A worldwide rise in living standards.

By almost any economic yardstick, standards of living are improving around the world, says a renowned financial manager and philanthropist.

A great deal of subjectivity comes into play when people start talking about living standards. To understand why, let's consider the hypothetical

A little while ago, John received a very big pay rise. As a result, he now drives a more powerful, roomier car than the one he traded in. He moved into a bigger house in a better neighborhood. John now also takes his wife out to dinner a couple of times a week, while a year ago such treats were limited to about once a month. And he now can afford to eat costlier food on these outings, such as filet mignon instead of pasta. In addition, this year's family vacation will be at Montego Bay in beautiful Jamaica, whereas last year's trip was to Montauk on the tip of Long Island. And, most importantly, his two children have switched from public to private schools.

By most conventional yardsticks, John's living standard has risen: bigger car, better house, more pay, fancier meals, a trip to the Caribbean, private schools for the kids. Can there be any doubt that John and his family are better off?

It is possible to question, for instance, the benefits of having a bigger, more powerful car. After all, it soaks up more gasoline and costs more to insure and maintain. And who needs more red meat? John's cholesterol count already is on the high side and it would be better for him to stick with pasta. As for vacations, the food and streets are safer in Montauk than in Jamaica. As for schools, public ones may prepare youngsters better for getting along - and ahead - in these egalitarian times.

That said, it is possible, by combining statistical results with anecdotal evidence, to gain a pretty clear sense at least of the direction in which living standards have been moving in the United States, as well as in most other countries in recent decades. This direction has been up, and - for all the talk to the contrary in the media - the rise has been remarkably sharp and is continuing.

Quantifying Progress

Let's consider the broadest economic measure - the gross domestic product (GDP). Real per capita GDP in the United States now stands at a record level - slightly above $20,000, in terms of the dollar's 1987 buying power. This is up from only $6,857 in 1940 and $9,352 in 1950. Thus, using GDP as a yardstick, the U.S. standard of living has more than doubled since mid-century and roughly tripled since before the U.S. entry into World War II. The bulk of this increase reflects all manner of goods and services that enhance people's living standards, from better-quality automobiles to safer surgery.

There is much talk of a stagnation, even a decline, in living standards since the mid-1970s. But GDP data show nothing of the sort. In 1975, for instance, real per capita GDP amounted to $14,917, again in terms of the dollar's 1987 buying power. The rise since then approaches 40%. [TABULAR DATA OMITTED] A gain of such magnitude hardly spells stagnation!

While such things as traffic jams may falsely inflate the GDP numbers by adding to fuel consumption and vehicle wear and tear, a far more serious distortion tending to deflate the GDP numbers is the omission of work performed by unpaid workers, such as charity volunteers and spouses who keep house.

Other broad gauges tell a similar story. Since 1975, real per capita disposable income - what's left to spend or save after all taxes have been paid - has increased even more sharply than real per capita GDP. Sharper still has been the rise in real per capita consumer spending. These barometers, which are about as close as economists have thus far come to gauging living standards in a nation, denote a far happier situation than most news reports would have us believe is the case.

The most frequent and most publicized lament of living-standard doomsayers is that the median income of American households, adjusted for inflation, is lower today than in the mid-1970s. But in light of the per capita gains noted above, how can this be? In part, the explanation is that - for reasons ranging from later marriages to longer life expectancy - there are fewer people in the average American household today than, say, a quarter-century ago. The upshot is a reduction in average household income that reflects a shrinkage in household size, rather than a drop in living standards.

Other data also point to striking gains in living standards in America. In 1950, more than a third of U.S. dwellings lacked indoor plumbing and fewer than one in 10 had a television set. As recently as 1960, roughly one home in every four still had no telephone. Today, fewer than one home in 20 has no telephone, only one home in 100 has no plumbing, and only one in 50 has no TV set.

With such gains in living conditions, it is no surprise that American workers require far less time nowadays to earn what is needed to purchase various goods and services.

To be sure, not every item requires less work time now than years ago. The fee for an appendectomy amounts to about nine days of work, up from seven two decades ago, and a year's tuition at Brown University requires more than eight months of work, up from just over four months. Such examples, however, are exceptions. With new antibiotics, appendectomies are now safer and rarer. By the same token, the quality of an education at a leading university such as Brown has clearly improved over the years.

