Behind Norway’s #1 Prosperity Index Ranking

How many of you ever wanted to live in Norway?  When it comes to the most desirable place to live, Norway probably isn’t the first country that comes to mind for many of us.  One-third of the country lies above the Arctic Circle.  Hammerfest, Norway claims the title of the northernmost city in the world.  Oslo, the country’s capital located at 59.5 degrees north latitude, averages about 5.7 hours of daylight on December 22 while Hammerfest, located at 70.4 degrees north latitude, doesn’t even see daylight for a period of about two months from mid-November to mid-January as shown on the nifty, interactive Daylight Hours Explorer.  (Here in Chicago we may be notorious for bad weather, but at least we can see pretty well for much of the day year round.)

Prosperity and Human Development Rankings

Last week, the Kingdom of Norway, as it’s officially known, earned the top ranking in the annual global Prosperity Index put out by the London-based Legatum Institute.  It turns out that Norway also regularly comes in at or near the top of other prominent global rankings of quality of life and similar measures.  In 2010 and 2009, the United Nations Development Programme (UNDP)‘s annual Human Development Report ranked Norway at the top of the UNDP’s Human Development Index (HDI).  The top rankings from the indices appear in the table below.

The rankings aren’t entirely consistent on Norway’s version of Nordic nirvana when you look at some city living tables.  Close to 20 percent of Norway’s population of 4.9 million people lives in the capital city of Oslo.  The Economist ranks Oslo 24th on its index of cities with the highest quality of living based on 39 factors.  Vienna, Austria comes in first followed by Zurich and Geneva, with Austrian, Swiss, and German cities collectively taking 9 of the top 25 spots.  Still, Oslo ranks higher than any city in France, Italy, Spain, U.K., or U.S.

What’s Behind Norway’s Top Ranking

Norway scores near the top of a host of criteria that are widely associated with a high quality of life.  The Legatum index is based on eight “foundations for national development,” including: economy, entrepreneurship and opportunity, governance, education, health, safety and security, personal freedom, and social capital.  The UNDP’s Human Development Index factors in life expectancy, education, and standard of living (measured by GDP per capita in US$ at purchasing power parity (PPP)).  Norway also ties Sweden for second place in the Economist’s 2008 environmental performance index, which considers such factors as environmental health, biodiversity, air pollution, water use, agricultural methods, and tackling climate change.  The chart below reproduces the Prosperity Index scores by foundational category for the top countries.

The social capital sub-index on the far right in the table above looks to correlate particularly closely with the overall rankings of the top ten or so countries.  Four of the top five countries earned a top five ranking for social capital.  According to the Legatum report, the social capital sub-index measures performance in two areas: 1) social cohesion and engagement; and 2) community and family networks.  The report points out studies have found a correlation between the level of social capital and a country’s rate of economic growth.

The report makes a reasonable case for cautioning against associating top rankings too closely with welfare states.  It’s true that Norway and several other high-ranking countries have high tax rates and a redistribution of wealth that contribute to low income inequality, as measured by their Gini indexes.  However, there does not appear to be much of a correlation between a country’s Gini index and its score on either the overall index or the sub-indexes.  For example, Japan has a Gini index between those of Norway and Denmark and scores relatively poorly on social capital, while Australia, the Netherlands, and Switzerland score better than other countries on social capital without particularly low Gini indexes.  While this doesn’t dismiss the role of income distribution in life satisfaction, it does suggest that a more complex interplay of factors is at work.

Interestingly, the Legatum study finds that entrepreneurship and appetite for risk correlate more closely with a nation’s overall prosperity than any other factor.  Correlation is not causation and there are many aspects to entrepreneurship and risk taking.  Still, it suggests that the nature of what we do and how we work is more important to our well-being than the numbers on our paychecks.

Potential Role of Other Subjective Factors

Any ranking involves a certain number of subjective value judgments about its selection criteria and excludes potentially relevant factors.  The Legatum Institute’s report does an admirable job of attempting to capture the importance of a variety of social and psychological factors beyond the basic components of income, healthcare, and education.  Still, it’s possible to think of a number of other potential criteria that are hard to quantify and capture in an index but may still have a significant influence on quality of life, including creativity, culture, aesthetics, recreational opportunities, and outdoor environs.

