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Alternative Development Strategies for Ecuador: Suggestions for Developing a Happier Ecuador using a Four Capital Approach Lindsay Beebe, Anneli Berube, Jeff Frank, Lauren Melevin, Mikala O’Neil

Happiness Economics for Ecuador

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Page 1: Happiness Economics for Ecuador

Alternative Development Strategies for Ecuador:

Suggestions for Developing a Happier Ecuador using a Four Capital Approach

Lindsay Beebe, Anneli Berube, Jeff Frank,

Lauren Melevin, Mikala O’Neil

Page 2: Happiness Economics for Ecuador

Abstract

• Research on the economics of happiness is beginning to identify unexplained gaps between measures of income and of well-being (happiness). The following research examines how Natural, Social, Human and Political capital relate to the development of well being in Ecuador.

Page 3: Happiness Economics for Ecuador

The Problem: Changing Desirable Ends

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Page 4: Happiness Economics for Ecuador

Why Happiness?

- Because the traditional assumption that people are income-based profit-seeking agents in the economy has proven itself incomplete.

- Because profit and income are not innate human directives, but the pursuit of our happiness is.

Page 5: Happiness Economics for Ecuador

Why Happiness?-Easterlin Paradox:

-Within a society rich people tend to be happier than poor.

-Rich societies do not tend to be happier than poor societies.

-As countries get richer, they do not get happier.

Page 6: Happiness Economics for Ecuador

What’s Wrong with the Standard Measures?

• GDP: tearing down a school = building one

• Gini Coef: Movements in/out of income categories

• Poverty Headcounts: Movements in/out of poverty

• These tools measure overall effects and efficiency, while people define their well being alternatively.

Page 7: Happiness Economics for Ecuador

What can Happiness Economics offer to Development Strategy?

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Page 8: Happiness Economics for Ecuador

Ecuador’s Happiness

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A Four Capital Approach

• Basic needs without which happiness is either flounders or fails:

– Natural Capital– Human Capital– Social Capital– Political Capital

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Ecosystem services of a forest • Gas Regulation• Trees store CO2 and growing trees create o2; forests can clean SO2 from the atmosphere.• Climate Regulation• Greenhouse gas regulation; evapotranspiration and subsequent transport of stores heat energy to other regions by wind; evapotranspiration, cloud

formation, and local rainfall; affects of shade and insulation on local humidity and temperature extremes.• Disturbance Regulation• Storm protection, flood control, drought recovery, and other aspects of habitat response to environment variability mainly controlled by vegetation

structure.• Water Regulation• Tree roots aerate soil, allowing it to absorb water during rains and release it during dry times, reducing risk and severity of both droughts and floods.• Water Supply• Evepotranspiration can increase local rainfall; forests can reduce erosion and hold stream banks in place, preventing siltation of in-stream springs and

increasing water flow.• Waste Absorption Capacity• Forests can absorb large amounts of organic waste, and filter pollutants from runoff; some plants absorb heavy metals.• Erosion Control and Sediment Retention• Trees hold soil in place, forest canopies diminish impact of torrential rainstorms on soils, diminish wind erosion. • Soil Formation• Tree roots grind rocks; decaying vegetation adds organic matter.• Nutrient Cycling • Tropical forests are characterized by rapid assimilation of decaying material, allowing little time for nutrients to run off into streams and be flushed

from the system.• Pollination• Forests harbor insects necessary for fertilizing wild and domestic species.• Biological Control• Insect species harbored by forests prey on insect pests.• Refugia or Habitat• Forests provide habitat for migratory birds and resident species, create conditions essential for reproduction of many of the species they contain.• Genetic Resouces• Forests are sources for unique biological materials and products, such as medicines, genes for resistance to plant pathogens and crop pests, ornamental

species.• Recreation• Eco-tourism, hiking, biking, etc.• Cultural• Aesthetic, artistic, educational, spiritual and/or scientific values of forest ecosystems.

(Daly and Farley, 2004, Ecological Economics, Table 6.1, pg 105, Washington, Island Press.)

Page 16: Happiness Economics for Ecuador

Looking at natural capital and well being

• Natural capital as ecosystem services-tropical forest most diverse forest

• Natural capital as form of built capital- financial benefit to Ecuador

-measuring GNP vs. human well-being

• Proposal: Assessment of natural capital

Page 17: Happiness Economics for Ecuador

Human Capital and Development in Ecuador

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What is human capital?

• Human Capital is commonly defined as "the sum of our individual minds, bodies, spirit, souls, dreams, visions, knowledge, skills, competencies, capabilities and other human attributes," (Anielski, 2007).

• For purposes of this report, HC classified as Health and Education

Page 19: Happiness Economics for Ecuador

The Problem:

The Washington Consensus-style development strategies fail to consider human capital as an aspect of well-being. Advances in this capital are intrinsically valuable, and do not always transfer themselves to market goods.

