Measuring Progress: Per Capita GDP

This post is part of an ongoing series of posts on measuring progress in the world. In each of the post, I focus on one specific metric. This post focuses on Per Capita GDP. The series starts with “How Do We Measure Progress?

Economic growth is central to progress. With economic growth, it is possible to pay for the education, health care, transportation, housing and other factors that promote an increased standard-of-living. Without economic growth, progress becomes far more difficult because there are simply not enough resources.

Per Capita GDP is one of the best means to measure overall standard-of-living of a people. This metric effectively captures the ability of an individual to purchase technologies available at a specific period of time. Keep in mind that increases of per capita GDP often greatly understate progress. Missing from this measurement are improvements in a specific technology, lower prices for a specific technology and greater variety of types of a specific technology.

Let’s use a microwave oven as an example. For virtually all of human history, microwave ovens did not exist. It did not matter whether you were a starving peasant or the wealthiest emperor, you could not buy a microwave oven. Even John D. Rockefeller, the richest person of the pre-digital era, could not buy a microwave oven.

In 1947 Raytheon rolled out the Radarange, the first commercially  available microwave oven. It was about the size of a refrigerator, very heavy (750 lbs), very expensive (about $57,000 in today’s dollars) and not very performant. Because of these factors, its only market was military ships. A typical consumer would not even consider purchasing a microwave oven. They might as well have considered purchasing a nuclear reactor.

Since 1947, microwaves have gotten smaller, lighter, more powerful, more energy-efficient and cheaper. A quick search on the internet reveals that I can purchase a microwave that is infinitely superior to the Radarange for less than $50. In addition, I have dozens of different models to choose among. Not surprisingly, virtually all Americans own a microwave oven.

Unfortunately, none of that improvement is captured in Per Capita GDP. Indeed, purchasing a microwave in 1947 generates $57,000 in value, while buying a infinitely superior microwave today only generates $50 or less in value. Despite grossly understating progress, Per Capita GDP is one of the best metrics to track it.

In this study I will measure economic growth using GDP per person in real 2011 dollars because it takes into account population and inflation. Data on per capita GDP are widely available since 1950.

In addition, Angus Maddison has created a publicly accessible database of estimates of per capita GDP across the world going to back to 1 AD. Maddison started with current per capita GDP, assigned a figure of $450 income per year to the poorest of societies in history. This is roughly the level of economic activity needed to support basic human survival and reproduction. He then worked backwards by using available economic data to make estimates for every society in the world going back to 1 AD. These are, of course, estimates, but they do give us a rough-order-of-magnitude level of the standard-of-living of people throughout the last 2000 years.

I could give you a Per Capita GDP for the entire world, but that would not tell us very much in isolation. National numbers are much more useful. Since there are over 200 nations today, it is not realistic to examine development metrics for every one of them in this blog. And averages can cover up variation between rich and poor nations. We need a way to narrow the sample to a manageable number, but not do so in a way that creates a distorted impression of overall trends. In order to ensure that the data covers a very broad segment of the world’s population, I decided to focus on four distinct categories of nations. To reduce visual clutter I will show each group in a separate graph with an average in solid black. All the data is indexed for inflation and displayed in 2011 dollars.

The Wealthy 12 Nations

The first group, which I will call the “Wealthy 12”, consists of twelve Western nations that industrialized early and currently have very high standards-of-living. Those nations are the United States, United Kingdom, Australia, Belgium, Canada, France, Germany, Netherlands, New Zealand, Norway, Sweden, and Switzerland. The Wealthy 12 gives us a good overview of the trends within the wealthiest nations.

In this graphic, one can see the power of exponential growth. From the year 1 to the year 1000, the “curve” is a virtual flat line. If we had data from before the year 1, we would see that this flat line had existed for millennia. But within that apparent stagnation was very gradual innovation feeding upon itself. Somewhere around the year 1500, the rate of innovation had accelerated enough to produce an improvement in people’s lives. Since 1820, the curve continually gets steeper making the exponential nature of growth obvious.

The curve gets particularly steep after 1950 (when the data is no longer based upon estimates). With the exception of Switzerland, all nations in the Wealthy 12 had a GDP of $16,000 or less per person in 1950. This level of income is less than the current level for Mexico. By 2017, every nation with the Wealthy 12 had a GDP of $37,000 or more, more than double the previous levels. On average, these nations quadrupled their per capita income between 1950 and 2016.

The Populous 12 nations

The second group that I will show data for is what I call the “Populace 12”. This group consists of twelve of the most populous nations that did not have high per capita GDP in 2018. This group consists of China, India, Brazil, Congo, Egypt, Ethiopia, Indonesia, Iran, Mexico, Nigeria, Pakistan, and Turkey. Together these nations make up 58% of the world’s population and cover every continent except Australia and Antarctica. The Populous 12 gives us a broad overview of trends for people who live outside the wealthiest nations.

For the Populous 12, we can see a similar exponential curve, but the levels of income are much lower. The upward trajectory of the curve did really start until 1950. The increase in the steepness of the curve has been particularly strong since the year 2000.

In 1950 all the nations in the Populous 12 had levels of per capita GDP much lower than the Wealthy 12, with Mexico at $4179 being the highest and China being the lowest at $637. By 2016, all but Ethiopia and Congo had reached above the level of Mexico in 1950. Some experienced long, slow economic growth with some important dips – Mexico, Brazil, Turkey, Iran and Egypt. Other nations saw spectacular growth after 1980, with China being the premier example.

