"Wealth and Welfare" by Lucas Turks

Relationships between supposed material wealth and real welfare of the population in the modern states. Data and Tables

To point out the different ranks of wealth that exist in the today's world is used an index commonly defined of gross inside product, terminology adopted with reference to the criterions used from the World Bank to determine which conditions of prosperity a nation has reached. For gross inside product (GNP) it has to be understood in his primary meaning as the production of good and inside services calculated in base to the prices of such good or services in the same nation, then converted in dollars through a pondered average of the American currency in the three years preceding the survey. You will wonder why we are speaking about tightly macroeconomic aspects and certainly of little interest for the common reader. Motives are soon clarified if we see how such value of GNP is habitually used from the press with ample publicity to distinguish between industrialized nations (First World) and developing countries (Third World), also not understanding the conceptual distortions that can be done if it is not fully intended with which rules the index is calculated.

In fact, the use of the inside prices for a same raw material or for a same service done, however, in two different states it conceals the danger that is effected an overestimation or an underestimation of the real wealth of the nations, whose we are talking about. A practical example can be seen in the difficulties that can rise in determining, according to the traditional canons of the GNP calculated from the World Bank, the mutual levels of wealth among nations of the extreme East. Even if we limit ourselves to fundamental indexes as for instance the price of the rice, cornerstone element of the feeding of all countries of the area, we can notice as in Japan such value is from four to six times superior to that traceable in China or in Indonesia, not speaking of the countries considered “poor” as Laos or Cambodia, where the ration reaches the ten times. In every case, it doesn't have to surprise this fact, since it is fruit of a precise Japanese economic politics that during seventies and eighties, to avoid an uncontrollable escape abroad of the produced capital, it was allowed an abnormal increase of the consumer prices. Also succeeding in preventing a dispersion of wealth, a similar behavior has clearly distorted the indexes of GNP, overestimating the Japanese economy.

It is not had to believe that such phenomenon is limited to the Asian realities (even if the recent and serious recession of the South Korean economy shows as the phenomenon is very more rooted in those regions), because there is the same danger also comparing the GNP of the nations of the European Union or the United States with those of the African countries, where in the calculation of the produced wealth it is not possible to include all that services as the domestic work and the primary education that are at free title or with character of exchange (Here we are speaking about the existing relationship between domestic worker or teacher and other private or public subjects that are kept to pay for the work and not about the relationship between public corporate bodies and consumers, since in this last case, the quoted services are often offered for free also in the industrialized states):
Does a way exist to obviate to the defects proper of the criterion of the GNP used from the World Bank? Although the economists are reluctant to accept an alternative solution, it really seems that there can be a different choice. It would consist in the comparisons between states using the so-called GNP at parity of power of acquisition. Such criterion has been adopted by the United Nations to compile a Relationship on the state of the World that is objectively more correct in the separation between rich and poor states. The results so gotten can leave perplexed because some situations are underlined that we would never suspect observing the searches done through the traditional criterion.

First of all, making reference to the 1991 data that are precedent to the long wave of the world economic recession that would have followed and that would make difficult to distinguish a real tendency from a moment of transitory difficulty, the notable withdrawal of the Scandinavian nations (Norway, Sweden, Finland and Iceland) can be outlined: all within the first ten positions according to the GNP at the current change and instead between twentieth and thirtieth position with the GNP calculated in base to the buy power. Also on top of the classification some deep changes can be seen. The United States conquer the first place, stepping over the small European happy islands of Switzerland and Luxembourg that, however, preserve also a high way of life under this new point of view. Japan preserves the fifth position, but it is above all the huge leap ahead of the small Asian nations as Singapore and Hong Kong to amaze. Both states, in the decade of the eighties, have known not only how to call the foreign financial capitals, but they have held back them, generally maintaining a low level of prices.

