The Optimist

Club for Growth

The past decade might have been grim for the economically stagnant West, but without a booming developing world it would have been much worse.

The latest data on economic growth released this year by the World Bank confirms what we all already knew: The United States and most of the West had a pretty grim decade between the turn of the millennium and 2010. It's a well-worn story now, a decade bookended by bursting bubbles, with limping, debt-financed progress in between. But there is a lot of good news elsewhere in the bank's assessment of gross domestic product (GDP) growth around the globe: Over the same period, 19 economies doubled in size. Both the causes and consequences of that growth varied considerably, but one thing is clear -- the United States would have been even worse off without it.

The U.S. economy itself expanded by 18 percent from the decade's start to end, ahead of Britain (15 percent), Germany, and Japan (both less than 10 percent). Ranking the 164 countries for which the World Bank has data on GDP growth over the decade, that means the United States came 134th, with Britain, Germany, and Japan in 140th, 154th, and 155th place, respectively. Even the apparent U.S. lead in this category of slimeless snails was partially devoured by a faster growing population, so incomes per head increased by around 1 percent a year in all four countries. (Iraq placed dead last in the global ranking -- surely another blow to the reputation of American economic leadership.)

At the same time, the top 19 countries in the world in terms of decade-long growth saw their GDPs more than double over the ten years from 2000 to 2010. And that top 19 included some really big countries -- not least India and China -- so nearly 2.6 billion people benefited from all of that economic dynamism.

Just as significantly, Africa has been going gangbusters -- though you probably haven't noticed, since the whole region of 49 countries still has a combined economy smaller than the state of Texas. Yet within the club of economies that doubled in size were no less than eight from sub-Saharan Africa, the region traditionally written off as a hopeless economic backwater. Indeed, that region took 17 of the top 40 spots in the decade's global GDP growth rankings; its GDP is 66 percent larger than it was in 2000. Populations have expanded there, too, by around 28 percent over the decade -- but even accounting for more people, the average income in the region is about a third higher than it was 10 years ago.

There is no single answer to the question of what is behind the economic dynamism of the club of doubled economies. Some benefited from expanding output and high prices of minerals exports. The World Bank's data, along with State Department's, suggest that nine of the 19 fastest growers rely considerably on extractive industries. Equatorial Guinea and Azerbaijan, the top two performers worldwide -- whose economies more than quadrupled in size over the decade -- are both highly dependent on oil. So are Turkmenistan (third place) and Angola (fourth). Sierra Leone, Bhutan, Chad, Tajikistan, and Kazakhstan round out the economies highly reliant on extractive industries. Others owe at least some of their dynamism to the rebound from recent and devastating civil wars, including Rwanda and (again) Sierra Leone.

But the rest -- China, India, Ethiopia, Mozambique, Cambodia, Armenia, Belarus, Uganda, and Vietnam -- don't easily fall into either of those categories. None have considerable reliance on mineral wealth, and while some were previously embroiled in civil war, their conflicts ended at least five years before the turn of the millennium. The factors behind their rapid growth are probably as varied as the countries themselves.

Whatever the secret, it doesn't appear that it was simply a case of creating nirvana for private sector growth. The average 2010 ranking among the world's 19 fastest-growing countries on the World Bank's Ease of Doing Business index, which measures the conduciveness of a country's regulatory environment to starting a new firm, was 114 out of 183. Even among those nine countries that don't owe their growth to extractive industries, five -- including India and Ethiopia -- had a ranking below 100. That result echoes the conclusions of economists Dani Rodrik, Ricardo Hausmann, and Lant Pritchett. They looked at 80 periods of "growth acceleration" where an economy increased its growth rate by 2 percent or more for at least seven years. Nearly all were unrelated to economic reforms including liberalization of trade and prices.

And just as the causes of economic growth varied considerably among these countries, so did the associated consequences. Not least, the link between income growth and improvements in the broader quality of life was incredibly weak in a number of cases. Sierra Leone, Ethiopia, Uganda, and Rwanda all combined their top-19 placing in economic performance with a top-19 global ranking in terms of adding years to life expectancy over the decade; on average, a child born in 2010 will now live six years longer than one born in 2000. But while Equatorial Guinea may have been first in the world in GDP expansion, it was 109th in terms of extending health, adding less than two years to life expectancy over the decade. That poor performance was doubtless related to the fact that Equatorial Guinea's President Teodoro Obiang Nguema Mbasogo was considerably more concerned with ensuring his son was well stocked with fast cars and fancy boats than with ensuring that health systems in his country operated at even the lowest levels of efficiency. In Obiang's defense, Chad, Turkmenistan, and Belarus did even worse in the rankings -- and, more surprising, so did China, which added only 1.8 years to predicted lifespan at birth.

Even if the causes and related impacts of growth varied, however, it is pretty clear that the United States was a beneficiary. In terms of national security, the list includes a number of countries that may have moved some distance further away from failed-state status thanks to their development performance. And a bad decade for the U.S. economy would have been even worse without these high-flying performers. In some cases, their expansion was built on growing exports of raw materials and oil that kept prices lower -- for Americans and everyone else -- than they otherwise would have been. In others, particularly China and India, it was built in part on the export of cheap goods and services to the American consumer. And in most cases, the growth created considerably larger markets for U.S. industry. According to data from the U.S. International Trade Administration, U.S. exports to the 19 fastest-growing economies grew approximately fivefold in current dollars between 2000 and 2010, to $119 billion.

