IAPR TECHNICAL PAPER SERIES
HITTING THE SWEET SPOT: BALANCING EQUITY AND EQUALITY
TO MAXIMIZE WEALTH AND HAPPINESS
Piers Steel
ad
John Peloza
Haskayne School of Business
Human Resources and Organization Development
University of Calgary
Technical Paper No. TP-06005
Institute for Advanced Policy Research
University of Calgary
Calgary, Alberta
Canada
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Correspondence: Piers Steel, Haskayne School of Business, University of Calgary,
piers.steel@haskayne.ucalgary.ca
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HITTING THE SWEET SPOT: BALANCING EQUITY AND EQUALITY TO
MAXIMIZE WEALTH AND HAPPINESS
PIERS STEEL
University of Calgary
Haskayne School of Business
Human Resources and Organizational Development
444 Scurfield Hall
2500 University Drive N.W.
Calgary, Alberta, Canada T2N 1N4
Tel: (403) 220-8428
Fax: (403) 282-0095
e-mail: Piers.Steel@Haskayne.UCalgary.ca
JOHN PELOZA
University of Calgary
Haskayne School of Business
Human Resources and Organizational Development
444 Scurfield Hall
2500 University Drive N.W.
Calgary, Alberta, Canada T2N 1N4
Tel: (403) 220-8428
Fax: (403) 282-0095
e-mail: pelozaj@ucalgary.ca
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ABSTRACT
Equality and equity are two versions of justice, sometimes in conflict. As we try to bring more
equality, we can also jeopardize equity, which essentially rewards outstanding behavior. This
conflict is expressed in political debate, between liberal and conservative positions, which can
degenerate into ideological moral posturing. We investigate whether there is a “sweet spot”
between the extremes of equity and equality that helps to maximize a nation’s success. To
operationalize success, we use observed GNP per capita and self-report subjective well-being. To
operationalize equality-equity, we use observed wealth concentration (i.e., the Gini) and selfreport power distance. In all cases, there seems to be a broad “sweet spot” where increases or
decreases in equality or equity do not have substantive effects but beyond that indices of national
success fail off rapidly. Of note, the United States appears to be at the very edge of this range,
showing unusually high levels of wealth concentration. We review several major possible causes
for this effect, from enabling negative externalities (i.e., reducing wealth) to excessive
materialism (i.e., reducing happiness). Finally, we put forth several public policy suggestions
that a government can use to keep their countries within the “sweet spot.”
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The text of George W. Bush’s 2005 inauguration address summarizes a vigorous debate
regarding societal structure. America, like all countries, is actively trying to strike a balance
between two different and sometimes conflicting ideals of justice – equity and equality. Equity
or meritocracy reflects individual competition and self-reliance; the more one gives, the more
one should get, or in Bush’s words “making every citizen an agent of his or her destiny.”
Conversely, equality reflects collective cooperation where each gets according to their need.
Again, in Bush’s words, “Our nation relies on men and women who look after a neighbor and
surround the lost with love.”
The choice between equity and equality is not an easy one and the conflict between the
two is timeless. As Matt Ridley, former editor of the Economist and author of the 1996 book The
Origins of Virtue, this conflict almost defines all life itself. We each enter this world with
advantages of skills as well as opportunity. Allowed to play out, winners and losers necessarily
arise. Consequently, a litany of notables have commented on the difficulty of creating equality,
including Aristotle, St. Thomas of Aquinas, Aldous Huxley, Samuel Johnson, D. H. Lawrence,
Martin Luther, and George Orwell. For example, the author Llosa Mario Vargas wrote,
“Prosperity or egalitarianism -- you have to choose. I favor freedom -- you never achieve real
equality anyway: you simply sacrifice prosperity for an illusion.” This tension between equality
and equity is also source of much political debate as conservatives and democrats usually take
predictable and opposing stances.
Part of the core ideology of conservatism is the justification of inequality (Jost, Glaser,
Krugalanski and Sulloway 2003), and there is good reason for this. Some inequality is certainly
necessary to spur effort and to reward those with superior skill, drive, or simply appetite for risk.
By encouraging these entrepreneurial activities, everyone can potentially benefit, where
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individuals acting for themselves create wealth for society as a whole. Furthermore, equity is a
key concept for justice. The more one puts in, the more one deserves. Consequently, attempts to
remove inequality can smack of freeloading where the lazy and incompetent parasitically feed
off the hard work of others. Especially representative of this position are Ayn Rand’s novels,
such as Atlas Shrugged or The Fountain Head, where the economy proves entirely dependent on
the wherewithal of the elite. As one of her protagonists proclaims, the architect Howard Roark,
“It is an ancient conflict… the individual against the collective.”
The liberal position emphasizes egalitarianism. That to some extent, we are all equal, and
deserve the same freedoms. An example of this is Franklin Roosevelt’s famous “Four Freedoms”
speech, where he concluded we all should have the freedoms of speech, of religion, from want,
and from fear. The liberal position of equality becomes particularly attractive when it focuses on
the equality of opportunity (e.g., equal employment opportunity). It also helps rectify “catch-22”
situations, where disadvantage perpetuates disadvantage. Similar to equity, treating people
equally is also a key concept for justice. Like the conservative position, there are several literary
examples, such as John Steinbeck’s classic, The Grapes of Wrath, which details the struggles of
the working class. In it Jim Casy preaches our mutual responsibility, that “a fella ain't got a soul
of his own, just a little piece of a big soul - the one big soul that belongs to ever'body.”
Both the conservative and liberal positions have ideologues with motivated cognitions
(Greenberg and Jonas 2003; Jost et al. 2003). That is, they want the world to be structured so to
unequivocally support their predilections towards equity and equality. Consequently,
conservative ideologues are reluctant to recognize the field is not always level, that chance can
have a large role in success, or that cheaters actually can prosper. To do so is to acknowledge
that power and success is not always deserved, that those at the top might try to pull up the
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ladder after themselves or that those in authority might be maliciously acting in their own best
interests. Liberal ideologues have their own problems. They find it extremely distasteful to
acknowledge that disparities in position may be justified. For example, skills, abilities, and
attitudes are not dispensed equally at birth and the evidence to this effect is getting impressively
strong. Many abilities are genetically determined to various degrees, with the debate presently
focusing on whether it is small, moderate or very large. Intelligence is easily the most
controversial of these as being smart is not the only thing that determines success but easily one
of the most important or even the most important. To acknowledge these differences exist is to
accept that some people are poor partly because of their own failings.
