Why poor countries stopped catching up
davidoks.blog
davidoks.blog
So we've got 3000 words eulogizing a metric that tells you more about financialization than flourishing. Look at life expectancy, infant mortality, or caloric intake and you'll find a more interesting story -- with some poor countries doing very well, and increasingly so, whereas others are on a fairly grim trajectory.
I don't have an R^2, but clear to me that it's far from one.
Likewise for infant mortality rate: https://ourworldindata.org/grapher/child-mortality-gdp-per-c...
Edit to add: point being that a weak correlation, even if it is indisputably real, leaves a lot of room for other factors to be operative when it comes to particular differences.
More to the point, it looks like you are attempting to identify some of the particular factors that might affect gdp or health outcomes in ways that aren't correlated, and exclude cases where those are the operative factors. Which would provide support for the thesis that there are other operative factors, as suggested by OP.
2. OP, roughly, objects that GDP (and its growth rate) is sensitive to a fairly specific fact of the modern global economy, namely uneven financialization, and hints at an argument for why GDP would obscure the relevant trends in wealth and growth of wealth. They claim that the dynamics of various health proxies are better representative of economic status and growth than GDP is. They do not claim that these are not correlated. Effectively, their claim is that the portion of the variation of GDP that is not explained by its correlation with health outcomes is enough to obscure the relationship between economic status and growth.
3. You comment tersely that they are correlated, which was never denied in OP, and does not address in any way the relevance of the particular confounding factor that OP proposed. In followups try to rescue that correlation by controlling for your pet "extra factors" that (1) objected to for how they weaken the relevance of the economic theory, and that are irrelevant to the point that OP was trying to make.
To be clear, I have no strong evidence that financialization explains the way that GDP (and its derivative) differs from a linear function of other development metrics (and their derivatives), and if OP has evidence, they don't provide it in their brief HN comment. All I'm saying is, saying there's a correlation has very little bearing on OP's claim, and controlling for more irrelevant pet factors is not going to make it more relevant.
No that is not the question. The questions are: a) would controlling for financialization be a better test of the economic theory, and b) are health metrics a good way of controlling for the portion of GDP that is explained by GDP.
Again, I don't know the answers, just that your cherry-picked pet factors are irrelevant to these questions.
My interpretation is that this confirms both points. Yes, petrostates with concentrated wealth, states with dubious truthfulness, and those ravaged by war are all cases where GDP doesn't tell the full story. I'm not sure that tells us GDP is useless when applied to where most HN users live, though.
https://colab.research.google.com/drive/1tstVoKkVP_8B7dTOofa...
nice plot at the bottom.
rank correlation between GDP and life expectancy (child mortality would have been maybe a bit better). uses a 20 year window in both directions per year. bootstraps for 5% and 95% quantiles of the rank correlation.
there looks to be a max around 1992, and steady downhill in correlation since then.
this seems unlikely to be an artifact of the analysis, though 1992 is eerily close to 20 years from the last date. 2013 is the last year where we have at least 15 years total symmetriclaly around the given year to include in the correlation for that year.
The universal experience of Americans visiting Japan: how is such a developed place so affordable? Then they think Japan must do something exceptionally excellent. But the truth is it feels weirdly affordable because they are spending their American salary there.
[0]: https://en.wikipedia.org/wiki/World_Tourism_rankings#:~:text...
Healthcare is more properly medical care. There's very little health care or wellness preservation compared to treatment and repair.
I would argue that legal services are more care-like, but there is a fair amount of treatment and repair.
Incorporating sociology, for what it's worth would radically change the picture. Do economists travel? And what is a poor country anyway.. Zimbabwe is put on the same table as south east Asian countries..where do geopolitical aspects get into considerations for countries like Cuba or more recently Venezuela or Iran. Do these things even matter.
No surprise economists have lost legitimity for so many. They don't predict or diagnose the economy of the nations they live in, trying to explain what they call the "global south" as some call it is rather arrogant.
What this research may have got right is to nuance what their predecessor had claimed. But that wasn't too hard.
My tip for economists: go live in rural areas in each country you claim to diagnose. Speak to the locals, grand ma can tell you what it cost to get clean water just a few decades ago vs now. Maybe you will start to understand what poverty even means.
Consider this: if you take 'countries' as given (questionable), and some become rich whereas others remain or become poor, by induction you'd expect those trends to continue. A country that has remained poor for decades is likely to remain poor for decades, etc. "Bad governments" and other conditions that create poverty are not some kind of mean-reverting aberration.
