Economic Growth and Human Wellbeing (Part III)

(This post is the final post of a three-part series. See Part 1: Introduction and Part 2: Revisiting Limits to Growth.)

Part 3: The Psychological Down Side of Growth

(a)  Subjective well being/ happiness

Despite attempts to develop a more complex understanding of human progress, policy makers and many economists still habitually conflate economic growth with improved well-being and greater happiness as did 19th century economic theorists. However, it is now clear that there is no necessary relationship between the two.

While it is true that increasing income improves health and wellbeing up to a point, the gains – whether measured at an individual or a societal level – flatten out very quickly (Bok, 2009). As many have shown, at low levels of economic development, when many people live in poverty, even modest economic gains produce significant effects on the quality of life – better food, clothing, shelter, medical care, education and life expectancy. It also improves people’s happiness and sense of wellbeing. In these circumstances, it makes sense for national policy to focus on economic growth. But beyond a certain threshold, and it turns out to be at quite a modest level of income, further growth results in little gain either in well-being or life expectancy. At this point other factors are more significant influences on the quality and length of life.

There is now a substantial literature on “subjective well being” designed to assess what factors affect people’s perceptions of the quality of their lives. The research is based on large scale surveys of national differences in responses to questions about happiness and general satisfaction. The scope of such studies is extensive, ranging from questions about whether and to what extent increases in income result in greater happiness to the effects of marriage on happiness and the impact of crime levels on life satisfaction. Subjective well being (SWB), measured by self-reports, is the indicator most often used. It refers to ‘a broad category of phenomena that includes people’s emotional responses, domain satisfactions, and global judgements of life satisfaction’ (Diener et al., 1999, p. 277). It consists of two elements: an affective one (positive or negative feelings) and a cognitive one, which is how people judge the extent to which their lives meet their expectations.  According to Diener and Seligman (2004) the major dimensions are pleasure, engagement and meaning.

It is no surprise that the two most important predictors of life satisfaction are health status and family situation, and while studies show that there is also a positive correlation between income and happiness, the effect is largely due to the benefits which accrue to low income earners. Put simply, $10,000 buys a lot more “happiness” for someone earning $20,000 than someone earning $200,000 a year. Although per capita income has continued to increase in the developed economies over the last half century or so, happiness has not, the so-called “Easterlin Paradox”.

Some recent research suggests that, at a national level, subjective well being depends less on income and more on people’s perception that they have free choice in their lives rather than being subject to external authority (Welzel et al., 2003). Radcliff (2001), for example, found that people tend to be happier under social democratic welfare regimes, although he is careful not to argue that this is a causal relationship. Ingelhart and Welzel (2005) have also shown that in all the major cultural groups, happiness is linked with people’s sense of freedom. In their most recent international comparisons,  Ingelhart and his colleagues take this a step further, showing that “democratization, economic growth, and growing social tolerance contributed to a rising feeling that people have free choice and control of their lives.” Using an index of the extent to which a given community accepted people of other races, immigrants and homosexuals as neighbours, they showed that people living in more tolerant societies tended to be happier, no matter what their own beliefs. In their review of the relevant literature, Diener and Seligman (2004) concluded that people with the highest reports of well being are not those who live in the wealthiest countries but those who live in nations which have effective political institutions, where human rights are protected, where corruption is low and mutual trust is high. A rational response would seem to be to shift the policy goals toward improving the quality of life rather than “to continue the inflexible pursuit of economic growth as if it were a good in itself” (Inglehart, 1997, pp. 64–65).

In fact, the research indicates that beyond a certain point, relative income is all that matters. Hence, an across the board rise in income will have little effect on happiness. Furthermore, there is also evidence that people readily adapt to their circumstances; while increased income may have a transitory effect on happiness, the effect quickly dissipates.


(b)The effects of environmental degradation on well-being 

 What is often also overlooked in the simple equation of wealth and happiness is that the social and environmental costs of rising consumption may generate health and well-being risks of their own. People exposed to persistent noise, drought and unusual weather are more likely to report feelings of unhappiness – and, in the case of extreme heat in Australia, even to be admitted in increased number to emergency psychiatric care (Nitschke et al., 2003). Sherwood and Huber (2010) have shown that, while it appears to be generally assumed that humans will simply adapt to warmer climates, in reality “even modest global warming could…expose large fractions of the population to unprecedented heat stress, and that with severe warming this would become intolerable” (p 9552).

