Stephen King: Misery becomes personal in the pursuit of global happiness

Individuals are likely to have increasingly diverse economic experiences
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Once upon a time, the so-called misery index was a good predictor of political fortunes. By adding together a country's inflation and unemployment rates, you got a rough-and-ready idea of the population's wellbeing: the higher the value of the index, the greater the misery. Not surprisingly, the misery index worked best in the 1970s and 1980s, when inflation was rampant and unemployment was excessive. Governments who managed to tame these sources of misery often did well. Those that failed tended to get booted out.

Today, the misery index in most countries is encouragingly low. In the UK, unemployment is not the problem it used to be and the Bank of England has kept inflation under control. In the US, unemployment has been falling since the end of what proved to be a very modest recession in 2001 and the labour market is now regarded as being rather too "tight". US inflation has picked up a bit recently but, compared with previous inflationary periods, there's not much to be miserable about. On either side of the Atlantic, therefore, we have reasons to be cheerful.

Or do we? The exit polls during the US Congressional elections revealed that concerns about jobs and the economy came second only to worries about the war in Iraq in persuading people to vote Democrat. Yet, according to the misery index, people have (almost) never had it so good. Add to this a level of GDP per capita higher than ever before and you might think that voters have been a little harsh in raising concerns about economic conditions.

The truth, though, is that our economic concerns are no longer best reflected in crude statistics like the misery index. We still have worries, but they're not related to price pressures or to the numbers out of work at any one time. These days, our concerns are more likely to be related to our relative position within society and the frequency of occasions we perceive ourselves to be economically vulnerable.

Three-quarters of the way through George Bush's tenure in office, four-fifths of Americans are still significantly worse off than they were back in 2000. Although the top 20 per cent of income earners have seen their incomes, adjusted for inflation, more or less return to the levels seen in 2000, the remaining 80 per cent have not. Despite the rebound in the US economy over this period, the majority of people have experienced a decline in living standards. This is a decidedly odd result. After all, we used to think economic growth was the mechanism that made us all better off.

By focusing on the losses experienced by those on "median" incomes, the Democrats have been keen to seize on the perceived inequities of the Bush tax cuts, which over recent years have favoured the wealthy. But tax cuts alone do not explain why the wealthy have left others trailing in their wake.

Intriguingly, the US is not the only country in the world to be experiencing a growing divide between rich and poor. A similar theme is developing in China. I've just come back from Beijing, a city I've been visiting regularly for almost a decade. Each time I go there, I'm ever more impressed by the growing signs of prosperity.

The forthcoming Olym-pics clearly are a major influence but the story goes well beyond any pre-Olympic boom. Ever since Deng Xiaoping opened China up to the rest of the world at the beginning of the 1980s, the Middle Kingdom has benefited from a huge wave of foreign direct investment inflows, dramatically raising Chinese per-capita incomes. China's rapid growth rate, though, masks a widening gap between the wealthy and the persistently poor. Indeed, last week the World Bank published a report suggesting that China's remaining poor may struggle to become better off in the years ahead.

This greater income disparity reveals a paradox about globalisation. The increasingly porous nature of national borders - as capital and labour flow around the world at ever-faster speeds - implies a more effective allocation of resources and, hence, higher global output.

To the extent that much of the growth deriving from this process comes from emerging markets - witness the extraordinary gains of China and India in recent years - the income gap between rich and poor nations gradually closes (there are, of course, exceptions to this rule, as many African nations sadly know all too well). But to the degree this growth stems from the competition unleashed by a more-efficient allocation of resources, income inequality seems to increase within nations.

If you're an expert in international business law, your income may rise as more and more countries require your services. If you're a car worker in China, you're likely to find more and more job opportunities as investment heads your way. If you're a car worker in the US, you're likely to be feeling distinctly uneasy. If you're a rural worker in China, you may be unable to get access to global capital: the infrastructure needed to link you to the global community may simply not exist.

Globalisation undermines many of the "catch-all" macroeconomic measures of economic welfare. Knowing how much national income a country is generating is all very well, but individual citizens are likely to be having increasingly diverse and, hence, increasingly personal economic experiences. Globalisation has triggered a wide range of relative price and wage shocks that affect people in very different ways. Some win, others lose. On average, we're all better off, but averages cover a multitude of different individual outcomes.

Policies to reconcile the interests of winners and losers are not so easy to come by. Many American policymakers are all too happy to condemn China for manipulating its exchange rate and engaging in unfair trade practices. The reality, though, is that Chinese workers are willing to work for wages that would be regarded as unacceptably low in the US or in Europe. Punishing China because its citizens want to have a share of the global economic cake seems, at the very least, a little inconsiderate.

In France, Ségolène Royal, the Socialist candidate for next year's presidential race, has her own thoughts on dealing with the inequities of globalisation. She is considering punishing through higher taxes those French companies that would rather invest overseas than in France itself. As a tactic to woo voters, the policy might be a success. It is, nevertheless, a blatantly protectionist policy. It protects French jobs at the expense of poorer workers elsewhere in the world who, to date, have been the main beneficiaries of capital mobility.

For better or worse, we live in an increasingly-globalised world. The integration of poorer economies into the global economic system should be a matter for rejoicing because, more than any aid policy, globalisation has been the biggest single contributor to the diminution of poverty around the world. Attempts to reverse the process will condemn many of the world's poor to remain poor for longer still.

Attempts to understand the process, however, could lead to a constructive debate about how to compensate those who, through no fault of their own, lose out as a result of globalisation. Through education and retraining, for example, we should be able to encourage people more easily to change careers through their working lives. Not everyone, of course, will take advantage of this: at university I remember a student who used to sign on in the summer refusing to take any job that came his way because his skills were, he claimed, limited to playing the French horn. If, though, the downsides of globalisation are completely ignored, too many of us will be joining Morrissey in a rendition of Heaven Knows I'm Miserable Now.

Stephen King is managing director of economics at HSBC