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Friday, January 22, 2016
Saturday, January 16, 2016
From The Economist - Jan. 2016
American economic history
Why economic growth soared in America in the early 20th century, and why it won't be soaring again any time soon
ON JANUARY 20th those who see themselves as the global elite will gather in the Alpine resort town of Davos to contemplate the "fourth industrial revolution", the theme chosen by Klaus Schwabs the ringmaster of the circus known as the World Economic Forum. This revolution will be bigger than anything the world has seen before, he says. It will be a tsunami compared with previous squalls. It will be more disruptive. It will be more interconnected; indeed, the revolution will take place "inside a complex ecosystem". Not only will it change what people do, it will change who they are.
Anybody who is tempted by this argument should read Robert Gordon's magnificent new book. An American economist who teaches at Northwestern University, Mr Gordon has long been famous in academic circles for advancing three iconoclastic arguments. The first is that the internet revolution is hyped. The second is that the best way to appreciate the extent of the hype is to look at the decades after the civil war, when America was transformed by inventions such as the motor car and electricity. The third is that the golden age of American growth may be over.
In "The Rise and Fall of American Growth" Mr Gordon presents his case for a general audience - and he does so with great style and panache, supporting his
The Rise and Fall of American Growth: The US Standard of Living since the Civil War. By Robert Gordon. Princeton University Press; 762 pages
econometric data, while keeping a watchful eye on what economic change means for ordinary Americans. Even if history changes direction, and Mr Gordon's rise-and-fall thesis proves to be wrong, this book will survive as a superb reconstruction of material life in America in the heyday of industrial capitalism.
The technological revolutions of the late 19th century transformed the world. The life that Americans led before that is unrecognizable. Their idea of speed was defined by horses. The rhythm of their days was dictated by the rise and fall of the sun. The most basic daily tasks - getting water for a bath or washing clothes - were back-breaking chores. As Mr Gordon shows, a succession of revolutions transformed every aspect of life. The invention of electricity brought light in the evenings. The invention of the telephone killed distance. The invention of what General Electric called "electric servants" liberated women from domestic slavery. The speed of change was also remarkable. In the 30 years from 1870 to 1900 railway companies turn of the century, Sears Roebuck, a mailorder company that was founded in 1893, was fulfilling 100,000 orders a day from a catalogue of 1462 pages. The price of cars plummeted by 63% between 1912 and 1930, while the proportion of American households that had access to a car increased from just over 2% to 89.8%.
America quickly pulled ahead of the rest of the world in almost every new tech-nology - a locomotive to Europe's snail, as Andrew Carnegie put it. In 1900 Americans had four times as many telephones per person as the British, six times as many as the Germans and 20 times as many as the French. Almost one-sixth of the world's railway traffic passed through a single American city, Chicago. Thirty years later Americans owned more than 78% of the world's motor cars. It took the French until 1948 to have the same access to cars and electricity that America had in 1912.
The Great Depression did a little to slow America's momentum. But the private sector continued to innovate. By some measures, the 1930s were the most productive decade in terms of the numbers of inventions and patents granted relative to the size of the economy. Franklin Roosevelt's government invested in productive capacity with the Tennessee Valley Authority and the Hoover Dam.
The second world war demonstrated the astonishing power of America's production machine. After 1945 America consolidated its global pre-eminence by constructing a new global order, with the Marshall Plan and the Bretton Woods institutions, and by pouring money into higher education. The 1950s and 1960s were a golden age of prosperity in which even people with no more than a high-school education could enjoy a steady job, a house in the suburbs and safe retirement.
But Mr Gordon's tone grows gloomy when he turns to the 1970s. Economic turbulence increased as well-know. American companies were shaken by foreign competition, particularly from Japan, and as fuel priced surged thanks to the opec oil-price rise. Economic inequality surged as the rich pulled ahead of the rest. Productivity growth fell: having reached an average of 2.82% a year between 1920 and 1970, output per hour between 1970 and 2014 grew by an annual rate of no more than 1.62%. America today faces powerful headwinds: an ageing population, rising health-care and education costs, soaring inequality and festering social ills.
