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LEGATUM ™ PROSPERITY INDEX
AN INQUIRY INTO GLOBAL WEALTH AND WELLBEING
The 2010 Legatum Prosperity Index ™ Rankings
Strong ranking countries (Top 30) Average ranking countries (Middle 50) Low ranking countries (Bottom 30)
Entrepreneurship & Opportunity
Safety & Security
Copyright © 2010 Legatum Limited
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Welcome to the 2010 Legatum Prosperity Index™
We are pleased to introduce the 2010 Legatum Prosperity Index™, the world’s only global assessment of wealth and wellbeing. The Index provides a framework for assessing global prosperity that we hope will be of use to policymakers, scholars, businesses, and the globally curious for years to come. Now in its fourth year, this edition builds upon previous versions with expanded data and analysis. In our continuous effort to improve the Index using advances in research and data availability, this year’s Index features some significant changes from the 2009 Index. The rest of this report provides information on the details and implications of these changes. The Prosperity Index is unique. It starts with a holistic definition of prosperity that includes both material wealth and quality of life, and then employs a rigorous set of estimation methods to determine which factors matter most to a nation’s overall prosperity. Most people would intuitively agree that “prosperity” is not just about money but also about quality of life. The Prosperity Index is the first global index that provides an empirical basis for this belief, in addition to measurements of how well each country promotes prosperity. The Prosperity Index seeks to understand how economic fundamentals, health, freedom, governance, safety, education, entrepreneurial opportunity, and social capital influence a country’s economic growth and the happiness of its citizens. It finds that successful countries enjoy a “virtuous cycle” of economic liberty and growth, political freedom and good governance, and enterprising and happy citizens, which mutually reinforce each other on the path to prosperity.
Rather than replicating other measurements that rank countries by their actual levels of wealth, life satisfaction, or development, the Prosperity Index produces rankings based on the foundations of prosperity. These are the factors that help drive economic growth or produce happy citizens in a given country. This summary report provides the country rankings, a number of key findings, and background on how the Index was created. More information on the Prosperity Index, including data sources, profiles of each country, and interactive tools for further exploration, can be found at www.prosperity.com. The Prosperity Index is the signature annual report of the Legatum Institute and is central to our ongoing inquiry into the nature of prosperity and the pathways of successful countries. The Legatum Institute is a London-based global think tank that promotes political, economic, and individual liberty around the globe, with a special focus on developing and transitioning countries. We hope that you find the 2010 Prosperity Index engaging and thought-provoking. For the Legatum Institute, the quest to understand the foundations of prosperity and the principles of successful countries is an enduring investigation that we will seek to improve with every edition. We welcome any comments or feedback that may help improve our understanding. Please visit us at www.li.com for more information about our research, products, events, and initiatives.
“Freedom is indivisible... peace is indivisible... economic prosperity is indivisible.”
Table of Contents Table of Contents Prosperity Index Rankings (Please see inside front cover) The Scope of the 2010 Legatum Prosperity Index Key Findings How We Built the Index: Methodology Sub-Index Descriptions Regional Analyses Legatum Prosperity Index Academic Advisory Panel 5 8 20 26 36 44 Features 1. What Makes Countries Both Happier and Wealthier? 4. What is Going On Up North? 5. The Financial Crisis and the Index 3. Where is My Country? 7 11 13 19 25 3 . Why Another Index? 2.
. the quality of their education or the joy of their play. Kennedy 4 www. the intelligence of our public debate or the integrity of our public officials… It measures everything..prosperity. Gross National Product counts air pollution and cigarette advertising.2010 Legatum Prosperity Index™ “. It does not include the beauty of our poetry or the strength of our marriages. except that which makes life worthwhile.” Senator Robert F. in short.com . and ambulances to clear our highways of carnage… It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl… Yet the Gross National Product does not allow for the health of our children.
business leaders. and second. Economy Entrepreneurship & Opportunity (E&O) Governance Education Health Safety & Security Personal Freedom Social Capital Our hope is that the Prosperity Index findings will be of use to policymakers. By examining how the underlying data in different sub-indexes interact. 8. There are 108 states and two territories – Hong Kong and Taiwan – in the Index. 7. and is based on 89 different variables.” Each of the sub-indexes provides us with two important analyses: first. it is citizens and their leaders who must choose to take ownership of the foundations that will drive their nation’s long-term prosperity and their personal fulfilment. scholars. The Entrepreneurship & Opportunity sub-index looks at how enterprising societies contribute to both the economy and citizens’ satisfaction with their lives. the Prosperity Index allows us to discover the non-economic effects of economic reality. 4. or happiness. While there appear to be some common foundations shared by prosperous countries – such as economic liberty. 6. accountable government. they can help create an environment that is conducive to entrepreneurship. healthy citizens. 1 The term “country” is used loosely to refer to the 110 societies that are in the Prosperity Index. we can begin to uncover intriguing insights and applications. each of which has a demonstrated effect on economic growth or on personal wellbeing. accounting for over 90 percent of the world’s population. And so on. an assessment of a country’s subjective wellbeing. 5 . and will use the term “wellbeing” to signify “life satisfaction” or “happiness. The Prosperity Index consists of eight sub-indexes based upon years of research into the sources of economic growth and quality of life. 3. Each sub-index assesses the effect of a range of variables on per capita GDP and the subjective wellbeing of citizens. and human flourishing. 5. and interested citizens around the world. while governments by themselves cannot create or mandate prosperity. journalists. Ultimately. and the effects of economic indicators on life satisfaction. The Index consists of eight sub-indexes. earned success. an economic assessment. 2. we will use the term “income” and “wealth” interchangeably. human rights. Moreover. the Education sub-index looks at how educational factors contribute to economic growth and a nation’s overall level of happiness. In this way. each of which represents a fundamental aspect of prosperity: 1. Throughout this report. For instance. and strong communities – it remains a fact of history that each nation needs to find its own path to success.The Scope of the 2010 Legatum Prosperity Index™ The Scope of the 2010 Legatum Prosperity Index™ The Prosperity Index™ assesses 110 countries 1.
6 www.2010 Legatum Prosperity Index™ The purpose of the Prosperity Index is to encourage policymakers. and the interested public to take a holistic view of prosperity and to understand how it is created. and overall quality of life. human rights and liberties. It includes factors such as social capital.prosperity. opportunity. Holistic prosperity extends beyond just material wealth. effective governance. security. scholars. the media. health.com .
the Human Development Index. or happiness. To start. alongside the insights provided by these and other indexes. Both of these dimensions are necessary to provide a holistic picture of prosperity. the Prosperity Index will help provide new insights into the factors that produce successful countries and fulfilling lives. Second. from the ease of starting a business to monetary stability to infant mortality to satisfaction with living standards to marriage and divorce rates – even attendance at religious services. This means it is the only global index that measures both the factors that produce economic growth and those that produce happy citizens (or. It identifies as many factors as possible that make a significant contribution to GDP growth or subjective wellbeing (SWB). the World Bank Governance Indicators. A third unique aspect of the Prosperity Index is its use of both objective and subjective data. and Freedom House’s Freedom in the World Report. The Prosperity Index utilises other helpful indexes such as the Wall Street Journal/Heritage Foundation’s Index of Economic Freedom.The Scope of the 2010 Legatum Prosperity Index™ Feature One Why Another Index? How is the Prosperity Index different from the other Indexes out there? Do we really need another one? These are good questions. which together comprise “prosperity. the World Economic Forum’s Global Competitiveness Index.” Many other indexes focus just on one or two issue areas. health. the Global Peace Index. more technically. such as economic policy. the Prosperity Index is the world’s only global assessment of wealth and wellbeing. as it is generated and experienced. the Prosperity Index is unique because of the broad and diverse range of factors it includes. Our hope is that. “the subjective wellbeing” of a country’s citizens). 7 . It measures both the actual performance of countries as well as citizens’ perceptions of their lives. The Prosperity Index looks at everything.
8 www.com . It is our hope that readers will join us in exploring the Index as a way to confirm or challenge the consensus on emerging trends. This section contains some of the many interesting findings revealed by the Index’s unique analysis. and find new policy applications for national growth and wellbeing.2010 Legatum Prosperity Index™ Key Findings The Prosperity Index is about more than country rankings. It is an exploration into the sources of prosperity and how they relate to each other.prosperity. test conventional wisdom.
III. Choice and opportunity matter more to happiness than making a lot of money quickly. Prosperity is found in entrepreneurial democracies that have strong social fabrics. Material wealth cannot be explained only by economic factors. Two Europes are emerging. 6. Global prosperity is changing in unexpected ways. 7. 10. Entrepreneurship and opportunity correlate more closely to a nation’s overall prosperity than any other factor.Key Findings The findings fall into three main categories: I. 9. but not as one might think. 2. 9 . Economic growth is not enough for the BRICs. Changes in the “social fabric” of a country can lead to big changes in national prosperity. and happiness cannot be explained only by subjective emotions. Prosperity is about balance. It’s hard to be prosperous as a large country. 1. II. 5. It pays to be a democracy. 8. 3. Improved governance is emerging as a key driver of prosperity in Sub-Saharan Africa. 4. Prosperity is a blend of wealth and happiness.
