Moving towards an economy of well-being

Some weeks ago, I wrote a column about the limitations of GDP as an indicator and predictor of national progress, due to its exclusion of important aspects that contribute to life satisfaction and well-being in a society.

This criticism of the shortcomings of GDP were deemed by some commenters as impractical. One likened it to "criticising oranges for not tasting like oranges," pointing out that its function is explicitly to measure economic output rather than act as a 'tell-all' indicator of national progress.

Another stressed that the GDP and other economic measures "are but some indicators to consider when making informed decisions, the granularity of indicators being really more nuancedly interpreted for the discerning analyst."

These comments are not necessarily wrong, but, as I will respectfully argue, they may perhaps have misconstrued the point that I was trying to make.

Firstly, to put things into context, it is useful to have a brief background of how the GDP evolved to become so widely used in the first place. In its modern form and concept, the GDP was developed in the United States during the interwar period. 

In 1934, under a directive to “report estimates of the total national income of the United States,” Simon Kuznets, a Russian-American scientist working for the US Department of Commerce, designed a metric to capture the total value of output produced by the national economy, in terms of productive activities involving money exchanged for goods and services.

The main impetus for developing this metric was to provide policymakers with a tool that could empirically measure economic production, in order to analyse the war programme’s burden on the economy, and to justify policies and budgets aimed at increasing government wartime spending.

At the same time, the 1930s marked a time of great social and economic uncertainty. The world was just beginning to recover from the shocks of the 1929 Great Depression and economic collapse. 

For the US government, it was equally important to have a reliable economic measure that could guide fiscal policies towards better protecting citizens’ economic welfare. Historical context informs us that the GDP’s metrics were designed for a specific purpose: to measure a nation’s raw economic activity. 

Moreover, its value as an indicator grew exponentially after World War II, when it played an important role in the rebuilding of a post-war monetary order under the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD, now part of the World Bank).

Today, GDP (and its related concepts such as real GDP, per capita GDP and per capita real GDP) is a widely-cited benchmark of economic progress, and continues to be an extremely influential, and widely used reference point for the health of national and global economies.

Along with other statistics concerning economic activity – the consumer price index, stock prices, industrial production, retail sales, earnings reports and economic summaries, to name a few – GDP figures are frequently cited to talk about how well or badly countries are faring in terms of economic growth, specifically, and overall progress more generally.

Data limitations

Yet, all data have limitations. The main purpose of GDP, and nearly all economic indicators, is to measure the wealth and industrialisation of a country –not to show how a country uses that wealth to try and improve the quality of life of its people, nor the amount of fulfilment that people actually derive from it.

One way to think about this is to consider the impacts of urban migration on individual lives. From an economic perspective, this usually happens in lockstep with economic growth and is generally equated with positive outcomes for the migrant, in terms of achieving greater socio-economic mobility and higher standards of living.

Suppose X, living in a rural area, was to move into the city in search of a better-paying job. X succeeds in getting a job that pays RM1,000 more per year. After many years of working hard and receiving generous salary increments, he amasses wealth large enough to join the ranks of the rich middle class.

From an economic 'birds-eye' perspective, it would appear that X has 'succeeded', since he now enjoys a more handsome and comfortable lifestyle. Yet, there are hidden pressures beneath this façade. From the start, being an urban resident and facing higher living costs, X would need to spend significantly more to feed and clothe himself, and pay for a roof over his head.

Over the years, as he climbs the socioeconomic ladder, more pressures surmount. Now that he has graduated to living in the suburbs, X might feel compelled to invest in a neighbourhood security guard system to protect himself against crime. 

Moreover, as he takes on more roles and responsibilities at work, he now has less leisure time to spend with friends and family, due to high pressure demands from his employer. 

A significant portion of X's income might go towards paying for expensive medications and supplements to treat his health, which has been compromised. 

X might also fork out large sums of money to attend meditation classes and professional therapy sessions, in order to alleviate stress and manage or regulate his emotions.

Quality of life

Materially speaking, X is undoubtedly more well-off than he was before moving to the city. Yet, has moving to the city truly improved his quality of life? Taking the above into consideration, the answer becomes somewhat less clear-cut. 

And this is the crucial point: economic indicators, while useful in measuring growth in an economy, cannot capture how the same growth affects the quality of life, and by extension, the well-being and happiness of a population.

There is no discrimination, for example, in how economic activity and output affects society’s levels of happiness, engagement and satisfaction. 

Instead, economic indicators focus attention solely on economic outcomes, framing issues in narrow terms of cost-benefit market analyses to increase the production of goods and services, and enhance economic growth.

When it comes to government and policy planning, economic models and analyses often completely fail to capture important variables that may reveal important information about the causes of a particular policy problem, and in turn, compromise the ability of policymakers to evaluate the efficacy of existing structures and interventions.

When economic growth is valued as the main measure of progress, as it often is by politicians and government leaders, policy planning and decision-making processes will inevitably be skewed towards satisfying economic goals and priorities, and less on well-being.

In the realm of mental health, economic analyses create a narrow focus on 'productive' considerations, such as lost workdays and the costs of mental health treatment. 

In doing so, they omit considering the impact of mental health on the personal well-being of the person afflicted by illness, as well as those of other individuals involved.

For example, when it comes to crucial mental health policy issues – such as deciding on the amount of funding for treatment services, or introducing greater mental health support at the workplace – economic models force policymakers to weigh decisions in terms of practical 'cost benefits' and 'productivity gains' in return for investments, rather than considering the amount of emotional burden carried by family and caregivers, not to mention the afflicted individuals themselves.

Many people living with depression or anxiety disorders continue to work, despite their illness, and are miserable and struggle to function in the same way as they used to. 

Economic analyses often give no thought as to why the productivity of these individuals might be lowered, simply because they are not sensitive to the suffering that is present.

When policy planners design interventions around treatment based solely on economic models, they may also fail to acknowledge other barriers beyond income limitations that significantly influence whether or not people are able to access mental health services – the tremendous degree of societal stigma surrounding mental illness, for example, that prevents so many struggling with mental health issues from reaching out and asking for help.

All this is not to say that economic indicators do not have their use as measures of progress. At the beginning, economic indicators serve as a good first approximation of how well a nation and its people are faring. 

In theory, greater economic growth leads to more people having the ability to earn more and become more well-off, increasing their economic well-being.

Yet, past a certain level, and once basic needs are met, economic prosperity becomes an inexact surrogate for well-being. People generally feel better if they are materially richer, but wealth in itself is not a reliable guarantor of human happiness, nor authentic contentment and satisfaction in life. 

Proof of this may be seen in how, though Malaysia’s economic output has risen steeply over the past few decades, our people have not necessarily become happier and more satisfied, as reflected in the substantial rise in mental health problems.

What, at the end of the day, makes life worth living? 

If we pause for a moment to consider what gives us genuine fulfilment, our answers might include things like being able to spend time with family and friends, having time for leisure and relaxation, contributing to the community, enjoying and maintaining good health and meaningful friendships. Progress in any society should be measured and valued equally through this lens.

While economic growth is important, decision-makers in government should be equally interested in statistics that attempt to capture and meaningfully measure quality of life, rather than purely focusing on economic, monetary indicators.

Switching to this perspective would have powerful effects on how national priorities are weighed, public policies are structured, and ultimately, how much citizens are able to enjoy the richness of a life well lived.

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LIM SU LIN is a policy analyst with the Penang Institute. A History graduate from Cambridge University, her research interests lie primarily in promoting good mental health as a criterion for public policy, and to carry out research into the social, economic and cultural factors that help to enhance mental well-being and support recovery from mental distress. - Mkini