The Index of the Wealth of Nations and Poland’s position after the COVID-19 epidemic

Karol Zdybel

This year’s (i.e., third) edition of the Index of the Wealth of Nations, like the previous one, covers all OECD and European Union countries. This time the indications of the IWP correspond to the conditions at the beginning of 2022, i.e. the moment of exit from the COVID-19 epidemic. It is thus interesting to juxtapose them with the first edition of the index, which depicted the situation on the eve of the pandemic; one can thus see how the economies examined in both the first and current study (i.e. the EU countries and the United Kingdom) have coped with the global socio-economic crisis.

The West in the Red, The East in the Black

The pattern among EU countries is a decrease in the indication of IWP in the west of the continent and increases observed in the east. The largest EU economies lost compared to 2020: Germany 2.1 points (2.2%), France 3.4 points (4.2%), and Italy 0.7 point (0.9%). The United Kingdom also recorded a decline (4.4 points, or 5.1%). Thus, it can be seen that the shock of the epidemic and the accompanying policies of the governments has left such a mark on Western European countries that full economic recovery is still to come. The exceptions to the rule in question are Denmark (0.5 points of growth, or 0.5%) and Sweden (2.9 points of growth, or 3.7%), as well as Ireland, but, as every year, we consider this last country’s result to be unreliable due to the peculiarities of Irish national income.

On the other hand, Eastern European countries, at least in the economic aspect, seem to have left the COVID-19 epidemic behind. With few exceptions such as Czechia, our region’s economies recorded higher IWP scores than two editions ago. Poland is leading with 4.2 points (7.0%) above the score of two years ago. Croatia (plus 3.7 points, or 6.4%), Lithuania (3.6 points, or 5.1%), Bulgaria (2.1 points, or 4.5%) or Estonia (2.9 points, or 4.1%) did almost equally well.

Not much change in the overall ranking. Poland ranked 27th and aims higher

Compared to last year, there have been few changes in the IWN ranking. If Ireland is excluded, the first place is invariably held by Switzerland (131 points), which is clearly behind the United States (111.6). Norway (108.1) was promoted up by one place, swapping places with Denmark (99.3), which is also the highest scaled EU economy. It is followed by Austria (95.0), the Netherlands (93.3) and Germany (92.4).

After last year’s promotion, this year Poland maintained its 27th position in the IWP ranking with a score of 64.4 points; if the growth rate of Poland’s IWP can be maintained in the next two or three years, we should expect to overtake Portugal (67.8 points in the current edition). At the same time, it should be noted that the private economy is responsible for all of this year’s growth in Poland’s IWP: our index is the sum of real private spending per capita and the quality index of public spending, and the latter, in the case of Poland, declined year-on-year from 61.2 to 59.1, or by 2.1 points. This was one of the largest declines in the quality of public spending in the entire study group – only Ireland (-4.5 points), Slovakia, and Chile (-3.0 points each) recorded larger declines.

Switzerland and the US are drifting away from Europe

The widening gap between the two leading economies in terms of IWP, namely Switzerland and the US, and Europe is worth mentioning. Both countries debuted in last year’s edition of the index; even then it seemed that the difference between the richest countries in the European Union, namely Denmark and Austria, and the United States was not huge. In the meantime, however, the US have accelerated significantly, while Western Europe, as described above, has not performed well.

The widening gap between the US and Western Europe seems to be yet another episode of economic divergence between the two economic areas; while as recently as the second half of the 1980s and early 1990s, the GDP per capita of Germany and the US in absolute terms was comparable, and the difference between living standards in the two countries was accounted for only by the slightly higher purchasing power of Americans, today the productivity of European economies is significantly behind that of the US. This is clearly reflected in the IWP as well, and this is despite the fact that in terms of the quality of public spending, the U.S. is not doing so well: with a score of 66.9 on the Quality of Public Spending Index, it ranks among such countries as Italy (66.2) and Lithuania (65.7).

The amount of spending is reflected in the quality but there is someone to learn from

This is also not the first time we have seen that the quality of public spending correlates strongly with its amount per capita. This year, the ratio of the quality of Polish public spending to zlotys spent is almost exactly average among the group of countries surveyed. Countries that lie below the dotted line of best fit can be said to spend public funds better than they should in their fiscal situation. Those whose scores lie above it do the opposite. Poland ( marked in red) is exactly on it, which means that in the studied group of countries it achieves average efficiency in the use of public money.

The most interesting cases are those countries that achieve high indications of the quality of public spending index at a relatively low cost. Portugal, for example, spends, 10% less money per citizen than Poland, but provides a quality of public spending of 73.6 – this is higher not only than Poland, but also, for example, France (72.7) or Spain (72.6), and not much lower than Canada (75.5) and New Zealand (75.0) – countries where governments spend more than 50% per capita. Other countries with good price/quality ratios for public spending are, for example, Croatia and Switzerland.

Before the Next Edition of IWP

As we pointed out at the beginning, the current edition of the IWP illustrates the situation at the beginning of 2022. This means that it depicts the reality before Russia’s invasion on Ukraine, and therefore also before the economic turbulence caused by this event. Next year’s edition of our index will attempt to answer the question of how the studied economies are doing a year after the start of the war.