What chance does the country have of restoring its lost dynamism? Mr Gordon has no time for the techno-Utopians who think that the information revolution will rescue America from such "secular stagnation". His attitude to the IT revolution is much the same as that of Peter Thiel, a venture capitalist, who famously said: "We wanted flying cars but instead we got 140 characters." America has already harvested the fruits of the IT revolution. The growth rate increased each year in the decade after 1994, but the spurt did not last and it has since fallen back.
Now Mr Gordon thinks that Moore's law is beginning to fade and the new economy is turning into a mirage. He can be forgiven for giving such short shrift to Davos types who have no sense of history: driverless cars will change the world less than the invention of cars in the first place. He is also surely right that America faces unusually heavy challenges in future.
But he goes too far in downplaying the current it revolution. Where the first half of the book is brilliant, the second can be frustrating. Mr Gordon understates how it has transformed people's lives and he has little to say about the extent to which artificial intelligence will intensify this. He also fails to come to terms with the extent to which, thanks to 3D printing and the internet of things, the information revolution is spreading from the virtual world to the physical world.
Mr Gordon may be right that the IT revolution will not restore economic growth rates to the level America once enjoyed. Only time will tell. But he is definitely wrong to underplay the extent to which the revolution is changing every aspect of our daily lives. ■
Girls with goals
From Malala…… co-founder of the Malala Fund and youngest-ever Nobel prizewinner
One of the most wonderful and positive choices any family can make is to educate their daughters through secondary school. If girls are educated, everyone benefits. Girls develop the confidence and skills to make decisions about their lives and contribute fully to their communities. Yet in many parts of the world girls are offered little more than basic literacy and numeracy, even though secondary education is what provides wings for girls to fly.
I am still a teenager, but if I had been born into a traditional, conservative family in Pakistan, I would almost certainly be married with several children by now. I have met many girls who are pressured to leave school to marry or take care of families. Others drop out because of violence, discrimination, conflict and poverty. In many cases, the education of girls is simply not valued and there is no school for them to go to.
This breaks my heart, I have loved learning for as long as I can remember. As a little girl in the Swat Valley in Pakistan, I would deliver imaginary lessons to the children at my father's school and dream of being a doctor (and later a politician). Since I became an education activist, which is my preferred career choice for now, I have had the opportunity to meet many influential people, and I cannot imagine that any of them would accept basic education for their own children. So why are our politicians settling for basic education for girls they have not met, when education is the greatest tool for personal empowerment and national development?
The new UN global education goal announced in September 2015 commits all UN member states to provide free, equitable, quality education for all by 2030. But these fine words will never become reality without specific commitments to provide secondary education to the most vulnerable girls. For most of them, education beyond very basic schooling is still a distant dream.
In the poorest countries, only 20% of girls complete lower secondary school. In Kenya, for example, less than half of girls continue from primary to secondary education. In my home country of Pakistan, the poorest girls are 16 times less likely to complete high school than the richest boys. In many countries governments do not even keep data beyond lower secondary school.
Compare this with rich countries, where 12 years of school and the expectation of further education are increasingly the norm. In 2016, how many people will think that a few years of education is enough to succeed? By 2030, when the new global goals are supposed to be achieved, it certainly won't be enough.
So, in 2016, while continuing my studies, I will also be working with my father and our colleagues at the Malala Fund to make sure that our leaders commit themselves to providing 12 years of free, safe, quality education for every girl by 2030. There will be many tests of that commitment. The first is funding and the willingness to finance our future now.
UNESCO estimates that it will cost an additional $39 billion every year between now and 2030 to send each child to primary and secondary education for 12 years, free. It sounds like a lot. But the money is already there. It is a question of priorities.
