Undercover Economist

Football’s minnows demonstrate how poor countries can catch up

Is the rest of the world catching up with the leading countries? That depends. If you are talking about economic productivity, the answer is unclear. If you are talking about football results, that is another story.

Putting aside football for now (it will not be gone for long) let us focus instead on the living standards of everyone on the planet. “Convergence” — the idea that poor countries grow faster than rich ones — is an important idea.

In a very poor country, the return on a few simple investments should be very high. Adding a paved road between two towns makes a bigger difference than adding a new lane to a road that already exists. The same is true for power lines, railways and ports. So capital should flow to poorer countries and they should grow faster than rich countries.

That is the theory, at least, and it seems plausible when one ponders the dazzling growth of postwar Japan and Germany, South Korea in the 1970s and 1980s, China, and oft-overlooked success stories such as Ethiopia.

When poor countries grow quickly, people escape from poverty and global inequality tends to fall. So if convergence was the natural state of affairs it would be good news. Alas, in the words of economist Dani Rodrik: “empirical work has not been kind to this proposition”. The crude historical fact is that the world economy sharply diverged between 1820 and 1990, with today’s rich nations expanding their share of world income from 20 per cent to 70 per cent.

That trend has been sharply reversed since then, says Richard Baldwin, an economist and author of The Great Convergence (UK) (US). But, as Prof Baldwin notes, the catch-up is highly concentrated. Between 1970 and 2010, six major industrialising countries, China, Korea, India, Poland, Indonesia and Thailand, expanded from having close to zero to more than one-quarter of world manufacturing output. The G7 has slipped from two-thirds to 50 per cent. The rest of the world has been treading water.

So economists have largely abandoned the idea of convergence as a universal phenomenon. They speak instead of “conditional convergence”. Convergence will not save Venezuela nor North Korea from catastrophic governments, but it will happen if you get the right combination of policy, institutions and economic pixie dust. Quite what that combination is and why some nations struggle to achieve it remains the trillion-dollar question.

Prof Rodrik has found evidence that unconditional convergence does happen, not for economies as a whole but for specific manufacturing sectors in those economies, such as “macaroni and noodles” or “knitted or crocheted apparel” or “plastic sacks and bags”.

If such a sector is well behind the global cutting edge, it can expect labour productivity to grow by 4-8 per cent a year, enough to double every decade or two. This tendency holds regardless of what else might be happening in the economy. Why?

The likely answer is that such manufacturing sectors get drawn into global supply chains. They can learn quickly, and must do so to respond to the incessant threat of competition. They will be doing business with suppliers and customers who can provide swift feedback and instruction. In the modern global economy, certain kinds of know-how travel fast, small tasks are unbundled, and part-finished goods and components shuttle back and forth across borders. Any enterprise plugged into this process will improve quickly. It may be more closely integrated into global supply chains than its own local economy, which might not keep up.

All of which brings us back to football. Two economists, Melanie Krause and Stefan Szymanski, decided to examine whether the unconditional convergence hypothesis holds for international men’s football, as it does for manufacturing sectors. (Prof Szymanski is the co-author, with the Financial Times’s Simon Kuper, of Soccernomics. (UK) (US)) Football, after all, offers a long data set and some clear measures of performance. International football’s governing body, Fifa, has more members than the UN.

Sure enough, Profs Krause and Szymanski found that the strength of international football teams is converging. The minnows are acquiring bite, and the old cliché, “there are no easy games in international football”, is far truer today than it was in 1950.

Perhaps we should not be surprised. As with manufacturing, the standard of competition is fierce, performance metrics unforgiving, and the very best ideas will be copied. As an additional spur to progress, elite football offers a global labour market: a strong player from a weak national team will spend most of his time at a top club side in the company of world-class dietitians, trainers, and teammates. His home nation will enjoy the benefits.

It is tempting to draw grand conclusions from all this, about the increasing importance of knowledge in globalisation; about the bracing effects of robust international competition; about the benefits of being open to international migrants. But perhaps it is better to just watch the football. In an age of distressing reality-TV politics, here, at least, is a competitive spectacle we can all enjoy.

 

 
Written for and first published in the Financial Times on 22 June 2018.

My book “Fifty Things That Made the Modern Economy” (UK) / “Fifty Inventions That Shaped The Modern Economy” (US) are out soon in paperback – feel free to pre-order online or through your local bookshop.

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