Economic Growth

Should wellbeing be at the heart of development policies?

Douglas Alan Beal
Partner and Director; Global Lead, Social Impact and Just Transition in Financial Institutions, Boston Consulting Group
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Economic growth (increasing wealth) is a key prerequisite – but achieving rapid growth is no guarantee that progress will be made in terms of wellbeing. The key is to have in place the policies, institutions and dynamics that best convert wealth and growth into wellbeing.

To ensure an explicit focus on wellbeing it is crucial to have a way of tracking it – overall and in ways that lead to identifying areas where action is needed to address bottlenecks or sub-par performance.

Wellbeing may sound like an elusive concept and it is often considered too subjective to track. But it is possible to find largely objective ways of measuring wellbeing by analyzing its key elements and assessing a number of dimensions under them.

Three key elements (economic growth and employment; investment in human and physical capital; social and environmental sustainability) are necessary to achieve progress in wellbeing. Depending on what are a country’s strengths and weaknesses any of these elements can be prioritized in a national development strategy. Countries that emerge as top performers typically excel in all three components.

Using relative measures for each of the ten dimensions that make up these three elements of wellbeing, for 149 countries, BCG’s Sustainable Economic Development Assessment (SEDA) generates a global map of wellbeing. This places an individual country (or a region) in perspective and offers a powerful diagnostic tool.

Using SEDA national leaders can also gain perspective on where a country stands with respect to other countries or peer groups. By establishing where gaps exist it can guide the setting priorities. By identifying comparable countries with better performance, point to the development of new policies to address those gaps.

SEDA measures relative wellbeing of individual nations both as a snapshot – what we call the ‘current’ level of wellbeing – and in terms of the change over time – what we describe as ‘recent’ progress in wellbeing. The timeframe we analyze to measure recent progress in this report starts in 2006 – the period since has been eventful and provides valuable insights into the resilience of countries in their pursuit of wellbeing. The period that followed was an eventful one – with countries experiencing crisis and recovery very differently.

In addition SEDA can also take into account differing income levels and growth rates. This allows us to measure how well countries are converting their wealth (income) into wellbeing and how well they are taking advantage of their economic growth to generate improvements in the wellbeing for its citizens.

The findings included in our 2015 report reveal some familiar stories – as well as some surprises. Norway has the highest current level SEDA score. Rwanda, meanwhile, has the highest recent progress score, reflecting how a weak starting position, strong growth and smart policies have resulted in major improvements in well being. China also shows significant improvements in wellbeing, reflecting very high rates of growth during the period we analyzed – but is converting that growth into wellbeing only at average rates. Brazil, in contrast, while growing at a much slower pace has been a superior performer in converting economic growth into wellbeing improvements. Poland provides one of our most shining examples – showing one of the strongest recent progress scores and the number one spot in terms of converting growth into gains in wellbeing.

A contrast between large high-income countries also serves to highlight the perspectives that SEDA offers: Germany, starting from a relatively high level when it comes to its current level SEDA score, is still managing to generate considerable gains in wellbeing – in spite of slow growth; the U.S., which has similar current levels of wellbeing and which produced a comparable rate of economic growth over the period we studied, risks losing ground in terms of wellbeing, as growing inequality and related factors result in below-average performance in converting growth into wellbeing.

We did not include in SEDA measures of happiness (or subjective wellbeing) but we wondered whether countries with higher levels of in our measure of wellbeing seem to be happier than those with lower levels. Comparing SEDA scores with data from the World Happiness Report we found: first, that wellbeing and happiness are clearly correlated; second that there is more to happiness than objective wellbeing. There are no obvious patterns – but some intriguing pointers: Latin Americans, it would seem, are optimistic as most countries are happier than wellbeing would lead us to expect; conversely Eastern Europeans seem to be more pessimistic. And people in China appear to be among the most realistic.

Stepping back from individual country performance, a key insight from our work with SEDA over the last three years is that some countries have managed to generate wellbeing improvements for their citizens beyond what would have been expected by their wealth levels or growth rates. It is also clear that improving wellbeing is an easier task when there is a foundation of robust economic growth upon which to build.

Authors: Douglas Beal is a Partner and Managing Director at the Boston Consulting Group and Enrique Rueda-Sabater is a Senior Advisor at the Boston Consulting Group.

Image: Fairgoers swing through the air on a ride at the San Diego county fair in Del Mar, California, June29, 2011. REUTERS/Mike Blake

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