Monday, December 01, 2008
Lost decade points to need for tough action
The following is my latest comment from Fund Strategy.
Although the West's current predicament differs in some respects from Japan after the collapse of the baburu keiki (bubble economy) of the 1980s there are many similarities.
For those who are not old enough to remember, or who have not read the history, the Japanese economy was growing at a relatively healthy average rate of 4% in the 1980s. But the expansion was artificially inflated by surging equity and property prices. At the end of the decade asset prices crashed and the economy entered a period of slow growth. The average growth rate in the 1990s was only 1.7%.
The similarities between Japan in the 1990s and the West today are fairly apparent. In both cases the economy suffered as a result of the bursting of an artificially inflated asset price boom. And in both cases an indecisive and often gormless political leadership made the crisis worse than it needed to be. Rather than address the fundamental problem of a lack of growth in real productive capacity they simply attempted a fiscal stimulus.
There are also differences. Japan's problems were partly centred on the industrial sector. Manufacturing in particular had reached a stage where it needed to restructure to be able to achieve a new round of investment. After spectacular economic growth in the 1950s and 1960s its once mighty industrial sector needed to be revamped. In contrast, the West's downturn is focused on the consumption side of the economy. Manufacturing is now being hit but it was consumption that suffered first.
The situation also differs because the emerging economies play a far more important role in the world economy than they did in 1990. It is China, rather than America, that has become the largest source of economic growth globally.
If there is a lesson to be learned from Japan's "lost decade" it is that decisive political action is a key part of solving the crisis. It is not enough just to spend money. Resources should be devoted to bolstering productive capacity. It is also necessary to involve emerging economies in the recovery process by acknowledging their increasing importance in the global economy
Although the West's current predicament differs in some respects from Japan after the collapse of the baburu keiki (bubble economy) of the 1980s there are many similarities.
For those who are not old enough to remember, or who have not read the history, the Japanese economy was growing at a relatively healthy average rate of 4% in the 1980s. But the expansion was artificially inflated by surging equity and property prices. At the end of the decade asset prices crashed and the economy entered a period of slow growth. The average growth rate in the 1990s was only 1.7%.
The similarities between Japan in the 1990s and the West today are fairly apparent. In both cases the economy suffered as a result of the bursting of an artificially inflated asset price boom. And in both cases an indecisive and often gormless political leadership made the crisis worse than it needed to be. Rather than address the fundamental problem of a lack of growth in real productive capacity they simply attempted a fiscal stimulus.
There are also differences. Japan's problems were partly centred on the industrial sector. Manufacturing in particular had reached a stage where it needed to restructure to be able to achieve a new round of investment. After spectacular economic growth in the 1950s and 1960s its once mighty industrial sector needed to be revamped. In contrast, the West's downturn is focused on the consumption side of the economy. Manufacturing is now being hit but it was consumption that suffered first.
The situation also differs because the emerging economies play a far more important role in the world economy than they did in 1990. It is China, rather than America, that has become the largest source of economic growth globally.
If there is a lesson to be learned from Japan's "lost decade" it is that decisive political action is a key part of solving the crisis. It is not enough just to spend money. Resources should be devoted to bolstering productive capacity. It is also necessary to involve emerging economies in the recovery process by acknowledging their increasing importance in the global economy
Labels: Asia, economics, growth
Friday, November 21, 2008
Happiness prime minister speaks
Today’s Wall Street Journal has an interview with Bhutan’s first elected prime minister. Inevitably it touches on the Himalayan kingdom’s much lauded emphasis on pursuing Gross National Happiness rather than GDP. What Jigmi Y Thinley says is pretty anodyne. What is more notable is that he became the first democratically elected prime minister only this year. The country so loved by happiness gurus for many years only got the formal trappings of democracy in 2008.
Even now its embrace of democracy is only partial. Like Britain it retains a dubious status as a “constitutional monarchy”.
Even now its embrace of democracy is only partial. Like Britain it retains a dubious status as a “constitutional monarchy”.
Sunday, October 26, 2008
Welcome India’s lunar programme
India’s lunar programme should be welcomed. India is sending an unmanned space probe to the moon and in the course of it explore the possibility of bringing helium 3 – the ideal fuel for nuclear fusion – back to earth.
It was inevitable that many would sneer at such a mission when India is still mired in poverty. But it is wrong to counter-pose missions such as India’s space programme with economic development. On the contrary, the same bold ambitious attitude is required of both.
Randeep Ramesh, the Guardian’s south Asia correspondent, claims he is not against the mission in principle but sees it as precocious:
“India is a nation with a proliferating development needs – the global hunger index ranks it below Laos and Burkina Faso. Hundreds of millions of Indians still openly defecate in fields, at roadsides and beside train tracks. Common tropical diseases easily overwhelm the country's poorly-funded public health system. Its roads, railways and airports all need money and managerial overhauls.”
He misses the point that looking to the stars cultivates the right attitude to solve problems on earth too.
It was inevitable that many would sneer at such a mission when India is still mired in poverty. But it is wrong to counter-pose missions such as India’s space programme with economic development. On the contrary, the same bold ambitious attitude is required of both.
Randeep Ramesh, the Guardian’s south Asia correspondent, claims he is not against the mission in principle but sees it as precocious:
“India is a nation with a proliferating development needs – the global hunger index ranks it below Laos and Burkina Faso. Hundreds of millions of Indians still openly defecate in fields, at roadsides and beside train tracks. Common tropical diseases easily overwhelm the country's poorly-funded public health system. Its roads, railways and airports all need money and managerial overhauls.”
He misses the point that looking to the stars cultivates the right attitude to solve problems on earth too.
Labels: Asia, energy, india, inequality, science, technology
Monday, August 18, 2008
A squeeze not a recession
The following comment by me appeared in this week’s Fund Strategy.
Many will no doubt see the latest gloomy data from the eurozone and Japan as confirmation that the world economy is heading for a deep recession. Such a view is based on a superficial reading of global developments.
GDP figures for the second quarter show output falling by 0.2% in the eurozone and 0.6% in Japan. In addition, global fund managers say that the credit crunch is spreading from America to the rest of the world.
It is certainly possible, although not certain, that many developed countries will see a technical recession in the coming year (defined as two consecutive quarters of falling output). However, given the strength and size of the developing economies it is hard to see the whole global economy suffering such a fate. In July the International Monetary Fund forecast that emerging and developing economies would grow by 6.9% this year and 6.7% in 2009.
What looks likely is a protracted period of slow growth in the developed world punctuated by financial volatility. Developing country growth is likely to slow but to remain positive.
It is also important to remember that numbers only tell part of the story. This downturn is different from most previous ones in that it is a consumption-led slowdown. It is centred on problems on the consumption side of the economy and the financial markets rather than the industrial sector. Instead of the violent shake-out that has characterised many previous cycles, a less intensive but more prolonged squeeze looks likely.
The outlook is far from rosy, but it is not comparable to recessions such as that of the mid-1970s or early 1980s, let alone the Great Depression of the 1930s. Although the contraction will not be as great, it is likely that the recovery will be muted. Previous shake-outs often played the role of restructuring the economy with a new round of expansion after the weakest firms and sectors were shaken out - what one economist famously called "creative destruction". This time around, no such recovery is likely as no fundamental restructuring has occurred.
The other big difference is the relative importance of the developing world. In relation to the global economy, the past provides little guide to the present or the future.
Many will no doubt see the latest gloomy data from the eurozone and Japan as confirmation that the world economy is heading for a deep recession. Such a view is based on a superficial reading of global developments.
