Mon, Oct 01, 2012 - Page 9 News List

Finding the keys to national prosperity

Most nations could improve their economy by ‘policy arbitrage,’ such as taking Germany’s labor-market policies, Canada’s healthcare system, Switzerland’s energy efficiency and Brazil’s anti-poverty programs

By Jeffrey Sachs

Illustration: Yusha

In many of history’s most successful economic reforms, clever countries have learned from the policy successes of others, adapting them to local conditions. In the long history of economic development, 18th-century Britain learned from Holland; early 19th-century Prussia learned from Britain and France; mid-19th-century Meiji Japan learned from Germany; post-World War II Europe learned from the US and Deng Xiaoping’s (鄧小平) China learned from Japan.

Through a process of institutional borrowing and creative adaptation, successful economic institutions and cutting-edge technologies spread around the world, and thereby boost global growth. Today, too, there are some great opportunities for this kind of “policy arbitrage,” if more countries would only take the time to learn from other countries’ successes.

For example, while many countries are facing a jobs crisis, one part of the capitalist world is doing just fine: northern Europe, including Germany, the Netherlands and Scandinavia. Germany’s unemployment rate this past summer was about 5.5 percent, and its youth unemployment rate was about 8 percent — remarkably low compared with many other high-income economies.

How do northern Europeans do it? All of them use active labor market policies, including flextime, school-to-work apprenticeships (especially Germany) and extensive job training and matching.

Likewise, in an age of chronic budget crises, Germany, Sweden and Switzerland run near-balanced budgets. All three rely on budget rules that call for cyclically adjusted budget balance. And all three take a basic precaution to keep their entitlement spending under control: a retirement age of at least 65. This keeps costs much lower than in France and Greece, for example, where the retirement age is 60 or below, and where pension outlays are soaring as a result.

In an age of rising health-care costs, most high-income countries — Canada, the EU’s Western economies and Japan — manage to keep their total healthcare costs below 12 percent of GDP, with excellent health outcomes, while the US spends nearly 18 percent of GDP, yet with decidedly mediocre health outcomes. The US is the only for-profit health system of the entire bunch. A new report by the US Institute of Medicine has found that the US’ for-profit system squanders about US$750 billion, or 5 percent of GDP, on waste, fraud, duplication and bureaucracy.

In an age of soaring oil costs, a few countries have made a real difference in energy efficiency. The Organisation for Economic Co-operation and Development countries, on average, use 160kg of oil-equivalent energy for every US$1,000 of GDP (measured at purchasing power parity). However, in energy-efficient Switzerland, energy use is just 100kg per US$1,000 of GDP and in Demark it is just 110kg, compared with 190kg in the US.

In an age of climate change, several countries are demonstrating how to move to a low-carbon economy. On average, the rich countries emit 2.3kg of carbon dioxide for every kilogram of oil-equivalent unit of energy. However, France emits just 1.4kg, owing to its enormous success in deploying safe, low-cost nuclear energy.

Sweden, with its hydropower, is even lower at 0.9kg and, while Germany is abandoning domestic production of nuclear energy for political reasons, we can bet that it will nonetheless continue to import electricity from France’s nuclear plants.

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