INSIGHT: In the wake of the global financial crisis. education. 1. This implies that while other foundations such as health. How well a country does in these areas goes a long way to explaining how well it will do promoting prosperity more generally. The overall Prosperity Index rankings correlate more closely to the Entrepreneurship & Opportunity (E&O) sub-index. or even the economy.2010 Legatum Prosperity Index™ Here are some of the most interesting findings from this year’s Index: I. and fosters a sense among its citizens that hard work is rewarding. levels of entrepreneurship and access to new opportunities actually provide the best proxy to understanding how prosperous a society can be. The fact that none fall in the extreme upper left or lower right corners shows how similar the E&O and overall Prosperity rankings are to one another. some governments might have been tempted to impose protectionist tariffs or complex regulations which could discourage business activity. social capital. 101 81 61 41 21 1 2010 Entrepreneurship & Opportunity Rankings 10 www. the E&O sub-index still correlates with the overall rankings. Entrepreneurship and opportunity correlate more closely to a nation’s overall prosperity than any other factor. than to any other sub-index. If we create an average ranking of only the income-related portions of all eight sub-indexes.com . Correlation Between Entrepreneurship & Opportunity and Overall Prosperity Overall 2010 Prosperity Index Rankings 1 21 41 61 81 101 Notice how the points on the graph are arranged in almost a straight diagonal line. encourages new businesses. Given the importance of entrepreneurship for overall prosperity. The E&O sub-index is an important gauge of the way in which a society commercialises innovation. which constitute the cornerstone of long-term prosperity. are critical. it is imperative that economic policies in the current recession do not erode the incentives to be entrepreneurial and innovative. Prosperity is found in entrepreneurial democracies that have strong social fabrics.prosperity.
then entrepreneurship and business activities can be discouraged and the crisis can have a more permanent impact on global wealth and wellbeing. As of yet. the recovery is still fragile in many regions of the world. a temporary recession – insofar as it does not alter the foundations of long-term prosperity – should not have a large impact on the countries’ prosperity rankings.5 percent in 2010. which quickly translated itself into a global recession. partly because much of the data predates the crisis. the crisis could have a lasting effect on global prosperity if governments followed policies that tend to erode these foundations. in 2011. the world has been hit by a major financial crisis. institutional. or protectionist tariffs. For example. and maybe also the countries’ rankings. and cultural underpinnings of global prosperity. we can see a clear decline in measures of confidence in financial institutions in many countries of the world. we should stress that the purpose of the index is not to track directly the fluctuations in income. but rather the structural. According to the IMF. 11 . prohibitive tax rates. It is thus conceivable that the financial crisis will affect the scores. The Entrepreneurship and Opportunity sub-index is related very tightly to material prosperity. How has the crisis affected the 2010 Prosperity Index? On the one hand. However.Key Findings Feature Two Financial Crisis and the Index Since mid-2008. In principle. those parts of the Index which make use of measures of the real economy do not seem to be affected. weakening the countries’ scores on the Economy sub-index. the world economy shrank by 0. On the other hand. particularly in parts of Western Europe and in the United States.6 percent in 2009 and while the global output is expected to grow by around 4. if governments respond to the crisis by imposing complex regulations.
“democracies not only out-perform dictatorships when it comes to long-term economic growth.com . Indonesia and Algeria have improved the most in their Prosperity Index rankings since 2009.prosperity. they are nonetheless important to overall prosperity. Top 25 Countries are Mostly Democracies Italy (25) Norway (1) Democracy Type of Government (Polity IV Project Rating) 10 8 6 4 2 0 Singapore (17) Hong Kong (20) Of the top 25 countries. INSIGHT: Shifts in mores. and worship. While survey results (on which many of our social capital and governance findings are based) are more volatile than other forms of data. It pays to be a democracy. and Nicaragua. Moreover. In both cases. with accountable leaders and citizens who are free to speak. mainly due to significant declines in social capital and governance. satisfaction with freedom of choice and other social attitudes and practices clearly have direct implications on national prosperity. 12 www.” exemplified by nations such as China and Russia. Democratic nations turn in the strongest performances across the board in every sub-index. -2 -4 Autocracy -10 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 2010 Prosperity Index Rankings in Ascending Order 3. Rapid swings in social attitudes may thus be a lead indicator of significant changes to come. tolerance. property and shareholder rights. and healthier citizens. and the other two (Singapore and Hong Kong) are semi-democratic societies rated at least “Partly Free” by the authoritative Freedom INSIGHT: While recent years have witnessed the rise of “authoritarian capitalism. and the free flow of capital depend on political systems that are grounded in rule of law. both in economic growth and life satisfaction. Changes in the “social fabric” of a country can lead to big changes in national prosperity. asset valuation. As Harvard economist Dani Rodrik observed. led to significant changes in overall prosperity. think. such as education and human capital. Algeria. safer. 23 are democracies. Indonesia has improved by 15 places to 70 and Algeria has improved by 12 places to 79. assemble. but also outdo them in several other important respects”.2010 Legatum Prosperity Index™ 2. House survey. this was a result of significant improvements in social capital. Conversely. the single best national model for sustaining wealth creation and happy citizens remains democratic capitalism. democracies produce happier. Nicaragua experienced the largest decrease in rankings by 14 places. Economic principles such as market transparency. Twenty three out of the top 25 societies in the Prosperity Index are electoral democracies. The main factors behind the changes in social capital were survey responses – this shows that large changes in public attitudes in Indonesia.
Australia Canada. Finland Sweden. the extent of regulation in the business sector and a government’s effectiveness are both related to wealth and wellbeing. gross secondary and tertiary enrolment. citizens are not only happier. honest and efficient governance. Given the benefits of a smaller size (none of the countries that make the top 10 in both categories are among the world’s largest 25 countries). Netherlands Austria Norway. And important measures of social capital such as donations. and the reliability of others are not only linked to happy people – but they are also characteristic of strong economies. and vice versa. we have included variables that have a significant relationship with per capita GDP or life satisfaction as tracked by the Gallup World Poll. Tolerance for immigrants and ethnic minorities has a modest effect on both material prosperity and wellbeing. girls to boys’ enrolment ratio. volunteering. Top Countries in Both Income and Wellbeing Measures Top 10 countries by wellbeing measures Top 10 countries by income measures The eight countries in the middle are in the top 10 in both income and wellbeing measures. By promoting economic prosperity. If we break down the methodology and look at the top 10 countries by economic performance. Poorer economic performances and lower levels of life satisfaction are related to higher inflation rates. More than thirty variables in the Index have a relationship with both. Prosperity is about balance. New Zealand. helping strangers. they promote happiness. but they are also able to enjoy higher levels of income. Also. when a country provides strong national security. In education. the best-performing countries additionally benefit from democratic political systems. Strong human capital formation in a country has more than an economic impact: it also produces citizens who are more satisfied with their lives. In fact. 13 . we see a lot of overlap. suggesting that an environment onerous to entrepreneurship is bad for the economy as well as people’s perceptions about opportunities in their lives. The Prosperity Index also shows us that traditionally non-economic factors have more than non-economic effects. net primary school enrolment. INSIGHT: The world’s most prosperous countries are very well-balanced countries. Switzerland United States Ireland Feature Three What Makes Countries Both Happier and Wealthier? In the Legatum Prosperity Index’s eight sub-indexes. Denmark. and levels of secondary and tertiary education per worker are all related to economic prosperity and life satisfaction. The Prosperity Index rankings combine measures of economic growth and measures of life satisfaction. and enterprising citizens. in a mutually-reinforcing virtuous cycle.Key Findings 4. and then the top 10 countries by life satisfaction. Business start-up costs and ICT infrastructure also have strong relationships with both income and wellbeing.
domestic savings rates. isolation. When it comes to the conditions of happiness. 107. Norway Denmark Finland Australia New Zealand Sweden Canada Switzerland Netherlands United States 10 Bottom 10 countries 101. 110. and fear is not only unenlightened – it is ultimately self-defeating. 3. an increased level of tolerance toward immigrants is associated with higher levels of GDP per capita. 5. has a strong positive correlation with economic performance. and happiness cannot be explained only by subjective emotions. 5. Prosperity is a blend of wealth and happiness. but not as one might think. such as people’s perceptions of each other’s trustworthiness. High levels of trust in a society are necessary for trust-based capital markets to function. 8. 4. 6. For instance. have a strong influence on how satisfied people are with their lives. INSIGHT: Policymakers hoping to understand the nature of prosperity and how it is created will be better-equipped by grasping a fundamental reality: social attitudes and networks have direct economic consequences. a “soft issue”. Likewise. 10. 106.2010 Legatum Prosperity Index™ Prosperity Around the World 7 Top 10 countries 1. and even internet connectivity.com . Zambia Cameroon Mozambique Kenya Yemen Nigeria Ethiopia Central African Republic Pakistan Zimbabwe II. 103. 7. 104.prosperity. 2. economic factors. 14 www. 109. 105. 9. such as employment status. 102. Material wealth cannot be explained only by economic factors. Saying that one cares about the economy while not caring about factors such as distrust. 108.