Because these ideologues have motivated cognitions, they distort debates into bizarre and
unhelpful patterns. For example, one of the present and probably perpetually controversies is
social welfare. Both conservatives and liberals agree that disaster can strike good people, through
no fault of their own, and that we as a society should lend a helping hand rather than let them
suffer and despair. Such acts appeal to both equity and equality perspectives, especially if it is
framed as insurance rather than a handout. However, we live in an imperfect world and
separating the deserving from those who are not is inevitably done imperfectly as well. We are
going to make errors of omission, failing to help those who truly need it, and errors of
commission, giving aid to the undeserving. Which error is more important? Liberals tend to
focus only on reducing errors of omission (i.e., “false negatives”), those who need help and are
not getting it. However, as the welfare system becomes more inclusive, it is necessarily opened
up to more abuses and higher costs. Making things more equal, regulatory actions, are often
expensive. The conservative position would focus on reducing errors of commission (i.e., “false
positives”), eliminate benefits to the free loaders and the lazy. On the other hand, as
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administration becomes more rigorous, the more likely it is that deserving people slip through
the cracks. Both types of errors are important, both practically inevitable (i.e., our imperfect
world), and we can usually reduce one only at the cost of increasing the other. The debate should
be on establishing a “sweet spot” instead of focusing only on one type of error and consequently
half the picture.
The important point about Bush’s 2005 inaugural address is that he does appear to seek a
compromise between equity and equality. Such a compromise is often referred to as the third
way (Giddens 1998), with proponents implicitly assuming that there is a “sweet spot” between
the two extremes that optimizes the maximum total benefits from both equality and equity. This
position is probably best summarized by Murray Rothbard (1965, 3),1 who in the first editorial of
the libertarian journal Left and Right concluded: “The doctrine of liberty contains elements
corresponding with both contemporary left and right. This means in no sense that we are middleof-the-roaders, eclectically trying to combine, or step between, both poles; but rather that a
consistent view of liberty includes concepts that have also become part of the rhetoric or
program of right and of left.”
Current data suggest, however, that American society is moving increasingly toward a
pure equity-based model (i.e., “an ownership society”), with a widening gap between those who
control resources and those who do not. Over the past two decades the share of income earned by
the top one-tenth of one percent of the population more than doubled while the percentage
earned by the bottom ten percent declined. For example, Bureau of Labor statistics that showed
that over the past four years wages for production and non-supervisory workers have remained
flat (Center for American Progress 2005; see also, Phillips 2002), and many unskilled employees
1
See http://www.mises.org/content/mnr.asp for a summary of Rothbard’s considerable contributions to
libertarianism.
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now take on multiple jobs just to afford bare necessities (Porter 2005). Even through the
technology boom in 1999, the average real after-tax income of the middle 60% of the American
population was lower than it was in 1977 (Phillips 2002). Over two centuries after its
Revolution, America now boasts the greatest levels of inequality among all Western
industrialized nations. And although the American system has indeed become increasingly a
meritocracy, many have argued that merit is, at least in part, based on socioeconomic class. Class
mobility, the centerpiece of the American dream, is decreasing precipitously. As economist
David Levine summarized: “There is no reason to doubt the old saw that that most important
decision you can make is choosing your parents” (Scott and Leonhardt 2005, 1).
These findings suggest that although President Bush may have sought to strike a
conciliatory tone in his speech, the actions of the administration over the past several years have
resulted in more, not less, inequality among Americans. As will be discussed, this does not bode
well. We consider this issue from an international perspective using several different measures.
For societal success, we look at both national wealth and reported happiness; both objective
(observed) and subjective (self-report) measures. We also explore equality versus equity from
both objective and subjective perspectives. We show that when societies move to either extreme
of the equality-equity continuum, important measures of societal success can decrease
dramatically.
We organize this exploration into several broad headings. To begin with, we describe the
data with which we investigate this issue. Then, we confirm that wealth is affected by equality
versus equity. We then follow-up with this research question by exploring possible causes,
specifically: corruption, the distribution of health and education, and the control of dissent.
Second, we determine if equality versus equity has a similar relationship with happiness and also
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explore three possible causes: the envy effect, excessive materialism, and disillusionment. We
conclude by briefly re-examining recent troubling changes in American society and suggest
public policies that can be used to maintain ideal levels of equality.
THE DATA
Societal Success
In welfare economics, utility describes how much well-being a person gains from a good
or service. To determine societal success, we want to determine the average national utility;
simply, how well off are people. There are two basic approaches. First, we could express it in
terms of wealth per capita. The more wealth people have, the more goods and services they can
purchase according to their preferences. Consequently, we use the 2001/2002 United Nations
reports of GDP per capita (Purchasing Power Parity), which is a good indicator of what a typical
person can buy.
The second approach is guided by those who have argued that GDP is only one, and
perhaps not the best, measure of the success of a society (Sen 1998). Our second measure,
therefore, is based on self-reports of happiness also known as cardinal utility. National measures
of subjective well-being (SWB) has rapidly progressed over the last few decades, with results
being published in outlets ranging from Scientific America to The Economist (e.g., Myers and
Deiner 1996). Here we use one of the most recent and comprehensive national measures of
SWB, based on the World Database of Happiness. The details of the sample and its psychometric
properties are discussed in Steel and Ones (2002). Of note, some neo-classical economists
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mistakenly conclude that measuring cardinal utility is impossible, though it can be difficult. As
Frey and Stutzer (2002) conclude, “the high level of rigor typical for experimental psychology,
and the empirical support provided for the concept of happiness have helped to make the new
idea of measuring utility palatable” (21).
--------------------------------------------Insert table 1 about here
--------------------------------------------Equality Versus Equity
Like societal success, equality can be captured by both observed and self-report
measures. For observed, we have the Gini coefficient, which reflects income distribution in a
society. As the Gini approaches zero, all people have the same income. As it approaches one we
have massive inequality with a few extremely rich and the rest extremely poor. Again, this
information is available from the United Nation’s human development reports.
For self-report measures, we have Power Distance, reflecting whether power is stratified
or concentrated at higher levels, a somewhat broader concept than the Gini. National power
distance was measured during the GLOBE project (Global Leadership and Organizational
Behavior Effectiveness), a massive multi-year endeavor to assess core attributes of societal and
organizational cultures from 58 different countries, from Albania to Zimbabwe (House, Hanges,
Javidan, Dorfman and Gupta 2004).
To highlight exactly what power distance means, table 2 shows correlations with a
variety of related indices. We included United Nations data regarding empowerment and
economic inequality. In addition, when gathering power distance data, the GLOBE project also
asked questions regarding societal collective practices, such as whether the economic system is
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designed to maximize individual or collective interests, and we include this data. Finally, we
examine the relationship between power distance and the Civil Liberties Index (higher scores
mean more freedom), published by Freedom House (2005). As the correlates in table 2
summarize, the relationships are as expected.
