Tuesday, February 27, 2007
Comment on European and Asian firms
Yesterday Fund Strategy published a cover story by me on the euro-zone and a related comment. They were, strictly speaking, more about economics generally rather than growth scepticism but I thought they might be of interest. The cover story is too long to post here (and there is no direct link) but I have pasted the comment below:
Many large European companies seem to be pinning their hopes for the future on outsourcing production to Asia. While this might work as a short-term financial strategy, it will not alter the shifting power balance between the two continents.
As Daniel Ben-Ami discusses in this week's cover story many European firms are transforming themselves into "platform companies". This means they are retaining control of such functions as marketing and design, while outsourcing the production of their products. Ikea and H&M are prime examples of European platform companies.
The phenomenon has also been noticed by those discussing Asia. Will Hutton, one of Britain's best-known economic commentators, has written a book that makes much of the fact that hardly any leading global brands are Chinese. He argues that China's strength is frequently exaggerated because commentators fail to grasp that it often acts as a sub-contractor for Western firms.
It is true that Western companies can benefit from outsourcing their production to Asia. No doubt they are bolstered by the restructuring involved in shedding their own workforces and relocating elsewhere. It also means they have fewer assets tied up in fixed capital. Lower volatility and higher share prices can be a result of this process.
But if Western companies believe Asian firms will be content to just assemble products for others they are deluding themselves. Once Asian companies have honed their production skills, they are likely to start developing their design and marketing abilities. This may take time but it is hard to see how the process can be thwarted.
The process will in some ways be analogous to Britain's relative decline. In the Victorian era Britain was the world's leading power, but in the 20th century it was supplanted by America. This did not mean Britain disappeared but it is not the power it once was. In absolute terms, Britain is far wealthier than in the 19th century, but relative to other powers it has fallen behind.
In a similar way, the shift today is towards Asia. Firms from the East will no doubt become leaders in technology and marketing rather than assemblers of Western goods. European firms will continue to operate - many may thrive, but fewer of them will be the world leaders they are now. The continent of the future looks set to be Asia rather than Europe.
Many large European companies seem to be pinning their hopes for the future on outsourcing production to Asia. While this might work as a short-term financial strategy, it will not alter the shifting power balance between the two continents.
As Daniel Ben-Ami discusses in this week's cover story many European firms are transforming themselves into "platform companies". This means they are retaining control of such functions as marketing and design, while outsourcing the production of their products. Ikea and H&M are prime examples of European platform companies.
The phenomenon has also been noticed by those discussing Asia. Will Hutton, one of Britain's best-known economic commentators, has written a book that makes much of the fact that hardly any leading global brands are Chinese. He argues that China's strength is frequently exaggerated because commentators fail to grasp that it often acts as a sub-contractor for Western firms.
It is true that Western companies can benefit from outsourcing their production to Asia. No doubt they are bolstered by the restructuring involved in shedding their own workforces and relocating elsewhere. It also means they have fewer assets tied up in fixed capital. Lower volatility and higher share prices can be a result of this process.
But if Western companies believe Asian firms will be content to just assemble products for others they are deluding themselves. Once Asian companies have honed their production skills, they are likely to start developing their design and marketing abilities. This may take time but it is hard to see how the process can be thwarted.
The process will in some ways be analogous to Britain's relative decline. In the Victorian era Britain was the world's leading power, but in the 20th century it was supplanted by America. This did not mean Britain disappeared but it is not the power it once was. In absolute terms, Britain is far wealthier than in the 19th century, but relative to other powers it has fallen behind.
In a similar way, the shift today is towards Asia. Firms from the East will no doubt become leaders in technology and marketing rather than assemblers of Western goods. European firms will continue to operate - many may thrive, but fewer of them will be the world leaders they are now. The continent of the future looks set to be Asia rather than Europe.
Labels: Asia, china, corporations, economics, Europe, Fund Strategy
Monday, February 26, 2007
My review of Affluenza
Spiked has published my review of Affluenza by Oliver James. It argues that it is more likely that Oliver James is mentally disturbed rather than, as he implies, the rest of us.
Labels: affluenza, book, happiness, inequality, review, spiked
Friday, February 23, 2007
New Scientist on cleaner flying
The cover story of the current New Scientist (24 February 2007) is on ways to make flying cleaner. It includes discussion of such technology as strut-braced wings, laminar flow control, fast forward and the flying wing. The piece, by Bennett Daviss, takes a sceptical view on whether such technologies will ever be implemented. But at least it shows the possibilities of such technologies if humans decide to work on them.
Labels: climate, technology, transport
Thursday, February 22, 2007
More on affluenza
Yesterday went to a meeting organised by Compass, which describes itself as a “democratic left pressure group”, on the politics of well-being. The main luminaries were Oliver James, the author of Affluenza and Professor Richard Layard. What struck me was the ease with which they moved from the existence of mass affluence to the assumption that it is to blame for widespread mental illness. Little argument was needed to convince the audience of this point. I will be writing more on the subject in the next few days. The Guardian has also carried a series of related articles on the comment is free section of its website.