15 . wealth through hard work. INSIGHT: When people believe opportunity is real and that it pays to pursue a dream. Fast economic growth. Thus. than the wealth the process actually creates. happiness also follows suit. on the other hand. does not necessarily lead to more happiness – statistically. Choice and opportunity matter more to happiness than making a lot of money quickly. The process of creating leads to decreased wellbeing among citizens. higher rates of GDP growth are correlated with lower levels of wellbeing. may lead to a decrease in a nation’s prosperity. When it comes to happiness. when growth occurs as a rewarding output to people’s and taking risks is more important to happiness productive pursuits.Key Findings 1 9 2 3 6 8 109 Strong ranking countries (Top 30) Average ranking countries (Middle 50) 105 100 106 108 102 104 107 Low ranking countries (Bottom 30) Insufficient data 101 110 103 4 5 6. while fast growing economies may improve societies. Being free to choose the course of your life and experiencing the satisfaction that comes from pursuing new opportunities matter more than quickly making a lot of money. GDP growth pursued through narrow. creative endeavour. they are often wellbeing research has demonstrated that GDPs that grow happier than when they actually have the things too fast are often accompanied by social instability that associated with opportunity. top-down policies that do not take citizen wellbeing into account. the belief that hard work helps one get ahead is an important factor. However.
and Education sub-indexes have decreased since 2009. In fact. from 25th to 26th. and Spain moved from 20th to 23rd. Some analysts have recently replaced Italy with Ireland. Three of the four original PIGS also rank lower than they did last year. European Countries on Different Trajectories 6 Hungary (34) Movement in Prosperity Index Rankings from 2009 to 2010 4 Slovenia (21) Netherlands (9) Most top ranking EU states either maintained or increased in their rankings from 2009 to 2010. Troubled European nations. Global prosperity is changing in unexpected ways. Two Europes are emerging. the Baltic countries are rapidly falling behind the rest of the EU. Additionally.com . Portugal moved INSIGHT: The Index shows that the gap between successful and unsuccessful European countries is widening. 2 Bulgaria (46) Slovakia (37) Italy (25) Germany (15) Sweden (6) Finland (2) Norway (1) Czech Republic (24) Austria (14) UK (13) 0 Poland (29) Portugal (26) France (19) Belgium (16) -2 Romania (51) Lithuania (42) Greece (39) Estonia (35) Spain (23) Ireland (11) -4 -6 Latvia (47) Most lower ranking EU states decreased in their ranks from 2009 to 2010. with the largest drop in ranking occurring in the Economy sub-index. have well-known economic problems. and Spain) score higher in prosperity than the remaining Western European nations. In the overall rankings. none of the four original so-called PIGS (Portugal. Ireland has dropped two places in terms of its overall Prosperity Index ranking – from 9th in 2009 to 11th in 2010. 1 -8 51 41 31 21 11 Bottom ranking Overall 2010 Prosperity Index Rankings Top ranking 16 www. 7. Greece. but their citizens are also not as happy with their lives – which is somewhat surprising given conventional wisdom about the quality of life in these common travel destinations. Entrepreneurship & Opportunity. Ireland's performance in the Economy. they rank lower than some Eastern European nations: Slovenia scores higher than all of the original PIGS.' Interestingly.prosperity. These Southern European and Baltic EU states are diverging from the other EU nations as their levels of prosperity drop. and Slovakia and Croatia have overtaken Greece. when referring to the 'troubled 'PIGS.2010 Legatum Prosperity Index™ III. Governance. such those in its southern regions. the Czech Republic is ranked higher than Italy and Portugal. Italy. Greece moved from 36th to 39th.
a number of other African countries. particularly in establishing confidence in the military and in the judicial system. Improved governance is emerging as a key driver of prosperity in Sub-Saharan Africa. Namibia is 44th on the same Governance sub-index. INSIGHT: African growth is one of the most underreported news stories of this decade. Mali. In terms of overall prosperity. better than Greece or Latvia. The index shows that the most successful African countries owe their success to radical improvements in the quality of their governance. for instance. South Africa and Namibia are leading in the region. such as Senegal. or Cameroon score better than some Eastern European countries. On the Personal Freedom sub-index. -2 0 Overall 2010 Prosperity Index Scores 0 = Global Average Performance -2 Sudan Tanzania Botswana Cameroon Zimbabwe Central African Republic Namibia Nigeria Kenya Senegal Ghana Mali Mozambique Zambia South Africa Ethiopia Rwanda Uganda Economy Entrepreneurship Governance & Opportunity Education Health Safety & Security Personal Freedom Social Capital -4 -6 -8 -10 Sub-Indexes 17 . one can find some encouraging differences among African countries. While Sub-Saharan Africa still dominates the lower tier of the rankings. and 35th on the Personal Freedom sub-index. Portugal or Italy. scores 25th on the Governance sub-index.Key Findings 8. driven by some surprising successes in the sub-indexes. Africa: Good Governance Increases Prosperity Although most African countries fall well below the global average. ahead of Slovenia. progress among the top performers indicates that Africa has significant bright spots. Botswana. Botswana. It also ranks 21st on the Personal Freedom sub-index.
according to the Gallup World Poll. However. In order to go from emerging economies to prosperous nations. Following the 2008 Mumbai attacks. governments. It’s hard to be prosperous as a large country. and Social Capital sub-indexes. places in the top 15 in seven subindexes. a majority of them are marked by imbalanced. which ranks at 10 in the Prosperity Index. when we look at prosperity holistically. unstable. Economic growth is not enough for the BRICs. also ranks among the top 10 countries in the Prosperity Index. The 10 countries in the world with more than 125 million people apiece deal with challenges to sustainable prosperity that are less significant in smaller countries. Brazil and Russia have changed relatively little over the past year. Perhaps unsurprisingly. and Safety & Security. contributing to a drop in the levels of Personal Freedom. the BRICs will have to foster improvements in areas beyond economic factors. the United States. Only one nation in this group. its improvements have been offset by decreased rankings in Education. primarily due to its drop in the Personal Freedom sub-index. Health. USA: Top Ranking Large Country 1 Overall Prosperity Index Ranking 21 41 61 The US. In general more of world’s most populous countries are either governed undemocratically or are struggling to maintain democratic societies under the rule of law. China has improved the most by climbing up the ranks in the Economy. The BRICs (Brazil. with Russia still suffering from its notorious (and worsening) troubles with Personal Freedom. However. Governance. have been regarded as leaders among emerging economies. Personal Freedom. While the economy may be improving. INSIGHT: Global conventional wisdom has come to accept the hard-charging nature of the BRICs’ economies. 81 United States Japan Brazil China Russia Indonesia India Bangladesh Nigeria Pakistan 101 Economy Entrepreneurship Governance & Opportunity Education Health Safety & Security Personal Freedom Social Capital Sub-Indexes 10. 18 www. Most of the other large countries do not break into the top 20 in any sub-index. India and China). but looking at economic growth alone can gloss over their deep deficiencies in other areas essential to long-term. INSIGHT: The USA and Japan. Large populations bring unique challenges as well as opportunities. the BRICs’ current situation is precarious. which have more than 40% of the world’s population.com . Although China has recently overtaken Japan as the world’s second largest economy. the perceived tolerance of Indians towards immigrants has fallen substantially. stand out primarily because each has at least over a half century of experience with the institutions of democratic capitalism. which dominate the upper tier of the world’s largest countries. sustainable prosperity. or even corrupt.2010 Legatum Prosperity Index™ 9. it still trails 40 places behind Japan at 58 in terms of its overall prosperity. the proportion of Chinese who feel free to determine the course of their lives decreased from 85% in 2008 to 77% in 2009.prosperity. Entrepreneurship & Opportunity. India’s ranking has decreased the most by 10 places since 2009. Russia. In spite of the headlines about the rise of the BRICs.
The fact that they have both strong economies and high levels of taxation and redistribution has led some to argue that large welfare states are important to prosperity. is that the size of the public sector and levels of taxation tend to matter less than the incentives that individuals face when deciding whether or not to engage in productive activities. it would be ill-informed. give themselves credit. Additionally. and others. This is a system that would – without a high degree of trust and public spiritedness – have generated moral hazard issues and unemployment. One important consideration for economic growth. The four Nordics rank in the top six in the Entrepreneurship and Opportunity sub-index because an overwhelming majority of citizens in each country have confidence that they can climb life’s ladder regardless of socio-economic status. However tempting such a conclusion might be.Key Findings Feature Four What is Going On Up North? The very top of the 2010 Prosperity Index is dominated by the four major Nordic countries: Norway. Denmark. and Finland. Despite large governments and fairly high tax rates. if one were to average Denmark’s scores in that Index’s eight categories related to economic performance. As an example. the Nordic countries now rank among the economically freer regions of Europe. Why is this? Further research shows that a high level of public spiritedness allows welfare states to foster economic and social wellbeing. 19 . Sweden. Danish labour markets combine a very low level of job protection and rigidity with generous unemployment benefits. Swedish economic growth accelerated as it reduced its government spending throughout the 1990s. then. Denmark would rank as the world’s freest economy in the Heritage Foundation’s Index of Economic Freedom. One might say that the Nordic countries are more economically free than for which they. Recent research has shown that Nordic countries were among the most aggressive “neoliberal” reformers of the 1980s and 1990s.
