Does homeostasis explain the stability of life satisfaction in high income countries?

The theory of subjective well-being homeostasis proposes that life satisfaction is controlled by automatic neurological processes in a manner analogous to the maintenance of body temperature. The theory has been proposed by Professor Robert Cummins of the Australian Centre on Quality of Life (ACQOL), Deakin University. The basic idea is that positive and negative experiences can cause temporary changes in life satisfaction, but homeostasis normally brings it back within a set-point range. The exception occurs where chronic failure of the homeostatic system results in depression.

The theory proposes that homeostatic buffers enable humans to function normally:

• adaptation restores life satisfaction to the set-point range following positive changes in circumstances, such as an increase in income;
• resilience tends to restore life satisfaction to the set-point range following strong negative challenges.

Resilience depends on external resources, particularly intimate relationships and wealth, and internal buffers designed to minimise the impact of personal failure on positive feelings about the self. The internal buffers can operate at an unconscious level - e.g. assisting an individual to cope by enabling positive emotions to become accessible. They also operate at a conscious level by altering the way individuals see themselves in relation to the challenge (e.g. denying personal responsibility or viewing the failure as unimportant).

The distinguishing feature of the homeostasis theory is not the existence of adaptation and resilience – which are widely acknowledged in the happiness research literature – but the idea that these processes tend to restore emotional systems to unique set-points for each individual.

When I first read about homeostasis theory, a few years ago, evidence that some individuals experience long-term changes in life satisfaction seemed inconsistent with the idea of constant individual set-points. However, as Bob Cummins has pointed out, changes in life satisfaction do not necessarily imply change in an individual’s set-point (or homeostatically protected mood). If initial measurements of life satisfaction are higher than, or lower than, the set-point, then subsequent measurements can be expected to show a return to the set-point range.

My remaining doubts about homeostasis theory centre mainly around the question of how it can be reconciled with the international evidence of lower average life satisfaction in low-income countries. I find it hard to accept that a high proportion of the people in low-income countries who claim to have relatively low levels of satisfaction with their lives are suffering failure of their homeostatic systems. In some low-income countries, e.g. China, relatively low average life satisfaction seems to be accompanied by relatively high positive affect and relatively low negative affect.

Perhaps set-point ranges remain constant – if we think in terms of hypothetical neural correlates – but the relationship between set-point ranges and life satisfaction scales may change with changes in perceptions of what might be possible. As discussed in a recent post, individuals who move from a remote village to a major city might feel that their lives have improved, even though they become less contented with their living standards after moving to the new location. Does that mean they have become more vulnerable to homeostatic breakdown? I am not qualified to make informed predictions in relation to such matters, but my guess is that there would not be an increased risk of breakdown if the people concerned remain optimistic about their prospects in the city and retain the option to return to the village for family support if they need it.

The predictions of homeostasis theory seem to stand up well to tests that have been conducted so far. For example, homeostasis theory predicts that there will be greater variation in subjective well-being among people with low incomes than among people with high incomes. This is because people with low incomes (or low wealth) are more vulnerable to changes in circumstances. Analysis using data from the Australian Unity Wellbeing Index indicates that the standard deviation of subjective well-being is indeed substantially higher for people with relatively incomes, and declines as household incomes rise to around $100,000.

Homeostasis theory seems to provide a more plausible explanation for the stability of average life satisfaction in high-income countries than a rival theory, advanced by some economists, that this stability reflects evaluative judgements of life by the people in those countries. Evidence that life satisfaction is influenced by genes, and strongly related to self-esteem, optimism and feelings of being in control of one’s life, suggests that it is more appropriately interpreted as reflecting the moods (or frames of mind) of respondents than evaluative judgements. 

Researchers who want subjective well-being measures to reflect evaluative judgements that individuals make about the quality of their lives should consider an approach which requires greater cognitive inputs e.g. the ACSA question which asks people to assess their current well-being relative to the best and worst periods of their lives.

Is Australia's political system broken?

“The process of debate, competition and elections leading to national progress has broken down. The business of politics is too de-coupled from the interests of Australia and its citizens. This de-coupling constitutes the Australian crisis”.

The quote is from the last chapter of Paul Kelly’s most recent book, Triumph and Demise, The broken promise of a Labor Generation (published by MUP, but I purchased the Kindle version from Amazon). Over several decades Paul Kelly has developed a formidable reputation as Australia’s leading ‘big picture’ journalist. I don’t think anyone else has been more successful in identifying the defining elements of the changing political landscape in Australia.

In launching the book, Tony Abbott, Australia’s current prime minister, took issue with Kelly’s claim that the system has broken down. He suggested that the style of government of the past six years had been just a passing phase, rather than “the new normal”. The PM said:

“It’s not the system which is the problem, it is the people who from time-to-time inhabit it. Our challenge at every level is to be our best selves.”

More recently, the electoral triumph of the New Zealand National Government under John Key appears to have demonstrated that it is still possible for a government to contain the growth of government spending in the face of political obstacles similar to those faced by governments in Australia.

So, is Paul Kelly wrong? I don’t think so. The system must be broken if achievement of reforms requires politicians to become their “best selves”.

Paul Kelly writes of “volatility and fragmentation” as being “the new driving forces” of Australian politics. He argues that the system has evolved in ways that have given sectional interests more power than ever before. He mentions technology and campaign techniques in this context, and brings fragmentation of the traditional media and the rise of social media into the discussion. He also makes the point that it has become more difficult for leaders to talk honestly to the community as they have become subjected to greater media pressure to rule out any action that might disadvantage any powerful interest group.

However, the strongest points which Paul Kelly makes in support of the view that sectional interests now have more power relate to the rise of minor parties, accompanied by a decline in tribal loyalty to the major parties. Minor parties tend to play to sectional interests because “they lack any governing culture or responsibility for the national interest”.

It has for many years been a normal part of the Australian political landscape for government legislation to be subject to obstruction from the cross-benches in the Senate. In the past, Governments were often able to deal effectively with this by threatening a double dissolution election. Paul Kelly points out that following the expansion in size of Parliament in the mid-1980s, there is now more likelihood that a double dissolution election will result in even more minor party representation because the quota of votes required for election is easier to obtain.

