This presentation briefly outlines the economic foundations for a wellbeing approach to public policy and describes a range of wellbeing approaches that are used to guide public policy in several countries. It then provides insights gained from economic analyses of wellbeing within Aotearoa New Zealand. The focus of these examples is on how analyses of subjective wellbeing can be used to help guide public policy.
Captions for this video are available by clicking on the CC icon.
Kerryn Fowlie (00:00:14):
[speaking in te reo Māori] Tēnā koutou katoa. Ngā mihi ki a koutou, kua hui mai nei i tēnei rā, e tautoko ana i te ako. Ngā mihi nui ki a Arthur Grimes te kaikōrero o te rā. Tēnā koe Arthur.
Ko Kerryn Fowlie tōku ingoa. Nō Te Tai Ōhanga ahau. He manu taki Economic Strategy Directorate ahau. Nō reira tēnā koutou.
So, welcome everybody. It's wonderful to see so many of you joining us here today to listen to the next speaker in our Wellbeing Seminar Series. So, I'm sure as many of you are aware, back in April, Caralee McLiesh, our Secretary to the Treasury, publicly launched a work programme that would culminate in The Wellbeing Report within the next couple of months. Te Tai Waiora is a report on the state of wellbeing in New Zealand, how that's changed over the years, how it has distributed, and also the sustainability of that wellbeing over time.
As you may be aware, this seminar series is part of our broader wellbeing work programme. Our aim is to bring in external ideas as a source of challenge and intellectual inspiration. And by doing that, we'd also like to share, I guess, the opportunity to learn with people across Aotearoa New Zealand interested in wellbeing as a subject, but also to help broaden out that discussion. And we've had some really fantastic speakers so far in this series and have a number of other seminars planned over the rest of the year and also into early 2023.
So it's my very, very great pleasure to introduce Professor Arthur Grimes today. I don't think he really needs too much of an introduction, but for those of you who aren't aware, Arthur is a Professor of Wellbeing in Public Policy at Victoria University, in the School of Government. And he's also a Senior Fellow at Motu Research. Arthur has been a Reserved Bank of New Zealand Board Chair and a Board Member of the Financial Markets Authority. And some of his prior roles have included Chief Executive of Southpac Investment Management, Director of the Institute of Policy Studies, once again at Vic Uni, and Chief Economist at both the Reserve Bank and the National Bank of New Zealand. And in 2018, U.S. National Public Radio's Planet Money described him as one of the most important economists in the world for his pioneering work on inflation targeting.
Arthur's current research focus is on the economics of wellbeing and public policy, and that's why he's here to talk to us today. So today, Arthur is going to present on how a wellbeing approach can be used to support policy, drawing on approaches from across a range of countries, but with a particular focus on how subjective wellbeing can help guide public policy analysis. And he'll also share findings gained from his recent economic analysis of wellbeing within Aotearoa New Zealand. All of this is highly relevant to the work that we are currently doing at the Treasury, and it's really great to have the opportunity to learn from the experiences of other countries, as we try to or seek to embed robust wellbeing analysis into our own work programme. It's also clearly very relevant to the work that we're doing on our first Wellbeing Report. Arthur's work is providing insights on the drivers of the patterns of wellbeing that we see in Aotearoa, as well as enhancing our understanding of how wellbeing differs for different New Zealanders.
So just in terms of the process, the plan is for Arthur to present for around 45 minutes, and then we'll have the remainder of the time for questions. As Arthur's presenting, please feel free to drop your questions into the chat function, and then I'll turn to them when we get to the discussion. You can also vote on the questions you liked so that we make sure that those with the most thumbs up do actually get asked. So that's me for now. Over to you. Thank you again, Arthur, and welcome. We're really, really looking forward to your presentation.
Arthur Grimes (00:04:18):
[speaking in te reo Māori] Kia ora tātou.
And thanks, Kerryn. Thanks very much for that introduction. It's great to be here. I've attended a number of these wellbeing seminars from the other end of the screen, and thoroughly enjoyed them. And I note there's another one, very important one coming up in a couple of weeks with John Helliwell as well, who's a real leader in this field. So I'm delighted to be able to take part as well. And I'm going to be talking mainly about some insights from New Zealand research in terms of wellbeing approaches to policy.
So, the outline of the discussion will be first of a little bit of background, and then I'll talk about some economic foundations for wellbeing approaches. And the economic foundations that I'll deal with primarily will be ones that are based on utility of people, as measured with subjective wellbeing measurements. And hopefully, for some of you who might wonder why a person with a strong economics background at the Reserve Bank, et cetera, is interested in wellbeing economics, I want to show that actually wellbeing economics has been really a foundational part of economics since the subject began 200 or 300 years ago.
I'll talk a little bit about some country experiences with running wellbeing policies. New Zealand is not the only country that's been trying to have wellbeing economics approaches. So I'll just mention a few, and some of the pitfalls that I've seen in those. Then I'll spend probably around half the discussion on looking at some New Zealand research that is utilising subjective wellbeing, so whenever you see SWB, that's subjective wellbeing, to show that there's actually an active research agenda that's been underway for some time in New Zealand, going back at least 15 years, using measures of subjective wellbeing to think about the economics of wellbeing-based policies, and then a quick look ahead.
So just first bit of background. Wellbeing economics goes back about two and a half thousand years. If we go to China, there's a very nice quote from Confucius which says, "There is good government when those who are near are made happy, and when those who are afar are attracted." And basically the same way we can measure how well government is doing in terms of its policies, is how well it's improving people's wellbeing and whether people wish to move to places with strong wellbeing. And in fact, there's a really strong body of literature now in migration which takes this quote to heart and uses wellbeing as one of the ingredients in terms of people's choices of migration, and I'll talk about one of those later on.
Around the same time as Confucius was making these statements in China, some of the Greek philosophers, especially Epicurus, but also others, were making very similar remarks at around the same time. So this is in different cultures we were seeing a background that government's role is to enhance wellbeing of individuals.
More recently, there's been a number of world leaders that have talked about wellbeing approaches. This one here, it may surprise people who think about wellbeing agendas as perhaps being a centre left policy space. This is David Cameron, as he was running for prime minister in the UK, where he says, "Wealth is about so much more than pounds or euros or dollars can ever measure. It's time we admitted that there's more to life than money. And it's time we focus not just on GDP, but on GWB, general wellbeing." And Cameron put in place the wellbeing agenda in the UK. The Office of National Statistics started gathering statistics very strongly around wellbeing angles from this time onwards. So the UK has had a wellbeing agenda in terms of its policies since that time, since 2006. Interestingly, John Howard in 2004, the Australian Treasury at that time, introduced the Australian Treasury Wellbeing Framework in 2004, so predated David Cameron, but again, under a centre right government.
If we move across the English Channel to France, President Sarkozy, another centre right politician set up the Stiglitz-Sen-Fitoussi Commission. It's got a fancier name than that, but it's generally known as the Stiglitz-Sen-Fitoussi Commission, the three main people who are heading it, which has a magnificent document if you want to read, a masterpiece on the subject. And they were arguing that we should be obviously going beyond simple measures of economic production, to measure both objective measures of wellbeing and subjective measures of wellbeing. And I'll be concentrating more on the subjective measures of wellbeing today. But I hope you see that there's a large confluence in different countries around the world looking at wellbeing approaches dating back at least 15 or 20 years now.
So what are some of the economic foundations that might underlie these ideas that politicians and others have come up with in terms of following a wellbeing approach to economics? Well, I'm going to start with the Shorter Oxford English Dictionary, which is the big one, two volume one, despite its name. When the Oxford English Dictionary defines wellbeing they say, "wellbeing: the state of being or doing well in life; happy, healthy, or prosperous condition; welfare." Simply welfare as a synonym. And when they define welfare, they say, "good fortune, happiness or wellbeing." And so the two terms, wellbeing and welfare are just synonyms.