Due to limitations in data availability. and categorises them into eight sub-indexes. This section provides an overview of the sub-indexes. and in many cases also relate to each other.prosperity. we were able to include additional variables that enabled each sub-index to include both income and wellbeing dimensions. The Prosperity Index identifies 89 variables that are linked to higher levels of income and wellbeing. please refer to the full report. two of which (essentially) measured income and wellbeing dimensions of governance. For the 2010 Index. the Prosperity Index uses econometric analyses to identify eight sub-indexes that are critical for prosperity. decades of established theoretical and empirical research on economic growth and wellbeing have identified some common themes. due to increased data availability.com . Of course.2010 Legatum Prosperity Index™ How We Built the Index: Methodology The Legatum Prosperity Index™ is an assessment of wealth and wellbeing in 110 countries around the world that includes more than 90 percent of the world’s population. For additional information on the construction of the Index. While each country’s path to prosperity is varied. 20 www. They are both the causes and consequences of high levels of income and wellbeing. a country that performs well in educating its workers probably also has an innovative economy. each of which is considered to be a fundamental pillar of prosperity. It explains how we determined the importance of each variable and calculated a country’s overall prosperity score. Each sub-index is based on analyses of the factors that lead to higher levels of both income and wellbeing. Using this research. it is important to keep in mind that the relationships between these variables and foundations are complex. For instance. The 2009 Index featured nine sub-indexes. the other seven sub-indexes only measured how each sub-index related to either income or wellbeing. which can be found at www.com.prosperity.
risk-taking. equally weighted The Prosperity Index is divided into eight different sub-indexes. Economy Entrepreneurship & Opportunity Governance Education Health Safety & Security Personal Freedom Social Capital At a very basic level. and which elements in a learning environment lead to higher levels of wellbeing? Health – What are the health-related factors in a society that are necessary for higher levels of per capita income and wellbeing? Safety & Security – How does the personal safety of citizens and the national security of a nation create conditions for growth in per capita income and higher levels of wellbeing? Personal Freedom – In what way does the guaranteed right to speak. assemble. and institutions lead to higher levels of wellbeing and economic productivity? 21 . Each sub-index is created through statistical analysis of what increases both the per capita income and life satisfaction of a country’s citizens. and seek opportunities that lead to higher levels of income and wellbeing? Governance – What are the government institutions and types of government functions that lead to growth in per capita income and higher levels of wellbeing? Education – Which aspects of an educational system contribute to growth in per capita income through their contribution to human capital. relationships. each of which has been identified as a foundation of prosperity.How We Built the Index: Methodology What are the foundations of prosperity? 2010 Prosperity Index Eight Sub-indexes. and worship also promote higher levels of income and wellbeing? Social Capital – What kinds of social networks. each sub-index is designed to answer some simple questions Economy – Which factors in a nation’s economy lead to higher levels of per capita income? conditions promote confidence and lead to higher levels of wellbeing? Which economic Entrepreneurship & Opportunity – What are the characteristics of a society that encourage citizens to be entrepreneurial. think.
a country’s economy or quality of governance not only impacts income levels. we used survey data from the ‘Life Today’ question in the Gallup World Poll as the dependent variable. For instance.com . statistically speaking.com. Further discussions on these estimation methods.prosperity. we used General Methods of Moments (GMM) regressions. Each sub-index includes both types of regressions. In order to determine the factors leading to greater economic prosperity. are presented in the full Prosperity Index Report. This survey item measures individual life satisfaction or subjective wellbeing. For those familiar with econometric terminology. some things matter more to prosperity than others. These characteristics are measured by 89 variables that are a combination of objective data and subjective responses to surveys. yet fairly complex. We represent these weights in the bar graphs in each of the sub-index descriptions that follow. which is available at www.2010 Legatum Prosperity Index™ How did we find the most important factors for prosperity? Each sub-index is built upon characteristics that our inquiry has found essential to promoting prosperity. In this analysis. In order to determine what leads to higher levels of wellbeing. and the rationale for using our specific measures of income and wellbeing. regressions (a way of statistically determining which variables matter most). but also citizens’ sense of wellbeing. we used a method called ordered logistic regression on cross-sectional data. since each foundation of prosperity has both income and wellbeing dimensions. The regressions estimate a “weight” for each variable – or a “coefficient” for the more technically inclined. We have determined the importance of each of these variables to higher levels of income or wellbeing by using well-established. we used GDP per capita as the dependent variable in these GMM panel regressions. It is important to note that these fundamental characteristics have not been arbitrarily selected. but are drawn from established theoretical and empirical research on the significant drivers of economic growth and wellbeing.prosperity. In other words. changes from the 2009 Index. 22 www. This weight represents the variable’s relative importance as a factor of prosperity.
on our website at www. for more details on how the scores are calculated for each sub-index.. B8 * x8 + B9 * x9 + B10 * x10 + .. However. please go to the full report.. which is available on our website.. multiply the raw values and coefficients from variables that are statistically relevant. Those that are statistically relevant will have a significant coefficient. The countries are ranked based on these scores to produce the overall Prosperity Index rankings.prosperity. These sub-index scores are then averaged to produce a country’s overall prosperity score.. How the Sub-Index Scores are Calculated Sub-Index Income Wellbeing 1.com. Additionally. Identify variables that go into each sub-index. For each country. While different foundations are likely to matter more for countries in different regions or income levels. 23 . The diagram below illustrates how we go from identifying a factor of prosperity to determining a country’s performance in a sub-index.. represented by the “B” symbol. Sub-Index Score 4. based on a combination of its performance in the different variables and the varying levels of importance these variables. In a few instances. = Income score = Wellbeing score 3. Average the income and wellbeing scores to get the overall sub-index score.. certain variables will matter to both. For each country 2. Add up these weighted variable values to produce a country’s wellbeing and income scores in each sub-index. the Prosperity Index gives equal weighting to the sub-indexes to allow us to compare countries across sub-indexes.. we offer you the opportunity to give your own weightings to each of the sub-indexes.How We Built the Index: Methodology How do we measure a country’s overall prosperity? A country is given a score in each sub-index. and see how the rankings change. X2 X1 X5 X3 X6 X4 X7 X8 X9 X10 X13 X11 X14 X12 X15 GDP/Capita = B1 X1 + B2 X2 + B3 X3 + . Some variables will be relevant to income and others to wellbeing. B1 * x1 + B2 * x2 + B3 * x3 + . ‘Life Today’ = B8 X8 + B9 X9 + B10 X10 + . Retain variables that are statistically relevant to income or wellbeing.
we have recalculated the 2009 rankings according to the 2010 methodology to produce accurate comparisons. it still measures countries on elements that are central to social capital. comparing the 2010 Index to the original 2009 version does not produce an ‘apples to apples’ comparison. It shows the shifts that result from absolute changes in country performance. This meant that we had to exclude variables on rates of group membership. The other changes we made in this year’s Index concern applying more rigorous standards for data coverage. As a result.com .prosperity. some of the differences between countries’ rankings in this year’s and last year’s publication will be the consequence of improvements in the methodology of the index. For a complete description of the changes we have made to the Index methodology. Comparison Between the Original 2009 Prosperity Index Rankings and the 2010 Prosperity Index Ranking 1 Original 2009 Prosperity Index Rankings 21 There is a high level of correlation between the 2010 Prosperity Index rankings and the original 2009 rankings 41 61 81 101 101 81 61 41 21 1 2010 Prosperity Index Rankings 24 www. Conversely. each sub-index now includes two regressions. and specific ones like India and China. we decided to only include variables for which there was data available for more than 80% of Index countries. The graph to the right shows the correlation between the original 2009 and the new 2010 Index rankings. Because of this year’s changes. countries like India that performed well on membership variables suffered a large decrease in their social capital ranking. The high correlation between the two rankings is a result of the fact that the 2010 Prosperity Index measures the same fundamental aspects of prosperity. taking account of the latest findings in this growing area of research. have undergone large shifts in rankings from 2009 to 2010. the rankings change very little. which were important measures of strengths of social networks. Therefore.2010 Legatum Prosperity Index™ Why did we change our estimation methods in 2010? The 2010 Prosperity Index presents a refined and improved version of its predecessors in 2009 and 2008. This is because in 2010. we are continuing to search for variables that will capture the important aspects of social capital that are currently missing from the sub-index. That being said. While the 2010 Social Capital sub-index has a more limited scope. please refer to the full Prosperity Index Report at www. some countries in the Middle East and Latin America. In light of the extent of the changes. the E&O sub-index. This is mainly due to significant changes in the Social Capital and Entrepreneurship & Opportunity (E&O) sub-indexes. Meanwhile.prosperity. The chart on page 43 provides an ‘apples to apples’ comparison between 2009 and 2010. The Governance and Democratic Institutions sub-indexes from 2009 have now been merged into one sub-index. has expanded in scope. A major methodological change in the 2010 Index has been to create a stronger balance between income and wellbeing by measuring the effect of each sub-index on both income per capita and life satisfaction. As a result of these changes. In the 2010 sub-index. it is perhaps surprising that with the exception of a few countries. which used to be the Entrepreneurship & Innovation sub-index. and exploring new venues of analysis that have become possible as data availability expands. while several countries in the Middle East increased in their rankings. As a result. These two sets of rankings have a correlation of 94%.com. we have been able to include new data that measures these two aspects of prosperity. and our inclusion of both income and wellbeing analyses in each sub-index. This subindex now includes measures of social mobility and access to opportunity. more refined methods for determining the significance of each variable.
