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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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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 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
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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.”
Why Another Index? 2. What Makes Countries Both Happier and Wealthier? 4. The Financial Crisis and the Index 3. What is Going On Up North? 5. Where is My Country? 7 11 13 19 25 3 .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.
2010 Legatum Prosperity Index™ “. It does not include the beauty of our poetry or the strength of our marriages.prosperity. in short.” Senator Robert F. Gross National Product counts air pollution and cigarette advertising.. 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. except that which makes life worthwhile. the quality of their education or the joy of their play.com .. the intelligence of our public debate or the integrity of our public officials… It measures everything. Kennedy 4 www.
and human flourishing. Throughout this report. or happiness. the Prosperity Index allows us to discover the non-economic effects of economic reality. and second. they can help create an environment that is conducive to entrepreneurship. we will use the term “income” and “wealth” interchangeably. Moreover. and strong communities – it remains a fact of history that each nation needs to find its own path to success. There are 108 states and two territories – Hong Kong and Taiwan – in the Index. 3. 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. Each sub-index assesses the effect of a range of variables on per capita GDP and the subjective wellbeing of citizens. we can begin to uncover intriguing insights and applications. while governments by themselves cannot create or mandate prosperity.” Each of the sub-indexes provides us with two important analyses: first. In this way. journalists. healthy citizens. 2. Ultimately. By examining how the underlying data in different sub-indexes interact. and interested citizens around the world. and will use the term “wellbeing” to signify “life satisfaction” or “happiness. accounting for over 90 percent of the world’s population. an assessment of a country’s subjective wellbeing. each of which represents a fundamental aspect of prosperity: 1. The Entrepreneurship & Opportunity sub-index looks at how enterprising societies contribute to both the economy and citizens’ satisfaction with their lives. 4. earned success. For instance. each of which has a demonstrated effect on economic growth or on personal wellbeing.The Scope of the 2010 Legatum Prosperity Index™ The Scope of the 2010 Legatum Prosperity Index™ The Prosperity Index™ assesses 110 countries 1. and is based on 89 different variables. 5. While there appear to be some common foundations shared by prosperous countries – such as economic liberty. 8. business leaders. human rights. 7. 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. and the effects of economic indicators on life satisfaction. an economic assessment. 1 The term “country” is used loosely to refer to the 110 societies that are in the Prosperity Index. accountable government. 5 . The Prosperity Index consists of eight sub-indexes based upon years of research into the sources of economic growth and quality of life. And so on. the Education sub-index looks at how educational factors contribute to economic growth and a nation’s overall level of happiness. 6. The Index consists of eight sub-indexes.
effective governance.2010 Legatum Prosperity Index™ The purpose of the Prosperity Index is to encourage policymakers. health. Holistic prosperity extends beyond just material wealth. scholars. It includes factors such as social capital. opportunity. 6 www. and the interested public to take a holistic view of prosperity and to understand how it is created. security.com . the media.prosperity. human rights and liberties. and overall quality of life.
as it is generated and experienced. “the subjective wellbeing” of a country’s citizens). the World Economic Forum’s Global Competitiveness Index. The Prosperity Index utilises other helpful indexes such as the Wall Street Journal/Heritage Foundation’s Index of Economic Freedom. alongside the insights provided by these and other indexes. 7 . Both of these dimensions are necessary to provide a holistic picture of prosperity. which together comprise “prosperity. the Global Peace Index. It measures both the actual performance of countries as well as citizens’ perceptions of their lives. the Prosperity Index is the world’s only global assessment of wealth and wellbeing. the Prosperity Index will help provide new insights into the factors that produce successful countries and fulfilling lives. the Prosperity Index is unique because of the broad and diverse range of factors it includes. A third unique aspect of the Prosperity Index is its use of both objective and subjective data. health. Second.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.” Many other indexes focus just on one or two issue areas. To start. 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. the Human Development Index. Our hope is that. the World Bank Governance Indicators. or happiness. It identifies as many factors as possible that make a significant contribution to GDP growth or subjective wellbeing (SWB). more technically. and Freedom House’s Freedom in the World Report. This means it is the only global index that measures both the factors that produce economic growth and those that produce happy citizens (or. The Prosperity Index looks at everything. such as economic policy.
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. 8 www.com .2010 Legatum Prosperity Index™ Key Findings The Prosperity Index is about more than country rankings. This section contains some of the many interesting findings revealed by the Index’s unique analysis.prosperity. test conventional wisdom. and find new policy applications for national growth and wellbeing. It is an exploration into the sources of prosperity and how they relate to each other.
Entrepreneurship and opportunity correlate more closely to a nation’s overall prosperity than any other factor. It pays to be a democracy. Economic growth is not enough for the BRICs. but not as one might think. Material wealth cannot be explained only by economic factors. III. 9 . 10. Prosperity is found in entrepreneurial democracies that have strong social fabrics. 2. 1. and happiness cannot be explained only by subjective emotions. Changes in the “social fabric” of a country can lead to big changes in national prosperity. Prosperity is about balance. Improved governance is emerging as a key driver of prosperity in Sub-Saharan Africa. Prosperity is a blend of wealth and happiness. 7.Key Findings The findings fall into three main categories: I. 6. 8. 4. 3. Choice and opportunity matter more to happiness than making a lot of money quickly. II. It’s hard to be prosperous as a large country. 5. Two Europes are emerging. 9. Global prosperity is changing in unexpected ways.
