THE LEGATUM PROSPERITY INDEX™ 2016

Bringing Prosperity to Life

Europe: Prosperity is rising: Why is it uneven between Western and Eastern Europe?

Europe has long been a region of stability and prosperity; its citizens are among the healthiest, wealthiest, and safest in the world. Globally, 15 of the top 20 countries are European: Norway (second) leads Western Europe, while Slovenia (20th) is the most prosperous country in Eastern Europe.

Our research has uncovered some surprising trends, however. Although overall prosperity in Europe has increased over the past decade, the effects of the 2008 global financial crisis are still being felt across the region.

Even more significantly, ongoing economic turmoil in the Eurozone, the refugee crisis, and Britain’s vote to leave the EU have exposed north–south and east–west divisions that threaten further progress.

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Overall, the Prosperity Index shows Eastern Europe converging with Western Europe, having improved its delivery of prosperity at a faster rate than western countries. But, at the same time, poor performance in Governance, Personal Freedom, and Social Capital means that the region is not as prosperous as it might be. The convergence with Western Europe, though steady, should be faster than it is.


Western Europe

Populist backlash against economic and social integration

Since the 2008 global financial crisis, the region has seen slower growth and many countries have declined in Economic Quality. However, with the exception of Greece, Cyprus, Italy, and Spain, Western Europe has maintained or even increased its delivery of prosperity. Finland, despite a considerable decrease in GDP per capita, has improved its prosperity levels, with the result that it now has the highest prosperity surplus in Europe.


One reason for Western Europe’s rising prosperity is the steady improvement in Personal Freedom as societies become more open and multicultural.

One reason for Western Europe’s rising prosperity is the steady improvement in Personal Freedom as societies become more open and multicultural. It is encouraging that tolerance towards immigrants and ethnic minorities does not appear to have declined over this period: in Germany, France, and the UK, 12 percent more people believe their country is a good place for immigrants than ten years ago.

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However, despite this evidence that tolerance of immigrants has increased, Northern Europe is witnessing a revival of right-wing, anti-immigrant populism in response to these economic and social changes. In Southern Europe, meanwhile, left-wing populist parties are benefiting from economic discontent within the Eurozone.


Eastern Europe
Prosperity held back by corruption

Business is booming, but Economic Quality has not followed.

Eastern Europe continues to lag behind Western Europe in all sub-indices of the Prosperity Index, though there have been notable improvements in Business Environment as post-communist states continue market reforms. Macedonia and Romania have made particular strides here: remarkably, Macedonia now ranks as the second-easiest country in the world in which to start a business after New Zealand.


Macedonia is currently the second-easiest country in the world to start a business
Macedonia is currently the second-easiest country in the world to start a business
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We might expect that improvements in Business Environment would lead to better Economic Quality. Yet this is often not the case. Why? The answer is that, despite rapid GDP per capita growth, this new wealth has not been distributed equally. Corruption continues to hamper the sharing of economic prosperity in a region where anti-monopoly laws are weak. Poverty is still a reality in Bulgaria, Moldova, and the non-EU Balkan states, where development has been uneven and favoured urban areas.


Performance in the Environment sub-index has also improved considerably, despite overall economic growth. This is notable given that other rapidly developing economies in Asia have made far less progress in combating air pollution or promoting conservation over the same time period. This development is largely due to Eastern European states catching up with EU environmental regulations, highlighting the importance of regional co-operation in the protection of the natural environment.


Performance in Governance and Social Capital has not converged with Western Europe

Corruption—especially, corrupt or compromised judges—holds back good governance in many parts of the region.

One of the keys to Eastern Europe’s prosperity deficit lies in its poor scores in Governance and Social Capital. Corruption—especially, corrupt or compromised judges—holds back good governance in many parts of the region. In Hungary, Governance has been falling as a consequence of the weakening of the independent judiciary by the current government.

An exception to this gloomy picture is Romania, which has made good progress in Governance. The anti-corruption agency set up in the country has jailed more corrupt politicians than in the rest of the region combined. As a result, it is moving towards prosperity faster than its neighbours.

Social Capital is also considerably lower than in Western Europe. Corruption is, again, perhaps one reason for this: there is less trust in law enforcement given the widespread bribery of officials. Civic participation in charitable organisations is hindered by lower disposable incomes. Depressingly, a quarter of a century after the end of the Soviet Union, the communist legacy of an eroded civil society still haunts the region