Analysis of GDP and Happiness in the UK - Focus on Nottinghamshire

Executive Summary:

This report investigates and explores the mainstream measures of economic progress to assess if they accurately reflect the nations Happiness & Wellbeing. Despite strong recovery, economists believe that Brexit may have a hard impact on the UK’s economy, however many feel that the damage may be more regional. In regard to this matter, this report aims to look at how general economic measures of happiness & wellbeing nationwide and specific regionals such as Nottingham reflect reality. Where the economic data will not be successful in showing the true state of happiness and wellbeing, recommendations shall be provided on how economic measures can be adjusted to increase the validity of the representation.

Introduction:

At first observing the mainstream measures of economic progress, we can see that the UK has managed to recover from the economic crisis’ in 2008 and 2014. Indicators such as GDP growth rate, Unemployment, Inflation rate, and Interest rate all show equal or positive recovery (Tradingeconomics.com, 2019).  Even though these indicators are lower compared to peaks throughout the last decade, there are noticeable increases and with consumer spending it could be said society is recovering financially. Despite the positive economic growth, Happiness levels, which take into account various factors such as life expectancy and income equality, are 19th in world which is very low compared to the UK’s 5th largest economy in the world (Helliwell, Layard & Sachs., 2018).  Due to this it is concrete general economic measures provide a great overview of the economic progress of both country and specific regions, however fails to present the actual aim of whether people in the UK are happy with their standard of living and overall wellbeing. “GDP measure everything except that which makes life worthwhile” (Robert Kennedy, 1968).

This follows on to have this report examine specific research questions created by this situation.

1.)    What indicators are the best representations of overall happiness?

2.)    How can economic measures incorporate new information which gives a strong idea of both Economic and Happiness levels around the UK?

3.)    How is Nottingham’s Overall Happiness comparing to varying regions and the UK, is there any economic correlation that may have caused it?

An Introduction to Regional and National economic measures:

Even though this report has demonstrated the UK has been able to recover sufficiently from economic crisis’, the story for Nottingham is much different. Looking at Nottingham’s national income it is the lowest in the country, additionally the GVA is just above average which makes it hard to analyse in an economic perspective.

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“Not our GDP” – How England’s GDPs recovery has been great

Observing Happiness & Wellbeing

With the clear overview in the UK that mainstream economic indicators if positive, will not definitely correlate with positive trends in happiness and wellbeing. With economic factors having an effect in the overall happiness and wellbeing, and GDP measuring everything to an extent, it is no shock that the UK may be much less happy than it is conveyed.

As mentioned previously, it is clear, at least in the UK that mainstream economic indicators when positive don’t necessarily correlate with positive trends in Happiness and Wellbeing. While economic factors do factor in the overall Happiness & Wellbeing and GDP does measure everything to some extent it isn’t surprising that it doesn’t convey how happy the UK actually is.

Measuring Happiness & Wellbeing objectively and subjectively can be difficult. For example, the UK’s ONS Wellbeing Survey had four measures for personal wellbeing. These are ‘Life satisfaction’, how worthwhile life is, self-perceived happiness and self-perceived anxiety.

Looking at ‘The World Happiness Index’ there are other indicators called subjective indicators. Formed from an individual’s self-assessment of their own happiness & wellbeing.  These can vary between everyone and a small range of data can’t provide successful averages unless specific factors such as location, age and gender are taken in to account. Subjective factors include financial satisfaction, social networks and education. With these being completely different for people around the country, the perception of two individuals may be varied due to their different circumstances.

The other indicators are called Objective indicators that convey happiness in a more general sense. These include life expectancy at birth and GDP per capita which are both linked more to the population as a whole than individuals. With a higher level of these two indicators the overall levels of happiness within that region are likely to be increased.

Analysis

The UK’s economy is argued to be one of the most prominent in the world. Sitting at 5th spot in the global gdp (nominal) ranking 2018. In quarter three of 2018 the UK’s gdp growth rate was recorded to be 1.79% close the expected rate of 2-3% despite the negative impact from Brexit and the EU referendum.

