Happiness and Poverty in Developing Countries

A Global Perspective

John Malcolm Dowling, Chin Fang Yap

• Publisher: Palgrave Macmillan
• Year: 2012
• ISBN:
  9781137292292
• Topic: Economics
• Subtopic: Economic Policy
• Index: Economics

This book analyzes the determinants of happiness for both the rich and the poor in the developing regions of Asia, Latin America and Africa. Explanatory variables include education, health and income as well as demographic and social variables. The book highlights the overwhelming importance of health in uplifting well-being in these regions.

1

Introduction

To begin our study of the determinants of well-being and happiness, it is useful to take a look at the history of ideas and how being happy as a goal in life has evolved. We start with the ancient Greeks, a good beginning point for readers steeped in the traditions of Europe. Fatalism pervaded the world of philosophy in the early days of the Greek empire. This was reflected in drama and in the writings of early historians such as Herodotus. As Greek civilization evolved and their wars with Sparta and the Persians came to an end, a fresh breath of freedom, greater wealth, security and tolerance emerged, along with the belief that individuals could, indeed, seek to be happy as individuals. These new attitudes found a voice in the writing of Socrates, who said that the search for happiness is a natural longing (see http://classics.mit.edu/Herodotus/history.html). Furthermore, “Socrates and Plato created a longing of tremendous power. Their happiness is the sum of all desires, the final resting place of Eros, the highest good” (McMahon 2004, p. 90). These ideas reached their zenith in the work of Aristotle. He argued that everything we do is in pursuit of some end result:

in medicine this is health, in generalship victory; in house building a house … in every action and decision it is the end, since it is for the sake of the end that everyone does the other things … everything that is pursued into action … will be the highest good … and to be a good human being is to be a happy human being and happiness is an activity of the soul expressing virtue.

(Aristotle, Nichomachean Ethics 1.73 and 1.81, translated by Terence Irwin, 1985)

and “Happiness is the meaning and the purpose of life, the whole aim and end of human existence” (Aristotle).

Following this Aristotelian logic, the purpose of research on happiness in the modern era is to investigate the sources of happiness for different people around the world. In this book we focus on developing countries, where deprivations and poverty are more widespread and where there has been less emphasis on the determinants of well-being and happiness.

In recent years the topics of happiness and well-being have become the subject of considerable research and economic policy discussions. There have been a growing number of studies of the determinants of well-being, which began with a focus on per capita income. It was soon realized that per capita income and living standards need to be augmented if we are to gain a fuller and more complete understanding of what motivates individuals and societies to lift their levels of well-being and happiness.

There are two major strands of research that characterize the search for a more robust measure of well-being that goes beyond the narrow concept of per capita income. The first research program into well- being is known as the capabilities approach. The focus is on the provision of social and economic goods and capabilities which contribute to raising levels of happiness and well-being. These include food, health, education and other social services necessary for leading a fulfilling life. The capabilities approach is closely related to basic needs and has been implemented in the Human Development Index (HDI), which has been compiled by the United Nations for countries around the globe for the past few decades. It is also closely associated with the work of Amartya Sen, who has written extensively on this approach. Originally couched in terms of income alone, such measures have been expanded to include indices of educational attainment and health outcomes. The HDI, developed by UNDP and incorporated in its influential Human Development Report beginning in the 1980s, is the first example of this sort of measure. It has been widely used and quoted as an alternative to a simple income measure of poverty. The index includes life expectancy and average years of schooling completed as supplements to per capita income, which is the third leg of the stool that the index stands on.

Recently Oxford University has developed a Multidimensional Poverty Index (MPI), which is highlighted in the UNDP Human Development Report of 2010. This index uses a similar approach to the HDI, but expands the database to include a variety of new health, education and standard of living components (the latter including but not exclusively relying on income) which rely on more detailed data sets than the HDI. The Organisation for Economic Co-operation and Development (OECD) has also published an analysis of a variety of social and economic indicators for its member countries as a component of its semiannual outlook publication (see OECD 2011, which can be downloaded from the OECD website www.oecd.org). These well-being indicators include many additional variables in addition to those in the MPI index.

The Oxford MPI Index is briefly summarized as follows.

Health (each indicator weighted equally at 1/6): Child mortality, measured by whether any child has died in the family; nutrition, measured if any adult or child in the family is malnourished.

Education (each indicator weighted by 1/6): Years of schooling, if no member of the household has completed 5 years of schooling; child enrolment, measured by noting whether any school-aged child is out of school in years 1–8.

