What shapes quality of life?

A personal view from Debapratim De, Deloitte’s Chief Economist in the UK.

What shapes quality of life?

GDP is often used as the all-encompassing yardstick of development. Yet, it is hardly an accurate measure of living standards or wellbeing. Over the last couple of decades, economists and statisticians have endeavoured to rectify this, by creating several survey-based measures of happiness or life satisfaction. This week's briefing examines what the latest editions of some of these surveys tell us about the key determinants of quality of life.

The annual World Happiness Report ranks 147 countries by their happiness or 'life evaluation' levels, based on responses to a Gallup poll. The latest edition of the report rates Finland as the world's happiest country, followed by Iceland and Denmark. (The UK ranks 29th, below Germany and the US but above France, Spain and Italy.)

The overwhelming majority of countries ranking regularly among the happiest nations tend to be from the developed world, with high per capita GDP. This is a consistent theme across surveys. The Economist Intelligence Unit (EIU)'s Global Liveability Index compares the standard of living across 173 cities worldwide. Here too, the top ten most liveable cities are all in affluent nations - Europe hosts four of the top ten, while Australia has three, Japan has two, and Canada contributes one. Copenhagen is rated the most liveable city in the world this year. (London ranked 54th and New York 66th.)

Wealthier countries typically invest more in public services such as healthcare, education, transport, and social welfare. This robust public provision improves standards of living and often reduces the financial burden on individuals for essential services, contributing to higher disposable income for leisure and other discretionary spending.

Wealthier nations and cities can also afford better public planning, which plays a significant role in improving life satisfaction. Key to Copenhagen's success is its unique urban planning, guided by the ‘finger plan’. The city has concentrated urban development along five rail corridors (or ‘fingers’), interspersed with green spaces. This design integrates high-density housing and workplaces with public transit, reducing congestion, allowing for easy access to offices and public services, while the green wedges provide residents with proximity to nature.

Vienna, which is ranked the second most liveable city by the EIU, is well known for its progressive housing policies where around 60% of residents live in social housing with low rents. This approach has its challenges but it distinguishes the Austrian capital from other major Western cities with growing concerns about housing affordability.

Another consistent theme across surveys is that low-income countries, especially those facing conflict or political instability, tend to register the lowest levels of happiness and standards of living. Afghanistan, Sierra Leone and Malawi make up the bottom three entries in the World Happiness Report rankings. Ongoing political instability makes Damascus, Tripoli and Dhaka the least liveable cities in the EIU rankings.

Conflict and stability remain key drivers of quality of life in wealthier places too. The war in Iran has led to significant drops in the EIU's liveability ratings for many Gulf cities. In 2022, several Eastern European cities saw their liveability ratings impacted by the war in Ukraine. Even Vienna was displaced from its top spot in the liveability rankings last year partly due to increased terror threats.

A positive outlier is New York, which has seen one of the biggest improvements in liveability this year due to falling crime rates and a reduced extremist threat assessment.

Healthcare is also a major determinant of living standards. The best-performing countries in the World Happiness Report score highly on healthy life expectancy. In the EIU rankings, Asian cities, and those in China in particular, have made remarkable progress in liveability due to improvements in the access to and quality of healthcare provision over the last decade.

Another factor of growing salience is environmental degradation, often driven by climate change. Surveys by the European Union (EU) in 2023 showed a fifth of city dwellers in Europe report pollution and other environmental issues as a problem for their households, compared to a tenth of respondents living in rural areas. A more recent survey by the EU found more than 50% of respondents were very or quite concerned about extremely high temperatures and wildfires.

The EIU's liveability rankings have also featured significant downgrades for cities like New Delhi and Cairo, in previous years, due to issues such as poor air quality, undesirable temperatures, and inadequate water provision.

There can, of course, be no complete measure of happiness. Surveys cannot account for important subjective factors such as social ties, individual interests, career prospects or familiarity with culture and language that shape people's quality of life. But these studies complement GDP and other economic metrics to paint a richer picture of life satisfaction and its determinants. And set some useful standards for cities and nations to aspire to.