GDP figures for the second quarter show output falling by 0.2% in the eurozone and 0.6% in Japan. In addition, global fund managers say that the credit crunch is spreading from America to the rest of the world.
It is certainly possible, although not certain, that many developed countries will see a technical recession in the coming year (defined as two consecutive quarters of falling output). However, given the strength and size of the developing economies it is hard to see the whole global economy suffering such a fate. In July the International Monetary Fund forecast that emerging and developing economies would grow by 6.9% this year and 6.7% in 2009.
What looks likely is a protracted period of slow growth in the developed world punctuated by financial volatility. Developing country growth is likely to slow but to remain positive.
It is also important to remember that numbers only tell part of the story. This downturn is different from most previous ones in that it is a consumption-led slowdown. It is centred on problems on the consumption side of the economy and the financial markets rather than the industrial sector. Instead of the violent shake-out that has characterised many previous cycles, a less intensive but more prolonged squeeze looks likely.
The outlook is far from rosy, but it is not comparable to recessions such as that of the mid-1970s or early 1980s, let alone the Great Depression of the 1930s. Although the contraction will not be as great, it is likely that the recovery will be muted. Previous shake-outs often played the role of restructuring the economy with a new round of expansion after the weakest firms and sectors were shaken out - what one economist famously called "creative destruction". This time around, no such recovery is likely as no fundamental restructuring has occurred.
The other big difference is the relative importance of the developing world. In relation to the global economy, the past provides little guide to the present or the future.
Labels: America, Asia, economics, Europe, Fund Strategy
Monday, June 30, 2008
Greening of Asia should be halted
The following comment by me appeared in today’s issue of Fund Strategy:
The trend towards the "greening of Asia" represents one of the most retrograde developments of our time. Asia has benefited enormously from its rapid economic growth and could gain a lot more in the future. Anything that threatens such growth should be resisted staunchly.
It is only because of the deeply pessimistic times we live in that the greening of Asia is taken seriously. The benefits of growth tend to be grossly under-appreciated while the prospect of environmental damage prompts panic.
From the relative comfort of a developed nation it is easy to forget how beneficial growth has proved. Among other things it has led to greatly improved longevity, lower infant mortality, increased education, vastly better infrastructure, more consumer goods and more leisure time.
Yet much of Asia remains relatively poor. Even China, although it has grown rapidly over the past 30 years, still has much lower income per head than developed economies.
Under such circumstances, growth should remain a top priority. If the region chooses to use "dirty energy", rather than go to the extra expense of "going green", it should be free to do so. Fossil fuels are legitimate ways of meeting Asia's energy needs.
As it happens, growth generally provides the resources to clean up the environment. Typically, countries go through an "environmental transition" as they industrialise.
The early days of industrialisation are often heavily polluting. But as the economy grows it becomes able to generate the resources to produce goods and services more cleanly.
The developed world has already experienced this transition. America and Britain produce more than ever in absolute terms, yet the environment is generally much cleaner than it was in the earlier industrial period.
If the developed world is that worried about dirty energy it can always provide the latest technology to developing countries. No doubt if it is freely or even just cheaply available to them they are likely to make good use of it.
But it is important not to lose sight of the over-riding importance of growth. It would be wrong, from both an economic and moral perspective, to impose the use of particular technologies deemed "green" in the West.
The trend towards the "greening of Asia" represents one of the most retrograde developments of our time. Asia has benefited enormously from its rapid economic growth and could gain a lot more in the future. Anything that threatens such growth should be resisted staunchly.
It is only because of the deeply pessimistic times we live in that the greening of Asia is taken seriously. The benefits of growth tend to be grossly under-appreciated while the prospect of environmental damage prompts panic.
From the relative comfort of a developed nation it is easy to forget how beneficial growth has proved. Among other things it has led to greatly improved longevity, lower infant mortality, increased education, vastly better infrastructure, more consumer goods and more leisure time.
Yet much of Asia remains relatively poor. Even China, although it has grown rapidly over the past 30 years, still has much lower income per head than developed economies.
Under such circumstances, growth should remain a top priority. If the region chooses to use "dirty energy", rather than go to the extra expense of "going green", it should be free to do so. Fossil fuels are legitimate ways of meeting Asia's energy needs.
As it happens, growth generally provides the resources to clean up the environment. Typically, countries go through an "environmental transition" as they industrialise.
The early days of industrialisation are often heavily polluting. But as the economy grows it becomes able to generate the resources to produce goods and services more cleanly.
The developed world has already experienced this transition. America and Britain produce more than ever in absolute terms, yet the environment is generally much cleaner than it was in the earlier industrial period.
If the developed world is that worried about dirty energy it can always provide the latest technology to developing countries. No doubt if it is freely or even just cheaply available to them they are likely to make good use of it.
But it is important not to lose sight of the over-riding importance of growth. It would be wrong, from both an economic and moral perspective, to impose the use of particular technologies deemed "green" in the West.
Labels: Asia, environment, Fund Strategy
Monday, June 16, 2008
The Battle for China
I will be speaking at a session on China and the environment at the Battle for China event on 12 July in London.
Labels: Asia, china, economics, environment, speeches
Tuesday, June 10, 2008
Gap narrows on the road to prosperity
The following comment by me appeared in yesterday’s issue Fund Strategy.
Only a few years ago the emerging markets were considered suitable only for the young and adventurous. The average investor would have at most a few per cent of emerging market stocks in his portfolio.
Times are changing fast. In recent months Fund Strategy has examined the rise of new funds specialising in such areas as Africa, India and the Middle East. Such fund launches reflect a fundamental change in the global economy. Although the developed economies are growing, the developing ones are typically growing much faster.
As a result, a growing proportion of the world economy consists of developing countries. Back in 2000 the advanced economies accounted for about two-thirds of global output on a purchasing power parity basis, according to the International Monetary Fund. By 2013 the advanced economies are projected to account for only about half of the global economy. The advanced economies remain far richer than the developing ones but, on this measure at least, the gap is narrowing.
This trend is to be wholly welcomed. In the past, the benefits of development - including a modern infrastructure and access to consumer goods - were confined to a largely white elite. Now they are becoming more evenly spread.
One of the most potent symbols of this change is the advent of the Tata Nano. The £1,000 people's car is designed to bring motoring to India's masses. Given that the Ford Model T, which made motoring a popular reality in America, was launched a century ago, the development is long overdue. Even in as poor a country as India, with 80% of the population living on less than $2 a day, cars should become more widely available as long as growth continues.
Of course, it may be that one of Tata's rivals ultimately builds a more successful car. However, the key point is not about an individual model of car but the fact that Indians can now realistically aspire to such things. India will also need to sustain a massive roadbuilding programme to ensure that its citizens can enjoy the full benefits of mobility.
If there is a problem, it is that developing economies still have a long way to go to catch up with the West. Sub-Saharan Africa and South Asia in particular remain desperately poor.
The sooner developing economies can be considered mainstream rather than exotic the better.
Only a few years ago the emerging markets were considered suitable only for the young and adventurous. The average investor would have at most a few per cent of emerging market stocks in his portfolio.
Times are changing fast. In recent months Fund Strategy has examined the rise of new funds specialising in such areas as Africa, India and the Middle East. Such fund launches reflect a fundamental change in the global economy. Although the developed economies are growing, the developing ones are typically growing much faster.
