GDP Versus GNH (Gross National Happiness)

10/16/2009 6:59 am EST

Focus: MARKETS

Jim Jubak

Founder and Editor, JubakPicks.com

The criteria may be subjective—and different from the measures we're used to—but determining a country's happiness can have economic and societal benefits.

Would we all be happier if economists measured happiness?

I spent a lot of time thinking about that on a camping trip last weekend. (Hey, it was really cold, and I had trouble sleeping.)

My friend Pamela had set my thoughts down this track by saying, "You know, I don't need all the stuff I have," as we watched the sun sink behind the Pennsylvania mountains.

It's the kind of thing you routinely say standing around the campfire on your first day out of the city. After a few days, in my experience, the remark is likely to be met by protest: "What about hot showers? What about coffee without bugs in it?"

But this time, on this camping trip during the Great Recession, the sentence hung there, gathering meaning (but, unfortunately, not giving off any heat) in the cold October air. Many of us have thought long and hard, probably in the deep of the night, about what we could do without—if we had to. I know I have.

Consuming Because That's What We Do

And we've thought about the flip side of that: What of what we own, of what we spend money on, is worthwhile and makes us happy? More than occasionally these days I feel that some of the consuming I do is just habit. I can count on the fingers of one hand the things I own that, in and of themselves, give me pleasure. The best of the rest gets some important job done. Much of the rest is, well, sometimes just clutter.

From a purely economic point of view, my dissatisfaction with what I own and my occasional dismay at how much I consume are relevant only if they lead me to shop less. Then my lack of satisfaction can lead to a slowing economy and, at worst, to a falling gross domestic product.

What GDP Means for You and Me

GDP famously doesn't care about how happy we are with the results of our economic activity.

Hurricanes, a frequent bringer of misery, provide a boost to GDP as the devastated survivors buy things to replace all that they've lost. Spending to treat preventable disease adds to GDP, while preventing disease in the first place with simple lifestyle changes doesn't.

When we hang on the most recent quarterly report on the nation's GDP, we feel better if the government announces, "GDP climbed at an annual rate of 2% in the last quarter." Our sense of well being is connected to these reports on the economy.

And, perhaps more importantly, in our politics and economics, we treat increasing GDP as an important goal. Indeed, we often treat increasing GDP as if it were the only goal.

There's an assumption here, deeply imbedded in classical economics, that increasing GDP is the same as increasing the quality of our lives. Mainstream economics doesn't exactly ignore happiness, but it treats it as if it meant the same as "utility." What's utility? Here's a pretty standard economic definition: The ability of a good or service to satisfy one or more needs or wants of a consumer.

Utility Is Subjective

That definition isn't very satisfactory in our contemporary consumer society, where a significant number of our wants as consumers are generated by advertising and marketing, which are designed to constantly make us feel dissatisfied with the goods and services we have.

Once upon a time, way back in the 18th and 19th centuries, the idea of utility was a way to escape subjective judgments. Giving more food to a man without adequate food was a clear case of increasing utility. Giving a London slum dweller a house with light and air and a modicum of sanitation increased utility.

And, of course, they'd be satisfied by those goods and services.

In that day and time, it made sense to see the goal of an economy as maximizing utility for the greatest number of people.

Today, in a world starkly divided between people—including me and many of my friends—who have all their real needs and wants satisfied, and people who are struggling to survive, the concept of utility is riddled with subjectivity.

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Measuring Happiness on a National Scale

In today's world, what exactly is satisfaction?

In 1972, Jigme Singye Wangchuck, then the king of Bhutan, decided his tiny Himalayan country needed something more than GDP. His goal was to build an economy for the people of Bhutan that would increase their material well being and preserve the traditional values that to him made the country a special place.

The total result would be to increase the happiness of Bhutan. And to measure that process, he introduced something he called—and, as far as I can figure out, the king coined the term—gross national happiness.

