The UK prosperity Index was published earlier this year, based upon developments from the original methodology created by the Legatum Institute in 2007. Following guidelines established by the global index, which measures prosperity at the national level, the UK Index measures prosperity at the local authority level. The UK report therefore provides a rating of the prosperity of local authorities based upon measurements across more than 250 indicators with Wokingham in the South East ranked as local authority number 1 and Blackpool in the North West ranked number 379 as at May 2021.
Better Statistics CIC (BSC) is a recently established community interest company with the remit to increase public understanding and trust in our official statistics. This review of the Legatum Prosperity Index is therefore a consequence of that more general interest, and of our specific interest in statistics which could assist in the development of the levelling up agenda.
The authors are critical of the following aspects of the Prosperity Index, especially in respect of its applicability at Local Authority level:
Finally, we question the inclusion of so many indicators that are determined at a national level and therefore do not differ from one local authority to another. As such they might be usefully excluded from the detailed analyses by area within the UK.
Despite the above reservations the fact that the Prosperity Index provides a different approach to wellbeing makes it a useful addition to the ideas for measurement beyond GDP and to the levelling up agenda.
We therefore think it is important to build upon this initiative and to undertake research amongst the Local Authorities to whom the report is largely addressed. An independent survey of Local Authorities on their attitudes to, experiences of, and challenges in working with measures like the Prosperity as a tool for transformation planning, could prove very useful to the debate at local level.
We also believe that many of the local authorities would be concerned for the opinions of their residents, and we would also recommend a survey amongst the wider public. A broader understanding of public perception of such national statistics should benefit everyone involved both in their production and usage.
In October of 2019, before the formation of Better Statistics CIC, the authors met with Professor Sir Charles Bean to discuss developments following from the publication of the Bean report in 2016. We were then known as the Campaign for Better Business Statistics, because of our concern that the Office for National Statistics was failing to accurately measure the gig economy, a concern that was also expressed in the Bean report. We were, in fact, relatively naïve in respect of many of the details of the work in progress following from the report and Professor Bean was kind enough to introduce us to Richard Heys (Deputy Director & Deputy Chief Economist of the ONS) and to the Economic Statistics Centre of Excellence (ESCoE).
Inter alia those introductions have subsequently ensured that we extended our interest beyond measurement of the gig economy into consideration of the wider issues represented by the effects of climate change and the other ideas of amending GDP to include notions of wellbeing. Such objectives will inevitably lead to the definition of new statistics to measure future success and we believe that it is vital that the public should accept the new measures and, if possible, to understand the reasoning behind them.
Since it is our mission to assist this process of understanding we need to appraise ourselves of any publications of relevance to measurements of wellbeing and associated issues.
That is therefore the context for this review of the Legatum Prosperity Index.
Although the Legatum Institute is a UK organisation their ambition from the outset in 2007 has been to provide a measure that could be acceptable Internationally, to determine the relative prosperity from one nation to another, as well as to measure the relative prosperity across local authorities within national boundaries.
This document focuses upon the report of the Prosperity Index for the UK 2021, as published in May of this year.
It should be noted that the Index has been designed to assist the Legatum Institute with their primary objective to create the pathways from poverty to prosperity and it is therefore described as a tool for transformation.
However, the institute has selected a somewhat tautological definition of Prosperity, defining it as the components of the 12 ‘equally weighted pillars’ that compose the 3 domains used to describe the many facets of prosperity, as they see it. The three domains are:
The 12 pillars were subdivided into a total of 65 policy focused elements for the 2019 Global report (53 for the recent UK 2021 report) and each element has been further divided, such that the 2021 index uses a total of 256 individual indicators to create the full index.
It is difficult to determine exactly how this complex structure was decided upon partly because it has developed over time, for example, in 2013 the Legatum Institute appointed a Commission on Wellbeing and Policy. On publication of the final report in 2014 the commission chairman, Lord O’Donnell, said “The Commission on Wellbeing and Policy looks at how wellbeing can have real and practical policy implications on the individual level, the community and regional level, and at the national and global level. Wellbeing research is a fantastic new growth area. Together with the Legatum Institute, we are going to make this the driver of policy and governments.”