As a result, a growing proportion of the world economy consists of developing countries. Back in 2000 the advanced economies accounted for about two-thirds of global output on a purchasing power parity basis, according to the International Monetary Fund. By 2013 the advanced economies are projected to account for only about half of the global economy. The advanced economies remain far richer than the developing ones but, on this measure at least, the gap is narrowing.
This trend is to be wholly welcomed. In the past, the benefits of development - including a modern infrastructure and access to consumer goods - were confined to a largely white elite. Now they are becoming more evenly spread.
One of the most potent symbols of this change is the advent of the Tata Nano. The £1,000 people's car is designed to bring motoring to India's masses. Given that the Ford Model T, which made motoring a popular reality in America, was launched a century ago, the development is long overdue. Even in as poor a country as India, with 80% of the population living on less than $2 a day, cars should become more widely available as long as growth continues.
Of course, it may be that one of Tata's rivals ultimately builds a more successful car. However, the key point is not about an individual model of car but the fact that Indians can now realistically aspire to such things. India will also need to sustain a massive roadbuilding programme to ensure that its citizens can enjoy the full benefits of mobility.
If there is a problem, it is that developing economies still have a long way to go to catch up with the West. Sub-Saharan Africa and South Asia in particular remain desperately poor.
The sooner developing economies can be considered mainstream rather than exotic the better.
Labels: America, Asia, Fund Strategy, india, inequality
Tuesday, June 03, 2008
Productivity not age key to Indian growth
The following comment by me appeared in yesterday’s issue Fund Strategy.
If demography was key then Zimbabwe, with a median age of only 20.3 years, according to the Central Intelligence Agency, would be a haven of prosperity. Yet it is Africa's worst-performing economy by far. India, too, would have been more dynamic in the past yet it has gone through prolonged periods of sluggish growth.
Conversely, Britain's median age, at 39.9 years compared with 25.1 years for India, might be taken to suggest a relatively poor country. But Britain, although growing more slowly, is vastly more productive and wealthier than India.
The key to a nation's prosperity is its productivity. High levels of productive technology and good infrastructure allow countries to become rich and stay that way. They also tend to lead to older and healthier populations.
Those of working age can produce more, and even the elderly, should they so wish, are in a better position to work, too. The more technology is used, the less need there is for workers to have to draw on sheer physical strength and stamina to perform their tasks.
In contrast, India has a vast population, particularly in rural areas, that is chronically underemployed. Over 60% of the labour force - that is more than 300m people - works in agriculture despite it accounting for only 17.5% of GDP. In this sense it is more closely equivalent to being on the dole in Britain than an efficient form of production.
A key challenge facing India, therefore, is to develop much larger modern industrial and service sectors. Although there is much hype about India's leading-edge technology, particularly information technology, it only accounts for a tiny proportion of the labour market.
For India to continue its economic growth the proportion of employees in modern sectors will have to be increased enormously. A substantial improvement in infrastructure - airports, communications, roads and utilities - will greatly aid the process.
The continuation of India's rapid growth depends on broadening economic development rather than the age of its population.
If demography was key then Zimbabwe, with a median age of only 20.3 years, according to the Central Intelligence Agency, would be a haven of prosperity. Yet it is Africa's worst-performing economy by far. India, too, would have been more dynamic in the past yet it has gone through prolonged periods of sluggish growth.
Conversely, Britain's median age, at 39.9 years compared with 25.1 years for India, might be taken to suggest a relatively poor country. But Britain, although growing more slowly, is vastly more productive and wealthier than India.
The key to a nation's prosperity is its productivity. High levels of productive technology and good infrastructure allow countries to become rich and stay that way. They also tend to lead to older and healthier populations.
Those of working age can produce more, and even the elderly, should they so wish, are in a better position to work, too. The more technology is used, the less need there is for workers to have to draw on sheer physical strength and stamina to perform their tasks.
In contrast, India has a vast population, particularly in rural areas, that is chronically underemployed. Over 60% of the labour force - that is more than 300m people - works in agriculture despite it accounting for only 17.5% of GDP. In this sense it is more closely equivalent to being on the dole in Britain than an efficient form of production.
A key challenge facing India, therefore, is to develop much larger modern industrial and service sectors. Although there is much hype about India's leading-edge technology, particularly information technology, it only accounts for a tiny proportion of the labour market.
For India to continue its economic growth the proportion of employees in modern sectors will have to be increased enormously. A substantial improvement in infrastructure - airports, communications, roads and utilities - will greatly aid the process.
The continuation of India's rapid growth depends on broadening economic development rather than the age of its population.
Labels: Asia, china, Fund Strategy, india
Tuesday, February 19, 2008
China’s short march
Time magazine’s cover story (in the Asia and Europe editions) on “China’s short march” gives a vivid description of China in the midst of transformation from a rural nation to an urban one. In addition to the move from countryside to cities many millions of the newly affluent are moving to suburbs that surround China’s urban centres.
Although Bill Powell refrains from much editorialising in the piece there is a hint of environmental dangers through the spread of car ownership. He also ends with a warning about the potential dangers of inequality:
“It's not the people living the Great Chinese Dream — with the new house and the car and the dog and maybe a second child on the way — that the government needs to worry about. It's the people who build that dream for others, and then move on, hoping to do it again somewhere else. They, too, are vested in the country's economic miracle. But should that miracle somehow turn sour, look out.”
While the dangers are no doubt real it is a pity that it generally seems to be the negative points that are emphasised. On balance the urbanisation of China is a tremendously positive development.
Although Bill Powell refrains from much editorialising in the piece there is a hint of environmental dangers through the spread of car ownership. He also ends with a warning about the potential dangers of inequality:
“It's not the people living the Great Chinese Dream — with the new house and the car and the dog and maybe a second child on the way — that the government needs to worry about. It's the people who build that dream for others, and then move on, hoping to do it again somewhere else. They, too, are vested in the country's economic miracle. But should that miracle somehow turn sour, look out.”
While the dangers are no doubt real it is a pity that it generally seems to be the negative points that are emphasised. On balance the urbanisation of China is a tremendously positive development.
Labels: Asia, china, cities, environment, inequality
Sunday, February 17, 2008
China blogs
I have come across a useful list of blogs on contemporary China.
Sunday, February 03, 2008
Myths of Chinese and Indian development
Pranab Bardhan, a professor of economics at the University of California, Berkeley, has an interesting article in the Boston Review (“What makes a miracle” January / February 2008) on myths of Chinese and Indian development. His concern is to show the misconceptions in the standard account of recent rapid growth in China and India. He describes the orthodoxy as follows:
“The answer that continues to dominate public discussion in the United States runs along the following lines: decades of socialist controls and regulations stifled enterprise in India and China and led them to a dead end. A mix of market reforms and global integration finally unleashed their entrepreneurial energies. As these giants shook off their “socialist slumber,” they entered the “flattened” playing field of global capitalism. The result has been high economic growth in both countries and correspondingly large declines in poverty.”
However, for Bardhan the facts do not fully correspond with the account. For example, “China has indeed made large strides in foreign trade and investment since the 1990s, but well before then, say between 1978 and 1993, the country had already achieved an average annual growth rate of about nine percent.” And in relation to poverty reduction in China he argues that: “World Bank estimates suggest that two-thirds of the decline in extremely poor people (those living below the admittedly crude poverty line of one dollar a day per capita at 1993 international parity prices) between 1981 and 2004 had taken place by the mid-1980s. Much of the extreme poverty was concentrated in rural areas, and its large decline in the first half of the 1980s may have been principally the result of domestic factors that have little if anything to do with global integration: a spurt in agricultural growth following de-collectivization, in which output increased at 7.1% per year on average between 1979 and 1984, almost triple the 1970-78 rate; a land reform program, involving a highly egalitarian distribution of land-cultivation rights subject only to differences in regional average and family size, which provided a floor for rural income; and increased farm procurement prices.”
