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LEGATUM
PROSPERITY
INDEX
TM
Dear Reader, a comprehensive fold-out table of country ownership of the solutions that will drive
rankings inserted at the end of this book. their nation’s long-term prosperity, and
Welcome to the 2008 Legatum Prosperity their personal happiness.
Index. This second edition builds on last The Report, which also includes original
year’s inaugural publication, with research papers on key topics in prosperity We very much hope that you find the
expanded coverage and refined analysis. from leading scholars and country profiles 2008 Legatum Prosperity Index of
for each of the 104 countries in the Index, interest, and this commentary engaging
The Prosperity Index is an inquiry into the is available in printed form and on the and thought-provoking. For Legatum, the
nature of prosperity and how it is created. Legatum Institute website at quest to understand prosperity is a
This year, scholars and researchers www.prosperity.com. long-term investigation that we will seek
affiliated with the Legatum Institute have to improve with every edition. We would
significantly expanded the scope of the This Summary and Commentary welcome any comments or feedback that
Index, investigating prosperity drivers introduces the findings from the 2008 may help improve our understanding.
and outcomes in more than 100 countries Index, and provides our interpretation
worldwide, increased from only 50 last of the results. It describes the personal Yours sincerely,
year. Africa, particularly, is better and policy choices that can increase the
represented with 19 countries featured, prosperity of individuals and nations
although collecting data for every single around the globe.
country remains a challenge.
The conclusions we draw in this
We define prosperity holistically to commentary are based on data research
include both material wealth and quality as well as theory, experience, and the
of life. Rather than replicating other lessons of history. While we draw on
measurements that rank countries by statistical analysis to support these Dr. William Inboden
Senior Vice-President
their actual levels of material wealth or findings and views, quantitative analysis is Legatum Institute
life satisfaction, the Index produces a limited in its ability to separate the drivers
ranking based on the conditions that of prosperity from their outcomes, and to
foster prosperity – that is, the factors disentangle the interactions between
that promote economic competitiveness related drivers. Simply put, there are
and improved liveability in a given limits to what science can tell us about
country. We refer to these factors as the causes of the prosperity of nations
drivers of prosperity and to those that (for a discussion of some of these issues,
impede prosperity, as restrainers. The see the full Prosperity Index Report,
Index endeavours to rank countries available on request).
according to the strength of these drivers
and restrainers, not according to simple Yet while there are limits to our Alan McCormick
Managing Director
measures of income and life satisfaction. knowledge, there is still much that we Legatum
In this way we hope to contribute to a have learned and can learn. While
richer analysis of what promotes governments by themselves cannot create
prosperity globally. or mandate prosperity, they can help
create an environment that is conducive
The full details of the Index and its to entrepreneurship and productive
construction are included in the 2008 endeavour. Ultimately, it is citizens and
Prosperity Index Report, together with their leaders who must choose to take www.li.com
PREFACE 1
EXECUTIVE SUMMARY 6
PRINCIPLES OF PROSPERITY 30
The Prosperity Index is unique in three ways. countries, based on the degree to which the
First, it takes a holistic view of prosperity, actions of their people and governments drive
encompassing both material wealth and life or restrain the creation of holistic national
satisfaction. Second, it assesses the drivers and prosperity, relative to the prosperity of other
causes of prosperity, rather than measuring countries.
outcomes. Third, it includes factors that relate
to government policy and to individual citizens. • The Index is presented in a set of publications.
This book summarises the Index results
and provides our interpretation of the meaning
Constructing the Index of the findings. Separately, the Prosperity Index
Report describes the methodology and
• The 2008 Legatum Prosperity Index is the result indicators in detail, profiles each of the countries
of an investigation into the various factors that covered in the Index, and presents research
promote prosperity in nations. Recent research and policy papers on key topics in prosperity.
advances have made it possible to compare not For readers interested in more background or
only the material wealth but also the life in conducting their own investigations, the
satisfaction of people in countries worldwide. Technical Appendix in the Report describes the
Accordingly, we have defined national prosperity research methodology in detail. All these
as the holistic combination of both of these publications, together with an extensive set of
factors. interactive data analysis tools, are available at
• The overall Index scores and rankings are based www.prosperity.com.
on a weighted combination of indicators that
reflect Economic Competitiveness and
Comparative Liveability. That is to say, the Index
does not rank countries according to which have
the most material wealth or the highest levels of
happiness at a given time. Rather, it is an index
of drivers, which means that countries are
ranked by how well they are doing at fostering
economic growth and improved quality of life.
In other words, how well are nations promoting
the practices, habits, policies, and institutions
that create enduring prosperity?
• The indicators that comprise the Index were
identified and weighted based on statistical
analysis, using 40 years of historical data on
economic growth in more than 50 countries,
and life satisfaction survey data for more than
100 countries.
• The Index combines 22 key indicators and 44
sub-indicators in order to rank more than 100
Key Findings
The key drivers of economic competitiveness The key factors for promoting life satisfaction
vary according to a country’s level of also vary according to a country’s level of
development. For poorer countries (those development. In richer countries, where
with average incomes of less than $10,000 moving beyond material wealth to broader
per capita), where increasing material wealth wellbeing is an important goal, the most
is a particular priority, the most important important components of liveability include:
components of economic competitiveness
include: • Continued High Levels of Income
The Prosperity Index is an index of drivers. Norway, by contrast, is predicted by the But perhaps the most surprising case is
That is, it assesses which countries’ leaders Index to be less wealthy than it actually is. Hong Kong. Despite extremely high levels
and citizens are doing the most to actively In the Index, Norway scores poorly on of development, and generally good
foster or promote holistic national entrepreneurship and some innovation quality of life indicators, Hong Kong
prosperity. indicators. Yet these areas of apparent registers very low life satisfaction results
weakness do not appear to have reduced that are difficult to explain.
