China's Wealth and Happiness Paradox Matthew Monnot

April 10, 2017

How far is money related to levels of satisfaction with life? Dr Matthew J. Monnot of the University of San Francisco, United States, discusses the contrast between decades of GDP growth in China and stagnant levels of individual life and job satisfaction, questioning whether monetary incentives can fill evolved psychological needs and examining the relationship between material aspirations and individual well-being.


Chinese market reform has led to decades of dramatic economic growth, lifting hundreds of millions of Chinese from poverty and generating enormous individual wealth for many, with China now ranked second globally in number of millionaires. It seems that an affinity toward wealth has grown along with the rise in incomes. The latest Global Trends market research report released by Ipsos shows that the vast majority (roughly 70%) of Chinese respondents, more than any other country, report that they measure their success by the things they own and that that they feel a lot pressure to be successful and make money. Popular press stories abound with a materialistic Chinese “me generation” and “little emperors”. In a particularly symbolic shift toward a materialistic culture, over the past year it seems that some men have been surprising their girlfriends with bouquets of money instead of flowers. Has blossoming wealth brought happiness to China?

While the creation of wealth and consistent gross domestic product (GDP) growth in China during the past 30 years is impressive, it seems to have done very little for levels of life satisfaction and happiness. Emerging evidence suggests that a massive shift in cultural values away from those aligned with basic psychological needs and toward materialistic aspirations may be responsible for China’s paradoxical relationship between wealth and happiness.


Wealth and happiness: Easterlin’s paradox

In 1974 Richard Easterlin published a manuscript in which he tried to answer a variety of seemingly simple questions about wealth and happiness: Are the wealthy members of society happier than the poor? Are citizens of more developed nations happier? As national income improves does happiness improve in tandem? Easterlin found that wealthier citizens were indeed happier on average than less wealthy citizens. However when he examined data across nations, at the national level instead of the individual level, he found no relationship between wealth and happiness. Additionally, Easterlin’s analysis suggested that as national income increased there did not seem to be an increase in national happiness. This became known as the “Easterlin Paradox” – greater individual wealth relates to greater individual happiness, but greater national wealth does not lead to a happier citizenry.

“Wealth is a relative phenomenon. When a rising tide lifts all boats the passengers find it difficult to notice the sea change.”

Easterlin speculated on his paradoxical finding. Perhaps the satisfaction associated with wealth is relative – money is only a source of happiness if others don’t have as much of it. Wealth is a relative phenomenon. When a rising tide lifts all boats the passengers find it difficult to notice the sea change. Alternatively, perhaps greater wealth causes greater consumption. It may have been an example of a phenomenon coined the “hedonic treadmill”, wherein the attainment of something greater simply shifts the midpoint of one’s expectations and desires.

Interestingly, while Easterlin’s cross-sectional data suggests that wealthier individuals are happier than poor individuals there is not much of a predictive relationship between wealth and happiness. In other words, becoming wealthier is unlikely to make you as an individual much happier. In fact, follow-up studies suggest that above a certain level of income (often around the median income of a society) individual happiness does not vary much between individuals (Diener, Sandvik, & Seidlitz, 1993; Kahneman & Deton, 2010).


The unfulfilling “goods life”

There is a growing amount of evidence that the inability of wealth to create happiness is due to a disconnect between wealth and basic psychological needs. Basic psychological needs are naturally evolved human motives. Individuals have an innate tendency to strive to fulfil these basic needs. Being good at what you do (i.e. competence), having positive relationships with others (i.e. affiliation), and acting out of one’s own volition (i.e. autonomy) are, according to needs theorists, basic psychological needs. When these needs are met they bring higher levels of well-being, enhanced performance and greater happiness. And there is an extensive amount of evidence in support of this theory (Van den Broeck, Ferris, Chang, Rosen, 2016).

However, monetary incentives do not fulfil evolved psychological needs. Income is an external incentive not an intrinsic need. While wealth can make life easier, it is not a very effective avenue toward happiness.

In fact a series of studies suggest that there may be potential drawbacks to financial aspirations and subsequent financial success. Evidence suggests that individuals who aspire toward financial success and subsequently achieve it are less happy compared to those who aspire toward basic psychological needs and subsequently satisfy them. Kasser and Ryan, the scholars who originally investigated this phenomenon, referred to this as the “dark side of the American dream” (Kasser & Ryan, 1993). In short, their research suggests that Americans often pursue material possessions instead of fulfilling intrinsic needs – the “goods life” instead of the good life – resulting in detriments to individual happiness.

However, if this paradox is due to met versus unmet basic evolved psychological needs then it should show up across national boundaries. An ideal venue to test the relationship between wealth and happiness are rapidly developing economies. Enter the poster child of national economic growth and rising individual income – China. GDP increased by an average of nearly 10% every year since the 1978 economic reform. If levels of individual well-being and happiness have not risen in that time then this is a particularly stark example of Easterlin’s original findings.