--------------------------------------------Insert table 2 about here
--------------------------------------------Power distance is associated with gender and economic inequality. Strongly hierarchical
nations tend to view and treat women as second class citizens and have an increasingly large
wage gap between the rich and poor. However, it is important to stress that the upward
concentration of wealth is only part of the story. Power distance also captures broader notions of
liberty, such as democratic ideals, as indicated by the civil liberties index. This is an important
issue to the extent that economic inequality can be balanced by political equality.
INEQUALITY AND WEALTH
Attempts to create government-regulated, socialist economies have proved to be decisive
failures. Consider the collapse of the Soviet Empire. In theory, everyone was equal, but equal
only in his or her misery. One of the single biggest reasons for this is that the system eliminated
personal incentives. Without harnessing people’s desire to get ahead, there is very little drive
behind an economy and, consequently, the lack of equity suppresses wealth creation. However,
too little equality may have its own host of problems. Robert Reich, the former US Secretary of
Labor, has written extensive on the problems of inequality, noting that it “leads to distress and
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misery for those at or near the bottom and anxiety for those in the middle. Left un-checked, it
could also undermine the stability and moral authority of the nation” (Reich 1997, C1).
The simplest way of looking at this is correlating inequality with national economic
indices. Using the United Nations data, the relationship between the income distribution (i.e.,
Gini) and wealth is strongly negative (r = -.53, N = 53, p < .001). That is, the greater the
inequality among a nation’s citizens, the less wealth is created. Though this result is consistent
with past analyses (e.g., Benabou 1996; Burtless and Jencks 2003), it is still misleading. The
negative relationship between the Gini and wealth suggests that extremely socialist economies
should be the wealthiest, which we already know is not true. The analysis is deceptive as
extremely socialist countries, such as the former United Soviet Socialist Republic or Mao TseTung’s China, are missing from the data. If they were included, the relationship between wealth
and the Gini would not be linear but bell shaped or curvilinear. To emphasize this “sweet spot,”
we superimpose an approximation of this distribution in figure 1, indicating where between the
extremes that wealth is maximized.
--------------------------------------------Insert figure 1 about here
--------------------------------------------That economies high in equality are among the poorest is not surprising. The importance
of personal incentives is diminished, leading to lower levels of entrepreneurism and innovation.
Consequently, many conservatives have argued that America is not doing enough to bring free
market capitalism to the rest of the world, and that only by encouraging free market ideologies
can the poorer nations rise out of poverty. But as nations move toward the other extreme –
toward more emphasis on individual equity and greater inequality among citizens – national
wealth actually decreases again. Of note, this type of analysis best reflects the long-term effects
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of inequality. Though the long-term effects can be expected to be negative (Lloyd-Ellis 2003),
the short-term effects can easily be positive (Forbes 2000).
--------------------------------------------Insert figure 2 about here
--------------------------------------------If we examine the same question with power distance, the results are almost identical.
After excluding outliers (i.e., three extremely low power-distance countries: Czech Republic,
Netherlands, and Denmark), hierarchical regression shows a significant curvilinear relationship
between equality and wealth (∆R2 = .08, F = 5.89, p = .019). As per figure 2, countries are best
performing when there are moderate levels of inequality. Of particular importance is that
although power distance is related to income distribution, they are not identical. For example, the
United States, which scored relatively high on the Gini, also scored relatively low on power
distance. Consequently, it is possible that the detrimental effects of extreme concentrations of
wealth may be counteracted if a country also has strong institutions and traditions for civil
liberty, such as the Declaration of Independence which enshrines that “all men are created
equal.”
What is less clear is exactly how high levels of inequality leads to diminished wealth.
There are several possible reasons. First, it increases the prevalence of corruption. Second, it
decreases the investment into valuable social services, such as health and educations. Third, it
prevents effective decision making through control of dissent. Each of these is discussed in the
following sections.
Corruption
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Although economists tend to assume that we are all rationally selfish, psychologists have
explored nuances. One area that has been studied particularly closely is called, descriptively
enough, Need for Power. It reflects the need to impact other people’s lives, especially by gaining
status or advancement. It is a fundamental desire in that we all want it, although to various
degrees.
Such need for power can be socialized, where the person seeks to help the goals of the
group or organization, or personalized, where the person seeks individual dominance.
Personalized power is particular relevant since with the aggregation of power into fewer hands,
powerful people begin to gain the ability to manipulate the system to their own benefit.
Consequently, those at the top might try to pull up the ladder after themselves or that those in
positions of trusted authority might be maliciously acting in their own best interests. Ironically,
the very qualities of rational self-interest that propelled performers to the top also would drive
them to gerrymander the system once they are there, preventing possibly more capable people
from taking their place. As Freeman (1996) discusses, notably among a series of article that the
Harvard Business Review published in 1996 examining the widening gaps in wealth among
Americans, this corruption would start to undermine competitive practices and the wealth
creating capacities of the market place creating an apartheid economy.
One of the best examples of market manipulation deals with negative externalities, the
most common form of market failure. Negative externalities indicate that the true cost of a good
or service is not being paid by the producer or the consumer, but is being passed on to the public
at large. For example, Jared Diamond, the Pulitzer Prize winning author, describes the
devastating effects that cyanide heap-leaching mining has had on Montana’s environment. As he
recounts, “when we compare the multi-billion dollar mine cleanup borne by us taxpayers with
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Montana’s own meagre past earnings from its mines, most of whose profits went to shareholders
in the eastern U.S. or in Europe, we realize that Montana would have been better off in the long
run if it had never mined copper at all” (Diamond 2005, 37). Consequently, the net benefit of
producing the goods or services may even be negative, meaning that society as a whole is
essentially poorer, though allowing a few people to get much richer. A system of individual’s
property rights can prevent such negative externalities by making sure that the inherent costs are
covered, but this requires effect legislation (e.g., environmental laws) and enforcement (e.g.,
Environmental Protection Agency). As power concentrates, these laws can be prevented or
effectively neutered with conditions of limited liability or token reparations.
Unsurprisingly, this notion of selfishness, that with power we tend to self-aggrandize, has
been repeatedly observed and researched. For example, it forms the basis of the economic theory
of opportunism, which stresses that expecting everyone to benevolently play by the rules is
dangerously naïve (e.g., Williamson 1993). Also, literal gerrymandering has become more
common in the U.S. politics, by both conservative and liberals, where re-election rates reached
99% in 2002 (Metzger 2004). As Abraham Lincoln concluded, “Nearly all men can stand
adversity, but if you want to test a man’s character, give him power.” We would expect then a
robust relationship between corruption and power distance. As more power flows into fewer
hands, the opportunity and subsequently prevalence of corruption increases. This is exactly what
is observed (see also Keefer and Knack 2000; You and Khagram, 2004). As table 3 summarizes,
the strongest correlation power distance has is with the 2002 Corruption Perception Index
(higher equals more corrupt), as provided by Transparency International (2005). Also, like GDP
per capita, the relationship is curvilinear (∆R2 = .06, F = 3.92, p = .05), which means that
moderate levels of equality works best.
