Does money make you happy?
This question has been asked many times before, and has featured in many of this month’s Development Roast articles. The first post of the month asked ‘How poor do poor people feel?‘ The answer was that some of them don’t feel as poor as other (richer) people expect them to feel. This was followed by a Monday Graphics piece entitled ‘Is there more to life than money?‘ (In summary, ‘yes’). Then came ‘Masking Poverty: Why Poor People Like to Appear Rich‘, exploring how poor people in China feel better if they appear richer than they are, which necessitates having sufficient money to purchase the appropriate clothes. So in this case, money does indeed make these people feel happier. The next post was entitled ‘The Conundrum of Identifying the Poor‘, a discussion about the difficulty of identifying those who are most in need of aid. The most satisfying method for the community turned out to be for themselves to decide who are the poorest amongst them, since it most accurately identifies those that feel the poorest, even if they are not necessarily the ones with the least money or possessions.
So, the conclusion from our posts seems to be that the important point is whether or not you feel poor, rather than whether or not you actually are poor by some ‘objective’ measure of poverty. In the case of China, as described in the post about ‘Masking Poverty‘, the problem seems to be that wealthy people treat poor people as inferior which clearly erodes the self-esteem of the poor. Would these poor people still have the same desire to dress in designer clothes, and therefore be happier if they had more money, if the richer classes treated them as equals? We many never know.
When looking at the data correlating wealth and happiness, firstly we have to bear in mind that the measurement of ‘happiness’ is far from an exact science because it is highly subjective and not precisely quantifiable (see the discussion on ‘Why happiness does not matter for the problem of poverty‘). We must also take care to try and separate out the economics from all other factors. For example, many studies (e.g. Frey 2002) find that when several countries with a broad spread of GDPs are surveyed, happiness appears to increase with wealth as basic needs are met and material comforts are increased, up to a certain point. One possible explanation for this is given by Richard Easterlin, in his famous 1974 essay ‘Does Economic Growth Improve the Human Lot? Some Empirical Evidence.’ In this pivotal work he postulated that it is your relative wealth, in comparison to the people around you, rather than your absolute wealth, which affects your happiness. Increasing the wealth of everyone does not necessarily change your relative wealth and therefore happiness. And if it does appear that happiness increases with a country’s wealth, you have to bear in mind that wealthier countries tend to have more stable democracies, better healthcare, and better human rights than poorer countries, so perhaps it is these factors and not the money itself which impacts on people’s happiness.
It is more useful to compare the happiness of several countries which have roughly the same economic level. Inglehart 2008 is a study which uses data from the World Values Survey and European Values Study, which together include nearly 90 percent of the world’s population. The figure below is taken from this reference and shows the relation between a country’s social wellbeing (SWB) and its gross domestic product (GDP) per capita five years before the survey (the five years is to allow for the time lag between a change in the economy and a change in people’s lifestyles). If wealth alone was the cause of wellbeing, then all the points would be expected to lie on the solid line of best fit. However, there is obviously a lot of spread in the data which indicates that perhaps other factors, in addition to economic ones, are also relevant. If we look at the countries which had a GDP of around US$5,000-10,000, we find that Latin American countries seem to be consistently happier than the ex-communist countries in Eastern Europe, despite having similar economic conditions. This data indicates that political conditions are likely to have a significant effect on people’s level of social wellbeing.
This figure indicates that the general trend is for SWB to increase with GDP, up to a point. Having a high GDP prevents very low levels of SWB (there are no countries in the bottom right-hand corner), but the opposite is not true – a low GDP does not prevent the country from achieving very high levels of SWB. In other words, it is possible to be both poor and happy, as shown by the cluster of countries in the top left corner.
This issue is very pertinent when it comes to development. Undoubtedly, if a country is very poor so that day-to-day survival (sufficient food and shelter) is a challenge, then money can buy these necessities and improve people’s lives. The question is, how do we help a country develop after basic needs have been met? Should we prioritize economic growth or psychological happiness? In other words, in the figure above, should we try to push a country along the horizontal axis (increase its GDP) and aim to be in the same position as, say, Japan? Or should we instead concentrate on moving it up the vertical axis (improve SWB) and aim for the same position as Colombia? Or should we try to do something in between?
The Guardian reported last September on the work of the Bellagio Initiative (‘The Future of Philanthropy and Development in the Pursuit of Human Wellbeing’) which concluded that ideas about development need to be changed, with more emphasis placed on wellbeing rather than economic growth. In their final report, practical suggestions included “giving greater formal recognition to care work” which is often undertaken by women. To disregard this type of work means neglecting the ways in which women contribute to the upbringing of children, the care of the elderly, and the building of stable families and communities. Their conclusions were similar to those obtained by the World Bank’s ‘Voices of the Poor‘ project, which asked 60,000 people in developing countries how they felt about being poor. Here are some responses:
“When a woman gives her opinion, they [men] make fun of her and don’t pay attention.” “If women go to a meeting, they don’t give their opinion.” — a woman in Las Pascuas, Bolivia.
“[I]n the hospitals they don’t provide good care to the indigenous people like they ought to, because of their illiteracy they treat them badly … they give us other medicines that are not for the health problem you have.” — a young man from La Calera, Ecuador.