Standard of living (each indicator weighted at 1/18): Electricity, if a household does not have electricity; drinking water, if household does not meet Millennium Development Goals (MDG) definitions of less than a 30 minute walk to safe drinking water; sanitation, if it does not meet MDG definitions or if toilet is shared; flooring, if the floor is dirt, sand or dung; cooking fuel, if cooking is done with wood, charcoal or dung; assets, if household does not own more than one of the following: radio, TV, telephone, bike, motorbike.

The MPI is the product of two numbers – the headcount ratio, or the percentage of people who are poor, and the average intensity of deprivation. The average density of deprivation reflects the proportion of dimensions in which households are deprived.

Data are assembled at the country level and also include some analysis of different regions within countries. Both the MPI and the HDI draw conclusions about the breadth and depth of poverty drawn from an analysis of these surveys. Comparisons are drawn between the HDI and MPI indices, pointing out the importance of adding a richer source of data to the conventional income per day and HDI benchmarks. More recently the OECD has developed a Better Life Index (www.oecdbetterlifeindex.org), which measures 10 aspects of life for OECD countries in a broader context than poverty, as follows: income, housing, jobs, community, education, environment, health, government, life satisfaction and work-life balance.

To quote the Economist magazine:

Looking at many aspects of poverty at once has several benefits. One problem with considering just one indicator is that some deprivations may be a matter of choice. … Some, for instance, may prefer the earthiness of a mud floor to the coldness of a concrete one. But the number of people choosing to be malnourished, illiterate, lacking in basic possessions and drinkers of dirty water all at once is probably fleetingly small. A person deprived along many of these dimensions surely counts as poor. The Economist, July 31 2010 (p. 62)

However, one can question whether the poor will always provide unreliable and misleading information regarding their own well-being. When there is long-standing deprivation, the poor try to adapt to these parlous circumstances. They don’t weep and wail. That doesn’t mean they love squalor. They make do with what they have. When asked they may say they are doing OK even though they are poorly clothed, malnourished and in poor health while living in a slum. Yet it seems ludicrous to think that we should not ask them about their goals and aspirations and value their responses to these questions. We need to value their aspirations, goals and objectives in making a more prosperous, happy and fulfilling life for themselves and their families. It is vitally important to know what the poor and underprivileged want for themselves. Do they want better housing and secure clean water close by? Do they want better health and education facilities? Do they want more income and cleaner and safer working conditions? How do improvements in living conditions, health, education and income impact on the well-being of the poor and their level of happiness? These objectives seem to us an achievable and laudable objective for research into the living conditions of the poor. In whatever richness of detail possible, we can explore what effect changes in life circumstances of the poor will have on their level of happiness and well-being.

The second approach followed in searching for a better measure of happiness is known popularly as subjective well-being. Subjective well-being relies on the results of personal interviews with many thousands of individuals in different countries on all continents. The motivation for this focus on well-being is that individuals are the best judges of their own well-being and happiness. The most widely accessible database on well-being has been assembled by a group of researchers around the globe. The World Values Survey is organized as a network of social scientists coordinated by a central body, the World Values Survey Association. The hope is that a more robust and deeper understanding of the determinants of well-being and happiness can be obtained by assembling responses to questions about well-being and other pertinent socioeconomic and cultural variables which serve as possible determinants of well-being and happiness.

There is a deep philosophical difference between the two approaches. Subjective well-being relies on individuals to assess their own state of mind and to evaluate their life experience. It relies on direct observation of the individual valuation of his (or her) own experienced utility and serves as an important proxy measure for revealed preference where other measures of revealed preference are not possible. On the other hand, the capabilities approach relies on government and society to determine the appropriate level of basic goods and services that should be provided to its citizens. Although the United Nations has attempted to codify some of these entitlements, there are still differences of opinion as to the appropriate level and the mix of these goods and services. And, in the end, it is outside observers who determine what contributes to the well-being of citizens of the world. As Deaton (2008) observes,

The survey measures of life and health satisfaction are direct measures of an important aspect of human experience, and economists and other social scientists need to understand what they mean, how they relate to familiar objective measures such as income and life expectancy, whether they are superior, inferior, or just different measures of well-being. (Deaton 2008, p. 13)

The research and policy agenda differs depending on which approach is followed. In the subjective well-being literature, the basic thrust is to achieve a better understanding of the determinants of subjective well-being by analyzing the questionnaire responses that have been compiled in different locations and at different times. There are many studies, some involving thousands of questionnaire responses for different countries and different time periods. Researchers have devoted their lives to sifting through these data sets to draw conclusions about the determinants of well-being using sophisticated empirical techniques. Policy conclusions often flow from these investigations, but only after careful analysis of the questionnaire responses.

