OCT 19, 2012 14:36 UTC
If you are looking for some good cheer in a pretty gloomy world, consider the growing consensus among some of the world’s smartest money that the next big emerging market may be Africa.
Above all, that is great news for Africans: As we have seen across so much of Asia, economic growth has accomplished what decades of well-meaning development efforts failed to do, lifting hundreds of millions out of poverty. If that happens in Africa, the world will be transformed.
This case for Africa as the world’s new economic tiger is made forcefully in “The Fastest Billion: The Story Behind Africa’s Economic Revolution,” a data-packed collection of essays to be published at the end of this month and brought together under the aegis of Renaissance Capital, an investment firm with Russian roots and global ambitions.
The consensus view among many students of the global economy is that investment decisions are about choosing, in the words of Mohamed A. El-Erian, chief executive of the fund manager Pimco, “the cleanest dirty shirt”: The United States faces a fiscal cliff and political gridlock, Europe is tenuously poised between years of painfully slow growth and outright collapse, and even go-go China is slowing.
By contrast, in the view of Stephen Jennings, the Renaissance chief executive, Africa is on a tear. “It is the only region in the world where growth is accelerating,” he said by phone from Moscow. “If you strip out South Africa, the rest of the region is actually growing very, very quickly.”
Jennings says he believes Africa is following the path to economic development that has been trod in recent decades by countries like Brazil, China and India – only in Africa the transformation is happening even faster.
“The chances are this will be like Asia and this will go on for the next 30 years,” Jennings said. “It is helpful to remember where Asia was in the early 1970s. Then, most of the wars were in Asia, the lowest GDP and life expectancy were in Asia. People thought that was Asia’s lot.”
We hold those same prejudices, only more deeply, when it comes to Africa, Jennings argued. But, quietly, Africa has been remaking itself.
“It is not something that we are predicting – it is something that is happening,” he said. “You have this very broad-based, Asia-like process of modernization.”
Jennings, who pointed out that Kenya had halved infant mortality in five years, an improvement it took India 25 years to achieve, predicts that within a generation, Africa’s place in the world will be utterly changed. By 2050, he believes Nigeria will be the most populous country in the world and the African economy will be bigger than that of the United States and Europe combined.
Jennings is not alone in predicting an African renaissance. Two years ago, McKinsey, the management consulting firm, put a savanna spin on the emerging market cliche in a report titled, “Lions on the move: The progress and potential of African economies.”
Foreshadowing “The Fastest Billion,” this report painted a picture of an Africa whose economic pulse “has quickened,” with gross domestic product rising 4.9 percent per year from 2000 to 2008. “While Africa’s increased economic momentum is widely recognized, less known are its sources and likely staying power,” the McKinsey study argued. “Our analysis suggests that Africa’s long-term economic prospects are quite strong. Global businesses cannot afford to ignore the potential.”
An obvious source of Africa’s new might is the surge in commodity prices, and both reports acknowledge the impact of natural resources. But they also have a shared conviction that domestic factors are at play. The predictable one is improved governance.
Less predictable is the joint celebration of Africa’s excellent demographics. Not so long ago, Africa’s tragedy was its children – now that is why the global elite think Africa may be a strong bet. This is just the beginning of a revolution in our thinking about babies and the economy: The Industrial Revolution transformed children from a family’s labor force to its luxury good. That is still the case; but for the national economy, babies are becoming the most precious resource of all.
Both McKinsey and Renaissance have produced hopeful documents, and for a continent that mostly gets hand-wringingly gloomy news coverage, that is a very welcome perspective. But it is worth challenging one optimistic assumption, particularly because of its wider implications.
That is the view that in Africa, economic growth and democracy will go together. Their synonymity is a comfortable belief. But in Africa, as in other emerging markets like China, Russia and even Turkey, it may not be true.
For example, Mohamed Keita, Africa advocacy director at the Committee to Protect Journalists, argues that in countries that are cracking down on freedom of the press, like Ethiopia, economic growth deflects attention from growing authoritarianism rather than undermining it.
This is the Putin model, or the Beijing model – forget about ephemeral concepts like free speech and pluralism in exchange for a swiftly increasing GDP. It is not just impoverished domestic electorates that are tempted by this siren song. Western investors and many Western governments find it equally convincing. But the emerging market lions – and the tigers and the Siberian bears – should ask themselves how long authoritarian growth can be sustained.
OCT 15, 2012 20:17 UTC
President Barack Obama did a miserable job of making his own case last week. But speak to his supporters and the pitch is clear: The American middle class is being hollowed out; Obama’s self-appointed mission is to try to save it.
That is what I heard from Jeffrey Liebman, one of the president’s economic advisers, at a debate about the election I moderated at Columbia University on Monday. Liebman said the central difference between his candidate and Mitt Romney was the president’s view that trickle-down economics doesn’t work. Instead, he believes policy needs to focus on the middle class. Economic growth, he said, should come from the middle and radiate out.
In a separate interview, Mark Gallogly, co-founder of the private equity and credit investment firm Centerbridge Partners and one of Obama’s earliest supporters on Wall Street, likewise emphasized the middle class. The president’s overriding concern, Gallogly told me, was with the workers who make $24,000 a year. Their lot is a pressing issue, Gallogly argued, because even before the recession there had been persistent downward pressure on middle-class wages. Yesterday’s middle-class job can land you among the working poor today.
