What do Australia, Libya, Albania, Venezuela and Zimbabwe have in common?

We know ANZ CEO, Mike Smith, once said Australia was heading in the Venezuela direction and that at the time government and commentators scoffed. But in fact, according to a new study by the Center for International Development at Harvard University (CID), Smith was right even if not entirely for the reasons he suggested. The study shows that Australia – along with Libya, Mauritania, Venezuela, Bolivia, Azerbaijan, Namibia, Albania, Qatar, Zimbabwe and Georgia – were amongst the biggest losers in terms of factors which reflect a nation’s productive knowledge.

The CID is a research hub focussed on looking at public policy associated with generating stable, shared and sustainable growth.  It has developed what it describes as “a measure of economic complexity that captures the productive capabilities embedded in a country’s exports.” CID’s projections of future growth, using 2013 global trade figures and the CID’s Atlas of Economic Complexity, are based on measuring a country’s productive knowledge – “…the knowledge that goes into making products – captures more relevant information as to the drivers of economic growth, to provide a more accurate explanation for why countries are rich or poor. The Atlas shows remarkable accuracy in predicting future economic growth. Relative to the leading measures of governance, competitiveness and education, the Atlas’ Economic Complexity measures are found to best forecast growth rates – with 10 times greater accuracy than the World Economic Forum’s Global Competitiveness Index,” it says. See http://atlas.cid.harvard.edu/rankings/growth-predictions/

This is bad news for Joe Hockey who explains budget projections for a return to Australian growth of 3.5% by claiming it’s “because that’s what Australia does.” Well according to the CID figures that’s what Australia doesn’t and won’t – unless some things change. In terms of economic complexity Australia dropped 21 places to 76^th in a ranking of 128 countries. The major reason is the obvious one that much of our prosperity was based on mineral exports and, combined with a failure to save any of the largesse, the export price falls and falls in our terms of trade put us in a poor position for the future. Germany, Japan, Switzerland maintain the greatest diversity in complexity ranking and the US, which comes in at 12^th place, has slipped four places in the past decade. The growth outlook for Vietnam, China and South Korea is better than that for Australia.

Now the obvious caveat is that if you start from a low base it doesn’t take much to achieve higher growth rates but the CID projections look at collective knowledge and how it allows nations to compete and grow more effectively. Focussing on digging things up from the ground, or planting things in it, can create prosperity but in our changing world over-reliance on them simply doesn’t prepare us for the future. As to the winners and losers in that race to the future the CID projections for economic growth rates to 2023 show that India is likely to outpace China (7.9% pa compared with 4.6% pa); the US will manage 2.4%, Europe will range from 2.3% to 3.7% and Australia will be in the low growth category.

The projections also make the content, if not the delivery, of Bill Shorten’s Budget reply speech less underwhelming than imagined and highlight the AFR’s diligent computer analysis of the Budget papers, to ascertain the frequency with which the word innovation is mentioned, as a story of rare significance and importance for an Australian newspaper.

Of course, a fundamental problem for Hockey and Tony Abbott is a question of world view and their sources of advice. Three word slogans tend not to be the basis for sophisticated development of productive knowledge and mixing with Maurice Newman and his ilk brings to mind Daniel Kahneman’s observation that “we know people can maintain an unshakeable faith in any proposition, however absurd, when they are sustained by a community of like-minded believers.” Moreover, while both Abbott and Hockey had the presumable advantage of a Jesuit education which no doubt introduced them to Aristotle’s observation that “all men by nature desire to know” we know that rather than picking up a thirst for knowledge from the Aristotelian approach they seem more concerned to know what the next opinion poll says.

And speaking of religious education and innovation it appears that more religious countries tend to be less innovative. See http://www.economist.com/blogs/graphicdetail/2015/05/daily-chart-3?fsrc=nlw|newe|18-05-2015 for a report on a  paper – Forbidden Fruits: The Political Economy of Science, Religion, and Growth”, Roland Benabou of Princeton and Davide Ticche and Andrea Vindigni of the IMT Institute for Advanced Studies Lucca – published by America’s National Bureau of Economic Research.

The authors find a strong “negative correlation between innovation, as measured by patents, and religiosity, measured by the share of a population that self-identifies as religious.” Obviously they don’t claim the relationship is causal but cite the banning of printing in the Ottoman Empire and bans on stem cell research as examples of policies which impact on development. But it does seem that when religiosity spills over into theocracy the relationship tends to be stronger. There are outliers, such as Israel and the US, which are both religious and innovative. However, in the latter case one can be a bit sceptical about both just how religious it is and whether the innovative parts of it are. One of The Economist’s Daily Charts throws some light on that. See http://www.economist.com/blogs/graphicdetail/2015/05/daily-chart-2 As The Economist says: “A survey by the Pew Research Centre shows a sharp drop in the number of Americans who identify with Christianity and a corresponding rise in the number who are religiously unaffiliated. The trend can be seen in all generations, races and income groups but it is particularly dramatic among the young. The share of Americans over 18 who describe themselves as Christian fell from 78.4% in 2007 to 70.6% in 2014 while those who were either atheist, agnostic or “nothing in particular” rose from 16.1% to 22.8%” This doesn’t mean that atheists are winning (still a very small minority of Americans) but it does suggest that we ought be careful in jumping to conclusions about how influential religion is in the wider US society. Equally, some of the most innovative parts of the country, such as Austin (despite being in Texas), California and Massachusetts, are hardly hotbeds of evangelism and religiosity – particularly when compared with the Abbott Government party room composition.