The commission report provides an extensive list of contributors from academic institutions, international governmental bodies and think tanks that assisted with advice, both on the characteristics to be considered as well as the framework for evaluation. The report also implied that the primary analysis tool for examining the relationship between indicators was multiple regression, using a subjective wellbeing measure as the key object variable. Moreover, the initial work done by the commission under Lord O’Donnell had made extensive use of cost benefit analysis, acknowledging the difficulty of establishing monetary values for many of the less tangible indicators under consideration, including the subjective wellbeing measures they had considered.
The following quote from page 15 of the Commission Report serves to illustrate some of the difficulties in building a comprehensive framework: “could it be that poor people are lonely and that poor people have lower wellbeing because they are poor, rather than that there is a correlation between loneliness and wellbeing? By including both loneliness and income in a regression explaining wellbeing we hope to sort out these separate effects. In practice there are many other variables that matter so we must always be cautious about the quality of the research”.
The authors feel that caution is not sufficient justification to include so many indicators.
It is noteworthy that, although the commission report was focused upon Wellbeing, as a primary concern for those concerned with making policy, the Index has largely eschewed the term wellbeing and instead focused upon prosperity, to provide the combination of wealth and wellbeing that the Legatum Institute seeks.
In fact the Institute completely refreshed the structure of the Global Index in 2019, based on extensive conversations with global experts and that structure has been used to construct the latest UK index, with some adjustments to make it more relevant to the UK context.
As stated in the introduction, a key objective for the Legatum institute is to create pathways for communities of all kinds to develop from poverty to prosperity. It is questionable, however, as to whether many of the elements of either Open Economies or Inclusive Societies are truly relevant to that stated aim. It has often been commented that the People’s Republic of China had successfully brought many millions of their people from abject poverty into prosperity and, of course, that achievement did not benefit from many of the indicators used in the UK 2021 index. From the point of view of Better Statistics, the inclusion of many of the indicators within these domains may well be beneficial to our wellbeing, but it is difficult to be definitive as to their role in prosperity, given the example evidenced by China. We would therefore question the necessity to include those indicators associated with the economic and personal freedoms we value but which may not, of themselves, contribute a great deal to prosperity.
A second reason for excluding many of the 256 indicators used in the UK2021 report is the fact that in many cases the indicators do not differ significantly from one local authority to another because they are national indicators. Most of the terms of reference for Empowered People and Open Economies are controlled by legislation at the national level and are not truly distinguishable at the local level.
A final issue relating to the large number of indicators used in the report is the fact that many of them are highly correlated for example:
|Variable 1||Variable 2||Correlation||P value||Confidence Level|
|Family eating together||Family support||0.60||1.40E-38||99%|
|Family eating together||Feel isolated||0.04||0.47||Not Significant|
|Family support||Feel isolated||0.37||2.29E-13||99%|
|Feel Left Out||Feel isolated||0.64||1.73E-44||99%|
|Feel Lonely||Feel isolated||0.52||4.87E-28||99%|
|Feel Lonely||Feel Left Out||0.57||4.93E-34||99%|
Further examples of correlated indicators are:
The Legatum Institute explain the inclusion of so many indicators, including many highly correlated with each other, with the following comment from their methodology report:
“Capturing all of the indicators in the Index highlights different policy interventions that a local authority could chose to implement as a result of the data insights in the Index and allows the measurement of the impact of these policies”.
However, in the opinion of Better Statistics, the result is to cause a confusion that ultimately undermines the potential for the Index. It is well known that complexity can make it difficult to understand any piece of work, and it is always wise to consider Occam’s Razor when undertaking any work of this kind. In our view it would be a more effective index in terms of its applicability, if the number of indicators was a lot smaller!
Unfortunately, complexity in respect of determining the components of wellbeing is not confined to the efforts of the Legatum Institute. The growing literature on the subject multiplies the ideas to be considered and provides a wealth of contentious considerations. For example, the Office of National Statistics considers a variety of wellbeing measures distributed across 10 domains and regularly asks questions on various of its continuing surveys, some of the responses to which are highly correlated1, as is some of the economic data collected.
