THE LEGATUM PROSPERITY INDEX™ 2020

Creating the Pathways from Poverty to Prosperity

Executive Summary of the 2020 Prosperity Index

The Legatum Institute’s 2020 Prosperity Index measures prosperity in 167 countries across the globe, which together contain 99.4% of the world’s population. Almost 300 country-level indicators, grouped into 66 policy-focused elements, are used to comprehensively and holistically measure the current state of prosperity, and how it has changed since 2010 around the world.

As well as tracking the performance of nations to date, the Prosperity Index also provides an invaluable framework for nations to assess their strengths and weaknesses as they chart their way through and out of the COVID-19 pandemic. This will help them determine the strategic choices that need to be made to further build inclusive societies, open economies, and empowered people to drive greater levels of prosperity for all their citizens.

The key findings from this year's report are:

  • In the decade prior to COVID-19, global prosperity had risen continuously, driven by people’s lived experience improving and by more open economies.
  • People’s lived experience improved due to better education and living conditions across all regions. Health also improved in all regions except for North America.
  • Economies had become more open due to improvements to communication and transport infrastructure, strengthened property rights, greater protections for investors, and increased access to finance.
  • The improvement in social capital also contributed to the increase in global prosperity, but further progress has been held back by governance and personal freedom stagnating.
  • A lack of contestability within domestic markets and extensive restrictions on international investment is acting as a brake on economies becoming more open across parts of the world.
  • The improvement in global prosperity in the last 12 months has not kept pace with the progress of the previous two years, as Asia-Pacific and Western Europe stalled, and North America deteriorated slightly.

It is sobering to think that the first case of COVID-19 was already present in the global population at the time we launched the 2019 Prosperity Index last November. Twelve months on, as we publish the 2020 Prosperity Index, the world is very different but the decade up until 2020 is one of growth.

In the decade prior to COVID-19, global prosperity had risen continuously, driven by people's lived experience improving and by more open economies.

The global challenges raised by COVID-19 are considerable, but we should be encouraged that, in the decade up until the pandemic struck, global prosperity continued to rise year-on-year, and stood at its highest ever level in 2020. All seven regions improved and, out of the 167 countries in the Index, 147 saw an improvement in their prosperity during this period, providing a solid foundation upon which to chart a way through and out of the current pandemic.

The improvement in prosperity has been driven by the lived experience of people improving, with all but seven countries seeing an improvement in the Empowered People domain, and more Open Economies across the globe, with 150 nations seeing an improvement in this domain.

Two of the most improved countries over the past decade are from the sub-Saharan Africa region (Côte d’Ivoire (124th) and Togo (140th)). The improvement in Côte d’Ivoire is broad and, following a peaceful election in 2015, has been achieved through the government adopting a National Development Plan that set out a range of social and economic reforms to be implemented during 2016-2020. As a result, governance has improved substantially in the country, with a 36-rank improvement for this pillar, and there has been a concomitant increase in confidence in government. The strengthening of the social contract seen in Côte d’Ivoire is further explored in the essay 'Why a strong social contract is perhaps the best means of tackling systemic corruption'. The country is also beginning to see the fruit of these reforms in its economy, with a 28-rank rise in the Open Economies domain since 2010. As a result of the institutional, economic, and social improvements Côte d’Ivoire has made, it has moved up 21 places in the prosperity rankings since 2010.

Côte d’Ivoire is exemplary of the correlation that we see between improvements in government effectiveness and improvements in open economies, which we also see across sub-Saharan Africa, the Middle East and North Africa, and Eastern Europe.

The increase in global prosperity over the past decade is the result of many countries like Côte d’Ivoire making conscious choices that have led to their economies becoming more open and improving the lived experience of their citizens.

People's lived experience improved due to better education and living conditions across all regions. Health also improved in all regions except for North America

Near-universal progress in health over the past decade, with all but 12 countries, including the United States, seeing an improvement, has contributed to the rise in global prosperity.