If we look at Arthur Pigou, the founder of welfare economics back in 1920, he had two different definitions of welfare, one being economic welfare, which he described as being a very narrow definition, taking into account wages and employment and that sort of thing. And then he defined total welfare, very much in the same terms that we would describe wellbeing today, taking into account all aspects of life. So the wellbeing approach to economics and economic policy is very consistent with just a standard welfare economic approach that Pigou began, many other economists have followed. And it's the standard approach that underpins all of public economics really, or much of public economics. So the idea that wellbeing economics or wellbeing policies are new is quite wrong. They go back well over 100 years.
Angus Deaton won the Nobel Prize about five years ago, and in his Nobel Prize winning speech he described his own work and he said, "I believe that my work has an underlying unity. It concerns wellbeing, what was once called welfare." So in other words, the topics that economists have looked at in terms of welfare economics, in terms of the welfare of people, is very much as Angus Deaton says, we could have just as well said that they were concerned with the wellbeing of people. There's really nothing particularly new under the sun when it comes to economists thinking about wellbeing. It's part of the subject and it has been for a very long time. Incidentally, a large reason why the word welfare has gone out of use in the subject, at least in North America, is because it's used as a term in America that people are on welfare, they're on benefits, et cetera. So it's had another meaning there and so people are referring to wellbeing much more.
When we talk about wellbeing, I mentioned that Stiglitz, Sen, Fitoussi argue that we should be measuring both subjective wellbeing and objective wellbeing. Objective wellbeing, many of the readings that we see and things like the Treasury's Living Standards Framework, or the OECD's Better Life Index, et cetera, where we measure educational achievement and health outcomes, et cetera, as well as incomes, employment and those sorts of things.
Subjective wellbeing measures really trying to get closer to the economists' notion of utility. In other words, what an economist would say a person was trying to... All their welfare, their wellbeing, their utility, all mean roughly the same thing. But we have a number of different measures of wellbeing, of subjective wellbeing that are used widely internationally. And we can divide those into three different types.
One is the evaluative wellbeing, and I'll mention a question that refers to that later on, sometimes also known as life satisfaction. This is where people are asked to evaluate their life as a whole. Shorter term measures of what psychologists call affect, or we can think of happiness or sadness or anxiety, these sorts of things, when has positive and negative affect, which is very much a point in time idea of happiness. Then there's a more philosophical approach, which looks at you eudaimonia, going back to a term that was used by Aristotle, which we can think of as something like one's purpose in life. And in policy terms, eudaimonia measures are used much less. We tend to use the first two measures, more measures of affect, shorter term measures, and in particular, evaluative wellbeing measures, which are looking at one's evaluation of one's life as a whole. And certainly, most of the economics literature tends to use evaluative wellbeing measures, life satisfaction, and these sorts of things. And so do sociologists. Psychologists tend to use affect more.
And this is the only technical diagram I have in the paper and it's really more for illustration than anything else. But traditionally, at least in Samuelson-Bergson, we can think of policymakers having a social welfare function. And the social welfare function says, how does a policymaker think about the welfare of all the people in their country or whichever entity they're dealing with. And then they might be thinking about in this diagram of two types of people, the utility of type one people, utility of type two people, that could be men or women, it could be Māori, Pākehā, it could be anything else. And we can think about a social welfare function, which tries to rank the outcomes for society based on what we see as the utility or the wellbeing of each of these individuals. And you can see an example in the top right hand corner of the diagram, the dotted curve that goes around, which basically says we're indifferent between more utility of type two people, and less of type one or vice versa.
And so this has been a workhorse now of welfare economics and public economics that have been used in the design of optimal taxes, Nobel Prizes have been one, by using this tool a long time ago. And the nice thing about this approach is it's quite general in terms of thinking about different preferences of the policy maker. One could think about a utilitarian who just wants to maximise the total utility in the society without thinking about its distribution. One can think about the case that Rawls, the great philosopher Rawls had, which is maximising the minimum level of welfare or wellbeing in society. These are all special cases of the social welfare function.
So the point about putting this up is that there's nothing new in economist thinking about societal wellbeing. This goes back, I say, at least to Samuelson-Bergson 70 years or so ago, building on the work that Pigou did a 100 years ago. So this is a very longstanding, fundamental approach in economics, in terms that's taught in public economics, wellfare economics, et cetera.
And this diagram is actually from Atkinson and Stiglitz, Atkinson, the great UK economist working on distributional issues. And Stiglitz worked on just about every single thing you can think of. And together wrote a wonderful book on lectures and public economics. And this is their workhorse that they use to demonstrate their theorems, et cetera. So we can think of roughly, and it's not exact, but roughly we can think of subjective wellbeing measures such as life satisfaction or evaluative wellbeing, as rough approximations to what an economist would think of as utility, and then use the standard tools of economics in terms of applying those to particular areas. So this is not new.
So looking more concretely at some of the subjective wellbeing approaches. I have a couple of the most famous people in the field here, Carol Graham, Brookings, Dick Easterlin, Richard Easterlin at the bottom who's 1974 article really kicked off the idea of using subjective wellbeing measures in economics. There are many, many others of course as well.
And the idea here, building on the social welfare function, is to design policies, economic policies, social policies, other policies, that in some way, maximise evaluative subjective wellbeing. The life satisfaction of people overall. Possibly including distributional weights, so that we don't just try and maximise the total utility of society or wellbeing of society. We also think about the poorest or the worst off people in society as well.
So how do we use these questions? Well, a typical question, is there in italics on the slide. Where people are asked on a zero to 10 scale: all things considered, how satisfied are you with your life as a whole these days?
Now it sounds like a very simple question. There is a slightly more complicated version called the Cantril ladder, but it comes to very similar results. And so I've just got the simple one up here. And typically economists who are quantitative folk, have looked at a question like this and said, "Well, this is too woolly to really use." Which is why economists in the past, up till Easterlin's work, really didn't use the subjective measures.
But when one looks at the distribution across the world of these sorts of things, we see that countries who on average, where people answer highly on the scale, tend to be the countries that where you'd think many people would want to live, the Scandinavian countries, Netherlands, et cetera, and places that do very poorly when they answer this question or answer them on a very low level, are the sort of places that not many people wish to move to - Afghanistan and Chad and Zimbabwe and Togo and et cetera, places.
So there seems to be a lot of what we call face validity in this question, that places that have very good living standards and not just in material terms, but in non-material terms as well, people tend to answer very highly on this question, in places that are war torn or very, very poor tend to answer lowly. And within countries, we also know that people who are doing well in material terms, as well as other lifestyle terms, answer highly on this question. People who are not, answer lowly. So seems to have a lot of face validity.
If you saw, if you've been following the seminar series, Paul Frijters and Chris Krekel were on a couple of months ago, they've written a book recently looking at using wellbeing measures such as this in cost benefit analysis. And they also have written a book on that. And so we can now use techniques that they referred to in their seminar to monetise responses to this question, and put those in as indicators within cost benefit analysis. And notably, the New Zealand Treasury has been one of the leaders in this field in terms of its CBAx model, that's cost benefit analysis model, which includes monetised values based on these sorts of questions, in terms that can be used in cost benefit analysis. And I would argue that if one really wants to take the Treasury’s work on wellbeing in the round, one would look very closely at what CBAx is doing, because it's really one of the leading lights along with the UK's Green Book in this field.
