Happiness as such is undoubtedly hard, if not the hardest, thing to evaluate and to quantify. Both GINI Coefficient and GDP trackers provide us with big picture of individual's or nations's l well-being that focuses on income and its distribution across the country. Cynics might say that those two are not an accurate measure of the country's well-being as there is more to happiness than an income alone. While to some extent this is true because high GDP means nothing if people cannot afford basic amenities or healthcare or if their opportunities in terms of education and employment are limited, it is not a terrible indicator after all. Income is related to the absence of poverty, unemployment and education levels, health and other opportunities that we value in life and that determine our well-being. As money is only a fraction of what is broadly perceived as happiness, what we really want to know is the actual quality of life as felt and reflected by individuals in the given society. In other words sustainable development is not about rising the income per se but more about raising human well-being which can be both measurable and hard to capture. Let's focus on those aspects that can be measured first.
We already know that in order to get the full picture we need to consider differences across the country, across the society. It is because in measuring the inequalities, and as we will later see - in analyzing world challenges, everything is synergistic, nothing exists in the vacuum. For that reason United Nations Development Program has invented so called Human Development Index or HDI which takes an average of three basic dimensions to determine human satisfaction in life therefore providing more holistic picture of human development.
The three areas it looks into are as follows:
At a first glance, the above map looks similar to the map gross domestic product per capita but if we look closer we will notice some striking differences. Angola in Africa for example, country known for its major hydrocarbons economy, strikes high on the income per capita but its education and health outcomes are still very low. The same applies to Equatorial Guinea with the rapid increase of GDP per capita over last couple of years due to its recent oil and gas discoveries. Why high GDP rates do not translate to the countries scoring high on HDI? Well, one of the reasons is the allocation of the revenue. Whether the rent collected from mineral deposits of the countries is used to support and improve living conditions or is it lost as a result of corruption or to a small group of the society like politicians or others in power.
World Happiness Report, that you will find on the sidebar, takes the HDI findings to a whole new level. It ranks 156 countries across six variables: GDP per capita, life expectancy, social support, generosity, freedom of choice and perception of corruption. It also includes the well-being of immigrants in 117 of those countries. Not surprisingly, countries that scored high on GINI Coefficient find themselves at the very of the top of the World Happiness list. Why do you think that is? Which of the variables mentioned above or your own plays the most crucial role in defining human happiness? How do you determine happiness? To me it is peace and security. Freedom from conflict.
Leave a comment below and share what in your opinion make a happy country!
The other side of the coin is human well-being measured in essence by simple 'Are you happy'? Now, there are two types of happiness:
The first one comes forth when asking someone emotionally How was your day? Were you happy? etc. It elicits mostly positive emotions. Similar like when we ask someone How are you? and in 99% we will hear I am good. To me this measure is not particularly objective as the answer to asking someone emotionally will very much depend on the cultural schema and so while in US you will most certainly hear back I am good thanks, in Poland in 80% of the time the answer will be closer to So, so, Tired etc. Perhaps more reliable dimension of happiness is therefore evaluative happiness. This is measured when we ask someone how do they evaluate their life, are they satisfied with their lives. It is more deep in essence and gives us better overview on where individual feel they are both on the social ladder and in the broader context of economic development. Here we can also learn about other aspects that matter to us such as social life and network, mental health, physical well-being, whether we are happy with our government etc.
We can see that more often than not high levels of happiness is the attribute of rich countries. But also of unequal countries like US when it comes to social inclusion. One important lesson for us is that income is only one aspect of happiness, relatively easily measured and evaluated but by no means exclusive when we want to find the real side of nation's well-being, stripped from numbers and data but focusing on these things in life that although hard to capture are the ones that keep us going.
Economic development is about the nation's efforts to ensure political, social and especially economic well-being for its people. What hides behind these vast categories? Creating/retaining jobs, adoption of new technologies, effective tax base system and moving from agriculture-based to industry-based economy just to name the few. It should not however be used interchangeably with the notion of industrial development which is a more narrow areas and will be discussed later on. Economic development is closely linked to environmental issues as the economic growth largely depends on natural resources especially fossils such as carbon, oil and gas. The world has started to think about economic development in 1945 during post-war period of reconstruction. It was then when nations began to realize, reflect on and strive for social, political and economic stability which together they saw as a single key for success and prosperity.
Right next to growth of inflation, unemployment and interest rates, GDP is one of the key measures to gauge economic development. It can be seen as a simple, but not single, measure of the material wealth produced by an economy. Another one is a purchasing power and you can read about it here.
GDP indicates the total productions taking place within the geographic boundaries of any given country in a single year.
What is excluded from the above quotation is the deprecation of a capital (-> this would give us net domestic product), illegal sales of goods services (black market), sales of used good, intermediate sales (used to produce final goods), transfer payments made by government and sales of goods that were produced outside domestic borders.
Just to recap GDP:
The latter point reminds us that by 'product' or 'production' we do not mean buildings, landscapes, infrastructure etc. that may add up to the overall quality of life but rather the actual money flow from household to firms in exchange for goods and services in a given time period. Usually it is a year but if we are interested in measuring the dynamics of production or unemployment it could even be a quarter. In general, we are interested in getting a sense of the standard of living of a country. In order to do that we take the total production in the country over a given time period and divide it by the population, which gives us the gross domestic product per person (per capita). Why do we calculate it this way?
Larger countries produce more, because there are more people and therefore more workers, so if we simply were to compare countries in terms of the total production, we would find that indeed these countries would have higher production rates and hence GDP but we wouldn't learn a lot about each person's average contribution to the economic performance. And therefore it would be harder to estimate the average living standards and financial wellbeing of each person in a given country.
We need to remember that GDP per capita is not a measure of personal income nor does it take into consideration the income distribution across the country!
The World Bank keeps very systematic records on gross domestic product per person, and it classifies countries into three categories. These are:
Diving line of around $4,000 per person
Lower middle income
United Nations 4th Category
There is a subgroup within the low-income countries that not only lives in extreme poverty but the human conditions of disease, education levels and social and political instability are very bad. What is more these countries are at the greatest risk of both natural disasters such as droughts or floods as well as conflict and violence. Because these countries are highly vulnerable, the UN has classified them as the least developed countries. There are about 50 of them mostly located in tropical Africa. Other countries include Afghanistan, Nepal, Bhutan and Laos. Please note that these are all landlocked countries. It is not a coincidence. As we know economic development relies on the international trade, which in turn requires access to the sea and effective transportation systems. We will discuss the geographical determinants of nation's development in the next posts.
Summarizing, GDP is a good measurement if we want to know the overall condition of a country and its level of economic development. It for sure is a good starting point for cross-country comparisons but for a more comprehensive understanding we would need to include other indicators of social well-being such as education, healthcare etc. We will also learn the different ways to measure the above including GINI Coefficient and Human Development Index in the following blog posts.