Monday, February 19, 2007
Istanbul: mega-city
I have not made any entries in the last few days as I have been on holiday in Istanbul. In that time a lot has happened which I hope to catch up on including a piece by Martin Wolf in the Financial Times on American inequality and the Unicef report on child well-being. But Istanbul itself is worth commenting on. In recent years it has grown enormously with a vast migration from the countryside to the city. It now qualifies as a “mega-city” as it has more than 10 million people. Over time an increasingly large number of the world’s population will live in such conurbations. This development should be welcomed rather than derided.
Labels: America, Asia, cities, development, happiness, inequality
Monday, February 12, 2007
Comment on inequality
Today Fund Strategy published a comment by me on global inequality:
Is the world, and particularly America, as unequal as often assumed? And what are the investment implications of such inequality?
Before examining these questions it is important to be clear about definitions. Terminological confusion abounds in this area more than in most others.
Fortunately a speech last week by Ben Bernanke, chairman of America's Federal Reserve, made some of the key concepts clear. For a start, in absolute terms most Americans are far better off than in the past. For example, in real terms - after adjusting for inflation - the reward for an hour of work has more than tripled over the past 60 years.
However, in relation to economic outcomes, the Fed chairman conceded that inequality has risen for the past three decades or more. The general trend has been for the wages of highly paid workers to rise faster than those at the bottom of the income distribution.
America is not the world. European countries tend to have a more even income distribution whereas developing countries are more unequal than the US. However, the US provides a useful first approximation for grasping the difficult question of inequality.
One often-quoted fact on America is that the share of national income going to capital is at an all-time high, and the share going to labour is at an all-time low. Stephen Roach, chief economist at Morgan Stanley and one of Wall Street's leading bears, frequently makes this point.
But others argue that Roach's reading of statistics is misleading. Jason Benderly, president of Benderly Economics, an economic consulting firm based in Colorado, points out that the figure for corporate profits includes money generated by American corporations abroad. Therefore, the ratio of GDP to profits is bolstered by overseas profits, while the figure for economic output is only national.
Also, the long-term decline of the ratio of wages and salaries to GDP disguises the fact that workers are receiving other types of remuneration. These could include pension provision and medical care.
James Carrick, an investment strategist at Legal & General Investment Management, takes the argument even further. He contends that an impending fall in basic commodity prices should benefit the mass of society more than the relatively rich.
None of this is to deny the existence of inequality or to claim that it is irrelevant. But the picture is more complicated than is often assumed.
Is the world, and particularly America, as unequal as often assumed? And what are the investment implications of such inequality?
Before examining these questions it is important to be clear about definitions. Terminological confusion abounds in this area more than in most others.
Fortunately a speech last week by Ben Bernanke, chairman of America's Federal Reserve, made some of the key concepts clear. For a start, in absolute terms most Americans are far better off than in the past. For example, in real terms - after adjusting for inflation - the reward for an hour of work has more than tripled over the past 60 years.
However, in relation to economic outcomes, the Fed chairman conceded that inequality has risen for the past three decades or more. The general trend has been for the wages of highly paid workers to rise faster than those at the bottom of the income distribution.
America is not the world. European countries tend to have a more even income distribution whereas developing countries are more unequal than the US. However, the US provides a useful first approximation for grasping the difficult question of inequality.
One often-quoted fact on America is that the share of national income going to capital is at an all-time high, and the share going to labour is at an all-time low. Stephen Roach, chief economist at Morgan Stanley and one of Wall Street's leading bears, frequently makes this point.
But others argue that Roach's reading of statistics is misleading. Jason Benderly, president of Benderly Economics, an economic consulting firm based in Colorado, points out that the figure for corporate profits includes money generated by American corporations abroad. Therefore, the ratio of GDP to profits is bolstered by overseas profits, while the figure for economic output is only national.
Also, the long-term decline of the ratio of wages and salaries to GDP disguises the fact that workers are receiving other types of remuneration. These could include pension provision and medical care.
James Carrick, an investment strategist at Legal & General Investment Management, takes the argument even further. He contends that an impending fall in basic commodity prices should benefit the mass of society more than the relatively rich.
None of this is to deny the existence of inequality or to claim that it is irrelevant. But the picture is more complicated than is often assumed.
Labels: America, economics, Fund Strategy, inequality
Sunday, February 11, 2007
New York Salon on the human footprint
The New York Salon is having a public meeting on “the human footprint” this coming Tuesday. I wish I could go along but I will be on the other side of the Atlantic.