He makes similar points in relation to India. For instance. “As for poverty, the latest Indian household survey data suggest that the rate of decline, if anything, slowed somewhat in 1993-2005—the period of global integration—compared with the ’70s and ’80s. Moreover, some non-income indicators of poverty such as those relating to child health, already rather dismal, have hardly improved in recent years.”
There are many other points in the article that are worth pondering.
“The answer that continues to dominate public discussion in the United States runs along the following lines: decades of socialist controls and regulations stifled enterprise in India and China and led them to a dead end. A mix of market reforms and global integration finally unleashed their entrepreneurial energies. As these giants shook off their “socialist slumber,” they entered the “flattened” playing field of global capitalism. The result has been high economic growth in both countries and correspondingly large declines in poverty.”
However, for Bardhan the facts do not fully correspond with the account. For example, “China has indeed made large strides in foreign trade and investment since the 1990s, but well before then, say between 1978 and 1993, the country had already achieved an average annual growth rate of about nine percent.” And in relation to poverty reduction in China he argues that: “World Bank estimates suggest that two-thirds of the decline in extremely poor people (those living below the admittedly crude poverty line of one dollar a day per capita at 1993 international parity prices) between 1981 and 2004 had taken place by the mid-1980s. Much of the extreme poverty was concentrated in rural areas, and its large decline in the first half of the 1980s may have been principally the result of domestic factors that have little if anything to do with global integration: a spurt in agricultural growth following de-collectivization, in which output increased at 7.1% per year on average between 1979 and 1984, almost triple the 1970-78 rate; a land reform program, involving a highly egalitarian distribution of land-cultivation rights subject only to differences in regional average and family size, which provided a floor for rural income; and increased farm procurement prices.”
He makes similar points in relation to India. For instance. “As for poverty, the latest Indian household survey data suggest that the rate of decline, if anything, slowed somewhat in 1993-2005—the period of global integration—compared with the ’70s and ’80s. Moreover, some non-income indicators of poverty such as those relating to child health, already rather dismal, have hardly improved in recent years.”
There are many other points in the article that are worth pondering.
Labels: Asia, china, development, economics, health, inequality
Monday, January 14, 2008
China as "green peril"
I will be giving a talk on China as the new “green peril” at the London School of Economics at 2pm on 5 March.
Labels: Asia, china, environment, speeches
Friday, December 07, 2007
Article on global working class meeting
Tessa Mayes has written on Culture Wars about the meeting I spoke at in November at the Institute of Contemporary Art on the global working class.
Labels: Asia, globalisation, speeches, work
Monday, November 19, 2007
The world is poorer than we thought
Today’s Fund Strategy includes a comment by me on the revision of statistics on the size of Chinese and Indian economies.
Last week's biggest economic news got hardly any attention. Both China and India are about 40% smaller than they were. Also global economic growth was half a percentage point less than previous assumed. Never mind the Bank of England possibly reducing interest rates by a little bit at some point in the future. This was shocking.
Of course, the Chinese and Indian economies have not literally shrunk. What has happened is that more accurate statistics are becoming available which give a better idea of the size of their economies.
Nowadays growth statistics are often quoted on a purchasing power parity (PPP) basis. This means that the figures are adjusted to take into account different price levels in different countries. So a dollar in America can buy a lot less than its equivalent in China.
The truth is that until now the PPP statistics have largely been based on guesswork. So it turns out that the size of the Chinese and Indian economies has been substantially over-estimated. And since these are large components of global growth it means the world GDP figures are exaggerated too.
Such statistical revisions do not change reality but they do make some comparisons starker. For example, they show that both China and India are considerably poorer than previously assumed. Not only is the average income level lower but the number of people below the standard $1 a day threshold is much higher.
It is a sobering thought that, according to the new data, China's average GDP per head is only 10% of the American level. China may be growing rapidly but its living standards remain well below America's.
Another lesson from this revision is that it is generally better to compare the relative sizes of economies by using GDP at market exchange rates rather than PPP. This may seem a small technical detail but it can make a huge difference to the numbers.
Since countries trade and invest with each other at market rates, these provide the most meaningful comparisons of the relative weights of national economies. Judging on a market exchange rate basis the Chinese economy is still only fourth largest in the world rather than second.
PPP statistics have their uses. But they are more appropriate for comparing living standards between different countries than comparing their relative economic weights in the world.
Last week's biggest economic news got hardly any attention. Both China and India are about 40% smaller than they were. Also global economic growth was half a percentage point less than previous assumed. Never mind the Bank of England possibly reducing interest rates by a little bit at some point in the future. This was shocking.
Of course, the Chinese and Indian economies have not literally shrunk. What has happened is that more accurate statistics are becoming available which give a better idea of the size of their economies.
Nowadays growth statistics are often quoted on a purchasing power parity (PPP) basis. This means that the figures are adjusted to take into account different price levels in different countries. So a dollar in America can buy a lot less than its equivalent in China.
The truth is that until now the PPP statistics have largely been based on guesswork. So it turns out that the size of the Chinese and Indian economies has been substantially over-estimated. And since these are large components of global growth it means the world GDP figures are exaggerated too.
Such statistical revisions do not change reality but they do make some comparisons starker. For example, they show that both China and India are considerably poorer than previously assumed. Not only is the average income level lower but the number of people below the standard $1 a day threshold is much higher.
It is a sobering thought that, according to the new data, China's average GDP per head is only 10% of the American level. China may be growing rapidly but its living standards remain well below America's.
Another lesson from this revision is that it is generally better to compare the relative sizes of economies by using GDP at market exchange rates rather than PPP. This may seem a small technical detail but it can make a huge difference to the numbers.
Since countries trade and invest with each other at market rates, these provide the most meaningful comparisons of the relative weights of national economies. Judging on a market exchange rate basis the Chinese economy is still only fourth largest in the world rather than second.
PPP statistics have their uses. But they are more appropriate for comparing living standards between different countries than comparing their relative economic weights in the world.
Labels: Asia, china, economics, Fund Strategy, india
Saturday, November 17, 2007
The happiness conference circuit
The happiness conference circuit is, it seems, incredibly busy. This coming Monday and Tuesday there is a two-day conference in Brussels on “Beyond GDP” hosted by the European Commission, European Parliament, Club of Rome, Organisation for Economic Cooperation and Development (OECD) and World Wildlife Fund. The conference can be watched by webcast via its website.
This conference follows a similar one organised by the OECD in Istanbul in June (see 24 June post). A glossy brochure (PDF) is now available on that one.
Then from 22-28 November in Thailand there is the third international conference on gross national happiness. It will be opened by the prime ministers of Bhutan and Thailand while partners included the Centre for Bhutan Studies and the Japan Foundation. This is followed from December 6-9 in San Diego by the 2007 conference of the International Society for Quality-of-Life Studies.
Next year there is an International Sociological Association conference in Barcelona from September 5-8 on the role of social indicators in public policy.
This conference follows a similar one organised by the OECD in Istanbul in June (see 24 June post). A glossy brochure (PDF) is now available on that one.
Then from 22-28 November in Thailand there is the third international conference on gross national happiness. It will be opened by the prime ministers of Bhutan and Thailand while partners included the Centre for Bhutan Studies and the Japan Foundation. This is followed from December 6-9 in San Diego by the 2007 conference of the International Society for Quality-of-Life Studies.
