Norway tops a prosperity index: how to read the ranking
Norway came first again in the annual Legatum Prosperity Index, and also headed the list of countries with the best economy. Switzerland was second, followed by Canada, Sweden, New Zealand, Denmark, Australia, Finland, the Netherlands and Luxembourg. Among the 142 countries assessed, both the United States and the United Kingdom slipped — by eleven and sixteen places respectively — on the back of economic decline. Jeffrey Gedmin, then president and chief executive of the Legatum Institute, noted that many countries had seen continuous growth in wealth and welfare over the previous five years, while war and unrest in the Middle East and parts of Africa showed that the improvement was not universal.
What is actually being measured
The index is a composite, and composites are only as interesting as their ingredients. This one is built from assessments of the economy, the public sector, entrepreneurship, health, safety, personal freedom and social capital. Two of those deserve attention because they are what separate a prosperity index from a league table of national income.
Social capital measures whether people trust each other and their institutions, volunteer, and can rely on someone in a crisis. Personal freedom covers the rights that make a wealthy country liveable rather than merely rich. A country can buy a good health score and cannot buy either of those, which is why the Nordic countries do well in this kind of ranking and why oil revenue alone does not explain Norway's position.
Why a change of place is usually not news
The most over-reported feature of every index is movement. A country that falls eleven places has not become eleven places worse; it has changed a few points on a handful of indicators while its neighbours in the table changed theirs, and in the crowded middle of a list of 142 countries a small shift moves a nation a long way.
The same caution applies at the top. The gap between the first and the fifth place in any prosperity index is regularly smaller than the margin of error on its own components. What is meaningful is the shape over a decade — whether a country is steadily improving on health and freedom, or holding a high position on the strength of one sector's earnings.
The honest use of a top spot
For Norwegian readers there is a familiar pattern to these announcements: a headline, a week of national satisfaction, and no policy consequence. The more useful reading is to look for the sub-index where the country does worst rather than the overall place where it does best, because that is the only part of the report that contains information a government did not already have.
Indices are also written by institutes with worldviews, and that belongs in the reading. An index built by people who prize entrepreneurship and personal freedom will rank countries accordingly; one built around inequality would produce a different top ten. Both can be accurate. Neither is a verdict, and no country is the best place in the world to live because a table says so.
