Transcript:
If there is a single take-way from 2023 it is that rivalry between nations is intensifying.
In the new age of nationalism, the outcome for countries with and without competent political leaders will become even more extreme.
Which countries have the best and the worst political leaders right now?
Is Biden a better leader for the US than Putin is for Russia? How does Xi Jinping fare against Modi? What about Rishi Sunak, Justin Trudeau, and Anthony Albanese?
In this video I will try to answer these questions using 3 quantifiable metrics.
The results of my analysis will surprise you.
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Gordon Brown, ex British prime minister, summarized the zeitgeist of our time when he said that nationalism is the new ideology of our age.
According to Brown, the hyper-globalisation of the last 30 years is giving way to what he calls “lowbalisation”: a globalisation-lite defined by near-shoring, friend-shoring and shortening supply chains.
Brown observes that, against this backdrop, nationalism is replacing neoliberalism, otherwise known as the Washington consensus, as the dominant ideology of the age.
Brown, like many people on the left, is concerned about the rise of nationalism that played a major role behind the two world wars of the last century that killed 100 million people between them.
I am not as pessimistic as Gordon Brown about nationalism in the 21st century.
I believe national feelings, when channeled in a positive way, can help bring people together, especially in ethnically diverse countries, to work towards a shared common good. I think national identification can give people a sense of purpose.
However, I agree with Brown about what the demise of the Washington consensus means for the national decision-making process:
When globalization was on the rise, economic considerations drove political decision-making.
Today, with nationalism on the rise, political considerations are driving economic decisions.
Is this a bad thing?
It can be but it does not have to be.
For example, the new reality might force politicians to work harder to serving the interest of all citizens, and not just the economic elite.
In my mind, only one thing is certain about the age of nationalism
The fortune of any country will depend ever more on the quality of its political leaders.
And the difference in outcomes for countries with and without good political leaders will be even more extreme.
My contention is that the quality of political leaders has never been more important
So which countries have the best political leaders and which the worst right now?
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Before we delve into the answer, it is necessary to define what makes a good or even great political leader
By political leaders, I mean of course the heads of states, whether they be presidents, prime ministers, or in the case of Germany, the chancellor.
A good leader needs to have a clear vision for his or her country that serves the interest of the majority of the citizens of that country.
A clear vision is necessary to give direction and set goals
But having a clear vision is not enough.
A good leader has to be able to turn his or her vision into reality
To do so, a good leader needs to be a good communicator, because half of the game is about convincing others that his or her vision is right for the country
The other half of the game is about assembling a strong team of competent people to execute the plan, the policies. In short, to get it done
Many people think that integrity and moral fiber are important qualities in a good leader
I don’t disagree but I think we should be careful not to exaggerate the importance of these qualities
Integrity matters only insofar that a corrupt leader who can be bought or blackmailed can harm the interest of the majority of the citizens.
To me, more important than integrity is courage, courage to make unpopular decisions, courage to take on entrenched interests.
But these qualities that we want from our political leaders are difficult to quantify.
Is French President Emmanuele Macron a better communicator than Canadian Prime Minister Justin Trudeau?
Does Chinese President Xi Jinping have a clearer vision for China than Vladimir Putin for Russia?
Is US President Joe Biden less corrupt than Brazilian president Lula da Silva?
Does Indian Prime Minister Narendra Modi have more courage than Australian Prime Minister Anthony Albanese?
If there are no straightforward ways to answer these questions, how can we produce an objective ranking of these leaders?
Unless of course we only focus on the ends and not the means.
I don’t know about you, but I think when it comes to judging our presidents and prime ministers, the only thing that should matter is results.
In my opinion, there are no excuses for failure for those with enough hubris to seek the highest office of the land.
In the age of nationalism, competition between countries will be greater than ever as will be the stakes. There is no room for error.
Political leaders shouldn’t get any points for just trying.
Now let’s build a result-oriented framework for ranking our political leaders.
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How should we go about ranking the performance of our political leaders?
We need metrics, ideally quantifiable metrics that we won’t have any difficulty agreeing on.
Economic growth is important, quantifiable and comparable across countries.
Economic growth is important because without it there is no possibility of improving the standard of living of the average citizen
Sure, you can tax the rich to give to the poor but without economic growth even the rich will become poor eventually.
Also, in a world in which every country is striving to grow faster, if you don’t grow you will just be left behind.
Indeed, economic growth matters, arguably even more so in the age of nationalism.
In my view, economic growth should the most important metric for judging the relative success of our political leaders
So what does economic growth in 2023 tell us about our political leaders?