Understanding China’s Easterlin paradox

Three decades after his original finding, Easterlin and colleagues sought to test the paradox in China. They found that, at least in the 20 years between 1990 and 2010, there was essentially no change in life satisfaction (Easterlin, Morgan, Switek, & Wang, 2012). Results of other studies show the same trend – a meteoric rise in both GDP coupled with stagnant levels of happiness.

One reason for the discord between GDP growth and happiness, according to basic psychological needs theory, is likely to be the shift in goal orientation. Market liberalization has driven economic growth in China; however, a common byproduct of liberal markets is financial and material aspirations. This is shown in the aforementioned Ipsos report as well as others. Financial aspirations have increased in China and are even more pronounced for those born after the market reforms (Gu & Hung, 2009).

Recent scholarly research shows that collectivism, a cultural hallmark of China, is decreasing and that both individualist and materialistic aspirations are increasing (Steele & Lynch, 2013). Collectivism represents interdependence, importance of group cohesion and relationships, and identification with others in your society. In contrast, individualism (the opposite of collectivism) is associated with higher levels of self-interest, independence, and preference for loose connections to others in society. This represents a societal shift in values away from the basic psychological need of affiliation, which brings greater happiness, and toward values associated with extrinsic incentives.

Therefore it is important, particularly as societal values continue to shift in China, to understand the relationship between material (e.g. financial) aspirations and individual well-being, as well as intrinsic (e.g. affiliation) aspirations and individual well-being.

“Money is only related to levels of satisfaction with life up to a certain point.”

Recent research (Monnot, 2015) in this area shows that in fact the same “dark side of the American” dream is playing out in China. Money is only related to levels of satisfaction with life up to a certain point. This nonlinear relationship is exacerbated for respondents who feel that making a lot of money is important. Adding a twist to Easterlin’s original paradox, Chinese respondents who value money appear to be less satisfied with money itself.

Additionally, extrinsically oriented individuals (i.e. those who place greater importance on owning a lot of things and making a lot of money) are less satisfied at work, less satisfied with life, and feel lower levels of accomplishment. However, intrinsically oriented individuals (i.e. those who place greater importance on affiliation and community) display higher levels of job and life satisfaction, as well as feelings of accomplishment.

Economic prosperity in China during the past several decades has been impressive. However, considerable evidence suggests that levels of life satisfaction and happiness have remained stagnant. This discord is likely due in part to a societal change in cultural values toward a more extrinsic and materialistic orientation.


Image | Mikelmania, Pixabay

References

Diener, E., Sandvik, E., Seidlitz, L., & Diener, M. (1993). The relationship between income and subjective well-being: Relative or absolute? Social Indicators Research, 28, 195–223. https://doi.org/10.1007/BF01079018

Gu, F. G., & Hung, K. (2009). Materialism among adolescents in China: A historical generation perspective. Journal of Asia Business Studies, 3(2), 56–64. https://doi.org/10.1108/15587890980000411

Easterlin (1974). Does economic growth improve the human lot? Some empirical evidence. In P. A. David & M. W. Reder (Eds.). Nations and Households in Economic Growth: Essays in Honor of Moses Abramovitz. New York: Academic Press, Inc. https://doi.org/10.1007/BF00286477

Easterlin, R. A., Morgan, R., Switek, M., & Wang, F. (2012). China’s life satisfaction, 1990-2010. Proceedings of the National Academy of Sciences, 109 (25), 9775–9780. https://doi.org/10.1073/pnas.1205672109

Kahneman, D., & Deton, A. (2010). High income improves evaluation of life but not emotional well-being. Proceedings of the National Academy of Sciences, 107 (38), 16489–16493. https://doi.org/10.1073/pnas.1011492107

Kasser, T., & Ryan, R. M. (1993). A dark side of the American dream: Correlates of financial success as a central life aspiration. Journal of Personality and Social Psychology, 65 (2), 410–422. https://doi.org/10.1037/0022-3514.65.2.410

Monnot, M. J. (2017). Marginal utility and economic development: Intrinsic verses extrinsic aspirations and subjective well-being among Chinese employees. Social Indicators Research. Advance online publication. https://doi.org/10.1007/s11205-015-1153-9

Steele, L. G. & Lynch, S. M. (2013). The pursuit of happiness in China: Individualsm, collectivism, and subjective well-being China’s economic and social transformation. Social Indicators Research, 114 (2), 441–451. https://doi.org/10.1007/s11205-012-0154-1

Van den Broeck, Al., Ferris, D. L., Chang, C-H., Rosen, C. C. (2016). A review of self-determination theory’s basic psychological needs at work. Journal of Management, 42 (5), 1195–1229. https://doi.org/10.1177/0149206316632058

Matthew J. Monnot

About Matthew J. Monnot

Dr Matthew J. Monnot is an industrial-organizational psychologist and currently an Assistant Professor in the Department of Organization, Leadership, and Communication at the University of San Francisco. He has previously worked as a consultant in the biotechnology industry and currently serves as an external management consultant. His research focuses on employee well-being, organizational change, and international management.

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