prosperity index countries 2012 the legatum institute nov '12

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BUILDING A MORE PROSPEROUS WORLD THROUGH LIBERTY AND RESPONSIBILITY

‘Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them.

‘It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts… nuclear warheads and armored cars for the police to �ght the riots in our cities…

‘ Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public o�cials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.’

Senator Robert F. Kennedy

The eight sub-indices are equally weighted to produce the overall rankings. On our website (www.prosperity.com), we give you the opportunity to assign your own weightings to the sub-indices and see how the rankings change accordingly. For a discussion of how the Index data and methodology might affect certain individual rankings please see pages 46–47.

THE 2012 LEGATUM PROSPERITY INDEX™ RANKINGS

©2012 Legatum Limited. All rights reserved. This document may not be reproduced or transmitted, in whole or in part, by any means or in any media, without the prior written permission of Legatum Limited. The Legatum Prosperity Index and its underlying methodologies comprise the exclusive intellectual property of Legatum and/or its affiliates. ‘Legatum’, the Legatum logo and ‘Legatum Prosperity Index’ are the subjects of Community trade mark registrations of affiliates of Legatum Limited. Whilst every care has been taken in the preparation of this report, no responsibility can be taken for any error or omission contained herein.

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GLOBAL TRANSITIONS PROSPERITY STUDIES

A UNIQUE GLOBAL INQUIRY INTO WEALTH AND WELLBEING

The 2012 Legatum Prosperity Index™

OUTER SIDE

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THE LEGATUM INSTITUTE

www.prosperity.com

CONTENTS

2012 Prosperity Index Rankings Table inside front

Foreword 3Key Findings from The 2012 Prosperity Index 4Map: Prosperity Around the World 8Regional Analysis

The Americas 10 Europe 12 Sub-Saharan Africa 14 Middle East and North Africa 16 Asia-Pacific 18

Snapshots

Prosperity Within Countries 20Less Is More … Social Capital and Regulation 22 Tracing A Path To Prosperity 24 Tolerance, Diversity, and Prosperity 26 Entrepreneurship and Innovation 30 Government Approval and Media Freedom in Latin America 32

Methodology 34Sub-Indices 38Prosperity Index ‘Anomalies’ 46Year-On-Year Rankings Table 2009-2012 48Acknowledgements inside back


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‘Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public o�cials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.’





www.prosperity.com




OUTER SIDE

OV

ERA

LL

PRO

SPER

ITY

RAN

K

CO

UN

TRY

ECO

NO

MY

ENTR

EPRE

NEU

RSH

IP

& O

PPO

RTU

NIT

Y

GO

VER

NA

NC

E

EDU

CAT

ION

HEA

LTH

SAFE

TY &

SEC

URI

TY

PERS

ON

AL

FREE

DO

M

SOC

IAL

CA

PITA

L

1 Norway 2 4 13 6 4 2 6 12 Denmark 19 1 3 16 16 8 7 23 Sweden 5 2 4 12 14 6 5 94 Australia 10 8 8 2 17 19 3 35 New Zealand 27 13 2 1 20 13 2 46 Canada 8 16 6 3 15 9 1 87 Finland 16 3 5 8 12 3 19 58 Netherlands 14 10 11 11 7 18 9 69 Switzerland 1 7 1 32 3 10 22 11

10 Ireland 25 14 14 14 11 4 4 711 Luxembourg 4 5 9 48 1 7 8 1612 United States 20 12 10 5 2 27 14 1013 United Kingdom 26 6 7 30 18 20 11 1214 Germany 6 18 16 15 5 21 12 1515 Iceland 61 9 20 13 13 1 10 1316 Austria 13 17 12 24 10 15 21 1417 Belgium 21 22 17 17 8 22 20 1818 Hong Kong 9 15 23 39 30 5 23 2519 Singapore 3 11 15 41 22 12 54 3920 Taiwan 7 24 31 4 29 11 27 2421 France 22 21 18 19 9 31 16 4022 Japan 12 23 22 23 6 16 42 2023 Spain 40 26 26 10 21 29 18 3424 Slovenia 41 25 29 9 25 14 28 3625 Malta 32 20 19 46 27 30 24 2126 Portugal 51 28 36 34 28 17 13 6727 South Korea 23 19 30 7 24 40 56 5128 Czech Republic 30 29 33 22 26 24 45 4529 United Arab Emirates 17 30 41 37 32 23 66 4230 Cyprus 37 27 21 25 33 49 34 5631 Uruguay 49 56 27 45 44 26 15 5532 Poland 52 38 38 38 34 25 37 4633 Italy 36 37 39 36 19 42 57 3834 Chile 28 40 24 60 47 36 29 6935 Estonia 60 32 25 31 39 39 74 3036 Slovakia 56 35 42 26 31 33 40 4737 Costa Rica 45 43 34 67 43 45 17 6638 Kuwait 24 33 40 62 36 32 73 5739 Hungary 68 45 37 20 38 28 68 7940 Israel 29 31 28 33 35 115 118 2241 Argentina 48 52 75 42 41 46 26 7042 Panama 42 39 62 58 54 48 35 6143 Lithuania 82 42 43 18 46 34 93 4944 Brazil 33 47 56 79 57 87 25 6445 Malaysia 15 44 35 40 45 62 111 10046 Kazakhstan 54 59 95 43 60 53 43 3747 Latvia 80 36 44 28 50 50 112 8648 Bulgaria 93 41 72 51 49 41 59 8549 Greece 85 51 48 35 23 38 121 9750 Croatia 59 48 52 56 37 35 100 11051 Trinidad and Tobago 78 54 57 82 59 58 36 7652 Saudi Arabia 31 46 50 64 42 82 130 4353 Vietnam 39 73 61 80 80 55 99 3554 Belarus 90 63 123 21 40 52 102 2655 China 11 66 65 50 67 101 128 2956 Thailand 18 61 64 70 71 99 129 1957 Montenegro 105 58 66 55 53 37 75 10258 Sri Lanka 71 86 51 47 74 122 58 3159 Mongolia 98 62 84 52 96 43 92 3360 Romania 94 49 71 49 64 47 81 11361 Mexico 34 69 69 78 52 116 78 6362 Jamaica 116 57 68 86 65 70 64 4863 Indonesia 43 85 80 84 95 68 80 2764 Uzbekistan 67 98 116 65 72 66 70 1765 Belize 64 72 74 96 63 72 65 5066 Russia 62 50 118 27 48 97 119 7167 Philippines 47 75 63 72 93 112 55 7268 Paraguay 53 91 103 97 73 78 38 5369 Colombia 46 60 58 81 79 136 61 6270 Botswana 107 68 32 90 102 63 30 9071 Ukraine 110 64 121 29 69 56 108 5872 Peru 38 71 83 85 88 91 62 10173 Morocco 35 78 78 110 76 84 103 2374 South Africa 87 34 45 89 114 100 48 8075 Macedonia 109 70 77 71 51 69 90 10676 Ecuador 55 83 109 69 78 94 51 11477 Jordan 100 65 59 53 62 75 133 9278 Tunisia 69 53 67 75 68 73 123 12279 Serbia 120 79 82 61 61 60 87 11580 Venezuela 66 88 131 54 70 106 88 7581 Dominican Republic 102 80 87 93 92 103 52 7482 Laos 58 96 81 106 105 57 82 4183 Namibia 86 92 47 99 101 81 41 9984 Moldova 124 77 101 59 84 79 115 8185 Lebanon 63 74 107 63 86 85 114 12086 Tajikistan 113 107 112 68 94 54 98 6587 Ghana 111 101 54 104 99 67 39 9488 Kyrgyzstan 123 87 122 73 81 107 101 3289 Turkey 74 55 46 91 58 93 127 13390 El Salvador 75 90 70 98 82 90 83 11991 Nicaragua 83 105 99 88 90 76 50 10892 Albania 99 89 93 83 56 44 126 12893 Georgia 132 76 53 66 83 59 79 14094 Azerbaijan 89 67 113 87 89 80 117 8895 Bolivia 44 102 104 76 103 102 71 10396 Honduras 91 100 105 95 85 86 86 9697 Guatemala 65 84 90 102 91 110 97 9398 Armenia 129 81 97 44 98 61 122 12499 Bosnia-Herzegovina 114 94 108 74 55 71 131 117

100 Algeria 50 93 106 77 75 104 137 109101 India 57 99 49 100 104 114 67 138102 Iran 70 95 126 57 66 125 125 121103 Bangladesh 73 104 98 101 100 118 32 130104 Mali 88 126 86 137 126 51 33 54105 Malawi 106 129 60 115 110 92 72 60106 Egypt 104 82 85 94 77 108 140 104107 Cambodia 84 109 79 105 111 83 116 107108 Nepal 97 115 110 107 97 96 104 111109 Tanzania 81 118 89 120 122 109 96 59110 Zambia 117 111 102 109 130 119 91 28111 Rwanda 118 110 55 108 115 77 95 135112 Burkina Faso 101 134 88 138 108 74 53 89113 Syria 77 113 91 92 87 120 136 131114 Niger 72 138 76 141 117 88 46 98115 Cameroon 76 119 124 113 127 113 60 112116 Kenya 122 97 111 114 119 130 77 77117 Uganda 96 112 94 116 129 133 89 52118 Senegal 108 117 100 119 124 89 47 129119 Benin 119 128 73 122 118 64 31 141120 Congo (Republic of) 79 122 134 111 113 105 76 134121 Djibouti 131 130 96 136 121 65 106 84122 Mauritania 127 116 133 128 120 95 109 78123 Nigeria 121 106 125 123 116 131 84 91124 Mozambique 126 108 92 129 137 111 69 116125 Sudan 103 114 136 124 106 138 134 44126 Côte d'Ivoire 95 127 138 135 123 127 49 136127 Guinea 135 135 132 132 133 117 44 125128 Sierra Leone 139 133 114 131 140 128 63 82129 Angola 125 120 117 127 134 129 113 118130 Liberia 141 132 128 117 135 126 94 68131 Iraq 92 125 137 112 107 135 141 105132 Pakistan 115 103 115 121 112 139 132 137133 Ethiopia 128 131 119 134 125 134 138 95134 Yemen 134 124 127 130 109 124 142 123135 Zimbabwe 142 123 142 103 128 137 107 73136 Togo 138 136 130 125 132 98 85 142137 Burundi 137 140 120 126 136 123 120 139138 Haiti 140 137 135 118 138 121 139 126139 Chad 112 139 139 140 141 142 124 83140 Afghanistan 130 121 141 139 131 140 135 127141 Congo (DR) 136 142 140 133 142 141 110 87142 Central African Republic 133 141 129 142 139 132 105 132

THE 2012 LEGATUM PROSPERITY INDEX™ RANKINGS High Ranking Countries (30) Upper Middle Ranking Countries (41) Lower Middle Ranking Countries (41) Low Ranking Countries (30)

ACKNOWLEDGEMENTS

The Legatum Institute Prosperity Index™ team Nathan Gamester

Stefania Lovo

Serena Masino

Edo Omic

Special AdvisorsThe Legatum Institute wishes to thank the Special Advisors to the Prosperity Index for their helpful advice, critiques, and suggestions.

Tim Besley, London School of Economics

Daniel Drezner, Tufts University

Carol Graham, Brookings Institution

Edmund Malesky, University of California, San Diego

Ann Owen, Hamilton College

The Legatum Institute also wishes to give special thanks to Boston College lecturer Martha Bayles for her assistance and guidance in writing and editing this year’s Index.

The Legatum Institute wishes to thank Gallup, Inc. for permission to use the Gallup World Poll Service© and Gallup World Poll Data in construction of the Prosperity Index. Copyright Gallup, Inc. 2012, Reprinted with permission of Gallup, Inc. All Rights Reserved.

The Legatum Institute wishes to thank its International Advisory Group for their input and assistance in the Prosperity Index:

Peter Skerry, Boston College; Dan Chirot, University of Washington; Patrick Cheung, Hong Kong; and Toby Mundy, CEO, Atlantic Books.

Finally, the Legatum Institute would like to thank the following individuals and organizations who assisted in the production of the 2012 Prosperity Index:

Nicola Coulton, Naomi Fenwick, Mosadeq M. Hobrara, Ciaran Hughes, Nicole Muir, Oxford Analytica, Peter Passell, Andrew Rzepa, Yaroslava Romanova.

Designed by Kay Webb.

Unless otherwise stated, all data are from the 2012 Legatum Prosperity Index™. All original data sources can be found in the Prosperity Index full report available at www.prosperity.com. In this report the term ‘country’ is used to refer to the 142 societies that are included in the Prosperity Index. There are 140 states and two territories—Hong Kong and Taiwan—in the Index.

2 www.li.com

Prosperity extends beyond just material wealth. It includes factors such as social capital, effective governance, human rights and liberties, health, opportunity, security, and overall quality of life. The purpose of the Prosperity Index is to spark debate and to encourage policymakers, scholars, the media, and the interested public to take an holistic view of prosperity and to better understand how it is created.


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�e 2012 Legatum Prosperity Index™

FOREWORD

Dear Reader,

Recently, there has been a global shift in the understanding of how to measure national success. From former French President Nicolas Sarkozy’s 2009 Commission, to the King of Bhutan’s Index of Gross National Happiness, to David Cameron’s initiative to measure wellbeing in the UK: the world is beginning to take a broader view of success. We welcome this shift in our understanding of why countries prosper.

