Background, design and methodology of the

General Government Performance Index

Governments deliver social output (yield) and some are doing a better job in this area than others. There are a lot of rankings that measure such performance and it turns out that each ranking has a different focus. The Global Competitiveness Index, the Index of Economic Freedom and the Human Development Index are just a few examples of thereof. These are all 'output' oriented indexes and in many of these rankings the Netherlands, or any other countries from north-west Europe and Oceania for that matter, realize high marks. These indexes do not, however, make any statement about the 'performance' of a government in relation to the public expenditure and debt discharged in achieving these marks.

We define Government performance in terms of performance relevant to citizensand in this context we will refer to this as social yield. Since such performance is the result of policy choices and public resources specifically allocated for this purpose, it is useful to gain more insight into this matter. For this reason, we decided to design the General Government Performance Index (GGPI), where 'General Government' stands for the whole of central, regional and local governments, thus covering the whole of government actions affecting citizens. The GGPI aims to provide insight into the added value of government policy for citizens. To this end, the Index measures, weighs and compares on the one hand social yields of government performance and on the other hand the total costs of government as a result of its actions (and omissions). We also refer the latter with the term public burden. The GGPI is capable of and is intended to show how, regardless of the size of the resources available in a country, choices regarding the distribution of these public funds towards government actions, translate into benefits that are relevant to citizens, making it possible to establish the extent to which that policy has been successful.

The GGPI is the result of the division of two sets of components. The one set (the 'numerator' in the division) results in a result for social yield. The other collection records the size of the public charges (the 'denominator' in the division).

Output: social yield

Government performance can be interpreted in many different ways and a choice must therefore be made which data points provide the most relevant insights for this purpose. This choice is of course determined by our own views on what the task of the government is or should be. Under the observation that what 'the' government task is expected to be is subject to change over time and is colored by personal or ideological views on the size and responsibility of the government, it has also been established that this by definition yields a subjective interpretation. As far as we are concerned, the core task of the government is in any case to provide for the welfare of its citizens. In this view, the government should focus on those matters that contribute to a good and dignified standard of living, provide for good infrastructure, ensure sustainability and safety, and promote opportunities for the development and personal growth of its citizens. In addition, the government must protect its citizens from corruption and interference in privacy. Moreover, it must promote the rule of law, good and efficient governance, stability and freedom of expression. None of these are economic 'products' of government action, but nonetheless they are essential for a well-functioning society. That is why we have chosen not to interpret these performances economically (or only to very small degree), but instead, to seek to connect with existing indicators that measure output in a different way. For this purpose, we use three components that can be directly traced back to existing indicators. The first two are external performance components and the third one is an internal performance component.

The first external performance component, the Social Progress Index(SPI) developed by the Social Progress Imperative, measures the development that countries experience in creating social added value and ecological sustainability. To this end, within three dimensions and components within it, it tracks the extent to which countries (and with them governments) manage to meet essential human needs (food, water and sanitation, housing and personal safety), contribute to the well-being of its citizens ( knowledge, information and communication, healthcare and a sustainable environment) and provide opportunities for self-expression, personal development as well as the realization of opportunities (personal rights and freedoms, tolerance and inclusiveness, as well as access to (higher) education). The SPI has a scale of 0 to 100 to compare performance between countries, and we use the numbers.

The second external performance component is a more robust component but no less important for the creation of economic and (but indirectly) personal value: Infrastructure. This is also an outstanding element in which governments have a very important and more than facilitating hand. It costs real money and as such it therefore should not be left out from the performance side of government action. I shop for this at the World Economic Forum, which is responsible for the annual Global Competitiveness Report(GCR). One of the four pillars in this survey is Infrastructure, which makes it one of the few indexes with global coverage that explicitly includes this factor as an essential contributing factor for the wellbeing of an economy. 

For the purpose of the GGPI, the Infrastructure scores in the GCR which themselves have a scale of 0 to 7, have been proportionally converted to a scale of 0 (low) to 100 (high).

The internal performance component, the Worldwide Governance Indicators(WGI), provides insight into the extent to which governments have organized their internal systems and enable citizens to realize their political freedoms, can put trust in the constitutional structure of their government and are free from infringements on their privacy. We also consider these components essential performance fields for the government. We dare to say that this component has a very large correlation with the degree of well-being of citizens. 

For the purpose of the GGPI, the six separate scales of the WGI (each with a classification of 0 to 100) are averaged into one score.