It is possible, of course, for the major parties to come together to agree to the spending cuts or tax increases required to avoid an explosion in government debt. But it is particularly difficult for the major parties to be seen to agree on a strategy to achieve that. The small remaining philosophical differences between the major parties hinge around fiscal policies - the Labor party tends to favour a bigger role for government, while the Liberal party tends to be somewhat opposed to government playing a bigger role.  In addition, even though there may not be much difference in practice between the policies the major parties implement when they are in government, when in opposition neither party has an incentive to offend interest groups that might help them win to the next election.

Perhaps the current government will be able to resolve the immediate fiscal problem by proposing spending cuts that will be more acceptable to the opposition, or the minor parties, than those currently proposed. The chances of such reforms being accepted will improve as the next election approaches and the opposition comes under greater pressure to demonstrate fiscal responsibility. As government debt increases, it will also become increasingly difficult for the opposition to oppose fiscal reform on the grounds that Australia is not Greece.

However, even if the immediate fiscal problem can be resolved satisfactorily, it is difficult for anyone to claim that Australia’s political system is not broken when it contains in-built incentives for fragmentation of the major parties. As the minor parties demonstrate to interest groups the advantages of Senate representation, voters have a strong incentive to break their allegiance to the major parties. This is particularly likely if (to use words of my friend Jim Belshaw on his blog a few years ago) they “reject the intellectual, institutional and political constructs” of the major parties. As the parties fragment, some excellent minor party candidates, like Senator David Leyonhjelm of the LDP (whom I claim to have voted for intentionally in the last election) will probably be elected.  In the end, however, we are likely to be left with a situation where the line of least resistance will usually prevail and governments will always be able to blame Senate obstruction for poor economic policy outcomes.

In an article posted here a couple of months ago, I suggested that better policy outcomes could be expected if Senate candidates were chosen randomly, rather than selected by parties. There is not much chance of a proposal along those lines being seriously considered in the near future.

There are probably other ways to reduce Senate obstruction that would be more acceptable to the major parties. The major parties will be doing a useful service to themselves, as well as the nation, if they can get together to consider and implement reforms to the Senate before the benefits of accountable government disappear entirely. 

Postscript: 
Jim Belshaw has responded to this post on his blog.

What does it mean to be thriving?

I am asking myself that question because I am trying to come to grips with the findings of the new Gallup-Healthways Global Well-Being Index.

The methodology of the index looks like a sensible way to assess the extent to which people are thriving in different countries. Surveys are used to obtain subjective data relating to the following five elements:

• Purpose: liking what you do every day and learning or doing something interesting every day
• Social: having supportive relationships - someone who encourages you to be healthy and family and friends who give you positive energy
• Financial: having enough money to do what you want to do and not being worried about money
• Community: liking where you live and having pride in your community
• Physical: feeling active and productive, and that your physical health is near perfect.

When I look at the results, however, I wonder whether the new Gallup-Healthways index actually measures the extent to which people are thriving.

The top ten countries in the index are as follows:

1. Panama
2. Costa Rica
3. Denmark
4. Austria
5. Brazil
6. Uruguay
7. El Salvador
8. Sweden
9. Guatemala
10. Canada.

When Scott Sumner looked at that ranking he wasn’t surprised to see some of the countries of Latin America do well, but he was shocked to see Sweden bracketed by Guatemala and El Salvador.  His comment:

“Just to be clear, I’m NOT saying that the people in those two countries are not just as happy as the Swedes; for all I know they are happier.  I have no idea how to measure happiness. But if you are talking about country rankings, people are going to assume you are making some sort of statement about socio-economic/political systems.  And if a large share of the people in these highly successful societies are risking murder, rape and dying of thirst in order to flee to a country where they don’t speak the language, so that they can get jobs cleaning toilets or picking vegetables in the hot sun all day long, then I have to wonder whether these rankings actually mean much of anything”.

Gallup’s potential net migration index suggests that large numbers of people who live in Guatemala and El Salvador would indeed prefer to live elsewhere. Recent surveys suggest that while about 28% of the population of Guatemala would prefer to live elsewhere, the corresponding figure for El Salvador is about 33%.

In Free to Flourish I made the point that if you want to measure the quality of different societies it makes more sense to attempt to define the characteristics of a good society and attempt to measure the extent to which societies have those characteristics, rather than to attempt to infer the quality of a society solely from happiness indexes. Nevertheless, it comes as a surprise when a high proportion of the population is assessed to be thriving in societies from which large numbers of people wish to migrate to seek better opportunities.

When I set out to find out the reasons for the results obtained by Gallup-Healthways my first thought was that it might reflect the method used to rank countries. The criterion used is the percentage of the population that are thriving on the basis of three or more of the elements defined above. However, when I constructed an index by averaging the scores on all five elements (giving thriving a rating of 3, struggling a rating of 2 and suffering a rating of 1), El Salvador remained in 7^th place and the ranking of Guatemala remained fairly high (falling from 9^th to 14^th).

My second thought was that people would be unlikely to give equal weight to the five specified elements in assessing the quality of their lives. In order to assess what weights might be appropriate I used regression analysis to explain the old Gallup thriving index in terms of the five elements of the new index. The old Gallup index is based on the Cantril methodology under which survey respondents are asked to evaluate their own lives relative to the best and worst possible life. Under the old Gallup index the percentages of the population assessed to be thriving in El Salvador and Sweden were 36% and 68% respectively.

There is a problem with the use of regression analysis to obtain weights because the old and new indexes relate to surveys taken years apart, but that seemed to me to be a minor problem by comparison with use of equal weights.

The results of the analysis suggest that it might be appropriate to give a weighting of 40% to Purpose, 30% to Financial, 30% to Physical, and zero weight to Social and Community. The rankings on that basis are:

1. Panama 
2. Sweden
3. Denmark
4. Austria
5. Costa Rica
6. Canada
7. Netherlands
8. Iceland
9. Mexico
10. El Salvador

At this point I have to acknowledge that the high rating given to El Salvador is unlikely to be a result of the methodology used for ranking, or failure to weight elements appropriately.

No matter how I look at it, the people of El Salvador seem to be highly positive about their lives. This is consistent with the results of other Gallup surveys which have shown that the people of El Salvador experience a great deal of positive emotion.

