Official Site - The Legatum Prosperity Index is the world's only global assessment of wealth and wellbeing; unlike other studies that rank countries by actual levels of wealth, life satisfaction or development, the Prosperity Index produces rankings based upon the very foundations of prosperity – those factors that help drive economic growth and produce happy citizens over the long term.
The 2009 Legatum Prosperity Index
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Frequently Asked Questions

General

Q: What is the Legatum Prosperity Index?

A: The Prosperity Index uses a holistic definition of prosperity to include both material wealth and quality of life. Rather than replicating other measurements that rank countries by their actual levels of wealth, life satisfaction, or development, the Prosperity Index produces rankings based on the foundations of prosperity. These are the factors that help drive economic growth and produce happy citizens in a given country. Now in its third year, the Index builds on the previous versions with expanded data and refined analyses and assesses 104 nations by their performance in promoting prosperity in nine areas that are the building blocks of prosperity:

  • Economic Fundamentals
  • Entrepreneurship and Innovation
  • Democratic Institutions
  • Education
  • Health
  • Safety and Security
  • Governance
  • Personal Freedom
  • Social Capital

Each building block corresponds to a sub-index. A country’s position in the overall Prosperity Index is produced by averaging its 9 sub-index scores at equal weight. These average scores produce the overall ranking.

Q: Why did you launch the Prosperity Index in the first place and who is the study for?

A: The Prosperity Index is the result of an ongoing investigation into what constitutes wealthy and happy societies. The study analyses countries by universal drivers of and barriers to prosperity and then ranks countries according to their scores. The first edition was published in July 2007 and covered only 50 nations which has now expanded to over 100. In 2008, scholars and researchers affiliated with the Legatum Institute significantly expanded the scope of the Index, investigating prosperity drivers and outcomes in 104 countries worldwide. The 2009 study maintains this breadth, covering approximately 90% of the world’s population. The Legatum Prosperity Index is designed to be a practical tool for policy makers, journalists, business leaders, scholars, and the curious public – in short, anyone who wants to be better informed and armed with practical indicators that demonstrate a path to a nation’s prosperity.

Q: What is unique about this Index?

A: The Prosperity Index is unique in that it is the world’s only global assessment of wealth and wellbeing. Now in its third year, this edition builds on the previous versions with expanded data and a refined analysis. The Index uses a holistic definition of prosperity to include both material wealth and quality of life. Rather than replicating other measurements that rank countries by their actual levels of wealth, life satisfaction, or development, the Prosperity Index produces rankings based on the foundations of prosperity. These are the factors that help drive economic growth or produce happy citizens in a given country.

Q: Can you explain in more detail the role of governments and individuals?

A: The Prosperity Index reveals that governments alone cannot create nor mandate prosperity, but they can foster an environment that encourages property rights, free choice, security, health and free markets – among other factors. The Index shows that individuals must choose to take ownership of the challenges and opportunities that accompany increased freedom and privilege, and thereby advance national prosperity overall. A website dedicated to measuring an individual’s prosperity has been created at www.myprosperity.com.

Q: What are some of the key principles that promote prosperity?

A: The Prosperity Index has identified ten key principles:
  • Prosperous countries are strong across the board. Prosperous countries which lead the Index do well in all nine sub-indexes, indicating that the foundations of prosperity reinforce each other.
  • Entrepreneurs at the micro level need good economic policies at the macro level. Innovation and entrepreneurship are more strongly related to economic fundamentals than any other factor in a society. Aspiring entrepreneurs will often hit a “ceiling” limiting their success if a nation’s economy is not fundamentally strong.
  • Happiness is...opportunity, good health, relationships, and the freedom to choose who you want to be. The highest levels of overall life satisfaction are reported in countries which score best in the areas of health, safety, personal freedom, and social capital.
  • Prosperity is concentrated in the north Atlantic – for now. Sixteen of the top 20 most prosperous countries sit in North America and Europe.
  • History is not destiny. Highly-ranked nations include those with a long history of productive economies, effective, and limited government, and social capital – but also several others that not long ago were afflicted with poverty, oppression, and unhappiness.
  • Good governance is central to life satisfaction and economic progress. Countries in which sound governance creates satisfied citizens are also the most likely to have the healthiest economic fundamentals and the most entrepreneurial societies.
  • Prosperity means Security. Security and safety function as both a cause and effect of overall prosperity. A secure nation enables its citizens to flourish without fear of attack or harm, and prosperous citizens provide the financial resources and social capital to maintain safety and security.
  • Freedom Cannot Be Divided. While some nations seek to allow one aspect of freedom while restricting other aspects, prosperous nations respect freedom in all of its dimensions: economic, political, religious, and personal.
  • Strong Communities Are Better than Weak Governments. Some countries with ineffective governments still score well on social capital, indicating that healthy networks of families and friends play an essential role in helping a nation function.
  • It’s true that money can’t buy happiness...unless you are poor. Only in the poorest countries do increases in income have a significant effect on people’s life satisfaction.