In recent studies, the state of the environment has been shown to be an important in predictor of national differences in subjective well being. Rehdanz and Maddison (2005), for example, found that for 67 countries tracked  between 1972 and 2000, climate variables were shown to have a highly significant effect on SWB and projections from these trends indicated that countries with very high summer temperatures (like Australia) were the most likely to suffer reductions in wellbeing as a result of climate change. Panel data from 10 European countries were used by Welsch (2006) to analyse the effects of air pollution on SWB. He found that, after controlling for income, differences between countries and changes over time could be predicted by objectively measured air quality.

In one of the few studies to examine the effects of environmental conditions on well being in a developing economy, Smyth and his colleagues (2008) found that people living in Chinese cities with high levels of atmospheric pollution, environmental disasters and traffic congestion reported significantly lower levels of well-being. They later studied the relationship between environmental surroundings and personal well-being across six Chinese cities and found a strong negative association between atmospheric pollution and personal well-being.

The psychologically adverse consequences of destruction of the natural environment have also been documented in Australia (Conner et al., 2004). Interviews with people living in the Hunter Valley of New South Wales found that “the transformation of the environment from mining and power station activities was associated with significant expressions of distress linked to negative changes to interviewees’ sense of place, well-being, and control” (p 47). Pollution can affect well being both through an awareness of the adverse health and ecosystem effects of pollution as well as through the direct health effects. Several researchers (Ferrer-i-Carbonell and Gowdy, 2007; MacKerron and Mourato, 2008) have reported negative correlations between perceptions of pollution and well being.

Economic activities that diminish the quality of the environment and increase pollution harm the communities that are supposed to benefit. Conversely, contact with the natural environment has been shown to reduce stress, improve children’s behaviour and increase well being. Indeed patients appear to recover faster from surgery when they are able to see plants, flowers and trees. Although we might like to think that the natural environment is a tool at our disposal, that we are entitled, as the Book of Genesis suggests, to exercise “dominion” over “all the earth”, in fact we are part of the natural world and, for better and for worse, inextricably tied to the earth and deeply affected by it. Poets understand this. Politicians should too.



Bok, D. (2009). The Politics of Happiness What Government Can Learn from the New Research on Well-Being. Princeton University Press.

Conner, L., Albrecht, G., Higginbotham, N., Freeman, S. & Smith, W. (2004). Environmental Change and Human Health in Upper Hunter Communities of New South Wales, Australia. EcoHealth 1 (Suppl. 2), 47–58.

Diener, E & Seligman, M. (2004). Beyond Money. Toward an Economy of Well-Being. Psychological Science in the Public Interest, 5 (1), 1-31.

Diener, E., Suh, E., Lucas, E., & Smith, H. (1999). Subjective wellbeing: Three decades of progress. Psychological Bulletin, 25, 276–302.

Easterlin, R. (2001). Income and Happiness: Towards a Unified Theory, Journal of Economics, 111.

Ferrer-i-Carbonell, A.  & Gowdy, J. (2005). “Environmental Awareness and Happiness,” Rensselaer Working Papers in Economics 0503, Rensselaer Polytechnic Institute, Department of Economics.

Inglehart, R. (1997). Modernization and postmodernization: Cultural, economic and political change in 43 societies. Princeton, NJ: Princeton University Press.

 Inglehart, R., Foa, R., Peterson, C. & Welzel, C. (2008). Development, Freedom, and Rising Happiness: A Global Perspective (1981–2007). Perspectives on Psychological Science, 3 (4).

Sherwood, S. & Huber, M. (2010) An adaptability limit to climate change due to heat stress. Proceedings of the National Academy of Science, 107 (21), 9552-9555.

Smyth, R., Nielsen, I., Zhai, Q., Liu, T., Liu, Y, Tang, C.Y., Wang, Z., Wang, Z. & Zhang, J. (2008). Environmental surroundings and personal well-being in urban China, Monash Department of Economics Discussion Paper 32/08.

van Praag, B., & Baarsma, B. (2004). Using Happiness Surveys to Value Intangibles: The Case of Airport Noise (Tinbergen Inst. Discussion Paper No. 04-024/3).

Welsch, Heinz (2006). ‘Environment and happiness: Valuation of air pollution using life satisfaction data.’ Ecological Economics, 58 (4), 801-813.

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