Institute of Economics

Labor and Personnel Economics

Seminar: Market, States, and Civil Society

Research Paper

Happiness and Economic Development

"Those who say that money can't buy happiness don't know where to shop."

Anon

Author

Abdul Maruf Yawari

CONTENTS

1. INTRODUCTION ............................................................................................................................... 3

1. THEORETICAL FRAME ............................................................................................................... 4

2. DATA AND MEASUREMENT ............................................................................................................. 6

3. CRITICAL ANALYSIS OF THE AUTHORS‟ MAIN FINDINGS ............................................... 8

4. CONCLUSION ................................................................................................................................... 9

5. REFERENCE: ................................................................................................................................... 11

1. INTRODUCTION

The question what makes people happy, make Psychologists, economists, biologists,

sociologists and political scientists to investigate and conduct the years of research.

Traditionally, psychology studies human behavior and they look to anxiety and human

depression. On the other hand economists look to other variable such monetary saturation

factors and non-monetary saturation factors such as democracy, religiosity, and national pride

and so on. These are different variables of subjective well-being (SWB).

This paper is written based on the Ronald Inglehart, Roberto Foa, Christopher Peterson, and

Christian Welzel(2008) argue about (development, Freedom, and Freedom Rising Happiness)

and (Agency, Values, and Well-Being: A Human Development Model) written by Christian

Welzel and Ronal Inglehart(2010). In this research paper we argue that the feeling of agency

are linked to human well-being through a sequence of adaptive mechanisms that promote

human development, once existential condition becomes permissive. That in turn leads people

to changes their strategies in order to maximize happiness and that changes in value priorities

are an inherent part of this process.

SWB as dependent variable could be a function of various and many independent

variables. Among these different variables, we are highly keen to look at economic

development variable as determinant in the evolutionary sequence of adaptive links

explaining social change at the first part of the paper. This is very important because through

the process of evolutionary sequence of adaptive links of social change, human adaptive

linkage follow vicious and a virtuous pathway, distinguishing them by how inhibitive or

favorable they are, lead us to the second discussion; which is vicious pathway and is labeled

as “human stagnation path” and the virtuous one is labeled “human development path”. They

are mirrors image of each other. It‟s really important since in the human development model

economic development as independent variable play an important role. Since economically

advanced society offer individual manifold opportunities to thrive, to take advantage of these

opportunities people adopt argentic orientations and emancipates them from group authority.

Emancipative values in turn inspire and legitimize promotion of strategies. This will in turn

nurture the virtues of democracy. Moreover Inglehart (1990) found that not just economic

development is strongly related to happiness, but also democracy. Which we are in turn argue

and criticize these findings in the light of empirical evidences from World Value Survey(WS)

and World Happiness Report and that will lead to the last discussion of this paper.

1. THEORETICAL FRAME

The happiness of nations was investigated with data form the VS and European

Values Study, which have been conducted out in five set time from 1981 to 2007, scoring

almost 90% of the world‟s population. In the all widely used indicators of SWB; happiness

and overall life satisfaction, administered in the same format in equivalent translations in

every wave (Inglehart & Welzel, 2005).

Economic development increases people‟s sense of existential security, leading them to shift

their emphasis from survival values toward self-expression values and free choices, which is

direct way to maximize happiness and life satisfaction. They underlying theme of this shift in

life strategies is to deemphasize external authority and maximize individual autonomy (Ibid:

266). The operation procedure spelled out in the human development model proposed by

Welzel, Inglehart, and klingenmann(2000). This process is well-known as mechanisms of an

Evolutionary Model of Sequence of Adapting (Welzel et al. 2003). Fig. 1 shows an

evolutionary sequence of cultural change, involving four adaptive links. First there is an

environment-utility link through which given existential condition pave the way for the

availability of opportunities to thrive. Existential condition could be social, economic or

cultural conditions as illustrated below:

Environmental utility link value strategy link value-strategy link strategy- wellbeing

Fig.1 An evolutionary sequence of adaptive links explaining social changes.

