Focus on citizen wellbeing improves outcomes for economy and society

25 October 2018

As the world looks to collectively act on environmental and social issues, serious questions are being asked about current economic models and their fitness for purpose. New analysis explores the relationship between wellbeing and GDP, suggesting that it is not merely prosperity, but also the ability to create wellbeing that needs to be considered when evaluating economic models.

Citizen wellbeing is comprised of quality of life factors – like health, family and relationship, education, quality and nature of work, and the environment – which contribute to people’s sense of satisfaction with their lives. Governments are increasingly looking more at citizen happiness as another aspect of whether their policies are having the desired outcomes, rather than looking solely at GDP growth. Likewise citizens can look at the stats and hold their own governments to task for what effects they are having on wellbeing.

Transforming the global economy to reduce harms, from climate change and pollution to tackling inequality and ill health, are by no means unachievable; however, getting there requires a broad approach. New analysis from management consulting firm The Boston Consulting Group (BCG) explores the relationship between GDP and human wellbeing.

SEDA assessment score

The study shows that prioritising wellbeing is, contrary to expectations, better for generating economic growth. A well-educated, healthy, safe, equitable and happy population tends to function better, resulting in higher levels of performance in economic areas. The study explores the relationship between country wealth and sustainable economic development assessment (SEDA) scores on a per capita basis. BCG’s SEDA scores measure social and economic conditions, including factors like income and economic stability, investments in education and health, and levels of equality.

Developed economies tend to have higher SEDA scores, reflecting higher levels of wellbeing. However, the study shows that beyond a certain level of gross national income (GNI), the relative wellbeing decouples from further economic growth, with social factors, such as universal healthcare and greater socioeconomic equality, among others, giving rise to high levels of wellbeing.

Countries with similar levels of wealth

Western European countries tend to have the highest levels of wellbeing, even with a broad range of GNI. Belgium, Germany, the Netherlands, Sweden and Switzerland have excellent SEDA scores, with varying levels of wealth. The US, while one of the richest on the list, has relative to its European counterparts a lower SEDA score – gun violence, poor healthcare and other major social issues around wealth inequality push country scores down.

Interestingly, on the lower end of the scale in developing economies, considerable differences are noted, with even some low GNI performing countries able to punch well above their relative economic weight in creating social wellbeing. Southeast Asian economies, such as Vietnam and Thailand, had relatively strong performances, while many African countries are failing politically to turn GNI into wellbeing for their people.

Countries better at converting wealth grow faster

How is wealth shared?

One measure the firm uses is the ‘wealth-to-wellbeing coefficient’, a basic calculation that compares SEDA scores to the relative expected GNI score for that level, ranking countries with a 1 if their score is on par with the expected GNI, <1 if wellbeing is below than expected for the GNI, and >1 if it is higher than the score expected for the GNI.

The study finds that countries better able to convert wealth into citizen wellbeing tend to also have higher overall economic growth. The difference is particularly pronounced between 0.9 - 1.0 in wealth-to-well-being coefficient, noted at 2.4% GDP per capita growth on average between 2007 and 2016 – and a coefficient of 1.0 - 1.1, with average GDP per capita growth of 3.1% for the same period. The consulting firm notes that there appears to be a virtuous circle between improving citizen wellbeing and overall economic growth.

The research further highlights positive benefits to recession resilience. Countries able to effectively convert wealth-to-wellbeing were better able to weather the recession brought on by the 2008 financial crisis; they were found to be in recession for fewer months overall, and also tended to have smaller GDP drops during the recession.

Strong link between gender equality and wellbeing

While European countries have high SEDA scores, their relative wealth-to-wellbeing coefficients tend to be below 1. In comparison, various developing nations score relatively strongly in terms of their coefficients, such as Thailand and Vietnam. Poland and Russia too perform relatively strongly.

Over the past decade, female equality has spread across the globe. A variety of countries have improved workforce participation and educational enrolment. Against this backdrop, gender equality is found to be a relevant indicator, with the study showing a correlation of better conversion of wealth-to-wellbeing along the line of improved equality. Countries with low scores in gender equality tend to be less able to convert wealth-to-wellbeing, while those with higher gender equality, such as Poland and Russia, are better at it.

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