Speech to Launch 2015 Prosperity Index

On Monday night, I gave a short speech marking the launch of the 2015 global Prosperity Index. In truth I was merely the warm-up act for Iain Duncan Smith. The video is below and I’ve provided a transcript of my remarks underneath.

The video starts with Sian Hansen, the Legatum Institute’s Executive Director. I’m at 1min50. Ian Duncan Smith begins at 8min15.

My remarks:

Welcome to the Legatum Institute’s Winter Reception, to mark the launch of the 2015 Global Prosperity Index.

We’re delighted that your all here. Chances are, if you a reasonably familiar with the Legatum Institute then you may well know of our Prosperity Index. For the benefit of those who are new – and as a refresher for those who are not – I’m going to spend a few minutes explaining what this thing is, and why it’s important. And then I’ll hand over to Iain Duncan Smith who will say a few words.

What is the Prosperity Index?

One way of looking at the Prosperity Index is that it is a data-rich, complex, and comprehensive way of ranking the nations of the world.

I could tell you that it includes 142 countries, covering 99% of global GDP and 97% of the world’s population.

I could tell you that for each of those 142 countries, the Index includes 89 individual indicators spread across 8 categories.

(The maths geniuses among us may have worked out that this adds up to more than 12,000 datapoints in any given year).

I could tell you that we use a combination of objective data and subjective data in order to capture a comprehensive measure of global prosperity.

I could tell you that this year Norway comes top; the UK 15th; and the U.S. 11th.

And all of that is true. But it’s not the whole story. In fact it’s not even the main story.

Because the Prosperity Index – fundamentally – is about people. It’s about how individuals in these countries experience their lives. It tells a human story. The charts and the graphs that point upwards tell us that, overall, conditions for people in those countries are improving.

And so yes, the Prosperity Index does tell us something about the world as a whole, but it’s about the individuals in those countries.

Why Produce a Prosperity Index?

Put simply, the Prosperity Index is an answer to a problem. The problem is this: the way we have traditionally measured the ‘success’ of nations is too narrow. Traditionally we use measures national wealth to determine success. Of course wealth is important but it’s not the whole picture. GDP is an incomplete measure of societal progress.

But don’t just take my word for it…

Simon Kuznets – the economist who created GDP…

The welfare of a nation can scarcely be inferred from a measurement of national income.

Nicholas Sarkozy, former French President…

It is time for our statistics system to put more emphasis on measuring the well-being of the population than on economic production.

Robert F Kennedy – speaking in 1968 – bemoaned the use of economic measures to assess national progress.

…the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.

Kennedy concluded by saying,

it measures everything in short, except that which makes life worthwhile.

And of course the American Founding Fathers included the “pursuit of happiness” as one of the fundamental tenets of the Declaration of Independence.

A little closer to home…

David Cameron…

I do think it’s high time we admitted that, taken on its own, GDP is an incomplete way of measuring a country’s progress.

And the list of quotes like this goes on and on.

To summarise: GDP can only tell us so much. It can tell us the average wealth of a country but it can’t tell us how that wealth was created.

It can’t tell us whether the citizens of that country are free.

It can’t tell us whether the government of that country is corrupt.

It can’t tell us whether children in that country have to walk 10 miles to go to school, or whether the education they receive when they get there is any good.

And it can’t tell us anything about the strength of social capital in that country.

Guess what folks? The Prosperity Index can!

The Prosperity Index gives us a broad perspective of our progress. And that’s important because the information we have affects the decisions we make. If we want governments – or indeed anyone – to make the right decisions (decisions that increase prosperity), they need to have the right data.

As the economist Joeseph Stiglitz put it (far more eloquently than me): what you measure affects what you do. If you have the wrong metrics, you strive for the wrong things.

We believe the Prosperity Index provides the right metrics in order that we might strive for the right things.

And that, in a nutshell, is what the Prosperity Index is – and why we do it. It is the definitive measure of global progress.

Please do take a copy away with you. The results this year are genuinely fascinating, often counter-intuitive, and of nothing else the report itself is laced with beautiful info graphics!

Before I introduce Iain, I’d like to make a special mention to the team here at Legatum who are responsible for the Index. Each one has worked heroically in recent months to produce the Index and once I’ve mentioned them all, perhaps you would all join me in thanking them in the traditional way. They are: Stephen, Harriet, Alexandra, Augustine, Fei, and Abi.