Expansions in immunisation programmes for diphtheria, measles, and hepatitis have resulted in a greater percentage of the global population being inoculated against these life-threatening diseases. This, together with antenatal care now covering over 90% of women across the globe, has led to the improvement seen in preventative interventions. In India (101st), for example, which saw a 41 rank rise in this health element, only 29% of the population were vaccinated against hepatitis in 2010, but this increased to 89% in 2020, and those inoculated against diphtheria also increased to 89%, up from 70% in 2010.

Global health also improved as a result of the number of healthcare practitioners increasing, with more births being attended by a healthcare professional than a decade previously, and the treatment for tuberculosis being expanded. It is not surprising that as a result of preventative interventions and care systems improving, we also see global mortality rates decreasing across all the key stages of life, and life expectancy at age 60 increasing. However, these improvements are now under threat as the health of many nations around the globe has been under considerable strain due to the pandemic.

A particular concern at the start of the year was how nations with less advanced healthcare systems would cope with the virus. However, we now know that the virus disproportionately affects the elderly and those with comorbidities. This demographic make-up is more commonly found in more developed countries — the median age in Italy is 47.3, whereas the median age across Africa is around 20, and the obesity rate in the United States stands at over 40%, compared to less than 10% in Africa - so it is generally the health systems of more developed nations that have been in greater danger of being overwhelmed.

The increase in global prosperity is also the result of better education, which improved as a result of better access: enrolment rates increased at each stage of the education system, with children starting education earlier and finishing later. Tertiary education, in particular, saw a big improvement in enrolment rates. In 2010, 31% of the global adult population enrolled in a higher educationcourse, but this had increased to 42% by 2020. The improvements in education have paid dividends, with the adult population becoming more skilled than a decade previously. Globally, over 85% of adults are now literate, four percentage points higher than in 2010.

Over the past decade, 150 countries have improved their education. We must now take care to ensure that these hard-fought-for gains are protected. The choices that are made by governments at this time will determine the future social wellbeing and economic prospects of a generation. One American study cites that today’s students in the U.S. can expect at least 3% lower lifetime earnings, as a result of the lower skill levels they will achieve. In addition, school closures are estimated to result in a 1.5% loss in the nation’s future GDP. This is equivalent to a total economic loss of $14.2 trillion in current dollars over the next 80 years. As many countries around the world head into yet further restrictions, prioritising keeping schools open safely is a must, to ensure today’s pupils are not further disadvantaged by this pandemic.

Living conditions have improved in all regions across the globe, which also contributed to the rise in prosperity. In particular, reductions in poverty across all measures, greater access to water and sanitation services, together with increased digital connectedness, have all contributed to the global improvement. Since 2010, 152 countries have improved the living conditions of their citizens, with four of the top five most improved countries in the Asia-Pacific region. Vietnam (73rd) improved the most, with poverty rates significantly reducing. For example, the percentage of the population that live on less than $3.20 a day has fallen from almost 50% a decade ago to less than 10% now, and the percentage that survive on less than $5.50 has reduced from nearly 80% of the population to less than 25%.

Despite this overall global improvement, 15 countries have seen a deterioration in living conditions, and it has been estimated that the pandemic could result in poverty rates increasing by as much as 10%, potentially setting back the hard-fought-for reductions by 20 years. If governments do not take the necessary steps to protect prosperity in their nation, then this is likely to be further exacerbated — decision makers need to remain mindful of what builds prosperity even in these difficult days.

Economies had become more open due to improvements to communication and transport infrastructure, strengthened property rights, greater protections for investors, and increased access to finance.

The expansion of communications infrastructure across the globe is the main reason for the improvement in the Open Economies domain over the past decade, with all countries apart from Sweden, having a stronger performance in the Communications element in 2020 than in 2010. Global network coverage for mobile phones expanded, with nearly 90% of the population having potential access to 2G, 3G, or 4G networks, and over 50% of the global population using the internet, up from 23% a decade previously.