We believe that the Legatum Institute is contributing to this debate. For the past six years the Legatum Prosperity Index™ has been exploring the foundations of national success by combining traditional measures of material wealth with subjective wellbeing. This holistic view of prosperity, that moves beyond GDP, allows us to paint a more complete picture of the world.

The Legatum Prosperity Index™ incorporates traditional economic measures of prosperity with measurements of wellbeing and life satisfaction. Indeed, it remains the only global index to provide an empirical basis for the intuitive sense that true prosperity is a complex blend of income and wellbeing. In order to better understand the role of wellbeing in public policy, the Legatum Institute has recently launched a Commission on Wellbeing to be chaired by former Cabinet Secretary Lord (Gus) O’Donnell. The independent, non-partisan Commission will report on the strengths and limitations of wellbeing analysis, tying latest research findings to the everyday practical needs of citizens.

Each country must chart its own course to success. No matter the circumstance, however, the Prosperity Index confirms that key drivers of national prosperity include entrepreneurship and opportunity, effective accountable government, and the rule of law.

The Prosperity Index is central to the Legatum Institute’s on-going inquiry into the foundations of national success. I hope that you find the 2012 edition stimulating and engaging.

Yours,

Dr Jeffrey Gedmin President and CEO, Legatum Institute

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The 2012 Legatum Prosperity Index™ comes at a time when much of the world is questioning the very foundations upon which prosperity and security are built. Increasing economic uncertainty continues to dominate much of the developed world; new global powers are emerging in Asia; citizens of Arab nations are tasting freedom and democracy for the first time; and social unrest is erupting in places as different as London and Lagos.

Now, perhaps more than any time in recent history, we need to re-examine our values and principles. What should be the priorities for policymakers responding to the economic crisis in its various guises? Are there insights or lessons for countries that are undergoing political and economic transitions? What are the fundamental pillars of prosperity?

KEY FINDINGS FROM THE 2012 PROSPERITY INDEX

1 Global prosperity is increasing ... Despite the most severe financial crisis in modern times, despite

citizen uprisings that have toppled some of the world’s most

autocratic regimes, despite protests and riots that have erupted

around the world, global prosperity has increased across all

regions of the world over the last four years.

2 … but Safety & Security is decreasing This has been driven by Arab Spring countries such as Tunisia,

Yemen, and Egypt and by Latin American countries such as

Mexico, Paraguay, and Honduras. In fact, the Latin American

region is one of the worst performers for citizen safety, driven by

extremely high rates of assault and theft (see pages 10–11).

CHANGES BY SUB INDEX, 2009–2012

DIFFERENCE IN INDEX SCORE, 2009–2012

Economy

E&O

Governance

Education

Health

Personal Freedom

Social Capital

Central Asia

SE Asia

Sub-Saharan Africa

East Asia

South Asia

Latin America

Eastern Europe

MENA

Europe

Asia Pacific

North America

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

0 0.2 0.4 0.6 0.8

0 0.2 0.4 0.6 0.8

Safety & Security

Covering 96% of the world’s population and 99% of global GDP, the Index provides a more complete picture of global prosperity than any other tool of its kind.


5www.prosperity.com

3 US falls out of top ten The US ranks outside of the top ten for the first time

(down to 12th), pulled down primarily by a decline in

the Entrepreneurship & Opportunity sub-index. This fall

is driven by a decline in the number of US citizens who

believe that hard work will get them ahead and a decrease

in ICT exports.

-5 -4 -3 -2 -1 0Economy

-4-6 -5 -3 -2 -1 0

-4 -3 -2 -1 0

-2 -1 0

Entrepreneurship& Opportunity

0

0

0

Governance

0 1 2 3 4Education

Health

Safety & Security

Personal Freedom

Social Capital

-1

2009–2012

-8 -7

-7 -6

Published in connection to this report

is a full methodology document and

142 individual country fact sheets.

These are available in print and on our

website www.prosperity.com.

142 countries

96% of the world’s population

99% of global GDP

A unique snapshot of national prosperity

6 years running

www.li.com6

KEY FINDINGS FROM THE 2012 PROSPERITY INDEX

SIX OF THE TOP 15ECONOMIES ARE IN ASIA

Switzerland

Norway

Singapore

Luxembourg

Sweden

Germany

Taiwan

Canada

Hong Kong

Australia

China

Japan

Austria

Netherlands

Malaysia

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

4 The rise of the East continues Hong Kong, Singapore, and Taiwan all rank in the top

ten for the Economy and in the top 20 overall. Further,

Asia receives the second highest inflow of Foreign Direct

Investment as a percentage of GDP and East Asia is the

second largest exporter globally.

5 Watch out for the Asian Tiger Cubs Vietnam, Thailand, Indonesia, and Malaysia are the rising

countries nipping at the heels of the regional leaders. Indonesia,

for example, has experienced the largest increase in prosperity,

globally, since 2009, moving up 26 positions to 63rd.

6 Key drivers of prosperity: accountable

governance and entrepreneurshipThis is particularly true for the top 50 countries, whereas for

developing countries, health and education play a more crucial

role. The Index finds that good governance and entrepreneurship

tend to go together and reinforce each other, generating a

virtuous cycle that leads to greater prosperity.

The Prosperity Index is the only global index that measures national prosperity based on both wealth and wellbeing. The Index seeks to redefine the concept of national prosperity to include, as a matter of fundamental importance, factors such as democratic governance, entrepreneurial opportunity, and social cohesion. Covering 96% of the world’s population and 99% of global GDP, the Index provides a more complete picture of global prosperity than any other tool of its kind.

Key drivers of prosperity: entrepreneurship, opportunity, e ective and accountable government.


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7

Governance

Switzerland

Zimbabwe

New Zealand

CentralAfrican Rep.

Switzerland Denmark

Zimbabwe

PersonalFreedom

Canada

Yemen

Norway

Togo

Luxembourg

Congo(DR)

Economy E&O* Education Health SocialCapital

BEST

WORST

Congo(DR)

Iceland

Chad

Safety &Security

27 of the top 30 countries in the Index are democracies7

Key stepping stone to prosperity: accountable government 27 out of the top 30 countries in the Index are democracies.

India, however (the biggest democracy in the world), has

fallen ten positions since 2009 due, in part, to a decline in the

Governance sub-index.

8 Tolerance is good for prosperity.

As the world becomes smaller and immigration

rises, tolerance towards diversity becomes a

crucial issue for societies. The Prosperity Index

finds that in countries where tolerance levels are

high, prosperity flourishes (see page 26).

Highest

Lowest

Rank

Tolerance90%30%

SUB-INDEX PERFORMERS: BEST AND WORST

This graphic shows the countries that rank highest (first) and lowest (142nd) in each of the eight sub-indices.

*Entrepreneurship & Opportunity

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COSTA RICA… is a regional leader.

Find out why on page 24.

LATIN AMERICA… has experienced a decrease

in Safety & Security. Find out more on page 11.

US… falls out of the top ten for the first time. Find out more on page 10.

PROSPERITY AROUND THE WORLD

DENMARK… ranks first on the Entrepreneurship &

Opportunity sub-index. See page 39.


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TOP 10 COUNTRIES1 Norway

2 Denmark

3 Sweden

4 Australia

5 New Zealand

6 Canada

7 Finland

8 Netherlands

9 Switzerland

10 Ireland

BOTTOM 10 COUNTRIES133 Ethiopia

134 Yemen

135 Zimbabwe

136 Togo

137 Burundi

138 Haiti

139 Chad

140 Afghanistan

141 Congo (DR)

142 Central African Republic

High Ranking Countries (30) Upper Middle Ranking Countries (41) Lower Middle Ranking Countries (41) Low Ranking Countries (30) Insufficient Data

BOTSWANA… outperforms all its sub-Saharan African neighbours. See page 24.

THE ASIAN TIGER CUBS… find out which Asian

countries are on the rise on page 19.

NEW ZEALAND… has high levels of both

social capital and tolerance. Find out more on page 29.

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REGIONAL ANALYSIS: THE AMERICAS

Cana

da

6

Unite

d St

ates

12

Urug

uay

31

Chile

34

Cost

a Ri

ca

37

Arge

ntin

a

41

Pana

ma

42

Braz

il

44

Trin

idad

and

Toba

go

51

Mex

ico

61

Jam

aica

62

Beliz

e

65

Para

guay

68

Colo

mbi

a

69

Peru

72

Ecua

dor

76

Vene

zuel

a

80

Dom

inica

n Re

publ

ic 81

El S

alva

dor

90

Nica

ragu

a

91

Boliv

ia

95

Hon

dura

s

96

Gua

tem

ala

97

Hai

ti

138

REGIONAL RANKING—THE AMERICAS

Canada leads the region placing sixth, while the US falls out of the top ten for the first time since 2009, placing 12th overall.

The US has seen a decline in rankings in most sub-indices. The Economy and Entrepreneurship & Opportunity sub-indices have declined the most with the US falling seven places and eight places respectively in each in the last four years. This is due to a decline in citizens’ perception that working hard gets you ahead, a decline in high-tech and telecommunication exports, and an increase in levels of unemployment. Furthermore, US citizens’ overall satisfaction with living standards has declined since last year. Although the US ranks second overall in the Health sub-index, the country’s infant mortality rate is higher than that of Europe (6.5% compared to a European average of 3%).

Uruguay has replaced Costa Rica as the Latin American regional leader and is followed by Chile. Bolivia used to be the worst regional performer, but has now overtaken both Guatemala and Honduras. At the very bottom of the regional rankings, Haiti—a new entrant in the 2012 Index—places 138th.

When comparing the region with the rest of the world, we observe that most countries in the Latin American region fall below the global average in the Governance, Safety & Security, and Social Capital sub-indices (represented in the graphic below). Whereas, most countries in the region place above the global average for Personal Freedom.

LATIN AMERICA REGIONAL PERFORMANCE

Economy

E&O

Governance

Education

Health

Safety & Security

Personal Freedom

Social Capital

+Globalaverage

_

Colombia Uruguay

Uruguay

Chile

Jamaica

Haiti

Chile

Haiti Panama

Haiti

Haiti Argentina

Haiti

Haiti

Haiti

Argentina

WORSTPERFORMERS

BESTPERFORMERS

URUGUAY Highest ranking country in Safety & Security and

Personal Freedom.

COLOMBIALowest ranking

country in Safety & Security sub-index.

Most countries inthe region fall below

global average in Governance, Safety

& Security and Social Capital sub-indices.


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In Focus: Safety in Latin AmericaOne of the global trends we have observed over the last four years is a decline in Safety & Security. One of the main drivers of this trend has been the Latin American region. Low levels of personal safety and high crime rates have long been a challenge in the region. Social inequality is often considered a major driver of crime and violence. For example, in the last five years, violence associated with drug cartels has killed approximately 50,000 people in Mexico alone.

The Safety & Security sub-index has two parts: national security and personal safety. For the purpose of this analysis, we have split the sub-index according to these two components. This reveals that Latin America is the worst performer in personal safety, globally, together with sub-Saharan Africa. In particular, Latin Americans feel the least safe when walking alone at night.

Paraguay, Bolivia, and Peru report the highest levels of both property theft and assault, while Venezuela, the Dominican Republic, and Paraguay report the lowest levels of people that feel safe walking alone at night. The outliers in the region are Panama and Jamaica who perform comparatively well on these indicators.

In Uruguay, citizens feel relatively safe walking alone at night and the percentage of the population who has suffered assault is low, but the percentage of the population who has had property stolen is much higher, placing the country among the bottom five performers on this variable.

Some countries in Latin America have taken firm action to curb crime and violence, including measures such as the banning of weapons in Honduras or proposals for drug legalisation in Uruguay and Colombia. However, more remains to be done to bring crime levels down.

REGIONAL AVERAGES, % OF POPULATION

Walking aloneat night

I do not feel safe

28

32

37

44

Asia

Europe

MENA

Sub-SaharanAfrica

Latin America 56

Argentina

49%Colombia

56%Venezuela

68%

Not safe walkingalone at night?

Victim oftheft?

Bolivia

18%Mexico

16%Jamaica

4%

Assaulted?

12

11

14

28

20

I have hadsomething

stolen

3

4

6

13

13

I have beenassaulted

or mugged

In the last year

Bolivia

28%Colombia

26%Panama

9%*Data are from the 2012 Legatum Prosperity

Index™ (original source: Gallup World Poll)

CITIZEN SAFETY IN LATIN AMERICA

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REGIONAL ANALYSIS: EUROPE

Nor

way

1

Denm

ark

2

Swed

en

3

Finl

and

7

Net

herla

nds

8

Switz

erla

nd

9

Irela

nd

10

Luxe

mbo

urg

11

Uni

ted

King

dom

13

Ger

man

y

14

Icel

and

15

Aust

ria

16

Belg

ium

17

Fran

ce

21

Spai

n

23

Slov

enia

24

Mal

ta

25

Port

ugal

26

Czec

h Re

publ

ic

28

Cypr

us

30

Pola

nd

32

Italy

33

Esto

nia

35

Slov

akia

36

Hun

gary

39

Lith

uani

a

43

Latv

ia

47

Bulg

aria

48

Gre

ece

49

Croa

tia

50

Bela

rus

54

Mon

tene

gro

57

Rom

ania

60

Russ

ia

66

Ukr

aine

71

Mac

edon

ia

75

Serb

ia

79

Mol

dova

84

Alba

nia

92

Geo

rgia

93

Azer

baija

n

94

Arm

enia

98

Bosn

ia-H

erze

govi

na

99

REGIONAL RANKING—EUROPE

The performance of European countries in the 2012

Index is varied, reflecting institutional, economic, and

political differences among them.

