Ha-Joon Chang - Economics - The User's Guide

A very rough but useful rule of thumb is that the value-added figure is usually around one-third of sales (turnover) figure of a company.

What really represents a nation’s productivity is how much people have to work in order to produce a given amount of output, rather than what the output is for each person alive. Therefore, in order to judge an economy’s productivity, ideally we have to look at GDP per hour worked , rather than per capita, but those numbers are not readily available, so we use GDP per capita figures as proxies for a country’s productivity.

The GDP figures were $14.4 trillion for the US,$5.9 trillion for China, $5.5 trillion for Japan, $3.3 trillion for Germany and $2.5 trillion for France.

This definition means that several countries that people wouldn’t normally consider rich are included in the ‘high-income’ world – a few former socialist countries (Poland, Hungary, Croatia and Slovakia) and two of the poorer oil states (Saudi Arabia and Libya). But they are not large enough to alter the overall picture.

GDPs were $5.9 trillion for China, $2.1 trillion for Brazil, $1.7 trillion for India, $1.5 trillion for Russia and $1.0 trillion for Mexico. These add up to $12.2 trillion.

This is except for the very limited amount consumed by tourists.

Note that we cannot, strictly speaking, directly compare these two different income figures.

This point is very clearly and carefully explained in J. Aldred, The Skeptical Economist (London: Earthscan, 2009), especially pp. 59–61.

Sheldon, the man-child physicist protagonist of The Big Bang Theory , the cult TV drama series, explained these goods beautifully, when he explained to his friend Raj why Howard, their friend, does what Raj calls ‘lovey-dovey stuff ’ with his new girlfriend on the mobile phone in front of his friends: ‘There’s an economic concept known as a positional good in which an object is only valued by the possessor because it’s not possessed by others. The term was coined in 1976 by economist Fred Hirsch to replace the more colloquial, but less precise, “neener-neener”}’ (‘The Large Hadron Collision’, season 3, episode 15). Hirsch’s seminal work is the book Social Limits to Growth .

The PPP -adjusted per capita incomes are $57,130 in Norway, $54,700 in Singapore, $53,630 in Kuwait, $49,180 in Switzerland and ($47,020 in the US. They are followed by the Netherlands ($42,590), Denmark ($40,140) and Sweden ($39,600).

They are followed by Eritrea ($540), Niger ($700), the Central African Republic ($760), Togo ($790) and Sierra Leone ($830).

In the World Bank classification, a country is considered ‘upper middle income’ if it had GNI per capita higher than $3,975 and ‘low’ income if it had one lower than $1,005 in 2010.

Richard Layard, talking to Julian Baggini in ‘The conversation: can happiness be measured?’, Guardian , 20 July 2012.

After the Gambia, Swaziland, Djibouti, Rwanda and Burundi.

Back in 1995, Equatorial Guinea’s per capita GDP was a mere $371 a year, making it one of the thirty poorest countries in the world.

The information on the US mining industry provided below is from G. Wright and J. Czelusta, ‘Exorcising the resource curse: mining as a knowledge industry, past and present’, working paper, Stanford University, 2002.

Just in case, the answers for the others are: the most powerful sports cars, which have engines with over 1,000 horse power; a USB memory stick or an e-reader, if his jacket pocket is large; the nuclear power station; and the desalination plant.

These growth rates mean that Germany’s 2010 per capita income was 11.5 per cent higher than its 2000 income, whereas the US ’s 2010 per capita income was only 7.2 per cent higher than its 2000 income.

The term ‘gross’ here means that we are not counting depreciation of capital, as explained in Chapter 6.

The following R&D figures are from OECD, Perspectives on Global Development 2013 – Shifting Up a Gear: Industrial Policies in a Changing World (Paris: OECD, 2013), Chapter 3, figure 3–1.

As of 2010, Finland spent 3.9 per cent of its GDP on R&D, with South Korea following closely at 3.7 per cent. Sweden (3.4 per cent), Japan (3.3 per cent), Denmark (3.1 per cent), Switzerland (3 per cent), the US (2.9 per cent) and Germany (2.8 per cent) are other economies with high R&D spending as a proportion of GDP.

In the poorer countries, with few corporations that are big enough to conduct their own R&D, the vast majority of R&D is financed by the government. The ratio could be nearly 100 per cent in some countries, but is typically 50–75 per cent. In the richer countries, the share of the government in R&D is lower, typically between 30 per cent and 40 per cent. It is considerably lower in Japan (23 per cent) and Korea (28 per cent), while Spain and Norway (both 50 per cent) make up the other end. In the US, the ratio is around 35 per cent these days, but used to be much higher (50–70 per cent) during the Cold War, when its federal government spent a huge amount in defence research (see Chapter 3).

Industry includes things like mining, electricity generation and gas delivery, as well as manufacturing. Sometimes statistics are available only for ‘industry’ as a whole, rather than ‘manufacturing’ only.

. Department for BERR (Business, Enterprise and Regulatory Reform), Globalisation and the Changing UK Economy (London: Her Majesty’s Government, 2008).

Pierre Dreyfus, a former French minister of industry, as cited in P. Hall, Governing the Economy (Cambridge: Polity Press, 1987), p. 210.

The data in this paragraph and the next are from H.-J. Chang, ‘Rethinking public policy in agriculture: lessons from history, distant and recent’, Journal of Peasant Studies , vol. 36, no. 3 (2009), unless otherwise stated.

According to the World Bank, they are, as of 2009, Sierra Leone (59 per cent), Liberia (58 per cent), the Central African Republic (57 per cent) and Ethiopia (51 per cent).

The shares in 2011 were 28 per cent in Taiwan, 23 per cent in Slovenia and 20 per cent in Germany.

If we expand it to the industrial sector, the share in GDP was 30–40 per cent. Today, in none of them does it account for more than 25 per cent. The data are from O. Debande, ‘Deindustrialisation’, EIB Papers , vol. 11, no. 1 (2006); downloadable at: http://www.eib.org/attachments/efs/eibpapers/eibpapers_2006v11n01en.pdf.

In Germany, the share of manufacturing in GDP fell from 27 per cent to 22 per cent in current prices between 1991 and 2012. In constant prices, the fall was from 24 per cent to 22 per cent. Corresponding numbers in Italy were 22 per cent to 16 per cent in current prices and 19 per cent to 17 per cent in constant prices. In France (1991–2011), they were from 17 per cent to 10 per cent in current prices and from 13 per cent to 12 per cent in constant prices. The data are from Eurostats, issued by the European Union.