You may be tempted to say that focusing on the middle class is about as distinctive as supporting motherhood. That is true enough. Two things stand apart in the Obama administration’s analysis of the problem.
One – and this is what has really riled the billionaire set – is Obama’s belief that making the world safe for American business doesn’t automatically translate into a rescue of the American middle class. The second, related idea is that the globalized, high-tech economy of the 21st century poses a particular challenge to the sorts of well-paid jobs that were the backbone of the U.S. middle class in the 20th.
These are two powerful assertions. What is missing is the connection between this domestic focus on the middle-class American worker and Obama’s foreign policy agenda.
At this stage in the campaign, it would probably be political malpractice to ask the president to venture into this esoteric land, appealingly dubbed “geo-economics” by its most wonkish explorers. So far only Tom Friedman of the New York Times has managed to explore this terrain and retain his popular following, and a lot of proper nouns and metaphors have been tortured in the process.
But if the president is serious about creating a 21st-century agenda for the American middle class, he needs to connect the dots between his domestic and foreign policy in a new way. (Judged on his own terms, this intellectual challenge is less pressing for Romney, who is sticking with the Reaganomics view that the way to aid the middle class is to support American job-creating businesses and individuals through lower taxes and less regulation.)
It isn’t hard to explain why a domestic middle-class jobs policy has to be part of Obama’s foreign policy. In a globalized economy, jobs no longer need a passport, but workers do. Creating jobs for your country’s workers is about much more than ensuring that the balance sheets of your country’s companies are strong, or stimulating domestic demand. It is about figuring out how your country’s workers fit into the global economy.
But while that problem has become obvious to a lot of us, the solutions are more elusive. In lieu of answers, here are a few starting points.
The first is to understand and accept that the old link between the prosperity of your nation’s companies and of your nation’s middle-class workers is much more fragile than it was in the past. The operative word is accept – the left scores political points but offers little substance when it berates chief executives or private equity investors for making profits even as they shrink their domestic workforce.
Corporations are not employment agencies, and judging them by that metric is a mistake. Likewise, while it can be fun for liberals to criticize business for going global, consider the alternative: Would America, or any other modern industrialized nation, really be better off if its companies failed to integrate themselves into the world economy?
A related idea is to understand that capital, and capitalists, really have become global. Here, again, the liberal temptation is to mock the billionaires who threaten to pull a John Galt and exit the national economy if they are mistreated. But as the example of Eduardo Saverin, the co-founder of Facebook who renounced his U.S. citizenship, shows, this threat has moved from Ayn Rand’s 1950s fantasy to real life.
Finally, to end on an encouraging note, champions of their own national middle class need to start seeing their problem as a global one. We are used to thinking about the traditional concerns of foreign policy – wars, disarmament, even energy and the environment – as international issues that require some degree of collective action. The hollowing out of the middle class is a problem common to all Western industrialized economies. Maybe we should work together to solve it.
OCT 4, 2012 21:38 UTC
Photo: Joshua Lott/Reuters
One of today’s major debates is how big government should be. Maybe we are asking the wrong question. Our battle over the size of the state overlooks a problem that is just as important and that may be easier to muster the collective will to resolve: how effective government is, regardless of its scale.
After all, even in this age of polarized politics, there is one thing right and left agree on: Government needs to get better. Diana Farrell, an economist who recently returned to the consulting firm McKinsey after a two-year stint in the White House, thinks smart pragmatists should seize this common ground.
“We see a massive opportunity in what is a meaningful part of GDP to make it work better,” Farrell, who leads the new McKinsey Center for Government, told me. “Whether you believe government should be 20 percent or 80 percent of GDP is a political choice. But once that has been decided, then assuring that that part which is government works – that can be apolitical, that can be managerial. That is what we are trying to do.”
One of the big shortcomings of government today is how clumsily it responds to the desires of its citizens. This is the 21st-century paradox: Even as political democracy has become the intellectual default mode for much of the world, the private sector usually trumps the public one when it comes to accommodating consumer choice. If you doubt that assertion, consider this question: Who offers you a better, cheaper service – Google or your post office?
James S. Fishkin is a communications professor at Stanford University and a contributor to a volume of essays on how to fix the state that Farrell’s center is publishing next week. In his piece, Fishkin suggests one way to give citizens a stronger voice. He argues that neither opinion polls nor town halls do the trick. Polls are too superficial – replies are based on respondents’ biases and the latest sound bites they have heard, rather than a careful study of the often-complex issues governments must decide. Town halls and other public forums do provide an arena for more nuanced debate, but they are subject to capture by those whose convictions are most intense.
Fishkin believes a better option is a technique he calls deliberative polling, a modern spin on Athenian democracy. Deliberative polling takes a representative sample of citizens and gives them the time, information and structure to learn about complicated problems. According to Mr. Fishkin, this process has been used about 70 times in 18 countries. Texas applied it in the 1990s to give the public a say in the use of renewable energy by regulated utilities; Zeguo township, in the Chinese city ofWenling, has used it to prioritize municipal infrastructure projects. (Thus consulted, the Chinese opted for clean water ahead of a fancy public square, to the surprise of their officials.)
