Number One??Number One??

MEASURING NATIONAL PERFORMANCE
or 'Assessing the performance of nations - GDP per head is inadequate and inaccurate'

Metrics for rating success.

Most agencies that rate the relative performances of countries tend to focus on financial and economic metrics, such as productivity, economic growth, Gross Domestic Product per head, wealth creation and the 'flexibility' of the economy.

Poor old France.......

As an example, by these kinds of measures, the United States tends to score very highly and France rather poorly.
In fact, France is the butt of many economists and commentators as an object of pity and a degree of scorn - a kind of no-hope backwater, lagging in the great race of nations and in need of a heavy dose of good old neo-liberal free market reform - which it may be about to get under President Sarkosy.
Parallels are often drawn between France and the UK, usually concluding that France needs a serious dose of Thatcherism to raise it to the now-exalted levels of the British economy. But are economists measuring the right things - might there also be important dimensions not normally factored into 'success' equations, especially by the disciples of free-market economics.

Example - measuring 'success' by a mixed bag of measures:

France and the United States

Now, rate the two countries' 'success', using the range of measures given above. Your rating will probably depend on your values and opinions.

So, let's look at a larger group of developed countries, rated against a wide range of measures.

Some measures commonly used.

Economic Freedom: a ranking system based upon the degree to which a country's economy is judged by the US-based Heritage Foundation, supported by the Wall St. Journal to be 'free' in 10 dimensions:

Overall the US and UK and Ireland score highly on this Index - 4th, 6th and 7th respectively, whilst France scores very poorly - 45th. In a second tranche of countries, between 11th and 30th come Canada, Sweden, Norway, Finland, the Netherlands and Denmark.

GDP per head

This is a measure of the total Gross Domestic Product, usually quoted as equivalent purchasing power- corrected dollars to ensure comparability, divided by the number of the population. It gives no indication of such factors as inequality of income or the rich/poor ratios.
Rated by this measure, the US comes out at or near the top, with only tiny Luxembourg having a much higher score. In overall terms, the US leads, with a gaggle of countries including Ireland, Norway, Sweden, Denmark, Finland, Canada, UK, and France following.

Quality of Life Index - the Economist Intelligence Unit

This Index was compiled in the belief that simple economic measures such as GDP per head were not effective measures of the quality of life experienced by citizens of a country. Quality of life is used in this case as a composite measure to denote success.
The Economist Intelligence Unit index includes the following factors:

Readers may feel with the author that some of the measures are a little strange, but the index does begin to produce results different to those of the first two Indices.
Now, a cluster of countries, including Ireland, Norway, Sweden, Denmark and Finland lead the index, with a second group, including the US, Canada and Holland following. France and the UK trail some way behind.

Indices of human satisfaction and happiness.

There is a growing number of Indices that seek to measure the more qualitative aspects of the human experience. These do not major on financial wealth, but seek to identify those factors that go to make up a satisfactory and happy life. As such, they tend to be the domains of sociologists, social anthroplogists and psychologists and are treated with a degree of suspicion by some of the more purist economists.
There are many examples, such as indices of Social Trust - the degree to which people are prepared to trust others in their wider society and also the degree of trust placed in politicians, political and other institutions, like banks and corporations.
The Scandinavian countries, Holland and Canada tend to come at the top of these indices - some researchers say that there is a correlation between social, gender and financial equality and social trust and cohesion. Social cohesion is rated as a key factor in enabling collaborative, government and community-based enterprise to work best.

There is a Canadian Quality of Life Index, which from research identifies the factors that Canadians rate the most important.
These are:

An interesting angle on the use of such indices is that whilst 2/3 of Canadians rated working life as very important, only 1/3 were actually satisfied with their experiences of the working environment.

The Human Development Index

This UN-created Index combines a number of measures to produce a ranking:

In this Index, the top positions are occupied by Canada, Australia, Ireland and some Scandinavian countries: Norway, Iceland and Sweden. The US follows, but is downgraded from its 8th position because its GDP per head does not translate into superior performance on the other measures in the Index. Denmark and the UK (already quite low at 18th) are treated in a similar fashion, so the second grouping includes Holland, Finland and France.