This figure outlines the UK growing gradually however this does not convey the low levels of happiness and wellbeing statistics from 2018. With GDP growth showing the country in a growing and developing sense, other measures such as the world happiness index may say otherwise, where the UK sits 19^th below countries such as Finland and Norway who all have lower GDP’s.

Happiness in the UK

From the figure below, there are not many countries that are in the top 15 for happiness that have a strong GDP. In fact, the only country with a strong GDP in comparison to the UK that made it in the top 15 are Germany. This figure demonstrates the level of GDP is irrelevant to the rankings of happiness. 6.886 is the UK’s score and comparing the years ending June 2017 and June 2018, there were no significant changes for any of the measures of personal well-being in the UK.

(World Happiness Report, 2019)

Unemployment across the UK

With unemployment being at a high level before the EU referendum in 2016, we can analyse the decision to leave the EU had a positive effect on the unemployment rate with unemployment reaching an all-time low and continuing to lower.

Regional GVA

In 2017 UK gross value added (GVA) was estimated to increase by 1.9%. The ONS table below (Fig 3) shows a comparison of total GVA, GVA per head and Annual growth in GVA per head across the UK regions.

• The East Midlands region had the second weakest total GVA in the UK, North East having the weakest. There is a link between population and the total GVA as East Midlands & North East have the two lowest populations by a significant amount.
• GVA per head in the East Midlands is higher than Yorkshire and The Humber even though they have 1 million less in population.
• The annual growth in GVA per head in the East Midlands is 0.1% higher (2.4%) than the South East even though the actual GVA per head in the South East is 7,570 higher.

These statistics highlight London as a key leader across the regions in the UK even where there is a higher population e.g South East. The majority (46 per cent) of UK-based millionaires live in London and the South East so this must be encountered into the reasoning why London is so far superior to other UK regions yet the Midlands is the second wealthiest region with 92,000 millionaires so it could be argued the Midlands should be producing a higher GVA per head. (Wealth.barclays.com, 2019)

Personal Well-being in the UK

Looking at the average levels of happiness, life satisfaction and anxiety from 2012 to 2018 it is demonstrating an improvement in happiness. Between the years ending June 2017 and 2018, the proportion of respondents in the UK who reported low levels of happiness decreased from 8.48% to 8.08%.

Figure 4a demonstrates the gradual increase in all three personal well-being factors over the 6-year period. An increase in confidence within the UK public maybe contributing to the increase in life satisfaction, happiness and worthwhile. Positive changes such as these across the UK may have been influenced by an improvement of certain economic indicators e.g. the unemployment rate decreasing.

Regional GDHI Per Head

• Nottingham has the UK’s lowest disposable income, with the East Midlands having the second lowest share of UK total GDHI, North East having the lowest and London having the most share of the total GDHI.
• East Midlands ranks in the middle of the regions for GDHI per head even though it has the second lowest total GDHI.

Education as a measure for the economy and Happiness & Wellbeing:

In general, education as a key component of a country’s human capital, improves the efficiency of each worker and helps the economy move upstream to the value chain, surpassing manual tasks or simple production processes (Nowak and Dahal, 2016). Human capital has always been considered an economic system. The most notable feature, further work demonstrates the impact of education on productivity growth. For every $1 spent on education, economic growth can generate between $ 10 and $ 15 (Limage, 2012). In other words, if 45% of the 46 countries in the world’s poorest countries reach the lowest mathematical benchmark of the Organization for Economic Cooperation and Development, then economic growth can be increased by 2.1% from the baseline and lift 104 million people out of extreme poverty (Limage, 2012). However, this does not mean every country is able to invest due to their lack of capital. So, education is said to vary dependent upon the countries funding for schools and overall educations.