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--------------------------------------------Insert table 3 about here
--------------------------------------------Health and Education
As shown in table 3, a reduction in social programs is related to an increase in power
distance. It has been argued, at least since FDR’s New Deal which was purported to save
capitalism from its own excesses, that these programs help keep an economy in the “sweet spot.”
In other words, many of these voices are not arguing from a social justice position, but rather
they are based on the argument that inequality is negatively impacting very materialistic and
financial bottom lines.
For medicine, we have the choice of having it administered privately or publicly.
Surprisingly, many of the proponents of socialized medicine are those who best represent the
capitalist system – industrialists. It is very difficult to stay competitive in the international
marketplace if a firm sets up shop in countries with extra expenses. Although taxes are one form
of expense, employee benefits can represent one of the single largest expenses for many
businesses. As Rick Wagoner, CEO of General Motors, describes his foreign competitors, “in
their home countries, their governments cover a much greater portion of employee and retiree
health-care costs,” and consequently, “industrial America has to convey the message to
Washington that as a nation we aren’t competitive and change needs to take place to sustain
prosperity” (Mateja 2005, A3). In other words, if firms have a choice of setting up a company
where the government is going to pay for (at least partially) employees’ benefits, the rational and
selfish choice would be to locate there. Therefore, supporting free-market health care system
could potentially decrease the GDP of an economy.
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Also, there are strong arguments that government-run health care, possibly with a few
capitalistic element (i.e., stakeholder capitalism), is the most efficient of our choices (e.g.,
Hartford 2006; Kaus 1996). A public system reduces bureaucratic expenses massively, which are
a significant part of health care costs. Furthermore, the risk of medical tragedies is distributed
more evenly throughout the system, instead of having few people endure the brunt of misfortune.
As a recent Harvard University study indicates that over 46% of personal bankruptcies in
America are caused by expenses related to serious illness, even though the vast majority of these
people had health insurance (Himmelstein, Warren, Thorne and Woolhandler 2005). Under a
common system, the population should be healthier and more productive as well as have more
disposable income that can then be directed towards more profitable ventures (Fogel 1994).
Similar arguments have been made regarding education (e.g., Thurow 1999a), again by
people not traditionally associated with socialism. Bill Gates (2005) says that in the American
educational system, “millions of children will never get a chance to fulfill their promise because
of their ZIP Code, their skin color or their parents’ income. That is offensive to our values.” His
position underscores America’s movement from a manufacturing to a knowledge-based
economy. Demand for highly educated employees has grown and continues to grow; America
will have a shortfall of 14 million educated workers by 2020 (Carnevale and Desrochers 2003).
With globalization and “off shoring,” these jobs should move overseas, obeying the principles of
supply and demand. However, by subsidizing high-quality education, America can generate
more valuable citizens, who have better jobs and pay more taxes. Potentially, it is a win-win,
where the wealth created by this educated workforce exceeds the cost of educating them.
Control of Dissent
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Finally, it has been argued that as the upward accumulation of wealth and power
continues it increasingly gives a few elites the ability to impressively influence the democratic
process and to control public opinion. Controlling the media is important for controlling a
people, just as Tass and Pravda in the old Soviet Union meticulously kept to their party line and
just as the first steps of any military junta is to take over newspapers, radio, and television. Such
conditions are reflected in H. L. Mencken’s quote, “Freedom of press is limited to those who
own one.” Though there are several proponents of this position (e.g., McChesney 2004), the
most famous are likely Edward Herman and Noam Chomsky, who wrote in their 1988 book
Manufacturing Consent: “A propaganda model focuses on this inequality of wealth and power
and its multilevel effects on mass-media interests and choices. It traces the routes by which
money and power are able to filter out the news fit to print, marginalize dissent, and allow the
government and dominant private interests to get their messages across to the public.” The
potential impact of this mechanism is hard to overstate. Both liberals and conservatives will
overwhelmingly adhere to the publicized party line, almost regardless of its policy content or
their own ideological beliefs (Cohen 2003).
How this can affect a country’s wealth is by harming our collective decision making. In
his book The Wisdom of Crowds, James Surowiecki (2004) argues when people independently
examine issues and aggregate their decisions, the collective choice tends to be better. Errors of
over- and underestimation tend to cancel out. Problems arise when one side dominates;
groupthink, where alternative opinions are eliminated, tends to lead to bad group decisions. For
example, the Bay of Pigs fiasco and the NASA Space Challenger disaster were largely due to the
suppression of dissenting opinions. Jonathan Rauch (2004), in his essay Divided We Stand,
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argues a similar position: “Unified control pushes policy to unsustainable extremes, poisons
politics, and embitters politicians and voters. Divided control, in contrast, draws policy toward
the center; and by giving both parties a stake in governing, it can lower the political temperature
so that even daring changes (tax reform, welfare reform) seem moderate.” Consequently, in a
society where fair and balanced debate becomes impossible, its collective decisions are unlikely
to be wise.
INEQUALITY AND HAPPINESS
The prevailing opinion, at least among most Western societies, is that increasing wealth
will lead to increasing happiness (Lane 2000). This is only partially true. Although the
relationship between wealth and happiness exists, it has been repeatedly shown that there is
diminishing marginal utility. In other words, the effects of wealth on happiness tend to plateau
(Frank 1999). Consequently, economists studying the effects of wealth on happiness and wellbeing have found mixed results when comparing wealthy and poor nations. For the very poor
there is a positive relationship between wealth and happiness – as wealth increases so does selfreported happiness. But after a point, typically once the level of basic necessities such as shelter
and food has been achieved, happiness levels off despite increasing levels of wealth.
To highlight this issue, we re-examine the relationship between wealth and happiness
using the World Database of Happiness. We begin by graphing the report level of national
happiness for three nations that have had their subjective well-being (SWB) assessed over an
extended period of time: Japan, Britain, and the United States. As can be seen in figure 3, despite
massive increases in GDP per capita for all three nations, very little change has occurred in
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SWB. In particular, the GDP per capita of the United States almost tripled during this time
frame, but its SWB has actually decreased, if anything. Its golden age, when the most happiness
was reported, was during the 1950s. We can also use the database to determine when the effects
of wealth on SWB effectively plateau. Using standard regression, we generate the following
equation, with GDP in $1,000s and all terms statistically significant:
SWB = 5.2 + GDP · .119 + GDP2 · -.002
Accordingly, we find that the effects of GDP per capita generally reach its apogee at
approximately $30,000 per year at a national level. Anything more than $30,000 does not tend to
have any effect on national well-being.
