The other five happiness variables

IMF predicts economic doom and gloom: can thinking about “happiness” rather than constant growth create a better path forward?

This week has seen the latest grim report from the IMF about the state of the world's economy—predicating low or no growth, generally because of the anti inflationary policies of the world's major central banks, who have hiked interest rates to slow down economic activity. Crudely, this is in the hope that high interest rates will reduce people’s disposable income or force them out of work, thereby lessening demand for goods and services.

This is a normal policy response in a world governed by neo-liberal economic ideas, but it shouldn’t be. What societal benefit is there in fewer people working? The harm on people and their families from losing a job is serious and severe.

In fact, smart and holistic government policies should be about ensuring there is meaningful, well paid work for all. The proponents of growth-based economic decision making argue that growth is a precondition to equity—that once you have growth, you can consider redistributive policies. This of course avoids the fact that the growth focussed agenda can cause the very problems of inequality that we are trying to solve.

But there are other ways of thinking about our economic systems: starting with people's needs, rather than the rigidities of an economic model. These approaches offer a different path forward from the boom and bust cycles embedded in our current economic thinking.

One of them looks at the well-being of people—“happiness” in short.

Contrary to Anna Karenina’s memorable opening line (“all happy families are alike, each unhappy family is unhappy in its own way”), happiness is multifaceted and it is determined by a combination of factors. Looking at data from 2005 through 2022, the latest World Happiness Report shows that three quarters of the change in life satisfaction is explained by just six key variables, of which GDP (not GDP growth) is only one:

1. Gross Domestic Product (GDP) per capita;

2. social support—having someone to count on;

3. healthy life expectancy;

4. freedom to make life choices;

5. generosity—as in, people’s propensity to donate to charity; and

6. freedom from corruption.

Packed with caveats and a healthy serving of regressions, the report unambiguously says that “it is no better to tell countries [...] that they need to be more like Denmark, than it is to tell an athlete that she will win an Olympic medal by running faster”. Local history, culture, and norms should all influence the design of local policies concerned with improving wellbeing more so than one-size-fit-all approaches. This is another way to frame an argument that city leaders know all too well: issues can be global, but effective solutions are often local.  And effective solutions should explicitly target the goal, and be connected to its success.

Yet, national governments and international institutions remain obsessed with a common metric for global progress: constant GDP growth—for some politicians, that’s the equivalent of the promise of a medal if they run faster.

In her latest Outlook for the Global Economy and Policy Priorities, IMF Managing Director Kristalina Georgieva laments the fact that the medium-term global forecasts for GDP growth are the lowest since 1990. Indeed, there are reasons why this is bad news, but these are the drivers of slower GDP growth, not their consequence: higher inflation and higher interest rates both hurt the vulnerable most, but even proponents of growth agree that a faster rate of GDP growth would not, by itself, do much to help them.

How should we structure an economic system that prioritises meeting the needs of people, rather than a cumulative measure of income? We can start with cities, who can focus on strengthening social support networks, investing in physical and mental health services, and ensuring human rights are upheld without discrimination, activities that directly support the indicators of success outlined above. Many are already doing this and some—exemplified by Vancouver’s Beyond GDP framework and London’s Wellbeing and Sustainability Measure—are also working on making this change structural within their respective governments.  Given the wide range of city powers and influence, such measures can have a significant impact. Those who are not yet active on this front could look at this report by the ZOE institute for future-fit economies, which explores how institutions can escape the so-called GDP lock-in (the idea that policy focussed on growth is the starting point).

Crucially, when it comes to explaining people’s happiness levels, GDP per capita is outweighed by the other five variables. This should be welcome news. It suggests that a single minded focus on growth is outdated. Cities around the world may find that interventions not linked to constant growth, but appropriate to their local context will enable them to improve their residents’ prosperity and wellbeing despite IMF predictions of gloomy economic expectations.