In the overall rankings, most Western European countries rank in the top 30 (with the exception of Greece and Italy), while Central and Eastern European countries rank in the middle of the Index (with the exception of the Czech Republic and Slovenia who place in the top 30).

Although this distinction within the region suggests the existence of ‘two Europes’, the same distinction is harder to make when analysing the Economy sub-index, where the majority of European countries have seen their scores drop since 2009.

A change in the Economy sub-index does not merely reflect changes in GDP. It reflects the health of the overall economy coupled with citizens’ satisfaction and expectations of the economy.

The graphic (right) captures the movements of European countries’ scores in the Economy sub-index since 2009. Among the countries with the largest decreases in score are Greece, Spain, Iceland, and Lithuania. The decline in the Economy sub-index is more pronounced in Western European countries, which saw an average decline twice as large as that in Eastern Europe.

Perhaps surprisingly, some of the stronger European economies such as Norway, Denmark and Finland, are also declining. Overall, the drop in the Economy sub-index is led by objective variables such as increases in non-performing loans and in employment.

ECONOMY RANKINGS CHANGE 2009 –2012

The majority of European countries have seen a drop in the Economy sub-index since 2009.

Belarus

Belgium

Croatia

Czech Rep.

Denmark

Estonia

Finland

France

Germany

Greece

Ireland

Italy

LatviaLithuania

Macedonia

Norway

Poland

Romania

Russia

SlovakiaSlovenia

Spain

UK

Switzerland

1

2

-1

-2

Iceland

Bulgaria

Moldova

Portugal2012Avge

3

4

0



Change in scores 2009–2012

-0.40-0.43

-0.02-0.05

-0.070.12

-0.23

0.05

0.03

0.05

-0.03

Italy

Belgium

Ireland

0.27

0.42

0.26

Slovenia

Slovakia

Estonia

0.38 Moldova

Spain

EducationSafety &Security

Overallprosperity

index

WESTERN EUROPE

EASTERN EUROPE

0.08

0.400.17

0.390.21

0.300.30

0.600.45

0

Emerging Eastern Europe Among the Eastern and Central European countries, four stand out for their notable improvements in overall prosperity: Slovakia, Moldova, Slovenia, and Estonia. The chart above shows how these four countries have outperformed a number of Western European countries on the overall Prosperity Score in the last four years.

Specifically, in the Education and Safety & Security sub-indices we see the ‘emerging’ European countries outperforming traditional Western Europe.

Education has improved in the ‘emerging’ European countries as a result of increased primary and secondary school enrolment, and increased years of secondary education per worker. In Slovakia and Estonia, for example, the labour force has, on average, five to six years of secondary education, indicating a workforce which is becoming increasingly better educated.

In the Safety & Security sub-index, countries such as Slovakia and Moldova have seen substantially large gains over the last four years and now surpass many Western European countries as well as the overall European average in this sub-index.

By contrast, many of the Western European countries are either just keeping pace with the European average (such as France and Spain), or are seeing substantial falls in their scores (notably Italy, which has seen the largest decrease in the whole of Europe). Among the four selected Central and Eastern European countries, the variable that has helped improve their Safety & Security scores is the percentage of people who feel safe walking home at night, up by 7%, while the average improvement of Italy, Ireland, Belgium, and France was only 1.6%.

While these patterns are not universal across East and West Europe, they point towards the emergence of an increasingly prosperous area in Central and Eastern Europe. Western Europe is at best slowing down or at worst decreasing in levels of overall prosperity.

In Focus:

Data from the 2012 Legatum Prosperity Index™

Some Eastern European countries are

performing significantly better than Western European countries.

WESTERN EUROPE DECLINING, EASTERN EUROPE RISING

14 www.li.com

REGIONAL ANALYSIS: SUB-SAHARAN AFRICA

Among the 30 lowest ranking countries in the Index, 24 are in sub-Saharan Africa. The highest ranking sub-Saharan

African country is Botswana (70th), followed by South Africa (74th) and Namibia (83rd). The 2012 Index includes 16

new sub-Saharan African countries, all of whom rank among the bottom 40 of the Index.

Many African countries perform best in the Social Capital sub-index, including Zambia, Sudan, Uganda, Mali and Tanzania, who rank among the top 60 countries, in this sub-index overall.

The role of social capital in a developing country is complex. For example, when social capital is high, and citizens are able to rely heavily on networks and connections, it can be a symptom of failing institutions. In other words, when institutions are weak and cannot deliver public goods, networks and social ties provide an alternative that facilitates collective actions.

Instead, when strong institutions are in place, the role of the state in delivering public goods and services is best accomplished when combined with social trust and community participation.

The link between Governance and Social Capital is seen in the graph (below) where we observe countries such as Zimbabwe, Chad, Sudan, and Liberia ranking low on Governance, but high on Social Capital.

SOCIAL CAPITAL IN SUB-SAHARAN AFRICA: COMPLEMENT OR SUBSTITUTE FOR FORMAL INSTITUTIONS?

Bots

wan

a

70

Sout

h Af

rica

74

Nam

ibia

83

Gha

na

87

Mal

i

104

Mal

awi

105

Tanz

ania

109

Zam

bia

110

Rwan

da

111

Burk

ina

Faso

112

Nig

er

114

Cam

eroo

n

115

Keny

a

116

Ugan

da

117

Sene

gal

118

Beni

n

119

Cong

o (R

epub

lic)

120

Djib

outi

121

Mau

ritan

ia

122

Nig

eria

123

Moz

ambi

que

124

Suda

n

125

Cote

d’Iv

oire

126

Gui

nea

127

Sier

ra Le

one

128

Ango

la

129

Liber

ia

130

Ethi

opia

133

Zim

babw

e

135

Togo

136

Buru

ndi

137

Chad

139

Cong

o (D

R)

141

Cent

ral A

frica

n Re

publ

ic 14

2

REGIONAL RANKING —SUB-SAHARAN AFRICA

Togo

SocialCapitalGovernance

Central African Republic

Rep. of Congo

Cote d'Ivoire

Liberia

Sudan

Chad

Zimbabwe

142 100 50501 100 1

Countries that rank low in Governance AND in Social Capital

Countries that rank low in Governance BUT high in Social Capital



Data from the 2012 Legatum Prosperity Index™ (original source: Failed State Index)

Suda

n8.2

Malawi

8.1

Kenya7.6

Ethiopia

7.2

Mozambique7.8

Zim

babw

e9.

3

Zam

bia

6.8

Uganda6.6

Burundi6.2

Djibouti5.2

Tanzania5.8

Rwanda

6.8

EASTAFRICA

Cha

d8.

0

Camer

oon7.8

Congo (DR)

7.7

Angola5.9

Central

African Rep

5.8

Congo (Republic)6.7

CENTRALAFRICA

Gui

nea

8.3

Sierra

Leon

e

8.0

Cote d'Ivoire

7.9

Nigeria7.7

Niger6.2

Senegal6.0

Benin6.6

Mali

7.3

Libe

ria 7.0

Ghana7.6

BurkinaFaso 6.3

Mauritania5.5

Togo

7.0

WESTAFRICA

2

4

6

Nam

ibia

7.1

Botsw

ana

5.6

South Africa

4.1

SOUTHAFRICA

2

4

6

8

0

8

2

0

4

6

0

8

2

0

4

6

In Focus: Human Flight There are cases in which both formal and informal institutions fail. Examples are Côte d’Ivoire, the Republic of Congo, and Togo. In these countries, armed conflicts, both internal and in neighbouring countries, have displaced people and weakened the social fabric of society, limiting the development of networks and interpersonal connections.

Although social capital can be an effective substitute for formal institutions, it remains a second-best solution. The priority should be on creating the necessary formal legal and political institutions that can lead to economic and social development.

But this cannot be achieved without the contribution of the most educated and skilful people in the society. Most sub-Saharan African countries are experiencing high levels of emigration of professionals, intellectuals, and dissidents. Human flight is highest in Zimbabwe, followed by Guinea, Sudan, and Malawi. This increasing brain drain raises concerns about the process of national development in many sub-Saharan countries.

OUT OF AFRICA: HIGH LEVELS OF HUMAN FLIGHT IN SUB-SAHARAN AFRICA

Human Flight is defined as the flight of professionals, intellectuals, political dissidents, and the middle class.

16 www.li.com

REGIONAL ANALYSIS: MIDDLE EAST AND NORTH AFRICA

Unite

d Ar

ab E

mira

tes

29

Kuw

ait

38

Israe

l

40

Saud

i Ara

bia

52

Mor

occo

73

Jord

an

77

Tuni

sia

78

Leba

non

85

Turk

ey

89

Alge

ria

100

Iran

102

Egyp

t

106

Syria

113

Iraq

131

Yem

en

134

Afgh

anist

an

140

REGIONAL RANKING—MIDDLE EAST AND NORTH AFRICA (MENA)

Middle East and North Africa (MENA) countries span the Index rankings.

The United Arab Emirates, for example, ranks in the top 30 overall, whilst

Iraq and Afghanistan—two new countries in the Index this year—rank

within the bottom 15 countries in the Index.

Despite differences across the region, most countries have improved their performance in the Entrepreneurship & Opportunity (E&O) sub-index over the last three years (see graph). This parallels a global improvement in the E&O sub-index in recent years, which has been caused, in part, by increasing levels of communications technology such as mobile banking. This has allowed more aspiring entrepreneurs to launch their own businesses. The MENA region has seen the second largest improvement in this sub-index behind Asia.

Alongside greater connectivity, improvements in the E&O sub-index (represented by the purple lines in the graphic, right) are partly due to a decrease in business start-up costs. Start-up costs have decreased throughout the region with the exceptions of Israel, Algeria, and Yemen, where they remain mostly unchanged. A significant improvement has been experienced by Egypt where business start-up costs decreased from almost 16% of GNI per capita in 2009 to 6% in 2012.

Algeria Egypt

Jordan Kuwait SaudiArabia

MENAAvg.

SocialCapital

E & O

2010 2011 2012

0

1

2

-1

-1

-1

-2

-2

-3

1

2

0

1

2

Syria Tunisia Yemen

-2

DECREASING SOCIAL CAPITAL, INCREASING E&O

UAE is one of a small number of countries where survey data may not be representative of the entire population, which may have an effect on the results. For more detail, see pages 46–47.

This graphic shows the changes in sub-index scores over the last three years



70

60

50

40

10

20

30

58%52%

KuwaitIsrael

JordanUAE

74%

73%

SyriaIran

66%

Afghanistan

Europe 89%

Asia 79%Global 81%

69% Turkey

71% Tunisia

Lebanon

81%

Algeria

75%

Iraq

83%

Saudi ArabiaMorocco

88%

Egypt

Yemen

Sub-Saharan Africa 71%

%

The share of thepopulation that can rely on

friends and family in times ofneed is indicative of the

level of social cohesion in society.

All countries in the MENA regionhave levels of perceived social

support that are belowthose observed in Europe.

KEY

RegionalAverages %

Data from the 2012 Legatum Prosperity Index™ (original data source: The Gallup World Poll)

Social Capital in the MENA RegionAnother common regional trend is the sharp decline in the Social Capital sub-index experienced by most countries since 2010. Social Capital is important to prosperity because it measures the level of social cohesion, reciprocity, and trust in a society (see more about Social Capital on page 45).

The decline has been most pronounced in countries such as Tunisia, Syria, and Yemen. Syria, for example, has dropped 30 positions in the Social Capital rankings since 2010 to rank 131st in the 2012 Index. Similarly, Tunisia has dropped 32 positions in Social Capital to 122nd in the 2012 Index.

Yet, even countries where the Arab Spring was of less consequence have also declined. Saudi Arabia, for example, dropped 21 positions and now ranks 43rd in the Social Capital sub-index.

One of the components of social capital is the level of support that a person has within society. The graph below examines these levels. In every country in the region, the percentage of people that can rely on friends and family for help is far below the average performance of European countries and all but seven countries, in the region have lower levels than the global average (81%).

The best performers are Israel, Jordan, Kuwait and the United Arab Emirates. Among the worst performers are Afghanistan, Syria, and Iran, where more than 40% of the population report that they cannot rely on relatives and friends.

In Tunisia, the percentage of the population that believe they can rely on friends and family for help has dropped from 88% in 2010 to 71% in the 2012 Index. During the same period, Yemen declined from 76% to 66%, well below the global average.

In Focus:

SOCIAL SUPPORT IN THE MENA REGION

Percentage of population in the MENA region

that feel they can rely on friends and family

18 www.li.com

REGIONAL ANALYSIS: ASIA-PACIFIC

Aust

ralia

4

New

Zea

land

5

Hon

g Ko

ng

18

Sing

apor

e

19

Taiw

an

20

Japa

n

22

Sout

h Ko

rea

27

Mal

aysia

45

Kaza

khst

an

46

Viet

nam

53

Chin

a

55

Thai

land

56

Sri L

anka

58

Mon

golia

59

Indo

nesia

63

Uzbe

kist

an

64

Phili

ppin

es

67

Laos

82

Tajik

istan

86

Kyrg

yzst

an

88

Indi

a

101

Bang

lade

sh

103

Cam

bodi

a

107

Nep

al

108

Paki

stan

132

REGIONAL RANKING—ASIA-PACIFIC

The Asia-Pacific region includes 28 countries whose rankings

span from the top ten (Australia and New Zealand) to

Pakistan. The so-called ‘Asian Tigers’ along with Japan all

rank within the top 30 of the Index.

