Archive | May, 2019

Where in the world is it REALLY easiest to get rich?

This article is an answer to the wonderfully entertaining TED talk of Herald Eia on the question: Where in the world is it easiest to get rich?
I suggest you watch the video below first. It’s really good fun to hear this guy’s argument. (please paste into your browser):
www.ted.com/talks/harald_eia_where_in_the_world_is_it_easiest_to_get_rich
I decided to crunch some numbers myself too, to see, first of all, if his claim that the Nordic societies (Norway, Sweden, Denmark and Finland) are indeed the countries which fit this description, and not supposedly free-market America, or any other free markets. Secondly I wanted to evaluate his theory that this is so because these countries have huge welfare states which ensure first of all that they have superior free education, which prepare people to get rich; and secondly because equality of income (entailing high wages for ordinary workers and lower wages for managers) ensures that employers have to improve productivity by mechanising, resulting in higher productivity, and also in greater social mobility.
As a sample of countries to investigate, I chose countries with large numbers of millionaires, that seemed to have high proportions of millionaires as percentage of population. I left out for example, India and China, which obviously have low numbers of billionaires as a percentage because of their massive populations. I also discarded countries where there are only one or two billionaires, but because of a very small population the percentage of billionaires appears to be large (like Iceland which has only 300 000 citizens but one billionaire). I calculated the relative number of billionaires by dividing the population of a country by the number of billionaires, to calculate the number of people per billionaire. So, the lower the number the greater the percentage of billionaires.
I included some statistics to test various possible explanations for the number of billionaires per country. The countries are ranked according to the percentage of billionaires starting with the highest percentage first.

What is immediately clear, is that the three top performers in the table are Hong Kong, Switzerland and Singapore, all countries with exceptionally free markets and very low tax burdens. What that makes clear is, if a country is really serious about nurturing billionaires, free markets and low taxes are the way to go. So that already disproves the speaker’s thesis to some extent. The freest societies in the world, with the lowest taxes, no free university tuition or minimum wages to speak of and with low trade union presence, beat the other countries by a country mile.
What we also see, is that not all the Nordic countries are world-beaters in the billionaire stakes. The social democracy system (high taxes and spending on welfare benefits) has not worked to make Finland and Denmark top performers. So if the recipe suggested by the speaker (free education and compressing wages) is such a superior recipe to create rich people, why do these countries not perform better?
What is impressive about the Nordic countries, is how much they tax their citizens. The first question is whether this correlates with better education, as the speaker suggests. If he is correct, we would expect citizens of those countries to have more years of education and better-quality education.
First let’s consider how much education the average citizen has. The UN Education Index score (the column marked “EI”) is calculated by combining average adult years of schooling with expected years of schooling for children, each receiving 50% weighting. That gives a good indication of how far adults advance in education, including tertiary education. It is fair to say that the Nordic countries, while their education advancement is good, are not exceptional in this grouping. The same applies to their higher education enrolment levels, which are good, but barely suggestive of some kind of competitive edge. Certainly the US has on the whole similar or better figures.
What about the quality of higher education systems? Here we bear in mind that higher education in Nordic societies is largely state-funded as part of the benefits of a welfare state. Again, with the possible exception of Sweden at position 14, none of the Nordics does particularly well in the context of this privileged group of countries. The US outperforms them all in terms of both tertiary enrolment and quality of higher education. It is not alone. There is little doubt that the best higher education systems with the highest enrolment rates are the systems that are largely privately funded. (9)It turns out that “free” university tuition does not lead to more people studying, or getting better-quality education, after all (10).
Before dealing with basic education, which I consider later on, let us examine the theory that the welfare states in Scandinavia create income equality, and that that results in better prospects of social mobility. It is undoubtedly correct that the Nordic countries have more equality of income, which is in large part the result of their enormous welfare systems. The figures in the table above makes that clear.
There is furthermore good and convincing evidence that greater equality contributes to social mobility:

The question is however whether there is a price to pay for it. The next table examines that question by comparing income inequality with per capita GDP, growth and unemploymenthbin the same group of societies.