Serbia. Syria. Ethiopia. such as those providing economic. Because our research has found that prosperity encompasses a tremendous array of factors. and health data. This year. place restrictions on the types of questions that Gallup may ask since they prohibit their citizens from expressing opinions about government. We urge those governments of nations not included in the Prosperity Index to take whatever steps are needed to make the missing information available – doing so is in the best interest of their own citizens. as we rely upon survey data from the Gallup World Poll. which covers 155 countries. education. totalitarian nation such as North Korea does not permit Gallup to survey its citizens. such as Burma’s or Cuba’s. 25 . Yet. thereby expanding country coverage from 104 in 2009 to 110 in 2010. the Prosperity Index includes a lot of data: 89 variables drawn from 12 different data sources. Other countries may be covered by the Gallup World Poll but are not in other data sets essential to the Index. effective government is a willingness to allow its citizens to express their opinions freely. Our hope and long-term goal remains to build an index that includes every single country in the world. governance. and political conditions available in a transparent and objective manner. Sometimes this reflects a government’s unwillingness or inability to collect or make available the needed data. we cannot include all countries. One sign of an open.How We Built the Index: Methodology Feature Five Where is My Country? We are often asked the familiar question: “why isn’t my country listed in the Prosperity Index?” Although the Prosperity Index ranks and evaluates 110 countries comprising more than 90% of the world’s population. we have been able to find sufficient data on six additional countries. we cannot include countries that Gallup doesn’t cover. Lithuania. a closed. Countries as diverse as Somalia. and to make information on its economic. and Suriname are included in the Gallup World Poll. some governments. Iceland. social. For example. but are not covered by enough other data sources to meet the threshold for ranking in the Prosperity Index. Moreover. and Uganda. Samoa. Rwanda. Why? The answer is straightforward: there is not sufficient data available on that country.
26 www. and a table listing the variables that we used. we have provided rankings of the top and bottom 10 countries.prosperity.com . for each sub-index.2010 Legatum Prosperity Index™ Sub-Index Descriptions The 2010 Prosperity Index consists of eight sub-indexes: • Economy • Entrepreneurship & Opportunity • Governance • Education • Health • Safety & Security • Personal Freedom • Social Capital In the following pages. descriptions of the sub-index.
low rates of inflation and unemployment. economic satisfaction and expectations. such as robust domestic savings rates. It also shows that investing in physical capital per worker. Income and wellbeing bar sizes are not comparable due to differences in scale 27 .Sub-Index Descriptions Economy Sub-Index Ranking Distribution for Economy Top 10 countries Norway Switzerland Netherlands Denmark Canada Singapore Sweden Australia Finland Hong Kong 6 7 8 9 10 4 5 3 2 1 Bottom 10 countries 101 102 103 104 105 106 107 108 109 110 Senegal Nicaragua Zambia Moldova Central African Republic Ethiopia Kenya Uzbekistan Ghana Zimbabwe Strong ranking countries (Top 30) Average ranking countries (Middle 50) Low ranking countries (Bottom 30) Insufficient data Stable and growing economies increase per capita income and promote the overall wellbeing of its citizens. The Economy sub-index measures countries’ performances in four areas that are essential to promoting prosperity: macroeconomic policies. and a competitive economy that facilitates domestic demand and attracts foreign investment are essential to boosting per capital income. While our research shows that increased economic strength over time is generally good for everyone. and an efficient financial sector have a positive impact on both average levels of income and wellbeing. Indicates a variable that is included in only one regression. Variables have been divided into different categories within each sub-index. it also finds that rapid increases in GDP are related to lower levels of happiness in a society as people grapple with the dislocations that often accompany such growth. INCOME Macroeconomic Policies Gross Domestic Savings Unemployment Rate Inflation Foundation for Growth Capital Per Worker Market Size High-Tech Exports FDI Size and Volatility WELLBEING Inflation Gross Domestic Savings Employment Status Economic Satisfaction and Expectations Satisfaction with Standard of Living Adequate Food and Shelter Perceived Job Availability Expectations of the Economy 5-year Rate of Growth Financial Sector Efficiency Non-performing Loans Confidence in Financial Institutions Indicates a variable that is included in both income and wellbeing regressions. Positive expectations about the future of the economy and satisfaction with living standards also make an important contribution to the overall wellbeing of a country’s citizens. the variables in the sub-index are categorised into these areas. foundation for growth. and financial sector efficiency. The sub-index demonstrates that outcomes of sound macroeconomic policies. As illustrated in the chart below. Variables are ordered from largest to smallest within each category. innovative high-tech exports.
Lastly. innovative activity.com . it captures elements of access to opportunity by tracking the unevenness of economic development across socioeconomic groups and whether or not citizens believe hard work pays off in the future. Specifically. Income and wellbeing bar sizes are not comparable due to differences in scale 28 www. The E&O sub-index builds upon scholarship that shows how entrepreneurship drives innovation and leads to economic growth. The sub-index also assesses a country’s ability to commercialise innovation. It also uses research demonstrating the positive impact of an individual realising his or her entrepreneurial potential.prosperity. and access to opportunity. the variables in the sub-index are categorised into these areas. Such factors as low costs to starting a business and public perception of a good entrepreneurial environment are important to improving citizens’ economic prospects and their overall wellbeing. When a country increases the likelihood that entrepreneurial activity will pay off. As illustrated in the chart below. the Entrepreneurship & Opportunity (E&O) sub-index measures countries’ performance in three areas: entrepreneurial environment. Variables are ordered from largest to smallest within each category. a society’s prosperity increases overall. Variables have been divided into different categories within each sub-index. INCOME Entrepreneurial Environment Business Start-up Costs Secure Internet Servers Internet Bandwidth Mobile Phones WELLBEING Secure Internet Servers Mobile Phones per Household Good Environment for Entrepreneurs Business Start-up Costs Innovative Activity R&D Expenditure Royalty Receipts ICT Exports Access to Opportunity Uneven Economic Development Perception that Working Hard Gets You Ahead Indicates a variable that is included in both income and wellbeing regressions. as well as the Information and Communication Technology (ICT) infrastructure that exists to enable productive commercial endeavours. Indicates a variable that is included in only one regression. and when individuals experience the satisfaction that comes from earning their success.2010 Legatum Prosperity Index™ Entrepreneurship & Opportunity Sub-Index Ranking Distribution for Entrepreneurship & Opportunity Top 10 countries Denmark Sweden United States Finland United Kingdom Norway Ireland Singapore Iceland Canada 6 7 8 9 10 4 5 3 2 1 Bottom 10 countries 101 102 103 104 105 106 107 108 109 110 Mozambique Zambia Nigeria Tanzania Central African Republic Yemen Cameroon Mali Ethiopia Zimbabwe Strong ranking countries (Top 30) Average ranking countries (Middle 50) Low ranking countries (Bottom 30) Insufficient data A strong entrepreneurial climate in which citizens can pursue new ideas and opportunities for improving their lives leads to higher levels of income and wellbeing.
and the military. the opportunity to have a voice in their government is correlated with happier citizens. and regulatory quality are significant contributors to economic growth. Effective. Academic research has found that in general. and accountable governments also increase public confidence. As illustrated in the chart below. Public wellbeing is also related to people’s perceptions of how well the government addresses societal struggles with the environment and poverty.Sub-Index Descriptions Governance Sub-Index Ranking Distribution for Governance Top 10 countries Switzerland Denmark United States New Zealand Canada Sweden Finland Australia United Kingdom Netherlands 6 7 8 9 10 4 5 3 2 1 Bottom 10 countries 101 102 103 104 105 106 107 108 109 110 Russia Pakistan Yemen Belarus Iran Central African Republic Cameroon Nigeria Sudan Zimbabwe Strong ranking countries (Top 30) Average ranking countries (Middle 50) Low ranking countries (Bottom 30) Insufficient data Well-governed societies enjoy national economic growth and citizen wellbeing. The sub-index shows that citizens prefer governments that are stable and accountable. leading to higher levels of life satisfaction among citizens. Variables are ordered from largest to smallest within each category. political freedom. Likewise. Variables have been divided into different categories within each sub-index. The Governance sub-index measures levels of competition and corruption in the government. and citizens’ confidence in elections. leading to higher levels of income and wellbeing. strength of institutions. INCOME Effective and Accountable Government Government Effectiveness Regime Stability Separation of Powers Political Constraints Government Type WELLBEING Efforts to Address Poverty Business and Government Corruption Government Effectiveness Environmental Preservation Separation of Powers Government Approval Rule of Law Rule of Law Regulation Confidence in the Judicial System Regulation Rule of Law Confidence in Military Fair Election and Political Participation Political Rights Voiced Concern Confidence in the Honesty of Elections Indicates a variable that is included in both income and wellbeing regressions. and rule of law. The Governance sub-index measures countries’ performance in three areas: effective and accountable government. the judicial system. Indicates a variable that is included in only one regression. fair elections and political participation. fair. the variables in the sub-index are categorised into these areas. Income and wellbeing bar sizes are not comparable due to differences in scale 29 . Stable and democratic governing institutions protect political and economic liberty and create an environment of civic participation.
