemployment; higher income and less inequality, because people measure their satisfaction against the success of others; high birth rates; economic freedom and low protection for inefficient businesses, low cost of entry for entrepreneurs and lower taxes; political freedom; and flexibility and security in labour markets as in Denmark.

“The individual not only maximises personal pleasure, but also considers how institutional, environmental, personal and relational factors are affecting his whole life.”

However, Corrado also observed: “We cannot think about becoming happier for ever.”

In fact, she noted, referring to the so-called Easterlin paradox named after Richard Easterlin, a noted US economics professor, that “although people [in advanced countries] are generally much wealthier than their fathers and grandfathers, their levels of happiness are either equal to or below those 50 years ago.” – AFP