Print this page

Does economic growth
cause unhappiness?
Alan Wood
15feb06

Fortunately most Australians don't think so - after all, reform
leads to prosperity.

IN the early 1990s a plethora of books and
papers appeared declaring the failure of Australia's economic reforms of
the '70s and '80s. The basis of these claims was the recession that opened
the decade.

Typical was Shutdown, edited by John Carroll and Robert Manne. It had a
subtitle - The Failure of Economic Rationalism And How to Rescue
Australia. The nation was the victim of a failed experiment masterminded
by the Australian Treasury.

This failure, it said, "is visible in every city and country town, in
collapsing businesses, mounting unemployment, and families in economic
crisis". The list went on, and on.

The book was published in 1992 as the economy was coming out of
recession and was followed by an extraordinary period of sustained
economic growth and prosperity - rising incomes and wealth, falling
unemployment and inflation. This expansion is now in its 15th year.

An embarrassing experience for the gloom and doom brigade, but they
eventually found an answer. They might have been wrong about the economic
outcome of reform, but Australians are unhappy with their new prosperity.

Growth, it seems, is bad for you. The higher incomes it brings only
create dissatisfaction. We need a broader measure than GDP, that indicates
our national wellbeing. As it happens we have one handy.

Earlier this week the 14th Australian Unity Wellbeing Index was
released. It combined the 13 earlier surveys to produce a ranking of
Australian electorates according to their level of wellbeing (happiness).

The reporting focused on the nine electorates with the top personal
wellbeing ratings and the nine with the lowest ratings.

This has naturally created a great deal of interest, particularly among
federal politicians.

Peter Costello's electorate of Higgins in Melbourne, which covers
wealthy Toorak, was the only inner urban electorate to rank in the top
nine. There must be some satisfaction in being rich after all.

On the whole the bush is a bit happier than the cities. But the most
interesting fact to emerge from the survey is how little difference there
is across the length and breadth of Australia in the level of our
perceived wellbeing. As the survey comments: "Australia is clearly a
largely homogenous nation", and one can add, a reasonably happy one.

But how do we rank internationally in terms of wellbeing? Last year two
economists, David Blanchflower and Andrew Oswald, published a US National
Bureau of Economic Research working paper with the fascinating title
Happiness and the Human Development Index: The Paradox of Australia.

Blanchflower and Oswald are also interested in the increasingly popular
issue of whether to move away from GDP as a measure and substitute, say, a
Gross National Happiness Index. But in looking at alternative measures
they discovered their paradox.

One of the best-known attempts to move away from reliance on GDP as a
measure of welfare is the UN's Human Development Index. On this measure -
which gives a score based on lifespan, educational attainment and real
income - Australia ranks third in the world after Norway and Sweden. It
ranks above all other English-speaking nations.

But the two economists question whether we should. They look at another
survey of happiness by the International Social Survey Program and find
quite a different picture. Australia does not show up with notably high
levels of wellbeing.

It is close to the bottom in international rankings of job
satisfaction. Among English-speaking nations, where a common language
should make wellbeing measures more reliable, it performs fairly poorly on
a range of happiness indicators.

What do we make of this? Probably not too much. A response to
Blanchflower and Oswald by Andrew Leigh, an Australian economist, and
Justin Wolfers from the Wharton School in the US, disputes their
conclusion.

Using a broader range of data, they find that, if anything, Australians
are happier than their ranking in the Human Development Index would
predict. For example, in the World Values Survey only one nation, Iceland,
has a significantly higher level of both happiness and life satisfaction
(a similar concept) than Australia.

Not much sign there that growth and higher incomes are making us
unhappy. But what it also tells us is how difficult it is to construct a
reliable alternative to GDP. And while growth and income are by no means
the only things that matter, growth is crucial to happiness.

However, it is simply wrong to suggest economists think growth is
everything. You may not know that the overall government policy objective
in the Treasury portfolio, reflected in the department's mission
statement, is "strong, sustainable growth and the improved wellbeing of
the Australian people".

Treasury has spent a lot of time developing a wellbeing framework as an
overlay for its policy advice, which takes account of a range of issues
including opportunity and freedom in its broadest sense, social as well as
economic.

But achieving strong economic growth is still central to national
wellbeing, a point made well by Swedish intellectual Johan Norberg, author
of best-seller In Defence of Global Capitalism, when he was in Australia
last year as a guest of the Centre for Independent Studies.

"If you are looking for a happy European, try someone who thinks his
present situation is better than it was five years ago, or even better,
someone who thinks his situation will be better five years from now," he
says. "If you want to meet a happy Australian, ask someone who thinks that
people like themselves have a good chance of improving their standard of
living."

Those expectations are driven by economic growth, and while nobody
thinks it is all that matters, or wants a return to the simplistic
growthmanship policies of the '60s, it is going to matter more than ever
as our population ages.

privacy
terms      ©
The Australian