In this month's installment, Allan Bevere and I reflect on the rise of authoritarianism in recent years.
"Democracy is receding in the world and authoritarianism is on the rise. Why is this? What is authoritarianism and what are the circumstances that lead people to trust their futures to authoritarians? How do we recognize authoritarian figures? Is character necessary for good?"
Despite recent trade turbulence, the ratio of gross exports to world GDP is still remarkably close to its all-time high. Even after falling from a peak of 32% in 2008 to 29% in 2019, this measure of global trade integration is still 20% higher than it was in 2000, twice as high as it was in 1970, and almost six times higher than in 1945. ... Globalization can go into reverse—as demonstrated by the trendlines between the 1920s and 1950s—but recent data do not depict a similar reversal. ...
[T]he world is—and will remain—only partially globalized. Globalization can rise or fall significantly without getting anywhere close to either a state where national borders become irrelevant or one where they loom so large that it is best to think of a world of disconnected national economies. All signs point to a future where international flows will remain so large that decision-makers ignore them at their peril, even as borders and cross-country differences continue to make domestic activity the default in most areas.
The chart below is based on maternal mortality rates, the number of women per 100,000 who die from pregnancy-related causes in a year. The first bar shows how many women die each year while the second bar shows how many would die if they had Europe’s living standards. What conclusions would you draw?
The global rate is 216, while the European rate is 8. The global rate is 27 times higher! About 290,000 women die each year because they do not have the living standards of the most affluent countries.
I would hope this would spark a sense of injustice. Something is wrong with a system that creates such a disparity in outcomes. Surely, we must upend this inequitable system and replace it with something just.
Now look at the second chart. What conclusions would you draw?
Prior to 1800, the global maternal mortality rate was 900. Today it is 216! It has dropped by 75%. By historic standards, this borders on miraculous. Something is right about a system that radically improves human well-being. How can we preserve and extend the improvement? (Note: The global rate dropped steadily from 385 in 1990, to 216 in 2015. The trajectory continues rapidly downward.)
A holistic view of human well-being will take into consideration this chart, including all three bars.
Some observations.
First, without the systems that developed over the past two centuries, we would have a more equitable maternal mortality rate. No place on earth would have a rate of 8 deaths OR of 216 deaths. We would still have a very equitable world of 900 deaths. Is that “equality” preferable to the 8 vs 216 inequality of today? I do not think many would agree. The 8 vs 216 differential is a good thing relative to the historic alternative.
Second, that some locales have a rate of 8, points to the possibility of a world where this level of well-being spans the globe. Justice requires that what we pursue this equitable outcome. We must be looking back to understand what brought us to where we are and we must be discerning about obstacles block this objective going forward.
Third, I am using maternal mortality rates as a symbol of broader improvement in human well-being in recent generations, sometimes called the Great Divergence. Appreciating this great divergence from human history neither requires us, in some consequentialist way, to a) embrace all that has developed in the past couple of centuries nor b) to refrain from asking rigorous questions about justice going forward. There have been profound injustices and inequities in the world of the past two centuries. There obviously are today. And yet, the Great Divergence happened and it continues. Lack of historical context and blindness to trajectories, can lead us to snap-shot-in-time views that inspire us to well-intentioned but destructive actions, destroying good in the process. Keep what works and adjust with discernment. Neither revolution nor complacency will do.
What Globalisation is, and whether it is in any way new, are the focus of intense debate. I discuss this debate in Chapter I, since much else hangs upon it. Yet the facts of the matter are actually quite clear. Globalisation is restructuring the ways in which we live, and in a very profound manner. It is led from the west, bears the strong imprint of American political and economic power, and is highly uneven in its consequences. But globalisation is not just the dominance of the West over the rest; it affects the United States as it does other countries.
Globalisation also influences everyday life as much as it does events happening on a world scale. That is why this book includes an extended discussion of sexuality, marriage and the family. In most parts of the world, women are staking claim to greater autonomy than in the past and are entering the labour force in large numbers. Such aspects of globalisation are at least as important as those happening in the global-market place. They contribute to the stresses and strains affecting traditional ways of life and cultures in most regions of the world. The traditional family is under threat, is changing, and will change much further. Other traditions, such as those concerned with religion, are also experiencing major transformations. Fundamentalism originates from a world of crumbling traditions.
The battleground of the twenty-first century will pit fundamentalism against cosmopolitan tolerance. In a globalising world, where information and images are routinely transmitted across the globe, we are all regularly in contact with others who think differently, and live differently, from ourselves. Cosmopolitans welcome and embrace this cultural complexity. Fundamentalists find it disturbing and dangerous. Whether in the areas of religion, ethnic identity or nationalism, they rake refuge in a renewed and purified tradition – and, quite often, violence.
We can legitimately hope that a cosmopolitan outlook will win out. Tolerance of culture diversity and democracy are closely connected, and democracy is currently spreading world-wide. Globalisation lies behind the expansion of democracy. At the same time, paradoxically, it exposes the limits of democratic structures which are most familiar, namely the structures of parliamentary democracy. We need to further democratize existing institutions, and to do so in ways that respond to the demands of the global age. We shall never be able to become the master of our own history, but we can and must find ways of bringing our runaway world to heel. (3-5)
This short collection of essays has stuck with me ever since I first read it years ago. As I have reflected on the American political scene of the past two years, the insights of this book have become ever more prescient. I see the rise of Trump nationalism as a reactionary response to globalization. (This is not conservatism vs progressivism as we have recently understood them.) It is the death throes of the 20th Century world order. It may be short-lived. It may last a generation. But I suspect that it is ultimately doomed. Over the long-haul, globalization is an inescapable dynamic. However, that does not mean that great harm to human well-being and to the planet will not happen during these death throes.
Since at least the 18th Century, we have seen an unprecedented improvement in human well-being, accelerating through the 19th Century down to the present, spreading around the world. But we should not forget that this improvement was punctuated by a retreat from globalization, resulting in two destructive world wars bracketing a global depression. One hundred years from now, I suspect global human well-being will have made substantial strides over our present living standards. I think globalization is virtually inevitable because we have amassed enough information and experience to see that a globalized world, for all its present vagaries and challenges, is the path to mutual common good. What is much less clear is what happens in the short term. I suspect that this is the biggest turning point in world that most of us now living will ever experience.
The world is becoming a better place. It is not utopia. We are not without substantial challenges. But we are becoming (as in movement along a trajectory) better (as in measurably improved according to a standard.)
The Human Development Index is a United Nations measure of well-being combing data about income, literacy, education, and life expectancy. Here is the index for the nations of the world in 1980 and then in 2012. The reality is that we are living through the most astonishing transformation toward human well-being in all of history. You can find the interactive version of the chart at Our Data.
Are you smarter than a chimp? When it comes to knowledge about global socioeconomic trends, there is a good chance you are not. For years, Swedish global health expert, Hans Rosling, has been giving Ted talks and making presentations about global trends. One his favorite teaching tools is to ask people a question like this:
Globally, over the past 20 years, the rate extreme poverty has:
Doubled.
Stayed the same.
Decreased by more than half.
Now chimps will select at random, giving a 33% chance of each answer. Yet when Rosling asks audiences, at least half will say A, a sizable percentage will say B, while a few will say C. Yet C is the correct answer! This is the case on one variable after another. Audiences routinely score worse than chimps, choosing the most negative option.
As an old adage has it, "It isn't what we don't know that gets us in trouble. It's what we know that ain't so." That we routinely pick the wrong answer more often than chimps shows that we clearly we have bias.
In the Ted talk, How not to be ignorant about the world, Hans' son Rosling notes that part of the problem is our education system. Teachers go to college at a particular point in time and learn the state of the world at that time. But they tend not to learn about ongoing developments. The data has often been hard to come by and hard to interpret. So teachers are biased by what they learned years ago. (Reporter have the same problem.) But there are other factors.
During our evolutionary history, our brains became wired to notice threats. Hunters walking through the brush who were attentive to the possibility of tigers lying in wait, likely survived those who went about carelessly enjoying a beautiful day. So when we reflect on broad human trends, we are disposed to fixate on perceived threats. What was useful for us in the wild, is counter-productive for us as we try to interpret socioeconomic trends. If you want to outscore a chimp on an exam about global well-being, Ola Rosling suggests that you must drop your predispositions and adopt these four rules of thumb:
1. Assume most things are improving. 2. Assume most people are in the middle of a distribution, not a binary of rich and poor. 3. Assume social development precedes becoming wealthy. (Don’t assume that a population must be rich before meeting basic social needs.) 4. Assume you are exaggerating the threat if the topic is something about which you personally have great fear.
