Money, Labor and the Pursuit of Well Being

Nations are trying to advance themselves economically, and individuals are pursuing wealth for themselves and trying to avoid paying taxes. (Who likes taxes?) Governments are seeking revenues to pay for projects that are supposed to benefit the national community. Amid all this is a lot of money controlled by persons looking for places to invest.

More than a millennia ago wealth was primarily in property. Today it is more in numbers assigned to currency -- which buys property (and gold).

Some invest in developments in their home country. Those in poor countries who are relatively wealthy use much of their wealth on private consumption -- buying imports that help create an unfavorable balance of trade. Or they may invest their money abroad. Poor country's suffer from a lack of investments -- private and government investments. They receive aid from abroad so they can function financially, while the wealthy manage to avoid paying more in taxes.

Poorer countries are not only attracting less wealth, they tend to have a greater divide between those with wealth and common people. There is less wealth to divide and a greater effort to grab what wealth one can. An example is Pakistan, which has revenue that is only 5.6% of GDP. Few upper class households in Pakistan pay income tax, and the country's politicians who make the rules are the most wealthy of its citizens. Said a former judge: “In my time, it was considered a moral thing for a person to file a tax return. Today, corruption has broken all records.” (The New York Times, July 18, 2010)

Poorer countries rank worse in corruption than wealthy democratic societies -- listed on this site's four charts on "Wealth and National Well-Being" by a cpi (corruption price index) number.

The lowest revenue to GDP figures are on the first chart -- for the poorest of countries. The highest revenue to GDP figures are on the fourth chart, for the most wealthy of countries. The highest figure belongs to Denmark -- a country known for its stability, prosperity, and "extremely low levels of political corruption." The sociologist Francis Fukuyama comments:

Everyone would like to figure out how to transform Somalia, Haiti, Nigeria, Iraq, or Afghanistan into "Denmark"... (Origins of Political Order, p. 14)

Countries higher in per capita wealth and generally with higher revenues as a percentage of GDP tend to have better corruption figures (less corruption) and better health figures -- with interesting exceptions. Look at the figures for Equatorial Guinea among the wealthier nations. You should smell corruption even before you get to its corruption figure.

The poorer countries have a larger number of people doing subsistence farming and a larger number of people laboring in agriculture. Niger and Rwanda has 90 percent laboring in agriculture, Zambia 85 percent, Chad has 80 percent and Haiti 66 percent. Societies with mechanized farming have 2, 3 or 4 percent of their population in agriculture.

It was productive farming supplying an abundance of food that created today's affluent societies. Abundant production lowered the price of food and the average citizen had money left over to by other things. This helped create jobs in manufacturing and helped entrepreneurs to collect more wealth to invest, and there was more surplus wealth for local governments to take as revenues and spend for running water, sewage, road building and other projects useful to a community. Today's poor countries lack a productive commercial agriculture that creates surplus wealth and meets the needs of its people.

The taxes needed to pay for government programs for better roads, sanitation, health and educational opportunities is not forthcoming in the poorer countries. Revenue as a percentage of GDP in these countries tend to be lower not because of corruption we can assume, but also because a greater portion of the wealth that is produced is food that is consumed.

But some of the less affluent countries are trying to improve their economies. The so-called Democratic Socialist Republic of Sri Lanka, has had economic growth in recent years, but (according to web.worldbank.org) in Sri Lanka between 1990 and 2002 the average consumption for the richest 20% of the population increased by 50%, while that for the poorest 20% barely increased by 2%. There is interest in Sri Lanka in turning subsistence farmers into commercially successful farmers by building infrastructure such as roads and electrical power and by offering them low-interest credit for quality seeds and planting materials. Many farmers in Sri-Lanka have land less than two-acres. The transition to commercially successful farms will create bigger and fewer farms, sending more people into the cities, but urban dwellers are now an unusually small percentage of the population: 14% for the year 2010.

The world knows the success story of Singapore. Singapore is a small island. Stability, order, free entrepreneurship and government programs, including investments in education, allowed Singapore to become an attractive place to invest. It became a big exporter of manufactured goods, and by 2010 Singapore was well ahead of the United States in per capita wealth: averaging $62,100 per person in 2010 compared to $47,200 for the United States.

South Korea is another success story. South Korea pulled itself up by long hours of hard work and low wages and a combination of free enterprise and government programs. A good portion of the wealth that workers created went to building up the economy rather than self-indulgent buying of imported goods -- an economic policy similar to the Soviet Union's industrialization policy in the 1930s. By the 1990s the Korean people were benefiting with more consumption and a higher standard of living.

China is another success story. In the early 1980s, China's government opened the country to foreign investment. Foreigners saw opportunity. They believed that China was an awakening giant, and they were attracted by labor at a cost low enough to help them in selling their products at a more competitive price. China's economy surpassed Japan's in GDP in size in 2010, at more than $9.8 trillion, behind the U.S. at 14.9 trillion. But because of the size of its population, its per capita wealth remained a mere $7,600 for the year 2010, a long way behind Denmark's $36,000 or $47,200 for the United States.

Taiwan is another country that is a big competitor in manufacturing. Taiwan, South Korea, Japan, and to some extent China, have population growth that is less than a lot of poorer countries -- countries whose economic advance is burdened by population growth. Malaysia has entered the competition for manufacturing, but its per capita GDP is less than half that of Taiwan and its population growth is more than double, almost triple, that of Taiwan's.

There are countries that have grown wealthy selling oil. But a lot of countries are growing fast with little oil or other minerals to sell. Some have crops to sell -- such as Ghana with its cocoa. But rather than selling goods abroad, some countries are getting by not only by foreign assistance but by its people going abroad, selling their labor at a low price and sending a little money to help people back home. That too has its limits. China grew in wealth by joining the world of international manufacturing, but most of the lesser developed countries cannot hope to replicate this. There is only so much room for global manufacturing. These countries can improve their infrastructures and the productivity of their laboring. They can put their homeland economy in order, including the control of population growth. They can sell what little food they can to foreigners but they must also put their lands to work to feed themselves.