The Legatum Institute’s Prosperity Indexhas been described as “the definitive measure of global progress”. Released today, ranks 142 countries on a range of measures from health, opportunity and social capital, explains James Barty, Special Adviser to the Legatum Institute.
What is the purpose of the index?
Prosperity is not just about GDP. It is much more than that. At Legatum we have created an index which incorporates other key variables that are linked to prosperity. In that index there are eight pillars. First of course is the economy, even this though is measured not just by GDP but a variety of other elements, like savings and high tech exports. Next is entrepreneurship and opportunity, which includes elements like start-up costs and the ability to start a business. Then is governance, looking at how we are governed, then education and health outcomes. We also look at safety and security – we ask people how safe do they feel? One of the big conclusions from this report is that women across the world feel a lot less safe than men do, particularly things like walking home at night.
Finally we look at personal freedom, what ability do you have to do be able to do what you want with your life and social capital which covers charitable giving and what you do for others.
All of these come together in a mixture of hard data and opinion poll data. We aggregate all the data from 142 countries together and then we get an overall measure of prosperity between the different countries.
Are all the ‘pillars’ counted equally?
Yes, within the indices they are all built up with different weights depending on the different variables but then once you get to the eight final pillars they are all equally weighted.
How is the UK doing?
We are doing pretty well. We are 13th in the world in prosperity and top among the major European nations, ahead of Germany, France, Spain and Italy. We do particularly well in entrepreneurship and opportunity. The UK is the third cheapest place to set up a company in the entire world. We do well in governance, personal freedom, social capital, one of the things that comes through from the data is people feel they have more freedom to choose what they do with their lives.
We perform slightly less well on the economy, but that is starting to improve. In areas like education and health we are in the top 20.
Has the UK improved since last year?
In relative terms we have improved our performance, pretty much across the board and this year’s prosperity score is the highest since we started to compile the index in 2009. There is an interesting analysis that looks at major nations’ performance across the financial crisis - Canada, the US, Japan, Germany and France, Spain, Italy and Greece. While the UK has seen GDP rise modestly over the last five years as it has recovered it does even better on prosperity because there are other things that have improved more strongly.
Everyone talks about the cost of living crisis in the UK. Yet that is not confined to Britain there has been a cost of living crisis around the world. We have actually done really quite well relative to many other countries. Although it does not feel great, the UK is a more prosperous country than it was five years ago.
Does this index therefore help us judge between a rich society and a prosperous one?
Exactly. Take a country like Russia which has huge oil reserves, and yet on our index it is the biggest faller in Europe. We saw deterioration in personal freedom, governance and safety and security. Your ability to take advantage of that economic strength as an ordinary person in Russia is pretty low.
China is a big improver on the prosperity index, rising from 58th to 51st, mostly due to its economy, which is now ranked 6th. Indonesia has gone from 85th to 67th again mainly due to its economy. There is generally an improving trend in the emerging world.
In contrast parts of Europe continue to struggle. France has gone from 18th to 20th. In the last six years Spain has fallen four places, Italy nine and Greece a staggering twenty.
The losers of the financial crisis are big losers in prosperity as well.
Norway tops the list and the top four are all small nations. Is that to be expected?
Norway is a massive beneficiary of its oil reserves but it also compliments that wealth with strength in other areas, in contrast to Russia. It is number three on the economy index. It is number five on education and health but it is also number one on social capital, helping your neighbours, and number two on personal freedom. It scores well across the board.
New Zealand is interesting. It has come up the rankings and done very well on governance and personal freedom and also an improving economy.
One of the reasons we look at this over five years is you don’t see big changes from one year to the next. It is incremental. The common feature of the countries at the top is that they are rich but also have good social mobility, education and health outcomes.
As the parties put together their manifestos are there any lessons from the index to increase our performance?
It is not all just about how much you spend; it is about how you use it. The UK has still got more work to do on the economy – we are ranked 28th – the repair work is ongoing and in areas like health and education we are only just about in the top 20. George Osborne said in his conference speech he wants to make the UK the most prosperous country in the world. Not only do we have to improve the economy but also areas like healthcare and education if we are to achieve that objective.
If you look at the coalition government has focused a lot of its efforts on those three areas. So they are doing the right things but there is a long way to go.
On safety, is the gender difference worldwide?
Yes. Even in really good countries like Canada and New Zealand. In Canada 91% of men feel safe walking home at night but only 62% of women. In New Zealand the number are 81% and 54%.
It is quite interesting that even in the best parts of the world you have that gender gap.
Is it possible to see the effect of global events such as the Ebola outbreak through the Index?
Looking back at previous scores, the weakness in the health infrastructure has been flagged up in these African countries for a long time in our reports. Countries like Sierra Leone, Guinea, Liberia are all at the bottom of the world rankings on health infrastructure. If you were ever going to have a place in the world where something like Ebola would break out and then spread, it was going to be in those countries. My conclusion is that while we are doing the right thing in the West to focus on controlling the outbreak now, unless we continue to invest in healthcare in those countries afterwards you risk the same thing happening again. They just don’t have the infrastructure to contain such problems once they start.
Having examined the data, does this year’s Prosperity Index leave you more positive about the world?
What the index suggests is that there are things countries can do to improve prosperity that do not just involve money. Our work suggests structural reforms, giving people more freedom, encouraging entrepreneurship, promoting mobility across the generations and better governance will improve prosperity. In a time when money is tight that is a lesson for all policymakers.