On the outdoor score at least, Norway looks to have several factors in its favor, including the environmental measures cited above.  Norway offers an abundance of deep lakes and more than 50,000 islands off its craggy coast.  Eighty-five percent of Norwegians live within sight of a coastline and many have second houses on lakes.  At one place near Narvik in the north, the country is only about 4 miles wide.  Norway is also one of the most mountainous countries in Europe and features spectacular scenery and sightseeing thanks to its dramatic backdrop of towering fjords.

One way of factoring in the effect of various intangibles on prosperity and quality of life could involve looking at subjective measures of overall happiness or life satisfaction.  Norway comes in at a strong eighth place on the ranking of net happiness on Nationmaster.com at 88 percent.  (Net happiness is calculated as the percentage of people who rated themselves as “quite happy” or “very happy” minus the percentage of people who rated themselves as “not very happy” or “not at all happy.”)  Not surprisingly though, measures of overall happiness and life satisfaction also correlate highly with a host of more basic needs such as access to healthcare and life expectancy.

In some sense, it’s surprising that Norway is so happy considering the annual prolonged state of near perpetual darkness faced by part of the country.  You would think the whole country might suffer from seasonal affective disorder (SAD) for a good portion of the year.  Maybe it has to do with human beings’ formidable capacity to adapt so well to their surroundings and seemingly adverse conditions.  SAD aside, it also suggests the concern for the weather as a factor in well-being rather than just daily conversation may be over-stated.

Population and Resource Considerations

It’s worth pointing out that Norway’s ranking may relate to several characteristics that make the country different from many other advanced western nations.

A relatively small, homogenous population may make it hard to compare Norway directly to much larger, more diverse countries like the U.S., U.K., France, and others.  Norway’s 4.9 million people consist predominantly of ethnic Norwegians (83.8 percent) and Lutherans (82.1 percent).  It should have an edge in being more socially cohesive and easier to govern effectively than much larger, more diverse populations.  In addition, the diversity that creates social and economic challenges in other countries could be considered a desirable source of intangibles by some that adds to the experience of living in a country, yet understandably falls outside the scope of the rankings.

On the economic front, Norway’s very high per capita income comes partly from state-controlled oil and natural gas resources that were discovered in the North Sea in 1971.  Oil and gas account for $82.9 billion or about 67.8 percent of Norway’s $122.1 billion of total exports.  A century ago around the time that it declared independence from Sweden in 1905, Norway was one of the poorest countries in Europe.

Other Things about Norway

If you’re thinking about experiencing life in the world’s most prosperous country first hand, here are a few other essential facts about the Nordic land.

  • Be prepared to eat a lot of fish.  Norwegians eat more seafood than any other country (see the related posts What’s for Dinner – Sushi or Fish Sticks? and 150 Year Old Japanese in Abundance).  Norway’s annual fish catch would cover Liechtenstein’s current fish consumption for over 8,000 years according to one source.
  • If they’re not serving seafood, don’t be surprised if a reindeer shows up on your plate.  The number of reindeer owners in Norway grew from roughly 1,600 in 1950 to about 2,750 in 2000.
  • Be ready to learn to ski.  The Norwegians are credited with inventing skiing.  Norway has won more gold medals in the winter Olympics than any other country by far.

Related articles and content:

Norway Quiz!

World Cities: Best Quality of Living and Liveability

Analyzing Global Progress: Interpreting the 2010 UNDP Human Development Report and Index

World Cities – Rankings, Development and Liveability

Globalization – Background, Rankings and Articles

World Rankings – Development, Quality of Life, Cities, Globalization and More

Visit the Global Sherpa home page.


Sources:

2010 Legatum Prosperity Index.  Legatum Institute.

Chabuk, Chetin and Ole Tangen Jr.  Norway: Reindeer Men.  Frontline World.  December 20, 2005.

CNN Wire Staff.  Norway at Top of Prosperity Index.  CNN.  October 26, 2010.

Human Development Report 2009.  United Nations Development Programme (UNDP).

Mandelson, Peter.  Prosperity Is More Than Just Money.  The Wall Street Journal.  October 26, 2010.

The Norwegian Reindeer Husbandry Administration.  Reindeer Husbandry in Norway.

Pocket World in Figures.  Economist.  2010 Edition.

Share