Each year, the London-based Legatum Institute publishes its global “Prosperity Index.”
Legatum measures the overall prosperity of 167 nations to create this annual ranking.
Its approach is rooted in contrast measures that focus solely on economic might, like per capita gross domestic product (GDP).
Still, most Americans would be surprised and disappointed to learn that the United States not only fails to rank the highest in the world… but barely breaks into the world’s top 20.
Part of this is due to the size differences between the United States and the countries ahead of it.
But part of it also reveals some shocking and embarrassing weaknesses…
The World in the Long Shadow of COVID-19
As it entered the year 2020, the world had never been more prosperous.
That all changed with the outbreak of the COVID-19 pandemic.
Global mortality soared in 2020 and 2021, reaching a scale not seen in Western Europe since World War II.
Meanwhile, the International Monetary Fund reported that the global economy contracted by nearly 3% in 2020.
That was the largest contraction ever recorded – more than double the one experienced during the global financial crisis of 2008.
In total, some 147 countries experienced a fall in GDP per capita.
Governments across the globe borrowed trillions to support businesses and individuals in the early months of the pandemic.
Before the pandemic began, government debt exceeded 100% of GDP in just 15 countries.
By 2020, however, that figure had nearly doubled to 28.
Yes, the world has rebounded somewhat by 2022. But there is no doubt that the past two years were a painful gut punch to most countries.
Ranking the World’s Most Prosperous Countries
Before we dig into the rankings, let’s define what they measure.
For Legatum, “prosperity” is about more than the size of a nation’s GDP.
Its methodology ranks a country’s broader measures of prosperity across 12 pillars. These include factors like safety and security, investment environment, health, and education.
Still, Legatum’s ranking of the world’s most prosperous countries offers few surprises. As a rule, the richer the country, the higher its ranking.
The five most prosperous countries in the world in 2021 were Denmark, Norway, Sweden, Finland and Switzerland.
The top 15 countries are dominated by former British Commonwealth countries (Canada, Australia and New Zealand), Scandinavia and German-speaking nations.
Surprisingly, the United States ranks a lowly No. 20 – behind Estonia, a country that was part of the former Soviet Union as recently as 1989.
As it turns out, the U.S. consistently ranks comparatively low across similar surveys.
Legatum’s Prosperity Index broadly overlaps the older United Nations’ Human Development Index, which also ranks Norway No. 1 and the U.S. No. 17 in its most recent report.
I once believed that these surveys had a deep-seated anti-U.S. bias…
Then I realized that (with few exceptions) the countries ranked ahead of the U.S. were tiny.
Not one of the top five countries in the Legatum Index have a population greater than New York City’s.
My back-of-the-envelope calculations confirm that you can add the populations of all 19 countries (excluding Japan) ahead of the U.S. on the Legatum Index…
And you still won’t total the U.S. population of 330 million.
Viewing States as Countries
In ranking the U.S. as a whole, Legatum ignores the fact that the U.S. is a large and diverse country.
A far fairer exercise would be to rank individual U.S. states as countries.
After all, the European Union thinks of itself as the United States of Europe.
So to compare apples to apples, we should compare U.S. states with European countries.
Let’s start with the Scandinavian countries – the most prosperous region in the world in Legatum’s Prosperity Index.
Norway’s population of 5.4 million is a bit larger than South Carolina’s.
Finland’s population of 5.5 million makes the country another Minnesota.
And Denmark’s population of 5.8 million is like Wisconsin’s.
If you live in Minnesota or Wisconsin, you or your neighbor will likely have a Scandinavian last name.
So let’s compare the per capita gross state product (GSP) of the United States’ Scandinavian cousins with the per capita GDP of those in the “old country.”
As it turns out, Wisconsin’s per capita GSP comfortably exceeds No. 3 Finland’s per capita GDP. And Minnesota’s per capita wealth easily matches that of a very prosperous Sweden.
And if Washington, D.C., were a country, it would be the wealthiest on the planet, with a per capita GDP of $160,000 – twice that of No. 1 Norway.
How the United States Is Different
Despite its shortcomings, Legatum’s prosperity ranking does provide some critical – and uncomfortable – insights into the United States.
On the positive side, the U.S. ranks fourth for “enterprise conditions” and “infrastructure and market access.”
As the U.S. is home to New York City and Silicon Valley, this high ranking should be no surprise.
The U.S. is a great place to do business and get rich.
On the negative side, the U.S. ranks low in the “safety and security” category, at just 69th worldwide.
This also makes sense.
The high murder rates in St. Louis, Baltimore and Detroit are unthinkable in any other developed country.
In “living conditions” – which includes measures of inequality – the U.S. ranks a mere 68th in the world.
Americans are willing to tolerate higher wealth disparities than most developed nations.
What’s the lesson?
Yes, the U.S. ranks surprisingly low on broad measures of “prosperity” (Legatum) and “human development” (United Nations).
But the devil is in the details.
Legatum’s results ignore the fact that there is significant variation among different regions of the United States.
In Western Europe, a similar divide exists between Northern and Southern Europe. For example, Denmark is seven times as wealthy as fellow European Union member Bulgaria.
The studies lumping together such a wide geographic area tilt the results against the U.S.
Still, the Legatum Prosperity Index reminds us that, yes, the U.S. has its share of problems.
Violent crime, vast disparities in income, and the costs of higher education and healthcare mean that an average American may have it tougher than their counterparts in many other countries, particularly those in Northern and Western Europe.
What do you think of Legatum’s rankings?