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Friday, 15 July 2016 02:16

Is Australia Winning?

Everyone likes a race; whether it’s the Melbourne Cup, some sporting event or an election. Winning is fabulous, losing can be character building.

Prosperity Index

There crossed my desk (iPad) the other day the Prosperity Index produced by the Legatum Institute based in London.

Table 1 gives a listing for 2015 of the top ten countries, the bottom ten (of 142) and for interest the United States and the United Kingdom.

The scoring is based on eight sub-indices. Australia’s ranking together with Norway (the overall winner) is shown in Table 2, together with the sub-index winners.

Table 1 Prosperity Index

Country Rank Score
Norway 1 3.50
Switzerland 2 3.34
Denmark 3 3.27
New Zealand 4 3.25
Sweden 5 3.22
Canada 6 3.19
Australia 7 3.09
Netherlands 8 3.05
Finland 9 3.01
Ireland 10 2.97
United States 11 2.93
     
United Kingdom 15 2.72
     
Angola 133 (2.55)
Sudan 134 (2.55)
Yemen, Republic 135 (2.60)
Syrian Arab Republic 136 (2.61)
Congo, Democratic Republic 137 (2.66)
Burundi 138 (2.67)
Chad 139 (2.77)
Haiti 140 (2.82)
Afghanistan 141 (2.94)
Central African Republic 142 (3.55)

 Table 2 Prosperity sub-index rankings for Australia and Norway and overall winner

Sub-index Rank Winner (rank 1)
Australia Norway
Economy 12 4 Singapore
Entrepreneurship and opportunity 14 5 Sweden
Governance 10 8 Switzerland
Education 1 5 Australia
Health 15 4 United States
Safety and security 15 8 Hong Kong SAR
Personal freedom 9 3 Canada
Social capital 4 2 New Zealand

Look, we’ve won something; numero uno in education. Sorry to disappoint those of you in teaching but the sub-index is based on some statistical data like school attendance but without any reference to performance. More on this later.

Indeed I am not sure that education should have any place in this index. Education is all about future prosperity, not today’s.

One has to be sceptical that the United States is worthy of first place in health. This placing is almost certainly heavily influenced by expenditure per person which, for the United States, is more a reflection of high incomes for medicos rather than outcomes. The United States is the only OECD country without universal health care.

Drilling down into the detail is a fascinating yet frustrating experience. The economy sub-index doesn’t even include GDP per head or any other measure of income. The social capital sub-index is based totally on survey questions such as Donated money to charity in the past month? That is a meaningless question to ask simple villagers in a subsistence agricultural environment still common in the third world.

Human Development Index

Turning now to the United Nation’s Human Development Index Australia’s position looks much better (see Table 3).

Again, we are doing battle with Norway:and that country almost certainly wins because of the much higher gross national income due to North Sea oil. The data is for 2014; there has been a significant reduction in oil prices since.

Table 3 Human Development Index (HDI) 2014 rankings

Country Rank HDI
Norway 1 0.944
Australia 2 0.935
Switzerland 3 0.930
Denmark 4 0.923
Netherlands 5 0.922
Germany =6 0.916
Ireland =6 0.916
United States 8 0.915
Canada =9 0.913
New Zealand =9 0.913
     
United Kingdom 14 0.907

Strange is expected years of schooling (20.2 years for Australia and 17.5 years for Norway) which the United Nations says is:

The number of years of schooling that a child of school entrance age can expect to receive if prevailing patterns of age specific enrolment rates persist throughout the child’s life.

For this to be 20.2 years for Australia it looks like we are going to have most of the population between 20 and 25 studying for higher degrees at universities. This is ridiculous. It won’t happen.

Global Competitive Index

Now for a reality check. A very highly respected ranking is the World Economic Forum’s (Davos) Global Competitive Index.

Oh dear. We are a lowly 21st, even outranked by Malaysia (see Table 4). It must be made clear that this index is somewhat different to the others mentioned. From the report:

We define competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country. The level of productivity, in turn, sets the level of prosperity that can be reached by an economy.

My take on this is that it is attempting to measure things that determine prosperity, not prosperity itself.

The index has twelve pillars. Table 5 shows our rankings compared to the top three countries.