That $39 billion could be raised easily if all OECD countries committed 0.7% of GDP to development aid, and allocated just 10% of that aid to education. Another way would be to choose books, not bullets. Cutting eight days of global military spending would cost the same as a year of education for all.
Lack of data is another difficulty that has to be overcome. We often hear that more than 60m girls are out of school, but that figure covers only nine years of education, not 12. Without data on upper secondary school, how can education and finance ministries make proper plans? When world leaders meet in 2016 to agree on the measures of success for the new education goal, they must also agree that every country should collect data on the participation of boys and girls in a full 12 years of schooling.
I have no illusions about the size of the task ahead. Nor am I in any doubt about the power of girls to achieve their dreams. In the few short years that I have been able to use my voice to speak out for the right to education, I have met many courageous girls determined to learn.
Power to the sisters
As I write about these new global goals, I am also thinking of friends from Syria who now take lessons as refugees in Lebanon and Jordan, the girls who escaped Boko Haram in Nigeria and are still determined to learn, and girls in Pakistan and Kenya who have the chance to go to high school for the first time.
My sisters inspire me to keep going. We know that we are part of something bigger. We will unlock our power. In 2016, our voices will be heard.
AND I SUGGEST EVERY YOUNG LADY SEE THE 2016 MOVIE CALLED "JOY" - INSPIRING INDEED - Keith Hunt
In many parts of the world girls are offered little more than basic literacy and numeracy, even though secondary education is what provides wings for girls to fly
CHINA AND NORTH KOREA - from The Economist magazine
North Korea's nuclear weapons
After Pyongyang's fourth nuclear test, China must change its tune towards its outrageous ally
THE declaration on January 6th that North Korea had detonated its first hydrogen bomb was met with a show of joy on the streets of Pyongyang, its capital, and with despair in most others. America, Japan, South Korea and even China protested. Outsiders picked up the magnitude-5 earthquake caused by the blast, and put its epicentre at Punggyeri, site of an underground complex in the north-east, near China, where three previous tests, in 2006, 2009 and 2013, took place.
A fourth nuclear test had been expected. But most experts dismiss the claim that this was a hydrogen bomb of the sort found in advanced nuclear arsenals. Thermonuclear weapons, far more powerful than the atomic kind, are almost certainly beyond the North's know-how. The explosion was roughly as big as the atom bomb detonated in 2013; even a failed detonation of an H-bomb would be more powerful. At a push, the North may have tested a "boosted-fission" weapon that uses a fusion additive to achieve a bigger bang. If so, it would mark a next step in the North's nuclear programme - and a serious one.
Come on, China, change North Korea
A second nuclear test only four years into the rule of Kim Jong Un, the odious young head of the mafia family that controls North Korea, is a sobering reminder of the progress that three generations of Kims have made in expanding their nuclear capability - despite outside efforts to curb it. This week South Korea suggested that the North had also tested a submarine-launched ballistic missile in December. Such developments pose little immediate threat to the outside world. Few think that North Korea has yet managed to miniaturize its nuclear weapons to fit them onto missiles. But the indications are that its capabilities are growing faster than outsiders expected.
The UN Security Council rushed to meet this week, condemning the test. Prodded by America, it is expected to pass a resolution calling for a fresh round of sanctions. Many will think this is just for show. After all, earlier sanctions following tests have hardly deterred a regime that seems set on possessing nuclear weapons. Indeed, they have allowed the Kim regime to claim that North Korea needs nukes to defend itself against enemies, led by America, that are bent on its destruction. The North's state news agency said this week that the test had "guaranteed the eternal future of the nation".
When dealing with North Korea, it is easy to despair. Dramatic remedies, such as trying to remove Mr Kim by force, are off the table because the risk is too great. Barely 50 kilometres from North Korea, 25m South Koreans live in greater Seoul, one of Asia's most dynamic megalopolises. On the other side of the border are lm North Korean troops and countless artillery pieces, with which the North has threatened to turn the southern capital into a "sea of fire".
