Note: The Assignment here was "What Makes a Country Successful?" I tried to fit in the box I was anticipating the professor was expecting. Otherwise, I would not have used anything that touched the heritage foundation. When I was in DC this summer, I was drinking at a bar on Capitol Hill two doors down from the Heritage offices. I gave them a two-finger salute. If I was a smart phone type of person, I'd have proof it happened. Sadly it is all in my mind. So I tangentially tied in their "Economic Freedom Index" because the professor pushed it so hard. In an exchange with Dean Baker, I joked about how Econ 101 WAS ABOUT gains from trade. He pointed out that those gains aren't evenly spread. In truth I'm all for infant industry protection and trade barriers that don't let developing countries be eaten up by the market. But this was an intro class and we didn't learn that and I just kept my head down and didn't want to push it. Anyways, veritas sequitur.
"Growing a Successful Country"
To
say a country is successful, economists will look at some simple data points.
First, they may look at GDP, the total output within the nation’s borders
adjusted by net imports. If that is not specific enough, they will look at the
GDP per capita, or the amount of goods and services totaled but divided by the
country’s population. This will give economist a rough estimate of the amount
of goods that an average citizen of that country can call his or her own. This
number gives a raw number but it is not good enough to compare how the people
of the country will live their lives, a further adjustment is necessary. Most
goods are seen as operating in a world market; services are tied to place. No
Boston barber is giving haircuts in Kinshasa. Thus, there is an adjustment for
good and services that an individual in the Democratic Republic of the Congo
can receive as opposed to a direct dollar amount, called “Purchasing Power
Parity” or “PPP” for short. In this example, the World Bank PPP adjusted GDP
per capita is $747 as of 2013, where the straight dollar amount of the GDP per
capita is $454 for the Democratic Republic of the Congo. The PPP is an attempt
to show the real buying power of a population. Comparatively, in the United
States, the GDP per capita is $53,143 in both absolute and PPP terms because
the adjustments are made in reference to the number of the United States (“GDP
per capita”). Economists will tell you that GDP is not enough. The people of
the country need to share in the wealth of the nation, or there is a chance at
political unrest – just ask the Romanovs. There is a measure of how that GDP is
distributed, called the Gini index. The Gini index is shorthand for how well
the wealth is spread. A Gini index of one means that one person in the country
receives all the income and no one else gets any, where a Gini of zero means
that the income is perfectly divided (“Measuring Inequality”). A successful
country will not have a Gini near one, but will instead have an environment
where there is an opportunity to share in the wealth the nation generates. For
example, the Democratic Republic of the Congo most recently was calculated as
having a Gini of 44.4 where in the U. S. it was 41.1, meaning income is spread
amongst the citizens of the United States more equally than the DRC. (“Gini
Index”).
The
above comparison show us that using just these two numbers that the Congo is
poor and the United States, in comparison is vastly richer. Ultimately, the
exercise can be repeated with every possible set of nations. Ultimately, such
comparisons are only looking at the results. To make a successful country is
more than just saying that a successful country needs a high GDP per capita:
look at Luxembourg, Norway, and Japan! The path needs to be considered.
A
country looking at becoming successful in the nineteenth century would want
certain things geographically. It would need protected bays, like that of
Boston or San Francisco to handle international trade and fishing fleets, and
to protect the fleet from storms and marauders. Some European countries even
put their capitols up a river, like Paris on the Seine, London on the Thames,
and Lisbon on the Tagus. In the hinterlands, the country would want fertile
lands, as Russia enjoyed with the Ukraine when it was part of that empire, and
that helped the United States grow from scratch. Natural resources would be
paramount – forests or coal to heat homes and the boilers of steam engines,
like England extracted from the coalfields of its north. Growth today is a
little different. What is underground can help. Paul Krugman, in his textbook,
compares the difference between the nations of Kuwait and Germany. Both have
similar GDP per capita, but Germany is at a great advantage because the wealth
of the German people is based on generations of developing knowledge in the
manufacturing sector (Krugman & Wells p. 251). There may be a day when oil runs out or is
supplanted by another energy source. There is no similar to peak oil when it
comes to knowledge. There is no peak knowledge. The question then becomes, “How
do you get there from here?” The ultimate answer is that a nation becomes
successful by investing in its people. By investing in its people, a nation can
grow the GDP based on expertise and a cumulative growth in productivity. This
investment in people helps grow human capital, defined as “the improvement in
labor created by the education and knowledge embodied in the workforce” (Krugman
& Wells p. 247). To achieve this growth in human capital, the people of a
country need to be healthy, educated, and employed. In the sections that
follow, each of these will be examined in turn.