Additionally, Hans, Ola, and others have been working to build the Gapminder website to provide you with data that can be presented in meaningful ways. But one of the most important contributions the Roslings have made is their collection of entertaining and informative videos. In this post I am including every video I can find with a brief annotation. (I'll add more as I find any.) Many of the videos overlap or cover similar data but they are all well worth viewing. So here is your resource for becoming smarter than a chimp. Don't say I never gave you anything.
(This link also has links to most of these videos including some shorts not listed here: Gapminder Video)
Hans Rosling's 200 Countries, 200 Years, 4 Minutes (2010)
If you are just getting acquainted with Rosling, I'd begin here. This 4 minute presentation gives you a quick sense of what he is talking about.
Hans and Ola Rosling: How not to be ignorant about the world. TED June 2014
This is the second video to watch. The front half is Hans making his case that the world is improving and the back half is Ola explaining, as I recounted above, why are so disinclined to see positive change.
Hans Rosling: The magic washing machine. TED December 2010
This is the third one to watch. This one of my favorites. While fully embracing the concern about environmental impacts of economic growth, Rosling shows the importance of economic growth through the story of the washing machine.
THE REST ARE IN CHRONOLOGICAL ORDER
Hans Rosling: The best stats you've ever seen. TED February 2006
The TED presentation that kicked it all off. He focuses on the positive changes underway in world and points to his efforts to liberate, integrate, and animate data, and to find ways to present data the public finds understandable.
Hans Rosling: New Insights on Poverty. TED March 2007
Rosling shows that social development tends to precede economic development. He addresses the issue that unfortunately to date, economic development has always been based on fossil fuels. Higher yields, technology, and markets are key to ending poverty but there are more dimensions that need our attention like human rights, environment, governance, economic growth, education, health, and culture. The ending has a great surprise!
Human Rights and Democracy Statistics- Gapminder c. 2008
Rosling describes why human rights are so hard describe and evaluate.
Rosling shows that countries that have developed from poverty to well-being have done so at far faster rates that Western nations did. Poor countries today can make the transition much quicker because of what previous countries have learned.
Hans Rosling: Insights on HIV, in stunning data visuals. TED February 2009
Uses Gapminder data to show nuances in how AIDS has spread and what it takes to defeat it.
Hans Rosling: Let my dataset change your mindset. TED June 2009
This is the third video should watch. Rosling deconstructs the dichotomy of wealthy and developing nations, and challenges the idea of thinking in sweeping terms like "Africa."
The Joy of Stats with Professor Hans Rosling - Gapminder c. 2010
Rosling shows how making data available and animating is empowering people to make better decisions, sometimes without really realizing they are using statistics.
Hans Rosling: Asia's rise -- how and when. TED Nov 2009
Rosling forecasts when China and India catches up with the USA and UK.
Hans Rosling: Global population growth, box by box. TED June 2010
Rosling says that child survival is the new green. This video explains why.
Hans Rosling: The good news of the decade? We're winning the war against child mortality. TED September 2010
Rosling breaks down the remarkable trends in child mortality. Education of women accounts for at least 50% of the drop.
Hans Rosling: Religions and babies. TED April 2012
Religion is not a factor in family size. No significant difference between Islamic and Christian countries when it comes to births per woman. The defining difference is economic well-being.
DON'T PANIC — Hans Rosling showing the facts about population. BBC November 2013
A one hour investigation into the dynamics of population growth using stories about real live families interspersed with Rosling's entertaining presentation of data.
Don't Panic - How to End Poverty in 15 Years. BBC September 2015
3. The nature of employment will change. For the rest of your employees, gig work will grow. ...
4. Winners will win bigger, and the rest will fight harder for the remains. ... McKinsey Global Institute puts it: "tech and tech-enabled firms destroy more value for incumbents than they create for themselves."
5. Corporations will have shorter lives. The average life span of companies in the S&P 500 has already fallen from 61 years in 1958 to 20 years today. It will fall further.
6. Intellectual property knows no natural boundaries.
"Here's a pattern showing the rise in remittances over time compared to some other international financial flows. Back in 1990, international remittances were lower than official development assistance (ODA). Flows of foreign direct investment (FDI) to developing countries were also smaller than ODA, as were flows of private debt and portfolio equity to developing countries. (The FDI flows to developing countries show here exclude China.) Remittances have been larger than development assistance for some years now, and the gap is growing. Perhaps more surprising, remittances also outstripped debt and portfolio equity flows to developing countries in recent years. The flows of remittances also look quite stable compared to other private-sector capital flows."
" ... I welcome the overall shift toward a more positive view of foreign trade among Americans. As I've argued on this blog before, the next few decades seem likely to be a time when the most rapid economic growth is happening outside the high-income countries of the world, and finding ways for the US economy to connect with and participate in that rapid growth could be an important driver of US economic growth in the decades ahead. In a broad sense, US attitudes over foreign trade mirror the behavior of the US trade deficit: that is, when the US trade deficit was getting worse in the early 2000s, the share of those viewing trade as a "threat" was rising, but at about the same time that the US trade deficit started declining, the share of those viewing trade as an "opportunity" started to rise.
However, I feel considerable uncertainty over how to interpret these findings. For example, it's not clear to me why Democrats and Independents are shifting their opinions about trade more strongly than Republicans. This shift doesn't seem to reflect the political divisions in Congress, where it seems that Republicans are more often the ones to be pushing for agreements to reduce trade barriers and Democrats are more likely to be opposing them."
(Source: Milanovic, B., Lead Economist, World Bank Research Department, Global income inequality by the numbers. Annotations by James Plunkett.)
I have seen the unannotated version of this graph several times but the annotations really make things clear. The graph shows that much more is going on here than simplistic narratives of "The are getting richer, and the poor are getting poorer" (the graph discredits the second half of that statement) and the 1% versus everyone else.
We hear these myths raised at international conferences and at social gatherings. We get asked about them by politicians, reporters, students, and CEOs. All three reflect a dim view of the future, one that says the world isn’t improving but staying poor and sick, and getting overcrowded.
We’re going to make the opposite case, that the world is getting better, and that in two decades it will be better still. ...
... By 2035, there will be almost no poor countries left in the world. Almost all countries will be what we now call lower-middle income or richer. Countries will learn from their most productive neighbors and benefit from innovations like new vaccines, better seeds, and the digital revolution. Their labor forces, buoyed by expanded education, will attract new investments.
I still hear many people today talk about the "Third World." It refers to those nations that were poor and not aligned with either the Western capitalism (First World) or the communist world (Second World.) The Third World has vanished and it is time to bury the term. The world’s nations and populations exist on a continuum and there are now multiple poles, not two, shaping the world. Furthermore, the story is not one of descent into global dystopia but one of rising prosperity. It is hard to meaningfully address contemporary problems with antiquated frameworks.
It’s time to develop a new framework for assessing the post-Cold War, post-9/11 world. ...
... The three worlds used to be capitalist, communist, and the rest. Now they are the West, the failed states, and the emerging challengers. But that's still too simple a view. A small and declining number of developing countries are charity cases. And none are competitors with us in a zero-sum game. Rather than dividing most of the planet into two threatening classes, we need to see states of the developing world as vital partners—both in strengthening the global economy and in preserving the global environment. ...
... Given that much of the world only makes headlines when it is in the midst of a humanitarian crisis and U.S. assistance is on the way, it isn’t surprising that the average American thinks things are going to hell in a handbasket: a recent survey of Americans found that two thirds believe extreme poverty worldwide has doubled over the past 20 years. The truth is that it has more than halved. This might also explain why Americans think that 28 percent of the federal budget goes to foreign aid—more than 28 times the actual share.
According to the World Bank, the developing world as a whole has seen average incomes rise from $1,000 in 1980 to $2,300 in 2011. Life expectancy at birth has increased from 60 to 69 years over that same time, and college enrollment has climbed from 6 to 23 percent of the college-age population. Progress is happening everywhere, including Africa: Six of the world’s 10 fastest-growing economies over the past decade are in Africa. There were no inter-state conflicts in the world in 2013 and, despite tragic violence in countries including Syria and Afghanistan, the number of ongoing civil wars has dropped considerably over the last three decades. Emerging markets themselves are also playing an ever-expanding role in ensuring global security. The developing world is the major source for blue-helmeted UN peacekeepers, who are ending wars and preserving stability in 16 different operations worldwide. The 20 biggest contributors of police and military personnel to the UN’s 96,887 peacekeepers are developing countries. ...
Our friend and colleague Max Fisher over at Worldviews has posted another 40 maps that explain the world, building on his original classic of the genre. But this is Wonkblog. We're about charts. And one of the great things about charts is that they show not just how things are -- but how they're changing.
So we searched for charts that would tell not just the story of how the world is -- but where it's going. Some of these charts are optimistic, like the ones showing huge gains in life expectancy in poorer nations. Some are more worryisome -- wait till you see the one on endangered species. But together they tell a story of a world that's changing faster than at arguably any other time in human history. ...