So just a very brief history going back to history. Now, I think it's always important to understand where we've come from in some of these subjective measures, the ideas that these build on, if you'd like in the modern period, the thinking of modern is not the ancient Greece, but more recent than that. Jeremy Bentham, the great philosopher, economist, political scientist argued to target the greatest happiness of the greatest number, very famous phrase. And if you think about a wellbeing agenda, he argued that following that simple maximum would lead to calls for equal rights for women, equal rights for homosexuals, for non-believers, and even argued it for the rights of animals. And remember, he was writing in 1800. So over 200 years ago, when all of these ideas were considered completely outlandish. So just a very simple idea of trying to improve people's wellbeing or happiness or however he wants to describe it, is a very, very powerful idea.
Around the same time, Mary Wollstonecraft was using these ideas to argue for the rights of women in her great book on the subject. And then a little later, John Stewart Mill argued in his book, Utilitarianism, "A moral agent should choose the action that maximises the total happiness in the world." And of course, Mill was probably just about the most famous of all 19th century economists. So this idea has a very strong tradition in the economics framework.
Now there's an alternative approach more recently, which is largely due to Amartya Sen. Also, Martha Nussbaum you see there. And Sen has argued that actually we shouldn't really be looking to maximise people's wellbeing in terms of the outcomes of their lives, how they rate their own lives. Instead, policies should be designed to improve people's capabilities, he refers to as opportunities and freedoms, to pursue their wellbeing. And one of the problems that Amartya Sen has in this approach is that he refuses to say which capabilities we should be targeting to do this.
Martha Nussbaum actually does set out a list, but one would think of that as being a very maternalistic approach, where what goes is what Martha Nussbaum says. Sen has argued not to do that. So it makes it more difficult for policy to think about which capabilities we should be maximising. But nevertheless, it's a powerful insight that we should be thinking about what it is that helps people to improve their wellbeing, not necessarily to focus on their wellbeing itself. I disagree with that last part of that approach. I think we should be thinking about people's wellbeing, but as well as that, we should be thinking about the capabilities to generate wellbeing.
The Sen approach has been built on through the multidimensional poverty approach, which has been used in New Zealand and elsewhere, as I'll note it's been used in Bhutan, which also underpins the STGs, sustainable development goals, where a number of minimum thresholds for different capabilities are set, and we try to make sure that everyone is above those thresholds. That might be a minimum income, minimum standard of housing, et cetera.
Now, this approach has been operationalized through dashboards of lots of different indicators. Personally, I find these dashboards to be rather confusing mix of capabilities and of outcomes. And so they're not, none of the dashboards that I've ever seen are actually pure capabilities approach indicators, because they also include a whole lot of outcomes that will think of as being out the outcome of wellbeing. So I find dashboard approaches rather confusing. And not particularly useful for prioritising policies for governments. And especially when we might have a policy that has contradictory outcomes on different domains in these dashboards, in which case, it becomes very difficult to decide whether the policy is warranted or not.
Having said that, I think one can reconcile these approaches to some extent. I think of the policymaker as trying to maximise a social welfare function, which is defined over the subjective wellbeing of all the individuals in society, and the individuals there. Each individual's subjective wellbeing is a function of their market outcomes, their purchase of market goods, their non-market outcomes, the enjoyment of public artworks or whatever, their leisure, they're exposure to their family and friends and all these sorts of things that they determine their subjective wellbeing. And many of these things, especially the command over market goods and non-market goods will be determined, not just by government policies, but also by people's own capabilities. So capabilities go towards improving people's subjective wellbeing. And then government might think about those when it's setting its policies to maximise societal welfare in some way. So I think the two approaches can be reconciled, although I would have to say that many people in the capabilities space would not agree with me on that.
So what have different countries done in terms of wellbeing approaches? The first country, explicitly, to introduce a wellbeing approach to policy was Bhutan back in 1972. Where they introduced the Gross National Happiness, essentially to replace or to supplement Gross Domestic Product. As I’ll mention later, unfortunately, we now have a different measure of Gross National Happiness, which is something completely different. But Bhutan used the term Gross National Happiness back in '72, it's actually a multidimensional poverty approach. What they did is not to set out to maximise happiness, but they set out some thresholds across a whole lot of domains where they wanted people to exceed these thresholds, and then they could argue that they had improved wellbeing. Unfortunately, people who've worked in Bhutan in more recent years have argued that actually they've been very few wellbeing improvements in Bhutan, as a result of this policy. So conceptually it's been very nice, but in practice, it probably hasn't led to very much.
As I mentioned, Australian Treasury introduced the Treasury Wellbeing Framework in 2004, which was a mixture of the capabilities approach and the utilitarian approach. Unfortunately, that was scrapped a few years back where the policy makers found it wasn't particularly useful in terms of informing policies. So that's an example where the approach was tried and hacked, found not to be particularly useful and dropped.
Same in France in 2015, following the Stiglitz-Sen-Fitoussi report, the French government legislated what we call the New Wealth Indicators, which were indicators that the government had to put up in terms of meeting targets, not just for GDP, but for other measures as well. And they had to be discussed in advance of the budget debate that was done in the first year. And then in subsequent years, they failed to do that. So even though it was legislated, it was ignored.
The Welsh at the same time introduced the Wellbeing of Future Generations Act, which I think is probably something that has been really substantively important, where the different areas of government are tasked with setting up which areas of wellbeing they wish to improve, and then are held accountable for that. And the Auditor General can check whether they've actually met their targets on each of those areas. And there's also a person representing future generations who looks at policies and what they might do for future generations, not just for current wellbeing. So it's got a sustainability element to it as well. It's a very nice framework that's worthy of future consideration here.
In terms of the subjective wellbeing approaches, the United Arab Emirates has the most elegant approach. Not surprisingly, it was actually designed elsewhere and they adopted it. But the odd thing is with United Arab Emirates, this is in a country with one of the worst human rights records in the world, and they have a wellbeing approach. So one has to wonder about how much they actually ascribe to their own rhetoric.
In New Zealand, we have two different approaches. We have the Living Standards Framework and the dashboard that accompanies it, as I said, that's really a mixture of capabilities and outcomes. So it's a little bit difficult to interpret. And then we have the CBAx model, the cost benefit analysis model, which really does operationalise subjective wellbeing much more concretely in it. So that's an area that I really recommend people look at.
So, if we're going to have monetized wellbeing measures to use in cost benefit analysis, we need some research to underpin it. And one of the points I really want to make is that there is an active research community within New Zealand that has been using subjective wellbeing for quite a few years now. And some of this research is looking at cross country studies, so it's beyond just New Zealand. And some of them have been looking at New Zealand-specific studies. And I want to start with some of the cross country studies. And then I'll talk about some of the New Zealand-specific studies. And I'll just go through each of them very, very briefly. For each of these, the slides will have the reference in the bottom right hand corner, and anyone who wishes to go into any of these papers in more depth, can do so.
So I want to start off with study on the Easterlin Paradox. I mentioned Richard Easterlin. Richard, or Dick, was the first economist really to use subjective wellbeing measures in a very famous article in 1974, where he came up with the following paradox. That richer people within a country are normally happier, have higher wellbeing than poorer people. Also, when we look across the world, people in richer countries tend to be happier than people in poorer countries. We've seen over time that countries have got richer and people have got richer, but they've got no happier. So how can this be when we see the cross-sectional relationship?
And one of the key explanations for this is that maybe people form their view of their own wellbeing relative to others. And so relativities are very important. Now, some economists such as Easterlin and Richard Layard from the London School of Economics and others have argued, well in this case, we should give up on having economic growth, because if we're only comparing ourselves with each other, then economic growth’s not going to make us any happier. And we should just think about how we distribute what we've got rather than growing the pie as a whole. Now, I must say that many other economists disagree with this conclusion, and even a sociologist such as den Hoven, one of the other founders in this area, also disagrees with Easterlin.