The problem is that while it is good to have positive emotional states or positive states of mind, thriving involves more than that. From observed behaviour it is obvious that humans see their ability to thrive as related to objective circumstances such as incomes, life expectancy and education – which are reflected in the UN’s Human Development Index (HDI) – as well as to their emotional states.

Anyone interested in identifying the countries in which people have the best opportunities to thrive might find the following chart of some interest.

What is the secret of happiness?

Now that I have your attention I will do my best to keep it – but you cannot expect me to attempt to answer such an important question in just a few paragraphs.

It might be appropriate to begin by issuing a health warning about my ability to answer such a complex question. I can claim a great deal of interest in the subject, but my expertise is limited.

In my view human happiness is ultimately about having a meaningful life – one that is meaningful to the person living it - but that is certainly not a secret. Wise people have been saying similar things for thousands of years.

What I am about to write about now has to do with momentary happiness and the way we pursue our goals. It seems like a good idea for individuals to pursue their goals in ways that enable them to experience many happy moments and not too much disappointment along the way.

Some recent research on the links between risk-taking, expectations, rewards and happiness has produced some interesting findings. I propose to present some of those findings in a somewhat novel way and to combine them with some additional speculations.

The research by Robb Rutledge (of University College, London) and colleagues involved presenting participants in a decision-making game with choices between certain and risky options and repeatedly asking them to report their momentary happiness. The study used fMRI to examine the relationship between happiness reports and neural responses. The study also made use of the Great Brain Experiment app, to test results on large numbers of people playing the decision-making game on smart phones and tablets. (The game is actually still available the Great Brain Experiment site and good fun to play.) The research is reported in an article entitled ‘A Computational and neural model of momentary subjective well-being’, recently published in PNAS. Good summaries of the article have been published by ‘The Telegraph’ and ‘The Atlantic’.

The study found that momentary happiness is determined by the combined influence of recent reward expectations and prediction errors arising from those expectations. The happiness equation takes the following form:

Happiness = baseline average mood + what you can settle for (CR) + what you'll get on average if you gamble (EV) + the difference between that and what you actually get (RPE). 

The equation takes account of the fact that memory fades, so that more recent events have a larger impact on happiness than earlier events.

The findings suggest that happiness depends not on how well things are going, but on whether they are going better than expected.

It is a mistake to interpret the findings as in the headline in one paper: “The secret of happiness? LOWER your expectations: A good day is when things are going better than expected”. One reason the results don’t imply that people should lower their expectations is because the measure of expectation used is average reward, rather than a direct measure of optimism or pessimism. It would be slightly more accurate to interpret the findings as suggesting that people can avoid disappointment by staying within their comfort zone instead of choosing riskier options that involve high average (expected) reward. But that interpretation is also inadequate because it overlooks the pleasure that people get from anticipating a high reward (even if the outcome is not as good as expected) and also overlooks the buzz that some people get when they gamble (choose an option with high potential reward but lower average reward) and win.

I have attempted to map out some relationships between expectations, forecast errors and happiness in the following two charts.

In the first chart, we begin in Quadrant A, with expectations and happiness as indicated by the blue line i.e. a happiness rating above 7. Unfortunately, it turns out that outcomes are below expectations, so in Quadrant B it is apparent that we have a negative prediction error of -3. When we translate that to the X axis in Quadrant C (using the 45⁰ line in the south-east quadrant) we find that an error of -3 corresponds to a happiness rating of less than 6.

So, the question now arises of how you should respond to that disappointment. One way to respond is to get back into your comfort zone and adopt a strategy involving lower expectations and no prediction error. That strategy avoids disappointment but it means that you forgo the pleasure of contemplating the happiness that you could expect, on average, under the original strategy.

An alternative response is depicted in the second chart. That involves sticking with the original strategy but improving your luck.

 An improvement in luck is shown by a shift in the relationship in Quadrant B. By improving your luck you are able to achieve an outcome better than expected and end up happier than you expected.

So, the secret of happiness is to get lucky! 

Jokes aside, it makes sense to stick to a strategy that you have good reason to think will yield high returns over the longer term, even if you experience disappointing results in the short term. In other words, the secret of happiness is adopt the strategy that you expect to yield greatest rewards over the longer term and “stay the course”.

Some readers might question the wisdom of that on the grounds that most people tend to be optimistic in their expectations, relative to average reward (or mathematical expectation). However, the findings of a recent paper by Gigi Foster and Paul Frijters, which examines the formation of expectations by undergraduates at two Australian universities, suggests that optimistic expectations are benign. The results suggest that apart from their direct contribution to happiness, optimistic expectations motivate people to work harder to achieve their goals.

So, adding all that together, the secret of happiness would be to adopt the strategy that you expect to yield greatest rewards over the longer term, and to back your expectations by staying the course and working hard. But you already knew that!  And something important seems to be missing.

The real secret of happiness, in my view, is to play the inner frame games of self-acceptance and cheerfulness, and to adopt an attitude of awe and fascination about the world. 


Postscript:
I linked to the wrong article by Gigi Foster and Paul Frijters. An abstract of the article I meant to to link to can be found here.

Can the "best possible life" get much better?

Someone is sure to try to tell me that the best possible life is a bit like Groundhog Day – it is as good as life can get. If I thought that the quality of life was just about emotional states I would agree. But there is more to life than emotional states, even though emotional states are very important.

The question is meant to be about the extent to which people perceive that it is possible for the quality of the best possible life to continue to get better, e.g. as a result of further advances in medical science or communications.

In happiness surveys people are often asked to evaluate their lives according to the Cantril ladder. The relevant question, as asked in Gallup’s World Poll, is as follows:

“Please imagine a ladder with steps numbered from zero at the bottom to 10 at the top. The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally feel you stand at this time?” 

I have not been able to find research that directly relates to the question of how perceptions of the best possible life differ between countries and change over time. Perhaps I haven’t looked hard enough, or in the right places. If any readers can steer me in the direction of relevant research I would be most grateful.

A few years ago, Angus Deaton, who has been associated with the Gallup World Poll, speculated as follows about the meaning of “the best possible life”:

“A simpler interpretation of the Gallup World Poll findings is that when asked to imagine the best and worst possible lives for themselves, points "10" and "0" on the scale, people use a global standard. Danes understand how bad life is in Togo and other poor places, and the Togolese, through television and newspapers, understand how good life is in Denmark or other high-income countries.