Whether education can be a measure of happiness and how education affects happiness, Michalos said his answer depends on how people define and operate the concepts of ‘education’, ‘impact’ and ‘happiness’. ‘Education’ is the highest level of formal education, including primary and secondary education leading to diplomas and degrees. ‘Happiness’ is happiness or life satisfaction measured by standardised single or multiple indicators. ‘Impact’ is a direct and positive correlation between education and happiness indicators. These definitions indicate that education has little impact on happiness (Michalos, 2007). A study shows that well-educated people are more likely to say that they are satisfied with their lives. According to the National Bureau of Statistics, they are more likely to say that what they are doing is worthwhile. However, it does not mean that education necessarily leads to happiness (Harrison, 2019).

Overall, education has limited application as an indicator of economic measurement, the 2016 world economic forum presented three channels for education to influence national productivity. First, it increases the collective ability of the workforce to perform existing tasks faster. Then, Secondary and higher education are particularly helpful in transferring knowledge of new information, products and technologies created by others. Finally, by increasing creativity, it enhances a country’s ability to create new knowledge, products and technologies (Barro and Lee, 2013). Therefore, better education will not only bring higher personal income, but also a necessary condition for long- term economic growth, although it is not always sufficient (Sauer and Zagler, 2011). Education as an indicator of happiness is very unreliable so if used in the future some problems will need to be considered.

Perceptions of corruption as a measure for the economy and Happiness & Wellbeing:

Corruption can be one of the main obstacles to economic development, and it undermines development by weakening the institutions on which economic growth depends (Lučić, etc. 2019). The interaction between corruption and economic development is one of the most widely studied topics in the history of scientific research in the near future. Due to its nature, the scale of corruption cannot be completely accurately measured. But there are informed estimates available, and Transparency International regularly publishes some assessments of corruption, surveys and indicators to prevent and reduce the economic impact of corruption (de Vaal and Ebben, 2011). Such as the Corruption Perceptions Index, the Government Defense Anti-Corruption Index and the Bribe Payers Index (Lučić, etc., 2019). This shows that it is feasible to use corruption as a measure of the economy and there is some basis for measurement.

Kéita (2011) explores the determinants and implications of corruption, its impact on economic growth and social progress within 23 OECD countries. The main finding of this empirical study is that corruption tends to decrease economic growth and create an economic problem and dissatisfaction of citizens.

Popova and Podolyakin (2014) pointed out that the originality of corruption lies in the inefficient management. Inefficient management will increase wrong public relations and ultimately lead to new social problems, reducing happiness and well-being (Satrovic, etc., 2018).

There is an inverse relationship between corruption and happiness and well-being. Corruption varies between countries and between regions, and governments at all levels need to address this issue. Therefore, corruption can be used as a measure indicator to help measure the economy and happiness and well-being, which can help government reducing problems caused by corruption.

Recommendations

Throughout this report we discussed topics related to happiness and well-being and researched various data and resources in order to analyse the economic status of the UK and Nottingham. Therefore, there are some relevant recommendations, which are applicable to individual stakeholders and will improve the happiness, well-being and inequality of Nottingham.

One method which can be effective for short-term development, is an appropriate rise in minimum wage standards and a reduction in personal taxes. This is aimed to improve social welfare and government subsidies for individual stakeholders. However, even though an increase in income may result in an increase in people’s happiness and well-being level directly, under normal circumstances, this is not a method that can be implemented by policymakers. This is because it requires considering a lot of factors, such as, it will increase government spending and may affect the economic fluctuations of Nottingham and may cause inflation. This requires policymakers to accurately consider the implementation.

On the other hands, if the Nottingham City Council expanded the city’s boundaries to include less economically deprived areas such as West Bridgeford and Beeston, as well as the less affluent Hucknall, those paying higher prices for goods and services in the city could benefit. A problem that needs to be considered is, only stakeholders who are living in specific areas where the government plans to expand can get benefits from expanding Nottingham’s urban boundaries. For others, they will hardly get benefits by this policy.

Another recommendation is advice on inflation issues for different household groups, which means Nottingham’s government agencies can help the National Bureau of Statistics to Promote new Household Cost Indices (HCI). In short, people can retain wealth and save money through the New HCI Index.

