In many of history’s most successful economic reforms, clever countrieshave learned from the policy successes of others, adapting them to localconditions. In the long history of economic development, eighteenth-century Britain learned from Holland;early nineteenth-century Prussialearned from Britain and France; mid-nineteenth-century Meiji Japan learned from Germany;post-World War II Europe learned from the United States; and Deng Xiaoping’s Chinalearned from Japan.
Through a process of institutional borrowing and creative adaptation,successful economic institutions and cutting-edge technologies spread aroundthe world, and thereby boost global growth. Today, too, there are some greatopportunities 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 ofthe capitalist world is doing just fine: northern Europe, including Germany, the Netherlands,and Scandinavia. Germany’sunemployment rate this past summer was around 5.5%, and its youthunemployment rate was around 8% – remarkably low compared with many otherhigh-income economies.
How do northern Europeans do it? All of them use activelabor market policies, including flex time,school-to-work apprenticeships (especially Germany),and extensive job training and matching.
Likewise, in an age of chronic budget crises,Germany, Sweden, and Switzerlandrun near-balanced budgets. All three rely on budgetrules that call for cyclically adjusted budget balance. And all threetake a basic precaution to keep their entitlement spending under control: aretirement age of at least 65. This keeps costs much lower than in France, and Greece, for example, where theretirement age is 60 or below, and where pension outlaysare soaring as a result.
In an age of rising health-care costs, most high-income countries – Canada, the European Union’s Western economies,and Japan – manage to keeptheir total health-carecosts below 12% of GDP, with excellenthealth outcomes, while the USspends nearly 18% of GDP, yet with decidedlymediocre health outcomes. And, America’sis the only for-profit health system of theentire bunch. A newreport by the US Institute of Medicine has found that America’s for-profit system squanders around $750 billion, or 5% of GDP, onwaste, fraud, duplication, and bureaucracy.
In an age of soaring oil costs, a few countries have made a realdifference in energy efficiency. The OECD countries, on average, use 160 kilograms ofoil-equivalent energy for every $1,000 of GDP (measured at purchasing powerparity). But, in energy-efficient Switzerland, energy use is just 100 kg per $1,000 of GDP, and in Demark it isjust 110 kg,compared with 190 kg in theUS.
In an age of climate change, several countries are demonstrating how tomove to a low-carbon economy. On average, the rich countries emit 2.3 kg of CO2for every kg of oil-equivalent unit of energy. But France emits just 1.4 kg, owing to its enormous success indeploying safe, low-cost nuclear energy.
Sweden, with its hydropower,is even lower, at 0.9 kg. And,while Germany is abandoningdomestic production of nuclear energy for political reasons, we can bet that itwill nonetheless continue to importelectricity from France’snuclear plants.
In an age of intense technological competition, countries that combinepublic and private research and development (R&D) financing are outpacing the rest. The US continues to excel, with huge recent breakthroughs in Marsexploration and genomics, though it is now imperiling that excellence through budget cuts.Meanwhile, Sweden and South Korea are now excelling economically onthe basis of R&Dspending of around 3.5% of GDP, while Israel’s R&D outlays stand at a remarkable 4.7% of GDP.
In an age of rising inequality, atleast some countries have narrowed their wealth and income gaps. Brazilis the recent pacesetter, markedly expanding public education andsystematically attacking remaining pocketsof poverty through targeted transfer programs. As a result, income inequalityin Brazilis declining.
And, in an age of pervasive anxiety, Bhutanis asking deep questions about the meaning and nature of happiness itself. Insearch of a more balanced society that combines economic prosperity, social cohesion, and environmental sustainability, Bhutanfamously pursues GrossNational Happiness rather than Gross National Product. Many other countries– including the United Kingdom– are now following Bhutan’slead in surveying their citizenry about lifesatisfaction.
The countries highest on the ladder oflife satisfaction are Denmark,Finland, and Norway.Yet there is hope for those at lower latitudesas well. Tropical Costa Ricaalso ranks near the top of the happiness league.What we can say is that all of the happiest countries emphasize equality, solidarity,democratic accountability, environmental sustainability, and strong public institutions.
So here is one model economy: German labor-market policies, Swedishpensions, French low-carbon energy, Canadian health care, Swiss energyefficiency, American scientific curiosity, Brazilian anti-poverty programs, andCosta Rican tropical happiness.
Of course, back in the real world, most countries will not achieve such bliss anytime soon. But, by opening our eyes topolicy successes abroad, we would surely speed the pathto national improvement in countries around the world.