A Note on the People and the Wealth of Nations at the Dawn of the 21st Century

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International Currency Money for Forex Trading
A Note on the People and the Wealth of Nations at the Dawn of the 21st Century - Jean-Claude Chesnais

Introduction

In the 1960's, just after the era of African independence, midst develop­ment economists agreed that the future of Asia would be bleak while the destiny of Africa would be great. The main rationale was the following: Africa was seen as a new continent of emerging promises with tremendous reservoirs of natural re­sources, in a context of low population density and long-awaited political inde­pendence. Asia, namely India, was perceived as the continent under the threat of massive famine. The green revolution in India and the mismanagement in Africa have changed the deal.

The present reality contradicts what was once the conventional wisdom. If we consider the planet worldwide, we find an unprecedented gap between the distribution of people and the distribution of income. The message is clear: peace, democracy and social cohesion, human organisation in other words are more important than natural resources in the shaping of economic destiny.

Today, as yesterday and tomorrow, the vast majority of people (three out office) live in Asia. The production of goods and services, however, is more than ever concentrated in the market economies of the European sphere on both sides of the Atlantic. At the conclusion of the 20th century, only one big Asian country, Japan, has been able to reach the European level, thanks to a stubborn effort beginning in 1868 (the Meiji era) and lasting more than one century.

The West

NAFTA, EU-15 and Japan, or the "Triad"

Two big commercial blocs dominate the world economy: NAFTA and the European Union (EU-15), with a similar demographic weight (about 1/16 of the planet for each) and representing 57%of the total world product (30% for North America and 27% for Western Europe). These two groups of nations generate the bulk of global income, while their population is only 780 million out of a world figure of 6 billion people. If we convert the corresponding value of the contribution to the world income expressed in dollars at prevailing exchange rates into international dollars that would buy the same amount of goods and services in a country's domestic market as $1 would buy in the United States (purchasing power parity method), the difference is not so clear-cut. This whole geographic area, after correcting international price differentials, remains largely predominant with a total share of 44% of world GDP.

The third pole of wealth is the East Asian region whose market economies are dominated by Japan. With only 9.5% of the population of the world, this pole is the source of 19% of world GDP (14% after correction for price distortions). The Japanese GNP, calculated at Purchasing Power Parities (PPP) in order to rectify the exceptionally high level of prices in Japan, represents nearly 8% of the world GDP compared to a population of only 2%. The ranking of the Japanese GNP per capita is striking; with a value of $24,400 USD per head, out of 215 countries, it is number eight. This places it among fiscal paradises like Liechten­stein, Luxembourg, Switzerland, Bermuda, Cayman Islands (between $26,000 and $30,000 per capita), the innovating United States ($29,000) and oil-rich Norway ($24,260). Very few other Asian countries rank among the top ten, and of those which do (Singapore, Hong Kong, and Taiwan), all are offshoots of China and closely related to the Japanese economy. ln other words, they are small insular economies with a corresponding total population of 33 million inhab­itants and a GNP per capita of between $25,000 and $30,000 (USD-1997). South Korea lags far behind, ranking at 52nd with a per capita income of $13,430 (USD-1997).

Thus, considered as a whole, with only 22.6% of world population, these three poles comprise a Triad that is the source of 78% of the monetary income and 58.5% of world income calculated in terms of PPP.

 

The Rest

1. The Former Soviet Union

The former Soviet Union (FSU) consistently falsified its economic ac­counts during the communist period in order to give the world the illusion of being a superpower and threatening the United States. Russia, which is the main com­ponent of the FSU and includes half of its total population, shows a very low monetary product: only 1.5% of the world total, or nine times less than Japan and 17 times less than the United States. In spite of its huge natural resources deposits (gas, oil, gold, diamonds), the Russian Federation shows a lower performance than the Netherlands, where the population is ten times smaller. Even after cor­rection for price distortions, the Russian economy is a marginal share of world GDP. With a share of 1.9%, it is close to the level of lndonesia or Sub-Saharan Africa and far from the biggest economies of the European Union (Germany, France, Italy and the UK each have 3-4% or world GDP). Mexico's GDP per capita measured at PPP in international dollars is 90% higher than Russia's per capita income. As a basis for comparison, let us mention the values for Japan and the United States: $24,400 and $29,080 respectively. Hence, the real per capita income of the Russian population is seven times smaller than the American and six times smaller than the Japanese. This is a tremendous gap that illustrates the extent of the misinformation propagated under Communist rule and the collapse of the Russian GDP after 1989. The highest ranking of the former Soviet bloc, the Czech Republic, is still far from economic success at number 63 and a GNP of $10,380 (USD-1997) per capita.