As can be seen, I divided the billionaire field group into three categories of equality:
• the highly equal Nordics, with their sub-30% Gini coefficients;
• a middle group between 30 and 40; and
• a high-inequality group with Gini figures over 40.
What is painfully obvious, is that the Nordic paradises have been stagnant in terms of growth in the last decade. Among the four of them, they have not managed a single percentage point of growth in ten years. By comparison, the unequal societies have been roaring ahead at an average rate of 16% for the ten-year period. And it bears noting that unemployment in the Nordics is almost double that in the unequal societies. This is the result of the fact, largely, that job growth in the unequal societies was more than three times that in the equal Nordics.
And as for billionaires, the unequal societies have almost double the number per capita that the equal societies have. Of course, there is a mixed bag in the middle group, that range from high-billionaire Switzerland to low-performance Japan.
What this chart shows, is that the famed equality brought about by the trade unions and the welfare states of Scandinavia, is most likely not what has caused their relatively high number of billionaires. Given the poor growth rates in those countries, that explanation seems very unlikely. Why would these paragons of equality offer such poor growth to the average citizen, but still be good for billionaires? It doesn’t compute. Surely if income equality was their competitive edge, that would have correlated with superior economic performance? It clearly doesn’t.
And it is in any event clear that there is a huge price to be paid for the straitjacket of equality into which these societies are forced. Sooner or later it catches up with you, and growth and job growth stagnate.
But it remains a fair question: Why do Sweden and Norway beat the US in the super-rich game? We now know that the high-equality welfare state of social democracy is not the reason. If that were so, it would have been fair to expect Finland and Denmark to beat the US too. And we would have expected all four these countries to have dynamic, high-growth economies – which they don’t.
Having said that, it remains true that both Sweden and Norway are free markets in their own right. In my book South Africa Can Work I deal with it as follows:
“As currently ranked, they occupy the following positions out of a total of 159 countries on the Economic Freedom of the World Index: Finland 20, Denmark 21, Norway 32 and Sweden 38, all well within the first quartile. The only criterion that identifies them as statist is size of government (tax, government spending, and so on). According to the other four criteria (trade policy, monetary policy, regulatory policy, and property rights and rule of law), these countries are very free.
In the following table, fiscal policy (size of government) as a factor has been removed from the ratings. The results are rather interesting:

Source: Daniel Mitchell (15)

As can be seen, according to the remaining four criteria, Denmark, Sweden, Norway and Finland are very free and, significantly, rank above the United States.”

So the first point is that, but for the welfare state that occupies a large section of each of their economies, these societies are economically freer than the US. What is more, until about 1950, Sweden and Norway had smaller governments than the UK, the US, Japan, Germany and France . In 1937 Canada’s government spending, for example, was 25% of GDP, that of New Zealand 24% and the United Kingdom 26.2%. In the same year Norway’s was 11.8%, Sweden’s 16.5%. Move along to 1960, and Canada was 28.6%, New Zealand 26.9%, Norway 29.9% and Sweden 31%. So clearly the Nordic countries got rich while their state spending was low, even lower than that of the typical Anglo-Saxon economy.(16)

In both 1937 and 1960 Sweden and Norway had state shares similar to or lower than the US and the UK. It was only in the next two decades – 1960 to 1980 – that their state shares rose to 57.7 and 45.6 respectively .(187)

It should also be noted that until 1936 Sweden was the wealthiest country in the world, and that it only started adding to the government fiscal burden at a rate exceeding the US and Switzerland, for example, in approximately 1960. It is no coincidence that its position in terms of wealth started slipping from then on. It is now approximately 18th in the list of wealthiest countries, having been overtaken by Singapore, Switzerland, Hong Kong and the United States, among others.