To
have a successful country, the first thing that is necessary is to have healthy
people. There are various ways to measure this. One way to measure a
population’s health is to look at its overall life expectancy. This measure
tells you how long a person born in a certain year is expected to live. The
United Nations keeps track of these numbers. Currently, a child born in the
most developed countries will live eighty years or more. For example, the child
that will the live the longest is a Japanese female at 87 years. The child that
will live the shortest is a male from Sierra Leone who will live only 45.3
years (Malik table 5). The oldest lived average child will live almost twice as
long as the shortest lived child. The difference between the two is the
stability of the government and the institutions that serve the people. Sierra
Leone has been through civil wars recently, and a large number of its
population is young, with a median age of 19. Only 0.02 physicians per 1000
people serve this young population. This is a very low number of doctors in the
face of the public health issues facing the people of Sierra Leone, from bad
water to infectious diseases like malaria, dengue fever, and yellow fever. This
is not to say that government is not trying to keep the population healthy.
Expenditures on healthcare in Sierra Leone are 18.8% of the GDP. The problem is
that the country is very poor. The main industry of its workers is subsistence
agriculture (“CIA Sierra Leone”). That
means the percentage spent on health, though high as a percentage of the GDP is
low in absolute numbers. The overall poverty and the lack of trained physicians
means the population of Sierra Leone dies at an age that is much younger than
the rest of the world except for some of its geographic neighbors.
Decolonialization led to revolutions and wars and strongmen throughout
sub-Saharan Africa, meaning the public health crises have not been dealt with
from malaria to HIV/Aids.
In
contrast with Sierra Leone is the nation of Japan. The people of Japan have
enjoyed relative political stability under a new constitution after their
involvement in the Second World War. Before that, however, they went through a
century of modernization after 1854 when Tokyo was opened up to trade and Japan
went from a feudal nation to a modern industrial state. It has homogeneous
population, with a vast majority of its people being of Japanese descent. These
people are also an older population, with Japan’s median age being 46.1 years
old – older than Sierra Leone’s expected lifespan for males. This older
population takes care of itself. Even though it only spends half of what Sierra
Leone does on healthcare in terms of GDP at 9.3% of GDP, Japan has a hundred
times as many doctors per thousand of population, with 2.14 doctors per every
thousand Japanese citizens. (“CIA Japan”). Having medical care and clean water
is a huge advantage in keeping people alive. Having people live a long time
means that human capital has time to be built up within generations. Sierra
Leone is working on it, but there is a lot to be said for political stability
like Japan has had for the past 70 years. It allows institutions and
corporations to flourish.
Once
a country has a healthy population, the next goal for a country to build hu
man
capital is to educate the people. The nature of the education process is a
fraught political potato with predictable left right divides. The most
important thing for a country’s is not if the teachers are on the government
payroll or not, but that the students are in school. In terms of anticipated
length of time students will stay in front of a teacher, the nation of
Australia is in the global lead, where the average student is expected to have
20.3 years of schooling for their women and 19.4 years of schooling for the
males (Malik table 5). Compare this to Eritrea. The students in Eritrea are
anticipated to spend 3.7 years in the classroom for females and 4.6 years for
males. For context, that means that every Australian student will have
schooling from preschool to a bachelor’s degree, on average. The student from
Eritrea will have the equivalent formal education of an elementary school dropout.
What
makes Australia so successful in this metric has a lot to do with other
factors. Australia, though a relatively new country, inherited many of the
institutions of its English settlers while taking advantage of the vast
emptiness of the continent and the fertile agricultural land on the continent’s
southeast shore. Australia has large land mass but a relatively small, mostly
urban population that now lives largely on that coast. The people have a long
life expectancy to go along with the education. They have more doctors than
even Japan, and enjoy a low instance of chronic infectious diseases such as
AIDS. The most notable thing about Australia is that it has enjoyed political
stability, having an independent constitution since 1901 and exercises the
English common law system. (“CIA Australia”) They were able to piggyback off
the success of the English system while also looking to the United States for
inspiration in the governing structure. The monarch of England nominally still
heads the nation, but the real power is vested in the Prime Minister and the
bicameral legislature.
Compared
to the institutions Australia inherited from its former colonial guardians,
Eritrea inherited a many issues. The nation, on the eastern coast of Africa,
won independence from the Italian government after the Second World War. Peace
lasted for about ten years before thirty years of war between it and Ethiopia
erupted. In the 90’s the war ended, and since then it has been run by the same
strong man whose rule has been described as “autocratic and repressive” (“CIA
Eritrea”). Because of this instability
and one-man rule, many of the metrics used to describe a successful nation have
suffered. It has one of the world’s lowest life expectancies, anticipated by
its abysmal spending on health, which at only 2.6% of GDP places it 184th
amongst all nations. This ill health and poor level of education leads to a low
literacy rate. Though suffrage is nominally universal, there has not been a
presidential election since 1993. The lack of markets in the country’s command
economy inhibits growth, leaving 80% of the nation’s workers scratching the
dirt for subsistence agriculture. Its goods are very low on the value chain,
exporting raw materials and importing finished goods. The people of Eritrea
suffer because of the lack of real democracy and the policies brought down buy
their strongman. He keeps them uneducated, unhealthy, and poor.