Productivity's Role

In much of the post-World War II era, incomes have risen steeply even after inflation and population growth are taken into account. This rise has led to great strides in living standards. Such progress would have been impossible without solid gains in productivity - i.e., the hourly output of the people turning out goods and services. Advances in productivity serve to offset the potential inflationary impact of pay increases. Without rising productivity, pay gains inevitably lead to higher labor costs, which force companies to raise prices and feed inflation. This, in turn, erodes any gains in paycheck buying power.

To see how advances in productivity work to offset the inflationary impact of higher pay, and thus improve living standards, consider a hypothetical example - the case of Tina O'Toole, who works in a factory that turns out computer chips. Let's suppose that Tina receives a 10% raise in her hourly pay and then imagine three possible scenarios.

In scenario one, Tina's hourly production of chips climbs by the same amount as her pay. As a result, her pay boost will not alter the hourly cost of her labor. She will be paid 10% more each hour, but she also will be producing 10% more chips per hour. As a result, her company will be under no labor-cost pressure to raise prices; nor will it be tempted to lower them. If prices don't change, Tina's pay raise of 10% will serve to increase the buying power of her paycheck by a like amount, and so her living standard will improve.

In scenario two, Tina's hourly output of chips rises 15%, or more than the boost in her hourly pay. As a result, the per-chip cost of her labor will drop, despite her pay raise. This decline, in turn, will enable Tina's company to lower prices without hurting its profitability. If prices decline, Tina's buying power, and ultimately her living standard, will improve by an even greater margin than in scenario one - by 15% instead of 10%.

In scenario three, Tina's hourly output of chips stays the same after her raise. As a result, the cost of her labor will rise. Her employer will be paying her more each hour to produce the same number of chips that she turned out previously, when she was paid a lower hourly wage. This will put pressure on Tina's company to raise prices, which will spur inflation and wipe out the increase in buying power that Tina expected her raise to bring.

Happily, productivity in the United States and most other major industrial nations has advanced greatly over the years. The average output per hour of U.S. workers has approximately doubled since 1960. In the same period, by no coincidence, real hourly pay has climbed about 60%. Without the sharp advance in productivity, this gain in real pay would have been wiped out by inflation and living standards would have declined, rather than increased markedly.

Nowhere have the benefits of advancing productivity proved greater than on the farm. Today, less than 3% of the U.S. labor force works in agriculture, down from more than 20% as recently as the 1930s. Yet, today's food production easily meets demand, as improvements in agriculture machinery, crop varieties, pesticides, and fertilizers have helped triple the output of American farms in the past decades. An added benefit of this productivity surge is that it has averted the clearing of vast forest areas - -acreage that otherwise would have been needed to produce sufficient food for an expanding population.

Comfort and Wealth

The improvement in living standards in the United States is particularly apparent in housing data. Not only are homes equipped with conveniences unimagined years ago, from computers to VCRs, but the homes themselves are vastly improved. Since 1970, the median house size has increased from less than 1,400 square feet to nearly 2,000. And more houses have other improvements, such as fireplaces, central air conditioning, and garages. In sum, no people in history have been as well housed as Americans are today.

The present level of home ownership in the United States is unprecedented, I should add, despite much well-publicized concern about homeless individuals wandering the streets of New York, Los Angeles, and other large American cities. The number of occupied housing units, fast approaching 100 million, has increased nearly 20% just since 1980. This works out to nearly one home for every three people, and about two-thirds of these homes are lived in by their owners.

In all, today's American families typically occupy housing with amenities for which, I have no doubt, King Louis XIV would have gladly traded several wings of Versailles - indoor toilets, running water, telephones, electric and gas stoves, and refrigerators, as well as central heating and air conditioning.

Additionally, swimming pools, decks, barbecues, and saunas have become commonplace in suburban America. These comfortable homes, moreover, represent a major investment whose value can help provide elderly Americans with a generous retirement-income supplement through such arrangements as reverse mortgages.

Indeed, housing is a major factor in the remarkable increase in the nation's overall wealth. This wealth comes in two forms: tangible items that we can touch, like houses or automobiles, and financial items, like shares of stocks or bonds.

