Monthly Archives: January 2011

What Makes the World’s Happiest Country Happy?

Once again, Norway was named the World's Happiest Country.

Once again, Norway was named the World's Happiest Country.

Forbes magazine has released its annual ranking of the world’s happiest countries, using data compiled from the Legatum Institute’s annual prosperity index. The prosperity index is an effort to rank countries based on wealth, freedom, security, life satisfaction, and so on. As in years past, Norway topped the list.

While interesting in their own right, these sorts of indices also provide some interesting insights into broader questions of economic and political development.  In most studies, gross domestic product (GDP) per capita [glossary] is the proxy measure of development. The higher the GDP per capita, in other words, the more developed a country is. With its 2010 GDP per capita of approximately $47,000, the United States is relatively more developed than South Korea, with a GDP per capita of approximately $20,000. South Korea, in turn, is considerably more developed than Haiti, which has a GDP per capita of approximately $650. Indeed, the World Bank and other international institutions regularly categorize countries using GDP per capita. Thus, for World Bank lending purposes, maintains four categories of countries: low income countries, with GDPs per capita of less than $996, lower-middle income countries, with GDPs per capita between $996 and $3,945, upper-middle-income countries, with GDPs per capita between $3,946 and $12,195, and high income countries, with GDPs per capita of more than $12,195.

But while we use GDP per capita as a proxy for “development,” the figures often tell us very little about what is actually going on in a specific country. Further, while we generally operationalize development as an increase in GDP per capita, an increase in GDP per capita may or may not actually result in an improvement in the quality of life or life chances in a given country. This is where other figures and indices come in. The Human Development Index, the Gender Empowerment Measure, and Happy Planet Index, even more specific measures like life expectancy, child mortality, or literacy rates can tell us a great deal about what is going on within a specific country.

One interesting comparison is to look at the top ten countries in the various measurements. Let’s take GDP per capita and human development.

According to the IMF, the ten wealthiest countries in the word in 2010 were:

  1. Luxembourg $104,390
  2. Norway $84,543
  3. Qatar $74,422
  4. Switzerland $67,074
  5. Denmark $55,113
  6. Australia $54,869
  7. Sweden $47,667
  8. The United Arab Emirates $47,406
  9. The United States $47,132
  10. The Netherlands $46,418

If we compare this to the top ten countries in the UNDP’s 2010 Human Development Index, which is a composite index which incorporates health, education, and wealth, we see some interesting shifts. The top ten rankings for the HDI are:

  1. Norway
  2. Australia
  3. New Zealand
  4. The United States
  5. Ireland
  6. Liechtenstein
  7. The Netherlands
  8. Canada
  9. Sweden
  10. Germany

Some countries, in other words, overperform relative to the size of their economies, while others tend to underform. Ireland, for example, moves up 7 spaces (from 12th largest economy to 5th best ranking in the HDI), while Germany improves 9 positions (from 19th to 10th). At the other end of the scale, Qatar and the United Arab Emirates experience a sharp drop in their rankings, falling from 3rd and 8th to 38th and 32nd respectively.

And where things get really interesting is when the various measures diverge greatly. When we’re looking at measures which incorporate concrete variables, such as infant mortality rates, literacy rates, or access to education, explanations can be relatively straightforward. One could make a strong case, I think, that the reason that Qatar and the UAE fall so sharply in their standings is because they have not been successful in converting the oil wealth both countries enjoy into social and health benefits for the country’s population as a whole.

But when we get into the fuzzy area of happiness and life satisfaction, things become much murkier. According to the Legatum Institute’s study, the world’s ten happiest countries are:

  1.  Norway
  2. Denmark
  3. Finland
  4. Australia
  5. New Zealand
  6. Sweden
  7. Canada
  8. Switzerland
  9. The Netherlands
  10. The United States

Money, in other words, helps but it doesn’t buy happiness. Wealth is certainly part of the picture—we don’t see very poor countries cracking the top of the charts. But size, trust and social cohesion, and extensive redistribution of wealth, also appear to play a role. Food for thought in development studies.

What’s Going on at the IMF?