than to any other sub-index. encourages new businesses. The E&O sub-index is an important gauge of the way in which a society commercialises innovation. The overall Prosperity Index rankings correlate more closely to the Entrepreneurship & Opportunity (E&O) sub-index. the E&O sub-index still correlates with the overall rankings. 1. and fosters a sense among its citizens that hard work is rewarding. it is imperative that economic policies in the current recession do not erode the incentives to be entrepreneurial and innovative. are critical. which constitute the cornerstone of long-term prosperity.com . Entrepreneurship and opportunity correlate more closely to a nation’s overall prosperity than any other factor. levels of entrepreneurship and access to new opportunities actually provide the best proxy to understanding how prosperous a society can be. 101 81 61 41 21 1 2010 Entrepreneurship & Opportunity Rankings 10 www. Prosperity is found in entrepreneurial democracies that have strong social fabrics. education. 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. INSIGHT: In the wake of the global financial crisis. If we create an average ranking of only the income-related portions of all eight sub-indexes. Given the importance of entrepreneurship for overall prosperity. This implies that while other foundations such as health. 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.prosperity. some governments might have been tempted to impose protectionist tariffs or complex regulations which could discourage business activity.2010 Legatum Prosperity Index™ Here are some of the most interesting findings from this year’s Index: I. social capital. How well a country does in these areas goes a long way to explaining how well it will do promoting prosperity more generally. or even the economy.
It is thus conceivable that the financial crisis will affect the scores. the world has been hit by a major financial crisis. However.Key Findings Feature Two Financial Crisis and the Index Since mid-2008.5 percent in 2010. we should stress that the purpose of the index is not to track directly the fluctuations in income. and cultural underpinnings of global prosperity. or protectionist tariffs. The Entrepreneurship and Opportunity sub-index is related very tightly to material prosperity. in 2011. partly because much of the data predates the crisis. which quickly translated itself into a global recession. As of yet. On the other hand. if governments respond to the crisis by imposing complex regulations. weakening the countries’ scores on the Economy sub-index. then entrepreneurship and business activities can be discouraged and the crisis can have a more permanent impact on global wealth and wellbeing. 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. the crisis could have a lasting effect on global prosperity if governments followed policies that tend to erode these foundations. 11 . institutional. How has the crisis affected the 2010 Prosperity Index? On the one hand. the world economy shrank by 0. we can see a clear decline in measures of confidence in financial institutions in many countries of the world. prohibitive tax rates. and maybe also the countries’ rankings. For example. According to the IMF. those parts of the Index which make use of measures of the real economy do not seem to be affected.6 percent in 2009 and while the global output is expected to grow by around 4. In principle. but rather the structural. the recovery is still fragile in many regions of the world. particularly in parts of Western Europe and in the United States.
satisfaction with freedom of choice and other social attitudes and practices clearly have direct implications on national prosperity. It pays to be a democracy. Conversely. property and shareholder rights.” exemplified by nations such as China and Russia. and worship. Twenty three out of the top 25 societies in the Prosperity Index are electoral democracies. they are nonetheless important to overall prosperity. think. and healthier citizens. Changes in the “social fabric” of a country can lead to big changes in national prosperity. 23 are democracies. Rapid swings in social attitudes may thus be a lead indicator of significant changes to come. 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. this was a result of significant improvements in social capital. INSIGHT: Shifts in mores. but also outdo them in several other important respects”. 12 www. While survey results (on which many of our social capital and governance findings are based) are more volatile than other forms of data. Economic principles such as market transparency. Indonesia has improved by 15 places to 70 and Algeria has improved by 12 places to 79. assemble. 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. “democracies not only out-perform dictatorships when it comes to long-term economic growth. House survey. asset valuation. The main factors behind the changes in social capital were survey responses – this shows that large changes in public attitudes in Indonesia. the single best national model for sustaining wealth creation and happy citizens remains democratic capitalism. safer. As Harvard economist Dani Rodrik observed.com . with accountable leaders and citizens who are free to speak. In both cases. Moreover.2010 Legatum Prosperity Index™ 2.prosperity. such as education and human capital. -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. both in economic growth and life satisfaction. Democratic nations turn in the strongest performances across the board in every sub-index. led to significant changes in overall prosperity. democracies produce happier. Nicaragua experienced the largest decrease in rankings by 14 places. mainly due to significant declines in social capital and governance. and the free flow of capital depend on political systems that are grounded in rule of law. tolerance. and Nicaragua. Indonesia and Algeria have improved the most in their Prosperity Index rankings since 2009. Algeria.
and vice versa. More than thirty variables in the Index have a relationship with both. Poorer economic performances and lower levels of life satisfaction are related to higher inflation rates. New Zealand. and then the top 10 countries by life satisfaction. Tolerance for immigrants and ethnic minorities has a modest effect on both material prosperity and wellbeing. but they are also able to enjoy higher levels of income. gross secondary and tertiary enrolment. Prosperity is about balance. suggesting that an environment onerous to entrepreneurship is bad for the economy as well as people’s perceptions about opportunities in their lives. Denmark. Switzerland United States Ireland Feature Three What Makes Countries Both Happier and Wealthier? In the Legatum Prosperity Index’s eight sub-indexes. In education.Key Findings 4. the extent of regulation in the business sector and a government’s effectiveness are both related to wealth and wellbeing. Business start-up costs and ICT infrastructure also have strong relationships with both income and wellbeing. and levels of secondary and tertiary education per worker are all related to economic prosperity and life satisfaction. The Prosperity Index also shows us that traditionally non-economic factors have more than non-economic effects. By promoting economic prosperity. girls to boys’ enrolment ratio. honest and efficient governance. the best-performing countries additionally benefit from democratic political systems. in a mutually-reinforcing virtuous cycle. 13 . and the reliability of others are not only linked to happy people – but they are also characteristic of strong economies. we have included variables that have a significant relationship with per capita GDP or life satisfaction as tracked by the Gallup World Poll. Also. Netherlands Austria Norway. Australia Canada. when a country provides strong national security. they promote happiness. Finland Sweden. The Prosperity Index rankings combine measures of economic growth and measures of life satisfaction. INSIGHT: The world’s most prosperous countries are very well-balanced countries. citizens are not only happier. helping strangers. 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). In fact. we see a lot of overlap. and enterprising citizens. And important measures of social capital such as donations. volunteering. net primary school enrolment. Strong human capital formation in a country has more than an economic impact: it also produces citizens who are more satisfied with their lives. 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. If we break down the methodology and look at the top 10 countries by economic performance.