But even if we took the Easterlin line at face value, what this work in this paper, in this book, which is actually a book in honour of Richard Easterlin, but Mark Reinhardt is a former student of mine, and I looked at this in a cross country context, and found that not only do people compare themselves in terms of relativities with others in their own country, but they also compare themselves in terms of relativities with people in other countries. Most simply when we think about it, New Zealanders compare our living standards with people in Australia.
So if people in other countries are getting richer and we are not, then our wellbeing goes down because in relative terms, we're getting poorer. So even if one believed the Easterlin paradox, it's still from a policy point of view, as long as other countries are getting richer, our policy makers would be leading to a reduction in wellbeing here, if we didn't get richer at the same extent or faster.
Now game theorists would argue that this is a prisoner's dilemma. We could all be better off if every country stopped growing, but the fact is we can't have any control over what other countries do. And so if other countries are improving their living standards and we just are stuck with our living standards, we'll feel worse off.
Another interesting question - is there a trade-off between wellbeing and sustainability, current wellbeing and sustainability? And we see in the Living Standards Framework, for instance, and also the Better Life approach of the OECD. There, we have measures of current wellbeing and current measures of capitals or wealth, whichever we want to call them, which we can think of as underpinning sustainable wellbeing.
And in this paper, Mubashir Qasim and myself, Mubashir was a PhD student of mine at Waikato. We looked to see whether there was a trade-off using cross country data of individuals across countries, between wellbeing at the present and sustainability, in other words, future wellbeing. And what we found out was yes, there is a trade-off. Countries, one can imagine Australia or something similar, decreasing the measures of strong sustainability. In other words, running down their wealth stocks by natural resource depletion, but that improves current wellbeing because current incomes are very high when we do that. So we can increase short term subjective wellbeing by running down our natural capital. But what we did find then is over a subsequent decade that it was in a decrease in subjective wellbeing. So there was a interesting, we could use the resources now for our current wellbeing, but that would deplete the resources for the future and reduce future wellbeing. Which is nicely underpinned by the idea of wealth or capitals that are in the Living Standards Framework.
But of course, this implies a very difficult political economy trade off. Because governments don't really care too much, most elected politicians don't care too much about the benefits to people in 10 or 20 years’ time, but more interested in the short term benefits. And by running down the current levels of capital, they can increase short term wellbeing, which increases electoral success.
One of my colleagues in this field is Robert McCulloch at University of Auckland. Now Robert has written some of the seminal papers in the field of subjective wellbeing, going back to the early stages of the subject 10 or 20 years ago. And he's updated one of his most famous papers more recently, this is available as a Motu working paper, but it's also a forthcoming in a Journal of Money, Credit and Banking. And what they do is to say, "Well, are people's wellbeing, subjective wellbeing of individuals in different countries, affected by inflation and unemployment, or just by one or the other." And they use Gallup Poll data for 138 countries across a number of years, to test how each of unemployment and inflation effect people's subjective wellbeing.
And interestingly, they find, as did the previous study that Robert was involved in, that both higher unemployment and higher inflation reduce subjective wellbeing, and that's measured on life satisfaction, but even when they measure it with positive and negative affects, so short term measures. We also see that these macroeconomic outcomes effect people's subjective wellbeing. So from a macroeconomic policy point of view, it's important to have policies that contain both inflation and unemployment. This might be intuitive, but at times we've perhaps downplayed some of the effects of one or other of those outcomes.
I mentioned Confucius' statement right at this outset of this seminar, about good government attracting people from afar. And I worked with Dennis Wesselbaum from University of Otago, two papers. We show that when people are making their international migration decisions, they look obviously at incomes, and that's been well known in the migration literature now for a very long time, but they also look at the subjective wellbeing in a country on average, and places with higher subjective wellbeing are attractors for people to migrate to. So we can think of why do lots of people want to come to New Zealand when we're not a particularly rich country on a GDP per capita measure, but we are one of the highest rated countries in terms of subjective wellbeing, almost always in the top 10. And so, it's not surprising that many people from other countries wish to migrate to New Zealand.
Interestingly, we did some work also on how inequality of wellbeing effects migration. Not surprisingly, domestic inequality tends to be a push factor. So people want to leave countries that have got high inequality, but very interestingly, they're also attracted to countries with high inequality. Now, why might that be? Well, if you are thinking about going to a country, essentially, you've got an option in finance theory terms, of going to that country and maybe succeeding and staying in that country. Or if you don't succeed, you can always go back to where you started from. So if there's a wider distribution of outcomes in the destination country, then you might think, "Well, I can really make it in America," or "I can really make it in Denmark or wherever else. And I wish to go there because I can really try to do that." So inequality is a double edge sword. It sends people away from the domestic country, but it also might be an attractor for foreign migrants.
Now I want to turn to New Zealand studies now. And one of the interesting area when we look at dashboards and other measures, the child poverty indicators and things like that, is how we should measure material wellbeing? And we know that in a child poverty area, there's a number of different measures of material wellbeing, same on the dashboard. And one of the questions I think, which is a very interesting one is, when we are measuring material wellbeing, should we use people's income or their consumption as a measure of material wellbeing? Now from an economist angle, we think of consumption being driven by lifetime income or what we know is permanent income. And so if we're worried about people's lifetime situation, we're probably going to be more interested in their consumption than their income, which might be transitory. They might have a bad year or be unemployed for three months in that year, or have had a bad run if they're a business owner, et cetera.
And so in this study, Tom Carver and I, Tom was another former student of mine, looked at which of these two income or consumption is more closely related to people's subjective wellbeing, using general social survey data. And quite clearly, even though they both income and consumption are related to subjective wellbeing, we found quite strongly that consumption is more closely related to subjective wellbeing than is income. So when we're interpreting measures of material wellbeing, whether it's on the LSF Dashboard or the child poverty indicators, et cetera, we should be paying more attention to consumption than we do to income.
And the following graph, which is actually due to John Creedy, I think also this shows that this is another important angle to it. John's been this leading person on thinking about income distribution in New Zealand for many years. And this is just a graph that I have taken from one of his papers, where he's looked at Gini coefficients of which are measures of inequality. A higher Gini coefficient means greater inequality, and a lower Gini coefficient means greater equality. And for three different measures, one is market incomes, which you see at the top there. And as we know through the reforms of the '80s, early '90s, that the inequality in market incomes rose very strongly and then largely stayed up, maybe just came down a little bit after that. If we look at the dark black line, the solid black line at the bottom there, the Gini coefficient for disposable income, so after taxes and transfers, shows a similar but less pronounced movement.
But if we look at the Gini coefficient for consumption, which is the middle dash line there, we can see that, yes, inequality rose a little bit through the '80s, but it's come back down to where it started from in '84. So if we're thinking that consumption is a better measure of material wellbeing, because it's more closely related to subjective measures, then we might think that this work indicates that actually inequality of what matters, consumption, has not increased in New Zealand over that period.
Now, one of my colleagues at Victoria University of Wellington, Philip Morrison, now an Emeritus Professor there, an Economic Geographer, has been writing on subjective wellbeing topics in relation to the geography of New Zealand for a long time. His first paper has published in 2007, so we're going back 15 years, and he's written many papers since then. And we often think about some of these issues at a national level, because often governments think about things at a national level, or we have national level indicators. But Phil Morrison's work says that actually, when we think about these things, we should also think about them from a regional level. And in particular, when we look how different cities are faring, or how cities are comparing to rural areas. And regional development policy should probably be thinking in these terms, rather than just concentrating on material wellbeing, they should also be looking at broader measures of wellbeing.
