Hamish McRae: Can't get no satisfaction? Look towards Mexico (or Ireland)

What we all surely want is a balance between work and leisure - we may not have been good at this in the UK
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The Independent Online

Most of this week's report from the OECD, Going for Growth, focuses on what the different countries might do to improve their economic performance. Why were some European countries, and Japan, falling behind other developed economies? It looked at things such as Europe's R&D spending, regulatory barriers to innovation and entrepreneurship, and the efficiency of the financial sector. Unsurprisingly, the UK's relative performance attracted some attention: put simply, we had a verdict of "OK but could do better".

But, of course, growth is not everything. In recent months, we have become more aware of the implications for the environment and for resources of unconstrained growth with, for example, the impact of Chinese energy demand on the oil price. Quite aside from environmental concerns, there is the even more fundamental question of the purpose of economic activity. Greater wealth, beyond a certain threshold, does not seem to make people any happier.

So the OECD, and in particular its chief economist Jean-Philippe Cotis, is to be praised for going beyond the usual comparisons of GDP per head as a proxy for economic wealth and looking at other measures not just of wealth but of that more fundamental aim, well-being. It is an interesting trail and it runs like this.

First, you have to start with GDP, gross domestic product, the most common measure of the goods and services generated in an economy in a year. And you have to take into account the number of people to get GDP per head. On that measure, the richest country in the world is Luxembourg, which is not too difficult if you have a big offshore financial centre, get a huge wodge of taxpayers' money from the EU, and have fewer than half a million people.

Of the main countries, the US remains by far the richest, followed by Norway, Ireland, Switzerland and so on. The GDP per head of the G7 countries, plus some other interesting ones, is shown in one of the bars on the first chart.

But that is only the start. GDP is the amount of goods and services generated within a country. It therefore excludes any earnings a country gets from its overseas assets and any payments it has to make on factories and other investments that other countries own within its borders. In the case of Ireland, which has built its booming economy on such inward investment, this measure called net national income per head, or NNI, is much lower than GDP per head. The UK, which has a large net inflow of foreign income, scores higher - fifth in the world after Luxembourg, the US, Norway and Switzerland.

But standard of living is not determined just by NNI per head: it is how much we consume and how much we get from the state in services. The US consumes a very high percentage of its GDP and so to a lesser extent does Britain. By contrast, Japan consumes a much smaller proportion - Japanese people save more.

And, of course, just as different countries have different levels of taxation, so too they have different levels of state services. In the US such services are quite small; in France they are high; in the UK they are a bit below France but way above the US.

What countries on average consume per head, plus what people get from the state, is shown in the other bars on the graph. The intriguing thing is that on that measure, the UK seems to have the third-highest standard of living in the world, after Luxembourg and the US, and ahead of places such as Switzerland and Norway.

Can that really be right? It does not feel like it for most people and it certainly does not feel like it for people struggling to cope with a huge mortgage, credit card bills and all the other seemingly inescapable costs of modern life.

That sense of unease many people in the UK do seem to have is reflected in other measures, particularly those relating to happiness. The other graph shows one measure of that called mean life satisfaction. (The "mean" in this context is average, not tight-fisted or unpleasant.) The idea is to judge how contended people are over their whole life-cycle, taking into account all the things that might influence this, including income but also health and education, levels of inequality and the strength of family ties.

Here the UK does not score particularly well, a bit above France, Italy and Japan, but below the rest of the English-speaking world, particularly Ireland, Germany and Scandinavia. Particularly striking is the low score of Japan and the high one of Mexico. The Japanese are far more miserable than they "ought" to be, given their wealth, their health and the stability of their society. On the other hand, the Mexicans are much happier than they should be, despite problems of political instability, pollution, wealth inequalities and so on.

Is there a big message here? Some economists have suggested that governments can frame policies to increase a sense of well-being. They look at Scandinavia, which has interventionist government, as a model. But I think we should be suspicious of any top-down intervention. Besides, there are puzzles. Japan is a very egalitarian and regulated society; Mexico the reverse. So regulation cannot of itself be a main driver of well-being.

Anecdotally, Britons do not like being told what to do by politicians, so maybe we would do better were we less bossed about. Could that be why Ireland scores so much higher than the UK? In practice, society there is probably less closely regulated than in Britain.

So I don't think there is a big message. But there are lots of small messages. The most obvious is that for most of us, the greatest pleasures come from the simplest things: dinner with friends, a walk in the country, a good sunset. But to enjoy those, you don't want to be worried stiff about the credit card bills.

On the other side of the equation, some of the greatest annoyances of modern life - the things that really do reduce life satisfaction - are quite petty. Everyone would have their own list but I should think that parking fines, speed bumps and dirty public transport would come high up. If public policy were directed at reducing petty annoyances then politicians might climb the scale of public esteem a bit. (Mind you, journalists are low on that score, so maybe we should not talk too loudly about that.)

This message should surely apply to the private sector too, where there are direct commercial rewards for doing things well. Consumer satisfaction is not the same as life satisfaction but it helps along the way. I suspect too that good manners help a lot, if only by smoothing the inevitable roughness of modern life.

What we all surely want is balance in life between work, leisure, family life and so on - and that is something we may not have been too good at in the UK. Clearly it is time for a holiday in Mexico to have a look at how they manage to be so cheerful. Or, if that is too far, Denmark or Ireland.