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What is Missed by a Focus on Profit?

Posted By Administration, Tuesday, April 2, 2019

Charlotte Aguilar-Millan shares her concern about the mere focus on profit in her fourth blog post for our Emerging Fellows program. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

For a company to grow, profit is required. This has been the age old mantra that those in the world of business have restated again and again. Why, when we look at fast growing companies, do they make limited profits? Deliveroo, a food delivery service, whose revenue increased by 116% in 2017, saw profits grow only by 1.5% during the same period. This is as a result of reinvestment into their technology apps. It is also an indication of the changing landscape. For companies to deliver long term shareholder value, profits are not the key driver. Instead, profits act as a by-product from placing value on other areas.

 

Too often companies focused on profit look to scaling efficiency and reducing costs, resulting in missed opportunities. Amazon is a prime example of a company which reinvested into its services including delivery and inventory availability. This has enabled fast growth and expansion into new markets. It has also added an edge to the market. Companies focussing on profits cannot compete with this edge. 

 

Globalisation has enabled more end user awareness of the behaviour of a profit focused company. Poor treatment of staff stops a brand from being able to convey aspirational attributes. Potential employees are able to research these workplace habits and have become aware of the working environment of a profit focussed entity. This has made potential employees wary of those companies tarnished with a profit only focus.

 

There are longer term impacts on society where companies solely focus on profits. When cost reduction is a main factor, the contribution to the remedy of global issues is weak. Measures to help reduce climate change and poverty from seeking the lowest cost are often retrospective. Often this action is as a result of external pressures only. Take corporate social responsibility (CSR) as an example. This is a tool now used by companies to demonstrate they are ethically aware. However, companies persevere with using suppliers who do not pay a living wage. They offset this in retrospect by allowing employees to take a volunteering day or sponsored run. Rather than take responsibility for the repercussions of their cost saving exercises, companies introduce CSR policies and assume that this is sufficient. It is the individual who has to pay the price for a company focussed on profits. Whether it’s by accepting higher prices or lower quality. Whether it’s by downsizing with fewer staff but the same workload. Or even whether it’s accepting climate change as a consequence of the profit focus.

 

Shareholders have a responsibility to make the directors of a profit focused company accountable. They have the opportunity at least annually to demonstrate an activist investor approach. Activist investors can use their equity stake in a company to put pressure on its management. Companies have historically taken no action where no pressure or incentive is given.

 

The end user can also demonstrate more self-awareness of the products and services they are consuming. We have seen the growth of ethically sourced products, such as Lush and The Body Shop. This is starting to develop within other industries. The size of ethical funds is at the highest level it has ever been before, peaking at roughly £4bn in May 2018 on the London Stock Exchange.

 

The choice lies with consumers. Consumers can use their purchasing power for positive change. Activist shareholders can place pressure on companies in the future to enable the change they want to see. This could change the approach of companies to effective climate change mitigation, reducing unequal director to employee pay ratios and increasing staff welfare. In the future, companies may have to pay more attention to those issues which are missed by a focus purely upon profit.

 

 

© Charlotte Aguilar-Millan 2019

Tags:  company  economics  profit 

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Is the ownership of capital changing?

Posted By Administration, Tuesday, March 26, 2019

Tim Morgan publishes his third blog post in our Emerging Fellows program by asking about the ownership of capital. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

If you can’t open it, you don’t own it. That is the unofficial motto of the world-wide Maker Movement, which emerged along with the early development of the World Wide Web. It celebrates the fusion of art, technology, and do-it-yourself inventiveness. It inherited much of its emphasis on openness from the earlier Free and Open Source software (FOSS) movements.

 

FOSS formed in response to proprietary software which could not be changed by anyone but the copyright owners. FOSS advocates professed that collaboration via sharing source code was the best way to develop software. Makers embraced FOSS sharing sensibilities in no small part because automation was key to many of their projects. It was easier to bootstrap a new creation by copying and modifying existing code or hardware.

 

This free-as-in-speech information sharing ethos shaped the way the early Internet developed. Shared code forms the foundation of many commercial operating systems. Android alone powers over 2.7 billion smartphones and devices worldwide. The Internet and Web as we know them would not have expanded as quickly without shared-source software. This desire to share information is a design consequence of digital networks. Information can be copied with perfect fidelity as many times as desired. Perfectly copying information from computer to computer is fundamental to the design of the Internet. If the medium is the message, then the message of the Internet is to Share.

