In an earlier post I suggested that there would be widespread agreement that a good society would provide members with a degree of personal economic security against potential threats to individual flourishing, including misfortunes such as accidents, ill-health and unemployment. (See: What are the characteristics of a good society?)
In suggesting that there would be widespread agreement about this I had in mind that nearly everyone would tend to be somewhat risk averse if they had to choose what kind of society to live in without any knowledge of their own personal circumstances. Rather than focusing exclusively on the median (or most likely) outcome of their choice I think nearly everyone would have some regard to what their quality of life might be like in various societies if they were to draw the short straw in terms of parentage, health, intelligence, good looks and good luck. (How people would actually respond to such a thought experiment is an empirical question. I recall reading somewhere that John Rawls’ difference principle has not been supported by empirical research, but this principle seems to assume extreme risk aversion applies to choices made behind a veil of ignorance. If any readers are aware of useful empirical research on this question I would be grateful to be made aware of it.)
It seems to me that the average income of people at the lower end of the income distribution is an appropriate measure of economic security because it relates directly to the quality of life that people are able to lead. This can be estimated for a wide range of countries using survey data on the percentage of national income or consumption of people in the lowest 10 percent of the income distribution. Another relevant indicator is survey data on the proportion of the population that have at times not had enough money to buy food that their family needed in the preceding 12 months.
The following table shows countries ranked by the average income level of people in the lowest 10 percent of the income distribution. Percentages with not enough food are also shown along with a range of other indicators of average well-being and institutional quality. As in similar tables in recent posts, the ratings of countries with performance in the top quartile for each indicator are shown against a green background, those for the second quartile are shown in yellow, the third quartile in orange and the fourth quartile in red. Indicators are defined below the table.
As would be expected, countries which rank highly in terms of average incomes of the bottom 10% tend to have the lowest percentage of people who claim that at times they did not have enough money to buy food. There are some interesting anomalies, however, at both ends of the spectrum. For example, the percentage claiming that they did not always have enough money for food were higher than would be expected in several high-income countries including the UK, Italy, Australia and New Zealand. Low-income countries in which the percentage claiming inadequate money for food was lower than expected included Nepal, Vietnam and India.
The table shows that average incomes of the bottom 10% of the population depend strongly on the goose that lays the golden eggs – i.e. on the institutional factors that determine average income levels of the whole population. I do not intend to imply, however, that democratic institutions and income redistribution policies of governments play no role in supporting incomes of the bottom 10%. A regression analysis suggests that democratic institutions do tend to support average income levels of the bottom 10% of the population. Examples are evident in the table. Countries in which relatively low ratings on ‘Voice and accountability’ may help explain lower than expected incomes of the bottom 10% include Iran, Tunisia and Argentina. Countries in which relatively high ratings on ‘Voice and accountability’ may help explain higher than expected incomes of the bottom 10% include India and Mongolia.
Hint: Click on the table for a clearer picture.
Notes:
Income index for the poorest 10%: Index expressed as a fraction of estimated average income of the poorest 10% of families in Norway, the country in which the poorest 10% have the highest average income. Estimates based on share of income/expenditure of the poorest 10% of the population from Table M, HDR 2009 Statistical Tables, UNDP.
Not enough food %: The proportion of the population claiming that at times in the preceding 12 months they have not had enough money to buy food that their family needed. Survey data from the Gallup World Poll.
Average income index: Real GDP per capita (rgdpl) for 2007 from the Penn World Table, expressed as a fraction of per capita GDP in the United Arab Emirates, the country with highest per capita GDP. Source: Alan Heston, Robert Summers and Bettina Aten, Penn World Table Version 6.3, Center for International Comparisons of Production, Income and Prices at the University of Pennsylvania, August 2009.
Voice and accountability: Index compiled by the World Bank capturing perceptions of the extent to which a country’s citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association and a free media.
Economic Freedom (Fraser): According to the Fraser Institute’s definition, individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others. Data from the 2009 report (for 2007).
Control of corruption: Index compiled by the World Bank capturing perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as ‘capture’ of the state by elites and private interests. Quality of life index: Gallup World Poll data on “life today” (latest available) country averages, expressed as a fraction of the rating for Denmark, the country with the highest rating.
Social capital: A sub-index of the Legatum prosperity index which reflects how well people are engaged in social networks and relationships that are trustworthy and supportive.
This follows on from my last post: Do all well-being indicators tell similar stories about human flourishing? The indicators that I looked at did tend to tell similar stories – countries that have high average income levels also tend to have high rankings on other well-being indicators.
The purpose of this post is to extend the analysis to consider the institutions that are associated with human flourishing. There is a great deal of evidence that economic freedom is associated with high income levels and other aspects of human flourishing such as health and education. Evidence on the effects of democratic institutions is less clear, although the opportunity for citizens to participate in political processes may itself be viewed as an aspect of human flourishing.
