TOWARD AN 
ECONOMY 
O L-BEING 
BEYOND 
MONEY: 
Policy decisions at the organizational, corporate 
and governmental levels should be more heavily 
influenced by considerations related to well-being 
– people’s sense of purpose and satisfaction 
with their lives. 
Policy decisions at the organizational, corporate 
and governmental levels should be more heavily 
influenced by considerations related to well-being 
– people’s sense of purpose and satisfaction 
with their lives. 

by Ed Diener and Martin Seligman 

OVER TIME, GOVERNMENTS HAVE BECOME increasingly involved in the 
economies of developed nations, virtually all of which now have 
systems for measuring national production and consumption. 
Economics plays a central role in policy decisions because it is widely 
assumed that money increases well-being. However, distressingly 
large and measurable slippages between economic indicators and 
well-being have emerged in recent years, indicating that well-being 
itself needs to be assessed more directly. 

Since World War II there has been a dramatic divergence 
between real income (after taxes and inflation) and life satisfaction 
in the United States, and a similar pattern can be seen in the data 
from other nations. Even more disparity shows up when ‘ill-being’ 
measures are considered: depression rates have increased 10-fold 
over the same 50-year period, and rates of anxiety are also rising. 

It’s not that well-being isn’t in demand: most people rank happiness 
and satisfaction ahead of money as a life goal, and the 
purpose of the production of goods and services and of policies in 
areas such as education, health, the environment and welfare is to 
increase well-being. 

If well-being is the common desired outcome, it follows directly 
that society should measure it to provide a common metric for evaluating 
policies. It is high time that we developed a system of 
well-being indicators – not to supplant economic indicators, but 
to supplement and enhance their value by placing them within an 
overarching ‘framework of well-being.’ 

Defining Well-Being 

Modern economics grew as a handmaiden to the industrial revolution, 
and together they produced an explosion in the production of 
goods and services. Since the time of Adam Smith’s Wealth of 
Nations, governments have taken an active role in steering 
economies, for example, by adopting monetary controls, employment 
and wage laws, trade tariffs, banking and investment laws, 
antitrust laws, and income taxes. 

At the time, a concern with economic issues was understandably 
primary: meeting simple human needs for food, shelter, and 
clothing was not assured, and satisfying these needs moved in 
lockstep with better economics. However, subsequent industrial 
developments made these goods and services widely available. 
Because goods and services are plentiful and simple needs are 
largely satisfied in modern societies, people today have the luxury 
of refocusing their attention on attaining the ‘good life’ – a life that is 
enjoyable, meaningful, engaging, and fulfilling – and using economic 
and other policies in its service. 

Well-being includes all of the evaluations, both cognitive and 
affective, that people make of their lives and components of their 
lives. It includes pleasure, engagement, and meaning: 

Pleasure is characterized by positive moods and positive emotions. 
Pleasant emotions signify to the individual that events 
and circumstances are desirable, and unpleasant emotions signify 

Rotman Magazine Fall 2007 / 15 



that they are undesirable. 
Engagement involves absorption and what is sometimes 
referred to as ‘flow’: focused attention on what one is doing 
(e.g., ‘being one with the music’). 
Meaning is a larger judgment of belonging to and serving something 
larger than the self. 


Societal well-being is currently assessed by broad, global questions 
asking people how happy and satisfied they are overall, how 
satisfied they are with domains of life such as marriage and work, 
and how much they trust others. We propose that a national index 
should employ these same questions, but supplement them with 
questions targeted at specific aspects of well-being, such as 
engagement at work, stress due to commuting, levels of depression, 
and trust in neighbours. In addition, we propose that this indicator 
system include both a panel component (assessing the same group 
of individuals repeatedly over time) and an intensive experiencesampling 
component (assessing individuals on a daily basis for a week 
or two.) Thus, we are proposing a national system that is much 
broader and deeper than the current surveys being used, which base 
their findings on just a few global items. 

Sources of Well-Being 

We will now review five major domains of life that have a significant 
impact on well-being, each of which reveals weaknesses in solelyeconomic 
indicators, and each of which should be addressed in a 
national system of well-being indicators. 