 

The drive to share is fundamental to human nature. Digital technologies unexpectedly created a new type of social structure that champions sharing - an Abundant Information Commons. Value is added by modifying for your needs; be it code, a design, a formula, or a written work. Those changes are then released back into the commons for anyone to use and improve.

 

Digital technologies are not completely free from restraints though. Individual possessiveness is in human nature too. Information may want to be free, but markets do not. Algorithms and hardware can put controls on data. Laws can penalize unauthorized use. The old ownership modes still exist, but now they are in tension with a network that wants to copy information. After several decades, we have reached an uneasy balance between owned information capital and shared information commons. Wikipedia did not replace Encyclopedia Britannica, but it did force it to adapt.

 

This balance is still shifting though. The more digital technology is embedded into everything, the more networks find new connections into physical, legal, and market domains. Cracks in the foundational layers supporting ownership are being slowly forced open by the roots and tendrils of ever-expanding networks. What was once purely physical is being bonded with the virtual.

 

Nothing owned is safe from this increasing integration with the digital realm. Networks want capital to be data-like and are actively working to make that happen by embedding code and connections in every owned thing.

 

The traditional capital triad of Ownership, Control, and Use is thus giving way to the networkable capital triad of Copying, Modification, and Sharing. The dynamic of how the virtual and real will fuse together will determine how future value is created.

 

The future of ownership is that if you want to own capital, you will need to find a way to open at least part of it and share.

 

© Tim Morgan 2019

Tags:  capital  economics  ownership 

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Is liberty compatible with capitalism?

Posted By Administration, Friday, March 22, 2019

Ruth Lewis a member of our Emerging Fellows program examines the compatibility of liberty with capitalism in her third blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

The current economic theory of the ‘free market economy’ and capitalism requires a world of scarce or finite resources, together with ‘infinite wants’ of the consumer, in order to work. Scarce resources drive consumer acquisition and increases the market value of the resources. This balances nicely with a key tenet of the liberal view: the freedom to acquire whatever you want, even (or especially) at the expense of others.

 

The free market economy with unconstrained and unrestricted growth at all cost is now impinging on the freedoms and livelihoods of others. This effect occurs within the market supply chains who manufacture and supply goods, services and natural resources. It occurs with those who do not have the means to afford current market value. This causes even greater scarcity in key earthly resources such as food, water, mineral deposits and energy. It also has a clear link to climate change.

 

We have the strange paradox of capitalist freedom of acquisition that leads to the undermining of liberty and human rights of others. This has been the pattern as long as the market economy has operated throughout history. Whilst the individual is encouraged to be competitive and individualistic, from a spiritual point of view consumerism proves to be an empty vessel that contains no nourishment. Capitalism promotes ‘happiness’ through acquisition of money and goods over community and individual spiritual prosperity and growth. It undermines the public ‘good’.

 

What other models can we consider going into the future that can promote liberty and freedom? It is interesting to explore some models that reverse the paradigms that we live within today and speculate on futures driven under different mental models for both liberty and economic good.

 

One model that we see today is the governance-driven capitalism model, where societal benefit is promoted alongside profit. This can be seen for example in the ‘B-CORP’ model, where capitalist endeavours can be nurtured spiritually by knowledge that they are promoting good in the world, or at least not causing harm.

 

Others observe that the future will evolve into a post-scarcity economy, where resources are abundant through greater utility and efficiency of innovation, and digitisation will provide both basic and greater needs of the world’s population. This is predicated upon greater information about the world we live in. However, when the commodity underpinning the economy is data or information, where will ownership lie?

 

Another model suggested is that of ‘Commoning’, where ownership and control of resources is participatory. Resources are protected from sale in the market and belong indefinitely to the community that created them or nurtured them - in the same way that a river might be maintained by communities along its banks, instead of being consumed or sold by a third party to outside interests. In such a model, data would be owned and consumed by those that generate it.

 

In all of these models, how will the desire of the individual to acquire at the expense of the community be balanced with the community good? One presumes in the manner that this has always been resolved, through some form of political governance, either provided internally by the community, or presided over by a benevolent external body. Benevolent governance seeks to balance the needs and wants of a community against the resources generated or available. It seeks to regulate the internal and external stakeholders’ interests against moral or ethical dilemmas.

