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DOES ECONOMIC GROWTH IMPROVE QUALITY OF LIFE?

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One of the directions in research of quality of life is examining the impact of economic growth on quality of life, which presents a fundamental axiological change in quality of life if this correlation is positive. In the classical approach, based on Easterlin´s paradox, there is no correlation between economic growth, manifested by the growth in prosperity and growth of satisfaction of population with their lives. In contrary with this conception other scientists use correlations documented by the link between the growth of wealth and quality of life and refer to the Easterlin´s paradox as to the Easterlin´s illusion. We base verification of answers to the question raised in title of the article on statement that subjective dimension of quality of life (well-being) overweights an objective dimension.
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15th International Multidisciplinary Scientific GeoConference SGEM 2015. Ecology,
Economics, Education and Legislation. Conference Proceedings, volume III., pp.
213-220. Albena, Bulgaria, 2014. ISBN 978-619-7105-41-4.
DOES ECONOMIC GROWTH IMPROVE QUALITY OF LIFE?
František Murgaš, Hynek Böhm
Technical University of Liberec, Czech Republic
ABSTRACT
One of the directions in research of quality of life is examining the impact of economic
growth on quality of life, which presents a fundamental axiological change in quality of life if
this correlation is positive. In the classical approach, based on Easterlin´s paradox, there is no
correlation between economic growth, manifested by the growth in prosperity and growth of
satisfaction of population with their lives. In contrary with this conception other scientists use
correlations documented by the link between the growth of wealth and quality of life and refer
to the Easterlin´s paradox as to the Easterlin´s illusion. We base verification of answers to the
question raised in title of the article on statement that subjective dimension of quality of life
(well-being) overweight’s an objective dimension.
Key words: quality of life, Easterlin´s paradox, economic growth, golden standard quality of
life
INTRODUCTION
In classical economy a human preferred those needs of theirs which brought them the biggest
profit while using the most advantageous sources. Economic mainstream approved the theory
of effective markets and underlined performance/output, the value of a man was derived from
the value of his performance. A human being was reduced to homo economicus, a human
orientated to to possess“. For measuring economic growth in terms of particular countries,
they started to use the macroeconomic term of gross domestic product (GDP) which gained
popularity in economic as well as non-economic environment for its simplicity.
In the 1960s there were some exceptionally important processes in the USA and Western
Europe whose consequences can be seen till now. In demography there was a second
demographic changeover with explosion of social pathology effects which ended up in mass
demonstrations. In art this decade with the motto of „sex, drugs and rock’n’roll“ is called
„golden sixties“. From economic point of view society got rich in quantity and gained
university education for the first time in history. On the other hand there was no rise in
satisfaction of population with their lives, in some cases it even went down which obtained a
name of Easterlin´s paradox according to the study by Richard Easterlin (1974) Does
economic growth improve the human lot? [4] Recognition of the difference between
prosperity and satisfaction with life led to formulating the concept of quality of life. Pacione
calls this realization that quality of life is not a simple function of material wealth and that
quantity of life as amount of material goods/property does not bring quality of life meaning
living good life, prosperity paradox [12].
In mainstream of economic thinking at the end of 20th century there was a considerable
change in form of approving economy accepting morality, confidence, common good or
constitutionality. The economy of happiness belongs to last manifestations/demonstrations of
extension of economists´ interest. Development at the end of 20th century ended up in
criticism of judging GDP as a progress or rather prosperity rate which was paid a lot of media
attention due to politicians´ support. French president Sarkozy appointed a committee which
published a paper Mismeasuring Our Lives: Why GDP Doesn´t Add Up [15]. The aim of the
paper is to answer the question whether economic growth improves quality of life.
1. GDP as universal measure of social and economic development and its criticism
When comparing evaluation of human conduct there are huge differences between economy
and sociology. From economic point of view, human conduct is determined by effort to
maximize profit. Its weak point is an absence of social reality determined by social norms and
networks. From sociological point of view, human conduct is result of socialization, it is
created and formed in the context of social networks, confidence or its absence, which can
lead to situation when a human acts against the maximization of his/her profit. The weak
point of that sociological point of view is that it does not answer the question what the
essential engine/motor of human conduct is [10].
In 1930s the symbol of prevailing economic view of a human became an established indicator
of GDP as a simple and generally accepted declaration/statement/formulation of reached
measure of social and economic development from a short-term and medium-term point of
view. It happened because economic growth was the same as GDP growth. Despite many
deficiencies/defects GDP is „the most used measure of economic activity“ [16].
