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Why the world’s richest countries are not all rich

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The writer is co-chair of the technical advisory group of the International Comparison Program. Paul Schreyer, OECD acting chief statistician and co-chair of the group, contributed

In March, just as the world was reeling from the onset of the pandemic, the International Comparison Programme completed its most recent computations. This dry-sounding statistical exercise collected prices in 176 countries, using them to calculate purchasing power parity exchange rates. The lack of media attention on the results is a reminder that measures of economic activity come second — unless they relate directly to threats to health.

Yet even in a time of plague, comparable international accounts are required for essential measurements, including cross-country comparisons of gross domestic product, living standards and global measures of poverty and inequality. And here the latest computations have important things to say.

The new accounts bring good news and not so good news. The good news is that the new 2017 data are not particularly newsworthy. For example, the economies of China and the US were of similar size in 2017, as they were in 2011. (The former is only two-thirds the size of the latter measured at current exchange rates.)

The not so good news is that globalisation and transfers of intellectual property have driven GDP even further from the common (mis) understanding that GDP measures people’s material wellbeing, adding to its many shortcomings aired in recent years.

Good news first. The 2017 results are a recognisable update of the 2011 update, and not a radical remapping of the world’s economic geography.

This is important because previous updates sometimes changed the relative size of countries and continents. The 2005 estimates, for example, made the world look much more unequal than previously believed; they also sharply increased some measures of poverty.

These apparent increases were reversed in 2011, a reversal maintained for 2017. This stability increases the statistics’ credibility, helps their usefulness and will be especially important when, post Covid-19, the ICP moves to higher frequency measurement.

The not so good news comes from the list of the world’s richest countries, as measured by per capita GDP: Luxembourg, Qatar, Singapore, Ireland, Bermuda, Cayman Islands, Switzerland, UAE, Norway, Brunei, the US and Hong Kong. Whatever this list tells us, it is hardly an exact list of countries where people enjoy the world’s highest material living standards.

Ireland is a good example. Attracted by low corporation tax rates, several large multinationals relocated their intellectual property assets to Ireland, so that income generated from that property now contributes to Irish GDP. In 2015, such transfers caused Irish GDP to grow by 26 per cent in one year.

By contrast, per capita disposable income of Irish households grew at “only” 4.6 per cent in real terms. The latter is clearly a better estimate of the change in Irish living standards.

Why the discrepancy? Eleven of the 12 countries in the list are either investment hubs or resource-based countries. In both cases, consumption is a relatively low share of total GDP, often because profits account for a larger part of national income than wages and salaries.

Over time, profits will contribute to the income of at least some households and, in turn, their consumption. But at any given moment, GDP per capita includes amounts that are not part of people’s current wellbeing, or their own income.

Furthermore, the income from foreign-owned capital is part of GDP, because it originates within the country, but not part of gross national income, because it is not owned by nationals.

This is a reminder that, absent strong redistributive channels, rich resource-based economies are often internally unequal, because the ownership of resources — especially mineral resources — is confined to a few. That GDP tells us nothing about who gets what is another of GDP’s most familiar criticisms. Nor does GDP speak to the sustainability of natural resources or the use of the environment. The problem is not the accounting, but the definition of GDP.

These arguments call not for the abolition of the GDP numbers, which are essential, but for a more intelligent use of the accounts and for measuring what it does not include.

Continuing efforts to integrate environment-economy accounts or to make GDP less oblivious to distributional questions need support. For policymakers, an exclusive focus on GDP per capita or its growth rate makes little sense. To put it bluntly, the top 12 list is not always where a country would want to be.



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End of an era as Lionel Messi and FC Barcelona part company

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Lionel Messi updates

Barcelona football club said on Thursday that Lionel Messi, widely regarded as one of the greatest of all players, is leaving because of “financial and structural obstacles” that it blamed on financial regulations imposed by La Liga, which runs the top two divisions in Spain, requiring the team to rein in its spending.

