Ferraris for all

Rob Killick reminds us in a review of the Beider Meinhoff Complex on spiked that anti-materialism was a significant trend in 1960s radicalism. He portrays the leaders of the 1960s Germany terrorist gang as an extreme part of a broader trend which saw itself: “as part of an international movement of opposition to imperialism, but made no effort to build links with the working class in Germany, which they saw as in thrall to capitalist consumerist ideology”. Killick ends with the correct point that the elitist belief in a stupid consumerist working class is now widespread.

Labels: consumption, Europe, film, spiked

Yesterday’s New York Times included a useful review of the assaults on the notion of GDP. It reminded readers that as long ago as 40 years ago it was attacked by Robert F Kennedy who said it: “measures everything, in short, except that which makes life worthwhile.” The article also welcomed the review of GDP as a measure of well-being in France and suggested it might apply to America too:

“We may be in the early stages in the United States of recognizing that the gross domestic product is very misleading and something must be done to get better measures of well-being,” said Amartya Sen, a Nobel laureate in economics at Harvard. Professor Sen and Joseph Stiglitz, a Nobel laureate at Columbia, are co-chairmen of a commission recently appointed by Nicolas Sarkozy, the French president, to come up with a better measure for France. While Mr. Sarkozy’s goal is to showcase a ‘quality of life’ at odds with the country’s weak G.D.P., the high-profile effort might yield dividends here as well as abroad.”

Ultimately, as I have previously argued, there is less to these attacks than meets the eye. It would be hard to find someone who argues that GDP is a perfect indicator of well-being. But it does not follow that there is no relationship between rising prosperity and well-being. If there is a problem with GDP in this respect it is that it underestimates the benefits of prosperity to human welfare.

Labels: America, economics, Europe, happiness, progress

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.

Labels: America, Asia, economics, Europe, Fund Strategy

Spiegel Online has a substantial article arguing that globalisation, by encouraging overfishing, is destroying the world’s oceans. As it happens even Indur Goklany, an articulate and avid defender of economic development, concedes that overfishing is a problem. But the solution is more systematic farming of the world’s oceans rather than the hunter-gatherer approach that prevails at present.

Labels: consumption, environment, Europe, globalisation, progress

Many newspaper articles on happiness economics follow more-or-less the same line (see 27 July 2008 post). A touch of utilitarianism (Jeremy Bentham, John Stuart Mill) followed by some quotes from the usual suspects (including Richard Easterlin, Richard Layard, Nic Marks and Andrew Oswald). Today’s Financial Times piece by Jonathan Guthrie on “happynomics” at least has the virtue of mentioning that Nicholas Sarkozy has toyed with the idea of happiness yardsticks. It also points out that some academics argue there is a link between happiness and income: “Ruut Veenhoven of Erasmus University, Rotterdam, claims happiness increases steadily with wealth, albeit at a declining rate.”

Labels: economics, Europe, happiness

A feature in the January / February issue of Foreign Policy magazine suggests the idea of “affluenza” is pervasive in France rather than confined to America and Britain. Stefan Theil, Newsweek’s European economics editor, bases this claim on a study of official French textbooks:

‘ “Economic growth imposes a hectic form of life, producing overwork, stress, nervous depression, cardiovascular disease and, according to some, even the development of cancer,” asserts the three-volume Histoire du XXe siècle, a set of texts memorized by countless French high school students as they prepare for entrance exams to Sciences Po and other prestigious French universities." ‘

Labels: affluenza, Europe, happiness

Deutsche Bank has published a substantial report on happiness. Stefan Bergheim, one of the bank’s economists, uses a statistical “cluster analysis” to identify what he says are 10 “indicators for a happy society”:

1)High degree of trust in fellow citizens

2)Low amount of corruption

3)Low unemployment

4)High level of education

5)High income

6)High employment rate of older people

7)Small shadow economy

8)Extensive economic freedom

9)Low employment protection

10)High birth rate

Strangely, America and Britain are classified by Deutsche Bank as happy societies. This is in contrast to much of the internal debate within these countries which sees them as unhappy.

