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What is happening to Prosperity in 2023?

For the third consecutive year, the 2023 Legatum Prosperity Index finds that prosperity continues to plateau around the world, with the primary reason being a general trend towards the deterioration of institutions and democratic processes. This year, we find the following:

Basic needs are being met more than ever.

At the most elemental level, people’s lives have continued to improve around the world in the past decade, with the least prosperous countries seeing progress and catching up to the rest of the world in all aspects of Living Conditions, including nutrition, basic services, shelter, connectedness and protection from harm. Education has improved globally, with tertiary skills and adult skills experiencing a particular strengthening. Additionally, Health continues to improve and converge across all countries, despite the setbacks caused by the pandemic. Mortality rates are much lower today than they were 10 years ago.

The potential of the world’s least prosperous countries is not currently being realised.

While the world’s least prosperous countries have seen signs of improvement, they have greater potential than is being realised. Only four countries have moved out of the bottom 40 in the last 10 years. Outside of areas that are easier to get right with the help of technology and basic interventions, prosperity has diverged. In 6 out of 12 pillars, the bottom 40 countries have deteriorated, while, on average, the rest of the world has improved. While the group saw improvement in some areas, the progress was not fast enough to catch up to the rest of the world. Importantly, it is the deterioration of institutions and economies that has caused these countries to fall behind.

Over the last 10 years:

The percentage of people living on less than $5.50 a day has fallen globally from 57% to 47% globally and has halved in East Asia and the Pacific from 56% to 28%.

The percentage of children completing lower secondary school has risen from 74% to 80%. In Central and South Asia it has risen from 68% to 79%.

The mortality rate for children under five has fallen from 37 deaths to 26 deaths per 1,000 children. In Sub-Saharan Africa it has fallen from 98 deaths to 71 deaths per 1,000 children.

However, the lowest-ranked 40 countries in 2013 have also seen:

Two-sided conflicts deaths rise from 23,000 to 86,000.

GDP per capita growth fall from 2.0% to -0.1%.

The scope of their trade deals increase from 8% to only 12% of the global economy (while the top 40 have increased their trade deal access to foreign markets for goods from 31% of the global economy to 45%).

Fundamental weaknesses in the global economy impact last prosperous countries the most.

Recent economic shocks have exacerbated long-term structural weaknesses. There has been a slowdown in productivity growth that is felt not only by the Western economies but also by developing countries. The least prosperous countries are less well-positioned to counter these shocks than the rest. For example, the last decade has seen an increasing infrastructure gap between the least prosperous countries and the rest. Apart from in Asia, the countries at the bottom of the Index have not caught up with the rest of the world in productivity. Furthermore, while extensive trade deals allowed prosperous nations to gain access to almost half of the world’s markets, the bottom 40 countries have access to less than a third as much.

Fragile democracies and the deterioration of civil liberties are a global trend.

Regardless of whether elections are held in most countries, democratic practices have been backsliding around the world. Executive Constraints have deteriorated in every region, other than Western Europe, and the level to which executive powers are effectively limited by the judiciary and legislature has decreased. Many countries in Europe illustrate this trend, with their governments undertaking increasingly undemocratic practices.

The same is true of civil liberties. Over the last decade, Personal Freedoms have deteriorated in as many as 108 countries, with an increasing hostility towards freedom of assembly and association, freedom of speech and access to information. Censorship has become increasingly common around the world, including in democratic countries.

The return of realpolitik could have profound repercussions for prosperity.

The decline in democratic institutions comes at a time when democracies are being challenged externally by actors such as the Kremlin and Beijing. In the 1990s it was believed that liberal democracy had reached the ‘end of history’. However, today, with nationalist drums beating in the Taiwan Strait and Russian tanks trying to occupy Ukraine, the political and ideological map looks considerably different. Realpolitik is back and the liberal international order is facing a meaningful challenge for the first time since the Cold War. Many aspects of prosperity beyond just safety and security are now being determined by events in the international arena – including energy, trade, access to finance, education, health and even personal freedom.

If we were to see a rollback of globalisation in these fraught geopolitical times, it would have consequences for everyone. This year has showed the grave impact of the world’s dependence on Russia for energy and commodities, where global supply chain constraints have led to soaring inflation.

The most developed countries perform well but there are symptoms of malaise.

Looking at the top group of the Index and analysing the state of prosperity in the West, we find that in the most prosperous countries prosperity has plateaued. While in the long run, Western liberal democracies have consistently performed well across a range of metrics, there are also signs of fragility. There has been a plateauing and decline of real incomes of the working classes due to a failure to adjust to major economic shifts. As a result, three patterns have emerged: the growing sense of being ‘left behind’, citizens’ dissatisfaction with the performance of their democracies, and the rise of populism. Since the mid-1990s, the proportion of citizens who are ‘dissatisfied’ with the performance of democracy in their countries has risen by almost 10% globally.

The diverging economic trajectories within countries are combining in a harmful way with the decline in social capital. The symptoms of malaise, from rising loneliness and mental health struggles to declining institutional trust, are a consequence of the decline in the essential characteristics of a liberal democracy – virtue, community and national identity. And yet, there is a caveat to the story – in the rest of the world, social capital is on the rise, allowing more and more people to live in inclusive societies.