THE BLOG
09/19/2013 12:40 pm ET Updated Nov 19, 2013

The Prosperity/Well-being Conundrum

Earlier this year, UNICEF released a report comparing the well-being of children in 29 of the world's most advanced nations. The report compiles data on material well-being, health, safety, education, behavioral factors, and living environments, in addition to subjective "life satisfaction" surveys from children themselves. The United States landed near the bottom on almost all measures. Our total ranking was of 26th out of 29 countries; only Lithuania, Latvia, and Romania performed worse. Yet the United States has the 10th highest GDP per capita in the world -- more than three times that of Estonia and Slovakia, which both had higher levels of child well-being.

The traditional economic view has been that growth and productivity, measured by GDP, are the key markers of success and the solutions to poverty. The UNICEF well-being report shows how this traditional view is incomplete. In actuality, cities and countries with rising incomes have been confronted by the paradox of unhappy growth in which increased GDP per capita has not led to increased or widespread well-being.

Stanley Kuznets, the Nobel Prize-winning economist who introduced the concept of GDP to the U.S. Congress in 1934, was actually the first to caution about GDP's limitations. Kuznets wrote: "Economic welfare cannot be adequately measured unless the personal distribution of income is known. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income."

Kuznets recognized that wealth and welfare are different things, and factors like inequality, social capital, and labor conditions are important in gauging the success of a society.

Thriving, Struggling and Suffering

In 2005, Gallup began polling selected residents of almost every country in the world to gauge their state of well-being. Respondents are asked about their employment status, their confidence in government, the quality of their public education system, their food security, and a variety of other issues. They are also asked to describe their lives as thriving, struggling or suffering.

In the period from 2005 to 2010, the GDP in Tunisia rose by 26.1 percent and in Egypt rose 53.4 percent. But the Gallup polls showed that increased GDP was not leading to increased happiness. In 2005, 25 percent of those polled in Tunisia said they were thriving. By 2010, that had dropped to 14 percent, a 44 percent reduction. The numbers were even worse for Egypt. In 2005, 26 percent of Egyptians described themselves as thriving. By 2010 only 12 percent did, a 54 percent drop. And in 2010, the country with the lowest reported thriving level in the entire world was Bahrain.

One of the key issues is that the prosperity generated by increased GDP has not been equitably distributed, and it has not been invested in improving the overall society's well-being. So we should have not been surprised, when, in the fall and winter of 2011/12, massive protests took place in these countries. These were places in which the GDP rose, but an increasing number of people felt that they were struggling or suffering.

There are now many systems that define and measure components of well-being for people, cities, and nations: Bhutan's Gross National Happiness index, the Gallup Healthways index, and the New Economic Foundation's Happy Planet Index, and the OECD's Better Life Index.

The challenge for the world's cities is to connect our knowledge of how to improve prosperity with our knowledge of how to improve well-being. Measuring prosperity and well-being are important first steps. The next is to focus on solutions that are most likely to increase prosperity and well-being simultaneously.

The Answer is Urban

Unfortunately, the political turmoil of Tunisia, Egypt and Bahrain have made it very hard to initiate innovative new social strategies at the national level. Even calmer countries, such as the United States and Italy are too gridlocked to innovate new solutions. The answer is urban. Cities are the most likely venues for developing, testing and measuring new solutions to the prosperity/ well-being conundrum.

How to Make Prosperous Cities

Over the last decade, ten strategies have emerged as key drivers of the economic prosperity of cities. These are:

1. Connectivity
2. Productivity
3. Economic Diversity
4. Social Diversity
5. Knowledge and Innovation
6. Cultural flexibility
7. Trust/Security
8: Infrastructure
9. Density
10. Regional Integration

How to Make Happy Cities

There have also been significant advances in the study of well-being.
According to the OECD, the key drivers of well-being are:

1. Income/Wealth
2. Jobs and Earnings
3. Housing Conditions
4. Health Status
5. Work/ Life Balance
6. Education and Skills
7. Social Connections
8. Civic Engagement and Governance
9. Environmental Quality
10. Personal Security
11. Subjective Well Being

The Prosperity/ Well-being Matrix

Economic security lies at the core of every issue of well-being, but prosperity alone is not a sufficient cause of well-being. The solution is to find the "sweet spots": urban strategies that enhance the factors of both prosperity and well-being.

Cities have important tools to shape their futures: regulations, investments, incentives and leadership. When integrated, they can help advance "sweet spot" solutions. Four such sweet spot goals stand out: 1) sufficient, well-located affordable housing; 2) easy access to multiple transit modes including public ones; 3) quality, resilient urban infrastructure; and 4) quality public education systems, from Pre-K to graduate and ongoing training. Each of these is essential for a healthy economy, creates jobs, improves well-being and enhances a region's capacity to thrive.

So which cities are doing the best job of balancing prosperity and well-being?

While there are ample data on income, wealth, and prosperity, and a growing body of well-being data, there are few approaches that combine these metrics to provide an integrated assessment of a city's performance.