Strengthened communications infrastructure has helped to drive prosperity, with global mobile phone networks expanding to cover nearly 90% of the world's population and more than half of the world now use the internet - compared to a quarter of a decade ago

These strengthened communication networks have increased the potential for commerce, mobile banking, and social connectedness all around the world, in ways not imaginable a generation ago, and have also enabled many businesses to keep operating during government-imposed lockdowns. Improvements to transport infrastructure also contributed to economies becoming more open, with 124 countries improving since 2010, primarily due to greater connectivity through improvements to roads, airports, and shipping. These combined improvements have led 160 of 167 countries to have improved in the Market Access and Infrastructure pillar over the last decade.

There have also been improvements to the Investment Environment pillar. Many of the protections that are necessary to provide investors with the confidence to invest — property rights, investor protections, contract enforcement — have also improved in many nations. We also see that the financing ecosystem, the extent to which finance is made available to business, has also improved in recent years. Outside of North America and Western Europe (these being regions where property rights are already well established), improvements in property rights are strongly associated with improvements in prosperity, particularly in Eastern Europe and the Middle East and North Africa.

In addition, the Environment for Business Creation element, which measures how easy it is to start and grow a business with access to the right labour market and that ensures businesses are protected, has also improved, which is coupled with a reduction in the amount of time and effort businesses spend complying with regulations. For example, in Morocco (96th), the average number of tax payments a business submits per year has fallen from 28 to 6, which is concordant with over a 50% reduction in the hours a business spends filling in tax returns. The percentage of time businesses spend in complying with regulations has also reduced from 11% to 5%. Many governments around the world recognise the benefits of streamlining and simplifying regulatory and tax compliance and have taken the steps to make improvements. Compared with 2010, 134 countries have seen an improvement in the Burden of Regulation element. These improvements not only benefit businesses, but also the civil servants that administer compliance, so they are relatively well implemented without contention or challenge.

The improvement in social capital also contributed to the increase in global prosperity, but further progress has been held back by governance and personal freedom stagnating

Stronger social networks, greater trust in others and in institutions, and increased participation and engagement in society have all contributed to the global improvement in the Social Capital pillar and to the rise in global prosperity over the past decade. This improvement, however, is predominately being driven by Asia-Pacific and Eastern Europe, with North America seeing a slight decline. As part of our work on the U.S., we explore the deterioration in social capital across the 50 states of the Union and Washington D.C. in our United States Prosperity Index.

However, governance across the world has stagnated over the past decade and is holding back further increases in prosperity. There is, however, a mixed performance in the elements within this pillar. Government integrity has strengthened, with Kyrgyzstan (90th) and Argentina (63rd) improving the most, as has the rule of law in recent years, whereas political accountability and executive constraints — which measures the checks and balances on the elected government and their officials — have weakened, particularly in the latest years. Turkey (94th), Poland (36th), and Hungary (46th) have seen the greatest deterioration across these elements. In our previous reports we have demonstrated the importance of establishing good governance to drive a strong economy, and this is yet again confirmed by the 2020 Index. Of the 80 nations that saw an improvement in their governance in the 2020 Prosperity Index, 77 also saw an improvement in the openness of their economy.

Further improvement in global prosperity is also being held back by personal freedoms stagnating. We see that the freedom to speak and access information and the freedom to assemble and associate have both weakened over the past decade, with 121 and 116 countries respectively seeing a deterioration in these areas. Regionally, there is a considerable difference in the performance of personal freedom, with Eastern Europe and the Middle East and North Africa seeing a big deterioration since 2010, with 14 (out of 23) and 11 (out of 19) countries deteriorating in those regions, but Western Europe improving with 16 (out of 20) countries having stronger personal freedoms than in 2010.

A lack of contestability within domestic markets and extensive restrictions on international investment is acting as a brake on economies becoming more open across parts of the world

While many nations have been willing to make changes that make starting and operating a business easier, there has been a worldwide deterioration in the openness and contestability of domestic markets. Addressing vested interests, enabling new participants to enter markets, and increasing competition would reverse this decline. For example, countries that have taken steps to remove these barriers and experienced the biggest improvement over the past decade in domestic market contestability are Guinea (139th) and Côte d’Ivoire (124th). Similarly, over the past decade there have been increased restrictions on international investment in more than 100 countries. Auspiciously, examples of restrictions being reduced can be found all around the world, including for example, Cambodia (118th), Cabo Verde (75th), and Albania (67th).