On the other hand, GDP as an universal measurement/indicator of economic productivity,
social and economic development and prosperity is denied and this denial is linked to two
factors. The first is development after the outbreak of financial and then economic crisis in
2008 which turned to be primarily the crisis of values. The personification of resistance
against global banks and its main representative as a symbol of rising income polarisation of
society was movement Occupy. In Europe it was accompanied by frustration from long-
lasting unemployment of mainly young people, sometimes also followed by rising resistance
against increasing regulations of different parts of life the EU institutions.
[17] notes that huge development in basic research and its results in applied research in a form
of new technologies are subjectively orientated to production with high value added, bringing
high profit. It is confirmed by petrified position of global West as a producer of creative
services and position of global rest of the world as a supplier of creative products [11] at best,
and a supplier of raw materials or rather crops at worst. [7] says: „Nobody knows where real
values are generated. Is it production? Is it science and research? Is it business and marketing?
Are they consultations? Or legal service? Or financial speculations which lead to optimal
allocations of capital? Are they state regulations? Is it non-profit sector which produces
values? Financial results say nothing because they are manipulated by state interventions.
Moreover, society is directly flooded with ideologies which say that only that or another
activity is vitally important and therefore must be preferred.“
To defend GDP we can note that it was not outlined as a measure of long-term social and
economic development and prosperity, and so its growth does not mean growth of prosperity.
It is not correct to blame GDP of what it was not created for.
2. Looking for a new tool measuring socio-economic development
When looking for a new measure of social and economic development, answers to these
questions are of a key importance: „What is the sense of economic growth? What is social and
economic development at the beginning of the third millennium like? What does it serve for
and what is its aim? Who are its beneficiaries? One of basic characteristics of current
western society is certain fetishization of profit [8] which together with deepening social
differences gives rise to disillusion and a resistance against establishment.
In reaction to that most of academics and politicians call for sustainable development, which
also means its acceptation in all its complexity, including non-economic aspects. European
Commission in this context launched discussion on possible completion, improvement or
adaptation of GDP to changing needs of globalising world at this post-modern time. In 2009
this discussion ended up in suggestion of five, mostly political measures. Two of them are the
most important, the first is “complementing GDP by adding socio-economic indicators”.
It can be stated that complex, generally accepted environmental index does not exist and that
is the reason why creating of environment burden index is suggested. The fourth measure
is formulated as „Development of evaluation table of European sustainable
development containing threshold values of key pollutants and renewable sources“ [5].
3. Quality of life concept
Quality of life is a multi-dimensional concept based on a complicated causality of mutual
relationship of their indicators (variables). As it is true for all concepts, it is not measurable.
What can be measured are the indicators or domains (groups of indicators). Dichotomy is its
important characteristics, as it concerns the quality of life at the level of individual as well as
at the level of society; it also relates to the assessment of “living the human lives” and
evaluation of external environment. Like probably all the other concepts also the quality of
life misses standardised unified methodology and terminology.
When politicians or other public actors talk about quality of life they use terms “increasing
quality of life” or “growth of quality of life”. These terms are not logical, as they inherently
contradict raison d´être of quality of life. This is also confirmed by a word we use to express
a positive change in the quality of life improving. The quality of life cannot be increased, as
for example the number of teeth cannot be increased. It makes sense to care for own teeth but
not to strive for the higher number of teeth. Quality of life can be improved or worsened by
the change of its indicators. Using of terminology such as “growth” or “increasing” in public
or political life means identification of quality of life with prosperity, eventually other
economic indicators such as average salary, life-standard etc, which actually denies the sense
of the quality of life concept.
Easterlin´s paradox stating that “prosperity growth does not bring along growth of satisfaction
with life” is criticised by some authors [2], [15], [3] . [14] use fourteen charts to document
that richer people are more satisfied with their lives as the poorer ones. They base these
comparisons of different countries on Gallup World Pool, World Values Survey and Pew
Global Attitudes Survey. In all correlations between satisfaction, expressed at a 0 10 scale,
and GDP per capita it reached values 0,57, 0,74, 0,72 and 0,72. [4] react on that with twenty-
one own and adopted charts with correlations from USA and other countries advocating
original Easterlin´s paradox. One can consider correlation [4: 132] on picture 20 to be one of
the most important ones. It says that happiness level was 2,16 in 1971 and changed only to
2,19 in 2002, with the highest value 2,22 recorded, but the GDP per capita (measured by 1996
prices) almost doubled from 17 700 USD in 1972 to 33 000 USD in 2002. How is this
possible? The [6: 157] chart is the closest to the true, as it differentiates the „happiness and
welfare as two different concepts”.