The McKinsey collection is bursting with other good ideas: Peter Ho, formerly the top civil servant in Singapore, describes his country’s thoughtful techniques for coping with an increasingly unpredictable and complex world; Mohamed Ibrahim, the African cellphone mogul, identifies a lack of good data as the biggest obstacle to improving governance in his home continent; Matthew Taylor, chief executive of the Royal Society for the Encouragement of the Arts, Manufactures and Commerce, aLondon-based nonprofit, sees the sorting of different types of garbage that most of us now do in our own kitchens as the herald of a new and needed era of greater citizen engagement with the services the state provides.
The unifying idea is that we should focus on making government smarter, not arguing over whether it is too big or too small. The tactical elegance of this approach is admirable: In an age of ideological deadlock, it makes sense to find a way to sidestep that fight altogether. Even more compelling is the insistence that the state should be overhauled with the same rigor the private sector applies to efficiency and customer satisfaction. That rallying cry is long overdue.
But the appeal of this technocratic recipe is also its limitation. First, one small caution. Data and metrics are wonderful tools, but private-sector wonks who believe that their spreadsheets are the secret to fixing the government would do well to remember that the greatest economic disaster of our time was caused by the most data-oriented sector of society. Wall Street didn’t fail because it had too few quants, but because it had too many.
The larger caveat is that Farrell’s quest for apolitical improvements in government goes only so far. The truth, as Daron Acemoglu, an economist at the MassachusettsInstitute of Technology, points out in the most important essay in this collection, is that governing is an innately political act. It is absurd to campaign narrowly for a more efficient state while setting aside debates about what that state is for; some of the most evil governments in history – Hitler’s Germany, Stalin’s Soviet Union - were made worse by their efficiency, not better.
All of us can agree that we want government to work as well as possible, and we should all applaud efforts to improve it. But there is no escaping the divisive and essential questions: What is the purpose of the state and whom does it serve?
SEP 21, 2012 15:04 UTC
YALTA, Ukraine — One of the paradoxes of our age is that we are simultaneously living through a time of positive economic innovation and also a time of the painful erosion of the way of life of many middle-class families.
Listening to Yuri Milner, the Russian Internet investor, at a conference in Ukraine a few days ago brought home this contrast. Milner is a billionaire thanks to his Internet investments: He has done well both in his homeland, supporting some of Russia’s most successful start-ups, and, even more spectacularly by venturing abroad, taking pioneering stakes in Facebook, Zynga and Groupon.
When Milner talks about the technology revolution, he paints a dazzling picture of literally unprecedented innovation, bringing tremendous savings and benefits to consumers.
But when you talk to economists about the impact of those same forces on middle-class jobs, you come joltingly down to earth. The revolution Milner describes is part of a sea change in how the economies of Western industrialized nations work – and one that is hollowing out the middle class.
The technology revolution has become so familiar – grandmothers are on Facebook and toddlers navigate YouTube on their parents’ iPads - that it is easy to forget how revolutionary it still is. But Milner, speaking at an annual conference held by the Ukrainian billionaire Victor Pinchuk, argued that it had just begun to radically reshape our lives. (Disclosure: I moderated many of the sessions.)
Milner’s focus is on what he calls the three big “stories” in business innovation: “platform,” “free” and “e-commerce.” By “platform,” Milner is referring to the ability of the breakthrough Internet companies to build their businesses using the work and ideas of others. One example is Amazon.com. Milner said that “about 2 million independent merchants are selling on the platform every day. And that adds up to $25 billion of annual sales.” If those merchants were housed in a brick-and-mortar mall, they would occupy a “space equal to the island of Manhattan.”
The second big strand of the Internet revolution that Milner homed in on is “free.” Here, again, Milner argues that something unprecedented is going on: Thanks to the revolutionary impact of “free,” massive global brands can be created almost overnight.
Milner’s final major trend is less abstract: e-commerce. Again, this is hardly a novel phenomenon. But what Milner thinks is new is the impact of e-commerce as it moves from being the sideshow to becoming the main event.
Today, Milner estimates that 6 percent of retail sales is done online. He believes that number will be 20 percent within a decade, and he thinks it will be 50 percent within two decades. That shift, Milner argues, will have a profound and positive impact on the world economy: an 8 percent increase in efficiency. Another predicted consequence is less benign: “a pretty significant job loss in the retail sector to the tune of 40 million jobs in the next 20 years.”
Milner is a winner in all three of his generation’s big revolutions: the collapse of communism, globalization and the technology revolution. So he is inclined to believe the disappearance of retail jobs will have a happy outcome: The vanishing, low-paying retail jobs will be replaced by better-paying technology work.
But economists who have been studying the impact of globalization and the technology revolution on the labor market in Western industrialized economies are less sanguine, at least in the short term.
John van Reenan, professor of economics and director of the Center for Economic Performance at the London School of Economics and Political Science, is one of the foremost students of this transition. He thinks the biggest impact of the e-commerce revolution, and its counterparts in sectors like the law or accounting, won’t be on the number of jobs in the economy; it will be on how well they pay.
“The worry isn’t the quantity of jobs; it is the quality of jobs,” he said in a telephone interview from his base in London. “Other jobs will appear, but they may not be very attractive jobs.”
Van Reenan believes this trend has already begun, with deep social and political consequences. “It is a continuation of the hollowing out of the middle class, which we have seen,” he said. “People will find it harder to support a middle-class family.”