Next year there is an International Sociological Association conference in Barcelona from September 5-8 on the role of social indicators in public policy.
Labels: Asia, happiness, progress
Thursday, November 15, 2007
Article on global working class
Spiked has published an article by me on the global working class. It relates to the debate I am taking part in on the subject at the Institute of Contemporary Art on 20 November.
Labels: Asia, globalisation, inequality, speeches, spiked
Tuesday, November 13, 2007
World Bank endorses Bhutan happiness
The World Bank has endorsed Bhutan’s goal of pursuing Gross National Happiness rather than economic growth. India’s Economic Times quotes Graeme Wheeler, the World Bank's Managing Director (Operations), on a visit to the Himalayan nation, as saying: "Bhutan has been practising what other countries need to do. We need to extend the concept of gross national happiness to gross international happiness" (“Top World Bank official asks countries to emulate Bhutan”
11 November 2007).
I have previously criticised those who praise Bhutan in an article I wrote for spiked in May 2006. But at some point it deserves a more extensive expose.
I have previously criticised those who praise Bhutan in an article I wrote for spiked in May 2006. But at some point it deserves a more extensive expose.
Labels: Asia, happiness, spiked
Tuesday, October 16, 2007
China’s rulers adopting growth scepticism?
The Chinese bureaucracy seems to be taking on growth scepticism. According to a report in the Guardian the Chinese president, Hu Jintao, emphasised the dangers of environmental degradation and social inequality in his speech to the 17th congress of the Communist Party:
“President Hu Jintao admitted yesterday that China's Communist party had failed to live up to the expectations of the people and promised a more sustainable and accountable policy of development.
“In a speech that will set China's direction for the next five years, Mr Hu spoke of the need to address the problems of environmental degradation, political corruption and income inequality between the rich cities on the eastern seaboard and villages in the poor western interior.”
A full English language version of the speech does not appear to be available yet on the internet but there is a useful official summary.
Of course there is nothing inherently wrong with discussing inequality or environmental degradation. The problem comes when they are used as arguments against economic growth.
Sheila Lewis has also recently discussed the debates on environmental damage and inequality in China on the Battle of Ideas website.
“President Hu Jintao admitted yesterday that China's Communist party had failed to live up to the expectations of the people and promised a more sustainable and accountable policy of development.
“In a speech that will set China's direction for the next five years, Mr Hu spoke of the need to address the problems of environmental degradation, political corruption and income inequality between the rich cities on the eastern seaboard and villages in the poor western interior.”
A full English language version of the speech does not appear to be available yet on the internet but there is a useful official summary.
Of course there is nothing inherently wrong with discussing inequality or environmental degradation. The problem comes when they are used as arguments against economic growth.
Sheila Lewis has also recently discussed the debates on environmental damage and inequality in China on the Battle of Ideas website.
Labels: Asia, china, environment, inequality
Wednesday, September 19, 2007
Developing Asia resists credit crunch
Happily it looks like developing Asia has, so far at least, resisted the impact of the global credit crunch. A new forecast from the Asian Development Bank predicts economic growth of 8.3% this year compared with an earlier forecast of 7.6%. Growth of 8.2% is anticipated for next year as long as the global economy remains stable.
Labels: Asia, economics, finance
Wednesday, August 22, 2007
Inequality in Asia
The Asian Development Bank (ADB) has published a special report on inequality in Asia. It argues that general trend has been for inequality to widen but overall living standards have improved too.:
“The overall pattern that therefore emerges is one where a majority of developing Asian countries have seen increases in inequality .... By and large, however, increases in inequality are not a story of the 'rich getting richer and the poor getting poorer'. Rather it is the rich getting richer faster than the poor.”
Overall inequality levels remain lower than Latin America and sub-Saharan Africa.
Material from the report is available on the ADB site.
“The overall pattern that therefore emerges is one where a majority of developing Asian countries have seen increases in inequality .... By and large, however, increases in inequality are not a story of the 'rich getting richer and the poor getting poorer'. Rather it is the rich getting richer faster than the poor.”
Overall inequality levels remain lower than Latin America and sub-Saharan Africa.
Material from the report is available on the ADB site.
Labels: Africa, Asia, inequality, Latin America
Monday, July 09, 2007
Review on China and India
This week’s Fund Strategy included a review by me of David Smith’s new book on China and India.
A few years ago David Smith, the economics editor of the Sunday Times, was giving a talk on the world economy to a group of businessmen in London. After someone asked a question about China and India it emerged that the audience had a downbeat attitude towards the rise of the Asian giants. It was in response to this pessimism among business types, in the West overall rather than just Britain, that Smith wrote The Dragon and the Elephant.
Smith succeeds admirably in his aim of providing an overall assessment of the rise of China and India. He concedes at the start that he cannot match the local knowledge of those who have spent many years specialising in the two countries. Instead he brings to bear the relatively detached perspective of a seasoned Western journalist with a strong overall grasp of the world economy.
Smith's approach is essentially chronological. After a brief introduction he starts by examining how China and India fell from their historical position of being leading economic and technological powers. From 1820 to 1914 the European powers were dominant in the world while the rest of the twentieth century belonged to America. In the subsequent chapters he examines how China and India finally set themselves on the path to development. He ends with a chapter comparing China with India and a conclusion on 10 ways the rise of the two countries will change the world.
The Dragon and the Elephant avoids many of the common pitfalls in writing on China or India. For example, he shows both the growing importance of the Chinese economy in absolute terms and its relative poverty. Although China is one of the world's largest economies it is only 107th in the world in terms of income per head. The explanation is that China's GDP has to be divided between 1.3 billion people. But many commentators find it hard to reconcile the two facts,
Where there is a well-publicised debate relating to a country's development the book tends to give both sides of the argument. In relation to India, for instance, many commentators argue that the economic reforms of 1991 were a watershed in the country's development. But other influential voices point out that India's growth rate first accelerated in the 1980s rather than the 1990s.
Smith is also good at bringing out the contrasts between the two countries. China's growth record is much more impressive than India's. China's development is primarily industrial while India depends heavily on services. India's population is, on average, substantially younger than China's. Nevertheless the two countries are still both, at least in population terms, largely rural.
If there is a problem with Smith's book it is a corollary of his project of summarising the received wisdom on the two countries. It is usually the case that the mainstream ideas on any subject are flawed. That is true of perceptions of China and India.
An important example is the exaggerated importance attached to demographics. Many commentators claim that, over the long term, India has an advantage over China because of its younger population. But a key lesson of economic development should be that the more productive an economy becomes the less demographics matter.
Comparisons between those of normal working age and those outside working age reveal little about the character of an economy. As an economy becomes more advanced it becomes possible for fewer people to support a larger number at a higher standard of living than previously. Dependents could be people outside the working age or alternatively they could be individuals who are unemployed or in education. As technology becomes more advanced and health improves it also becomes easier for the elderly to work too.
The problem India has with a huge pool of unskilled, agricultural workers is economic rather than demographic. It needs to promote a form of development that can bring these workers into the industrial and service sectors. The challenge is one of underdevelopment rather than of too many people.
Smith also wrongly takes it as given that economic development necessarily brings environmental problems. He says: "The nightmare, for the global environment and demand on the world's energy resources, would be a rise in Chinese car ownership towards American levels". That would certainly amount to several hundred million more cars on the road but it is not clear that it should necessarily be a problem. A lesson of economic history should be that economic development allows humanity to harness resources more efficiently. A richer society should have the necessary means to build a transport infrastructure able to handle so many cars. Technological development should also mean they are cleaner and more efficient than the present generation of vehicles.
