Tag Archives: Prosperity

Speech to Launch 2015 Prosperity Index

On Monday night, I gave a short speech marking the launch of the 2015 global Prosperity Index. In truth I was merely the warm-up act for Iain Duncan Smith. The video is below and I’ve provided a transcript of my remarks underneath.

The video starts with Sian Hansen, the Legatum Institute’s Executive Director. I’m at 1min50. Ian Duncan Smith begins at 8min15.

My remarks:

Welcome to the Legatum Institute’s Winter Reception, to mark the launch of the 2015 Global Prosperity Index.

We’re delighted that your all here. Chances are, if you a reasonably familiar with the Legatum Institute then you may well know of our Prosperity Index. For the benefit of those who are new – and as a refresher for those who are not – I’m going to spend a few minutes explaining what this thing is, and why it’s important. And then I’ll hand over to Iain Duncan Smith who will say a few words.

What is the Prosperity Index?

One way of looking at the Prosperity Index is that it is a data-rich, complex, and comprehensive way of ranking the nations of the world.

I could tell you that it includes 142 countries, covering 99% of global GDP and 97% of the world’s population.

I could tell you that for each of those 142 countries, the Index includes 89 individual indicators spread across 8 categories.

(The maths geniuses among us may have worked out that this adds up to more than 12,000 datapoints in any given year).

I could tell you that we use a combination of objective data and subjective data in order to capture a comprehensive measure of global prosperity.

I could tell you that this year Norway comes top; the UK 15th; and the U.S. 11th.

And all of that is true. But it’s not the whole story. In fact it’s not even the main story.

Because the Prosperity Index – fundamentally – is about people. It’s about how individuals in these countries experience their lives. It tells a human story. The charts and the graphs that point upwards tell us that, overall, conditions for people in those countries are improving.

And so yes, the Prosperity Index does tell us something about the world as a whole, but it’s about the individuals in those countries.

Why Produce a Prosperity Index?

Put simply, the Prosperity Index is an answer to a problem. The problem is this: the way we have traditionally measured the ‘success’ of nations is too narrow. Traditionally we use measures national wealth to determine success. Of course wealth is important but it’s not the whole picture. GDP is an incomplete measure of societal progress.

But don’t just take my word for it…

Simon Kuznets – the economist who created GDP…

The welfare of a nation can scarcely be inferred from a measurement of national income.

Nicholas Sarkozy, former French President…

It is time for our statistics system to put more emphasis on measuring the well-being of the population than on economic production.

Robert F Kennedy – speaking in 1968 – bemoaned the use of economic measures to assess national progress.

…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 officials.

Kennedy concluded by saying,

it measures everything in short, except that which makes life worthwhile.

And of course the American Founding Fathers included the “pursuit of happiness” as one of the fundamental tenets of the Declaration of Independence.

A little closer to home…

David Cameron…

I do think it’s high time we admitted that, taken on its own, GDP is an incomplete way of measuring a country’s progress.

And the list of quotes like this goes on and on.

To summarise: GDP can only tell us so much. It can tell us the average wealth of a country but it can’t tell us how that wealth was created.

It can’t tell us whether the citizens of that country are free.

It can’t tell us whether the government of that country is corrupt.

It can’t tell us whether children in that country have to walk 10 miles to go to school, or whether the education they receive when they get there is any good.

And it can’t tell us anything about the strength of social capital in that country.

Guess what folks? The Prosperity Index can!

The Prosperity Index gives us a broad perspective of our progress. And that’s important because the information we have affects the decisions we make. If we want governments – or indeed anyone – to make the right decisions (decisions that increase prosperity), they need to have the right data.

As the economist Joeseph Stiglitz put it (far more eloquently than me): what you measure affects what you do. If you have the wrong metrics, you strive for the wrong things.

We believe the Prosperity Index provides the right metrics in order that we might strive for the right things.

And that, in a nutshell, is what the Prosperity Index is – and why we do it. It is the definitive measure of global progress.