Even so, fresh sanctions should be just the start in confronting North Korea's nuclear-tipped threats. Not enough has been done to stem the flow of hard currency to a regime that even uses its diplomats to ferry illicit cash to Pyongyang. Financial sanctions can be made to bite deeper by more closely monitoring banking transactions. And the Vienna convention should not give cover to envoys engaged in criminality.
Under Barack Obama, America has let its North Korea policy drift. But the country that can do most is North Korea's big neighbour and supposed friend, China. Its banks are the main conduit for North Korean money. More worryingly, China does next to nothing to stop the flow of nuclear technology between rogue states and North Korea. China's sway over its neighbour is sometimes exaggerated, yet it is an economic lifeline, providing the regime with aid and trade. China is unhappy at the prospect of a nuclear-armed North Korea; but it is even more worried that the regime might collapse, possibly leading to a takeover by South Korea and America and the flight of millions of desperate North Koreans across its border.
Ideally, China would abandon the murderous Mr Kim. But even if it is unwilling to go that far, it can use the billions in aid and subsidized trade that it gives North Korea to press change upon the young dictator. Some may argue that squeezing the subsidies could hurt the poor, many of whom go hungry; it would also undermine the country's budding class of private traders and entrepreneurs, who are its best hope for the future. But the aid and subsidized trade it has extracted have mainly enriched the Pyongyang elite and financed the nuclear programme. They would be the main victims of Chinese pressure - especially if the elite could no longer travel to China.
For decades North Korea has been adept at shaking down outsiders: first the Soviet Union, sometimes America and now China. Before it is too late, Beijing should stop subsidizing a vile dynasty that gives nothing but headaches in return. ■
NORTH KOREA HAS NO DIRECT PART IN END TIME BIBLE PROPHECY. THERE IS NOTHING TO FEAR FROM NORTH KOREA; IT MAY BE PART OF THE 6TH TRUMPET OF REVELATION, BUT ONLY WHEN WE GET TO THAT TRUMPET SOUND SHALL WE KNOW - Keith Hunt
China's economic blueprint
From Li Keqiang…. Prime Minister of China
For the Chinese economy, 2016 is a year of reform, openness and international cooperation. These priorities may sound surprisingly familiar to China-watchers. Their potent combination has been instrumental in China's growth story over decades. We are taking them further.
Given the size of China's $10 trillion economy, over-dependence on investment and exports is not tenable. What is called for is not temporary fixes: my government has resisted the temptations of quantitative easing and competitive currency devaluation. Instead we choose structural reform.
We are pushing through market reforms, to speed the transition to a sustainable growth model markedly more driven by innovation and consumption. Employment, income levels and the environment are all high on our list of priorities.
We are combining myriad policy tools into two major drivers of growth. The first, essential to structural reform, highlights entrepreneurship and innovation. The second focuses on better provision of public goods and services—which in turn contributes to stronger demand and a higher quality of life.
It is all about striking a better balance between the state and the market by offering individuals, small and medium-sized companies as well as major corporations a more enabling environment for business development and innovation, thereby unlocking growth potential. A leaner government can play a better role as macroeconomic fine-tuner, regulator for fair competition, champion of the reform agenda and ultimate backstop when systemic risks threaten.
These efforts are already paying off. The services sector, accounting for half of China's GDP, keeps widening its lead over manufacturing. Entrepreneurship and innovation are the new fashion. Over 10,000 new businesses are registered every day. Growth in high-tech industries is leading that of the industrial sector by a wide margin. Innovations in technology, business models and management keep widening the economic horizon in previously unimaginable ways.
We are creating over 10m jobs a year and disposable-income growth is outstripping that of GDP. Consumption, already responsible for 60% of growth, keeps going strong and up-market. Take outbound tourism, for example: Chinese citizens made over 100m trips overseas in 2014, and the first half of 2015 saw year-on-year growth of 10%.
