Market Digest

Personal freedom, security, and good health are a recipe for success; internal security and safety concerns and poor governance limit overall prosperity

The third edition of the Legatum Prosperity Index, published today, ranks 104 countries (covering 90% of the world’s population), based on a definition of prosperity that combines economic growth together with measures of happiness and quality of life.

The highest ranking South American countries are Uruguay, Chile and Argentina at 33rd, 36th, and 38th place respectively, whose citizens all claim high levels of personal freedom. The lowest performing country in the region is Venezuela which is placed at 74th on the Index, narrowly led by Bolivia (73rd) and Ecuador (71st).

“The Legatum Prosperity Index is the world’s only global assessment of wealth and wellbeing,” said Dr. William Inboden, Senior Vice President of the Legatum Institute. “Across South America, countries with high scores for Democratic Institutions and Personal Freedom generally record a strong overall ranking for prosperity,” he continued. “Furthermore, countries which have low levels of internal safety and security, such as Venezuela, finish lower in the overall rankings. This strongly suggests that a country can improve its prosperity by promoting the fundamentals of life satisfaction as much as the standard measurements of wealth such as GDP,” concluded Dr. Inboden.

The success of countries like Uruguay, Chile and Brazil in promoting economic growth and personal freedoms can be linked to their commitment to embrace human development and market freedom which fosters overall prosperity. In contrast, the lower rankings of Venezuela, Bolivia and Ecuador reflect their populist rulers’ policies that stifle business by nationalising entire industries once they become profitable and whose cities are characterised by high levels of crime.

Key Findings from the 2009 Legatum Prosperity Index

• Finland tops the overall Index, followed by several European nations such as Britain, Germany and France, as well as the US and Canada which all make the top 20.

• Chile ranks highest among South American countries on Economic Fundamentals while Bolivia and Nicaragua perform lowest on this sub-index.

• Costa Rica scores highest on variables which foster entrepreneurship and innovation which resulted in nearly 4,000 new businesses being created in 2007.

• With the exception of Uruguay and Chile, no South (or Central) American country ranks in the top third of the Index for levels of security with Colombia receiving the lowest possible ranking, globally, on this sub-index. Countries that score lowest on this sub-index tend to be characterised by high rates of homicide, assault, state sponsored violence, internal conflict and human flight.

• Among the lowest ranking countries on measures of stability within democratic institutions are Honduras, Ecuador, Venezuela, and Colombia with the latter three also ranking lowest among South American countries in the Safety & Security sub-index which measures variables such as the homicide rate, the prevalence of state sponsored violence, and human flight.

• The countries which rank lowest in terms of health are Peru, Nicaragua and Bolivia, all of which have high levels of infant mortality and only one hospital bed per 1000 citizens.

• Uruguay ranks very well at 14th in the world on levels of personal freedom, as does Brazil at 16th.

• Venezuela’s low rank comes from its poor showings on Economic Fundamentals, Entrepreneurship and Innovation, Safety and Security, and Governance – the latter in which it ranks 101st, among the worst in the world.

• When compared to Central America, South American countries score comparatively high for levels of education, although when compared globally, these rankings are still only average.

• Low levels of trust between South Americans and a reluctance to rely on family and friends in times of need bring down the overall social capital score among South American countries. Peru ranks last out of all 104 countries on this sub-index.

The Prosperity Index identifies nine key factors that drive economic growth and personal wellbeing, which are the foundations of prosperity. Each of these nine factors is represented in a sub-index and a country’s final Prosperity Index ranking is generated by averaging its scores across all nine sub-indexes, equally weighted. More information on the Prosperity Index, including full country rankings, background on data and methodology, and profiles of each country can be found at www.prosperity.com.

The 2009 Legatum Prosperity Index is based on statistical analysis of more than 40 years of data for more than 100 countries worldwide, produced and supervised by the Legatum Institute, with input from the research consultancy Oxford Analytica and a panel of respected academic advisors in the fields of economics, history, development, sociology, and political science.

TOP TWENTY COUNTRIES
1. Finland
2. Switzerland
3. Sweden
4. Denmark
5. Norway
6. Australia
7. Canada
8. Netherlands
9. United States
10. New Zealand
11. Ireland
12. United Kingdom
13. Belgium
14. Germany
15. Austria
16. Japan
17. France
18. Hong Kong
19. Spain
20. Slovenia

TOP TWENTY COUNTRIES SOUTH AMERICA/CARIBBEAN
32. Costa Rica
33. Uruguay
36. Chile
38. Argentina
40. Trinidad & Tobago
41. Brazil
42. Panama
49. Jamaica
52. Belize
54. Dominican republic
57. Paraguay
60. El Salvador
61. Peru
65. Colombia
66. Honduras
67. Guatemala
71. Ecuador
72. Nicaragua
73. Bolivia
74. Venezuela

BOTTOM TEN COUNTRIES
95. Kenya
96. Algeria
97. Tanzania
98. Nigeria
99. Pakistan
100. Cameroon
101. Central African Republic
102. Yemen
103. Sudan
104. Zimbabwe

How the Index is constructed

The Prosperity Index accounts for 90 percent of the world’s population, using a combination of objective data and subjective responses to surveys. This data comprises 79 different variables, and each is then distilled into one of the nine different sub-indexes identified as a foundation of prosperity. A country’s performance in each sub-index is given a score, and the overall Prosperity Index rankings are produced by averaging the equally-weighted scores of the 9 sub-indexes for each country. Those countries that perform well across each sub-index score highest in the overall rankings.

The nine foundations of prosperity that define successful nations are:
Economic Fundamentals – a growing, sound economy that provides opportunities for wealth creation
Entrepreneurship and Innovation - an environment friendly to new enterprises and the commercialisation of new ideas
Education – an accessible, high-quality educational system that fosters human development
Democratic Institutions - transparent and accountable governing institutions that promote economic growth
Governance – an honest and effective government that preserves order and encourages productive citizenship
Health - the physical well-being of the populace
Personal Freedom – the degree to which individuals can choose the course of their lives
Security - a safe environment in which people can pursue opportunity
Social Capital – trustworthiness in relationships and strong communities

Source: Legatum