It is also notable that the paper argues that happiness and life satisfaction should be explicit policy objectives. So now we have a bank saying that governments should concern themselves with making us happy – presumably whether we like it or not.

Labels: corruption, Europe, happiness

Yesterday’s Financial Times included a comment by Mica Panic, a fellow of Selwyn College, Cambridge, attacking the Anglo-Saxon “neo-liberal” economic model. In his view the European model, and Scandinavia in particular, as offering the highest levels of well-being. He also argues for a separation of well-being from growth. To quote his article:

“The importance of these comparisons is that they consistently show that countries with social democratic or corporatist models of capitalism have markedly higher levels of social well-being than those, such as the US and UK, with a liberal free-market model.

“Equally important, the reason for this is not that they have higher gross domestic product per head but that their social attitudes, objectives and policies are very different. Unlike the US and, since 1979, the UK, these countries attach great importance to social cohesion and, therefore, to equality of opportunity.”

It seems to me what Panic is missing is the need to raise the living standards of the poor in America and Britain still further. The need is for more growth rather than less. It is also striking that much of the discussion of well-being is underpinned by a fear of social breakdown.

Labels: economics, Europe, happiness, inequality

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.

Labels: Asia, china, corporations, economics, Europe, Fund Strategy

It seems that America is moving ever closer towards the European consensus on climate change. According to a leader in today’s New York Times:

* Four major bills have recently been offered to the Senate calling for mandatory controls on emissions of carbon dioxide.

* Last week 10 big companies joined an informal coalition to press Congress and the Bush administration for action.

* Nancy Pelosi, the House speaker, established a select committee on global warming last week.

It is a pity that America is following the route of managing energy demand rather than the alternative strategy of bolstering supply.

Labels: America, climate, environment, Europe

A despicable attack on China for providing cheap loans to Africa in today’s Financial Times (and I suspect elsewhere too). The FT article is based on comments by Philippe Maystadt, the president of the European Investment Bank (EIB):

“Philippe Maystadt, the EIB's president, said banks like his were operating in competition with Chinese lenders anxious to extend Beijing's influence across the world.

“ ‘The competition of the Chinese banks is clear,’ said Mr Maystadt, whose European Union-backed bank is the world's biggest multilateral lender. ‘They don't bother about social or human rights conditions.’ “

So not only is China providing cheap capital to Africa but it is not trying to impose its views on African governments. Sounds like China is providing a better deal to Africa all round. The last thing China needs is expensive Western capital with numerous strings attached.

Labels: Africa, china, Europe

An interesting article from Newsweek (August 14) on how environmentalism has gone mainstream:

“Something weird is happening in the once marginal world of environmentalism. The green cause is no longer the preserve of woolly-minded liberals and fringe activists. Its tenets are being actively pursued by business leaders, stockholders and investment managers.”

In fact in my view environmentalism went mainstream in the 1970s but now conservative politicians are embracing it more openly than ever. As Newsweek argues:

“Conservative politicians once skeptical of the green movement have been reacting to the pressure. Last week, California's Republican Gov. Arnold Schwarzenegger met with British Labour Prime Minister Tony Blair to promote the idea of a transatlantic carbon-emissions market. He also wants to reduce his state's greenhouse-gas emissions to 80 percent below 1990 levels by 2050. David Cameron, the new leader of Britain's Conservative Party whose revamped slogan is "Vote Blue, Go Green," has visited the Arctic to see firsthand the effects of global warming. He cycles to work, and is redesigning his Edwardian house in London to include a wind turbine and solar panels, which will cut energy use by 30 percent. In Germany, the Greens and the conservatives recently agreed to join forces to run the city government of Frankfurt, the first such coalition in the country's history. President Jacques Chirac of France is promoting a new "solidarity" levy to be paid by all air travelers.”

Crunchy Cons - to use a term coined by Rod Dreher - seem to rule much of the world.

Labels: America, environment, Europe