International Monetary Fund Headquarters, Washington DC

International Monetary Fund Headquarters, Washington DC

Once the unabashed advocate for cutting government regulation and liberalizing economies worldwide, there have been recent murmurings from the International Monetary Fund moving in a dramatically different direction. This is not to suggest that critics of the IMF—most notably Joseph Stiglitz—have run out of ammunition. Rather, as Duncan Green has been reporting on his Oxfam blog, the IMF appears to be opening up to new proposals. For most, the concession that the state may have a role to play in development is hardly a dramatic finding. But from the organization that promoted cuts in government spending and liberalization of capitalism markets as the solution to nearly every economic and financial crisis from Asia to the United Kingdom, from Russia to Brazil, it’s quite a concession.

We’re specially looking at three developments, all covered by Duncan. First, in early February, the IMF began to rethink its traditional focus on inflation. In a paper co-authored by the IMF’s chief economist, Olivier Blanchard, the organization conceded that it had become too focused on inflation at expense of other goals, like fiscal policy, interest rate stability, and—wait for it—preventing global financial crises like the one that rocked the world beginning in 2008.

Later the same month, responding to increasing pressure from countries like Brazil, the IMF began to rethink its traditional opposition to capital controls.  For years, the IMF had promoted open financial markets as a central component of development strategies. But such openness carried significant risk of fostering financial instability. We saw this, for example, during the 1997 Asian financial crisis. In 1997, the IMF prescribed cutting capital flows as part of its reform package. But in 2010, it reversed course, conceding that capital controls, under certain circumstances,  may be an effective part of the policy toolkit to manage capital flows.

In April, the IMF announced its most dramatic change to date, announcing its support for establishing a “Robin Hood Tax” intended to force banks to pay for the direct and indirect costs associated with government interventions to bail out the banking sector following the global financial meltdown. While this initiative has stalled amid strong divisions between major players—particularly between the United States and France—the willingness with which the IMF embraced the proposal stood in stark contrast to its earlier positions on financial deregulation and lowering tax rates.

Now, in a new working paper published this month, two IMF economists draw a connection between inequality and the outbreak of financial crises, concluding that higher levels of inequality make an economy more prone to the kinds of crises that have rocked the global economy in recent years. They conclude that preventing future economic crises may depend on reducing the total level of inequality in any given society.

Duncan Green is right. They must be putting something in the water at IMF headquarters. How else do we explain the dramatic shifts taking place there?

Who Governs Lebanon?

Lebanon's Prime Minister, Saad al-Hariri, waves to the crowd at a political rally.

Lebanon's Prime Minister, Saad al-Hariri, waves to the crowd at a political rally.

Incumbent Prime Minister Saad al-Hariri will remain in his post as head of a caretaker government in Lebanon, according to a report by the BBC yesterday. Lebanon had been poised to enter a period of political deadlock and uncertainty, and the Arab League described the situation in Lebanon as “tense,” after eleven ministers from Hariri’s ruling coalition resigned last week. The ministers, all of whom have ties to the powerful Hezbollah party, are angry about plans by a United Nations-backed tribunal to indict several of its members for their alleged involvement in the 2005 assassination of former Prime Minister Rafik Hariri, who was also the father of current Prime Minister Saad al-Hariri. Their decision effectively dismantled the government of national unity [glossary] that had been in place since 2008.

Lebanon appears to be entering a prolonged period of political stalemate which, unlike the longstanding stalemate in Belgium, will likely paralyze the country. The country is sharply divided along religious and sectarian lines and has a history of civil conflict. The National Pact, the informal agreement that has governed Lebanese politics since 1943, mandates that the top three political posts in the country be allocated on the basis of religion, with the country’s president be a Maronite Christian, its Prime Minister be a Sunni Muslim, and its Speaker of the Parliament be a Shi’a Muslim. The Pact also reserves half the parliament for Christian parties and half for Muslim parties. 

Further, neighboring powers, including Syria, Saudi Arabia, and Israel, have regularly intervened in Lebanese affairs.