a “soft issue”. 7. have a strong influence on how satisfied people are with their lives. 109.prosperity. 102. such as employment status. 9. Saying that one cares about the economy while not caring about factors such as distrust. an increased level of tolerance toward immigrants is associated with higher levels of GDP per capita. 8. 110. 103. economic factors. but not as one might think. 6. High levels of trust in a society are necessary for trust-based capital markets to function. 14 www. 3. 105. 5. 2. Zambia Cameroon Mozambique Kenya Yemen Nigeria Ethiopia Central African Republic Pakistan Zimbabwe II. and fear is not only unenlightened – it is ultimately self-defeating. When it comes to the conditions of happiness. 10. 106. and even internet connectivity. Norway Denmark Finland Australia New Zealand Sweden Canada Switzerland Netherlands United States 10 Bottom 10 countries 101. has a strong positive correlation with economic performance. such as people’s perceptions of each other’s trustworthiness. Likewise. For instance. isolation. Material wealth cannot be explained only by economic factors. 4.com . domestic savings rates. 107. Prosperity is a blend of wealth and happiness. 5. 108. 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. 104. and happiness cannot be explained only by subjective emotions.2010 Legatum Prosperity Index™ Prosperity Around the World 7 Top 10 countries 1.
15 . 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. than the wealth the process actually creates. When it comes to happiness. GDP growth pursued through narrow. happiness also follows suit. However. higher rates of GDP growth are correlated with lower levels of wellbeing. INSIGHT: When people believe opportunity is real and that it pays to pursue a dream. when growth occurs as a rewarding output to people’s and taking risks is more important to happiness productive pursuits. 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. the belief that hard work helps one get ahead is an important factor. Thus. Fast economic growth. The process of creating leads to decreased wellbeing among citizens. may lead to a decrease in a nation’s prosperity.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. creative endeavour. does not necessarily lead to more happiness – statistically. top-down policies that do not take citizen wellbeing into account. while fast growing economies may improve societies. wealth through hard work. Choice and opportunity matter more to happiness than making a lot of money quickly. on the other hand.
com . Greece moved from 36th to 39th. Global prosperity is changing in unexpected ways. and Slovakia and Croatia have overtaken Greece. Ireland's performance in the Economy. Entrepreneurship & Opportunity. Troubled European nations. Additionally. the Baltic countries are rapidly falling behind the rest of the EU. the Czech Republic is ranked higher than Italy and Portugal. Two Europes are emerging. have well-known economic problems. and Spain) score higher in prosperity than the remaining Western European nations. Some analysts have recently replaced Italy with Ireland. 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. In fact. Ireland has dropped two places in terms of its overall Prosperity Index ranking – from 9th in 2009 to 11th in 2010. Greece.' Interestingly. 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. such those in its southern regions. Governance. In the overall rankings. Three of the four original PIGS also rank lower than they did last year. 7. 1 -8 51 41 31 21 11 Bottom ranking Overall 2010 Prosperity Index Rankings Top ranking 16 www. 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. Italy. none of the four original so-called PIGS (Portugal. with the largest drop in ranking occurring in the Economy sub-index. from 25th to 26th. when referring to the 'troubled 'PIGS. These Southern European and Baltic EU states are diverging from the other EU nations as their levels of prosperity drop.prosperity.2010 Legatum Prosperity Index™ III. and Education sub-indexes have decreased since 2009. and Spain moved from 20th to 23rd. Portugal moved INSIGHT: The Index shows that the gap between successful and unsuccessful European countries is widening. they rank lower than some Eastern European nations: Slovenia scores higher than all of the original PIGS.
INSIGHT: African growth is one of the most underreported news stories of this decade. such as Senegal. scores 25th on the Governance sub-index. Improved governance is emerging as a key driver of prosperity in Sub-Saharan Africa. The index shows that the most successful African countries owe their success to radical improvements in the quality of their governance. Mali. Africa: Good Governance Increases Prosperity Although most African countries fall well below the global average.Key Findings 8. South Africa and Namibia are leading in the region. or Cameroon score better than some Eastern European countries. -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 . driven by some surprising successes in the sub-indexes. particularly in establishing confidence in the military and in the judicial system. for instance. Namibia is 44th on the same Governance sub-index. Portugal or Italy. one can find some encouraging differences among African countries. On the Personal Freedom sub-index. In terms of overall prosperity. While Sub-Saharan Africa still dominates the lower tier of the rankings. better than Greece or Latvia. Botswana. a number of other African countries. ahead of Slovenia. Botswana. It also ranks 21st on the Personal Freedom sub-index. progress among the top performers indicates that Africa has significant bright spots. and 35th on the Personal Freedom sub-index.
