Measuring prosperity

Nathan Gamester

Comparing the wealth of nations has never been easy. The Prosperity Index is an indicator that attempts to give a rounded picture of a country’s success, measuring not only economic output, but also provision in health care and education

For more than 75 years, GDP (gross domestic product) has been used to measure the success and prosperity of nations. But GDP was never intended to be used in this way. It’s a narrow economic measure that misses many intricacies of human behaviour. The economist who developed the measure of GDP, Simon Kuznets, said exactly this when he first presented the concept to the US Congress: “The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income.” And yet this measure of national wealth is still regarded by many as the best tool for assessing countries’ progress. 

But the conversation is beginning to shift. 

Today there is a growing consensus that GDP alone does not capture a country’s overall success. And in recent years, governments and world leaders have increasingly begun to realise that focusing on GDP growth alone does not necessarily lead to improvements in living standards of their citizens. This position has become known as the ‘beyond GDP’ debate. Seven years ago, as this debate was just beginning to gather momentum, the Legatum Institute published the first edition of its global Prosperity Index, a tool that measures national progress using a wide set of metrics. 

Put simply, the Prosperity Index exists because we believe that national success is about more than just wealth. To view a country’s prosperity using purely economic measures is to miss many of the vital elements that contribute to a nation’s success. Economic growth is certainly an important part of a nation’s prosperity, but so too is the freedom of its citizens, the quality of its education system, the availability of health care and the presence of democratic institutions, to name just a few. And we believe that in order to recognise this, it’s important that we measure it. As the Nobel Prize-winning economist Joseph Stiglitz has said: “What you measure affects what you do. If you have the wrong metrics, you strive for the wrong things.” 

The index is now in its seventh year and includes 142 countries, covering 96 per cent of the world’s population – 99 per cent of global GDP. And it measures countries’ performance across eight fundamental areas: the economy; entrepreneurship and opportunity; governance; education; health; safety and security; personal freedom; and social capital. The results reveal some interesting findings for Commonwealth countries. For example, over the last five years, India has been falling down the rankings while Bangladesh has been rising. This year, for the first time, the two have crossed over and Bangladesh now ranks higher than its mighty neighbour. 

Another interesting trend reveals a new economic world order. Over the past five years, nations such as Taiwan, the UAE, China and Malaysia have overtaken countries including the UK, Denmark, Finland and the USA on economic measures. And the data reflects some surprising findings – the USA and the UK have higher rates of unemployment than Taiwan, lower hi-tech exports than Malaysia and significantly lower rates of savings than China, the UAE, Thailand, South Korea, Taiwan and Malaysia. 

The Prosperity Index contains 29 countries of the Commonwealth spread out across the rankings from the top ten down to the bottom ten. Canada (third overall), New Zealand (fifth) and Australia (seventh) are the highest ranking Commonwealth countries, while Nigeria (123rd), Sierra Leone (129th) Pakistan (132nd) are the lowest ranking. 

Their economic status is also varied. Singapore, for example, is the highest ranking Commonwealth country within the Economy category (placed third), while Sierra Leone ranks down at 137th in the same category. In 2013, 20 countries were identified by the Legatum Institute as the ‘ones to watch’. These countries were highlighted as nations that look destined to climb the rankings in future years based in their impressive performance to date. This list contains five Commonwealth countries: Trinidad and Tobago, Rwanda, Zambia, Sri Lanka and Bangladesh. 

Since 2009, Trinidad and Tobago has moved up seven places to 42nd in the Prosperity Index, making significant improvements in areas of governance, health and personal freedom. Sri Lanka has improved 11 places to 60th since 2009. This improvement is mainly due to increases in the Economy sub-index (it moved 28 places to 74th), in the Governance sub-index (six places to 48th) and in the Education sub-index (15 places to 44th). 

Over the last five years, all areas of prosperity have increased globally with the biggest increase having been in the Entrepreneurship and Opportunity category. When assessed in entrepreneurship, Commonwealth countries show a mixed performance. Seven have business start-up costs of less than one per cent of gross national income (GNI). For example, start-up costs in South Africa stand at 0.3 per cent of GNI while in New Zealand and Canada this figure is 0.4 per cent. Six Commonwealth countries, however, have business start-up costs that are well above the global average of 31.3 per cent. Recorded business start-up costs in Cameroon stand at 36 per cent, in Kenya they are 40 per cent and in India 50 per cent. 

By design, the Prosperity Index measures national success broadly. This allows us to understand how nations are performing in important areas beyond standard economic performance. 

The countries of the Commonwealth are diverse and represent different stages of development and progress. To fi nd out more about these countries, or any others, you can access all of the data from the Prosperity Index online where you can compare nations to see how they perform against one another. While each country must chart its own course to success, the Prosperity Index helps to illuminate some of the drivers of prosperity and to identify those countries that are on the right course. 

The Prosperity Index can be found at 


About the author:

Nathan Gamester is the programme director for the Prosperity Index


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