 

Accountable benevolence, ethics, morality and human rights must be clearly defined in accordance to a normalised common good. This clarifies what the community finds tolerable for the welfare, safety, security and health of the community members. The result is the antithesis of capitalism, to which liberty is incompatible.

 

© Ruth Lewis 2019

Tags:  capitalism  economics  liberty 

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Is capitalism a danger to itself?

Posted By Administration, Tuesday, March 19, 2019

Felistus Mbole a member of our Emerging Fellows program warns about the survival of capitalism in her third blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

Many believe that global inequality has been growing for decades. A month ago, the world’s elites - who comprise global political, business, advocacy, and activism leaders - gathered in Davos for the annual World Economic Forum.  Inequality was a key topic in their discussions. It seems the issue is finally getting their attention. Is capitalism becoming a danger to itself?

 

Inequality is likely to continue to grow into the foreseeable future based on the present trajectory. The growing inequality could lead to the classing of society into a small wealthy elite and the rest of the people. This could pose a danger to capitalism if markets are perceived as benefitting the owners of capital at the expense of workers and the consumers of the goods and services they provide.

 

For long, most people believed in the Washington Consensus that the market economy was the best way to deliver long-term prosperity. According to the consensus, wealth would somehow trickle down to the rest of society through employment and other forms of economic engagements with markets. This has not happened. Globally, people are less optimistic about the future than they were at the turn of this century. They are discontented about stagnating standards of living as the wealthy around them attain increasing levels of affluence.   

 

In wealthier economies, globalisation is becoming a chief agenda item for western populists. The opponents of globalisation dislike it for its power to potentially destabilise their status and sense of community economically and socially.  Economically, it is perceived to cause economic losses through the loss of jobs and the imports of goods and services from other economies. Globalisation was effectively slowed down between the two world wars. This is unlikely to happen in future given the advancement in technology. Rather than fight globalisation, business owners and global leaders should ensure that it works for everyone.  

 

Given prevailing rapid globalisation, it not surprising that there is a growing wave of populism especially in parts of America and Europe. Populists purport to speak for the average people - whom they position as different from those in authority - and as disadvantaged. They present themselves as having a solution to the problem and advocate for a change in the status quo.  Populism is disruptive to society and to capitalism in particular.

 

This state of affairs is not sustainable. If the wealthy are seen as the elite within society who are driving a political agenda which is divergent from the will of the people, this can lead to populism. As inequality increases, the proportion of those feeling left behind is likely to increase. This could endanger capitalism. Rather than being a zero-sum game where the wealthy are perceived to take it all, capitalism could be made a win-win game for everybody. How could capitalism be transformed into a responsible system that benefits society as a whole?

 

© Felistus Mbole 2019

Tags:  capitalism  economics  politics 

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Will Nationalism Reverse Global Finance?

Posted By Administration, Tuesday, March 12, 2019

Alex Floate, a member of our Emerging Fellows program studies the impact of nationalism on global finance in his third blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.

The recent rise of populist movements in the West have rekindled a brand of nationalism that has created an ‘us’ versus ‘them’ mentality. Nationalism in this case goes beyond simple pride in country but develops into advocacy of one’s own nation above others and sees cross-border relations as a zero-sum game of win or lose. It also tends to be anti-immigrant, isolationist and even bigoted in nature and sees global trade and exchange as detrimental to the nation. Brexit and tariffs by the U.S. get the most press, but the rise of nationalist movements and autocrats is also affecting Turkey, Hungary, Poland, Italy, India, Israel, China, Russia and others. Europe’s financial institutions are especially at risk as nationalism threatens the continuance of the union and currency, but so are all standing financial relationships and markets.

 

This new nationalism will undoubtedly continue to reverse cooperative gains made so far and endanger financial institutions, both public and private, to efficiently and cost effectively provide services and capital across borders. The institutions of all nations may be threatened, but the severest consequences may be felt in developing nations as the West sees engagement with these countries as higher risk for less return. Engaging with them may also trigger some of the more racial elements of nationalists, as most famously represented by the American president’s reference to them as “shithole countries”.

 

Nationalism also endangers the internal finance of their own countries as vested interests capture government and enact laws that benefit domestic banks and entities over foreign competitors. Restrictions on the access of foreign based institutions to sell, buy, invest or lend will create multiple problems. Higher prices for goods and credit will be born primarily by the consumers of the economy. The inability to obtain investment capital or divest businesses will ripple through the entrepreneurial community and could lead to decreased business valuations. The largest corporate interests will not only survive but thrive in this environment as large banks become larger, and small competitors in all arenas are driven out.