We’ve been in this paradoxical place before. The American economist and politician Henry George described the tumultuous change that his country was undergoing in the 19th century in an 1879 best-seller, whose title says it all: “Progress and Poverty: An Inquiry in the Cause of Industrial Depressions and of Increase of Want With Increase of Wealth The Remedy.”
What makes today’s political economy so hard to come to terms with is that the thrilling innovation and the hollowing out of the middle class – the progress and the poverty – aren’t two inimical trends. They are, instead, opposite faces of the same coin. But that’s something we don’t like to talk about, either in the hot spots where innovation is happening, or in the depressed regions where its malign side-effects are being felt most acutely.
PHOTO: Digital Sky Technologies CEO Yuri Milner attends the eG8 forum in Paris May 25, 2011. The eG8 forum gathers “leaders of the Internet” to consider and discuss the future of the Internet and society. REUTERS/Gonzalo Fuentes
SEP 13, 2012 21:12 UTC
George Soros made headlines this week with a striking proposal that to save Europe, Germany must “lead or leave.” The leadership part was familiar: Outside Germany, at least, it is becoming conventional wisdom that Europe will survive only if the Union’s behemoth provides more decisive leadership — and writes bigger checks.
The catch is that the rest of Europe, particularly its beleaguered so-called Club Med countries, doesn’t seem to be in much of a position to coerce Berlin to do anything. That is where Soros’s second alternative — leaving — comes in. In an interview in Vienna last weekend and in a speech in Berlin on Monday, Soros added his influential voice to a cluster of iconoclasts who have asserted that Southern Europe’s fate need not be decided in Germany.
If Germany is unwilling to lead, Soros argues, the Southern Europeans should ask Germany to leave. His prediction is that these currently sickly nations would do perfectly well.
“If Germany left, the common market could hold together and actually it would be a remarkable relief,” Soros told me. “The euro would fall in value, so the debt which is denominated in euro would also fall in value and the competitiveness of the debtor countries compared to Germany and the other creditor countries would greatly improve.”
In this scenario, the Club Med countries would benefit partly from the inflation and currency devaluation that their existing monetary marriage to Germany precludes. Their renaissance would also be based on their economic fundamentals, which Soros argues are strong but are being discounted by the markets because of the existing fiscal and monetary straitjacket.
“It’s remarkable, remarkable, when you look at the Latin euro, that is to say the euro excluding Germany, it actually compares very favorably, not only with Britain, but with the United States and Japan,” Soros said.
“A Latin euro, where the members formed a fiscal union and would therefore go to introducing euro bonds, would be able to borrow at rates comparable to Japan, theUnited States and the United Kingdom. They would rank equally on the macroeconomic basis, if you compare them in terms of total indebtedness and deficit.”
Soros argues that Europe couldn’t survive the exit of one of its weaker, southern members but that it could weather the “amicable” departure of Germany.
“If Italy or Spain left, not only the euro but also the common market and the European Union would fall apart,” he told me. “Whereas if Germany left, the common market could hold together.”
Soros acknowledges that a German departure would be “a big dislocation” and a “shock,” but he thinks that the euro and the financial arrangements it supports would endure. This is, mildly put, not the consensus view.
Yet Soros knows a thing or two about currencies and bonds, which is why his economic policy prescriptions carry such weight.
He is also one of the millions of Europeans with experience of death and destruction. As a teenager, Soros hid from the Nazis in occupied Budapest; a couple of years later, still in his teens, he fled the Communists to make his way, penniless and alone, in Western Europe.
That personal history helped to inspire the second part of Soros’s message: of the promise and the peril of Europe. When it comes to peril, Soros warned that existing policy is sorting the Continent into two tiers. This Europe, he said, “is divided into debtors and creditors, with the creditors led by Germany being in charge and calling the shots and the debtors relegated to an inferior status which is threatening to become permanent.”
The historical precedent, he noted, was grim: “After the First World War, when the French imposed reparation payments on Germany, then they were sort of the tough taskmasters, they occupied the Saar, and the result was the rise of Hitler. It really would be a tragedy if Germany now fell into the same trap.”
Now for the promise: Soros remains a committed European, passionately supportive of the moral idea that animated European convergence.
“The European Union,” he said, “was meant to be an association, a voluntary association of equal states, each of which is devoted to the principles of democracy, rule of law, human rights, sacrificing part of their sovereignty for the common good.”
Millions of bitter experiences like those of the Soros family were the most powerful reason Europeans vowed never again, and embarked on their ambitious unification project. Soros notes that a successful European Union is important far beyond its borders.
“A united and prosperous Europe, devoted to the principles of open society, is very much needed by the world,” he told me. “I have a network of foundations working in various parts of the world, and I can give you personal testimony of how important it is to have a Europe that is strong enough to project its influence in the rest of the world. Take, for instance, the transformation that’s taking place in Burma, or in some of the African countries; there’s a very positive role that the European Union can play.”
As Europe teeters from one crisis to the next, Soros reminds us all that at its heart, the European Union is about more than deficits and currencies and bonds. Europe is also a political and moral idea — one very much worth preserving.