Table 4 Global Competitive Index 2015–16 rankings and 2014–15 comparisons

Country 2015–16 2014–15
Rank Score Rank
Switzerland 1 5.76 1
Singapore 2 5.68 2
United States 3 5.61 3
Germany 4 5.53 5
Netherlands 5 5.50 8
Japan 6 5.47 6
Hong Kong SAR 7 5.46 7
Finland 8 5.45 4
Sweden 9 5.43 10
United Kingdom 10 5.43 9
Norway 11 5.41 11
Denmark 12 5.32 13
Canada 13 5.31 15
Qatar 14 5.30 16
Taiwan 15 5.28 14
New Zealand 16 5.25 17
United Arab Emirates 17 5.24 12
Malaysia 18 5.23 20
Belgium 19 5.20 18
Luxembourg 20 5.20 19
Australia 21 5.15 22

 Table 5 GCI 2015–16 comparison of rankings between Australia, Switzerland, Singapore and United States

Pillars Ranking
Australia Switzerland Singapore United States
1 Institutions 19 7 2 28
2 Infrastructure 16 6 2 11
3 Macroeconomic environment 28 6 12 96
4 Health and primary education 9 11 2 46
5 Higher education and training 8 4 1 6
6 Goods market efficiency 27 9 1 16
7 Labour market efficiency 36 1 2 4
8 Financial market development 7 10 2 5
9 Technological readiness 21 2 5 17
10 Market size 22 39 35 2
11 Business sophistication 27 1 18 4
12 Innovation 23 1 9 4

Table 6 GCI 2015–16 comparison of macroeconomic environments between Australia, Switzerland, Singapore and United States

3rd pillar: Macroeconomic environment Ranking
Australia Switzerland Singapore United States
3.01 Government budget balance (% GDP) 83 21 6 114
3.02 Gross national savings (% GDP) 46 16 5 87
3.03 Inflation (annual % change) 1 64 1 1
3.04 Government debt (% GDP) 48 77 127 129
3.05 Country credit rating not show not show not show not show
Overall macroeconomic environment 28 6 12 96

Questions, questions, questions – many could be asked. An enormous amount of data is available to drill down into.

To take one aspect. The United States rates well on market size but why should Switzerland and Singapore be marked down because they are small? They both have good access to enormous nearby markets and in this day and age of low freight costs having a small domestic market doesn’t matter all that much.

Contrary to Legatum’s Prosperity Index Australia does not rank so well on education. For the fifth pillar Singapore is first, followed by Finland. We do well on secondary enrolment but badly on quality of the education system and quality of math and science education.

The United States and ourselves rank poorly on macroeconomic environment (see Table 6).

Measuring some of these items is fraught with difficulty and weighting them in an index can only be quite subjective. Switzerland’s inflation rate in 2015–16 was negative which must account for its poor ranking.

Global Peace Index

Last of our rankings is the Global Peace Index. This has a world-wide reputation but is of special interest to Australians as it is the brainchild of Australian technology entrepreneur Steve Killelea.

Table 7 shows the 2015 rankings – the top ten, Norway, United Kingdom and the United States, and the bottom three.

The report provides a very useful commentary on trends. It is peculiar that the United Kingdom’s ranking should improve with the withdrawal of its troops from Afghanistan; surely their presence there was a contributor to peace.

One wonders how well correlated peace and prosperity are. Quite closely one would have thought as countries that are not prosperous are very prone to internal strife.

It’s a pity that downloadable data is not available for analysis. The report though contains much useful information.

No matter what our ranking by the pundits, Australia is a good place to live. We have generally pleasant weather and those wanting space in the form of suburban houses with some land can find it at reasonable prices (not true of Singapore, for instance) and still access work and all the amenities that a city typically offers within reasonable travel times. Whether that is environmentally sustainable is a matter for debate.

Table 7 Global Peace Index 2015

Rank Country Score
1 Iceland 1.148
2 Denmark 1.150
3 Austria 1.198
4 New Zealand 1.221
5 Switzerland 1.275
6 Finland 1.277
7 Canada 1.287
8 Japan 1.322
9 Australia 1.329
10 Czech Republic 1.341
     
17 Norway 1.393
39 United Kingdom 1.685
     
94 United States 2.038
160 Afghanistan 3.427
162 Iraq 3.444
163 Syria 3.645

 

By Jim Wells