046_new_G17 Arena

Global_17

Arena Economics Measuring prosperity 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 Nathan Gamester 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 fi rst 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 fi rst 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 fi ndings for Commonwealth countries. For example, over the last fi ve years, India has been falling down the rankings while Bangladesh has been rising. This year, for the fi rst 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 fi ve 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 refl ects some surprising fi ndings – the USA and the UK have higher rates of unemployment than Taiwan, lower hi-tech exports than Malaysia and signifi cantly 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 (see table opposite). Canada (third overall), New Zealand (fi fth) and Australia (seventh) are the highest ranking Commonwealth countries, while Nigeria (123rd), Sierra Leone (129th) and Pakistan (132nd) are the lowest ranking. Their economic status is also varied. Singapore, for example, is the highest ranking Commonwealth country within the Economy 46 l www.global -br ief ing.org f i rst quar ter 2014 global


Global_17
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