‘Better than ever’ may not be good enough

A few days before Christmas, British journalist Matt Ridley, author of ‘The Rational Optimist’, offered a hopeful essay in which he argued that the 10 years just ending were “the best decade in human history”. Ridley, who is known for his writings on economics, the environment and science, advised readers, “Let nobody tell you that the second decade of the 21st century has been a bad time.”

And yet, as is evidenced by the electoral contests of the past five years, it would not be hard to imagine that great swaths of the world were less than impressed by the 2010s; outsiders and radicals appeared on ballots from Athens to Washington. A widely cited 2017 analysis by American financier Ray Dalio claimed the developed world had not seen such a swell of populists since the 1930s, an abhorrent decennium in its own right. In just the past year, notable civil protests took place in: Algeria, Argentina, Bolivia, Chile, Colombia, the Czech Republic, Ecuador, France, Haiti, Hong Kong, India, Iran, Iraq, Italy, Lebanon, Russia, Spain, Sudan, the UK, Venezuela and Zimbabwe.

Is it possible to reconcile the two world views? Yes, it is. It is both better than ever and not good enough. In economics this concept is known as the marginal change. It is stock versus flow; speed versus acceleration. The catboat is outfitted better than ever, the brilliant blue paint fresh, but there is little wind.

The first four seals

Ridley builds an eminently reasonable case to support his declaration that human society is at the apex of its historic arc. His list of advancements reads as if humanity had confronted the Four Horsemen of the Apocalypse and forced them into headlong retreat.

If we take the first horseman and his white horse as pestilence – symbolising infectious disease and plague – then as Ridley writes, we find “malaria, polio and heart disease all in decline”. Famine, sitting atop its black steed, “virtually went extinct”, the article rightly celebrates.

For our most vulnerable – children – mortality is at “record low levels”. More broadly, the United Nations’ ‘World Population Prospects 2019’ report shows that today’s global average life expectancy at birth is 73.2 years. Compare that to the 1950 leader in life expectancy – Norway – which posted a mark of 72.3 at the time.

Though Ridley does not mention war, Max Roser, a senior research fellow at the University of Oxford, has documented with empirical data across a number of ethnographic studies that “we are now living in the most peaceful time in our species’ existence”. The riders of both the pale and red horses have been pushed back farther than ever before.

On the subject of ecology, Ridley observes, “we are getting more sustainable, not less, in the way we use the planet”. In terms of economics, extreme poverty has receded and now affects only 10% of the planet – a first in human history. Thus, Ridley concludes that human ingenuity and perseverance have led to the “greatest improvement in human living standard in history”.

Why so serious?

What then is not to like? Why the protests and rising popularity of populists? The answer is found in Ridley’s first paragraph: “Global inequality has been plunging as Africa and Asia experience faster economic growth than Europe and North America.”

The advanced economies trail not only emerging ones but they also trail themselves. Therein lies the problem; the last dozen years have been wholly unlike the understanding of what economic advancement and growth is.

From the end of the Second World War in 1945 through to 2007, the growth in inflation-adjusted gross domestic product per capita advanced at different rates for different countries.

And while it is interesting to note whose pace was the quickest (Romania, compounding growth at 5.1% per year) or the slowest (Haiti, abating at -0.7% per year) that is not our purpose here. What your author wants to do is draw attention to how the same country performed during those first 62 years compared to how it performed subsequently. If we define above-and-below trend as plus or minus 10%, respectively, then of the 43 countries with data for each year between 1945 and 2018, just over half have spent the 2010s growing below their post-WWII trend.

One can broaden the study dramatically by starting in 1950. Doing so will include 129 countries in our survey. The results are similar. Of the 129 nations with data from 1950 to 2018, 40% have been, since 2008, below their 1950-2007 growth trend. Of the remainder, 35% have experienced above-trend growth while 25% of countries remain on, or near, their long-term trend.

Those countries that spent the 2010s in the economic doldrums (e.g. the US, Japan, Germany, UK, France, Italy, Brazil, Canada, South Korea, Australia, Spain, Mexico, Netherlands, Saudi Arabia, Turkey, Switzerland, Sweden, Belgium, Argentina, Thailand, Austria, Norway, Ireland, Israel and Singapore) account for 65% of the global economy. A plurality of countries that account for a majority of global economic activity have spent no small part of the average human life listless.