Messi, the frontman of FC Barcelona’s success for more than a decade, will be leaving a club where he has spent the entirety of his career, winning every leading trophy and personal accolade.

Messi and Barcelona had intended to sign a new contract on Thursday but ultimately the player and club were forced to separate, said Barcelona in a statement, adding that both sides “deeply regret” their split. La Liga declined to comment.

“Despite FC Barcelona and Lionel Messi having reached an agreement and the clear intention of both parties to sign a new contract today, this cannot happen because of financial and structural obstacles (Spanish Liga regulations),” Barcelona said. “As a result of this situation, Messi shall not be staying on at FC Barcelona. Both parties deeply regret that the wishes of the player and the club will ultimately not be fulfilled.”

Messi’s exit comes as Barcelona and rivals Real Madrid are at loggerheads with La Liga over the Spanish league’s plan to partner with private equity firm CVC Capital Partners, which plans to invest €2.7bn in the league, subject to clubs’ approval.

The exit of the superstar Argentina international, who earned a total of more than €555m between 2017 and 2021, according to Spanish newspaper El Mundo, underlines the financial pressures at Barcelona.

The Catalan club sunk to a net loss of almost €100m in the 2019-20 season, the first to be disrupted by the pandemic, as revenues of €855m fell short of the €1bn set in its budget. Its debt has soared north of €1bn. In June, the club approved a €525m debt refinancing.

On the pitch, Barca finished third in La Liga, its worst showing since 2008. It has not won the Uefa Champions League, Europe’s most prestigious club tournament, since 2015.

The decision comes just days after Barca president Joan Laporta said the club “have to make sure” Messi stays and that the process was “on the right track”. The president had also called for “greater flexibility” from La Liga.

Despite the long affiliation between Messi and Barcelona, the player last year told the club he wanted to leave but ultimately decided to stay on to avoid a legal dispute.

Messi’s departure comes a day after La Liga agreed a €2.7bn deal with US private equity group CVC Capital Partners to buy a minority stake in a new entity that would manage broadcast, sponsorship and digital rights for the league.

Barcelona and arch-rivals Real Madrid, which have been embroiled in a dispute with La Liga over plans for a breakaway European Super League, would stand to receive about €260m each from the deal with CVC.

The transaction was partly seen as a way to win over the support of Barcelona, which has been financially constrained by La Liga’s rules from making any high-profile acquisitions or renewal of contracts.

Real Madrid also lashed out at the CVC deal with CVC on Thursday, questioning its legality and accusing the Spanish league of negotiating the agreement without the club’s knowledge.

Barcelona followed up later on Thursday by joining Real in condemning La Liga’s planned partnership with the buyout firm. The club said: “FC Barcelona feels it is inappropriate to sign a half-century agreement given the uncertainties that always surround the football world. The terms of the contract that La Liga is describing condemn FC Barcelona’s future with regard to broadcasting rights.

“FC Barcelona wishes to express its surprise at an agreement driven by La Liga in which the teams’ opinions, including those of FC Barcelona, have not been taken into account.”

Spanish football clubs have yet to vote on the CVC agreement. Italy’s top football league, Serie A, turned down a similar agreement a few months ago.



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Europe targets adolescents for Covid jabs to curb Delta spread

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Covid-19 vaccines updates

French President Emmanuel Macron, whose habitual garb in public is a dark suit and tie, switched this week to a black T-shirt to encourage the young to get vaccinated over the holidays. 

“Many of you have questions or are scared,” Macron said in one of several videos he posted on TikTok and Instagram from what seemed to be the presidential holiday residence in southern France. “So I’ve decided to answer your questions directly. Go ahead.”

He has also posted short videos to correct misconceptions about the vaccines and France’s supposedly “freedom-killing” insistence on health passports to access bars and other public places. “Vaccination saves lives, the virus kills — it’s as simple as that,” he said in one. 

