Social progress versus economic growth

Written by
Changeboard Team

10 Feb 2015

10 Feb 2015 • by Changeboard Team

A new model to measure welfare

In the years leading up to its 2011 revolution, Egypt experienced strong growth in per capita GDP and purchasing power parity. Yet citizens took to the streets with demands for better opportunities and a change in government. What does this tell us?

Across the world, it is increasingly evident that economic growth alone is not an accurate determinant of a society’s wellbeing. Policymakers need broader and more inclusive models to assess progress and must measure social and environmental factors such as human needs, quality of life and opportunity for citizens.

The social progress index (SPI) was developed by a team of economists, strategists and professors led by Michael Porter of Harvard Business School. It measures the social and environmental performance of a nation, using 54 indicators that rate outcomes across three areas: basic human needs, foundations of wellbeing and opportunity. These indicators include health, sanitation, water access, affordable housing, crime, access to information, sustainability, personal freedom and tolerance. Using these across social and environmental dimensions allows us to better evaluate a nation’s ability to meet its people’s basic needs and increase access to social opportunities.

What can the SPI tell us?

The SPI is now in its second year, with the results for 132 countries released in 2014. When areas such as personal safety, access to information and personal rights are considered, it is not always the wealthiest countries that rank highest in terms of social progress. In fact, some of the largest and richest countries measured did not make it into the top 10 in the index. In the top three positions were the relatively small OECD members New Zealand, Switzerland and Iceland. New Zealand, with a GDP per head of $25,857, far outperforms the US in 16th place and with a GDP per head of $45,336. The North American superpower has relatively poor scores in areas such as health and ecosystem sustainability.

While a country’s social progress results are linked to its GDP per head, the relationship is by no means linear and there are plenty of notable deviations. For the poorest countries, even small gains in GDP amount to large improvements in social progress, primarily due to spending on basic human needs such as health and sanitation. The opposite is true for the wealthiest countries, where substantial gains in GDP per head do not equate to considerable improvements in social progress. For these countries (where basic needs have mostly been met), a different and more complex set of challenges present themselves, such as sustainability and tolerance. Opportunity (measured by personal rights, freedom and inclusion) has the highest variation from wealth.

Social progress

2014 SPI rankings for selected countries

2014 SPI ranking

Social progress in the Middle East

Of the Middle East countries measured in the SPI, the UAE ranks highest in 37th place. It is followed by Kuwait (40th), Saudi Arabia (65th), Jordan (75th), Lebanon (83rd), Egypt (84th), Iraq (118th) and Yemen (125th). The greatest challenges are in providing social opportunity while political, religious and cultural characteristics influence outcomes such as inclusion and personal freedom. Ecosystem sustainability is of concern, especially in the GCC where fresh water and biodiversity are scarcer and high emissions are a by-product of industrial development. The GCC has made strides in meeting basic needs such as housing, education, healthcare and utilities.

In summary

While SPI might not fully capture the ongoing developments in the Middle East, its message is relevant: Building a thriving and sustainable society requires the collaboration of government, institutions, businesses and people. This requires socially and environmentally stable markets, which cannot be built through economic development alone.

Expanding the ways in which we measure prosperity and progress will require more inclusive models that address the wider facets of society.

What can policymakers learn from SPI?

The SPI tells us that countries throughout the Middle East are extremely diverse and vary widely in terms of social and economic performance. When considering social progress relative to economic performance, there are three main takeaways for policymakers in this region:

  1. Many resource-rich countries perform less well on social and environmental indicators compared with countries of similar per-capita wealth that do not depend on natural resources as a primary source of income. Saudi Arabia, UAE, Kuwait, Iraq, Iran, Russia, Kazakhstan and Angola all have a notable disparity between their SPI and GDP per capita rankings. In many cases, regional conflict has played a part, alongside the existence of political systems that are relatively less established than their regional peers. Undoubtedly, the abundance of resources has allowed for substantial improvements in meeting basic human needs, where gains for resourceabundant countries are the highest.
  2. There is a weak correlation between government spending and SPI scores, implying that governments will need to go beyond stimulus, spending and investment programmes to improve social welfare.
  3. The GCC has started to respond with new policies and programmes aimed at boosting conservation and sustainable development. Masdar City in Abu Dhabi, for example, is taking steps to become the UAE’s first fully sustainable ‘cleantech cluster’.
  4. As the SPI measures outcomes rather than inputs, the indicators do not capture public sector spending or investment in any given dimension. This is relevant for the Middle East, especially GCC countries, where a considerable amount of public policy and spending has been devoted to inputs such as infrastructure development, urban planning and institutional improvements. Government investments aimed at improving literacy, health, wellness and safety, if effective, will yield stronger SPI scores for the GCC in years to come. Robust data is needed to track progress in these areas and depict a realistic picture of gains achieved on the ground.