But what about outcomes? Which
the country’s economic performance,
countries actually achieve the greatest The top 30 countries, ranked by holistic
which is among the world’s best. This
prosperity performance – that is, the prosperity performance (taking the
owes in part to Norway’s proven ability
highest incomes and highest levels of life average of the ranking on income and life
to mitigate natural resource dependence
satisfaction? And to what extent do high satisfaction) are shown below. The full
by responsibly investing its oil revenues in
Prosperity Index scores correlate with details of countries’ performance are
ways that foster growth and impressive
these actual prosperity outcomes? available at www.prosperity.com.
levels of wellbeing.
As one might expect, because the factors
Material Wealth Life Satisfaction
in the Index are based on analysis of Holistic Prosperity Performance
Performance Performance
historical data, the link between drivers
Performance
Index Rank
Income per
and outcomes is strong. In statistical Prosperity
Legatum
Average
Country
Person
Survey
(1-10)
Rank
Rank
Rank
both between countries’ ranks on the
Competitiveness Index and their actual Denmark 1 9 6 $31,422 1 7.9
per capita incomes, and between their Switzerland 2 7 5 $32,775 3 7.5
ranks on the Liveability Index and actual Norway 3 14 2 $37,667 8 7.4
United States 3 4 1 $38,165 9 7.4
average national life satisfaction survey Netherlands 5 11 7 $31,306 4 7.4
results in the Gallup World Poll. Finland 6 2 10 $30,420 2 7.7
Ireland 7 20 3 $36,238 13 7.2
There are a few countries in which Sweden 8 12 11 $30,392 6 7.4
Australia 9 1 9 $30,678 10 7.3
performance differs notably from what Canada 9 14 12 $30,278 7 7.4
the Prosperity Index predicts. Singapore, Austria 11 2 8 $30,736 16 7.1
Germany, Hong Kong, Norway and Ireland Belgium 12 14 14 $30,004 12 7.3
New Zealand 13 9 23 $23,109 5 7.4
are the countries in the top ranks of the United Kingdom 14 14 13 $30,237 18 6.9
Prosperity Index where significant France 15 14 15 $28,877 20 6.8
Spain 16 22 21 $24,681 15 7.1
differences appear. Most of these Singapore 17 4 16 $28,305 23 6.6
differences are on the material wealth Israel 18 19 25 $22,662 17 7.0
side. Italy 18 25 20 $26,496 22 6.7
Germany 20 4 18 $27,438 25 6.5
United Arab Emirates 21 28 24 $22,698 21 6.7
Based on their Prosperity Index scores, Japan 22 13 17 $27,992 30 6.4
we would expect Germany, Singapore and Saudi Arabia 23 45 34 $14,769 14 7.2
Ireland to be even wealthier than they are. Taiwan 24 21 19 $26,826 34 6.2
Czech Republic 25 23 29 $19,700 28 6.5
In Germany’s case this may reflect the Greece 25 34 26 $21,675 31 6.3
long slowdown that followed reunification, Hong Kong 25 8 4 $32,901 53 5.5
while in Singapore and Ireland it may Costa Rica 28 38 47 $9,646 11 7.3
Kuwait 29 30 22 $23,416 37 6.0
reflect a late start in growth. Argentina 30 31 37 $13,652 32 6.2
Mexico 30 43 45 $9,967 24 6.5
EXECUTIVE SUMMARY
1. Freedom of choice is crucial. Whether people 3. For poorer countries, raising incomes is a top
have freedom of choice and control over how priority. For countries with an income per
they direct their lives and spend their time person of less than US $10,000 on average,
and resources is a strong determinant of life income levels are the single strongest predictor
satisfaction and productivity. of how happy that country’s people will be.
2. Government should be effective, honest and 4. For richer countries, wellbeing means more than
limited. Governments that exercise power just money. For most people in rich countries,
responsibly and are accountable to their citizens non-material drivers tend to have a bigger
dominate the top quartile of the rankings for impact on their life satisfaction than increases
both competitiveness and liveability. in income.
5. Entrepreneurship is a promising path to material 8. Climate and the environment impact our
wealth. Entrepreneurship indicators show a happiness. Several indicators of climate and the
significant statistical relationship with long-term environment, including temperature extremes,
economic growth in both rich and poor countries. land area devoted to nature, and perceived air
quality, show a significant relationship with
6. Growth in invested capital is crucial to long-term average national life satisfaction.
economic growth. Investment by the private
sector (e.g. in factories, offices and production 9. Develop your gift and then give it away.
machinery) is one of the most important drivers Countries where charitable giving and
of material wealth, for both rich and poor volunteering are common report higher
countries. average levels of wellbeing.
technologies, skills and 11. Governments and citizens each have a role in
building the prosperity of nations. The 2008
business techniques. Prosperity Index includes factors driven by
individual choice (such as volunteering and
charitable giving), factors driven by the choices
7. Economic openness can help poorer countries of policymakers (such as economic openness
catch up faster. Open economies in which foreign and good governance), and factors influenced
direct investment and international trade play by both, such as health.
larger roles have higher long-term growth rates.
Economic openness enables countries to absorb
foreign capital, technologies, skills and business
techniques. However, poor countries that depend
heavily on commodity exports, such as oil and
gas, often have lower long-term growth rates.
While the pursuit of happiness has long Great Britain. The Wall Street Journal
been of interest to individuals, in recent carried stories on Bhutan’s happiness
years it has become a priority for many policies, the Canberra Times on wellbeing
political leaders worldwide. The UK in Australia, and the Los Angeles Times
government appointed Lord Richard on declining quality of life in the US.
Layard, an academic at the London School Newspapers in countries from Singapore
of Economics, as “happiness tsar”, with and India to the UK and Canada covered
responsibility for advising on policies to the release of the 2007 Legatum
improve wellbeing in Britain. The Prosperity Index. In short, it appears our
President of India, Pratibha Patil, fascination with happiness will not abate
announced the creation of a Prosperity any time soon.
