What do Kyrgyzstan, Vietnam, Albania, Germany and Ethiopia have in common?
Turns out all five countries do better than average when it comes to turning their national wealth into a better life for their citizens.
There’s also a list of countries that do worse than average. Spoiler alert: The United States is one of them.
This unusual gauge of national success is the brainchild of analysts at the Boston Consulting Group.
The idea is that it’s not enough to ask just about a country’s absolute wealth or the quality of life its citizens enjoy, explains Enrique Rueda-Sabater, a senior adviser with BCG who helped develop the yardstick back in 2012. Instead, says Rueda-Sabater, “the really valuable notion here is ‘conversion.’ How well do countries convert the wealth they have into improvements in well-being?”
Or to put it more bluntly: How much bang for their buck do citizens get out of their nation’s total wealth?
To answer that, BCG first came up with a system to determine the level of well-being in a country. The score is based on their ranking on 44 indicators in 10 categories, including the quality of their health care, education, infrastructure and environment, the stability of their economy, their success at employing people and the degree to which they’ve avoided problems like income inequality, corruption and violence. Questions include, what’s the ratio of teachers to pupils, and how many doctors are there per 1,000 people.
Then BCG calculates what you would expect a country’s well-being score to be based on its wealth — defined as average income per person. Finally, they compare that expected score to what the country’s well-being score actually is.
“Essentially,” says Rueda-Sabater, “we calculate this global par — and see if a country is above or below it.”
This “wealth-to-well-being coefficient,” as BCG has dubbed it, can highlight weaknesses in countries that otherwise appear to be in decent shape. In the latest annual scoring the U.S. outranks most nations on measures of both income and well-being. But its conversion coefficient is under par because the U.S. lags behind other comparably wealthy countries — such as Germany — when it comes to well-being indicators in areas like income inequality and education.
“Of course in absolute terms, the United States ranks high — that’s not the issue,” says Reuda-Sabater. “The question is, with its level of income and growth, could the United States be doing better?”
The conversion coefficient also underscores a challenge that’s bedeviled worldwide efforts to eliminate extreme poverty: Many countries have managed to grow from low-income into middle-income or even upper-middle income status, but they’re still home to a huge number of extremely poor people. Examples include India, South Africa and Angola, says Charles Kenny, a senior fellow at the Center for Global Development who has written extensively on how to measure well-being in developing countries. Angola, he says, “has a huge amount of oil, so a lot of wealth has poured into the country recently. But if you look at child mortality or rates of people living on less than a dollar a day, the improvements have been pretty meager.”
Rueda-Sabater says this pattern of a wealth-to-well-being conversion that’s below par holds for most oil-rich nations — particularly in the Persian Gulf. Saudi Arabia, for instance, has one of the world’s highest levels of GDP per capita. Yet its well-being score trails a long list of countries, including not just Switzerland and Japan but Poland and South Korea.
Kenny cautions that the old truism still holds: The best way to help poor people is to massively grow the economies of the countries where they live.
“There is no doubt that poor people in richer countries are generally better off than rich people in poorer countries by a whole bunch of measures,” he says. “But you need to make sure the wealth gets to where it’s needed.”
One standout in this regard has been Vietnam. Per capita income there is only about $5,200. Yet in a separate analysis, BCG found that Vietnam’s well-being score is at a level you’d expect of a country with a per capita income of $15,000. Pakistan, by contrast, has a similar income level but a considerably lower well-being score.
Rueda-Sabater says translating wealth into well-being can be particularly difficult when a country is growing quickly. “The faster you grow the more likely it is that some of that growth doesn’t get spread out,” he says.
This makes China’s performance all the more impressive. Despite years of rapid growth, it has been steadily converting its wealth into well-being at rates that have been at or even slightly above about par.
The one exception — for China and many other fast-growing countries — is the quality of its environment.
“There continues to be this tension between growth and the environment,” says Rueda-Sabater. “Countries that are growing fast typically are not making much progress on the environment or in fact any progress at all.”