Norway is #1??

As anyone with any sort of internet access knows, there are a few ever-present memes online: anything to do with cats, anything to do with sex, and “best-of” lists. The latter can be found on just about every commercial media site. There's a good reason for it: it is a proven pageview and ad click generator. It seems humans are reliably hard wired for comparison and judgement.

One such list that comes out every year is the “Best country to live” list from the UN. Typically it generates a large number of articles and news reports a handful of which you can find here. These are the top 10 countries:

1 Norway
2 Australia
3 Switzerland
4 Denmark
5 Netherlands
6 Germany
6 Ireland
8 United States
9 Canada
9 New Zealand

Norway has kept the top spot for 12 years in a row. Impressive. But that doesn't mean that Norway is Nirvana for everyone. People intuitively understand that one's best place to live is subjective and based on all sorts of environmental and personal factors. And so this report is dismissed by most as a bit of nonsense, and rightly so on those terms.

The actual UN report, however, has a much more prosaic title Human Development Report and is filled with scientificy things like data and charts on social metrics like education, income distribution, poverty rates, etc. Relatively few people would actually click on anything with that sort of title so the press gins it up a bit with hyperbole and sensational headlines.

The intent of HDI (says so right in the report) is to provide data that can be used as a proper measure of social progress and inform public policy and governance. Here's the byline:

Human development – or the human development approach - is about expanding the richness of human life, rather than simply the richness of the economy in which human beings live. It is an approach that is focused on people and their opportunities and choices.

To some American ears, that might sound a little, um, socialist or perhaps even “communist!” It's fairly similar in spirit though to “Life, liberty and the pursuit of happiness” (from the Declaration of Independence). One could say this is about the ability of individuals in a given society to live without deprivation, pursue opportunities, participate in their community, and live rich, meaningful lives. In other words, the American Dream.

The report itself is actual data collected year over year and summarized in an index. The Human Development Index (HDI) is, simply, a snapshot of human development factors by country. The factors or metrics measured for the report include:

  • Life expectancy at birth (health and well-being)
  • Expected years of education
  • Mean years of education
  • Per capita gross national product (income)
  • Inequality measurements

Armed with good data, we have new tools to make informed decisions at the government level. And why not? Businesses and institutions of all types are taking advantage of data tools including collection, analytics, sophisticated computer intelligence programs to reinvent the way they operate, to track performance and results. It just makes sense that government and policy makers not only take advantage of these tools, but be held accountable by them as well. In short, the era of data-driven policy making is here, and with it, new possibilities for transparent and accountable government.

The index score is a composite of these factors. The more advanced countries have more of those factors, the less advanced have fewer. The choice of these factors is driven by a set of values of human development. This is the illustration of the stages or dimensions of development, from the website:

That illustration looks a little familiar, reminicent of Maslow's pyramid of needs, zoomed out perhaps to the societal level.

The Numbers Behind the Rankings

So while Norway scores at the top, the other advanced development countries aren't far behind with index scores that are very nearly as high. The rankings again, with their index scores:

1 Norway 0,94
2 Australia 0,94
3 Switzerland 0,93
4 Denmark 0,92
5 Netherlands 0,92
6 Germany 0,92
6 Ireland 0,92
8 United States 0,92
9 Canada 0,91
9 New Zealand 0,91

In fact, several scores are identical. If you look more closely at the numbers behind the index scores however differences emerge. Both Norway and the U.S., for example, are wealthy overall and have a relatively large GNP, which, when averaged out per capita, give them a big boost on the index.

Per capity gross national product

As we all know, however, income is not distributed evenly in any country and differently in each. This is an important part of the index score. More on income and wealth distribution in a moment.

The life expectancy metric varies quite a bit between the countries, though there is a lot of uniformity at the top. It's in the low-80's for all of the advanced countries, except just one. The U.S. is the only advanced country to still be below the 80-years mark. This is odd since healthcare spending in the U.S. is second to none. Could it be that life expectancy varies between groups in the U.S.? What might be driving that?

Life expectancy at birth by country

On the education metrics, all the top 8 countries have subsidized or free tuition. It's notable that, despite the considerable cost of secondary education in the U.S. (it's costly to attend college in the U.S. and there are limited subsidies), it still manages a 12th ranking.

The year over year data shows that the trend overall is toward higher HDI scores, particularly the less advanced countries have been making big strides relative to the more advanced countries. HDI scores are converging over time.

Hans Rosling's TED Talk is an interesting and engaging look at global development trends overall. TED TALK: The Best Stats You've Ever Seen

Norway has been steady at the top for some time. The U.S., however, has been mostly stagnant on the development indeces and has lost ground relative to other improving countries over the past 25 years. European and other advanced countries have either surpassed the U.S. or made significant progress toward closing the gap.

What is driving the drop in the U.S. rankings over the past 20 years?
We need to look at inequality.

Inequality varies a lot

The HDI Index has a table to adjust the ranking based on a measure of wealth and income inequality in the country. Income inequality here is calculated with several methods, each designed to highlight different aspects and ratios (find the list at the bottom of this post).