From the get go, you can see that GNH has truckloads of subjective assumptions in it. More than enough to fill in every mountain valley in Bhutan. The king decided what would make his people happy. He decided that traditional values were worth keeping because they would make people happy. So, for example, traditional Bhutanese robes are required dress in all government buildings. At least 60% of the country is to remain forested. Public smoking is banned.

Getting Serious About Happiness

To his great credit, the king also decided that more democracy would add to his people's happiness. So in 2006, he stepped aside in favor of his son, who presides over a new constitutional monarchy.

The worst you can say about the king's efforts is that they were as subjective as a GDP system that says any kind of economic activity is good.

Bhutan has gotten increasingly serious about its system of GNH over the years. From a fuzzy feel-good collection of values, GNH is evolving into a serious index with real measurements of happiness.

The Center for Bhutan Studies has developed a GNH index based on surveys of more than 1,000 households. The survey includes almost 300 questions: How stressed are you? Have you ever thought of suicide? (You can see the center's survey and some results here.)

To those of us reared on GDP and the myth that Western methods tap into a superior objectivity, the center's Web page with its religious drawings and overtly subjective survey questions might seem naïve. But there's a significant body of Western academic research that agrees with Bhutan's approach. Keeping diaries, for example, that record memory of the previous day can produce a valid measure of happiness. Such "objective" data as national mental health (use of antidepressants, for example) and physical wellness (incidence of severe illness) turn out to correlate extremely closely with happiness. Academic work on a definition of happiness has produced data robust enough to compare nations with one another.

Countries with a Reason to Smile

Adrian White of the University of Leicester in England produced the first global ranking of happiness (although he called it "subjective well-being") in 2006. And even though it's a first run, it feels curiously right.

The top ten of the 178 countries ranked was dominated by Nordic social democracies, with Denmark as number one; Iceland, number four (before the country's banking system melted like a snowball in a geyser); Finland, number six; and Sweden, number seven. (What's the matter with Norway? It came in at number 19.)

The United States was a respectable number 23. That was behind Canada at number 10, but way ahead of the United Kingdom at number 41, France at number 62, and Japan at number 90. The bottom of the list was made up of countries that ought to be at the bottom of the list: The Democratic Republic of the Congo, number 176; Zimbabwe, number 177; and Burundi, number 178.

And then there was Bhutan. It came in at number eight. It was the only top-20 country with a very low GDP. Something very interesting is going on in Bhutan. (To read more about White's 2006 list, click here.)

A Way to Pinpoint Problems

Bhutan hasn't exactly been howling in the wilderness. There have been global conferences on GNH. But it has taken the current economic and fiscal crisis to give this idea of an alternative to GDP traction among the leaders of the developed Western economies. French president Nicolas Sarkozy recently proposed a happiness index. When he was British prime minister, Tony Blair established an unofficial department of happiness.

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Good gestures. But from Bhutan comes a reminder that while tracking happiness is a usual counterbalance to the measure called GDP, the point of the index is to pinpoint problems so that countries can do something about them.

The World's Happiest Countries

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Source: Adrian White, University of Leicester, England, 2006
Click to Enlarge

Recent surveys show an alarming rise in the number of people in Bhutan who have considered suicide (about 5%), and, although figures are hard to come by and may be misleading, it looks like suicide itself is on the increase.

This has prompted soul searching as the country's first democratically elected prime minister, Jigme Thinley, tries to figure out why Bhutan isn't as happy a place as it could be.

A national government wrestling with the happiness of its people and using happiness to direct national priorities? That effort in itself demonstrates the power of gross domestic happiness.

I would like to think Washington is watching what's going on in Bhutan.

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Jim Jubak has been writing "Jubak's Journal" and tracking the performance of his market-beating Jubak's Picks portfolio since 1997 on MSN Money. He is the author of a new book, The Jubak Picks, and he writes the Jubak Picks blog. He is also the senior markets editor at MoneyShow.com.

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