Economics - an obstacle to happiness
Dr André Haughton, Columnist
Can economics increase happiness?
IN LIGHT of the Christmas season, we explore the relevance of economics to people's happiness. Some argue that there is a strong correlation between economic development and poverty alleviation, which should increase one's happiness. As it relates to growth, are countries that grow faster always happier?
Economic growth represents an increase in output and not necessarily a better distribution of income. In some instances, economic growth can increase, but the distribution of income between the wealthy and the poor remain the same. In this case, economic growth only increases the wealth and happiness of some if wealth makes one happy.
According to Arthur Lewis, it is not that growth increases wealth, which increases happiness; growth increases wealth, which increases the range of choices available to people, which, in some instances, can improve happiness. As long as poverty and inequality exist, some people will always be happier than others, given that they have larger choice baskets.
Where is poverty prevalent?
Little less than 200 million people are considered unemployed in the world, but more than 1.3 billion are living below the poverty line. The vast majority of the world's poor population works in small-scale farming or are self-employed, operating very small businesses. This is common in India and Pakistan, and the situation is similar for most developing countries, including Jamaica.
The National Bureau of Economic Research in the United States of America found evidence to suggest that more than two-thirds of the populastion in the poorest countries work on family farms or in the informal sector.
According to the report, farms managed by the world's poorest people fail to improve the living conditions of the farmers; the process requires a lot of labour, but produces little output, most of these are very small and inefficient. Families on these farms survive on less than US$1.25 per day. The majority of enterprises owned and operated by the world's poorest people are small shops and stalls making only a few sales a day.
How can this be solved?
The best approach to poverty alleviation is to focus on creating quality jobs, increase provision of housing and continue safety-net programmes; and creating social enterprises that focus on wealth creation, rather than just poverty alleviation. Real growth in any economy comes from a good investment platform. Commercial banks in particular control the flow of capital which is needed to stimulate investment projects to boost production. Interest rates and the overall monetary transmission mechanism behave differently in each Caribbean country.
Haughton and Iglesias (2011) in examining long run money neutrality in monetary unions, found evidence suggesting that the Caribbean can improve collectively by introducing a single currency and a single Caribbean Central Bank similar to the European Union and the Organisation of Eastern Caribbean States. By doing so, interest rates and trading conditions will become more aligned across countries, opening the pool of capital and fostering cross-investment projects, nurturing a more stable common currency, which is necessary for collective growth and development of the region.
What are the other obstacles?
Along with high, increasing unemployment, labour productivity is also a cause for concern in Jamaica. Results from research conducted by the Jamaica Productivity Centre, using data from 1972 to 2007 indicate that labour productivity in the country fell at an average rate of 1.5 per cent per annum. Also, productivity, including labour, capital energy and other inputs fell at an average rate of 1.74 per cent per annum during the same period. With such a high unemployment rate and each unit of labour continuously producing less each year, overall output in the country must continue to fall. Unless these issues are addressed in a long-term, sustainable manner, it will be difficult for the country to increase output and gross domestic product growth rates will not grow beyond one or two per cent on an annual basis.
What is happening overall?
Economic conditions have been improving slightly since the beginning of the year. This is evident in the increase in employment figures. Notwithstanding this, the economy did not grow for the last quarter and have not been growing enough to fully absorb all who want jobs. This is so in every country, not just Jamaica.
Overall, the onus is on us to create jobs of our own via entrepreneurship and enterprising. In this Christmas season, take the time out to think properly how we can give not just for the sake of giving, but giving genuinely to help improve the lives of the people around us.
Dr André Haughton is a lecturer in the Department of Economics on the Mona campus of the University of the West Indies. Follow him on twitter @DrAndreHaughton; or email: firstname.lastname@example.org.