 

However, these actions may sow the seeds of their own destruction. Control of the monetary system enables the nation to temper the expansion and contractions of the economy and in some cases prop up the ruling party. Just as the threat of nationalism may eventually destroy the Euro, the rise of alternative currencies and methods of value creation will spawn alternative finance networks that can also destroy the nation’s currency. A future scenario imagines these alternatives as creating systems that hasten national currencies to lose relevance and fracturing financial systems. If nationalist financial systems continue to be implemented, it will hasten that scenario as apolitical financial entities seek solutions to circumvent national politics.

 

Advances in global financial systems are in danger from a continued growth of nationalism. However, it will also affect global cooperation on shared problems such as climate change, nuclear proliferation and refugee crises, as well as endangering existing global political and economic relationships. An even more fragmented system global financial system will make meeting these challenges even more difficult. Just as the battle of communism versus capitalism defined the late 20th Century, globalism versus nationalism may define the 21st Century.  The question becomes will governments lead that battle, or just follow the money?

 

 

© E Alex Floate 2019

Tags:  economics  finance  nationalism 

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Has Finance Driven Digitisation?

Posted By Administration, Friday, March 8, 2019

Charlotte Aguilar-Millan reflects her thoughts about the impact of finance on digitisation in her third blog post for our Emerging Fellows program. The views expressed are those of the author and not necessarily those of the APF or its other members.

Innovation within the finance industry has seen unprecedented development. Not only in the accessibility of data but also how households access and manage their finances. Attributes such as easy access, speed of logging in and flexibility of data are now at the core of our expectations. Finance companies have stored a mass of data on their users to enable this. But how much data are consumers unwittingly gifting to finance within this digitised world?

 

Digitisation within everyday life is significantly affected by the finance industry. Through innovation in software capabilities, we are now able to access our finances through one simple easy portal within various forms of media. The future of digitisation within finance is reliant upon further integration of the customer’s experience. With the EU’s 2007 Payments Services Directive 2, it is now legislated that banks allow customers to share their financial data if requested. This has been adopted through digitisation. Banking apps now embrace a new feature where all bank accounts with various providers can be shown within a single app.

 

Banks are in the strongest position to develop digitisation. For years they have collected and processed personal data with customer’s transactions. With social media supplying instant feedback from customers on new digital products - through the use of tweets or Facebook commenting - banks are able tailor and adapt to customers wishes. Banks are able to analyse the data they have available and partner with companies to create an experience evolved from traditional banking. Today, most bank cards offer cashback opportunities on purchases at retailers which are tailored to customer’s previous bank usage. This not only provides a customer the financial incentive to use their banking facilities but also induces loyalty to a specific bank. 

 

Banks have been at the forefront of digitisation with developments in online platforms. However, this has also resulted in banks being at increased risk for lost confidence where the technology fails. Data migration between platforms saw TSB customers in May 2018 unable to access their accounts or make payments for weeks on end in what was due to be a weekend migration of 5.2 million of its customers between technology platforms. The effects of this error was a compensation bill of £116m and savings balances of customers falling by roughly £1bn as a result of 26,000 customers switching to an alternative bank.

 

This cautionary tale of reliance on data must be heeded by consumers. Whilst the TSB migration was the most publicised, banks such as RBS, NatWest and Barclays also saw glitches in customer’s usage of their online accounts in 2018. All of which has regulatory impacts on the safety of customer’s money. Finance must now take more ethical responsibility above and beyond the regulatory requirements. Customer security must not be breached in the name of innovation. Where the integration of technology and finance meet, so must accountability and security meet.

 

Finance initially lead digitisation through established banks enhancing their services with digital products. However, this has now transformed into digitisation leading finance. Fintech companies are being set up which supersede previously dominant finance providers. Companies such as Monzo, Tandem and Loot are fully digitised current account providers and adaptations such as ApplePay or Samsung Pay are making tangible finance providers redundant. The future could be that digitisation will drive finance, and that future banks are, actually, technology companies. Households now need to adapt to personal security resilience in order to protect their future finances.

 

 

© Charlotte Aguilar-Millan 2019

Tags:  Digitisation  Economics  Finance 

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In a fully digital economy will you still be needed to work in a factory or sit at an office-desk?

