Vantage View: Why rising national income is not making us happier

Most of the Arab countries have been recording respectable growth rates in the past few years. According to the Unified Arab Economic Report, GDP of the Arab countries doubled in the past 16 years from $374.6 billion in 1985 to $750 billion last year, and per capita income during the same period rose from $1,960 to $2,540.

While better economic conditions have greatly increased overall levels of prosperity, they have conspicuously failed to deliver a corresponding improvement in the people's sense of being happier.

Levels of reported happiness for a wide sector of the population seem to have either stayed the same or in some cases declined. Experiences from elsewhere make us expect that as a country grows richer and its national income is on a rising trend, rich and poor alike would become happier.

However, in most Arab countries they have not.

Discontent

The paradox is that when an individual enjoys higher income levels he becomes happier, but when the society as a whole attains higher standards of living, not everyone seems to be content.

To say that money does not buy happiness is not exactly new, as those who moved up on the income ladder would attest. But to suggest that beyond a certain point, societies do not get happier as they become richer, has strong policy implication that is worth analysing.

So far the government has been using GDP as a proxy for well-being. Yet, if the link between GDP and happiness no longer exists, one of the key objectives of government policy, of attaining high real growth in GDP, would be a necessary but not a sufficient condition to deliver a corresponding improvement in people's sense of well-being.

An explanation for our societies' broader sense of dissatisfaction may lie in the "Hierarchy of Needs" that Abraham Maslow, a behavioural psychologist, drew up in 1943. Maslow asserted that the highest level of human satisfaction and happiness was the need to achieve self-fulfilment. Below that there were other levels of needs, each of which had to be satisfied before people could progress to the next.

Recently, economic studies on happiness supported Maslow's proposition. They showed that while people on very low income become significantly happier when their earnings rise, but once they reach a quite modest level of income, as little as $500 a month, further increases in earnings bring little extra happiness.

One explanation is "habituation" whereby people adjust quickly to changes in living standards. So although improvements and material well being make them happier for a while, the effect gradually fades away.

For instance, 30 years ago central heating was considered a luxury, and so was the mobile phone five years ago. Today these are viewed as essentials.

A second and more important reason why more money does not automatically make everybody happier is that people tend to compare their situation with that of others. In a striking example, when senior employees of a local bank were asked whether they would prefer (a) four months' bonus while others got half of that or (b) five months' bonus while others got six months, a majority chose (a).

It seems that they will be happy with less, as long as they are better off than others. Other studies confirm that people are often more concerned about their relative income to others than about their absolute income.

Pleasure derived from attaining a higher standard of living can vanish quickly when people learn that others in their community or society have done better. Because of better communication and means of transportation, the poor are now able to witness first hand the extravagance of the few at the top and envy them for what they have.

The unhappiness that one person's wealth can cause to others is a form of "economic pollution" that has not been properly addressed in economic theory and policy.

Depressed and envious

Attaining real economic growth rates of three per cent annually would double the region's GDP in 25 years. But would that make us twice as happy?

Would being exposed to twice as many consumer goods put us at a higher level of satisfaction, or would it simply make us twice as depressed and twice as envious?

Rather than wait to find out, governments of the region should take new initiatives and set new targets that go beyond attaining higher GDP growth rates. These would include achieving higher levels of satisfaction and happiness.

It is easier said than done, but we need to be creative and think outside the box. It has become imperative that everyone should sooner than later be able to satisfy his basic needs so that he can ascend to a higher level of Maslow's pyramid.

The second level of this pyramid which includes people's need for safety and security have been acting as a drag on people's well-being because of the generally unsettling regional risk factors.

Love and belonging

The third level which puts emphasis on love and belonging, including the desire to feel accepted by the family and the community are easier to be attained here than in the Western world.

Unemployment, poverty and the feeling of insecurity are major sources of unhappiness in our part of the world that need to be addressed. People in the lower to middle income brackets should not feel they are shouldering a heavier tax burden than the ones in the higher income brackets.

If happiness is more important than money then governments should do all they can to communicate to the population at large ways and means to attain happiness, emphasising the importance of enjoying what they have and the need to pursue self-esteem and fulfilment rather than material well-being only.

The writer is the Jordan-based CEO of Jordinvest.