The economists will carry on though, and thanks to their connections with finance and government, their prestige will never truly wink out.
Access to markets isn't an exclusive asset. They don't compete over it, and mostly they can't compete over it, because they already have it.
NATO: Russia is a threat to both Europe and the US, lets band together to make sure we can fight them.
EU: Europe keeps fighting wars, lets make our economies more inter-dependent so that doesn't happen as much.
For NATO, I can see the happy vassals thing (and that's what the Belgian PM was referring to), but can you explain who is the overlord in the EU example?
(This is mostly satire, even if I think 2 of the 3 second things were and are great ideas).
Plus, it might be possible for other countries to emulate China and similarly grow.
But I'm pretty sure that neoliberal economics--particularly free trade--are what allowed China to rise so spectacularly.
[Edit] China's economy is so clearly Keynesian with Marxist characteristics that I have trouble understanding why would anyone even think they're neoliberal. China is the best live example of Friedman models being worse than Keynes (not that Keynes model was perfect, at all)
I think it's possible they turned out to be wrong on both counts. But if it had not been for neoliberals in the West pushing for free trade, China would not have developed as quickly.
https://whyevolutionistrue.com/2019/01/31/is-the-world-reall...
https://www.jasonhickel.org/blog/2019/2/3/pinker-and-global-...
Perhaps that sort of thing could be useful enough to justify the extra bytes?
[1] https://techliberation.com/2009/05/28/on-measuring-technolog...
It's made even worse by the great bias towards "everything about globalism and capitalism is obviously fantastic for the world!".
This case is such a prime example of both of the above. Firstly, the one-off China event having such a big impact on its own that general theories are entirely irrelevant. Second, of course
> "Now that those were swept away—they were, he said, merely a “temporary phenomenon”—the catch-up growth that economic theory predicted had finally arrived. Globalization was working; development was succeeding; the gap between rich and poor countries was closing.
Genuine question, not a judgment.
Sub-Saharan Africa is an example of what happens when you allow balkanization through arbitrarily-drawn territorial lines (and all territorial lines are always inherently arbitrary enough to not please everyone). Perpetual war, misery, stagnation.
There was no revolution for independence which kept the same families of land owners in the elites through it, after there was no revolution to phase out the monarchy in favour of the Republic, and the same entrenched elites managed to keep going since their local power was already settled. All of this is late 19th century.
Push this through the 20th century, and the same elites wanted to keep their power which was mostly based on agriculture production or mining: coffee, sugar cane, cattle, gold, iron ore, manganese. Any divergence of public policy investment away from these was met with hard pushback.
Industrialisation really only started in Brazil in the 1940s, it was rapid and captured by the same groups, just barely 20 odd years into the process the military dictatorship took over power and maintained the process of corporatism into the same elites (since most of those were supportive of the junta). Another 20 years of dictatorship left a corrupt political body, with the amnesty for the junta many members of the dictatorship party went back into normal political life under democratic rule with predictable outcomes to whom they would favour.
There never was a revolution such as land reform to distribute power in rural areas to more people, no industrial revolution to tear down agriculture/extractivism-based elites grip on power, and with corruption there's always the tilting of the scales towards the old elites with deep connections throughout all the layers of the State in new ventures.
Many issues with Brazil's high corruption stem from these roots, "coronelismo" [0] is still present even in large state capital cities.
1. It never really seemed to explain WHY poor countries stopped doing better. It just framed it as "sike, they never were getting better!". But the WHY is still missing.
2. The penultimate paragraph present a thesis that China's commodity boom is the main driver behind the "great convergence". This claim is baseless. Just because the commodity boom in China coincide with the great convergence does make one the "product" (verbatim quote) of the other. In fact these two events are structurally connected and there is no simple one-way causation relationship. Other factors like financial deregularization played a vital role in the great convergence but was completely ignored.
3. Some of the evidences (eg. "Dutch disease") are over-generalizations and ignore the differences between nations.
The fundamental thrust of the article is that poor countries only "converged" for a short while due to the Chinese-driven commodity boom, and I think this argument is very compelling. Worse, as history has shown tons of times, commodity booms often end up being bad for a country in the long term because they don't lead to meaningful investments in other productivity-improving endeavors (e.g. Dutch disease that the article mentions).
