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China's Growing Unhappiness Gap

Twenty years of economic growth in China has left everyone richer. But new research from USC suggests that the rising tide of wealth is leaving poor Chinese unhappier

In 1974, a University of Pennsylvania economics professor named Richard Easterlin published the innocuously titled study, “Does Economic Growth Improve the Human Lot?” (The conventional wisdom at the time being, “Duh.”) In it, he examined 30 surveys conducted in 19 countries, and came up with an unexpected conclusion: while income correlated closely to happiness within countries—richer Nigerians were happier than poorer Nigerians—it wasn’t clear that, on balance, richer countries were any happier than poorer countries. Happiness was purely relative.

The so-called Easterlin Paradox became a cornerstone of “happiness economics” and remains hotly contested. (Critics says its rubbish, and absolute $ = absolute ☺. Easterlin stands by his evidence.) Now, a new study (PDF) from Easterlin and his colleagues at USC builds on the theory. In the case of China, the authors found, a booming economy may be making everyone wealthier—but only a fraction of them are happier because of it.

For the last two decades, China has hewed closely to the old capitalist saw, “A rising tide lifts all boats.” Across demographics and geographies—rich and poor, young and old, urban and rural—economic liberalization has meant higher incomes and standards of living for all Chinese. Per capita consumption has increased four-fold, the authors report, but “life satisfaction” hasn’t risen with it. Instead, a growing wealth gap has created a shadow happiness gap.

In 1990, two-thirds of both the richest and poorest Chinese reported high life satisfaction. By 2007, those figures had diverged wildly, with contentment among rich Chinese climbing to 71 percent, but plummeting to 42 percent among poor Chinese. Individual wealth might have grown as the economy boomed, but in terms of happiness, the authors maintain, “China has gone from being one of most egalitarian countries to one of the least.”

And that change has to do with an even more seismic one taking place in China in the last 20 years: the loss of the social safety net. In 1994, China began to drastically overhaul its “state-owned enterprises,” inefficient relics of socialism that kept the lumpen masses placated. “Urban workers,” the authors write, “were essentially guaranteed life-time positions and associated benefits, including subsidized food, housing, health care, child care, and pensions, as well as jobs for grown children.”

Free-market reforms meant the end of this “iron rice bowl,” precisely as rural labor was beginning to flood into cities. The result was widespread unemployment and uncertainty, especially among older workers. It was only in the early aughts that economic growth overtook the collapse of the country’s state-owned enterprises and joblessness began to fall.

Today, China continues to boom, but without its safety net in place, and the effects are beginning to show. The authors observe that, as with life satisfaction, poor Chinese now report declines health and financial satisfaction, too. Atomization is taking hold. The positive effects of rising income are being undercut by “material aspirations.”

Happiness economists have long regarded growth as something of a Pandora’s box—we’re happy till we realize how much we don’t have. China’s only just begun to lift the lid.