Index specifically for her country,
measuring quality of life. And French
President Nicolas Sarkozy announced
that a panel of eminent scholars, led by
Nobel Laureates Joseph Stiglitz and
Amartya Sen, would develop new
economic indicators that would assess
wellbeing in France.
Why this sudden interest in happiness
from some very serious-minded people?
Happiness itself has been an aspiration
from the advent of humanity and it has
been studied for some time. What is
new is the “science of happiness” – new
methodologies taking advantage of brain
scans and large-scale survey research to
assess human wellbeing with quantitative
methods. As a result, the study of
happiness is now not only of interest to
philosophers and psychologists but also
to economists and political scientists.
The field now attracts attention from
well-known scholars including Robert
Putnam of Harvard and Nobel Laureate
Daniel Kahneman of Princeton.
And thus, in the past few years, wellbeing
research has entered the mainstream.
The New York Times reported on new
data linking income and happiness, and
The Independent on the unhappiness of
Volume of searches for “Happiness” on Google
The graph below, produced by Google Trends, shows the near-doubling in search
volume for the term “happiness” over the past four years. The temporary spike in late
2006 anticipates the January 2007 release of the movie, “The Pursuit of Happyness”,
starring Will Smith.
2.5
1.5
Volume
0.5
0
Jan 4 2004
Apr 25 2004
Aug 15 2004
Dec 5 2004
Mar 27 2005
Jul 17 2005
Nov 6 2005
Feb 26 2006
Jun 18 2006
Oct 8 2006
Jan 28 2007
May 20 2007
Sep 9 2007
Dec 30 2007
Apr 20 2008
Years
In 2008, new research resulted in the with economic growth, particularly in in rich countries, and is an indicator of
addition of several new indicators to the poor countries. While some observers entrepreneurship (see Principle of
Index. A few of these are highlighted dispute the impact of these agreements Prosperity 4, page 37).
below. Each of these indicators, as with all on global trade flows, for individual
those in the Index, shows a statistical link countries, this indicator may reflect a Researchers in R&D per Capita assesses
with either long-term economic growth government’s level of interest and a country’s capacity to innovate in a
or average levels of life satisfaction. For effectiveness in pursuing outward- business context, as well as reflecting the
the full list, visit www.prosperity.com. oriented economic development. general quality of higher education and
human capital in the workforce.
The Number of Regional Trade The Business Ownership Rate shows a
Agreements Signed shows a strong link strong link to income growth, particularly “Can people who work hard get ahead in
this country?” is a question on the Gallup
World Poll. While answers to this
question doubtless reflect individual
beliefs, on a national-average basis this
indicator seems to reflect the degree to
which opportunities for advancement are
widely available in society according to
individual merit and initiative, rather than
being confined to a privileged elite.
Net Migration measures the degree to
which people leave a country, fleeing poor
conditions or in search of opportunity
elsewhere. Data suggest that individuals
tend to emigrate from countries where
incomes, levels of life satisfaction, or life
expectancies are low, and to countries
where incomes are high.
Ecosystem Services per Capita is an
innovative measure of the value of nature
in a country, such as lakes, rivers,
wetlands, forests and grasslands. Based on
satellite photographs, scientists are able
to measure the proportion of a country’s
land area remaining in a natural state
(see Principle of Prosperity 8, page 47).
Charitable Giving and Volunteering are
both assessed by the Gallup World Poll,
and show a strong statistical relationship
with life satisfaction (see Principle of
Prosperity 9, page 49).
AN INTRODUCTION TO THE LEGATUM PROSPERITY INDEX
What are the reasons for disparities between countries? How can these
disparities be remedied? And how can countries that have achieved high levels
of material wealth today broaden their success to include a good quality of life?
In 2007, the Legatum Institute published the traditionally measured. At the same time, they
first results of an investigation into the drivers pursue broader wellbeing, in areas such as
and restrainers of prosperity in nations, in a health, leisure time, family life, the environment
report and website accompanying the 2007 and social capital (for a comparison of drivers
Prosperity Index. This year, the Institute has and performance, see the callout, Prosperity
sponsored further research, leading to new Performance on page 10).
lines of inquiry and new findings.
• The Index is produced using a quantitative
The guiding principles of the 2008 Prosperity approach. The Index includes only factors for
Index remain unchanged from the previous which a statistical link with material wealth or
edition: life satisfaction can be shown.
• The Index takes a holistic view of prosperity.
This means a view that extends beyond just
material wealth, and includes other factors
such as social capital, health, the environment,
political liberty, and overall quality of life. Citizens of the top
• Operationally, holistic prosperity is defined countries pursue broader
as the combination of two widely-available
statistical measures: material wealth, measured
wellbeing, in areas such as
by long-term growth in average income per health, leisure time, family
person, and life satisfaction, measured by
average levels of life satisfaction as reported on
life, the environment
national surveys (see the callout, A Fascination and social capital.
with Happiness on page 14).
• The Index is an index of drivers, not results.
The top countries in the Index are not
necessarily those that achieve the highest • The Index is produced in the spirit of “progress
outcomes in material wealth and life not perfection”. Our understanding of the
satisfaction. Rather, the top countries are drivers of prosperity increases each year, as new
those that have, relative to their peers, the data and techniques become available. This
most factors that promote wealth and Index reflects this progress, and in years to
wellbeing. This is why countries are ranked come it will continue to change to reflect
based on a weighted average of indicators of advances in knowledge.