In short, despite moderation in growth, the Chinese economy is moving in the desired direction of stronger domestic demand and innovation. One by-product is a fall in the relevance of indicators such as power consumption, rail-cargo volume and new bank credit in gauging economic performance. Yet this transition from "bigger is better" to "less is more" is a good thing. I would otherwise be worried whether the reforms were working as intended.
Structural reform is not only about exploring new sources of growth, but also about making traditional industries more competitive. China's massive industrial sector remains a vital part of our plan for growth. We are working on upgrading "Made in China" with "China Manufacturing 2025", "Internet Plus" and other initiatives. We are deepening integration with the world economy with deregulation in many areas to improve access for foreign investments, not least in service sectors.
Make no mistake. Competition is growing tougher as the Chinese market matures. But we are confident that China is a worthwhile market, a pivot of the global supply chain and a partner for the wider world market.
The best of all worlds
This is not yet a world of plenty. Billions in developing countries are yet to benefit from large-scale industrialization and proper infrastructure. The demand is enormous, but largely subdued for lack of proper funding, affordable equipment and technology.
This can be changed. On connectivity, we have the "Belt and Road" initiative. On industrialization and urbanization, we offer partnerships in industrial-capacity co-operation. Combining China's manufacturing prowess with the cutting-edge technologies of the developed economies, we can, together, supply good equipment at good prices to the developing world, sustaining robust growth with supply-side innovation. If development for 1.3 billion Chinese has helped buoy world growth, imagine what such growth spurts for many more billions could do for the commodities market, manufacturing and many others.
Structural reform featuring entrepreneur-ship and innovation, greater openness and win-win international co-operation—these are our priorities for 2016 and beyond. This is our answer to the call for sustainable growth—a blueprint for sharing with the world China's market opportunities and Chinese ingenuity. ■
The Saudi blueprint
From The Economist magazine
The desert kingdom is striving to dominate its region and modernize its economy at the same time
FOR years Saudi Arabia seemed inert, relying on its vast oil wealth and the might of its American patron to buy quiet at home and impose stasis on its neighbours. But oil prices have tumbled, America has stood back from leadership in the Middle East, the region is on fire and power has shifted to a new generation - notably King Salman's 30-year-old favoured son, Muhammad bin Salman. A sandstorm of change is rousing the desert kingdom.
The visible result is the brutal treatment of dissent at home and assertiveness abroad that has just been on chilling display. On January 2nd Saudi Arabia executed 47 people. Most of them were terrorists linked to al-Qaeda but some, including a prominent Shia cleric, simply called for the fall of the ruling House of Saud. After Iranians set fire to the Saudi embassy in Tehran in protest, the kingdom cut diplomatic, trade and air links, a grave and foolish escalation in a febrile region.
Away from the headlines, however, a different assertiveness could prove equally consequential. Prince Muhammad has drawn up a blueprint designed to throw open Saudi Arabia's closed economy and government - including, he says, the possible sale of shares in the national oil firm, Saudi Aramco.
Coupling geopolitical swagger with sweeping economic change is a gamble. The outcome will determine the survival of the House of Saud and shape the future of the Arab world.
What is Arabic for Thatcherism?
The plunge in the price of oil, from $110 a barrel in 2014 to less than $35 today, was partly because Saudi Arabia seems determined to protect its share of the oil market. Nevertheless, low prices are a time-bomb for a country dominated by oil and a government that relies on it for up to 90% of its revenues. The budget deficit swelled last year to a staggering 15% of GDP. Although the country has $650 billion of foreign reserves, they have already fallen by $100 billion.
When oil prices fell in the 1990s, the Saudis simply borrowed heavily. They were saved when China's boom sent commodity prices soaring again in the 2000s. This time no one, including the Saudi rulers, expects a return to triple-digit oil prices. Instead, they acknowledge that the economy must change. Speaking to The Economist this week, Prince Muhammad laid out a blueprint for reform that amounts to a radical redesign of the Saudi state.
