Controversial economic theory I have thought of

So what is the theory?

I have been travelling and working on my gap year, visiting different countries, speaking to a real wide range of people and gaining some macroeconomic perspective. Something that we all know about is the rise of the eastern countries and how suddenly more exotic countries are catching up on GDP per capita basis with the developed world.

For instance China Vs. the US (GDP per capita)



My point is more of a social observation than any thing else. If you look at how countries have economically progressed over time, Britain for instance in the 1900 industrial revolution. There has been a noticeable change in the overall attitude of people, go back in the 1900s and people were willing to work hard for their money and then when a middle class is born and the overall country becomes wealthy, people fall into sort of trap, a trap of entitlement. People surely cannot disagree with the fact that the attitude of the working class is extremely different today than it was a hundred years ago, and why shouldn't it be? Living conditions have improved beyond belief, the access to technology etc has made people's life's better. But looking at this economically, it caps peoples mind sets into not pushing and progressing, and thus, effecting GDP growth.

Now look at the Emerging Market countries of the East, esp. Asia. The 'working class' in these countries have NO sense of entitlement, no safety net and have to work bloody hard for their money. And this is reflected in GDP growth. On a relative basis their quality of live is much worse than somewhere like the UK. Now, it is unquestionable that these places will become more richer, and GDP per capita will improve significantly, they will become more developed and in the future their quality of life will improve.

My issue is that when this happens, and rural workers of Asia enjoy a better quality of life, what will happen to their mindset? Will people fall into the same mindset of the working class in the developed world? Whereby you're earning drive gets 'capped'? Because if this is the case, then GDP growth in these countries is going to be much smaller.

Anyway, would be interested in some counter argument.

To sum up very quickly.

Emerging market countries become like developed world and GDP suffers in the long term — driven by changes in the general population mindset.

This theory is not new in a sense that free market econs always argued againsts a safety net as it takes away the fear and also intervenes with the free market and obstructs incentives which leads to negative effects. but this theory has been debunked by haa joong chang

Your controversial theory is that workers in the Far East have a better work ethic than those in the West? I'm pretty sure most people share this view.

So what is the theory?

Technology caps peoples mind sets into not pushing and progressing, and thus, affecting GDP growth.

However I don't agree with this.

Firstly on the thought that China's growth is driven by the motivation of the working class, maybe this helped but its economy has not grown solely on will power, it has required various other factors. Such as large scale privatisation, a high savings rate meaning more internal investment, high levels of FDI, large shift of people working in the country to cities as well as various other things.

You could also argue that we are seeing in china what we saw in Britain during the industrial revolution, huge growth because of utilisation of new technologies in manufacturing.

Lastly to whether they actually feel less entitled (even if it does not contribute to economic growth), compared to this country they probably are. But that is not a weakness shared by every developed country, look at Japan for instance. Or conversely look at developing countries which no one would associate with characteristics of hard working, Brazil or Russia for example.

Exactly, and look at Britian today. This is what I believe could strongly happen in China.

I have been travelling and working on my gap year, visiting different countries, speaking to a real wide range of people and gaining some macroeconomic perspective. Something that we all know about is the rise of the eastern countries and how suddenly more exotic countries are catching up on GDP per capita basis with the developed world.

For instance China Vs. the US (GDP per capita)



My point is more of a social observation than any thing else. If you look at how countries have economically progressed over time, Britain for instance in the 1900 industrial revolution. There has been a noticeable change in the overall attitude of people, go back in the 1900s and people were willing to work hard for their money and then when a middle class is born and the overall country becomes wealthy, people fall into sort of trap, a trap of entitlement. People surely cannot disagree with the fact that the attitude of the working class is extremely different today than it was a hundred years ago, and why shouldn't it be? Living conditions have improved beyond belief, the access to technology etc has made people's life's better. But looking at this economically, it caps peoples mind sets into not pushing and progressing, and thus, effecting GDP growth.

Now look at the Emerging Market countries of the East, esp. Asia. The 'working class' in these countries have NO sense of entitlement, no safety net and have to work bloody hard for their money. And this is reflected in GDP growth. On a relative basis their quality of live is much worse than somewhere like the UK. Now, it is unquestionable that these places will become more richer, and GDP per capita will improve significantly, they will become more developed and in the future their quality of life will improve.

My issue is that when this happens, and rural workers of Asia enjoy a better quality of life, what will happen to their mindset? Will people fall into the same mindset of the working class in the developed world? Whereby you're earning drive gets 'capped'? Because if this is the case, then GDP growth in these countries is going to be much smaller.

Anyway, would be interested in some counter argument.

To sum up very quickly.

Emerging market countries become like developed world and GDP suffers in the long term — driven by changes in the general population mindset.

That once GDP per capita reaches a certain milestone, peoples mindset about work changes, thus effecting said countries' economic growth.

While this is good analysis, this isn't new or controversial. Standard economic and psychological theory would expect that when people become wealthier, one thing they wish to buy is an easier life and moral fulfilment - more leisure time, insurance in case the worst happens, the utility from not seeing poverty and knowing they're doing something to help others, etc. See, for example, Maslow's heirarchy of needs, and consider what people may want to do with their money once their primary needs (food, shelter, etc.) are met. Or consider why we assume a backward-bending labour supply curve.

As well as wanting more of these things once we get richer, standard theory points out that the existence of these things removes the incentive to work as hard. In short, as people can afford feeling entitled, they do, and the more they feel entitled, the less they see the need to work hard.

So yes, as societies get richer, they have less incentive to raise income even more, preferring greater equity, security and leisure. Welfare economic research seems to support that this is a good thing to do as well - people in developed societies tend to be happier if they work a bit less and get a bit less money. There's no reason to expect the current developing world to be any different. It also shows why GDP isn't a good sole guide for public policy - if we'd rather have other things than more income, policy should take that into account. A higher standard of living does not imply more income, and vice versa.

Link?