As the author notes, we have challenges but we hardly descending into some global dystopia. I think these charts give a pretty holistic view. Here are a three examples. It was commonly believed that primitive societies were more peaceful and that modern civilization gave rise to unprecedented violence. This chart compares death rates by war in primitive societies as calculated by anthropologists to the death rates for Europe/USA in the 20th century. And then there is this:
The graphs point to environmental protection and adaptation as the biggest problems in the days ahead. Those challenges are not insurmountable. Energy sources like natural gas and nuclear power can be used in the interim on the way to practical renewable technologies. Genetically modified crops can help to reduce water consumption, increase yield, and improve hardiness. Innovations in fields like biotechnology, nanotechnology, and 3-D printing hold the promise of revolutionizing the world economy into a less wasteful and more affordable human existence for everyone. There is work to do but there is also much reason for hope of a better world.
NPR has a wonderful set of five short videos (most about 1.5 minutes) that follows the creation of a t-shirt from cotton field to the store. It is very well done and a thoughtful presentation about both the wonder and challenges of living in a global economy. Be sure to check it out at Planet Money Makes A T-Shirt The world behind a simple shirt, in five chapters.
Globalizationandtechnology is often referred to like a monolithic
thing. A new study shows they're very separate. Globalization increases
joblessness. Computers increase inequality.
... Here's the bumper sticker version of their conclusion: Globalization increases unemployment; technology increases inequality.
Globalization:
The authors found that metros with more exposure to Chinese trade --
mostly concentrated in the swoosh of states extending
from Indiana down to the Gulf of Mexico and up through North Carolina
-- saw significant job losses, both in manufacturing and overall. For
every $1,000 increase in imports per worker, the share of people with
jobs declined by 0.7 percentage points -- and more for non-college
grads. As manufacturing jobs declined, demand for local services would
decline, and thus job losses could extend into areas like retail and
hotels.
Technology: The computerization of certain
tasks hasn't reduced employment, the authors find. But it has reduced
the availability of decent-paying, routine-heavy jobs. Middle-class
jobs, like clerks and sales people and administration support, have
disappeared as computers gradually learned to perform their routines
more efficiently. But as those jobs disappeared, cities saw an increase
in both high-skill work and lower-paid service sector work, leading to
little overall change in employment. ...
Much of the debate over taxing the wealthy focuses on taxing giant salaries.
But a new study from the nonpartisan Tax Policy Center found that the
real money for the wealthy is made from investments and business
income—not compensation. ...
In their paper, Kaplan and Rauh conclude “it’s the market” rather than some class-wafaresque malfeasance at play. Here’s why:
1.The increase in pay at the highest income levels is broad-based:
Public company executives, private company executives, hedge fund and
private equity investors, Wall Street bankers, lawyers, and pro athletes
have all experienced big jumps in pay over the past few decades. ...
2. Typical measures of high-end income inequality are incomplete.
Inequality alarmists typically point to data from Thomas Piketty and
Emmanel Saez which show the share of taxable income accruing to the top
1% up markedly since 1980 and at levels not seen since the Roaring ’20s.
Yet once you add back transfer and taxes, as the Congressional Budget
Office does in its analysis, you find that government policy — including
the tax code — has already been restraining the rise inequality. Kaplan
and Rauh: “In the most recent data from 2009, the
aftertax, after-transfer income share of the top 1 percent was around
the same level as in 1987–1988, 1996, and 2001.”
3. The superrich are getting that way through effort and
education — particularly in industries where tech and globalization play
a big role — rather than through inheritance: ...
It has long been my suspicion that at central player in the
rise of inequality is due to the ongoing race between technological innovation
and development of human capital. During times of rapid increase in
productivity through technological changes, owner of the technology race ahead.
Worker education and formation human capital is slower to adapt. But technology
can only go so far before it must have plentiful workers who have adapted. As
this the gain from technology runs its course the demand for new workers
increases labor begins to race ahead. I'm no expert on these matters but it
seems to that something like that is happening today. It isn't just the U.S.
that experiences this, but the whole industrialized world. Something more
systemic seems to be afoot.
The past century has been a competition between two metanarratives: communism vs. democracy and markets. Is it possible that there are other viable ways of organizing human societies? Eric Li offers a fascinating window into Chinese culture and suggests that there may indeed be viable alternatives. The Chinese model may not be viable in other cultures but that is his point. The future may be a variety of societal structures, not evolution toward one common mode of governance.
Globalization continues to integrate the world into a more
deeply interconnected economic system but at the same time it is providing
platforms for previously silenced and marginalized voices to be heard. It allows
us to become better acquainted with each other’s cultures but it does not
guarantee that familiarity will breed acceptance.
(BTW, the Norwegian woman mentioned in the story has been “pardoned”
as is free to leave Dubai.)
… Why would the victim of a terrible crime receive a jail
sentence? Asia is not America, let alone Norway. For me, as someone who has
spent 27 years watching the world from a vantage point in East Asia, the
episode illustrates in microcosm an obvious and profoundly troubling fact:
globalism is a one-word oxymoron. It has
never made sense and probably never will. Cultures are different and, in their
attitude to truth and human rights, the many brands of Asian culture are
particularly remote from Western expectations.
Certainly, all American wishful thinking to the contrary,
the world is NOT converging to American values. Yes, of course, more and more
consumers around the world are drinking Coca-Cola KO +0.29% and eating Big
Macs. But this is a superficial observation that says nothing about any values
worth the name. …
… The larger point here is that Eastern and Western cultures are in many
ways incompatible. Rudyard Kipling made the point more than a century ago: “Oh,
East is East, and West is West, and never the twain shall meet.”
My bet is that, on appeal, Marte Deborah Dalelv will be shown some leniency.
But for globalism, the Asians will never cut much slack. This applies in spades
to the naïve American view that globalization and Americanization are somehow
the same thing (thank you George H. W. Bush, William Jefferson Clinton, and, of
course, Thomas L. Friedman). Asians are incandescent with rage at such casual
cultural imperialsm but, being Asians, rarely give any explicit indication of
their anger. They expect people to read between the lines….
Through the late 80s and 90s, protests everywhere from Berlin to
Seattle revealed a common target of public unrest: globalization. Jobs
and industries in rich countries were moving to emerging markets, and
the free flow of capital led to concerns about financial instability and
a competitive lowering of environmental standards.
Now, however, globalization has become an unsung champion of an
empowered, rising global middle class that is more connected and has
higher expectations politically. While Brazil’s super-rich have
continued to get richer and the poor has received more social welfare,
its growing middle class feels ignored, and they are demanding
government accountability, as well as political voice and freedoms. ...
Millions of newly affluent people in emerging economies are reshaping
and resizing the global middle class. The world’s middle class will
swell from 2 billion to almost 5 billion by 2030, with most of that growth coming from developing countries, according to the Organisation for Economic Co-operation and Development. The world population in 2030 is expected to be about 8 billion.
The
OECD defines “middle class” as making $10 to $100 a day, adjusted for
the purchasing power of each currency. Today, people in developing
countries make up almost 30% of the world’s consumer spending, up from
18% a decade ago as they become middle class. This change, what the US
National Intelligence Council called a ”tectonic shift,” is one the most important trends for the next several decades. ...
This month's Atlantic magazine predicts that we are on the verge ofa U.S.-based manufacturing renaissance,
as companies see the advantages to making more goods at home, such as
more control over the final product, lower energy costs from moving
goods across an ocean, and a falling "wage gap."
Simply put, U.S. factory workers are a much better deal than they were just ten years ago. ...
AP has a story summarizing Global Trends 2030, a report put out by the U.S. Intelligence community.
... The study said that in
a best-case scenario, Americans, together with nearly two-thirds of the
world's population, will be middle class, mostly living in cities,
connected by advanced technology, protected by advanced health care and
linked by countries that work together, perhaps with the United States
and China cooperating to lead the way.
Violent
acts of terrorism will also be less frequent as the U.S. drawdown in
troops from Iraq and Afghanistan robs extremist ideologies of a rallying
cry to spur attacks. But that will likely be replaced by acts like
cyber-terrorism, wreaking havoc on an economy with a keystroke, the
study's authors say.
In countries where there are declining birth rates and an aging population like the U.S., economic growth may slow.
"Aging
countries will face an uphill battle in maintaining living standards,"
Kojm said. "So too will China, because its median age will be higher
than the U.S. by 2030."
The rising populations
of disenfranchised youth in places like Nigeria and Pakistan may lead
to conflict over water and food, with "nearly half of the world's
population ... experiencing severe water stress," the report said.
Africa and the Middle East will be most at risk, but China and India are
also vulnerable.
That instability could lead
to conflict and contribute to global economic collapse, especially if
combined with rapid climate change that could make it harder for
governments to feed global populations, the authors warn.
