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U.S. Prosperity Is in Decline
The latest data on economic well-being show the biggest slide in entrepreneurship and opportunity. Businesses’ start-up costs are rising in the land of pioneers and patents.
When asked once about the state of the Russian economy, then President Boris Yeltsin responded with one word: “Good.” When asked to expand, Yeltsin paused, and responded gruffly with two words: “Not good.” A week before going to the polls, American voters have some idea of how this feels.
Earlier this month the Obama administration received good news: U.S. unemployment seems finally to be coming down. This week, however, the news is not so good. In fresh data on economic prosperity from countries around the world, the U.S. has fallen out of the Top 10 for the first time ever. If elections were decided by data, today’s findings would spell trouble for President Obama.
The 2012 Legatum Prosperity Index captures not simply the quarterly or annual ups and downs of the national economy, but rather long-term underlying components of national prosperity. Our findings suggest that the American Dream is in jeopardy.
The first problem is well-known. America has saddled itself with crippling debt and soaring entitlement spending. Couple these with projections of low growth—and possibly even another recession—and a bleak picture emerges.
But there’s more. For three-quarters of a century, gross domestic product has been single most important framework for evaluating economic success. In recent years, though, a “beyond GDP” debate has started. An increasing number of academics and policy makers around the world have been exploring the idea that there may be a more comprehensive and meaningful way to look at national prosperity. With 142 countries currently included, the Prosperity Index aims to paint a more complete picture of global prosperity than any other tool of its kind.
How does the picture look for the U.S.? The index identifies eight “foundations” for national success, including factors such as effective and accountable government, personal freedom, national security and personal safety. The news is not good for America. Across the eight components that make up the Index, the U.S. declines in five, including the economy, personal freedom, and entrepreneurship and opportunity. The biggest fall is in entrepreneurship and opportunity, which has declined eight places in the last four years. Businesses’ start-up costs are rising in the land of pioneers and patents. Fewer Americans believe that working hard will get them ahead.
The next U.S. president will also face a rapidly changing global environment. The rise of China speaks for itself, but the Prosperity Index also has Singapore, Taiwan, Hong Kong, Japan and Malaysia ranking within the top 15 countries in its economic rankings this year. Our index also reveals a new group of Asian up-and-comers: Vietnam, Thailand and Indonesia are on the move. Indonesia, the word’s most populous majority-Muslim nation, has experienced the largest increase in prosperity globally since 2009.
Times do change. It seems that even parts of Old Europe, the euro crisis notwithstanding, can teach America a thing or two. Norway, Denmark and Sweden top our rankings this year. Once upon a time the Scandinavians were world champions in big government and social spending. But bloated welfare states have been brought to heel in recent years. There has been deregulation and privatization: The Swedes even privatized air traffic control. Today Denmark has one of the most flexible labor markets in the world.
The path to prosperity is not a mathematical formula or an engineering problem. A country’s size, history and culture all matter. Nevertheless, the Index confirms what experience tells us. Decent, accountable government, rule of law, competition, opportunity and a regulatory environment and culture that promote liberty, responsibility and entrepreneurship are drivers of prosperity everywhere.
It is up to U.S. voters to decide next week whether Barack Obama or Mitt Romney have the right compass for America’s journey forward. We think the data of the 2012 Prosperity Index may offer a helpful map—and some warnings about the road ahead.
Mr. Gedmin is president and CEO of the London-based Legatum Institute, where Mr. Gamester is program director for the Prosperity Index.