31/10/2013 07:32 GMT | Updated 23/01/2014 18:58 GMT

Slip Sliding Away: What US Decline Means for the World

In this year's Legatum Prosperity Index - a comprehensive survey of wealth and wellbeing around the world - we find the United States slipping. Again. It's not good news for Americans.

Last year I was in Vilnius for a talk with university students. The most common question they asked? Whether Lithuania -- in the aftermath of the 2008 financial crisis; in light of ongoing U.S. economic woes and the EU's single currency troubles -- should look to Vladimir Putin's Russia as a model for the future.

The suggestion that Putinism is a model is an illustration of the "Washington vs Beijing Consensus" debate that's been going on since the end of the Cold War, pitting in essence, a pro-democracy, market friendly camp on the one hand, against autocrats who advance an alternative model for development on the other. And whoa. If young people are thinking about this in Lithuania -- the freedom-loving Baltic nation that was dominated by Moscow for a half century and bloodied by the Kremlin as it drove for independence in 1991 -- then Houston, we have a problem.

Times are indeed changing.

In this year's Legatum Prosperity Index - a comprehensive survey of wealth and wellbeing around the world - we find the United States slipping. Again. It's not good news for Americans. But if the slide continues, it will also have considerable effect on the debate about models that seems to be intensifying across much of the globe.

What do our findings show?

The Prosperity Index (PI) assesses material wealth with subjective wellbeing, using data from Gallup, the World Bank, the World Health Organisation, Freedom House and other organizations. The PI takes a comprehensive approach and measures progress across eight categories: governance, personal freedom, economy, entrepreneurship and opportunity, health, education, social capital, and safety and security. Even in the face of some recent positive economic news -- unemployment has just fallen to its lowest level since November 2008 -- America still looks seriously wobbly, down in five of the PI's eight sub-indices. In fact, last year the U.S. fell out of the top ten most prosperous nations overall in the Legatum Prosperity Index for the first time.

For those who believe, "it's the economy, stupid," it's mostly bad news. In the PI's economy sub-index, the United States has seen a decline of 24 per cent over the last five years, causing the country to fall from 12th in 2009 to 24th place this year. America is now trailing China, Taiwan, Japan, South Korea and most of Europe (including Francois Hollande's beleaguered France). In what once was an American bread and butter category, "entrepreneurship and opportunity," the U.S. is struggling. It keeps getting harder and costlier to start a new business in most places in the U.S. Fewer and fewer Americans today believe that hard work will get them ahead.

Part of the problem is obvious. The U.S. is not creating jobs fast enough. In addition, a decades' long trend of stagnant wage growth continues, and our debt problems mount. In his new book, "The Great Escape: Health, Wealth and the Origins of Inequality," Princeton economist Angus Deaton, hardly a leftist, worries about widening income gaps in the U.S. that appear increasingly difficult to close. Writes Deaton: "All families shared in the rising prosperity until the mid- to late 1970s. Since then, incomes have pulled apart."

Incomes are not the only things pulling apart. By now it should be clear, America's problem is not merely the "economy, stupid," at least not as such and narrowly defined.

The U.S. is becoming hyper-polarised. There's an erosion of trust in public institutions, with confidence in Congress hitting new all-time lows. Gallup was reporting that only 10 per cent of Americans have confidence in the legislative branch -- and this, before the recent government shutdown. This lack in confidence seems to go hand-hand with the viciously adversarial tone that increasingly defines public discourse. Left-wing talk show host Chris Matthews refers on air to the Koch brothers --- the wealthy, conservative political operatives and think tank sponsors -- as "pigs." Right-wing rocker and political activist Ted Nugent says the President of the United States -- who, incidentally, makes Nugent "wanna throw up" -- "should be put in jail."

In democracy the idea of loyal opposition is a vital one. What happens when that starts to unravel?

Little wonder that a kid in Lithuania would start doubting Western vitality and liberal values. Little doubt that in Moscow, Vladimir Putin is smiling.