Happiness and Innovation

20^th January 2006

The Malta Independent - Friday Wisdom

Two recent international surveys show that the Maltese are among the happiest and the least innovative. What should one make of this conundrum?

It reminds me of the anecdote about the IMF delegation that went to a totally undeveloped country where the inhabitants lived on subsistence, mostly fishing. To exhortations to one of the native fisherman who was trying to make the daily catch to feed his family, that he should invest to become rich and have free time that he could enjoy fishing at his leisure, the bloke replied that, fishing for fishing, he would rather stay as he was.

But we are not a subsistence economy. If anything, we harbour insatiable expectations for increased consumption to reach the EU average standard of living in a rather short time. So how can we be happy and yet perform so dismally on innovation? Innovation contains the seed for future economic growth that is the basis for additional consumption. The link between consumption and happiness is not directly proportional, but that one interacts on the other is quite unquestionable, though by no means does this mean that happiness depends solely on consumption.

In fact we have other good reasons to be happy. Most of this we owe to the Creator who placed us on a lovely archipelago that is thankfully free of natural disasters.

Our size also helps to sustain the quality of life without necessarily involving additional consumption. The ability to be sitting at the office desk 15 minutes after leaving home is not something that is enjoyed by many who command much higher incomes in more developed countries. The possibility of being at the beach at two in the afternoon on each summer working day, less than one hour after most public service offices knock-off for business, is a wishful dream for much richer people.

Apart from God’s blessings there are also the benefits of a social structure that is among the most generous in the developed world. Does it not add to our happiness to know that we are all entitled to free medical services, irrespective of means, when in many developed countries – particularly in the United States – people have to pay through their nose to have some sort of health insurance?

Does it not add to our happiness to know that our parents can enjoy a state pension that gives them, in addition to free medical services, a reasonable level of income that enables them to enjoy retirement without threat of poverty. This is much more than can be said of many pensioners in developed countries, the USA and the UK included, where pensions depend on contributions to an occupational pension scheme, which many companies are now trying to freeze or change from benefit-defined to contribution-defined?

And our happiness is further augmented by the reality that we are getting richer by doing nothing. Few people are getting richer through their regular income from employment.

But many of us are getting richer through asset price inflation, as property and equity prices make our past investments in our residences and the other financial savings much more valuable. Knowing that asset price inflation is making us financially richer, we can consequently afford to save less or even draw-down from past savings to increase consumption in spite of stagnant earnings.

On further reflection, however, our happiness should be tempered by responsibly asking ourselves whether it is based on an unsustainable platform. How long can we afford free universal health care without breaking the structure of public finances? Will our pension system survive to ensure that those of us who have been contributing to it over several decades of working life can reasonably expect a pension that keeps us out of poverty during retirement?

Will property and equity prices keep going up interminably or will market mechanisms force a price adjustment that could be both shocking and hurtful?

This is where innovation comes in. I would be far happier and peaceful in my mind if our economic growth was based on efficient production sourced on genuine innovation rather than on asset price inflation with the clear characteristics of speculative bubbles. What systems are we promoting to promote innovation? What financial resources are dedicating to innovation? Where is the private equity and venture capital funding without which innovation often remains an unrealised idea rather than a revenue-generating project?

Happiness without innovation can only subsist if we are prepared to accept the living standards of a subsistence economy and base our happiness on the fisherman’s philosophy that the best things in life are free.