25 November 2019

Economic policy alone does not guarantee prosperity


We hear so much bad news every day that it’s important to stop and celebrate good news: global prosperity has been rising since 2007, reaching its highest level in 2019.

The Legatum Prosperity Index™ has tracked prosperity for 13 consecutive years and 2019 is the best year yet. We measure prosperity in 167 countries, covering more than 99% of the world’s population. Using almost 300 country-level indicators, the data shows that 148 countries have become more prosperous in the last decade.

Why is this? The short answer is that the rise in global prosperity has been driven by more open economies and improvements in the quality of people’s lived experience, in most countries around the world. For example, since 2009, 160 countries have enjoyed an aggregate improvement across health, education, and living conditions, and 146 countries have seen an improvement in the openness of their economy.

How is the UK doing?

The UK has maintained its position in and around the top 10 most prosperous countries throughout the last 10 years, ranking 11th overall and 9th for economic openness in 2019. This is thanks in large part to a world-class environment for investment and enterprise. The UK is one of the best places to start a business, ranking 6th for enterprise conditions, with a low burden of regulation and a dynamic, flexible labour force.

We rank 4th for investment environment, offering robust investor protection and a strong financing ecosystem. We are also in the top 10 for market access and infrastructure, with advanced communications and transport infrastructure. Only in economic quality does the UK fare less well, ranking 15th in 2019, due to high national debt, low savings and low growth rates, and faltering competitiveness from a narrowing diversity of exports.

This robust economic story, combined with consistently strong rule of law and government effectiveness, has contributed to the steady improvement in prosperity over the last 10 years. But economic success is the not the full story. The UK in 2019 is facing some new social challenges and will need to address them to ensure such high levels of prosperity are maintained in the future.

The Index shows that the UK’s social capital is improving overall and ranks a respectable 14th in the world, but there are cracks appearing, with an alarming level of deterioration in two important measures. First, the strength of personal and family relationships has deteriorated, with the country dropping 25 places in the global rankings in the last 10 years, down to 56th. Second, the strength of social networks – meaning, the ability to make friends and the extent to which people help others and feel respected – has declined in the rankings from 29th in 2009 to 52nd this year.

Furthermore, institutional trust, while improving, is also relatively low (44th in the world), revealing people’s lack of trust in local police, the judicial system, financial institutions, and politicians. In common with much of Western Europe, people’s confidence in national government is a notable weakness in the UK, achieving a rank of just 108th in 2019, although this is up from a record low of 132nd in 2009 in the aftermath of the financial crisis.

Both these formal and informal structures (personal relationships and institutional trust) are vital elements of any nation’s prosperity. Strong families and cohesive communities are cornerstones of building a society in which people help each other, are protected in times of need, and enjoy a sense of belonging. Personal and family relationships, strong social networks, and a shared trust in institutions are the invisible glue that holds society together.

We should be concerned about these cracks appearing in social capital. We believe they are warning signs that require prompt attention before they deepen. One of the over-arching lessons from the Index is that prosperity is hard won and requires strength in each of the three key domains – institutional, economic, and social wellbeing – so they work together, holistically, like the three legs of a stool. Nations prosper when they create effective institutions, an open economy, and empowered people who are safe, healthy and well-educated – when all individuals can reach their full potential in an inclusive society.

This breakdown of relationships in the UK is not insoluble or irreversible, especially when there is much to learn from other developed nations about how to improve. It is interesting, for example, that so many of the Nordic countries rank in the top 10 for overall prosperity (namely, Denmark, Norway, Finland, and Iceland) as well as in the top 10 for family and personal relationships. The data shows that a lot these nations do better than the UK to support and connect their people. We believe the UK needs a new focus and collaboration across local and national government, communities, and individuals to recognise the challenge, and act to solve it.

The lived experience of UK citizens has improved marginally over the past decade, with education and health both performing well and improving. But we should not be blind to social issues such as very high obesity levels (the UK ranks 144th in the world), rising levels of suicide (61st), and poor mental health (79th). We can all take more responsibility and make time to offer help and support, within our own family and friendship groups, our communities, and our workplaces, and we must demand more action in the public square.

Economic openness cannot be relied upon indefinitely to do the heavy lifting for delivering the UK’s overall prosperity. The strength of personal and social relationships, social norms, and civic participation are also essential components of a prosperous society. We need to recognise that these things are at risk of faltering in the UK and act now to prevent further decline.

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Baroness Philippa Stroud is CEO of the Legatum Institute