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The HS Dent Methodology,which is based on predictable consumer spending patterns and the age of a population, is very effective in forecasting trends in developed,consumer-centric economies like the US and Japan. The main indicator of this methodology is the Spending Wave. With the wealth of demographic data now provided by the United Nations, we have the data necessary to forecast the economy of virtually every country in the world.

There is,however, an important caveat. In order for this analysis to work, a country must have already developed a sizable middle class. It is the middle class,the “Average Joes and Janes”, that move the economy with their spending. They also tend to be educated and are highly productive workers. The US, Japan, and Europe are all areas that have achieved affluence and quality education for the masses. Even the poor in these areas have electricity, quality plumbing, and color TVs. Though it is common to hear complaints about the educational systems, nearly all citizens are literate and have basic math skills. This is not the case in many underdeveloped countries in which the bulk of the population lacks the money to consume, the skills to produce, and the infrastructures and systems to leverage both.

The government must pursue the right policies to foster growth and allow economic choice as well. Though highly-regulated or command economies may be capable of meeting some of these needs (Cuba is reputed to have an excellent health system, for example), they generally failt o create mass affluence. A short list of the qualities that are necessary for our analysis to be effective are:

1. A stable government – If the population has little confidence in the ability of the government to enforce the rule of law, maintain order, and properly conduct the business of the public good (infrastructure, education, evolution of laws, etc.), then there cannot be a focus on innovation and productivity, only conservation of whatever resources a family or community has.
2. A stable financial system – If the currency of a nation is in free-fall, there will be tremendous pressure to hold no currency whatsoever, instead turning it into hard assets and keeping it there, distorting otherwise normal economic functions. The emergence of efficient financial exchanges and capital markets are a major plus.
3. Reasonably free markets – When innovators, entrepreneurs, and consumers are directed in their production and/or spending, it distorts what would otherwise be the normal pattern of supply and demand. This does not mean that a society has to have totally free or open markets, only that there must be a level of freedom that allows for choice on the part of the producer and consumer.
4. Significant modernization – A society must have progressed past the agrarian, rural stage, with urbanization well underway, broad access to basic infrastructures and the broad distribution of the wealth of the nation at least starting to occur.
5. Economic autonomy – Our approach assumes that the domestic population is the main consumer of what that population produces. If the country is too small, like Singapore, which is a city-state, then the analysis must include the regional trading partners. This is the same reason that the argument of “Globalization will save us all” does not work. It assumes the free movement of all goods and services, without accounting for tariffs or feasibility (would you actually fly to Cuba to find a doctor?). Most domestic consumption of goods and services should happen within the country for our analysis to work.

With this in mind, we have listed here a number of key development measures that should be reviewed along with a country’s Spending Wave in order to get a more complete picture of their economic development, or lack thereof. Remember, in this kind of analysis, measurement is relative. For example, India scores much lower than the US across the board, but much higher than North Korea or many of the other underdeveloped countries in Africa and Asia. Here are some of the measures that we find valuable:

• Published by the Heritage Foundation and the Wall Street Journal, the Index of Economic Freedom measures 161 countries against a list of 50 independent variables divided into 10 broad factors of economic freedom. Low scores are more desirable. The higher the score on a factor, the greater the level of government interference in the economy and the less economic freedom a country enjoys.

• The Transparency International Corruption Perceptions Index ranks countries in terms of the degree to which corruption is perceived to exist among public officials and politicians. It is a composite index, a poll of polls, drawing on corruption-related data from expert and business surveys carried out by a variety of independent and reputable institutions. The CPI reflects views from around the world, including those of experts who are living in the countries evaluated. Transparency International commissions the CPI from Johann Graf Lambsdorff, a university professor based in Passau, Germany.

• The Human Development Index is a standard means of measuring well-being, comparing measures of life expectancy, literacy, education, and standards of living for countries worldwide. It is used to distinguish whether the country is a developed, developing, or under developed country, and also to measure the impact of economic policies on quality of life. The index was developed in 1990 by Pakistani economist Mahbub ul Haq, and has been used since 1993 by the United Nations Development Programme in its annual Human Development Report.

• The Gini Index measures the degree of inequality in the distribution of family income in a country. The index is calculated from the Lorenz curve, in which cumulative family income is plotted against the number of families arranged from the poorest to the richest. The more nearly equal a country’s income distribution, the lower its Gini index, e.g., a Scandinavian country with an index of 25. The more unequal a country’s income distribution, higher its Gini index, e.g., a Sub-Saharan country with an index of 50. If income were distributed with perfect equality, the index would be zero; if income were distributed with perfect inequality, the index would be 100.

• Phone and Internet penetration, urbanization, and per capita GDP are simple ways to gauge a country’s economic development. There is no absolute measure of these statistics that defines a “developed country,” though higher for each of these is generally considered to be better. These statistics are intended for comparison purposes; a country’s development using these numbers can be measured relative to the United States, Japan, or the Western European countries. High levels of internet and phone usage, urbanization, and per capita GDP can be viewed both as a result of current development and a pre-condition for future development into the modern, services and information based economy.

Qualitative Measures

Population Statistics