Please do take a copy away with you. The results this year are genuinely fascinating, often counter-intuitive, and of nothing else the report itself is laced with beautiful info graphics!

Before I introduce Iain, I’d like to make a special mention to the team here at Legatum who are responsible for the Index. Each one has worked heroically in recent months to produce the Index and once I’ve mentioned them all, perhaps you would all join me in thanking them in the traditional way. They are: Stephen, Harriet, Alexandra, Augustine, Fei, and Abi.

Iain Duncan Smith is the Secretary of State for Work and Pensions. As well as founding the Centre for Social Justice, he has been the leader of the Conservative Party and the Member of Parliament for Chingford & Woodford Green since 1992.

One of the governments big success stories of the past 5 years is the way it has turned around the British economy and in particular seen so many people get back into work. Much of the credit for that lays with Iain, and in particular the vision and leadership he has brought to the DWP. Although I’m sure he’ll be the first to admit there is still much work to be done, the story so far is quite extraordinary.

Secretary of State, it’s great to have you with us. The results of this year’s Prosperity Index validate many of the policies you and your department have been pursuing over the past 6 years. We’re delighted to have you here to help us launch it tonight. Ladies and Gentlemen, Iain Duncan Smith.

Talk at the Brookings Institution

Last week I was in the US and spent time in Washington DC, Boston, and New York. I gave several talks and hosted various meetings including giving a talk and moderating a panel session at the Brookings Institution (video below).

The subject of the discussion was “Opportunity and Prosperity” and the four panellists were: Carol Graham (Brookings Institution), John Prideaux (The Economist), Richard Reeves (Brookings Institution), and Charles Murray (American Enterprise Institute).

 

This event page on the Brookings Institution website provides more detail about the event: http://www.brookings.edu/events/2014/11/18-prosperity-beyond-economic-growth

Technology and Entrepreneurship

At the end of last year I chaired a panel discussion at the Legatum Institute on the subject of technology and entrepreneurship. The discussion explored the role of technology in stimulating entrepreneurship and innovation.

Panellists: Erkko Autio, Imperial College London; Christian Busch, Co-Founder, Sandbox; Luke Johnson, Chairman, Risk Capital Partners / Chairman, Centre for Entrepreneurs; Iqbal Quadir, Founder, Grameenphone / Founder and Director, Legatum Center at MIT.

Recent Media Coverage

Nathan Gamester - Prosperity Index 2013 cropped

Over the last few weeks I have spoken to many journalists about the latest edition of the Prosperity Index. The global coverage has been extensive and so a full run down would be difficult. However, I thought I’d pull together a selection of articles either that I’ve authored or in which I’m quoted.

  • Four Major Changes to Global Prosperity
    Harvard Business Review (link)

It was Abraham Maslow who gave us that famous observation — “when the only tool you have is a hammer, everything looks like a nail.”  We all understand the implication: Anyone attempting to solve an ambiguous problem should start out in possession of a broad set of tools. It is curious, then, that we continue to fall into the trap of…

  • How Prosperous is the United States?  
    Foreign Policy, Democracy Lab (link)

The results are in! The Legatum Institute has just launched the 2013 Prosperity Index, a broad measurement of national success that looks beyond GDP. Norway tops the rankings (for the fifth year running) followed by Switzerland in second place and Canada in third. The United States ranks outside the top ten, placing 11th overall…

Continue reading →

Can Money Buy Happiness?

Academically speaking, the answer to this question has, for a long time, been no. This is because of something called the Easterlin paradox – the theory that economic growth in a country does not result in greater happiness for citizens of that country.

But the theory is being challenged.

This week, writing in the Telegraph, Allister Heath cited two new academic papers that claim to disprove the Easterlin paradox. Both papers suggest that increased wealth does result in increased happiness.

The first paper cited by Heath is The New Stylized Facts about Income and Subjective Well-Being by Sacks, Stevenson, & Wolfers. This paper uses data on citizen’s life satisfaction from the Gallup World Poll and compares it against a measure of average income (real GDP per capita). The authors find that wellbeing does in fact rise with income. Moreover, the data show that the correlation stands within single countries, across countries, and over time.