-----------------------------------------Insert figure 3 about here
-----------------------------------------Interestingly, at the point where the effects of wealth on SWB begins to diminish, the
effects of equality starts to increase. Overall equality, a combination of both the Gini and power
distance, significantly interacts with GDP per capita in a predictable way (∆R2 = .18, F = 11.1, p
= .002). As countries become wealthier, the negative effect of inequality on happiness
substantively increases (see also Basabe et al. 2002). Consequently, the SWB of poor nations is
primarily predicted by wealth alone. Rich nations, on the other hand, are extremely affected by
issues of equality. The strength of this relationship is such that if rich nations become richer,
their overall SWB can easily decrease if the distribution of wealth does not also become more
equitable. Figure 4 demonstrates this relationship for two nations, one rich ($36,000 GDP per
capita) and the other poor ($5,000 GDP per capita). As can be seen, for countries such as the
United States, increasing the national wealth should have a negative effect on the general
happiness of its people if it is at the cost of increasing inequality.
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-----------------------------------------Insert figure 4 about here
-----------------------------------------Why are the effects of equality exacerbated for richer countries? At least three major
reasons have been suggested. First, an envy effect occurs, where we increasingly and
detrimentally compare ourselves to others, especially the ultra-wealthy. Second, excessive
materialism may prevail, where we insufficiently focus on other aspects of life that may bring us
the most happiness, such as relationships with family and friends. Third, disillusionment may
result, where we consider ourselves effectively powerless to achieve many of our goals. Each of
these, we review in turn.
The Envy Effect
We are competitive creatures, where success is not only defined in absolute terms but
where we stand compared to others. Such hierarchical behavior or concern with relative position
is well established, noted by a multitude of sources. For example, Gore Vidal quipped, “It is not
enough to succeed. Others must fail.” Importantly, Karl Marx saw that establishing equality is a
way of preventing envy: “A house may be large or small; as long as the surrounding houses are
equally small it satisfies all social demands for a dwelling. But if a place rises beside the little
house, the little house shrinks into a hut” (Lipset 1960, 63). As we have already stressed, a
Marxist attempt to completely rid the world of inequality is ultimately dangerous, creating more
grief than it eliminates; however, this does not mean that envy is innocuous. As the economist
Robert Frank (1999, 121) concludes, “it is clear that they [concerns with position] are also the
source of a great deal of misery in the world.” Indeed, previous research has shown that when
21
people use others as reference points for their own success, they are generally less satisfied, more
likely to be depressed, and even less physically healthy (e.g., Easterlin 2001; Kasser 2002; van
de Vliert and Janssen 2002). The real question then becomes why the negative effect of envy
increases as a nation becomes richer. There are least two reasons.
First, as we become wealthier, we no longer have to spend as much time concentrating on
other basic needs, such as physiological (e.g., food) or safety (e.g., shelter) issues. Consequently,
instead of focusing on where our next meal will come from, we have more time to compare our
lives to our neighbors. This increased emphasis on social position should inevitably decrease
overall subjective well-being. Eaton and Eswaran (2004) discuss this in detail, specifically how it
is possible that “as we get richer, not only do we not get happier, we get increasingly unhappy.”
They indicate the danger of “keeping up with the Joneses” is that it can become a race towards
the bottom, decreasing happiness for all participants. For example, if two people are happy
working 35 hours a week each may have enough for their basic needs and plenty of time for
leisure. However, if person A decides to work five hours more than person B, that is 40 hours,
his relative rank would increase and he would be happier. Unfortunately, person B responds to
the extra effort by person A and increases his workload to 45 hours per week, causing person A
to increase to 50 hours per week. Eventually, both may both be working flat-out, have no time
for leisure, are extremely unhappy, and have no clear way of returning to the original 35 hour
work week. Reflecting this circumstance, Graham and Pettinato (2002) describe frustrated
achievers, those who have achieved significant measures of success, but who never feel content.
The other reason why this envy effect may be exacerbated in wealthy countries is due to
comparisons made by consumers to the images they see in the media. As a nation’s wealth
increases, the benefits of advertising become increasingly lucrative and marketing efforts
22
multiply. Images of extreme success are repeated daily in numerous venues as creating personal
dissatisfaction is useful for motivating consumer behavior. Unfortunately, researchers have
demonstrated a clear and destructive role of the media in creating unattainable ideals of beauty
and success (Thompson and Heinberg 1999; Wilkie and Moore 1999). This destructive effect
should intensify if there are extreme differences between the wealthy and the poor as the images
of success may be stratospheric. For example, billionaires such as Mark Cuban or Donald Trump
are seen as the “new” American dream, representing mobility into the rarefied realm of the
nation’s wealthiest. Inevitably, these extreme standards create widespread dissatisfaction, even
for the relatively well-off (de Button 2004). Also, even when individuals are able to achieve
reasonable gains in wealth, beauty, or other form of success, the joy is almost invariably
temporary. We end up back in the same place “because both income and aspirations rise, with
roughly offsetting effects on well-being” (Easterlin 2001, 473).
Excessive Materialism
As discussed, countries with higher levels of inequality tend to more individualist and
materialistic. While it appears to be to the benefit of poorer countries to focus on material gains,
the same strategy does not appear to work for richer countries. Material gains have a limited
relationship to happiness. That is, after the basics of life have been provided, such as food and
shelter, diminishing returns tend to occur for greater aggregation of wealth. Consequently,
Robert Lane (2000) suggests that Western economies like the U.S. have “kept on course too
long.” In other words, the economic improvement generated by the free market system has
ceased to become a source of happiness.
23
Specifically, in materialistic societies, citizens are encouraged through media and social
norms to place wealth and possessions above other means of achieving happiness. Though
materialistic consumption can increase happiness, it is typically temporary. Described as a
hedonic treadmill, it creates short-term increases in happiness that quickly dissipates. For
example, O’Guinn and Faber’s (1989) work on compulsive shoppers illustrates how people
literally become addicted to the process of acquiring, moving from one rush to the next.
Consequently, the long-term effects of materialism are less encouraging. Consumer behavior
researcher Russ Belk (1985), who has done the seminal work in this area, found that the
relationship between materialism and the level of self-reported happiness is negative, with higher
levels of materialism leading to consistently lower levels of happiness. Further, this finding has
been replicated in numerous consumer samples across a range of nations (Kasser 2002).
