The Economics Of Happiness: Why Nordic Countries Are The Happiest

In March 2020, Finland was named the happiest country in the world by the World Happiness Report published by the United Nations Sustainable Development Solutions Network.1 The report is published annually and is an important survey of the state of global happiness. It ranks 165 countries by how happy their citizens perceive themselves to be. For the past three years, it has been headed by Finland. In fact, the Nordic countries have been occupying the top positions in the Happiness Index since its inception in 2012.

At a time when the rank of our own country has slipped to 144th1, it makes sense to understand just what makes the Nordic countries so happy and how we can implement that here.

Economy

The Nordic Model followed in these countries is characterised by an elaborate social safety net, in addition to services such as free education and universal healthcare in a largely tax-funded system. Contrary to popular belief, the Nordic Model is not socialism but is in fact what has been described as ‘Compassionate Capitalism’ – the idea of mixing a free market system with social welfare schemes. This nexus also gives way to a guaranteed pension program for retirees. But how exactly does this system work? It works on the basis of the enormous trust placed in the government by the citizens. Here, economy, welfare and trust go hand in hand.

The economic model followed encourages creative destruction and is known for having a considerable amount of taxation on consumption.

What is interesting is that here, citizens get a designated number of vacation days per month, excluding holidays. A citizen may leave his or her job for a brief time and come back to a guaranteed position months later.

The average unemployment rate of the five countries is 5.68 percent (2017) and average economic growth rate is 2.6 percent. Average interest rate is 1.1 percent, the highest being 2.2 percent (Iceland).2

Quite interestingly, the Nordic Region’s GDP in purchasing power parity terms is merely 1,375 billion US dollars3 as opposed to 19,485 billion US dollars3 of the USA. Yet, the Nordic region tops the Happiness Index while the US fails to even make it to the top 10. This is corroborated by studies that have shown that while richer people tend to be happier, beyond a certain income level, money does not buy happiness.

Will we be able to follow the Nordic model here in India? Probably not. The Nordic Model, while very comfortable, does not come without a cost: high taxation. This is a cost that the Nordics are able to pay given the trust they place in their government. In a diverse country like India, where people will always be, at some level, suspicious of and dissatisfied with the government (given their different demands and a clash of opinions), this wouldn’t be possible. This is supported by the historical evidence of a backlash against the government every time it has tried to raise taxes. A possible solution could be taxing the rich more heavily than the poor, and imposing stringent punishments for tax evasion.

Education

The education system of the Nordic countries is regarded as the most unique and successful education system in the world. In Finland, children do not start formal educational training till they are seven because adults believe that it is a time for play and a time for them to explore their creativity.

Every child has a legal right to high-quality pre-school care, with this time being looked at as the most important time to nurture a child’s social skills. This play-time however, is not haphazard. It is carefully designed as a mix of “free play” and teacher-directed play. This is done to assess how the child plays and children’s development is constantly evaluated.

Unlike most other countries, here, ‘teaching to the test’ is an alien concept. Children do not have to take formal examinations until the age of 18. As a result, the level of contentment among children is pretty high. Finnish children are happier and much less stressed than children elsewhere.

Another important feature of the educational system is its emphasis on equality. Finland’s social security and healthcare system ensures one of the lowest child poverty rates in the world. Free school meals are provided which encourage higher attendance.

Yet despite these unorthodox and seemingly ridiculous policies, literacy rates in the Nordic countries are almost 100%. 16.8% of students enrol in higher education and on an average, only 11% of students are early leavers.2

However, when it comes to education in India, it is characterised by high competition (owing to the high population in India) and increased stress and a curriculum that is impractical and only focuses on scoring more. India once used to be a global education centre but unfortunately, the old educational system we had, has transitioned into a machine that produces unskilled graduates incapable of handling the jobs they apply for.

Even the mid-day meal scheme that was introduced in 2002, though a positive change, has not seen as much success as it hoped. Many schools do not receive their quota of food grain on a monthly basis while some are overstocked, which results in breeding of insects. Additionally, in a lot of places, teachers and students are more involved in organising the meal than studying.

Education plays a crucial role in all aspects of our life: be it work, politics, relationships or even the mundane events of everyday life. What the Indian education system needs right now is to move away from its “funda” of rote learning and instead encourage students to develop their curiosity, to move away from a limited curriculum (that is often not updated for years) and motivate them to think and read on their own.

To increase the literacy rate in the country, the government should perhaps use nudges to encourage more parents to enrol their kids in school. All of these steps will lead to greater awareness and concerned citizens which will positively impact the economy and consequently, our satisfaction.

Healthcare

All Nordic countries have highly-developed hospital services. The healthcare systems are taxation based but require co-payments by patients for hospital care and medicines.

A fascinating concept is that of the Finnish Baby Box, which was originally introduced to reduce Finland’s infant mortality rate in the 1940s and is still being implemented. Every pregnant woman in Finland is given a baby box by the government. All she has to do in return is to attend a prenatal clinic before her fourth month of pregnancy. Inside the box are about 50 items of baby gear, including a snowsuit, socks, diapers, a bath towel, a thermometer, a picture book and (for the parents) a pack of condoms. Once the items are taken out, the box can be used as a bassinet.

Currently, statistics show a bright view of the healthcare system in the Nordic region. On average, there are 1.74 children per woman (2015). There is an average healthcare expenditure of 9.92 percent of the GDP. The total fertility rate is 1.7 percent. The life expectancy is quite high at 83.3% (2016).2

In India, unfortunately, the statistics aren’t as happy. The life expectancy is only 67/70 for males/females4 and a mere 40% of the population enjoys basic sanitation facilities4. High birth rate combined with a low death rate has contributed to a high population growth rate and high population density. 55 million Indians were pushed into poverty in a single year due to unaffordable healthcare. (PHFI, 2018). Besides, the quality of medical education is swiftly deteriorating in the country.