The Dragon and the Elephant can also be faulted for its adherence to what could be called the "revelation" theory of economic development. Smith implicitly accepts the view that rapid development came to China and India because their leaders finally accepted free market principles. Until then, so the argument goes, they were enmeshed in socialism in China or Fabian dogma in India.
But the development process in the two countries was never as simple as that. In the decades following the second world war there was relatively little foreign investment or trade available for developing countries so correspondingly little incentive to liberalise. In any case the state still plays an enormous role in China's economy today and an important one in India.
Nevertheless, as an introduction to the rising economies of China and India The Dragon and the Elephant works well. It should provide a good starting point to anyone who wants a lucid primer on the subject. However, working out the real significance of developments in China and India is beyond the scope of the text.
A few years ago David Smith, the economics editor of the Sunday Times, was giving a talk on the world economy to a group of businessmen in London. After someone asked a question about China and India it emerged that the audience had a downbeat attitude towards the rise of the Asian giants. It was in response to this pessimism among business types, in the West overall rather than just Britain, that Smith wrote The Dragon and the Elephant.
Smith succeeds admirably in his aim of providing an overall assessment of the rise of China and India. He concedes at the start that he cannot match the local knowledge of those who have spent many years specialising in the two countries. Instead he brings to bear the relatively detached perspective of a seasoned Western journalist with a strong overall grasp of the world economy.
Smith's approach is essentially chronological. After a brief introduction he starts by examining how China and India fell from their historical position of being leading economic and technological powers. From 1820 to 1914 the European powers were dominant in the world while the rest of the twentieth century belonged to America. In the subsequent chapters he examines how China and India finally set themselves on the path to development. He ends with a chapter comparing China with India and a conclusion on 10 ways the rise of the two countries will change the world.
The Dragon and the Elephant avoids many of the common pitfalls in writing on China or India. For example, he shows both the growing importance of the Chinese economy in absolute terms and its relative poverty. Although China is one of the world's largest economies it is only 107th in the world in terms of income per head. The explanation is that China's GDP has to be divided between 1.3 billion people. But many commentators find it hard to reconcile the two facts,
Where there is a well-publicised debate relating to a country's development the book tends to give both sides of the argument. In relation to India, for instance, many commentators argue that the economic reforms of 1991 were a watershed in the country's development. But other influential voices point out that India's growth rate first accelerated in the 1980s rather than the 1990s.
Smith is also good at bringing out the contrasts between the two countries. China's growth record is much more impressive than India's. China's development is primarily industrial while India depends heavily on services. India's population is, on average, substantially younger than China's. Nevertheless the two countries are still both, at least in population terms, largely rural.
If there is a problem with Smith's book it is a corollary of his project of summarising the received wisdom on the two countries. It is usually the case that the mainstream ideas on any subject are flawed. That is true of perceptions of China and India.
An important example is the exaggerated importance attached to demographics. Many commentators claim that, over the long term, India has an advantage over China because of its younger population. But a key lesson of economic development should be that the more productive an economy becomes the less demographics matter.
Comparisons between those of normal working age and those outside working age reveal little about the character of an economy. As an economy becomes more advanced it becomes possible for fewer people to support a larger number at a higher standard of living than previously. Dependents could be people outside the working age or alternatively they could be individuals who are unemployed or in education. As technology becomes more advanced and health improves it also becomes easier for the elderly to work too.
The problem India has with a huge pool of unskilled, agricultural workers is economic rather than demographic. It needs to promote a form of development that can bring these workers into the industrial and service sectors. The challenge is one of underdevelopment rather than of too many people.
Smith also wrongly takes it as given that economic development necessarily brings environmental problems. He says: "The nightmare, for the global environment and demand on the world's energy resources, would be a rise in Chinese car ownership towards American levels". That would certainly amount to several hundred million more cars on the road but it is not clear that it should necessarily be a problem. A lesson of economic history should be that economic development allows humanity to harness resources more efficiently. A richer society should have the necessary means to build a transport infrastructure able to handle so many cars. Technological development should also mean they are cleaner and more efficient than the present generation of vehicles.
The Dragon and the Elephant can also be faulted for its adherence to what could be called the "revelation" theory of economic development. Smith implicitly accepts the view that rapid development came to China and India because their leaders finally accepted free market principles. Until then, so the argument goes, they were enmeshed in socialism in China or Fabian dogma in India.
But the development process in the two countries was never as simple as that. In the decades following the second world war there was relatively little foreign investment or trade available for developing countries so correspondingly little incentive to liberalise. In any case the state still plays an enormous role in China's economy today and an important one in India.
Nevertheless, as an introduction to the rising economies of China and India The Dragon and the Elephant works well. It should provide a good starting point to anyone who wants a lucid primer on the subject. However, working out the real significance of developments in China and India is beyond the scope of the text.
Labels: Asia, book, china, Fund Strategy, india, review
Sunday, July 01, 2007
Tate Modern on global cities
London’s Tate Modern gallery has a fascinating exhibition on 10 of the world leading global mega-cities: Cairo, Istanbul, Johannesburg, London, Los Angeles, Mexico City, Mumbai, Sao Paulo and Tokyo. It looks at the cities from five perspectives: size, speed, form, density and diversity.
Even the basic statistics on cities are worth knowing. For example, in 1900 only 10% of the world’s population lived in cities, now it is 50% and by 2050 it is expected to be 75%. Also 95% of urban growth in future is expected to be in Africa and Asia.
An earlier version of the exhibition was shown at the 10th International Architecture Exhibition at the 2006 Venice Biennale. Some of the additional exhibits deal with predictably dull topics such as the environment and sustainability. But the bulk of the exhibition gives some insight into a key characteristic of the contemporary world. There are also further resources on the accompanying web pages on the exhibition.
Global Cities is free and runs till 27 August.
Even the basic statistics on cities are worth knowing. For example, in 1900 only 10% of the world’s population lived in cities, now it is 50% and by 2050 it is expected to be 75%. Also 95% of urban growth in future is expected to be in Africa and Asia.
An earlier version of the exhibition was shown at the 10th International Architecture Exhibition at the 2006 Venice Biennale. Some of the additional exhibits deal with predictably dull topics such as the environment and sustainability. But the bulk of the exhibition gives some insight into a key characteristic of the contemporary world. There are also further resources on the accompanying web pages on the exhibition.
Global Cities is free and runs till 27 August.
Wednesday, June 20, 2007
New papers on China and India
A flurry of new papers on China and India:
A paper by David Dollar, the World Bank country director for China, looks at the combination of rising affluence and increasing inequality in China. He argues that some rise in inequality was inevitable with the introduction of a market-based system in China. However, other factors, such as curbs on rural-urban migration, have probably exacerbated the problem. Dollar argues that the government’s recent attempts to rebalance the economy towards domestic consumption should help reduce these disparities.
Meanwhile, a piece by Sanjay Reddy, an assistant professor of economics at Columbia University, in New Left Review argues that China has performed relatively poorly in raising life expectancy over the past three decades. Unfortunately the whole paper is only available on the internet in exchange for payment.
Finally, a paper on India from the World Bank looks at the unusual combination of rapid economic growth and rising government indebtedness. The authors suggest the main factor in rising debt as a result of a reduction
A paper by David Dollar, the World Bank country director for China, looks at the combination of rising affluence and increasing inequality in China. He argues that some rise in inequality was inevitable with the introduction of a market-based system in China. However, other factors, such as curbs on rural-urban migration, have probably exacerbated the problem. Dollar argues that the government’s recent attempts to rebalance the economy towards domestic consumption should help reduce these disparities.