Also, as people define themselves in terms of consumer behavior, they start to ignore or
undervalue non-material rewards in life, such as close emotional bonds with others, which often
offer greater benefit (Baumeister and Leary 1995; Güliz, 1997; Scitovsky 1976). Though
consumer ideals can create an economic engine, the cost of this economic growth may be
decreased satisfaction, where our work commitments inevitably conflict with family life and
other social endeavors. The effects of this appear particularly harsh for the United States. It is
one of the very few countries who have increased the number of the hours typically worked per
year over the last decade, now ranking it among the longest working hours in the world (Hayden
2003), and notably above Japan where death by overwork has earned its own name, karoshi. Of
note, this is not entirely by choice. Frank Levy (1999) points to another social phenomenon
reflecting increasing disparity – the changing structure of the American family. In previous
decades, the majority of families had two parents, often with both parents working. With more
24
families being headed by single women more families are moving toward the lower end of the
wealth scale in the U.S. He indicates that this movement has been exacerbated by economic
shifts placing less value on less-educated workers. For example, when adjusting for inflation the
average income of a 30-year old high school graduate fell by $5,000 between 1979 and 1999.
Consequently, the pressures to earn income have usurped traditional sources of happiness –
spending time with family and friends.
Disillusionment
In the political arena, as discussed earlier, increased inequality tends to concentrate power
into the hands of relative few individuals who can then use this power to entrench their positions.
As Robert Lane (2000) summarizes, if citizens become disillusioned about their ability to affect
meaningful change, they resign themselves to a loss of control which then leads to greater
dissatisfaction and degrees of unhappiness. Unfortunately, democracies, which also tend to be
richer, appear particular vulnerable to such disillusionment; around the world their citizens are
experiencing greater levels of voter negativity and malaise toward the democratic process.
American is no exception to such disillusionment. Polls suggest that over a 30-year
period Americans have increasingly held to the belief that their government seeks to serve only a
“few big interests” with a corresponding drop in those believing that government is interested in
benefiting everyone (Lane 2000). Previous research appears to lend credence to these worries, as
greater levels of inequality also lead to neglect for health and the environment (Sherry 1987).
One way this is expressed in America is through the increasingly blurred relationship
between lobbyists and government. Individuals with political power are moving seamlessly
25
between private industry, representing primarily the interests of the wealthy, and governments
where they are expected to make decisions in the public interest. Presently, the most public of
these movements was the transition of Vice President Dick Cheney from the White House in the
Senior Bush administration to the multinational company Halliburton, and then back to the
White House. Such practices have the potential to further insulate those with power from those
who are outside looking in. As Elizabeth Drew (1999, 231) cynically stated: “The most
successful politicians are no longer the best executives or the best legislators, but rather the best
fundraisers.”
PUBLIC POLICY IMPLICATIONS
The evidence presented here demonstrates that a widening gap between those with and
without resources is an issue that must be addressed by policymakers. In the United States, this is
a long-term trend that shows no signs of abatement. The danger of the wealth gap is even greater
when one considers the work of two mathematicians who modeled changes in wealth
distribution. Their theoretical work found that a climate of increasing investment volatility can
disrupt the natural distribution of income such that the majority of a nations’ wealth is held by a
mere handful of ultra-rich (Bouchard and Mezard 2000; see also Buchanan 2002). Considering
today’s increasingly volatile investment markets, such a scenario is not implausible, and
researchers have argued that a society can reach a “tipping point” at which time the extreme
division of resources among a handful of the ultra-rich becomes irreversible (Burtless and Jencks
2003).
26
Consequently, there appears to be considerable wisdom in adopting a centrist position,
that is a balance between equality and equity. With the collapse of East European communism,
many political parties of both the left and the right have indeed softened their positions to move
toward the middle; the left adapting to a more moderate view of the welfare state, and the right to
a more moderate view of market-led doctrine. In Germany, for example, the social democratic
SPD party recognized environmental protection as a source of economic growth rather than a
hindrance. Their platform spoke of the need to “reconcile economic performance with social
security and stresses that individuality and solidarity should not be counterpoised as opposite”
(Hargreaves and Christie 1998). As these authors state: “Self-interest and competition are
powerful forces. But they need to be channeled through frameworks of cooperation if their
potential is to be exploited to best effect. A cooperative society demands that rights be matched
by responsibilities.”
If a society chooses to take a centrist strategy, there are a variety of methods to ensure
maximization of the benefits of both equity and equality. Governments can control economic
levers; for example increase or decrease the minimum wage, taxes for income or consumption, or
government benefits; they could also level the playing field, such as through regulatory actions.
Second, they can also employ regulatory levers to smooth wide levels of inequality. And the
third way that societies can balance equity with equality is through strong democratic processes.
Each of these levers is discussed in turn. Of note, given that the U.S. appears to be at the upward
edge of the “sweet spot,” the emphasis will be on ways of increasing equality. To reiterate, this
should not be mistaken as a critique of conservatism. For countries that have overemphasized
equality, arguably many European, more rightwing agendas would have been recommended.
27
Economic Levers
The economic levers available to societies are controversial as they are often strongly
associated with policies of the ideological left and right.2 Essentially, we are discussing
redistribution of wealth. Though this may invoke images of money being directly transferring
from one wallet to another, it can be done in a variety of manners, some more palatable than
others. For most people, many governmental services such as transportation or the fire
department are praiseworthy, or at least not objectionable. The question then focuses on the
quantity and quality of these services. For example, though superhighways are usually free to the
public, should we provide the same access for the informational superhighway (i.e., the
internet)?
As part of its role in the redistribution of income from the wealthy to the poor, there is
perhaps no greater opportunity for governments to provide the foundation for longer term
equality than with investments in education. A strong educational foundation allows people to
get better jobs, and ultimately provide more productivity back to the economy which in turn
helps growth. A particularly notable of this strategy is Norway, an example that staunch
opponents of more publicly funded education have difficulty explaining away. This
Scandanavian country offers tuition-free higher education to all of its citizens, and also offers
stipends and low-rate student loans to students through the Norwegian State Educational Loan
Fund. The country also boasts a near 100% literacy rate. The benefits of such investment appear
to be considerable. Norway is among the world leaders in GDP per capita. Instead of taking the
position that higher levels of equality are a counterforce to economic growth, it acts as if the two
2
Of note, some have argued that efforts to decrease inequality, that is to redistribute some portion of wealth,
increases at higher levels of inequality and this in turn is responsible for decreases in GDP. Though this is an
interesting hypothesis, it is not defendable since the empirical evidence indicates the opposite (Keefer and Knack
2000; You and Khagram, 2004). Higher levels of inequality are associated with less redistribution.
28
are interlocked in many respects. A similar experience can be seen in Finland, a social
democracy that is ranked by the World Economic Forum as the most competitive nation on the
planet.
Another possible economic lever is the minimum wage, which Democrats have often
pointed out has not kept pace with inflation. Indeed, the minimum wage for American workers
has remained stagnant at $5.15 since 1997. Although this may have helped fuel economic
expansion of recent times, it also leads to increasing levels of inequality among citizens (Lenz
2004). Increasing the minimum wage is one way in which governments can help ensure fewer
families live in poverty. This option may be acceptable to many voters given research by Card
and Krueger (1994) who examined a minimum wage increase in New Jersey and demonstrated
that modest increases in minimum wage do not lower GDP per capita as many economists
suggest.
