Understanding the economic health of a nation requires looking beyond the surface. Issues such as fiscal responsibility, the accumulation of wealth, and competitiveness in the global market all come into play. One needs to also consider a country's history, it's current position, and the measures it is taking for future sustainability. Let's take a closer look at these aspects to unveil their true nature.
Fiscal Responsibility since the 1970s
There are countries that have been running a deficit and displaying fiscal irresponsibility since the 1970s. This has been sustainable mainly because these countries had accumulated a significant amount of national wealth beforehand. An empire level of wealth can sustain a country for about a century without giving any indications that it is poorer than any other country.
The Early Accumulation of Wealth: Case of France and UK
The United Kingdom and France, for instance, had extensive exports and colonies from the 1800s, a tale that Germany missed on. The wealth amassed during this period of colonial expansion has enabled these countries to maintain their economic standing despite running deficits.
The Building Stage: Case of Singapore, China, and Taiwan
Countries such as Singapore, China, and Taiwan are currently in their building stages. This is a critical period where these nations need to accumulate as much wealth as they possibly can just as the likes of the UK and France did during the colonial period.
Surprisingly, South Korea deviates from this line of thought given its lack of fixation on surplus, perhaps driven by its heavy importation of American weaponry.
FDI: A Closer Look
Foreign Direct Investment (FDI) has been singled out as a major contributor to the high account deficit. Countries like the US, EU, UK, and even the likes of HK, Germany, India, and Switzerland receive tons of FDI. Although this might seemingly indicate an enhanced market accessibility, it does not necessarily equate to competitiveness.
For instance, the measure of Economic Complexity Index, which looks at the sophistication of exported goods related to technology, shows contradicting findings to FDI. Countries such as Thailand, South Korea, and Colombia receive similar FDI levels, but their industrial competitiveness drastically differs, where South Korean Samsung giant singles out the other two, not to mention their GDP /capita disparities.
The Context of FDI
The context of FDI in a particular country is critical. For instance, if the investments are targeting the establishment of research facilities, that's a good sign; however, if it is for the sake of tax havens or simple factories, it's not as promising for developed countries. Thus, while high FDI countries may seem affluent, it doesn't automatically guarantee future economic competitiveness, as they could be driven by a consumption-based economy that could potentially dwindle.
In conclusion, a rounded perspective on a nation's fiscal position requires a multilayered understanding of historical background, current tendencies, and forward-looking strategies. It's clear that wealth, deficits, and competitiveness are not linear and need to be studied in their specific contexts to glean a full picture.