That's
the grimmest among the "Potential Worlds" the report sketches for 2030.
Under the heading "Stalled Engines," in the "most plausible worst-case
scenario, the risks of interstate conflict increase," the report said.
"The U.S. draws inward and globalization stalls." ...
Here is the overview from the report:
Over the next two decades, the relative power of major international
actors will shift markedly. Around 2030, after nearly a century as the
preeminent global economic power, the United States will be surpassed
by China as the world’s largest economy. With its trade in goods
expected to nearly double that of the U.S. and Europe, China’s
international economic clout will reach new heights. By 2030, India
will become the world’s most populous country and third-largest economy,
while Brazil’s economy will rank fourth in size. India and Brazil will
join China at the high table of 21st century international
politics alongside the United States, even as the relative weight of
Russia and Japan diminishes. The European economy will remain in the
top tier, but it is not clear whether Europe will be able to act with
common purpose to leverage this source of strength.
With its enhanced economic base, Beijing could rival Washington in
overall military spending, even as a slowing Chinese economy and
internal political conflict complicate China’s ability to lead
internationally. The United States will remain primus inter pares
in light of its continued advantages across the full spectrum of
national power and the legacy benefits of its leadership. It will,
however, be operating in a post-Western world in which the bulk of
global economic power is held by countries whose per capita incomes are
far below those of the traditional great powers. This reality will
leave China, India, Brazil, and other players focused on internal
development and domestic challenges, torn between their desire to be
global powers and their interest in free-riding on Western management of
the international system.
How will the rise of the rest impact the international system? The National Intelligence Council’s draft Global Trends 2030: Alternative Worlds maps out three broad scenarios:
Reverse Engines. Under this scenario, the
international system would consist of several powerful countries — but
no single state or bloc of states would have the political or economic
leverage to drive the international community toward collective action.
Such a world, characterized by a global vacuum of power, assumes that
the United States will no longer be willing or capable of sustaining the
predominant leadership role it has assumed since 1945. With no other
country able to step in to replace the U.S. as a global leader, the
resulting divergence of interests would lead to fragmentation and the
inability of great powers to work cooperatively to solve global issues.
Mercantilism and protectionism could lead economic globalization to go
into reverse, constraining technological breakthroughs required to
manage scarce global resources. Conflict and disorder would follow.
Great Power Convergence. An alternative scenario is
what the NIC calls a “fusion” world, in which major powers work
together to adopt and enforce a set of globally accepted rules and
norms. As U.S. predominance over the international system recedes, other
emerging powers would step in to assume greater responsibility for the
management of international affairs commensurate with their swelling
economic might. Emerging powers emerge as full stakeholders in a global
order that is transformed by power shifts but remains liberal and
pluralistic. Great power concert (perhaps enabled by democratization in
China) to meet global challenges increases the stability of the
international system even as power is diffused within it. U.S.
resilience enables it to create enduring partnerships with rising powers
to sustain the basis of liberal order. Technological advances create
new possibilities for joint management of key global challenges,
rewarding positive-sum behavior by the great powers.
Multipolar Divergence—U.S. Primacy. A third
scenario, one the NIC calls “fragmentation,” involves a multipolar
system characterized by a divergence of views among great powers that
challenges global governance. The United States would continue to
maintain disproportionate global influence and leverage that influence
to address global challenges by working through coalitions of
like-minded states. A multispeed global economy accelerates the
diffusion of power but an alternative coalition to the West does not
form, with developing giants consumed by their domestic challenges –
even as the global middle class explodes in ways that transform politics
within the rising powers. With inclusive global institutions
effectively stalemated, the United States instead turns to its old and
new allies in Europe and Asia, who would continue to see Washington as
their partner of choice in advancing the norms and rules of a liberal
order. The risk of conflict increases with the continued rise of new
powers like China and the rapid pace of technological change.
One key conclusion of the NIC study is that the future role of the
United States in the international system is a decisive variable in
determining what kind of “alternative world” will exist in 2030. The
choices U.S. leaders make – about how to marshal (and preserve) domestic
resources, how vigorously to assert U.S. military and economic
leadership overseas, and how much to invest in alliances old and new –
will be central to determining which of the above pathways the
international system will follow over the coming 20 years. To a certain
extent, the answer to the question of how the “rise of the rest”
impacts the U.S.-led international system is that it is not up to them…
so much as it is up to us.
After years of offshore production, General Electric is moving much of its far-flung appliance-manufacturing operations back home. It is not alone. An exploration of the startling, sustainable, just-getting-started return of industry to the United States.
... What has happened? Just five years ago, not to mention 10 or 20 years ago, the unchallenged logic of the global economy was that you couldn’t manufacture much besides a fast-food hamburger in the United States. Now the CEO of America’s leading industrial manufacturing company says it’s not Appliance Park that’s obsolete—it’s offshoring that is.
Why does it suddenly make irresistible business sense to build not just dishwashers in Appliance Park, but dishwasher racks as well?
In the 1960s, as the consumer-product world we now live in was booming, the Harvard economist Raymond Vernon laid out his theory of the life cycle of these products, a theory that predicted with remarkable foresight the global production of goods 20 years later. The U.S. would have an advantage making new, high-value products, Vernon wrote, because of its wealth and technological prowess; it made sense, at first, for engineers, assembly workers, and marketers to work in close proximity—to each other and to consumers—the better to get quick feedback, and to tweak product design and manufacture appropriately. As the market grew, and the product became standardized, production would spread to other rich nations, and competitors would arise. And then, eventually, as the product fully matured, its manufacture would shift from rich countries to low-wage countries. Amidst intensifying competition, cost would become the predominant concern, and because the making and marketing of the product were well understood, there would be little reason to produce it in the U.S. anymore.
Vernon’s theory has been borne out again and again over the years. Amana, for instance, introduced the first countertop microwave—the Radarange, made in Amana, Iowa—in 1967, priced at $495. Today you can buy a microwave at Walmart for $49 (the equivalent of a $7 price tag on a 1967 microwave)—and almost all the ones you’ll see there, a variety of brands and models, will have been shipped in from someplace where hourly wages have historically been measured in cents rather than dollars.
But beginning in the late 1990s, something happened that seemed to short-circuit that cycle. Low-wage Chinese workers had by then flooded the global marketplace. (Even as recently as 2000, a typical Chinese factory worker made 52 cents an hour. You could hire 20 or 30 workers overseas for what one cost in Appliance Park.) And advances in communications and information technology, along with continuing trade liberalization, convinced many companies that they could skip to the last part of Vernon’s cycle immediately: globalized production, it appeared, had become “seamless.” There was no reason design and marketing could not take place in one country while production, from the start, happened half a world away.
You can see this shift in America’s jobs data. Manufacturing jobs peaked in 1979 at 19.6 million. They drifted down slowly for the next 20 years—over that span, the impact of offshoring and the steady adoption of labor-saving technologies was nearly offset by rising demand and the continual introduction of new goods made in America. But since 2000, these jobs have fallen precipitously. The country lost factory jobs seven times faster between 2000 and 2010 than it did between 1980 and 2000.
Until very recently, this trend looked inexorable—and the significance of the much-vaunted increase in manufacturing jobs since the depths of the recession seemed easy to dismiss. Only 500,000 factory jobs were created between their low, in January 2010, and September 2012—a tiny fraction of the almost 6 million that were lost in the aughts. And much of that increase, at first blush, might appear to be nothing more than the natural (but ultimately limited) return of some of the jobs lost in the recession itself.
Yet what’s happening at GE, and elsewhere in American manufacturing, tells a different and more optimistic story—one that suggests the curvature of Vernon’s product cycle may be changing once again, this time in a way that might benefit U.S. industry, and the U.S. economy, quite substantially in the years to come. ...
... Even then, changes in the global economy were coming into focus that made this more than just an exercise—changes that have continued to this day.
Oil prices are three times what they were in 2000, making cargo-ship fuel much more expensive now than it was then.
The natural-gas boom in the U.S. has dramatically lowered the cost for running something as energy-intensive as a factory here at home. (Natural gas now costs four times as much in Asia as it does in the U.S.)
In dollars, wages in China are some five times what they were in 2000—and they are expected to keep rising 18 percent a year.
American unions are changing their priorities. Appliance Park’s union was so fractious in the ’70s and ’80s that the place was known as “Strike City.” That same union agreed to a two-tier wage scale in 2005—and today, 70 percent of the jobs there are on the lower tier, which starts at just over $13.50 an hour, almost $8 less than what the starting wage used to be.
U.S. labor productivity has continued its long march upward, meaning that labor costs have become a smaller and smaller proportion of the total cost of finished goods. You simply can’t save much money chasing wages anymore.