How does this translate at the individual level? The average per capita gain at the end of 2018, in US dollar terms, for the 35% of countries that were above-trend (e.g. China, India, Indonesia, Poland, Philippines, Bangladesh, Vietnam, Iraq, Peru, Morocco, Sri Lanka, Kenya, Ethiopia, Dominican Republic, Myanmar, Ghana, Panama) was just over US$800. Meanwhile, the citizens who found themselves in the below-trend nations were each short just $10,000 of where the 1950-2007 trend implied they would be by the end of 2018.

The world changed on 9 Aug

Why does your author choose 2007 as the demarcation in the study above? In addition to being an award-winning, multi-book author, Ridley is also a prominent businessman and was the chairman of the bank Northern Rock. In September 2007, Northern Rock became the first British bank to experience a run on its deposits in 140 years.

Northern Rock CEO Adam Applegarth explained that September, “The world changed on August 9.  This problem isn’t Northern Rock-specific. It must be difficult for other banks too.” Indeed, it was only just starting. “The markets froze,” Applegarth said. “You could no longer raise money in the market because the market effectively closed. It was astonishing to see it happen.”

Northern Rock was the second domino of a global banking crisis, the first being France’s BNP Paribas, which on 9 Aug. 2007 announced it was incapable of valuing three of its hedge funds that had connections to mortgage-backed securities in the US.

Applegarth is right; the world changed that August, and not for the better. The global banking crisis of 2007-8 was the opening act of a play not yet completed. Acts II and III were the European sovereign debt crisis of 2011-12 and the emerging market currency turmoil of 2014-15. The worldwide slowdown since 2018 and the end of globally synchronised growth appears to be the fourth act.

Ridley predicts that by the end of this decade, “Britons will be richer.” No doubt! However, zero is not the dividing line between progress and regression. Human advancement presupposes a positive rate of growth. The question is not whether the Britons will be richer or poorer but how much richer.  If not rich enough, then there will be social and geopolitical consequences.

This may seem a somewhat distasteful aspect of human character, to not be satisfied with “better than ever”. Perhaps. Then again, not being satisfied with good enough is how humanity has advanced as far as it has. It is a trait best left to our classic texts to ponder over and not for this author to opine on. Instead, let us end with a quote from another British journalist and economist, Walter Bagehot, who in 1873 – a point in time when the world had globalised like never before, when civilisation had reached a socioeconomic and technological level hardly before imagined – wrote, “John Bull can stand many things, but he cannot stand two per cent.”

SOURCES

Ridley, M. (2019, Dec-21). “We’ve just had the best decade in human history. Seriously” The Spectator. Retrieved from: https://www.spectator.co.uk/2019/12/weve-just-had-the-best-decade-in-human-history-seriously/

QuickTake (2019, Dec-25). Twitter. Bloomberg. Retrieved from:  https://twitter.com/QuickTake/status/1209802363374047232

Dalio, R., Kryger, S., Rogers, J. and Davis, G. (2017, Mar-22). “Populism: The Phenomenon” Daily Observations, Bridgewater Associates. Retrieved from: https://www.bridgewater.com/resources/bwam032217.pdf

United Nations, Department of Economic and Social Affairs, Population Division (2019). World Population Prospects 2019, Online Edition. Rev. 1. Retrieved from: https://population.un.org/wpp/Download/Standard/Mortality/

Roser, M., Ortiz-Ospina, E. and Ritchie, H. (2019). “Life Expectancy” OurWorldInData.org. Retrieved from: https://ourworldindata.org/life-expectancy

Roser, M. (2019). “War and Peace” OurWorldInData.org. Retrieved from: https://ourworldindata.org/war-and-peace

Jones, S. (2007, Sep-14). “Northern Rock: ‘The world changed on August 9’” Financial Times. Retrieved from: https://ftalphaville.ft.com/2007/09/14/7309/northern-rock-the-world-changed-on-august-9/

Staff. (2007, Sep-15). “Northern Wreck” The Telegraph. Retrieved from: https://www.telegraph.co.uk/finance/markets/2815775/Northern-wreck.html

Bagehot, W. (1873). Lombard Street: A Description of the Money Market. London: Henry S. King and Co. Retrieved from:

https://www.econlib.org/library/Bagehot/bagLom.html?chapter_num=3#book-reader

Emil Kalinowski, CFA, is a member of the CFA Society Cayman Islands board.