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Lessons To Learn From The Happiest Economies

Duśan Repčák discusses the economic and social aspects of happiness, with a clear cut focus on the Nordic Model, Latin America and Costa Rica as a guide to being happy. 

Economists may often condemn happiness as an aspect related purely to sociology and psychology, but its positive effect on labour productivity shows there is much more to happiness than what one may think. It seems natural to presume that the richer one is, the happier, but is that really the case? Nordic countries score the highest on happiness despite not being the very richest, and some of the richest countries such as the USA and Singapore are less happy than Costa Rica. So, what do Nordic countries and Costa Rica do differently?


Source: The World Bank, The World Happiness Report 2019


The Nordic Model

Denmark, Norway and Finland have consistently topped the World Happiness Index, demonstrating the success of the so-called Nordic Model – a system based on social corporatism, collective bargaining, and a comprehensive welfare state. This success has been a thorn in the flesh for those who oppose any state intervention. Moreover, with Denmark being rated the best country for doing business by Forbes in 2018 and 2019, the Nordic Model is challenging the assumption that a substantial state discourages enterprise. 

In Nordic countries, the welfare state is widely supported by the entire political spectrum. Government figures show that to afford such extensive social support, some of the highest tax rates in the world are needed: tax-to-GDP ratio is at 45% in Denmark and at 39% in Norway, in contrast to 24% in the United States. Citizens are healthily compensated with strong unemployment benefits, free education, healthcare, and childcare: which not only improve social mobility, but also help to redistribute national income.

Although there is no direct evidence of low income inequality explaining life satisfaction, high inequality can lead to less perceived fairness and trust, as well as a lack of social and economic opportunities, both of which are crucial factors affecting happiness. Nordic countries are among the most highly ranked on democracy-indices: citizens’ perception of the freedom to make life choices is one of the highest, whilst the perception of corruption is among the lowest in the world.

Another notable aspect is the remarkable trust in government and the political system – and between citizens themselves. Since hardships are more prevalent among individuals at the bottom of the society, a trusting social environment does most to raise the happiness of those in distress, and hence delivers greater equality of well-being. Together, trust and social connections explain 60% of the happiness gap between Nordic countries and Europe as a whole. 

For many economists, the Nordic Model may seem unrealistic and impractical if it were to be replicated on a larger international scale, since not many countries have comparable income levels. Perhaps unsurprisingly, the level of income is the most unequally distributed happiness factor globally – the GDP per capita of the top ten is 20 times higher than that of bottom ten. 

Yet, the notion that Nordic income levels are necessary to achieve happiness could not be further from the truth. Across Latin America, countries have been scoring higher on the index than their income levels would predict, demonstrating that there is more to life and happiness than income. So, what are the lessons to be learnt from their happiness?

Lessons from Latin America

On the basis of its per capita income level, no Latin American country would be classified as developed. Given the persisting existence of social problems, such as corruption, high income inequality and high crime rates, one could suffer from a focusing-illusion bias to assume that Latin Americans must be unhappy due to these issues.

The warm, close relations between relatives and friends, the centrality of the family, experience and manifestation of emotions, a relative disregard for materialistic values, and weak political institutions has defined Latin American culture to this day. It is a society that has a slower pace of life and is not so focused on transforming nature or in generating economic growth, as it is in living and enjoying life within the existing conditions.

In terms of short-term happiness, such as smiling or laughing, learning something, being treated with respect, experiencing enjoyment, and feeling well-rested – eight of the top ten countries in the world rankings are Latin American. Family satisfaction is also one of the highest in Latin America. 

Close and warm relations also extend to friends, neighbours, and colleagues. A larger proportion of adult people in Latin American tend to live with their parents than those from Western European countries. They visit their extended families more often, their life goal is to make their parents proud, and they deem watching children grow as the ultimate joy. 

Despite the aforementioned, the economic and social conditions in many Latin American countries affect the long-term happiness and life-evaluations. Although Latin Americans are happier than what their income levels would predict, they are less happy than Europeans, who have better indicators in terms of income, income distribution, transparency, crime rates, education and health. However, one country is an exception – Costa Rica. 

Costa Rica

In 2019, Costa Rica ranked as the 12th happiest country, outperforming richer European countries, such as Germany, the UK and France. It is not only a strong liberal democracy, but also has a relatively good welfare system, unlike its Latin American counterparts. Crucially, by abolishing its army in 1949, the Costa Rican government created space for the reallocation of funds to ensure universal access to health care and primary and secondary education. 

Somewhat resembling the Nordic Model, the government provides many services that ensure the satisfaction of basic needs for most Costa Ricans, independently of their income. Costa Ricans show that the welfare state is possible even at lower levels of income. As is typical in Latin American countries, their high wellbeing is also attributed to a culture of forming solid social networks of friends, families and neighbourhoods.

The most remarkable of all Costa Rican achievements might be their performance in the Happy Planet Index (HPI), which measures how well are nations doing at achieving long, happy and sustainable lives. It does that by considering life expectancy, wellbeing and inequality of outcomes, given their ecological footprint. 

Costa Rica consistently scores the highest in HPI out of all countries in the world. This means, given how much Costa Ricans pollute the environment, they live the longest and the happiest lives. Today, Costa Rica produces as much as 99% of its electricity from renewable sources, and the government continues to invest in renewable energy generation in an effort to meet its goal of becoming carbon neutral by 2021.

In “The Stern Review”, Climate change has been proclaimed the greatest market failure the world has ever seen. Yet, Costa Rica gives us a reason to be optimistic. A reason to believe that we are able, with the proper use of government intervention, to correct this market failure; and that we are capable of leaving a better and a sustainable future for next generations.

The Perfect Combination

Ultimately, the happiest countries should inspire us to learn how to live happier lives. Nordic happiness is rooted in some of the highest Human Development levels, lowest corruption rates and highest trust in the government, whereas Latin American happiness is rooted in close and warm social relations. Costa Rica combines aspects of the Nordic Model with the Latin American culture. Perhaps that is a combination all countries ought to be striving for.

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