The improvement in global prosperity in the last 12 months has not kept pace with the progress of the previous two years, as Asia-Pacific and Western Europe stalled, and North America deteriorated slightly

Global prosperity increased year-on-year between 2010 and 2020, but the rate of progress slowed considerably over the past 12 months. While 86% of the global population lived in countries that experienced an increase in their prosperity between 2017 and 2018, and 81% lived in countries that saw increased prosperity between 2018 and 2019, only 61% of people lived in countries that saw an improvement between 2019 and 2020. This slowdown in the rate of prosperity improvement is a concern, especially given it capture the year leading up to when the pandemic struck.

The increase in global prosperity over the past decade has been driven predominantly by the improvement across Asia-Pacific, with 8 of the 15 most improved countries globally located in that region.

Over the past year, however, the region has seen a slowdown in its prosperity improvement, due to a deterioration in safety and security, personal freedom, economic quality, and education, together with a slower rate of improvement in enterprise conditions and market access and infrastructure.

In particular, a number of highly populous countries in the region have seen a deterioration in personal freedoms over the past year, including India (101st), Philippines (83rd), Pakistan (139th), and Bangladesh (123rd), mainly due to the freedom to associate, assemble and speak being eroded. Hong Kong (17th) has seen the biggest decline in personal freedom across the region and has seen the 5th biggest decline globally over the past year. This is a pressing concern given that countries in the Asia-Pacific region generally have weaker personal freedoms than would be expected for their overall level of prosperity, and the response to the virus risks holding back improvement in this area.

The slowdown in Asia-Pacific is concerning given the potential impact of the virus, but perhaps of greater concern is the deterioration in North American prosperity and stagnation in Western European prosperity over the latest year. In contrast to Asia-Pacific, these historically successful regions are starting to see a potential turning point in the quality of their investment environment and enterprise conditions.

The economic structures in these nations have been under the spotlight, and need to be urgently reset to increase the levels of entrepreneurship, innovation, and dynamism that these regions and the whole world needs, to help restoreprosperity following the pandemic. There was also a deterioration in education across North America in the year prior to the pandemic, with secondary and tertiary education weakening. School and university closures as states went into lockdown will only further exacerbate this deterioration and all must be done to keep these educational institutions open safely.

Conclusion

A decade of continuously improving prosperity provides a solid foundation upon which to build for the future. Although the world has changed dramatically in the year since the release of our last Index, how prosperity is generated and perpetuated within a nation is unchanged. While many nations continue to grapple with the social, economic, and health impacts of COVID-19, choices need to be made that are likely to have longer-term consequences.

Now, more than ever, is the time for governments to show decisive and effective leadership. Success is dependent upon the full involvement and engagement of society.

As each nation navigates its way through and out of the pandemic, good governance will be crucial in creating more prosperous societies. Now, more than ever, is the time for governments to show decisive and effective leadership. An autocratic approach will not solve the challenges. Success is dependent upon the full involvement and engagement of society where personal freedoms are protected. Innovation and dynamism will be critical to forging strong economies following the disruption of the pandemic.

Further strengthening investor protections, removing vested interests, and opening up to international financial markets will enable businesses to start, grow, and flourish, creating sustained economic growth.

Education must also be prioritised, so that people can reach their full potential and meet the labour market demands of the future. Healthcare systems must protect immunisation programmes and support people as they take care of their own physical and mental health needs, and everybody should be mindful and respectful of the potential impact on others as they exercise their freedoms.

For a time such as this, the Prosperity Index functions as a transformational tool that provides leaders of nations with a holistic and comprehensive framework that can inform the strategic choices that need to be made, that will further build inclusive societies and more open economies, and improve the lived experience of all citizens, to drive greater levels of prosperity around the world.