Development Economies

International Comparisons

As has been mentioned previously, it is often very difficult to compare living standards in different countries.  While it is true that there are many complications involved in the calculation process, it is equally true that each country maintains its own national interest priorities.

For example, in North Korea the entire country is maintained on the philosophy of juche.  This guiding principle suggests that North Korea should be independent from all other countries in the world.  The basic idea was first put forward by Kim Il-sung in a speech in 1955.  Many political, economic and defence policies have been created since that time, and each has relied on the basic notion of independence.  Although most people in the western world would argue that the standard of living in North Korea is both very low and highly inequitable, the political leaders in that country believe that they are achieving their economic goals, and that they have been able to do so since the “end” of the Korean War in 1953.  As a result, North Korea does not supply economic statistics to international organisations, and their standard of living is impossible to assess and compare with other countries around the world.

On the other hand, in some capitalist countries a person’s standard of living is unofficially assessed by the type and value of the possessions that they own.  A person with a large house or two cars would normally be perceived as having a very high standard of living.  This is far more likely to happen in a country like the United States or Australia, and so by these parameters it is not surprising that these countries frequently rank near the top of international comparative lists.

The problem here is that many people get confused because of the similarity (and vagaries) of certain terms.  Most non-economists would struggle to explain the difference between standard of living and quality of life.  The truth is that the former is a term that was invented by economists, and is assessed through a variety of measurable events (such as income per capita, literacy rates, the mortality rate and even the rate of inflation).  Quality of life, on the other hand, is a more general term that points towards the general well-being of the population.  For example, the Happy Planet Index was introduced in 2006 to assess the quality of life in various countries, and it has been published each year since then.  One of the factors taken into account is a countries ecological footprint.  Although some aspects of this measure are subjective, it is noteworthy that smaller countries (like Costa Rica) tended to appear towards the top of the list, while those countries that traditionally report a very high standard of living (such as the USA) were generally further down.  (In 2009 Australia was ranked 102^nd, while the USA was 114^th.)

With this distinction now made, we can begin to make a more objective assessment of comparative living standards.  In making this assessment we will simply need to agree that we are drawing conclusions about overall economic well-being, and not about the standard of living of any individual living in the countries named.  Economists frequently have to deal in averages and aggregates.

On this basis, we can draw the following general conclusions about the standard of living in the international community:

1.    People living in Scandinavian countries often have very high living standards.  Iceland, Norway, Sweden, Finland and Denmark are almost always in the top 15 of any list that attempts to rank countries by living standards, including the United Nation’s Human Development Index.

2.    Countries with well established market economies are generally ranked higher in the list than other countries.  Australia, Ireland, the Netherlands, France, Japan and the USA always perform well.  Perhaps the most striking difference is between China and Hong Kong.  When tracked separately, Hong Kong always appears significantly higher in any list than the People’s Republic of China.  One of the reasons for this fact is that Hong Kong has a more mature market economy.

3.    Sub-Saharan Africa maintains the lowest standard of living of any area on Earth.  While other areas have shown significant improvement in the last forty years, this area has stagnated (and in some instances, moved backwards).

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