Economic Competitiveness (drivers of The 2008 Index also improves on last year’s
differences between countries’ relative levels Index in a number of ways. Hence, readers of this
of material wealth) and Comparative Liveability Summary and Commentary will find there is much
(drivers of differences between countries’
that is new.
relative levels of life satisfaction). Citizens of
the top countries in the Index pursue wealth,
the yardstick by which prosperity has been
• In addition to this commentary, the Legatum • Based on new statistical research, the Index
Institute has published a full report on the uses a much wider range of indicators.
research that produced the Index, covering This year the Index employs 16 drivers that
methodology, related academic literature, show a strong statistical relationship with
results and data sources, and full country differences in countries’ relative levels of
profiles for the 104 countries in the Index. material wealth (indicators of Competitiveness),
The full report also includes three research and 28 drivers that show a strong statistical
papers by leading scholars on key topics in relationship with differences in countries’
prosperity: on entrepreneurship by David relative levels of life satisfaction (indicators of
Audretsch, on charitable giving by Arthur Liveability). For a description of some of the
Brooks, and on freedom of choice by Paolo new indicators in the Index, see the callout,
Verme (see the callout, Supporting New New Factors on page 18.
Research on page 20).
• The Index includes a new weighting
• Drawing on the Gallup World Poll and other methodology, which assesses how the drivers
new data, the country coverage of the Index of prosperity change as countries become
has been expanded from 50 countries in 2007 wealthier (see the callout, What Explains
to 104 in 2008. Differences in National Prosperity? on page 22).
We encourage readers with an interest in this
area to review the research for themselves, in
the full Index Report available to download at
www.prosperity.com, and to take advantage of
the extensive online tools for analysis available
on the website.
In what follows, we provide our own
interpretation of the Index research and results.
In the study of prosperity, many findings remain
contested and imprecise. But in the lives of
people and the policies of nations, decisions must
be made on imperfect information. This book
presents our views on the 2008 Prosperity Index
results and the individual and policy choices that
can best promote global prosperity.
100%
Dependence
Entrepreneurship
We assigned weights to the various
components of the Index based on the 80%
Commercialising Innovation
Importance for Material Wealth
100%
100%
Religious Life 80%
60%
Community Life
40%
80% Income
Importance for Life Satisfaction
20%
0%
Income (int'l USD)
60% Leisure
Environment
40% Climate
Governance
20%
Equality Of Opportunity
Freedom Of Choice
0%
4.0
5.3
6.6
7.9
9.2
10.5
11.8
13.1
14.4
15.7
17.0
18.3
19.6
20.9
22.2
23.5
24.8
26.1
27.4
28.7
30.0
31.3
32.6
33.9
35.2
36.5
37.8
39.1
40.4
41.7
43.0
44.3
45.6
46.9
48.2
49.5
50.8
52.1
53.4
54.7
Income
(USD equivalence in thousands)
dependence on foreign aid, and an ability to in Hong Kong, Singapore, or South Korea report
engage effectively with the global economy. that they agree with the statement that “in this
They particularly excel at taking advantage of country, people who work hard can get ahead”.
the market demand and advanced technologies This is all the more remarkable considering the
on offer from the world’s consumers and high economic growth rates in these countries.
businesses (although the Asian economies have Perhaps, however, it is not so remarkable when
been most successful at commercialising foreign one considers the level of exclusion of women
technologies, and show some weaknesses in from leading positions in the economy and
generating their own technological innovation). politics in Asia. Other weaknesses in liveability
common to many countries in Asia include a
At the same time, while few countries can equal
degraded natural environment and extremely
Asia’s long-term economic growth rates, most
long working hours. Having achieved rapid
Asian countries show weaknesses in liveability.
advances in material wealth, citizens of the
Most notable is equality of opportunity. The
leading Asian economies may wish to focus on
Gallup World Poll finds that relatively few people
the drivers of wellbeing.
Australia earns the top position in the cake. Australia earns its high Index score scores on corruption control and overall
2008 Legatum Prosperity Index. The by getting the fundamentals right. effectiveness, supporting the country’s
‘Lucky Country’ has reinvented itself as Australians enjoy robust good health, quality of life in many areas.
a wealthy service-oriented economy, and with an average health-adjusted life
earns its top spot by combining economic Country profiles are available for all
expectancy of 72.6 years, and the
competitiveness with good scores on 104 countries in the Prosperity Index
Australian government earns high
liveability indicators, including health, at www.prosperity.com.
charitable giving, and effective
governance.
Indicator Score in the Prosperity Index
High levels of capital investment and Key score drivers for economic competitiveness. The graph below shows the
innovation are key to Australia’s success competitiveness factors with the greatest influence on Australia’s score, after the
Prosperity Index weighting scheme has been applied.
in terms of material wealth. No doubt
this can be partially attributed to policies Research in R&D
pursued from the 1970s to the 1990s that
deregulated labour and financial markets,
Patents
controlled public spending and privatised
state industries. Australia’s extremely high
score on regulatory quality, a component Quality of regulation
The strong connection between freedom of choice and wellbeing holds only for
people making choices to better their own lives, not to harm the lives of others.
Any attempt to compare the rankings Republic of China – perhaps with lower
of China, Taiwan and Hong Kong is expectations – report good air quality
complicated by disparities in geography, while Hong Kong has one of the worst
population, and history. Nevertheless, air pollution scores in the world
some interesting findings emerge. (ironically enough, mostly because of
Despite its recent rapid economic pollution emanating from China’s
growth, mainland China ranks far down Guangdong Province). On other social
the economic competitiveness scale, indicators, including charitable giving
compared to Taiwan and Hong Kong, and religious freedom, Hong Kong and
because the mainland’s levels of Taiwan far exceed the performance of
productive capital investment, education, the People’s Republic.
and income remain very low when
measured on a per capita basis. All three countries and territories,
however, have one thing in common:
On the liveability side, the divergence is excellent levels of innovation, or, more
also substantial. Taiwan and Hong Kong accurately, commercialisation of
have political systems that are significantly innovation. Many a foreign technology,
more free and functional than that of as anyone who has done business in the
China, with Taiwan leading the group on region can attest, has been adopted
political rights and Hong Kong leading on and then improved by local companies.
