Part two: What makes a nation prosperous?

A cartoon from an era
when people really believed
government could stop, and not be a source
of corruption

While looking at the statistical data I had collected on the least corrupt and most economically prosperous nations; I had decided that corruption mattered more than levels of democracy.  This isn’t to say that democracy isn’t important when it comes to economic prosperity, but that corruption mattered more.  A nation could be democratic but so corrupt that it negates any advantages that having a democracy would possess; Argentina would be an example. While a nation with low democracy that was very uncorrupt, like Singapore, would fare very well economically.  Now it just so happens that corruption levels and democratic levels tend to go hand in hand.  Very uncorrupt nations tend to have high levels of democracy

Corruption also matters on GDP, though the lower levels of corruption an nation the benefits from further decreasing corruption are minimal. It appears that having corruption levels three or below severely hampers a nations economy.  These low levels include nations like Venezuala, with a corruption level of 1, and Greece, with a corruption level of 3. As corruption lessens, economic prospects grow.  It appears to matter less around level 8, though the trend line indicates that if all else is equal, nations with lower corruption will have a higher economic stature.

Knowing this I decided to take a look at the Human Development Index. The HDI is essentially a measurement of how developed your nation is.  Anything over .8 and you could consider that nation as developed.  Anything above a .9 and there is no question that paticular nation is a member of the first world.  I choose this index, rather than say the OECD, because the OECD predominately focuses on European and North American nations, though there are a few Asian nations and only two South American nations. It also tries to present the findings in data form rather than simple membership.  Most OECD nations will be developed nations, or at the very least highly developing ones.  I also decided to include median income in the chart because a few resource rich nations, like Qatar, skew GDP PPP nations upwards. 

What we see here is that there might be some correlation to development level and GDP PPP.  What is interesting is that around HDI .82 to .84 there are higher levels of GDP PPP than we would expect. The average income bar chart shows average incomes to be equal to, or greater than, the most highly developed nation. Look deeper into the data and you will see that it’s because there are a few very resource rich nations like Qatar, Brunei, and the UAE that skew incomes.  Also, it appears that the more developed the nation becomes; the less of an impact it has on GDP PPP. For example, Japan and Switzerland are nearly identical when it comes to levels of development, however, Switzerland's GDP PPP is greater than Japans by 10,000 dollars.  Why is this?

The reason is that not all development relates to economic activity. Roads and freight rail assist in economic development, because goods and materials are moved to and from locations; high-speed rail, despite the protests of many, does not. It isn’t easy for me to say that, considering that I used to be a big proponent of high-speed rail, but those systems add little value towards economic development. It may be nice to have another option to travel than by bus and car; yet high speed rail lines are very expensive, and sadly, rarely ever used to their full potential. Moreover, other infrastructure projects that might be useful, in the wrong locations or circumstances can be a net drain to the economy.  Japan learned this lesson after enacting so many stimulus projects in an effort to renew their economic growth. California is intent on ignoring that same one. That lessons is:  If you build it, they don’t necessarily come if there isn’t an existing need.  History has shown this to be correct, only two highspeed rail lines in the world have recovered their capital costs, skip to 2:15 of the video.

We also see on this chart that typically, nations with lower levels of corruption have higher levels of development. There are a few ways we could take this. One, is that less corrupt nations do a better job of maintaining the infrastructure that is needed to maintain well-functioning economy, specifically items like railways, electrical systems, pipelines, information systems, canals, freight lines, and roads. The other, is that nations that aren’t as corrupt, tend to have better economies, which then means that the nations then have more funds to fund infrastructure projects that there is a demand for.  It all depends on what you think about infrastructure, does it facilitate economic growth, or is the growth of infrastructure dependent on the growth of the economy? I tend to favor the latter idea, but you will find plenty of individuals that would argue for the former.

We also see that while there is some variance in corruption between the HDI nations that the general trend for a developed economy is to not be below a 6.  The few nations below this number, that are considered developed economies, have GDP per capita much lower than those nations with lower corruption.  We now know from the data presented, that a nation with low corruption typically will be richer and have better development. The question is how do you foster a society that isn’t corrupt? That is a difficult question, since democracy alone doesn’t prevent corruption; and no matter how many seminars a bureaucrat takes it won’t affect his behavior.  The real way to fight corruption is accountability.  There are plenty of ways you can do this, but one of the least intrusive and resource consuming is to look at what developed nations are the least corrupt.  And what we see from the chart below is that nations with smaller population bases tended to be less corrupt.

This largely results from the fact that members of parliament or congress are less removed from their voter base.  For example there are around 36,000 New Zealanders for every Member of Parliament, whereas in the United States there are a half a million Americans for every member of congress.  What this means is that a person’s and a community’s voice has more sway in New Zealand than it does in the United States. I will probably do a more extensive post on it at a later date, but looking at the least corrupt nations the average ratio of legislators to citizens is around 75,000.  Remember, the United States has ratio of almost 600,000 to one, it makes one wonder if part of the reason our corruption levels of risen so much might be in part due to this.  What we do see is that some trends are developing. Rich nations, more often than not are highly developed, free from corruption, democratic, and tend to be small.  This gives us an idea on what the United States should do to become more prosperous, but that is a post for a latter date.