Continuing in the analysis of this “classification” (of which you can find a partial reproduction at the end of the article) we meet the cases of China and Cuba. As nations still formally tied up to the real communism, their position can be hardly determined through the simple gross inside product. Instead, with the GNP at parity of buy power we can see what the shrewdest financial analysts you/they glimpse from several years and that is that the two nations have some enormous potentialities indeed positioning themselves between 98th and the 117th place. In addition, China with his two billion inhabitants has 15,69% of the world production, percentage second only to that of the United States. Another anomaly is surely Greece that as member of the European Union is always classified among the industrialized nations, yet it is surpassed by nations as Cyprus, Venezuela and Trinidad and Tobago that certainly are not economic powers. Finally, it is sad to notice as the last ten positions are reserved to African nations, if we exclude the Asian Bhutan. All this to demonstration that the large reserves of raw materials of the black continent serve to nothing if it is not proceeded to an organic setup, either political either economical.

We have been able to see how the determination of the rank of wealth of a state can vary considerably with the change of the rules with which analysis is effected. To the side of the GNP an evaluation at parity of buy power has been introduced that has helped to demolish some rooted judgments about a lot of nations but this footstep completed by the united Nations it is not to be considered definitive. From 1990 the UN Program for the development handles to calculate an indicator of human development useful to determine if the wealth produced in a country corresponds to a true welfare of the population. The GNP has the tendency to hide the great concentration of the financial resources in few hands, with the widening of the differences between the middle-low social classes and the managing classes. All the Arabic countries, producers of oil, are an evident example of as the money can end in the pockets of a reduced elite that holds power in absolute way.
Before penetrating in the analysis of the new index, we proceed to individualize how it is calculated. It is essentially founded on three elements: hope of life, education and income. For each of the three factors a value 0 is determined, correspondent to the highest value that has been noticed and a value 1 for the lowest value. After this the values of the intermediary countries can be calculated using the following formula:

[(Maximum index at world level - index observed for the country in matter) / (maximum index at world level - least index at world level)]

Calculating the average of the values of the three factors mentioned above and subtracting it from 1, we find the total value for one determined nation. It will be simpler to understand through an example. For that that it concerns the hope of life the highest value noticed by the UN in the two years 1992-1993 it was that of Japan with 78,6 years, while the lowest was belonging to Sierra Leone with 42,4 years. This way, to calculate what the indicator of human development of Italy is, it will be to quantify: [(78,6 - 76,9)] / [(78,6 - 42,4)] = 0,046, where 76,9 is the hope of life for an Italian citizen. Still for the Italian GNP, an index will be to calculate in base to a maximum of 22130 $ a person (United States) and a minimum of 447 $ (Chad) correspondent to: [(22130-17040) / (22130-447)] = 0,234. Concluding with the rate of primary instruction (in % of the total of the population) we will have: [(99-97,4) / (99-19)] = 0,02. The indicator of human development of Italy is equal to 1-[(0,046+0,234+0,02)/3] that is 0,900, approximate for excess.

I hope not to have annoyed the reader too much with these calculations, but it seemed to me opportune to show what it was concealed behind the naked figures of which we are speaking. They are too often taken as reveled truth without knowing from which abstruse statistic devilry has been extracted. Serving us of the indicator of human development we can discover those nations that redistribute wealth under the forms of services (sanitary system and education) rather than to gather them in unproductive government or private deposits. About the Arabic countries we have already spoken, but not less evident it is the situation of three states belonging to G7: United States, Germany and Italy. They are respectively 1st, 4th and 15th in the classification of the GNP at parity of buy power, while they are going down to 8th, 11th and 22nd place in that of the indicator of human development. It could be supposed that in the three nations there is therefore a high concentration of wealth with limited redistribution to the rest of the population. It surprises that this happens especially in Germany and Italy where the system of public Welfare would have to guarantee a greater equity between the varied social classes. The states of the former communist block gain positions, showing as not all the centralized system was inefficient (Lithuania 28th, Estonia 29th, Latvia 30th, Hungary 31st, Russian Federation 34th). Also with this index, the last places are occupied from African nations, to testimony that being few, in absolute terms, the wealth to distribute, it is not possible to modify the factors of education and hope of life.

