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Beyond The Numbers: What GDP Can’t Tell You About Happiness

Source: Untapped New York by Jeff Reuben

Since the industrial revolution, wealth has been used as a way to measure a country’s prosperity—income has been synonymous with well-being. In more recent years, however, those seeking to quantify development have turned to other, more holistic, measurements of well-being. As a way to quantify human progress beyond market outcomes, since 2002, the World Happiness Report has been ranking the happiness of 157 countries based on six indicators: GDP per capita, social support, generosity, healthy life expectancy, freedom to make life choices and perceptions of trust and corruption in our governments. Arguably, an individual’s narrative of their subjective experiences is more representative of their happiness than their bank account. While all predictors are weighted equally in the final ranking, a closer analysis of the changing trends in the highest and lowest-ranked countries reveals an interesting correlation between happiness and trust in government.

The legitimacy of the social contract is derived from the extent to which individuals trust their governments. Specifically, the intricate relationship between the national government, the justice system, electoral processes, and the police force determine institutional trust. At the top of the happiness ranking published by the World Happiness Report are the usual suspects: the Nordic countries, Western European nations, Israel, Australia, the United States, and Canada. A comparison of trends of trust in government reveal that on average, in the past fifteen years, these countries have seen a 29% increase in trust in national government. A survey conducted by the Organization for Economic Cooperation and Development (OECD) from 2017-2021 shows similar patterns. The study, which asked participants “In your country, do you have confidence in the national government?”, revealed that the three highest ranked countries—Switzerland, Luxembourg, and Norway—all of which report at least 77% of citizen trust, are also within the top six ranked countries in the World Happiness Index. A similar analysis of the “unhappiest” countries shows that, on average, the countries ranked at the bottom of the list had a 27.1% decrease in trust in government from 2006 to 2022. This decrease in trust, compounded with a low happiness ranking, suggests that the degree to which a citizen trusts their government, is directly related to their well-being. 

Beyond trust in government, quality of governance is also highly correlated with national happiness. The World Bank noted that quality of governance depends highly on two factors: the honesty and effectiveness of policy design and the quality of electoral processes. Interestingly, only the latter of these affect how citizens report their well-being. Research published by the National Bureau of Economic Research (NBER) determined a 0.71 correlation between quality of policy delivery and happiness, but only a 0.62 correlation between quality of democracy and well-being. In other words, democracy is not a strong determinant of happiness. An additional survey of 150 countries conducted by Gallup asked individuals to submit “life evaluations” on their “subjective well-being.” The results, averaged from over 1,500 responses, found a strong correlation of 0.83 between confidence in national government and well-being. Researchers at the NBER additionally established that three policy areas— conflict, trust, and inequality—are the most important contributors to happiness.

A strong relationship between citizens and their government leads to better governance. To further analyze this relationship, the NBER focused on measuring happiness and trust in government in relation to violent deaths in 161 countries. Unsurprisingly, the results reveal a negative relationship between conflict deaths and happiness. The effects are made even more prominent for countries with conflict deaths ranked above the 90th percentile, where conflict deaths range from 7.5 to 70 deaths per 100,000 people. Further regressions on data collected for the Global Peace Index indicate that “societal safety and security” have the strongest effect on subjective well-being. Consequently, the government’s ability to enforce these safety standards can only come with legitimacy drawn from their citizens’ trust. 

Beyond conflict resolution as a measure of quality of governance, trust rises as a second key determinant of happiness. Beyond confidence in government, high-trust societies—those with preexisting social and cultural contracts that display mutual trust between individuals and institutions—appear more resilient during hardships, including crises such as earthquakes and pandemics, but also surges of unemployment and inflation. Further analysis conducted by the World Happiness Report drew important conclusions between government trust, happiness, and the recent Covid-19 pandemic. Polling conducted during 2020 and 2021 deduced that the most important determinant of happiness during the pandemic-ridden years was confidence in government. In addition, an 0.12 increase in institutional trust showed to have reduced pandemic-related deaths by 6.4 in 2020 and 19.7 in 2021 per 100,000 people. Countries ranked the highest in trust in government, particularly those in the Nordic region, had fewer Covid-19 deaths per capita than most other countries, even those with a comparable GDP per capita. 

As our understanding of progress moves away from strict measurements of income, citizens’ trust in institutions has become a critical tool for measuring determinants of happiness. Governments and policy-makers should consider happiness, and not merely GDP, as a way to evaluate the success of their governance. The result will be more holistic policies that enrich the lives of their citizens.