Standard Life Investments

Weekly Economic Briefing

Global Overview

More to life than money


When economists measure and analyse the well-being of individuals and populations we tend to focus on what is most easily and ‘objectively’ measured. But the metric most commonly followed and targeted by policymakers – gross domestic product (GDP) – has its own significant limitations as a measure of welfare. The social value of non-market economic activity, such as unpaid work in the home or volunteer work, is excluded. It incorporates no distributional information. And well-being is treated as being synonymous with income, rather than something broader that takes into account health, educational and social outcomes.

To redress this imbalance a number of countries and international agencies have been collecting and analysing survey data related to individuals’ assessment of their own quality of life, or ‘happiness’, as well as the factors that influence subjective well-being. Summarised in the annual World Happiness Report (WHR), last year’s report showed a wide variation in average quality of life across countries. The Scandinavian countries fill four of the top-10 spots, with Norway sitting atop the pile. The rest of the top 10 is filled by other small, open, rich countries like Australia, Canada and Switzerland. At the bottom we mostly find poor African countries, and in particular those that have been beset by civil strife. However, although there is a positive correlation between per-capita incomes and ‘happiness’, economic outcomes are only part of the story of well-being (see Chart 1). The research underpinning the WHR shows that factors such as - healthy life expectancy, people’s freedom to choose what they do with their lives, as well as measures of social capital such as social support, generosity and perceptions of corruption – are strongly associated with levels of ‘happiness’. Moreover, once societies achieve a certain level of average income, incremental increases have diminishing impacts, with broader indicators of personal and social well-being playing a more important role. This is not to say that governments and policymakers should ignore traditional measures of living standards when setting objectives and benchmarking policy outcomes. But it does imply the need for broader measures of success, especially when social factors are more heavily influencing political outcomes.

Something but not everything for happiness