So much has changed that GE executives came to believe the GeoSpring could be made profitably at Appliance Park without increasing the price of the water heater. “First we said, ‘Let’s just bring it back here and build the exact same thing,’ ” says Kevin Nolan, the vice president of technology for GE Appliances. ...
... For years, too many American companies have treated the actual manufacturing of their products as incidental—a generic, interchangeable, relatively low-value part of their business. If you spec’d the item closely enough—if you created a good design, and your drawings had precision; if you hired a cheap factory and inspected for quality—who cared what language the factory workers spoke?
This sounded good in theory. In practice, it was like writing a cookbook without ever cooking. ...
... “What we had wrong was the idea that anybody can screw together a dishwasher,” says Lenzi. “We thought, ‘We’ll do the engineering, we’ll do the marketing, and the manufacturing becomes a black box.’ But there is an inherent understanding that moves out when you move the manufacturing out. And you never get it back.” ...
While this article is talking about the return of manufacturing to the United States and think caution should be exercised in be optimism about new low-skilled jobs returning. The United States manufacturing sector has been growing at a steady rate even as manufacturing employment has tapered off and declined. I think automation, not globalization, is the longer-term threat manufacturing jobs.
But these are fairly predictable answers. So here's something weirder
and more colorful: As economics went global, job creation went local.
That sounds totally backward. But it's true. ...
Here is his graph showing job creation by year:
Here is his conclusion:
About half of the jobs created between 1990 and 2008 (before our
current downturn) were created in education, health care, and
government. What do those sectors have in common? They're all local. You
can't send them to Korea. As Michael Spence has explained,
corporations have gotten so good at "creating and managing global
supply chains" that large companies no longer grow much in the United
States. They expand abroad. As a result, the vast majority (more than 97
percent, Spence says!) of job creation now happens in so-called
non-tradable sectors -- those that exist outside of the global supply
chain -- that are often low-profit-margin businesses, like a hospital,
or else not even businesses at all, like a school or mayor's office.
It is both ironic and unavoidably true that the era of globalized
profits has dovetailed with the era of localized job creation in low
value-added industries, and that the upshot of this has been massive
gains at the top and slow overall income growth for the rest of us.
... For many politicians, “outsourcing” is a four-letter word because it involves jobs leaving “here” and going “there.” But for many C.E.O.’s, outsourcing is over. In today’s seamlessly connected world, there is no “out” and no “in” anymore. There is only the “good,” “better” and “best” places to get work done, and if they don’t tap into the best, most cost-efficient venue wherever that is, their competition will.
For politicians, it’s all about “made in America,” but, for C.E.O.’s, it is increasingly about “made in the world” — a world where more and more products are now imagined everywhere, designed everywhere, manufactured everywhere in global supply chains and sold everywhere. American politicians are still citizens of our states and cities, while C.E.O.’s are increasingly citizens of the world, with mixed loyalties. For politicians, all their customers are here; for C.E.O.’s, 90 percent of their new customers are abroad. The credo of the politician today is: “Why are you not hiring more people here?” The credo of the C.E.O. today is: “You only hire someone — anywhere — if you absolutely have to,” if a smarter machine, robot or computer program is not available.
Yes, this is a simplification, but the trend is accurate. The trend is that for more and more jobs, average is over. Thanks to the merger of, and advances in, globalization and the information technology revolution, every boss now has cheaper, easier access to more above-average software, automation, robotics, cheap labor and cheap genius than ever before. So just doing a job in an average way will not return an average lifestyle any longer. ...
What can an elephant's prosthetic leg teach us about innovation?
Vijay Govindarajan is the co-author, with Chris Trimble, of Reverse Innovation: Create Far From Home, Win Everywhere, which hits bookshelves on April 10. A professor at the Tuck School of Business at Dartmouth University, Govindarajan chatted with Fast Company about $2,000 heart surgery, elephant prostheses, and the need for American businesses to, in essence, study abroad.
What’s "reverse innovation"?
Historically, multinationals innovated in rich countries like the U.S. and sold products in poor countries like India. Reverse innovation is doing the exact opposite, about innovating in a poor country like India, and bringing products to the U.S. It’s completely counterintuitive, because it’s logical to see why a poor man would want a rich man’s product, but it’s not that logical to see why a rich man would want a poor man’s product.
Why would a rich man want a poor man’s product?
There are two components here. First, why do we need to innovate in India at all? Why not simply send products to India? Second, why would those innovations defy gravity and flow uphill? The answer to the first question is that customer requirements in poor countries are fundamentally different than in rich countries. The per capita income in India is $1,000 nominal dollars; in the U.S., it’s $50,000. No business model created for the American consumer can go and capture Middle India. You have to innovate. That’s the first part. The second part: Why do these products flow uphill? Here’s an example: There’s a hospital in India called called the Narayana Hrudayalaya Hospital, or N.H. Hospital, in Bangalore. This hospital does open-heart surgery for $2,000. In the U.S., open-heart surgery costs at least $20,000. Because they offer open-heart surgery for $2,000 does not mean the quality is bad; the quality is on par with U.S. quality. ...
... How does an American executive learn to think in these reverse-innovative ways?
If America is to be a great country in the future, we have to become as curious about the problems of poor countries as we are about customers in rich countries. We have a dominant logic in the U.S. based on serving rich customers; we need a new logic to really serve customers in poor countries, and the only way we can do that is by creating a “local growth team,” or a dedicated team to do innovation in India, or Thailand, or Africa. ...
Women overseas are reaching new heights professionally. Here's what we can learn from our emerging market counterpart.
The mention of women in emerging economies often evokes a picture of oppressed and poverty-stricken victims, relegated to the sidelines of male-dominated cultures. That’s the usual narrative, exemplified by the best-selling Half the Sky by Nicholas Kristof and Sheryl Wu Dunn. Yes, these problems are real and of critical importance. But educated women in Brazil, Russia, India and China — the BRIC economies which represent the four largest emerging markets — and the United Arab Emirates, are telling a different tale: one of agency and power.
Just as in the U.S. — where female college graduates now outnumber men — BRIC women are flooding into universities and graduate schools. They represent 65% of college graduates in the UAE, 60% in Brazil and 57% in Russia. These figures represent more than just a tiny elite: Between 15 and 25% of young women in the BRICs/UAE are now college-educated — a substantial number. And they’re not just earning degrees: They are bursting with the desire to use them.
Highly educated women the world over are ambitious, but ambition and aspiration among BRIC/UAE women is off the charts. New data from the Center for Work-Life Policy show that 85% of female college graduates in India and 92% in the UAE consider themselves very ambitious, compared to a paltry 36% in the U.S. In India, 86% of college-educated women are shooting for the top job, closely followed by their counterparts in Brazil (80%) and China (76%).
And turbo-charged ambition is paying off. In Brazil, 14% of the CEOs of large companies are female; in India, the figure is 11%. Meanwhile, the number of women who head up Fortune 500 corporations in the United States and FTSE 100 firms in the United Kingdom is stuck at less than 5%. What’s behind these startling numbers? Our study — which is based on rich, new data — describes opportunities and obstacles, which are surprisingly different from those in the West. ...
Here is just one example of the positive impact a large "evil" multi-national corporation has on economic development among the poor. There are many other stories similar to these that are rarely seen in the press.
... Seventy percent of the world's cocoa grows in West Africa, and most of that in one country, Ivory Coast. Since 1999, Ivory Coast has been through a bloody succession of military coups, rigged elections, and civil wars. "We were concerned about running into a ceiling on production there," says Harold Poelma, managing director of Cargill Cocoa. So Cargill began looking for other options. The solution that it came up with perfectly illustrates the company's global reach and long view.
Cocoa trees look like something Dr. Seuss would draw, with clusters of hard-shelled pods, as big and colorful as Halloween gourds, sprouting directly from the trunk and limbs. They don't grow just anyplace. They need shade, warmth, and humidity, as well as deep, rich soil -- conditions generally found within a band 20 degrees north and south of the equator. That band passes through Vietnam.
Cargill was one of the first U.S. multinationals to return to Vietnam when President Bill Clinton normalized relations with the government in Hanoi in 1995. Today it is the country's largest domestic producer of livestock feed and a central player in Vietnam's fast-moving shift from a state-controlled agricultural economy to one where small farmers are encouraged to work private plots for private gain. The effect of that shift has been transformative. Not long ago, Vietnam was importing a million tons of rice a year. Last year it became the world's second leading rice exporter. "Same people, same land," Vietnam's director of crop production, Dr. Nguyen Tri Ngoc, told me in his Hanoi office, speaking through a translator. "Before, farmers were not really farmers. They were workers in the fields, and they worked under the supervision of the government." And the difference now? "Free markets!" he says in English.
In 2004, Cargill launched a public-private partnership with one of its biggest customers, chocolate giant Mars, and the governments of Vietnam and the Netherlands. The aim: to create something that had never before existed in Vietnam, a cocoa-export economy.
