Economics of happiness. Change and decay

Happiness in eastern Europe is a complicated business

FROM the comfortable capitalist West, it is hard to see the collapse of communism as anything but an unalloyed triumph. And 15 years on, the results look pretty good - most formerly communist countries are now stable democracies with growing economies and peaceful foreign relations. What more could a former captive nation want?

Apparently quite a lot. Statistics about incomes and elections tell only part of the story. For those on the spot, particularly the poorer, older and less-educated, the transition to capitalism has often been a miserable experience. But for whom exactly, and by how much? A partial answer comes from newly published research* by Peter Sanfey and Utku Teksoz, of the European Bank for Reconstruction and Development, based on data from the World Values Survey, a big comparative study that regularly asks the simple but revealing question: “All things considered, how satisfied are you with your life as a whole these days?”

There is a rough correlation between wealth and happiness. Alpine Slovenia, with its highly developed export and tourism industries, is both the richest and the cheeriest; Ukraine, appallingly misgoverned and uncompetitive, is the poorest and the least content. Transition countries are glummer than other places with similar income levels: communist rule can seriously ruin your mood.

But money and history are not the whole tale. Some people (Czechs, for example) are happier than their national income per head would suggest; others (such as Slovaks) are much gloomier. Such variations are partly explained by three things. One is inequality, which is particularly resented in post-communist countries. Second is the extent of economic reform: those that have moved least, like Belarus, are the most miserable. Third, and rather oddly, higher inflation seems to make people happy - perhaps because the alternative, curbing it, means cuts in social spending.

Individually, the biggest winners are the well-educated, the self-employed and women. These three categories, especially when combined, show soaring happiness scores.

Over time, the first decade of reform brought declining happiness everywhere; initial euphoria rapidly gave way to frustration, insecurity and disillusion. But the good news is that happiness scores are now rising. Of those surveyed, only Poles are even gloomier than in the mid-1990s. However, this is a troubling exception - Poland is bigger than the other seven ex-communist European Union states combined.

There is little chance of improving the lives of the inflexible and unemployable. But given the correlation between happiness and small businesses, cutting the bureaucracy, taxes and corruption that stifle them makes sense. Luckily, that is what almost every post-communist country is trying to do. Sadly, the places that need it most do it slowest.

* “Does Transition Make You Happy?”. Available at http://www.ebrd.com/pubs/econo/WP0091.htm

EBRD: Working Paper, No.91, June 2005: Does transition make you happy? http://www.ebrd.com/downloads/research/economics/workingpapers/WP0091.pdf

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