And much of the research here and overseas, tends to show that some of our large cities in particular, parts of some of our large cities have lower subjective wellbeing than smaller places, or even than outlying suburbs of some of the cities. And I'll show you a graph on this in a minute that summarises some of these ideas. In other work that I've conducted with colleagues at Motu and elsewhere, we also find a similar finding using very different measures other than subjective wellbeing measures, based in the urban economics literature. And the takeaway of that literature is that when people move to New Zealand, so migrants come to New Zealand, they tend to wanted to be in cities with high incomes. When students graduate from tertiary education, they tend to want to be in cities with high incomes, but later in life, they actually want to move from those cities to places that have got improved wellbeing more generally. So people might start their working life in New Zealand as a migrant or graduating student in Auckland, maybe Wellington, and then move to somewhere that's actually really nice to live, Nelson, Queenstown, Tauranga, wherever else, later in life.
And this is just a graph taken from one of Philip's very early papers on the subject, Phil Morrison's very early papers. And you'll see some cities or areas down on the horizontal axis, you may find it hard to read, but the top ones are actually parts of Auckland, Rodney, Waitākere and then Tauranga been the three left hand most areas. And the two right hand ones are Manukau and Auckland City. This is before the amalgamation of Auckland. And we'll see that happiness, this is an affect measure essentially of happiness, highest in Rodney, Waitākere and Tauranga, and lowest in Manukau and Auckland City. Life satisfaction, very, very similar. Quality of life, which is a broader measure on probably material quality of life, somewhat similar as well. So the idea that these large cities tend to have lower overall quality of life or subjective wellbeing than some rural places or smaller cities is pretty well documented now in many different countries, at least developed countries. It's not the case in developing countries where it's the other way around.
Now, I talked about the Easterlin paradox before. And one thing of really outstanding piece of work that's been done in New Zealand in recent times was conducted by Shakked Noy, as Master's thesis at Victoria university. Izzy Sin was his supervisor. And together they've published a paper in Journal of Economic Behaviour and Organisation, where they looked at okay, if relativities matter, which relativities matter within the country? And this paper particularly looked at relativities based on workplace. So how do you compare yourselves with who you work with or people in your neighbourhood? And they used causal methods to look at this and had two main findings. One is that people are happier the higher is their income rank. And interestingly, the word rank is important. They're not so much their dollar income, it's where they are in the ranking position. And when it comes to comparing workplace or neighbourhood it's workplace rank, that matters much more than neighbourhood rank. In other words, people's subjective wellbeing is really affected by how they rank in terms of their incomes within their workplace.
This suggests that maybe when we look at measures of inequality that refer to numerical values, the Gini coefficient, or other such things, we might be missing a large part of the story that it's actually your rank in society in this case, in your workplace, that really matters. Not so much the dollar difference. So maybe many of our measures of income inequality are not appropriate for thinking about wellbeing.
In a more descriptive piece of work, Leah Haynes and myself, Leah was another master student at Victoria University. We thought, well, if we took the Living Standards Framework as a basis, and we tried to make sense of how you would group together or rank outcomes based on different domains as most of you will know, the Living Standards Framework has different domains, such as education and health, and environment and various other things, housing, et cetera.
We said, Leah asked the question, well, if we're particularly interested in the subjective wellbeing of mothers with children, who still got children at home, but concentrating particularly on mothers who are in material hardship, which of the LSF domains that are most related to their subjective wellbeing? And what we found here was that the two most important areas that were related to this subjective wellbeing, once we took their income into account, was their knowledge and skills. Interestingly, it was how they ranked their knowledge and skills, whether they thought the knowledge and skills were sufficient. And their housing situation. And there were some also other areas that were important, social connection, safety, and health, et cetera. But this implies that if one wants to look at the wellbeing of mothers, and especially sole mothers who are in material hardship, one might want to pay particular attention to their housing and to their adult education opportunities. And there have been some changes made in those fields in recent years.
Still on the topic of housing, there's been a number of papers looking at the role of public housing that Conal Smith and others have been involved in. This one by Simon Anastasiadis and others, and including Conal and various other people, have used general social survey data coupled with the IDI more generally and said, "If we place people in public housing out of private rentals, does this raise their subjective wellbeing?" And they used a very nice, what economists will call an identification technique, by looking at the timing of the survey, to be able to compare people who answered in their survey while they were still on private rentals, but who soon after moved to public housing. And they compared those with people who answered the survey when they were in public housing.
And they had some really important findings here, underpinning modern housing policy, I think. Certainly, they found that when people moved from private rentals to public housing, the probability of having low subjective wellbeing declined. In other words, they're more likely to have high subjective wellbeing. Their housing conditions improved, their free time improved maybe because they weren't worried about having to find another house. But interestingly, there was one downside and that's that their probability of feeling unsafe at night increased.
And there's some other papers that Conal and others have worked on that show, similar sorts of results. And I might mention that at the moment I'm involved at Motu in an examination of the effects of the Warmer Kiwi Homes Heat Pump scheme, to see whether they're improving the wellbeing of people in those homes.
So that's just the graph from the Anastasiadis, et al. paper. And if you look at the top line there, that the probability of low life satisfaction is significantly improved, anything to the right side of zero is shown as an improvement, significantly improved once people gained a placement in public housing.
Now I just want to finish with two studies on Twitter I use on COVID. One is, can we use these techniques to look at the effects of COVID and lockdowns on subjective wellbeing? A leader in this field is Stephanie Rossouw from the Auckland University, from AUT, and her colleague from South Africa, Talita Greyling. And again, here they've worked with Phil Morrison as well. Now they've, Stephanie and Talita, have formed an index called Gross National Happiness, not to be confused with the Bhutan index of the same name, which has derived from tweets, where they use sentiment analysis to judge whether tweets are positive or negative, and they can then take a balance of those to see whether people who are tweeting are on balance showing positive or negative, I would regard it as affect. And so a short term measure of positive or negative emotions.
And if we look at this graph, we see that the grey shaded line is the COVID-19 cases through 2020, we see the big flip upwards with the first case in late February there and in the big jump in March. And their Gross National Happiness measure, based on tweets, starts dipping when the first cases are announced, and then dips very sharply as the number of COVID-19 cases increases. If we look at the effect of lockdowns, interestingly, we see the solid line with the peak is again, the COVID-19 cases and the shaded areas are lockdown periods, level three and level four, level four is the dark one. And so, we see obviously the same effect of COVID-19 on overall emotions, but nicely they can break down the emotions into different ones where they use sentiment analysis to break it down.
And one of the findings I think is very, very interesting is that the trust finding, the trust sentiment that comes through in their measure of tweets, increases when lockdown occurs. That's the very first part of the shaded line. We see trust increasing quite sharply, and actually dipping once the lockdown finishes towards the end of the series there. So this is implying that the government response led to an improvement in generalised trust through the lockdowns. Now that's based on tweets, and some people like that measure and some people don't.
So in other work views the survey data from StatsNZ, to look at some related issues. And very nicely StatsNZ at the start of the COVID pandemic decided to include some of the questions from the general social survey, the wellbeing questions there, in the quarterly household labour force survey. And they did that for four quarters from June, 2020 through to March, 2021. And that enabled us to do two sets of analysis, one was looking at, just some descriptive stats of looking at the initial quarters of lockdowns and COVID, and compare that with the 2018 situation, which was the previous general social survey.
And then more technically, but perhaps with the more causal approach, what we call a difference in difference approach, which is where we compare the second lockdown, which only affected Auckland. And we can look at whether that second lockdown had an outsized effect on Auckland relative to the rest of the country when it was implemented.
Now, if I look just at the overall descriptive side, we see in 2018, this is the average level of life satisfaction in New Zealand with 7.7, historically about an average level for New Zealand. Then we would go into June, 2020, which is the first lockdown period. Although I have to say this is towards the end of that lockdown when it was shown to be successful in reducing or eliminating COVID, initially, that the average life satisfaction went up and that's a very big increase in life satisfaction came to 0.2 of a point. It went down with the Auckland lockdown, but these are national figures. And then went back up again in December, 2020 when there was no lockdowns nationally.