China has remained relatively stable since last year, ranking 55th overall in 2012. China’s economic performance is strong, placing fifth in the regional Economy rankings and 11th in the global Economy. Its performance in the Safety & Security and Personal Freedom sub-indices, however, remains overall very low ranking 101st and 128th, respectively.

India has experienced a drop in prosperity since 2009, partly due to a decrease in its Governance score. Despite this drop, the Governance sub-index remains India’s highest ranking sub-index (49th). India’s lowest ranking sub-indices are Safety & Security (114th) and Social Capital (138th).

Of all the global trends that have sparked discourse and debate in recent years, perhaps the most significant is the rise of the new economic powers in the East. This is reflected in the Economy sub-index where we observe improvements in most Asian countries since 2009.

The significant drop in Japan’s Economy ranking (see graphic) is mainly due to a sustained decrease in foreign direct investment (FDI) inflows, as well as the negative effects on the investment climate of the TŌhoku earthquake and tsunami. Japan went from ranking second to sixth in the region, having been overtaken by China, Hong Kong, Australia, and Taiwan. Pakistan has experienced the largest drop, now ranking last in the Economy sub-index, regionally. New Zealand fell from sixth to 10th in the region, resulting from rising unemployment and inflation coupled with a decrease in citizen’s satisfaction with the economy.

ECONOMY SUB-INDEX —RISE AND FALL

Changes in the economy sub-index since 2009.

2009 2012

Singapore

Taiwan

Hong Kong

Australia

China

Japan

Malaysia

Thailand

South Korea

New Zealand

Vietnam

Indonesia

Philippines

Kazakhstan

India

Uzbekistan

Sri Lanka

Bangladesh

Cambodia

Nepal

Mongolia

Pakistan

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

Singapore

Japan

Australia

Hong Kong

Malaysia

New Zealand

Taiwan

South Korea

Thailand

China

Philippines

Vietnam

India

Kazakhstan

Indonesia

Uzbekistan

Bangladesh

Nepal

Cambodia

Pakistan

Mongolia

Sri Lanka

ASIA ECONOMY RANKING



Data from 2012 Legatum Prosperity Index™ (original source: World Development Indicators)

The Growing Asian Tiger Cubs There is a good deal of public debate about the highly developed and globally competitive ‘Asian Tigers’. While these nations continue to excel, it is also worth considering the ‘Tiger Cubs’—the rising Asian countries nipping at the heels of the regional leaders. In the Prosperity Index we observe these to be Vietnam, Thailand, Indonesia, and Malaysia.

One metric that can shed light on why these Asian nations are rising is the level of FDI flowing into each country. This is because FDI, when managed appropriately, can be a source of economic growth. The graph (left) shows that among the ‘Tiger Cubs’, Thailand and Indonesia are the biggest recipients of FDI. In terms of FDI as a share of GDP, however, Vietnam outperforms the other ‘Tiger Cubs’ as FDI net inflows constitute almost 8% of its GDP.

However, the graph also shows that tertiary education enrolment rates among the ‘Tiger Cubs’ are much lower than OECD standards. To meet the need of the increasingly globalised economy, the ‘Tiger Cubs’ must encourage further education so as to produce the skills necessary to increase productivity.

In Focus:

6.1

9.0

8.1

6.1

8.6

52.7

FDI net inflowsAverage 2005–2010

($billions USD)

26

22

59

23

29

40

48

60

Enrolment intertiary education

66%

146.7

2.1

South Korea

Hong Kong

Japan

Philippines

China

104

Vietnam

Indonesia

Malaysia

Thailand

2.8

OECD average

The ‘Tiger Cubs’ have each received more FDI than South Korea.

Tertiary enrolmentrates among ‘Tiger Cubs’ are below OECD average.

TERTIARY EDUCATION AND FDI IN ASIAN COUNTRIES

20 www.li.com

SNAPSHOT: PROSPERITY WITHIN COUNTRIES

India ranks 138th globally in the Social Capital sub-index, however, disaggregation of the data at the sub-national level reveals large differences within the country. Within India, the states of Gujarat and Uttarakhand have the highest social capital scores and would rank 15th and 18th, globally, in this sub-index, next to Germany and Belgium, respectively. In the state of Gujarat, 77% of respondents can rely on friends and family for help and 51% have donated money to a charity. In Uttarakhand, 52% of the respondents have volunteered their time and 71% have helped a stranger.

The state of Kerala, often cited as an example of successful development achievements, also offers an interesting comparison.1 Its GDP per capita is similar to that of Mauritania but its literacy rate is similar to that of Turkey, whose GDP per capita is seven times larger. Kerala performs relatively well in terms of social capital and would rank 40th, just above France. On the other hand, the states of Punjab and Madhya Pradesh would rank at the bottom of the Social Capital sub-index after Togo and Benin. Only 27% of the respondents in Punjab feel they can rely on others and only 14% of them have volunteered their time in the previous month.

Sub-national disaggregation provides interesting insights into ‘within-country’ differences that are often hidden behind global aggregated data. We hope that this feature illustrates how the distribution of prosperity within countries may be not uniform.

REFERENCE1. Amartya Sen, Development as Freedom

(Oxford University Press, 1999).

While the Prosperity Index measures prosperity at the national level, there

are sometimes large differences within countries. It is difficult for a global

index to provide insights into sub-national differences because most data

represent national averages. Some Index data can, however, be broken

down to provide sub-national analysis.

The map opposite explores variations in the Social Capital sub-index

within India (India’s large and diverse population and its clearly defined

states and territories make it possible to break down the data to state

level). The state of Uttar Pradesh, for example, has a population of almost

200 million people comparable to that of Brazil, the world’s fifth most

populous country. PI



Punjab = Togo Uttarakhand = Belgium

Gujarat = Germany Orissa = Lebanon

Kerala = France

142

15

18

40

120

India Overall Social Capital Rank 138

INDIA

SOCIAL CAPITAL RANKINGS IN INDIAN STATES

Data from 2012 Legatum Prosperity Index™

22 www.li.com

SNAPSHOT: LESS IS MORE …

Does excessive regulation decrease social capital or do high levels of social capital lead to low levels of regulation? Research suggests that the causal relationship follows the latter example, with higher levels of social capital leading to fewer but better regulations. Indeed societies that are highly trusting—both in government institutions and in one’s fellow citizens—tend to demand fewer, less complex and less restrictive economic regulations.

Consider entrepreneurship, an activity that in many economies attracts a substantial amount of regulation. In countries where social capital is low, the lack of trust can translate into a belief that entrepreneurs behave in their own self-interest to the detriment of society. Therefore, the profit-driven culture that entrepreneurs are perceived to be promoting is seen as a threat to society and the established ways of doing business. In these countries, the government is often called upon to create regulations to prevent rent-seeking behaviour, which in turn can also result in unwanted barriers to entrepreneurial activity, innovation, and competition.

The opposite dynamic occurs in countries where social capital is high. Entrepreneurs in these economies are considered to provide societal benefits and, as a result, these countries tend to erect fewer regulatory barriers to entrepreneurial activities. In the graphic (top right), the cost of starting a business—a measure of a country’s level of regulatory burden—is plotted in relation to a country’s social capital ranking.

The contrast is clear. Countries such as Denmark, Australia, and Japan, which score highly on the Social Capital sub-index, impose an average business start-up cost of less than 2.7% of

gross national income (GNI) per capita. The average start-up cost in countries with below-average social capital scores is 60% of GNI per capita.

How do existing levels of regulation relate to social capital? As shown in the second graphic (bottom right), high-income nations that have less regulation, owing to their higher social capital, also have more effective regulation. In this example, the effectiveness of government regulation is measured by its ability to formulate and implement sound policies that permit and promote private sector growth and development.

The data clearly show that European countries that have low levels of social capital, such as Greece, Italy, Portugal, Spain, and France, also have low levels of regulatory effectiveness compared with other developed Western European countries.

This raises a troubling prospect for every country in which social cohesion, civic participation, and levels of trust are in decline. A look at the multi-year trends in countries such as the United States, the United Kingdom, Austria, and the Netherlands shows a gradual drop in social capital that could conceivably lead to calls for greater regulation.

The challenge for these countries to move forward will be not to fall into the trap of creating more regulation as a substitute for eroding social capital. The more effective (yet complex and elusive) solution is finding alternatives to regulation that better cultivate trust in institutions and between members of society.

… THE CURIOUS EFFECT OF SOCIAL CAPITAL ON ECONOMIC REGULATION

Social capital is one of the most important components of prosperity. The term ‘social capital’ encompasses factors

such as social cohesion and engagement, as well as community and family networks.1 In every region of the world,

social capital correlates negatively with government regulation.

Countries that have low levels of social capital tend to be highly regulated, and vice versa.

REFERENCE

1. Our working definition of Social Capital, based on academic theory and our own Social Capital sub-index, is as follows: the accumulation of benefits accrued by a society whose citizenry is interconnected, trusting, and who engage in altruistic/charitable behaviour.



Data from the 2012 Legatum Prosperity Index™ (original source: World Bank Development Indicators)

0%

2nd 3rd 20th 46th 97th 130th 138th

Denmark

4.3 4.1

Start-upcosts

Countryranking

% of GNIper capita

SocialCapital

score

High

Low

India

-3.7-3.1

Bangladesh

30.6%

Greece

-1.4

20.1%

Japan

1.2

7.5%

0.3

Poland

17.3%

46.8%

0.7%

Australia

HIGH SOCIAL CAPITAL AND LOW BUSINESS START-UP COSTS GO HAND IN HAND

HIGH SOCIAL CAPITAL AND EFFECTIVE REGULATION GO HAND IN HAND

IcelandItaly

Greece

Croatia

Spain

FranceUS

UKGermany

Hong KongSingapore

Norway

Australia

Denmark

New Zealand

Effective

Ineffective

Regulation

SocialCapital

Low High

Finland

Netherlands

The variable effectiveregulation captures perceptions of the ability of the government

to formulate and implement sound policies and regulations

that permit and promote private sector development

24 www.li.com

SNAPSHOT: TRACING A PATH TO PROSPERITY

COSTA RICARelative to its scores on other sub-indices, Costa Rica has for the last four years scored very high in the Governance and Personal Freedom sub-indices. In particular, it does well in objective governance indicators, such as political rights, democratic quality of institutions, constraints on the executive, and rule of law.

The strength of Costa Rica’s institutions dates back to 1948, when a brief civil war ended, not with dictatorship or chronic civil conflict as in other Central American nations, but with the drafting of a new constitution. Not only did that constitution establish a stable democratic government, it also abolished the army and extended civic rights to different ethnic groups and women, thereby ensuring that the needs of rural and lower-middle-class citizens would be taken into account.

The fortunate outcome was a state-led social-democratic welfare strategy that guaranteed civil rights and invested heavily in education, infrastructure, and health. The enduring benefits of this strategy are reflected in the 2012 Prosperity Index, which shows a secondary school enrolment rate as high as 100%, and a life expectancy of 79 years. Both of these indicators are among the highest for all of Latin America.

BOTSWANAThis land-locked, sparsely populated nation in southern Africa has experienced remarkable economic progress, averaging a 10% GDP growth rate since independence in 1966. In addition, Botswana is the highest ranking sub-Saharan African country in the Index. Like Costa Rica, Botswana also achieved high scores in Governance and Personal Freedom.

These scores mostly reflect the commitment Botswana has made to democratic institutions and rule of law. Prior to Botswana’s independence, the British instilled strict property rights and rule of law, while at the same time refraining from dismantling pre-existing tribal institutions. This combination of new and old institutional strength then carried over to the post-independence government, and it has contributed to one of Botswana’s most impressive historical achievements: avoiding the ‘resource curse’.

When diamonds were discovered in 1967, President Seretse Khama (the Oxford-educated chief of one of Botswana’s eight principal tribes) sought to avoid the ‘resource curse’ that had fostered corruption, and political instability in so many countries. Under his leadership, Botswana adopted far-sighted

WHY COSTA RICA AND BOTSWANA OUTPERFORM THEIR NEIGHBOURS

Both Costa Rica and Botswana stand above their regional

neighbours in the 2012 Prosperity Index. One reason for

this lies in the strength of their institutions, which have

undoubtedly benefitted from advantageous historical

moments where political leaders have made difficult

choices to commit to developing democratic institutions.

As their neighbouring countries seek their own paths to prosperity, the institutional and government practices adopted by Costa Rica and Botswana, while not guaranteeing success in all other dimensions of development, strongly indicate a way forward.

First, both Costa Rica and Botswana have chosen to promote social welfare, provide for systems of public education, and secure political stability, which ultimately has led to protected property rights and rule of law enforcement. Moreover, they have pursued these policies within the political constraints of inclusive, constitutionally democratic institutions.

Second, thanks to their economic and political success, both countries have emerged as leaders in their regions, doing surprisingly well despite the unstable nature of the surrounding neighbours. Indeed, both receive high scores in the Personal Freedom and Governance sub-indices—scores which rival some high-income, developed countries.

Finally, while neighbouring countries would benefit from emulating the political choices of these ‘high achievers’, this will require both the opportunities that history has afforded Costa Rica and Botswana, and a commitment to the creation of democratic and participatory institutions.

