Prosperity Index measures not just wealth, but well-being too

KUALA LUMPUR: Measuring the growth of national wealth alone is not sufficient to determine a society’s progress. Today, a growing number of citizens are looking for more well-rounded indicators of a good quality of life.

To change the old conversation about growth, the Legatum Institute, a UK-based think tank, has developed a Prosperity Index that goes beyond the income numbers.

“The aim of the index is to measure national prosperity based on both wealth and well-being,” said its research analyst Nathan Gamester in an interview with The Edge Financial Daily recently. “We do look at traditional numbers like GDP growth and FDI but also citizens’ perceptions of situations like trust and tolerance.”

Malaysia ranks 43rd out of 110 countries in the latest edition of the Index, now in its fifth year, remaining in the same position for the last three years. However, its performance in eight sub-indices has mostly deteriorated, except in two areas — the economy (up four places) and social capital (up 15).
On the economic front, Malaysia climbed from the 21st spot in the 2010 index to the 17th in 2011. Credit for this goes to its high savings rate of 36%, coupled with a low inflation rate of 0.58% during the survey period, which spans 2010. Job market expectations rose 10% (to 53%) and expectations of the economy also trended upwards.

The biggest drop is in the personal freedom sub-index, in which Malaysia fell six places from the 90th spot in the 2010 index to the 96th place in the 2011 edition. Satisfaction with personal freedom is above the Index average of 77% but fell by 10% from 2010. In spite of its significant immigrant population, perceptions about Malaysia being a good place for immigrants to live is only at 22%, putting it at the 109th place globally, or one up from the bottom, while for ethnic minorities it is 63%, ranking at 66th place.

Statistical data used in the Prosperity Index is based on the World Bank’s World Development Indicators, while subjective survey data is based on the 2010 Gallup World Poll, which covers 154 countries. Starting with hundreds of indicators, the survey narrowed the field to 89 variables.

In Gamester’s words, national prosperity should mean more than how rich a country’s citizens are. It should include, among other things, happiness, freedom, access to social goods like education, healthcare and freedom of expression, to name some key indicators.
Gamester: You should be measuring how happy or satisfied citizens are.
Baker: The index assesses the degree to which each variable affects well-being and income.

A second aim is to look at the foundations of prosperity. “We’re not just trying to produce a rankings table, but also to look at the conditions that need to be changed, for example, a country’s policies, in order to achieve prosperity,” he said.

Legatum Institute research assistant Matt Baker added: “We go beyond economy, health and education and look at things like social capital and personal freedom. Data from the Gallup World Poll covers things like trust, rates of volunteering and donations, which are included in the social capital sub-index. Religious attendance is noted too, and that’s not necessarily to do with belief in God. There is academic research that suggests that religious attendance increases well-being because of the networks and friends that they have.”

Gamester noted that these “supercharged friends” are a source of strength and influence for many people who subscribe to organised religion.

To allow room for different analytical approaches, the index does not assign arbitrary weights to any sector. “We don’t say, for example, trust is more important than donations,” said Gamester. That way, the index allows its users to construct their own readings of the data in line with the importance they place on each of the sub-indices.

For each sub-index, two types of analysis are done. On the income side, GDP per capita (in US dollars based on purchasing power parity) is measured.

On the life satisfaction side, perceptions are weighed based on the findings of the Gallup Poll. “In layman’s terms, the index assesses the degree to which each variable affects well-being and income,” said Baker. (Details of definitions and criteria can be found at [You must be registered and logged in to see this link.]
In important ways, said Gamester, the Prosperity Index is a communications exercise. “It is a tool for people in countries to look at their rankings in governance or education in comparison with all these other countries, as an advocacy tool. It speaks to citizens, also to policymakers and politicians who look at policy issues,” he said.

Dwelling on the debate about what makes up well-being, Gamester observed that the issue is very much in the ascendency in a number of developed countries. Among them, the UK government has launched a well-being index, and the Sarkozy Commission has focused attention on the subject in France. “What we would say is that, well-being matters,” said Gamester. “You should be measuring how happy or satisfied citizens are. But there are two important distinctions. The first is we’re not just looking at emotional happiness. There has to be a level of well-being and satisfaction.

The other thing is it is important to make global comparisons as well.”

Comparisons between the West and Asia show interesting differences in subjective responses between the two regions. Said Baker: “Although people are talking about the rise of Asia, it actually tends to perform better on well-being measures than income ones. In the education sub-index, for example, enrolments tend to be lower than in the West, but the people’s satisfaction with the performance of educational institutions tends to be higher than in western countries.”

Malaysia is a good example of this, said Gamester. “Secondary education enrolment stands at 68%, which is globally below average, but perceptions of the education system are high, with 90% reporting that they are happy with the education system, and 94% thinking that their children have the opportunity to learn and grow every day at school. Both of these perceptions are in the top 10 globally,” he said.

Another stark example is in the area of safety and security. Malaysia ranks 53rd overall, declining two years running in this category. It came in at 49th in 2009 and 52nd in 2010. The paradox is that while the statistics for personal safety are good, with low rates of assault (3%) and low levels of property theft (10%), it is a different story where perceptions are concerned. Only 42% felt safe walking home at night, a drop of 9% since 2010.

This rating has fallen for the past two years.