To understand why a nation that shows a per capita income of more than 20,000 dollars cannot feed its poor and why a nation that receives reparation payments for its Holocaust victims cannot turn the money over to the survivors, we need to understand how modern economies are entered into the books and how they are reported on.
The per capita income in North America is about 40,000 dollars a year which is approximately 110 dollars a day. By contrast, it is said that in some places of the Third World they live on 1 or 2 dollars a day. Does this mean we are 55 to 110 times better off than the people in those places? No it does not mean that because in reality we live in North America on about 1 dollar a day as well.
To understand this part, we take a calculator and enter 365 which is the number of days there is in a year. We multiply by 300 million which is the number of inhabitants that reside in America. We get the approximate number of 110 billion. And guess what, 110 billion dollars is just about the value of America’s agricultural products at the farm gate. This means that every American pays the farmers of the country 1 dollar a day to be fed.
But while this is what the farmers receive in total, the food bill in America is about 20 times as high. How come? Well, a loaf of bread for which you pay 100 cents at the supermarket contains 5 cents worth of wheat which is what the farmers receive. This is a ratio of 20 to 1.
The other 95 cents go to pay for the layers between you and the farmers. These are the truckers, the fuel, the milling, the baking, the packaging, the advertising, the merchandizing, the wholesaling, the interest charges on borrowed money, the banking, the speculating, the profiteering and what have you. All the while, one or two dozen people make a living turning those 5 cents worth of wheat into a dollar’s worth of bread ready for you to pick off the shelf.
If you have a country that is still at a "primitive" level such as Liberia, for example, where people live on the land or close to it, they would be doing their own transport, milling, backing and what have you. The net result is that someone who eats a loaf of bread a day in Liberia is said to eat 5 cents worth of bread while someone who eats an identical loaf of bread in America is said to eat one dollar’s worth of bread. Nutritionally the two are the same but in the books, it is entered that an American eats 20 times as much bread as a Liberian, and this is a falsehood.
The point is that a higher per capita income does not always mean that someone has more than someone else. It could be that the second lives in an economy that is more multi-layered than the first. Let us now look at this other example. A beggar in America receiving a dollar can buy himself a loaf of bread and live for a day. A beggar in Liberia receiving a dollar can buy himself 20 loaves of bread and live for 20 days or he can feed an extended family of 20 people for a day.
Let us now suppose that the government or the people of America donate one million dollars to Liberia. The Liberians could use this money to buy bread from the supermarkets of America and feed a million people for a day or they could buy wheat from the farmers of America, make their own bread with it and feed a million people for 20 days. In the first instance, they will have added 1 million dollars to their Gross Domestic Product (GDP). In the second instance, the multiplier effect will have brought this up to between 8 million and 20 million dollars depending on how many layers they have in Liberia between receiving the wheat and baking the bread.
Therefore, given that money received from abroad as aid can be multiplied when channeled through the economy, the 5 billion dollars received by Israel in various forms of aid from the US and other sources every year have the potential to show up as a 100 billion dollar addition to the GDP. Of course, this is all fake because people could be starving in Israel more than in Liberia, which some people believe is the case, and yet the nation of Israel will show a per capita income of 20,000 dollars while in Liberia the figure is 150 dollars.
This multiplier effect is called value added. That is, when you have 5 cents worth of wheat, you keep adding value to it every step of the way as you grind the wheat, bake it, transport it etcetera until it becomes bread worth a dollar. The same thing happens to all kinds of resources. For example, iron may be turned into a refrigerator, wood into a desk and crude oil into gasoline or plastics or something else.
To have a robust industrial economy you must have the various infrastructures which will allow you to produce enough of the manufactured goods that your population needs. And to have that, you must either have a manufacturing base which is varied enough to respond to several needs or have a source of national income that will earn you enough foreign exchange to import what you do not make at home.
To understand that point we look at this scenario. To have a 150 billion dollar GDP which is about what Israel says it has, you need a manufacturing base that represents at least 15% of that amount as it was shown in the first article. This will be 22.5 billion dollars worth of industrial products. Well, a medium car that is produced locally in full adds a value to the GDP worth about 10,000 dollars. This means that the country will have to produce 2.25 million cars or the equivalent thereof in industrial products to have a 150 billion dollar GDP.
Given that a car is made of parts, you need to mass produce these parts in order to make this many cars. This is a good thing because mass production will make you competitive. When the cars are assembled, you will sell some of them locally and export the rest. You will use the money earned from export to buy from abroad the raw material you need to make the cars. And you will also buy the products that you don’t make at home because a nation does not live by cars alone. It needs TV sets and washing machines and clothes etcetera, etcetera.
If you are a planner in charge of putting down an industrial strategy for your country, you will be ill advised to plan for 2.25 million cars a year and nothing else because the economy will be at the mercy of the car market. This is not healthy given that you depend on earnings from the sale of these cars to buy other things. A better choice would be to diversify your manufacturing base and make cars as well as appliances, electronics, textiles, food processing, chemical products and so on and so forth. This means you will have a smaller scale production line for each item where you will lose some competitive advantage but you will not be affected by the vagaries of a market that tends to bounce around.
Obviously then, you must make a trade-off between having a product-rich economy with security on one hand versus a more competitive but narrowly based economy. The first choice will guarantee a moderate but steady income in foreign exchange regardless of the mood of the market, the second choice will guarantee a higher income when there is demand for your product but a lower income when the demand slows down. It is a hard choice to have to make in some countries, especially those that have a small population where they may have an obvious competitive advantage in one area but disadvantages in other areas.
Is there an alternative to this dilemma? That is, can you have it both ways? Say, have a steady high income no matter what the market does. Yes, there is an alternative. In fact, there are two ways but let’s begin with the first. You get someone to donate to you 5 billion dollars in foreign currency every year. And if possible, you borrow some more money especially if you can get the same donor to guarantee your loans as well.
This is how Israel has been living for decades with only a thin industrial base. The most generous donor and the guarantor of her loans has been the United States of America which itself is now borrowing from the Chinese and the Arabs to pay for the products that the American people need but their country no longer produces.
The second alternative is this: a nation with a large population faces the hard choice between diversification and specialization less acutely than a nation with a small population because a large population has the manpower and the local market to specialize in one or two products yet diversify into other products at the same time. But a country like Singapore with a tiny population got around this dilemma by developing a good relationship with her neighbors who happen to have large populations. The result is that Singapore operates as if it had a population of a billion people or more when in fact, it has a population of less than 5 million. And it has been very successful indeed.
Israel could do the same with her populous Arab neighbors but the Zionist rulers of Israel prefer to act like a supremacist bunch who can call on the Americans to self immolate in order to maintain Israel’s image of the tough kid on the bloc. And the irony is that instead of being scared, the Arabs seem to love the spectacle and they keep bankrolling an America that is increasingly going bankrupt as it finances the black hole that is Israel. What a tragicomedy!