Does GDP growth increase society’s wellbeing?

For decades much of academia and policy-makers have focused on improving Gross Domestic Product (GDP). However, recent evidence suggests that forever higher levels of GDP may not necessarily translate into bettering society’s wellbeing. Here, Irene Menéndez Fuente addresses this pertinent question, a question which is likely to be in the spotlight in the near future.

For decades, we have been using Gross Domestic Product (GDP) as an indicator of well-being and progress in societies. The general assumption is that the higher the GDP the greater a society’s wellbeing. The reason to understand that GDP means development, is that money can be used in institutions or services that contribute to create a better nation. However, this isn’t always the case and money is not always used to increase society’s wellbeing.

Since the 1970s, the high importance we give to GDP has been contested by several scholars wondering if economic growth effectively helps to achieve greater well-being. Alternative indicators trying to measure other factors have been developed. Such as the Happy Planet Index (HPI) that measures happiness based on subjective well-being and life expectancy of citizens, as well as the ecological footprint of a country. Or the Social Progress Index (SPI) that measures the performance of a country in a set of factors, which all together are understood as necessary for social progress. The surprising fact is that in all of them we find an exceptional case. There is one country – Costa Rica – that scores very high despite having low levels of GDP.

Simon Cunningham / Creative Commons License

Simon Cunningham / Creative Commons License

 

In the two lasts HPI in 2009 and 2012, Costa Rica obtained the highest scores, obtaining the same levels of subjective well-being as Austria and the same life expectancy as Slovenia. In the SPI, it has scored higher than European Union countries such as Italy or Croatia. In the Sustainable Development Solutions Network (SDSN), which exclusively uses surveys to measure subjective well-being, Costa Rica scores number 12 out of 158 countries, ahead of countries such as Luxembourg, Belgium or the United Kingdom who have much higher levels of GDP.

So, does Costa Rica have the magic formula to achieve development accompanied by wellbeing?

Costa Rica has developed along its history different characteristics that have helped to enhance the general wellbeing of its citizens.

It has been recognised as the country of highest democratic stability, in comparison to other presidential governments of Latin America. The reason is the establishment of human rights protection, a good quantity of social policies, including universal education and health, or instruments that allow people to participate more in politics, such as the possibility of referendum and popular legislative initiative. Inclusive institutions and freedoms led to the empowerment of civil society, which translates to more freedom and a better democracy.

Although GDP in Costa Rica is quite low compared to other countries with high levels of wellbeing, the existence of good governance as well as the constant GDP growth that the country has been experimenting in the last 15 years translates in more and better social services. But, despite the efforts of the government on developing poverty programs, Costa Rica suffers of constant levels of poverty and inequality. So why is there still high levels of well-being? The universality of social services and human rights has improved the well-being of the poor, since although they have not enough own income, the existence of universal social services allow them to have their basic needs covered, at least more covered than they would have in countries in which health or education are not public and this fact directly translates into greater wellbeing. Also, efforts of the government in developing anti-poverty programs, have enhanced well-being by maintaining the status of people’s capabilities, although they have not achieved to reduce poverty. Nevertheless, if Costa Rica follows the actual trend of inequality growth, an increase in inequality along with an increase of GDP growth, could have consequences to the current status of well-being of the people already in poor contexts. Following the Easterlin paradox, poor people will compare themselves with rich people, creating the desire of a set of needs that will be impossible to achieve, which could mean a decrease in social well-being.

Finally, culture seems to have a very important role in enhancing well-being of the Ticos (Costa Ricans). A “pura vida” (good life) lifestyle that could lead to set people aspirations in objective and possible ones, the importance of social relations in their society, that several studies have suggested to improve directly subjective well-being and the feelings of pride and national identity that contribute to social movements that have helped to achieve social aspirations, are some of the ways in which the culture of Costa Rica helps to enhance well-being.

Therefore, the case of Costa Rica suggests not only that GDP is not necessarily correlated directly with well-being but moreover that once achieved a certain level of GDP, aiming solely for GDP growth does not make sense to development. The important thing of these new movements and indexes is the change of position of means and ends. They are putting GDP not as the ends of development but instead, GDP is one between other means to achieve well-being and it is not necessarily the most important one.

There is no magic formula to enhance well-being, but under conditions of basic democracy, a vibrant culture, good governance, and a strong economy, seems to help enhancing people´s well-being, which finally should be what really matters.

 

“Development is about transforming the lives of people, not just transforming economies” Joseph Stiglitz


The views expressed in this article are those of the author and do not necessarily represent the views of Development in Action.

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