Why wellbeing should be factored into growth rates

GDP per capita and GDP growth rates are the most commonly used indicators to measure economic progress. But they are poor proxies for the goal that drives policy making and citizen satisfaction. That broader goal can be described as well-being and deserves a much more explicit focus than it usually gets.

Economic growth (increasing wealth) is a key prerequisite—but achieving rapid growth is no guarantee that progress will be made in terms of well-being. The key is to have in place the policies, institutions and dynamics that best convert wealth and growth into well-being.

The reason for focusing on well-being is not mainly because of fairness considerations or egalitarianism. It is because economic progress will only be sustained over the long-term if the benefits are widely felt as impacting people’s lives positively.

Well-being may sound like an elusive concept and it is often considered too subjective to track. But it is possible to think about on the basis of its main elements and find largely objective ways of measuring a number of dimensions under them.

Addressing the multi-dimensional nature of well-being requires considering a number of key factors revolving around three main elements:

• Economics gauges how a country is performing in terms of generating balanced growth through increasing output, employment creation and economic stability.
• Investments, which includes infrastructure, health and education. These are often major items in government budgets and encompass short and long term investments that help drive improvements in both economic growth and well-being over time.
• Sustainability measures factors around social inclusion (income equality, civil society and governance) and the environment– key for sustaining progress in well-being.

The ten dimensions that comprise BCG’s Sustainable Economic Development Assessment (SEDA) reflect that logic.

All three elements are necessary to achieve progress in well-being and each one of these elements also can be seen as a potential ingredient for a country’s development strategy. Countries that emerge as top performers under our assessment typically excel in all three components.

But there is no blue print or one-size-fits-all in terms of the appropriate balance of actions and policies: to be effective a country’s strategy must rely on a mix of relative emphases that reflects its challenges and opportunities. Some countries may need to prioritize economic growth while others may focus on investments that will address key bottlenecks and support future economic growth. Still others may need to focus on ensuring that the benefits of progress are shared widely or that the environment is protected.

Using relative measures for each of the ten dimensions below the three elements of well-being, for 149 countries, SEDA generates a global map of well-being. This places an individual country (or a region) in perspective and offers national leaders a powerful diagnostic tool. 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.

In addition to providing an effective way to examine how countries compare with the rest of the world and with other nations in terms of both current levels of and recent changes in well-being, 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 well-being and how well they are taking advantage of their economic growth to generate improvements in the well-being for its citizens.

A key insight is that some countries have managed to generate well-being improvements for their citizens beyond what would have been expected by their wealth levels or growth rates. It is also clear that improving well-being is an easier task when there is a foundation of robust economic growth upon which to build.

SEDA has proven to be a valuable diagnostics tool—at the country level, as it was intended, and also for global strategies for international development organizations—as well as a robust mechanism for setting priorities. Combining those insights with a an approach to economic development that reflects the lessons of experience across the world offers national leaders the opportunity to craft economic development strategies that generate not only economic growth, but also enhanced well-being.

This kind of economic development approach is equally relevant at national and sub-national levels and involves considering a set of guiding principles, a framework for linking goals and targeted strategies and a catalog of tactical interventions and best practices. BCG has such an approach–designed to help governments craft and implement strategies aimed at fostering economic growth and stability, promoting employment and paving the way for improvements in well-being.

Treating well-being as the central goal and systematically learning from the lesson of experience in formulating and implementing economic development strategies is timely as many countries and localities are experiencing below-par economic growth and looking for ways to reactivate their economies, while making them more inclusive and sustainable.

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: People watch the sunset on a terrace at Larcomar shopping mall in the Miraflores district of Lima April 17, 2015. REUTERS/Mariana Bazo