And I think a subtext of this article is that the economic profession in general has a ton of soul searching to do. Too often economics has depicted rosy outcomes for a host of activities where it has just been flat out wrong. This article goes into detail about how "convergence" almost never happened except for a short "sugar high" driven my Chinese commodity demand. Similarly, I've seen a few mea culpas over the years arguing that the once orthodox view that globalization would be great for everyone failed to take into account how it could contribute to destabilizing democracies as the "economic losers" in rich countries started to demand more political power, one aspect in the rise of populism and some of its dangerous effects.
What kinds of measurements are you referring to? Because poor countries are absurdly clearly converging since the end of WWII, but only if you don't ignore things like political independence, lack of civil wars, lack of state sponsored terror, or food security.
Those things contribute less to the GDP than fridges that break every 4 years.
Anyway, yes, there is some serious discussion on whether that process has stopped. This article isn't very good, the source it's extending from isn't trying to compare actual wealth, but still something may have happened recently.
And yes, it's probably the culprit everybody suspects, and economists should be louder in recognizing that some of their schools are in fact fraudulent.
I wonder if anyone has calculated the economic impact of diverting smart, math-capable thinkers from some other useful pursuit into economics. Surely they’d be more productive as accountants, or car mechanics, or as people who throw bricks through windows in the dead of night.
From the outside it looks like the field is an intellectual circular firing squad that produces little of tangible value.
The biggest value of economists is that they provide stories around the accumulation and destruction of capital.
It's always been odd to me that we took just one social science (with a massive case of physics envy) and use it to explain the world. Like, what would the world look like if we'd picked sociology instead?
No, if there's one social science we should have picked, it's anthropology I tell you.
This is all psychology research (which presumably you know). (I definitely do as I have a PhD in it).
> No, if there's one social science we should have picked, it's anthropology I tell you.
I actually agree with this, will update my rant to include this next time.
Will do better when I reply to your anthropology-fueled rant.
To be fair, this is more a function of psychology having a lot of experimental studies (as you can normally run them on individuals) which tend to get lots of press, and they're badly conducted because most psychologists suck at stats (and the incentives are towards publishing or perishing). That being said, it's really good that we now know lots of them were garbage and is a sign of decent science being done.
Sociology OTOH (rather like economics) typically deals with observational data which is less flashy and prone to all kinds of errors that make it harder to figure out what a replication would even look like (we can't generate another 100 countries to test, unfortunately).
Far from me to defend globalisation, but what would have been the alternative here? Is the idea that authoritarian governments have less hurdles in a more globalised world?
That’s why a lot of global south countries with valuable materials (oil, data center building blocks, etc) are often chronically destabilized, but not so much so that it’s impossible to find someone to buy unrefined materials from.
It’s a graph of regional GDP per capita as a percentage of the U.S. Latin America was around 40% around 1950, but has declined to around 25% by 2018. Sub-saharan africa has slowly lost ground since 1950. Southeast asia has gone from almost as poor as Africa in 1950 to almost as rich as southern europe (50% of US GDP per capita).
What makes some countries rich and some countries poor? In the modern era, I think political dysfunction explains a lot. Developing countries with neoliberal governments that started out authoritarian (Singapore, Korea, Taiwan) have done well. Countries that can’t maintain a stable government have suffered.
In my home country, they were experiencing 5-6% per capita GDP growth for about 15 years. But then a motley coalition of idealistic students and Islamists overthrew the government. I suspect that will lead to a lengthy period of slow growth, because who wants to invest in a country where people regularly overthrow the government?
Since the 50's, Europe and select Asian countries received large investments from the US; Latin America received coups supported by CIA and governments that sold out to foreign interests.
And Monroe Doctrine was primarily in the late 19th and early 20th centuries. That doesn’t explain why Latin America got relatively rich during that period, and then fell behind once most of the intervention stopped.
Also, what counts as “support” is extremely nebulous. Which countries in Latin America had a coup where the U.S. was the but-for cause?
I learned this some years ago. I'd heard the same thing as everyone else, about how Africa was booming and would surely approach developed-world standards Real Soon Now. Nope! <https://np.reddit.com/r/dataisbeautiful/comments/9valp9/gdp_...>
Outsourcing worked while we didnt have AI to the level we needed
It was always gonna be a temporary stopgap. Sorry, the global community doesnt have enough empathy for humans THAT far away to actually share wealth w them. At least we graduated to having social safety nets within nations.
When my dad was born in a village in the British Dominion of Pakistan, India/Bangladesh/Pakistan and Singapore were similarly poor. Nehru went to Cambridge and learned about socialism. Lee Kuan Yew went to Cambridge and learned about capitalism and high-trust British people: https://youtu.be/b_6H26fpZp8
The rest is history. Singaporeans now get to stay in their home country, while desis flee to Anglo countries to escape the society Nehru and their grandparents created.
