Democracy, in the form of “accountable governance,” is one of the primary drivers of prosperity, according to a major new survey.
Some 27 out of the top 30 countries in Legatum Institute’s prosperity index are democracies, although India, the world’s largest democracy, fell ten places since 2009 due to a decline in the quality of governance.
The index measures global prosperity by benchmarking 142 countries in eight categories: economy, education, entrepreneurship and opportunity, governance, health, personal freedom, safety and security and social capital.
Social democracies dominate the top ten in the latest rankings (see below), with the Nordic states of Norway, Denmark and Sweden coming first, second and third on the index, and Australia and New Zealand ranking fourth and fifth respectively. The United States fell out of the top ten for the first time.
With the exception of Singapore (19th), the world’s authoritarian regimes perform poorly, with China ranked at 55th, Russia 66th, Venezuela 80th and Iran 102nd.
“Now, perhaps more than any time in recent history, we need to re-examine our values and principles,” the survey suggests.
“What should be the priorities for policymakers responding to the economic crisis in its various guises? Are there insights or lessons for countries that are undergoing political and economic transitions? What are the fundamental pillars of prosperity?”
The key drivers of prosperity are accountable governance and entrepreneurship, the survey finds. This is particularly true for the top 50 countries, whereas for developing countries, health and education play a more crucial role. The Index finds that good governance and entrepreneurship tend to go together and reinforce each other, generating a virtuous cycle.
Despite the most severe financial crisis in modern times, citizen uprisings that have toppled some of the world’s most autocratic regimes, protests and riots that have erupted around the world, global prosperity has increased across all regions of the world over the last four years.
But safety and security are decreasing, the survey reveals. This has been driven by Arab Spring countries such as Tunisia, Yemen, and Egypt and by Latin American countries such as Mexico, Paraguay, and Honduras. In fact, the Latin American region is one of the worst performers for citizen safety, driven by extremely high rates of assault and theft.
Asia is still rising, with Hong Kong, Singapore, and Taiwan all ranking in the top ten for the Economy and in the top 20 overall. Further, Asia receives the second highest inflow of Foreign Direct Investment as a percentage of GDP and East Asia is the second largest exporter globally.
Asia’s Tiger Cubs are also emerging, with Vietnam, Thailand, Indonesia, and Malaysia nipping at the heels of the regional leaders. Indonesia, for example, has experienced the largest increase in prosperity, globally, since 2009, moving up 26 positions to 63rd.
The survey’s Governance sub-index assesses levels of government corruption and competition, and citizens’ confidence in the honesty of elections, the judicial system, and the military Stable and democratic governing institutions safeguard political and economic freedom and create an environment of civic participation, leading to higher levels of income and wellbeing.
Government stability and accountability benefit citizens’ wellbeing. Further relevant factors include people’s perception of how well the government addresses poverty and preserves the environment. Academic research has found that, in general, political freedom, strong institutions, and regulatory quality contribute significantly to economic growth. Effective, fair, and accountable governments increase public confidence, and, ultimately, result in higher levels of life satisfaction among citizens.
Both Costa Rica and Botswana, for example, stand above their regional neighbors in the 2012 Prosperity Index. One reason for this lies in the strength of their institutions, which have undoubtedly benefitted from advantageous historical moments where political leaders have made difficult choices to commit to developing democratic institutions.
As neighboring countries seek their own paths to prosperity, the institutional and government practices adopted by Costa Rica and Botswana, while not guaranteeing success in all other dimensions of development, strongly indicate a way forward.
First, both Costa Rica and Botswana have chosen to promote social welfare, provide for systems of public education, and secure political stability, which ultimately has led to protected property rights and rule of law enforcement. Moreover, they have pursued these policies within the political constraints of inclusive, constitutionally democratic institutions.
Second, thanks to their economic and political success, both countries have emerged as leaders in their regions, doing surprisingly well despite the unstable nature of the surrounding neighbors. Indeed, both receive high scores in the Personal Freedom and Governance sub-indices—scores which rival some high-income, developed countries.
Finally, while neighboring countries would benefit from emulating the political choices of these ‘high achievers’, this will require both the opportunities that history has afforded Costa Rica and Botswana, and a commitment to the creation of democratic and participatory institutions.
The above extract is taken from the 2012 Legatum Institute Prosperity Index.