which is measured by the average levels of education in the workforce. Variables have been divided into different categories within each sub-index. the variables in the sub-index are categorised into these areas. The Education sub-index measures countries’ performance in three areas: access to education.2010 Legatum Prosperity Index™ Education Sub-Index Ranking Distribution for Education Top 10 countries New Zealand Australia Finland Norway Denmark Iceland Taiwan South Korea United States Sweden 6 7 8 9 10 4 5 3 2 1 Bottom 10 countries 101 102 103 104 105 106 107 108 109 110 Zimbabwe Yemen Pakistan Senegal Mozambique Nigeria Sudan Ethiopia Mali Central African Republic Strong ranking countries (Top 30) Average ranking countries (Middle 50) Low ranking countries (Bottom 30) Insufficient data Education is a building block for prosperous societies. as measured by levels of educational enrolment rates that are equal for both girls and boys. INCOME Access to Education Gross Secondary Enrolment Net Primary Enrolment Girls to Boys Enrolment Ratio Gross Tertiary Enrolment WELLBEING Gross Secondary Enrolment Gross Tertiary Enrolment Net Primary Enrolment Girls to Boys Enrolment Ratio Quality of Education Pupil to Teacher Ratio Satisfaction with Educational Quality Perception that Children are Learning in Society Human Capital Secondary Education per Worker Tertiary Education per Worker Tertiary Education per Worker Secondary Education per Worker Indicates a variable that is included in both income and wellbeing regressions. While the relationship between higher levels of education and wellbeing is less clear-cut.com . Income and wellbeing bar sizes are not comparable due to differences in scale 30 www.prosperity. therefore. the sub-index uses both objective and subjective variables to assess the quality of education in a given country. as well as measures of citizens’ perception of education. making a case for the non-diminishing effect of education on rising GDP levels. to assess quality. research shows that basic education enhances people’s chances in increasing their satisfaction with life. the Education sub-index uses pupil to teacher ratio. Variables are ordered from largest to smallest within each category. The Education sub-index demonstrates how access to education. quality of education. As illustrated in the chart below. and human capital. This sub-index is built on research on economic growth that has found human capital to be an engine for growth. In addition. it shows that human capital stock. Global data on education is limited and. Because of the importance of citizen’s own perceptions of the educational opportunity available to them. allows citizens to develop their potential and contribute productively to their society. Indicates a variable that is included in only one regression. is essential for promoting private sector research and development as well as producing useful knowledge for a society.
and physical and mental health satisfaction. INCOME Basic Health Outcomes Infant Mortality Life Expectancy Undernourishment Health Infrastructure and Preventative Care Immunisation Against Infectious Diseases Incidence of Tuberculosis Immunisation Against Measles Health Expenditure per Person WELLBEING Infant Mortality Health-Adjusted Life Expectancy Undernourishment Hospital Beds Health Expenditure per Person Water Quality Sanitation Death from Respiratory Diseases Physical and Mental Health Satisfaction Satisfaction with Health Level of Worrying Satisfaction with Environmental Beauty Well-Rested Health Problems Indicates a variable that is included in both income and wellbeing regressions.Sub-Index Descriptions Health Sub-Index Ranking Distribution for Health Top 10 countries United States Iceland Switzerland Norway Japan Germany France Austria Sweden Finland 6 7 8 9 10 4 5 3 2 1 Bottom 10 countries 101 102 103 104 105 106 107 108 109 110 Tanzania Uganda Mali Nigeria Rwanda Zambia Zimbabwe Ethiopia Mozambique Central African Republic Strong ranking countries (Top 30) Average ranking countries (Middle 50) Low ranking countries (Bottom 30) Insufficient data A strong healthcare infrastructure in which citizens are able to enjoy good physical and mental health leads to higher levels of income and wellbeing. as this fosters strong human capital that leads to productive aggregate economic output. Income and wellbeing bar sizes are not comparable due to differences in scale 31 . Self-reported wellbeing and self-reported health are commonly found by researchers to be strongly and significantly correlated to a overall society’s health. The Health sub-index assesses countries by outcomes that are made possible by a strong health infrastructure. The sub-index also includes measures of satisfaction with personal health and the health effects of environmental factors such as water and air quality. Variables have been divided into different categories within each sub-index. As illustrated in the chart below. Countries are also assessed on outcomes such as life expectancy. the variables in the sub-index are categorised into these areas. rates of infant mortality and undernourishment. such as rates of immunisation against diseases and public health expenditure. which in turn leads to higher levels of income per capita. and even environmental beauty. health infrastructure and preventative care. Indicates a variable that is included in only one regression. Mentally and physically healthy citizens are the bedrock of a productive workforce. Variables are ordered from largest to smallest within each category. The Health subindex measures countries’ performance in three areas: basic health outcomes.
impede economic growth.2010 Legatum Prosperity Index™ Safety & Security Sub-Index Ranking Distribution for Safety & Security Top 10 countries Iceland Norway Finland Ireland Singapore Denmark New Zealand Sweden Slovenia Taiwan 6 7 8 9 10 4 5 3 2 1 Bottom 10 countries 101 102 103 104 105 106 107 108 109 110 Sri Lanka Central African Republic Ethiopia Nigeria Pakistan Uganda Colombia Sudan Kenya Zimbabwe Strong ranking countries (Top 30) Average ranking countries (Middle 50) Low ranking countries (Bottom 30) Insufficient data Societies plagued by threats to national security and personal safety cannot foster growth in average levels of income or wellbeing. INCOME National Security Group Grievances Refugees and IDPs State-Sponsored Political Violence WELLBEING Group Grievances Demographic Instability State-Sponsored Political Violence Human Flight Refugees and IDPs Civil War Personal Safety Assault Property Stolen Safe Walking Alone at Night Safe Walking Alone at Night Express Political Opinion w/o Fear Assault Indicates a variable that is included in both income and wellbeing regressions. When people and basic institutions are unsafe and unstable. In addition. The Safety and Security sub-index measures countries’ performance in two areas: national security and personal safety. as well as general crime and mistrust stemming from a lack of social cohesion. coups.prosperity. the variables in the sub-index are categorised into these areas. Scholars have shown that organised political violence such as riots. Variables have been divided into different categories within each sub-index. the ability to express political opinions without fear of persecution.com . their overall wellbeing is diminished. is a key element in increasing per capita GDP in a country. then capital. conditions that produce fear and uncertainty negatively affect life satisfaction. The Safety and Security sub-index combines objective measures of security with subjective survey responses about personal safety. As illustrated in the chart below. Similarly. and people begin to flee. Stability resulting from national security. Variables are ordered from largest to smallest within each category. and feeling safe walking alone at night. investment. for example. when citizens worry about their personal safety or whether they will suffer for freely expressing their opinions. Income and wellbeing bar sizes are not comparable due to differences in scale 32 www. Indicates a variable that is included in only one regression. In addition. Stable economic environments are necessary for attracting investment and sustaining economic growth. and civil war. are positively correlated with higher levels of wellbeing.
the variables in the sub-index are categorised into these areas. When citizens’ personal liberties are protected. and movement on a country’s per capital GDP and the subjective wellbeing of its citizens. and personal autonomy in a society welcoming of diversity. what to believe. The Personal Freedom sub-index measures countries’ performance in two areas: individual freedom and social tolerance. Variables have been divided into different categories within each sub-index. There is also a strong link between the levels of tolerance within a society for ethnic. their country enjoys higher levels of income and social wellbeing. and overall life satisfaction. Societies that strengthen civil rights and freedoms through democratisation. where to go. It also assesses how the levels of tolerance for both minorities and immigrants affect countries’ economic growth and citizen satisfaction. a nation also enjoys higher levels of economic growth. organisation. have been shown to experience increases in levels of satisfaction among their citizens. and religious diversity. Indicates a variable that is included in only one regression. A strong empirical link exists between individuals’ freedom to choose what to do. Variables are ordered from largest to smallest within each category. Income and wellbeing bar sizes are not comparable due to differences in scale 33 . expression. The Personal Freedom sub-index assesses the effects of freedom of choice. As illustrated in the chart below. cultural.Sub-Index Descriptions Personal Freedom Sub-Index Ranking Distribution for Personal Freedom Top 10 countries Canada Norway New Zealand Australia Sweden Denmark Ireland Iceland United States Belgium 6 7 8 9 10 4 5 3 2 1 Bottom 10 countries 101 102 103 104 105 106 107 108 109 110 Algeria China Saudi Arabia Zimbabwe Jordan Thailand Yemen Iran Egypt Pakistan Strong ranking countries (Top 30) Average ranking countries (Middle 50) Low ranking countries (Bottom 30) Insufficient data When citizens enjoy their rights to expression. and the overall satisfaction people enjoy within that society. belief. INCOME Individual Freedom Civil Liberty and Free Choice WELLBEING Satisfaction with Freedom of Choice Civil Liberties Perceived Social Tolerance Tolerance for Immigrants Tolerance for Minorities Tolerance for Immigrants Tolerance for Minorities Indicates a variable that is included in both income and wellbeing regressions. belief.
