The 4th or 5th biggest economy in the world… so why so tatty?

I’ve just returned from a few days in Copenhagen, just as the pre-budget report was being reported. Once again we here that Britain is great, with a booming economy, lots of money to spend, ‘you’ve never had it so good’. On arriving in Denmark, I arrived in the most beautiful airport, then into a city where the quality of life seems much higher. So what’s going on?

First, it’s important to make sure the figures look at what the country can actually buy with the money. The UK has been at number four or five for longer than I can remember (when 5th, behind France and more recently China). But this position is only based on the value of the economy (in pounds and then converted to dollars, as measured by the government. I’ll leave the problems with this as a measure ‘til another time. The fact that it doesn’t take prices into account prices is problematic enough: if everything costs more in the UK then a ‘bigger’ economy might just be because things are measured at higher prices not because there are more goods and services to go round. That’s why it’s best to measure using some sort of adjustment for prices. ‘Purchasing Power Parity’ does exactly what it says on the tin: how much can we buy with the money. Using this, instead of being just behind China, the Chinese economy is SIX times bigger than the UK’s. India has an economy double ours, and Germany is about a third bigger. Not so close after all.

Second, and more importantly when it comes to this single figure is… wait for it… it depends how many people this has to be shared round. A country where a million people earn five hundred dollars a day has a smaller economy than one with a billion people earning a dollar a day: where would you rather be? Once we divide by the population to a per capita figure, the UK plummets. It turns out that we are 17th, between Japan and Germany (our G7 colleagues) but well below such powerhouses as Luxembourg, Iceland, Norway and Ireland. Ireland has a GDP(PPP) per capita that is 36% higher than the UK. Denmark, now my favourite country, has GDP(PPP) per capita 14% higher.

In his speech, Brown said:

‘Ten years ago Britain was 7th in the G7, bottom of the league for national income per head. In the last two years Britain has been second only to the USA.’

I guess this must be true. According to the IMF, in 2004/5 we were 12th in terms of GDP per head, with only the US of the G7 above us. But in 2006 Canada will be back above us, and after adjusting to PPP Canada is well above us, and Japan has just overtaken us in 2005. Much of this movement is explained not by the economy but by the exchange rates.

But, I digress. The third point is about how the money is spent. If all this money is spent on paint for graffiti, nuclear weapons, drugs, sex and booze, then it isn’t going to give us a great quality of life. Good food, healthcare, education and all that needs to be part of the economy. (I know the ‘bads’ aren’t all bad, but in moderation surely!) The question then is, who do we trust to spend the money wisely?

I know that many don’t trust the government… but do you trust the rich either? Denmark has low inequality and high government spending, whereas the UK has low government spending and high inequality. Of course, the US has this too, but they’ve got a much higher GDP per head to start with. We’ve got a lowish GDP per head, and high inequality / low government spending: the worst of all worlds.

Gini and GDP(PPP) per capita

So what happens here is that this fairly low average GDP per head is largely earned and spent by the richest. And do they care about public services? Do they want to spend it on cleaning the streets or beautiful civic buildings? Some might, but others will spend it on luxury cars or beautiful wallpaper. This is why we have private riches and public squalor.

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Filed under News, Politicians, Statistics and simplicity

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