If economists lose sight of what people actually want, their profession will become poorer

Is it the job of the dismal science to produce happiness or growth? Perhaps the fallacy, argues our Chief Economics Commentator, is to think these are totally separate

(JUSTIN SUTCLIFFE)

Britons are, contrary to what you might think, pretty happy people – not the happiest, but towards the top end of the world league table. A number of surveys put us a bit behind the Scandinavians but ahead of the Germans – and well ahead of the French.

But how do you measure it? Is it the job of economists to stumble around this nebulous area? And what if the Government gets involved? These questions came to the fore yesterday with the publication by the Office for National Statistics of the first Annual Report on National Well-being. And the answers are quite encouraging. Measurement? Well, you start by asking people how they feel, simple things such as “Were you happy yesterday?” or “Are you satisfied with your income?”

The answer to the first is that about seven out of 10 people clearly had a good time yesterday, while only a tiny proportion, less than 6 per cent, say they are completely dissatisfied with their income. At the other end of the scale, some 57 per cent of people say they are somewhat, mostly, or completely satisfied with their income, with the highest level of satisfaction in Scotland. (In another survey, 78 per cent of people said they were completely, mostly, or somewhat happy in their jobs.)

However, official poverty rates, defined as less than 60 per cent of the median income, have one-fifth of people living in poverty. The commonsense conclusion is that the majority of those technically in poverty do not feel that miserable about their income – which makes you wonder whether the arbitrary criterion of 60 per cent of median income is a helpful measure.

Does that mean economists are wasting their time trying to measure these things? Surely not, for welfare economics, as it is called, has a long tradition going back to the 19th century. Indeed, economists were worrying about people’s wellbeing long before they were trying to calculate gross domestic product, which they only began to do in the 1920s and 1930s. I sometimes feel that time spent finding ways of increasing people’s wellbeing is a lot better spent than time calculating GDP, particularly since the latter calculations usually turn out to be wrong.

Are economists wasting their time trying to measure these things?

So this exercise deserves a welcome, particularly since the ONS has produced something that avoids political spin, always a danger with economic statistics. But what are the policy implications? I think the starting point comes from asking people what makes them happy and unhappy and using this, rather than some arbitrary social target, as a basis for action. For example, we know people are worried about crime and (though the evidence is less clear) worry that the courts do not take it seriously enough. So instead of handing out statistics that say crime is falling, which does seem to be happening, you encourage the courts to act swiftly in the case of serious disorder, as they did after the riots of last year.

I heard another example of this “ask people what they want” approach last weekend from Frank Field, the MP for Birkenhead. They had a project where they asked children in schools what they wanted most from their education as part of a social contract. One of the things at the top of the list was to be taught how to be good parents. That was either discouraging or encouraging depending on how you look at it. But it points to the way in which the organisations we have available – schools, social services and so on – can refocus their attention on what people really want and what is expected of them in return.

Basic data about wellbeing is one starting point, though the novel idea that you might actually ask people what they really want should surely stand along side it.

We can still make it

Manufacturing matters, but not in the way most people assume. Rebuilding UK manufacturing is such an obvious notion that anyone questioning it risks being dismissed as a nutter. So some new work by McKinsey Global Institute helps put perspective on this.

Worldwide, it is 16 per cent of GDP; huge, but there is another 84 per cent. Moreover, in advanced economies, between 30 and 55 per cent of manufacturing jobs are service-type activities. While in the past, manufacturing jobs have been seen as “better” than service ones, that is less true today.

What is true is that low-skilled jobs have been falling as production has shifted offshore; this has not happened so swiftly to service jobs. Even in economies where manufacturing is important, employment is falling. It generates 80 per cent of German exports but its workforce has fallen 8 per cent in 10 years.

And manufacturing’s future? It will employ fewer people in the developed world, but it will become more global and specialised. New technologies (carbon fibre, 3D printing) will change production processes. For the UK, this is encouraging. Labour costs will matter less, while total productivity (including availability of highly skilled talent) will matter more.