The Happy Planet Index

As concerns grow about the state of the physical environment and in particular about the sustainability of the planet's resources, different measures and different values are beginning to appear.
To contrast the differences, conventional measures of economic performance focus on income, production, growth and consumption. On the other hand, rating countries by their human and environmental footprints means that purely economic, financial and growth-oriented measures of success would be balanced by such factors as human well-being and environmental impact. Rich, high consuming countries would be appraised by whether they were efficient users of the earth's resources in creating human well-being - they would have to pay attention to constraints on consumption and to rein in the freedom of their citizens to earn and consume as they wish. These kinds of restrictions are not acceptable to free-marketeers, who retain a touching faith in the wisdom of markets to manage everything, including the future of the planet.
Here is a quite different kind of Index, which may in time become a model for measuring the efficacy of countries' behaviour with regard to the welfare their citizens and of the planet.
The Happy Planet Index has been devised by the Think Tank the New Economics Foundation. This organisation performs serious research into social and economic matters and has excellent credentials.
The Index combines measures of Life Satisfaction, multiplied by Mean Life Expectancy at birth. This gives a composite measure that focuses on creating the conditions for long, happy lives. This well-being measure is then factored by the country's Ecological Footprint, which is based on a measure of the country's resource consumption.
The combined Index shows the relative efficiency with which nations convert the planet's natural resources into long and happy lives for their citizens.
The index claims to show that high levels of resource consumption do not reliably produce high levels of well-being and life satisfaction.
Countries' ratings against these measures come out quite differently to conventional GDP and economic growth indices.
Most of the developed countries come quite low in this index. The overall leader is Vanatu, a small Pacific island nation, with a moderate life expectancy, a happy, satisfied population and a low ecological footprint. Brazil, Iceland, Switzerland, Italy and Germany come in the middle of the rankings. The USA comes 150th because of the huge amount of resource consumption related to average life expectancy and life satisfaction compared with other countries. Bottom comes Zimbabwe at 178th.
Not unexpectedly, this Index arouses controversy, with one American blogger describing it as: "Just one of the lame attempts to describe the US as environmentally unfriendly".

Comment

We would start by stating that the rating of a country as 'good' or a desirable place to live depends on a wide range of factors and especially on your personal values.
So here is our take:

Individualistic societies

Communitarian societies

Where does Britain stand? Rather uneasily between the two comparators above. The UK now offers much opportunity for entrepreneurs and relatively low taxation and regulation, but with moderately good social services, educational and health provisions from local and national government. But inequalities of wealth and opportunity are rife, the old class and educational systems and the new moneyed elites have elided to exclude the majority. Social trust and cohesion appear to be rapidly eroding. Trust in government, business, and financial institutions is decreasing and is feeding on the 'ghettoisation' of society - as well as on inequality of opportunity, increasing differentials and decreased social mobility.

What lies behind the ways in which performance is measured?

It seems to us that underneath the statistics lie two sets of assumptions about what constitutes a 'good' country. It is interesting to observe that successful countries which fall into both categories seem to generate broadly similar GDP per capita - the differences between wealthy nations not being very significant. What may be more significant are the distribution of wealth within a society and the use of that wealth.

1. Countries with cultures that value community as a basis for a good society.

These cultures will tend to demonstrate a high level of social trust and trust in government and other institutions as acting for the public good. Citizens are willing to make sacrifices if they believe that the outcomes will be for the public good. They are also willing to shoulder relatively high taxes in order to benefit society. There is a concern with equality of opportunity and disapproval of extravagant displays of wealth and power. The quality of the world environment is a widespread concern.
Countries that fall into this category include Canada, Ireland, the Scandinavian bloc and Holland.

2. Countries with cultures that value individuals as the building blocks of society.

These cultures will put a high value on the freedom of individuals to act in their own interests. It is assumed that if as many people as possible seek to maximise their interests society as a whole will be enriched. 'Trickle-down' theory postulated the idea that wealth created by the rich and successful would find its way eventually to all without the need for redistributive tax regimes. Such cultures will usually dismiss governments' contribution to society and seek to restrict its cost and interference in the affairs of individuals. Apart from a very small number of activities like defence, government is not to be trusted as an executive agent. Individual or national interest is the paramount concern, weighing considerably more than wider global concerns.
The US is notable amongst such nations.

Interesting aside

A set of ideas to back the efficacy of individual-oriented societies emerged in the Cold War period in the form of 'Game Theory'. The basic idea behind Game Theory was that if all individuals sought to maximise their own interests, then the sum of all of these efforts would be a healthy balance. In Cold War terms, this meant that if the Soviet Union and the US both sought to build sufficient deterrent power to critically damage the opponent, then a balance of fear would be achieved in which neither side could win and war would be averted. Game theory was hugely elaborated in America, with complex mathematical models to guide action. After the Cold War period, the theory was applied to economic and social life, leading to the notion that if as many people as possible sought to maximise their interests society as a whole would benefit.
The United States under Ronald Reagan, both George Bushes and Britain under Margaret Thatcher and Tony Blair have tended to follow individualistic strategies, broadly based on the ideas of free-market economists and Game Theory.

In Conclusion

What you feel about the success and efficacy of different countries will depend heavily on your personal values and beliefs - which in turn will be influenced by your education and experiences. So, take your pick, it is probably better for commentators to stay out of the way because there are strong feelings out there!

SOME REFERENCES.

 Section index:
Reform		Next article ►
Free market economics
Go to top