Labels: America, environment, footprint
Friday, February 09, 2007
Discussion on work-life balance
Nico Macdonald has provided a useful summary of a discussion on work-life balance on yesterday’s BBC Radio 4 Today programme:
"New research claims that it is getting harder to manage a work life balance." On need for more support for working couples with children, and for carers. Discussion with Jenny Watson, Chair Equal Opportunities Commission, and Mark Easton, home editor, BBC News. Easton: "There is a... more radical answer, which is that we could all do less... work less, commute less, move around less, Yes, we could earn a bit less... What the economists point out is that we can actually choose to work a three day week in this country, and we would _still_ have a standard of living far in excess of our grandparents... There are choices here we _do_ have... but are reluctant to take... Instead of spending more and more of our weekends in the office, so that we can pay for that giant mortgage and that new mobile phone, we could I suppose spend more time with our kids... The pressures in a society like ours to have the right stuff and to keep up with the Jones's... are very significant." Easton also celebrates Southern European extended families, which feature childcare by the 'younger old' and family care for the 'older old'."
Of course Easton is right to argue that individuals can make the choice of taking a cut in income in return for working fewer hours. But from a social perspective it is economic growth, and the accompanying rise in productivity, that has enabled a dramatic fall in working hours over the long-term.
"New research claims that it is getting harder to manage a work life balance." On need for more support for working couples with children, and for carers. Discussion with Jenny Watson, Chair Equal Opportunities Commission, and Mark Easton, home editor, BBC News. Easton: "There is a... more radical answer, which is that we could all do less... work less, commute less, move around less, Yes, we could earn a bit less... What the economists point out is that we can actually choose to work a three day week in this country, and we would _still_ have a standard of living far in excess of our grandparents... There are choices here we _do_ have... but are reluctant to take... Instead of spending more and more of our weekends in the office, so that we can pay for that giant mortgage and that new mobile phone, we could I suppose spend more time with our kids... The pressures in a society like ours to have the right stuff and to keep up with the Jones's... are very significant." Easton also celebrates Southern European extended families, which feature childcare by the 'younger old' and family care for the 'older old'."
Of course Easton is right to argue that individuals can make the choice of taking a cut in income in return for working fewer hours. But from a social perspective it is economic growth, and the accompanying rise in productivity, that has enabled a dramatic fall in working hours over the long-term.
Wednesday, February 07, 2007
Speeches on inequality and on globalisation
Occasionally official financial institutions publish interesting though (metaphorically) dusty documents. Yesterday Ben Bernanke, the chairman of America’s Federal Reserve, gave a speech on economic well-being in America. It examined both absolute rises in wealth and widening inequality over the past three decades or so. The day before Prakash Loungani of the external relations department of the International Monetary Fund gave an address defending globalisation from a free market perspective. He drew on the work of Benjamin Friedman, Thomas Friedman, Joseph Stiglitz and Martin Wolf.
Labels: America, globalisation, inequality
Monday, February 05, 2007
Debate on climate change is not over
There follows a comment by me from today's issue of Fund Strategy on the response to the latest official report on climate change.
Media coverage of the new Intergovernmental Panel on Climate Change report shows how low public debate has sunk.
Almost every publication led on the "news" that climate change was probably largely man-made. Its surprise value was about as great as the earth being round.
As it happens, even most "deniers" - the disparaging term for those who reject the suffocating consensus on global warming - recognise the anthropogenic contribution to climate change. The economic and political debate is primarily about what priority to attach to the problem and how best to deal with it.
But it seems that politicians and much of the media are not interested in serious debate. Instead the argument they put forward is simplistic and authoritarian:
- Science has settled the debate about climate change.
- The solution to the problem must lie in managing energy demand.
For a start, it is not clear what "debate" they are talking about. That the earth is warming? That humans are to blame? That we are facing climate change catastrophe? That there is only one way to deal with the problem? The complexity of climate change science makes it ridiculous to pitch it as a single debate with one correct answer.
Even if climate change is a severe problem, the solution is not necessarily straightforward. The government emphasises rationing measures such as air taxes or individuals curbing their use of electricity. Although it talks about developing alternative technology, it invests a pittance in innovation.
An alternative approach would be to massively expand energy supply. This could be achieved by investing in technology to allow for a cheap, plentiful and clean energy. But the flaws in the mainstream approach to climate change are not just problems for the future; the idea that the debate is over has damaging consequences in the present.
The attack on genuine debate leaves discussion limited to the most narrow technical issues. For example, should airlines or passengers be penalised more in the bid to curb carbon emissions? How much should air taxes be raised by? Which airlines are the worst offenders?
This blinkered discussion means the big picture is missed. Rather than finding ways to solve the problem, the solution is seen as punishing individuals and businesses. The cultural and economic benefits of air travel, and development more generally, are missed.
Media coverage of the new Intergovernmental Panel on Climate Change report shows how low public debate has sunk.