The other Nordic countries have similar figures. It is also worth noting that the famed life-quality of these countries already existed when they started expanding their state sectors. For example, in the 1960s the life expectancy of these countries was among the highest in the world, and already comparable to what they enjoy today. So it is incorrect to argue that the Nordic countries became wealthy on the back of state expenditure. Clearly something else is at work.

Nima Sanandaji is a Swedish economist who has made it his life’s work to explain the phenomenon of Nordic, and in particular Swedish, economic success. One of the most striking discoveries made by Sanandaji is that Nordic immigrants to the United States achieve higher per capita income in the US than their peers in their countries of origin:

“Median incomes of Scandinavian descendants are 20 per cent higher than average US incomes. It is true that poverty rates in Scandinavian countries are lower than in the US. However, the poverty rate among descendants of Nordic immigrants in the US today is half the average poverty rate of Americans – this has been a consistent finding for decades. In fact, Scandinavian Americans have lower poverty rates than Scandinavian citizens who have not emigrated … the median household income in the United States is $51,914. This can be compared with a median household income of $61,920 for Danish Americans, $59,379 for Finnish-Americans, $60,935 for Norwegian Americans and $61,549 for Swedish Americans. There is also a group identifying themselves simply as ‘Scandinavian Americans’ in the US Census. The median household income for this group is even higher at $66,219 … Danish Americans have a contribution to GDP per capita 37 per cent higher than Danes still living in Denmark; Swedish Americans contribute 39 per cent more to GDP per capita than Swedes living in Sweden; and Finnish Americans contribute 47 per cent more than Finns living in Finland.” (20)

Sanandaji examined the cultural history of the Nordic countries and discovered that in the previous centuries (from the 19th century onward) citizens typically made their living from difficult agriculture in harsh economic conditions. It is no secret that these countries are in a very cold region and that it is not easy to make a living from farming. Citizens by and large adhered to Calvinist religious doctrine and were quite conservative in their outlook. These factors, together with a general attitude of self-sufficiency, contributed to a frugal and productive work culture. To a large extent, this culture persists today.
The same culture also prevails among Nordic peoples who have immigrated to the United States. Significantly, these immigrants outperform the average American in terms of economic income. It is difficult to conclude that it is any factor other than the culture of thrift so typical of that part of the world that has ensured this impressive outcome.
Add to this the history of Sweden, that was a very free, low-tax market for years before adopting a welfare state, which enabled it to become the richest country in the world. And add to that the monumental blessing of the discovery of oil in 1960 which the Norwegians have managed very wisely, and it becomes easy to see why both these countries are now home to many of the super-rich of the world.

What about social mobility? We must accept, it seems, that social mobility is higher in more equal societies, as we have seen above. The question is, why is that so?

An obvious place to look for the answer to this question is basic education, for which we can use the international PISA scores in maths, science and reading. In this grouping (which, as could be expected has good basic education) Sweden and Norway are rather average. Understand me well, their education systems are good, but in the list of countries we have here, that does not give them a competitive edge. They lounge near the bottom of the list, in fact. Finland and Denmark do very well, but that has not made them exceptional in breeding billionaires, as we have seen.

But that is not the end of the enquiry. Common sense tells us that if most learners in a school system acquire educational skills that enable them to advance up the economic ladder, such a system is more likely to achieve social mobility. happens if the highest percentage of disadvantaged learners possible, do as well academically as their more privileged counterparts. This phenomenon is what is described as educational resilience. It goes without saying that countries with such educational systems are best placed to achieve social mobility, that is, the ability of children of poor parents to advance quickly to an economic income or educational stratum that is better than those of their parents.(21)

The OECD has investigated this phenomenon on a country-to-country basis. In a report (22) it describes the phenomenon of academic resilience as follows:

