Well-being is far too important to be set aside in the 'nice fluffy things' category. Photo: Alison Curtis via Flickr.com.
Well-being, not growth, must be our economic purpose
30th April 2014
Well-being is not just a luxury for good economic times, writes Christine Berry. Reducing poverty and promoting equality are more important economic goals than the pursuit of endless growth.
The well-being agenda ... points towards a new economics, one which values equality, stability and community rather than simply growth for growth's sake.
When British Prime Minister David Cameron first floated the idea of measuring 'GWB' - General Well-Being - alongside GDP, he was still a fresh-faced leader of the opposition.
In a speech to Google's Zeitgeist conference, he said: "We should be thinking not just what is good for putting money in people's pockets but what is good for putting joy in people's hearts."
This is exactly what's wrong with the debate about well-being at the moment. It places well-being firmly outside the economic sphere, in a box marked 'fluffy things'.
Well-being is about as important as things get
Conjuring up images of raindrops on roses and whiskers on kittens, these remarks set the stage for subsequent media coverage of the Office of National Statistics' well-being data, which has tended to adopt a light-hearted "and finally ... " tone.
New figures are usually reported via un-illuminating news stories on whether countries are getting more or less happy, or jokey pieces in the local press of places ranked the 'happiest' or 'most miserable' in the UK or the USA.
Well-being is rarely, if ever, treated as a serious subject for political or economic debate.
The cherry on a neo-liberal cake
But for Cameron, the well-being agenda was never really about rethinking the economy. Indeed, his speech was careful to emphasise that well-being would sit on top of a neoliberal approach to economic policy, not challenge it.
For instance, having noted the benefits of flexibility for people's well-being, he was quick to clarify that "government should not regulate flexible working" and that intervening in labour markets would "produce unintended consequences that can end up damaging our competitiveness."
So it's hardly surprising that well-being seems to have slipped down the political agenda. As Cabinet Office Minister Nick Hurd recently put it: "Since we embarked on this journey, lots of other short-term pressures have piled on to the system."
In other words, well-being is seen as a nice-to-have, a luxury for good economic times, hardly a priority in a recession. Saying we should go beyond GDP is all very well when GDP is going up, but when it's not, then talking about well-being seems frivolous, out of touch with the reality of people's lives.
In Germany it's a similar story: the recession has seen a sharp fall in public support for new measures of progress to complement GDP. The drop has been largest among the least well off.
But it doesn't have to be this way
In fact, a focus on well-being could provide support for a more radical economic agenda - one that cares more, not less, about reducing poverty and inequality.
The well-being evidence presents a fundamental challenge to the neoclassical concept of welfare - one which brings the rest of the edifice tumbling down with it.
Essentially, neoclassical economics assumes that individual welfare equates to individual consumption - and, what's more, to absolute rather than relative consumption. Social welfare can therefore be measured as the sum of everyone's individual consumption choices.
In this view, the size of the economy is a pretty good proxy for social welfare. If we go for growth whilst ensuring that markets work efficiently to allocate goods to the people who value them most, then social welfare will be optimised.
The less money you have, the more it matters
But well-being data demonstrates that this just isn't true. For one thing, the relationship between income and well-being is far from straightforward. Money matters, for sure, particularly if you don't have enough of it to meet your basic needs.
Above a certain threshold, though, increased income barely translates into increased well-being, either in cross-country comparisons or in analyses of how individual countries develop over time.
This confirms the notion of diminishing returns - for many people, finding a £10 note on the street could make a big difference; for a billionaire, it's not even worth bending over for. Similarly, relative income seems to be more important than absolute income.
Unsurprisingly, social comparisons do matter; we are not the atomised, rational maximising individuals of neoclassical theory.
Indeed, social relations - not just social comparisons of what we consume, but the quality of our communities and our relationships - are critical determinants of well-being.