Waiting for Europeans to give you money is a loser mentality, and people peddling that mentality in the name of “empathy” are causing harm. What the third world needs from Europe is the social and political technology that Europe itself used to become rich. That’s what people like LKY understood that so many third world leaders failed to learn.
Of course if India can maintain the current growth trajectory for another couple of decades, and doesn’t fall into the middle income trap, that will change. But Nehru really fucked us all over. If he hadn’t become infatuated with socialism, India would already be on the precipice of being a developed country.
There's 2 middle income traps.
1) the actual middle income trap, failing to move up value chain
2) the byproduct, traps population to middle income
India has the sheer population to pass through 1) eventually.
Ironically the byproduct of sheer population means they will unlikely pass 2).
Middle income trap logic breaks part for large countries.
There's a reason why bottom 40 quantile of PRC, i.e. 600m are still low income. Even the most favourable geopolitical developing conditions couldn't uplift 1.4B because there simply aren't enough middle/high income opportunities for that many bodies. With labour saving tech hollowing out manufacturing and ai hollowing out services, India trending towards 1.6B people is going to be extra fucked in the per capita game. Again that doesn't mean India couldn't eventually replicate PRC in sheer economic chains and potential, it just means they'll be governing a country with 60/70/80% poor with vast gini inequality between modern india and subsistent india where extra pop = more farm land dilution = potentially worse calorie security because inefficient farming = jobs programs > food security.
AKA PRC demographers nightmare scenario that triggered family planning / one child policy that just barely dodged 2)... PRC more or less high income now, and certainly will be as old-poor dies and denominator converge towards young-rich. India will simply be saddled with too much old-poor, and young-poor that the young-rich will not meaningfully skew the per capita math. But on the other hand, per capita matters less than ability to generate abundance and I think/hope if India may meander their way to it.
Doesn't help you to buy a Macbook, say, if you'll need to save up for 5 years. It holds lots of intelligent people back.
And it's not just about intelligence. It's about global economic opportunities. But it's good to know that food can be produced to feed an entire family for $5 in 2026, somewhere in the world. I might go stay in Bangalore or Goa for a while lol.
- If you dig into it, you ll find out that most people are getting by just fine.
- This year during Diwali they splurged the highest amount of money like ever https://www.moneycontrol.com/news/business/record-breaking-d... If everyone was really as poor as you guys describe, they wouldnt be blowing up money during diuwali for a festival
- Same for gold sales, same for car sales, same for housing, I am a bit lazy to link to these but I am sure you ll find the relevant links when you search for them
Prosperity and growth come from free markets. The correlation is very strong. Poor countries are poor because they eschew free markets.
We rarely get better results from healthcare or education (or infrastructure) from a free market system, and yet those are fundamental ingredients towards most human development (which can, but does not require free markets).
And anyway, what does a free market mean? Do regulations make markets less free or just shape them?
Healthcare in the US was very good and inexpensive before the government got involved in it.
Public education does a very poor job in the US, at enormous cost.
> what does a free market mean?
It means a market where force and fraud are absent.
> Regulations
Regulations to reduce force and fraud are a proper function of government.
If South Korea had followed the standard developmental economists' advice they would still be sewing garments and growing soybeans instead of manufacturing semiconductors, consumer electronics, and appliances (among many other things).
[0] https://statranker.org/economy/leading-global-car-manufactur...
The only consistent correlation with prosperity is free markets.
Note that there's a continuum between communism and free market. It is not all or nothing. Experience, however, shows the more free market it is, the more prosperous it is.
[1] https://en.wikipedia.org/wiki/Five-Year_Plans_of_South_Korea
[2] https://en.wikipedia.org/wiki/Five-year_plans_of_the_Soviet_...
I do agree with protectionism for the purpose of protecting strategic industries - but that comes at a cost to the country.
I suppose that there is room to make argument to be made that less protectionism in these respects would have been more sustainable, but it won't be easy. It seems to me that one would have to point to one of:
- enormous short-term benefits of allowing foreign entities to enter the market while controlling their intellectual capital / capital equipment
- a reason why they would acquire such intellectual capital / capital equipment anyway through less protectionist means
- a reason why they would obtain a substitute for the long-term value represented by such intellectual capital / capital equipment
Even if that had turned out true, so what? The gap between rich and poor countries closing is not the same thing as the gap between the rich and poor closing!
