Many friends have encouraged me to read Thomas Pickety’s book Capital—on wealth and inequality in the 21st century. http://www.amazon.com/Capital-Twenty-First-Century-Thomas-Piketty/dp/067443000X I have done so and think it is interesting. My own take on the issues he raises, at a global level, follows.
I think that the wealth of most nations has improved progressively over the last three decades. Pretty much everywhere. You can see it in Maputo—at least if you’re in the nicer parts of town—and in New York City—definitely in the nicer parts of town but in other areas as well.I think that the access to wealth has not increased at the same rate, however, which is part of Pickety’s concern. There is no doubt that most poor countries in 1980 still offer a version of backbreaking poverty for most citizens.
I am more interested today in thinking about global patterns, however. This is because the order of wealth across nations remains almost static after the past few decades of global growth, which I find intriguing and worthy of some attention. It suggests to me that poorer countries have enjoyed relatively less of the global growth spurt than those that were already relatively wealthier in 1980. This makes it possible to predict quite accurately which countries will be in the top leagues in thirty years and which will be in the bottom leagues.
Should this entrenched order of things concern us?
Herewith my comments in more detail
The world’s economy has grown since the 1980s. Recent stories are effusive about the growth in developing countries in particular, and with good reason. World Bank data show that per capita incomes have just about doubled in this period in countries like Mozambique, Nepal, and Sudan. Explanations for the growth vary. Some suggest that global aid has made a difference; others point to expanded trade as the engine of progress; others reflect on the positive injections provided by natural resource and commodity booms in developing countries.
The different explanations as to why levels are up hold differently for different countries, but there is a common message across all countries, even beyond the developing world: The economic tide has risen for everyone, and a rising tide lifts all boats. Just look at the table from Inequality Watch (http://www.inequalitywatch.eu/spip.php?article102), which shows income levels now and then for a range of different country groups, which have all seen improvements.
It is interesting to note that, while we fawn over the experience in Africa, data show Dutch and American incomes grew by over 60% in the last thirty years. In fact, the wealthiest 40% of nations in 2010 had per capita incomes that were an average of 50% higher in 2010 than they were in 1980. This was much higher than the average thirty year per capita income growth rate in the poorest 20% of countries, which was only 13%.
So: Most countries have seen rising per capita incomes in the last thirty years but the increases seem highest—at last on average—in wealthier countries. Consider the figure—also from Inequality Watch (http://www.inequalitywatch.eu/spip.php?article102.
This suggests that the order of wealth among nations has probably remained pretty static over the last three decades and the gap between the countries at the top and those at the bottom must be growing. This does seem to be the case, and is evident when looking at a sample of 150 countries where data show incomes in both 1980 and 2010. Over 80% of the countries that were in the poorest twenty percent of this sample in 1980 were still there in 2010. Similarly, over 90% of the countries that were in the richest twenty percent in 1980 were still in that top quintile in 2010. The gap between average per capita incomes in the two groups grew from $23,000 in 1980 to over $34,000 in 2010.
So: We have different leagues of countries, countries have remained pretty much locked in their leagues over the past thirty years, and the gap between the top leagues and the bottom leagues has grown.
This does not mean that there was no churning over the period. Countries moved around quite a bit within their quintiles (leagues), about forty countries moved up or down one quintile (or league) and three moved up and down two quintiles (or leagues). Some of these change stories stand out as peculiarly important (especially the two most positive cases, China and India), but there are common storylines to tell as well. For instance, sixteen of the positive movers were small states and nine of the thirteen negative movers were in Africa and Latin America. The African countries that moved down generally dropped to the lowest league, which meant that Africa’s membership in this poorest twenty percent of countries actually grew over the thirty years, from just over eighty to just over eighty six percent. Conversely, long-standing OECD members (mostly from Europe and North America) made up over eighty percent of the wealthiest league in both 1980 and 2000.
What this means is that the economic order of nations has not changed much over the last three decades, regardless of the many crises, advances, and other events in that period.
If this history tells us anything it is that we have a pretty good idea of which countries will be in the top 30 or so wealthiest countries in the world in thirty more years. My prediction (not in order): Austria, Australia, the Bahamas, Belgium, Brunei Darussalam, Canada, Denmark, France, Finland, Germany, Hong Kong, Iceland, Ireland, Israel, Italy, Japan, Kuwait, Luxembourg, Netherlands, New Zealand, Norway, Oman, Qatar, Singapore, South Korea, Spain, Sweden, Switzerland, United Arab Emirates, United Kingdom, and the United States.
We also have a pretty good idea of which countries will be in the bottom league, given how stuck they seem to be in such place. I bet that at least eighty percent of the following will be in this cellar: Afghanistan, Bangladesh, Benin, Burkina Faso, Burundi, Central African Republic, Chad, Comoros, Democratic of the Congo, Eritrea, Ethiopia, Ghana, Guinea, Guinea-Bissau, Haiti, Kyrgyz Republic, Lesotho, Liberia, Madagascar, Malawi, Mali, Mozambique, Nepal, Niger, Rwanda, Sao Tome and Principe, Sierra Leone, Sudan, Tanzania, Timor-Leste, Togo, Uganda, and Zambia.
So: Does this matter?
I have been asking this question a lot in the past few days, wondering if it is good enough to say that after three decades of billions of dollars of aid, trade and natural resource findings the poorest countries in 1980 are less poor today but still comparatively the poorest (and in fact relatively further behind the wealthier countries than they were thirty years ago). I am not sure of the answer, but do think there are some concerns on the horizon, especially given the competitive nature of a global world: If skilled people are mobile, can poorer nations that are stuck in the lower leagues really compete for the talent they need to grow their nations? If capital has been increasingly accumulated in the top league countries, how can countries in the lower leagues access money to build the infrastructure needed to grow (and then keep the flows from the new infrastructure)? If lower league countries are still dependent on higher league countries for aid, trade or other support, how can we ever expect a level playing field where the lower league countries can fairly compete upwards without interference?
I am not sure of the answers to these questions but consider it sobering to think about how much stays the same even while so much changes, and to recognize that we may be in a bigger global development trap than we sometimes like to acknowledge.
The 30 richest countries in the world in 2040 will likely be the richest 30 countries in the world now, which were pretty much the richest thirty countries in the world in 1980. And so it goes on.