As their neighbouring countries seek their own paths to prosperity, the institutional and government practices adopted by Costa Rica and Botswana strongly indicate a way forward.



development-oriented policies, particularly focusing on issues of tribal land ownership. Revenues from the mining industry were invested in infrastructure, education, and health projects.

The wisdom of those policies is today reflected in a secondary school enrolment rate of 80%, as well as in a high proportion of people reporting adequate access to sanitation facilities (62%, as opposed to the regional average of 31%). In the Prosperity Index, it also translates into high scores in such crucial variables as rule of law and government effectiveness.

Yet, just as Costa Rica faces the challenge of carrying its fortunate historical legacy forward into an uncertain future, so too must Botswana find ways to achieve levels of prosperity that are not built exclusively on natural endowments. In recent years, the global economic crisis has dampened the demand for Botswana’s diamonds, causing revenues to fall. Moreover, for the first time since independence, the government is running a deficit. These setbacks help to explain why citizen confidence in the government has dropped to 75% in the 2012 Index, from a high of 89% in 2009. Perhaps the biggest test ahead for this regional leader will be whether its political system can continue to produce leaders of the same high calibre as have been seen in the past.

Yet much like other democratic governments in the twentieth century, Costa Rica has struggled to balance an expanding welfare state with the need for private enterprise. Under President Arias and his successors, Costa Rica introduced trade liberalisation reforms including establishing free trade zones that eventually led to an increase in foreign direct investment, with companies such as Intel, Microsoft, and Motorola opening manufacturing plants in the country. Today high-tech goods account for 40% of Costa Rica’s manufactured exports, compared with a regional average of 6.8%.

The decline we see in the survey data on satisfaction with government could be attributed to the recent government strategy which has sought to increase reliance on the market economy and downsize the social-welfare safety net. These efforts may be the reason why, between 2009 and 2011, Costa Ricans’ confidence in their government declined from 54% to 35%, and the percentage of respondents who believe their government is doing a good job addressing poverty also declined, from 53% to 37%. This social instability most likely reflects the political fall-out of a government making the tough decision to reduce the availability of social welfare policies.

Zim

babw

e

Ang

ola

Zam

bia

Moz

ambi

que

Nam

ibia

Sout

h A

fric

a

Bots

wan

a

Ang

ola

Zim

babw

e

Zam

bia

Moz

ambi

que

Sout

h A

fric

a

Nam

ibia

Bots

wan

a

PersonalFreedomGovernance

Hon

dura

s

Nic

arag

ua

Gua

tem

ala

Beliz

e

El S

alva

dor

Pana

ma

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HIGH GOVERNANCE AND PERSONAL FREEDOM IN COSTA RICA

HIGH GOVERNANCE AND PERSONAL FREEDOM IN BOTSWANA

26 www.li.com

SNAPSHOT: TOLERANCE, DIVERSITY, AND PROSPERITY

The 2012 Prosperity Index suggests that countries

with high levels of tolerance towards immigrants and

ethnic minorities also enjoy high levels of prosperity.

This is depicted in the graphic (left), which compares

the tolerance scores of the top 70 countries in the

Index, divided into six groups according to their overall

prosperity rankings.

There is considerable evidence that cultural and religious diversity have positive economic impacts, with new ideas, new markets, and a general culture of creativity and innovation emerging from the interaction of people from different backgrounds.

Yet the news is not all good. Over the last 50 years, Europe, for example, has experienced unprecedented waves of immigration. And while majorities in most EU countries still affirm the benefits of diversity, there are signs that mounting economic problems in some member nations are accompanied by diminishing tolerance toward both immigrants and older ethnic minorities.

The pattern, however, is not universal. The graphic (right) shows that some countries are experiencing a positive trend in tolerance for immigrants, such as Slovenia and Slovakia. It also shows that some countries are experiencing a negative trend. In Latvia, for example, the percentage of respondents expressing tolerance toward immigrants dropped from 65% in the 2009 Index to 38% in 2012. In Greece, the percentage dropped from 67% to 47% over the same period. In these countries and others, a severe economic downturn has brought about high unemployment, widespread discontent, and rising crime rates attributed, rightly or wrongly, to the presence of large numbers of immigrants.

This leads to a policy insight. Along with efforts to restore economic health, it is also beneficial when governments strive to restore tolerance among their citizens. It is extremely difficult to promote openness among different ethnic and religious groups, especially against a backdrop of ongoing intergroup friction and a general distrust of government. But to do nothing may be worse, because intolerance has a way of spiralling out of control.

As Harvard University scholar, Robert Putnam and others have shown, a high degree of diversity can erode social capital, in the sense of reducing mutual trust, cooperation, and networking

Data from the 2012 Legatum Prosperity Index™ (original source: Gallup World Poll)

HIGH RANKING COUNTRIES ARE ALSO THE MOST TOLERANT

86%85%

ranked by prosperity

Tolerance shown to:

80%82%

71%71%

64%66%

57%69%

57%58%

11–20

21–30

31–40

41–50

51–60

64%67%

61–70

1–10

ImmigrantsRacial and

ethnicminorities

Percentage of population that think where they live is a good place to live for immigrants and minorities



Along with e�orts to restore economic health, governments should also strive to promote

tolerance among their citizens.

among citizens, so that they become less willing to engage in civic activity or even to share public space.1 In addition, the erosion of social capital tends to undermine public support for the provision of social welfare and other public goods.2 But Putnam also argues that successful societies find ways to overcome the negative effects of diversity, by creating new forms of cross-culture ‘solidarity’.

The Prosperity Index can help in these efforts because, as illustrated in the graphic on the following page, it demonstrates a clear link between higher levels of tolerance for immigrants and ethnic minorities, and higher levels of social capital.

As indicated by the dark purple dots, several countries that score highly in both tolerance and social capital, such as New Zealand, Canada, Australia, Sweden, and Ireland, also have large immigrant populations. Some of these countries, notably Australia, have a history of ‘white only’ immigration; others, notably Sweden and Ireland, have only recently become ‘nations of immigrants’. Yet all have successfully facilitated social cohesion among different groups.

It is hard to say why some countries are more successful at this than others. Some researchers argue that societies with a high degree of social interconnectedness enable greater intergroup interactions and therefore are more tolerant. But in any case, it seems clear that the most successful twenty-first century societies will be those in which creativity and innovation are stimulated by infusions of influences and ideas from diverse cultural sources. To cite one obvious example, it has been argued that global popularity of Hollywood films and American popular music is partly due to their having been developed to satisfy a highly diverse domestic market.3

A similar case can be made for the role of diversity in stimulating creativity and innovation in the modern economy. When met with tolerance, diversity can act as a

TOLERANCE IN EUROPEAN COUNTRIES

Germany

Austria

Slovakia

Portugal

Slovenia

2012

Latvia

Bulgaria

CroatiaRussia

Greece

2009

60%

40%

80%

Data from the 2012 Legatum Prosperity Index™ (orginal source: Gallup World Poll)

Percentage of population who state that the area where they live is a good place for immigrants.

28 www.li.com

REFERENCES

1. Robert Putnam, “E Pluribus Unum Diversity and Community in the Twenty-first Century,” Scandinavian Political Studies 30, no. 2 (2007): 137-174.

2. Stephen Knowles, “Is Social Capital Part of the Institutions Continuum?” (UNU-WIDER research paper 2006/25, 2006).

3. See, for example, Richard H. Pells, Not Like Us (Basic Books/HarperCollins, 1997).

4. Joseph E. Stiglitz, The Price of Inequality (Allen Lane/WW Norton, 2012).

catalyst, allowing people from different origins with different skills to work together and generate new ideas. Unskilled immigrants play a part, too, by bringing new consumption patterns to the society. Tolerance for diversity implies tolerance for dynamism and change, which allow the flow of new products and new ways of doing business.

For all these reasons, then, tolerance of diversity is worth preserving and promoting, not just because it is right but also because it confers practical economic advantages. As noted by the Nobel Prize-winning economist Joseph Stiglitz: “Discrimination reduces the incentives for members of a particular group to make the investments that would lead to higher productivity”.4 Future generations will inevitably face greater diversity. The response should be one where tolerance is encouraged and promoted. This could include educational programmes, inclusive public policies, and civic engagement, which can help people understand and build upon each other’s differences.

Several countries that have high scores in both tolerance and social capital, such as New Zealand, Canada, Australia, Sweden, and Ireland, also have large immigrant populations.



HIGH SOCIAL CAPITAL AND HIGH TOLERANCE GO HAND IN HAND

LowSocial

Capital

HighSocial

Capital

-4 2 4

80

100

60

40

%

20-2

Tolerance for Immigrants

Algeria, Albania, Bulgaria, Greece, Iran, Romania, Turkey

Australia, Canada, Denmark, Ireland, Netherlands

New Zealand, Norway, Sweden


Percentage of population who state that the area where they live is a good place for immigrants.

30 www.li.com

SNAPSHOT: ENTREPRENEURSHIP AND INNOVATION

Entrepreneurship drives innovation, and innovation drives growth. So a high level of entrepreneurship is often interpreted as a sign of a healthy economy. Thus, reformers and activists seeking to increase growth in developing economies often focus on building and nurturing entrepreneurship. The micro-finance industry is an example of a service that has developed around the idea that a lack of access to capital is what keeps small-scale entrepreneurs from growing their businesses.

Greater access to capital does foster entrepreneurship. However, not all entrepreneurship has a lasting impact on a country’s economy. Particularly in developing countries many are entrepreneurs not out of choice but out of necessity. This type of entrepreneurship is common in sub-Saharan African countries such as Rwanda and Zambia, where over 70% of entrepreneurs have started small businesses because they have no prospect of a job.

The contrast here is with ‘opportunity entrepreneurs’, who choose to exploit the opportunities they perceive in the marketplace. Unlike necessity entrepreneurs, who lack an entrepreneurial inclination, opportunity entrepreneurs have the motivation and the skills to save, invest, innovate, and grow—and in the process contribute to their country’s prosperity.

The relationship between the type of entrepreneurship and the level of innovation and growth achieved in a country is clear when we compare the level of necessity entrepreneurship with the level of innovation. As shown in the graphic below, there is a strong correlation between a country’s level of research and development expenditure (a proxy for innovation), and the proportion of necessity to total entrepreneurs within that country.

Many sub-Saharan African countries appear in the lower right corner. In these countries, most entrepreneurs are necessity entrepreneurs who tend to operate in businesses that are replicative and undifferentiated from the many others, such as street market

Entrepreneurs in the developing world often don’t experience the growth and success of their counterparts in the

developed world. Addressing the underlying reasons can help boost entrepreneurial activity and job opportunities.

The Necessity Entrepreneurship variable is constructed using questions from the Gallup World Poll which ask why a person decided to start a business. Data on R&D expenditure are from the World Bank Development Indicators and our own calculation. Data from the 2012 Legatum Prosperity Index™ (orginal source: Gallup World Poll).

THE SHARE OF NECESSITY ENTREPRENEURS AGAINST R&D EXPENDITURE

1

0

3

2

10 20 30 40 50 60 70

NecessityEntrepreneurs

(% of totalentrepreneurs)

R&DExpenditure(% of GDP)

Sub-Saharanations

Nations

RWANDALargest percentageof necessityentrepreneurs 75%



traders or fishermen. Although they are very resourceful and able to make a lot out of little, they tend to remain small, avoid risky activities, and earn negligible profits. Further, most have no employees and survive only for a few years.1

Entrepreneurs in the developing world often do not experience the growth and success experienced by their counterparts in the developed world. There are four main reasons for this. First, the underdeveloped financial system in developing countries denies entrepreneurs access to the capital needed to undertake more innovative activity. Micro-loans, although helpful, are often insufficient to help entrepreneurs meet the large upfront investment needed to leap into larger enterprises .

Second, obligations to relatives act as a disincentive for entrepreneurs to grow their business. In most sub-Saharan African countries, kinship is a collective social institution but it can impose undesirable moral and financial obligations towards sharing and redistribution, which can be detrimental to financial success.2

Third, limited access to adequate infrastructure and technology has negative effects on entrepreneurial activities. The Prosperity Index shows that communication infrastructure is linked to high levels of entrepreneurship and that sub-Saharan African countries lag far behind in these indicators. For instance, the total number of secure Internet servers in all of the Index’s sub-Saharan African countries (population 800 million) is equal to that of Hong Kong (population 7 million).

Fourth, the lack of established and protected institutions, such as property rights and rule of law, prevents opportunity entrepreneurs from enforcing contracts, which inhibits growth and the creation of new employment opportunities. The Prosperity Index finds that sub-Saharan African countries exhibit some of the lowest levels of rule of law in the world.

Understanding the distinction between necessity and opportunity entrepreneurs, and the reasons why entrepreneurship may not flourish, can help to inform development policies aimed at boosting entrepreneurial activity and job opportunities. Focusing on sound institutions (point four above) can create a more stable economic environment that will benefit local opportunity entrepreneurs and attract foreign investors; both of which would create the crucial jobs that necessity entrepreneurs aspire to.

The Index shows that current inflows of foreign direct investment (FDI) in sub-Saharan Africa are extremely low. Increased FDI resulting from stronger institutions should be directed to the manufacturing and service industries that have greater employment potentials.

The focus of development policies should be to help opportunity entrepreneurs to grow and succeed—through financial and institutional reforms. Policies should also enable industries to flourish so that the surplus of necessity entrepreneurs is able to move into stable employment.

