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Economic Development – How We Measure It, How It Varies Around the World IV

Measuring Wellbeing

We’re interested in the quality of life. Part of that of course is the level of income. Can people feed themselves? Can they afford healthcare? Can they afford basic amenities? But we know that, there’s more to life than bread alone. We know that material possessions aren’t everything. We know that simple measures, like the income per person, only give us a rough reflection of the overall level of well-being of an individual or a nation. And since in sustainable development what we’re really interested in, is not raising market income per se, we’re really interested in raising human well-being.

It’s important for us to ask then, how can we measure well-being? I’ve used so far the shorthand of the gross domestic product per person. Because it’s not a terrible indicator. It gives us some relevant information. It is not only related to income and not only related to the absence of poverty when that income per person is high enough, but it also is related to other things that we know we care about, education levels, health and opportunities in life. But of course, we can do better than using one simple indicator of human well-being, and we know that whatever indicator we use we can’t just rely on averages.

We have to look at the variation within a society, or across societies, as well as the average numbers that we’re using. So what are some of the options of measuring human well-being that go beyond the simple calculation of the gross domestic product per person? One important innovation championed by the United Nations Development Program during the last quarter century is the human development index.

It tries to give a more holistic account of human development to take into account things which empower people. Which help them meet their capacities. And it does that by looking at income per person as just one of the three basic dimensions of well-being.

Adding in indicators of educational attainment, whether it’s literacy or enrollment rates, together with measures of health typically looking at life expectancy at birth. And by taking a kind of weighted average a part due to income, a part due to education, and a part due to health, The United Nations Development Program has created and now tracked for a quarter century an overall index of human development, or HDI. And we’ve learned a lot from that.


If you look at the HDI, or the human development index you can see that it looks similar to the map of gross domestic product per person. But, it’s by no means the same. There are countries that are relatively low on income per capita and do quite well on the human development index because they have good indications of life expectancy and educational attainment.

There are, on the other hand, many countries that rank very high in income per capita, but do not have good outcomes when it comes to health and education. Let’s take a look at some examples of countries that are rather rich in terms of their gross domestic product per capita. But rather poor on their human development indicators. Equatorial Guinea is such a case.


Equatorial Guinea was a completely impoverished country in West Africa until a few years ago when it struck it rich with the oil and gas discoveries. That’s potentially good if those oil and gas earnings are used wisely and invested in raising overall well-being. But there’s a lag and there’s a question of the equality of governance to accomplish that. As it stands today Equatorial Guinea ranks rather high on income per person. It’s 32nd in the world in income per person, but it ranks 136th in the human development index meaning that its education and health outcomes are still pretty miserable. It has not yet turned its oil and gas earnings into real benefit broadly for the society.

Another example is similar, Angola. Angola is a country in Southwest Africa, also a major hydrocarbons economy. Also with the opportunity to take those earnings of oil and gas and convert them into broad based improvements of living conditions. But, there has been a serious gap, and a lot of corruption along the way. So that Angola ranks in the middle of the pack, 88th in the gross domestic product per capita, but 148th in the human development index.

So you see that the human development index adds a lot of useful information for us by giving us a broader based snapshot than taking the gross domestic product per person alone. If you flip it around and ask about countries that are ranking higher on their human development than on their income per capita, the reverse of the phenomenon that we just saw an Equatorial Guinea and Angola.


You could look to a country like Sri Lanka which traditionally, even though it’s had a lot of violence and upheaval, has had relatively high social indicators of health and education even at a relatively low level of domestic product per person. Another country quite developed at this point. A high level of gross domestic product per person, but even a higher human development outcome is South Korea.

South Korea is an amazing country. It’s had a huge success in economic growth, meaning that the GDP per person has soared over the last half century. Its become one of the richest countries in the world. But part of that has been an incredible focus on raising education standards and on the health of the population. So that as high as South Korea now ranks in the GDP per capita, roughly around 30th in the world, its ranking in human development is near the top of the world’s charts roughly around the 12th position in HDI.