When people hear "inequality" they tend to think purely in terms of wealth or income inequality, usually in isolation. Americans in general seem less concerned about inequality when it comes to money, though multiple studies have shown that Americans vastly underestimate the extent of income inequality in the U.S.

VIDEO: Inequality in America

Inequality has been diverging in the U.S. over the past 30 years and has become extreme over the last 10 years or so. The middle class, a staple of any modern democracy, has been shrinking in absolute and relative terms. New data from the Pew Research Center confirms that the middle class is no longer the majority in the United States. For the first time since the 1970s, there are more people in America living in the lowest and highest income brackets.

According to the Social Security Administration, over half of Americans make less than $30,000 per year. That’s less than an appropriate average living wage of $16.87 per hour, as calculated by Alliance for a Just Society (AJS), and it’s not enough — even with two full-time workers — to attain an “adequate but modest living standard” for a family of four, which at the median is over $60,000, according to the Economic Policy Institute.

SALON: Half U.S. is living in poverty or near it

But does inequality really matter?

Fundamentally, in terms of wealth and income distribution, the U.S. is a very different country than it was 30 years ago. Should we care?

The extent of income equality can have important effects on the overall quality of life for citizens. Income equality beyond a certain threshold can be more or less equated with opportunity inequality, or unequal access to opportunity. This effects quality of life and even the years one can be expected to live, which carries with it morality questions. It's one thing if wealth determines the size of house and comfort of retirement. It's quite another if you live 5 years less than the richer guy down the street.
Inequality of Life Expectancy by Country

Beyond the effects on individuals, inequality has knock-on effects for society in general. In societies with a lot of inequality, typically we see degraded democratic institutions, effects on overall health, crime and corruption. Studies have demonstrated, for example, a strong correlation between inequality and crime and teen pregnancy.

TED Talk: How economic inequality harms societies Richard Wilkinson
Public health researcher

There also seems to be a correlation between inequality and the way citizens feel about their lives. The World Happiness Report is a measure of “happiness” published by the United Nations Sustainable Development Solutions Network. It's basically a global Gallup Survey conducted by a group of scientists and statisticians. It's interesting, if perhaps not conclusive, that the more equitable countries have higher happiness ranking.

Thomas Piketty - Capitalism's Persistent Inequality Problem

So what's going on? Thomas Piketty demonstrated persuasively in his book, Capital in the Twenty-First Century (a book that was notable in part for its use of comprehensive historical data, across countries) that inherited wealth will always grow faster than earned wealth in an economy where the rate of return on capital outstrips the rate of growth. The central thesis: the fundamental tendency of a capitalistic system, unrestrained and unmanaged, is toward extreme inequality.

Piketty's data showed that capitalism started out with a lot of inequality, diminished for a time in the 20th century, but is now headed back towards historically high levels. And though the U.S. is an outlier now among advanced developed countries, it's a general trend.

There are mitigations and we've been here before. Skills, training and education of the workforce have a proven ability to promote greater equality. By itself, however, these are not enough, Pikkety argues. And if history is any indication, he might be right. In the 50's and 60's, when the U.S. enjoyed robust economic growth and the least inequality, the U.S. had much higher tax rates on the upper income brackets as well as strong labor unions.

So what about Norway then??

Norway is a wealthy country, due in part to its oil reserves. Wealth alone though, as we've seen, doesn't fully explain the differences between the top countries. Norway also has a number of things at play (progressive tax rates, labor laws, regulations, union protections, free tuition, healthcare, etc) that fundamentally change the distribution of income and wealth as well as blunt the most negative social impacts of a market driven economy. It's but one example of the so-called "Nordic Model." Many books have been written on the subject.

Suffice it to say here that Norway ranks at the top of the HDI now because of a continuing high GDP and intentional, well-established government policies to achieve specific social goals. These are not magical or alien things and other countries have elements of the model, including the U.S. of the 1950's and 60's. Nor is Norway's model perfect - there are a number of tradeoffs, some clouds on the horizon as well. I have some observations of my own, which I'll take in a future post.





APPENDIX

Inequality in income: Inequality in income distribution based on data from household surveys estimated using the Atkinson inequality index.

Inequality-adjusted income index: The HDI income index adjusted for inequality in income distribution based on data from household surveys listed in Main data sources.

Quintile ratio: Ratio of the average income of the richest 20% of the population to the average income of the poorest 20% of the population.

Palma ratio: Ratio of the richest 10% of the population’s share of gross national income (GNI) divided by the poorest 40%’s share. It is based on the work of Palma (2011), who found that middle class incomes almost always account for about half of GNI and that the other half is split between the richest 10% and poorest 40%, though their shares vary considerably across countries.

Gini coefficient: Measure of the deviation of the distribution of income among individuals or households within a country from a perfectly equal distribution. A value of 0 represents absolute equality, a value of 100 absolute inequality

Palter Pitts

World Happiness Survey

Gallup World Poll Methodology

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