Problems with Comparisons Based on Standard of Living

Using per capita income as a measurement has some problems:

• Unequal distribution of wealth: Wealth in a country is never equally distributed. Some people are wealthy, while others are less wealthy, and some are absolutely poor. In some nations, the distribution of wealth is extremely unequal. Another way to look at the way per capita income is distributed is the Gini coefficient, which shows wealth distribution. Gini coefficients range from 0%, which is perfect equality for all people in the land, to 100%, which is absolute inequality. So the lower a nation's Gini coefficient is, the better its equality. Most developed nations have a coefficient value of around 40%. Canada in 2005, showed a coefficient of 34%. On the other hand, Latin America scored 0.5.
  

• Economic activity that does not result in exchange of money, such as services provided within the family and goods sold on the black market or for barter, are usually not counted. This is substantial in some countries.

• Differences in cost of living: Per capita income does not take into account the varying needs in various countries. For instance, if you live in the North, you need to pay for heat and insulated accommodation. You need to buy warmer clothes and imported food for at least part of the year.

• Savings versus borrowing: In some countries, many people spend more than they earn, creating great personal debt. This is not factored into per capita income.

• Sustainable growth is not measured by per capita GDP. A country may achieve a temporarily high GDP by exploiting natural resources. This is considered in more detail later in the course.

• Social spending by governments in some nations takes care of the needs of citizens. For example, a nation might provide free education, health care, unemployment benefits, or welfare. This is not reflected in per capita income, although it might improve the standard of living substantially for some people.

• Other valuable considerations not measured by standard of living include other aspects of how good a person's life is. This is also called quality of life.

Quality of Life

Quality of life is used to describe the achievement of life goals. These goals include wealth, happiness, freedom, equality, personal satisfaction, and love of family and friends. Quality of life is a difficult concept because every human being is different. What one individual considers quality of life, another may not. A family who has lived on the farm for generations, but is forced to move to earn a better income may find that although their income has improved, the other factors that gave them a good life on the farm are gone. An Indigenous person who finds his traditional hunting ground destroyed by clear-cut logging may no longer experience the same satisfaction with his life. A woman who is forced to go to work after her baby is born to support her family may have a great standard of living, but a poor quality of life.

Other Factors

Source: Wikimedia Commons

Standard of living is one important aspect of quality of life, but there are others, including culture, human rights, and environmental health. The United Nations tries to measure the overall quality of life of nations in its Human Development Index. This index evaluates each nation on the basis of life expectancy, education, and GDP per capita based on purchasing power parity (what money can buy in a particular nation).

This Global Human Development Map shows the human development of each nation in 2018, according to the United Nations. Lightest blue countries have low development; darkest blue have high development.

Colonial powers in 1898
Source: Wikimedia Commons

World empires and colonies in 1898:

• Pink: Britain
• Blue: France
• Yellow: Spain
• Dark Green: Portugal
• Orange: Netherlands
• Dark Grey: Germany
• Light Green: Ottoman Empire
• Black: Belgium
• Dark Purple: Russia
• Brown: Japan
• Purple: China (Qing Empire)
• Dark Yellow: Austria-Hungary
• Green: Denmark
• Dark Blue: Sweden-Norway
• Light Blue: United States
• Red: Italy
• Light Grey: Other independent countries