Posted By Administration, Tuesday, March 5, 2019

Paul Tero a member of our Emerging Fellows program proceeds with his marvelous journey to the land of digital economy in his third blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

Work. Whether we sit in an office, walk in a manufacturing facility, or perform some other task, those of us who work are living examples basic economic theory. We are all playing our part in turning an input into an output. We could be making sales calls to increase demand for a product, driving a truck to deliver raw materials, or even developing software to make the process better. Whether our organisation produces goods or services, we are all being paid to perform our part somewhere along the value chain.

 

The economy of tomorrow, the time when teenagers of today have teenage grandchildren, is more than likely to be a fully digital economy. We can see evidence of this transition already. The value chain decades ago was all about atoms, all about making and using physical goods. Today it is a mix of atoms and bits, it is an economy where value is created in the digital sphere as well as the physical sphere. Tomorrow the value chain may well be dominated by that which is digital.

 

Consider the primary industries. Aren’t mines and farms becoming more automated? What about the secondary industries of manufacturing and construction? Isn’t automation taking hold there as well? Even for higher value sectors such as finance, health and professional services we are witnessing inroads being made by either automated or intelligence-laden digital processes. It can be argued that there will be less employment in industry sectors that create value out of atoms. Even though the value of these sectors is growing across the OECD, related employment is largely stagnant.

 

Where is value created in the digital economy and what part do workers play in it? Value in the digital economy is created in the manufacture of ICT hardware, in the creation of software and services that use software, and in the collecting, processing and disseminating of data and information.

 

Regarding the manufacture of ICT hardware, it is not too hard to see full automation in production and logistics. But in the research, development and design phases we humans will still be critical for success. Regarding the creation of software and software-based services, is it not too far-fetched to contemplate software writing software? Where designers set the input and output requirements for new software or a new service, and the computer creates and tests the complete set of algorithms and interfaces. Finally, regarding the management of data and information. Apart from employees performing regulatory oversight, it is possible to imagine the only other scenario in which human involvement is necessary is where faulty data collection sensors need to be replaced. Given this, what then is the response to the headline question?

 

The answer is a qualified yes. While there are many factors that should be taken into consideration, and which are being ably explored by my Emerging Fellow colleagues, the foundational truth is that an economy is there to serve society. For we grow things, we produce things, we teach things, we regulate things and so on for our individual and collective benefit.

 

Even though you may accept the propositions that (a) we are moving to an economy that is dominated by bits and, (b) just like production involving atoms having become more automated, so too will bits-based production. We will still be human. And even though what we value and how we pay for it will more than likely change, there will still be economic production to serve the needs of the population. So yes, the factory will still be around to produce physical goods, but the types of work that are open to humans are those that are less automated. And yes, the office-desk job will still be around, but it too will involve non-automated people and thinking skills.

 

Even though what will be available and how it is produced will be different from today, basic economic theory will still apply. No matter the industry sector, in a fully digital economy people will still have roles as productive links somewhere in the value chain.

 

 

© Paul Tero 2019

Tags:  economics  production  work 

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Could social entrepreneurs do better than capitalists?

Posted By Administration, Sunday, February 24, 2019
Updated: Wednesday, February 27, 2019

Esmee Wilcox has published her second blog post in our Emerging Fellows program. She believes social entrepreneurs are succeeding where they understand how to make use of the creative capital. The views expressed are those of the author and not necessarily those of the APF or its other members. 


It’s easy to think of social entrepreneurs as providing the antidote to modern capitalism. Seen from this perspective, social entrepreneurs are likely to remain at the margins of unreformed capitalism in the latter half of this century. The production of social value out of balance with the primacy of the economy. But hidden within the creative means of producing social goods lie the opportunities to tackle complex global challenges. So where are there hints of these new social norms that could displace how we value economic capital? How might this help us transition towards a world rich in creative capital?

Looking back, there are examples of nineteenth and twentieth-century capitalism that shifted the organising model towards greater social benefits. The Co-operative movement is well known. Public enterprise perhaps less so, but particularly influential in the USA in shifting popular perceptions of what was important for society at large. From the distribution of ice for food safety in rapidly growing municipalities in the early twentieth-century, to the building of ships to keep supply lines open during the second world war. They required a level of social co-operation to displace private gain.

