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Analysis: Is the U.S. the next Haiti?

By MARTIN HUTCHINSON, UPI Business and Economics Editor   |   Dec. 31, 2003 at 2:52 PM
WASHINGTON, Dec. 31 (UPI) -- Haiti, independent two hundred years Thursday, holds a distinction that is almost but probably not quite unique: it was richer per capita in 1804 than it is in 2004. Presumably even as Jean-Jacques Dessalines ordered in that year that all whites be killed, he believed optimistically that the future Haiti, cleansed of oppressors, would progress rather than decay. So the questions arise: what made him wrong, and how do we know that by 2204 the United States will not have shared Haiti's fate, and be poorer than it is today?

There's no question that the Haiti of 1804 was richer than Haiti today. In 2000 dollars, world gross domestic product per capita in 1800 was about $722 (economist J. Bradford deLong's estimate), U.S. GDP per capita was about $1,350 and Haiti was one of the world's richer places, probably not much poorer than the United States. In 1789, as the Trinidadian Marxist historian C.L.R. James has written, Haiti was "an integral part of the economic life of the age, the greatest colony in the world, the pride of France, and the envy of every other imperialist nation."

Today, Haiti's GDP per capita is estimated as about $425. Thus we can estimate that the country's wealth per capita has approximately halved over the past 200 years, in an intermittent but inexorable decline. If other countries are poorer now than in 1800, it is surely not by such a margin.

At first sight, referring to the United States as the next Haiti is laughable, and in an absolute sense it is. Absent global conflict or ecological catastrophe it is vanishingly unlikely that even in 2204 the U.S. will be in such an appalling condition as is Haiti today. But in a relative sense, the question of whether the U.S. might be poorer per capita in 2204 than its very high current level of wealth is by no means so foolish. Certainly Midwestern blue collar workers, who have suffered intermittent unemployment over the last 30 years, and remember the high-wage heavily unionized Midwest of the 1960s, can be under no illusion that material progress is in any way inevitable on an individual basis, even in a society that is overall becoming richer.

There are a number of factors that could make the United States poorer in 2204 than it is today:

-- Population: In 1789, Haiti's population was around 600,000; today it is around 7.5 million. It's a growth rate of only 1.27 percent per annum, but in the absence of major new industries, it has been enough to impoverish the populace, and change a wealthy agrarian economy into an overpopulated slum. The U.S. population is projected to grow somewhat more slowly, by only 0.79 percent per annum until 2050, but even so, growing at that rate by 2204 it will total 1.4 billion. Could this exhaust even the U.S.'s abundant resources?

-- Environmental or resources disaster: Apart from the possibility of global warming to an extent that proved seriously disruptive, there is also the possibility of some key natural resource, most likely oil, depleting to the extent that the U.S. was forced to move to substitutes. While switching to $50,000 battery-powered cars with a top speed of 50 miles per hour and a range of 100 miles between recharging might well increase nominal GDP, it would sharply reduce real living standards, as consumers were forced to pay twice as much for a product with fewer capabilities than its predecessor. The declining use of such cheap, effective products as coal, mercury and asbestos has already reduced growth in living standards (however much it may have improved health); future such forced substitutions may be very much more expensive.

-- Slowing technological change: Since the middle 19th century, it has been fashionable to believe that technological change is exponential, with each percentage increase in human knowledge becoming the basis for an equal percentage (and greater absolute) increase in the following year. In fact, most industries, once established, become asymptotic; their growth rate declines over time as they slowly approach a point of saturation. Even in the economy as a whole, asymptotic growth may be the rule not the exception over a period as long as the next two centuries. As an example of how growth may not be exponential, or even linear, consider the extension in U.S. life expectancy over the last century. In 1903-1936 it grew 13 years, to 61 years. In 1936-1969 it grew 10 years, to 71 years. In 1969-2003 it grew by only 6 years, to 77 years. U.S. life expectancy is increasing asymptotically, in other words, apparently converging on an ultimate figure of 97-98, and reaching about 93 by our target date of 2204. The economy may well behave in a similar manner.

-- Financial collapse: U.S. consumer debt is currently at record levels, the Federal budget deficit is $500 billion, and Federal off-balance sheet liabilities such as future social security and Medicare payments are a multiple of GDP. As Russia and Argentina are currently showing there is life, lots of life after default, and 200 years is plenty of time to recover. However, each default event is a crisis of confidence, each period of financial stringency is a blow to economic growth. It seems likely that there will be plenty of such crises and stringent periods before 2204.

-- Creeping "Weaselization:" The share of public spending in U.S. GDP has increased enormously in the last 80 years, from less than 10 percent of GDP to more than 30 percent today. Given today's fiscal problems and looming pensions and Medicare crises, it's likely that the share of public spending in GDP will continue to increase, even in the free-market United States. At some point, probably when total public spending rises close to 50 percent of GDP, as in the "Axis of Weasels" of France and Germany, a number of effects kick in that seriously hamper economic growth. Taxes become too high, so entrepreneurship is no longer attractive. The "new class" of public sector employees becomes so large that it dominates the political system, voting itself excessive perquisites and passing damagingly anti-business legislation. As in France, the public sector becomes a more attractive career path than the private sector, so the best graduates head to "Ecole d'administration" and not business school. On present trends, all these effects are likely to appear well before 2100, let alone 2200, and economic progress thereafter must be highly problematic.

-- A society in conflict: Conversely (but by no means incompatibly with the previous possibility), if irresponsible pro-business policy dominates, there is a danger of increasing inequality and a "Latin American" future. Immigration is high, so wage levels at the low end are barely sufficient to sustain existence. Transition to adulthood for the less able of those leaving high school becomes difficult (because they can't get decent jobs) so crime and other social pathologies skyrocket. The rich and upper middle class segregate themselves from rising crime in "gated" housing communities, and award themselves ever more extravagant remuneration (possibly disguised as stock options or in some other form.) As the GINI (inequality) coefficient of the society rises from the United States' current 0.42 towards Argentina's 0.50 or Brazil's 0.58, social cohesion breaks down, business becomes corrupt and oligarchic, and economic growth stagnates.

Some of these developments are more or less inevitable over the next 200 years, and in isolation might slow only moderately the growth in living standards. "There is a great deal of ruin in a nation" observed Adam Smith, and as Haiti since 1804 has so eloquently demonstrated, a huge amount has to go wrong for living standards not to increase in so long a period as two centuries. But Haiti also shows that such stagnation is all too possible, and certainly one can imagine a number of poisonous cocktails from the above ingredients that would produce such stagnation.

Certainly population growth, the bane of Haiti in 1804-2004, appears a serious danger to the U.S. in 2004-2204 if it is not sharply reduced.

It is indeed not certain that your children will be richer than you are. Regrettably, contrary to what almost all of us have believed since 1850 or so, it is not even certain that your great great grandchildren will be richer than you are.

Happy New Year!

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