Prosperity in Central and Eastern Europe - Austria - 2016 A Legatum Institute Prosperity Report - Erste Group
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Prosperity in Central and Eastern Europe - Austria 2016 A Legatum Institute Prosperity Report
The Legatum Institute
The Legatum Institute is an international think
tank and educational charity focused on
understanding and measuring prosperity.
Over the past ten years, the Prosperity Index
team has acquired a vast amount of experience
in the design of indices - the collection,
standardisation, and presentation of data – and
their application in both the policy and business
fields.
The third edition of the The tenth edition of the The first edition of the
The Legatum Prosperity Index™, the Institute’s Africa Prosperity Report Legatum Prosperity UK Prosperity Index
Index™
signature publication, measures prosperity as
more than just the accumulation of material
wealth, but also the joy of everyday life and the
prospect of an even better life in the future.
The first edition of the
The Prosperity Index team has extensive Central and Eastern
experience in using indices to inform practical Europe Prosperity
recommendations in helping people lead more Report
prosperous lives.
The Legatum Prosperity Index™
The Legatum Prosperity Index™ is a global measure of prosperity
– wealth and wellbeing – across 149 countries globally, of which
16 are in Central and Eastern Europe.
The Index measures prosperity through the annual assessment
of each country’s performance across 104 variables that form
the nine ‘pillars’ (or sub-indices) of prosperity: Economic Quality,
Business Environment, Governance, Education, Health, Safety &
Security, Personal Freedom, Social Capital, and Natural
Environment
• The Index combines both objective and subjective data,
measuring not only how prosperous a country is, but how
prosperous its citizens feel.
• 2016 is the Index’s tenth edition. With a decade of data, the
Index is a unique global benchmarking tool, providing
governments with an insight into where they have delivered
for their citizens, where they have not, and why.
• Tracking performance over time, particularly in the context of
peer nations, the Index is also a powerful tool for citizens to
hold their governments to account.
Central and Eastern Europe Prosperity Rankings
Global Rankings (1st to 149th)
CEE PI Economic Business Safety & Personal Social
Country PI Rank Governance Education Health Environment
Rank Quality Environment Security Freedom Capital
1 Austria 15 11 20 15 11 25 9 23 15 12
2 Slovenia 20 30 60 38 23 35 14 20 22 1
3 Estonia 26 27 26 20 29 55 43 32 71 7
4 Czech Republic 27 26 30 34 24 27 27 28 78 32
5 Poland 34 37 45 36 33 47 21 39 85 46
6 Slovakia 36 46 49 48 30 46 23 43 86 34
7 Latvia 37 34 34 39 32 82 42 57 94 16
8 Lithuania 42 45 55 37 43 80 45 41 125 33
9 Croatia 43 61 89 44 37 56 31 38 113 30
10 Hungary 47 52 56 46 38 50 38 46 114 93
11 Romania 50 65 41 64 47 85 46 48 97 61
12 Macedonia 53 93 44 62 40 66 37 69 119 85
13 Bulgaria 57 73 71 78 39 91 48 66 111 41
14 Montenegro 58 96 52 59 52 69 35 54 117 125
15 Serbia 66 101 102 70 46 86 40 59 127 105
16 Albania 74 107 67 71 76 49 68 60 106 121
Austria strongest deliverer of prosperity in CEE
How much prosperity is delivered with wealth?
90
The only developed country in Central
Germany +13% Switzerland +13% and East Europe, Austria also leads in
80 both prosperity and wealth.
Prosperity Index Score, 2016
Austria + 11% Ranked at 15th globally in prosperity,
70
Austria also has the 15th biggest positive
prosperity surplus out of the 149
60 countries we cover.
CEE
Over-delivery: shows us that prosperity
50 is more than just income or wealth, and
that some countries, like Austria, are
able to deliver more prosperity given
40
their wealth levels.
30 Big prosperity surpluses are the true
0 20.000 40.000 60.000 80.000 100.000 120.000 140.000 160.000 success stories.
GDP per capita (PPP $), 2016
Austria’s prosperity is broad based…
Economic
Quality
85
80 Business
Environment
75 Environment
70
65
People in Austria enjoy a safe and free
60
society, high standards of education and
Social 55 health services, stable economic structures
Governance
Capital 50 with low level of unemployment and near
45 absence of poverty.
Personal
Education
Despite recent local corruption scandals,
Freedom
Austria in general enjoys a highly transparent
and stable political system, its clean and
Safety effective governance is the envy of most of
Health
& Security its neighbours to the east.