Similarly, proponents of a more equitable tax system that helps equalize the imbalance
among the wealth of Americans point out that the taxes paid by Americans through income taxes
are disproportionally high compared to the taxes paid through property ownership. And since the
poor own very little property, the incomes they need to provide the basic necessities of food and
shelter are taxed to a higher degree than the vacation properties of the wealthy. In particular,
making mortgage interest payments tax deductible is actually a type of housing subsidy that
primarily benefits the rich, rather than the poor, and increases inequality in a nation. A similar
disproportionate effect can be seen from the Bush tax cuts where, in 2015, those making under
$400,000 per year will actually pay up to 13.9 percentage points more in income tax than those
earning more than that (New York Times 2005). Faced with aging parents, rising tuition costs
and their own retirement, even those with relatively high incomes are making difficult choices
29
with even less discretionary income. Governments can help keep wealth gaps in check by
ensuring poorer families are able to keep more of their income to provide for necessities.
One final issue concerning the economic levers available to governments concerns the
benchmark by which they measure successful policy. Voter discourse should be reframed from
one of economic growth to one of prosperity. For example, although the U.S. has realized
significant levels of economic growth, and currently spends more than twice as much on
healthcare as most other developed nations, it ranks near the bottom in terms of life expectancy
and also has the highest percentage of citizens without access to healthcare. As has been argued
here, economic output is not necessarily indicative of a more important measure of success, the
well-being of the nation.
Regulatory Levers
Although U.S. GDP rose dramatically through the latter portion of the last millennium,
American consumers are in some ways worse off than they were before the rise in GDP. For
example, the U.S. GDP rose over 60 percent from 1970 to 2000, but the number of hours worked
rose by 26 percent (Wasow 2004), creating a nation of over-worked, over-stressed citizens
facing increasing financial uncertainty.
One way that public policy can help reverse this trend is to foster an environment that, if
nothing else, at least does not discourage worker unionization. Through the 1950s, a greater
portion of the working population belonged to trade unions and it was unseemly to imagine a
company with increasing profits refusing to share a portion of that with its workforce. Today,
union membership is in sharp decline in part due to the fact that firms that put up barriers to
unionization face few consequences. In his book Unfair Advantage, author Lance Compta (2004)
30
highlights how employees are routinely fired for attempting to organize a union, and how worker
safety regulation is often outright ignored. On the other hand, employers who violate laws in
preventing union organizers from doing their jobs or that do not adequately protect worker safety
face virtually no penalties. Policy makers need not necessarily change existing labor laws to
disadvantage businesses, but by merely enforcing the current laws it could help ensure that
workers’ best interests are considered along with those of business.
Public policy can also ensure a match between private interests and public benefit in its
administration of unemployment insurance. For example, some have argued that profitable firms
that layoff employees should be charged higher levels of unemployment insurance premiums
since the displaced employees place a burden on the community. Alternatively, firms that
provide laid-off employees with retraining or assist them in finding new employment should be
offered tax deductions or credits for doing so. Similarly, firms that offer training that is valuable
for employees beyond their immediate jobs can be offered tax incentives for doing so; this would
help ensure a well-trained workforce that has employment mobility and, at least partially,
overcome the free-rider problem of businesses not wanting to invest in training that employees
can apply elsewhere. For a broader description of some of these options, and the relationship
between governments and businesses as part of the broader corporate social responsibility
discussion, see Robert Reich (1998).
Legislation can also help ensure that the rights of the citizenry are matched with those of
private interests when it comes to resource extraction and the use of environmental resources.
Examples abound where private interests have reaped profits from the extraction of resources,
only to leave governments to clean up toxic waste or restore the area for habitation. Governments
can do more to ensure the private sector is held accountable for its success, and that while
31
environmental resources can be used for profitable business ventures, that success should not
come at a net cost to the nation a whole.
Of course, the feasibility of regulatory remedies is debatable as they are usually costly
themselves, so the cure can be worse than the disease. Even worse, they can be anti-competitive,
serving merely to entrench the status quo and avoid “creative destruction,” and the development
of new industries. Whether implemented by the “left” or the “right” of the political spectrum,
regulations risks causing more problems than it solves, and any changes to the regulatory
environment should be done incrementally and avoided entirely if the effects are uncertain.
Political Levers
The last group of levers is political in nature; strong economies may invest in strong
counterbalancing democratic institutions to prevent the powerful from manipulating the
apparatus of the state to their own advantage. This idea is fairly widespread in economics and
often is paraphrased as “institutions matter.” These democratic institutions can, for example, help
to enable debate and dissent, such as through freedom of speech and of press, or promote
equality before the law, through the separation of powers. As the author and essayist Robert
Wright (2005, A23) concludes, “capitalism's pre-eminence as a wealth generator means that
every tyrant has to either embrace free markets or fall slowly into economic oblivion; but for
markets to work, citizens need access to information technology and the freedom to use it - and
that means having political power.” In other words, economic inequality, an inevitable outcome
of capitalism, can be partially balanced by strong democratic institutions – political equality.
32
Recent attempts at evening out the democratic process have been positive moves in the
right direction. For example, the McCain-Feingold bill puts strict limits on the amount of
unrestricted contributions to political parties that can then be used to fund multi-billion dollar
campaigns. It also attempts to limit the use of political advertising by third parties in an attempt
to circumvent the donation restrictions. Another positive step is the Clean Money Campaign
Reform project that offers public campaign financing to candidates that agree to spending limits
and reject private contributions. If candidates not in the system outspend those within, the
program provides matching funds to the candidate. The system is now law in several states, and
such systems hold the promise of restricting, if not outright eliminating, the influence of private
interests and financing in the campaign process.
Once it has elected its leaders, societies need strong safeguards against corruption. Critics
of the Bush Administration have pointed out that it has done little to protect the rights of
government workers who seek to expose what they view as corrupt government procurement
practices. A poignant example is Bunnatine Greenhouse who, after years of positive performance
evaluations faced demotion that coincided with her testimony to Congress on the problems with
procurement for the war in Iraq (Eckholm 2005). Policy makers need to do more to ensure that
whistleblower safeguards are in place to ensure the integrity of the system, and perhaps more
importantly, the public’s belief in that integrity.
