Social Inequality has a Greater Impact on Wellbeing than Economic Inequality

The SEDA Sustainable Economic Development Assessment from Boston Consulting Group highlights the importance of considering factors outside of GDP to obtain a more complete vision of the performance of governments. 

Madrid, 28 August 2019. The highest levels of social inequality as reflected in the differences in access to medical attention and education, for example, are an obstacle much larger to the wellbeing of a country than economic inequality. This is the principal conclusion of the 2019 edition of the SEDA (Sustainable Economic Development Assessment), the annual sustainable economic development evaluation in more than 105 countries by Boston Consulting Group.

Social inequalities receive less attention than economic ones in debates on responsible policies. However, the 2019 SEDA analysis from BCG establishes a much stronger correlation between social inequality and wellbeing than economic inequality and wellbeing. The analysis also reflects that people in countries with relatively high levels of social equality tend to have relatively high levels of happiness.

“Governments of today are faced with enormous challenges, the disruption created by rapid technologic advances is one of them,” affirms Joao Hrtoko, partner at BCG and coauthor of the report. “These factors change what actors in the public and private sectors need to be successful in the next decade. Governments, in particular, should aspire to achieve a vision more focused on the current issues of their citizens to solve potentially ignored problems, like social inequality.”

The Power of a Multidimensional Control and Action Panel

The study also details how governments can detect important signals, like those related to social inequality, thanks to the development of an integrated control and action framework. There has already been great momentum in countries such as New Zealand and the United Kingdom that go beyond the focus on purely economic metrics, such as GDP, and have guided political and budgetary decisions around social welfare. The next step can be to create a control panel that most broadly evaluates the country’s performance. This said control framework should include additional economic metrics like the current GDP per-capita growth, wellbeing metrics– objective goal such as that represented by the SEDA indicator and subjective ones, such as indicators of happiness or life satisfaction.

The BCG report demonstrates how a three-dimensional control panel can relieve problems that would be lost if a single metric was used. The country rankings from the UN’s World Happiness Report, for example, usually coincide with wellbeing, as it is reflected as a metric derived from SEDA: the conversion coefficient of wealth into wellbeing. But there are many countries with relatively high wealth and wellbeing SEDA scores that have lower happiness indices than expected.

“Governments that focus on only one metric, like GDP, could miss important signals related to the problems that the country needs to solve,” highlights Enrique Rueda-Sabater, senior advisor at BCG and coauthor of the report. “The three-dimensional panel that we have developed will create a clear image of where governments should be paying more attention to effectively influence the wellbeing of their citizens.”

The 2019 Sustainable Economic Development Assessment