But what about the difference in difference side? Oh, sorry. This is still looking for New Zealand as a whole. This is using cumulative distribution functions and I won't go through each of those and how to read them, but I will say what these show is that overall life satisfaction in New Zealand increased with the lockdowns relative to 2018. And in particular, the number of people registering low life satisfaction, decreased quite sharply. In other words, people who were previously low life satisfaction improved their life satisfaction. That also lead to an increase in trust in government, trust in general, but it also had the downside of increasing loneliness. I won't go into that in more detail.
But what I can show is just discussed the difference and difference estimates, which is looking at the particular effect of the Auckland lockdown, after controlling for what happened in the rest of the country, in our second lockdown, which was when Auckland went to level three, but the rest of the country only moved to level two.
And what we show there, using the exact timing of the survey and exactly where people lived, is that on average life satisfaction reduced by 0.2 of a point in Auckland as a result of that lockdown. Now, how big is that effect? Well, it's very similar in magnitude to when people answer, I've only just got enough money, relative to having enough money. That's a pretty big difference, if one thinks about those two things. Or we know in the literature, that being unemployed is one of the worst things that can happen to people in terms of their subjective wellbeing. And this reduction in wellbeing during the Auckland lockdown is roughly two thirds of the effect of becoming unemployed, if one was previously employed. So it's a large effect. So the second lockdown in Auckland had a large negative effect.
But interestingly, the only really group who didn't affect negatively and who had affected positively, were unemployed people, people already unemployed. Why might that be? There's actually a very interesting result in the wellbeing economics literature, that if you're going to be unemployed, it's bad, but you're better being unemployed when everyone else around you, well, lots of people around you are unemployed as well, because you don't feel stigmatised by that because lots of your neighbours are also unemployed. So in this case, during the lockdown, no one else is going to work, so you don't feel so bad when you're unemployed. So that's one group that actually did better during the lockdown, but in general, most groups did worse. And what we also show is that the probability of being lonely increased sharply during that lockdown. I would conjecture, but I don't have any stats to prove it, that lockdowns and subsequent lockdowns in 2021 probably had an even bigger negative effect.
So we can use these sorts of statistics now to actually derive some really important policy related implications about the effects of policies such as lockdowns. So just some final thoughts. We all see in the dashboards, the OECD dashboard, the Living Standards Framework, et cetera, they've got lots of interesting information in them. But they're very difficult to use to prioritise policy because there's no overall indicator of wellbeing. I would argue, and many of my colleagues would argue, that subjective wellbeing measures offer a way forward to understand what really matters for people's welfare. These essentially try to reflect people's overall utility, so they're well grounded in the economics literature in terms of why they might be important for policy. We now have a really good base of research in New Zealand and of course, overseas as well, in many different fields that we can use to start informing some of the policies and tools that we have in New Zealand, including CBAx, the Treasury's cost benefit analysis tool, to improve our valuation of different policies. So I would strongly recommend that this research be encouraged and used in the policy area.
And I'll just leave you with one final slide. I co-chair the World Wellbeing Panel, and one of the co-chairs there is Paul Frijters who gave the Treasury seminar a couple of months ago. And our summary there is I think one that we can all take aboard, the World Wellbeing Panel is about the promotion of wellbeing as the ultimate purpose of all major decision makers, particularly government. I'll leave it at there. Thank you.
Kerryn Fowlie (01:00:28):
Kia ora Arthur. Thanks for such a fascinating discussion and presentation that covered a wide range of issues. And I was really struck by your starting point, that wellbeing has really been at the heart of public economics since the discipline began, we just perhaps been calling it by different names. I also remark that your former students have probably been very positive for your subjective wellbeing because they have obviously enabled you to analyse wellbeing from a range of different perspectives on some very contemporary policy issues. And I will confirm that if I could move to Whangamatā, that would be very, very good for my subjective wellbeing as well. So I think there's a lot of insights in what you presented there.
We've already got quite a few questions in the chat, so we'll just kick off with those. If you do have more questions, please keep typing them in. We'll try and cover as many as we can. I think we've got about 25 minutes, probably, for the Q and A. So I'll start with the first one, which was really a measurement question, I think, around how do you measure the evaluative subjective wellbeing question? And it said, "These questions are by nature subjective, but where does adaptation fit in? Can you be very satisfied under a constrained system?"
Arthur Grimes (01:01:40):
Yeah. So thanks for that question because I didn't mention it in there, and I was wondering whether I should. There are two reasons why the Easterlin paradox, if it exists, might be the case. One is the relativities case, which I mentioned, that we compare ourselves with other peoples around us. And the second explanation for the Easterlin paradox is that even when we get increased incomes, we adapt to those. So we have adaptation.
I remember as I was a student, I used to have a rusty old Datsun car and I traded that in for a slightly less rusty Volkswagen and I was really happy, but after probably a few months or a year of that, I was no more happy than I had been with my old Datsun, and I traded it in for a even slightly less rusty Mitsubishi Mirage or something. And each time, my wellbeing went up and then slipped back again.
And I think this is one of the really big topics that people in the literature are looking at now, is how important is adaptation. We know that from longitudinal surveys, people adapt some things and not to others. Interestingly, some of the worst things that can happen is if you become widowed either male or female, that leads to a reduction in subjective wellbeing, that tends to last for two or three years. And then subjective wellbeing tends to return back to where it was beforehand. More so for women interestingly, than for men. But unemployment, people do not adapt to. There's some partial adaptation to unemployment, but not full adaptation. So we do adapt to some things, but not to others. And that may have implications for policy that where people can't adapt to certain situations, those are things that will have very long term effects and policy really should concentrate on alleviating those particular areas.
Kerryn Fowlie (01:03:38):
Thanks, Arthur. The next one I think is related to material wellbeing versus subjective wellbeing. And it's saying, "Do you define consumption as including savings? My thought was that if this was not the case, inequality might result in people with higher incomes not consuming more, but being able to save significantly, whereas low income people have to spend their income and have lower/no ability to direct income into savings."
Arthur Grimes (01:04:02):
So consumption does not include savings, consumption plus savings equals income. So one of the issues in tracing out consumption over time, people running down, if they're keeping their consumption high, is it because they're not saving or is it because they're running down their savings, et cetera. And without good savings data, which we don't have, that's hard to judge, and especially without good wealth data, New Zealand has very, very poor wealth data. So we find it very difficult to actually look at how people's wealth is changing over time.
We used to have SoFIE, which was a longitudinal survey, which measured these things that stopped, I think in 2012. And we've had nothing like it since. So I would make a real plea to Stats New Zealand, and especially to people who fund Stats New Zealand, to have something like the SoFIE survey, a longitudinal survey, where we can measure people's savings, incomes, wealth over time. So we can actually look at these things properly.
Kerryn Fowlie (01:05:08):
Great. Thank you. There's been a few questions in the chat, which are related, I think, to your workplace slide, where you talked about rank versus income. The first is, "I wonder if Noy and Sin looked at differences between cultures." And that it does sound like a fairly Western perspective, individualistic perspective. And there's another one here saying, "Did Noy and Sin consider how correlated the workplace rank and income, either actual rank variables are? I was thinking that workplace rank would normally be reflected in higher pay."
Arthur Grimes (01:05:40):
So taking the last part of that first, workplace rank is based on their pay, the rank of their pay. I know when I used to manage people, and thank goodness I don't have to do that anymore. The hardest part of the job was every year when you did the wage increases for new graduates or people early in their careers. And you think, I'll give this person 3% and that person 4%, and that just opens up a can of worms, right? Materially, there's no difference between a 3% increase and a 4% increase, but boy does one feel a lot worse than the other. So it is rank that is very important. I think the results are correct.
