Benchmarking a Nation’s Well-Being

The BCG Sustainable Economic Development Assessment (SEDA) is the product of a year-long global collaboration that involved Boston Consulting Group partners and staff from more than 25 countries. SEDA is an approach to systematically assessing and comparing the overall well-being of a nation using ten dimensions of socioeconomic development over three time horizons—the present, the recent past, and long-term sustainability. Douglas Beal, a partner in BCG’s Dubai office and the global leader of the firm’s economic development topic area, discusses SEDA.

Why did BCG see the need to develop a sophisticated tool such as SEDA to measure sustainable development?

We work for a lot of clients in national governments. We saw there was a need—in fact, a demand—for a good fact base to enable government leaders to develop better strategies. Traditionally, governments have tended to equate growth in income—as measured by gross domestic product—with development. Now more governments are recognizing that simple measures of GDP and GDP growth often provide a distorted view of actual economic progress. Income growth is vital, but not sufficient, for meeting the needs of a population.

The problem is that GDP is easily measurable—while well-being is not. Government leaders are always referring to international development indices. But then they wonder what to do next. So we decided to create a benchmarking tool that would enable governments to understand their strengths and weakness compared with other nations they regarded as peers.

We feel that such a tool can also be useful for international development organizations. SEDA can help them in mapping the needs of countries they work with and determining whether those nations have the fundamentals in place to make the best of the aid they receive. Companies with global footprints that make very long-term investments may also find such a tool useful.

As you mentioned, there are a lot of well-established indices of economic development. What is the value that SEDA adds?

First, SEDA is not an index. It is a tool for measuring development in a very holistic and dynamic way. There are indeed a lot of very useful indices out there that help measure various aspects of development. Many, however, focus on one aspect, such as the business environment, environmental sustainability, or health and human development. We take a very broad view of well-being, and include dimensions such as the quality of governance, health, civil society, education, and infrastructure.

Another difference is that SEDA does more than provide a snapshot of how a country looks today. It assesses development over three time horizons—the current level of a nation's well-being, its progress over the past five years, and the capacity of that nation to sustain improvements over the next generation.

What makes SEDA unique is that it also compares GDP and GDP growth with progress in socioeconomic development. In other words, it looks at how good countries are at converting their GDP, or national income, into the well-being of their population. SEDA also measures how good countries are at translating their recent economic growth into improvements in well-being. To measure this, we developed what we call “wealth to well-being” and “growth to well-being” coefficients.

Perhaps most importantly, SEDA enables governments to benchmark their development records against those of other countries. They can compare their overall SEDA scores with those of peers, or they can burrow in to compare performance on a particular dimension. 

Why is benchmarking important?

Rather than seeing where they rank in a global index, governments often find it more useful to compare themselves with peers. SEDA allows them to do that. These peers can be geographic—countries that are their immediate neighbors, say, or that are in the same region—or they can be economic. Governments may want to compare their socioeconomic indicators with those of countries with similar income levels, for example, or with strength in the same types of industries or similar natural-resource endowments. SEDA can help governments identify the biggest development gaps between their own country and its peers and help identify measures that other countries are taking that they can learn from. For a developing economy, this can be more practical than comparing itself to the world's most advanced nations. Also, if policy initiatives have a solid and unbiased fact base behind them, it can be easier to galvanize popular and political support.

What surprised you most when you analyzed the SEDA scores?

What really surprised us is the variety of countries that have improved the most over the last five years. The countries with the highest current levels of development are not surprising; they’re the usual suspects that top most indices and tend to be in clustered in Europe—Norway, Switzerland, Sweden, and so on. But when it comes to improvement in well-being, you find the top scorers in Latin America, in Africa, in Eastern Europe. There are rich nations and very poor ones.  

We also were surprised by the countries that are doing the best at converting their GDP growth into well-being. When you think of development successes, you tend to think of a handful of countries in East Asia. But Brazil turned out to have the best record of translating growth into higher living standards over the last five years. Countries as diverse as Poland and Ethiopia also popped up. Why is Brazil doing so well? True, it's had relatively strong income growth, of around 5 percent a year, but that's much slower than in many Asian countries. But Brazil has made stronger progress in reducing income gaps between the rich and poor, a problem that has plagued Latin America for generations. It also has improved more in dimensions such as governance and the environment.  So the gains from Brazil's income growth are being spread more widely.

If you could distill a few key lessons from this whole exercise, what would they be?

One is that high income doesn't always translate into high living standards, and strong income growth doesn't necessarily translate into big improvements in well-being. This is something you find in countries of every income group. For government leaders, understanding where their country lags in improving living standards—and the root causes—can be useful.

Another key lesson we learned after cutting the data in many ways is that governance really matters. To many, that observation may sound trite—even preachy. But the single biggest differentiator between the top 15 performers and the rest of the world is usually the quality of governance. And where governance is not the most important differentiator, it is likely to be second. This is true in every region—the top performers in Latin America and Sub-Saharan Africa, for example, stand out because of governance.  

We also learned since we started the SEDA project a year and a half ago how complicated an exercise like this really is—we were quite humbled by it. We see now why so many intelligent people and reputable organizations spend so much time researching economic development. The topic is interesting and complicated—and there is so much more to do. We really look forward to engaging with other organizations that have done research and developed indices in this space, as well as continuing to develop SEDA to make it as helpful as possible.