THE LEGATUM PROSPERITY INDEX™ 2016

Bringing Prosperity to Life

Canada

Ranked 5th of 149

At a glance

Ranks

5 th on the Legatum
Prosperity Index™

13th
3rd
9th
14th
16th
22nd
2nd
3rd
19th

SUB-INDEX RANKINGS

In the Prosperity Sub-Index rankings, Canada performs best on Personal Freedom and Business Environment and scores lowest on the Safety & Security sub-index.

Visit our Rankings table to see how Canada compares to other countries.

Prosperity Gap

The ‘Prosperity Gap’ takes a country's GDP and uses it as the yardstick to measure a nation's expected Prosperity Index ranking.

Like other free, developed, liberal democracies, Canada has a sizeable prosperity surplus, the 4th largest in the world. However, the size of the surplus has fallen over ten percent from its peak in 2012.

Note:
In the chart above, each dot represents a country. The curve shows the general tendency with which prosperity increases as GDP per capita increases. If a country falls below the curve, then we can say that compared to all other countries, it is under-delivering prosperity for its citizens. Likewise, if a country rises above the curve, then we can say that it is over-delivering prosperity for its citizens. Learn more about the Prosperity Gap here.

Alternatively, have a look at the Prosperity Gap view on our Rankings table for a full list of countries and to see how each of them are performing on the various sub-indices.

Commentary

The underlying strength of Canada’s consistent prosperity performance is structural: institutional and social capital that helps secure prosperity.

Its democratic institutions, strong rule of law, and effective government all contribute to its top ten placing in Governance. Levels of tolerance that place it among the most tolerant countries in the world as well as legal changes such as the legalisation of gay marriage ensure that Canada has always placed in the top two for Personal Freedom. Strong family and friendship networks, coupled with high levels of trust and respect have pushed Canada into the top three for Social Capital.

On top of this strong structural foundation, Canada has been steadily improving its business environment, rising from 7th in 2007 to 3rd in 2016 in the Business Environment sub-index. Much of this can be attributed to deliberate policy choices by government. Programmes like Connecting Canadians have seen notable improvement in Canada’s broadband infrastructure. Greater labour market flexibility, particularly lowered redundancy costs, has also helped to drive Canada’s business environment up the rankings.

However, while other top ten countries like New Zealand, the UK, and Switzerland have been steadily improving absolute levels of prosperity in their country, Canada’s has been rather more static.

Ten year % change in real prosperity by country
While other top ten countries have been steadily improving absolute levels of prosperity in their country, Canada’s has been rather more static.

This stagnation of prosperity growth, despite strong underlying fundamentals and improvements in the Business Environment sub-index, is a result of economic performance and weakening indicators in Health and Education.

Canada’s gradual term decline in the Economic Quality sub-index is not unexpected. Unemployment remains stubbornly above 6% and crept closer to 7% in the second quarter of 2016. Low oil prices are ensuring that economic growth is confined to oil-consuming provinces, while the adjustment in oil-producing provinces like Alberta continue to drive economic contraction. Despite this, the sentiments of Canadians towards their living standards are broadly static. 84% are satisfied with their standard of living, the same as in 2007 and 49% can live comfortably on their income. Canada has done well in insulating its citizens as far as possible from the effects of the tumultuous economic path of the last ten years.

The decline in this sub-index comes not from the direct effects of economic insecurity, but rather from a concerning trend toward a more closed, protectionist economy. Pre-crisis, Canada was 34th globally in terms of low trade barriers. It is now 77th, behind China, parts of Sub-Saharan Africa, and parts of Eastern Europe. Much of this market distortion comes from agriculture. The same pattern can be seen in anti-monopoly policy, where Canada has fallen from 15th to 20th. Whilst certainly limiting Canada’s immediate prosperity growth, it is also highly damaging for future prosperity, closing off the country to the long-run economic benefits of trade and openness.

The economy is not the only area where Canada is losing its competitive edge. In Education, Canada has slipped three ranks to 14th over the past ten years. Whilst the education system remains in the top fifth of the world when it comes to the results it produces, areas like vocational education remain weak. In real terms, Canada has been slowly improving on Education, but at a slower rate than other nations who have overtaken it, namely Austria, Singapore, and the UK. In Health, a similar trend is seen, driven by rising diabetes and obesity rates. All provide further warning for long-term prosperity.

The resilience of Canada’s prosperity over the last ten years is the impressive result of its strong structural foundations. Yet there are a number of early warning signs that sustaining a top five finish in the future may be harder to achieve unless the changes captured by the Index are reversed.


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Data

How to read this graph:
When comparing multiple countries on a spider chart, data points that appear
further away from the center represent a better performance to the points that are closer to the center.

Special Analysis

Special Analysis

OVERALL

Canada has grown slightly more prosperous since 2007, but the slower pace of improvement is reflected in Canada falling one rank to 5th. It remains one of the most prosperous countries in the world, helped by an improving business environment and strong structural prosperity.

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Areas of Success
Areas of Success

Canada has posted a four rank improvement in the Business Environment sub-index over the last ten years to rank 3rd in 2016. This has been the result of a concerted policy effort to improve business infrastructure like broadband access, as well as improving labour market flexibility. This top five performance in the Business Environment is added to Personal Freedom (2nd) and Social Capital (3rd) as Canada’s strongest pillars of prosperity. Canada has also climbed into the top ten for Governance over the last ten years, ranking 9th in 2016, largely a result of improvements to an already strong regulatory environment and rule of law.

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Areas of Little Change
Areas of Little Change

Little movement has been recorded by the Index in Canada’s two strongest areas of prosperity: Personal Freedom and Social Capital, where performance has been consistently good. Further down Canada’s rankings, Education and Health have been fairly static, with a small three and two rank decline respectively. Little top line change, however, masks deeper problems in these sub-indices that have the potential to affect long-term prosperity growth.

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Areas of Improvement
Areas of Improvement

In Health, while satisfaction with healthcare and personal health is on the rise, so are indicators like obesity and diabetes. In Education, key measures like vocational education remain low. These are key policy areas where improvements could help drive prosperity. However, the main area for concern in Canada is Economic Quality, where increasing trade barriers and weakening anti-monopoly policy are making the economy slowly less competitive. Attention should also be paid to the Environment sub-index, where wastewater treatment rates have fallen from 79% to 70%, and Canada has slipped ten ranks overall from its peak to 19th.