So, however weak U.S. economic performance looks in comparison, Americans should be cheering on these countries to another decade of record growth. And they should be doing their part to help that happen: keeping trade open, and allowing ideas, money, and (most importantly) people to move back and forth with greater ease. The best way to extend the Amerislump for another decade would be to do the opposite.

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The Optimist

Don't Worry About Being Happy

Hey, world leaders: Knowing how good your citizens feel about themselves won't help you run your country.

If you want to understand how far the craze for measuring happiness has spread, look no further than that venerable U.S. institution, the Girl Scouts. Last week they rolled out a new badge for excellence in understanding "the science of happiness." And that should help the aspiring statisticians in their ranks, at least -- politicians have taken to happiness polls like kids after another package of Thin Mints. French President Nicolas Sarkozy recently suggested adjusting traditional economic indicators with a measure for happiness. Charles Seaford of Britain's New Economics Foundation notes that government officials in Australia, Britain, China, Ecuador, Germany, Italy, Spain, and the United States are joining France in moving toward tracking measures of the subjective quality of life. In Britain, the Office for National Statistics' Integrated Household Survey now asks how satisfied people are with their lives; Labour Party advisor Richard Layard has called for subjective well-being polls to replace GDP altogether as the measure of a country's progress.

Happiness polls certainly measure something that matters -- and results regarding "what makes you happy" are consistent across countries. Those who say they are happy smile more than average; they sleep better and are seen as happier by friends, family, and psychologists. People who say they are happier go on to live longer, healthier lives. Not least, the polls suggest the value to happiness of short commutes and long holidays -- two things we can all get behind. But wonderful though it may be to imagine calculating the costs and benefits of government action in giga-smiles per minute, there are real problems with using measures of happiness as the basis for policymaking.

Consider the much discussed link between happiness and income. We know with a fair degree of certainty that recessions make people unhappy, unemployment makes them even more so, and unusually rapid growth can lead to a temporary boost in reported well-being in a country. But while more money makes people happier in the short term, they may not stay that way: The link between long-term income growth and happiness is hotly debated. A 2002 study by economists Ada Ferrer-i-Carbonell and Paul Frijters looked at changes in the happiness of Germans over time, asking subjects about both income changes and how satisfied with life they were on a scale of zero to 10. The results suggested that it would take an 800,000 percent increase in income to raise the average German's reported satisfaction by one point on that 10-point scale. (In fact, happy people earn more as a result of their good humor -- who would you rather hire: Eeyore or Tigger? So governments might want to encourage happiness to improve economic performance, rather than the other way around.)

One conclusion from that evidence could be to say long-term GDP growth really doesn't matter and we should be focusing our attention elsewhere. But it is also worth asking why so few people go around asking for a pay cut from their employers or refusing to accept their lottery winnings. Perhaps we care about other things in life than improving our answer to a pollster about how happy we are. We might value the prestige or the experiences money can bring -- even if those things don't make us declare we are ecstatic in a poll. The same applies to children: Analysis of the relationship between kids and life satisfaction suggests that people with kids are less happy than those without kids -- but that doesn't mean kids aren't important to their parents.

In fact, over the short term, happiness poll averages vary as a result of all sorts of daily hassles and small pleasures rather than anything we really want policymakers to focus on. Princeton University economist Angus Deaton has looked at daily tracking polls of subjective well-being in the United States during the financial crisis and suggests that, while they did track the performance of the U.S. stock market, scores were nevertheless "affected more by the arrival of St Valentine's day than … a doubling of unemployment." He concludes, "In a world of bread and circuses," monitoring changes in happiness polls "picks up the circuses but miss the bread."

Adding to the difficulties of using happiness to guide policy is the fact that it has more to do with humans' inherently social nature than with the kind of absolutes that government policies can easily affect. Happiness researcher Carol Graham at the Brookings Institution reports that unemployment matters to happiness scores in general but matters less so when many others are unemployed. And being thin makes you happy in the United States and sad in Russia. Being absolutely rich matters a little, but what really matters is being richer than your peers and neighbors. These kinds of complex and context-dependent relationships are tough to manipulate from Washington.

In fact, the nature of happiness can actually be a barrier to sensible policies. Over the long term, individual happiness reports just don't change very much -- people have a "set point of happiness" they return close to even after disability or bereavement, for example. And Graham notes that people's immense ability to be happy even in grim circumstances means that they end up tolerating conditions that they shouldn't -- high death rates from easily preventable disease or kleptocratic rulers, for instance. How else to explain Nigeria ranking above Germany in average happiness or Colombia above Canada and the United States? Is the policy conclusion that Nigeria is doing better on what really counts than Germany?

This isn't to say that politicians shouldn't care whether their people are happy. But life is complicated and so is what makes up a good one. It is time to give up looking for a single indicator to capture how we're doing at it. And if leaders still really want to help raise national reported well-being, Deaton's results do suggest one approach. He reports that just thinking about politics makes Americans absolutely miserable -- far more down in the mouth than the entire impact of the financial crisis. The implication: Maybe politicians should talk a little less -- about happiness and about everything else, too.

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