Trends in Economic Well-Being in the Era of Globalization

Some findings are surprising …

egThe political environment in the United States and Europe has been an endless source of fascination this year — and of course it’s been influenced by a myriad of factors.

To try to make sense of it all, how much of what is happening is due to new challenges to the social order … and how much is due to changes in economic well-being in an era of globalization?

My brother, Nelson Nones, has lived and worked outside the United States for the past two decades. His business is based in East Asia, and much of his work is done in Europe as well as in Asia and North America.  I find his perspectives quite interesting and often different from the “conventional wisdom” heard here at home, because Nelson’s is truly a worldview borne of first-hand experience and observations across many regions.

I asked Nelson to share his thoughts on how globalization has affected the average person — hopefully looking beyond “perceptions” and other qualitative factors and instead focusing on hard metrics.  Nelson’s analysis is insightful — and surprising in some respects. Here is what he reported:

The “Era of Globalization” covers the last quarter-century, beginning with the fall of Communism and continuing to the present day. It began with the opening of national economies which were previously barred from global trade and migration – the former Soviet Union, Mainland China, India, Brazil and others.

Major economic blocs also emerged to liberalize free trade and migration, most notably the Euro Area but also NAFTA in North America, and ASEAN in Southeast Asia.  

In five of the world’s eight major regions, economic well-being has trended quite consistently during this time.

In North America (the United States, Mexico and Canada) and the Euro Area, economic well-being initially grew but peaked between 1999 (North America) and 2001 (Euro Area), and has declined ever since.  North America’s well-being has fallen 22% since its peak; the Euro Area’s has fallen 20%.

By contrast, economic well-being in the East Asia and Pacific as well as South Asia regions has grown steadily.  It has risen by 74% over the past quarter century in the East Asia and Pacific region, and by 68% in the South Asia region.

Economic well-being in Central Europe and the Baltics has also risen steadily after 1992, up 45% within the past 23 years.

In the remaining three regions, trends in economic well-being have been less consistent. The Middle East and North Africa declined steadily after its 2009 peak; down 7% during the last six years, and down 10% over the entire 25-year period.

The Latin America and Caribbean region peaked in 1994, and is down 15% over the past 21 years.

Bringing up the rear is the Sub-Saharan Africa region, which is down 20% over 25 years, although economic well-being grew marginally during nine of those 25 years.

Interestingly, the trend in economic well-being has been least consistent in the Russian Federation.  It fell 49% between 1990 and 1998, rose 118% between 1999 and 2008, and then fell 5% during the last seven years.  Overall, economic well-being in the Russian Federation rose 7% over the last 25 years.

Here’s a graphical representation of the trends noted above:

Chart Nelson Nones

In very broad terms, what do these trends tell me? 

The hands-down winners during the Era of Globalization have been the East Asia and Pacific (including China, Japan, Korea, Southeast Asia, Australia and New Zealand), Central Europe and the Baltics, and South Asia (primarily India) regions.

Not surprisingly, these regions (despite a few exceptions, like Pakistan) are generally peaceful and orderly today, abetted by the rule of authoritarian governments in many countries.

Although they profited during the first decade or so, the biggest losers during the Era of Globalization have been the North America and Euro Area regions.  

One could reasonably argue that the UK’s recent Brexit vote, rising far-right sentiments in Western Europe and the popularity of Donald Trump and Bernie Sanders in the current U.S. Presidential election cycle are all recent symptoms of this underlying trend.

One could just as reasonably argue that the oil curse, authoritarianism, widespread unemployment (or underemployment), the rise of radical Islam, war and terrorism are symptoms of the persistent declines in economic well-being throughout the Middle East and North Africa during the Era of Globalization.

Nevertheless, the Sub-Saharan Africa as well as Latin America and Caribbean regions have underperformed even the Middle East and North Africa region during the Era of Globalization. Might these regions become hotbeds of significant unrest in the not-too-distant future?

Looking at things from this perspective, it becomes easier to understand the “pressure points” we’re witnessing in the political environment in the United States and Europe.  I didn’t realize the degree to which North America and the Euro Area were “the biggest losers” over the past quarter century.  Seeing it spelled out like this, perhaps we can have a little more empathy for the people who feel dissatisfied and who are looking for change.

How easily that change can occur — and whether it will turn out to be a net benefit — well, those are entirely different questions!

__________________

In brief, the methodology behind the analysis is as follows:

1.       Data source is the World Bank World Development Indicators database, last updated 19th July 2016.

2.       Raw data is gross domestic product (GDP) per capita per year, in constant International Dollars, adjusted for purchase price parity (PPP). Use of constant International Dollars strips out the effects of inflation or deflation. The PPP adjustment accounts for differences in the cost of living within each region; GDP is adjusted down for regions having higher-than-average living costs, while GDP is adjusted up for regions having lower-than-average living costs.  

3.       The index for each region and year is calculated as the regional GDP at PPP, divided by worldwide GDP at PPP.

4.       The graph pictured above depicts the natural logarithms of the calculated indexes for each region and year. Hence worldwide GDP at PPP is zero (0); GDP at PPP values lower than the worldwide average are negative, while GDP at PPP values higher than worldwide average are positive.  

 

2 thoughts on “Trends in Economic Well-Being in the Era of Globalization

  1. This overview explains a lot, but not everything.

    According to The Economist magazine, poverty in South America is diminishing even though NOT reflected in GDP. Indeed the sort of $2-per-day poverty we read about seems mysteriously to be diminishing everywhere. Perhaps there are other measures of well-being–in some way connected to the tech revolution.

    For instance, my income has been flat for several years. But I am a music critic who no longer ever needs to purchase CDs. I stream. So I am hundreds of dollars richer, despite reducing the GDP by not buying CDs. Perhaps small unseen improvements like that are affecting the very poor worldwide. Cell phones certainly are in Africa.

    I also wonder if the GDP measure of well-being in Russia reflects the recent oil-price-related decline in salaries–supposedly from an average of $1200 to $800. That’s a huge decline at ground level…

  2. I think this is correct, in general, about certain trends in globalization. But while certain parts of the economic world might be “winning,” I don’t exactly think that America is “losing” — nor do I think that a certain shift in “weight,” so to speak, in favor of parts of Asia will necessarily continue for that much longer.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s