Total wealth has persistently increased throughout the postwar era, even through years when financial wealth has fallen. Even though wealth has grown greatly in the United States, there is much concern that its distribution has become increasingly uneven, with the rich getting a great deal richer, while others are being left behind - if true, it is an unhealthy situation breeding social unrest. But is it true?

The supposition is fed by reports in the media that detail the mounting assets and luxurious lifestyles of the very rich. Such concerns are misguided, for the much-publicized widening of a wealth/income gap in the United States is largely illusory. The gap is supposed to have widened particularly during the years of the Reagan presidency, when income tax rates were cut sharply. Yet, in those years (19831989), the net worth in terms of the 1989 dollar of families earning $50,000 or more annually rose only 6.6%. The comparable increase for families earning from $20,000 to $29,999 was 28.9%, and the increase for families earning from $30,000 to $49,999 was 27.7%.

Moreover, the net worth of whites rose more slowly (24%) in those years than did that of blacks (35%) and Hispanics (54%).

What has been happening is that, with the remarkable increase in wealth in America, we are witnessing an unprecedented event: the creation of history's first mass upper class. As David Frum, a senior fellow at the nonprofit Manhattan Institute, observed, "Just as the American economy pulled its most talented people out of poverty in the 1950s, it pulled the ablest of its middle class into affluence in the 1980s."

Evidence of this remarkable development may be found in a few numbers. Between 1980 and 1993, the percentage of U.S. households earning between $25,000 and $75,000 (in 1993 inflation-adjusted dollars) fell to about 47% from nearly 51%. But this reduction is not due to any mass slippage of middle-class families into lower income groups, for in the same period the percentage of households earning less than $25,000 changed little. Rather, the reduction reflects more and more families ascending to higher income categories.

Data documenting this rising affluence are striking. In the late 1960s, some 1 million U.S. households earned more than $100,000, in 1993 dollars. By the start of the 1980s, some 2.7 million households had crossed above the $100,000 mark. By the early 1990s, as many as 5.6 million households were earning over $100,000. This progressive increase in real income, of course, far outpaces the rise in population.

At present, about 1 million families have incomes exceeding $200,000, a statistic prompting David Frum to remark, "Nothing like this immense crowd of wealthy people has been seen in the history of the planet." The pattern, he contends, is merely "the latest manifestation of the great miracle of modern American life, the long twentieth-century tidal roll of ever-increasing abundance."

To the extent that a wealth/income gap does exist in the United States or elsewhere, I would simply note that a democracy in fact needs a considerable degree of inequality. As Michael Novak, the 1994 Templeton laureate, observed, "No nation that rewards effort, talent, inventiveness, and luck can even pretend to cherish equal outcomes."

A Global Trend

The "tidal roll" of abundance that David Frum depicts is by no means limited to the United States. In Britain, for example, some 70% of the nation's families now own their homes, up from about 50% as recently as 1979. These homes, moreover, are becoming ever more comfortable. In 1980, less than half had a deep freezer, while now nearly 90% are equipped with these appliances. There has been a similar proliferation of air conditioning, particularly in the southern part of the country. And telephones, which were uncommon in British homes as recently as the 1960s, have become ubiquitous. In the 1970s, it took up to three months to have a phone installed, while today the job is usually done a couple of days after the request is made.

The wave of abundance is rapidly spreading beyond highly developed nations. It is sweeping around the world, even through much of the so-called Third World, nations once deemed to be inescapably mired in poverty. In India, a middle class more than twice the size of Britain's entire population is emerging, and it is expanding at a rate of about 20% a year. In China, with its growing private sector, an entrepreneur establishes a new business every 11 minutes in Shanghai alone. Thailand's real per capita GDP has risen at a remarkably swift pace - 5.5% a year, on the average, since 1975.

Though living standards in most developed nations remain substantially higher than in emerging ones, the relatively swift economic growth in these nations is bringing solid gains in living standards. These gains take many forms:

* Longevity: The average life expectancy at birth in emerging countries now stands at 70 years, according to the United Nations. That remains about eight years less than in developed nations, but as recently as 1955 the gap was 16 years. Then, the average life expectancy in emerging countries was only 53 years, against 69 years in developed ones.

