Photographer: Timothy Fadek/Bloomberg

Rich Countries Often Fail to Bolster Well-Being, Boston Consulting Says

Sub-Saharan Africa and Emerging Asia lead the pack over an 8-year term in improving its citizens lives, while Western Europe remains at the top of the current index

With economic growth trending downward globally, many of the world's largest economies are not converting what growth they have left into an increase in well-being for their citizens, according to a report by the Boston Consulting Group. 

The SEDA, or Sustainable Economic Development Assessment ranks more than 160 countries across 10 areas including economic stability, health, governance and environment. It uses two measures, the first a current score taking into the most recent data and a rolling score that assesses how countries can convert economic growth into well-being over an eight year period from 2006 to 2014.

Boston Consulting Group

Ethiopia is at the top of list of countries that managed to convert growth to well-being since 2006 with Norway at the top of the list for the most recent data, according to Boston Consulting. The stark contrast between these two countries sets the trend for the two lists in some respects. Norway is ranked sixth globally in terms of gross domestic product per capita and Ethiopia is ranked 169th out of 187, according to the most recent IMF outlook.

At the top of the current score list, the similarities among the various countries are obvious and include many of the world's wealthiest nations -- Switzerland, Sweden, Luxembourg and Singapore. There is an almost opposite result in the recent progress score, where many emerging markets in Asia and Africa have risen to the top and the nations considered to be the wealthiest in terms of GDP are closer to the bottom.

The Boston Consulting Group also calculates what it calls the wealth-to-well-being and growth-to-well-being coefficients. 

Wealth
Boston Consulting Group

Two ratios are looked at. There is one between the current SEDA score and the score that would be expected given the country's GDP per capita (wealth-to-well-being) and the one between the recent progress SEDA score and the score that would be expected given the country's GDP growth (growth-to-well-being). That way it's easy to tell what countries are above and below par, globally.

The United States' ability to convert both wealth and growth into well-being is below par globally, while Germany manages to perform above par on both fronts. In Western Europe, countries with high current SEDA scores (Austria, Denmark, Finland, Germany, Netherlands) are making far better progress than those with low current SEDA scores (Cyprus, France, Greece, Italy, Malta, Portugal, Spain). This is especially reflected in the labor market, where above-average unemployment rates put pressure on the economy.

Growth
Boston Consulting Group

China has performed well in the recent progress SEDA analysis, and it continues to produce an increase in well-being in line with its strong economic growth over the last decade. Record-low interest rates and a financial stimulus package that has struggled to gain traction could threaten the world's second-largest economy's place high up on the list. GDP growth of just 6.7 percent in the second quarter of this year remains the slowest growth for the country since the financial crisis.

"The G20 finance ministers' meeting in China this weekend is taking place amid concern about low global growth—even stagnation—so making the most of what you have is going to be crucial," says Douglas Beal, a BCG partner and a coauthor of the report. "SEDA's two measures that look at the conversion of wealth and growth into well-being provide a more meaningful perspective than GDP alone can offer on how well countries are doing in that regard. Changes in the relative performance of countries are making the old 'advanced' and 'developing' labels obsolete—some countries in Europe are stuck, while others around the world are making significant progress," Beal continued.

The United Kingdom has a very strong current level score but is let down by declines in its ability to convert economic growth into improvements for its citizens. The vote on June 23 to leave the European Union may mean that these declines may become more pronounced next year, as the IMF lowered its U.K. growth forecasts to 1.3 percent from 2.2 percent based on uncertainty around Brexit.

Euro-skeptics need not rejoice quite yet, as the report found that EU policies and governance standards lead to improvements in critical areas related to an economy's well-being.

Regulations relating to environmental requirements, human rights and governance are all part of the EU mandate and it's not surprising that five EU countries (Poland, Lithuania, Slovenia, Romania, Croatia) and two on the path to joining (Serbia, Bosnia-Herzegovina) have posted higher than average SEDA sustainability scores.

Another link the report makes is the clear correlation between financial inclusion and well-being. Even when accounting for income, countries with higher access to financial services are more likely to have increased SEDA scores.

Capture
Boston Consulting Group

By using the SEDA current level score, GDP per capita and the Findex basic measure of inclusion (adults with access to bank or mobile-money accounts), the Boston Consulting Group found that financial inclusion accounts for 11 percent of the differences in well-being among countries.

For the full report in detail, please click here.

With assistance from Kevin Varley.

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