This model shows that economic variable could maximize free choices through adapting

sequence mechanisms of evolutionary approach. The belief that one has free choice and

control over one‟s life is closely linked with happiness (Inglehart and welzel 2005; Jonson

and Kreuger, 2006)

As Welzel and Inglehart(2010) describe Environmental utility link which people prioritize

the opportunities with greatest utility link:

Existential conditions

define the availability

of opportunities

People tend to value

what is most helpful to

make use of given

opportunities

Prioritized value inspire

corresponding

maximization of

strategies

When successful,

maximization strategies

yield some degree of

satisfaction

The environment-utility link is followed by a utility-value link: people prioritize the

opportunities with the greatest utility in their society, so taking these opportunities becomes a

widely supported value. In an agrarian society, for example, land property is valued. And

when a society lacks an efficient pension system so that having many children provides an

important opportunity to subsist in old age, fertility tends to be highly valued. (Welzel and

Inglehart, 2010: page)

In many societies, people value free choices as much as they value economic security (Welzel

and Inglehart, 2005; Sen, 2001) and the freedom increase with rising of economic security.

This societal-level shift is also proceeding in individual-level values change. Under condition of

scarcity, people focus on survival needs, they give top priority to economic and physical security.

Economic development increase the sense of people security, leading them to shift their strategies

based on new dimension of needs and opportunities, this will in turn lead them to shift their emphasis

from survival values toward self expression values and free choice, which nurture life satisfaction

maximization. Since 1981, these shifts in individual-level values have contributed to societal changes

that are conducive to human happiness.).

Cross-sectional data from the 1990 values Surveys suggested that economic development is conducive

to rising level of SWB; this interpretation is proposed by Inglehart(1997) and Hagerty and

Veenhoven(2003). Since 1989, dozens of countries have become democratic, and all high income and

middle income countries become very supportive of egalitarian value such gender equality and more

tolerant of out-group. (inglehart et al 2008)

Table 1 shows the concept of emancipative self expression values. When societies become wealthier,

people become more tolerant of gender equality and social diversity and upgrade the self expression

values. People living in more tolerant societies tend to be happier, regardless of their beliefs. Moreover

people supportive of egalitarian orientation as illustrated in the model 1 of table 1. It indicates that .72

self expressions (emancipative values) explain by egalitarian position. Model 2 of Table 1 shows that

.75 self expression dependent variable (DV) explain by independent variable (IV) liberty. That means

there is strong correlation between liberty values and self expression. Thus, it indicates the positive

and moderate correlation between self expressions IV and autonomy DV.

Table 1 the concept of emancipative self expression values

Welzel, Inglehart (2005) and Andrew and Oswald (2012) argue that economic performance plays

important role in SWB and it yield high level of happiness:

The relevance of economic performance is that it may be a means to an end.

That end is not the consumption of beef burgers, nor the accumulation of television

sets, nor the vanquishing of some high level of interest rates, but rather the enrichment

of mankind's feeling of well-being. Economic things matter only in so far as they make

people happier. (Welzel& Inglehart, 2005; Andrew& Oswald 2012: pp)

Therefore Inglehart(1990) found that happiness is strongly related to democracy(Welzel & Inglehart

2008) Since high level of SWB are conducive to democracy and democracy provides a wider range of

opportunities which is conducive to SWB (Welzel & Inglehart 2005). The capabilities to take

opportunities are necessary in order to thrive. It‟s one of the elements of maximizing agent‟s strategy.

