THE LEGATUM PROSPERITY INDEX™ 2016

Bringing Prosperity to Life

Executive summary

The Legatum Prosperity Index™ has now been running for a decade. One of its greatest strengths is that it is not just a snapshot in time. Capitalising on ten years' worth of data, we can evaluate long-term changes in prosperity, pinpointing the drivers of progress and highlighting those nations that have made the greatest strides in turning their wealth into greater prosperity.

It is no surprise to find that the bottom of our prosperity table is largely populated by the world's poorest countries and the top is dominated by the world's richest. However, this does not tell the whole story. Prosperity is as much about wellbeing as it is about wealth. There are numerous factors that together determine the life chances and opportunities made available to a nation's citizens.

This year, the report itself goes beyond rankings and looks at how well countries deliver prosperity in relation to their wealth levels. Using GDP per capita, the level of prosperity delivered by a country can be compared with the level of prosperity expected given that country's wealth. It is here that countries performing most impressively can be identified, with those delivering more prosperity than would be expected given their wealth described as having a ‘prosperity surplus' and those delivering less, a ‘prosperity deficit'. For this reason, poor countries can do extremely well in delivering prosperity, enjoying a prosperity surplus, while rich ones may lag far behind, experiencing a prosperity deficit.

Prosperity is not just about wealth
New Zealand (1st) turns less wealth into much more prosperity than the US (17th).

Different paths to prosperity

New Zealand is the world's top-ranked country. Over the past decade it has consistently delivered a large prosperity surplus through the combination of a strong society, free and open markets, and high levels of personal freedom. This path to prosperity is shared by other developed Commonwealth countries and has proved the most effective at delivering prosperity.

One such Commonwealth nation, the United Kingdom, ranks third in the world in the delivery of prosperity, higher than richer nations such as Germany and the United States. However, the UK, while successful in prosperity generation, is less successful in sharing its prosperity equally among its citizens-a failure that is widely seen elsewhere in Western Europe and the US.

The United States has consistently delivered a prosperity surplus over the past decade, but that surplus is falling as prosperity stagnates.

The United States has consistently delivered a prosperity surplus over the past decade, but that surplus is falling as prosperity stagnates. This stagnation, combined with a sense that globalisation has left many behind, has caused discontent among Americans, who are turning to populism as a quick remedy. A similar story is playing out across Europe, as a rising tide of populism threatens to undermine what has long been one of the world's most prosperous regions.

The two biggest drivers of global prosperity growth over the past ten years have been the world's most populous nations, China andIndia, where many millions have been moved from poverty onto the road to prosperity. The success of these nations is the result of economic liberalisation and integration into the global economy, but both face severe environmental issues and each has developed a markedly different prosperity profile. China's Governance and Personal Freedom performance remains weak, while Health and Education have held India back.

Obstacles to prosperity

The fact that wealth does not equate to prosperity is seen very clearly in those countries that have large oil reserves. Over the past decade the Gulf states have consistently failed to deliver prosperity proportionate to their wealth though the UAE is starting to set itself apart, while Venezuela has one of the largest prosperity deficits in the world.

The biggest barriers to prosperity, as always, are war and other forms of violence. Some of the least prosperous countries in the world - Iraq, Yemen, and Libya - are all currently afflicted by civil war. In Latin America, the great social and economic progress made in recent years is threatened by high levels of drug-related and other violence. Another great obstacle to prosperity-corruption-is found worldwide, and is as destructive in European countries such as Italy as it is elsewhere.

Changing regional prosperity 2007-2016

Prosperity, region by region

In Sub-Saharan Africa prosperity is growing, yet remains below the world average. Commodity-dependent economies continue to struggle, though the Business Environment has generally improved. Education and Health have improved but remain the region's biggest obstacles on its path to prosperity.

Citizens of Europe are among the healthiest, wealthiest, and safest in the world. Globally, 15 of the top 20 countries are European. However, ongoing economic turmoil in the eurozone, the refugee crisis, and Britain's vote to leave the EU have exposed divisions that threaten further progress.

In the Middle East and North Africa (MENA), oil-rich Gulf states are striving to diversify their economies, but all continue to under-deliver prosperity to their citizens. No other region has experienced such devastating effects of war; the three least prosperous countries in MENA (Iraq, Yemen, and Libya) are all mired in civil war. In North Africa, meanwhile, the Arab Spring has set countries on different prosperity trajectories.

In Asia and the Pacific, we find four of the five countries with the largest real prosperity gains: Cambodia, Sri Lanka, Indonesia, and Nepal. We also find China and India, whose rapid economic growth has lifted hundreds of millions out of poverty, substantially raising global prosperity. Meanwhile, Australia and New Zealand, which have long enjoyed similar levels of prosperity, have diverged in the past six years.

North America has seen marked stagnation over the past decade. Canadian prosperity has risen marginally, while US prosperity is no different in 2016 than it was in 2007. In both Canada and the US, declining performance in Health and Safety & Security is undermining gains made elsewhere.

Latin America has undergone a deep social and economic transformation over the past ten years. While this transformation has seen gains in education, democracy, and poverty, Latin America has not learned how to deliver greater prosperity with its wealth. It is still not delivering enough prosperity to its citizens compared to some less wealthy Asian countries.