Given India, China, and Indonesia were the 3 fastest growing major economies in the world, one might think that Narendra Modi, Xi Jinping and Indonesian President Joko Widodo were good leaders for their countries (Chart 1)
Based on this logic, one might also decide that former Argentinian President Alberto Fernandez and German Chancellor Olaf Scholz were poor leaders given the rather terrible economic growth performance of Argentina and Germany. (Chart 1)
But you guessed it. Absolute GDP growth is not a good metric for ranking the performance of political leaders
This is because economic theories tell us to expect poor countries to grow faster than rich countries
If lower middle income countries like India or upper middle income countries like China and Indonesia grew faster than high income countries like Germany, it says more about the relatively low levels of labor productivity in these fast growing countries than the competency of their leaders.
A more useful metric is the difference between economic growth and trend economic growth.
On this chart I have plotted the difference between GDP growth in 2023 and average GDP growth over the previous 10 years for the 19 sovereign members of the G20. (Chart 2)
Brazil, Mexico, Russia and Japan grew faster in 2023 than their growth norm.
In contrast, Argentina, Saudi Arabia, Germany and Turkey grew more slowly than they did in the previous decade years?
Using this metric, India drops down from1st place to 6th place, while China falls from 2nd place to 15th place.
The US is in the 9th place, right in the middle of the pack.
So does this mean that we can declare President Lula da Silva , Lopez Obrador, and Putin the best political leaders in 2023?
Not so quick.
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What about the quality of growth?
A political leader can in theory juice the economy by taking on more debt, in other words by borrowing from future growth.
Every political leader does this at times but some political leaders use fiscal policy more aggressively than others.
What you observe on this chart is the the cyclically adjusted primary balance, primary balance because it excludes interest payments, as a share of GDP for members of the G20 Club, as calculated by the international monetary Fund
What you can see is that it varies greatly.
The US, Japan and China are running massive cyclically adjusted primary deficits, whereas Mexico is running a primary surplus.
Since our focus is on what political leaders did or did not do to boost economic growth in 2023, we should look at the difference in the primary balance between 2023 and the previous year.
What we see here is that Brazil, Turkey, Russia and the US considerably loosened their fiscal policy in 2023.
In the case of Russia, this is understandable.
Wars are expensive. Russia in fighting a war that Moscow views as existential which means that Russia is prepared to pay any price, economic or otherwise, to continue the war until victory.
The good news for Russia is that Putin’s fiscal prudence over the past 10 years and more means that Russia has one of the lowest levels of public debt in the world as a share of GDP.
This means Russia has room to run up its debt.
There are no such excuses for Lula, Turkish president Erdogan, and of course Joe Biden
For different reasons, each of these leaders have resorted to fiscal excess to pander to their political bases.
Indeed, one of the great economic ironies of 2023 is that the deterioration of the US fiscal balance is nearly as great as that of Russia.
At least in this respect, Putin objectively was a much better leader for Russia than Biden was for the US.
Three political leaders who deserve positive mentions are Italian Prime Minister Giorgia Meloni, Alberto Fernandez, and Australian primie Minister Anthony Albanese.
Under their watch, Italy, Argentina and Australia all witnessed an improvement of their cyclically adjusted primary balance.
Meloni defied her critics and passed a budget for 2023 that put Italy on a stronger fiscal footing that in time will allow her to pursue a more pro-growth policy.
Albanese is also proving to be a pragmatic leader.
If it weren’t for the tight fiscal ship he ran in 2023, inflation might have gone out of control and the Reserve Bank of Australia would have had to resort to much more aggressive interest rate tightening that would have undoubtedly tipped the economy into a recession.
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But economic growth has no meaning for the welfare of the citizens unless it creates jobs so that people can better their lives and those of their families.
In this sense, changes in the unemployment rate are a good measure of whether economic policies of political leaders lead to improved lives for the average citizen.
When we look at the change in the unemployment rate for the G20 countries in 2023, it is reassuring to see that in Brazil, Russia and even Turkey, countries that have loosened fiscal policy to support growth, the unemployment rate fell
In other words, the fiscal deterioration at least did some good.
In contrast, in the US, where fiscal policy was similarly loosened, there was no such effect and the unemployment rate was unchanged on the year. (Chart 5)
I have said this in other videos and I will say it again. US fiscal policy under Biden has been nothing short of a disaster.
It says a lot about the leadership of both Rishi Sunak, the British Prime Minister, and Trudeau, that the British and the Canadian economies were among only a handful of countries that saw an increase in unemployment rate.
I am going to cut Sunak some slack by acknowledging the fact that he inherited an economy that was nearly run to the ground by his clueless predecessor Liz Truss.
But Trudeau has no excuses. He has been Prime Minister since 2015. The question is that given his poor economic policy record, why do Canadian voters keep voting him back into office?
And What about India? Despite the fact that the Indian economy was the fastest growing economy in the world in 2023, it could not create jobs faster than the growth in the labor force.
This may be why the extremely low labor participation rate of India remains at just 40%.
2023 was a good year for India but it should have been a great year.
This is because India, as well as Mexico, was the biggest beneficiary of the growing tension between the US and China that resulted in a surge in foreign direct investments in India as multinational companies sought to diversify their supply chains from China.