1. Societal Characteristics 
Political characteristics such as democratic institutions, govern-

U.S. Gross National Product (GNP) and 
Figure 1 

Mean Life Satisfaction from 1947 to 1998 

30 
20 
Adjusted GNP in 
thousands 
Life Satisfaction 
10 
10 
Mean life 
satisfaction = 7.2 


Life Satisfaction (scale from 0 to 10)
1940195019601970198019902000


Adjusted GNP in thousands

mental effectiveness, and stability are all substantially related to 
individual well-being, as are nationwide patterns such as low divorce 
rates, high rates of membership in voluntary organizations, and 
high levels of trust. Stable political organization might be even more 
crucial to well-being in the short run than democratic governance. 
When the former Soviet bloc nations, once stable dictatorships, 
became unstable democracies, their well-being dropped substantially. 
In the 1990s, out of 68 societies, Russia, Georgia, Armenia, 
Ukraine, and Moldavia had the lowest enjoyment of life, from 

3.0 to 4.2 on a scale from 1 to 10, suggesting that instability is a 
source of suffering. 
In BowlingAlone, Robert Putnam suggests that people prosper 
in neighbourhoods and societies where ‘social capital’ is high – that 
is, where people trust one another and are mutually helpful. 
Putnam reviewed evidence showing that communities with high 
rates of volunteer activity, club membership, church membership, 
and social entertaining (all thought to be indirect manifestations of 
social capital) all had higher well-being than communities that were 
low in these characteristics. 

Religious people tend on average to experience greater wellbeing 
than non-religious people. One study showed that life 
satisfaction is higher the more frequently people attend church, 
and that people with religious beliefs report more life satisfaction 
than those who say they are atheists. Across nations, a higher rate 
of belief in God is associated with higher average life satisfaction 
and a lower rate of suicide. 

The wealth of a nation substantially correlates with wellbeing, 
although there is little effect once income reaches a 
moderate level. Across nations, there are diminishing returns for 
increasing wealth above U.S. $10,000 per capita income; above 

Life Satisfaction for Various Groups Figure 2 

Group Rating 
Forbes 
Magazine’s “richest Americans” 5.8 
Pennsylvania Amish 5.8 
Inughuit (Inuit people in northern Greenland) 5.8 
African Maasai 5.7 
Swedish sample 5.6 
International college student sample (47 nations) 5.6 
Illinois Amish 4.9 
Calcutta slum dwellers 4.6 
Fresno, California homeless 2.9 
Calcutta pavement dwellers (homeless) 2.9 

Note: Respondents indicated their agreement with the statement “You are 
satisfied with your life.” Using a scale form 1 (complete disagreement) to 7 
(complete agreement). 

16 
/ Rotman Magazine Fall 2007 


that level, there are virtually no increases or The wealth of a 
nation substantially 
correlates with well 
being, although there 
is little effect once 
income reaches a 
moderate level. 
poor people. Rising aspirations seem to nullify 
only small increases in well-being. Moreover, only about 70 per cent of increased income. 
health, quality of government, and human Second, happy people tend to earn higher 
rights all correlate with national wealth, and incomes than unhappy people. Finally, income 
when these variables are statistically con-might correlate with well-being insofar as basic 
trolled, the effect of income on national needs are fulfilled, and this explanation is consowell-
being becomes non-significant. nant with the evidence showing much stronger 

Inflation is a negative predictor of the wellbeing 
of nations: low inflation predicts satisfaction 
with the governing party, and high unemployment predicts 
the ill-being of nations. Effective and trustworthy governance 
also correlates with the well-being of nations, and these effects are 
over-and-above those of democracy. When there is low corruption 
and effective rule of law, people report greater life satisfaction. 
Freedom has also been found to have a substantial relation to wellbeing: 
economic freedom had a stronger effect on well-being in 
poor nations than in wealthy ones, whereas political freedom was 
more important in wealthier nations than in poor nations. 