Iain Duncan Smith is the Secretary of State for Work and Pensions. As well as founding the Centre for Social Justice, he has been the leader of the Conservative Party and the Member of Parliament for Chingford & Woodford Green since 1992.

One of the governments big success stories of the past 5 years is the way it has turned around the British economy and in particular seen so many people get back into work. Much of the credit for that lays with Iain, and in particular the vision and leadership he has brought to the DWP. Although I’m sure he’ll be the first to admit there is still much work to be done, the story so far is quite extraordinary.

Secretary of State, it’s great to have you with us. The results of this year’s Prosperity Index validate many of the policies you and your department have been pursuing over the past 6 years. We’re delighted to have you here to help us launch it tonight. Ladies and Gentlemen, Iain Duncan Smith.

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Talk at the Brookings Institution

Last week I was in the US and spent time in Washington DC, Boston, and New York. I gave several talks and hosted various meetings including giving a talk and moderating a panel session at the Brookings Institution (video below).

The subject of the discussion was “Opportunity and Prosperity” and the four panellists were: Carol Graham (Brookings Institution), John Prideaux (The Economist), Richard Reeves (Brookings Institution), and Charles Murray (American Enterprise Institute).

 

This event page on the Brookings Institution website provides more detail about the event: http://www.brookings.edu/events/2014/11/18-prosperity-beyond-economic-growth

Can Money Buy Happiness?

Academically speaking, the answer to this question has, for a long time, been no. This is because of something called the Easterlin paradox – the theory that economic growth in a country does not result in greater happiness for citizens of that country.

But the theory is being challenged.

This week, writing in the Telegraph, Allister Heath cited two new academic papers that claim to disprove the Easterlin paradox. Both papers suggest that increased wealth does result in increased happiness.

The first paper cited by Heath is The New Stylized Facts about Income and Subjective Well-Being by Sacks, Stevenson, & Wolfers. This paper uses data on citizen’s life satisfaction from the Gallup World Poll and compares it against a measure of average income (real GDP per capita). The authors find that wellbeing does in fact rise with income. Moreover, the data show that the correlation stands within single countries, across countries, and over time.

The paper concludes with five “stylized facts” that include findings such as, “richer people report greater wellbeing than poorer people” and “richer countries have higher per capita well-being than poorer countries.”

The paper also offers an explain of why Easterlin came to the conclusions that he did in the 1970s: namely lack of data.

…[Easterlin] failed to find a statistically significant relationship between wellbeing and GDP …There was simply too little data to have the precision necessary to reach a conclusion in either direction.

The second paper cited in Heath’s article is The Easterlin illusion: economic growth does go with greater happiness by Ruut Veenhoven and Floris Vergunst.

This paper also finds that wellbeing rises with income. The authors reveal a positive correlation between GDP growth and a rise of in happiness in nations. They go on to say that both GDP and happiness have gone up in most nations, and average happiness has risen more in nations where the economy has grown the most.

So that’s it then. Money can buy you happiness after all. Or can it?

There remains a discussion as to whether disproving the Easterlin paradox is as simple as the two papers suggest. For example, wellbeing expert Carol Graham argues that it depends on the question that is asked in the survey.

Graham draws a distinction between life evaluation data and life experience data. Happiness data that capture citizens’ life evaluation correlate more closely with income compared to happiness data that capture life experience. This point is made by Daniel Kahneman and Angus Deaton here.

So can money buy happiness? It seems the jury is still out. Academically speaking, anyway.

 

**More on this, including helpful summaries and useful context, can found here and here.

 

Links of the Day…

A selection of articles that I have enjoyed over the last few days…

– The Credit Illusion, David Brooks in the NYT

– We Are Great Britain, Daily Telegraph Editorial

– Why We Should be Worried About Mali, Will Inboden on Foreign Policy

– Why Paul Ryan? Ross Douthat at the NYT

– Hedemonics or Humanomics? Carol Graham for the Brookings Institution

– Baroness Trumpington Interview, Daily Telegraph

– David Cameron’s Spanish holiday wardrobe continues to underwhelm, Daily Telegraph