A recent study by Michael Stroup (‘Economic freedom, democracy and the quality of life’ World Development, 35(1) 2007) has examined interactions between economic freedom and democracy on measures of health, education and disease prevention. The study found that while greater economic freedom consistently enhances a range of well-being measures, democracy has a smaller positive influence.
I accept that leaders (and potential leaders) of non-democratic countries with low levels of economic freedom may need to consider whether they should give higher priority to democracy or economic freedom when devising strategies to improve the well-being of citizens. There are good reasons, however, why democracy and economic freedom should be viewed as complementary rather than competing objectives. For example, rule of law is less problematic if there is a mechanism for political leaders who are suspected of considering themselves to be above the law to be voted out of office. Similarly, control of corruption is easier in a democracy where the public has power to dismiss corrupt leaders. It is possible for democratic rights to result in greater rent-seeking and less economic freedom, but non-democratic rulers do not necessarily promote economic freedom and widespread prosperity – some seek to benefit themselves and their cronies by impoverishing the general public.
The following table presents indicators of the performance of various societies in relation to two indexes of economic freedom and the World Bank’s governance indicators. As in the table in the preceding post, countries have been ranked by per capita income levels. The ratings of countries with performance in the top quartile for each indicator are shown against a green background, those for the second quartile are shown in yellow, the third quartile in orange and the fourth quartile in red.
The table shows that all the institutional indicators tend to tell a similar story about performance of various countries. There are, however, a few exceptions for ‘Voice and accountability’, reflecting particularly an absence of democratic institutions in some high-income and upper-middle income countries. In the case of United Arab Emirates and Kuwait this is associated with relatively poor performance in a range of well-being indicators, but that is less evident the case in Singapore and Hong Kong (as can be seen by comparing information in this table with the one in the preceding post).
All the indicators are strongly correlated with per capita income levels. A few countries manage to have high per capita incomes without a high level of economic freedom and good governance – but only by producing a huge amount of oil.
Indicators are defined and information sources are presented below the table. Hint: Click on the table for a clearer picture.
Notes:
Income index: Real GDP per capita (rgdpl) for 2007 from the Penn World Table, expressed as a fraction of per capita GDP in the United Arab Emirates, the country with highest per capita GDP. Source: Alan Heston, Robert Summers and Bettina Aten, Penn World Table Version 6.3, Center for International Comparisons of Production, Income and Prices at the University of Pennsylvania, August 2009.
Economic Freedom (Fraser): According to the Fraser Institute’s definition, individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others. Data from the 2009 report (for 2007).
Economic Freedom (Heritage): The Heritage Foundation defines economic freedom as the right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labor, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself. Data from the 2009 report.
Voice and accountability: Index compiled by the World Bank capturing perceptions of the extent to which a country’s citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association and a free media.
Government effectiveness: Index compiled by the World Bank capturing perceptions of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies.
Regulatory quality: Index compiled by the World Bank capturing perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence.
Control of corruption: Index compiled by the World Bank capturing perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as ‘capture’ of the state by elites and private interests.
Human flourishing is about enjoying the things that it is good for humans to have. It is more than economic opportunity; it is more than feeling happy or satisfied with life; it is more than safety and security; it is more than good health and longevity; it is more than educational opportunity; it is more than being free to choose how you live your life; it is more than the opportunity to participate in political processes; it is more than social capital; it is more than the opportunity to enjoy the natural environment. These things may all be relevant to human flourishing but no single aspect incorporates everything that contributes to individual flourishing. Any list of aspects of human flourishing is likely to be incomplete and include items that are more important to some individuals than to others.
Hopefully everyone who reads the above paragraph will consider it to be a statement of the obvious. However, the idea that there is more to life than feeling happy or satisfied actually seems to be quite controversial. Some happiness researchers, including some economists, seem to think that everything that is good for humans to have can be reduced to a single number reflecting feelings of happiness or satisfaction with life.
In an earlier post (What are the characteristics of a good society?) I suggested that nearly everyone would agree that a good society would provide its members with opportunities to flourish – to have more of the things that are good for humans to have. In another post (Is a good society index a good idea?) I foreshadowed that I would attempt to identify the suite of indicators that are most relevant to assessing to what extent particular societies might qualify as good societies. This post goes some way toward that objective. It presents indicators of the performance of various societies in relation to a range of aspects of human flourishing.
In the following table countries have been ranked by per capita income levels. The ratings of countries with performance in the top quartile for each indicator are shown against a green background, those for the second quartile are shown in yellow, the third quartile in orange and the fourth quartile in red.