Even some of the laggard nations within the Populous 12 experienced a transformational change in levels of GDP per capita. Pakistan quadrupled from $1258 to $5223, and Nigeria more than doubled from $1961 to $5360. Even Ethiopia more than tripled from $520 to $1635.

Unfortunately, the fact that four of the Populous 12 are oil-exporting nations gives a distorted view of their actual economic growth. Many of these nations made far more money from exporting oil than from other products. And the profits from oil exportation tend to go to politically connected elites, so it is unclear how much this actually benefitted the masses.

The only nation among the Populous 12 that fits the idea of the “poor getting poorer” is civil-war-ravaged Congo, which declined from $1641 to $808. Obviously, the Congo has not experienced anything like progress over the last few generations. If most nations had such low and declining levels of GDP per capita, this would clearly invalidate the progress hypothesis. Fortunately, very few nations have experienced such declines.

The Bottom 20 Nations

The third group is what I call the “Bottom 20”. This group consists of the 20 nations with the lowest scores on the United Nations Human Development Index in 1990 (the earliest year available). The nations in this group consist of Afghanistan, Benin, Burma, Burundi, Central African Republic, Congo, Gambia, Guinea, Malawi, Mali, Mauritania, Mozambique, Niger, Papua New Guinea, Rwanda, Senegal, Sierra Leone, Sudan, Tanzania and Uganda. The Bottom 20 gives us a good overview in trends in the most desperately poor nations in the world. If there is any group of nations that should lack evidence of progress, it is these twenty nations.

The pattern for the Bottom 20 nations is quite different from the previous two groups. Economic stagnation persisted in those countries until around 2000. Unfortunately, we have no data for before 1950, but there is every reason to believe that levels of per capita GDP among the Bottom 20 nations were very low.

There were some very slow increases in per capita GDP before 1970, but then that progress was erased in the following three decades. It was during this period when it became mainstream thinking to see the poorest nations as trapped in poverty and beyond redemption.  At the time, many believed that only wealthy Western nations could experience long-term economic growth.

After 2000, however, even the Bottom 20 began to experience real economic growth, perhaps for the first time in their history. The strongest economic growth was in Sudan, which more than doubled its per capita GDP, and Burma, which sextupled it. The other nations experienced much slower economic growth, while Niger and Malawi stagnated. Only civil-war-torn Congo saw negative growth during this period. Of course, an upward trend for the past two decades is not a very long-term trend. Whereas it appears that the Wealthy 12 and Populous 12 have experienced long-term self-sustaining increases on their standard-of-living, it is too early to declare victory for the Bottom 20. Guarded optimism, however, is in order. Based on all the trends that we have seen for other nations, it seems likely that the Bottom 20 are already ascending the steep section of the exponential curve.

The Transformative 15 Nations

The last group of nations is what I call the “Transformative 15”. This group consists of the nations that experienced at least one generation of very strong economic growth after 1950 (or 20+ years of per capita GDP growth of over 3 percent). This level of economic growth would lead to a doubling of the standard-of-living of their people within one generation.

The Transformative 15 includes representatives from many different regions and cultures: Spain, Ireland, Japan, Hong Kong, Taiwan, Thailand, Singapore, South Korea, Indonesia, China, India, Israel, Botswana, Trinidad, Puerto Rico and Chile. The Transformative 15 gives us a good overview of the nations who experienced the fastest economic growth. It tests whether very rapid economic growth translates into positive changes throughout the society.

Exponential growth is even more obvious among the Transformative 15. Those nations all experienced rapid economic growth since 1950 after having suffered millennia of stagnation. This should not be surprising given this group was selected because of their high levels of per capita economic growth over a long period of time. The changes are stunning none-the-less. In 1950 the wealthiest nation was Ireland, which had a per capita GDP of $6983. This made Ireland one of the poorest nations in Western Europe.

By 2017 all the nations in the Transformative 15 had reached levels higher than Ireland had in 1950, except India, which was just below that level. Most of the Transformative 15 had per capita GDP six times what Ireland had in 1950.

Given that some of these nations are some of the most populous in the world, this is a stunning transformation. Virtually all of the nations in the Transformative 15 had levels of per capita GDP that greatly exceeded the levels of the Wealthy 12 in 1950: only India was lower with Indonesia and China at their level. And given the current trajectory, there is every reason to believe that rapid economic growth will continue in the future.

Of all of the metrics used in this study, per capita GDP is the one that leads to the most varied outcomes. Despite this, there was clear progress throughout the world. About half the nations experienced strong economic growth that clearly transformed their people’s standard-of-living. A handful of oil-exporting nations experienced economic growth that may not have affected their people positively. And the Bottom 20 saw nothing but stagnation until 1990 and then started to experience growth afterwards.

If you would like to learn more about this or other related topics, read my book From Poverty to Progress.

ABOUT THE AUTHOR:

Michael Magoon is the author of the “From Poverty to Progress” series of books. The first book in the series is already published with many more to follow.

COPYRIGHT

The writings above are under the same copyright as the main book “From Poverty to Progress”
Copyright © 2021 Michael Magoon

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