SECURE INTERNET SERVERS

REFERENCES

1. Esther Duflo and Abhijit V. Banerjee, Poor Economics. A Radical Rethinking of the Way to Fight Global Poverty (Public Affairs, 2011).

2. Salvatore Di Falco and Erwin Bulte, “A Dark Side of Social Capital? Kinship, Consumption, and Savings,” Journal of Development Studies 47, no.8 (2011): 1128-1151.

SECURE INTERNET SERVERS

POPULATION

AREA

HongKong

4.0bn

7m

426 sq miles

Sub-SaharanAfrica

874m

4.5bn

8,500,000sq miles

Data from the 2012 Legatum Prosperity Index™ (original source: World Bank Development Indicators)

32 www.li.com

SNAPSHOT: GOVERNMENT APPROVAL AND MEDIA FREEDOM IN LATIN AMERICA

The Prosperity Index finds that accountable government

is a key driver of prosperity. When countries have good

governance, it is often reflected in the level of confidence

and satisfaction citizens have in their national institutions.

The 2012 Prosperity Index reveals, however, that Latin

American citizens have low levels of confidence in their

governments and national institutions.

The lack of confidence in national institutions stems, in part, from the lack of freedom in the media which can compromise the transparency of political institutions. The integrity of the media in many Latin American countries have been called into question by international observers. In Venezuela, for example, President Hugo Chavez is engaged in a battle with the opposition-leaning media. In Bolivia and Ecuador, state governments have acquired a large (and growing) share of the national media. In Mexico, President Enrique Peña Nieto receives extensive support and coverage from Televisa, the country’s largest mass-media company.

The graph below plots the relationship between media freedom and citizen confidence in the honesty of elections. It shows that countries where the press is free tend to have citizens

GreeceGreece

Italy

Argentina

Bolivia Bolivia Brazil

Chile

Colombia

Costa Rica

Dom. Rep.

Ecuador Ecuador

Guatemala

Honduras

Haiti

Mexico Mexico Nicaragua

Panama

Peru

Paraguay El Salvador

Uruguay

VenezuelaVenezuelaV

Confidence in the honesty of the elections

Freedom ofpress rankings

0

European countries

Latin American countries

1

20 40 12060 80 100 140 160

0.5

PRESS FREEDOM GOES HAND IN HAND WITH HONEST ELECTIONS

Data from the 2012 Legatum Prosperity Index™ (original sources: Gallup World Poll and Press Freedom Index)

Countries with more press freedom have greater

confidence in the honesty of their elections.



A

Argentina

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Brazil

Chile

Colombia

Costa Rica

Dominican Republic

Ecuador

El Salvador

Guatemala

Haiti

Honduras

Mexico

Nicaragua

Panama

Paraguay

Peru

Uruguay

Venezuela

Global Average Global Average

Confidencein Military

50%0

Confidence in Judicial System

52% 73%

who believe that elections are conducted in a transparent and competitive manner. Most European countries place higher than Latin American countries on both metrics (with the notable exceptions of Italy and Greece).

Less than 30% of citizens in Mexico and Honduras believe that the national elections are honest. Conversely, Uruguay does extremely well in confidence in the honesty of elections and its freedom of the media is close to that of France and Belgium. Costa Rica tops the list of Latin American countries for freedom of the press, although confidence in elections does not reach European levels.

Latin American countries offer us an interesting insight into media freedom and the quality of government. Generally, the lack of media freedom goes hand in hand with negative perceptions about the transparency of national institutions. But it is also a symptom of malfunctioning judicial and legal institutions unable to prevent the spread of disruptive political influences on the media.

CONFIDENCE IN THE MILITARY AND THE JUDICIAL SYSTEM IN LATIN AMERICA

Countries where the press is free tend to have citizens

who believe that elections are conducted in a transparent

and competitive manner.


34

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. The

wei

ghte

d va

riabl

e va

lues

are

then

sum

med

to p

rodu

ce a

cou

ntry

’s w

ellb

eing

and

inco

me

scor

e in

eac

h su

b-in

dex.

The

in

com

e an

d w

ellb

eing

sco

res

are

then

sta

ndar

dise

d so

that

they

can

be

com

pare

d.

Whe

n th

e m

etho

dolo

gy w

as se

t in

2010

, we

also

det

erm

ined

the

wei

ght o

f eac

h va

riabl

e, u

sing

regr

essio

n an

alys

is. A

var

iabl

e’s w

eigh

t (or

‘c

oeffi

cien

t’) re

pres

ents

its

rela

tive

impo

rtan

ce to

the

outc

ome

(eith

er in

com

e or

wel

lbei

ng).

In o

ther

wor

ds, s

tatis

tical

ly s

peak

ing,

som

e th

ings

mat

ter m

ore

to p

rosp

erity

than

oth

ers.

We

repr

esen

t the

se w

eigh

ts in

the

grap

hics

pro

vide

d in

eac

h of

the

sub-

inde

x pa

ges (

p38–

45).

Aga

in, w

e em

phas

ise

that

thes

e w

eigh

ts a

re n

ot a

rriv

ed a

t thr

ough

sub

ject

ive

judg

emen

ts o

r dis

cret

iona

ry c

hoic

es, b

ut a

re b

ased

on

the

part

icul

ar s

tatis

tical

rela

tions

hip

betw

een

each

var

iabl

e an

d ch

ange

s in

inco

me

and

wel

lbei

ng.

3. W

EIG

HTI

NG

4. IN

CO

ME

AN

D

WEL

LBEI

NG

SC

ORE

S

Incom

e

Well

being

HO

W T

O C

ALC

ULA

TE P

I SC

ORE

S A

ND

RA

NK

ING

S

Star

ting

with

the

curr

ent a

cade

mic

lite

ratu

re o

n ec

onom

ic g

row

th a

nd w

ellb

eing

, we

iden

tified

a la

rge

num

ber o

f var

iabl

es (m

ore

than

200

in

tota

l) th

at h

ave

an im

pact

upo

n w

ealth

and

wel

lbei

ng. T

he fi

nal v

aria

bles

wer

e se

lect

ed a

ccor

ding

to th

eir g

loba

l cov

erag

e an

d by

usi

ng

regr

essio

n an

alys

is to

det

erm

ine

thos

e th

at h

ave

a st

atist

ical

ly si

gnifi

cant

rela

tions

hip

with

wea

lth a

nd w

ellb

eing

. The

rem

aini

ng 8

9 va

riabl

es

are

divi

ded

into

eig

ht su

b-in

dice

s dep

endi

ng o

n w

hat a

spec

t of p

rosp

erity

the

data

influ

ence

s.

The

Pros

perit

y In

dex

uses

bot

h ob

ject

ive

and

subj

ectiv

e va

riabl

es to

mea

sure

pro

sper

ity. T

his p

rovi

des a

bal

ance

d ap

proa

ch, w

hich

pre

vent

s th

e co

untr

y ra

nkin

gs fr

om b

eing

bia

sed

due

to e

ither

pre

judi

ce o

r misp

erce

ptio

ns o

n th

e on

e ha

nd, o

r to

the

poor

qua

lity

of re

cord

kee

ping

and

re

port

ed st

atist

ics o

n th

e ot

her.

1. S

ELEC

TIN

G

THE

VA

RIA

BLES

The

89 v

aria

bles

use

man

y di

ffer

ent u

nits

of m

easu

rem

ent.

For e

xam

ple,

the

prop

ortio

n of

citi

zens

that

exp

ress

con

fiden

ce in

fina

ncia

l in

stit

utio

ns is

mea

sure

d in

per

cent

age

term

s, w

hile

cap

ital

per

wor

ker i

s m

easu

red

in U

S D

olla

rs. W

e tr

ansf

orm

ed a

ll va

riabl

es to

a

com

mon

sca

le u

sing

a s

tati

stic

al te

chni

que

calle

d st

anda

rdis

atio

n. A

var

iabl

e is

sta

ndar

dise

d by

sub

trac

ting

the

mea

n an

d di

vidi

ng b

y th

e st

anda

rd d

evia

tion.

2. S

TAN

DA

RDIS

ATIO

N

we

also

det

erm

ined

the

wei

ght o

f eac

h va

riabl

e, u

sing

re

impo

rtan

ce to

the

outc

ome

(eith

er in

com

e or

wel

lbei

ng).

In

We

rW

e r

Wep

re

repr

e r

esen

t ep

rese

nt

epr

thes

e w

eigh

ts in

the

grap

hics

pr

e no

t arr

ived

at t

hrou

gh s

ubje

ctiv

e ju

dgem

ents

el

atio

nshi

p be

twee

n ea

ch v

aria

ble

and

chan

ges

in in

com

e an

d

of m

easu

rem

ent.

For e

xam

ple,

the

prop

ortio

n te

rms,

whi

le c

apit

al p

er w

orke

r is

mea

sur

tech

niqu

e ca

lled

stan

dard

isat

ion.

A v

aria

ble

is s

tand

ar

e on

eco

nom

ic g

row

th a

nd w

ellb

eing

, we

iden

tified

a la

rw

ealth

and

wel

lbei

ng. T

he fi

nal v

aria

bles

wer

e se

lect

ed a

ccor

that

hav

e a

stat

istic

ally

sign

ifica

nt r

e a

stat

istic

ally

sign

ifica

nt r

e a

stat

istic

all

elat

ions

hip

sub-

indi

ces d

epen

ding

on

wha

t asp

ect o

f pro

sper

ity th

e da

ta in

fluen

ces.

e an

d su

bjec

tive

varia

bles

to m

easu

re p

rosp

erity

to e

ither

pre

judi

ce o

r misp

erce

ptio

ns o

n th

e

THE

LEG

ATU

M IN

STIT

UTE

37

The

stan

dard

ised

inco

me

and

wel

lbei

ng sc

ores

are

add

ed to

geth

er to

cre

ate

the

coun

trie

s’ su

b-in

dex

scor

es. C

ount

ries a

re ra

nked

acc

ordi

ng to

th

eir s

core

s in

each

of t

he e

ight

sub-

indi

ces.

5. S

UB-

IND

EX S

CO

RES

A

ND

RA

NKI

NG

S

Fina

lly, t

he P

rosp

erity

Inde

x sc

ore

is de

term

ined

by

assig

ning

equ

al

wei

ghts

to a

ll ei

ght s

ub-in

dice

s. Th

e av

erag

e of

the

eigh

t sub

-indi

ces

yiel

ds a

cou

ntry

’s ov

eral

l pro

sper

ity sc

ore.

The

ove

rall

Pros

perit

y In

dex

rank

ings

are

bas

ed o

n th

is sc

ore.

The

Pros

perit

y In

dex

appl

ies e

qual

wei

ghts

to e

ach

sub-

inde

x fo

r al

l cou

ntrie

s, re

gard

less

of t

heir

leve

l of d

evel

opm

ent.

Whi

le it

is o

f co

urse

true

that

cou

ntrie

s at d

iffer

ent l

evel

s of d

evel

opm

ent w

ill

each

hav

e di

ffere

nt n

eeds

, to

cons

truc

t a g

loba

l ind

ex it

is c

ruci

al to

m

easu

re e

ach

coun

try

by th

e sa

me

yard

stic

k. G

ivin

g di

ffere

nt w

eigh

ts

to c

ount

ries w

ould

mak

e co

untr

y ra

nkin

gs in

com

para

ble

acro

ss

inco

me

leve

ls.

We

offe

r you

, the

read

er, t

he o

ppor

tuni

ty to

ass

ign

your

ow

n w

eigh

tings

to e

ach

of th

e su

b-in

dice

s, an

d to

see

how

the

rank

ings

ch

ange

acc

ordi

ng to

thes

e di

ffere

nt w

eigh

tings

. Thi

s can

be

easil

y do

ne

at o

ur w

ebsit

e: w

ww

.pro

sper

ity.c

om. F

or a

mat

hem

atic

al il

lust

ratio

n of

how

scor

es c

hang

e ac

cord

ing

to th

e ch

oice

of t

he w

eigh

ts, p

leas

e re

fer t

o th

e Tec

hnic

al A

ppen

dix.

6. P

ROSP

ERIT

Y IN

DEX

SC

ORE

S A

ND

RA

NKI

NG

S

Man

uel A

rella

no a

nd O

livia

Bov

er, “

Anot

her l

ook

at th

e in

stru

men

tal v

aria

bles

es

timat

ion

of e

rror c

ompo

nent

s mod

els,”

Jour

nal o

f Eco

nom

etric

s 68,

no.1

(199

5): 2

9–51

.

Robe

rt J.

Bar

ro a

nd X

avie

r Sal

a-i-M

artin

, Eco

nom

ic G

row

th, (

The

MIT

Pre

ss,

Cam

brid

ge, M

ass.

2nd

Editi

on, 2

003)

.

Angu

s D

eato

n, “

Inco

me,

Hea

lth, a

nd W

ell-

Bein

g ar

ound

the

Wor

ld: E

vide

nce

from

th

e G

allu

p W

orld

Pol

l,” Jo

urna

l of E

cono

mic

Per

spec

tives

22,

no.

2 (2

008)

: 53–

72.

Angu

s D

eato

n an

d D

anie

l Kah

nem

an, “

Hig

h in

com

e im

prov

es e

valu

atio

n of

life

but

no

t em

otio

nal w

ell-

bein

g,”

(Cen

tre

for H

ealth

and

Wel

l-be

ing,

PN

AS 1

07/3

8, 2

010)

.