Page 20: Happiness Economics for Ecuador

Ecuador and Health

• 26% of all children nationwide have stunted growth caused by malnutrition. This figure rises to 31% in rural areas, and 47% in indigenous communities (WFP)

• 2008 HDI shows life expectancy of 74.8 years, yet this figure does not address significant disparities between populations

• Healthcare programs focusing on its indigenous and marginalized populations

Page 21: Happiness Economics for Ecuador

Ecuador and Education• Indigenous adults in Ecuador

avg. 4.5 yrs. of formal schooling, compared with 8 yrs. in non-indigenous populations

• Indigenous women are the most adversely affected, with an avg. length of schooling of 3.8 yrs. (Garcia-Aracil, 2006 )

• Intrinsically valuable, investments in education are attributed to such factors as increased employment, worker productivity, improved health, technological development, and social cohesion

Page 22: Happiness Economics for Ecuador

Human Capital Conclusions

• Focus on the social equity of its diverse population in order to develop a more unified society and foster a better quality of life for all of its citizens

• Investments in HC are essential for the creation of sustainable well-being for all of its citizens

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What is social capital?• The actual & virtual resources of a

community, that allow humans to feel actualized, possessing a durable

network of more or less institutionalized relationships of

mutual acquaintances and recognition•There are cognitive components that

influence social capital

Page 24: Happiness Economics for Ecuador

Problem:

• The Washington Consensus style development strategies fail to consider social capital as an aspect of well-being

• Intuitively people understand how the strength of our community networks and the depth of our friendships affect our well-being, however it is difficult to quantify

Page 25: Happiness Economics for Ecuador

Case Study

• Bogota, Colombia• Former Mayor increased social capital and the

happiness level of the city• Restructured city to make more accessible for

children and elderly• Increased public transit and bike paths• Increased demands, bringing the competing

bus companies together they were able to organize transit outside the city (even to rural areas)

Page 26: Happiness Economics for Ecuador

Results:

• Reduced city emissions

• Increased bike and bus travel

• Increased health of city

• People reported greater levels of happiness

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Social Capital in rural areas

• Social capital can alleviate poverty

• When SC declines so does a community's ability to solve its own problems

• By improving community institutions, fostering self-help we increase SC

• SC & its formal and informal institutions must be socially just, applicable & inclusive of the citizens of Ecuador

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Social Capital in Ecuador

• Investments in SC are essential for the creation of sustainable well-being for all the citizens of Ecuador

• Ecuador must increase civic engagement & improve its institutions which get people out and about interacting in the community

• Increasing social interaction and human relationships will increase public participation creating a richer social capital inclusive of all the citizens of Ecuador

Page 29: Happiness Economics for Ecuador

What is Political Capital?

• Capability of political institutions to provide the necessary policies and facilitate government initiatives that generate well-being

• Power to…– Influence community decision making

– Set the policy agenda

– Determine location (distribution) of policy– Green and Haines, 2008

Page 30: Happiness Economics for Ecuador

Political Capital & Happiness

• State strength associated with greater provision of basic needs

– London & Williams, 2001

• Welfare spending increases subjective well-being – Radcliff et al., 2000

• Liberal left-wing regime dominance produces happier populations

– Moon & Dixon, 1985

Page 31: Happiness Economics for Ecuador

Democracy & Happiness

• Increased human and civil rights associated with higher levels of subjective well-being

– Outcome Utility: “government activity closer to the wishes of the citizenry”

– Procedural Utility: increased happiness in those eligible to vote and participate

– Frey & Stutzer, 2000

Page 32: Happiness Economics for Ecuador

Ecuador & Political Capital

• Presidential representative democratic republic– Strong executive branch– Multi-party electoral system– Ethnic politics

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Political Capital Problems

• Barriers to cooperation• Rigid policymaking/Volatile policy• Under qualified bureaucracy• Lack of transparency/accountability

– Acosta et al., 2008

→ weak institutional ability to implement meaningful policy

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Suggestions

NEED POLICY OPTION

Public Sector Accountability &Transparency

•Strengthen formal instruments or regulation/restraint by increasing separation of powers and judicial branch independence

Cooperation and Formation of Professional Bureaucracy

•Utilize competitive pressures provided by market economies to check the state’s ability to monopolize policymaking •Isolate and define common policy goals of separate political parties to provide incentive for cooperation and conflict resolution among ethnic groups

Page 35: Happiness Economics for Ecuador

Suggestions Cont’dNEED POLICY OPTION

Citizen Participation & Ownership

•Increase public voice/foster partnerships that allow external (non-state) stakeholders to provide oversight and pressure for change

•Increase public participation in policy formation through use of referendum and public hearings

•Promote educational initiatives to increase awareness and change national mood to support public policy of sustainability

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Happiness and the Financial Crisis• Effects of Loss Aversion

– Dramatic reductions in H. due to perceived losses.– Threats to the income, health care, safety

• During Latin America Crisis ‘01-’02

-People increased their desire for democratic governance as well as government intervention

Page 37: Happiness Economics for Ecuador

Recommendations

• Incomes in Ecuador are not high enough to buttress Happiness against falling incomes.

• H. will fall dramatically if sources of basic needs are not supplanted by government or elsewhere

• Ecuador should immediately consider the implementation of a Well-Being indicator in order to gather the needed longitudinal data to design policies that will increase happiness. (Cannot design policy around static H measures)

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Questions?