Some of the world’s most powerful creative economies are doing economic development wrong. It doesn’t need to be that way.

Capitalism is in transition. It’s pulling away from its previous industrial model to a new one based on creativity and knowledge. In place of the natural resources and large-scale industries that powered the economies of previous centuries, economic growth today turns on knowledge, innovation, and talent.

In a new report released Wednesday, my Martin Prosperity Institute colleagues Charlotta Mellander and Karen King and I evaluate 139 nations worldwide on their ability to compete and prosper in this new, creativity-powered knowledge economy.

The map below shows how the nations of the world stack up on our Global Creativity Index—a comprehensive measure of creative competitiveness based on six indicators organized across the three key factors (“the three Ts”) driving today’s economic development: technology, talent, and tolerance. On the map, the nations that perform the best are in purple; the nations that do most poorly by our ranking are in light blue.

(MPI)

Australia takes the top spot on the GCI, followed by the United States. New Zealand comes in third, Canada fourth, and Denmark and Finland are tied for fifth. The rest of the top 10 includes Sweden in seventh place, Iceland in eighth, Singapore in ninth, and the Netherlands in tenth. While much has been made of the recent economic performance of the so-called BRIC nations—Brazil, Russia, India, and especially China—these rank much lower on our index: Brazil is in 29th place, Russia 38th, China 62nd, and India 99th.

(MPI)

The map above shows how nations stack up by the share of their populations that belong to the creative class, including workers in science and technology; business and management; healthcare, education and law; and arts, culture, design, media, and entertainment. Tiny Luxembourg takes the top spot, with more than half of its workforce in the creative class (54 percent). Bermuda comes in second, with 48 percent, and Singapore third (47 percent). Switzerland (47 percent) is fourth and Iceland (45 percent) fifth. (Note that all these nations are relatively small ones, without much of a manufacturing presence.)

Rounding out the top 10 are Australia (45 percent), Sweden (45 percent), the Netherlands (44 percent), Canada (44 percent), and the United Kingdom (44 percent). The United States is 34th, with 33 percent.

Across the three Ts, South Korea leads in technology, followed by Japan, Israel, the United States, and Finland. Australia leads in talent, followed by Iceland, the United States, Finland, and Singapore. Canada takes the top spot in tolerance, which we measure as openness to ethnic and religious minorities and gay, lesbian, and transgender people. It’s followed by Iceland, New Zealand, Australia, and the United Kingdom.

Creativity and economic success

But what is the connection between a nation’s creativity and its level of economic performance? How does creativity relate to the level of urbanization and to inequality around the world?

To get at this, we ran a series of correlations between the Global Creativity Index and measures of economic development, human development, urbanization, and inequality, among other factors. As usual, we point out that correlations only capture associations among variables, not causality, which may well run both ways.

(MPI)

As the graph above shows, the Global Creativity Index is strongly associated with nations’ overall levels of economic development, measured by economic output per capita (with a correlation of .65). The GCI is even more closely associated with levels of global competitiveness (.78), entrepreneurship (.83), and human development (.78).

(MPI)

The rise of the creative economy makes density and urbanization ever more important to innovation and economic performance. There is a close connection between the GCI and urbanization (with a correlation of .62), measured as the share of the population that lives in urban areas.

Indeed, nations that are more urbanized are more creative. Creativity, as Jane Jacobs long ago pointed out, requires the clustering of talented people and the tolerant and open-minded environment that is more frequently found in large cities. In the upper right hand quadrant of the graph above, we find highly urban, highly creative nations including Singapore, Sweden, Finland, the Netherlands, the United States, Canada, and New Zealand. In the bottom left are poorer nations like Burundi, Uganda, Cambodia, and Afghanistan, which have low levels of urbanization and creativity. India is also in this group, and even China, which has been heralded as a model for urbanization and development, is below the fitted line. Historically, there has been a connection between urbanization and economic growth, but as I wrote on this site last month, that connection may be weakening or even disappearing altogether, for creativity as well as for economic growth.

(MPI)

In recent years, inequality has surged across the advanced industrial nations, to levels not seen since the 1920s. For many economists, growing inequality is closely tied to the ongoing transformation between the industrial and knowledge economies, and the decline of once high-paying manufacturing jobs that were actually capable of supporting families.

The last graph above shows the relationship between the GCI and inequality based on the Gini Coefficient. In contrast to previous graphs, the line on this one slopes gently downward, indicating that greater creativity is negatively associated with inequality. Indeed, the correlation between the two is  -.23. In other words, the higher a nation ranks on the GCI, the lower its inequality.

Look at the position of the advanced countries on the graph. In the bottom righthand corner of the graph are several countries—notably Sweden, Denmark, Finland, and the Netherlands—that combine high scores on the GCI with relatively low levels of inequality. These nations define a high-road path, where greater creative competitiveness goes along with lower levels of inequality. But the nations above the fitted line and to the right are those that have taken the low-road path, places like the United Kingdom and the United States, where great creative economies exist alongside widening gulfs between the haves and have-nots.

The bottom line: There is no necessary relationship between creativity and inequality. Nations can choose which path toward creativity they want to take: One that carries along all members of society, or one that leaves many behind. A high-road path to prosperity, where the fruits of economic progress are more broadly shared, is not only possible, it can be better for a nation’s overall economic performance. Equality, it turns out, can pay.

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