“Most of the students who perform poorly in PISA come from socio-economically disadvantaged backgrounds. But some of their similarly disadvantaged peers beat the odds working against them and excel in PISA…. PISA 2015 data show that, on average across OECD countries, as many as three out of four students from the lowest quarter of socio-economic status reach, at best, only the baseline level of proficiency (Level 2) in reading, mathematics or science. While in Canada, Denmark, Estonia, Finland, Germany, Hong Kong (China), Ireland, Japan, Korea, the Netherlands, Norway, Singapore, Slovenia and Viet Nam, more than 30% of disadvantaged students scored at Level 3 or above in all PISA subjects in 2015, and can thus be considered “academically resilient”, in Algeria, the Dominican Republic, Kosovo, Peru and Tunisia, less than 1% of the disadvantaged students who were eligible to participate in the PISA 2015 test performed at that level. Students who perform at Level 3 begin to demonstrate the ability to construct the meaning of a text and form a detailed understanding from multiple independent pieces of information when reading. They can work with proportional relationships and engage in basic interpretation and reasoning when solving mathematics problems; and they can handle unfamiliar topics in science. Such skills are the foundations for success and further learning later in life.” (23)

Here are the results relating to the percentage of students from the lowest quarter of socio-economic status who perform at Level 3 or above in reading, mathematics and science (again using the usual suspects as before):

Again, the excellence of Hong Kong and Singapore can hardly be missed. Whilst both of these countries have very high income inequality by developed-country standards, they have developed education systems that are able to lift disadvantaged learners out of their situations, to a degree virtually unparalleled in the world. What makes this particularly impressive, is that it is done on state expenditure on education that is a fraction of that of Norway and Sweden. Viewed like that, the welfare states spending on education is rather inefficient and wasteful.

Hong Kong has good intergenerational income elasticity, which measures the ability of children of poor parents to move up the income ladder, which seems to follow from the educational resilience shown above. Although Hong Kong does not show up in international indices of social mobility, a calculation was done by Yoe Chim Richard Wong, showing that in recent years it stabilised at 0.3, which compares favourably with countries like Sweden, Austria and the Netherlands, all very socially mobile, but not as mobile as for example Finland. By contrast US mobility sits at just over 0.5 (average at best) and the worst performers (like say, Uganda) hover around 1.0.

Not surprisingly, both Sweden and Norway perform better than the US in terms of social mobility. It is not clear that social mobility is necessary to create billionaires, but it seems reasonable to accept that it contributes. It is reasonable to expect that a country that is able to mine the talent of all strata of learners, is simply better placed to discover star performers. If that is correct, then it goes a long way towards explaining the magnificent achievement of the super free markets (Hong Kong, Singapore and Switzerland), and the relative lagging of the US.

On the basis of this evidence it seems fair to infer that the negative impact of income inequality can largely be overcome by means of a good basic-education system that promotes academic resilience. In other words, even if incomes are unequal, as long as poor students have a fair opportunity of performing as well as their richer peers, they can move up the income ladder relatively quickly.

In this context it should just be mentioned that free (and unequal) markets like Hong Kong typically have immigration rates that exceed 30% of their total populations (compared to a global average of 3%). In addition to creating billionaires, Hong Kong thus also creates jobs for many thousands of immigrants. By comparison the Nordic countries average about 12% immigrants’, and barely create any jobs. Who makes the greatest contribution to human welfare, one must ask?

Still that is not the end of the matter. There remains one glaring outlier, which is Israel. It performs less than spectacularly in both PISA and the criterion of academic resilience. Nor does it have the freest market in the sample. What do we make of that?

As the above illustration of the performance of Scandinavian immigrants to the US demonstrates, what we can loosely call “culture”, matters. Jews are well-known for their hard-working approach when it comes to both academic and commercial achievement. Depending on how it is measured, the average income of Jews in the US is higher than any other. More to the point, Jews are the ethnic group by far with the highest proportional representation of billionaires globally. Jews are only 0.2% of the World’s population, but 17.46% of the World’s richest. Thus their representation is 8,730% of their population share (compared to gentile whites at 260%, for example) .(24)

Compared to the US, the Nordic societies are ethnically homogeneous. The US, by contrast, is very diverse. If culture matters, then surely so does diversity. In such a diverse society the concentration of cultures conducive to wealth creation is simply likely to be less.

