25 April 2013

… And the Pursuit of Happiness: Wellbeing and the Role of Government

Philip Booth (ed)
2012, Institute of Economic Affairs, 90 pages, £12.50
ISBN 9780255366564

Reviewer: Henry Stuart, Happy Computers

I have to declare an interest here. I run a company called Happy, I’ve written a book called The Happiness Manifesto and the main purpose of my business is helping to create happy workplaces. So I was always going to have doubts about the IEA’s assault on the importance of wellbeing at work and in public policy.

It is a very thorough piece of work and does raise some good points. Much of the book is a response to the argument that happiness has stayed static while income has grown. One objection is that the comparison is unfair. While income can increase without a limit, a happiness index based on answers from 1 to 10 (or whatever range is used) has a maximum maximum and cannot continue to increase.

However, the favourite graph of Action for Happiness Director, Mark Williamson, does not just show happiness in the UK not keeping up with growth in income, but shows it falling since a peak in 1956. The proportion stating themselves to be ‘very happy’ hit 43% in the year of Suez, declined first through the ‘never had it so good’ years of Macmillan and continued to fall up to the mid-90s. That period, from 1956 to 1996, saw real income more than double.

Paul Ormerod in this volume asks why happiness is only compared to income. Plotting happiness against public expenditure shows the same comparison - happiness static against rising public expenditure. Does this mean increasing public expenditure does not make people happier? Or happiness (flat in their graph) against rising inequality since 1979? Or against changing levels of crime, and perception of crime, or against a more tolerant society? It is a fair point.

The book is a series of chapters by different authors, who sometimes contradict each other. The area I know best is well-being at work, covered by J R Shackleton. It is a curious chapter. On the one hand, in reviewing the literature, he finds strong evidence that non-monetary factors are vitally important. For instance a 10% increase in the trust index of an organisation is equivalent, in terms of its effect on wellbeing, to a 30% increase in salary. Yet he then argues that there is “no evidence whatsoever that the impact on performance will be sufficient to justify the higher costs.” There are two problems here: one is that he has already shown that the strongest effect on well-being can come from cultural factors at little cost. This is supported by the recent wellbeing findings in the Annual Population Survey which found that the happiest workers were those who had chosen to work part-time, despite having done so in return for lower levels of income. Improving well-being may have little or no extra cost at all.

Second, there is quite a bit of evidence of a positive impact. One example is the restaurant chain Nandos, who some years ago decided to research what were the key factors that led some branches to grow and be profitable more than others. They found one factor that correlated most closely to business success, and that was how happy staff said they were in the annual satisfaction survey. They even changed the structure of managers’ bonuses for a while, so that half became based solely on that survey result. They were clear that staff happiness did indeed impact on performance, very strongly. But Shackleton would dismiss this as ‘anecdotal’.
Take instead then the work of Alex Edmans at Wharton Business School, who analyzed the result of investing in the companies listed in the Great Place to Work listings over the last 25 years. He found a difference, compared to the stock market, of 3.5% a year. That is a pretty convincing impact on performance.

However, the main thrust of the book is to argue that well-being is not a good target for government policy. Hayek is invoked to argue that government cannot know what people want, that the market is a far better judge: “The central planning of a society to achieve a particular desired end is likely to fail to meet that end, as well as changing completely the nature of that society.” This is the straw man that permeates the book. It is assumed that, when people advocate that government has a role in well-being, it must mean central government direct intervention. This is surely a spurious attack. I very much doubt that, when Cameron asked for well-being questions to be included in the ONS survey, he intended to direct major parts of public spending towards planning how to make people happy. While a Soviet government might have done it by central planning, a Cameron government is more likely to do it through nudges.

So imagine the government wanted to increase volunteering. The happiness literature is agreed that one of the sure ways to increase one’s own happiness is to help others. One approach could be to introduce a flat £100 tax benefit to those who volunteer more than 2 hours a week. (Ignore for a moment whether this can be practically done.) Can it really be argued, as the IEA authors suggest for policies aimed at increasing happiness, that this would distort market signals and be self-destructive.

The happiness implications do already affect government thinking. It has been rumoured that George Osborne, in a fit of blue sky thinking, asked if all libraries should not be closed down and instead every person in the UK given an Amazon voucher to buy the book of their choice. The idea was sensibly killed by a policy adviser on the basis that it would affect the cohesion of communities and reduce their happiness. Another clear cause of happiness is physical activity and increased fitness. One example of a policy that creates happiness, therefore, is the Cycle to Work scheme that has hugely boosted cycling by allowing people to buy bikes tax-free. Again this uses market forces rather than the government deciding on people’s behalf what will make them happy.

Ultimately the case for including well-being is perhaps best put by looking at the opposite. Can it really be argued that no consideration should be put in policy to its impact on people’s well-being? Indeed as Thomas Jefferson stated back in 1809: “The care of human life and happiness is the first and only legitimate object of good government.”