control of corruption. On environmental
indicators, citizens of the People’s
Control of Corruption
Secondary Education
Capital Per Worker
Religious Freedom
High Tech Exports
Charitable Giving
Volunteering
Overall Rank
Clean Air
Country
Patents
Income
Taiwan 20 5 36 4 16 6 18 4 7 -20 -4 2 10
OUR VIEW: While government does not create excessive taxation, onerous regulation, and
prosperity, it does create an environment which violation of property rights, to abuse of human
will encourage productive endeavour to either rights, stifling of civil society, and encroachment
flourish or fail. Citizens are most empowered to on commercial enterprise. In short, governments Although good
pursue wealth creation and happiness when their cannot create prosperity, but do their job best governance
governments maintain basic order, apply impartial when they respond to the demands of their
justice, respect human rights, and function with citizens and foster the conditions for them to does not create
transparency and integrity. In contrast, citizens create prosperity. prosperity, it
living under oppression, ineptitude, and
corruption face severe obstacles to achieving
Every one of the top 29 countries in the overall does create an
Prosperity Index scores half a standard deviation
economic growth and life satisfaction.
or more above the global mean on good environment in
Democratic governance can take many forms and governance. The weightings are equally telling which economic
the top ranked countries display a wide diversity (see the callout, What Explains Differences in
of systems. But they have in common a few basic National Prosperity? on page 22). At a broad competitiveness
and indispensable characteristics. These include range of income levels, governance is one of and
the rule of law, an independent judiciary, respect the strongest factors – and in some cases the
for human rights and civil liberties, multiple strongest factor – behind economic growth comparative
political parties, media freedom, transparency, and happiness. liveability
institutional checks and balances, and rulers who
are accountable to their citizens through regular
Singapore and Hong Kong are the exceptions flourish.
that prove the rule. These unique city-states are
competitive elections.
the only two governments in the top quartile
Besides the structure of a government, two that are not fully democratic and accountable
other areas are vital for good governance: what to their citizens. Yet they rank very well in other
a government does – and what it does not do. governance areas such as efficiency, effectiveness,
First, a government should be effective, meaning rule of law, lack of corruption, and respect for
it provides basic services for its citizens honestly economic liberty.
and efficiently. This includes areas such as national
security, law enforcement, judicial services,
regulations, revenue collection, and border
control. Second, a government should be limited,
meaning that its power is restrained by its citizens
and by law, and that it respects the proper roles
of the private sector. Ways that governments
exceed their limits include everything from
OUR VIEW: While “money can’t buy happiness”, of poverty tends to outweigh the positive
it is equally true that a lack of money can cause impacts of the other factors described above.
great misery. In rich countries, without exception, For the poorest countries, raising incomes
people on average report themselves satisfied through economic growth will achieve the
with their lives. By contrast, in many poor greatest wellbeing dividends. And today’s poor
countries, such as Zimbabwe and Pakistan, the countries could well become tomorrow’s
stresses of hunger, poor housing, and physical prosperity leaders, if they can meet the challenge
insecurity appear to be so overwhelming that of preserving their traditional strengths as they
large numbers of people report themselves climb the prosperity ladder.
dissatisfied with the lives they lead. This suggests
that for countries at the lower end of the income
scale, raising incomes via long-term economic
growth should be among the top priorities.
To be sure, poor countries have strengths in
many other areas. The highest scores on many
of the liveability indicators in the 2008 Prosperity
Index are to be found in the developing world.
Countries including Peru, Bolivia and Kenya have
the most favourable climates (measured via a
temperature average that has been weighted
according to where their populations reside).
Wealthy New Zealand leads on the environmental
indicators in the Index, but developing Botswana
is close behind. Panama and Colombia are ranked
highest on family life, with divorce and
widowhood relatively rare and most people
reporting they have someone to rely on in times
of need, and the Dominican Republic and
Venezuela lead in indicators of religious life.
Nonetheless, it stands to reason that for the
destitute, even the most pleasing natural
environment will not produce happiness.
This simple observation is borne out by the data.
At low levels of income, the pernicious impact
FINDING: Each step increase on the life satisfaction scale is associated with
a doubling of per capita national income.
Out of the 15 Sub-Saharan African well-known obstacles to national legacy of the apartheid regime – in South
countries featured in this year’s Index, prosperity in Africa. Africa as well.
only three are not ranked in the bottom
quartile of prosperity: South Africa (38th), While governments in Sub-Saharan Africa But there are many bright spots. Well-
Botswana (45th) and Namibia (55th). need to alleviate sources of misery for governed Botswana has, over a period of
their citizens, the region maintains 30 years, achieved one of the fastest rates
These rankings reflect the fundamental comparatively high levels of social support of income growth in the world (although
and often well-publicised problems of the via community and religious life. There are HIV/AIDS infection rates are extremely
region. One of these is poverty and capital also signs of optimism: notably high high). Namibia is unique in the region in
flight: aside from the three countries proportions of the population believe that having no severe weaknesses (and one
mentioned above, a lack of capital working hard will enable them to get notable strength, equality of opportunity).
investment hampers accumulation of ahead. Exceptions are Mali and Zimbabwe, And South Africa has enjoyed success in
material wealth and low incomes restrain where a lack of equal opportunities goes enabling individual entrepreneurship by
wellbeing. Poor governance, low levels of along with perceptions of restricted lowering the costs of formalising a
education, high dependence on foreign individual choice. Dissatisfaction with business.
