Boosters, Doomsters and all that jazz

The Big Idea in politics currently galvanising our thinking classes is the idea that Britain needs a lot more growth. (Or, at least, that was the Big Idea prior to the mini-budget, but that's a story for another day.) So, for example, you might have seen Sam Bowman distinguishing the Boosters (who believe that the UK's dire economic condition can be remedied) from the Doomsters (who are resigned to decline). Or perhaps you saw Janan Ganesh in the FT telling us that "At each turn, Britain’s economy seems to run into a growth-blocking wall of past-worship". And you will surely have seen The Economist telling us, week after week, that Britain is all gummed up and needs to grow (see, for example, this edition). 

What should we think about all this?

I'll lay my cards on the table. As I said when I wrote about YIMBYs (who are generally the same people as Bowman's Boosters), I'm pretty receptive to the idea that it would be a good thing if Britain were to build more stuff. Equally, given the uphill struggle that YIMBY-Boosters face, I think we can overlook a certain amount of hyperbole in the way they put their case, both as to how bad the UK's situation is and how much better it could get. But - and of course there's a but - I'm far from convinced that the situation is as dire as the Boosters say it is. In fact, it seems to me that the so-called Boosters are the real Doomsters.

I propose to show you that the UK is not doing at all badly by international standards, and I'll do so by looking at a number of graphs taken from the World Bank. I am primarily going to use the World Bank's GDP per capita at purchasing power parity (PPP) graphs, as that seems to me to be the best way of judging how much income the people of a country have, but you'll get much the same picture from looking at other GDP per capita measures. I will also be showing you graphs that extend over about a generation: the points I am making do not depend on a good year here or there, and I am more interested in the long-term trends. Feel free to play around with the graphs on the World Bank's website to see what I mean. (If there's a set of graphs that gives a markedly different picture from what I set out below then please let me know!)

Let's start with what seems to me to be a highly relevant fact: it's actually pretty easy for small countries to be rich. You all know about wealthy, low-population places like Norway, Luxembourg, Monaco or Singapore, or tax haven-y islands with obscure connections to the British Crown, or little oil-rich states with their own monarchs, and I suspect you are prepared to believe that they have their own quirks of natural resources or tax laws that help them get rich. (Or, in the case of Singapore, they had the good fortune to have been run by Lee Kuan Yew.) 

But the point is wider than that. Let's take a couple of countries that are not widely held up as models of great governance: Iceland and Belgium. Belgium is famed for being riven by language divides and unable to form governments for months at a time. Iceland is the country that was so badly affected by the global financial crisis that it needed an IMF loan, thousands emigrated and McDonalds closed its restaurants (the last cheeseburger sold there is now kept under glass). It is surely hard to say that the long term governance and policy-making of either country is as competent as that of, say, France or Germany. It would indeed be remarkable if Iceland, a country of fewer than 400,000 people (somewhere between Cardiff and Bristol in size), would be able to produce top-notch statepersons. And yet each of these countries is consistently as rich as wealthy, careful, sensible, well-governed Germany - and therefore richer than France.

That's the PPP graph. Just to show that there's no cherry-picking, here's the plain old GDP at current $ graph.

As you can see, on that basis Iceland appears to be even richer!

I'm not going to go into why this should be [UPDATE: I go into it here] but the fact that I have discovered from looking at a fair number of these graphs is that, frankly, if you are a low population European country, or an island nation run by English common law, then you jolly well ought to be rich and you have only yourself to blame if you're not. 

So if someone sits you down to explain that Scandinavian countries are rich because of this or that far-sighted social policy, or tells you that the UK would be as rich as the Dutch if it did things in a Dutch way, then I would take it with a pinch of salt: countries as different as Austria, Australia, Belgium and Iceland manage to be consistently about as rich as Germany. What they have in common is being (a) a modern kind of country and (b) having a sub-30m population. Otherwise ...? 

(I never see people explaining how we can become as rich as the Austrians or the Belgians by adopting some great policy they have in those countries: it's always the Netherlands or Scandinavia. Anyway, the next time it happens to you, I would suggest replying "forget the Netherlands - let's have the tax policies of Bermuda or the Isle of Man and then we would all be super rich!")

(NB: not a PPP graph as PPP is apparently not available for Bermuda or the IOM.)

The tricky thing is being a big country - by which I mean having a population of over 30m - and yet being rich. 

