Measuring the wealth of societies is considered to be the Holy Grail of economics. The idea of representing the level of wealth using a single quantity sounds extremely appealing. Ideally, this quantity should allow for both international comparisons and comparisons over time. We would like to know how much better (or worse) we live compared to our parents’ generation or compared to our neighbors; to do this, it would be convenient to put just two numbers together.
Unfortunately, the reality turns out to be disappointing in this regard. Not only has no one yet come up with a suitable method of measurement. We might have hoped that some economic genius would eventually come up with the right indicator. But we know that will never happen. The problem is that the very task itself we set ourselves of dreaming up a method of measurement is impossible, as all the more experienced economists know. After all, economics studies not material goods but the process of satisfying human preferences, and these are subjective, intense, and impossible to aggregate.
And yet, despite these obvious reservations, people continue to construct methods to compare the wealth of societies. We have done this at the Warsaw Enterprise Institute as well. We are aware that our Wealth of Nations Index is conventional, full of simplifications, analytical compromises and sheer artificiality. However, this is also true of other similar measures. The awareness of imperfection of some of them (e.g. the one still most commonly used – GDP per capita) results in attempts to build new ones, which themselves turn out to be highly imperfect. Therefore, we do not claim that WNI is better than existing indicators. It is simply different – it shows economic reality in a yet untried way.
The second edition of the Wealth of Nations Index has been expanded to include the OECD countries – so it includes all EU and non-EU OECD countries. More importantly, this year’s edition brought significant changes to both the index itself and the prevailing global economic conditions. Last year, we measured the flow of economic benefits per citizen as of early 2020 – i.e. before the sars-cov2 outbreak. This year’s edition takes us to the end of the first year of the pandemic. It describes the reality in the midst of the economic and social crisis that the world finds itself in due to the disease itself and the countermeasures taken by governments and private actors.
The pandemic has forced some adjustments in the methodology for calculating the WNI. Some of the measures used to calculate the subcategories of the public expenditure quality index, which is one of the two pillars of the WNI, were suspended or discontinued due to the epidemic – the corresponding indices for 2021 were simply not published. For this reason, we had to replace them with other measures, which resulted in effect in an expansion of the database from which the public expenditure quality index is derived. By the way, in addition to last year’s seven dimensions by which we evaluated public spending, this year we added an eighth – freedom of speech and association. As a result, the WNI for the previous year is not an exact methodological copy of the current edition. The differences are not colossal, however, and above all both are motivated by the same idea – hence we allow ourselves, despite the above reservations, to compare the WNI indicators year by year. This comparison gives a snapshot of the changes that have taken place in the welfare of EU countries and the UK in the twelve months since the pandemic outbreak.
The website The Wealth of Nations Index is HERE.