That play important role in order to adapt to new environment. That directly yields high level of

satisfaction for agent (Welzel & Inglehart 2010)

2. DATA AND MEASUREMENT

The data on feeling of Agency and life satisfaction is provided by the European and World

Values Surveys (henceforth: Values Surveys-VS). Sampling between of 1,000 to 3,000

respondent per country is more than 90 societies on all continents, representing more than

90% of the world population from 1995-2005 (Welzel& Inglehart, 2010). To measure the

endurance of democracy, Gerrings democracy stock and polity IV were used. To measure

how advanced cognitive mobilization, knowledge index (KI) is used. The variable cover three

knowledge economic pillars: education, innovation and information technology. The date on

self expression has been taken from the World Value Service the scale range between 0

denote to expressive position and 1 to most expressive position ( Ibid:51)

To measure subjective monetary saturation we use question „„How satisfied are you with the

financial situation of your household‟‟?

Economic growth is measured as the annual growth rate of gross domestic product (GDP) per capita.

By far the most comprehensive cross section study is conducted by Angus Deaton (2008) who

analyzes the 2006 Gallup World Poll data for 123 countries. The interference suggested the explicitly

in Deaton‟s boldface title: “Each Doubling of GDP is associated with a constant increase in life

satisfaction.”

The rate of growth is calculated as the percentage change in GDP per capita. Indeed, based on

quantitative research of happiness on log GDP, Deaton finds that the difference in life satisfaction

associated with a doubling of GDP in cross sectional data is, if there is gap between richer and poorer

counties (Easterlin, 2013: 4).

Inglehart (1997) hypothesized that economic development brings a societal-level shift from

maximizing economics growth to maximizing SWB:

The transition from a society of scarcity to a society of security brings a dramatic

increase in subjective well-being. But we find a threshold at which economic growth no longer

seems to increase subjective well-being significantly. This may be linked with the fact that at

this level, starvation is no longer a real concern for most people. Survival begins to be taken

for granted. Significant numbers of Post materialists begin to emerge and for them, further

economic gains no longer produce an increase in subjective wellbeing. From a rational

actor’s perspective, one would expect economic development to eventually bring a shift in

survival strategies. At low levels of economic development, even modest economic gains bring

a high return in terms of caloric intake, clothing, shelter, medical care and ultimately, in life

expectancy itself. For individuals to give top priority to maximizing economic gains, and for a

society to give top priority to economic growth, is a highly effective survival strategy. But once

a society has reached a certain threshold of development . . . one reaches a point at which

further economic growth brings only minimal gains in both life expectancy and in subjective

wellbeing as illustrated in figure 2. There is still a good deal of cross-national variation, but

from this point on non-economic aspects of life become increasingly important influences on

how long, and how well, people live. Beyond this point, a rational strategy would be to place

increasing emphasis on quality of life concerns, rather than to continue the inflexible pursuit

of economic growth as if it were a

good in itself. (Inglehart, 1997, pp.

64–65).

Figure2 illustrates that happiness move in

particular set points and defines the dimension

marginal utility return.

Psychologists, economists, biologists, sociologists, and political scientists have long

investigated human happiness, and one claim found widespread acceptance until recently:

Happiness remains constant. Research implies that neither rising prosperity nor severe

misfortune permanently affect happiness. After a period of adjustment, individuals return to

their baseline levels of well-being, leaving humanity on a „„hedonic treadmill‟‟ One widely

accepted view is that happiness fluctuates around a fixed set points (Inglehart & Welzel,

2008).

3. CRITICAL ANALYSIS OF THE AUTHORS’ MAIN FINDINGS

As describe above, Inglehart & Wezel( 2010) argue that “economic development

increases people‟s sense of existential security, leading them to shift their emphasis from

survival values toward self-expression values and free choices, which are direct way to

maximize happiness and life satisfaction”. Moreover Inglehart (1990) found that happiness is

strongly related to democracy, since it provides opportunities, which is conducive to SWB.

On the other hand, according to the world map of happiness from World Value Survey Map

(2009), Saudi Arabia has monarchy states, however the people are very happy, although the

political system is non-democratic. It seems it‟s falsifies what Inglehart (1990) argue that

happiness is strongly link to democracy.