There are about 20 countries with a population of between 30m and 80m. The rich/industrialised ones are (in order of population): France, UK, Italy, South Korea, Spain, Canada, Poland and Saudi Arabia. There are also 3 such countries with populations over 80m: the US, Japan and Germany. How do they all match up?

Let's take the big 3 first to get an idea of what we are talking about.

Nice clear picture: the US is the richest, Japan and Germany were level-pegging but then Japan went sideways (or Germany pulled away) from about 2005 and Germany became the clear silver medallist. Just to show you the plain GDP graph for comparison:

It's a more messy picture, but again you see that the US is the richest and Japan the poorest, with Japan losing a lot of ground recently. (This messiness is one reason that I prefer the PPP graphs: I don't think it makes sense to think that the real income - the kind of usable income that people really care about - of a stable country like Japan jumps arounds quite as much from year to year as the bald GDP figures would suggest. In this kind of graph we are seeing the effects of currency fluctuations more than real changes in the economy.) 

One big point to note is that the US really is a great performer. What you are seeing in these graphs is Scandinavian/Swiss levels of income spread across a population larger than that of Indonesia, Pakistan, Brazil or Bangladesh - American exceptionalism in action. I am, as the meme has it, in awe at the size of its economy: it's an absolute unit.

But let's return to the list of big countries outside the top 3. The PPP chart shows the US line ending at about $70,000 per person, Germany at about $60,000 and Japan at about $45,000. (We're just trying to get a rough feel here - don't worry too much about year to year comparisons or exact figures.) As we have seen, small countries of the Iceland/Austria/Belgium kind, i.e. not exactly outperformers, are in the Germany league. To give you some equivalent figures, the super-rich small European countries of the Norway/Switzerland kind are in the US+ league (both are above $75,000) while Singapore ($116,000) and Luxembourg ($134,000) would be right off the top of the graph. 

So where do our big countries fit into that story?

Above is my beautifully annotated graph. I've also included the USA, Germany, Argentina and China just to give you an even better idea of the lie of the land.

There are a few interesting things to note. Poland has been doing well, closing the gap with the Western European countries like Spain, but the story of Argentina is a sad one. Did you think that Saudi Arabia was super-rich on a per person basis because of all that oil? Once upon a time that was indeed so, but its population seems to have been growing faster than its economy for a few years: it used to be richer per person than the US but now it's poorer than Germany. And you start to realise quite how much richer China can reasonably hope to become.

But the big picture point that I want to draw out is that there is a big clump of 'all the rest' in the middle of the chart: France, the UK, Italy and Canada - a group which, if you look at the graph carefully, you will see that South Korea has now joined. Here's another thing to note: Japan is in the graph and it's in that clump too.   

Let's zoom in a little. Saudi Arabia is a bit unusual and not a great success story, so let's leave it out. We can see that Poland is doing well but hasn't quite joined the big league yet. Let's also leave out the USA and Germany as we know roughly where they fit in. What does the graph look like now?

Again, I'm afraid you will have to deal with my unlovely annotations. But I hope the overall story is clear enough. Japan started off being very rich but has fallen behind. Canada, France and the UK appear to have gained a stable position as the top 3 since Japan's decline. South Korea is making a decent bid to join them at the top, having overtaken Spain, Italy and Japan (some more than once) along the way. 

This, it seems to me, is not a story about which the UK needs to be particularly embarrassed. It's richer than Japan. It's richer than Italy. It seems to be richer than France and it's closed the gap with Canada. (Why is Canada not as rich as the US? It's a vast, resource-rich country right next to the USA and very similar to it. My thesis: it's the wrong size. If it were the size of Bermuda then it would be as rich as Bermuda!) That is not a disaster. It's not doom and gloom. If you were talking about Japan or Spain or Italy then I would understand the notes of despair. But we're doing ok: we're consistently keeping up with the top-performing countries of our size.

Of course, as they say, past performance is no guide to future performance: once upon a time, Japan looked like the future. But past performance may well be no guide to the future performance of successful countries either: people are forever finding reasons to be pessimistic about the long-term prospects of the USA (so divided!) or Germany (dependent on Russian gas and exports to China!), and perhaps one day they will be right. But for the moment, the UK looks like a well-established member of the exclusive and rather pleasant group of The Third Richest Big Countries in the World After the US and Germany. That's actually pretty good: there is no country of comparable size with a markedly better record, and there are several with worse. 

The final moral to draw from this is that thinking about 'investing in skills', 'reducing red tape' or all the other growth-enhancing measures that wonks love is a complete waste of time. Our leaders should instead be working flat out to shrink us to the size of Luxembourg.