The book “The Wellbeing of Nations – Meaning Motive and Measurement” by Paul Allin and David Hand, both of Imperial College London, provides a helpful guide into the wellbeing ‘debate’. Nevertheless, it primarily serves to illustrate the degree of confusion that exists with regard to both the purpose of and the process for measurement of wellbeing. A confusion which is most aptly demonstrated by the recent publication “Measuring Well-Being: Interdisciplinary Perspectives from the Social Sciences and the Humanities” edited by Matthew T. Lee, Laura D. Kubzansky, and Tyler J. VanderWeele. This latter publication provides a host of differing approaches to measurement that could be adopted, depending upon one’s fundamental philosophical approach to the definition of wellbeing.
At this point we are tempted to paraphrase the decision in a case in 1964 by US Supreme Court Justice Potter Stewart “I may not be able to define it, but I know it when I see it” and suggest that the Legatum Institute should be congratulated on moving beyond what appears to us to be a largely sterile debate.
So how valuable is the Index? It is difficult to determine the answer to that question.
Although we are critical of some of the details used for the creation of the index it has the indubitable benefit that it really exists with a consistent record of publication over the past 14 years. As a result, it is in use as an agency for transformation in many places across the world, which is the stated intention. However, there is little evidence of any serious use made by local authorities in England.
By contrast the extensive exploratory work by the office of National Statistics in 2011 has yet to be developed into a coherent model, although development work continues and ESCoE has recently published a discussion paper on GDP and Welfare that suggests a way forward for adapting GDP to account for some of the elements that impact on wellbeing, particularly Carbon emissions.
The paper does not, however, include any of the wellbeing measures previously identified by the ONS and Richard Heys (one of the authors of the discussion paper) describes the ideas as follows: “We want to use pre-existing data as much as possible, so the new measures can be produced on a consistent basis with GDP and other national statistics. We also want to use existing, international agreed frameworks and methodologies centered around national accounting methods as far as possible, effectively widening the range of activity under consideration. Where this isn’t possible, we use methodologies and data which would be readily available in countries outside the UK.”
Better Statistics are puzzled by the use of the word Welfare as opposed to Wellbeing in this paper. Given the accepted usage of the term welfare in relation to the benefit system it seems somewhat perverse to employ the term to characterise something different and new. We are also concerned that much of this wellbeing debate, as exemplified by both the ESCoE work and that of the Legatum Institute, is taking place without any serious attempt at public engagement in the process.
If the public are to accept a new way of measuring the success of our society, it is insufficient for economists to decide what is best without some attempt to ensure that the public understands and accepts the new methods Within which context we think it less important to ensure that we have international agreement on such measures compared with national acceptance.
We at BSC also believe that given the changes in society already wrought by the pandemic and the need for change to combat the effects of climate change, there should be less concern to ensure that we can use ‘past data’ and more concern to develop something of future benefit. After all, Adam Smith’s “The Wealth of Nations” was in no way dependent upon any historical data series for its veracity and value.
1. Test with Local Authorities
The question as to the true value of the UK Prosperity Index must remain open until the utility of the Index to UK local Authorities is determined. We suggest undertaking an independent study amongst local authorities in the UK to measure their awareness and attitudes towards the index (and others) and whether they believe it to be of potential value to the levelling up agenda.
2. Test with the general public
We also consider it important to further the dialog with the public on these issues.
It is 10 years since the Office of National Statistics had conducted an extensive public consultation concerning people’s perceptions of wellbeing. That consultation had included 175 events involving 7,250 people and the ONS also conducted an online debate and used other channels that generated a total of 34,000 responses. Analysis of that data had led to the 10 domains as mentioned above.
Subsequently there has been little further exploratory work on this subject, instead ESCoE have a programme on “Communicating and Valuing Economic Statistics” and last November they published “Public Understanding of Economics and Economic Statistics” by Johnny Runge and Nathan Hudson. They sum up their findings thus: “Our research indicates that the communication of economic issues and statistics to the public needs improving”. In our opinion this lack of understanding has led to a growing mistrust of official statistics, a mistrust that, for example, extends to many persons having a disbelief in the published unemployment data and the measure(s) of the rate of inflation.
Meanwhile, revising or changing GDP to reflect different considerations of wellbeing or prosperity, represents an opportunity to renew the public faith in our statistics or, alternatively, it could bring further alienation. Only a consistent dialog explaining the reasons for the changes under consideration will ensure that the former outcome is more likely than the latter.