The paper concludes with five “stylized facts” that include findings such as, “richer people report greater wellbeing than poorer people” and “richer countries have higher per capita well-being than poorer countries.”

The paper also offers an explain of why Easterlin came to the conclusions that he did in the 1970s: namely lack of data.

…[Easterlin] failed to find a statistically significant relationship between wellbeing and GDP …There was simply too little data to have the precision necessary to reach a conclusion in either direction.

The second paper cited in Heath’s article is The Easterlin illusion: economic growth does go with greater happiness by Ruut Veenhoven and Floris Vergunst.

This paper also finds that wellbeing rises with income. The authors reveal a positive correlation between GDP growth and a rise of in happiness in nations. They go on to say that both GDP and happiness have gone up in most nations, and average happiness has risen more in nations where the economy has grown the most.

So that’s it then. Money can buy you happiness after all. Or can it?

There remains a discussion as to whether disproving the Easterlin paradox is as simple as the two papers suggest. For example, wellbeing expert Carol Graham argues that it depends on the question that is asked in the survey.

Graham draws a distinction between life evaluation data and life experience data. Happiness data that capture citizens’ life evaluation correlate more closely with income compared to happiness data that capture life experience. This point is made by Daniel Kahneman and Angus Deaton here.

So can money buy happiness? It seems the jury is still out. Academically speaking, anyway.

 

**More on this, including helpful summaries and useful context, can found here and here.

 

Prosperity, Opportunity and Growth

RealBusinessLogo Here’s an article from a few weeks ago that I wrote for Real Business Magazine (original article here)… 

Anyone looking for good news on the economy should probably avoid George Osborne’s Autumn Statement, delivered in the House of Commons last week. The message was stark: in the absence of economic growth, austerity is here to stay.

Economic growth – measured in GDP terms – is the global metric against which all nations are indexed in order to measure national success and progress. Born in the dark days of the Great Depression as the post-war world struggled to find its feet, GDP fast became the tool for measuring economic progress of nations. For decades thereafter, GDP became the statistic to trump all statistics[1]. But today there is a growing consensus that GDP alone is too narrow to capture a country’s overall success.

In recent years this school of thought – that advocates for the use of alternative measures to capture national development – has become known as “Beyond GDP”. This expression, however, can be misleading as it suggests that wealth creation is unimportant or less important than additional factors. A preferable description would instead be “GDP and Beyond”, because this recognises the necessity of economic growth alongside other factors[2].

This theory is applied in the annual Legatum Prosperity Index™, which takes into account not just wealth, but also wellbeing. The Index benchmarks 142 countries around the world in a number of categories that help to give a clear picture of prosperity. These categories range from the economy to entrepreneurial opportunity, effective government, safety, education and health.

Despite the depressing economic environment in the UK (the country has fallen to 26th, globally in the Economy category), overall the UK has climbed one place – to 13th – in the worldwide 2012 rankings. This is just one place behind the US.

One of the primary reasons for this improvement is the UK’s thriving entrepreneurial climate.

The UK is the sixth highest-ranking country in the world in the Entrepreneurship & Opportunity category; sitting six places above the US and ahead of traditionally strong export economies, such as Hong Kong, Japan and Taiwan (15th, 23rd and 24th respectively).

One of the biggest contributing factors to this culture of entrepreneurialism is low start-up costs for new businesses. In the UK, these stand at 0.7% of Gross National Income, half as much as in the US (1.4%) and considerably below the global average of 20%. And this is despite the fact that a slightly higher proportion of people in the US think that their country is a good place to start a business (69% compared to 67% in the UK).

Other vital contributing factors to the UK’s high score in the Entrepreneurship & Opportunity sub-index are the perception of equal access to opportunities for British citizens and the belief that hard work pays off. Fairness and meritocracy are essential ingredients for building a long-term entrepreneurial climate, which more and more individuals will be drawn towards.