The solution? National Healthcare Schemes such as Ayushmann Bharat are definitely a step forward. Additionally, the government needs to start allocating more to the healthcare industry than just 1-2 percent of the GDP5. Moreover, many public health experts stress on incentivising more academic physicians to practice in India.

Population

The total population of the Nordic region in 2017 was just 27 million people.2

The current demographic situation in the Nordic region is marked by the growth of the Nordic population which is driven to a large extent by immigration. Another major issue is the declining birth rate and thus, the ageing population. The nature of the demographic and its trends are expected to continue in the future.

The age demographic is quite a worrying situation. As Norwegian Prime Minister Erna Solberg put it, “There will be fewer young people to bear the increasingly heavy burden of the welfare state.”

An economist in Norway has suggested giving pension to women for each child born as a way to incentivise them to have more children. Meanwhile, in Denmark, campaigns are being organised to make men aware of declining sperm quality with age.

In India, the situation is quite the opposite. With a population of 133.92 crores (2017, Source: WB), it is set to surpass China as the world’s most populated country by 2027. 6

The Indian workforce is over 400 million strong, which constitutes 39.1% of the total population (Census 2011). However, just having people in the working-age is not enough. What is important is how many are in the labour force and how productive they are. The Indian state should invest more, and more efficiently, in human capital and infrastructure.

Lifestyle

The most important factor leading to these countries being the happiest in the world is their lifestyle, which is characterised by the right balance between professional and personal life.

The Nordics believe in working hard but for them, working overtime or not using their holidays to relax is an absurd concept. For example, Swedes take 5 weeks of paid vacation time per year. Their ideology is that putting in fewer hours, and taking more breaks makes one more focused and productive during the hours they put in.

In addition to this, people here tend to exercise more often, many even cycle to work. They try to spend more time in nature. Hiking and mountain biking is common, as is running on a daily basis.

Another interesting feature of these societies is the social stigma that is incurred when one is developing unhealthy habits. They tend to be more appreciative of the good things in their life. Research has proven that maintaining gratitude is an important part of staying happy.

Adapting something like this in India would be a draconian task due to the country’s huge population and rising competition. While there are some cultures that preach work-life balance, most of the Indians are plagued by a poor lifestyle. The way out could be greater awareness which would gradually lead to a change in mindset.

Environment

An HSBC study in 2018, named three Nordic countries – Norway, Sweden, and Finland – among five of the least vulnerable nations to climate change, along with New Zealand and Estonia.7

The Nordic countries are endowed with plentiful renewable energy resources, including hydropower, wind power, geothermal energy and forest biomass. Each country is striving to make the most of the renewable resources available locally.

National policies have incentivised the use of renewable energy sources even when they are not the cheapest option in the short term. The Nordic countries boast of an advanced cross-border electricity market that facilitates increased use of renewable energy. The region barely applies energy subsidies, not even for low-income households. Instead, government support is provided through social welfare policies that allow them to meet their heating needs. At the same time, everyone is incentivised to use less energy. This is yielding results: fossil fuels are rapidly being replaced by biofuels, heat pumps and other green alternatives.

In India, though the present situation isn’t quite as good, one sees hope for the future. The assertive stance taken by Prime Minister Modi at the UN Climate Action Summit can perhaps be seen as India’s determination to align its domestic policies with international commitments. Policies have been proposed that aim to scale up India’s electricity from renewable sources to 175 GW by 2022 and even to 450 GW later.8 The benefits of increasing the use of renewable resources are not only from an environmental perspective but also from an employment perspective. This is because the renewable energy sector has seen rapid growth over recent years, owing to considerable reductions in manufacturing and installation costs. Other than this step, emphasis needs to be placed on reducing carbon emissions, possibly through a higher carbon tax.

Dissatisfaction and social media

Despite the seemingly perfect Nordic Model, a survey revealed that 12.3% of the population in the Nordic countries are struggling or suffering.9 More and more younger people are getting lonely and facing mental health disorders. This has been attributed to a large extent to the use of social media.

In India too, suicide rates among adolescents are high. According to the National Mental Health Survey of 2016, the prevalence of mental disorders was 7.3% among 13-16-year-olds.

In fact, a number of studies have shown a direct link between the use of social media and general dissatisfaction. This is because social media often makes us envious and can have a negative effect on our body image and self-esteem.

Social media applications act as a catalyst for destructive behaviors like comparison, cyberbullying and approval-seeking. Users tend to showcase only a highlight reel of their lives; posting all the positive and important moments and leaving out the negative and mundane. When another user observes these highlight reels from other people, they compare these portrayals to the worst parts of themselves, causing feelings of shame, irrelevance, and inferiority. These feelings can lead users to engage in destructive approval-seeking behaviors.

What is needed is greater awareness about mental health and clearing the stigma around mental health disorders. The population at large should be sensitized about warning signs and whom to approach in case they see any of these. Regular and compulsory counselling sessions at educational institutions would also be useful. If covered under a medical plan by the government, the poor would also have access to something this important.

The Key to Happiness?

Given all these factors mentioned above, perhaps the key to happiness is what Aristotle had told us long ago. Professor Edith Hall, author of the book Aristotle’s Way says, “The ultimate goal of human life is, simply, happiness, which means finding a purpose in order to realise your potential and working on your behaviour to become the best version of yourself.”

Research has proven that companionship is a very important factor contributing to happiness. By adopting healthy practices and creating a safe community, we can maybe achieve this happiness that we are always striving for. So perhaps the code that the Nordics have cracked is striking the right balance between work and personal life, having trust and practising gratitude regularly.

By Khushi Srivastava
Second Year Undergraduate Student

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