Such an interpretation is also consistent with Easterlin's conclusion that the "best possible life for you" is a shifting standard that will move upward with rising living standards. Thus, we might expect the Danes to continue to maintain an average rating of 8 as national income rises, provided they stay in the same position in the global income rankings. If this interpretation is correct, it would be an indication of how much the globalization of information has affected the perceptions of populations worldwide - because the consistently high correlation between income and satisfaction could not have existed in its absence.”

I have some problems with the first paragraph of the quote. Given the wording of the question, it seems likely that perceptions of the best possible life are strongly influenced by knowledge of what kinds of lives it might be possible for the respondent to live. There seems to be quite strong evidence that the reference groups that rural people in China use to evaluate their own satisfaction with life are their fellow-villagers. The reference group changes when people move to the city. (See paper by John Knight and Ramani Gunatilaka.) That seems to be related to the “paradox of happy peasants and frustrated achievers” discussed by Carol Graham. If people evaluate their lives according to a rural village reference point of the best possible life, they may not be overstating their happiness but they are basing their judgement of their well-being on imperfect knowledge of what is possible. In order to shed more light on such matters it would be useful to conduct surveys of migrants from rural to urban areas using the ACSA methodology discussed in a recent post.

When we consider high income countries, it seems reasonable to expect that perceptions of the potential for the best possible life to improve would be closely related to perceptions of whether today’s youth will have a better life than their parents. Gallup’s surveys for the United States suggest that from 1998 to 2008 around two-thirds of Americans were optimistic, and only one-third pessimistic, about whether today’s youth would have a better life than their parents. Since then, however, Americans have become equally divided on that question. That probably reflects ongoing economic uncertainty in the wake of the Global Financial Crisis.

It would be interesting to know to what extent people who consider themselves to be living the best possible life at present are optimistic about the potential for life to get even better. I don’t have access to the detailed Gallup data, but data from the World Values Survey relating to people who are “completely satisfied” with their lives (score of 10 on the WVS rating scale) may be relevant. The following chart is based on data for high income countries in the latest round of surveys (2010-14) who claim to be completely satisfied with their lives.

The chart shows that being completely satisfied with life does not prevent people from being in agreement with the proposition that because of science and technology there will be more opportunities for the next generation. Optimism about such matters might even help to explain why some people are completely satisfied with their lives.  

Postscript: November 2019

Recent research by Alan Piper has suggested that optimism and pessimism about the future have an important influence on life satisfaction that is not attributable to personality differences among individuals. The use of German panel data covering several decades enabled the author to control for individual fixed effects (including those attributable to personality differences). Controlling for fixed effects reduces the estimated coefficients, but their size suggests that views of the future have an important impact irrespective of personality differences. After controlling for fixed effects, the estimated reduction in life satisfaction experienced by individuals who report being pessimistic is comparable to that associated with unemployment.

The paper: ‘Optimism, pessimism and life satisfaction: an empirical investigation’, February 2019, German Socio-Economic Panel (SOEP)

The results suggest that while many people who have high life satisfaction might think that the life they are living is the best possible at present, that is consistent with them being optimistic about the potential for their lives to become even better in future.

Is your altruism a scarce resource?

In What Money Can’t Buy, Michael Sandel argues that markets and market values have come to govern our lives as never before. He suggests two reasons why we should be worried about this: fairness and corruption.

He is concerned about fairness because the distribution of wealth matters more when money is able to buy things that were previously available free of charge to individual consumers. I don’t think this argument gets to first base because the main examples cited – quality of medical care, quality of schooling, the ability to live in safer neighbourhoods, the ability to avoid queues, the ability to avoid socializing with poor people – are things that wealth has always been able to buy.

The “corruption” issue has to do with the possibility that our attitudes towards the good things in life may change when we put a price on them. In other words, some good things are degraded or corrupted when turned into marketable commodities. One example the author cites is blood donation. He refers to a study by Richard Titmuss which suggested that purchase of blood by commercial blood banks in the US had tended to displace voluntary donation. As blood came to be viewed as a commodity that was bought and sold, this apparently had a corrosive effect on norms of altruism.

Does this matter? I think it does matter when a government decides to provide a service which displaces the efforts of unpaid volunteers and voluntary money contributions. In that instance norms of altruism are displaced by coercion, since the government services have to be paid for from tax revenue. 

Situations can also arise where commercial activities displace services previously provided by unpaid volunteers and voluntary money contributions. However, commercial suppliers would need to be seen to have considerable merit, in terms of value for money for services offered, to succeed in markets dominated by voluntary activity. I find it difficult to see a case for preventing commercial suppliers from attempting to compete in sectors currently dominated by voluntary activity. And I also find it difficult to see a case for preventing people from making monetary contributions to charitable organisations rather than donating their time, if that is what they would prefer to do.

Sandel takes exception to the views presented by economists - such as Dennis Robertson, Kenneth Arrow and Lawrence Summers – who have argued that the altruistic motive should be treated as a scarce resource that should be relied upon only where the market system breaks down. He seems to be particularly upset by Summers’ view that we should save our altruism for our family and friends, “and the many social problems in this world that markets cannot solve”.

Sandel draws attention to Aristotle’s argument that virtue is something that we cultivate with practice. He suggests that altruism is like a muscle that develops and grows stronger with exercise.

That seems to me to be beside the point. Humans also develop intellectual skills through exercise, but still seem to insist that their intellectual skills (human capital) should be treated as a scarce resource.

Perhaps this is an appropriate time for me to make a personal confession. My altruism is definitely a scare resource. While I can see merit is developing my altruistic muscles, my desire to do that tends to evaporate when I feel that my efforts are being wasted. My time should not be treated as a free good, just because I choose to donate it.

Now, it is possible that I hold that view because I am an economist and have spent too much time over the last 50 years, or so, thinking about the opportunity cost of time. But I suspect that many non-economists hold similar views.

Would you be as willing to donate your time to good causes if your altruism was not viewed as a scarce and valuable resource? 

Should life evaluations be anchored to the best and worst periods of our lives?

Survey data on life satisfaction is a reliable tool for measuring some aspects of well-being. There is evidence (including in some research reported on this blog) that survey measures of life satisfaction are closely related to perceptions of achievement, personal relationships, standard of living, links to community, health and future security. There is also evidence that when people are asked to evaluate their life satisfaction they tend to think about things such as their career, romantic life, family, standard of living and health (See: Maike Luhmann et.al).