The bad news is unlike western capitalist pigs that drank own koolaid, PRC might be right. Ultimately PRC manufacturing has to also be calibrated to price in bottom 40% of domestic pop whom are relegated to low income, ~2000 USD per year, i.e. they will structurally hold on to low/medium end manufacturing competitiveness even as they move up the value chain. Realistically PRC won't be vacating those low end until 2050s when that cohort starts dying. Or potentially never with automation.
In the meantime, as long as global south slowly trend towards low-middle income, i.e. ~5000 usd customers, that's still growing 3billion+ people into market / S-curve territory for consumer goods from phones to air conditioners to low end nevs. TLDR PRC is giving all the tools for poor countries to catchup, betting they won't. Maybe that's hubris, but there's a reason PRC isn't actually trying to export it's political/development model, because bluntly they don't think others can replicate it, least of all due to PRC agglomeration scale alone. Maybe India.
Quantity has a quality of it's own. The sheer quantity of massive country agglomeration effects is what makes PRC system not replicable, i.e. you need country with 800 million people to sustain 500m "modern" workforce that can optimize for every industrial cluster that becomes mutually reinforcing. This not something smaller countries (i.e not PRC or India) can invest of enslave their way into. Current PRC is a model predicated off cultivating and integrating 800 million people into an all domain supercluster, that population scale is an initial investment gate.
The obvious omission here is well developed in Imperialism, The Highest Stage of Capitalism: it's hard to accumulate capital when all of the productivity growth from foreign "investment" by the rich world is captured by the "investors".
Or every country has resources, and weak countries are those that prefer to sell them for cheap rather than work on making use of them?
You could be forgiven for believing that if we didn’t have literal real-world experiments in the 20th century where countries went from dirt poor to rich without doing any of the shit you think makes countries rich.
What’s most offensive about your virtue signaling is that it helps keep people poor. If we had kids in college studying how Lee Kuan Yew systematically made his country rich, instead of studying fucking socialism, you’d save literally millions of lives.
The US kind of exploits Korea, Taiwan for cheap labor.and goods. Pakistan was on/off a US ally, same for Egypt. Both at different times were aligned with USSR/Russia, bouncing between the US and Russia over the decades. Plus they are used by the US as a balance against other countries in the mid-east
But from what I understand Mexico could be a bit better off then it was decades ago.
But looking at history, the US took big chunks of land from Mexico in the 1800s. The resources from that land made the US what it is now. So in another time, Mexico and the US could have been completely different if that did not happen.
> The US kind of exploits Korea, Taiwan for cheap labor.and goods.
So we had a period where Korea was exploiting the US, then the US somehow broke their chokehold and started exploiting them? And if the Koreans improve their standard of living that mean they've regained exploitation dominance over the US? Or is Korea exploiting someone like the Chinese (a nation that I, naively, feel is a bit stronger than Korea)? Or who are they exploiting?
I'm not sure how this plays out to be internally consistent. It seems like being wealthy has more to do with internal policy than external exploitation or even resource availability.
Yes, they got better off due to it, but the US gets a bit more benefit from the arrangement. Fun fact, until about the 1980s, N. Korea had a much stronger economy that S. Korea due to support from the USSR.
Free markets!
Or is it the wealthy exploiting the poor through low wages?
So a lot of people are desperate to survive and keep a roof over their head.
And technology makes money flow upwards to the rich and corporations.
Soon with AI employment is going to become pity-employment. Make-work jobs. Because people just can’t seem to trust other people to be charge of their own time and have free money. Overton window in USA is not there yet. So capital will find ridiculous ways to exploit labor via the desperation of the masses. Maybe gig economies and race to the bottom for service providers as out-of-work people flood the market with useless crap, who knows.
Around 2000-s the West switched into the "whatever you do, we don't care as long as you stay inside your country" mode. Moreover, the West made it easy to expatriate money. You could earn your fortune in Russia by stealing money from schools via various corrupt schemes, but once you crossed the border of Russia, you instantly became a respected businessman who should be treated with respect.
The last year's Nobel in Economics was awarded to Daron Acemoglu for his work on extractive versus inclusive institutions ("Why Nations Fail"). And the West unwittingly (?) recreated the same conditions that resulted in development gaps during the early colonial era.
And yes, the West is to blame here. Not China. Pretty much nobody in, say, Congo is abusing child labor to get money to emigrate to China. But I bet that quite a few people from Congo now have very nice properties in London.