PHOTO: Billionaire investor George Soros speaks at a forum Charting A New Growth Path for the Euro Zone during the annual IMF-World Bank meetings in Washington September 24, 2011. REUTERS/Yuri Gripas
SEP 6, 2012 17:07 UTC
If there had been an empty chair at the Democratic convention this week, its ghostly occupant would have been Ronald Reagan.
Barack Obama admiringly referred to Reagan’s transformational presidency during the 2008 election campaign. That enraged the Clintonites, but then-Senator Obama’s take on the historical shifts in American politics was absolutely right. If you doubt that, just think back one week to the Republican convention, which was above all a coming-out party for Reagan’s 21st-century heirs.
Reagan’s legacy is so powerful because he identified the state as the central issue in American politics. That is still true today. Both in Tampa, Florida, where the Republican promise was to shrink the state, and in Charlotte, North Carolina, where the Democrats’ promise is to transform the state into a more effective servant of the middle class, the big question is what government should do, and how big it should be.
In 2008, Mr. Obama identified the force of Reagan’s leadership because he aspired to have the same impact. But the problem for him — and for American liberals in this century more broadly — is that the task they have set for themselves is both harder to do and, crucially, harder to explain.
That argument is made eloquently in a newly published essay on the Obama presidency by Theda Skocpol, a Harvard professor and one of the country’s foremost political theorists. If you read only one book about Mr. Obama this electoral season, read “Obama and America’s Political Future,” the slim volume that includes Dr. Skocpol’s essay and three smart responses. Together, they rise above the tick-tocks and polemics that characterize too much of the United States’ political writing.
Dr. Skocpol’s starting point is the comparisons between Franklin D. Roosevelt’s New Deal and Mr. Obama’s ambitious plans — often described as a New New Deal — that were often made at the beginning of his administration. But that parallel, which was drawn by insiders as readily as by outsiders, misses one crucial historical difference: F.D.R. built the state from scratch, while Mr. Obama is trying to overhaul a massive state machine that has existed for decades.
“The things that happened in the 1930s were unprecedented in peacetime,” Dr. Skocpol told me. “That was hard, but citizens could get a sense that something new was happening. What is different for Obama is that there is a very elaborated federal apparatus that already exists.”
It is the difference between a start-up and turning around a big, troubled company, or, to use a more domestic metaphor, between building a brand-new house and renovating an old one.
“We know from economic and technology history — it is easier to fill a space for the first time,” Dr. Skocpol said. “This is the same principle.”
Dr. Skocpol, who describes the Obama effort as “redirecting” the state, believes that task is difficult for many reasons. One is that change usually antagonizes vested interests; another is that, as the Obama administration has certainly shown, it often increases complexity.
When it comes to Election Day, renovation has a further, powerful disadvantage, compared with starting from scratch. When you build on a greenfield site, it is easy to show what you are doing and to explain how it is new. When you are working on a brownfield site, it is a lot harder to demonstrate what you’ve actually accomplished.
In the United States, the job of redirecting the state is further complicated by a phenomenon the author of another essay in this volume describes as the “submerged state.” Suzanne Mettler, a political science professor at Cornell University in New York State, coined the term to describe “a whole number of public policies in the United States that are hard for people to perceive as such because of their design.”
The submerged state lurks most massively in tax policy, which provides huge benefits, but ones that are largely invisible to their recipients. The result is the familiar American paradox of beneficiaries of government largess who passionately call for a shrinking of the state.
“A lot of people derive a lot of benefits from public policy, but they don’t recognize that the government is assisting them, so they are less likely to support government,” Dr. Mettler told me. She cited a survey she did in which only 43 percent of respondents admitted to ever getting help from the government. When asked about specific programs, though, 96 percent turned out to have benefited from state largess.
When it comes to the campaign trail, the easiest platform is a start-up — Americans love the shiny new thing. Next best is demolishing something that’s old and rotten — the appeal of Representative Paul D. Ryan’s radical rhetoric is no accident.
Hardest of all is to promote a painstaking, time-consuming renovation — which is exactly what U.S. government needs and what Mr. Obama, at his best, has promised to accomplish. To succeed, he needs to understand how different his new deal is from F.D.R.’s and why his transformation is a harder sell than Reagan’s was. He needs the courage to remove the cloak of invisibility from America’s submerged state. And when it is revealed to Americans in all of its complex and inefficient glory, he needs to come up with a clear plan not to make it bigger, but to make it better.
PHOTO: Former U.S. Speaker of the House Newt Gingrich and his wife Callista narrate a tribute to former President Ronald Reagan during the final session of the Republican National Convention in Tampa, Florida, August 30, 2012. REUTERS/Adrees Latif
AUG 30, 2012 15:57 UTC
This U.S. election campaign is being billed as a battle of big ideas. That is a good thing. But it is a shame that the fight is not being waged in the 21st century.
In choosing Representative Paul D. Ryan as his running mate, Mitt Romney swapped his Massachusetts pragmatism for a proudly ideological commitment to limited government. The Democrats, by contrast, believe in the essential role government plays, and are willing to raise taxes, at least on the rich, to pay for it.
This a clear and important battle line in the United States. But the argument over the size of the state comes with little regard for the very particular economic realities of this era. Like generals fighting the last war, U.S. politicians are solving the economic challenges of the past century.
That is a problem because we are living at a time of deep and fast economic change. The intuitive sense that the economy is becoming less predictable and less secure is right. Thanks to globalization and the technology revolution, the nature of work, the distribution of the rewards from that work and maybe even the economic cycle itself are being transformed.