The ethnic consideration is really important. I think there needs to be far, far more work done in these areas. Mason Durie made the point in his very famous paper going in social science and medicine, where he argued that Māori placed much less emphasis on occupation rank and the type of occupation, et cetera, than do Pākehā New Zealanders. I'm not fit to say whether that's correct or not, but certainly that was his strongly held view. And I think there needs to be a lot more work done in this field.
I was very lucky, as Kerryn said, to have another fantastic student, Rowan Thom, we worked together looking at how loss of land for Māori affects current wellbeing outcomes. Not using a subjective wellbeing, wellbeing measured, but using cultural wellbeing measures, which is the only reason I didn't include it in this presentation. But we show there that cultural wellbeing outcomes today relate strongly to loss of land of different iwi in the 19th century. And one would think from a Pākehā perspective that wouldn't be anywhere near so important. So I think these ethnic differences, and even inter-iwi differences in New Zealand could be very important and really warrant extra research.
Kerryn Fowlie (01:07:52):
Are there any general lessons from the failure of wellbeing approaches in other countries that we can learn from? So for example, was there Australian Wellbeing Framework not useful, or was it unable to help with evaluating trade-offs, and just also interested in your perspectives too, there on the Living Standards Framework Dashboard we have, which as you say, includes both capability measures as well as outcome type measures too. So if there's any reflections there, that would be really helpful.
Arthur Grimes (01:08:19):
Yeah. I would argue that no dashboard approach has been shown to be useful. That's a pretty strong statement. But I can't think of any particular policy that's been usefully informed by having a large number of indicators on a dashboard. I have on my shelf, a 1903 New Zealand Yearbook. In the New Zealand Yearbook, when going right through, had chapters. And one chapter would be called health, one chapter would be called education, one chapter would be called housing, one chapter would be called GDP or whatever. These were the same as what we have as domains today. Each of those chapters had indicators in them, number of people who passed school certificate, number of people who passed university entrance, whatever. In the old days.
There was no difference between the New Zealand Yearbook and the dashboard approach that we see of the OECD or Treasury at the moment. There's just a whole bunch of indicators. And the yearbook didn't help to prioritise policies, but we've had these dashboards of indicators for, I think the yearbook started in 1870 or 1880 or something. And so dashboards of indicators are not new. They've been going for 150 years or so. One has to have a conceptual framework to actually make sense of the whole myriad of indicators which we have. Indicators Aotearoa New Zealand from Stats New Zealand has even more indicators than the Living Standards Framework, but there's no conceptual framework to link those. And to say, which one should we place emphasis on?
So I find dashboard approaches, yes, they have lots of really interesting information, just the same way as the New Zealand Yearbook always had fascinating information, but there are no more use than the New Zealand Yearbook is in terms of actually prioritising policies that people might want to run, than we've had for a 100, 150 years. That's where I think we need to have much more development of having a framework for interpreting indicators. And that's what I tried to do with Leah Haynes, or Leah Haynes tried to do with me. Because she was the dominant player in that work.
And to say, okay, if we took the Living Standards Framework at face value, how could we try and interpret that using some overall metric? And the overall metric that we used was the subjective wellbeing of mothers. In that case, mothers in material hardship. Because if we hadn't have done that, we could have just said, yes, well, these mothers, they have less access to the environment, and less access to housing, and less access to something else. And we would've said, so what? We know that. They're worse off on all these dimensions, which ones are actually most related to this subjective wellbeing. And it turned out to be housing and their education skills, et cetera.
I think that actually tells us something, but we could only do that by having subjective wellbeing as something overarching above the framework to say, let's see what's important. And I'll mention that Conal Smith did a paper for Treasury when the Treasury Wellbeing Framework was being revised, where he argued based on his OECD experience and other experience, to have subjective wellbeing as the overall metric in the way that we did with that paper. And then saying all these other things contribute to people's subjective wellbeing. My housing contributes to it. My education contributes to it. My income contributes to it, et cetera. But it gives us a way of thinking about how do these things contribute to what economists will term utility. And I think that's why this approach is going to be very rough, it's going to have all sorts of imperfections, but I think at least provides some sort of framework for addressing issues.
Kerryn Fowlie (01:12:23):
That's really interesting. And I know that as part of the Wellbeing Report at the moment, we are trying to do some of that segmentation analysis to try and understand what's driving those subjective wellbeing levels as well, too. So I think that's really fascinating.
Just the second part of that question, is there any particular lessons, for example, that we might be able to learn from Australia or other places, France potentially, who've tried these things, and haven't necessarily persisted with them?
Arthur Grimes (01:12:47):
Well, I think both of those cases were ones where the indicators were put up, but there was no framework for interpreting them. And I think that was the problem with them that they said, "Here's some nice indicators." So what? And they needed to then say, "How do we actually operationalise our use of those indicators for policy?" Now, I would say that the child poverty indicators was one area where that's been different, where we have got much more clear cut indicators. Now, surely there's a number of them, but that's probably fair enough for interpreting what's happening. I think that's the one area where we've actually got some indicators that mean something for policy design.
Kerryn Fowlie (01:13:24):
I guess, going into a slightly more specific policy area, there's a question here around local government. So local government's purpose is to promote the four wellbeings. From your experience, are local government policies and decisions based on a wellbeing framework, including CBAx? If not, what are the key barriers?
Arthur Grimes (01:13:39):
So just on the history of this, of course, local government used to have footpaths and potholes, and then it moved under the Clark government to four wellbeings. And under the Key government moved back to footpaths and potholes. And then under the current government back to the four wellbeing. Interestingly, those four wellbeings are different from the categories that Treasury has for their four capitals, or four wealth. Cultural wellbeing is actually one of the... I'll have to try and wreck my brains now. Economic, cultural, social, and environmental for the local authorities, I think, this case.
There's, I think, number of questions here. One is actually when the four wellbeings were taken out, some councils said they were still using them, and others said they weren't. So were they ultra vires, I don't know, but they're back in there. I would think that some paying attention to them, and some probably are not.
Personally, I think that having legislation for local governments, which vary from about, I don't know, less than 10,000 people to more than 1.5 Million people, is bizarre. How you can expect a whole range of councils of such vastly different resources and size and capabilities, to have the same overall legislative requirements is mind boggling. So most of them will not have any formal way of evaluating which wellbeings that they're enhancing or not enhancing. They don't have the equivalent of CBAx. Some of the larger ones will. I know, and I can't remember its new name, but SOLGM, has been running some very good indicators that they've been collecting for different local authorities, where local authorities can look at their indicators for their own area. But if I was in a small local authority, I wouldn't have the resources to really use those usefully. So I would argue strongly if we wanted delegate some of these things to local authorities, and I think there's a strong case to do that. One first needs to revamp the local authorities system to have many, many fewer and larger local authorities.
Kerryn Fowlie (01:16:05):
Thank you. I think there's a question for Treasury on the chat too. So I might just ask if there is anyone from Treasury on the line who knows the answer to try and respond, but that is, "Roughly what proportion of budget submissions to Treasury are analysed with CBAx?" Which I don't have the answer to, but if someone else from Treasury on the line does that’d be great?
Do you have thought on use of incentives in the very broader sense for encouraging self-reported wellbeing measures?
Arthur Grimes (01:16:32):
I'm not quite sure on that one. In New Zealand we have the nice situation that if you sent a Statistics New Zealand survey, you have to answer, it's a legal requirement. And when I present papers at overseas conferences and I say, and I'm using surveys with an 80% response rate and not everyone responds, but normally the response rates are over 80% and same for business surveys, people are amazed. Because many people internationally are using surveys with very low response rates. So it's not an incentive, it's a stick rather than a carrot, but people do respond to surveys.