* Literacy: There also are impressive advances in literacy rates in emerging nations. More than 80% of adults in the Third World are now literate, according to the World Bank, up from only 58% in 1960. In the same period, by comparison, adult literacy in developed nations has risen one percentage point, to 99%. The sharpest gains since 1960 have been in Indonesia, where adult literacy has jumped to 77% from 39%, and in Turkey, with a rise to 81% from 38%.

* Nutrition: Also on the increase in emerging nations is the daily intake of calories. On a per capita basis, this intake has climbed 17% in the past three decades, compared with a 7% rise in developed countries. Among the sharpest increases: Indonesia, up 47%, and China, up 40%.

* Health care: The number of physicians per thousand people - another barometer of living standards - -has climbed at an impressive pace in emerging nations. Since the mid-1960s, this ratio has risen 136%, from 0.47 per 1,000 to 1.11. This compares with a gain of 57% in developed countries, from 1.22 per 1,000 to 1.92. Again, Indonesia's showing stands out, with an increase of 333%, followed by Brazil's gain of 265%.

* Communications: Still more evidence of higher living standards in the Third World is the increasing availability of such conveniences as telephones and television sets. Since 1975, the number of telephone lines per 1,000 people in emerging countries has increased over 180%, more than twice the comparable gain in developed nations.

Just since 1980, the number of emerging-market households with television sets has risen more than 150%, while the comparable gain in developed countries is about 20%. In 1980, there were more than two U.S. households with TV for every Chinese household so equipped. Now, there are some 5 million more households with TV in China than in the United States. Similarly, Brazil now has more TV households than Japan, and Indonesia has as many as Britain. In India, still poor despite a growing middle class, sales of color TV sets surged 18% to 1.4 million units in a recent 12 months, and sales of refrigerators rose 15%. Between 200 million and 300 million people, roughly one-third of India's population, now regularly buy mass-produced consumer goods.

Looking Ahead

For all the gains in living standards in emerging nations, a vast potential of untilled needs remains. In Mexico, only 31% of households have clothes dryers and only 19% have microwave ovens. In the United States, by comparison, 74% of households have clothes dryers and 44% have microwaves. And Mexico, I should add, is among the more highly developed of the emerging nations.

Demographics also point to burgeoning demand in emerging markets. Not only do some 85% of the world's population of 5.5 billion reside in these nations, but the age structure of this group is appreciably younger than that of developed nations. In India, some 64% of the population is under the age of 30. In Indonesia, it is 65%. The comparable rate in the United States is 46%, and in Japan, only 40%.

Looking ahead, concern is often voiced in the United States that people born shortly after World War II - the so-called baby boomers - face a bleak financial future. The baby boomers appear to be saving perilously little, the doomsayers warn. Moreover, they note, the percentage of the U.S. population of working age inevitably will shrink as more and more baby boomers retire, eventually bankrupting the Social Security retirement system.

Overlooked in all this pessimism, however, is the highly encouraging fact that the baby-boom generation stands to benefit hugely from transfers of wealth from older Americans. In 1992 alone, parents and other relatives gave some $4.4 billion to help baby boomers buy homes, according to one survey. Another finds that in 1986 parents transferred nearly $100 billion to help with educational and other expenses. One household in every four surveyed shared at least some wealth with its adult children, and one in eight shared wealth with its grandchildren.

As more and more parents of baby boomers die and leave their assets to heirs, this unprecedented transfer of wealth from one generation to the next will continue to swell. Recent moves in Washington to reduce the inheritance tax burden of many U.S. families will further strengthen the financial position - and ultimately the living standards - of the babyboom generation and the generations to follow.

As the twenty-first century unfolds, our children and our children's children will live lives of unprecedented comfort and wealth.

About the Author

John Marks Templeton is the founder of the Templeton Growth Fund and of the Templeton Foundation; he also funds the Templeton Prize for Progress in Religion, the world's largest philanthropic monetary award. In 1987, he was knighted by Queen Elizabeth for his philanthropic efforts.

He can be reached through the Templeton Foundation Press, Five Radnor Corporate Center, Suite 120, 100 Matsonford Road, Radnor, Pennsylvania 19087. Telephone 1-610-971-2670; Web site www.templeton.org.

This article draws from his recent book Is Progress Speeding Up?, which is available from the Futurist Bookstore for $19.95 ($17.95 for Society members), cat. no. B-2194.