The first step is fiscal consolidation. The goal is to eliminate the budget deficit in the next five years, even if the oil price stays low. Though there is much flab to cut, that is still a perilous undertaking which means dismantling the system according to which petro-cash, not taxes, pay for free education and health care as well as highly subsidized electricity, water and housing. More than money is at stake: this largesse has disguised how far the economy is chronically unproductive and dependent on foreign labour. It has been too easy for Saudis to avoid working, or to snooze away in government offices.
The new leadership has made a start. Spending cuts in the last months of 2015 stopped the deficit from soaring to more than 20% of GDP. The 2016 budget includes steep rises in the prices of petrol, electricity and water (though they remain heavily subsidized). The prince pledges to move to market prices by the end of the five-year period. He is also committed to new taxes, including a value-added tax of 5%, sin taxes on sugary drinks and cigarettes, and levies on vacant land.
Recalibrating taxes and subsidies is only the first step. Roughly 70% of the 29m-plus Saudis are under 30. At the same time, two-thirds of Saudi workers are employed by the government. With the workforce projected to double by 2030, the country will prosper only if the sleepy statist economy is turned on its head, diversifying from oil, boosting private business and introducing market-driven efficiencies.
The government plans to do this by getting the state out of all but its essential functions. From health and education to state-owned companies, the new Saudi leadership is looking for privatization and the private provision of public services. It has plans for charter schools and an insurance-based, privately provided health-care system. It is looking at the complete or partial privatization of more than two dozen agencies and state-owned companies, including the national airline, tele-coms firm and power generator. The biggest fish of all is Aramco, a national icon and almost certainly the world's most valuable firm. The prince favours floating a minority stake in Aramco and opening its books to the world. He is urging his team to come up with a plan within months.
Could such a blueprint become reality? Words are cheap and the obstacles huge. Saudi Arabia has promised reform before, only for its efforts to fizzle into insignificance. Its capital markets are thin and the capacity of its bureaucracy thinner. The investment that it needs in its young people, its non-oil industries, its tourism infrastructure and much else will not come cheap. It will not happen unless investors believe in the country's future. That confidence will be hard to build.
The best-laid plans
One reason is that austerity on an almost Greek scale will be difficult and unpopular (though the examples of Syria and Libya are a deterrent against outright rebellion). The state has provided generously partly to make up for the lack of political rights. Yet the royal family is reluctant to open the pressure valves that might make cuts more palatable. For all its economic urgency, the new regime shows no interest in political reform. Recent elections in which women were allowed to vote and to stand for (largely powerless) municipal councils were the idea of the late king. Nor is there a sign that the religious absolutism Saudi Arabia shares with its enemy, Islamic State, will soften. Even before the latest round, executions were at a 20-year high. Prince Muhammad waxes lyrical about the new generation. But he has little appetite to take on the conservative clergy over, say, the ban on women driving.
The other obstacle is geopolitics. As Iran has become more assertive, the Saudis have stepped in as the champion of Sunni Muslims. They have confronted Iranian-supported allies such as the Houthis in Yemen and Bashar al-Assad in Syria, as well Shia malcontents at home and in neighbouring Sunni-ruled countries like Bahrain.
The new leadership argues that stability requires it to send a Signal to terrorists (hence the executions). It feels obliged to defend its interests by resisting Iran which, it says, is bent on recreating a Persian empire. The argument is flawed: Saudi Arabia instead risks leading one side in a Muslim sectarian struggle it can neither win nor afford. The war in Yemen is a morass; support for Egypt and other Sunni allies is a drain. Defence and security already take over 25% of government spending and will eat up a growing share of a shrinking budget. Regional tensions will also deter private investment. Who would put trillions into an isolated economy in a region in turmoil?
The new regime seems to regard boldness at home and abroad as signs of a strong Saudi Arabia. Yet, though a muscular foreign policy plays well among Saudis, the economy will not thrive if the royal family ends up inflaming its region and blocking social reform at home. If Prince Muhammad is to remake his country, not wreck it, he needs to understand that. ■