Inconvenient arithmetic truths

The current issue of financial assistance for post-Nargis reconstruction in Burma has helped to highlight the current parlous economic circumstances and suggests the need for an examination of Burma's future growth prospects (of course on the heroic presumption that such assistance would be used for infrastructure renewal etc).

Before that task can be undertaken, some truly sobering realities about Burma's current situation, and by implication the magnitude of the costs imposed on the Burmese people by the SPDC, must be faced. By our reckoning, Burma's real per capita GDP is (at best) about one fourth of Thailand's on a purchasing power parity basis - similar to what it was in 1980 and down from one eighth in the mid 90's, the narrowing due to the extreme upward bias in official Burmese growth rates and the impact of the Asian financial crisis on Thailand. Reaching the current income of level of Thailand would be a useful economic development goal for Burma. But the mathematics of compounding paint a somewhat gloomy picture.

In order to converge to where Thailand is now, Burma will have to double its real per capita income twice. With compounding (which is what economic growth entails) the doubling time is approximately 70/growth rate pa (sometimes shown as 72/rate depending on how the compounding is done). So at a growth rate of real per capita income of 2% pa, Burma will require 70 years to reach Thailand's current position. To put that growth figure in perspective, Australia and Sweden grew at an average 2.1% pa over the 50 years 1954-2004. Drop down to 1.5% pa (like Ecuador and South Africa over the same time period) and the time to catch Thailand's current position is 93 years. So if Burma can do better than Malawi has done over those 50 years (1.3% pa) and slightly worse than New Zealand and Costa Rica (1.6% pa) it would remain the case that no person alive in Burma today would ever see Burma as rich as Thailand is now.

The implications are worse when we consider Burma catching up to Thailand i.e. converging to the same per capita income in the future as opposed to converging to a given fixed level of income. Now the halving time of the ratio of Thailand's real per capita GDP to that of Burma is given by 70 divided by the differential between Burma's growth rate and that of Thailand (i.e. Burma's rate - Thailand's rate). So if Burma's real GDP per capita grows faster than Thailand's by 2% pa then Burma will catch up to Thailand in 70 years. Thailand grew at 3.6% pa over the 40 years 1962 to 2002, so in order to catch Thailand in 70 years (if that rate is maintained), Burma would have to exceed the growth performance of South Korea 1954-2004 (5.2%) and match that of China and be slightly behind Taiwan (5.8%). But even if Thailand drops back to a 2% average growth rate going forward, Burma would need to post 4% pa to catch them in 70 years - i.e. Burma would need to become the new Japan! I'm sure there are few volunteers for the task of outlining how that might be brought about. But at 3% (Israel, Italy) in the same scenario the convergence time blows out to 140 years. Matching or just shading Thailand's ongoing growth rate means effectively never catching up.

So although any reconstruction ( if it occurs) may provide some growth potential, the enormity of the challenge and the urgency of the need for regime change must not be ignored. Burma's military rulers have not only subjected past and present generations to oppression and economic misery, they have condemned at least the next 2-3 generations to the same fate. The magnitude of such crimes must be kept uppermost in the minds of potential donors when considering whether or not to put substantial sums into the hands of the SPDC.