The table shows that many well-being indicators tell a similar story about human flourishing. It also shows, however, that both per capita GDP and subjective indicators of the quality of life have limitations as well-being indicators. This is particularly evident in regard to societies such as United Arab Emirates, Singapore and Kuwait. (Many of the indicators used in the table are sub-indexes of the Legatum Prosperity Index. Indicators are defined and information sources are presented below the table.)
Notes:
Income index: Real GDP per capita (rgdpl) for 2007 from the Penn World Table, expressed as a fraction of per capita GDP in the United Arab Emirates, the country with highest per capita GDP. Source: Alan Heston, Robert Summers and Bettina Aten, Penn World Table Version 6.3, Center for International Comparisons of Production, Income and Prices at the University of Pennsylvania, August 2009.
Quality of life index: Gallup World Poll data on “life today” (latest available) country averages, expressed as a fraction of the rating for Denmark, the country with the highest rating.
Safety and Security: A sub-index of the Legatum prosperity index. High ratings reflect the existence of a safe environment and peaceful society.
Health: A sub-index of the Legatum prosperity index measuring how well citizens are capable of living long and healthy lives.
Education: A sub-index of the Legatum prosperity index reflecting mainly the years of schooling that a nation’s citizens complete.
Freedom: A sub-index of the Legatum prosperity index which measures how well citizens are able to freely choose the course of their lives and their perceptions of societal tolerance.
Democratic Institutions: A sub-index of the Legatum prosperity index which reflects civil liberties, political rights, the independence of the judiciary etc.
Social capital: A sub-index of the Legatum prosperity index which reflects how well people are engaged in social networks and relationships that are trustworthy and supportive.
Environmental satisfaction: Gallup World Poll data on the satisfaction of citizens with efforts to preserve the environment in their country, presented in index form such that the highest rating country has a rating of 1.0 and the lowest rating country has a rating of zero.
This question arose as I was thinking about the relationship between the determinants of happiness (i.e. survey measures of subjective well-being or SWB) and human flourishing at a national level.
Recent research has been able to explain around 90% of inter-country differences in average SWB in terms of average income levels, enough money for food, healthy life expectancy, friends to count on, perceptions of freedom, corruption, charitable donations and church attendance. (See: John Helliwell et al, NBER Working Paper 14720.) It is not surprising that these factors affect well-being but it is hard to accept that items on this short list could explain as much as 90% of variation among countries in average well-being. Other factors that might also be thought likely to affect well-being include education, environmental quality, democratic institutions, and participation in cultural and sporting activities.
In the case of education, some studies have shown that while higher levels of education tend to be associated with higher levels of SWB, the effects of education tend to drop out when other factors such as health status and income are included in models. Education improves health and income-earning potential and thus indirectly contributes to SWB. Furthermore, the importance of education to individual well-being does not depend solely on its impact on satisfaction with life or happiness. Education could arguably still be good for people even if it did not make them feel good.
It is possible that similar considerations may apply with regard to environmental quality. For example, water and air pollution are detrimental to health and longevity. Furthermore, arguments advanced in favour of preserving the natural environment do not rest solely on the contribution it makes to the emotional well-being of humans.
However, there does not seem to have been as much research done on the contribution of environmental quality to SWB. This may be because of the difficulty of interpreting available survey data relating to perceptions of the natural environment.
The World Values Surveys include questions concerning the priorities that people give to environmental protection. These surveys show that the proportion of the population who consider that higher priority should be given to environmental protection than to economic growth tends to be somewhat higher in high-income countries with relatively high average SWB. These results might reflect what Ronald Inglehart has described as a shift toward postmaterialist values in advanced industrial societies rather than dissatisfaction with efforts to preserve the environment.
The Gallup World Poll asks respondents specifically whether they are satisfied or dissatisfied with efforts to preserve the environment in their country. Some characteristics of countries in which high and low proportions of the population are satisfied with efforts to preserve the environment can be compared in the chart below. The other variables shown in the chart are: per capita GDP expressed as a percentage of that in the country with highest per capita GDP (United Arab Emirates); average quality of life (data from the Gallup World Poll expressed in percentage terms); government effectiveness -perceptions of the quality of public services; and regulatory quality - permitting and promoting private sector development. (The latter two indexes are sub-indexes of the World Bank’s suite of governance indicators, converted to percentage terms such that the country with lowest rating has a score of 0% and the country with the highest rating has a score of 100%.)
The chart shows that satisfaction with efforts to preserve the environment tends to be somewhat greater in countries with higher average incomes. The factor that stands out most, however, as a characteristic of countries in which there is greatest satisfaction with efforts to preserve the environment is government effectiveness.
Countries which rate highly in terms of both satisfaction with environmental efforts and government effectiveness include Singapore, Austria, Switzerland and New Zealand. At the other end of the scale, countries which combine low ratings in terms of both of these factors include Mongolia, Ukraine and Pakistan.