If the US wants to catch up in the billionaire stakes, what it should do, in order to compensate for the diversity of ethnicity and income strata, is to improve basic education, not only in the mean, but in particular to achieve greater academic resilience, and thus social mobility. Ethnic diversity is no excuse, as the successful examples of Switzerland and Singapore show.

A good model to follow is Hong Kong. Compared to Hong Kong, US basic education is very centralised. Ironically, the US spends more per pupil than almost any other country, and certainly more than any of the Nordic societies, which once again proves that it is not the welfare state as such that creates upward mobility and billionaires.

By contrast to the US, in Hong Kong private institutions run the vast majority of schools, albeit funded by the state in some cases.(25) There are three main types of schools in Hong Kong: government schools (8 per cent of enrolments); government-aided private schools (77 per cent); and private schools that raise their own funds (15 per cent). (26)

A percentage of the government-aided schools participate in the so-called Direct Subsidy Scheme (DSS), which allows private schools to get state funding regarded as sufficient to fund education on a per-child formula, and to which the school may add by means of funds it raises itself. In effect, DSS schools submit to certain overarching guidelines laid down by the state in exchange for subsidies. The remainder of the state-aided schools are fully funded by the state, but operated by private institutions.

All state-aided schools are subject to certain government guidelines, but set their own curricula and appoint their own teachers. There is also flexibility in terms of the examinations to be administered. Competition is keen, and results are world class, as we have seen.

A similar trend toward decentralisation is notable in Sweden and Norway, according to an article (27) by Dovemark and others:
“As part of the general trend in the Nordic countries, Sweden went through a “municipalisation process” (kommunalisering in Swedish) in 1991, which meant that many of the responsibilities related to the governance and financing of education were shifted from the state to the municipalities and the local level. Gustafsson, Sörlin, and Vlachos (2016Gustafsson, J.-E., Sörlin, S., & Vlachos, J.(2016). Policyidéerför svensk skola [Policy ideas for Swedish school]. Stockholm: SNS Förlag. [Google Scholar]) argue that the “municipalisation process” can be described as “marketisation” per se, because the responsibility for education moved in effect from the state to the municipalities followed by various reforms in free school choice (Beach & Dovemark, 2007Beach, D., & Dovemark, M. (2007). Education and the commodity problem: Ethnographic investigations of creativity and performativity in Swedish Schools. London: Tufnell Press. [Google Scholar], 2009Beach, D., & Dovemark, M. (2009). Making ‘right’ choices? An ethnographic account of creativity, performativity and personalised learning policy, concepts and practices. Oxford Review of Education, 35, 689–704. doi:10.1080/03054980903122267[Taylor & Francis Online], [Web of Science ®], , [Google Scholar], 2011Beach, D., & Dovemark, M. (2011). Twelve years of upper-secondary education in Sweden: The beginnings of a neo-liberal policy hegemony. Educational Review, 63, 313–327. doi:10.1080/00131911.2011.560249[Taylor & Francis Online], [Web of Science ®], , [Google Scholar]).
….
In Norway, there are similar patterns. Although the state of Norway has retained local representation in educational matters through county governors (fylkesmannen), the relation between the state and municipalities as well as between municipalities and schools began to change focus in the 1990s, from controlling the input to controlling the output, thereby effectively increasing the decentralisation of power (Borge & Rattsø, 1997Borge, L.-E., & Rattsø, J. (1997). Local government grants and income tax revenue: Redistributive politics in Norway 1900–1990. Public Choice, 92, 181–197.[Crossref], [Web of Science ®], , [Google Scholar]; Wiborg, 2013Wiborg, S. (2013). Neo-liberalism and universal state education: The cases of Denmark, Norway and Sweden 1980–2011. Comparative Education, 49, 407–423.[Taylor & Francis Online], [Web of Science ®], , [Google Scholar]). According to Imsen and Volckmar (2014Imsen, G., & Volckmar, N. (2014). The Norwegian school for all: Historical emergence and neoliberal confrontation. In U. Blossing, G. Imsen, & L. Moos (Eds.), The Nordic educational model. “A School for All” encounters neo-liberal policy (pp. 35–55). Dordrecht: Springer.[Crossref], , [Google Scholar]), the principal reasons for introducing management by objectives were to update the schools to meet the requirements of a knowledge-based global economy. …”

What is clear is this: The country where it is easiest to become a billionaire, is not one of the social democracies of Scandinavia. Nor is it the USA. It is Hong Kong, the territory with the freest market, one of the lowest tax burdens, and best education system to achieve academic resilience, in the world.

