Economic composition, not growth, predicts national wellbeing

John Ricketts^1* & Chris D. Beaumont²

¹AI+Wellbeing Institute, ICLA, Japan. ²University of Tokyo, Tokyo, Japan.
*e-mail: ricketts.john@c2c.ac.jp

Global GDP has tripled since 1970, yet life satisfaction in wealthy nations has not increased^1,2. This disconnect—the Easterlin paradox—reflects a robust empirical pattern: wellbeing rises with income but with sharply diminishing returns³. Early income gains secure basic capabilities; later gains increasingly fund status competition, complexity and defensive spending. Here we show that what matters for national wellbeing is not how much an economy spends, but how it allocates that spending. Across 30 countries, we decompose system overhead into Institutional Infrastructure (universal systems, safety nets), Remediation Load (preventable disease, pollution, disasters) and Extractive Dissipation (rent-seeking, arms races). The share devoted to infrastructure—the Institutional Ratio—is strongly associated with life satisfaction (r = +0.80, P < 0.001) and trust (r = +0.90, P < 0.001), while total overhead shows no association (r = −0.18, not significant). Given diminishing returns, we ask: how much wellbeing does a society achieve per income doubling? Finland achieves 19% higher efficiency than the United States despite lower GDP^4,5—a gap explained by composition. These findings suggest that improving wellbeing within ecological limits requires redirecting economic activity toward institutional capacity rather than aggregate expansion.

The relationship between economic growth and human wellbeing is weaker than commonly assumed. While GDP serves as the dominant metric of national success, cross-country and longitudinal evidence consistently shows that beyond moderate income levels, additional GDP is associated with progressively smaller gains in life satisfaction^1–3. This diminishing-returns pattern, first documented by Easterlin⁶ and recently confirmed using 50 years of data from 166 countries³, suggests that early income secures basic capabilities while later income funds other activities. The question becomes: what are those activities, and do they matter for wellbeing?

We propose that the answer lies in composition rather than volume. Economic activity can be decomposed into direct capability enhancement (education, healthcare delivery, meaningful work) and system overhead (administration, coordination, security, remediation). We hypothesize that overhead is not uniformly waste but contains functionally distinct components with different relationships to wellbeing.

To test this, we decompose economic overhead into three categories and examine whether composition, summarized by the Institutional Ratio, is associated with wellbeing outcomes.

Composition predicts wellbeing

We estimated three components of system overhead for 30 countries (see Methods): Institutional Infrastructure (I: social spending, healthcare administration), Remediation Load (R: preventable disease, climate disasters, pollution) and Extractive Dissipation (E: excess military, finance, advertising, healthcare pricing, monopoly rents), each as percentage of GDP. The Institutional Ratio is IR = 100 × I/(I+R+E), in percentage points.

The Institutional Ratio is strongly associated with life satisfaction (r = +0.80, P < 0.001; Fig. 1) and social trust (r = +0.90, P < 0.001). Total overhead shows no significant association with happiness (r = −0.18, P = 0.35) or any outcome (Table 1). This pattern—composition predicts, volume does not—is the central finding.

Fig. 1 | Institutional Ratio is associated with happiness. Each point represents one country, coloured by region. Dashed line shows linear fit. r = +0.80 (95% bootstrap CI [0.62, 0.90], 10,000 resamples), P < 0.001. Association remains significant controlling for log GDP per capita (partial r = +0.54, P = 0.002). N = 30.

Pearson correlations, N = 30. ***P < 0.001, **P < 0.01 (two-tailed). All *** results survive Bonferroni and FDR correction. Total overhead shows no significant association.

Regression confirms composition effect

In multiple regression predicting happiness from IR and log GDP per capita, both are significant (Table 2). Each 10 percentage point increase in IR is associated with 0.27 higher happiness (0–10 scale), controlling for income. The model explains 74% of variance.

N = 30. R² = 0.74. Code: lm(Happiness ~ IR + log10(GDP_pc)).

Wellbeing Efficiency varies

Given diminishing returns, we ask: how effectively do countries convert resources into flourishing? We define Wellbeing Efficiency as:

WE = Happiness / log₁₀(GDP per capita)

Because log transforms multiplicative growth into an additive scale, WE is interpretable as wellbeing per income doubling (Fig. 2). Finland achieves WE of 1.64; the United States 1.37—a 19% gap. IR is associated with WE (r = +0.68, P < 0.001).

Fig. 2 | Wellbeing Efficiency varies across countries. WE = Happiness / log₁₀(GDP per capita). Finland (1.64) achieves 19% higher efficiency than USA (1.37). Bars coloured by region. N = 30.

Why composition matters

A sceptical reader might ask whether 'institutions correlate with trust' is tautological. Our claim is specific: overhead composition is associated with wellbeing, while total overhead is not. The United States spends one-third more on overhead than Denmark (~18% versus ~13.5% GDP), yet Denmark achieves higher wellbeing. What differs is composition: Denmark allocates 63% of overhead to infrastructure versus 25% for the US.

Extraction and inequality

Extractive Dissipation shows moderate negative association with happiness (−0.51, P < 0.01) and strong positive association with inequality (+0.69, P < 0.001; Fig. 3). This is consistent with extraction operating as a transfer mechanism.

Fig. 3 | Extraction is associated with inequality. r = +0.69, P < 0.001. Countries with higher Extractive Dissipation show higher Gini coefficients. N = 30.

Cross-country patterns

Table 3 presents composition for selected countries. Nordic countries allocate 59–63% of overhead to infrastructure; the United States allocates 25%.

E, I, R as % GDP. IR in percentage points. Full data in Supplementary Table 1.

Robustness

Results are robust across specifications (Extended Data Table 1): excluding Nordic countries (r = +0.73); Spearman rank (r_s = +0.85); OECD only (r = +0.86, n = 23); log-ratio log(I/(E+R)) (r = +0.80); removing outcome-adjacent terms (r = +0.77). Residual-based efficiency yields consistent findings (r = +0.38, P = 0.04). Non-OECD (n = 7) shows directionally consistent but underpowered association (r = +0.71, P = 0.07).

Discussion

These findings offer a compositional account of the Easterlin paradox. If GDP growth primarily expands extraction and remediation rather than institutional infrastructure, it would not improve wellbeing. The paradox is not that growth fails but that growth of the wrong composition fails.

The framework maps onto an intuitive heuristic: teach, heal, or steal. Institutional infrastructure builds capacity that compounds. Remediation repairs upstream failures—necessary but not generative. Extraction transfers value without creating it.

We emphasize that our cross-sectional design cannot establish causality. Reverse causation is plausible: high-trust societies may sustain institutions more easily. Omitted variables—culture, history, state capacity—likely confound. We do not claim that IR causes wellbeing; we show that composition is a stronger predictor than income or total overhead. Causal identification is future work.

Limitations include: component estimates rely on proxies with uncertainty (Extended Data Table 3 shows sensitivity); the sample is OECD-weighted (23 of 30); within-category correlations are high (VIF 1.7–6.9), though single-proxy robustness confirms results.