However, as previously discussed on this blog (here, here and here) there is a problem in comparing life satisfaction ratings from surveys conducted at different times because reference norms do not remain static.  When we are asked to rate our satisfaction with life we do so relative to reference norms, such as by comparing the quality of our lives with those of people we know, or by comparing our current lives with ‘the best possible life’. That means that we are rating our lives against benchmarks that can change as a result of such things as technological advances. For example, if we perceive that people living the best possible life have access to useful communications devices, such as iPhones, we may rate our own lives less highly if we cannot afford such devices.

If we see our lives improving in line with our perceptions of the best possible life, it is hardly surprising if we give similar ratings to their lives in successive surveys. It should be obvious that it would be a mistake under those circumstances to interpret stable ratings as implying that there has been no improvement in the quality of our lives. Before claiming that people are on some kind of hedonic treadmill that requires them to run faster to stay in the same place, researchers should be sure that the measurement tools they are using are actually capable of measuring progress.

Similarly, when researchers see life satisfaction ratings return to previous levels after people suffer some misfortune, they should be sure that they are using appropriate measurement tools before they claim that this means that the people concerned have not experienced any lasting loss of well-being. It is commendable and often therapeutic to “look on the bright side of life”, but if life evaluations reflect frames of mind it may be problematic to interpret them as a judgement about overall well-being.

That point can be illustrated by reference to a South African study in which conventional life satisfaction and happiness ratings were compared with scores on the ACSA scale. (See: Valerie Møller, Peter Theuns, Ida Erstad and Jan Bernheim, ‘The Best and Worst Times of Life: Narratives and Assessments of subjective Well-Being by Anamnestic Comparative Self Assessment (ACSA) in the Eastern Cape, South Africa’, Soc Indic Res, 89(1) 2008.)

The ACSA approach to measuring well-being and changes in well-being was first suggested by Jan Bernheim about 30 years ago. Its distinctive feature is to ask survey respondents to rate their current well-being by comparison with their memory of the best and worst periods of their own lives, with the best period being given a rating of +5 and the worst period being given a rating of -5. The scale is left open so that subsequent scores higher than +5 or lower than -5 are possible if individuals consider that their lives have improved or deteriorated sufficiently.

The South African study involved 46 respondents, 20 of whom were patients in a TB hospital. In general, the three measures of subjective well-being were strongly correlated with each other, but there was weak correlation between life satisfaction and ACSA for the TB patients. Again, while there were no significant differences between the averages of conventional life satisfaction and happiness ratings of the TB patients and others included in the survey, on the ACSA scale the average ratings of the TB patients were about 30 per cent lower than for the others included in the survey.

The authors note that while they did not ask for life stories when they were obtaining ACSA scores, they observed that respondents tended to string the momentous events in their lives together, using anchor periods as reference points to shape a coherent narrative. Interviews lasted between half an hour and 45 minutes and respondents “generally had no difficulty with the task”.

A couple of years ago I wrote a post wondering why more use has not been made of ACSA. I am still wondering. It seems to me that it would be potentially useful to incorporate an ACSA question for a sub-sample of respondents whose well-being has been monitored over an extended period in longitudinal studies (such as GSOEP, HILDA and BHPS). The accounts of changes in well-being over time provided by those surveys would be more plausible if life evaluations were anchored to consistent reference points corresponding to the best and worst periods of the lives of respondents.

What do we know about the aspirations of poor people in developing countries?

It seems obvious that if we want to help anyone to achieve their aspirations we should make an effort to find out what their aspirations are.  That is why I suggested in my last post that it would be a good idea to ask poor people about their priorities for economic development, rather than seeking to replace the Millennium Development Goals with another set of priorities generated by development experts and bureaucrats.

An obvious way to proceed would be to conduct surveys to ask people to select priorities from among the 17 goals proposed by the Open Working Group on Sustainable Development Goals. However, I am not sure that list is an adequate reflection of what we know about the aspirations of poor people in developing countries.

The book, Moving Out of Poverty, by Deepa Narayan, Lant Pritchett and Soumya Kapoor (published in 2009) is a good place to start to get some understanding of the aspirations of poor people in developing countries. The study collected information from 60,000 people in over 500 communities in 15 countries. The authors used a range of different data collection methods including focus group discussions, household interviews and interviews of individuals to obtain their life stories. They were aware that some of the methods they used to collect data may be subject to bias, but the methods chosen had the virtue of allowing poor people (and people who had escaped from poverty) to speak for themselves.

One of the major findings of the study was that poor people see poverty as an experience that can be escaped by individual effort, self-reliance and initiative, rather than an identity or fate resulting from personal characteristics (such as illiteracy). The evidence seems to support that view. There is a lot of movement into and out of poverty and there are typically more similarities than differences between households in poverty and those which have escaped poverty.

The views of the poor people covered by the study often reflect what the authors describe as “the hunger for freedom”. The concept of freedom that people have in mind encompasses individual liberty, but it is broader than that. It seems to be summed up in a discussion by women in Chinxe, Mexico, who said: “Freedom means having opportunities”. 

The authors present evidence that the freedoms and opportunities that poor people value are much the same as those valued by other humans: the freedom to speak their minds; the freedom to choose how to live their lives according to their beliefs and desires; freedom to live with dignity and respect (e.g. having enough money for daily expenses and not being beaten); freedom from fear and oppression (including the right to protest and vote); freedom of movement (including, for women, freedom from customary restrictions); and freedom from restrictions hampering the ability of people to find work, control their money, establish and conduct businesses, to own property and goods, and to sell their property whenever and to whomever they choose.

The authors suggest three principles that should guide future approaches to poverty reduction:

•  All actions should seek to expand the scope for people in poverty to utilize their agency (i.e. their ability to help themselves) in both the public and private spheres.
• Actions should seek to transform markets so that poor people can access and participate in them fairly.
• Well-functioning local democracies can help poor people move out of poverty.

Unfortunately, the Open Working Group on Sustainable Development Goals does not seem to consider any of these principles to be sufficiently important to be reflected in future development goals.

Why not ask poor people their priorities for an agenda to succeed the Millennium Development Goals?