But one would not know it from the U.S. political debate, whose familiar melodies of small state versus large state, higher taxes versus lower taxes and the importance, or not, of balancing the budget could have been played in any decade since World War Two.
Most people in the United States are comfortable with these old songs – everyone knows the words – but they are an inadequate response to the new economic demands of the 21st century.
The economic reality is that, thanks to smart machines and global trade, the well-paying, middle-class jobs that were the backbone of Western democracies are vanishing. Neither Mitt Romney’s smaller state nor Barack Obama’s larger one will bring them back. That is because the paradoxical driver of this middle-class squeeze is not some villainous force – it is, rather, the success of the world’s best companies, many of them American.
The record profit at Caterpillar, for example, is a tribute to the company’s skill at operating in a global marketplace and adopting cutting-edge technologies. But, for some Caterpillar workers, that good news recently translated into a six-year wage freeze, which union employees accepted after a strike in Joliet, Illinois, failed to secure a better deal.
This is the knottiest economic problem of our time: figuring out how to manage an economy whose engines of growth are enriching the few but squeezing the many.
Instinctively, Americans understand this is happening. That is why the Democratic ticket, despite the complaints of some of its wealthy backers, has stuck with its critique of Romney’s former company, Bain Capital, as an outsourcer of jobs. The point that middle-class workers sometimes suffer from the same decisions that increase shareholder value is one that many Americans know from their own life experiences.
But what neither party likes to talk about much is that this socially malignant outcome is being driven at least in part by the forces of free-market capitalism that most people welcome. The attacks on outsourcing do not convince everyone, because they know that Obama has no intention of outlawing it – and that if he did, the economic impact would be devastating.
The tempting answer, which I heard most recently in an interview with Glenn Hubbard, an economic adviser to Romney, is to optimistically assume that, just as the early traumas of the Industrial Revolution gave way to widespread prosperity in much of the world, the economic transformations of today will eventually work out.
“If you were to go back to 1940 and have this debate, we might worry, well, what if people are going to lose their farm jobs?” Hubbard said. “Then the debate was over manufacturing, then over service. And if an economist is honest with you, the best he or she can say is, what we need to do is allow those opportunities to happen, and they will.”
There are a few problems with this happy prediction. The first is that, while the Industrial Revolution did, indeed, eventually make ordinary people richer than at any other time in human history, it took two world wars and Communist revolutions in Russia and China for the world to iron out the kinks. The second is that, to make industrialization work, the West created an elaborate set of new political, social and economic institutions, including universal public education, trade unions, and the social safety net.
It took more than the spinning jenny or the steam engine to transform local, agrarian, family-based communities into national, urban, individualistic ones. New political and social institutions will be needed to midwife the latest shift into global and virtual communities. Inventing those institutions is hard, and talking about them can be frightening, but that is the political conversation the Western world should be having today.
AUG 23, 2012 15:55 UTC
If you aren’t American, the possibility that this election could hinge on abortion rights may seem absurd. Surely the stagnant world economy, the relative decline of U.S. power and climate change, just to name three, all trump reproductive freedom as issues that should be at the top of the national agenda.
But up close the focus on abortion is less bewildering. If, like Todd Akin, the Missouri congressman whose comments about rape focused the United States’ attention on the subject of abortion this week, you believe embryos are full-fledged human beings, no issue is as important as what you view as the continuing and legal murder of these innocents. If, on the other hand, you are a woman of childbearing age who happens not to share Akin’s beliefs, no issue is as important as the right to control your own body, which the congressman’s view threatens.
Having said all of that, the spotlight on abortion rights is also the product of a family feud inside the Republican Party. Republican grass-roots activists are desperate to propel the issue to the top of the national agenda, while the party’s elders — and their presidential nominee — are equally desperate to stop us all from talking about it.
If Mitt Romney has his way, the focus will eventually swing back to the issue that most voters spend the most time thinking about: the economy. And if that happens, a man worth talking to is R. Glenn Hubbard, a top Romney adviser who served as the chairman of George W. Bush’s Council of Economic Advisers and is now the dean of Columbia Business School.
Hubbard sees this election as one that offers Americans a sharp choice about the kind of country they want to live in. “The real issue for the public is to figure out which narrative do we want,” Hubbard said in a conversation in his office on the Columbia campus this week. “We can have a bigger government, if that’s the public’s choice. It’ll just require higher taxes on every American.”
“Do you want that,” he asked, “or do you want smaller government, smaller taxes?”
Hubbard is right that the ideological choice U.S. voters face when it comes to the economy and, indeed, the nature of their country more broadly, is clear and significant. There’s a reason the political debate is so polarized right now: The United States is at a very real crossroads.
While both parties are happy to describe this contrast in broad terms, when it comes to explaining their visions in more than a single sentence each side is unwilling to trust voters to understand the full implications of their position.
The Republican hypocrisy is to promise lower taxes, a balanced budget and spending cuts that avoid curtailing the essential government services Americans cherish. Eliminating waste and making the state more efficient only goes so far, and Republicans are reluctant to spell out just how much the state would have to shrink to allow a President Romney to both enact his promised tax cuts and balance the budget.