2. Personal Income 
Although high personal income is widely associated with well-being, 
the relation between these two variables is intricate. The context in 
which income is experienced, including ideology and people’s 
material desires and values, moderates its effects. Individuals may 
achieve higher happiness for themselves by earning higher incomes, 
when they move upward relative to their material desires and relative 
to others. However, as everyone’s income rises in affluent societies, 
rising income does not seem to provide a well-being dividend. 

The detrimental effects of materialism have been documented: 
lower self-esteem and greater narcissism, greater amounts of 
social comparison, less empathy, less intrinsic motivation and 
more conflictual relationships. In Figure 2, we present data on the 
life satisfaction of a number of groups. Respondents from the 
Forbes list of the 400 richest Americans are relatively high in wellbeing, 
yet the Maasai of East Africa are almost equally satisfied. 
The Maasai are a traditional herding people who have no electricity 
or running water, and live in huts made from dung. These results 
thus underscore the fact that luxury is not necessary for high wellbeing. 
Slum dwellers in Calcutta are less satisfied with their lives, 
although still above the neutral point on the rating scale, perhaps 
sustained by the pleasures of family, religion, and work. In contrast, 
homeless people in Fresno, California, report very low levels of 
well-being. We speculate that meeting one’s physical needs and 
one’s desires might be the crucial moderator of the effects of 
income on well-being. What is clear is that income per se does not 
directly drive well-being. 

What might explain these findings? First, although people’s 
material desires seem to catch up to their incomes and cancel the 
benefits of higher incomes to some degree, it appears that wealthier 
individuals have a smaller gap between income and desires than do 

effects of income in poorer than in wealthier income 

groups. In sum, income – historically a good surrogate 

when basic needs were unmet – is clearly now a weak surrogate 
for well-being in wealthy nations. 

3. Productivity 
In an economy focused on life satisfaction, work would no longer 
be considered something to be endured in order to obtain income, 
but rather would be considered a potentially-rewarding experience 
in its own right. 

Research shows that job satisfaction and positive mood at work 
both contribute to the productivity of organizations. Happy 
employees are better organizational citizens: they change jobs less 
frequently and they ‘shirk’ responsibility less. The costs of unhappy 
workers to economic productivity are enormous. Policies aimed at 
producing a happier workforce make sense both because they can 
enhance well-being in an important realm of life and because they 
can increase economic productivity and profitability. 

The relation between job satisfaction and organizational citizenship 
can be sizable: the more satisfied employees are, the more 
practical, helpful, and friendly they are. Many possible causes of 
worker well-being have been investigated, and a host of factors 
have been implicated, from low noise levels to positive behaviours 
of the supervisor. These factors are summarized in Figure 3. 

Studies indicate that job satisfaction depends not on absolute 

Characteristics of Rewarding Jobs Figure 3 

• Opportunity for personal control 
• Opportunity for using skills 
• Variety of tasks 
• Physical security 
• Supportive supervisor 
• Respect and high status 
• Interpersonal contact 
• Good pay and fringe benefits 
• Clear requirements and information on how to meet them 
Rotman Magazine Fall 2007 / 17 



Being married 

pay, but on pay relative to other workers with the and having contact 
same education and job classification. People’s with one’s children 

and siblings is a 

satisfaction with their incomes depends also on 

significant predictor 

the incomes of others in their organization and in 

of life satisfaction, 

their occupation. 

as is congeniality 

Job satisfaction can be enhanced in a variety 

and organizational 
membership. 

facilities, plans for allowing employees to work at 
home, employee stock options, and generous fami-
ly-leave policies. Similarly, training supervisors to give 
appropriate praise and feedback, facilitating friendships on the job, 
and providing the tools workers need are likely to enhance job satisfaction, 
as is selecting workers so that their personality 
characteristics, strengths, and interests fit the job. 

4. Health 
Studies confirm that happy people behave in ‘healthier’ ways than 
unhappy people. For example, individuals who report high wellbeing 
exercise more and engage in more physical activity than 
those who report low well-being. 

