Economic View
Fruitful Decade for Many in the World
TYLER COWEN
The New York Times, January 2, 2010
IT may not feel that way right now, but the last 10 years may go down in world history as a big success. That idea may be hard to accept in the United States. After all, it was the decade of 9/11, the wars in Iraq and Afghanistan, and the financial crisis, all dramatic and painful events. But in economic terms, at least, the decade was a remarkably good one for many people around the globe.
The raging economic growth rates of China and India are well known, though their rise is part of a broader trend in the economic development of poorer countries. Ideals of prosperity, freedom and the rule of law have probably never been more resonant globally than they’ve been over the last 10 years, even if practice often falls short. And for all of the anticapitalistic rhetoric that has emerged from the financial crisis, national leaders around the world are embracing the commercialization of their economies.
Putting aside the United States, which ranks third, the four most populous countries are China, India, Indonesia and Brazil, accounting for more than 40 percent of the world’s people. And all four have made great strides. Indonesia had solid economic growth during the entire decade, mostly in the 5 to 6 percent annual range. That came after its very turbulent 1990s, marked by a disastrous financial crisis and plummeting standards of living.
Brazil also had a consistently good decade, with growth at times exceeding 5 percent a year. There is lots of talk that the country has finally turned the corner, and, within its borders, there is major worry that its currency is too strong — a problem that many other countries would envy.
Elsewhere in South America, Colombia and Peru have made enormous progress and Chile is on the verge of becoming a “developed” country; it will soon be joining the Organization for Economic Cooperation and Development.
To be sure, in Africa, there is still enormous misery. Nonetheless, overall standards of living rose in a wide variety of countries there, with economic growth for the continent as a whole at more than 5 percent in most years. Many basic essentials, like water, sanitation, electricity and especially telephones, are more commonly available.
One lesson from all of this is that steady economic growth is an underreported news story — and to our own detriment. As human beings, we are prone to focus on very dramatic, visible events, such as confrontations with political enemies or the personal qualities of leaders, whether good or bad. We turn information about politics and economics into stories of good guys versus bad guys and identify progress with the triumph of the good guys. In the process, it’s easy to neglect the underlying forces that improve life in small, hard-to-observe ways, culminating in important changes.
In a given year, an extra percentage point of economic growth may not seem to matter much. But, over time, the difference between annual growth of 1 percent and 2 percent determines whether you can double your standard of living every 35 years or every 70 years. At 5 percent annual economic growth, living standards double about every 14 years.
Nonetheless, despite the positive news in much of the world, it’s questionable whether the decade as a whole has been good for Americans, economically speaking. Median wages have not risen much, if at all, and the costs of the financial crisis and irresponsible fiscal policies have become increasingly obvious. Those facts support a pessimistic interpretation.
Still, most economic models suggest that the fundamental source of growth is new ideas, which enable us to produce more from a given set of resources. To the extent that the rest of the world becomes wealthier, there’s more innovation, as my colleague and co-blogger Alex Tabarrok, professor of economics at George Mason University, argued recently. China, for instance, is moving toward the research frontier in areas such as solar power, scientific instruments, engineering and nanoscience, all of which can benefit the United States. Unlike the situation of just a few decades ago, a genius born in Mumbai now stands a good chance of becoming a notable scientist, whether at home or abroad.
It might be pleasant to boast that America is — or should be — a world leader in every area, but the practical reality is that if some other country solves the problem of green energy, so much the better for us.
The subtler point is that a wealthier China, India, Brazil and Indonesia will lead to more customers for new innovations, thereby producing greater rewards for successful entrepreneurs, no matter where they live. There are so many improvements in cellphones these days because there are so many cellphone customers in so many countries.
TO put it bluntly, if the United States takes one step back and the rest of the world takes two steps forward, even in purely selfish terms we should consider accepting the trade-off, if only for the longer run. Most of us gain from the wealth and creativity of other countries, even if we can’t always feel like the top dog.
When asked what he thought of the French Revolution, Zhou Enlai, the premier of China from 1949 until his death in 1976, reportedly replied, “It is too soon to tell.”
That is also a fair response to the last 10 years, and it will be for some time to come. The point remains that if we look beneath the surface just a bit, the picture is a good deal rosier than we might otherwise think.
Tyler Cowen is a professor of economics at George Mason University
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