The Closing Political Gap Between Developed and Developing Nations.


economy and politics

There is a very natural, yet vastly generalized misunderstanding about the connection between the political and the economic world.

By an almost inevitable extension, the economic development of a nation has been generally regarded as being a consequence, a near perfect reflection of its political development. That seems to have been a paradigm for over two centuries (if not longer) up to recently. Not anymore.

Granted, the economic per capita income gap between a developing country, versus that of the developed nations’ is colossal. Let’s take Mexico and the US, for example. Mexico’s per capita income is roughly one third that of the US. Yet, curiously enough, the political gap between these two countries is not that wide anymore.

The major reason behind this intriguing political gap closing, is the great stagnation the developed nations’ political system has been experiencing during recent decades. Simultaneously, some developing nations have been steadily getting nearer to the (highly imperfect) political level of development of their advanced brethren.

The relative dysfunctionality of contemporary political systems is beyond any reasonable doubt. To the extent that said dysfunctionality has been prevailing, the huge political gap between developed and developing nations has been getting narrower. In other words,  that gap has been getting smaller, not out of virtue from the developing world, but rather from the relative dysfunctionality of the global political system, which is more noticeable among the developed group of nations. The (relative) political stagnation of the developed world has made it increasingly easier for developing nations to close that gap.

The two most recent major world crisis are a testimony to the high dysfunctionality of the contemporary political system. Both, the subprime crisis as well as the European debt crisis have made it grotesquely evident just how dysfunctional the political systems of the two largest socioeconomic blocks on Earth are. Without having to be that way, it seems like the complexities of the challenges posed by those crisis have been beyond the actual capability of their respective systems.

The misalignment of interests between what the population (ideally) should expect and what the actual legislative and executive agreements can achieve could not be more abysmal.

We all are quite aware that, most unfortunately, political parties and individuals in power are more concerned about keeping that power (or regaining it, when out of it), than about doing what is right, regardless of the (short-term) political consequences. This most dramatic circumstance has a lot to do with a highly distorted incentives system.

Contemporary political systems have not yet been able to figure out how to appropriately balance long-term objectives versus the short-term political implications. A profound incentives restructuring is imperative.

So, by contrast, the combination of the subprime and the European debt crisis have comparatively made most of the emerging nations look very good. How much of this phenomena is real and lasting, and how much of it is a mirage?

Nobody has the right answer. However, it seems fair to acknowledge that a substantial part of it seems to be structural, permanent. But, again, this is a rather perverse reflection of the humongous stagnation of the world’s political system, more than a manifestation of virtue in the developing world.

No major improvements have been made in the world political system since the dawn of the US, back in 1776. At that time the bold experiment the US’s founding fathers were doing was truly revolutionary. It took mankind many centuries (over 2,000 years if the great Greek philosophers are considered the precursors of modern political systems) for a visionary team of people to dare to drastically change the world’s political status quo, in a constructive way.

Even in the developed world, there is an abysmal difference within countries when compared. InternationalComparisons.org, created by Dr. Sherman Lewis,  compares different quality of life factors among the most advanced democracies in the world.  In his studies, Dr. Lewis has come to a very interesting concept that goes right along our line of reasoning:

The United States is the least developed of the advanced democracies in most areas. The US has high personal income, high productivity, large houses, and ample higher education; however, it is the most militarized nation, has the highest population growth, the most uneven distribution of income, mediocre basic education, the lowest health status, the highest health care costs, much higher crime, less leisure time, more abortion & teen pregnancy, and a lower status for women. The United States is the least environmentally sustainable of the advanced democracies, the most polluting, and the most dependent on fossil fuel.

––Dr. Sherman Lewis

Professor Emeritus of Political Science

California State University in Hayward

 

Over 170 years ago, Alexis de Tocqueville very wisely warned: “The American Republic will fall when the politicians learn they can bribe people with their own money.” The “American Republic” part of the quote can be replaced with any nation on Earth, since most contemporary political systems are roughly aligned to the US’s.

A dreadful combination of highly irresponsible political parties (and politicians) with a naive and also irresponsible society have resulted in a horrible combination, ultimately producing a vicious circle which has caused the big public financial mess the world is currently immersed in. That is why swift, permanent solutions have been so elusive. The current political system does not allow profound, adequate solutions to surface and prosper. Any sensible proposal is quickly asphyxiated and or severely scaled down.

Until and unless this structural status quo is modified, the world is, at best, condemned to grow substantially below its true long-term potential, with a gigantic opportunity cost (worth trillions of US dollars a year of output not generated). Read our Full-potential Economic Growth post.

 

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About Martin Marmolejo

Global Investment Manager | Founder & Managing Director at MMA Global Investment Management | Proud husband and father | Follow me @globalmarmolejo.

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  1. […] developing world has made a substantial catching-up effort. Developing nations have been rapidly closing the political gap versus the developed world. Granted, without disregarding the merit this progress implies, it has […]

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