However, money is not equal to happiness as shown countries with a high GDP do not place in the top 15 of world happiness rankings apart from Germany, meaning that economic growth alone is not enough to increase the average happiness and well-being of population. Richard Layard, a professor of economics at the London School of Economics, founded the welfare program at the Economic Performance Center (CEP) of the London School of Economics in 2001. The main goal of the program is to promote subjective happiness and welling-being as a standard for public policy and to help develop the most effective policies. Studies have found that mental health is more important than income in determining health. Therefore, they encouraged the British government to improve their psychotherapy plans. They concluded that the broader terms would result in such savings and that the UK government would not have an additional financial burden (Layard, 2019). This program can be introduced to Nottingham, and also Nottingham schools could improve the psychological flexibility of young people. which will have a long-term and far-reaching impact on improving Nottingham’s happiness and well-being.

Lastly, an important factor the policymaker should consider is sustainable development issues, which can be summarised as controlling population rate, increasing material demand and the use of finite resources. There is an inseparable relationship between happiness and well-being and sustainable development. Therefore, the last recommendation requires policymakers to develop a series of measures to improve environmental issues. For example, severe penalties are imposed on polluters, explicit restrictions on the exploitation and use of limited resources, or the government encourage work and institutions related to the protection of the environment. This may not directly affect the improvement of Nottingham’s happiness and well-being level and applicable to individual stakeholders, but it has the long-term promotion as same as the New HCI indicator.

References:

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3. Ipsos MORI. (2019). The British are becoming more positive about the UK’s economy. [online] Available at: https://www.ipsos.com/ipsos-mori/en-uk/british-are-becoming-more-positive-about-uks-economy [Accessed 22 Jan. 2019].
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http://www.lse.ac.uk/Research/research-impact-case-studies/making-personal-happiness-wellbeing-goal-of-public-policy  [Accessed 20 Jan. 2019].

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11.  Barro, R. and Lee, J. (2013). A new data set of educational attainment in the world, 1950–2010. Journal of Development Economics, 104, pp.184-198.
12.  Sauer, P. and Zagler, M. (2011). ECONOMIC GROWTH AND THE QUANTITY AND DISTRIBUTION OF EDUCATION: A SURVEY. Journal of Economic Surveys, 26(5), pp.933-951.
13.  Harrison, A. (2019). Well-being and education matched. [online] BBC News. Available at: https://www.bbc.co.uk/news/education-18724993. [Accessed 24 Jan. 2019].
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This literature can demonstrate that happiness and wellbeing are affected by multiple factors other than just income and GDP. With the UK sitting in the top 5 for global GDP, in the rankings of happiness do not sit in the top 15. Conveying that incomes have increased but not had the same effect on happiness. It is the strong opinion of Lord Richard Layard, an advocate for assessing welfare through measures other than the typical indicators of economic growth and progress, that the true requirement of the government is ‘Not wealth creation but wellbeing creation’ (Vaitilingam and Layard, 2016).

Layard’s theory effectively argues that the decision of governments to focus on improving economic indicators such as GDP, ought to be a thing of the past and whilst he recognises that poverty, unemployment and education are all of top priority, his view is that mental health should be held in equal regard. Evidence would show that in 1/3 of families in the UK today include someone who is mentally ill and the figures show that people with mental illness are costing the government significantly more than physical healthcare, an issue that if properly addressed could save the NHS further costs in the long run (Blackhurst, 2014). Since 2015 the NHS has been widely recognised for being underfunded, and Layard’s ideology could explain how a lack of spending on health stands up as a contributing factor to why growth in the GDP remains on a steady rise but for happiness and wellbeing we see a steady decline.

Following on from Layard and his points regarding psychological aid achieving happiness is the view of Abraham Maslow and his ‘Hierarchy of needs’. The theory suggests that people are motivated to fulfil a particular set of chronological needs and as they fulfil those needs they progress onto new needs that are more complex. The theory explores the fact that people have big desires and huge ultimate goals, but in order to achieve these things, there has to be more simple targets met first and Maslow probes into what people will do to achieve these aims (Maslow and Frager, 1987).

