Are the UK, Japan, and Italy "undeveloping countries"?
The danger of real economic decline.
The other day, Mohanad Elshieky quipped: “Be nice to your British friends, you never know which of them will be prime minister soon.” He was referring to the recent extremely rapid fall of Liz Truss, who lost the top spot just weeks after sending the British economy into a crisis with an ill-conceived tax cut proposal. But his joke could have applied equally well to Italy or Japan, which are famous for playing musical chairs with their prime ministers every two years or so.
The Truss fiasco has a lot of people asking whether the UK will follow those other two countries into long-term economic stagnation. The Economist had a recent cover story entitled “Welcome to Britaly”. Though the tax-cut misfire brought the problems painfully to light, the worries about the UK economy long predate Truss. The Atlantic’s Derek Thompson summed these up in a recent article, writing:
U.K. living standards and wages have fallen significantly behind those of Western Europe. By some measures, in fact, real wages in the U.K. are lower than they were 15 years ago…In the past 30 years, the British economy chose finance over industry, Britain’s government chose austerity over investment, and British voters chose a closed and poorer economy over an open and richer one. The predictable results are falling wages and stunningly low productivity growth…the U.K., the first nation to industrialize, was also the first to deindustrialize.
I myself have been among the worriers.
Japan, meanwhile, has also suffered stagnation in productivity and wages, and fallen behind South Korea in terms of living standards. In a series of posts back in May, I noted that Japan’s people are a lot poorer than their glittering cities would suggest, and offered some policy ideas to turn the situation around. Italy, meanwhile, is a poorer country than it was in 2007.
Watching the experiences of the UK, Japan, and Italy raises the uncomfortable possibility that there’s such a thing as an “undeveloping country”. Standard economic growth theory suggests that once a country gets rich there’s no going back — getting poorer would require willful disinvestment or the forgetting of technology. But the world is more complicated than those simple models, and countries in the past have certainly seen their living standards go into long-term periods of secular decline. So it’s worth worrying whether the end stage of a some countries’ economic lives is not a permanent spot at the apex of development, but a long slow slide back into middle-income status.
When we look at a bunch of data indicators for each country, though, we find that their problems are much more nuanced than the headlines would have us believe. Each country comes out weak on some indicators but surprisingly strong on others, suggesting that undevelopment isn’t a general or inevitable phenomenon — and pointing the way to policies that can help each country recover.
The UK, Japan, and Italy each have weaknesses and strengths
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