Which is the better lot in life: To be poor in a rich country, or rich in a poor country?
Take a guess now, before you read further. You may find the answer surprising.*
Since the financial crisis, “the decline of the West and the rise of the rest” has become a fixture in the thinking of not just Americans, but people all around the world. A 2013 survey by Pew Research Center’s Global Attitudes Project showed that 34% of respondents believed that China was the world’s leading economic power, up from 20% in 2008.
These respondents were wrong: the US was the world’s largest economy in 2013.** But it’s easy to see why they might have thought the US had lost its superpower status.
The media abounds with tales of China’s stunning economic rise, the gross excess among the nouveau riche in emerging markets, and the decline of the middle class and rising inequality in the US. As if to rub it all in, Chen Guangbiao, a Chinese recycling tycoon, staged an expensive charity event in Central Park in June where he fed hundreds of American homeless “sesame-seed encrusted tuna and expensive cuts of beef.”
So is it better to be rich in a poor country? Unless you are Chen Guangbiao or one of his rare cohorts, the answer is no. Your standard of living is likely to be higher if you live in a rich country, no matter where you fall on the income distribution.
Despite the recent troubles in advanced economies and growth in emerging economies, the gap between rich and poor countries remains large. Even the poorest of Americans, for example, were still richer than 60% of the world’s population on a purchasing power parity basis in 2005; they were also roughly on par with China’s top 15% and India’s top 5%. (Branko Milanovic, the Serbian-American economist, has graphed this data: See below, or check out slide 56 here.)
Of course, these trends are changing. Economies are “converging,” meaning the income levels of both poor and rich countries are coming together, due largely to the rapid transmission of technology from advanced to developing economies. Convergence is a powerful force, perhaps the biggest economic story of the 21st century.
Yet wealth and economic activity remain both incredibly path dependent. They also tend to cluster around global economic centers, which take decades or centuries to establish.
Here’s an awesome illustration of that path dependency, created by the G-Econ research project at Yale University, which shows how the world’s economic activity is disproportionately clustered in North America and Europe, with vast “cool spots” through Asia, Africa, and South America.
Convergence is a fascinating story. Yet perhaps we’ve repeated the mantra of change so often that we’ve forgotten the one of stasis. The truth is that poor countries still have a long way to go towards anything approaching equality.
* Then again, maybe not. You are reading this blog, so it stands to reason that you are very smart, or very lucky.
**In 2014, the answer is less clear. According to the World Bank’s International Comparison Program, China is set to surpass the US in purchasing power parity-adjusted GDP in 2014. But according to the IMF ’s exchange rate figures, the Chinese economy is still half as large as that of the U.S. (In other words, measuring economic activity is far less of an exact science than most people assume.)