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Why Costa Rica has the most efficient economy in the world

The new results of the Happy Planet Index, published last week, show the small central Amercian nation of Costa Rica coming top out of 151 countries. Or to put it another way, they show that Costa Rica has the most efficient economy in the world.

economy in costa rica

This may sound rather counter-intuitive, but that’s because we’re so used to thinking of efficiency in the terms of old economics – maximising productive output while minimising the costs of inputs – irrespective of the damage it does to people or the planet. The HPI measures a new kind of efficiency: the extent to which each nation produces long and happy lives per unit of environmental input.

So why is Costa Rica so good at this? The simple answer is it does pretty well on all three measures which make up the HPI.

Its life expectancy of 79 years is higher than the USA’s – in fact, higher than anywhere else in the Americas apart from Canada. So it’s not that surprising that The Lancet recently described Costa Rica’s Social Security System, known as the Caja, as “the country’s most-respected public institution, providing universal health-care coverage and some of the best health-care services in Latin America”. (Soberingly, The Lancet notes that the Caja is now under severe strain, largely due to the financial crisis.)

Costa Rica also does very well on the HPI’s measure of experienced well-being – which asks people to rate how they feel about their lives overall on a scale of 0 to 10. Its average score of 7.3 places it 13th in the world. There seems to be something of a Latin American component to success on this measure. The only three countries in the top-scoring 15 on experienced well-being who are not members of the OECD club of wealthy countries, are Venezuela, Panama and Costa Rica. Professor Mariano Rojas, a Costa Rican economist and well-being expert, suggests that his country’s success may be partly explained by the abolition of the country’s standing army in 1949, freeing up government money to spend on social programmes, solid social networks of friends, families and neighbourhoods and strong political participation.

Good health and happiness combined are not enough to succeed on the HPI overall. What takes Costa Rica to the top of the chart is its per capita Ecological Footprint, which at 2.5 global hectares is a third of the size of the USA’s. This should not be surprising as the country has embraced sustainability: it produces 99 per cent of its energy from renewable sources, has reversed deforestation in the country, and, in 2008, committed itself to becoming carbon neutral by 2021. However, its Footprint is larger than it would need to be for it to live within its fair share of planetary resources. This is partly due to consumption patterns – the goods consumed by many in the country will have been produced in other countries that have less sustainable energy policies. It is clear that one country cannot achieve sustainability alone.

So like all the planet’s nations, Costa Rica has more work to do to reach the goal of truly sustainable well-being. But its success on the HPI demonstrates that there are alternatives to the development paths that have been followed in the West. It provides a shining example of a country genuinely committed to creating good lives that don’t cost the Earth.