August 26, 2006

Gladwell has a new article and I'm well glad

Gladwell has a new article and I'm well glad: There's nothing like a Malcolm Gladwell essay in The New Yorker to provide me with an easy punching bag. His latest takes the familiar concept of "dependency ratio" and tries to derive some vast new implications from it:

What’s behind Ireland’s economic miracle—and G.M.’s financial crisis?

... This relation between the number of people who aren’t of working age and the number of people who are is captured in the dependency ratio. In Ireland during the sixties, when contraception was illegal, there were ten people who were too old or too young to work for every fourteen people in a position to earn a paycheck. That meant that the country was spending a large percentage of its resources on caring for the young and the old. Last year, Ireland’s dependency ratio hit an all-time low: for every ten dependents, it had twenty-two people of working age. That change coincides precisely with the country’s extraordinary economic surge.

So, that must explain why Ukraine, with a total fertility rate of 1.17 babies per woman, is so prosperous these days! Ukraine has a higher percentage of its population in the age 15-64 bracket (69.3% according to the CIA World Factbook) than Ireland (67.6%).Yet, Ukraine's per capita income is barely 1/6th of Ireland's.

Similarly, Tunisia's population is more clustered in the working years "sweet spot" (68.6%) than Ireland's, yet Tunisia is not an economic hot spot. It's per capita income is only 1/5th of Ireland's.

Contraceptives were legalized in Ireland in 1979. (Ireland's birthrate was not all that high before then, though, due to its extraordinarily high first marriage ages: 31 for men and 26 for women. Because of the sexual shenanigans of the Kennedy clan, we Americans forget the old and valid stereotype of Irish sexual restraint). But when I visited Ireland in 1987, it was still economically stagnant. When I came back in 1994, it was not yet noticeably wealthier. No, it was the economic reforms of the 1990s, more than anything else, that liberated Ireland from its traditional poverty.

(Keep in mind, however, that Ireland's current lofty per capita GDP -- now as high as America's on paper -- is exaggerated by its low corporate income taxes, which induce multinational corporations to contort their accounting in order to take their profits in little Ireland. Still, Ireland is truly much better off than in the past, and that should be a source of satisfaction.)

Gladwell goes on:

"The introduction of demographics has reduced the need for the argument that there was something exceptional about East Asia or idiosyncratic to Africa,” Bloom and Canning write, in their study of the Irish economic miracle. “Once age-structure dynamics are introduced into an economic growth model, these regions are much closer to obeying common principles of economic growth.”

This is an important point. People have talked endlessly of Africa’s political and social and economic shortcomings and simultaneously of some magical cultural ingredient possessed by South Korea and Japan and Taiwan that has brought them success. But the truth is that sub-Saharan Africa has been mired in a debilitating 1-to-1 ratio for decades, and that proportion of dependency would frustrate and complicate economic development anywhere. Asia, meanwhile, has seen its demographic load lighten overwhelmingly in the past thirty years.

This is a good example of missing the point. If you go down to Wal-Mart or Costco and pick out the most sophisticated product made in China, you'd probably find, say, a laptop computer. And if you picked out the most sophisticated product in the store made in West Africa, you'd probably find, say, a shirt. That the worker's income from making the shirt has to be spread over more dependents than the income from making the laptop computer is, indeed, a problem for African economies relative to China's economy, as Gladwell points out, but it's hardly the main problem. The big problem is that while China is now internationally competitive in the same products that Japan was competitive in during the 1990s, West African countries are now competitive only in the same manufactured products that England was globally competitive in during the 1770s.

Furthermore, which one is cause and which one is effect? Other parts of the world unmired themselves from huge birthrates by improving their agricultural productivity. Africa hasn't lowered its birthrate all that much (although it is falling) because it remains mired in poverty. Because African farm productivity is low, they need young girls to hoe the fields, so the girls can't go to school beyond a certain age, so they don't go through the demographic transition to lower birthrates.

If you are looking for a more insightful dependency ratio-related explanation for African poverty, you'd be better off looking at the lack of work effort put out by African men. African feminists complain not that men won't let women work, but that men won't work. One African feminist claimed in the Washington Post recently that women do 80% of the work in Africa. Unfortunately, that remains one of the many taboo topics in American discourse, so glib pseudo-explanations of African poverty like Gladwell's remain rampant.

Dependency ratios are useful within a country for discussing matters like the future solvency of Social Security. Between countries, however, while they are worth a look now and then, the truth is that the productivity of the workers differs more than, and far more importantly, than the ratio of workers to dependents.

My published articles are archived at -- Steve Sailer

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