The basic needs, entitlement or capability analysis is a policy-based approach that gives people freedom to make economic and other social choices by providing goods and services by which to achieve their individual and collective objectives. Not much stress is put on the analytical foundation for this approach, aside from the recognition that certain objectives, including access to food, health and sanitation, education and other public services in adequate measure, are assured.

A third approach, mentioned by Stiglitz et al. (2010) in their recent book, which summarizes the report of the Commission on the Measurement of Economic Performance and Social Progress and which has been developed by economists, is based on concepts developed in the field of welfare economics and requires weighting the nonmonetary dimensions of the quality of life so that people’s preferences are taken into account. This approach requires establishing some reference point for each of these dimensions and obtaining people’s preferences with respect to the reference. So far, we are not aware of any studies that have developed a concrete application of such welfare measures.

1.1Extensions and criticisms of the subjective well-being approach

As long as we can rely on responses to questions about well-being as reflecting the true state of the individual’s well-being, then we are justified in using these responses and the associated responses to other questions in these surveys to build up an analysis of the determinants of well-being and to use this analysis to measure differences in the quality of life and well-being between individuals and across societies. But what if these responses are somehow biased or otherwise unreliable indicators of well-being and happiness? There are several comments.

Psychologists and economists have been studying the relationship between happiness and behavior for a long time. Daniel Kahneman won a Nobel prize for his work on decision-making and has recently published a book that explores well-being and how people arrive at a decision to answer survey questions. Others have made significant contributions to our understanding of utility and happiness. In this work a number of new discoveries have been made that demonstrate the complexity of decision-making and the difficulties encountered in developing a coherent theory of what makes people happy. Much research has been developed against a background of a rational decision-maker, which economists have embraced in much of their work on choice. We are not concerned here with exploring the full range of behaviors that have been discussed in the economic and psychological literature. Rather, we focus on the relationship between choice, well-being and public policy as they relate to surveys of well-being, and how public policy can be used to increase the level of happiness and well-being generally, and particularly among the poor.

Many behavioral patterns have been discovered which could aid in this endeavor. The first is that people react quickly to changes in circumstances and then return to some predetermined genetic or behavioral equilibrium after a short interlude of adjustment. This equilibrium is sometimes referred to as homeostasis or as a “set point.” If this is indeed the case, then attempts to determine what factors lead to a higher level of well-being or happiness would be futile. After a short time the individual returns to the original state of well-being. There has been substantial research on this phenomenon of “adaptation.” There is no question that such a process does go on. Accident victims and people with disabilities do recover a degree of well-being after a time, as do winners of the lottery. However, the adaptation is not complete. There is a permanent loss of well-being (see Brickman et al. 1978, Diener et al. 2003 and Lucas 2007). More generally, “affective forecasting,” where individuals try to anticipate the satisfaction of something new in their life (relationship, promotion, vacation, etc.), shows generally that people overestimate the impact of these new anticipated developments on their well-being. This works in both directions: being sick, having an operation, losing your job or getting divorced is not as bad as it seems before the fact, and the same is true of the anticipated satisfaction of a vacation, a new purchase or a new relationship. In this sense, the return to the set point is a way that we all have of smoothing out our emotional reaction to short-term perturbations in our lives (see Diener et al. 2006, Gilovich 1991 and Wilson and Gilbert 2003). This does not mean that we can ignore these short-term movements. It does mean that they may not be as momentous as we believed them to be when they originally occurred.

The second observation is that adaptation by the peer group effect has an important impact on well-being. This is a more general, although similar, form of adaptation than the response to unexpected changes in life circumstances discussed above. It refers to how the life circumstances themselves affect our well-being and decision-making processes. This is commonly referred to as “keeping up with the Joneses,” and has been observed when looking at the relationship between income and happiness in many different countries. More specifically, it refers to the hedonic process of adaptation to changes in levels of consumption and income over time. We get used to a bigger house, a nicer car, a quieter neighborhood, better proximity to schools, more varied entertainment or exercise facilities. So, no matter how much we accumulate, we are unable to lift our subjective well-being very much. And this adaptive mechanism also relates to how we see ourselves in relation to our neighbors, coworkers and friends. This form of social comparison can be a powerful influence on well-being and happiness. This phenomenon makes itself manifest in the importance of looking at relative income and its impact on happiness.¹ Economists have appreciated the importance of relative income for a long time. In the modern era this began with the relative income hypothesis of Dusenberry (1949) and the habit persistence theory of Friedman (1957). Fr...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Tables
• List of Figures
• Acknowledgments
• 1   Introduction
• 2   Analysis for Asia
• 3   Analysis for Africa
• 4   Analysis for Latin America
• 5   Conclusions from the Analysis of Probit Analysis for Asia, Africa and Latin America
• Notes
• Bibliography
• Index