Optimism has been associated with longevity in several studies. 
In a Mayo Clinic study, optimistic patients lived about eight years 
longer on average than pessimistic patients; and in another study, 
hope was associated with increased survival time in cancer patients. 
Optimism has also consistently been found to predict outcomes in 
cardiovascular disease. For example, greater optimism is associated 
with lowered reports of symptoms of angina in cardiac patients, as 
well as greater longevity and lowered rates of non-fatal heart attacks. 
In a longitudinal study, researchers found that people with an optimistic 
explanatory style had better pulmonary function than people 
with a more pessimistic style, and showed a slower decline in health 
over an eight-year period. 

Mental health is equally significant to well-being. In stark contrast 
to the improvement in economic statistics over the past 50 
years, there is strong evidence that the incidence of depression has 
increased enormously over the same period. Sadly, it is young people 
who are now particularly at risk. Forty years ago, the average age for 
the first episode of depression was 29.5, and depression was unusual 
in adolescence. Now it typically attacks its victims for the first time 
when they are teenagers. The high percentage of youth experiencing 
severe depression at such a young age is surprising and 
dismaying. Depression tends to recur, and a first onset during the 
teen years typically results in several more episodes in a lifetime. 

In general then, positive states of well-being correlate with better 
physical health and conversely, negative emotions often predict 
worse health outcomes. Economic statistics alone completely fail 
to capture the decrease in well-being caused by physical and mental 
disorders, which is particularly significant because mental disorders 
have increased substantially over the same period that developed 
economies have tripled. 

5. Social Relationships 
Numerous studies support the fact that people 

need supportive, positive relationships and 

social belonging to sustain well-being. As a 

result, frequency of participating in social activi


ties is associated with greater happiness, better 

functioning, and lower mortality in the elderly. 

In our own study of very happy people, we found 

that every single respondent in our happiest group 

reported excellent social relationships. People experience 
more positive emotions when they are with others than when they 
are alone: both extraverts and introverts experience a higher 
amount of pleasant emotions in social situations. 

Social and community service have been shown to have a 
strong relation with life satisfaction, so it’s no surprise that people 
high in life satisfaction are more likely than others to be 
community volunteers. Older adults’ participation in community 
service and other social activities has also been shown to be 
associated with greater life satisfaction – particularly when these 
individuals were no longer working. In addition, being married 
and having contact with one’s children and siblings is a significant 
predictor of life satisfaction, as is congeniality and 
organizational membership. 

Not only does companionship predict more positive outcomes, 
but lack of it predicts diverse problems. One study found that both 
men and women with more friends had lower levels of mental distress 
than those with fewer friends. Elderly individuals who do not 
have confidants or companions report lower well-being than those 
who do, even when demographic, health, and economic factors are 
controlled. Social isolation correlates substantially with low wellbeing. 
Loneliness stems from a lack of confidants and friends, and 
in turn increases the risk of psychological problems, physical 
impairment, and low life satisfaction. 

Marriage serves as a major vehicle for companionship in 
Western societies, and marital dissolution is usually accompanied 
by emotional turmoil, depression, hostility, and loneliness, even when 
the marriage has become unhappy. Mental-hospital admissions are 
highest in separated and divorced individuals, intermediate in the 
unmarried, and lowest in married individuals. Happily-married 
individuals are less likely to have physical health problems or psychological 
difficulties than unmarried persons, and mortality rates 
are consistently higher for widowed, single, and divorced individuals 
than for married people. 

We believe that social skills should be a standard component 
of primary and secondary education. School curricula should 
explicitly educate young people about the importance of longlasting 
social relationships. Given that not every student will enter 
a traditional marriage, education about how to develop and nurture 
supportive and intimate relationships in general is an 
educational imperative. 

