Week 3 of the new and improved Update, and once again I have made it a point to continue including lots of simple pictures. If a picture says a thousand words then this Update runs to 3,000+ words….so continue reading at your own peril.
The last two weeks’ Updates have focussed on two themes;
- Things aren’t as bad as the mainstream media portrays (A scary story is simply the best way to sell copy); and
- To understand our true financial and economic position we need perspective.
So, the summary was that our current economic position (how the economy is travelling from a macro perspective) is better than the long term average in all our categories, but the trend is negative…and that’s the scary part.
We don’t know how negative that trend is. How far do we have to fall? Not sure…and that uncertainty is frightening.
Quick interlude. There is a large body of work in the field of experimental psychology indicating humans are “loss averse”. No kidding…really???
These experiments actually managed to quantify financial gains and losses and the psychogical impacts. Really broadly, the relevant points for us are:
- A loss carries twice the weight of a gain. In a given gamble, one would need to have the potential to win $200 to balance out the risk of losing $100;
- The impact of variations in wealth is dependent on the starting point. So, you need a reference point, and this determines the impact. Losing $1,000 would be a huge deal for someone with net assets of $10,000, but negigible for someone with net assets of $1 Million.
And the above are relevant for us here because of the following:
- Our loss averse nature means if we see change coming we want to maintain the status quo as a minumum; and
- Changes in wealth are going to be experienced differently by everyone.
So, with a trend away from the highs we have experienced people are scared because they are unsure how much wealth they will lose. They may not lose any at all….but just the risk is enough to generate fear.
And the vast bulk of the population has minimal wealth, so ANY loss will be felt in a big way.
What I wanted to do this week is focus on another way of looking at Australia’s position in the world, and emphasise how lucky we are, and maybe also look at an area where we can improve.
Back in 1990 a Pakistani and an Indian economist launched a new way of measuring the impact of development economics, from purely examining national income (GDP growth) to people focussed policies. This new form of measurement was called the Human Development Index (HDI), and it has been in use since.
As you can see from the below chart, it is a composite designed to capture standards of health, education and standard of living.
Before you read on, this is how to interpret the index:
HDI less than 0.5 – low development;
HDI between 0.5 and 0.8 – medium development; and
HDI greater than 0.8 – high development.
All 22 nations in the low development category in 2014 were African, and each year there are between 165 and 220 countries included. 2014’s list included 187 nations, with Norway at #1, and Niger at #187.
The top 10 for 2014 according to the United Nations were as follows:
- New Zealand
Check out the full list below:
Pretty impressive. In fact, Australia has been ranked 2nd behind Norway each year from 2009 to 2014, and prior to that has been ranked in the top 5 nations every year since the measure was introduced.
The other nations to perform well on a consistent basis since the introduction of the HDI are:
- Canada; and
- New Zealand.
What is so special about Australia for us to be ranked so highly?
Australians’ average life expectancy is good, above 80 years of age, but it’s not the best.
Our per capita Gross National Income (GNI) is also high, but nowhere near as high as Norway, the USA, Singapore, Hong Kong or Switzerland.
And forget about matching the per capita GNI of Lichtenstein (3rd), Kuwait (2nd) or Qatar (1st).
Where we excel is education, both in average years of schooling (where we are 2nd) and expected years of schooling (where we are 1st).
I think it’s pretty reassuring as a parent that we live in a country where education is a high enough priority for us to be ranked best in the world for the years of education a child can expect and the average number of years of education an Australian can actually obtain.
And that result is over the long term so it appears education is prioritised regardless of politics.
BUT (and there are always buts), this high level of education doesn’t appear to translate into innovation. This seems strange considering “innovation” is one of the buzzwords right now.
Even insurance companies and banks are apparently among the most innovative in the world…at least that’s what the marketing material says.
But for a country that is ranked among the best in the world for per capita GDP (14th), HDI (2nd), democracy (12th), education levels (4th) and ease of doing business (10th), we only manage to come in 17th for innovation.
The Global Innovation Index (GII) is produced annually by Cornell University in the US and some partners. The 2014 Top 20 is as follows:
And here is a link to the full rankings:
I am always cautious when it comes to saying something caused something else (call it causation or causal links), but the fact that most of our exports are generated by primary industry and the fact that we aren’t ranked very highly for our innovation might be correlated to some degree.
I thought that maybe patents registered or applications for protection of intellectual property might also be a good indicator for a country’s innovation. Here is a link to a series of interesting top 10 lists.
Australia only appears on 2 of the Top 10 lists.
Here is table that shows the factors considered when producing the GII. Where do you think we fail and succeed?
Food for thought...