A few years ago a senior official of the Australian government aid agency asked me my view of the Millennium Development Goals (MDGs).  My response was that I had not thought much about them. I am not proud of that. As a person who claims to have a strong interest in human flourishing I should have shown more interest in the MDGs, even if only to be able to articulate why I didn’t think their existence made a significant contribution to reducing world poverty.

If I did not have a strong interest in issues relating to human flourishing, there is a good chance that I would not even have been aware of the existence of the MDGs. World Values Survey data (for 2005-2009) shows that only 12 percent of Australians had actually heard of the MDGs. The relevant percentages varied widely among the 43 countries included in the surveys - from 64 percent in Ethiopia to 5 percent in the United States.

If asked about the MDGs now I would say that providing poor people with better opportunities should be the most important goal. That is mainly about opportunities to earn income. Poverty has some multidimensional aspects that are not adequately reflected in conventional measures of income. For example, it is important to recognize that people with disabilities can have greater needs than others with similar incomes and that income measures do not normally take account of such things as availability of safe drinking water. But when people have opportunities to earn income they are in a better position to help family members and to contribute to provision of public goods.

 Nevertheless, I would still struggle to list all the MDGs. The problem is that there are 8 to remember – including four goals relating to health issues. One of the goals that sticks in my mind is “Develop a Global Partnership for Development”, which seems to be mainly about flying bureaucrats to international conferences.

The most important thing to know about the MDGs is that good progress has been made to achieving many of them. The proportion of people living in extreme poverty has halved since 1990. Unfortunately, that still leaves about 700 million people in the world who are living on less than US $1.25 a day.

Much of that progress toward achieving the MDGs has to do with increases in economic freedom in China and India, and would have occurred if the MDGs did not exist.  Nevertheless, the monitoring and reporting process associated with the MDGs has served a useful function.

Meanwhile, a sub-committee of the Global Partnership for Frequent Flying – sometimes referred to as the UN General Assembly's Open Working Group on Sustainable Development Goals - has held meetings where it:

“ reaffirmed the commitment to fully implement all the principles of the Rio Declaration on Environment and Development, including, inter alia, the principle of common but differentiated responsibilities, as set out in principle 7 thereof”.   

 “It also reaffirmed the commitment to fully implement the Rio Declaration, Agenda 21, the Programme for the Further Implementation of Agenda 21, the Plan of Implementation of the World Summit on Sustainable Development (Johannesburg Plan of Implementation) and the Johannesburg Declaration on Sustainable Development, the Programme of Action for the Sustainable Development of Small Island Developing States (Barbados Programme of Action) and the Mauritius Strategy for the Further Implementation of the Programme of Action for the Sustainable Development of Small Island Developing States. It also reaffirmed the commitment to the full implementation of the Programme of Action for the Least Developed Countries for the Decade 2011–2020 (Istanbul Programme of Action), the Almaty Programme of Action: Addressing the Special Needs of Landlocked Developing Countries within a New Global Framework for Transit Transport Cooperation for Landlocked and Transit Developing Countries, the political declaration on Africa’s development needs and the New Partnership for Africa’s Development. It reaffirmed the commitments in the outcomes of all the major United Nations conferences and summits in the economic, social and environmental fields, including the United Nations Millennium Declaration, the 2005 World Summit Outcome, the Monterrey Consensus of the International Conference on Financing for Development, the Doha Declaration on Financing for Development, the outcome document of the High-level Plenary Meeting of the General Assembly on the Millennium Development Goals, the Programme of Action of the International Conference on Population and Development, the key actions for the further implementation of the Programme of Action of the International Conference on Population and Development and the Beijing Declaration and Platform for Action, and the outcome documents of their review conferences. The Outcome document of the September 2013 special event to follow up efforts made towards achieving the Millennium Development Goals reaffirmed, inter alia, the determination to craft a strong post-2015 development agenda. The commitment to migration and development was reaffirmed in the Declaration of the High-Level Dialogue on International Migration and Development”.

I hope no-one tried to read all that. The reasons I included that passage should be obvious, so I will resist the temptation to try to explain.

Actually, as well as reaffirming their commitment to fully implement the outcome of their previous frequent flying activities, the Open Working Group on Sustainable Development Goals managed to suggest 17 sustainable development goals to succeed the Millennial Development Goals.

I don’t object to any of the goals specified. If anything I would like to add to the list. For example, I would like to see a specific reference to ending slavery and intergenerational debt bondage. As more people emerge from poverty there is also a case for greater recognition of the importance of reducing vulnerabilities and building resilience (but without the welfare state ideology being advocated by UNDP - see my last post for comment).

However, if 8 goals is too many for me to remember, there is not much hope that I will be able to remember 17. Following the recommendations of Bjorn Lomborg’s Copenhagen Consensus group, Matt Ridley has suggested 5 goals:

1. reduce malnutrition;

2. tackle malaria and tuberculosis; 

3. boost preprimary education;

4. provide universal access to sexual and reproductive health;  and

5. expand free trade.

Those seem to me to be worthy goals, but my views are no more relevant than those of the bureaucrats, diplomats and development experts who attend UN conferences. 

In using any top-down approach to determine the development agenda, bureaucrats and development experts are telling the world’s poor what their priorities should be in order to live happier lives. That is highly impertinent in my view.

As I see it, the best way to determine the development agenda would be by using surveys to ask the world’s poor about their priorities. Those priorities might not meet the approval of all members of the global partnership of frequent flyers, because they may differ for people living in different circumstances in different parts of the world. If that is what emerges, then so be it.

The over-arching goal should be to ensure more widespread opportunities for individuals to live happy lives, rather than to produce a uniform development agenda that conforms to the ideals of bureaucrats and development experts.

Could the adoption of welfare states reduce vulnerabilities and build resilience in developing countries?

I was delighted when I first noticed that Human Development Report 2014 has looked at the question of how poor people in developing countries can be made less vulnerable and more resilient in the face of natural disasters, commodity price instability and other threats to their well-being. In turning its attention to vulnerability and resilience the United Nations Development Programme (UNDP) has recognized the progress that has occurred in reducing world poverty in recent decades.

However, I am appalled that the UNDP has adopted an approach that is likely to lead to lead to greater welfare dependency and increased government debt in developing countries, and inevitably make the poor people in those countries more vulnerable to extreme poverty when fiscal restraint has to be re-imposed. There is something very peculiar about the idea that people can become more resilient by being made dependent upon unsustainable government largesse. The UNDP seems to have an obsessive desire to encourage developing countries to adopt the most expensive kind of welfare system imaginable.

