One of the biggest lessons COVID-19 taught governments is that societal well-being makes countries more resilient. Nations that invest across a range of development dimensions—such as education, health, infrastructure, and governance—have been better able to cushion the socioeconomic fallout from the pandemic. Our analysis shows that countries with improved abilities to convert wealth into well-being as well as those with high overall well-being tended to mitigate drops in economic performance and limit the growth of unemployment rates during the first year of the pandemic. In contrast, countries with lower levels have fallen further behind, particularly in GDP growth and employment. This aligns with our previous research that shows countries better at converting wealth into well-being were able to recover more quickly from the 2008–2009 financial crisis.
Since 2012, BCG has ranked countries according to a proprietary economic development tool called the Sustainable Economic Development Assessment, or SEDA. A consistent finding from our research is that the more traditional metrics of economic development, which focus on GDP and other macroeconomic indicators, are not sufficient to gauge the true state of development in any society. Rather, countries need to take a more comprehensive and sustainable approach that incorporates and optimizes societal well-being. Viewed through this lens, SEDA analyses have shown that some lower-income countries are actually better off than high-income countries because they look beyond economic metrics and invest in well-being more broadly. COVID-19 brought in a new dimension—an opportunity to observe how such efforts make countries more resilient in a crisis.
Even as countries continue fighting the pandemic, they need to think long-term and make investments today that will lead to faster and more sustainable progress during the coming recovery. Specifically, we believe that three overarching themes have the potential to generate positive change across multiple well-being dimensions: accelerating actions to slow climate change, investing in digitization, and strengthening social protection systems to ensure inclusive and equitable growth. Each of these themes should be a priority for governments.
THE PANDEMIC’S LASTING IMPACT ON DEVELOPMENT
COVID-19 has left an unprecedented mark on global development. The United Nations Development Programme’s simulations of the pandemic’s real-time impact suggest that the Human Development Index fell in 2020, for the first time since measurements began in 1990. Similarly, the UN’s Sustainable Development Goals are expected to be significantly disrupted and many of the historic gains over the past several decades could be reversed, at least temporarily.
At a country level, the pandemic revealed the way that all realms of society are interconnected. Evolving from a health crisis to an economic and education crisis, COVID-19 has led to rising social tensions, high unemployment, and failing health systems, even in high-income countries. In low-income and developing countries, inequality has increased across several realms.
- Income. The International Monetary Fund (IMF) predicts that income inequality for emerging-market and developing economies will rise to levels not seen since the global financial crisis of 2008–2009, essentially wiping out a decade of development in these regions.
- Health. Disparities in access to health services—due to factors such as income, race, gender, and resident status—have widened the gap in life expectancy, accentuating the vulnerability of disadvantaged groups within poorer countries.
- Education. According to UN data, close to 1.5 billion students have been affected by COVID-19-related school closures. Inadequate internet penetration has hampered lower-income countries’ ability to pivot to distance learning and likely exacerbated education inequality both within and between countries.
The pandemic has reinforced the need for governments to look beyond income growth and GDP and focus on the broader goal of overall well-being.
WELL-BEING STABILIZED COUNTRIES DURING THE CRISIS
It’s too early to measure the full response of any country to COVID-19, but early indications suggest that countries with high SEDA scores—indicating higher levels of societal well-being—will suffer less of an impact. Indeed, well-being served as a form of stabilizer, enabling countries to absorb the shock and potentially positioning them to bounce back more quickly once the crisis ends. In our analysis, we looked at two leading economic indicators: economic growth and employment.
In terms of economic growth, countries which improved their ability to convert wealth into well-being since the global financial crisis, saw a smaller drop in their real GDP growth rate in 2020, while countries that have experienced a deterioration in their ability to convert wealth into well-being saw a correspondingly larger drop. This reveals that investing in well-being enhances long term resilience and can further enhance a nation’s ability to withstand future crises. Notably, the countries that experienced the biggest drop in GDP also underperformed significantly in SEDA measurements of governance and civil society, suggesting that these are key dimensions in fighting the pandemic’s economic repercussions. Governance is critical because it boosts transparency and accountability, leading to greater public trust in government and increasing participation and engagement of citizens. Civil society matters because it helps countries deal with the unequal fallout from a crisis—for example, providing support and aid to those who are disproportionately affected.
The positive correlation between wealth, as reflected in per capita income levels, and SEDA scores should come as no surprise. After all, income affects well-being in many ways. At the same time, well-being is not simply a function of income. Many countries at similar income levels have significant disparities in well-being.
In terms of employment, we saw a similar effect. Countries that had high SEDA scores were better able to cushion the blow of COVID-19 and limit the growth of unemployment. Many of these countries already had measures in place to increase the resilience of labor markets—such as unemployment safety nets and job retention schemes. Even in cases where the labor market policies needed to be adjusted, doing so was a faster process than creating them from scratch. A stubborn question remains as to whether retention schemes will lead to a stronger labor recovery once the pandemic ends; to some extent, that depends on whether they support jobs that have been temporarily at risk but are still viable in the long term.
CAPITALIZING ON THE POST-PANDEMIC RECOVERY
Even as countries continue to face immediate priorities in addressing the crisis, they must reset their ambitions for the future. In fact, severe shocks like COVID-19 present a real opportunity to spring forward and introduce broad reforms toward the goal of overall societal well-being. Regardless of their past performance, governments should seek to leverage the current hardships to reimagine and realign policy imperatives across the full range of SEDA dimensions. From our analysis, we believe that three themes can have a multiplier effect in increasing well-being and thus should be at the top of government agendas.
Read the full article at https://www.bcg.com/en-mx/publications/2021/prioritizing-societal-well-being-seda-report.