aid, chronic unemployment and low personal freedom also persists in Sudan,
average life expectancies are further Nigeria and Cameroon, and – perhaps a
Economic Competitiveness
Economic openness
Growth in invested
Entrepreneurship
Good governance
Better education
Overall Rank
Foreign aid
Country
capital
Rank
38 South Africa 41 -6 5 1 -6 10 4
45 Botswana 54 1 4 -10 -6 7 2
55 Namibia 61 -4 -1 -6 -1 0 -7
86 Ghana 79 -10 -2 -10 -7 -6 -20
94 Nigeria 89 -11 -13 -7 -8 -9 -5
92 Senegal 90 -10 -5 -15 -7 -15 -20
96 Mozambique 91 -11 -6 -19 -5 0 -30
96 Kenya 92 -11 -9 -16 -7 -7 -12
100 Tanzania 93 -11 -6 -17 -6 -7 -26
93 Cameroon 94 -10 -12 -9 -11 -17 -5
99 Zimbabwe 98 -10 -21 -10 -7 0 -15
102 Mali 100 -11 -7 -18 -8 -17 -24
102 Zambia 101 -11 -10 -12 -6 -3 -19
94 Sudan 102 -9 -15 -15 -8 -9 -16
101 Central African Republic 104 -11 -17 -16 -14 -21 -20
Comparative Liveability
Low unemployment
Freedom of choice
Good governance
Religious belief
Community life
High incomes
Overall Rank
environment
Good health
opportunity
Equality of
Pleasant
Country
Rank
In the past decade, strong religious faith accounting for their income, age and Indonesia, Venezuela and Nigeria. As this
has come to be associated by some people other individual characteristics. Research diverse list suggests, this effect can be
with terrorism and violence, as extremist also suggests that religious people’s found in many regions and for many faiths.
groups have claimed religious justifications happiness is less vulnerable to fluctuations
for their actions. In the Prosperity Index, in economic and political uncertainty, That said, one must also account for the
however, religious engagement is a personal unemployment and income negative impacts of religious intolerance
positive indicator. Why? changes. or extremism. The Prosperity Index does
so with another indicator, religious
A repeated finding of research on the The Prosperity Index identifies similar freedom, which also correlates with
science of happiness is that there is a effects at the country level. A number of average national life satisfaction.
positive link between religious highly religious countries are happier, on Countries with high levels of religious
engagement and wellbeing. For instance, average, than one might expect based on faith score well on the Religious Life
people who report that God is very their standard of living alone. This effect indicator in the Index, but they achieve
important in their lives are on average is perhaps most pronounced in Mexico, top marks only if they have religious
more satisfied with their lives, after El Salvador, the Dominican Republic, freedom as well.
PRINCIPLES OF PROSPERITY
5. ENTREPRENEURSHIP IS A PROMISING
PATH TO MATERIAL WEALTH
OUR VIEW: In almost any given economy, small business that shows the strongest relationship
businesses are the largest employers. In emerging with income growth. In these countries, a few
markets, small businesses often offer the best uncompetitive businesses often dominate
hope for economic growth and social stability economic production. With capital hard to come
through the creation of worthwhile, sustainable by and the cost of starting a new business
employment. prohibitive, it is extremely difficult to dislodge
poorly-performing businesses that have strong
The statistical analysis detailed in the 2008 political connections. The countries that can
Prosperity Index Report suggests that overcome this challenge are often those with low
entrepreneurship plays multiple roles in growth. barriers to starting businesses. This allows capital
In poor countries, it is the cost of starting a to come into the formal sector, where it can be
invested productively and pose a serious
competitive challenge to more established but
under-performing enterprises.
In rich countries, by contrast, the
entrepreneurship indicator that shows a
significant relationship with long-term economic
growth is the rate of business ownership. In these
countries, the vast majority of the population
has entered the formal economy, and attracting
capital is less of a problem – provided that
regulations are sound and tax rates are low.
However, there are reserves of creativity and
innovation that are untapped (see the callout,
Supporting New Research on page 20). For
instance, a university professor may stumble upon
a research breakthrough with great commercial
implications. However, her university is not the
place to commercialise it, and if the idea is
sufficiently complex, she will have a hard time
convincing a large company to invest in it. In
countries that encourage entrepreneurship,
however, she can use her idea to start a business
that may one day grow to be the next Google.
The Economic Competitiveness section of European Union seems to make the rich world, in many of the poorest
the Index measures achievement: which income convergence predicted by regions, blighted by insecurity or poor
countries have done the most to increase economic theory a reality. Like Ireland governance, the pace of growth has been
the wealth of their citizens? But there is and Portugal before them, today’s new EU much slower. The result has been actual
also the question of progress: which members appear on their way to joining divergence of global incomes, and a
countries are doing the most to achieve the ranks of the world’s richest countries. growing material wealth gap between
the highest growth rates today, to top the the richest and poorest nations.
competitiveness rankings tomorrow? To By contrast, the phenomenon dominating
answer this question, we have recalibrated the bottom five places is insecurity While severe problems persist in many
the Economic Competitiveness Index to (see the callout, Security and Prosperity countries, the global wealth gap is starting
assess performance over the past five on page 48). Several countries, most to narrow. China ranks 6th on our “who’s
years, and present the results in the table notably Zimbabwe, have registered actual going places” ranking, and India ranks
below. net destruction of their stocks of physical 10th. Recent economic growth rates in
and human capital. Sierra Leone has these countries tell the same story.