At this point you probably think that I must be exaggerating. If so, you are wrong! The report does not argue for provision of a targeted safety net to assist those most in need of help at time they most need that assistance. In fact, it rejects that approach explicitly in favour of universal provision of basic social services such as education and health care. The authors argue:

“Universal coverage of basic social services is not only imperative – it is also possible at an early stage of development. And recent evidence shows that it can be achieved in less than a decade” (p 85).

The authors recite the view that when social benefits are targeted, “the middle class and elites are less willing to fund them through taxes”.  They obviously see little merit in public policy transparency. They also over-estimate their ability to pull the wool over the eyes of middle and upper-income voters. Such voters have not been backward in shifting the burden of funding universal welfare back to low income earners via taxes on wages or goods and services (as in Scandinavian countries) or in shifting it forward to future generations through increases in public debt (as in many other high-income countries).

When the authors discuss policies to promote full employment they show some recognition that a somewhat different approach might be appropriate in developing countries. They recognize a need for policies to address the vulnerabilities of people engaged in traditional agricultural activities and informal sectors. For example, they mention the role of micro-credit schemes, improved small-scale technologies and support for farmer cooperatives.

I was hoping to see some innovative thinking about food security in the report, but I didn’t find any. The issue is mentioned in the discussion of agricultural trade liberalization, where it is in the “too hard” basket. There is recognition that “spikes in the prices of food and other commodities are adding to hunger and starvation for the poor and vulnerable”, without consideration of how this could be avoided. There is recognition that farmers in developing countries often have to compete with subsidized agricultural products from developed countries, again without providing any suggestions about how this could be avoided. And there is this peculiar recommendation: “Agricultural liberalization needs to be selective in targeting goods mainly exported by developing countries to avoid increasing prices of food staples of developing countries”. So much for free trade, or even fair trade!

Actually, apart from that example of absurdity, I found the section on trade in Chapter 5 of the report to be one of the more sensible parts of the report.

While I am in a positive frame of mind I should also mention that the report has some informative diagrams showing progress in reducing world poverty. For example, Figure 2.6 (page 41) shows that for most countries the poorest 40 percent of the population have enjoyed more rapid consumption than the population as a whole over the period 2005-10. However, when the authors wrote about that Figure, what they emphasized was that consumption for those at the poorest end of the distribution has been slower than for the population as a whole in some countries where inequality has been high or rising. The three countries they cite as examples are Malaysia, China and Uganda. That seems to me to be grossly unfair to China and Uganda; in those countries, growth in consumption at the poorest end of the distribution has been much the same as for the population as a whole.

It was almost inevitable that the UNDP would produce a disappointing report about how to reduce vulnerabilities and build resilience in developing countries. People who work for international agencies are always subject to the temptation to see themselves as architects of human development. It would be overly optimistic to expect anyone writing a report for the UNDP to show an understanding the bottom-up processes through which economic development has tended to lead to growth of emancipative values and progressively greater efforts to protect vulnerable people from misfortunes.

The authors of the report seem to have hopes that the approach they advocate will influence international debate about the post 2015 development agenda, which is to follow the Millennium Development Goals. In my view their report should be ignored. The approach the authors advocate is a recipe for a return to more widespread poverty and misery throughout the world.

How can good health care be affordable in developing countries?

When you consider that there are people in high-income countries who are struggling to afford good health care, it might appear obvious that it can only be afforded by wealthy people, or by people who have access to the bank accounts of wealthy people (including wealthy taxpayers). That perception is not entirely wrong – access to the most advanced medical technologies is often costly. Research, equipment embodying high technology and extensive staff training have to be paid for one way or another.

However, it is surprising how good, and how affordable, the health care available to ordinary people in developing countries could be with appropriate technology and incentives. The book, Pharmacy on a Bicycle, by Eric Bing and Marc Epstein, provides many examples of good health care being provided at low cost in low-income countries.

The authors are well qualified to write on this topic. Eric Bing is a physician with an MBA, who works on global health challenges at the George W Bush Institute. Marc Epstein is a business school professor, who has a special interest in commercializing technology in developing countries. The authors acknowledge assistance of several other people including their editor, Troy Camplin.

The book is written around the acronym: IMPACTS.

“I” stands for innovation and entrepreneurship. In some instances products have been designed specifically for use in developing countries. For example, to detect heart abnormalities General Electric designed a low cost ECG. The product was developed for use in India but is now marketed globally.

“M” stands for maximizing efficiency and effectiveness.  An example provided is the Aravind Eye Center in India which uses a production line process to undertake a large number of surgeries per day. This reduces cost, but it also improves surgeons’ skills and enhances the quality of care they can provide.

“P” stands for partner coordination. This is not always about government regulation. For example, VisionSpring, a non-profit organisation, has developed partnerships with schools and businesses to provide inexpensive spectacles to students and workers.

“A” stands for accountability. As might be expected, the authors emphasize the need to set clear goals and targets, and to monitor and evaluate performance to support effective decision-making. This is easier said than done, particularly in the public sectors of low-income countries, but the authors manage to find examples to illustrate how accountability systems have improved performance.

“C” stands for creating demand. The benefits of services are not always obvious to potential users. One method of creating demand discussed by the authors is the use of vouchers which enable consumers to obtain access to services at reduced cost. They can also create competition among providers and create incentives for them to give low-cost, quality care. Several examples are provided of successful use of vouchers, but the one that appealed most to my imagination was an experiment in Uganda where expectant mothers were given vouchers to take motorcycle taxis to attend a clinic for prenatal care, delivery and postnatal care.

“T” stands for task shifting.  This involves shifting tasks from doctors to nurses and from nurses to community providers or patients. Task shifting reduces bottlenecks and reduces cost.  For example, nurses have been trained to conduct screening in a program for prevention of cervical cancer in Zambia. Photographs were taken as part of the procedure and reviewed on a weekly basis by doctors and nurses. Over time, nurses became nearly as accurate in their diagnoses as doctors.