There is, of course, another way to square Romney’s fiscal circle: to adopt the credo of former Vice President Dick Cheney, who argued that Ronald Reagan proved that deficits don’t matter. Under this approach, a Republican administration would focus on cutting taxes first and leave balancing the budget for a little later.
The point of hypocrisy is to say one thing and to do something rather different. But even in these pre-election days of talking points, Hubbard makes very clear that the ticket shared by Romney and Paul Ryan has absolutely no interest in British-style shock therapy.
“Definitely not,” Hubbard said, when I asked him whether Romney was proposing a British scenario. “Part of the problem in Europe and in Britain is that austerity has the impression that we have to make every change today. That’s not true in Europe and it’s especially not true in the United States. What we need is a glide path to fiscal sustainability. It doesn’t have to happen today.”
Call it closet Keynesianism, with a 2013 stealth stimulus disguised as deep tax cuts. That is what many of Romney’s moneyed Wall Street supporters are hoping for — with a further, Nixon-goes-to-China expectation that a tax-cutting President Romney would have the best chance of taming the die-hard Republican deficit hawks in Congress.
The Democratic hypocrisy also involves squaring pledges about taxes with promises of fiscal prudence. President Barack Obama vows to maintain a supportive state — and to extend health care coverage — while not raising taxes for the middle class, and eventually balancing the budget.
This math, as Hubbard pointed out, doesn’t work either. The state programs that many Americans depend on today cost more than what they pay in taxes. Increasing taxes on the rich will help, but that is not enough. Yet, just as the Republicans won’t admit that they can’t balance the budget and cut taxes without shriveling the state to levels many Americans would not tolerate, the Democrats won’t tell you that the more generous state they believe in will only be sustainable if quite a few Americans pay more for it.
You get what you pay for — there’s a message I think American voters are smart enough to understand.
AUG 16, 2012 15:58 UTC
We all know it would be virtuous to spend more time pondering the implications of globalization and the intricacies of high finance. But these aren’t always the most enticing subjects to study, especially in the languid, fading days of August. For an easy-listening approach to two of the most important themes of our time, you could do worse than devote an evening to the film “Supercapitalist,” a new financial thriller set in Hong Kong.
The most immediately striking take-away from “Supercapitalist” is the moral hierarchy it imposes on business. The only truly virtuous capitalists are the technologists – hard-working, creative and focused on innovations that will help ordinary people as well as the bottom line. Next best are the makers of real things, in this case a logistics company. Worst of all are the financiers, a treacherous, murderous bunch who care only about making money even if the price is human lives.
In light of the public attitude toward bankers, those who work for Mitt Romney should watch this film and talk to its star and screenwriter, Derek Ting. That’s because Ting has made a film that raises some provocative political questions, but his personal agenda is entirely artistic: He set out to tell “a universal, human story.” His ethical ranking of business, with the money changers emphatically at the bottom, is an instinctive choice, not an intellectual one. That says a lot about current views on the subject, even on one of the world’s most energetic capitalist frontiers.
Ting’s exploration of globalization is more nuanced and more self-conscious. Supercapitalist, which moves from boardrooms and shipping yards to casinos and bars filled with call girls, does a fine job conveying the mood of a city in the throes of rapid economic transformation. Ting told an audience at a screening in New York that Hong Kong, where he lives, is “a make-it-happen town.”
“The stakes are very high in Asia,” he told me later. “It is a teeter-totter. Things are shifting eastward. It is something we can’t ignore. There is massive growth and opportunity.”
It is instructive, and fun, to catch a glimpse of some of the tastes, colors and flavors of this rising China, but that story itself is familiar. That’s why Ting’s variations on the theme are so welcome.
One is that the rapacious capitalist villains are white Americans (one of them, inevitably, an investment banker at “Silverman Brothers”) and their victims are hard-working, family-minded Chinese businesspeople. At a time when the United States is worried that Chinese capitalists are eating their Yankee lunch, Ting’s Hong Kong-nurtured perspective is a valuable counterpoint.
Another notion, which is touched on by the film and figures prominently in Ting’s own life, is how, for today’s generation of hyphenated Americans, the American dream is being inverted. It remains a central truth on the presidential campaign trail that the United States is the land of opportunity, to which the world’s huddled masses continue to flock. But the protagonist of “Supercapitalist” is the son of immigrants who seeks his fortune by going back to his family’s homeland.
To appreciate what a swift and profound shift that is, consider how Ting’s own parents reacted to his decision to move to Hong Kong.
“They really didn’t want me to go back to Asia,” said Ting, who was born near Westchester County, which is north of New York City, and whose parents are ethnic Chinese from the Philippines. “They said: ‘We moved here so you would have a better life.”‘
The final issue “Supercapitalist” raises is the fluidity of national identity in the age of globalization.
The film’s real-life back story is an aspect of identity politics that isn’t new at all: the lack of starring roles for Asian-American men. It is an issue Ting is a little reluctant to talk about. “I didn’t want this to be just about being Asian-American,” he said. “I mean, what year is this already?”
But he admits that a powerful motivation for making the movie was to create a lead role for himself. “I realized even if I train hard, even if I’m the best actor – which I’m not – it won’t make a difference if the opportunity isn’t there,” he said. Pursuing that vision took grit; some potential financial backers told Ting he could raise a lot more money if he made the star white.