com . and it assesses how marriage and religiosity provide support networks that improve wellbeing. as well as community and family networks. Religious communities are also an important element in the creation of social capital. helping strangers. The use of the term “capital” in “social capital” reflects an important reality: social networks are an asset that produces economic and wellbeing returns. And societies with lower levels of social capital have been shown to experience lower levels of economic growth. INCOME Societal Cohesion and Engagement Formal Volunteering Helping Strangers Donations WELLBEING Trust in Others Donations Formal Volunteering Helping Strangers Community and Family Networks Perceptions of Social Support Perceptions of Social Support Marriage Religious Attendance Indicates a variable that is included in both income and wellbeing regressions. and donating to charitable organisations impacts the economic and life satisfaction of the populace as a whole. and membership within civic groups. Income and wellbeing bar sizes are not comparable due to differences in scale 34 www. Variables are ordered from largest to smallest within each category. Indicates a variable that is included in only one regression. The Social Capital sub-index measures countries’ performances in two areas: social cohesion and engagement.2010 Legatum Prosperity Index™ Social Capital Sub-Index Ranking Distribution for Social Capital Top 10 countries Norway Denmark New Zealand Australia Netherlands Switzerland Finland Canada United Kingdom Ireland 6 7 8 9 10 4 5 3 2 1 Bottom 10 countries 101 102 103 104 105 106 107 108 109 110 Ghana Cameroon Central African Republic El Salvador India Iran Rwanda Turkey Bangladesh Pakistan Strong ranking countries (Top 30) Average ranking countries (Middle 50) Low ranking countries (Bottom 30) Insufficient data Social networks and the cohesion that a society experiences when people trust one another have a direct effect on the prosperity of a country. The sub-index also evaluates the levels of trust in a society and the manner in which citizens believe they can rely on others. Variables have been divided into different categories within each sub-index. As illustrated in the chart below. the variables in the sub-index are categorised into these areas. family and community ties. Empirical studies on the impact of social capital have shown that citizen wellbeing is improved through social trust.prosperity. This sub-index assesses how factors like volunteering.
as is thought by some.” Aristotle . they will be best attained when all persons alike share in government to the utmost. are chiefly to be found in democracy.“If liberty and equality.
we have provided a list of rankings of the countries in the region.com . 36 www.prosperity. and an analysis of general trends in prosperity for that area.2010 Legatum Prosperity Index™ Regional Analyses The 2010 Prosperity Index consists of five regions: • • • • • The Americas Asia-Pacific Europe Middle East and North Africa Sub-Saharan Africa For each region.
Conversely. in general. North America is followed – with a substantial gap – by a number of mid-ranked countries. mainly due to worsening levels of governance and social capital. Most of these have gone up in the ranking relative to 2009 and are followed by a cluster of lower-tier countries which offer a more mixed picture. However. most countries suffer from weak governance that brings down their levels of prosperity. Personal freedom in Uruguay is almost as high as levels reported in the United States. the Americas are highly diverse with prosperity rankings ranging from Canada at seventh place to Nicaragua at 87th. The red dots. which represent the Governance scores. are generally below the overall Prosperity score for most countries in the Americas.Regional Analyses Regional Analysis: The Americas In terms of prosperity. such as Uruguay. the least prosperous Latin American countries – Honduras and Nicaragua – went down in the rankings significantly relative to 2009. The green dots. and Argentina. Costa Rica. Personal Freedom Score Governance Score -2 -3 Trinidad and Tobago Costa Rica Dominican Republic Guatemala Nicaragua Argentina Colombia United States El Salvador Venezuela Honduras Uruguay Paraguay Ecuador Panama Mexico Canada Jamaica Bolivia Belize Brazil Chile Peru Prosperity Index Score 37 . Chile. are generally above the overall Prosperity score for most countries in the Americas. The Americas PI Rank 7 10 28 32 33 40 41 44 45 53 55 56 65 67 68 73 75 77 78 81 82 85 Country Canada United States Uruguay Chile Costa Rica Panama Argentina Trinidad and Tobago Brazil Mexico Jamaica Belize Colombia Paraguay Dominican Republic Peru Venezuela Ecuador El Salvador Guatemala Bolivia Honduras Nicaragua Trends in Prosperity Across The Americas NORTH AMERICA CENTRAL AMERICA AND CARIBBEAN SOUTH AMERICA 87 4 3 2010 Prosperity Scores 2 Argentina’s Personal Freedom Score. Most markedly. most Latin Americans enjoy relatively high levels of personal freedom and the region’s growing economies are strengthening the levels of prosperity (see the difference between the green and red dots in the graph below). 1 0 -1 Argentina’s Governance Score. Latin American countries face a diverse spectrum of challenges and each country has a unique path towards prosperity. followed by a series of unevenly developed middle and low-income countries. The region comprises two of the world’s wealthiest economies – the United States and Canada. which represent the Personal Freedom scores. The two leading countries of North America have very strong and stable scores on all sub-indexes.
it is clear that fostering a better entrepreneurial culture will benefit many of the lower ranking countries. which are bringing down the sub-region’s overall prosperity (see the difference between the green. but the region suffers from low levels of entrepreneurship and opportunity. Nepal. In East Asian countries. the best-performing countries of Asia and the Pacific have preserved. and Southeast Asia is raised by relatively strong performing economies. red. and other “Asian tigers.” such as Hong Kong. their relative position in the global ranking. and Korea. but there are no other general trends that are characteristic of most of the region. South. and Pakistan share their ranks with some of the Sub-Saharan African countries. and pink dots on the graph below).2010 Legatum Prosperity Index™ Regional Analysis: Asia-Pacific Region The Asia-Pacific region covers a great variety of countries. but higher levels of entrepreneurship and opportunity raise the sub-region’s prosperity. relatively low levels of personal freedom in the region brings prosperity down for most countries. which are represented in the red dots. followed by Singapore. South. While there have been both increases and decreases in prosperity in the region. Southeast. citizens’ personal freedom is often hampered by societal pressures. Bangladesh. While East Asian countries generally score well above global averages. While there is no one-fix solution to raising prosperity in this region. In contrast. and Central Asian countries have relatively low levels of entrepreneurship and opportunity. Prosperity in East. As one would expect. Japan. or even improved. Taiwan.prosperity. there are different challenges that the sub-regions face in developing prosperous societies. In the bottom tier. The top of the list is dominated by Australia and New Zealand. spread throughout the 2010 Prosperity Index rankings. Economy Score Personal Freedom Score Entrepreneurship & Opportunity Score Prosperity Index Score 38 www. Asia-Pacific Region PI Rank 4 5 17 18 20 22 27 43 50 52 58 59 60 61 64 70 76 88 91 95 96 109 Country Australia New Zealand Singapore Japan Hong Kong Taiwan South Korea Malaysia Kazakhstan Thailand China Sri Lanka Mongolia Vietnam Philippines Indonesia Uzbekistan India Nepal Cambodia Bangladesh Pakistan Trends in Prosperity Across the Asia-Pacific Region ASIA-PACIFIC EAST ASIA SOUTHEAST ASIA SOUTH ASIA CENTRAL ASIA 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 Australia New Zealand Hong Kong South Korea China Mongolia Malaysia Thailand Sri Lanka Vietnam Indonesia Cambodia India Nepal Pakistan Bangladesh Kazakhstan Japan Singapore Philippines Uzbekistan Taiwan 2010 Prosperity Scores South and Southeast Asian prosperity comes from strong economic performance which is represented by the green dots. Cambodia.com .
suggesting that these three areas might represent the most important assets for the transitional nations of Eastern Europe.Regional Analyses Regional Analysis: Europe The top three places in the 2010 Prosperity Index ranking are occupied by Nordic countries: Norway. However. Generally. followed by a number of other countries of Northern and Western Europe. Denmark. with the former generally performing better than the latter. 39 . while challenges with governance brings Eastern European prosperity down. Eastern European countries have a lot of similarities in terms of what makes them prosperous and the challenges they face. While the Nordic states and the countries of North-Western Europe occupy top places in the rankings. the other European nations are more varied in terms of what make them prosperous. and safety. while Eastern Europe continues to struggle with poor governance that hinders prosperity in the sub-region (see the difference in the placement of the blue dots in the graph below). and Finland. This means good overall governance is what commonly raises levels of prosperity in North/Western Europe. The main difference is that Western Europe benefits from good governance. Europe PI Rank 1 2 3 6 8 9 11 12 13 14 15 16 19 21 23 24 25 26 29 34 35 37 38 Country Norway Denmark Finland Sweden Switzerland Netherlands Ireland Iceland United Kingdom Austria Germany Belgium France Slovenia Spain Czech Republic Italy Portugal Poland Hungary Estonia Slovakia Croatia Greece Lithuania Bulgaria Latvia Romania Belarus Russia Ukraine Macedonia Moldova Trends in Prosperity Across Europe NORTHERN EUROPE WESTERN EUROPE EASTERN EUROPE 39 42 46 47 Governance Score Prosperity Index Score 5 51 54 63 69 72 86 4 3 2010 Prosperity Scores 2 1 0 -1 -2 -3 Netherlands Switzerland United Kingdom Portugal Sweden France Austria Czech Republic Norway Iceland Slovenia Croatia Latvia Romania Belarus Macedonia Denmark Germany Belgium Finland Ireland Spain Italy Greece Poland Hungary Estonia Slovakia Lithuania Bulgaria Russia Ukraine Moldova The blue dots which represent Governance scores are generally above the overall Prosperity score for Northern and Western European countries and below the Prosperity score for Eastern European countries. but there are signs of hope: countries with a lower overall score perform relatively well on health. education. there is a clear divergence between Western and Eastern Europe. The Central and Eastern European countries and Southern European nations are then scattered in the lower tiers of the ranking. these countries have weaker governance and social capital.