Macron may be one of the EU’s more visible leaders to urge the young to be jabbed, but he is not alone. 

On Wednesday, the UK belatedly extended its Covid-19 vaccination programme to 16- and 17-year-olds. But across continental Europe, governments from Scandinavia to the Mediterranean have already been targeting as yet unvaccinated teenagers to fight rising infections and hospitalisations driven by the highly infectious Delta variant of the virus.

This vaccination drive, which anticipates the new school term starting in September, is partly why Europe has already overtaken the US in terms of vaccination rates per 100 people and, on current projections, will soon overtake the UK too.

In France, health ministry data show that more than 40 per cent of those aged between 12 and 17 have already received one jab, and nearly 20 per cent are fully vaccinated. (In the vulnerable age group between 70 and 80, full vaccination coverage is close to 90 per cent.) 

Chart showing that Europe and the US have already vaccinated millions of teens, leaving the UK far behind

Most Nordic countries have also started to vaccinate teenagers and, by the end of July, almost one-third of 12-15 year-olds in Denmark had received at least one jab. “We need the immunity of the population, especially before a winter season,” Soren Brostrom, head of the Danish health authority, said in June when announcing the decision.

Much the same is true in Germany, where more than 900,000 adolescents or 21 per cent of those aged between 12 and 17, have received at least one jab, and more than 10 per cent are fully vaccinated. 

Individual German parents and children already have had the legal right to get vaccinated since June, and several states had begun limited offerings of the jabs to 12-17-year-olds.

But health minister Jens Spahn announced on Monday plans to offer more jabs to youngsters before school begins. “This is absolutely not about applying pressure,” he said on RBB radio. “It is about giving those who want to be vaccinated, including children and adolescents, the opportunity.”

The next step in Europe will be to vaccinate young children, especially as Delta strain infections seem to be rising fastest among the unvaccinated young. In a recent UK study, almost a third of the positive Delta variant tests came from people aged 5 to 17.

“It’s clear that children under 12 will become the main reservoir of infections once a large share of the over-12 population is vaccinated,” said Antoine Flahault, director of the Institute of Global Health at the University of Geneva. 

“It seems reasonable today to suppose that we’ll only be able to finish with this pandemic by vaccinating a very large share of the population, perhaps 90-95 per cent, by including children,” he said, noting that the jabs would have to be supplemented by other measures such as continued border controls as well.

In Spain, which has already overtaken the UK and the US in vaccinating its population, the government says its inoculation drive must now focus on younger people. 

Prime Minister Pedro Sánchez has declared that the country, where 59 per cent are fully vaccinated, deserves “the gold medal for vaccinations”. This week he said the country was on course to fully vaccinate 70 per cent of its population before the end of August.

But officials increasingly recognise that will not be enough to provide “herd immunity”. Infection rates in Spain — now in its fifth coronavirus wave — remain extremely high, with cases particularly prevalent among people in the 12-19 and 20-29 age groups; in the former, the full vaccination rate is less than 4 per cent.

High infection rates among these groups — with a 14-day rate of above 1,300 per 100,000 people — have spilled over to older groups. The 14-day rate among the over-eighties has been close to 300, even though according to official figures that age group is 100 per cent vaccinated.

“What is happening in Spain shows quite simply that the vaccinations do not have the same efficiency that was indicated in the trials . . . It is going to be more difficult to reach herd immunity,” said Rafael Bengoa, a former Basque region minister for health and director at the World Health Organization. 

He said the Delta variant — now accounting for more than 75 per cent of Spanish cases — was a key factor blunting vaccines’ impact and argued that the necessary level of protection would now probably require full vaccination for closer to 90 per cent of the overall population.

“We are only going to achieve this when we have revaccinated older people who are losing protection relatively quickly and when we have vaccinated young people and children,” he said. “The end is further away than we predicted.”

Additional reporting by Richard Milne in Oslo





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Global house prices: Raising the roof

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Global house prices: Raising the roof



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