The promise of consumer capitalism is therefore illusory. Evidence suggests that we quickly adapt to the well-being benefits of having more stuff (the so-called 'hedonic treadmill'), leaving the achievement of happiness through consumer goods eternally out of reach.
And as economist Fred Hirsch pointed out, the role of 'positional goods' - which have value precisely because not everybody can have them - means that mass dissatisfaction is built into the system.
In fact, people with more materialistic values are consistently less happy. In other words, consumer culture is undermining rather than facilitating our well-being.
All this points to a fundamentally different way of doing economic policy, with fundamentally different objectives.
The economy- fairness matters more than size
Raising the living standards of the poorest, and promoting increased equality across the board, are more important goals than simply increasing the size of the economy.
As is becoming increasingly clear, the argument that pursuing growth is the best way to achieve these things doesn't stack up.
In liberal market economies like the US and UK, the gains of growth are increasingly being concentrated in the hands of the few, with average living standards stagnating.
The IMF now suggests that inequality undermines growth itself - so the neoliberal approach to maximising social welfare is fundamentally self-defeating.
A rising tide doesn't lift all boats. On the contrary, alleviating poverty and inequality need to be core and explicit goals of macroeconomic policy.
A skewed economy promotes anxiety and stress
Instability and insecurity are also hugely damaging to well-being. For example, the New Economics Foundation's analysis of European data found that the difference in well-being between temporary and permanent workers was actually greater than that between temporary workers and the unemployed.
If this seems surprising, that's perhaps because we so drastically underestimate the anxiety and stress caused by insecurity.
The promotion of 'flexible labour markets' in the name of growth and competitiveness may therefore not make us better off if it leads to the proliferation of insecure work.
A recent paper by economists at the London School of Economics even suggested that capitalist instability might help to explain why well-being has failed to increase over recent decades in countries like the US and UK.
Because people are loss-averse, the dislocation of the busts far outweighs the welfare gains of the booms. So well-being remains stagnant over time.
The foundations of well-being
On that basis, as argued by Gus O'Donnell in a recent report for the Legatum Institute, a well-being approach would place stability ahead of growth in the order of economic priorities - with implications for things like financial regulation.
The crucial importance of our relationships with others for well-being challenges the individualism of the status quo. Research has now firmly established that both personal relationships (e.g. the amount of face-to-face time we have with friends and family) and social relationships (e.g. social cohesion or trust) are critical drivers of well-being.
Perceived levels of autonomy and control over one's life also matter: for instance, job control. Of course, sometimes these two elements may be in conflict, but sometimes they may be mutually reinforcing, for instance in the promotion of workplace democracy, participatory politics or community ownership of resources like energy.
Although a well-being approach is unavoidably anthropocentric, this perspective also provides powerful support for efforts to keep the economy within ecological limits.
If, as economist JK Galbraith argued over 50 years ago, welfare in developed societies has more to do with fair distribution than growth - and if, as we have seen, our quality of life is not primarily a function of what we consume - then protecting the environment need not be at odds with promoting human well-being.
As thinkers like Tim Jackson have suggested, a post-growth agenda is not necessarily about making sacrifices, but about superceding a broken economic model that is failing to make us better off.
At its best, the well-being agenda is not just a sideshow to neoliberal economics. It points towards a new economics, one which values equality, stability and community rather than simply growth for growth's sake.
The economy must be at the service of people
More fundamentally, it helps to remind us that markets and growth should only ever be tools in the service of social goals - not mantras that imprison us even as they undermine the ultimate end of making people better off.
As Simon Kuznets, the architect of GDP, said in 1962, 'growth' doesn't make sense as a goal unless we answer the question "more growth of what and for what?"
Used intelligently, the concept of well-being can open up political space to debate the things that really matter to us, both as individuals and as a society.
Christine Berry is a researcher at New Economics Foundation's Centre for Well-being. Her current research focusses on new measures of progress and how they can be moved into the political and policymaking mainstream.
This article was originally published on Open Democracy.
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