What is Economic Prosperity? IB Economics Explained

What is Economic Prosperity?

If you're reading this on a laptop or smartphone, congratulations - you're already ahead of most of human history. You likely have access to food, shelter, clothing, and even some extra comforts like Wi-Fi and streaming services. But what does that really mean? Are you prosperous? Is your country? Is the world?

Let's simplify this.

1. The Three Levels of Prosperity

Economic prosperity exists at three levels: individual, national, and global.

• Individual prosperity means you have more than just the basics. You can afford things beyond survival, like a gym membership, an iPhone upgrade, or those trendy trainers everyone seems to be wearing.

• National prosperity happens when a strong majority of people in a country can afford more than just necessities. This means a thriving middle class with access to good healthcare, education, and – yes - pumpkin spice lattes.

• Global prosperity is when most of humans have risen above subsistence living and enjoy a decent standard of living. Spoiler: we're not there yet, but we've come a long way.

2. The Hockey Stick of Human History

If we mapped economic prosperity over time, it would look like a hockey stick. For most of human history - think ancient Egypt to about 1800 - almost everyone was poor. Life expectancy was low, diseases were deadly, and no one had running water, let alone Wi-Fi.

Then came the Industrial Revolution. Factories, steam engines, and new technologies led to an explosion in economic growth. Suddenly, incomes rose, life expectancy increased, and global poverty began to decline. Today, countries like South Korea and Singapore have gone from poverty to prosperity in just a few generations.

3. How Prosperity is Measured

Prosperity isn't just about how much money you have. Economists use different ways to measure it:

• GDP per capita: This tells us how much wealth a country produces per person. Generally, a nation with a per capita income of €10,000 or more is considered middle-income.

• Life expectancy: Wealthier societies tend to live longer because of better healthcare and nutrition.

• Human Development Index (HDI): This measures prosperity based on income, education, and life expectancy. According to the latest rankings, Norway tops the list, while countries in conflict or extreme poverty struggle.

• The Legatum Prosperity Index: This includes factors like governance, personal freedom, and social trust - because a country isn't truly prosperous if corruption is rampant or people don't feel safe.

4. The Myths of Prosperity

Many people assume certain things about economic prosperity that aren't entirely true. Let's debunk a few myths:

Myth 1: People Control Their Own Prosperity Completely
Hard work matters, but context matters more. Someone born in Switzerland has far more opportunities than someone born in a war-torn region. Economic systems, government policies, and access to education play a huge role in determining success.

Myth 2: Geography Determines Prosperity
Jared Diamond's Guns, Germs, and Steel argues that geography shapes economies, and there's truth to that. But countries like Singapore, which lacks natural resources, have thrived due to smart policies and innovation. Meanwhile, resource-rich nations like Venezuela have struggled due to poor governance.

Myth 3: China is the Most Prosperous Country
China's economy is massive, but prosperity isn't just about size - it's about the standard of living. China's GDP per capita is still far behind countries like the U.S. or Germany. While rapid growth has lifted millions out of poverty, China still faces challenges like income inequality and demographic shifts.

Myth 4: Once Achieved, Prosperity is Self-Sustaining
Unfortunately, prosperity isn't guaranteed at any level. Individuals can face setbacks that lead to financial ruin. Nations can regress; for example, North Korea was once more urbanised and literate than many countries but has since declined dramatically. Similarly, Argentina had one of the highest per capita incomes a century ago but has fallen in rankings due to economic mismanagement. Globally, events like plagues and financial crises have led to periods of reduced prosperity.

Myth 5: A Solid Grounding in Economics Alone Explains Prosperity
Even economists acknowledge that economics alone can't explain the explosion of prosperity over the last two centuries. Economic institutions rest on political and social foundations. Without understanding domestic and international political economy, it's challenging to predict which economic systems will thrive.

Myth 6: There are Simple Solutions to Promoting Prosperity
There are no easy answers. While some solutions may seem straightforward, many are complex, and some remain undiscovered. Our understanding evolves over time. For instance, in 1970, predicting the vast economic gap that would develop between North and South Korea over the next few decades would have been difficult.

5. The Future of Prosperity

We're living in the most prosperous time in human history. Over the last 30 years, over a billion people have escaped extreme poverty, thanks to globalisation, technology, and economic reforms. But challenges remain climate change, automation, lack of productivity and inequality could slow progress.

So, what does all this mean for you? It means that economic prosperity isn't guaranteed - it's built through innovation, education, and policies that empower people. If history has taught us anything, it's that economic growth isn't magic - it's a result of smart decisions made by individuals, businesses, and governments.

And next time you upgrade your phone, remember you're living in an era of prosperity that most of history could only dream of.

Stay well