18 
/ Rotman Magazine Fall 2007 


Measuring Well-Being play important roles. 
We are proposing the development of a full-scale Well-being is not a panacea that will in itself 
set of measures that will be sensitive to changes 

Well-being is not 
a panacea that 
will in itself solve 
all of the world’s 
problems. 
solve all of the world’s problems. Even if it 
of well-being and ill-being in the five major 

becomes the dominant paradigm one day, it must 
domains of life, as well as narrower measures of 

be supplemented by other values. In addition, 
trust, stress, meaning, and other components people must be socialized for humane values in 

of well-being. Such a set of indicators would: 

• Include questions that are relevant to policy; 
• Broadly and representatively sample various stakeholder 
groups in a nation; 
• Include measures of broad facets of well-being, such as life satisfaction, 
having purpose and meaning in life, trust, 
engagement, depression, and positive and negative emotions; 
• Include narrower well-being measures related to different 
aspects of life, such as work, health, family, community, and 
leisure; 
• Include permanent measures that are used in all samples, as 
well as topical measures and samples that focus on specific 
current policy issues; 
• Include in-depth measures over time on sub-samples in order 
to measure experience as it occurs and not rely on people’s 
recall of that experience; and 
• Track sub-samples longitudinally to provide a better understanding 
of changes across time. 
There is no doubt that such a system will be costly to implement. 
The cost, however, is tiny compared with that of the economic measures 
that have been shown to be glaringly inadequate as measures of 
developed nations’ quality of life. Despite the costs, the benefits 
promise to be enormous, and will include policy changes that over 
time will increase the well-being of the majority of citizens. 

Well-being measures will provide critical information needed 
by leaders, as well as by citizens, to make informed choices in a truly 
wealthy society. When people evaluate different possible courses of 
action – at the individual, corporate, and governmental levels – 
these measures will add a perspective that is not being captured 
by existing indicators. 

In closing 

It is not yet clear to people how to achieve greater life satisfaction. 
When asked what would improve the quality of their lives, the 
most frequent response people give is “higher income.” Until there 
are concrete and proven steps toward non-economic aims, people 
are unlikely to abandon the dominant economic paradigm. 

Psychology will play a central role in developing a measure of 
national well-being. Both scientists and practitioners will be 
required to determine how to rigorously assess it and how to 
intervene to change it. Other behavioural sciences, such as 
Sociology, Anthropology, Economics and Neuroscience will also 

order for the well-being economy to become a 

desirable concept. 

We have reviewed several of the factors that lead to 

well-being – to frequent pleasant emotions and engagement, 
to finding meaning and satisfaction in life, and to low levels of stress 
and depression. Our findings suggest the following partial formula 
for achieving it: 

1. Live in a democratic and stable society that provides material 
resources to meet needs; 
2. Have supportive friends and family; 
3. Have rewarding and engaging work and an adequate income; 
4. Be reasonably healthy and have treatment available in case of 
mental problems; 
5. Have important goals related to one’s values; 
6. Have a philosophy or religion that provides guidance, purpose, 
and meaning to one’s life. 
Economic indicators have for the most part served society well. 
However, they have glaring shortcomings as approximations of 
collective human well-being. We are now in a position to begin to 
assess well-being directly via a system of national measures that 
would supplement economic measures. We feel that these measures 
should become the central ones, and that economic indices are best 
understood in their relation to enhancing well-being. It is high time 
to grant well-being a prominent place in policy discussions. 


Ed Diener is the Alumni Distinguished Professor of Psychology 
at the University of Illinois. The founding editor of Perspectives on 
Psychological Science, he is the author of Culture and Subjective Well-
Being (MIT Press, 2003), and is listed as one of the most highlycited 
psychologists by the Institute of Scientific Information. 
Martin Seligman, a founder of the field of Positive Psychology, is 
the Robert A. Fox Leadership Professor of Psychology at the 
University of Pennsylvania. The founding editor-in-chief of 
Prevention and Treatment Magazine, he is the author of What You 
Can Change and What You Can’t: The Complete Guide to Successful 

Self-Improvement (Vintage, 2007) and Authentic Happiness: Using the New Positive 
Psychology to Realize Your Potential for Lasting Fulfillment (Free Press, 2004). 

This is a condensed excerpt from a report originally published in Psychological 
Science in the Public Interest, a journal of the Association for Psychological 
Science. The full report is available online at www.psychologicalscience.org/ 
journals. 

Rotman Magazine Fall 2007 / 19