which have more than 40% of the world’s population. which dominate the upper tier of the world’s largest countries. Personal Freedom. primarily due to its drop in the Personal Freedom sub-index.com . Although China has recently overtaken Japan as the world’s second largest economy. Following the 2008 Mumbai attacks. and Social Capital sub-indexes. places in the top 15 in seven subindexes. In spite of the headlines about the rise of the BRICs. the perceived tolerance of Indians towards immigrants has fallen substantially. It’s hard to be prosperous as a large country. the BRICs will have to foster improvements in areas beyond economic factors. Entrepreneurship & Opportunity. when we look at prosperity holistically.2010 Legatum Prosperity Index™ 9. according to the Gallup World Poll. However. but looking at economic growth alone can gloss over their deep deficiencies in other areas essential to long-term. 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. have been regarded as leaders among emerging economies. Perhaps unsurprisingly. Most of the other large countries do not break into the top 20 in any sub-index. the proportion of Chinese who feel free to determine the course of their lives decreased from 85% in 2008 to 77% in 2009. In order to go from emerging economies to prosperous nations. Large populations bring unique challenges as well as opportunities. Health. it still trails 40 places behind Japan at 58 in terms of its overall prosperity. with Russia still suffering from its notorious (and worsening) troubles with Personal Freedom. India’s ranking has decreased the most by 10 places since 2009. Governance. sustainable prosperity. governments. 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. stand out primarily because each has at least over a half century of experience with the institutions of democratic capitalism. While the economy may be improving. the United States. contributing to a drop in the levels of Personal Freedom. the BRICs’ current situation is precarious. Brazil and Russia have changed relatively little over the past year. Economic growth is not enough for the BRICs. unstable. a majority of them are marked by imbalanced. its improvements have been offset by decreased rankings in Education. China has improved the most by climbing up the ranks in the Economy. However. Russia.prosperity. India and China). Only one nation in this group. and Safety & Security. 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. INSIGHT: Global conventional wisdom has come to accept the hard-charging nature of the BRICs’ economies. also ranks among the top 10 countries in the Prosperity Index. INSIGHT: The USA and Japan. or even corrupt. The BRICs (Brazil. which ranks at 10 in the Prosperity Index. USA: Top Ranking Large Country 1 Overall Prosperity Index Ranking 21 41 61 The US.
One might say that the Nordic countries are more economically free than for which they. and Finland. However tempting such a conclusion might be. Swedish economic growth accelerated as it reduced its government spending throughout the 1990s. it would be ill-informed. As an example. Sweden. 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. Despite large governments and fairly high tax rates. 19 . Why is this? Further research shows that a high level of public spiritedness allows welfare states to foster economic and social wellbeing. 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. Recent research has shown that Nordic countries were among the most aggressive “neoliberal” reformers of the 1980s and 1990s. Additionally. and others. Danish labour markets combine a very low level of job protection and rigidity with generous unemployment benefits. if one were to average Denmark’s scores in that Index’s eight categories related to economic performance. then. Denmark would rank as the world’s freest economy in the Heritage Foundation’s Index of Economic Freedom. Denmark. the Nordic countries now rank among the economically freer regions of Europe. give themselves credit. One important consideration for economic growth. 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.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. This is a system that would – without a high degree of trust and public spiritedness – have generated moral hazard issues and unemployment.
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. a country that performs well in educating its workers probably also has an innovative economy. It explains how we determined the importance of each variable and calculated a country’s overall prosperity score.com. This section provides an overview of the sub-indexes. 20 www. Using this research. While each country’s path to prosperity is varied. each of which is considered to be a fundamental pillar of prosperity. For the 2010 Index. Due to limitations in data availability. The 2009 Index featured nine sub-indexes. we were able to include additional variables that enabled each sub-index to include both income and wellbeing dimensions.prosperity. and in many cases also relate to each other. decades of established theoretical and empirical research on economic growth and wellbeing have identified some common themes. For additional information on the construction of the Index. They are both the causes and consequences of high levels of income and wellbeing. two of which (essentially) measured income and wellbeing dimensions of governance. due to increased data availability. the Prosperity Index uses econometric analyses to identify eight sub-indexes that are critical for prosperity. which can be found at www. The Prosperity Index identifies 89 variables that are linked to higher levels of income and wellbeing.prosperity.com . please refer to the full report. For instance. the other seven sub-indexes only measured how each sub-index related to either income or wellbeing. it is important to keep in mind that the relationships between these variables and foundations are complex. Each sub-index is based on analyses of the factors that lead to higher levels of both income and wellbeing. and categorises them into eight sub-indexes. Of course.
relationships.How We Built the Index: Methodology What are the foundations of prosperity? 2010 Prosperity Index Eight Sub-indexes. Economy Entrepreneurship & Opportunity Governance Education Health Safety & Security Personal Freedom Social Capital At a very basic level. and worship also promote higher levels of income and wellbeing? Social Capital – What kinds of social networks. think. 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. 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. each of which has been identified as a foundation of prosperity. 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. Each sub-index is created through statistical analysis of what increases both the per capita income and life satisfaction of a country’s citizens. assemble. equally weighted The Prosperity Index is divided into eight different sub-indexes. and institutions lead to higher levels of wellbeing and economic productivity? 21 . risk-taking.
we used a method called ordered logistic regression on cross-sectional data. statistically speaking. we used survey data from the ‘Life Today’ question in the Gallup World Poll as the dependent variable. The regressions estimate a “weight” for each variable – or a “coefficient” for the more technically inclined.prosperity. are presented in the full Prosperity Index Report. we used GDP per capita as the dependent variable in these GMM panel regressions. These characteristics are measured by 89 variables that are a combination of objective data and subjective responses to surveys.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. For instance. but also citizens’ sense of wellbeing. In this analysis. In other words. We have determined the importance of each of these variables to higher levels of income or wellbeing by using well-established. we used General Methods of Moments (GMM) regressions. but are drawn from established theoretical and empirical research on the significant drivers of economic growth and wellbeing. changes from the 2009 Index. For those familiar with econometric terminology. yet fairly complex. which is available at www. a country’s economy or quality of governance not only impacts income levels. It is important to note that these fundamental characteristics have not been arbitrarily selected. This weight represents the variable’s relative importance as a factor of prosperity. and the rationale for using our specific measures of income and wellbeing. Each sub-index includes both types of regressions. Further discussions on these estimation methods.com. In order to determine what leads to higher levels of wellbeing. some things matter more to prosperity than others. since each foundation of prosperity has both income and wellbeing dimensions. 22 www.com . We represent these weights in the bar graphs in each of the sub-index descriptions that follow.prosperity. This survey item measures individual life satisfaction or subjective wellbeing. In order to determine the factors leading to greater economic prosperity. regressions (a way of statistically determining which variables matter most).
