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The world is made up of 230 nations, principalities and protectorates, with a global population of 7.3 billion. Some of these nations are happy nearly all of the time, some are miserable most of the time, and some are up and down like a yoyo. Do these differences matter, and do they reflect the underlying state of these economies?

Most developed nations adopted an index some five decades ago, in the early 1970s, to gauge the happiness or sentiment of the population looking out over the year ahead: the consumer sentiment index (CSI), measured monthly by pollsters. A nation needs to get over 100 points for the majority to be confident. Australia’s sentiment is shown in the first chart: a yoyo pattern. At 100 points on this index, the population is 50/50 in terms of believing the year ahead will be either better or worse than the current one. Sentiment is more volatile than actual economic growth, which is very rarely negative.

Over half Australia’s population has been confident for nearly 60% of the time over the past 40 years. We were confident for only 42% of the tumultuous years between 1975 and 1995, but confident for nearly three-quarters of the time since. We have had only two recessions over the past 40 years, and none since 1992.

A summary of happiness over the past 20 years covering 11 nations, including Australia shows all are developed nations, except China.

One nation, Japan, appears permanently happy with its lot in life, and each year ahead, despite economic growth of a lowly 1.1% per annum over the past 20 years. Is this politeness, resignation, or true composure and happiness? China is close behind in happiness, but with astonishing economic growth averaging 8.8% per annum over the same period. Two very happy nations with vastly different economic growth; although Japan has an advanced and full-employment economy to make it content, and China is witnessing a rapid rise in its standard of living off a very low base. Australia sits in the middle, ahead of the average. Five nations are generally unhappy, being confident for less than half the time.

France, with a population of some 60 million, seems permanently despondent, with the United Kingdom close behind. How do you make a Pom happy? Rumour has it they are actually happy being miserable!

Most nations had only one year of recession over the past 20 years, four had none, and the United Kingdom had three years of recession.

The extraordinary thing is that the economic growth of these nations has been all positive over the past 20 years, mostly in the same ballpark of growth of around 2.9%, except Japan (low) and China (very high). And largely recession free. So why the huge diversity of sentiment, confidence or happiness?

It comes down to the culture and psyche of nations, ignored by businesses at their peril. There are idiosyncrasies in all societies, but history and traditions – being long-held customs from even longer held habits – are embedded, and slow to change. If we take a closer look at some of the eleven nations.

  •  Japan has to be the first, being permanently confident, resigned or accommodating. Whatever the reason, they are unique.
  •  Then there is France – almost permanently miserable, despite having more than double Japan’s GDP growth!
  • Then there is China, with its sentiment diminishing, and a being a bit choppy of late despite continuing high GDP growth by international standards. Is this an awakening, with a freer, more informed, and less-subjugated or resigned society?
  •  Then there is New Zealand, going in the opposite direction. New Zealanders are up in sentiment and confidence, clearly due to a long series of very good leaders, especially the current prime minister.

What does all this tell us?

  • Firstly, nations have in-built differences in their societies and attitudes, separate from the actual behaviour of the economy.
  • Secondly, and not mentioned so far, is that CSIs are reasonable predictors of serious looming troubles such as recessions, although they give a three-to-six month warning, at best.
  • Thirdly, that annual movements in the economy are far less volatile than people’s emotions, which demand careful management by political leaders to ensure business confidence as well as consumer confidence stays above 100 points.

Finally, we need to better understand the different psyches of the nations in our neighbourhood (the Asia-Pacific region), those we trade with, those we invest in, and those we visit as tourists and receive tourists from.  And we need to respect the differences.


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