To sustain the benefits of China’s rapid ascent, politicians should broaden their policy goals, writes leading economist Hu Angang, setting out his prescription for a national happiness index.
In the years after the Second World War, Gross Domestic Product (GDP) established itself as the main tool for evaluating national economic strength. But in the 1990s, as understanding of development and the inherent limitations of GDP – such as its failure to reflect the distribution of income or environmental costs – improved, international organisations started using composite indices to measure development.
Nobel Prize laureate Amartya Sen, seeing the expansion of freedom as both the end and the means of development, established the Human Development Index (HDI), which has since become an important measure of development, covering health, education and per-capita income and thus combining measures of both economic and human progress. The United Nations Development Programme (UNDP) replaced Gross National Product with HDI in 1990.
Then, in the mid 1990s, the World Bank turned its attention to the idea of a Green GDP accounting system to measure the actual national wealth of a nation or region. This system was based on traditional GDP measures, but also factored in the exhaustion of natural resources or environmental damage – thus focusing on balancing economic growth with resources and the environment.
Measures of development have improved as understanding of development has deepened.
Gross National Happiness (GNH) is one of the experiments in this field. First proposed in the 1970s by the king of Bhutan, who believed that government should aim to create happiness and balance the material and the spiritual, the GNH index identifies four pillars of national development: good governance, economic growth, cultural development and environmental protection.
Today, the concept of GNH is attracting international recognition. In 2008, French president Nicolas Sarkozy established a commission of 20 international experts, including Nobel laureates Joseph Stiglitz and Amartya Sen, to examine measures of economic performance and social progress. The resulting report advises that methods for measuring national economies be reformed so as to include subjective happiness, quality of life and distribution of income.
Rapid economic development is transforming China from a low-income to a medium-income nation. In 2003, China’s per-capita GDP passed US$1,000 (6,575 yuan) and in 2008 reached US$3,267 (21,481 yuan), according to the World Bank’s World Development Indicators. Now an influential world power, China is at a crucial stage of industrialisation and urbanisation and faces many challenges in economic development. These include: transforming the nature of economic growth and ensuring its sustainability, tackling unequal income distribution and ensuring balanced development of economy and society.
Let’s look at these challenges in more detail. First, structural problems in China’s economic growth model are increasingly apparent and require urgent resolution if the country is to develop sustainably. Investment-led growth has caused a grave imbalance between the roles of consumption and investment, and this continues to worsen. But China no longer has the domestic resources to support that investment-led approach.
Second, as the economy has grown, distribution of income has worsened. The proportion of China’s GDP made up by household income dropped by 10 percentage points between 1996 and 2006, and the gap between rich and poor and urban and rural residents is widening – with no sign of a turnaround. There can be no doubt this is a major threat to the construction of a “harmonious society”.
Third, personal livelihoods have failed to keep pace with rapid economic development. As the welfare system of the planned economy has been dismantled, the cost of education, access to healthcare and high house prices have become common issues of concern, and the government finds itself challenged by food and workplace safety, environmental degradation, corruption and mass protests.
Over the last 30 years, decentralised economic reform has created a “GDP-led” view of government achievement. Economic growth has become the main factor in assessing local-government success and is seen as the source of social stability. With society’s increasing openness, plus the transformation of social structures brought about by rapid urbanisation and the country’s ageing population, there is an urgent need for China to move away from that GDP-led approach to a more human-centred style of government. The focus of economic development needs to shift from expansion and investment to the quality and fairness of growth, and its social and environmental impacts. Otherwise, the nation risks falling into the “middle-income trap”.
In his 2007 report to the 17th National Congress of the Communist Party of China, president Hu Jintao made clear that a “people-first” approach lies at the heart of a scientific view of development. Prime minister Wen Jiabao has also told the National People’s Congress that everything the government does aims to provide people with happier and more dignified lives and to create a more just and harmonious society. A people-first mode of development would increase happiness, and public policy founded on achieving that aim could become the foundation of China’s harmonious society.
National happiness has also become a focus for academic research. The most influential study on this issue globally is the World Values Survey, which has so far examined 98 countries or regions. Using the data obtained, international happiness expert Ronald F Inglehart has identified two stages in the relationship between survival, well-being and per-capita GDP: economic gains and lifestyle changes. During the economic gains stage, well-being is sensitive to economic growth, and the two increase in tandem. During the lifestyle changes stage, economic growth has little impact on well-being. Once incomes reach a certain level, “subjective happiness” and GDP growth show no clear positive correlation.
Inglehart places the boundary between these two stages at income of US$5,000 (32,877 yuan), at 1995 purchasing power parity (PPP). In 2009, that was equivalent to US$7,038 (46,277 yuan), and in 2010 China’s per-capita GDP is thought to have passed that level. And so China has, by these figures, already entered the second of Inglehart’s stages, where well-being is insensitive to economic growth. This means that policies designed to increase well-being cannot focus on GDP alone. For this reason, research into national happiness will be an important factor in China’s public-policy decisions as the nation reaches middle-income levels.
A national happiness index with Chinese characteristics should have a role in this process. Back at the start of China’s period of “reform and opening up”, the nation identified a comfortably-off society as a development aim – and the government promised to create that society. The proposed index would not only provide a more comprehensive measure of the development of that society, but also a new way of assessing government performance.
Governments are the planners and implementers of development. And they have a duty to increase the happiness of those they govern. Governance focused on the “comprehensive raising of the people’s sense of well-being” would be a demonstration of socialism with Chinese characteristics – the system intended by Deng Xiaoping’s market reforms – and increase the degree to which Chinese government is seen to be governing for the people. I have the following recommendations for putting together a Chinese National Happiness Index:
First, the index should reflect China’s national characteristics. Many nations are in the process of trying to build similar indices, and there is no standardised measure. I believe that differences in culture and traditions during the development process mean that these indices should reflect national characteristics.
Second, while the index should be comprehensive, it should not include too many factors. A GNH index must cover the content of the Human Development Index – per-capita GDP, life expectancy and educational level – as well as important factors in development such as governance, environmental quality, sense of security, social capital and distribution of income. Selection of indices should reflect the key variables in the development of the above factors.
Third, the index should include subjective as well as objective measures. The main difference between GNH and classical development rankings is the inclusion of subjective measures, allowing citizens of a country to assess the factors that are hard to capture objectively – environmental satisfaction, sense of security, satisfaction with local government and so on.
Fourth, we must encourage local implementation. A number of local governments are already working on these issues, including Chongqing in western China and Jiangyin, on the east coast. Their experiments use a well-being centred approach to assess government performance. Such systems will encourage officials to use public resources in ways that increases happiness and boost the people’s satisfaction with local government.
Hu Angang is one of China’s best-known economists. He is professor at the Chinese Academy of Sciences and Tsinghua University and the director of the Centre for China Study, a leading policy think-tank. Hu has worked as the chief editor for China Studies Report, a circulated reference for senior officials.
Zhao Shaojie, assistant professor at Tsinghua University’s School of Public Management, also contributed to this article.
Homepage image from Greenpeace shows a village protest against a coal-ash disposal site in Inner Mongolia.
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