Caro

l Gra

ham

, Sou

mya

Cha

ttop

adhy

ay a

nd M

ario

Pic

on, “

The

East

erlin

and

O

ther

Par

adox

es: W

hy B

oth

Side

s of t

he D

ebat

e M

ay b

e Co

rrec

t,” (T

he B

rook

ings

In

stitu

tion.

Pap

er p

repa

red

for P

rince

ton

Conf

eren

ce o

n In

tern

atio

nal D

iffer

ence

s in

W

ellb

eing

, 201

0).

Paul

M. R

omer

, “En

doge

nous

Tec

hnol

ogic

al C

hang

e.”

Jour

nal o

f Pol

itica

l Eco

nom

y 98

, no.

5 (1

990)

: 71-

102.

John

F. H

elliw

ell,

Chris

toph

er B

arrin

gton

- Lei

gh, A

ntho

ny H

arris

, and

Hai

fang

H

aung

, “In

tern

atio

nal E

vide

nce

on th

e So

cial

Con

text

of W

ell-

bein

g.”

(Nat

iona

l Bu

reau

of E

cono

mic

Res

earc

h W

orki

ng P

aper

No.

147

20, 2

009)

.

REFE

REN

CES:

A

SELE

CTIO

N O

F AC

ADEM

IC L

ITER

ATU

RE T

HAT

HAS

INFL

UEN

CED

TH

E PR

OSP

ERIT

Y IN

DEX

MET

HO

DO

LOG

Y

es a

re a

dded

toge

ther

to c

reat

e th

e co

untr

ies’

sub-

inde

x sc

or

38 www.li.com

Mac

roec

onomic Policies

Financial Sector Efficiency

Unemployment Rate

Inflation

Non-p

erfo

rming

Loan

s

Gross Domestic Savings +

Capital Per Worker

+

Market Size+

High-Tech Exports+

FDI Size and Volatility

+

INCOME

WELLBEING

Foundation for Grow

th

Mac

roec

onomic Policies Economic Satisfaction and Expectations

Financial Sector Efficiency

Confi

denc

e in F

inanc

ial In

stitu

tions

+

Inflation

5-year Rate of Growth

Employment Status + Satisfa

ction w

ith Stan

dard of L

iving

+

Adequate Food and Shelter

+

Perceived Job Availability+

Expectations of the Economy

+

Gross Domestic Savings +

Sound and stable economic fundamentals increase per capita income and promote overall wellbeing. The Economy sub-index measures countries’ performance in four key areas: macroeconomic policies, economic satisfaction and expectations, foundations for growth, and financial sector efficiency. As illustrated in the chart on the right, the variables of the sub-index are categorised according to these areas.

The sub-index demonstrates that the outcomes of sound macroeconomic policies, including robust domestic saving rates, low rates of inflation, and low unemployment, have a positive impact on average levels of income and wellbeing. It further shows that investment in physical capital, high-tech exports, and a competitive economy attractive to foreign investment, are essential to boosting per capita income.

Positive expectations about the future of the economy and satisfaction with living standards contribute to the overall wellbeing of a country’s citizens. However, while gradually increasing economic strength is generally beneficial for all, our research finds that rapid increases in GDP are related to lower levels of happiness, as people struggle to adjust to the sudden changes triggered by such growth.

Switzerland 1

Norway 2

Singapore 3

Luxembourg 4

Sweden 5

Germany 6

Taiwan 7

Canada 8

Hong Kong 9

Australia 10

133 Central Afr. Rep.

134 Yemen

135 Guinea

136 Congo (DR)

137 Burundi

138 Togo

139 Sierra Leone

140 Haiti

141 Liberia

142 Zimbabwe


and : Darker lines indicate a variable that is included in both income and wellbeing regressions. and : Lighter lines indicate a variable that is included in only one regression.

TO

P T

EN

BO

TT

OM

TE

N

VARIABLE WEIGHTS

Variables are ordered from largest to smallest within each category. Income and wellbeing bar sizes are not comparable due to differences in scale. These variables are positively or negatively correlated to income or wellbeing indicated by a plus (+) or minus (-) sign.

SUB-INDEX: ECONOMY



Denmark 1

Sweden 2

Finland 3

Norway 4

Luxembourg 5

United Kingdom 6

Switzerland 7

Australia 8

Iceland 9

Netherlands 10

133 Sierra Leone

134 Burkina Faso

135 Guinea

136 Togo

137 Haiti

138 Niger

139 Chad

140 Burundi


142 Congo (DR)


TO

P T

EN

BO

TT

OM

TE

N

A strong entrepreneurial climate in which citizens can pursue new ideas and opportunities to improve their lives leads to higher levels of income and wellbeing. The Entrepreneurship & Opportunity (E&O) sub-index captures these effects by measuring countries’ performance in three areas: entrepreneurial environment, innovative activity, and access to opportunity. As illustrated in the chart on the right, the variables of the sub-index are categorised according to these areas.

Low business start-up costs and a positive perception of a country’s entrepreneurial environment contribute to improving citizens’ economic prospects and overall wellbeing. The sub-index also evaluates a country’s ability to commercialise innovation and measures the technological and communication infrastructure that is often essential to successful commercial endeavours. It further provides a snapshot of access to opportunity by tracking inequality and by asking citizens whether they believe their society to be meritocratic.

The E&O sub-index builds upon research on how entrepreneurship drives innovation and generates economic growth, and the positive effects that result from an individual realising his or her entrepreneurial potential. When a country improves the likelihood that entrepreneurial initiative will pay off and individuals experience the satisfaction of entrepreneurial success, a society’s prosperity increases overall.

Business Start-up Costs

Secure Internet Servers

+

Mobile Phones per Household +

Good Environment for Entrepreneurs +

Perception that Working Hard Gets You Ahead+

WELLBEING

Entr

epre

neurial Environment

Access to Opportunity

Business Start-up Costs

Secure Internet Servers +

Internet Bandwidth +

Mobile Phones+

Uneven Economic Development

R&D Expenditure

+

Roya

lty R

eceip

ts+

ICT

Expo

rts

+

INCOME

Entr

epre

neurial Environment

Access to Opportunity

Innovative Activity


VARIABLE WEIGHTS

Variables are ordered from largest to smallest within each category.

Income and wellbeing bar sizes are not comparable due to differences in

scale. These variables are positively or negatively correlated to income or

wellbeing indicated by a plus (+) or minus (-) sign.

SUB-INDEX: ENTREPRENEURSHIP & OPPORTUNITY

40 www.li.com

Switzerland 1

New Zealand 2

Denmark 3

Sweden 4

Finland 5

Canada 6

United Kingdom 7

Australia 8

Luxembourg 9

United States 10

133 Mauritania

134 Congo (Republic of)

135 Haiti

136 Sudan

137 Iraq

138 Cote d’Ivoire

139 Chad

140 Congo (DR)

141 Afghanistan

142 Zimbabwe


TO

P T

EN

BO

TT

OM

TE

N

Well-governed societies enjoy higher levels of economic growth and citizen wellbeing. The Governance sub-index measures countries’ performance in three areas: effective and accountable government, fair elections and political participation, and rule of law. As illustrated in the chart on the right, the variables in the sub-index are categorised according to these areas.

Stable and democratic governing institutions safeguard political and economic freedom and create an environment of civic participation, leading to higher levels of income and wellbeing. The Governance sub-index assesses levels of government corruption and competition, and citizens’ confidence in the honesty of elections, the judicial system, and the military.

Government stability and accountability benefit citizens’ wellbeing. Further relevant factors include people’s perception of how well the government addresses poverty and preserves the environment. Academic research has found that, in general, political freedom, strong institutions, and regulatory quality contribute significantly to economic growth. Effective, fair, and accountable governments increase public confidence, and, ultimately, result in higher levels of life satisfaction among citizens.


Effectiv

e and

Acc

ount

able

Gov

ernment

Rule of Law

Fair Elections and Politic

al P

arti

cipa

tion

Business and Government Corruption

Confi

denc

e in

the

Judi

cial

Sys

tem

+

Voiced Concern

+

Efforts to Address Poverty+

Government Effectiveness+

Environmental Preservation

+

Separation of P

owers+

Confi

denc

e in

Gover

nmen

t +

Regu

latio

n

+

Rule

of L

aw

+

Confidence

in M

ilitary

+

Confidence in the Honesty of Elections

+

Effe

ctiv

e an

d Ac

countable Government

Rule of Law

Fair Elections and Political Parti

cipat

ion

Rule of Law

+

Political Rights

+

Government Effectiveness +

Government Stability +Separation of Powers

+

Political Constraints+

Government Type+

Regulation+

INCOME

WELLBEINGVARIABLE WEIGHTS

Variables are ordered from largest to smallest within each category. Income and wellbeing bar sizes are not comparable due to differences in scale. These variables are positively or negatively correlated to income or wellbeing indicated by a plus (+) or minus (-) sign.

SUB-INDEX: GOVERNANCE



New Zealand 1

Australia 2

Canada 3

Taiwan 4

United States 5

Norway 6

South Korea 7

Finland 8

Slovenia 9

Spain 10

133 Congo (DR)

134 Ethiopia

135 Cote d’Ivoire

136 Djibouti

137 Mali

138 Burkina Faso

139 Afghanistan

140 Chad

141 Niger



TO

P T

EN

BO

TT

OM

TE

N

Education is a building block for prosperous societies. The Education sub-index measures countries’ performance in three areas: access to education, quality of education, and human capital. As illustrated in the chart on the right, the variables in the sub-index are categorised according to these areas.

The Education sub-index illustrates how access to education, as measured by enrolment rates, allows citizens to develop their potential and contribute productively to their society. In addition, it shows that human capital stock, measured by the average levels of education in the workforce, encourages research and development, and adds knowledge to society. Citizens’ perceptions of the educational opportunities available to them are also key to assessing the quality of education in a given country.

This sub-index is inspired by research on economic growth that has found human capital to be an engine for growth, making a case for the non-diminishing effect of education on rising GDP levels. Academic research also shows that basic education enhances peoples’ opportunities to increase life satisfaction.

Acce

ss to Education

Gross Secondary Enrolm

ent +

Net Primary Enrolm

ent +

Girls to Boys Enrolment Ratio +Gross Tertiary Enrolment

+

Quality of Education

Pupil to Te

acher R

atio

Human Capital

Secondary Education per Worker

+

Tertiary Educatio

n per Worke

r

+

INCOME

Acce

ss to

Education

Gross Secondary Enrolm

ent +

Gross Tertiary Enrolment +

Net Primary Enrolment +Girls to Boys Enrolment Ratio

+

Human Capital

Satis

factio

n with

Educ

ation

al Qua

lity

+

Perceptio

n that C

hildren are Le

arning in Socie

ty

+Q

uality of Education

Tertiary Education per Worker

+

Secondary Education per Worker

+

WELLBEING

VARIABLE WEIGHTS

Variables are ordered from largest to smallest within each category. Income and wellbeing bar sizes are not comparable

due to differences in scale. These variables are positively or negatively correlated to income or wellbeing indicated by a

plus (+) or minus (-) sign.


SUB-INDEX: EDUCATION

42 www.li.com

Luxembourg 1

United States 2

Switzerland 3

Norway 4

Germany 5

Japan 6

Netherlands 7

Belgium 8

France 9

Austria 10

133 Guinea

134 Angola

135 Liberia

136 Burundi

137 Mozambique

138 Haiti


140 Sierra Leone

141 Chad

142 Congo (DR)


TO

P T

EN

BO

TT

OM

TE

N

A strong health infrastructure which enables citizens to enjoy good physical and mental health leads to higher levels of income and wellbeing. The Health sub-index measures countries’ performance in three areas: basic health outcomes, health infrastructure and preventative care, and physical and mental health satisfaction. As illustrated in the chart on the right, the variables in the sub-index are categorised according to these areas.

The Health sub-index evaluates countries on the basis of indicators that reflect strong health infrastructure, such as rates of immunisation and public expenditure. Countries are also assessed on average life expectancy, rates of infant mortality, and undernourishment. The sub-index further includes measures of individual satisfaction with health, and the effects on health from environmental factors such as water, air quality, and environmental beauty.

Researchers have found that self-reported wellbeing and self-reported health are strongly and significantly correlated to a society’s overall health, further fostering human capital creation, which is favourable to higher economic growth. Mentally and physically healthy citizens are the bedrock of a productive workforce, which in turn increases levels of income per capita.


Infant Mortality

UndernourishmentIncidence of Tuberculosis

Life Expectancy+

Immunisation Against Infectious Diseases

+

Immunisation Against Measles

+

Health Expenditure per Person

+

Basi

c H

ealth

Outcomes

Health Infrastructure and Preventative CareInfant M

ortality

Undernourishment

Death from Respiratory Diseases

Leve

l of W

orrying

Hea

lth P

robl

ems

Hospita

l Bed

s

+

Health-Adjusted Life Expectancy +

Satisfactio

n with Health

+

Health Expenditure per Person

+

Water Quality+

Sanitation+

Satis

fact

ion w

ith En

viron

men

tal B

eaut

y+

Wel

l-Res

ted

+

Physical and Mental Health Satisfaction

Basic

H

ealth

Outcomes Health Infrastructure and Preventative Care

INCOME

WELLBEING

VARIABLE WEIGHTS

Variables are ordered from largest to smallest within each category. Income and wellbeing bar sizes are not comparable due to differences

in scale. These variables are positively or negatively correlated to income or wellbeing indicated by a plus (+) or minus (-) sign.

