I just got back from 4 months of travelling in Guatemala and Mexico. During my time there, I got to think about why we perceive some countries as being ‘poor’ and some countries as being ‘rich’? How do we measure wealth? And, more importantly, what is wealth?
Can money buy happiness?
This question received a lot of attention throughout the years and the answer greatly differs. Inspired by this matter, Visual Capitalist, a digital media brand, decided to take a data-driven approach. They designed this chart which looks at the relationship between GDP per capita (PPP) and the self-reported levels of happiness of each country. According to their research, money does buy some happiness, but only to a limited extend. When the material elements of Maslow’s hierarchy are met, the relationship between money and happiness gets harder to predict.
I find this research fascinating. What does it say? I am pondering this because I’ve just finished my travels after 7 months. I spent the last 4 months in Mexico where I visited the very poor state of Guerrero and stayed in a small fishing community called Barra de Potosi.
The US Department of State recently increased the risk of visiting Guerrero, ranking it at the same level as South-Sudan and Syria. This measure will further decrease the numbers of visitors from the US whilst the economic system of the state heavily relies on tourism. This, in turn, will have an effect on the (already minimal) wealth of its inhabitants. However, during my time there, I saw another kind of wealth. A kind of wealth I didn’t even know. It was a kind of wealth that got me thinking about my own ‘adopted’ measures of wealth. This let me to the question: what ís wealth?
What is wealth?
Take a look at the following story, which starred in the Financial Times earlier this year:
“Imagine two people. Let’s call them Bill and Ben. Bill is a mid-ranking investment banker who clears £500,000 a year after tax. Ben is a gardener who takes home £25,000. Who is better off? If we judge them by their income, then Bill is clearly richer; 20 times richer, to be precise. But who is wealthier? For that, you’re going to have to know more about their stock of assets and broader circumstances. In national accounting terms, Bill’s £500,000 salary is the equivalent of gross domestic product. It is the “flow” of income earned in a year. But, as any mortgage lender knows, that doesn’t tell you anything about his wealth or his salary next year or the year after that.
Did I mention that Bill is up to his neck in debt after a crippling divorce, or that he has an expensive cocaine habit? He’s sold off most of his assets, including his vintage Harley-Davidsons. All he is left with is a costly mortgage and several payments on his (scratched-up) Porsche. At 59, he’s also washed up at work. In fact, he is about to be fired when the bank shifts its derivatives trading team from London to Frankfurt.
Ben, meanwhile, lives in the £100m country estate he inherited from his great aunt. On the weekends, he potters about for fun in his own Versailles-inspired garden, paying himself a nominal salary. This year, before he turns 21, he plans to sell the estate and move into a modest flat in Knightsbridge. He’ll invest the £95m he has left over and live off the interest while he completes his studies as a patent lawyer, a profession that should earn him a bit of pocket money in the years ahead.
Now who is wealthier? Bill the banker or Ben the gardener?”
How do we measure wealth?
The point that the author is trying to get across is that the way we measure wealth (or growth, or progress) is, at this moment, defined by the GDP of a country. But this measure has a lot of shortcomings. Hence Partha Dasgupta, emeritus professor of economics at Cambridge University, advocates for measuring the strength of national economies based on their “inclusive wealth”, which includes the value of natural capital alongside infrastructure and human capital, rather than GDP.
He beliefs that there is a strong connection between the depreciation of natural capital and understanding poverty. In many undeveloped countries, there aren’t a lot of processed goods available. If you want to cook, you have to build a fire. If you want to build a fire, you have to collect wood. Or, in his words:
His way of thinking is supported by economist Kate Raworth, Senior Visiting Research Associate at Environmental Change Institute (ECI) from the University of Oxford and author of the book Doughnut Economics.
What we tend to forget, according to Kate, is that when Neoliberalism set the stage for our current way of thinking about wealth, GDP was their main guideline. Invented by Simon Kuznets as a way of calculating the damage wrought by the Great Depression, GDP is good for keeping track of “things you can drop on your foot.” But even Kuznets himself warned urgently that his measure should never be confused with our wellbeing:
As stated by Kate, our laissez-faire Neoliberal script has successfully detached economic growth from our social foundation and environmental boundaries which in turn has let to deprivation, degradation and inequality:
“We are in need of another word than economic growth. We need something more than growth alone. Growth isn’t enough as an idea. We should think about investing in the wealth that sustains us. Our human wealth, our natural wealth, our social wealth. Because it’s from these that everything that we generate in our economy flows.”
For me, this way of thinking about wealth demonstrates what I have experienced in Mexico, or more specifically, in Barra de Potosi. Whilst living there, I experienced a different kind of wealth. Not a monetary one, but a social one, a human one, and a natural one. Since my return to Holland, I miss my way of living there which felt so balanced and which was within the boundaries of the environment and within the boundaries of our social foundation.
Even more so, living in such a tight-knit community might be even more beneficial for you than you might guess. But more about that in my next blog..