Almost every publication led on the "news" that climate change was probably largely man-made. Its surprise value was about as great as the earth being round.
As it happens, even most "deniers" - the disparaging term for those who reject the suffocating consensus on global warming - recognise the anthropogenic contribution to climate change. The economic and political debate is primarily about what priority to attach to the problem and how best to deal with it.
But it seems that politicians and much of the media are not interested in serious debate. Instead the argument they put forward is simplistic and authoritarian:
- Science has settled the debate about climate change.
- The solution to the problem must lie in managing energy demand.
For a start, it is not clear what "debate" they are talking about. That the earth is warming? That humans are to blame? That we are facing climate change catastrophe? That there is only one way to deal with the problem? The complexity of climate change science makes it ridiculous to pitch it as a single debate with one correct answer.
Even if climate change is a severe problem, the solution is not necessarily straightforward. The government emphasises rationing measures such as air taxes or individuals curbing their use of electricity. Although it talks about developing alternative technology, it invests a pittance in innovation.
An alternative approach would be to massively expand energy supply. This could be achieved by investing in technology to allow for a cheap, plentiful and clean energy. But the flaws in the mainstream approach to climate change are not just problems for the future; the idea that the debate is over has damaging consequences in the present.
The attack on genuine debate leaves discussion limited to the most narrow technical issues. For example, should airlines or passengers be penalised more in the bid to curb carbon emissions? How much should air taxes be raised by? Which airlines are the worst offenders?
This blinkered discussion means the big picture is missed. Rather than finding ways to solve the problem, the solution is seen as punishing individuals and businesses. The cultural and economic benefits of air travel, and development more generally, are missed.
Labels: climate, environment, Fund Strategy
Sunday, February 04, 2007
Davos and “the limits to growth”
Looking again at the material from the recent World Economic Forum the references to the Limits to Growth report are interesting. The 1972 report from the Club of Rome advocated zero economic growth and predicted dire consequences as a result of humanity’s increasing use of resources. In contrast, at the opening address at Davos the German chancellor, Angela Merkel, rejected the zero growth approach. Instead she favoured what she called an intelligent combination of economy and ecology. This is in line with Germany’s motto of “growth and responsibility” for its presidency of the G8.
There was also a session at Davos specifically on “the next limits to growth”. It evidently started positively by attacking what one of the panellists called “doomsayers”. But the apparently positive start was qualified by fears such as an alleged water shortage and the supposed dangers of population growth.
Both sets of sessions seem to include classic growth sceptic formulations. They say growth is a good thing to begin with then add numerous caveats.
There was also a session at Davos specifically on “the next limits to growth”. It evidently started positively by attacking what one of the panellists called “doomsayers”. But the apparently positive start was qualified by fears such as an alleged water shortage and the supposed dangers of population growth.
Both sets of sessions seem to include classic growth sceptic formulations. They say growth is a good thing to begin with then add numerous caveats.
Labels: growth
Saturday, February 03, 2007
Humans are the solution
The news coverage on the release of the new Intergovernmental Panel on Climate Change report (in fact the policymakers’ summary) is obsessed with the idea that humans have probably caused climate change. What does not seem to have occurred to the media is that humans are the solution too. More development and better technology are the way forward, rather than rationing and limiting the human impact on the environment.
Labels: climate, environment
Thursday, February 01, 2007
My take on Davos
Today spiked published an article by me on Davos 2007. It argued that the professed concern about the stagnating wages of Western workers at the elite conference was primarily a way of expressing fears about Asian development.
Labels: Asia, development, inequality, spiked
Debating air taxes on Sky News
This morning I appeared on Sky News debating Friends of the Earth on the raising of air taxes which came into effect today. I argued against the taxes on two grounds. First, they were in effect a form of rationing which would discourage people from flying. Second, to the extent that climate change is a problem the solution lies with investment in technological innovation. Friends of the Earth argued the taxes were welcome but the proceeds should be earmarked for green purposes.
Interestingly the Friends of the Earth representative made a big point of insisting that the science on climate change was certain and the Stern review proved it. Of course he did not make clear what exactly was certain. That the earth is warming? That humans are responsible? That catastrophe is imminent? That rationing is the only way forward? It seemed to me what was really being said was that it is illegitimate to challenge the consensus that there should be natural limits on human behaviour. In other words what is really being pushed is not scientific truth but a morality of low expectations.
Interestingly the Friends of the Earth representative made a big point of insisting that the science on climate change was certain and the Stern review proved it. Of course he did not make clear what exactly was certain. That the earth is warming? That humans are responsible? That catastrophe is imminent? That rationing is the only way forward? It seemed to me what was really being said was that it is illegitimate to challenge the consensus that there should be natural limits on human behaviour. In other words what is really being pushed is not scientific truth but a morality of low expectations.
Labels: climate, environment, media appearances, television