Q: What are the key factors that promote prosperity? Is there a difference for poor and rich countries?

A: The Index assesses 104 nations around the world by assessing their performance in promoting prosperity in nine areas that are the building blocks of prosperity:

  • Economic Fundamentals
  • Entrepreneurship and Innovation
  • Democratic Institutions
  • Education
  • Health
  • Safety and Security
  • Governance
  • Personal Freedom
  • Social Capital

Only in the poorest countries does money have a significant effect on people’s satisfaction. This makes sense, given its direct and positive impact on life’s most basic needs. On a scale of 1 to 10, an increase in a country’s per capita income from $0 to $3,000 leads to a 2 point increase in life satisfaction among its residents – a huge effect. However, once a nation rises from extreme poverty, money begins to diminish fairly quickly as a source of happiness. By the time a country grows rich, money has an almost negligible effect. An increase from $30,000 to $33,000 in per capita income only leads to a 0.06 point increase in a nation’s happiness.

Q: What are some of the highlights of the Index? Which countries rank top in promoting prosperity?

A: Finland tops the Index, with the U.S. ranking ninth out of 104 countries in the Index, ahead of large European nations such as Britain, Germany and France, which all still make the top 20. Finland is narrowly ahead of Switzerland, Sweden and Denmark; Zimbabwe ranks last, following Yemen and Sudan.

Q: Is the Prosperity Index a quality of life Index?

A: The Prosperity Index differs from a quality of life study in its scope and objective. Quality of life studies tend to focus on individual-level indicators that impact a person's life, such as life expectancy, job status, marital status, or recreational opportunities. These factors are very important to citizens' well being, and therefore, the Prosperity Index includes them, but the Index also looks at aggregate measures that affect prosperity at the country-level such as trade performance, mortality and malnutrition rates, levels of corruption, and educational enrolment rates. It is common knowledge that quality of life is dependent on factors that directly affect an individual's life, but a person's ability to enjoy a good quality of life is also highly affected by key conditions of his or her society and government. Consequently, the Prosperity Index aims to assess a country's progress towards wealth and wellbeing, as well as citizens' levels of satisfaction about the state of this progress.

Key Rankings


Q: What factors, particularly, have propelled countries to the top rankings?

A: The top 10 countries in the Index have consistently high rankings in most, if not all, of the sub-indexes. In particular, they perform especially well in both of the sub-indexes that assess democratic governance’s effects on economic growth and quality of life. High levels of personal freedom and social capital are also consistent traits in the top countries.

Q: What are the findings for the US or regions such as Africa or Asia?

A: The US ranks 9th overall, though it is the top-ranked country among the world’s 25 most populous nations. It leads the world in entrepreneurship and innovation, and it ranks 2nd globally on how well its democratic institutions foster an environment conducive to economic growth. It also ranks especially high on its educational institutions’ effect on economic growth, and on the way in which personal freedom and social capital affect quality of life. Africa, as a whole, anchors the bottom of the Index, mired by very low governance and health rankings. South Africa and Botswana are the exceptions, ranking 51st and 56th respectively. Asian countries generally tend to perform better on economic measures than on measures of governance, freedom and social capital, with Hong Kong and Singapore as the primary examples. Asia’s main story in this year’s Index is that India, ranked 46th, significantly outpaces China, which ranks 75th. India’s superior performance in governance, freedom, and social capital indicators propels it higher than China, whose poor performance in those same areas hurts its otherwise fairly impressive showing on economic measures.

Q: Some countries have a wide variation between their material wealth and well-being rankings, while others are almost the same. What does that tell us?

A: First, that every country is unique – even among our three first-ranked nations we see significant difference in the composition of their ranking. This study has been specifically designed to encourage interaction with the data at a granular level, with the flexibility to compare multiple countries and indicators with one another in real-time.

Q: Why does Hong Kong rank 1st on economic fundamentals but only 18th overall?

A: Hong Kong’s strong showing on several economic indicators is counterbalanced by low scores on governance’s effects on economic growth and on personal freedom. Hong Kong’s educational and social capital ranks also exert a downward pull on its overall performance in the Index.

Q: Is there any hope for Zimbabwe, ranked last in the Index?

