Would you rather have the economy grow at 12 percent or 5 percent?
That's not a trick question. An interesting new report by the Boston Consulting Group tries to measure not just the rate of economic growth around the globe, but the relative quality of that growth and how effectively governments are able to translate expanding economies into improvements in their societies' overall well-being.
While politicians and economists focus on per capita income and annual growth rates with an almost religious fervor, these numbers can mean very little to people in the real world. The study suggests that the answers to questions asked around the average dinner table -- Can I afford to send my kids to school? Is the water safe to drink? Do I have access to health care? -- tell us just as much about a society's living standards. So, in addition to traditional macroeconomic indicators, the study examined 10 other dimensions of social and economic development that it argues are good indicators of a nation's well-being, including health, education, employment levels, environmental protection, and civil society activity.
For example, looking at income inequality was a key factor in relative well-being in the study because it provided an important barometer of how widely economic progress was spread across a population, and how likely economic gains were to translate into better living standards for large numbers of people. Issues like education were included not only because education remains a core value in most societies, but because education has such a significant impact on income, health, and overall quality of life. Each of these 10 dimensions of well-being were undergirded by multiple data sets, ranging from mortality rates to levels of gender equality, with a heavy emphasis on information routinely collected by the World Bank and International Monetary Fund.
Since BCG has a good number of governments as clients, it avoided rank-ordering the results in a neat, tidy list for fear that it might embarrass some of the 150 countries it analyzed. But it isn't hard to peel back the data. For example, although the United States is comfortably among the top 10 countries by GDP per capita, its overall ratings on well-being lag behind some 20 others. Why? Because of the yawning gap in America's income equality, which has now reached its worst levels since the Great Depression, and its relatively poor health for a country with such high income levels. (Obesity and the incidence of HIV were a particular drag on U.S. health scores, and the IMF recently cautioned that growing income inequality in the United States may threaten the fundamental stability of its overall economic growth.)
Norway sits atop the rankings with both very high levels of income and very high well-being scores. Indeed, Norway's current function in the international community largely seems to be to make everyone else feel bad about how they are managing their own societies. Despite sitting on vast oil reserves, Norway actually produces 99 percent of its energy from hydropower. In the BCG study, it ranked near the top in terms of governance, income equality, civil society, and education. In short, you probably don't want to sit next to Norway unless you want to walk away with a self-esteem problem.
Like Norway, Brazil has demonstrated that improving the well-being of a population requires more than trickle-down economics and pro-growth policy. Over the last decade, Brazil adopted a decidedly pro-poor approach to growth, and the results are impressive. While Brazil's GDP growth averaged 5.1 percent over the last five years, the country saw an improvement in the basket of 10 measurements for living standards that one would have expected from a country growing at about 13 percent a year, according to the study. Similarly, Poland and New Zealand saw improvements in living standards that far outpaced their GDP growth.