Stable third-world democracies, like India, Botswana, Turkey, and Brazil, stand a chance of moving out of the third world and joining the Transitional States. And quite a happy club this is. 20 states strong, every new first world country must toil for a time in the land of Transition.
From a practical point of view, any country that has made it to transitional status is a good credit risk and an excellent place to send official development aid, should it be needed. Like the First World states, these are not places where one would expect to see a civil war, nor should these states be expect to attack other states or be attacked by them. Their economies are reasonably diverse and modern, and they should not be so fragile as to be badly damaged by natural disasters or to suffer total collapse from financial problems. Examples follow the jump.
A case in point is Malaysia, which has been a Transition Club member at least since 1998. Back in those heady days before the Asian Financial Crisis, Indonesia was right there alongside Malaysia with roughly equivalent per capita GDP and similar if slightly lower quality of life indicators. But then came said crisis, which in fact began in Malaysia. The Malaysian economy slipped substantially, but on a fundamental level, Malaysia’s economy was able to hold together. Though the local currency had been badly oversold and the banks were on the verge of collapse, export manufacturing and consumer demand did not dry up. Malaysians were confident this was just a temporary problem; Malaysia recovered quickly.
Indonesia did not, and remains mired in the third world. Though Indonesia had significant problems with government control of numerous aspects of the economy (and the corruption that goes along with that), one of the main problems the country had was that income was so unevenly distributed that in the aftermath of the financial meltdown, the rest of the archipelago outside Java and Bali could not sustain the level of consumer demand needed to keep local manufacturers working during the export slowdown. Many Indonesian manufacturers went out of business, and few if any have come back on line.
The goal, then, with my screening process for the Transitional States, is to keep the Malaysias in and the Indonesias out. This is not always easy. Brazil has been bouncing around on the cusp of Transitional status for years now, but the sympathy recession Brazil suffered during the Asian crisis in the 1990s showed some of Brazil’s weaknesses. Income inequality is worse in Brazil than in most other South American countries, and as a result Brazil’s internal demand for products does not easily recover from financial shocks. Maybe they deserve to be in the club, maybe not. For now, they’re on the outside looking in.
Last year, in the hopes of keeping any potential Indonesias out of the club, I raised the required score for admission. In so doing I kicked out a number of questionable states (Brazil included), but also kicked out Romania and Thailand, which I thought looked strong enough to remain in the club. This year they both put together scores high enough for entry, so I’m happy to welcome them back. Their readmission prevented the club from getting any smaller, as two members finally attained the lofty status of First World.
Romania joins Bulgaria, both of which should enter the EU in 2007 or 2008. EU accession has been important for a number of other transitional and first world states, so I expect Romania and Bulgaria to move up swiftly in the years ahead.
Thailand joins Malaysia as the only Asian transitional states. However, they’ve helped bring along the tiny Pacific nation of Palau, which resides in the transitional area largely as a result of tourism receipts from rich Asians. The more rich Asians there are in places like Malaysia and Thailand, the better off Palau will be.
Eastern Europe is heavily represented here. At the top of the list are Slovakia, Estonia, and Lithuania, fast growing new EU members. Slovakia has made a name for itself in the last few years as the best country in eastern Europe in which to do business, and the country’s economy has grown by 5-7% every year this decade. George Bush may not know where Slovakia is, but plenty of other people do.
Poland is the next European country on the list. It has moved forward in fits and starts, sometimes seemingly near the cusp of first world membership, at other times back in the middle of the pack. Poland is the largest of the new EU members by a fairly wide margin, almost the size of Spain, but the economy does not yet reflect the size of the population. Poles were the butt of the anti-Constitution campaign’s jokes during the French referendum earlier this year, proof that the country has a ways to go to be accepted by its western neighbors.
Croatia and Latvia follow Poland on the list; Croatia is the only non-EU member without a target accession date on this list. All other non-EU member states in Europe remain in the third world, with the sole exception of Russia, which isn’t so much European as it is just plain Russian. While the Croats have made some gains without the EU, it is evident that the carrot of EU membership is one of the most effective ways to get a country to shape up yet seen and has been the driving force behind much of Croatia's economic reform. The carrot must continue to be extended. The Croats certainly hope it will be.
Russia is perhaps the most questionable country on the list. Is it really democratic? It certainly isn’t very libertarian. Corruption is rampant, and the government plays far too large a role in the economy. Their score, 781, is impressive, and while life expectancy is low the other quality of life indicators are all quite high. The economy has rebounded from the 1998 default and is now larger than it has been at any time since the Soviet Union collapsed. Some things are going well. But at present, even if the score reaches the first world threshold, Russia looks more like a potential Outlier than a real member of the First World.
A number of small island states are in the transition club. The highest ranking of these is Mauritius, a little island you’ve never heard of in the Indian Ocean east of Madagascar. Once a leading sugar producer, the Mauritian economy now includes large tourism, financial, and high-tech sectors, and the country recently concluded a free trade pact with India.
In the Caribbean, the ampersand countries are all in the club. Trinidad & Tobago is at the top, with tourism, mining, and petroleum refining important in the economy. Antigua & Barbuda remains the only Caribbean country who’s government has a detailed high-tech industry plan; while tourism will always be important, the country hopes the island of Antigua may some day be referred to as Silicon Island. Saint Kitts & Nevis has a solid financial industry and still remains one of the Caribbean’s largest sugar producers, on a per-capita basis (though Kittitian rum has yet to make a dent in the world market). A popular wide-scale secession movement on the island of Nevis may put a damper on economic growth on both islands in the near future.
The four remaining Transitional countries are all in Latin America. At the top is Argentina, with Chile not far behind. These two countries were both on the cusp of First World membership before Brazil’s economy went froot loops in 1998 and 1999 and took the rest of South America down with it. Chile and Argentina were particularly hard hit and have not recovered fully; many jobs have been created, macroeconomic policy has been revised to encourage greater stability, but incomes haven’t returned to late 1990s levels. Still, barring a global economic downturn these countries should be in the First World by the end of the decade.
Farther down the list is Costa Rica, the only Central American transitional country and a CAFTA member state. Costa Rica, unlike its neighbors, has seen 150 years of stable democratic government. Unfortunately, this stability was guaranteed in part by a large social welfare system, the bill for which is now coming due. Though Costa Rica has done much to diversify the economy in recent years and boasts a wider array of industries than all its neighbors combined, the government’s current internal debt is dangerously high and there is little political will to eliminate the annual deficit.
Finally we have Mexico, which for the first time this year is estimated to have a trillion-dollar economy, one of only a dozen worldwide. Mexico’s quality of life score is basically flat over the last five years, because although the economy is growing quite a bit faster than the population, not much of that money is making its way into the hands of Mexicans. NAFTA was a tremendous boon to the Mexican economy, but much of the money made by foreign investors there is not staying in Mexico. This trend has to be reversed for Mexico to see any real gains; still, it’s nice to know our next-door neighbor isn’t as dreadful a place as we all fear.