B8 * x8 + B9 * x9 + B10 * x10 + ... based on a combination of its performance in the different variables and the varying levels of importance these variables.. For each country. X2 X1 X5 X3 X6 X4 X7 X8 X9 X10 X13 X11 X14 X12 X15 GDP/Capita = B1 X1 + B2 X2 + B3 X3 + . ‘Life Today’ = B8 X8 + B9 X9 + B10 X10 + . for more details on how the scores are calculated for each sub-index. While different foundations are likely to matter more for countries in different regions or income levels. Average the income and wellbeing scores to get the overall sub-index score. which is available on our website. please go to the full report. Additionally. How the Sub-Index Scores are Calculated Sub-Index Income Wellbeing 1. In a few instances. B1 * x1 + B2 * x2 + B3 * x3 + . certain variables will matter to both. Identify variables that go into each sub-index. The diagram below illustrates how we go from identifying a factor of prosperity to determining a country’s performance in a sub-index. The countries are ranked based on these scores to produce the overall Prosperity Index rankings... However.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. Retain variables that are statistically relevant to income or wellbeing.com... represented by the “B” symbol. and see how the rankings change. multiply the raw values and coefficients from variables that are statistically relevant. Those that are statistically relevant will have a significant coefficient. 23 .. For each country 2. = Income score = Wellbeing score 3. These sub-index scores are then averaged to produce a country’s overall prosperity score. Some variables will be relevant to income and others to wellbeing. Add up these weighted variable values to produce a country’s wellbeing and income scores in each sub-index. on our website at www. the Prosperity Index gives equal weighting to the sub-indexes to allow us to compare countries across sub-indexes. Sub-Index Score 4. we offer you the opportunity to give your own weightings to each of the sub-indexes.prosperity.
has expanded in scope. As a result. more refined methods for determining the significance of each variable. As a result. comparing the 2010 Index to the original 2009 version does not produce an ‘apples to apples’ comparison. and exploring new venues of analysis that have become possible as data availability expands. 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.prosperity. This is mainly due to significant changes in the Social Capital and Entrepreneurship & Opportunity (E&O) sub-indexes. The other changes we made in this year’s Index concern applying more rigorous standards for data coverage. please refer to the full Prosperity Index Report at www. 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. countries like India that performed well on membership variables suffered a large decrease in their social capital ranking.com. As a result of these changes. it still measures countries on elements that are central to social capital. Therefore. These two sets of rankings have a correlation of 94%. while several countries in the Middle East increased in their rankings. 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. it is perhaps surprising that with the exception of a few countries. While the 2010 Social Capital sub-index has a more limited scope. we decided to only include variables for which there was data available for more than 80% of Index countries.com . 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. The chart on page 43 provides an ‘apples to apples’ comparison between 2009 and 2010. In light of the extent of the changes. and our inclusion of both income and wellbeing analyses in each sub-index.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. taking account of the latest findings in this growing area of research. This meant that we had to exclude variables on rates of group membership. and specific ones like India and China. The graph to the right shows the correlation between the original 2009 and the new 2010 Index rankings. It shows the shifts that result from absolute changes in country performance. This subindex now includes measures of social mobility and access to opportunity. which used to be the Entrepreneurship & Innovation sub-index. That being said. For a complete description of the changes we have made to the Index methodology.prosperity. we are continuing to search for variables that will capture the important aspects of social capital that are currently missing from the sub-index. we have recalculated the 2009 rankings according to the 2010 methodology to produce accurate comparisons. have undergone large shifts in rankings from 2009 to 2010. which were important measures of strengths of social networks. In the 2010 sub-index. the rankings change very little. The Governance and Democratic Institutions sub-indexes from 2009 have now been merged into one sub-index. some countries in the Middle East and Latin America. Conversely. each sub-index now includes two regressions. Because of this year’s changes. the E&O sub-index. Meanwhile. This is because in 2010. we have been able to include new data that measures these two aspects of prosperity.
some governments. Our hope and long-term goal remains to build an index that includes every single country in the world. 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. Rwanda. Countries as diverse as Somalia. This year. Serbia. but are not covered by enough other data sources to meet the threshold for ranking in the Prosperity Index. Samoa. Why? The answer is straightforward: there is not sufficient data available on that country. a closed. 25 . effective government is a willingness to allow its citizens to express their opinions freely. the Prosperity Index includes a lot of data: 89 variables drawn from 12 different data sources. Yet. we cannot include all countries. such as Burma’s or Cuba’s. Iceland. and to make information on its economic. as we rely upon survey data from the Gallup World Poll. Lithuania. Syria. and Suriname are included in the Gallup World Poll. such as those providing economic. Moreover. thereby expanding country coverage from 104 in 2009 to 110 in 2010. which covers 155 countries. social. totalitarian nation such as North Korea does not permit Gallup to survey its citizens. 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. and health data. Because our research has found that prosperity encompasses a tremendous array of factors. place restrictions on the types of questions that Gallup may ask since they prohibit their citizens from expressing opinions about government. One sign of an open. Ethiopia. education. we have been able to find sufficient data on six additional countries. we cannot include countries that Gallup doesn’t cover. Other countries may be covered by the Gallup World Poll but are not in other data sets essential to the Index.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. governance. For example. and Uganda.
prosperity. descriptions of the sub-index. and a table listing the variables that we used. we have provided rankings of the top and bottom 10 countries.com . for each sub-index. 26 www.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.