And in the work that I've been doing on heat pumps where it's completely voluntary whether people respond, we've had fantastic take up of people actually answering the wellbeing questions, and not just the life satisfaction question, but also what we call the WHO-5, World Health Organisation-Five questions, which are more measures of affect, short term measures. We get actually a lot of people wanting to answer these questions, very, very, very high response rates, it's almost a 100% of the people who take part. So I don't think we need incentives. People are actually quite happy to answer these things.
Kerryn Fowlie (01:17:49):
Good to know. I think I've got time for a couple more questions. I'm going to save Tim Hughes's one for last.
Arthur Grimes (01:17:49):
Oh, that'll be a tough one.
Kerryn Fowlie (01:17:53):
I’m interested to know the answer to that one myself. But we've got here one, "Thinking of Herman Daly, can subjective wellbeing shed any light on different political economic paradigms, e.g., neoliberalism versus environmental economics."
Arthur Grimes (01:18:08):
Well, one of the reasons we did, I did the paper with Mubashir Qasim, was looking at the trade-off between wellbeing and sustainability was to think about, should governments just be looking at short term wellbeing, which they can lift by essentially running down our current resources. And the answer to that is no, they have to be thinking about the wealth that we're leaving for future generations. So I think in that sense at a very, very broad level, governments and officials, central policy makers should be thinking multi-generationally and in a sense, and I think that's absolutely critical.
From a narrower angle, one of the things that we see in subjective wellbeing measures, if we rank the top 20 countries in terms of average subjective wellbeing, you'd probably say 18 or 19 of those countries are rich countries, including neoliberal countries. I hate the term neoliberal because it really is completely meaningless, but these are countries with market economic systems, well developed market economic systems. And people in most happy countries have this system because that's the system that has led to people having much higher standards of living. They also tend to have much more freedom in terms of their economic freedom, their political freedom, which is very important. Their freedom of expression, et cetera. These things are all very, very important and they tend to go together.
The one country which stands out is being a little different in that top 20 country group is Costa Rica. And Costa Rica is on average, slightly happier than if you believe in averages, slightly happier than say the U.S., or the UK. And Costa Rica is a country, which is a democracy, so it has all the advantages of freedom of expression and freedom of government, but it places a much greater emphasis on the environment than many countries do. And also has a culture that plays a huge amount of emphasis on family and friends. And somebody like Dick Easterlin in his work argues that the most important thing in terms of our wellbeing is not our material wellbeing, but our relationship with our family and friends. And so if one has a culture that really emphasises that, and it's in a place with very strong environmental values as well, they can be a middle income country, but have people with very strong, positive subjective wellbeing. So on balance, I'd say that market economies tend to be the ones that have the happiest populations, but one can complement that with other facets as well.
Kerryn Fowlie (01:20:55):
Fascinating. So I am going to conclude with the question from Tim Hughes, which says, "A good overview of the research today, Arthur. Interested to hear what you think the key unresolved issues on the subjective wellbeing research agenda are for future exploration, I should say, in New Zealand and overseas?"
Arthur Grimes (01:21:14):
Okay. Thanks, Tim.
Kerryn Fowlie (01:21:16):
It's your chance to get out, and call your students to do some more work.
Arthur Grimes (01:21:18):
Yeah. Yeah. No, no, this is the chance to get more funding.
Well, I think there's some really interesting ones here, Tim, and there is technical issues. And so I just mentioned this very briefly, because it won't be of interest to most people, but these measures are what are called Likert scale measures of zero to 10, you measure them 0, 1, 2, 3, et cetera. And there's a big debate in the literature as to whether we can think of... Well, I've talked about means and averages at times, or even inequalities of wellbeing. How do we actually measure those? I have a paper with Florencia Tranquilli, another former of student, and Stephen Jenkins from LSE on measuring inequality of wellbeing, that's hopefully coming out shortly. And so there's some big issues as to how we actually interpret these, Likert scales, ordinal scales. So the technical issues are there.
More broadly? I think one of the points that was raised before in which I'm working with another student on now, has just started, is ethnic differences, cultural differences in thinking about wellbeing. And we're very lucky in New Zealand that Stats New Zealand had the Te Kupenga survey starting in 2013, 2018, which is a large survey of Māori wellbeing, which asks not just about individual wellbeing, but many other facets that are relevant to Māori that's the survey that Rowan Thom and myself used. And hopefully my new student will use as well, Mākere Hurst. And I think that thinking about whether there are differences in the way that different ethnicities, different cultures think about wellbeing is really important.
Interestingly, some overseas studies suggest that there are not major differences in the way different cultures think about wellbeing. But I think in New Zealand, we've got the ideal opportunity with our really rich data, to test that, and to see whether certain facets are much more important than others. But I mentioned one before about land, I don't think it perhaps as resonating for a European, if they're great grandparents or great-great-grandparent have lost some land back in 1900. I don't think that would be resonating on their wellbeing now, as much as perhaps it affects members of certain iwi who lost huge amounts of land, especially under the Raupatu, the confiscations after the New Zealand Wars. They seem to be still having repercussions today in terms of our interpretation of people's wellbeing. So that's the area that I'd strongly encourage extra research in at this stage.
Kerryn Fowlie (01:23:52):
Thanks so much, Arthur. I think we have ran out of time now, which is sad because I think this conversation has just been really illuminating and really fascinating and just really appreciate all the insights you've been able to bring to a really, as I said, a wide range of really contemporary issues that we're working through at the moment as well, too. So thank you so much for taking the time to share that with us today.
Arthur Grimes (01:23:52):
Kerryn Fowlie (01:24:14):
And thanks also to everyone online for joining us for this latest presentation in the Wellbeing seminar series, and for the really interesting questions that came through in the chat as well.
I've been asked to remind everyone to please look out for some of the upcoming events that we have in the seminar series. And that includes some fantastic international speakers. The next being, I think, John Helliwell who is a Canadian economist and editor of the World Happiness Report. And also Romlie Mokak, who is an Australian Productivity Commission’s first Indigenous Policy Evaluation Commissioner. So that's just some of the future seminars coming up over the next six months or so.
So I will just finish with a karakia.
[speaking in te reo Māori] Piki te kaha. Piki te Ora. Piki te Wairua. Hui e, tāiki e.
Thanks everybody for joining us, have a great rest of your day.
[speaking in te reo Māori] Ka kite!
About the presenter
Arthur Grimes is Professor of Wellbeing and Public Policy at Victoria University of Wellington’s School of Government and is a Senior Fellow at Motu Research. He was Reserve Bank of New Zealand Board Chair (2003–2013) and a Board Member of the Financial Markets Authority (2011-2017). Prior roles include: Chief Executive of Southpac Investment Management, Director of the Institute of Policy Studies (VUW), and Chief Economist at both the Reserve Bank of New Zealand and the National Bank of New Zealand. He has a PhD in Economics from the London School of Economics and a BSocSc(Hons) from University of Waikato.
In 2005, Arthur was awarded the NZIER Economics Award recognising excellence in economics related to New Zealand’s economic welfare. He received a Distinguished Alumni award from University of Waikato and was awarded the NZ-UK Link Visiting Professorship to the University of London in 2013. In 2018, US National Public Radio’s Planet Money described him as “one of the most important economists in the world” for his pioneering work on inflation targeting. Arthur’s current research focuses on the economics of wellbeing and public policy.
Wellbeing Report seminar series
At Te Tai Ōhanga – The Treasury, we are developing the first Wellbeing Report - Te Tai Waiora that will be published in November 2022.
This online seminar is part of a Wellbeing Report programme of Guest lectures running in 2022 and 2023.