First, Cargill had to convince a front line of growers to switch to cocoa from well-established crops like coffee, black pepper, and cashews. Two years before the first harvest (it takes at least that long for cocoa seedlings to produce fruit), before there was anything to buy, Cargill opened two fully staffed cocoa buying stations on major roads, in Ben Tre and Dak Lak provinces. It made an early commitment to transparency, posting on the Cargill website and offering by text message both the daily international price on the London market and what Cargill is paying locally; growers can lock their price for three weeks, the time it takes to ferment and dry the beans after harvest. Cargill also built a network of more than 100 demonstration farms, where curious growers can learn from their neighbors. And in February 2011 the company took delivery of the first Vietnamese cocoa beans to carry UTZ certification -- an independent sustainability program through which growers can earn an extra $100 per ton.
This year Vietnamese farmers will produce about 2,500 metric tons of cocoa, 70% of which will go to Cargill. That's a tiny sliver of the 3.4 million-ton global market, but the growth trend is impressive: 40,000 acres under cultivation in 2010, compared with 1,200 in 2003, and already 32,000 active growers in 12 provinces. Poelma sees the potential for 100,000 tons by 2020. Instead of shipping all of that to Cargill's North Sea Canal processing plant in Wormer, the Netherlands -- a voyage that takes 24 days -- Cargill hopes to have a Cargill factory in Vietnam by then, processing cocoa liquor, cocoa butter, and cocoa powder for export to growing markets in China and India.
None of that happens without the eager participation of thousands of small growers. One I met last summer was Trinh Van Thanh, a smooth-cheeked 43-year-old with a wife, three daughters, and roughly four acres of land in Baria-Vungtau province, a two-hour drive southeast from Ho Chi Minh City. Five years ago Thanh was growing pepper and coffee and raising pigs, and he was struggling. His pepper trees were afflicted by blight. The yield from his mature coffee trees was declining year by year. He says he was $5,000 in debt.
Thanh planted his first cocoa saplings, as Vietnamese farmers often do, in the shade of his coffee trees. He enrolled in an agricultural extension program in Ho Chi Minh City, where he learned how to build a specialized slow-drip irrigation system based on technology invented on an Israeli kibbutz. When the first crop came in, Thanh made the ambitious choice to ferment and dry the cocoa beans himself. Ultimately, he built more fermentation boxes and drying tables than he needed for his own crop, which meant he could perform those value-adding services for other growers. Soon he wasn't just farming, he was running a collection station. Next he planted a cocoa-tree nursery. Then he launched an irrigation consulting business. (The man gets the concept of a virtuous cycle.) Thanh still sells all his beans to Cargill but maybe not for long. What he really wants to learn how to do next, he told me, is make and sell chocolate.
Thanh's success so far almost defies belief. He says his mini cocoa conglomerate will gross more than $850,000 this year. And if his daughter, who's about to graduate from high school, wants to go to college in America -- and he hopes that she will -- he can easily afford it.
Later in Hanoi, I tell Ngoc all about my visit to Baria-Vungtau province. When does a farmer like Thanh, I ask him, become too much of a capitalist for the Socialist Republic of Vietnam? Ngoc beams. "No limit!" he says. Again in English. ...
Goods and services from China accounted for only 2.7% of U.S. personal consumption expenditures in 2010, of which less than half reflected the actual costs of Chinese imports. The rest went to U.S. businesses and workers transporting, selling, and marketing goods carrying the "Made in China" label. Although the fraction is higher when the imported content of goods made in the United States is considered, Chinese imports still make up only a small share of total U.S. consumer spending. This suggests that Chinese inflation will have little direct effect on U.S. consumer prices.
Article
The United States is running a record trade deficit with China. This is no surprise, given the wide array of items in stores labeled “Made in China.” This Economic Letter examines what fraction of U.S. consumer spending goes for Chinese goods and what part of that fraction reflects the actual cost of imports from China. We perform a similar exercise to determine the foreign and domestic content of all U.S. imports.
In our analysis, we combine data from several sources: Census Bureau 2011 U.S. International Trade Data; the Bureau of Labor Statistics 2010 input-output matrix; and personal consumption expenditures (PCE) by category from the U.S. national accounts of the Commerce Department’s Bureau of Economic Analysis. We use the combined data to answer three questions:
• What fraction of U.S. consumer spending goes for goods labeled “Made in China” and what fraction is spent on goods “Made in the USA”?
• What part of the cost of goods “Made in China” is actually due to the cost of these imports and what part reflects the value added by U.S. transportation, wholesale, and retail activities? That is, what is the U.S. content of “Made in China”?
• What part of U.S. consumer spending can be traced to the cost of goods imported from China, taking into account not only goods sold directly to consumers, but also goods used as inputs in intermediate stages of production in the United States?
Answers?
Although globalization is widely recognized these days, the U.S. economy actually remains relatively closed. The vast majority of goods and services sold in the United States is produced here. In 2010, imports were about 16% of U.S. GDP. Imports from China amounted to 2.5% of GDP. ...
... Obviously, if a pair of sneakers made in China costs $70 in the United States, not all of that retail price goes to the Chinese manufacturer. In fact, the bulk of the retail price pays for transportation of the sneakers in the United States, rent for the store where they are sold, profits for shareholders of the U.S. retailer, and the cost of marketing the sneakers. These costs include the salaries, wages, and benefits paid to the U.S. workers and managers who staff these operations. ...
... This U.S. fraction is much higher for imports from China. Whereas goods labeled “Made in China” make up 2.7% of U.S. consumer spending, only 1.2% actually reflects the cost of the imported goods. Thus, on average, of every dollar spent on an item labeled “Made in China,” 55 cents go for services produced in the United States. In other words, the U.S. content of “Made in China” is about 55%. The fact that the U.S. content of Chinese goods is much higher than for imports as a whole is mainly due to higher retail and wholesale margins on consumer electronics and clothing than on most other goods and services. ...
Conclusion
Figure 2 shows the share of U.S. PCE [personal consumption expenditures] based on where goods were produced, taking into account intermediate goods production, and the domestic and foreign content of imports. Of the 2.7% of U.S. consumer purchases going to goods labeled “Made in China,” only 1.2% actually represents China-produced content. If we take into account imported intermediate goods, about 13.9% of U.S. consumer spending is attributable to imports, including 1.9% imported from China.
Since the share of PCE attributable to imports from China is less than 2% and some of this can be traced to production in other countries, it is unlikely that recent increases in labor costs and inflation in China will generate broad-based inflationary pressures in the United States.
... There is no doubt that income inequality is the single biggest threat to social stability around the world, whether it is in the United States, the European periphery, or China. Yet it is easy to forget that market forces, if allowed to play out, might eventually exert a stabilizing role. Simply put, the greater the premium for highly skilled workers, the greater the incentive to find ways to economize on employing their talents. ...
... As skilled labor becomes increasingly expensive relative to unskilled labor, firms and businesses have a greater incentive to find ways to “cheat” by using substitutes for high-price inputs. The shift might take many decades, but it also might come much faster as artificial intelligence fuels the next wave of innovation.
Perhaps skilled workers will try to band together to get governments to pass laws and regulations making it more difficult for firms to make their jobs obsolete. But if the global trading system remains open to competition, skilled workers’ ability to forestall labor-saving technology indefinitely should prove little more successful than such attempts by unskilled workers in the past.
The next generation of technological advances could also promote greater income equality by leveling the playing field in education. Currently, educational resources – particularly tertiary educational resources (university) – in many poorer countries are severely limited relative to wealthy countries, and, so far, the Internet and computers have exacerbated the differences.
But it does not have to be that way. Surely, higher education will eventually be hit by the same kind of sweeping wave of technology that has flattened the automobile and media industries, among others. If the commoditization of education eventually extends to at least lower-level college courses, the impact on income inequality could be profound.
Many commentators seem to believe that the growing gap between rich and poor is an inevitable byproduct of increasing globalization and technology. In their view, governments will need to intervene radically in markets to restore social balance.
I disagree. Yes, we need genuinely progressive tax systems, respect for workers’ rights, and generous aid policies on the part of rich countries. But the past is not necessarily prologue: given the remarkable flexibility of market forces, it would be foolish, if not dangerous, to infer rising inequality in relative incomes in the coming decades by extrapolating from recent trends.
Poor countries can end up benefiting when their brightest citizens emigrate
... Lots of studies have found that well-educated people from developing countries are particularly likely to emigrate. By some estimates, two-thirds of highly educated Cape Verdeans live outside the country. A big survey of Indian households carried out in 2004 asked about family members who had moved abroad. It found that nearly 40% of emigrants had more than a high-school education, compared with around 3.3% of all Indians over the age of 25. This “brain drain” has long bothered policymakers in poor countries. They fear that it hurts their economies, depriving them of much-needed skilled workers who could have taught at their universities, worked in their hospitals and come up with clever new products for their factories to make.