So this has been a quite useful expansion of our ability to assess and categorize countries, because just as the World Bank categorizes countries as high income, middle income and low income, the United Nations has categorized countries as high human development, medium human development, and low levels of human development.

But there’s another absolutely fascinating way that we can attempt to assess well-being. And you think about it for a moment you say, hey, why not? And that is, ask people. Ask people about the quality of their lives. Are they satisfied with their lives? How would they rate their lives in terms of a a, a ladder where the top rung of that ladder would be full satisfaction, the bottom rung of the ladder is feeling pretty glum.

And asking people where they stand on that ladder of life say between the lowest rung of zero, and the highest rung at ten. In recent years there has been a huge, absolutely fascinating effort to assess well-being in that straightforward way. Asking people, are you happy in essence?

And it’s important to note that psychologists and, and scholars of happiness have found two quite distinct dimensions of happiness and two quite different kinds of questions to elicit that. One is to ask, emotionally, did you have a good day yesterday? Were you happy? Positive emotions and that’s sometimes called emotional or affective happiness. And the other is to ask people a quite different kind of question. How do you evaluate your life? Are you satisfied with your life? Where would you put yourself on the ladder of life? That’s called evaluative happiness. You’re evaluating life. And that’s the kind that I think we should look at to try to understand where countries and individuals feel they are in the path of broader economic development.


We have a map. We can look at the distribution of reported happiness in that evaluative sense, in the sense of life satisfaction around the world. One thing you do notice, richer countries tend to be happier. But that’s not all there is to happiness. There are countries that are middle income countries close to the top of the charts. There are richer countries at the top of the league in GDP per capita but not so happy and we learn a lot from this.

Looking at this I’m happy to say that the Americas, that’s my part of the world, that’s a pretty happy part of the world. You can see it in, in the maps. Western Europe Australia and New Zealand rank very high on happiness. Some of the poorer regions perhaps not surprisingly rank much lower.

What do we learn when we study the differences of happiness in this evaluation sense around the world? We find out that income per person, or GDP per capita, matters but it doesn’t matter all that much. We have to keep focused that it’s just one aspect of happiness.

A second major reason for happiness or unhappiness is the quality of what we call social capital, social connections. Do people have good networks of friends and colleagues? Do they trust others in their community? Do they trust their government to be honest or is their government corrupt? That’s a huge determinant of whether people report their lives to be of high satisfaction or not. Their own health, physical health and mental health, of course, plays a very important role.

And what I find absolutely fascinating and important. A theme that I want us to reflect on as we think about sustainable development is that an individual’s values, things that an individual holds to be important, are shown to be strongly related whether that individual is happy or not. Interestingly, the people who report a very strong fixation on getting rich, on very materialist values, turn out to be a bit more frustrated. They don’t report as much satisfaction in life. People who report that generosity is very important to them, volunteering, giving, a sense of altruism, contributing to the community are also values that are shown repeatedly in many studies to be related to a higher level of life satisfaction.

This is quite important for us as we think about sustainable development. If we simply pursue income per capita. Just raise that gross domestic product per capita no matter what. We’re going to lose it on many counts. Societies will become highly unequal. The physical environmental will come under great threat. But also people will not necessarily achieve the kind of happiness and life satisfaction that they want.

If we take a more balanced and holistic approach as sustainable development bids us to do. Paying attention to higher income per person, but also focusing on healthy societies, social inclusion, honest government, networks of social support. And if we promote values of generosity, of compassion, of voluntarism rather than values of strong materialism, of just trying to get rich, that also can help people to become happy.

In the end, our goal is satisfaction with life. It is human well-being. We need to take a rich and varied perspective. Fortunately we have more and more tools to be able to measure, assess and ultimately to help to promote improvements of human well-being in this deeper and more inclusive sense.