They were distinct from charitable activity that is dependent on philanthropy and separate from the means of economic production. Not only did these co-operative enterprises challenge the imbalance of economic and social value. What they also did through a co-operative model was to demonstrate a more creative means of enterprise.

The social values that were necessary to engage workers in producing social benefits, were what enabled the production of economically valuable goods to be more efficient and innovative. It’s the same empathy, generosity and inclusivity that enables us to work across disciplines and organisational siloes in our modern creative enterprises. We need these organising principles to be widespread to tackle the complex, interconnected issues of our times. We live with hyper-connectivity in our age of the internet. The social, political and environmental challenges we face exist within complex systems.

Co-operative enterprises are more akin to self-organising systems, which we know are capable of co-evolving with changes in the external, operating environment. This self-organising model challenges the existing economic order that links power and status with capital and hierarchies. We no longer need ‘rent-seeking’ managers that disconnect those thinking about the problem from those experiencing the problem. People are able to think and solve problems in dynamic systems themselves. Human capability and ingenuity is released in unexpected places.

Communities that are poor in capital and consumptive power threaten those that steadfastly hold onto it. Government institutions need to stop seeing socially inclusive enterprises as replacements for welfare programmes. Government Innovation Prizes could hint at a shift in practice, making it easier for new social enterprises to find a way in to organising around a myriad of complex societal issues. But it’s Social Innovation Incubators that are countering the institutional bias against people from poor places, who have been held back from accessing their own creative capital. Acknowledging and bridging the gap between those that know the rules of the game and those that want to create new ones.

Vested interests will give up economic power where the alternative is more compelling in the present. However much we may foresee the redundancy of capitalism as it stands, social enterprise will only displace it where it can also be resonant now.

Social entrepreneurs are succeeding where they understand how to make use of the creative capital that is more evenly distributed amongst us. The economic capital we have now won’t be meaningful in the age of scarcity at the end of the twenty-first century. What will matter is how we self-organise around the complex challenges of our times. Empathetic, inclusive, and generous social entrepreneurs can show us how to make this transition.

© Esmee Wilcox 2019

Tags:  capitalism  economics  entrepreneurship 

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Is growing inequality sustainable?

Posted By Administration, Tuesday, February 19, 2019
Updated: Wednesday, February 27, 2019

Felistus Mbole a member of our Emerging Fellows program warns about the increased inequality in her second blog post. The views expressed are those of the author and not necessarily those of the APF or its other members. 


Economic inequality is growing globally. The richest one percent of society owns 45% of global wealth and are on track to owning two-thirds of the world’s wealth by the year 2030. In 2017, the wealth of the world’s poorest 50% was equal to that of only 42 billionaires compared to 380 of them in 2009 according to OXFAM. What does this mean for society? Is this level of inequality sustainable?

Society largely comprises owners of capital and the providers of labour. Governments regulate the relationship between these two parties and provide public goods and services. Today, the global economy is larger today than ever before. The growth is far from proportionately distributed. The incomes to workers have not increased as fast as returns on capital, widening the inequality gap. The situation has worsened since the 2008 financial crisis. This trend will be sustained based on the current trajectory.

Income is a key component of economic inequality. Since around 1980, income inequality has been increasing in almost all regions globally but at different rates. The same variances are also evident within the regions and countries. The core twin drivers of this change have been education and technology. The gap between skilled labour and unskilled labour wages has been growing for decades. Advancement of technology has led to increased demand for skilled labour, putting a premium price on it. Variances in levels and types of education can account for as much as 60% of the difference in wages. A higher level of education leads to increased productivity and indirectly to faster diffusion of technology through innovation. Both factors contribute to faster economic growth. The higher the divergence in levels of education, the greater the income inequality.

The World Inequality Report looks at the proportion of the national wealth held by the top ten percent of society. It ranks Europe as the most equal society today at 37% and Middle-East the least equal at 61%. Sub-Saharan Africa, Brazil, and India are in-between at 55%. The rate of growth in inequality is decreasing in Europe but rising in the USA. It has remained relatively constant in Sub-Saharan Africa, Brazil, India and Asia in the last three decades. The rapid increase in income inequality in the USA is due to massive educational inequalities and a non-progressive tax system.

