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The haves and the have nots

By Rodney Crisp - posted Friday, 6 May 2011


"Cant as we may, and as we shall to the end of all things, it is very much harder for the poor to be virtuous than it is for the rich; and the good that is in them, shines the brighter for it."

(Charles Dickens, from American Notes, 1842)

Does it come as a surprise to anyone to learn that the strong and the rich are remarkably resilient and the poor are woefully vulnerable? The accumulation of knowledge, self-esteem, culture, wealth, and personal networks is an inexhaustible source of resilience. But, he who has nothing stands alone and defenceless in the face of misfortune.

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Individuals, families, communities and nations are all subject to external shocks of various magnitudes. Resilience is the ability to recover from such shocks. On the national level, rich, knowledge-based economies have more resources to call upon to recover from shocks than poor, underdeveloped, predominantly labour-based economies.

However, in the event of a major catastrophe, such as an earthquake, a relatively high degree of economic resilience at the national level does not necessarily benefit individuals and families at the microeconomic level, nor does it necessarily benefit trades, businesses, professions and market sectors at the mesoeconomic level. Social and economic inequality is a feature of all nations and results in inequality of the resilience of individuals and families to catastrophic events. Prolonged absence from the marketplace may also oblige certain professions or market sectors to recycle their activities either partially or totally and enter new markets. Faced with the irreversibility of certain situations, resilience takes the form of adaptation.

Current events have projected Japan, once again, onto the world scene of nations, victims of natural catastrophes. Japan is the third largest economy in the world after the USA and China. On a per capita basis its gross national product ranks 24th in the world. The Japanese people accumulate knowledge, self-esteem, culture, wealth and personal networks. They have demonstrated remarkable resilience to natural catastrophes in the past and, no doubt, will continue to do so.

By the same token, it can be expected that the recent devastating floods in Australia will be taken in its stride by the Australian economy in less than two years, provided, of course, some other catastrophe does not occur in the meantime. Australia is the 17th largest economy in the world. Its GDP per capita places it in 10th position, well ahead of Japan. It is reasonable to deduce that we Australians are at least as potentially resilient as the Japanese.

This contrasts with the much feebler resilience of the south-east Asian economies affected by the 2004 Indian Ocean earthquake and ensuing tsunami. Thailand, Indonesia and Sri Lanka all suffered major casualties and destruction. Their respective national economies are rated according to size as Indonesia 15th, Thailand 24th and Sri Lanka 66th. However, on a GDP per capita basis Thailand is 86th, Sri Lanka 111th and Indonesia 122nd. All GDPs indicated are as derived from PPP (purchasing power parity) calculations by the IMF (International Monetary Fund) for the year 2010.

Judging from these rankings, compared to the observed resilience on the ground of the various countries concerned, it appears that the GDP per capita is a more significant instrument of measure of economic resilience than the overall GDP. On this basis the resilience ranking would be, in decreasing order: Australia, Japan, Thailand, Sri Lanka and Indonesia.

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If we were to subsequently benchmark some of the other countries prone to similar major natural catastrophes such as the USA (9th), China (94th) and Haiti (159th), for example, the order would become: USA, Australia, Japan, Thailand, China, Sri Lanka, Indonesia, and Haiti.

It may or may not be pure coincidence, but that particular line up in decreasing order of GDP per capita does seem to correspond to the degree of resilience observed in the countries indicated. The impressive Japanese recoveries from successive major earthquakes and tsunamis in the past, the formidable resilience demonstrated by the American economy following hurricane Andrew in 1992, the world's worst natural catastrophe in economic terms ( $ 27 billion) and, more recently, the remarkable recovery of the US economy from the global financial crisis, contrast strikingly with the difficulties experienced by a country like Haiti, still struggling to recover from the January 210 earthquake and the economies of countries like Greece, Ireland and Portugal, reeling from the weight of excessive sovereign debt contracted in the wake of the global financial crisis.

GDP per capita could perhaps serve as a universal macroeconomic rating scale of resilience of nations similar to the Richter scale used to measure the magnitude of earthquakes. This could be based each year on the most recently published IMF list of countries by GDP (PPP) per capita. The relevant resilience rate to be considered would be the GDP (PPP) per capita amount rounded off to the nearest thousand international dollar (also known as the Geary-Khamis dollar, used by the IMF and World Bank as an international standard). To keep it simple the scale could be bottomed out at 1 and capped at 100.

As we know from past experience that Japan has a fairly effective degree of resilience it would seem pertinent to consider it as the pivotal point of economic resilience. Any country whose rate is equal to or greater than that of Japan, which is 34, may be considered to have positive resilience. Any country whose rate is below 34 may be deemed to have negative resilience.

There are currently 183 countries on the IMF list. The top three ratings under the universal economic resilience rating scale would be Qatar 89, Luxembourg 81 and Singapore 57. At the bottom of the list Zambia would be the last country to have a rating of 2 and the following twenty seven countries from Benin down to the Republic of Congo would be attributed the minimum rating of 1.

It is interesting to note that there are twenty five countries, including Japan, rated as having positive economic resilience and 158 as having negative economic resilience to varying degrees. Also, of the thirty four OECD countries, only twenty are rated as having positive resilience. The other fourteen countries, New Zealand, Israel, South Korea, Slovenia, Greece, Czech Republic, Portugal, Slovak Republic, Estonia, Hungary, Poland, Mexico, Chile and Turkey, are all rated as having negative economic resilience.

Minor shocks and bustles and catastrophes of intermediate magnitude and intensity, of whatever nature, may be absorbed by the economies of these countries to a greater or lesser extent according to the circumstances. The universal economic rating scale proposed here is not designed to apprehend the multiple variables of any such minor or intermediate events nor is it designed to measure the fine details of the economic resilience of the various countries to any such events. Its sole interest would be to serve as a single purpose macro-economic tool in credit ratings, for example, in the same manner as the Gini index is used to represent economic inequality.

Applied to the current global worldwide economy estimated at US$ 74 trillion GDP (PPP) for a population of 6.9 billion, the GDP per capita is $ 10 700 which indicates negative economic resilience on a worldwide basis. It is roughly the equivalent of the resilience of Montenegro. This, however, is purely statistical and of little or no practical significance in view of the harsh social and economic reality of the great divide that separates the haves from the have nots of this world. Nearly half the world's population is poor and destitute, 2.6 billion people, living on $2 a day or less, with one billion of them living on $1 a day or less. Dare we wonder just how resilient they are?

Three quarters of the poorest families live in rural areas despite the fact that the world became predominantly urban four years ago. Like the natural flora and fauna in the sub-Saharan savannas and other sub-tropical and tropical regions, they continue to eke out a meagre existence based primarily on natural resources. They remain vulnerable and their future insecure.

If we care to make the effort of reflecting upon the plight of those poor souls and wondering if there is something we can do to improve their resilience, it may possibly occur to us that global warming and climate change are major threats to their subsistence. They depend heavily on the quality of the ecosystem for survival. It is via the ecosystem that we can reach out and lend them a helping hand. Whatever we do to the ecosystem we do to them. The least we can do is to turn off the light.

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About the Author

Rodney Crisp is an international insurance and risk management consultant based in Paris. He was born in Cairns and grew up in Dalby on the Darling Downs where his family has been established for over a century and which he still considers as home. He continues to play an active role in daily life on the Darling Downs via internet. Rodney can be emailed at rod-christianne.crisp@orange.fr.

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