Ironically, the film points out that when they get to Asia, Asian-Americans like Ting and the protagonist of “Supercapitalist” are seen first and foremost as Americans.
As for Ting himself, he says his identity depends on where he is. “A lot of us feel, you go to Hong Kong, you feel more American,” he said. “You come to the U.S., and you feel more Asian.”
That mixed identity can be uncomfortable – it can be hard to be a perpetual outsider. But as the global economy becomes more interconnected, Ting thinks belonging to many places is becoming an advantage.
“We can bridge both cultures, which is a strength when Asia is on the rise,” he told me. “The world is becoming much more global, and that puts our types in a very interesting position to bring the world together. There is a new global citizen emerging.”
AUG 9, 2012 21:10 UTC
Forget America’s fiscal cliff, Europe’s currency troubles or the emerging-markets slowdown. The most important story in the global economy today may well be some good news that isn’t yet making as many headlines – the coming surge in oil production around the world.
Until very recently, our collective assumption was that oil was running out. That was partly a matter of what seemed like geological common sense. It took millions of years for the earth to crush plankton into fossil fuels; it is logical to think that it would take millions of years to create more. The rise of the emerging markets, with their energy-hungry billions, was a further reason it seemed obvious we would have less oil and gas in 2020 than we do today.
Obvious – but wrong. Thanks in part to technologies like horizontal drilling and hydraulic fracking, we are entering a new age of abundant oil. As the energy expert Leonardo Maugeri contends in a recent report published by the Belfer Center at the John F. Kennedy School of Government at Harvard, “contrary to what most people believe, oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption.”
Maugeri, a research fellow at the Belfer Center and a former oil industry executive, bases that assertion on a field-by-field analysis of most of the major oil exploration and development projects in the world. He concludes
that “by 2020, the world’s oil production capacity could be more than 110 million barrels per day, an increase of almost 20 percent.” Four countries will lead the coming oil boom: Iraq, the United States, Canada and Brazil.
Much of the “new” oil is coming on-stream thanks to a technology revolution that has put hard-to-extract deposits within reach: Canadian oil sands, U.S. shale oil, Brazilian presalt oil.
“The extraction technologies are not new,” Maugeri explains in the report, “but the combination of technologies used to exploit shale and tight oils has evolved. The technology can also be used to reopen and recover more oil from conventional, established oilfields.”
Maugeri thinks the tipping point will be 2015. Until then, the oil market will be “highly volatile” and “prone to extreme movements in opposite directions.” But after 2015, Maugeri predicts a “glut of oil,” which could lead to a fall, or even a “collapse,” in prices.
At a time when the global meme is of America’s inevitable economic decline, the surge in oil supply capacity is an important contrarian indicator. Maugeri calculates that the United States “could conceivably produce up to 65 percent of its oil consumption needs domestically.” That national energy boom is already providing a powerful economic stimulus in some parts of the country – just look at North Dakota. Crucially, at a time when one of the biggest social and political problems in the United States is the disappearance of well-paid blue-collar work, particularly for men, oil patch jobs fill that void.
What Maugeri dubs the next oil revolution also has tremendous geopolitical implications. One way to understand the battlegrounds of our young century is through the pipelines that flow beneath them. The coming surge in oil production, particularly from North America, will transform that geopolitical equation.
Equally significant is the impact of oil on the most important human problem of our times: protecting the environment. The sources of oil that will fuel the coming boom are harder to reach than the supplies of the 20th century, and the technologies required to extract them are more invasive. That will be one fault line in what is sure to be the escalating battle between environmentalists and the oil industry.
The implications for the climate change debate are even more fraught. Until now, the arithmetic of oil supply and the agenda of environmentalists conveniently dovetailed. Since we were running out of oil anyway, environmentally motivated efforts to limit fossil fuel consumption and increase our use of renewable energy boasted the additional virtue of being inevitable. In an age of abundant oil, those economically utilitarian arguments lose their power.
For environmentalists, and for the liberal political parties with which they are usually aligned, that poses a serious challenge. The temptation will be to oppose new oil production projects indiscriminately. That instinct could be politically dangerous. Political progress in combating climate change has been slow, but the battle for hearts and minds, especially of the younger generation, is being won. That political capital can be lost in an instant if the environmental movement allows itself to be equated with opposition to one of the lone sources of growth – and of good blue-collar jobs – at a time of global economic stagnation.
A final conclusion to draw from the next oil revolution is a little more existential. This is yet another reminder that what both common sense and expert consensus assure us to be true very often isn’t. It was obvious that efficient markets worked and financial deregulation would stimulate economic growth, until the financial crisis and the subsequent international economic recession. It was equally apparent that we were running out of oil – until we weren’t.
Chrystia Freeland is the editor of Thomson Reuters Digital. Prior, she was U.S. managing editor of the Financial Times. Before that, Freeland was deputy editor, Financial Times, in London, editor of the FT’s Weekend edition, editor of FT.com, U.K. News editor, Moscow bureau chief and Eastern Europe correspondent. From 1999 to 2001, Freeland served for two years as deputy editor of The Globe and Mail, Canada’s national newspaper. Freeland began her career working as a stringer in Ukraine, writing for the FT, The Washington Post and The Economist.
ANY OPINIONS EXPRESSED HERE ARE THE AUTHOR’S OWN.