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. such as robust domestic savings rates. the variables in the sub-index are categorised into these areas. 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. and an efficient financial sector have a positive impact on both average levels of income and wellbeing. Variables have been divided into different categories within each sub-index. Variables are ordered from largest to smallest within each category. low rates of inflation and unemployment. Indicates a variable that is included in only one regression. foundation for growth. and financial sector efficiency. While our research shows that increased economic strength over time is generally good for everyone. and a competitive economy that facilitates domestic demand and attracts foreign investment are essential to boosting per capital income. As illustrated in the chart below. Income and wellbeing bar sizes are not comparable due to differences in scale 27 . The sub-index demonstrates that outcomes of sound macroeconomic policies. It also shows that investing in physical capital per worker. The Economy sub-index measures countries’ performances in four areas that are essential to promoting prosperity: macroeconomic policies. economic satisfaction and expectations. 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. innovative high-tech exports. 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.
a society’s prosperity increases overall. Indicates a variable that is included in only one regression. Lastly. 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. as well as the Information and Communication Technology (ICT) infrastructure that exists to enable productive commercial endeavours. 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. It also uses research demonstrating the positive impact of an individual realising his or her entrepreneurial potential. 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.com . Specifically.prosperity. The E&O sub-index builds upon scholarship that shows how entrepreneurship drives innovation and leads to economic growth. the variables in the sub-index are categorised into these areas. the Entrepreneurship & Opportunity (E&O) sub-index measures countries’ performance in three areas: entrepreneurial environment. The sub-index also assesses a country’s ability to commercialise innovation. innovative activity. and when individuals experience the satisfaction that comes from earning their success. and access to opportunity. When a country increases the likelihood that entrepreneurial activity will pay off. Variables have been divided into different categories within each sub-index. Income and wellbeing bar sizes are not comparable due to differences in scale 28 www. Variables are ordered from largest to smallest within each category. As illustrated in the chart below.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.
Likewise. Income and wellbeing bar sizes are not comparable due to differences in scale 29 . and accountable governments also increase public confidence. Effective. the opportunity to have a voice in their government is correlated with happier citizens. and the military. The Governance sub-index measures levels of competition and corruption in the government. and regulatory quality are significant contributors to economic growth. strength of institutions. Variables are ordered from largest to smallest within each category.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. As illustrated in the chart below. the variables in the sub-index are categorised into these areas. and citizens’ confidence in elections. and rule of law. The sub-index shows that citizens prefer governments that are stable and accountable. Indicates a variable that is included in only one regression. the judicial system. fair elections and political participation. Variables have been divided into different categories within each sub-index. 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. The Governance sub-index measures countries’ performance in three areas: effective and accountable government. Public wellbeing is also related to people’s perceptions of how well the government addresses societal struggles with the environment and poverty. fair. leading to higher levels of income and wellbeing. leading to higher levels of life satisfaction among citizens. political freedom. Academic research has found that in general. Stable and democratic governing institutions protect political and economic liberty and create an environment of civic participation.
the variables in the sub-index are categorised into these areas. While the relationship between higher levels of education and wellbeing is less clear-cut. the sub-index uses both objective and subjective variables to assess the quality of education in a given country. Income and wellbeing bar sizes are not comparable due to differences in scale 30 www. as well as measures of citizens’ perception of education. Indicates a variable that is included in only one regression. Variables are ordered from largest to smallest within each category. Global data on education is limited and. it shows that human capital stock. The Education sub-index measures countries’ performance in three areas: access to education. allows citizens to develop their potential and contribute productively to their society. which is measured by the average levels of education in the workforce. The Education sub-index demonstrates how access to education. is essential for promoting private sector research and development as well as producing useful knowledge for a society. This sub-index is built on research on economic growth that has found human capital to be an engine for growth. As illustrated in the chart below. therefore. and human capital.prosperity.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. quality of education. Variables have been divided into different categories within each sub-index. as measured by levels of educational enrolment rates that are equal for both girls and boys.com . making a case for the non-diminishing effect of education on rising GDP levels. 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. In addition. Because of the importance of citizen’s own perceptions of the educational opportunity available to them. the Education sub-index uses pupil to teacher ratio. to assess quality. research shows that basic education enhances people’s chances in increasing their satisfaction with life.
Variables have been divided into different categories within each sub-index. 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. The Health sub-index assesses countries by outcomes that are made possible by a strong health infrastructure. 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 . As illustrated in the chart below. such as rates of immunisation against diseases and public health expenditure. The sub-index also includes measures of satisfaction with personal health and the health effects of environmental factors such as water and air quality.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. Self-reported wellbeing and self-reported health are commonly found by researchers to be strongly and significantly correlated to a overall society’s health. Variables are ordered from largest to smallest within each category. health infrastructure and preventative care. and even environmental beauty. Mentally and physically healthy citizens are the bedrock of a productive workforce. The Health subindex measures countries’ performance in three areas: basic health outcomes. Countries are also assessed on outcomes such as life expectancy. rates of infant mortality and undernourishment. which in turn leads to higher levels of income per capita. the variables in the sub-index are categorised into these areas. and physical and mental health satisfaction. Indicates a variable that is included in only one regression.