Austria Visegrad Germany… but Austria underperforms other wealthy countries in prosperity
To begin with, among countries at similar level of wealth, Austria has the smallest prosperity
surplus in 2016.… and has lagged behind its neighbours in growing prosperity
105
104
Prosperity Score, 2007=100
103
102
101
100
99
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
West Europe CEE Austria Germany
Moreover, while prosperity has been growing in CEE and Germany, it stagnated in Austria,
creating a sense of stasis.Social Capital decline is behind underperformance
Austria's Social Capital dropped by 8% since 2007
102
Austria’s overall Social Capital score – which
measures the strength of cohesion and
100
networks in society – dropped by 8% over
Social Capital score, 2007=100
the past decade.
98
96
It is rare for social capital to experience such
large movements – Austria’s drop was the
94
10th largest across the 149 countries covered
by the Prosperity Index.
92
90
Excluding Austria’s Social Capital sub-index
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
would raise its 2016 global ranking from 15th
to just shy of the top 10, at 12th place.What is Social Capital?
One of the Prosperity Index’s nine sub-indices – and a central one.
The Prosperity Index defines Social Capital into Four categories:
Trust: A central component of social capital is “trust”, which we can think
of as encompassing social trust and institutional trust. The first refers to
how widely and easily citizens trust each other. The second refers to the
degree to which citizens trust public institutions.
Family and Community: The CEE experience shows us that higher levels
of trust between immediate family and friends can compensate for low
levels of wider trust. We can refer to this component as “family and
community”, which measures the strength of informal networks connecting
families and friends together.
Civic Engagement: Social networks can also work through more formal
networks, such as volunteering and other charitable activities. We can
think of this component as “civic engagement”, which measures the
strength of formal bonds between citizens.
Civic Participation: Finally, we can think of the links between citizens and
public officials as the “civic participation” component. This measures how
involved and connected citizens are with their governing group.Economic not social change driving Social Capital decline
Austrians are growing increasinly tolerant Sluggish economic growth is straining social capital
% people with affirmative answer
% of people thinking Austria a good place for...
90% 0,8 4
69% 3
0,7
80% 78%
0,6 2
74%
Annual % growth
70% 68% 1
0,5 48%
60% 53% 45% 0
0,4
-1
50% 0,3
-2
51%
40% 0,2 -3
0,1 8% -4
30%
34%
0 -5
20% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
10% Annual GDP per capita growth (%, right hand axis)
0% Sending financial help to other household
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Donating to charitable cause
Ethnic minorities Immigrants LGBT groups
Contrary to recent headlines about the rise of populism and A sluggish economy both necessitates and limits inter-
heated debate on immigration, tolerance in Austrian society has household financial support and charitable donations. It is these
been rising, becoming the most socially liberal country in CEE. two components that account for the overall decline in Social
Capital.
Survey responses from Gallup World Poll: nationally representative sample of ~1,000 respondents conducted annually.Social Capital: Austria compared with Norway
Diffenrence in Social Capital Patterns between Norway and Austria
Helping
stranger
20%
Both having high level of Social
Donating 15%
Trust in Capital, Norway (6th) and
police
Austria (15th) have very similar
10%
patterns in most indicators
5%
under the sub-index.
Can rely on 0% Treated with
family or friends respect
-5% It is only in Donating and
Sending financial help to other
households, that the two
Making
Volunteering
friends countries are significantly
divergent. In both
Sending financial help Voicing measurements, Norway is 17
to other household opinions
percentage points ahead of
Austria.Social Capital can be improved independently of economy
The higher a country’s initial level of social capital, the smaller the economic shock
0%
Social capital is affected by economic
Economic Quality Score, peak to trough
forces, but isn’t a function of those forces
-2%
alone.
-4%
It softens the blow of economic disruption,
Austria
and can be improved independently of
-6%
economic forces.
-8%
Report highlights ways in which social
capital can be strengthened:
-10%
• Building institutional trust;
• Anti-corruption measures;
-12%
30 35 40 45 50 55 60 65 70 • Engagement of civil society, etc.
Social Capital Score, peak
What Austria is going through is a decline
Austria’s economic decline was large given its social capital starting point (as it in “Family & Community” and “Civic
falls slightly below the trend line), but the general tendency implies that it Engagement” social capital – policies need
would have been larger still if its initial social capital were weaker. to address these variables.Improving Social Capital has big prosperity pay-off
Reversing Austria's Social Capital decline would raise its overall prosperity
substantially
79
Besides being a component of
prosperity itself, Social Capital has
Predicted Prosperity Index Score
78
77
crucial links to other sub-indices
(trust in the business world and in
76
5th place globally governance, for example) that
75 amplify its effect on overall
74
prosperity.