Last year the top five were Ireland, also experienced the shock of political Both economies have recently grown
Croatia, Portugal, Greece and China. instability and war in recent years. faster than almost any country in the rich
This year the same phenomenon world. Because these two giant nations
dominates the top ranks: catch-up growth More positively, another phenomenon
are home to more than two billion people,
by the newer European Union members, highlighted by these rankings is that of
these improvements in competitiveness
with Slovakia and Bulgaria leading at 1st convergence in global incomes. Though
are bringing about a dramatic lessening of
and 2nd, and Romania close behind at predicted by economic theory,
the global wealth gap, and are very good
7th (not shown on the chart). Joining the historically, this has not occurred: while
news for global prosperity.
economic growth has continued in the
Avoids
Invests productively Commercialises new ideas
dependence
entrepreneurship
…via competitive
commercialising
…on commodity
invested capital
…via economic
governance
…via better
innovation
…via good
education
openness
markets
Country
exports
Rank
…via
…by
1 Slovakia 41 8 0 1 20 4 15 -16 8
2 Bulgaria 39 0 -3 -8 17 0 9 5 8
3 Singapore -10 19 6 -4 47 25 4 -3 7
4 Taiwan -4 8 32 -1 10 19 2 1 8
5 Chile -3 11 9 1 5 0 9 -1 7
OUR VIEW: Every country has financial capital, It is difficult to lure this capital out of its hiding
but all too often it is dormant and unproductive. places and back into a country’s economy because
Sometimes it is hidden under the mattresses of productive assets such as factories are high-profile
the poor, or in their informal homes, because the and immobile – easy targets for thieves or
absence of secure property rights makes it unscrupulous government officials. Turning hidden
impossible for the poor to put these assets to use capital into invested capital thus requires a great
(for instance, a squatter without legal title to his leap of trust by investors, and this usually only
or her home cannot mortgage this home to start happens in stable business environments offering
a small business). Sometimes a country’s financial sound property rights, the impartial application of
capital becomes flight capital, which seeks a more just laws, and good economic policy.
stable and welcoming environment in foreign
banks or real estate.
The 2008 Prosperity Index analyses What can this new science tell you? Use
aggregate wellbeing in nations. But surely our Personal Prosperiscope to find out.
the research on the science of happiness Answer the same survey questions that
has something to say about the choices were used in major research studies on
we make as individuals – about where to human wellbeing, and the Prosperiscope
live, whether or when to marry, or how will tell you what factors may be having
to spend our time? the biggest impact on your satisfaction
with life.
In fact, surveys such as the Gallup World
Poll, World Values Survey, US General The Personal Prosperiscope is available
Social Survey, the European Quality of online at www.myprosperity.com.
Life Survey, and the German Socio-
economic Panel Survey, have addressed
these questions in detail. Some of the
relationships identified by scholars
analysing these survey results are
fascinating. For instance:
• People living close to a coastline tend
to be happier.
• Long commuting times may have a
large negative impact on one’s life
satisfaction.
• Long commuting times of one’s partner
also have a negative impact.
• Parental divorce during childhood
appears to have a negative impact on
wellbeing, lasting into adulthood.
• Women tend to be happier than men.
This research on survey data from
hundreds of thousands of people in more
than 100 countries worldwide has created
a new body of knowledge, often called the
“science of happiness”.
PRINCIPLES OF PROSPERITY
Studies of wellbeing survey data have each day tend to have higher levels of wealthiest Asian countries, suggesting
repeatedly found evidence of the wellbeing. The Index also tracks average that one avenue for individuals to improve
importance of “taking it easy”, as the working hours, as reported by national their wellbeing might be more vacation
saying goes. For instance, people who statistical authorities. This shows a more time, given the lower liveability scores in
say they frequently spend time socialising complex relationship with wellbeing: in Asian countries. And citizens in each of
tend to be happier. One survey, the rich countries, where people can choose the bottom 20 countries in the
World Values Survey, covering more than between jobs with longer or shorter Comparative Liveability Index report very
90,000 people in 84 countries, found that working hours, shorter workdays are few leisure hours, which further
people who considered leisure to be more correlated with higher life satisfaction. emphasises the importance of leisure to
important than work were significantly In poorer countries, however, this wellbeing. It seems evident that
more satisfied with their lives than people relationship is absent or even reversed, competitive economies offering their
who thought the opposite. presumably because many people are citizens a range of opportunities provide
underemployed, and would wish to work a fruitful environment in which workers
The Prosperity Index considers this issue
more hours if they could. can balance work and free time.
as well, at the national level. Using data
from the Gallup World Poll, the Index Looking at the countries in the Index,
indicates that countries where people some clear patterns are evident. Working
report they have more hours for leisure hours are extremely long in even the
PRINCIPLES OF PROSPERITY
Given the Middle East’s dominance of shows an increasingly strong relationship economic side, many countries exhibit
international news and its strategic to life satisfaction as countries become dependence on commodity exports
importance, conditions in the region will wealthier, and is an area needing (notably oil and gas). A dearth of trade
continue to attract global attention. considerable improvement in the region. agreements is in part an artefact of severe
The Prosperity Index finds that the region political tensions in the region.
However, most Middle Eastern countries
is far from monolithic. Middle Eastern
score very highly on satisfaction with The UAE, one of the highest-ranked
countries cover a range of rankings, from
health, on family life, and on religious Middle Eastern countries, warrants a
Israel, the UAE and Kuwait within the top
faith. Survey data suggest that, together special mention. One of the emirates,
30, to Jordan, Tunisia and Saudi Arabia in
with highly-religious Latin America, the Dubai, has, in particular, moved past
the top 50, to Egypt lower down and
region is home to a disproportionately dependence on oil exports towards a
Yemen at the bottom of the Index.
large number of the world’s faithful. more diversified economy based on
To be sure, many Middle Eastern countries Yet all Middle Eastern countries in the attracting international capital and talent.
do have some things in common. No Index, except Israel, score poorly on As a result, the UAE has an extraordinarily
Arabian Gulf or North African country religious freedom. high migration and therefore opportunity
scores well on political life, chiefly because score, as a global workforce has flocked
Predictably, some of the richer Middle
of a lack of political rights and civil to the opportunities created by Dubai
Eastern countries report high levels of
liberties. This indicator of democracy and its fellow emirates.