In addition. the ability to express political opinions without fear of persecution. The Safety and Security sub-index measures countries’ performance in two areas: national security and personal safety. when citizens worry about their personal safety or whether they will suffer for freely expressing their opinions. coups. impede economic growth. 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. The Safety and Security sub-index combines objective measures of security with subjective survey responses about personal safety. is a key element in increasing per capita GDP in a country. As illustrated in the chart below.prosperity. Stability resulting from national security. as well as general crime and mistrust stemming from a lack of social cohesion. and civil war.com . Variables have been divided into different categories within each sub-index. and feeling safe walking alone at night. and people begin to flee. Scholars have shown that organised political violence such as riots. Variables are ordered from largest to smallest within each category. investment. In addition. the variables in the sub-index are categorised into these areas. Stable economic environments are necessary for attracting investment and sustaining economic growth. for example. are positively correlated with higher levels of wellbeing.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. then capital. When people and basic institutions are unsafe and unstable. Indicates a variable that is included in only one regression. Similarly. their overall wellbeing is diminished. Income and wellbeing bar sizes are not comparable due to differences in scale 32 www. conditions that produce fear and uncertainty negatively affect life satisfaction.
There is also a strong link between the levels of tolerance within a society for ethnic. where to go. and overall life satisfaction. Indicates a variable that is included in only one regression. their country enjoys higher levels of income and social wellbeing. and religious diversity. belief. cultural. When citizens’ personal liberties are protected. have been shown to experience increases in levels of satisfaction among their citizens. what to believe. the variables in the sub-index are categorised into these areas. The Personal Freedom sub-index assesses the effects of freedom of choice. 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. Societies that strengthen civil rights and freedoms through democratisation. organisation. Variables are ordered from largest to smallest within each category. expression. Income and wellbeing bar sizes are not comparable due to differences in scale 33 .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. and movement on a country’s per capital GDP and the subjective wellbeing of its citizens. Variables have been divided into different categories within each sub-index. It also assesses how the levels of tolerance for both minorities and immigrants affect countries’ economic growth and citizen satisfaction. A strong empirical link exists between individuals’ freedom to choose what to do. and personal autonomy in a society welcoming of diversity. The Personal Freedom sub-index measures countries’ performance in two areas: individual freedom and social tolerance. belief. a nation also enjoys higher levels of economic growth. As illustrated in the chart below.
Empirical studies on the impact of social capital have shown that citizen wellbeing is improved through social trust. Religious communities are also an important element in the creation of social capital. and membership within civic groups. Variables are ordered from largest to smallest within each category. The use of the term “capital” in “social capital” reflects an important reality: social networks are an asset that produces economic and wellbeing returns.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. family and community ties. helping strangers.prosperity. Variables have been divided into different categories within each sub-index. and donating to charitable organisations impacts the economic and life satisfaction of the populace as a whole. Income and wellbeing bar sizes are not comparable due to differences in scale 34 www. the variables in the sub-index are categorised into these areas. 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.com . As illustrated in the chart below. Indicates a variable that is included in only one regression. And societies with lower levels of social capital have been shown to experience lower levels of economic growth. This sub-index assesses how factors like volunteering. The Social Capital sub-index measures countries’ performances in two areas: social cohesion and engagement. and it assesses how marriage and religiosity provide support networks that improve wellbeing. The sub-index also evaluates the levels of trust in a society and the manner in which citizens believe they can rely on others. as well as community and family networks.
they will be best attained when all persons alike share in government to the utmost. are chiefly to be found in democracy. as is thought by some.” Aristotle .“If liberty and equality.
and an analysis of general trends in prosperity for that area. we have provided a list of rankings of the countries in the region.com .prosperity. 36 www.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.
and Argentina. 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. Costa Rica. 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. which represent the Governance scores. Most markedly. most countries suffer from weak governance that brings down their levels of prosperity. However. North America is followed – with a substantial gap – by a number of mid-ranked countries. which represent the Personal Freedom scores. Personal freedom in Uruguay is almost as high as levels reported in the United States. Latin American countries face a diverse spectrum of challenges and each country has a unique path towards prosperity. mainly due to worsening levels of governance and social capital. 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 . 1 0 -1 Argentina’s Governance Score. Chile. 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. the least prosperous Latin American countries – Honduras and Nicaragua – went down in the rankings significantly relative to 2009. The two leading countries of North America have very strong and stable scores on all sub-indexes. in general. 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). The red dots. are generally above the overall Prosperity score for most countries in the Americas. The green dots.Regional Analyses Regional Analysis: The Americas In terms of prosperity. Conversely. are generally below the overall Prosperity score for most countries in the Americas. such as Uruguay. the Americas are highly diverse with prosperity rankings ranging from Canada at seventh place to Nicaragua at 87th.
and pink dots on the graph below).” such as Hong Kong. Bangladesh. but the region suffers from low levels of entrepreneurship and opportunity. Japan. While East Asian countries generally score well above global averages. there are different challenges that the sub-regions face in developing prosperous societies. Southeast. their relative position in the global ranking.com . spread throughout the 2010 Prosperity Index rankings. The top of the list is dominated by Australia and New Zealand. and Central Asian countries have relatively low levels of entrepreneurship and opportunity. but there are no other general trends that are characteristic of most of the region. As one would expect. In the bottom tier. Cambodia. While there is no one-fix solution to raising prosperity in this region. Nepal. South. relatively low levels of personal freedom in the region brings prosperity down for most countries. which are represented in the red dots. In contrast. and Pakistan share their ranks with some of the Sub-Saharan African countries. Economy Score Personal Freedom Score Entrepreneurship & Opportunity Score Prosperity Index Score 38 www.prosperity. Taiwan. and other “Asian tigers. or even improved. 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. citizens’ personal freedom is often hampered by societal pressures. it is clear that fostering a better entrepreneurial culture will benefit many of the lower ranking countries. Prosperity in East. but higher levels of entrepreneurship and opportunity raise the sub-region’s prosperity. and Southeast Asia is raised by relatively strong performing economies. In East Asian countries. While there have been both increases and decreases in prosperity in the region. which are bringing down the sub-region’s overall prosperity (see the difference between the green. and Korea. followed by Singapore.2010 Legatum Prosperity Index™ Regional Analysis: Asia-Pacific Region The Asia-Pacific region covers a great variety of countries. the best-performing countries of Asia and the Pacific have preserved. South. red.
