Several researchers have noted that there is a tendency for average life satisfaction to be lower in the countries with high economic growth rates even though there is strong evidence that average life satisfaction is higher in countries with higher incomes. Carol Graham and Eduardo Lora have referred to this as the ‘paradox of unhappy growth’. In one recent paper Eduardo Lora (with Juan Camilo Chaparro) suggests that ‘unhappy growth’ may help to explain why some countries have been reluctant to adopt economic reforms that would lift economic growth rates (‘The conflictive relationship between satisfaction and income’, Nov. 2008).
This is an interesting view, but I doubt its validity. It seems to me that ‘unhappy growth’ could be a misnomer. Before explaining why I should try to summarise the authors’ explanations for ‘unhappy growth’. One explanation is in terms of an aspirational treadmill. Economic growth raises aspirations, so people experiencing high income growth may come to expect higher incomes and hence feel less satisfied with their current incomes than people experiencing low growth. The other explanation is that economic growth is often associated with structural changes that result in income losses to some groups as well as gains to others. As a result of loss aversion the average life satisfaction may decline while average income rises.
Both of these explanations seem plausible, but they leave us with a paradox. How can high incomes - which must have resulted from economic growth in the past - be associated with high average life satisfaction if economic growth reduces average life satisfaction?
There is a simple explanation that dissolves this paradox. The observation of lower average life satisfaction in the countries with higher growth rates might just reflect the shorter time that the people in the countries with higher growth have had to accumulate the capital necessary to enjoy the fruits of their current income levels. Consider two countries which currently have similar per capita incomes, one of which has experienced rapid growth over the last couple of decades and one which has experienced low growth. It would be reasonable to expect that per capita net wealth would be lower in the high-growth country than in the low-growth country because people in the former country have had less opportunity to accumulate wealth from their current incomes. People with lower per capita net wealth could be expected to have poorer standards of housing and to feel less financially secure, so it is only to be expected that they would feel less satisfied with their lives. (This is similar to the explanation offered by Angus Deaton, namely that life satisfaction responds to the long-term average income, as in a permanent income model of life satisfaction. See: ‘Income, health and well-being around the world’).
There is some evidence that average life satisfaction is strongly influenced by net wealth. A study by Bruce Headey and Mark Wooden has shown, using Australian data, that wealth is at least as important to subjective well-being as is income (IZA Discussion Paper 1032, Feb. 2004).
There is also some evidence of a similar phenomenon with respect to education levels. Regression analysis suggests that there is a tendency for average education levels to be lower in countries with high growth rates, after controlling for income levels. This can be explained in terms of the time taken for accumulation of human capital. It would make no sense to attempt to explain it in terms of economic growth resulting in less education.
Finally, there is evidence in the following chart that people tend to perceive that their quality of life has improved in countries that have experienced relatively high growth rates. The perceived improvement in quality of life over the last five years can be calculated as the difference between the rating of life today and life 5 years ago using data from the Gallup World Poll. The chart plots perceived improvement in quality of life against per capita GDP growth rate for the period 2002-07 (based on rgdpl data from Penn World Tables) for 103 countries. The pink dots in the chart lie on a line fitted by regression.
The evidence of perceived improvements in quality of life in countries experiencing high economic growth rates is not consistent with the idea that economic growth makes people unhappy. I don’t accept that the failure of governments to adopt economic reforms can be explained by ‘unhappy growth’.
Since Michael Walzer is often identified as a leading communitarian thinker I did not expect to agree with his views about the good society. I thought it might be interesting to read his short article, ‘What is “The Good Society”? (Dissent, Winter 2009) just to see how much his views differed from my own (See, for example, ‘Is the good society a useful concept?). I was surprised to find that there wasn’t much difference.
Walzer begins his article by asking how there could be one good society, given the immense variety of human cultures. He then proceeds to talk himself around to the position that the good society ‘is constituted by the peaceful co-existence of all the societies that aim at goodness’.
Walzer argues that this view of the good society involves focusing our hopes for goodness on ‘more local, more particularized “societies” rather that a single society in which all members share a single goal. What he has in mind is the possibility that a single individual could take part in many different good societies (movements, associations and communities uniting for a common purpose) organized at different levels of social life and over different geographic areas (p78).
This reminds me of similar views expressed by Friedrich Hayek: ‘It would be a sad misunderstanding of the basic principles of a free society if it were to be concluded that, because they must deprive the small group of all coercive powers, they do not attach great value to the voluntary action of small groups. ... The true liberal must on the contrary desire as many as possible of those “particular societies within the state” ... Liberalism is not individualistic in the “everybody for himself sense”. A few paragraphs further on he wrote: “It is the great merit of the spontaneous order concerned only with means that it makes possible the existence of a large number of distinct and voluntary value communities serving such values as science, the arts, sports and the like. And it is a highly desirable development that in the modern world these groups tend to extend beyond national boundaries ...’ (LLL, vII: 151).
The communitarian libertarianism that Michael Walzer is advocating in this article makes a refreshing change from the vision of the good society favoured by social democrats and paternalistic conservatives who view governments as having the central role of defining and achieving ‘societal objectives’. Our chances of continuing progress toward good or better societies in coming decades will be enhanced if there is more widespread recognition of the importance of the spontaneous activities of numerous small groups comprised of individuals who share common goals.