2. China and India

The two demographic giants of Asia (China and India) exhibit contrasting results, but here it is important to be cautious. There is clear reliability in Indian accounts since India adheres to full transparency and respect of international norms in the computation of national account statistics. This is not the case with Chinese figures. A closer look at Chinese data exhibits anomalies, inconsistencies and bias, similar to those of the Soviet case. In any case, the share of the Indian economy (calculated in PPP's of world income at 4.3%) is more than double that of Russia.

India, in 1999, has just crossed the threshold of one billion people; its GDP measured at PPP' sis similar to that of individual Western European econo­mies such as that of France, Italy, or the UK. India no longer hides its ambitions as a potential superpower; this is demonstrated by its nuclear and aerospace ca­pacities. India's advantages are usually underestimated, while the reverse is true of China. India deserves more consideration. Consider its mastery of high tech­nology, the number and quality of its emerging elite, and the 2 million students who get university degrees each year. Most Indians speak fluent English and thus can be involved directly in business and science. India has a long-standing pluralistic democracy, a high degree of international openness, successful population con­trol, and the emergence of a large middle class eager to modernise and adopt Western lifestyles.

3. South America

South America is in the fourth position, rather far from the three poles of NAFTA, the European Union, and the Far East capitalist economies. Its share of the world economy is 6.7%, or 3.5 times higher than Russia's share. In spite of benefiting from oil endowment and a small population, the countries of North Africa and the Middle East have a GDP only half of that of Latin America, which has no such valuable natural resource deposited and has a high population growth rate. With a real GDP per capita of about $5,500 USD, Latin America stands between the more developed and less developed countries, but far ahead of lndia and China (at $1500 and $2000 per capita), and especially ahead of Sub-Saharan Africa (at less than $1000 USD).

4. Sub-Saharan Africa

Sub-Saharan Africa is farther behind than ever. With a total population similar to that of the market zone of the Far East, about 600 million people, it shows a much lower economic performance. If we put aside the economies of South Africa, Zimbabwe, and Namibia, which are better organized and richer, the inequality is even more striking; the corresponding mean individual income ratio exceeds 10 to 1 in favor of the Far East2. What is most significant is that India exhibits a standard of living that is 50% higher than that of Sub-Saharan Africa.

Since the collapse of Communism, Africa has been completely marginalized Every evil has fallen on it. India, the traditional symbol of misery, has tried to erase its backwardness with impressive growth rates of 5 or 6% annually since the second liberalization program launched in 1990. International differences are thus increasing. The rate oft echnological progress is one reason behind this differenti­ating economic landscape. Mismanagement, as shown by the example of Sub-Saharan Africa, is another factor.

The picture is clear: the economic planet is divided between the West and the rest. The present divide is too clear-cut to be politically bearable in the long run. Many countries oft he "West" face massive depopulation, especially in Eu­rope and Japan, and will experience an economic slowdown, while new countries with high potential could emerge. China has unclear but deep weaknesses, among which are its closed economy, its lack of infrastructure and of freedom, the ab­sence of democracy, and a huge degree of social inequalities, hence a strong potential for political unrest. India, which is conventionally viewed with pessi­mism, is likely to become Number 2, although still far behind the US, by the year 2020-2030.

Notes

Jean-Claude Chesnais, Ph.D. in Demographics (Paris: Sorbonne) and Economics (Paris: Institut d'Etudes Politiques), is a visiting professor at The Johns Hopkins University-SAIS Bologna Center and a Senior Research Fellow at the Institut National d'Etudes Demographiques (INED) in Paris.