The current political standoff in Lebanon is more than a simple problem of coalition [glossary] politics. Hezbollah, the favored party of the country’s Shi’a population, is more than an opposition party. It is also the most powerful military force in the country and frequently operates as a government in its own right, operating its own satellite television station and providing social services like subsidized housing and welfare support to people across the country. Internationally, Hezbollah’s paramilitary wing has been a strong opponent of Israel.

If al-Hariri is unable to re-establish a majority coalition in the parliament—a situation that appears highly unlikely, given Hezbollah’s strong opposition to the release of tribunal findings—Lebanon appears likely to remain in a political quagmire. Neither side can form a ruling coalition without the support of the other, but neither side appears willing to compromise.

But concerns also run deeper. Many domestic observers are cautioning that the political standoff could turn violent, rekindling tensions remaining from the Lebanese Civil War. And if that takes place, it is possible that Israel would feel compelled to intervene, as it did most recently in 2006, resulting in the displacement of some 1.5 million people in northern Israel and southern Lebanon  More broadly such a conflict would also endanger the ongoing talks with the Palestinians. Unlike the political stalemate in Belgium, which has been unable to form a ruling coalition in its national parliament since elections in July 2010, the political stalemate in Lebanon appears both more fragile and more dangerous.

The Future of Sudan and Africa’s Artificial States

Voter Registration ahead of South Sudan's Independence Referrendum.

Voter Registration ahead of South Sudan's Independence Referrendum.

On January 9, 2011, the people of southern Sudan will take part in an unusual election that will determine the future of their conflict-ravaged country. They will vote on whether or not they will continue to be part of Sudan, or whether they will break away and form their own, independent country of South Sudan. Rarely have such decisions been taken lightly. While the breakup of the former Eastern European state of Czechoslovakia into two separate states (the Czech Republic and Slovakia) was relatively peaceful, far more often the question of Secession leads to violent efforts to preserve the existing distribution of power. In Biafra (Nigeria), East Pakistan (Bangladesh), Chechnya (Russia), Eritrea (Ethiopia), Kosovo, Bosnia, and even in the United States during the U.S. Civil War, efforts by one group of people to break away from another and form their own state are often met with a sharp—frequently violent—response.

Most observers believe the people of South Sudan will vote in favor of independence, and the international community has slowly begun to mobilize in anticipation. But there will be many issues to deal with: citizenship and nationality, distribution and control over natural resources, security, international treaty obligations, currency and trade, just to name a few. Complicating the situation is the distribution of Sudan’s oil resources. While the oil reserves are located primarily in the southern part of the country, the pipelines to ship it out of the country and sell the oil flow through the north. Any peaceful transition will have to address these complicated issues.

Far more likely, unfortunately, is the possibility of a protracted conflict. Ahead of its break from Ethiopia, Eritrea fought an extended war of independence (lasting from 1961 to 1991). After a referendum and peaceful separation in 1993, the two countries went to war in 1998, fighting along their disputed border. The war, which lasted a little more than two years, cost Ethiopia and Eritrea—two of the world’s poorest countries—hundreds of millions of dollars and tens of thousands of casualties.

International observers are mobilizing to prevent a similar occurrence in South Sudan. George Clooney has lent his star power to support an initiative by the United Nations and Harvard University to use satellites to monitor developments in southern Sudan,  hoping to prevent genocide there. Meanwhile, former South African President Thabo Mbeki has called for unity and a peaceful transition, noting that many African states face similar challenges.

The broader challenge for African states rests in the artificiality of their national borders, many of which were set as a result of colonial interventions by European states. Peoples were combined and divided by national boundaries that were convenient for European powers, but bore little resemblance to the lived realities of the people themselves. Consequently, historical rivals were often combined into a single state, while peoples with shared histories and identities were frequently divided into separate states. For several decades after independence, the solution was essentially to ignore the problem. In 1963, the Organization of African Unity formally endorsed the borders established by colonial authorities nearly 100 years earlier. Such a move was perhaps politically necessary. Rather than reopening old wounds and engaging in a divisive discussion of redrawing political boundaries, they chose to go with what was there. But that decision also left many artificial states intact, with populations that desired autonomy an independence. There may be, in other words, many other South Sudans waiting to declare their own independence in an ever fragmenting map of Africa.