Nations Don’t Really Compete

September 21, 2010 3 min read

I recently turned down a job to be the Director of the Asia Competitiveness Institute in Singapore partly because I couldn’t figure out how countries (or regions) are really competing with each other.

We have created a false analogy to business. In business, if you make soap and I make soap, we may be competing for the same buyer. But that is business. If I make government, and you make government, I have pretty captive “buyers” and so do you. So how did we get to a place where the country that is growing the fastest is the one that wins; not the one that is the safest, not the one where people live the longest, not the one where people are most happy. We somehow decided, in the last several decades, that economic growth is our measure of governmental success — and in so doing, we have created “competition” where there really was none.

Oh of course, countries can compete. War is a damn fine example. And the competition in a war is about growth — territorial growth, not economic growth. (Although the two may be linked: “I want your territory and resources because I can grow faster if I have them.”) But we live on a finite planet, so at a certain point, territorial growth will have to come to an end. 

But economic growth itself is not really about territory or natural resources — it is about population. If you compare graphs of population growth and economic growth over the course of human history, they are almost exactly correlated.

This makes logical sense. We all consume things: the more people, the more consumption, the more growth! But a single individual can only consume so much (okay, I can get fatter and demand more calories per day; or I can buy a bigger house and more stuff to put into it — but in general, there is an upper limit). So if the population remains flat and I don’t end up consuming all that much more than my father did during his life, there will be no economic growth from his generation to mine. 

This logic is reflected in what we’ve actually seen in the world in the last few decades. Once a country gets to a certain level of population stability and economic development (where a majority of the population’s needs are sated), growth rates drop to the 1 to 2 percent range it seems. 

A hopeful way around this “topping out” has always been that if the Have-nots could start consuming as much as the Haves that would be a great source of growth even in a developed nation. Sadly, the data don’t support this hopeful vision.

In fact, in the US during the last two decades, income has come to be concentrated more and more with the rich — there is little or no trickle down effect. Even in China with a huge population of rural poor who could consume more, the concentration of wealth in a small part of the urban population has resulted in a decrease in private consumption as a percentage of GDP over the last decade. (http://www.rieti.go.jp/en/china/09062901.html) These numbers, combined with the fact that the Chinese population will actually start to decline in the next three decades, lead some experts to believe that China’s demographic advantage will end as early as 2015. (http://china.globaltimes.cn/society/2010-09/571766.html)

If we accept the proposition that we have to compete with other nations on economic growth, there is no other option except to export goods and services to places where there is a developing population that has still not reached capacity. Services are hard to export, and even goods are limited by the cost to produce and ship them. A great new product, like the iPhone, that takes the world by storm is trotted out as one example of how to export more. Apple reported a 300% growth in Asia-Pacific; about a 100% growth in Europe and Japan and only a 20% growth in the US.  (http://practicalstockinvesting.com/2010/04/22/aapls-march-2010-quarter-strong-non-us-iphone-sales) Individual companies (which really do compete with other companies) can definitely continue to grow through competition. But countries will never see much overall effect in the economy even from a great product like the iPhone. (Apple’s entire revenue is only .3% of the US GDP)

Rather than looking to triage our growth-based mindset about success, it seems like it is time to switch our focus to something else. Japan hasn’t “grown” for two decades, but lifestyles have actually improved. Tiny Bhutan focuses its attention on Gross National Happiness rather than economic growth. If we could move our national attention from top-line growth, to things like profitability, quality of life, and happiness, could we be an even stronger, more positive nation?