End notes:
1 https://en.wikipedia.org/wiki/List_of_countries_by_the_number_of_billionaires and
https://en.wikipedia.org/wiki/List_of_countries_by_population_in_2000
2 https://en.wikipedia.org/wiki/List_of_countries_ranked_by_ethnic_and_cultural_diversity_level
3 Education Index of the UN, measuring average advancement in education: https://en.wikipedia.org/wiki/Education_Index
4 Higher education enrolment percentage: https://www.nationmaster.com/country-info/stats/Education/School-enrollment%2C-tertiary/%25-gross
5 https://studyabroad.shiksha.com/country-with-best-higher-education-system-articlepage-1423
6 http://www.oecd.org/pisa/
7 https://www.fraserinstitute.org/sites/default/files/economic-freedom-of-the-world-2018.pdf
8 Overall tax burden: https://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_to_GDP_ratio
9 For a fuller exposition of this evidence, see Frans Rautenbach: South Africa Can Work (Penguin) Chapter 15
10 Ibid
11 https://en.wikipedia.org/wiki/List_of_countries_by_income_equality
12 Per capita GDP from 2007 to 2017: https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.KD?locations=SG-HK-GB-US-NO-FI-CH-SE-IE-AU-DK-DE-KR-JP-CA-IL
13 https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita
14 Number of persons per billionaire (as above)
15 Daniel Mitchell, ‘Economic freedom in America is declining mostly because of creeping protectionism and the loss of rule of law and
property rights’, International Liberty blog, 24 August 2015, available at https://danieljmitchell.wordpress.com/2015/08/24/economic-
freedom-in-america-is-declining-mostly-because-of-creeping-protectionism-and-the-loss-of-rule-of-law-and-property-rights/ (last
accessed 27 March 2017).
16 Daniel Mitchell, ‘Why Western Europe became rich in the past … and how it can regain prosperity today’, International Liberty blog, 14 July 2012, available at https://danieljmitchell.wordpress.com/2012/07/14/why-western-europe-became-rich-in-the-past-and-how-it-can-regain-prosperity-today/ (last accessed 27 March 2017).
17 Ibid
18 Ibid
19 Ibid
20 Nima Sanandaji, Scandinavian Unexceptionalism: Culture, Markets and the Failure of Third-way Socialism (London: Institute of Economic
Affairs, 2015), pp. xvi, 62–63, available at http://iea.org.uk/sites/default/files/publications/files/Sanandajinima-interactive.pdf
(last accessed 27 March 2017).
21 See eg https://www.persee.fr/doc/estat_0336-1454_2018_num_499_1_10814
22 https://www.oecd-ilibrary.org/docserver/66e037e8-en.pdf?expires=1556968340&id=id&accname=guest&checksum=ABE3B6EC0B6BF6443C6FD8239CD5BF90
23 Ibid
24 ttps://pumpkinperson.com/2018/07/08/world-billionaires-by-race/
25 ‘The Hong Kong education and schooling system explained’, ITS Education Asia, available at http://www.itseducation.asia/education-
system.htm (last accessed 22 April 2017).
26 ‘Hong Kong: Secondary education’, StateUniversity.com, availble at http://education.stateuniversity.com/pages/620/Hong-Kong-SECONDARY-EDUCATION.html (last accessed 22 April 2017).
27 https://www.tandfonline.com/doi/full/10.1080/20004508.2018.1429768

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