Meanwhile, a piece by Sanjay Reddy, an assistant professor of economics at Columbia University, in New Left Review argues that China has performed relatively poorly in raising life expectancy over the past three decades. Unfortunately the whole paper is only available on the internet in exchange for payment.
Finally, a paper on India from the World Bank looks at the unusual combination of rapid economic growth and rising government indebtedness. The authors suggest the main factor in rising debt as a result of a reduction
Labels: Asia, china, development, india, inequality
Tuesday, June 12, 2007
Ten years since Asian financial crisis
This week’s Fund Strategy included a world markets review with a comment by me on the 10th anniversary of the Asian financial crisis.
Ten years after the outbreak of the 1997-8 Asian financial crisis it is worth re-examining what happened. Many commentators have forgotten how wrong they were about the event and its implications.
The crisis started in July 1997 with the collapse of the Thai baht. Currencies and stockmarkets tumbled across the region including Hong Kong, Indonesia, Malaysia, the Philippines, South Korea and Taiwan. There were also widespread fears that instability would spread to the global markets. The near collapse of Long-Term Capital Management, a prominent hedge fund, in the summer of 1998 seemed to confirm such fears.
The conclusions drawn from this experience include the need for greater “transparency” and more robust financial systems. Asian countries have accumulated vast foreign exchange reserves to cushion themselves against currency volatility.
But a vast amount of what was commonly argued at the time has been conveniently forgotten. For example, many experts argued that “Asian flu” or “Asian contagion” would damage the developed Western markets and economies. There was also a widespread view that “crony capitalism” had undermined the rapid economic growth of Asia.
It is clear that these arguments were flawed. The Asian markets, still relatively small in global terms, were always unlikely to destabilise the developed markets. The probability of a significant negative impact on the real economies of the developed world was even more remote.
To the extent that there was short-term market volatility in the West it was a result more of panic than contagion. There was an over-reaction to the likelihood of instability spreading to the developed world.
In fact Western risk aversion played an important role in precipitating the crisis. Western capital that had flowed into the region to take advantage of high growth was quickly withdrawn at the first sign of trouble.
The idea of “crony capitalism” was also flawed. Prior to 1997 many commentators had argued that the Asian “developmental state” had played a key role in promoting the region’s rapid development. In 1997-8 the same institutions were often blamed for Asia’s troubles. Any explanation which is used to account for both success and failure should be viewed with scepticism.
In many ways the key lesson to learn from 1997-8 is the continuing economic dynamism of East Asia. It has recovered rapidly from what was seen by many as likely to be a protracted downturn. From this perspective the lesson to draw is a positive one.
Ten years after the outbreak of the 1997-8 Asian financial crisis it is worth re-examining what happened. Many commentators have forgotten how wrong they were about the event and its implications.
The crisis started in July 1997 with the collapse of the Thai baht. Currencies and stockmarkets tumbled across the region including Hong Kong, Indonesia, Malaysia, the Philippines, South Korea and Taiwan. There were also widespread fears that instability would spread to the global markets. The near collapse of Long-Term Capital Management, a prominent hedge fund, in the summer of 1998 seemed to confirm such fears.
The conclusions drawn from this experience include the need for greater “transparency” and more robust financial systems. Asian countries have accumulated vast foreign exchange reserves to cushion themselves against currency volatility.
But a vast amount of what was commonly argued at the time has been conveniently forgotten. For example, many experts argued that “Asian flu” or “Asian contagion” would damage the developed Western markets and economies. There was also a widespread view that “crony capitalism” had undermined the rapid economic growth of Asia.
It is clear that these arguments were flawed. The Asian markets, still relatively small in global terms, were always unlikely to destabilise the developed markets. The probability of a significant negative impact on the real economies of the developed world was even more remote.
To the extent that there was short-term market volatility in the West it was a result more of panic than contagion. There was an over-reaction to the likelihood of instability spreading to the developed world.
In fact Western risk aversion played an important role in precipitating the crisis. Western capital that had flowed into the region to take advantage of high growth was quickly withdrawn at the first sign of trouble.
The idea of “crony capitalism” was also flawed. Prior to 1997 many commentators had argued that the Asian “developmental state” had played a key role in promoting the region’s rapid development. In 1997-8 the same institutions were often blamed for Asia’s troubles. Any explanation which is used to account for both success and failure should be viewed with scepticism.
In many ways the key lesson to learn from 1997-8 is the continuing economic dynamism of East Asia. It has recovered rapidly from what was seen by many as likely to be a protracted downturn. From this perspective the lesson to draw is a positive one.
Labels: Asia, finance, Fund Strategy
Wednesday, May 09, 2007
Poverty reduction in India
Professor TN Srinivasan of Yale has written a sharp rebuttal to Robert Wade on the world economy (see 1 May post) in a letter to the Financial Times. Srinivasan challenges Wade’s contention that only China has enjoyed a sharp reduction in poverty. India too has experienced substantial poverty reduction:
“India's average annual rate of growth of per capita real gross domestic product was around 1.5 per cent in the period 1950-80. In the 1980s, the rate more than doubled to around 3.7 per cent, and then accelerated to 4.1 per cent during the 1990s. It has grown further to 5.3 per cent since then.
“Poverty, estimated as the proportion of the population having consumption below a modest national poverty line (rather than World Bank's poverty lines, which have very weak analytical underpinnings), fluctuated at around 50 per cent during 1950-1978. It declined to 39 per cent in 1987-88, 36 per cent in 1993-94, and to 27.5 per cent in 2004-05. Had the poverty ratio in India remained unchanged at 50 per cent after 1977-78, the number of poor in 2004-05 would have been 547m, more than twice what it was: namely, 238m.”
“India's average annual rate of growth of per capita real gross domestic product was around 1.5 per cent in the period 1950-80. In the 1980s, the rate more than doubled to around 3.7 per cent, and then accelerated to 4.1 per cent during the 1990s. It has grown further to 5.3 per cent since then.
“Poverty, estimated as the proportion of the population having consumption below a modest national poverty line (rather than World Bank's poverty lines, which have very weak analytical underpinnings), fluctuated at around 50 per cent during 1950-1978. It declined to 39 per cent in 1987-88, 36 per cent in 1993-94, and to 27.5 per cent in 2004-05. Had the poverty ratio in India remained unchanged at 50 per cent after 1977-78, the number of poor in 2004-05 would have been 547m, more than twice what it was: namely, 238m.”
Labels: Asia, development, economics, growth, india, inequality
Tuesday, April 24, 2007
America’s economic decline becomes clear
On Monday Fund Strategy published a comment by me on the idea that America is “decoupling” from the rest of the world economy. I argued instead that America’s relative economic decline is becoming increasingly apparent.
The increasingly popular idea that the world is "decoupling" from America is misleading. It is not that the integration of the world economy is lessening in any way. The real trend is for a decline in the relative importance of America in the global economy.
Proponents of the decoupling thesis argue that the world is becoming less dependent on America. Two weeks ago the International Monetary Fund argued that Asia could weather an American soft landing. Last week Merrill Lynch went even further and argued that Asia could ride an American recession without any significant problems.
Their evidence is essentially that Asia in particular, and the rest of the world in general, is already weathering an American slowdown. In addition, both Asia and Europe are becoming more integrated regions in trade terms. China is becoming central to the new Asian economy while Europe is becoming increasingly integrated between its East and West.
