Apr 07, 2014 (LBO) - Michael Porter has been one of the most successful business theorists. It could even be said that certain parts of business curricula were invented by him. Like most business-school professors, he likes markets, dislikes excessive government intervention and subsidies and so on.
Porter, we are informed by Nicholas Kristof of the New York Times, is a Republican.
"This is kind of a journey for me," Porter told me. He said that he became increasingly aware that social factors support economic growth: tax policy and regulations affect economic prospects, but so do schooling, health and a society's inclusiveness. So Porter and a team of experts spent two years developing this index, based on a vast amount of data reflecting suicide, property rights, school attendance, attitudes toward immigrants and minorities, opportunity for women, religious freedom, nutrition, electrification and much more.
That makes the Social Progress Index (http://www.socialprogressimperative.org
) worth paying attention to. It doesn't neatly fit the pattern of Porter's career and is thus more likely to have been informed by evidence and mature reflection. So I thought it may be useful to discuss it in relation to Sri Lanka in its regional context.
Problems with indices
Many of us who work with data and performance indicators have ambiguous feelings about composite indices. They grab attention and are useful in focusing attention on problems (and hopefully solutions). That is good. They unthinkingly import flawed input indicators and sometimes magnify the errors in the input data. That is bad. And some are just poorly designed and plain bad.
Overall, the SPI seems to reflect the standards of quality one expects of Michael Porter. But it is not free of flaws. I will give examples from the data that I know best. The SPIflags mobile phone subscriptions as an area of weakness for Sri Lanka, when everyone knows coverage is almost island-wide and prices are among the lowest in the world. The 2012 Census shows that 42.5 percent of households have fixed (including CDMA) phones and that 79 percent of households have a mobile phone. The claim that more could be done in mobile subscriptions is based on a common and mindless assumption that more mobile SIMs are the better, somehow.
It also uses the seriously flawed ITU Internet user numbers that we have critiqued in detail in a peer-reviewed journal. The real indicatorsshould be how many people or households have access to mobile telephony and how many Internet users there are. But both are demand-side indicators that are not available through the ITU and therefore not used in any composite indices. For example, the 2012 Sri Lanka census shows that 24 percent of Sri Lankan households use the Internet, with 11.5 percent accessing it from their homes. But no composite index will use data like the above. International and regional indicators or indices require similar data from all countries and census data are not available for all countries or all years.
Sri Lanka SPI in context
The SPI compares each country in two different ways: one is geographical and the other is with countries with similar GDP per capita. Geographically, Sri Lanka is compared with South Asia (understandable) and Central Asia (Kazakhstan etc., not so understandable). Economically, it is compared with Paraguay, Jordan, Angola, Georgia, Egypt, Mongolia, El Salvador, Morocco, Bolivia, Swaziland, Guatemala, Ukraine, Indonesia, Namibia,and Republic of Congo. This is a little odd for an index that claims to give weight to things other than per capita GDP.
In the geographical comparison Sri Lanka has the highest aggregate score. It does well not only in relation to the big SAARC countries that have been included (Bangladesh, Nepal, India and Pakistan, in ranked order), but also better than the Central Asian countries, some of which have significantly higher per capita GDP numbers. This should not be surprising in light of Sri Lanka's traditional good performance on the Human Development Index.
While Sri Lanka is first overall in the Central and South Asian Region, what is more illuminating is its performance on the component sub-indices. It pulls ahead of the others on the strength of its performance not on meeting basic human needs, but on foundations of wellbeing. The former includes subcategories such as nutrition, basic medical care, water and sanitation, shelter (including electricity), and personal safety (law and order).
The latter includes access to basic knowledge (schooling related), access to information and communication, health and wellness and ecosystem sustainability.
On the basic needs sub-index, Sri Lanka is third, behind Uzbekistan and Kazakhstan, but well ahead of its South Asian peers. On the foundations sub-index it is a full seven points ahead of the closest South Asian country, Nepal (here is a counter-intuitive result). On "Opportunity" Sri Lanka shows its weakest performance, behind all five Central Asian countries and is ahead of Bangladesh by only three points.
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Opportunity covers the categories of personal rights, personal freedom and choice, tolerance and inclusion, and access to advanced education. How Sri Lanka could be seen as falling behind former Communist countries on these aspects requires deeper investigation.
It is possible that the indicators that are used are distorted because of the government's difficulties in managing the country's external image and relationships.
Overall, New Zealand has the highest SPI score, followed by Switzerland, Iceland, the Netherlands, Norway, Sweden and Canada. It is noteworthy that the countries with high SPI scores, except for Iceland, are magnets for Sri Lankan migrants. The United States is ranked 16th. Sri Lanka is ranked 85th overall, five places behind Russia and five places ahead of China, ranked 90th.
Obviously, this cursory examination is not adequate to fully assess the merits of the SPI. The policy recommendations derived by comparing each country with countries that are similar in terms of per capita GDP are somewhat problematic. But it does provide food for thought and ground for further analysis.
Rohan Samarajiva heads LirneAsia, a regional think tank. He was also a former telecoms regulator in Sri Lanka. To read previous columns go to LBOs main navigation panel and click on the 'Choices' category.