The Prague Post Online: Opinion: Measuring up

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Measuring up

Economic indicators rise rapidly but don't necessarily mean progress
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November 7th, 2007 issue

By Martin Zika

Many of our politicians and economists continue to do their best to persuade us that the Czech Republic is becoming a more prosperous nation.

These statements are based, in part, on the country’s gross domestic product of around 6 percent, which is higher than that of some West European countries. But GDP growth alone is by no means a synonym for prosperity or increased living standards.

According to Milan Ščasný of the Institute of Economic Studies at Prague’s Charles University, prosperity is not only a matter of economic activity, but also has far wider dimensions. Other crucial issues include health, individual prosperity, quality of life and security, the quality of public services and the environment and also the quantity and quality of free time.

One poll that attempts to more accurately factor in quality of life is the so-called Human Development Index. Since 1989, the HDI has been a central component of the annual report of the Human Development Report of the United Nations. According to the global body, the HDI index attempts to focus on on-the-ground indicators.

The index is compiled on the basis of three categories: human health, expressed as average life expectancy at birth; levels of education, expressed as the percentage of literate people and a combined percentage of those from the applicable age group who attend school at the first, second and third levels, and the material living standards, expressed as GDP per capita in U.S. dollars adjusted for purchasing parity.

For Central and Eastern Europe, universally poor results during the 1990s were followed by a sharp upturn. For a long time, Slovenia has been in the best position regionally. In 2006, it was in 27th place, for example. The Czech Republic also improved, from 39th place in 1998 to 30th place in 2006.

One weakness is the Czech government’s poor expenditures on education and science and research. Another problem is the high amount of long-term unemployment and crime. Life expectancy in Scandinavian countries is around 78 to 80 years, while, in the Czech Republic, there is a lower life expectancy for men at 75. However, the Czech Republic rates very well in several areas: Infant mortality is (along with Scandinavia) among the lowest in the world, with expenditures on health mirroring Scandinavian levels.

Economic freedom is mixed

If we focus purely on economic factors, one of the most studied indicators is the so-called Index on Economic Freedom. It was designed by the Canadian Fraser Institute and the Nobel Prize–winning economist Milton Friedman (1912–2006). According to representatives of the (right-of-center) Czech Liberal Institute, it is the most objective and accurate indicator of economic freedom.

Scores range from zero to 10 (zero being an absolute lack of economic freedom) and are based on data collected from each nation. An attempt is made to use only objective data, which according to advocates of the index allows “apples to apples” comparisons around the globe. Seven main categories are used to formulate the ratings: size of the government sector (the smaller, the better), structure of the economy (the less regulation, the better), representation of the market against state ownership, financial politics and price stability, free exchange rates, rule of law, protection of private property rights, foreign trade and financial and capital market strength.

Since 1970, Hong Kong has remained at the top of this ladder. Other long-time top ranked members are the United States, Luxembourg, Switzerland, and, since the 1980s, the United Kingdom. Singapore has joined the group in recent years. Czechoslovakia appeared in 1990, when its position was an understandably low 3.5, which put it in 90th place. In the ensuing years, there was a notable upward climb, and, by 1995, the Czech Republic had a score of 6.7, putting it in 50th place. Then stagnation set in. In 1999, the country slipped down to 60th, with a value of 6.56, but economic freedom levels are now on the rise again.

Compared with the former Soviet satellites, the Czech Republic is not doing all that well in this index. Estonia has a value of 7.7 (12th) — in 1995, it trailed the Czech Republic by only three-quarters of a point. Hungary also fares better (7.4 and 20th), while Lithuania (7.1 and 35th) Latvia (7.0 and 40th) and Poland trailed at 6.7 and 53rd place. We were just above Botswana and Malta (both at 7.1 and 35th), and Slovakia and Italy both reached the same place as we did.

Wages — among the egalitarian

Income disparity continues to widen across the globe. Today, 80 percent of the world’s wealth is in the hands of 20 percent of its people. The number of dollar millionaires continues to grow each year, as does the number of people working for less-than-average wages.

A well-known measure of levels of inequality in relation to wages is the so-called Gini co-efficient. The higher it is, the greater the inequality, or difference between the richest and poorest people. If the index were at zero, all citizens would theoretically have the same income and there would be no pay inequality at all. In the opposite extreme, a figure of 100 would mean that all income would belong to one person or household.

In 2006, the Czech Republic came in fifth place, with a rating of 25.4. This year, it fell to 27.3 and 12th place, while Slovakia has gone the other way, having taken fifth place from the Czech Republic with a rating of 25.8.

Indices aren’t everything

These three indicators are by no means the only ones. Various global institutions, organizations and advocacy groups have their own methods for measuring prosperity. For example, a study by the Canadian International Centre for Development Studies called “Wellbeing of Nations” evaluates prosperity by giving people and the environment equal weight. The study combines human indices such as health, population, education and equality with indicators relating to environmental protection and sustainability, soil quality, water and air, biodiversity and energy usage.

However, even here a familiar set of countries appears at the top of the list — Sweden, Finland, Norway, Iceland and Austria. Ultimately, such evaluations provide helpful information and new points of view. They also highlight problems on which countries should focus.

Studies are studies, however. They should still be taken with a pinch of salt.

— The author is a sociologist. This article first appeared in The New Presence magazine (www.tnp.com). It has been edited slightly to fit this space.

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