Is growing inequality sustainable? Based on the current trajectory in the use of technology and divergence in access to education, inequality could rise to alarming levels. It could lead to precarious levels of distrust between the wealthy and the poor. Globalisation will allow capital to flow across tax jurisdictions. It is likely to make redistribution of income through heavy taxation untenable. Advanced inequality could result in polarisation of society into wealthy elites and the poor in future. It could lead to a highly dissatisfied class within society and cause political, economic and social upheavals.

How can this potentially volatile situation be avoided? Public and social institutions, and policies shape inequality. Progressive tax systems and public investments in human development such as quality education and healthcare have shown promise to minimise further widening of the economic inequality gap. Their impact is amplified by creation of employment opportunities. Strong labour unions and government regulations are crucial in ensuring that these factors work in harmony to decrease inequality.

Two key questions beg answers: Will governments be able to develop and implement the right policies? Would higher taxation levels be acceptable to capitalists whose core motive is to maximise returns on capital? The time to fix inequality is now rather than when political, economic, and social catastrophes set in. Tackling inequality will require the political will of governments and the good will of capitalists.

© Felistus Mbole 2019

Tags:  economics  education  inequality 

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Does China’s Success Undermine the Washington Consensus?

Posted By Administration, Wednesday, February 13, 2019
Updated: Wednesday, February 27, 2019

Robin Jourdan evaluates the economic effect of China on Washington Consensus in her second blog post for our Emerging Fellows program. The views expressed are those of the author and not necessarily those of the APF or its other members. 


China. The Red Dragon. Fabled, mysterious, and powerful. It is one of the great civilizations of the world. China has the world’s oldest, surviving culture. To 2009, its relationship with the world’s powers could be summed up best by Den Xiaoping’s advice to build China’s strength while maintaining a low, international profile. Since 2009, its economic and political model, the Beijing Consensus, aka The China Model, has thrived and expanded to other parts of the globe. Its set of policies consists of state-led finances and limited and hybridized property rights under an autocratic framework. The current economic success of China challenges an already weakened Washington Consensus, which makes prominent use of private property and market-based distributions.

China has transformed itself from a closed, planned economy to a financial powerhouse. It has done this at the same time that the Washington Consensus has failed to deliver economic stability and growth to many. Successes of the Beijing Consensus include China itself. Since the late 1970s, China’s economy has grown at an unheard-of rate of 10% annually. Using the One Belt One Road Initiative, smile diplomacy, and checkbook diplomacy, China has provided much-needed infrastructure, like highways and airports, at home and abroad. China has become the land that failed to fail and is on a trajectory to become a viable global superpower. The Chinese economy is moving from an export-driven model to one based on investment and consumer demand. Such a development suggests a more mature economy thriving just as trust in the West, especially with the US, is at an all-time low. This success can’t help but represent a challenge to democracy and capitalism.

Of late, China is dealing with internal challenges: inequality, unstable financial conditions, and environmental sustainability. Since 1980 GDP produced by state companies has fallen while private sector output has risen over 300 times. Private (non-state) sector business is buoying wages and the Chinese economy. Success in the increasingly stratified society correlates to a Chinese (Party) way of living. These come at a time when the Chinese Communist Party’s tactics of political repression, its poor human rights reputation, and regional ambitions cast a dark shadow. Recent years have seen China’s GDP growth rate drop lower than neighboring India’s. Such contradictions in other societies have proven thorny.

China’s economic miracle appears to be ending. Who knows what the Party will choose next? The “what-if’s” are growing.

One question that remains is how can the two couldn’t-be-more-different superpowers (China and the US) co-exist at the end of this century? Turning to history, the co-habitation example of the US and USSR doesn’t warrant repeating. A business-as-usual scenario would be simply an unfinished option. The US and Europe could impose a chill on China, which may well be of small consequence anyhow. If China prevails; a fragile condition might exist, given the contesting resources of the US and the West. Or a new relationship could arise. It is undeniable that China is on its way to becoming a science superpower. Perhaps the language of logic and scientific method could become the building blocks of a China-US Peace, a sort of “East-phalia” situation. Such a peace could build on familiar and successful models: International Space Station and the Antarctica treaties.

However, the high hurdle continues to be inequality. These superpowers need to apply lessons from other societies (Iceland, Sweden, and others) that seem to have made more progress eradicating inequality than anywhere else. Perhaps it’s time to decouple Beijing and Washington’s political systems from economics and move past the “us” -vs- “them” unsustainable scenarios.

© Robin Jourdan 2019

Tags:  China  economics  the US 

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