The performance of the US in factors related to entrepreneurship is one reason why the country has dropped out of the overall top 10 most prosperous nations for the first time this year, falling to 12th position. What is more, if the UK continues to thrive in these areas it is expected to overtake its transatlantic ally by 2014.

Promoting entrepreneurial freedom and opportunity for all who wish to start a business is not only good for national wellbeing, it will also generate the much needed, yet elusive, economic growth that the UK is looking for. History has shown entrepreneurship to be the primary engine of growth in the global economy.

As Barack Obama stated at the 2010 Summit on Entrepreneurship, “…throughout history, the market has been the most powerful force the world has ever known for creating opportunity and lifting people out of poverty.”

There is more to success than GDP; but GDP is important. As the UK looks to return to growth, it should focus on continuing to provide an environment that supports and rewards the important and oft-overlooked class of wealth creators that are entrepreneurs. Keeping start-up costs low and reducing other barriers to business creation such as high tax rates and lengthy bureaucratic processes, are examples of policies that will stoke the entrepreneurial fires.

[1] Elizabeth Dickenson, GDP: A Brief History, Foreign Policy Magazine, Jan/Feb 2011

[2] “GDP and Beyond” is a phrase coined by Paul Allin of the UK Office for National Statistics in the article, “Is There More to Life than GDP and Happiness“, February, 2012

The Ten Cannots

  • You cannot bring about prosperity by discouraging thrift.
  • You cannot strengthen the weak by weakening the strong.
  • You cannot help little men by tearing down big men.
  • You cannot lift the wage earner by pulling down the wage payer.
  • You cannot help the poor by destroying the rich.
  • You cannot establish sound security on borrowed money.
  • You cannot further the brotherhood of man by inciting class hatred.
  • You cannot keep out of trouble by spending more than you earn.
  • You cannot build character and courage by destroying men’s initiative and independence.
  • And you cannot help men permanently by doing for them what they can and should do for themselves.

This is a list of “Cannots”, originally authored by William J. H. Boetcker, an American Presbyterian minister. The list is often misattributed to Abraham Lincoln (due to a printing mistake in a pamphlet published in 1942). I’d not previously seen these – but I immediately like them.

Prosperity and Olympic Success

Below is an article I co-authored on the relationship between a country’s prosperity and their Olympic medal success (perhaps unsurprisingly, there is a strong correlation between the two).  We also used the relationship to predict the number of medals that would be won by certain countries at this year’s Games. I particularly like the second table in the article because it shows which countries are the most successful when population size is taken into account – which is an angle not often considered when we think of Olympic performance.

National Prosperity and Olympic Success

Can a nation’s prosperity predict its Olympic success? 

The greatest city on earth is currently hosting the greatest show on earth. The expectant gaze of the watching world has settled on London. The stadia are built. The athletes are trained. The tickets are purchased.

And while most of the pre-match analysis focussed on how terrible the trafficand weather would be, we are now not thinking about any of that (ok maybe the weather). Now the first starting pistol has been fired, the first ball has been kicked, the first pole has been vaulted, most of us are not giving a second thought to the special bus lanes on the M4.

The big question is who will win the most medals? And which nations will do better – and worse – than expected? How will Team GB perform? Economists have investigated whether a country’s economic status can explain its achievements in the Olympics. In a recent report, Goldman Sachs finds that income levels are “positively and strongly associated with medal attainment” but the report also notes that “there is more to medal attainment than simply high income levels”. Therefore, if we want to use a nation’s prosperity to predict their Olympic success, we need a predictor of success based on more than just wealth.

The Legatum Prosperity Index™ measures a country’s total prosperity (this includes income and citizen wellbeing) and as such provides a more complete assessment of national success. Using the Prosperity Index to predict medal wins we predict that Team GB can expect to win 73 medals, an increase of 26 from the last Games in Beijing (this estimate also includes a ‘home nation premium’ as history demonstrates that the host nation usually wins more medals than expected).

