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Sunday, April 22, 2012

How will we stay rich?

Not many of us feel rich, but that's partly to do with who we have around us. Compared to most of the world, we are hugely well-off.

Let's make the comparison a little fairer. What matters is not only how much money we have, but what we can buy with it locally: this is known as "purchasing power parity" (PPP). So, here is a graph of the GDP per person (in PPP terms) of the most populous nations on Earth; I also include bars for the European Union and the world average (click to enlarge):


The vertical axis is in multiples of world average GDP: 11,800 US dollars. You see that the USA is four times as wealthy, Germany and the UK three times, and even Italy and Spain are doing terribly well, for now. Until recently, Greece (not shown) wasn't far behind Italy.

My question is, what's keeping us there?

If these countries were a series of locks on a canal, and all the gates were opened at the same time, you'd expect a lot of turbulence and then a settling-down to a uniform level throughout. We have world trade, so why shouldn't national wealth average out across the globe?

It is perfectly possible for neighbouring countries to have extreme disparities in per capita income - here's the two Koreas, separated only by a demilitarized zone around the 38th parallel:

Clearly the economic divide here is largely owing to very different economic and political systems. North Korea may not really be a threat to the world, but it's certainly a threat to its own unfortunate citizens, 150,000 of whom are kept in labour camps in scarcely believable misery. So yes, that inequality can be maintained given sufficient vigour and brutality on behalf of its rulers, who must continue to oppress because they have a tiger by the tail and a moment's weakness will finish them.

At $1,800 per capita, North Korea is far from the poorest country, according to the CIA World Factbook: Bangladesh, Kenya, Zambia and 30 other nations (mostly African) have less, bottoming out with the Congo at $300 (i.e. spending power about 82 cents a day).

But what, other than military dictatorships and civil and international war, accounts for some countries' failure to rise, and what prevents our own standard of living from falling?

Do we work harder?
Are we cleverer?
Are we - will we remain - better educated?
Do we have better and wiser rulers? Do they rule in the nation's interest?
Do we have special knowledge that nobody else can duplicate?
Is our basis of industrial skills thriving?
Are we using our human resources - our talented people - to best effect, in the best sectors of the economy?
Is it easy for our enterprising people to start up and run businesses?
Can we trust our money, and our banks?
Can we live forever off our patents - will they always be ours, and their validity accepted everywhere?
Are we blessed with inexhaustible natural resources?
Are we militarily strong enough to dictate terms of trade and hold everyone else down?

Not enough "yes" answers to the above, I fear.

7 comments:

Sobers said...

A few years ago I travelled round first India (in 2004) and a year or so later China. Purely as a tourist. And the thing that struck me was 'How come these people are so industrious, and hard working, and are so poor (in general) and we in the UK are so lazy, indolent and flabby, yet are so rich?'

And I couldn't get an answer to that, other than we have historic capital that they don't. We have the infrastructure already bought and paid for. India particularly doesn't. China is getting there in spades - the number of shiny new airports and railways and motorways is amazing.

And the logical conclusion I came to was that at some point our standard of living would have to fall to that that we can actually afford, not the one we would like, and have financed for the last decade mostly on tick.

I think that is where we are heading - living standards in the UK back to 70s and 80s levels. One car per household (if that). One holiday per year (and maybe not abroad). Grow your own food on an allotment, buy second hand goods, and hand-me-down clothes for the kids. All things I remember as a child (and I was only born in 1971). No spare money for flash living. Not so much eating out (I don't remember there being many restaurants back then), days out, weekends away etc. People will be able to live comfortable lives, not go hungry or cold, but not live the 'designer' lifestyles that has become the 'must have' since the early 90s recession ended.

Its hardly the end of the world, and all of Africa, most of Asia and South America, and quite a bit of eastern Europe and the ex-USSR would still aspire to be that wealthy. But I guess to us it'll feel like the end of the world.

Sackerson said...

It could be the making of us. We had less, but so did most people around us. A record player, a cup of Gold Blend and a chat with friends.

Weekend Yachtsman said...

Sobers has a point: historical capital.

We are coming to the end of the life of the enormous investments made by our Victorian forbears: roads, bridges, railways, reservoirs, the sewerage system, major public buildings (look at all the Town Halls), and so on.

And we're not replacing them, instead we are consuming the capital and wasting it on welfare payments, the NHS, bureacratic waste (lots of that), pointless over-regulation, green nonsense, the EU, and so on.

Looking at your list of questions, I cannot see even one "Yes".

James Higham said...

Wonder how the Congo would be if it still had the Belgians.

Paddington said...

I was born in 1957. We had no 'fridge until I was 12 or so, no washing machine or telephone until I was 18, and no car at all, except for a few months when my Dad's work gave him one. We went to my grandmother's in Germany in the Summer for holiday, where we actually got to eat ice cream and drink soft drinks! We also had no central heat until I was 14, and we were cold most of the time. My children, raised with all of these things, plus cable TV and the internet, just can't grasp what it was like.

Did we

Paddington said...

1. Do we work harder? - not in most cases, although the engineers and scientists that I know work much harder than necessary.
2. Are we cleverer? - perhaps more free to think of things.
3. Are we - will we remain - better educated? - we are not, and fading fast, but there is hope.
4. Do we have better and wiser rulers? Do they rule in the nation's interest? - no, no and no. We have a bunch of people making technological decisions who don't understand science. What could possibly go wrong?
5. Do we have special knowledge that nobody else can duplicate? - perhaps.
6. Is our basis of industrial skills thriving? - actually, yes, in the US.
7. Are we using our human resources - our talented people - to best effect, in the best sectors of the economy? - no. See 4 above.
8. Is it easy for our enterprising people to start up and run businesses? - still yes.
9. Can we trust our money, and our banks? - yes, no.
10. Can we live forever off our patents - will they always be ours, and their validity accepted everywhere? - the old northern nations, and the US and Canada, are still the powerhouses of innovation, for cultural reasons. As we automate more, much manufacturing could return.
11. Are we blessed with inexhaustible natural resources? - no, and that's what could collapse the whole game.
12. Are we militarily strong enough to dictate terms of trade and hold everyone else down? - just like the old Roman empire.

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