Hamish McRae: If money doesn't make us happy, how do we gauge the real wealth of the nation?

People see the past as a golden age. At the time, it wasn't like that
Click to follow
The Independent Online

The headline was better than the story. In the august Financial Times on Friday, it was proclaimed that the "Oldest profession helps boost Greek national output by 25 per cent". The gist was that Greece is now counting its informal economy as part of its GDP - "informal" meaning services such as prostitution that operate outside the tax net. It seems that if you do this, the Greek debt- to-GDP ratio is much closer to the Maastricht limit, and the national account appears much healthier.

It isn't the first time a Mediterranean country has pulled this trick. In the 1980s Italy suddenly added the informal economy to its estimates, so passing the UK economy briefly in size. Indeed, for countries where a large part of activity is outside the formal economy, this practice makes sense. The World Bank estimated that in Africa the informal economy amounted to an average 42 per cent of the total.

Of course only a small proportion of this non-accounted-for economic activity is prostitution, which is why that headline was misleading. Globally it is quite a big business but it is much smaller than the drugs trade. Nor indeed should we regard the informal sector as necessarily reprehensible; the bulk of such activity comes from the small-scale cash-in-hand services that we all rely on to make life easier.

But it is worth acknowledging the existence of the sector partly because it matters - accounting for somewhere between 8 per cent and 25 per cent of the official GDP in developed countries - but also because it shows what a poor measure GDP is of human well-being.

This idea of "well-being" mattering more than wealth was identified by David Cameron a few months ago and it will be interesting to see whether this becomes a theme of the Tories this week, during the party conference, and beyond.

It is not new of course: the World Bank has developed a modified league table of wealth and called it "human development". The top 15 countries both on this measure and for GDP are shown in the two graphs above.

Human development starts with wealth per head but modifies the result by taking account of health, education and other variables. You can add in other measures - including an estimate of the opportunity gap between the sexes, for example, to get a gender-related index (Norway comes out top, followed by Australia). Or you can look at economic freedom rather than human development (Hong Kong, Singapore and Ireland lead that pack). You can look at economic sustainability and environmental performance. On environmental performance New Zealand comes top, and on environmental health Sweden. But then it is easier for large, rich countries with small populations to score well there.

And for some measures you don't have to be rich. I was intrigued to see that according to The Economist's "Pocket World in Figures", Uganda comes top of the world league for air quality, followed by Gabon and Rwanda.

As you can see, the trouble is that any index trying to measure well-being is inevitably subjective. What do you put in? Some things are clearly bad: not many people would claim that rising crime improves human welfare.

Others are more equivocal: how do you deal with a family break-up? Divorces, by the way, increase GDP - think of the lawyers' fees - but it is hard to argue that they increase human welfare. On the other hand, were a society to ban divorce, that would in most people's judgement result in a loss in personal freedom and indeed a loss in welfare. You would have to say that if the divorce rate comes down of its own accord, that is good; if it falls as a result of onerous legislation, that is bad.

All this is difficult. The temptation is to go back to GDP as the measure for wealth that all can agree on and be done with it.

More sensible, though, it seems to me, is to take that just as a starting point. We should try and think of other aspects of human wishes that should also be examined to measure well-being, and we should look at objective measures as far as possible, rather than subjective ones.

Those other measures would focus on health, which can be measured pretty objectively, and happiness, which can't - or at least is very hard to do.

As far as health is concerned, we tend to focus on the quality of medical care, for obvious reasons. But I suspect the debate will shift over the next 20 years towards other determinants of well-being: lifestyles, diet, exercise, attitudes and so on.

You can see some of this already, for example, in the present Government's concern about obesity. This is beyond party politics; the Government is simply responding to a wider social concern. There is a change in emphasis from coping with illness to reducing the likelihood of ill-health.

While happiness is very difficult to measure, economists are making some headway here. You can ask people whether they are happy or not and see how that changes over time. There is the objective, if narrow, measure of suicide rates. We know that people who are unemployed tend to be unhappy. But whether happiness is changing over time is much harder to gauge.

There is the charge that while this country - or indeed any developed country - has become much richer over the past generation, it has not become any happier. But I'm not sure about this. We all know that people tend to look at periods of the past as some golden age, when at the time it didn't seem at all like that. My own preferred tool here is what economists call "revealed preference" - when people reveal by their actions what they want to do.

You can apply this to migration. In the 1970s there was large outward migration of professional people from Britain. Clearly they must have been unhappy about the country or their roles within it. Now there is large inward migration of professionals. That suggests they must be reasonably happy with conditions here. So measures of well-being should include visible signals from people's behaviour.

Meanwhile, what can be done to increase well-being? The starting point - and this is terribly simple - is to ask people what upsets them and then see what can be done about it. Recent surveys would point to such things as manners, road humps and paperwork - and we could all add lots more.

If governments concerned themselves more with things that would increase our sense of well-being, and focused on these instead of having endless self-congratulatory "initiatives", then we would cheer them along - well, for a while at least.

Old, gifted and grey - our new workforce

The age of the aged is upon us, with new legislation now stopping age discrimination in the workplace. As Alistair Darling acknowledged on the Today programme on Friday, it will take a while for things to settle down. Meanwhile, it seems it may be illegal to do something as apparently innocuous as asking for a potential employee's age on a job application form; expect the law of unintended consequences to show its head.

Actually this legislation comes in at a time when there has already been a surge in the number of older people entering, or rather re-entering, the workforce. Indeed, people over the age of 60 have been, with immigrants from the new EU member states, the largest two new sources of labour in recent months. It is not clear whether this is because they have to - as a result of pension shortfalls - whether they want to, or whether it is simply a function of increased demand for labour generally.

At any rate, some sort of social shift seems to be taking place. Alongside oldies working more, they also seem, if you believe what they say, to be enjoying themselves more. My source is a survey done for Electrolux and Saga magazine, which asked some 1,750 people over 50 about their lifestyles, preferences and so on.

They seem a cheery lot. Nearly half claim to feel 10 to 20 years younger than they are. They nearly all try to eat healthily. They like technology - if dishwashers and espresso machines count - and they don't eat hamburgers or pizzas. They seem to have all the healthy, hard-working attributes that employers like. Some even say they like vacuuming.

If any of this is even half right, there is no need for anti-ageist laws: the problem is not to stop employers getting rid of older workers but how to persuade this segment of the workforce that it is worth staying in jobs. Over the next 20 years, we will see a lot of effort going into this and it may well turn out that the legislation is made redundant by the forces of supply and demand for older labour.

Comments