charitable giving, but also, on the
Freedom of Choice
Religious Freedom
Good Governance
Good Governance
Commercialising
Invested Capital
Community Life
Religious Belief
Overall Rank
Innovation
Education
Country
Health
Rank
Rank
19 Israel 8 12 8 11 13 7 21 0 7 7 6 3 2
28 United Arab Emirates 39 6 6 -2 6 -23 20 12 1 9 -2 -8
30 Kuwait 35 2 2 18 4 -38 27 2 -1 12 -9 -17
45 Saudi Arabia 62 11 -5 -9 -1 -38 30 -10 -9 8 3 -24 12
49 Tunisia 52 -4 2 -6 -1 52 -2 -4 3 -12 -11
50 Jordan 42 -6 0 12 -6 4 63 -1 -5 8 -12 -17 13
66 Algeria 65 6 -7 -5 -6 -32 67 -19 -9 4 -8 -14 12
67 Egypt 56 -8 -7 -2 -5 1 79 -3 -11 5 -11 -17 12
73 Iran 87 -3 -13 -6 2 -12 55 -12 -12 3 2 -17 11
74 Morocco 77 -7 -3 -11 -7 6 66 -3 -6 4 -4 -6 13
79 Lebanon 82 -5 -6 1 -7 70 -4 -8 1 4 -6
104 Yemen 103 -10 -12 -11 -10 -16 103 -6 -13 -7 -9 -11
BHUTAN’S GROSS NATIONAL HAPPINESS
FINDING: The top 30 countries in the Prosperity Index include not only countries
from Western Europe and North America but also Asia, Eastern Europe, and the
Middle East.
Australia
Costa Rica,
Saudi Arabia Japan, Germany,
Trinidad & Tobago Singapore, Hong Kong
Liveability
Colombia, Venezuela,
Dominican Republic
Estonia, Hungary,
Ecuador Slovakia
Russia, Ukraine
Competitiveness
Many of the factors that produce high There are interesting patterns in the does not earn its position only by virtue
levels of life satisfaction in countries are relationship between competitiveness of being an island paradise (although its
the by-products of economic success: and liveability, as assessed by the climate scores are not bad). Rather, it has
richer countries have more money to Prosperity Index. The top-performing an extreme negative score on one
spend on medical care, faster-growing countries (in the upper right quadrant) competitiveness indicator, as 40 percent
economies will tend to suffer lower rates show some level of balanced pursuit of of its economic output is generated by
of unemployment, and of course, long- both wealth and wellbeing. Russia, reliance on oil and gas exports.
term growth produces higher incomes Mongolia, and several Eastern European
and reduces poverty. countries, by contrast, tend to be In the lower left quadrant, some
comparatively weak on liveability (relative countries have a low rank owing especially
There are, however, several factors that to poor liveability scores (e.g., Moldova),
to their levels of competitiveness), with
are not highly correlated with income others especially to poor competitiveness
poor scores in social capital, climate, and
but nonetheless strongly impact life scores (e.g., Ecuador), while Zimbabwe
the environment.
satisfaction – most notably Religious Life, has an obvious low rank owing to poor
Climate, Equality of Opportunity, and Conversely, many Latin American scores on both.
Family Life. Hence a few countries that countries tend to be comparatively
do very well on our Economic strong on liveability, with high scores on
Competitiveness Index do relatively religious faith and, usually, health. The
badly on our Comparative Liveability outlier, Trinidad & Tobago,
Index, and vice versa.
PRINCIPLES OF PROSPERITY
FINDING: The 2008 Prosperity Index includes both factors driven by individual
choice and factors driven by the choices of policymakers.
While our understanding of the determinants The raw research results reported in the full
of both material wealth and life satisfaction has report are intended as a stimulus to research
increased by leaps and bounds, much remains and as a diagnostic tool, to identify areas where
unknown. And no wonder, since inquiries into focused effort may reap significant rewards,
the sources of prosperity trace back to the most and to encourage debate on crucial social issues.
fundamental questions about the nature of However, knowing that a country has a relatively
wealth and happiness. We intend to continue low level of invested capital is not the same as
the research that produced the 2008 Legatum knowing the cause of the deficiency or how to
Prosperity Index, contributing to an evolving remedy this deficiency, and the solutions will vary
understanding of the drivers and restrainers from country to country depending on context.
of prosperity. We expect that there will be substantial debate
on these issues.
The analysis in the Index, especially the rankings
of countries, should not be read as a precise It is important to note that while the Index
measurement of countries’ relative success or results may suggest that increasing one factor
failure, but rather as an effort to offer insights should, on average across countries, produce a
into the elements which contribute to creating jump in life satisfaction, the exact effect in each
fulfilled lives and prosperous societies. Although country will depend on its cultural, legal, political,
the analytical techniques that produced the Index religious, historical, and economic context.
are rooted in statistical research on historical and
current data, any analysis stretching across so Notably, no country currently scores well in every
many countries and years and containing so many category. While rich countries enjoy higher levels
interrelated factors is not undertaken for the of economic prosperity, many also face increased
purposes of measurement precision so much as levels of social poverty characterised by the
to elucidate trends and principles. loosening of community bonds, familial ties and
overall social trust. Likewise, poorer countries
We hope that the 2008 Prosperity Index face the challenge of improving clear economic
provides some useful insight as to where, in deficiencies while maintaining the social capital
principle, we can choose to do better in enhancing that so many of them enjoy.
the material wealth and life satisfaction which
define our prosperity, and that this commentary We hope that our analysis of the historical data,
offers a thought-provoking interpretation of the the basic prosperity principles identified in this
Index results. commentary, and the detailed results in the full
report will prove useful to those who are
Researchers, policymakers, and the generally concerned about their own prosperity, that of
curious are welcome to examine the results for their country, and of other countries around the
their countries and others on our website, world. Our hope is to stimulate further debate
www.prosperity.com. At this address, a full set not only on the causes of economic growth but
of data and interactive analysis tools are available also on the overall factors that make life
for all 104 countries in the Index. worthwhile. In so doing we hope to enrich each
other’s lives towards a more prosperous world.