with the former generally performing better than the latter. While the Nordic states and the countries of North-Western Europe occupy top places in the rankings. suggesting that these three areas might represent the most important assets for the transitional nations of Eastern Europe. and Finland.Regional Analyses Regional Analysis: Europe The top three places in the 2010 Prosperity Index ranking are occupied by Nordic countries: Norway. Eastern European countries have a lot of similarities in terms of what makes them prosperous and the challenges they face. This means good overall governance is what commonly raises levels of prosperity in North/Western Europe. 39 . and safety. these countries have weaker governance and social capital. 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. followed by a number of other countries of Northern and Western Europe. but there are signs of hope: countries with a lower overall score perform relatively well on health. education. Generally. there is a clear divergence between Western and Eastern Europe. However. Denmark. the other European nations are more varied in terms of what make them prosperous. The Central and Eastern European countries and Southern European nations are then scattered in the lower tiers of the ranking. The main difference is that Western Europe benefits from good governance. 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). while challenges with governance brings Eastern European prosperity down.
who make up half of the UAE population and one-fifth of the Kuwaiti population. -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. Overall. which represent the Personal Freedom scores for MENA countries generally fall below the black line. 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. has solidly mid-range scores on Health and Education sub-indexes. the Middle East and North Africa (MENA) are characterised by relatively strong performances in the Health and Economy sub-indexes. were not allowed to be surveyed in these countries. 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). which represent Health and Economy scores for MENA countries are generally above the black line. but this is likely due to the fact that non-Arab expatriates. but that is offset by an extremely low ranking of 108 on the Personal Freedom sub-index. for example.prosperity.com . raising the levels of prosperity in the region. 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. 0 -1 -2 The red dots. where it is followed only by Egypt and Pakistan. which represents the overall Prosperity scores. Iran. which represents the overall Prosperity scores. The United Arab Emirates (UAE) and Kuwait have the highest levels of personal freedom in the region. However.2010 Legatum Prosperity Index™ Regional Analysis: Middle East and North Africa In general.
-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). unlike the rest of Sub-Saharan Africa. suggesting that by example. The exceptions to this are Botswana. 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.Regional Analyses Regional Analysis: Sub-Saharan Africa Most Sub-Saharan African countries are among the worst-performing in the world. These three countries. which represents the overall Prosperity scores.) Finally. (See how the green dots are above the black line. with most of them ranking in the bottom 15. are continuing their ascent in the overall ranking. In terms of regional trends. which represent the Education and Health scores for Sub-Saharan countries generally fall below the black line. poor health and education brings overall prosperity down in the region. or Indonesia. which represents the overall Prosperity Index scores. levels are above the global average. this region shows that social capital and good governance can act as substitutes. they may pave a path towards prosperity for other African nations. and Namibia. Russia. 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. South Africa. 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. and in some countries. Citizens in Sub-Saharan Africa tend to enjoy relatively high levels of personal freedom. But the picture isn’t entirely pessimistic. which are in the neighbourhood of middle-income countries like Mexico.
The chart on the right uses the 2010 methodology to reproduce rankings for 2009. as well as the number of places that countries have moved up or down.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. so that we can compare ‘apples to apples’. For a full description of why and how we altered our methods this year. The methods for determining the rankings in 2010 have changed since the 2009 edition. please see page 24.prosperity.com . 42 www.
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 .
Inc.com). Harvard University Phil Levy. Stanford University Michael Kremer.prosperity. Duke University Legatum Institute also wishes to thank Gallup. Johns Hopkins. University of California. Harvard University Allan Stam. Hamilton College Robert Putnam. Duke University Carol Graham. Legatum Institute also wishes to thank the American Enterprise Institute (www. Legatum Institute recognises Oxford Analytica (www. 44 www. for permission to use the Gallup World Poll Service© and Gallup World Poll Data in construction of the Prosperity Index.com .aei. University of California. Oxford University Daniel Drezner. Participation in the Academic Advisory Panel does not imply endorsement of every aspect of the Prosperity Index. Legatum Institute assumes full responsibility for the content of the Prosperity Index. University of Michigan Erik Wibbels. All Rights Reserved. Terry Babcock-Lumish.oxan.2010 Legatum Prosperity Index™ Legatum Prosperity Index Academic Advisory Panel ™ Legatum Institute (www. San Diego Ann Owen. Los Angeles Stephen Krasner.li. Tufts University Peter Feaver. critiques. Finally. American Enterprise Institute Thomas Mahnken. an independent consultancy that has for 30 years provided authoritative analysis of geopolitical events.com) wishes to thank the members of the Academic Advisory Panel for their helpful advice. Brookings Institution Robert Jensen. Harvard University Thomas Sander. and suggestions. for its assistance in compiling and analysing the Prosperity Index data.org) for their assistance and guidance in helping develop the Index methodology. School of Advanced International Studies Edmund Malesky. Copyright Gallup 2010.
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