2012 Medal Predictions based on the

Legatum Prosperity Index™

Team London 2012 Medal Prediction Beijing 2008 Total Change 2008-12
United States

91

110

-19
China

83

100

-17
Russia

73

73

0
United Kingdom

73

47

26
Australia

45

46

-1
Germany

43

41

2
France

41

41

0
South Korea

33

31

2
Italy

26

27

-1
Japan

23

25

-2

When we consider historical Olympic performance, the relationship between the Prosperity Index scores and total Olympic medals won per head is clear: the more prosperous countries win more Olympic medals. There is no straightforward explanation for this but the results reveal interesting stories that arise not only from pure economic differences but also from particular cultural, institutional, and political conditions. Bangladesh, for example, a country of 100 million people has never won an Olympic medal. This reveals much about Bangladesh’s economic and political conditions as well as its under-developed infrastructure, low levels of health, and poor education system.

Nordic countries excel both in terms of prosperity and Olympic medals per head (see table below). By exploring this relationship in more detail we find that a country’s economic performance is actually one of the weakest predictors of Olympic success. A more accurate predictor is the safety and security in a country, the level of entrepreneurship in the society and the quality of education.

Total Olympic Medals Won (1896 – 2008) per Million People

Compared to 2011 Prosperity Ranking

Country  Medals per million people 2011 Prosperity Rank
Norway

91.22

1
Finland

84.26

7
Sweden

64.26

5
Hungary

46.50

36
Switzerland

39.49

8
Austria

34.17

14
Denmark

31.09

2
Estonia

29.23

33
Bulgaria

29.07

48
Jamaica

20.37

55
Australia

20.05

3
New Zealand

19.77

4
Germany

19.73

15
Netherlands

19.53

9
Romania

13.95

58

These latter factors are the results of developed institutions, infrastructure, and societal organisations that represent the legacy of long-term policies and objectives. As a consequence the current economic downturn that has affected most developed economies, such as Southern Europe countries, is unlikely to have much of a negative effect on the performance of these countries in the Olympics.

Although the relationship between prosperity and Olympic medals holds globally, some interesting stories are found in the outliers. It is surprising to see that India (population 1.2bn) has won only 20 Olympic medals in the last 100 years while Kenya (population 41m) has won 75 medals in the last 50 years, even though Kenya ranked lower in terms of prosperity in 2011; India 91st and Kenya 102nd.

This means that Kenya has won more medals per head than both Argentina and Brazil. Kenya has risen up the Prosperity Index since 2009 and, if this is reflected into its Olympic performance, Kenya is likely to break its record of 14 medals. On the other hand, India’s prosperity has deteriorated since 2009 and, therefore, we do not expect India to improve its performance in the London Games.

While the Olympics are primarily a sporting event, it is almost impossible to keep the Olympics and politics apart. From Hitler’s attempt to use the 1936 Berlin Games to propagate the Nazi ideology of racial supremacy to Tommie Smith and John Carlos’s Black Power salute in Mexico City in 1968, history shows us that the Olympic Games have often served as an arena for geopolitical debates and strategic rivalry.

And while much attention is given to the surrounding politics, the purpose of the Olympics is of course to celebrate sporting achievement. Rarely during the Olympics will our thoughts be on the politics of the Games. Instead our newspapers and our discourse will be filled with sporting events from table-tennis to taekwondo, boxing to beach volleyball, and water polo to weightlifting. We’ll speculate about whether Usain Bolt will break his own 100m record, whether Tom Daley can bring glory to Team GB from the diving board, and whether Mo Farah will win the 5000m (and if he’ll celebrate with the now famous “Mobot”).

The Olympics provides an opportunity to speculate about some underlying factors that contribute to a nation’s sporting success. Whether our predictions come true or not, the main point of the coming weeks is to enjoy the Olympics for what they are: games.

An abbreviated version of this article was published in City AM on August 1st. Due to space restrictions, that article did not contain the full medal predictions tables. The full version of the article was, therefore, reproduced on the Legatum Institute website.