Under Modi’s first term, India embarked on many ambitious reforms. No doubt the pace of reforms has slowed in his second term. I suspect this won't change as we head into the Indian election in 2024.
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I argued at the outset of this video that economic growth should be the most crucial metric for doing a cross-country ranking of the performance of our political leaders.
I also argued that we need to take into account different aspects of economic growth to ensure that we have a balanced and robust methodology.
We looked at 3 key aspects of economic growth: difference from trend growth, the quality of growth, and whether growth benefits many citizens.
Now we are ready to combine them into a single ranking.
I am going to make it simple.
For each of the 19 sovereign members of the G20, I am just going to just add up the rankings they received for the 3 growth attributes.
For example, Brazil was in 1st place for difference from trend growth, was in 19th place for quality of growth, and 1st place again for broad growth participation.
1+19+1=21.
So Brazil has 21 points.
I am going to do the same for all 19 countries.
The political leaders of countries with the least number of points will be winners and those with the largest number of points will be losers.
So here are the results: (Chart 6)
Mexico, Italy, and Japan take the top 3 places, followed by Brazil in 4th.
Russia, Indonesia, South Africa are tied in 5th place
India is in 8th place
Australia took 9th place, the highest ranking among the Anglo-Saxon countries
South Korea is in 10th place
Next come the US, China, Canada and the UK tied in 11th place.
Argentina and France are tied in 15th place.
Turkey is in 17th place.
Germany, in 18th place, is dead last.
Saudi Arabia is excluded from the final ranking given the IMF does not publish its estimates of the kingdom’s cyclically adjusted primary balance.
Before I tell you what I think about these results, I want to state the obvious: this is far from being a perfect ranking of the performance of political leaders.
The ranking is only based on what is observable in 2023. Many actions of political leaders in 2023 have consequences that will only be felt in the future.
Another obvious problem with the ranking is that it does not take into account of the non-economic performance of political leaders.
However, in defense of my focus on the economy, I would point out that in surveys after surveys across countries, voters say that economics related issues are the most important issues for them.
Another shortcoming of the ranking is that it does not adjust for luck.
Luck is as important for countries than it is for individuals.
For example, as I already mentioned, both the Mexican and Indian economies are huge beneficiaries of the growing tension between the US and China.
Another example is the Japanese economy that got a big boost from a very weak yen in 2023 that was the result of interest rate increases by the rest of the world.
These developments made AMLO, Modi, and Japanese prime minster Fumio Kashida the luckiest leaders in 2023.
In contrast, Anthony Albanese and South Korean president Yoon Suk Yeol were less lucky as the weakness of the Chinese economy weighed on their economies more than others.
But leadership is also about how to deal with luck, good or bad.
The fact that Australia still finished in the top half of our ranking says much about the leadership of Albanese.
The same is true about Italy’s Giorgia Meloni.
However astonishing is the fact that Italy finished in second place while Germany in last place, it comes down to a stark difference in leadership between Meloni and Olaf Scholz.
Whereas Meloni has turned out to be a better Prime Minister than expected, Scholz has turned out to be a terrible leader in every possible way.
There is a clear voter regret in Germany, with his party SPD only polling an embarrassing 15% right now. For 20024, Scholz needs to ditch the dangerous Green Party and join forces with the CDU before the economic damage he is doing to Germany becomes permanent.
But what about the US, China and Russia? Biden, Xi and Putin? How did they fare against each other?
Russia finished ahead of both the US and China in the ranking.
I think this result speaks for itself. Two years into the Ukraine war and given the massive sanctions that the west has thrown at Russia, the fact that the Russian economy is widely expected to grow 3% in 2023 is a testament of Putin’s impressive leadership.
I don’t think there is another way of looking at it, regardless of whether you think he was right or wrong to have invaded Ukraine.
The US and China are tied in 11th place.
But both Biden and Xi Jinping should be probably much lower in the ranking.
Biden because his foreign policy has done more to destabilize the world than under any US president in memory.
Future historians will not forget his decision to fight to the last Ukrainian and his mollycoddling of Iran that is likely behind the Hamas attack on Israel on Oct 7.
What about Xi Jinping? He finished 11th place in the ranking only because 2022 was such a terrible year for him and for China that 2023 could not be much worse.
What happened to China over the past 2 years raises not only serious questions about Xi’s leadership but China’s entire governance system
I have no idea if Xi’s centralization of power and the decision making process around himself are because he is power hungry or that he believes it will serve the best interest of the majority of China’s 1.4 billion citizens.
Frankly speaking I don’t care and nor should you.
We should only judge him by the results.
And the results so far have been terrible.
Examples include the delayed re-opening of the Chinese economy in 2022, and the delayed response to China’s housing crisis in 2023.
Warren Buffet says that only when tides go out you can see who has been swimming naked.
There is nothing like a crisis that allows us to assess our political leaders.
Between Biden, Putin and Xi, I think it should be very clear which two have been swimming naked all along.