Happiness
and Economic Growth: Lessons from developing countries, by Andrew E. Clark and Claudia Senik
eds. (Oxford University Press, Oxford, UK,
2014) pp. xiv + 277
This book is a great way to get across what’s cutting edge
in economic research into happiness. The contributions are all World Class and come
from prominent scholars in both the academy and relevant organisations like the
OECD and World Bank. Each chapter is well written with clearly articulated take
away points. However, there is very little in here that is really new. Rather,
most of Happiness and Economic Growth
provides finer gradations on things we already know.
The fundamental question this book sets out to investigate
is whether income growth makes people happier. The standard answer to this
question is that income growth does make people happier but that this positive
relationship suffers from rather severe diminishing returns. Up until middle
income status there is a strong positive relationship after which the marginal
returns curve starts to flatten rapidly.
The classic explanations for this phenomenon—the so-called
‘Easterlin Paradox’—are adaptation, reference group effects, rescaling and the
opportunity cost of income, notably more hours at work. While the present
volume rarely strays from these well-worn paths it provides a lot of new
details gleamed from powerful Chinese data.
China is a fascinating case study for these questions
because of its large, rapid growth in recent decades, increasing inequality,
the stark divide between rural and urban development and the presence of large
groups of easily identifiable internal migrants. Happiness and Economic Growth does an excellent job of collecting
the lessons we can learn about happiness and development from studying China’s
growth miracle.
One of the most interesting collections of findings
concerns the interplay between happiness and dramatic structural change. Easterlin’s
chapter is particularly striking in this regard. It identifies a u-shape in the
happiness of citizens in China between 1990 and 2010. This, he suggests, is
explained by substantial unemployment during the initial transition from
state-led development wherein employment was guaranteed (indeed compulsory) to market-led
development wherein many people became unexpectedly unemployed.
There is also the suggestion elsewhere in the volume that
people dislike the insecurity rapid change brings about, and this may offset
the positive effects of income growth on happiness. Other commentators note the
role entrenched positive expectations generated by sustained high growth rates
play in boosting people’s present happiness.
One tension that runs through the book is between some
contributors who emphasise the relevance of the findings to public policy and
those who advise caution. For example, Easterlin says in his chapter that:
“The present results demonstrate the value of subjective
well-being measures such as happiness or life satisfaction as a guide to
policy. Output measures lead one to focus on firms and their productivity,
while happiness measures lead directly to the lives and personal concerns of
individuals and bring out possible costs in terms of human suffering that are
missed by GDP.” (pg. 20)
Martin Ravallion is the most prominent antagonist to this
view in the text. He repeatedly emphasises the possibility that people are
changing their scales over the course of development, which would make these
happiness comparisons across time and place largely meaningless, if not
dangerous:
“Economic development is a process of structural change,
which changes people’s reference groups and scales. It changes how you think of
the world where you live when you move from a village, where the reference
group is very narrow, to a city with a very vast set of people at different
levels of living. In that process, the scale of subjective well-being that we
use is surely going to change.” (pg. 246)
To get a sense for why this discussion is important we
might employ the following sanity check. The results discussed in Easterlin’s chapter
would seem to imply that people were happier in China in the immediate
aftermath of the events of June 1989 (the incidents of Tiananmen Square, which
were mirrored nation-wide) than during the extensive market liberalisation of
the subsequent Zemin & Rongji years, or even the reactionary years of
sustained high growth but relatively limited structural change under Jintao
& Jiaobao (Overholt 2015). Observers of China’s history, literature and popular
culture may well consider such a proposition unlikely.
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