In my last post I gave several reasons why I think the ‘good society’ is a useful concept. There is another reason. The concept of a ‘good society’ may help us to think more clearly about progress.
What is the problem with progress? I am just about old enough to remember the 1950s when the most persuasive point used in favour of any change in Australia seemed to be: “You can’t stand in the way of progress”. A lot of good things were done in the name of progress but other things, particularly uneconomic public investment in dam building etc. gave progress a bad name. More recently the concept of progress has been confused by well-meaning people who have combined national accounting concepts with idiosyncratic values to produce meaningless indicators of “genuine progress”. Further confusion results from the tendency for people who still cling to long-discredited collectivist political views to be described as progressives.
The article in “The Economist” this week (19 Dec ’09 to 1 Jan ‘10) about progress and its perils discusses the popular view that while technology and GDP advance, morals and society are either treading water or sinking back into decadence and barbarism. The general message is that despite a general tendency to shy away from judgementalism many people yearn for a sense of moral purpose. The article ends by quoting Susan Neiman, a philosopher, who asks people to reject the false choice between Utopia and degeneracy: “Moral progress, she writes, is neither guaranteed nor is it hopeless. Instead it is up to us”.
I agree that people need a sense of moral purpose. A large part of the apparent decline in sense of moral purpose, however, can be attributed to a lack of moral clarity. In particular, there seems to be a great deal of confusion about the morality of modern consumer society. It is common to hear even avid users of new technology suggesting that the production of this stuff uses scarce resources but does little to add to their happiness in the long run. So why do they buy it and use it? Could it be because such stuff provides them with improvements in communications etc that are of enduring benefit, even though it has little effect on their emotional states in the longer term? The moral issue, whether it is good for us to have such stuff, does not depend on its transitory impact on our emotional states.
In terms of public policy, if progress means anything it must mean movement toward a good society, or movement from a good society to a better society. Changes can be counted as progress if they improve our capacity to live together in peace, provide us with greater opportunities to flourish or provide us with greater security.
However, the idea of progress also embodies optimism about the future of humanity – the idea that there has been a tendency for material, political, social, intellectual and moral conditions to improve throughout human history and that such improvement will continue in the foreseeable future. Roger Kerr has recently reminded us how inspiring the idea of progress was in the 18th Century. He argues that the idea that life tends to get better over the longer term still has potential to be inspiring today.
It seems to me that despite all the existing and potential problems faced by humanity there is a basis for optimism that advance of knowledge will continue to enable people to enjoy progressively better lives in coming decades.
Readers of this blog will know that over the last couple of months I have been thinking about the concept of the ‘good society’. The time has come to try to summarise why I think the ‘good society’ is a useful concept.
First, I think it would possible for nearly everyone to agree that a good society is one that is good for its individual members and that such a society would have certain objective characteristics. The institutions of a good society would:
• enable its members to live together in peace;
• provide its members with opportunities to flourish – to have more of the things that are good for humans to have; and
• provide its members with a degree of security against threats to individual flourishing, including security against misfortunes such as accidents, ill-health and unemployment.
Some people would want to go further in specifying characteristics that may make a society good for the people living in it, but attempts to do this may place at risk the ability of people to live together in peace. (See: Is there such a thing as a good society? and What are the characteristics of a good society?)
Second, the ‘good society’ concept is distinguishable from other similar concepts such as the ‘great society’ or ‘open society’. When a society agrees to provide individual members with a degree of security against threats to individual flourishing, for example through provision of a welfare safety net, it departs to some degree from the liberal principles of an open society. But it may still be a good society. (See: Are the institutions of a good society the same as those of the great society?)
Third, the characteristics of a good society are measurable.
• It is possible to measure the peacefulness of different societies using the safety and security sub-index of the Legatum prosperity index. A large part of the variation in peacefulness of different societies can be explained by World Bank governance indicators relating to political stability and the quality of legal institutions. (See: What institutions explain the peacefulness of societies?)
• It is possible to measure opportunities relating to a range of aspects of human flourishing in different societies such as: economic opportunity; the extent that people feel happy or satisfied with life; safety and security; health and longevity; educational opportunity; freedom to choose how to live; the opportunity to participate in political processes; social capital; satisfaction with efforts to preserve the natural environment. Many of these indicators tell similar stories about human flourishing. Economic freedom and governance indicators also tend to tell similar stories about the potential for human flourishing in different societies. (See: Do all well-being indicators tell similar stories about human flourishing? and Do economic freedom and governance indicators tell similar stories about human flourishing?)
• Economic security in different societies can be measured by indicators such as the average income of people at the lower end of the income distribution. This measure is closely related to average income levels and measures of economic freedom and good governance. (See: Does economic security depend on average income levels?)
Fourth, it possible to identify fairly clearly how good various societies are for the people who live in them without making the subjective judgements that would be necessary to combine various indicators into a ‘good society’ index. The indicators generally tend to tell a similar story – but a combination of indicators tells a more reliable story than any single indicator considered in isolation.
Fifth, it seems to me that the concept of a good society is an aid to clear thinking about the kinds of societies we want to live in. When people suggest, for example, that policies in particular societies should be changed to place more emphasis on life satisfaction and less emphasis on raising incomes it may be useful to remind them that high average life satisfaction and high incomes are both common characteristics of good societies.