A: While no country has poor scores in every category, Zimbabwe comes closest. For most of the countries in the bottom ranks of the Index, extreme poverty appears to be the main cause. This usually has further wellbeing impacts by contributing to ill health and unemployment. A number of countries, such as Yemen and Sudan, are both impoverished and politically repressive. A remedy for countries like Zimbabwe is to improve governance, reduce corruption, increase civil and individual liberties and improve investor confidence. Without doing this, these countries are unlikely to emerge from their bottom ranking for some time.

Progress

Q: Who’s moving up and down this year compared to last year’s Index?

A: While the principles behind the 2009 Index are the same as last year, the datasets and methodology are not identical, and therefore direct comparisons between years are potentially misleading. This year, the data comprises 79 different variables, distilled into nine different sub-indexes, each of which has been identified as a foundation of prosperity. However, when the same methodology used in the 2009 Index is applied to 2008, we find that there is very little movement in rankings among the top 20 countries, with more movement in rankings for countries in the bottom half. This is not surprising, given the volatility that marks transitioning and developing nations.

Q: Some of the lower scores seem to reflect ingrained cultural attitudes – for example, the lack of personal freedom in the majority of Asian countries. How can countries address this and move up the rankings?

A: While some of these issues may indeed by cultural, the Index shows us that they are also personal – and claimed as reasons for reductions in perceived life satisfaction. There are no “quick-fixes”, which is one of the reasons we have analyzed data over a full 40 year period. There are a number of clear indicators for each country, some of which will be more immediately actionable than others. We are hopeful that recent progress towards higher standards of corporate governance will soon be reflected in the material wealth rankings.

Q: Which countries do you think will make the most progress in the next 5 years?

A: Because the Index is produced by analysing data over the course of several years for each country, the top-performing countries are likely to remain the strongest, in general, over the next several years. Brazil and India also show signs of strength and continued growth.

Methodology

Q: How did you collect the data and generate the rankings?

A: We worked in partnership with Oxford Analytica, a leading independent research consultancy. The Index is produced using a quantitative approach and includes only factors for which a statistical link with material wealth or life satisfaction can be shown. Drawing on the Gallup World Poll and other data, the Index assesses 104 countries this year. The Index consists of 9 sub-indexes, which together include 79 variables that indicate a relationship with either economic growth or quality of life. Hundreds of additional variables were tested and excluded if they did not show a significant relationship to growth and wellbeing. The sub-indexes assign a score to each country, which is then used to assign that country’s rank on the given sub-index. The nine sub-indexes are equally weighted and averaged to produce the final rankings.

Q. How is the methodology behind the Index different from last year?

A: While the underlying principles of prosperity behind the Index remain the same, some things have changed. First, this year’s Index uses 79 variables that have a statistically demonstrated link to either economic growth or subjective well-being, almost twice as many variables as last year’s Index, which used 44. Second, this year’s version is an “index of indexes”: nine sub-indexes on specific topics were created by testing the 79 variables. The nine sub-indexes were equally weighted and averaged to produce the final rankings. Third, we have eliminated some indicators used in previous years – the impact of climate, for example - whose correlation to predictions of prosperity is less robust.

Q: Has the Index been independently reviewed?

A: Legatum engaged a panel of academic experts who specialise in the study of prosperity to review and edit the Index. These experts represent a wide range of scholars and researchers, from leading academic institutions, in disciplines from economics to political science and more. The Index is increasingly quoted by learned authorities and used as a credible reference in studies on wealth and wellbeing.

Q: The Index looks at 104 countries, as it did in 2008. Are there any plans to further expand the study?

A: The Index covers 90 percent of the world’s population and covers as many countries as the available data will allow. We will add countries in the future as Gallup World Poll expands their coverage and as additional data for additional countries become available.

Legatum-related

Q: What is the Legatum Institute and what does it do?

A: The Legatum Institute is an independent research, policy, and advocacy organisation that promotes political, economic and individual liberty with a special focus on the developing and transitioning world. It supports original work in public policy, political economy, democratic governance, political culture, and national security and seeks to influence policy-makers, business leaders, philanthropists, scholars, and the interested public.

Q: Who is Legatum?

A: Legatum is a global investment organisation with a twenty-year history, and applies its investment experience to allocate capital where it may deliver exceptional returns in the international capital markets, in programmes that promote sustainable human development, and in advocacy for enlightened public policy environments which provide for the creation and extension of global prosperity.

The Legatum Group is composed of : Legatum Capital; Legatum Ventures; the Legatum Institute; Legatum Center at MIT; Legatum Foundation.