Having understood that the wealth of a nation can be determined in varied ways, it doesn't explain us yet for which reasons we have to do these classifications and which difference can subsist between wealth and welfare. For that that it concerns the first point, it is necessary to remember that all international organisms that are dealt with financing to the states, as well as the institutes of the United Nations that provide to assign the capitals to help the development of the poorer nations, they need to determine a line of border between states that can handle their necessities on their own and others, instead, that demand an external help. To trace such line, they are commonly used the criterions that we have tried to illustrate, in addition to some specific researches for single countries as Rwanda and Cambodia that must be followed with an eye of regard. It is evident that whatever level of wealth is selected as limit to benefit of the financing, it will be always an arbitrary value that can displease those nations that for a motive or for another one, they are pointed out as self-sufficient nations, also having serious problems of economic and social stability (the example of the countries of the European east is evident).

Using these indexes is as much discriminatory if we utilize them to divide the world in zones of wealth (rich and poor states) or, with ideological preconception, in zones of political influence. We have seen how some communist nations (Cuba and China), having in absolute terms a rather low GNP, can boast an average indicator of human development, while powerful and florid nations as the United States are not showing as many attention in the division of the wealth. The distinction between wealth and welfare of a nation is perceived unfortunately as secondary from the international organizations (with exclusion of the specialized institutes of the United Nations). The international monetary Fund is remained anchored to principles too distant in the time. We could say to the accords of Bretton Woods straight. Principles that consider more important the material good rather than the services of support to the most needy classes. Although the modern social safety systems are criticized from more parts for the unbearable economic cost that hangs on the government finances, each State that has adopted them would never dream to revoke them and the reason is that the inside discrepancy between rich and poor men has increased in the second postwar period, in favor of the latter ones for that that it concerns wealth, in favor of the former ones for that it pertains the number of individuals. The apparatus of welfare has been transformed in anchor of social stability that prevents popular revolts or even revolutions.

Is it possible to hypothesize a social safety system at world level or at least at international level? The presuppositions of subdivision between few rich countries and many poor countries would let think that the adoption of these provisions (partially already effected with the distribution of the subsidies of the IMF) is inevitable, but the actual conditions in the relationships of the international community allow to presage contrary solutions. Rather than to proceed toward a world unification under the aegis of the United Nations, as in the utopian vision of Roosevelt, the modern states are giving origin to unions with regional character (European Union, Association of the Nations of Asia of the Southeast, Organization of the African unity, the Latin American association of Free Exchange, North American Free Trade Agreement and so on) that are not interested in social safety, but only in the international commerce. Straight, the recent failure of the Conference in Nice of the European Union show how expressly speaking about Welfare at international level, with the actual state of the things, is impossible indeed.

Are we destined to utilize a useful tool as the indicator of human development to find which nations are really “poor” and to sustain them with tools of charitable character for a brief period? It is disheartening to ascertain that at the moment, we have not other perspectives. The increasing opposition between regional blocks has practically paralyzed all those organizations that found their own operation on the Assembly principle, first above all the United Nations, without bringing some series changes to the reality of the division of the resources, understood as leveling toward the high of the social condition. Somebody looks out upon a general rebellion of States of the Third World, tired to be exploited, but it is difficult to speak of it seriously, because exactly as it happened during the decolonization (except that for some exceptions as India), the only possibility of change originates from the North of the World that still preserves intact all its power and rather it is increasing it. The statistics as all sciences, can furnish help, but if it is erroneously interpreted we will see the world as we would like that it was, not as it is really.

Statistic sources: World Bank (Atlas 1994, Relationship on the Development of the World 1994 and 1995, World Tables 1994)

Positions from 26th to 173th omitted.

Beginning of Page