Finally, consumers can demand more direct and frequent involvement on the part of
elected officials. Town hall meeting were an essential feature of democracy in early America, as
de Tocqueville noted, and they have shown resurgence in recent years. Still, elected officials can
still go much further in encouraging private citizen involvement in the governing process. An
excellent example comes from Sweden in the late 70s when the government was formulating its
33
energy policies. It offered day-long courses to its citizens on the issues, and anyone who took a
course could then make formal recommendations to the government. A total of 70,000 people
went through this process. In the U.S., the California Comparative Risk Project is an example of
how “ordinary” citizens can be involved in State policy. The project included committees of both
technical experts and laypeople, who then combined their perspectives on the issues. The lay
committees raised issues ignored by the technical committees, and it generated a healthy public
debate about the issues (Giddens 1998).
CONCLUSION
The data presented here lend support for the arguments of those calling for a third way,
suggesting that there is a sweet spot between the left and right of the political spectrum – a
balance between equity and equality – that is optimal. This phenomenon holds true for perhaps
two of the most important yardsticks by which nations are judged. First, a balance between the
two extremes appears to provide nations with strong economies and levels of wealth. Perhaps
more importantly, such a compromise also appears to provide optimal levels of happiness for the
citizens of a nation, especially as nations become richer. Therefore, by pursuing a balanced
approach, governments can ensure both wealth and happiness for their citizens.
To ignore the widening gap in wealth among Americans is to ignore the experiences of
other nations who have gone through, or are currently facing the related challenges. For example,
after the collapse of the Soviet Union the social vacuum created a hyper-gap between the
wealthy and the poor, and stagnant growth which shows very little sign of respite. More recently,
the Chinese government faces peasant revolts motivated by the extreme levels of inequality and
34
widely acknowledged corruption by government and business leaders. According to a recent
report by China’s National Development and Reform Commission, the poorest 20% of that
country’s urban residents earn less than 3% of the total urban income. Not surprisingly, the
Chinese government itself reported over 74,000 violent protests across the country in 2004, a
sharp increase over the previous year (York 2006).
The ability of markets to reward effort and ability is clearly beneficial to society. But
markets need more than governments to simply get out of the way. Ironically, this very analysis
suggests that the greater a nation’s need for these corrective measures to increase equality, the
less likely they will be implemented. There is always hostility to change from vested interests; it
is intrinsic in the self-interest and capability of the powerful. If the status quo was not already
agreeable and they could not influence such policies, they would not be powerful in the first
place. In the words of Lester Thurow, the MIT management and economics professor, “The old
patterns of powerful vested interests must be broken if the new is to exist, but those vested
interests fight back” (1999b, 57). Also, Thomas F. Homer-Dixon provides a poignant example in
the tragedy of Bihar, a state in India that plummeted from being one of the best managed to one
of the very worst. As he recounts, “Their hardships were primarily derived from inequalities of
wealth and power among Bihar’s castes and from the corrosive effect of these inequalities, when
combined with severe resource scarcities, on the state’s political institutions. And it was the
debilitation of the state’s political institutions that, in the end, prevent constructive reform of its
economic institutions and policies” (Homer-Dixon 2000, 377).
Importantly then, there should be a point-of-no-return in the aggregation of power. After
enough of it has been placed into few enough hands, there no longer remains any viable
mechanism within a nation for increasing equality. This is not a new observation. As the ancient
35
Greek historian Polybius, noted, “nor should so great a power be allowed to any one, as to make
it impossible for you afterwards to dispute with him on equal terms, concerning your manifest
rights.” What is more novel is the present level of inequality in the United States.
Unfortunately, trends in America suggest that the U.S. economy may be moving further
toward the edge of the “sweet spot”, within which it has prospered for over the past hundred
years. Great levels of inequality pose a danger. Quite simply, a widening gap between the
wealthy and poor places the very well-being and wealth of the nation is at risk. Furthermore, if
inequality continues to increase, America may be approaching a pivotal point where such
inequality becomes essentially irrevocable.
36
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TABLE 1
Using Both Objective and Subjective Measures in Exploring the Relationship Between
Societal Success and Equity vs. Equality
Societal Success
Equity vs. Equality
Objective/Observed
Subjective/Self-Report
ƒ
GDP Per Capita
ƒ
Happiness
ƒ
Gini
ƒ
Gini
ƒ
GDP Per Capita
ƒ
Happiness
ƒ
Power Distance
ƒ
Power Distance
Objective/Observed
Subjective/Self-Report
TABLE 2
Correlational Relationship of Power Distance & the Gini with Other Measures of
Equality
Equality
Power
Gini
Distance
Gender Empowerment
Gender empowerment measure (GEM)
-.48
-.29
Seats in parliament held by women (% of total)
-.16
-.47
Ratio of estimated female to male earned income
-.32
-.39
Female economic activity as % of male
-.29
-.43
Gender related development index
-.35
-.52
Economic Inequality
Share of Income - Poorest 10%
Share of Income - Poorest 20%
Share of Income - Richest 20%
Share of Income - Richest 10%
Gini index
-.27
-.30
.31
.32
.32
-.87
-.94
.97
.96
-
Individual versus Collectivism
Societal Collectivism Practices
Civil Liberties Index
-.30
-.36
-.24
-.40
Note. Bolded correlations are statistical significant at p<.05.
44
TABLE 3
Relationship of Power Distance & the Gini with National Economic Indices
Equality
Power
Gini
Distance
Gross Domestic Product Indices
GDP per capita (PPP)
-.42
-.53
GDP index
-.40
-.51
Societal Corruption
Corruption Perception Index
.44
.37
Health Indices
Life expectancy index
Life expectancy at birth (years)
Public Expenditure on Health as % of GDP
-.27
-.27
-.37
-.58
-.58
-.40
Education Indices
Education index
Public Expenditure on Education as % of GDP (2001)
Combined gross enrolment ratio for schools (%)
-.37
-.26
-.37
-.43
.00
-.42
Note. Bolded correlations are statistical significant at p<.05.
.
45
FIGURE 1
$70,000
Luxembourg
$50,000
Ireland
$40,000
Norway
United States
$30,000
Hong Kong
$20,000
South Africa
$10,000
Namibia
$0
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Gini
FIGURE 2
$40,000
United States
$35,000
GDP Per Capita
GDP Per Capita
$60,000
$30,000
Ireland
Australia
Italy
$25,000
Israel
$20,000
$15,000
$10,000
South Korea
South Africa
Albania
$5,000
Morocco
$0
4.4
4.6
4.8
5
5.2
Power Distance
5.4
5.6
5.8
6
46
FIGURE 3
9.00
Subjective Well-Being
8.00
7.00
6.00
5.00
4.00
Great Britain
3.00
U.S.A.
2.00
Japan
1.00
.00
1946
1956
1966
1976
1986
Year
FIGURE 4
10
Rich Nation
Subjective Well-Being
9
Poor Nation
8
7
6
5
4
3
2
1
0
Very Equal
Inequality
Very Inequal
1996