Many now take issue with this view (see article). Several economists reckon that the brain-drain hypothesis fails to account for the effects of remittances, for the beneficial effects of returning migrants, and for the possibility that being able to migrate to greener pastures induces people to get more education. Some argue that once these factors are taken into account, an exodus of highly skilled people could turn out to be a net benefit to the countries they leave. Recent studies of migration from countries as far apart as Ghana, Fiji, India and Romania have found support for this “brain gain” idea. ...
Just 1% of start-up companies create 40% of new jobs - a far smaller number of companies than had been thought - a World Economic Forum (WEF) study has found.
... The WEF Entrepreneurship_Report , in collaboration with Stanford University and Endeavor Global, said: "After avoiding the collapse of the global financial and economic system, governments around the world are now focused on building a foundation for future growth."
It said the purpose of its report was to provide insight into how to successfully foster entrepreneurship, with "the ultimate goal of improving economic growth, prosperity and quality of life".
The WEF study highlighted eight different key growth strategies for early-stage companies.
It said one key finding was that the similarities in early-stage companies around the globe are far greater than their differences. ...
In 2003, President Lula inherited a poor, resigned nation on the verge of an economic implosion. Eight years later, Brazil’s new president, Dilma Rousseff, leads an emerging, optimistic nation. Dan Steinbock explores how Brazil can realize its full growth potential in the post-crisis landscape.
One interesting note is the continued decoupling of the rest of the world from the American economy.
When Lula won the presidency in 2002, Brazil’s main trading partners were the United States (25.5%), the Netherlands (5.3%), Germany (4.2%) and China (4.2%).
Over the eight years, the U.S. share collapsed, while the Chinese share more than tripled. By 2009, Brazil’s main trading partners were China (13.2%), the United States (9.6%), Argentina (7.8%) and the Netherlands (5.0%).
Steinbock's presription for Brazil's economic health?
In order to realize its full BRIC potential, Brazil has to undertake seven critical steps. First, reduce the importance of the informal sector. Second, correct macroeconomic deficiencies (including the high interest rate and a relatively high government-debt-to-GDP ratio).
Third, reduce the notorious red tape. Fourth, streamline the labor code. Fifth, contain political corruption. Sixth, improve the quality of public services (e.g., education, justice and security). And seventh, develop new infrastructure.
In order to engage in the Asian trajectory of growth, however, even more reforms are needed, including far greater trade openness, significantly higher investment and savings and substantially lower public and foreign debt.
With exports from low-wage countries like China on the rise, the question of what this means for trade and jobs in developed countries is a furious war of words. This column, using firm-level data for France between 1995 and 2005, shows that competition from low-wage markets actually boosts the sales of high-quality goods – but it concedes the benefits are not universal. ...
Consequences
Our results show that, over 1995-2005, a period characterised by the surge of low-wage countries in international markets,
France has specialised in the production of higher quality goods.
This specialisation has had a positive impact on France’s export performances, dampening the fall of its market share in foreign markets.
Beyond the effect on aggregate trade, such adjustments in specialisation patterns are likely to have important macroeconomic consequences. Hausmann et al. (2007), for example, discuss how countries that specialise in higher quality goods can enjoy better growth performances in the long run. However, changes in the structure of production can also have important transitory effects. In particular, if the relative content of production in skilled and unskilled labour is not the same depending on the produced quality, a reallocation of production in favour of high quality goods is likely to modify labour-market equilibria (see Verhoogen 2008).
This may be part of the story when it comes to explaining the rising wage premium and employment inequalities between skilled and unskilled workers observed over the last 20 years in most developed countries.
Against all the odds, American factories are coming back to life. Thank the rest of the world for that.
... For the first time in many years, American manufacturing is doing better than the rest of the economy. Manufacturing output tumbled 15% over the course of the recession, from December 2007 to the end of June 2009. Since then it has recovered two-thirds of that drop; production is now just 5% below its peak level (see chart 1).
Factory employment has been slower to recover than output, since productivity has risen. Nonetheless, that too is growing. In February factory payrolls rose by 33,000 from January. In the past year manufacturing employment has gone up by 189,000, or 1.6%, the biggest gain since the late 1990s. Total employment rose just 1% in that period. Unemployment has fallen more sharply than the national average in Illinois, Ohio and Michigan, which are relatively dependent on manufacturing. ...
... Beyond this cyclical bounce-back, though, a structural shift may also be under way. Makers of floorings, furniture and glass, all of which go into houses, were especially hard hit and have yet to start hiring again. But those that make things for businesses or customers overseas—computers, machinery, electronic equipment, heavy-duty trucks—are thriving. Cisco Systems and Intel Corporation notched up record sales last year. Caterpillar and John Deere, which makes diggers, bulldozers and farm equipment, saw sales leap. ...
... For US firms, the decision to manufacture overseas has long seemed a no-brainer. Labor costs in China and other developing nations have been so cheap that as recently as two or three years ago, anyone who refused to offshore was viewed as a dinosaur, certain to go extinct as bolder companies built the future in Asia. But stamping out products in Guangdong Province is no longer the bargain it once was, and US manufacturing is no longer as expensive. As the labor equation has balanced out, companies—particularly the small to medium-size businesses that make up the innovative guts of America’s technology industry—are taking a long, hard look at the downsides of extending their supply chains to the other side of the planet. ...
... What is the effect of globalization on the moral circle? Does trade melt barriers and expand the moral circle or does globalization make "the other" a more salient division allowing politicians to demonize and control through xenophobia? ...
... The authors conclude:
...not only is living in a more globalized country associated with more cooperation at the world level, but the same relationship holds as the degree of individual global connectedness increases as well. The cosmopolitan hypothesis receives clear support from our experiments.
... our findings suggest that humans' basic “tribal social instincts” may be highly malleable to the influence of the processes of connectedness embedded in globalization. ...
Matt Ridely offers more evidence of this in The Rational Optimist. There is an experiment used in economic studies called the ultimatum game. There are two players. The first player is offered $1,000. He may keep it all or divide it between him and the other player. The second player can except the division of the money but neither player gets any money if he rejects the split.
From a purely economic standpoint, the second player should accept the split even if he is offered just one dollar. He still comes out one dollar ahead. Even if he isn't offered anything, he still isn't out any money. Yet when the experiment has been run in cultures around the world, the second player will veto the transaction if some minimum threshold of the distribution isn't met. Some degree of obligatory sharing seems universal.
What Ridley points out is that the distribution threshold varies considerably by culture. What makes the difference? Ridely says that people who live in advanced commercial economies are more generous toward the second player than are people from more tribal contexts. People from commercial economies are likely to offer something close to a 50/50 split. They have been socialised to value cooperation with complete strangers as they work to accomplish their ends. Yet studies done with remote tribes who engage in little trade show 85/15 splits were offered and accepted. A particularly interesting study was the whale-hunting Lamalera where a 42/58 split prevailed. Their society requires the coordination of large teams of hunters and by giving the second player more, the first player was building a social obligation to help down the road. (See Ridley's book 86-87.)
TOKYO — Japan’s economy contracted in the fourth quarter when compared with the previous three months, though analysts are optimistic about the country’s prospects for the rest of the year.
Japan’s gross domestic product fell 0.3 percent in the October-December quarter as the end of generous government incentives on environmentally friendly cars resulted in a temporary decline in spending. At an annualized rate, Japan’s economy shrank 1.1 percent from the previous quarter.
The contraction, the first in five quarters, brought Japan’s economy for 2010 to $5.47 trillion, the Japanese Cabinet Office said. That compared with a $5.88 trillion economy for fast-growing China. The latest numbers were further evidence of China’s rapid ascent as an economic superpower, as China surpassed Japan last summer after the half-year gross domestic product numbers were released. Just five years ago, China’s gross domestic product was around $2.3 trillion, about half Japan’s.
Japan’s economy has stagnated over the last two decades, reflecting its continued decline in economic and political clout.
The country had the world’s second-largest economy after the United States for much of the last four decades. In the 1980s, its rapid growth even led to talk of the Japanese economy’s overtaking that of the United States. ...
Leading scholar says Christianity is overtaking the globe, led by spectacular, ongoing growth in Africa and Asia
These times we live in have been called a lot of things. But perhaps the most surprising description came Sunday from one of the country's leading religion scholars.
"The most exciting time in Christianity ... since the 1st century."
Yes, even more thrilling than the Protestant Reformation, Philip Jenkins told about 75 people at Charlotte's Westminster Presbyterian Church.
The reason: The staggering growth in the number of Christians in Asia, Latin America and especially Africa - a phenomenon he called "a global religious revolution" and one that "reverses a trend that people had been used to for several hundred years."