Once
a country’s people are healthy and educated, the next thing that is needed to
grow human capital is to give them jobs so that they can gain experience and
move up the ladder in their careers. The best comparison is how many people in
the labor force do not have work. This is measured through the unemployment
rate. Globally, the country with the highest unemployment in the last year that
the UN tracks is the former Yugoslavia Republic of Macedonia at 31%, while
amongst the lowest is Qatar at 0.4%. (Malik table 11). There is a vast
disparity between these two nations.
Macedonia
is doing many things right. It has advantageous geography and is surrounded by
the European Union member states. The nation is relatively healthy and
educated, with a 97% literacy rate. The biggest issue is that the nation has
lack stability. Of the former communist bloc states, Yugoslavia has the
messiest transition to the free market. The Balkan Peninsula was embroiled in a
decade of war until about 2001. It was not until that point where adoption of
more market friendly policies could take place, and they are slowly working
their magic. In fact, some observers say that the high rate may be overstated
because the nation has an abnormally large grey economy. Off-book employment
may approach 40% of GDP (“CIA Macedonia”). If true, this is an issue for the
future of the country, as tax collections help drive infrastructure
development, including the much-needed health and education facilities. The
health and education of the people is the health of the state. With the people
either not working or working in the gray economy, the future is at stake.
Conversely,
in Qatar, everyone who wants a job has a job. Unemployment is at 0.4%. A large
part of that is Qatar sits on vast hydrocarbon reserves. These have not been
sufficient for employment in the whole course of the nation’s history. The
nation has been run by the same ruling dynasty since the seventeenth century,
but for most of that time the wealth from the ground was taken by the ruling
family and the people did not have jobs. It was not until 1995 when a more
people-friendly ruler came to power. His rule had been notable for the
development of Qatar as a hub of stability in the Arab region, along with some
political modernization. Even more notable was his peaceful handing over of power
without his having to die (“CIA Qatar”). The problem is that even thought at
this point Qatar is importing labor, there is a definite lack of institutions
to look out for the people of Qatar. Formerly the ruling family expropriated
all the wealth from the ground. That changed to be friendlier to the people of
Qatar, but it can easily be changed back to the old way of doing things at the
whim of an absolute ruler. The populace is healthy and well educated, and they
are now poised to grow after the global economy moves away from oil as an
energy source.
In
the end, just having a healthy and educated populace is not enough for success.
The metrics for success have some commonalities. The very best countries in
terms of education, life expectancy, and unemployment rate have a history of
political stability. Other than Qatar, the best countries are democracies.
Qatar started to gain success when it started to act as if a democracy would
act in terms of spreading the fruits of the ground. The royal family remains
well off, but everyone is well off. Qatar in fact has the highest global GDP
per capita because of its oil wealth, and it shares its wealth comparably to
the United States, with a Gini coefficient of 41.1 (Malik table 3). Conversely,
the countries that have failed at the metrics examined have much more political
instability. They have suffered long wars in recent memory and have only just
begun to recover from those scars. Macedonia has an established democracy, but
Sierra Leone and Eritrea suffer under autocratic rulers who expropriate what
little wealth is created for themselves and their cronies. These political
institutions, and the lack of them, are so important in the success of a
country. Even the healthiest, smartest, most hard working population could not
succeed under the conditions that exist in the least successful countries.
Success is not economic, but the result of choices the government makes. The
closer the government is to the people, the more the government will make
policy decisions that benefit the people as a whole and allow success of the
people to make the whole pie bigger instead of taking most of a small pie. The
Heritage foundation defines this autonomy of the individual as economic
freedom, with three fundamentals: “empowerment of the individual, non-discrimination,
and open competition” (Miller & Kim).
They maintain their own ranking of how economically free a country is
based on their fundamentals, and looking at their rankings show that economic
freedom goes hand-in-hand with the other metrics examined. A nation that builds
human capital is one that is free. For example, Australia, Qatar, and Japan all
rank near the top of the rankings. The Australians are third after Hong Kong
and Singapore. On the other end, the poor African countries are near the
bottom. The only outlier is Macedonia, which ranks fifty-second (“Country
Rankings”). However, that is to be expected with the large gray economy noted
earlier. Therefore, it is easy to see that economic freedom as measured by the
Heritage foundation is highly correlated with growth and development.
In
the end, if a country wants to be successful, it needs to grow its people. Nevertheless,
to do that, it needs stability and the institutions in place that will
facilitate its growth. It needs to avoid long and drawn out wars that take
resources from economic development. The country must also have open markets
that are accessible to the people. If these conditions are met, then the
country will be on the road to success.
References
Krugman,
P. & Wells, R. (2013). Macroeconomics. New York, NY : Worth Publishers
World Bank.
(2014). Gini Index. World Bank
Databank. Retrieved from
http://data.worldbank.org/indicator/SI.POV.GINI?order=wbapi_data_value_2013+wbapi_data_value+wbapi_data_value-last&sort=desc