com . which represent Health and Economy scores for MENA countries are generally above the black line. were not allowed to be surveyed in these countries. has solidly mid-range scores on Health and Education sub-indexes. for example. the Middle East and North Africa (MENA) are characterised by relatively strong performances in the Health and Economy sub-indexes. who make up half of the UAE population and one-fifth of the Kuwaiti population. but this is likely due to the fact that non-Arab expatriates. Iran. where it is followed only by Egypt and Pakistan. which represent the Personal Freedom scores for MENA countries generally fall below the black line.2010 Legatum Prosperity Index™ Regional Analysis: Middle East and North Africa In general. Overall. which represents the overall Prosperity scores. the Index strongly suggests that many of the Middle Eastern countries would benefit from adopting more open and tolerant institutions that allow for citizens to freely choose the course of their lives. most of the countries in the region display one disturbing trait: pervasive limits on personal freedom are driving down prosperity in the region (see the difference between the light and dark green versus the red dots on the graph below).prosperity. but that is offset by an extremely low ranking of 108 on the Personal Freedom sub-index. which represents the overall Prosperity scores. -3 Health Score -4 Economy Score Personal Freedom Score -5 United Arab Emirates Kuwait Israel Saudi Arabia Tunisia Algeria Jordan Turkey Lebanon Morocco Yemen Egypt Syria Iran Prosperity Index Score 40 www. 0 -1 -2 The red dots. However. Middle East and North Africa PI Rank 30 31 36 48 49 62 74 79 80 83 84 89 92 105 Country United Arab Emirates Kuwait Israel Tunisia Saudi Arabia Morocco Jordan Algeria Turkey Syria Lebanon Egypt Iran Yemen Trends in Prosperity Across the Middle East and North Africa MIDDLE EAST NORTH AFRICA 3 2 2010 Prosperity Scores 1 The light and dark green dots. The United Arab Emirates (UAE) and Kuwait have the highest levels of personal freedom in the region. raising the levels of prosperity in the region.
-4 Health Score -5 Education Score Personal Freedom Score -6 Central African Republic South Africa Tanzania Cameroon Mozambique Zimbabwe Botswana Namibia Senegal Rwanda Uganda Nigeria Ghana Mali Zambia Kenya Ethiopia Sudan Prosperity Index Score 41 . as well as the global average performance). Citizens in Sub-Saharan Africa tend to enjoy relatively high levels of personal freedom. and in some countries. with most of them ranking in the bottom 15.Regional Analyses Regional Analysis: Sub-Saharan Africa Most Sub-Saharan African countries are among the worst-performing in the world. (See how the green dots are above the black line. suggesting that by example. or Indonesia. unlike the rest of Sub-Saharan Africa. which represents the overall Prosperity Index scores. which are in the neighbourhood of middle-income countries like Mexico. this region shows that social capital and good governance can act as substitutes. which represent the Education and Health scores for Sub-Saharan countries generally fall below the black line. Sub-Saharan Africa PI Rank 57 66 71 90 93 94 97 98 99 100 101 102 103 104 106 107 108 110 Country Botswana South Africa Namibia Ghana Mali Senegal Tanzania Rwanda Uganda Sudan Zambia Cameroon Mozambique Kenya Nigeria Ethiopia Central African Republic Zimbabwe Trends in Prosperity Across the Sub-Saharan Africa 2 1 2010 Prosperity Scores 0 -1 -2 -3 The red and pink dots. poor health and education brings overall prosperity down in the region. South Africa. which represents the overall Prosperity scores. Russia. In terms of regional trends.) Finally. But the picture isn’t entirely pessimistic. are continuing their ascent in the overall ranking. levels are above the global average. All Sub-Saharan African countries perform worse than the world average in these sub-indexes (see how the red and pink dots fall below the lines representing overall prosperity. These three countries. This is the case in particular for countries that are on the verge of being failed states and display relatively higher levels of social capital to make up for the inability of their citizens to use formal institutions. The exceptions to this are Botswana. they may pave a path towards prosperity for other African nations. and Namibia.
prosperity. For a full description of why and how we altered our methods this year.com . The chart on the right uses the 2010 methodology to reproduce rankings for 2009. 42 www. please see page 24. so that we can compare ‘apples to apples’. The methods for determining the rankings in 2010 have changed since the 2009 edition.2010 Legatum Prosperity Index™ 2009 versus 2010: An ‘Apples to Apples’ Comparison So how have countries fared since last year? The chart to the right shows 2009 and 2010 rankings. as well as the number of places that countries have moved up or down.
2009 versus 2010: An ‘Apples to Apples’ Comparison Country Norway Denmark Finland Australia New Zealand Sweden Canada Switzerland Netherlands United States Ireland Iceland United Kingdom Austria Germany Belgium Singapore Japan France Hong Kong Slovenia Taiwan Spain Czech Republic Italy Portugal South Korea Uruguay Poland United Arab Emirates Kuwait Chile Costa Rica Hungary Estonia Israel Slovakia Croatia Greece Panama Argentina Lithuania Malaysia Trinidad and Tobago Brazil Bulgaria Latvia Tunisia Saudi Arabia Kazakhstan Romania Thailand Mexico Belarus Jamaica Overall Country Rank 2010 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 Country 0 0 1 1 -2 1 -1 0 2 0 -2 0 0 0 1 -1 0 1 -1 1 2 0 -3 0 1 -1 2 4 -1 -3 3 3 -3 4 -4 -3 0 1 -3 2 3 -2 0 2 0 1 -6 8 8 1 -3 2 -4 1 -3 s t s s s t s t s t s s t s s t s t s s t t s s t s t t t s t s s s t t s s s t s t Belize Botswana China Sri Lanka Mongolia Vietnam Morocco Russia Philippines Colombia South Africa Paraguay Dominican Republic Ukraine Indonesia Namibia Macedonia Peru Jordan Venezuela Uzbekistan Ecuador El Salvador Algeria Turkey Guatemala Bolivia Syria Lebanon Honduras Moldova Nicaragua India Egypt Ghana Nepal Iran Mali Senegal Cambodia Bangladesh Tanzania Rwanda Uganda Sudan Zambia Cameroon Mozambique Kenya Yemen Nigeria Ethiopia Central African Republic Pakistan Zimbabwe Overall Country Rank 2010 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 2009 1 2 4 5 3 7 6 8 11 10 9 12 13 14 16 15 17 19 18 21 23 22 20 24 26 25 29 32 28 27 34 35 30 38 31 33 37 39 36 42 44 40 43 46 45 47 41 56 57 51 48 54 49 55 52 Movement 2009 53 59 58 68 60 50 66 62 61 64 67 69 71 63 85 74 70 72 75 76 65 77 81 91 80 82 84 86 90 79 83 73 78 87 89 88 93 94 92 101 95 96 105 102 106 98 99 104 97 100 103 108 109 107 110 Movement -3 2 0 9 0 -11 4 -1 -3 -1 1 2 3 -6 15 3 -2 -1 1 1 -11 0 3 12 0 1 2 3 6 -6 -3 -14 -10 -2 -1 -3 1 1 -2 6 -1 -1 7 3 6 -3 -3 1 -7 -5 -3 1 1 -2 0 s s s s t t t t t t t s s t s t t s s s t t s t t t s s t s s t s t t t s s s t s s t t s s t s t s 43 .
2010 Legatum Prosperity Index™ Legatum Prosperity Index Academic Advisory Panel ™ Legatum Institute (www.oxan. All Rights Reserved. University of California.com). Finally. University of Michigan Erik Wibbels. Johns Hopkins. Duke University Carol Graham. Duke University Legatum Institute also wishes to thank Gallup.com .prosperity. Participation in the Academic Advisory Panel does not imply endorsement of every aspect of the Prosperity Index. Inc. Tufts University Peter Feaver. Brookings Institution Robert Jensen. Harvard University Phil Levy. Legatum Institute assumes full responsibility for the content of the Prosperity Index.org) for their assistance and guidance in helping develop the Index methodology. Harvard University Thomas Sander.com) wishes to thank the members of the Academic Advisory Panel for their helpful advice. University of California. School of Advanced International Studies Edmund Malesky. Legatum Institute recognises Oxford Analytica (www. Los Angeles Stephen Krasner. Legatum Institute also wishes to thank the American Enterprise Institute (www. San Diego Ann Owen. for permission to use the Gallup World Poll Service© and Gallup World Poll Data in construction of the Prosperity Index. Copyright Gallup 2010. Harvard University Allan Stam. and suggestions. 44 www. American Enterprise Institute Thomas Mahnken. critiques.aei. Oxford University Daniel Drezner. Terry Babcock-Lumish. Stanford University Michael Kremer. Hamilton College Robert Putnam. an independent consultancy that has for 30 years provided authoritative analysis of geopolitical events.li. for its assistance in compiling and analysing the Prosperity Index data.
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