To back up his claim, Jenkins - the author of a host of influential books, including "The Next Christendom: The Rise of Global Christianity" - offered a series of eye-popping statistics and projections.
Among them:
In 1900, Europe and North America accounted for about 85 percent of the world's Christians. By 2050, that number will have shrunk to about 25 percent.
During the same period, he said the number of Christians in Africa have, well, skyrocketed seems too tame a word. In 1900, there were 10 million; in 2000, 363 million. By 2015, Jenkins expects 500 million. And, by 2050, he predicted that Africa would become the first continent to have 1 billion Christians. Put another way: One of every three Christians in the world will be African - and that's not counting the Africans who will have moved to the United States or Europe.
In the 20th century, about half of the people on the African continent moved from a tribal or pagan religion to either Christianity or Islam. And, Jenkins added, "Christians outpaced Muslims considerably" - by a margin of about 4 to 1. ...
US manufacturing still tops China’s by nearly 46 percent
... A recent Heartland Monitor survey finds “clear anxiety about the decades-long employment shift away from manufacturing to service jobs,’’ National Journal’s Ron Brownstein reported in December. The “decline of US manufacturing’’ is giving Americans a “sense of economic precariousness’’ — only one in five believe that the United States has the world’s strongest economy, versus nearly half who think China is in the lead. “Near the root of the unease for many of those polled is the worry that the United States no longer makes enough stuff.’’ When asked why US manufacturing jobs have declined, 58 percent cite off-shoring by American companies to take advantage of lower labor costs.
There’s just one problem with all the gloom and doom about American manufacturing. It’s wrong.
Americans make more “stuff’’ than any other nation on earth, and by a wide margin. According to the United Nations’ comprehensive database of international economic data, America’s manufacturing output in 2009 (expressed in constant 2005 dollars) was $2.15 trillion. That surpassed China’s output of $1.48 trillion by nearly 46 percent. China’s industries may be booming, but the United States still accounted for 20 percent of the world’s manufacturing output in 2009 — only a hair below its 1990 share of 21 percent. ...
... So why do so many Americans fear that the Chinese are eating our lunch?
Part of the reason is that fewer Americans work in factories. Millions of industrial jobs have vanished in recent decades, and there is no denying the hardship and stress that has meant for many families. But factory employment has declined because factory productivity has so dramatically skyrocketed: Revolutions in technology enable an American worker today to produce far more than his counterpart did a generation ago. Consequently, even as America’s manufacturing sector out-produces every other country on earth, millions of young Americans can aspire to become not factory hands or assembly workers, but doctors and lawyers, architects and engineers.
Perceptions also feed the gloom and doom. In its story on Americans’ economic anxiety, National Journal quotes a Florida teacher who says, “It seems like everything I pick up says ‘Made in China’ on it.’’ To someone shopping for toys, shoes, or sporting equipment, it often can seem that way. But that’s because Chinese factories tend to specialize in low-tech, labor-intensive goods — items that typically don’t require the more advanced and sophisticated manufacturing capabilities of modern American plants.
A vast amount of “stuff’’ is still made in the USA, albeit not the inexpensive consumer goods that fill the shelves in Target or Walgreens. American factories make fighter jets and air conditioners, automobiles and pharmaceuticals, industrial lathes and semiconductors. Not the sort of things on your weekly shopping list? Maybe not. But that doesn’t change economic reality. They may have “clos[ed] down the textile mill across the railroad tracks.’’ But America’s manufacturing glory is far from a thing of the past.
... In fact, much of the recent hand-wringing about widening inequality is based on sloppy thinking. The old Davos consensus of boosting growth and combating poverty is still a better guide to good policy. Rather than a sweeping assault on inequality itself, policymakers would do better to take on the market distortions that often lie behind the most galling income gaps, and which also impede economic growth.
Begin with the facts about inequality. Globally, the gap between the rich and the poor has actually been narrowing, as poorer countries are growing faster. Nor is there a monolithic trend within countries (see article). In Latin America, long home to the world’s most unequal societies, many countries—including the biggest, Brazil—have become a bit more equal, as governments have boosted the incomes of the poor with fast growth and an overhaul of public spending to improve the social safety-net (but not by raising tax rates for the rich).
The gap between rich and poor has risen in other emerging economies (notably China and India) as well as in many rich countries (especially America, but also in places with a reputation for being more egalitarian, such as Germany). But the reasons for this differ. In China inequality has a lot to do with the hukou system of residency permits, which limits internal migration to the towns; by some measures inequality has peaked as rural labour becomes more scarce. In America income inequality began to widen in the 1980s largely because the poor fell behind those in the middle. More recently, the shift has been overwhelmingly due to a rise in the share of income going to the very top—the highest 1% of earners and above—particularly those working in the financial sector. Many Americans are seeing their living standards stagnate, but the gap between most of them has not changed all that much.
The links between inequality and the ills attributed to it are often weak. ...
...Viewed from this perspective, the right way to combat inequality and increase mobility is clear. First, governments need to keep their focus on pushing up the bottom and middle rather than dragging down the top: investing in (and removing barriers to) education, abolishing rules that prevent the able from getting ahead and refocusing government spending on those that need it most. Oddly, the urgency of these kinds of reform is greatest in rich countries, where prospects for the less-skilled are stagnant or falling. Second, governments should get rid of rigged rules and subsidies that favour specific industries or insiders. Forcing banks to hold more capital and pay for their implicit government safety-net is the best way to slim Wall Street’s chubbier felines. In the emerging world there should be a far more vigorous assault on monopolies and a renewed commitment to reducing global trade barriers—for nothing boosts competition and loosens social barriers better than freer commerce.
Such reforms would not narrow all income disparities: in a freer world skill and intellect would still be rewarded, in some cases magnificently well. But the reforms would strike at the most pernicious, unfair sorts of income disparity and allow more people to move upwards. They would also boost growth and leave the world economy more stable. If the Davos elites are worried about the gap between the rich and the rest, this is the route they should follow.
Tribal ties—race, ethnicity, and religion—are becoming more important than borders.
... Although tribal connections are as old as history, political upheaval and globalization are magnifying their impact. The world’s new contours began to emerge with the end of the Cold War. Maps designating separate blocs aligned to the United States or the Soviet Union were suddenly irrelevant. More recently, the notion of a united Third World has been supplanted by the rise of China and India. And newer concepts like the BRIC nations (Brazil, Russia, India, and China) are undermined by the fact that these countries have vastly different histories and cultures.
The borders of this new world will remain protean, subject to change over time. Some places do not fit easily into wide categories—take that peculiar place called France—so we’ve defined them as Stand-Alones. And there are the successors to the great city-states of the Renaissance—places like London and Singapore. What unites them all are ties defined by affinity, not geography. ...
In ten years, the living conditions of the poor have been improving—but not necessarily because of the UN’s goals. ...
... The United Nations reckons that in 2008 over a quarter of children in the developing world were underweight, a sixth of people lacked access to safe drinking water, and just under half used insanitary toilets or none at all. But while these figures are disquieting, a smaller fraction of people were affected than was the case two decades ago. So such data also indicate the world’s progress towards meeting the Millennium Development Goals (MDGs), a set of targets adopted by world leaders at the UN ten years ago. ...
... But few go as far as Ban Ki-Moon, the UN secretary-general, who recently called the goals “a milestone in international co-operation” that had helped “hundreds of millions of people around the world.” Talking up the MDGs is, of course, part of Mr Ban’s job. And there has indeed been progress on many fronts (see table 2). But it is hard to assign much credit to the exercise itself.
Take the goal of halving the poverty rate from its 1990 level by 2015. The World Bank reckons that in 1990 46% of the developing world’s population fell below the internationally accepted poverty line of $1.25 a day at purchasing-power parity. By 2005 the rate had fallen to 27% and, despite a slowdown in progress in the past couple of years, it is now probably lower still. A global halving by 2015 seems well within reach. Yet this “victory” is mainly due to a drop in China’s poverty rate from 60% in 1990 to 16% in 2005. Because China and India accounted for over 62% of the planet’s poor in 1990, changes to the world’s poverty rate depend heavily on their performance. A global goal is therefore a poor way to give the governments of smaller countries an incentive to tackle poverty....
... Too often, the goals are reduced to working out how much money is needed to meet a particular target and then berating governments for not spending enough. Yet the countries that have made most progress in cutting poverty have largely done so not by spending public money, but by encouraging faster economic growth. China is the most obvious example. The best performers in Africa, too, are those that have managed to speed up growth. As Shanta Devarajan, the World Bank’s chief economist for Africa, points out, growth does not just make more money available for social spending. It also increases the demand for such things as schooling, and thus helps meet other development goals. Yet the goals, as drawn up, made no mention of economic growth. ...