Six years ago, I showed that the United States would be as poor as Mexico if there had been 1-percentage point less annual growth over the past 125 years.
John Norberg makes a similar comparison between Sweden and Albania.
The entire video is worth watching, but if you don’t have 40 minutes of spare time, I set the timer to start at 30:42 because that’s when Stossel and Norberg begin a 5-minute discussion of why economic growth is important.
And if you’re very limited in your time, advance the video to 33:28. That’s when Norberg points out that Sweden today would be as poor as Albania if there had been 1-percentage point slower growth during the free-market period (I assume beginning in 1870) when Sweden began to get rich.
To confirm this assertion, I went to the Maddison database and did the calculations. As expected, Johan was correct.
I can’t resist making a few other observations about the chart.
- The most obvious takeaway is that Sweden and Albania both used to be poor nations but there was dramatic anti-convergence after Sweden embraced capitalism and rule of law.
- Notice the big drop in Swedish per-capita GDP about 1990. If you watch the full video. Johan explains that this was the culmination of Sweden’s post-WWII experiment with big government.
- Sweden’s pro-market reforms in the 1990s – such as spending restraint, school choice, and partial Social Security privatization – rejuvenated growth and boosted economic freedom.
- Albania has enjoyed decent growth since the collapse of the Soviet Empire and the end of communism, but it still ranks below Sweden for economic liberty, so don’t expect convergence.
The bottom line is that faster growth should be the goal, regardless of what a few cranks on the left say. And if the goal is growth, there’s no substitute for small government and free markets.
Fortunately, there are some rational leftists who agree on the importance of growth (even if they are somewhat misguided about how to get there).
P.S. Click here for two very good videos on growth from Marginal Revolution.