“We keep hearing about monies that the government allocates for projects, and nothing happens on the ground.” — South Africa.
These quotes demonstrate how it is possible to give financial aid and make a country’s economy grow without relieving people’s underlying feelings of being poor. Problems such as sexual or ethnic inequality and corruption can easily remain alongside a healthy economy, and for the people affected, this is what suppresses their social wellbeing.
Let’s finish by studying a concrete example. According to data from the World Bank, the GDP per capita in China in 1990 was US$314. In 2010 it was US$4,433. In 20 years the Chinese economy grew by nearly a factor of 15, partly with help from foreign aid (the United Nations Development Program, for example). Are Chinese people happier now than they were 20 years ago? There do not seem to be many studies that have looked at this, but those that do exist seem to say ‘no.’ Easterlin 2012 found that the life satisfaction of the upper classes has increased, but that of the poorer classes has actually decreased. The authors suggest that this may be due to Easterlin’s hypothesis about relative versus absolute wealth – although the average wealth of China has increased, so has economic inequality. They cite other reasons too:
“the measure of life satisfaction demonstrates that among ordinary people, especially the less-educated and lower income segments of the population, life satisfaction has declined noticeably as material aspirations have soared and concerns have arisen about such critical matters as finding and holding a job, securing reliable and affordable health care, and providing for children and the elderly.”
These conclusions are consistent with those found in previous studies, such as Brockmann 2008. We might consider that factors such as government corruption, media censorship, and sexual inequality could play a role too.
We should also mention the impact of the environmental consequences of economic development. Air pollution in China’s capital Beijing recently reached record levels, well above that judged to be hazardous to human health by the World Health Organization. Regardless of your views about the environment, once pollution starts to endanger your health, your quality of life will diminish as the pollution level rises. The Three Gorges Dam is another example. It spans the Yangtze river and is the world’s largest power station, a truly impressive feat of engineering. The US edition of Reuters reported that 1.3 million people had to be rehoused in the process of construction and that several thousands will have to be relocated again because the risk of landslides along the river has greatly increased. The water is also now heavily polluted due to the factories and waste dumps submerged below the waters, endangering both human health and the ecosystem. Some people have undoubtedly become richer and happier as a result of this project, but anyone affected directly by it (well over a million people) is unlikely to be amongst them.
It is perhaps unfair to single out China, for the country has unarguably achieved great things in the past 30 years, and the rest of the world can learn and benefit from it in many ways. But it does seem that China illustrates how developing with the unique goal of economic growth may not necessarily be the best or the happiest path.
Which aspects of development do you think are the most important? Please leave a reply below.
Tracey Li is a Research and Communications Intern with INESAD.
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For your reference:
Brockmann, H, Delhey, J, Welzel, C, Yuan, H 2009, ‘The China Puzzle: Falling Happiness in a Rising Economy’, Journal of Happiness Studies, Vol. 10 (4), pp. 387-405. <http://www.worldvaluessurvey.org/wvs/articles/folder_published/publication_577/files/JOHS.pdf>
Easterlin, R 1974, ‘Does Economic Growth Improve the Human Lot? Some Empirical Evidence’, Nations and Households in Economic Growth: Essays in Honour of Moses Abramovitz (eds. David, P, Reder, MW). <http://fds.oup.com/www.oup.com/pdf/13/9780199597093.pdf>
Easterlin, R, Morgan R, Switek, M, Wang, F 2012, ‘China’s life satisfaction, 1990-2010’, Proceedings of the National Academy of Sciences of the United States of America, Vol. 109 No. 25. <http://www.pnas.org/content/109/25/9775.full.pdf+html?sid=54cfc8ec-befe-4016-931b-84879cd8c683>
Frey, SF, Stutzer, A 2002, ‘What Can Economists Learn from Happiness Research?’, Journal of Economic Literature, Vol. 40, No. 2, pp. 402-435.
Inglehart, R, Foa, R, Peterson C, Welzel C 2008, ‘Development, Freedom and Rising Happiness: A Global Perspective (1981-2007)’, Perspectives on Psychological Science, Vol. 3, No. 4, pp. 264-285. <http://www.worldvaluessurvey.org/SebTest/wvs/articles/folder_published/article_base_122/files/RisingHappinessPPS.pdf>
Tran, M 13th September 2012, The Guardian, Bellagio Initiative: Philanthropy and global development. <http://www.guardian.co.uk/global-development/2012/sep/13/development-less-growth-more-wellbeing>
Wee, S-L August 22nd 2012, Reuters US Edition, Thousands being moved from China’s Three Gorges – again. <http://www.reuters.com/article/2012/08/22/us-china-threegorges-idUSBRE87L0ZW20120822>
BBC News 12th January 2013, Beijing air pollution soars to hazard level. <http://www.bbc.co.uk/news/world-asia-china-20998147>
Bellagio Initiative 2012, Human Wellbeing in the 21st Century: Meeting Challenges, Seizing Opportunities. <http://www.bellagioinitiative.org/wp-content/uploads/2012/09/BELLAGIO_WELLBEING_SPREADS.pdf>
The World Bank, Voices of the Poor. <http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTPOVERTY/0,,contentMDK:20622514~menuPK:336998~pagePK:148956~piPK:216618~theSitePK:336992,00.html>