The challenges facing the developed countries of the OECD and the EU have scarcely diminished over the last year: Social inequality, climate change, global migration, international terrorism, and the consequences of the worldwide economic and financial crisis remain major political projects on all governments’ agendas. At the same time, however, opportunities to engage in long-term-oriented policy are compromised in many countries due to the advances being made by nationalist populism. In this regard, the fact that the international community is drifting apart on issues of democracy quality and the rule of law is alarming. These are the key findings of this year’s edition of the Sustainable Governance Indicators (SGI), which assesses governance and reforms in all EU and OECD states on the basis of 136 indicators.

In the aggregate evaluation, the Scandinavian countries, led by Sweden, continue to achieve the best scores. Switzerland and Germany also fall into the top group. In contrast, the United States has deteriorated by three places, and continues to perform far below the average level (29th place). Greece again takes last place in the cross-country comparison, but for the first time, an improvement in policy outcomes is evident.

Economically, most OECD and EU countries were able to recover further from the effects of the economic and financial crisis during the review period (November 2015 to November 2016). This is particularly true of the countries hit especially hard by crisis, where the structural economic reforms introduced in recent years are now yielding sustainable labor-market impact. Ireland demonstrates the strongest improvements in this regard, but in Greece too, the first hopeful signs since the outbreak of the crisis are evident. However, from a cross-national perspective, there has been relatively little progress with regard to assuring long-term societal participation in the emerging economic upswing, aside from providing improved access to the labor market. For example, poverty reduction in southern Europe is progressing only slowly. Child poverty rates in southern Europe continue to sit clearly in the two-digit percentage range.

By and large, most industrialized countries are treading water with regard to social policy. Featuring an already weakened sociopolitical order, countries such as Poland, the United States, Slovakia, Bulgaria, Romania and Hungary, whose political landscapes have recently been characterized by a marked political polarization and the rise of nationalist populism, registered still further deterioration or stagnation with regard to their sociopolitical performance. The gap between these countries and the top group encompassing the northern European countries and Switzerland once again widened significantly. “Overall, the capacity of many OECD and EU states to address problems effectively has been eroded by the growth of populism,“ says Aart De Geus, Chairman of the Bertelsmann Stiftung’s Executive Board. “Given the diversity and complexity of policy challenges we now face, this is a worrying trend.”

The likelihood of reaching sustainable common solutions in critical problem areas such as the reduction of worldwide social inequality and the fight against climate change has again diminished. To be sure, some leading countries such as Germany and Sweden have again further intensified their efforts toward greater cooperation within the international framework. However, a significant number of countries have not answered the call to engage more strongly. Thus, the gap between those countries that engage strongly within the international framework and those that rely only on selective and uncoordinated engagement is further solidifying. This trend can be seen even more clearly with respect to the common fight against climate change. While France and Germany have again expanded their activities here, the majority of developed countries have noticeably curbed their engagement in this area due to the pressures of the economic and financial crisis.

Differences with regard to realizing high-quality democratic procedures and standards have also grown significantly again in recent years within the OECD and EU. Very worrisome developments are evident in Poland, Hungary, Turkey and Mexico. “The fact that countries like Poland, Hungary, and Turkey are moving further away from the rest of the EU and OECD in terms of the quality of democracy places a heavy burden on the idea of European integration,” notes Aart De Geus. In Hungary and Turkey, quite alarming trends have emerged concerning the respect accorded to rule-of-law standards. This relates particularly to core principles such as judicial independence, press freedom and the effective protection of minorities. In both countries, the media, societal groups and parliament no longer have the ability to exert sufficient societal control over the government.

Thanks particularly to its strong economic and labor-market trends, Germany has been able to improve in the aggregate SGI evaluation (to 6th place), and has established its place in the leading group internationally. In some areas such as environmental policy (4th place) and research and development (5th place), Germany has become a role model for other nations. However, Germany’s evolution from its erstwhile role as “sick man of Europe” into a reform role model should not obscure the fact that in some areas, further substantial efforts are necessary. For example, despite the highly favorable economic and labor-market conditions, prosperity is not reaching all people in equal measure. The risk of poverty has not decreased despite recent years’ positive labor-market trends. Indeed, for certain high-risk groups, an increase in poverty is becoming apparent over the long term. This is true particularly for older people. In addition, Germany has a significant investment gap. In fact, significant future growth and labor-market potential could be realized if more were invested – and for greater impact – in the country’s future viability. This would involve, for example, greater investment in digital infrastructure, transport infrastructure, education and affordable housing. For now, the financial flexibility to do so is in place.