Estonian Human Development Report

CHAPTER 6
Well-being and
economic development
6.1. Introduction
Since social factors are related to human development in
the broadest sense, we often deal with them as separate
values, independent of economic opportunities. There is
nothing wrong with this approach until a question develops
about the resources that are required, while the key
question for the economic approach involves the calculation
of budgetary restrictions.
The emphasis on the assessment of the relationships
between the economic and social fields has shifted due to
the development of a better understanding of the reasons
for growth and changes in the types of economic growth.
With respect to the latter, one can differentiate growth based
on industrialization, which is related, to a great extent, to
“investments into iron and concrete” and service-based economic
growth, which is based, to a great extent, on investments
into human and social capital, and in which case, a
large number of developmental factors are related to costs
rather than investments from the standpoint of national statistics.
Therefore, countries in the first phase of development
are characterized by a high ratio of investments in GDP
(often 25–30% and more); this percentage is lower, however,
in countries in the second phase of development. 31
It is typical of economists to value economic growth
as such. However, it should be noted immediately that in
the 1960s and 1970s the emphasis on the assessment of
policies supportive of economic growth shifted from an
approach based on the accumulation of production factors
to the valuation of human and social capital. Since the
creation of human and social capital is affected by social
policies, the interconnection between social and economic
policies has also become more important for economists.
In order to ascertain whether economic development
or general social development is moving in an acceptable
direction, one must inevitably measure objective levels
of various aspects of well-being, or the quality of life,
on the one hand, and subjective aspects of well-being, i.e.
the perception of these aspects by the members of society,
on the other hand. Moreover, it must be considered that
objective levels of well-being result from economic development,
while at the same time, the various components
of the society’s well-being, such as health and education,
are also inputs for economic development, i.e. they significantly
affect economic development.
We find very different divisions for the aspects of wellbeing,
and indicators to describe them in the literature. It is
generally understood that the economic wealth of a society,
which is measured at the country level by created income
per capita, is the basis for everything. From the standpoint
of well-being, not only wealth, but also its distribution, is
significant (see Chapter 1 above) – not only between individuals,
but also to guarantee the achievement of various
developmental objectives (physical and social security,
democracy). Another objective aspect that is often considered
is the health and educational level of the members of
society, as well as their access to health care and educational
services. In summary, this can be called the human capital
aspect of well-being. The social side of well-being can
also be objectively reflected through governmental organization,
especially through social policy indicators, which
will be discussed below. From here, we arrive at the social
capital aspect of well-being. Satisfaction studies have added
a subjective social dimension to the analysis of well-being
(see Chapter 3 above). Since the subjectively perceived feeling
of happiness is considered the most important indicator
of well-being, well-being also has an emotional aspect.
Exclusion that is related to poverty and long-term unemployment
is frequently a reason for negative emotions about
society. Therefore, the lack of exclusion could be interpreted
as a connection to society that provides people with emotional
support in assessing their situation.
6.2. Subjective and objective
indicators of well-being
In this subchapter, we will examine how the components
of well-being and their perception are mutually
related and also related to different parameters of economic
development. Both the objective and subject variables
of well-being will be examined along with the
actual situation and the assessments made by people
31
In China the corresponding indicator, the exact name of which is gross fixed capital formation, has been 35 to 40% for years. In Estonia,
it was 31.9% in 2007, while at the same time, the percentages in the following countries with larger service economies and growth
based to a greater extent on human capital were 20.3% in Finland, 18.9% in Sweden, and 18.7% in the US (Eurostat, 2008)
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