73
72 Counterfactual: reversing Austria’s
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Social Capital decline over the
Predicted path of Prosperity Index score above is the application of a regression coefficient to the reversed trend of Austria’s observed past decade would see its global
Social Capital score decline between 2007 and 2016. The coefficient was estimated from an OLS regression of the PI on Social Capital
sub-index with year fixed effects, on the panel of CEE countries between 2007 and 2016: 0.68, significant at 1%. R2 0.81. prosperity ranking in 2016 go
from 15th to 5th.Social Capital: Learning to trust and help each other
Lithuanian Social Capital on the Rise
Trust in
police
Among all CEE countries, Lithuania has made the largest
Sending financial help
to other household
gains in Social Capital over the past ten years.
Making
friends
More than anything, it is the surge in general trust – public
trust in local police rose by 27 percentage points – that
Treated with
respect boosted its performance.
Donating This is helped by the Lithuanian government’s resolute anti-
Voicing
corruption programme, synthesising cross-sector
opinions cooperation, better defined legal framework and
institutional design, as well as the implementation of
Volunteering
transparency-enhancing technology such as e-government
Helping services.
stranger
Can rely on But Lithuania’s social capital was also boosted by “Family &
family or friends Community” type of Social Capital including inter-
-5% 0% 5% 10% 15% 20% 25% 30% household financial help, making friends
Change in percentage points, 2007-2016What is to be done in Austria?
Austria can improve other areas of social capital that are less
directly affected by the economy
Have you volunteered your time to an organization in past year?
45%
40%
Ireland Donations and inter-household financial help are proxies for broader
35%
Netherlands “Family & Community” and “Civic Engagement” social capital that
Slovenia
Switzerland were shown to have weak resilience.
France
30% Norway
Finland Austria
United Kingdom • Strengthen what’s there: perhaps lower levels in these variables
25%
reflect a move towards more “institutionalised” support – not
YES
20% bad in itself, but trades-off social capital.
15%
• Build what isn’t: volunteering is another form of this social capital
10% and is lower in Austria (28%) than many other European
countries. Help with time rather than money.
5%
0%
0 20,000 40,000 60,000 80,000 100,000 120,000
GDP per capita (PPP $), 2016Key Findings from the CEE Prosperity Report
KEY FINDING 1
• Central and Eastern Europe’s convergence on Western Europe has been much faster in terms of prosperity than income alone. Most
CEE countries deliver a prosperity surplus
KEY FINDING 2
• Central and Eastern Europe has one of the world’s largest deficits in social capital and this is holding back further prosperity growth.
KEY FINDING 3
• Social Capital, Governance, and Business Environment have a disproportionately large effect on CEE’s prosperity delivery.
KEY FINDING 4
• In an environment of slower global growth and one that is increasingly hostile to EU integration, CEE’s success depends on
improving its own ability to deliver prosperity.
KEY FINDING 5
• Countries with high initial levels of social capital experienced less severe economic downturns between 2007 and 2016.
KEY FINDING 6
• Young Central and Eastern Europeans are more pro-business, better educated, have higher social capital and are more demanding
of their governments - therein lies the opportunity to unlock prosperity, but also the challenge.Benefiting from accession to EU
Social Capital Business Environment
120 150
Business Environment score, 2007=100
Social Capital score, 2007=100
115 140
110 130
105 120
100 110
95 100
90 90
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Albania Macedonia Montenegro Serbia Albania Macedonia Montenegro Serbia
Governance
115
EU accession has been a huge boost for prosperity
Governance score, 2007=100
110
in applicant countries. In order to comply with the
105 acquis communautaire, a range of policy and
100 institutional reforms need to be implemented,
which in turn improve performance in Governance,
95
Business Environment, and Social Capital.
90
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Albania Macedonia Montenegro SerbiaHow to Measure Prosperity?
• Through literature review and regression analysis we select 104 variables that have statistically
Selecting significant and economically meaningful relationship with at least wealth or wellbeing.
variables
• We adopt distance-to-frontier approach to normalise variables of different units of measurement,
Standardi by comparing a country’s performance with the best and worst scenarios of the entire sample.
sation
Weighting
• Each variable is assigned a weight, based on their varying significance to prosperity.
Variables
• In each of the nine pillars, variables’ distance-to-frontier scores are multiplied by their weights and
Pillar
scores
then summed to generate countries’ pillar scores.
• The Prosperity Index score is determined by assigning equal weights to all nine pillars for each
Prosperity
Index country. The mean of the nine pillars’ scores yields a country’s overall Prosperity score.
scoreMethodology: Social Capital
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