SUB-INDEX: HEALTH



Iceland 1

Norway 2

Finland 3

Ireland 4

Hong Kong 5

Sweden 6

Luxembourg 7

Denmark 8

Canada 9

Switzerland 10

133 Uganda

134 Ethiopia

135 Iraq

136 Colombia

137 Zimbabwe

138 Sudan

139 Pakistan

140 Afghanistan

141 Congo (DR)

142 Chad


TO

P T

EN

BO

TT

OM

TE

N

Threats to national security and personal safety jeopardise levels of income and wellbeing. The Safety & Security sub-index measures countries’ performance in two areas: national security and personal safety. As illustrated in the chart on the right, the variables in the sub-index are categorised according to these areas.

A stable social and political environment is necessary for attracting investment and sustaining economic growth. When citizens worry about their personal safety their overall wellbeing suffers. The Safety & Security sub-index combines objective measures of security and subjective measures of personal safety. Factors such as instability resulting from group grievances and demographic pressures limit GDP growth. Similarly, the opportunity to express political opinions without fear of persecution, and feeling safe walking alone at night, are positively correlated with higher levels of wellbeing.

When people and basic institutions are unsafe and unstable, capital, investment, and people flee. Academic research shows that organised political violence such as coups or civil war, as well as crime and mistrust stemming from poor social cohesion, hinder economic growth. In addition, an environment of fear and uncertainty negatively affects life satisfaction.


Group Grievances

Refugees and IDPs

Assault

Property Stolen

Safe Walking Alone at Night+

State-Sponsored Political Violence

INCOME

Nat

iona

l Security

Personal Safety

Safe Walking Alone at Night

+

Group G

rievances

Demographic Instability

State-Sponsored Political ViolenceHuman Flight

Refugees and IDPs

Civil WarAssault

Express Political Opinion w/o Fear

+

WELLBEING

Nat

iona

l Security

Personal Safety

VARIABLE WEIGHTS

Variables are ordered from largest to smallest within each category. Income and wellbeing bar sizes are not

comparable due to differences in scale. These variables are positively or negatively correlated to income or wellbeing

indicated by a plus (+) or minus (-) sign.

SUB-INDEX: SAFETY & SECURITY

44 www.li.com

Canada 1

New Zealand 2

Australia 3

Ireland 4

Sweden 5

Norway 6

Denmark 7

Luxembourg 8

Netherlands 9

Iceland 10

133 Jordan

134 Sudan

135 Afghanistan

136 Syria

137 Algeria

138 Ethiopia

139 Haiti

140 Egypt

141 Iraq

142 Yemen


TO

P T

EN

BO

TT

OM

TE

N

When citizens enjoy freedom of expression, belief, and organisation, as well as personal autonomy in a society welcoming of diversity, their country experiences higher levels of income and wellbeing. The Personal Freedom sub-index measures countries’ performance in two areas: individual freedom and social tolerance. As illustrated in the chart on the right, the variables in the sub-index are categorised according to these areas.

The Personal Freedom sub-index captures the effects of freedom of choice, expression, movement, and belief, on a country’s per capita GDP and the subjective wellbeing of its citizens. It also assesses how levels of tolerance of ethnic minorities and immigrants impact countries’ economic growth and citizens’ life satisfaction. Societies that foster strong civil rights and freedoms have been shown to enjoy increases in levels of satisfaction among their citizens. When citizens’ personal liberties are protected, a country benefits from higher levels of national income.

INCOME

Indi

vidu

al Freedom

Perceived Social Tolerance

Civil Liberties and Free Choice +

Tolerance of Immigrants+

Tolerance of Minorities

+

WELLBEING

Indi

vidu

al Freedom

Perceived Social Tolerance

Satisfaction with Freedom of Choice +Civil Liberties

+

Tolerance of Immigrants+

Tolerance of Minorities

+

VARIABLE WEIGHTS





SUB-INDEX: PERSONAL FREEDOM



Norway 1

Denmark 2

Australia 3

New Zealand 4

Finland 5

Netherlands 6

Ireland 7

Canada 8

Sweden 9

United States 10

133 Turkey

134 Congo (Rep.)

135 Rwanda

136 Cote d’Ivoire

137 Pakistan

138 India

139 Burundi

140 Georgia

141 Benin

142 Togo


TO

P T

EN

BO

TT

OM

TE

N

Social networks and the cohesion a society experiences when people trust one another have a direct effect on the prosperity of a country. The Social Capital sub-index measures countries’ performance in two areas: social cohesion and engagement, and community and family networks. As illustrated in the chart on the right, the variables in the sub-index are categorised according to these areas.

This sub-index evaluates how factors such as volunteering, helping strangers, and donating to charitable organisations impact economic performance and life satisfaction. It also measures levels of trust, whether citizens believe they can rely on others, and assesses how marriage and religious attendance provide support networks beneficial to wellbeing.

Empirical studies on social capital have shown that citizens’ wellbeing improves through social trust, family and community ties, and civic group membership. Similarly, societies with lower levels of social capital have been shown to experience lower levels of economic growth. And so the term ‘capital’ in ‘social capital’ highlights the contribution of social networks as an asset that produces economic and wellbeing returns.


Perceptions of Social Support

+

Formal Volunteering+

Helping Strangers+

Donations+

INCOME

Societa

l Coh

esio

n an

d En

gagement

Community and Fam

ily N

etw

orks

Trust in Others +

Donations+

Formal Volunteering+

Helping Strangers+

Perceptions of Social Support

+

Marriage rate

+

Religious Attendance

+

WELLBEING

Soci

etal

Coh

esio

n an

d En

gagement

Community andFa

mily

Net

wor

ks

VARIABLE WEIGHTS




SUB-INDEX: SOCIAL CAPITAL

46 www.li.com

PROSPERITY INDEX ‘ANOMALIES’

Some Prosperity Index rankings may appear to the reader as puzzling.

In some cases these could be the result of issues that lie within the data.

Depending on the case, these rankings may have been caused by one of

the following:

$350per year

$86,124per year

Prosperity Index scores 2012

GDP per

capita

1

2

3

4

0

-1

-2

-3

-4

New Zealand

Kuwait

Angola

Congo (DR)

GDP PER CAPITA VS. PROSPERITY INDEX SCORES

The graph identifies countries (in pink) that depart significantly

from their GDP per capita ranking.

Data from the 2012 Legatum Prosperity Index™



1. DATA LAG The Prosperity Index uses the most recent available datapoints, but because it relies on large global data sets the data are not always up to date. The 2012 Index may not, therefore, reflect all recent events.

2. AUTOCRATIC COUNTRIES Subjective data on perceptions can produce counterintuitive results for autocratic regimes as citizens may be afraid of providing an honest opinion, particularly concerning the government.

3. ACTUAL CHANGES vs. PERCEIVED CHANGES Taking steps to tackle a problem can negatively affect citizens’ perceptions of it—even if actual conditions are improving. Interventions can give an issue higher visibility, leading to heightened public concern.

4. DEVELOPED vs. DEVELOPING COUNTRIESSome variables have a larger effect in developing countries than in developed countries (this is true, for example, of healthcare expenditure). For objectivity, we have opted to apply the same weights to all variables across all countries.

5. TREATMENT OF OCCUPIED/DISPUTED TERRITORIESThe status of disputed territories, such as the Palestinian Territories or Kashmir, is treated non-uniformly by several of our data sources. For example, when measuring socio-economic and political pressures in Israel, India, and Pakistan, Freedom House (from whom we receive data on civil liberties) excludes these territories. However, the Failed State Index (from whom we receive data on human flight) includes them.

6. INPUTS vs. OUTPUTS In some instances the Prosperity Index utilises variables that measure inputs rather than outputs as they are the best available proxy for the phenomena under consideration. Anomalies arise when the efficiency with which inputs are transformed into outputs varies across countries.

7. UNDER-REPRESENTATION OF THE POPULATION For some countries, such as Saudi Arabia or the United Arab Emirates, subjective data collected by Gallup might not be representative of the entire population. Countries facing this problem are listed in our separate methodology document available online.

The Legatum Institute adopts an open and transparent approach to the methodology of our Prosperity Index. We do not apply weightings to sub-indices nor do we adjust the rankings or amend the data. With this in mind, we strongly encourage analysis and scrutiny of the data as this can help the interpretation of rankings. To this purpose, all datapoints used in the construction of the Index are freely available on our website www.prosperity.com.

48 www.li.com

COUNTRYCOUNTRY RANK

2009 2010 2011 2012

Norway 1 1 1 1

Denmark 2 2 2 2

Sweden 7 6 5 3

Australia 5 4 3 4

New Zealand 3 5 4 5

Canada 6 7 6 6

Finland 4 3 7 7

Netherlands 11 9 9 8

Switzerland 8 8 8 9

Ireland 9 11 11 10

Luxembourg / / / 11

United States 10 10 10 12

United Kingdom 13 13 13 13

Germany 16 15 15 14

Iceland 12 12 12 15

Austria 14 14 14 16

Belgium 15 16 17 17

Hong Kong 21 20 19 18

Singapore 17 17 16 19

Taiwan 22 22 20 20

France 18 19 18 21

Japan 19 18 21 22

Spain 20 23 23 23

Slovenia 23 21 22 24

Malta / / / 25

Portugal 25 26 25 26

South Korea 29 27 24 27

Czech Republic 24 24 26 28

United Arab Emirates 27 30 27 29

Cyprus / / / 30

Uruguay 32 28 29 31

Poland 28 29 28 32

Italy 26 25 30 33

Chile 35 32 31 34

Estonia 31 35 33 35

Slovak Republic 37 37 32 36

Costa Rica 30 33 34 37

Kuwait 34 31 35 38

Hungary 38 34 36 39

Israel 33 36 38 40

Argentina 44 41 39 41

Panama 42 40 37 42

Lithuania 40 42 44 43

Brazil 45 45 42 44

Malaysia 43 43 43 45

Kazakhstan 51 50 46 46

Latvia 41 47 51 47

Bulgaria 47 46 48 48

COUNTRYCOUNTRY RANK

2009 2010 2011 2012

Greece 36 39 40 49

Croatia 39 38 41 50

Trinidad & Tobago 46 44 47 51

Saudi Arabia 57 49 49 52

Vietnam 50 61 62 53

Belarus 55 54 50 54

China 58 58 52 55

Thailand 54 52 45 56

Montenegro / / / 57

Sri Lanka 68 59 63 58

Mongolia 60 60 60 59

Romania 48 51 58 60

Mexico 49 53 53 61

Jamaica 52 55 55 62

Indonesia 85 70 70 63

Uzbekistan 65 76 64 64

Belize 53 56 56 65

Russia 62 63 59 66

Philippines 61 64 66 67

Paraguay 69 67 57 68

Colombia 64 65 61 69

Botswana 59 57 67 70

Ukraine 63 69 74 71

Peru 72 73 68 72

Morocco 66 62 71 73

South Africa 67 66 69 74

Macedonia 70 72 76 75

Ecuador 77 77 83 76

Jordan 75 74 65 77

Tunisia 56 48 54 78

Serbia / / / 79

Venezuela 76 75 73 80

Dominican Rep 71 68 72 81

Laos / / / 82

Namibia 74 71 80 83

Moldova 83 86 79 84

Lebanon 90 84 82 85

Tajikistan / / / 86

Ghana 89 90 78 87

Kyrgyzstan / / / 88

Turkey 80 80 75 89

El Salvador 81 78 77 90

Nicaragua 73 87 86 91

Albania / / / 92

Georgia / / / 93

Azerbaijan / / / 94

Bolivia 84 82 85 95

Honduras 79 85 87 96

YEAR-ON-YEAR RANKINGS TABLE 2009–2012

COUNTRYCOUNTRY RANK

2009 2010 2011 2012

Guatemala 82 81 84 97

Armenia / / / 98

Bosnia-Herzegovina / / / 99

Algeria 91 79 88 100

India 78 88 91 101

Iran 93 92 97 102

Bangladesh 95 96 95 103

Mali 94 93 90 104

Malawi / / / 105

Egypt 87 89 89 106

Cambodia 101 95 94 107

Nepal 88 91 93 108

Tanzania 96 97 96 109

Zambia 98 101 101 110

Rwanda 105 98 98 111

Burkina Faso / / / 112

Syria 86 83 81 113

Niger / / / 114

Cameroon 99 102 99 115

Kenya 97 104 102 116

Uganda 102 99 100 117

Senegal 92 94 92 118

Benin / / / 119

Congo (Republic) / / / 120

Djibouti / / / 121

Mauritania / / / 122

Nigeria 103 106 104 123

Mozambique 104 103 103 124

Sudan 106 100 105 125

Cote d'Ivoire / / / 126

Guinea / / / 127

Sierra Leone / / / 128

Angola / / / 129

Liberia / / / 130

Iraq / / / 131

Pakistan 107 109 107 132

Ethiopia 108 107 108 133

Yemen 100 105 106 134

Zimbabwe 110 110 109 135

Togo / / / 136

Burundi / / / 137

Haiti / / / 138

Chad / / / 139

Afghanistan / / / 140

Congo (DR) / / / 141

Central African Republic 109 108 110* 142*

*In 2012 the number of countries in the Index was increased to 142 (from 110 countries in 2009–2011). This should be borne in mind when looking at ranking movement over the four years. This is particularly relevant for lower ranking countries.


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‘ Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public o�cials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.’





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