“S” stands for scaling. How can innovations that have proved successful for small groups of people be scaled up to reach more people? The authors claim:  “By focusing heavily on the fundamentals of program, process and passion, organisations operating in even the most challenging of conditions can achieve scale while maintaining outstanding quality”. The contribution the authors have provided on the scaling question seems to me to be a good example of the well-meaning, but ineffectual, approach that management experts tend to adopt when they are confronted with economic problems.

Readers might have gathered by now that I think the discussion of the scaling issue is the weak point of this book. In scaling up successful pilot programs to reach large numbers of people the prime consideration has to be to ensure that organisations (firms) have appropriate incentives to deliver high quality goods at low cost. It would be useful for more consideration to be given to the question of whether market incentives, such as those that drive high quality service delivery around the world in franchise operations such as McDonalds’ fast food restaurants, could apply to a greater extent to delivery of medical services in developing countries. An irrational aversion to the idea of McDonaldizing health seems to prevent governments from allowing health markets to function effectively in the interests of patients.

My overall impression of this book is favourable, despite the reservations just expressed. The authors have done an admirable job in demonstrating that there is potential for a lot more people in the world to have access to high quality, affordable health care.  

What are the implications for PNG of Australia's new foreign aid policy?

My interest in Australian aid to Papua New Guinea was heightened while I was in Papua New Guinea late last year and earlier this year working on a review of agricultural policy implementation for the PNG government. I was surprised to learn that, apart from some ACIAR projects, not much Australian aid money has gone to agricultural development in PNG in recent years. (In case anyone is wondering, the project I was working on was not funded by foreign aid. Work on this post was not funded by anyone other than myself and I have not discussed the topic with anyone prior to publication.)

PNG is still a major recipient of Australian foreign aid. Development grants to PNG are estimated at about $500 million in 2014-15, which is more than half of all allocations for Pacific countries and about 15 percent of total allocations for country and regional programs.

From a PNG perspective, however, development grants from Australia do not now make a huge contribution to the government’s budget. Such grants currently account for about 6 percent of total PNG government spending; development grants from other foreign sources account for a further 2 percent of spending. The amounts involved are substantial when compared with current tax receipts from sources such as GST and personal income tax, but seem quite small when compared with amounts raised by borrowing – amounting to about 34 percent of estimated government spending for 2014. The high level of borrowing reflects the rapid rise in government spending in recent years in anticipation of substantial revenue flows from LNG exports.

The relatively small amount of Australian aid money flowing to agricultural projects can be explained in terms of the priorities established in the “PNG-Australia Partnership for Development” in 2011. This agreement gives priority to education, health, transport infrastructure, and safety and justice (policing, security, access to justice etc.). Those priorities, in turn, reflect the priorities of PNG’s Medium Term Development Plan 2011-2015 (MTDP).

That all seems to make sense in terms of ensuring that aid money contributes to national goals of the recipient country. The priorities of the MTDP also make sense in terms of its objective of laying the foundation for economic growth by addressing supply side constraints. Improvements in law and order and transport infrastructure have potential to reduce costs and improve the competitiveness of export industries. Improved education and health services (e.g. malaria prevention) have potential to make an important contribution to improving productivity. Moreover, while many services in the priority sectors can be most efficiently provided by private firms, those sectors also encompass core functions of government.

So, what is wrong with the idea that foreign aid should be used to help the government to perform its core functions better? Not much really, except that in the context of a country like PNG there is no magic wand that can be purchased, with or without foreign aid, to improve performance of core government functions. I puzzled over one aspect of this question a few months ago in a post entitled “How do peaceful societies come about?”. History seems to tell us that law and order is more likely to be established through the emergence of better economic opportunities for potential criminals than through massive investments in deterrence of crime.

The dynamics of the development process certainly do not require that improvements in core government functions must necessarily precede the development of more widespread economic opportunity. In the PNG context I think such considerations provide a strong case for agricultural policies to be used to help promote more widespread economic opportunity. I don’t want to attempt to explain why that is so in this post. I think it is adequately explained in the report I helped to prepare, entitled “Towards Agriculture Transformation and a New Direction for Enhancing Productivity in Agriculture”, which is now publicly available. The recommendations of the report have been accepted by the PNG government.

So, that provides the context in which I ask myself what are the implications for PNG of Australia’s new foreign aid policy. The new aid policy has a strong focus on private sector development, growth of international trade and the development of agriculture and fisheries.  The new policy links funding to performance: programs and partner organisations that perform well will be rewarded with additional funding.

There seems to be potential for the new framework for agricultural transformation adopted by the PNG government to mesh well with Australia’s new foreign aid policy. It will be interesting to see how much emphasis there is on encouraging innovation in agriculture in PNG as Australia’s new aid policy is translated into Aid Investment Plans over the next 12 months. 

Postscript:

The following comment has been supplied by the PNG Minister for Agriculture, Hon. Assik Tommy Tomscoll, MP:

“I read your article and agree. In PNG the best opportunity to create wealth, capture a large proportion of the population in economic participation, promote industrialisation and improve living standards for the majority, lies in the development of the agriculture. Around 87% of our people depend on agriculture for both cash and subsistence, and the agriculture sector contributes 24% to 27% to gross domestic product. PNG is an agriculture-based economy, not a hydrocarbon and mining economy.

Thanks for your worthy contribution in the FER - and so the sector is forging ahead at long last.”

Appreciative comments were also received from Dr Vele Ila’Ava, Secretary of the PNG Agriculture Department, and Dr James Kaiulo, Chairman of the FER Steering Committee and FIA Team Leader. Dr Kaiulo commented as follows:

“You have ‘hit the nail on the head’ in relation to the Australian Foreign Aid Policy on social (health, education, law and justice) programs that are being promoted and funded by the Australian Government while ignoring the agriculture sector.  The Australian Aid on agriculture has been focused in the area of R&D programs without any significant impact on the improvements to the livelihoods of the rural farmers.

I hope they take note of your comments.”

Some of my colleagues on the FER team have also provided supportive comments. I would like to draw attention to the comment provided below by Dr Eric Omuru: 

"Increased funding support to agriculture by PNG government is gaining momentum. The findings and recommendations of the FER report have been well received by the government. The support and efforts to this cause by our minister and secretary is the best I have seen in the sector in a long time. If Canberra can join the party and contribute a certain % of what it gives to PNG as foreign aid specific for agriculture, it will be a meaningful contribution. 

Enjoyed reading your article."