Richard Easterlin (1974) is one of the economists who study statistics over time on the

reported level of happiness. His data came from the United States. Easterlin's (1974) paper's

main objectives were, to suggest that individual happiness appears to be the same across poor

countries and rich countries; moreover he argues that economic growth does not raise

wellbeing. Easterlin(1974) suggested that we should think of people as getting utility from a

comparison of themselves with others close to them: happiness is relative. His paper

concludes: ¼in the one time series studied, that for the United States since 1946, higher

income was not systematically accompanied by greater happiness' (p.118) in social

comparison theory (Easterlin, 1974,) happiness stays the same in the face of rising income

because of a shift in reference. If happiness is shaped by one‟s relative position in a society,

then even if a nation‟s overall economy grows, only those with above-average gains will

experience rising happiness, and these increases will be offset by decreases among those with

below-average gains (Inglehart, et al. 2008).

Bhutan, a country with a very low GDP per capita, but ranked among the happiest nations in the

world, then started efforts to put happiness on the global agenda. In Bhutan instead of GDP (Gross

Domestic Product) index, GNH (Gross National Happiness) index is used in order to measure the level

of happiness (Ryback, 2012). It explains the origins of the concept of GNH, its grounding in

Bhutanese culture and history, and describes how the concept is being operationalized in the

form of the GNH Index in some novel and innovative ways. Any discussion of GNH in

Bhutan must begin from the understanding that it is distinct from the western literature on

“happiness” in two ways. First it is multidimensional – not focused only on subjective well-

being to exclude other dimensions – and second, it internalizes other-regarding motivations.

While multidimensional measures of the quality of life and well-being are increasingly

discussed, Bhutan is innovative in constructing a multidimensional measure, which is itself

relevant for policy and is also directly associated with a linked set of policy and program

screening tools. (eds Helliwell, Layard, 2012)

Last summer, the UN General Assembly unanimously adopted the resolution “Happiness:

towards a holistic approach to development”, recognizing the pursuit of happiness as a

universal aspiration embodying the spirit of the Millennium Development Goals. (Ryback,

2012)

The GNH Index provides an overview of performances across nine domains of GNH

(psychological wellbeing, time use, community vitality, cultural diversity, ecological

resilience, living standard, health, education, good governance) ( eds Helliwell, Layard, 2012)

4. CONCLUSION

There are clearly a number of issues remaining to be resolved in this area. But a reasonable

interim conclusion is as follows:

1. In a typical country, economic growth improves happiness, it seems economic growth

improves happiness in countries that they have weak economic situations, other things equal.

Although economic growth is not the only factor to effect happiness, but its yield more

happiness than any other factors such as communion effect and non-monetary saturation other

variable remain equal. Besides economic development provides opportunities through an

environment-utility link since it premise the existential condition, which given existential

condition paves the way for the availability of opportunities to thrive. That in turn contributes

to the promotion of strategy agentic life that yields high level satisfaction as we in

evolutionary sequence of human development linkage. We also observed a typical country such as

Bhutan, the GDP played not very important role, instead psychological wellbeing, time use,

community vitality, cultural diversity, ecological resilience, living standard, health, education

played rather strong role. It seems other factor none other than economic development factor

forms happiness index. It concluded that happiness as dependent variables (DV) could be the

function of multi level module independent variable (IV). They all correlate positively but in

some IV plays stronger role than other IV. To explain in plain words, the strength of

correlation R value indicates how much DV explain by IV.

5. REFERENCE:

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Diener & E. Suh (Eds.), Subjective well-being across cultures (pp. 165–183). Cambridge,

MA: MIT Press.

Inglehart, R., & Welzel, C. 2005. Modernization, cultural change and democracy: The human

development sequence. New York: Cambridge University Press.

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cross-cultural analysis. European Journal of Political Research, vol. 42, pp. 341–379.

World Value Servey 2009, Map of Happiness. Available from :< http://www.jdsurvey.net>.[7 July 2013].