The pursuit of happiness
In a couple of years the European Union will start measuring the impact of its spending. Who did it call for help? Not a bunch of experts in commodity prices or job creation, but a panel including the University of Waikato economist Riccardo Scarpa.
Thursday, October 27 2011 || The Conversation || BY Amanda Sachtleben
What is non-market valuation and why is it important?
People enjoy a bunch of things that don’t have real markets, they have hidden or latent markets. For example, living in a particular part of town with low criminality or good access to parks. Implicitly these things have value for people but you can’t go out and buy them. That’s what I specialise in.
The importance of this measurement is that in the end all economics has been doing since the war is trying to create markets so people can exchange products and services rather than bullets. I would claim this has been extremely successful but the overall aim has always been improving social welfare.
A good portion of social welfare depends on non-measurable things and if you don’t even try to measure them in an objective and replicable fashion there is a good portion of welfare that will never enter the equation. Since the ‘70s economists have been trying to come up with frameworks to measure these things and 40 years down the road we think we have something valid — and psychologists and sociologists think the same. There’s convergence that these things do matter and are valid for society. We should attempt to measure them and feed back into the political debate.
You say measurement of non-economic aspects like happiness, social values and time is the most important policy change since the establishment of the EU. Why?
How different regions can develop economically at the same rate is a big issue in Europe now because regions have different rates of economic development and, since the economic crisis, a different rate of recovery. The EU has been spending money since it established its constitution on making different regions equitable from the viewpoint of economic growth.
Until recently they [the EU] never really thought about monitoring the outcome of investment programmes, they were just giving money for specific development criteria. They didn’t monitor how the money was spent and if it would specifically improve the welfare of the people the money was targeted for.
So how do you credibly measure something like happiness?
Happiness is a state of mind and you can always relate states of mind, measured in a particular way, to objective economic indicators — and the relationships between a surveyed measure of happiness and economic qualities you know exist in particular areas. You can run statistical analyses of whether these things are related. You have to rely on theory and common sense to understand whether one causes the other or vice versa. Causality can never be established statistically, but correlation can.
There are scales that psychologists, health scientists and sociologists have developed. There is psychometric theory on how to measure these things in a reliable fashion so you can use the same scale of measurement across countries. There is also a lot of development with the use of vignettes or reference points. You can give people a pictorial representation of a particular circumstance and ask them how they feel, so everybody has to refer to that representation and they have a common reference point.
We normally measure willingness to pay for a particular scenario where conditions are changed from the status quo when a programme is in place. For example, if you’re funding an irrigation scheme you can say to farmers, “If this volume of water was available seasonally, how much would you be willing to pay?”
A few years ago the French government reduced the working week there from 40 hours to 36. That has never been measured in terms of the impact of happiness on society. If any other country introduced something like that it would be a good idea to evaluate the impact.
You can also measure time dedicated to charity work. There are some parts of Italy where charitable work is the main avenue through which society provides support to the fragile groups in society and it comes from along tradition. I come from Venice and my grandad was the president of all the charitable associations of the city. I know he handled a huge amount of money at Christmas and Easter and he would visit people and make a contribution. Nobody paid for this, it was done mostly by retired people who had time on their hands. These things are important — their presence or absence in a social network may change the benefit people in society derive from their existence.
You call time the ‘universal currency’. What role does it play in our culture and society?
Time allocation is the most important decision people make daily. There are studies that investigate where time management is learned and whether it is learned at all. There are children who turn out to be dysfunctional in everyday life because they don’t have time management skills. There are a lot of studies looking at how people allocate time between different activities like shopping, time with children, time with other relatives or in front of the computer watching Youtube. Time management skills are very important in a busy, post- industrial society like ours. People forget that before 1988 we didn’t have worldwide email and now people spend up to an hour a day just replying to their emails. That erodes working time and requires prioritising.
Is there enough emphasis among businesses on the impact of their decisions on quality of life?
What is the rationale for having businesses? If it’s to pay dividends to shareholders, nothing else is an issue. If we start moving the rationale towards creating a work environment in which people are happy and we can measure this happiness and persuade people that happiness is an important output as well as producing value for shareholders, perhaps we’re moving in the right direction.
We hope that as these measures acquire more credibility, they become the important measures people look at, rather than economic indicators like income growth at country level. You can achieve income growth and make everybody miserable, and you can decrease income and make everybody happier. Which of the two would you like?