This misses the fact that the world is still closely linked to America in other ways. Most notably there are huge capital flows between America and the rest of the world.
More importantly, America's relative decline should have already been apparent before its recent slowdown. As Fund Strategy has previously argued the idea that America was the locomotive of global growth earlier this decade was always misleading. It was primarily Asian production that was subsidising American consumption. Asia has long been the engine driving the world economy (see Fund Strategy book review, February 6, 2006).
What has happened recently is that the declining relative importance of America has simply become more obvious. Although America is still the world's largest economy it no longer has the overwhelming weight it once enjoyed. The balance is shifting towards Asia while the developing world is growing in relative importance compared with the advanced nations.
As a result of these shifts a new world economy is emerging. China is taking a far larger role than in the past. Asia and Europe are both becoming more internally integrated regions. The developing countries have more weight in global economic affairs. And America, increasingly in hock to the rest of the world, is moving towards losing its pre-eminent position.
The increasingly popular idea that the world is "decoupling" from America is misleading. It is not that the integration of the world economy is lessening in any way. The real trend is for a decline in the relative importance of America in the global economy.
Proponents of the decoupling thesis argue that the world is becoming less dependent on America. Two weeks ago the International Monetary Fund argued that Asia could weather an American soft landing. Last week Merrill Lynch went even further and argued that Asia could ride an American recession without any significant problems.
Their evidence is essentially that Asia in particular, and the rest of the world in general, is already weathering an American slowdown. In addition, both Asia and Europe are becoming more integrated regions in trade terms. China is becoming central to the new Asian economy while Europe is becoming increasingly integrated between its East and West.
This misses the fact that the world is still closely linked to America in other ways. Most notably there are huge capital flows between America and the rest of the world.
More importantly, America's relative decline should have already been apparent before its recent slowdown. As Fund Strategy has previously argued the idea that America was the locomotive of global growth earlier this decade was always misleading. It was primarily Asian production that was subsidising American consumption. Asia has long been the engine driving the world economy (see Fund Strategy book review, February 6, 2006).
What has happened recently is that the declining relative importance of America has simply become more obvious. Although America is still the world's largest economy it no longer has the overwhelming weight it once enjoyed. The balance is shifting towards Asia while the developing world is growing in relative importance compared with the advanced nations.
As a result of these shifts a new world economy is emerging. China is taking a far larger role than in the past. Asia and Europe are both becoming more internally integrated regions. The developing countries have more weight in global economic affairs. And America, increasingly in hock to the rest of the world, is moving towards losing its pre-eminent position.
Labels: America, Asia, economics, Fund Strategy
Monday, April 16, 2007
Global growth reducing extreme poverty
The latest World Development Indicators from the World Bank show the enormous benefits of economic growth in poverty reduction. The total number of people living in extreme poverty - defined as less than $1 a day - fell to 985 million in 2004 (the latest available figures) compared with 1.25 billion in 1990. It should also be remembered that the world population has grown substantially during that time so, in relative terms, the drop was even sharper.
The number of people living below the $2 a day threshold is also falling. However, at 2.6 billion people it still accounts for almost half the population of the developing world.
Two related factors seem to be behind the drop in extreme poverty. First, the rapid rate of growth in developing countries overall in recent years. On average the rate of GDP growth per head has average 3.9% a year since 2000. Second, the spectacular growth of East Asia and China in particular.
Interestingly the World Bank seems keen to emphasise that other factors besides economic growth also play a role in poverty reduction. However, part of this discussion seems to be on relative inequality - a different although related question - rather than absolute living standards.
The number of people living below the $2 a day threshold is also falling. However, at 2.6 billion people it still accounts for almost half the population of the developing world.
Two related factors seem to be behind the drop in extreme poverty. First, the rapid rate of growth in developing countries overall in recent years. On average the rate of GDP growth per head has average 3.9% a year since 2000. Second, the spectacular growth of East Asia and China in particular.
Interestingly the World Bank seems keen to emphasise that other factors besides economic growth also play a role in poverty reduction. However, part of this discussion seems to be on relative inequality - a different although related question - rather than absolute living standards.
Labels: Asia, china, development, economics, growth, inequality
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 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
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
Wednesday, September 06, 2006
IMF on Asian development
It is a pity that so few people look at the masses of material published at this time of year by the International Monetary Fund (IMF) and World Bank. For example, the new edition of the IMF’s twice-yearly World Economic Outlook includes a chapter on patterns of economic development and growth in Asia (PDF). It points out that from 1981-2001 the number of people living in extreme poverty in East Asia declined dramatically with a fall of 400 million in China alone (using the meagre one dollar a day standard). Asia’s real income per head grew sevenfold from 1950-2005.
However, not all the news is good. Latin America and other developing economies lagged behind Asia. Also 700 million Asians, many of them in rural areas, still live in extreme poverty. The later statistic is from a study by Shahua Chen and Martin Ravallion in The World Bank Research Observer 9 (2) Fall 2004 but it does not appear to be available on the internet.
However, not all the news is good. Latin America and other developing economies lagged behind Asia. Also 700 million Asians, many of them in rural areas, still live in extreme poverty. The later statistic is from a study by Shahua Chen and Martin Ravallion in The World Bank Research Observer 9 (2) Fall 2004 but it does not appear to be available on the internet.
Labels: Asia, development, growth
Saturday, August 26, 2006
Growth scepticism in India
It seems to me that growth scepticism is a central part of Indian nationalism. Most obviously there is the symbolism of the flag – which I will not go into now – and the legacy of Mahatma Gandhi.
Contemporary India also has prominent environmental campaigners including Medha Patkar, Arundhati Roy and Vandana Shiva. One of their main focuses is the Narmada dam project.
This week’s Economist (26 August) has a profile of Sunita Narain, head of the Centre for Science and Environment based in Delhi, which is backing the campaign against Coca-Cola and Pepsi (see 11 August dispatch). Meanwhile, yesterday’s London Times reported that Indian campaigners are running a “safe festivals” campaign. Devotees of Ganesh, the elephant-headed god, are being urged to make their idols out of traditional unbaked clay rather than toxic plastic.
Contemporary India also has prominent environmental campaigners including Medha Patkar, Arundhati Roy and Vandana Shiva. One of their main focuses is the Narmada dam project.
This week’s Economist (26 August) has a profile of Sunita Narain, head of the Centre for Science and Environment based in Delhi, which is backing the campaign against Coca-Cola and Pepsi (see 11 August dispatch). Meanwhile, yesterday’s London Times reported that Indian campaigners are running a “safe festivals” campaign. Devotees of Ganesh, the elephant-headed god, are being urged to make their idols out of traditional unbaked clay rather than toxic plastic.
Labels: Asia, environment, india
Tuesday, August 22, 2006
Malaria reminder
A useful reminder in today’s Wall Street Journal Europe (subscription required) about the scourge of malaria and how it can be solved by economic development. Evidently malaria afflicts half a billion people a year and kills a million of them. One way to deal with the disease it to spray DDT, a pesticide, but such action is vetoed by environmentalists. The article also quotes Roger Bate, of Africa Fighting Marlaria, explaining the link between fighting malaria and economic development:
"We eradicated malaria in Malaysia in the '50s and '60s, and in Singapore at the same time. It came back in Malaysia in the '70s but not in Singapore, and the reason it came back is that there wasn't enough wealth for people to have screens on the windows. Singapore's economy, however, grew rapidly, and there isn't a problem there anymore."
Labels: Asia, development, health, progress, technology