The theory is described as a hierarchy and is often visualised as a pyramid that displays 5 needs, starting with basic physiological needs such as nutrition and shelter and moving on through safety needs, love and compassion, esteem and finally concluding with self-actualisation, when you have reached your full potential and no longer have any set of particular needs.

Maslow’s hierarchy touches on the individuals wellbeing also as it states the desire of people to grow and progress and also highlights the negatives behind not reaching self-actualisation. People are more motivated when they do not achieve an aim or target and when this desire is not met it creates a stronger desire, the longer they are denied, metaphorically, the longer people go without food the hungrier people become. It is possible for each person to reach their own self-actualisation, however day to day life occurrences can cause people to teeter between different stages of the hierarchy. Things such as employment (or lack thereof), can act as negative stimuli which causes someone not to progress. Maslow estimated that only 1 in 100 actually achieve complete fulfilment because society heavily honours other social requirements like love and esteem. In the time since Maslow’s theory originated in his 1943 book ‘motivation and personality’, the population has increased by more than triple and wealth has also gone up significantly, however the happiness and wellbeing figure for the past 50 years or so show steady decline, so this would imply that the figure of people actually achieving fulfilment must be much less than the 1% initially estimated. This would suggest that Maslow could be correct in assuming that the failure to reach self actualisation is feasible as a contributor to the poor correlation between happiness and economic growth, and wealth, earned to be used on satisfying these needs does not naturally make people happier, just in less discontent.

Maslow’s emphasis on factors other than financial being influential to the overall outcome in relation to wellbeing, draws comparison to the view of historical economist and philosopher John Maynard Keynes also has his own view on the economics of happiness, in the book “The economic problem of happiness: Keynes on happiness economics”, it is stated that ‘Keynes’s vision, the relationship between material wealth and happiness is complex: material wealth does not furnish in itself happiness, but is a necessary prerequisite of good life’, (Carabelli and Cedrini, 2011).  This piece of literature further compiles the view that although wealth can immaculately improve living circumstances and situations, it does not necessarily have baring on wellbeing.

The PERMA model, which was created by Martin Seligman, displays 5 components that can help a person to achieve complete fulfilment. The elements are positive emotions, engagement, relationships, meaning and achievement (Seligman, 2011).

The positive emotion component relates to a deeper level of satisfaction, in which a person carries a positive mindset and is full of optimism. Engagement is about people finding comfort and purpose in activity, something to submerge in and become consumed by. Relationships focuses on the human desire for love and intimacy/connection. Meaning relates to people feeling a real purpose, an emphasis on the importance of the impact each individual makes in their life pursuit. Finally achievement provides a sense of accomplishment that people can use to motivate them.

In the current economy, with an increasing GDP, there is also an constant increase in methods like deforestation to accommodate to the demands and requirements of humanity. However for this to be the case, has negative implications on the positive emotions of the people that may find comfort or passion in nature or may live in widely rural areas. This brings their positive emotion and future optimism down, so although deforestation may prove good for the economic indicators such as unemployment and GDP (from opportunities created), It also has negative impact on welfare.

When looking at the “meaning” element here is also positives to be drawn from the low levels of unemployment being experienced as it gives people the “purposeful existence”, that people crave in a pursuit of fulfilment. Although not everyone can benefit from the benefits of being employed and even those who are may not feel completely satisfied, the percentage of people who obtain that feeling will be significantly greater.

Wage stagnation is another issue that could prove to have a negative impact on the welfare of people in the economy, wage stagnation in relation to the PERMA model would have an impact individual achievement, people look to progression and self-improvement in the work place to give them a heightened sense of achievement.

One of the positive aspects of high GDP is that you stay at the front of the technology, better communication and this is perfect to adhere to the model as it creates more authentic relationships. These components show that there are external factors that both positively and negatively impact GDP and according to the PERMA model, also happiness.