The three above mentioned components form the basis for the score for social yield. Since the components are partly overlapping, I have weighed the individual components in a ratio in which they all have, on the basis of the performance fields within the individual components, a more or less equal weighting:

  •   1st external performance component (Social Progress Index): 50%;

  • 2nd external performance component (GCR Infrastructure): 15%

  • internal performance component (Worldwide Governance Indicators): 35%

The results of this weighting are then proportionally ranked on a scale from 0 (low) to 100 (high).

Input: public charges

Social yield is the result of the total of government actions and refraining to act, and therefore of the policy pursued. This policy is paid for, for example, from taxation and other sources of income from the government, such as i.e.  gas revenues. Insofar as this is insufficient to finance this policy, the government finances deficits by issuing government loans. As such, it it puts a burden on the future at the expense of future generations and governments, especially if interest rates go to higher levels again.

For this reason, the input side of the index consists of two components. In addition to the size of the expenditure, the level of the national debt is also included in the Public Expenses component.

The first of the two input components is the size of government expenditure per capita in current US dollars adjusted in terms of purchasing power, based on figures from the IMF World Economic Outlookin the period three years prior to the GGPI year. This requires some explanation:

  • Purchasing power correction is essential in order to make the countries comparable on an equal basis. By reducing the outcomes to per capita amounts, we aim to reduce the outcomes to an equal unit, irrespective of the size of the economy of the relevant country;

  • The decision to go back three years for government spending (i.e. 2015 for GPPI 2018) is also highly explicable. In this way, the link between acting and refraining to act as a result of the policy on the one hand (translated into government expenditure), and the outcome thereof in the output components on the other hand (which often also reverts to previous data), is more directly transparent because it simply takes time for policies to be experienced by citizens after being implementing (we have assumed a 2 year time lag in addition to outcome components being measured on previous year’s data).

Countries with government expenditures lower than $ 2,000 per capita have been disregarded, on the one hand because lower amounts per capita would not allow for any form of effective policy setting, and on the other hand, for the reason that denominators with relatively too low weight, would create highly positive but unrealistic outcomes with no basis in policy decisions.

There is a second input component. In addition to involving total government expenditure, weight is also given to the level of government gross debt as a percentage of the gross national product. This is based on the debt as at 31 December preceding the year of the GGPI (i.e. 31 December 2017 for the GGPI 2018) as laid down in the World Economic Outlook of the IMF. 

Expenses and debt are taken into account in a ratio of 2: 1. The weight of the expenditure is therefore given the most weight because it is based on the primary policy choice of governments (debt being the result of this) and provides insight into the way in which they prioritize policy and influence outcomes. For the purpose of the GGPI, the outcomes of government expenditure and government debt are each ranked from low to high on a scale of 0 (low) to 100 (high).

Outcome: General Government Performance Index (GPPI)

There is a correlation between the social yield and the public burden. After all, the policy and the way in which it is implemented is reflected in the size of the public burden and, if it is favorable for citizens, generates relevant outcomes. It provides a quantitative insight into how much yield a government generates relative to its seizure of the economy. Certainly in the somewhat longer term, it also provides a qualitative insight into the question of whether a government, from the perspective of its citizens, does well to impose a larger or less significant claim on the economy of a country. In times of crisis, but also in the ‘normal’ times, it is necessary to gain insight into whether a government is sensible to stimulate or put brakes on the economy or when to reform it. When and to what extent do they do one and when and to what extent the other? I try to capture these things in the General Government Performance Index. An index that measures, weighs and compares the costs and revenues of government actions and omissions.

The outcome of the GGPI is determined by dividing the output component (social yield) by the input component (public public). The outcome of this break determines the position of a country in the GGPI. The higher the score, the better a country has been able to deliver relevant social returns compared to the size of the public burden.

The above leads to the following formula to determine the outcome for an individual country in the index:

The index has been configured in such a way that a result above 100 indicates that a government has generated a social yield that is higher relative to its burden on citizens and the economy. The policy has then led to added value. Conversely, a score below 100 indicates that the social yield is lagging behind the funds spent. If a government (forced or out of conviction) has a small budget, it may well achieve less, but still generate a relatively large social yield. Conversely, you can pump a lot of money into a system without generating sufficient social yield.

 This is the ultimate goal of the index: it wants to show how government choices regarding the spending of public money translate into benefits that are relevant for citizens of that same government.

 Added value is in the comparison between the years. Then it becomes clear what consequences policy choices have had on the social yield. 

 Finally, this: it is important to realize that these are all relative outcomes. For all the building blocks of the index, it applies to the performance of countries measured with respect to each other. An absolute improvement of the result in one of the components of the Index may lead to a deterioration of the outcome in the same component, simply because the other countries have performed even better.

 

 

[Translation from Dutch enabled by Google Translate]