It is very difficult to verify the validity of Easterlin´s paradox. One of the key problems is a
somewhat chaotic terminology. A current paradigm change faced by the economy, which is
now being more and more understood as a social sciences rather than “engineer- or
mathematics based science, brings along also more widespread use of psychological and
sociological terminology and “economization” of this terminology. As an example we can
mentioned happiness or peace. This cannot bring meaningful results having the shape of
expected clear answer or narrative value, as basic premises are not defined exactly. One can
state hypothesis that economic growth does not increase the satisfaction with life (a key
subjective quality of life dimension), but it increases welfare, which is presented by a higher
quality of material conditions of external environment (objective quality of life dimension).
Fig. 1 GDP per capita measure by purchase power parity and suicide rate in OECD countries
in 2011
source: author according[14]
Current extremely difficult social and economic reality, full of contradictory processes of
globalisation, continuing crisis of western world and its dying out can be illustrated on the
suicide rate (Fig. 1). 800 000 1 000 000 people commit suicide in world annually, men
much more than women. Women lead suicidal attempts statistics, which leads to an
interpretation that women don´t want to commit a suicide differently from men - but to
attract attention to their problems. Lithuania (61,3/100 000 inhabitants in.2009), Russia 53,9
AUS
AUT
BEL
BRA
CAN
CHIL CZE
DEN
EST
FIN
FRA
GER
GRE
HUN
ICE IRL
ISR
ITA
JPN
KOR
MEX
NED
NZL NOR
POL
POR
RUS
SVK
SLO
ESP
SWE SUI
TUR
GBR
USA
R² = 0,0003
0
5
10
15
20
25
30
35
0 10000 20000 30000 40000 50000 60000 70000
GDP per capita (USD PPP)
Age-standardised rates per 100 000 population
(2006), Belarus 48,7 (2007), Sri Lanka 44,6 (1996), Kazakhstan 43,0 (2008), Hungary
and Latvia 40,0 (2009), South Korea 39,9 are countries leading these statistics.
When talking about women suicide rates, other countries (except for Hungary and Lithuania)
lead the statistics: China 14,8 (1999), Guyana 13,4 (2006), Japan 13,2 (2009), Hungary 10,6
(2009) and Lithuania 10,4 (2009). If we compare these data of OECD countries with GDP/per
capita in purchasing power parity (fig. 1), the resulting correlation is - 0,003 in practical
terms none. The GDP and average life-expectancy correlation rate in same group of countries
is at 0,58 [14: 25]. [1] formulate suicide paradox in rich countries, based on 0,355 suicide
and happiness correlation (based on World Values Survey 2002) in western societies, 0,497
correlation rate in European countries and 0,255 correlation rate in the USA. Statements based
on Fig. 1 and [1] say that suicide rate, as one of the key indicators, doesn´t correlate with GDP
as a prosperity symbol but with happiness. If this is mere correlation or causality must be
examined in other research.
Except for statement that economic growth does not increase quality of life [9] state that it is
even not decreased by a natural disaster such as local floods. We can derive premises on
probable long-term satisfaction with the quality of life.
Summary
Economic mainstream of decade accepted the theory of efficient markets and accented
performance. A human was reduced to be homo economicus, whose value is judged based
on his performance. This understanding of economy, called by Amartya Sen “engineer
economy, was expressed by GDP. New substantial change occurred at the end of 20th
century in the economic mainstream and new phenomenon’s like moral, trust, common good,
constitutionality or economy of happiness were accepted. The development at the end of 20th
century led to the critics of GDP as a progress or prosperity indicator, thanks to the public
attention it was made visible.
The fact that western societies got richer but not more satisfied led to the formulation of
quality of life concept. The discrepancy between growing prosperity and stagnating and
sometimes even decreasing life satisfaction is called Easterlin´s paradox. Quality of life is a
multi-dimensional concept based on a complicated causality of mutual relationship of their
indicators (variables). As it is true for all concepts, it is not measurable. What can be
measured are the indicators or domains (groups of indicators). Its important characteristics is
dichotomy and it does not have standardised stabilised methodology and terminology. In a
major simplification we can define it as a subjective living the life in objective territorially
differentiated conditions.
Academics dealing with quality of life came to consensus that it is created by two dimensions:
subjective (personal, psychological), which is considered to be the more important one, and
objective (with space dimension). The quality of life is always complex and involves both
these dimension at one time. When there is one of these dimensions missing, it is not the
missing quality of life, but just its domain or indicator. Immanent part of quality of life is a
phenomenon of a good life. Moral psychology, indicating criteria of a good life, offers its
parameters in the context of logic. These can be formulated as benchmark, coming from the
preference of eudaimonic way of life. Acceptation of this preference enables for creating
reference value of quality of life in the form of “golden standard” [12] Easterlin´s paradox
stating that prosperity growth does not bring growth with life satisfaction is criticized. [15]
documents correlations that richer people are more satisfied with their lives than the poorer
ones. It is very difficult to verify or deny Easterlin´s paradox due to missing standardised
terminology. One can formulate hypothesis that economic growth does not increase life
satisfaction (satisfaction, subjective dimension of quality of life) but increases welfare, which
is expressed by improving material conditions of external environment (objective dimension
of quality of life).