My colleague Will Goodman and I began by examining prosperity and well-being indicators on the United States' largest 100 metro areas, and then synthesized data to create a prosperty/well-being metric. To measure metropolitan area prosperity, we used U.S. Department of Commerce Bureau of Economic Analysis 2011 data on real GDP per capita. To measure metro area wellbeing, we used the Gallup-Healthways 2011 polling data for its U.S. Well-Being Index. The Gallup-Healthways methodology includes survey data in six key "domains": Life Evaluation, Emotional Health, Physical Health, Healthy Behavior, Work Environment, and Basic Access. Gallup-Healthways combines results in each of these areas to reach a total Well-Being Index score for each metro area.

Our prosperity/well-being rankings are based on a composite score that we reached by normalizing and combining GDP per capita and Well-Being Index scores for the 100 largest metros (more on methodology below). Based on this simple analysis, the top ten prosperity/wellbeing metros are:

1 San Jose-Sunnyvale-Santa Clara, CA
2 San Francisco-Oakland-Fremont, CA
3 Washington-Arlington-Alexandria, DC-VA-MD-WV
4 Bridgeport-Stamford-Norwalk, CT
5 Lancaster, PA
6 Charlotte-Gastonia-Rock Hill, NC-SC
7 Boston-Cambridge-Quincy, MA-NH
8 Minneapolis-St. Paul-Bloomington, MN-WI
9 Honolulu, HI
10 Des Moines-West Des Moines, IA

View the full list of rankings.

Looking at prosperity and well-being in this way produces some interesting results. It may not be surprising that wealthy Silicon Valley and sunny Honolulu are among the top metros for GDP per capita and well-being. However, Lancaster, Pa., the 99th largest metro on our list, may be less obvious as a top prosperity/well-being location. Lancaster ranks only 80th in terms of GDP per capita, but its #1-ranked well-being score is well above the other metros in the top ten. Meanwhile the New York metro area ranks 11th in GDP per capita, but its relatively low wellbeing score (ranked 66th) drops it to #27 on the composite rankings.

It is also clear that focusing on metro areas loses some of the nuance of municipality and neighborhood dynamics. For instance, Bridgeport-Stamford-Norwalk ranks #4 on the composite score, but those familiar with this metro area know that living conditions in Bridgeport (median household income of $34,658) are far different from Stamford (median household income of $75,454).

The Distribution of Well-being Matters

The relative distribution of income within a metropolitan area, and opportunities to move up the income ladder, are important elements of prosperity and well-being. Research shows that societies with greater levels of inequality have less stability, worse health outcomes, and lower overall well-being. We tested the impact of metro inequality on our prosperity/well-being rankings by incorporating each metro area's Gini Index score (the Gini Index measures how much each area's income distribution deviates from a perfectly equal distribution). We used DiversityData.org's analysis of 2010 income data for the 100 largest metros, then normalized and added each Gini Index score to our prosperity/well-being composite (weighted equally with GDP per capita and the Gallup-Healthways score). With the Gini Index included, the new top ten prosperity/well-being metros are:

1 San Jose-Sunnyvale-Santa Clara, CA
2 Washington-Arlington-Alexandria, DC-VA-MD-WV
3 Des Moines-West Des Moines, IA
4 Lancaster, PA
5 Honolulu, HI
6 Madison, WI
7 Salt Lake City, UT
8 Minneapolis-St. Paul-Bloomington, MN-WI
9 Ogden-Clearfield, UT
10 Seattle-Tacoma-Bellevue, WA

View the full rankings including the Gini Index.

This methodology dramatically changes the ranking of metro areas like Bridgeport-Stamford-Norwalk, which dropped from #4 to #57 because of its relative income inequality -- it had by far the highest Gini score, meaning it was the most unequal metro. Although Ogden-Clearfield's GDP per capita of $29,898 ranked it 88th of the top 100 cities, because it scores very high in well-being and income equality (it had the best Gini Index score), it rose in the combined rankings from #46 to #9.

This analysis is just a start -- I'm interested to explore how we can improve integrated measures of prosperity, well-being, and equality to guide policy decisions towards the sweet spot solutions.

One new study shows the likelihood that lower-income households can rise to middle- and upper-income levels within a given "commuting zone." Unfortunately, its data set did not correlate with the other data we were using, so we could not test its impact on our rankings. But it raises an interested question: Is it more important to measure the distribution of income within a city, or the city's level of access to economic opportunity and mobility?

What other economic, social, and/or environmental data should be incorporated into a comprehensive well-being/prosperity metric?

What are the most important common characteristics of the top metros on this list?

How do we incorporate the well-being of a metro region's natural systems into this metric?

We are eager to hear your comments and thoughts.

Note on methodology:
In order to develop a composite ranking system, we normalized data sets (GDP per capita, Gallup-Healthways Wellbeing, and Gini Index scores) for the 100 largest metros so that they could be combined "apples to apples." This involved assigning each metro a "z-score" in each category (z-score = (score - mean score) / standard deviation of data set), which measures a given score's standard deviations above or below the mean score in that category. Each metro's z-scores are then added together, and metros are ranked based on their composite scores. For this exercise, the categories are weighted equally in the composite score.

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