Acknowledgement
This paper was supported by the Student grant competition Faculty of Science, Humanities
and Education Technical University of Liberec, project No 211 05.
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The traditional view that well-being depends on both absolute and relative income was challenged in a 1974 paper by Richard Easterlin (Does economic growth improve the human lot? In P. David and M. Reder (Eds.), Nations and households in economic growth: Essays in honor of Moses Abramovitz (pp. 89-125), New York: Academic Press). He noted that although individual well-being is strongly positively associated with income within any country at a given point in time, the average level of measured well-being for a country changes little over time, even in the face of substantial growth in average incomes. For decades, social scientists have struggled to explain this "Easterlin Paradox." In a 2008 paper, Betsey Stephenson and Justin Wolfers (Economic growth and subjective well-being: Reassessing the Easterlin Paradox, Brookings Papers on Economic Activity, Vol. 39, pp. 1-87) argued that the Easterlin Paradox was a statistical illusion. Using richer data sets that facilitate more precise estimates of the various links between income and well-being, they assert that average well-being in a country does, in fact, rise as average income rises over time, and that rich countries are happier than slightly poorer ones. They also suggest that the link between income and well-being may run through absolute income alone-that is, that individual well-being may be completely independent of relative income. In this article, I argue that there have always been good reasons to believe that well-being is positively linked to absolute income. I also argue, however, that there is no reason to believe that individual well-being is independent of relative income. (PsycINFO Database Record (c) 2012 APA, all rights reserved).
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We explore the relationships between subjective well-being and income, as seen across individuals within a given country, between countries in a given year, and as a country grows through time. We show that richer individuals in a given country are more satisfied with their lives than are poorer individuals, and establish that this relationship is similar in most countries around the world. Turning to the relationship between countries, we show that average life satisfaction is higher in countries with greater GDP per capita. The magnitude of the satisfaction-income gradient is roughly the same whether we compare individuals or countries, suggesting that absolute income plays an important role in influencing well-being. Finally, studying changes in satisfaction over time, we find that as countries experience economic growth, their citizens’ life satisfaction typically grows, and that those countries experiencing more rapid economic growth also tend to experience more rapid growth in life satisfaction. These results together suggest that measured subjective well-being grows hand in hand with material living standards.
Article
During 2006, the Gallup Organization conducted a World Poll that used an identical questionnaire for national samples of adults from 132 countries. I analyze the data on life satisfaction and on health satisfaction and look at their relationships with national income, age, and life-expectancy. The analysis confirms a number of earlier findings and also yields some new and different results. Average life satisfaction is strongly related to per capita national income. High-income countries have greater life-satisfaction than low-income countries. Each doubling of income is associated with almost a one-point increase in life satisfaction on a scale from 0 to 10 and, unlike most previous findings, the effect holds across the range of international incomes; if anything, it is slightly stronger among rich countries. Conditional on the level of national per capita income, the effects of economic growth on life satisfaction are negative, not positive as would be predicted by previous discussion and previous micro-based empirical evidence. Neither life satisfaction nor health satisfaction responds strongly to objective measures of health, such as life expectancy or the prevalence of HIV infection, so that neither provides a reliable indicator of population well-being over all domains, or even over health.
More than GDP. Measuring Progress in a Changing World
European Commission (2009): More than GDP. Measuring Progress in a Changing World. Commission Communication COM(2009) 433. Available from http://eurlex.europa.eu/LexUriServ.do?uri=COM:2009:0433:FIN:S K:PDF.
Impacts of Flooding on the Quality of Life in Rural Regions of Southern Slovakia Applied Research Quality Life
  • A Jakubcová
  • H Grežo
  • A Hrešková
  • F Petrovič
JAKUBCOVÁ, A., GREŽO, H., HREŠKOVÁ, A. & PETROVIČ, F. (2014) Impacts of Flooding on the Quality of Life in Rural Regions of Southern Slovakia Applied Research Quality Life DOI 10.1007/s11482-014-9363-x
Creative class, creative society and a wisdom as a solution of their controverseness (Kreatívna trieda, kreatívna spoločnosť a múdrosť ako riešenie ich kontroverznosti)
  • F Murgaš
MURGAŠ, F. (2011): Creative class, creative society and a wisdom as a solution of their controverseness (Kreatívna trieda, kreatívna spoločnosť a múdrosť ako riešenie ich kontroverznosti). Creative and Knowledge Society, 1, 2, 120-140.