Tag: globalisation

Posted on

Do we really understand the waves of Economics?

Do we really understand the waves of Economics?

For most people, economics is all about money and finance and issues of supply and demand. While these are important elements, economics is about much more. Economics provides a framework for understanding the actions and decisions of individuals, businesses and governments. It provides a means to understand interactions in a market-driven society and for analysing government policies that affect the families, jobs and lives of citizens

If you watch the news at all, you will probably hear the word ‘economy’ branded in many contexts. But if you are like many people, you may not understand what economics is and why it matters so much.

According to the American Economics Association (AEA), “Economics can be defined in a few different ways. It’s the study of scarcity, the study of how people use resources and respond to incentives, or the study of decision-making. It often involves topics like wealth and finance, but it is not all about money. Economics is a broad discipline that helps us understand historical trends, interpret today’s headlines, and make predictions about the coming years.”

Economics may seem obtuse in the abstract. However, it has very powerful real-world implications. Specifically, according to the AEA, economics can help us answer many big questions, such as why some countries are rich while others are poor; why men earn more than women; how data can help us make sense of the world; what causes recessions; and why we ignore information that could be used toward better decision-making.

Economics Help provides several examples of times when economics come into play, including dealing with shortages of raw materials; working out how wealth is distributed and redistributed within society; determining the extent to which the government should intervene in the economy; and using principles and measures such as opportunity cost, social efficiency, forecasts, and evaluation.

Friedrich August von Hayek once proposed: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” In this sense, economics lies at the intersection of the natural sciences and the humanities: applying a quantitative, data-driven approach to human behaviour. “As such [it] is one of the most important and relevant skills for the world today, helping us choose wisely when it comes to our personal, social and professional lives,” asserts Financial Express.

In 1998, as the Asian financial crisis was ravaging what had been some of the fastest-growing economies in the world, the New Yorker ran an article describing the international rescue efforts. It profiled the super-diplomat of the day, a big-idea man the Economist had recently likened to Henry Kissinger. The New Yorker went further, noting that when he arrived in Japan in June, this American official was treated “as if he were General [Douglas] MacArthur.”

In retrospect, such reverence seems surprising, given that the man in question, Larry Summers, was a dishevelled, somewhat awkward nerd then serving as the U.S. deputy treasury secretary. His extraordinary status owed, in part, to the fact that the United States was then (and still is) the world’s sole superpower and the fact that Summers was (and still is) extremely intelligent. But the biggest reason for Summers’s welcome was the widespread perception that he possessed a special knowledge that would save Asia from collapse. Summers was an economist.

During the Cold War, the tensions that defined the world were ideological and geopolitical. As a result, the superstar experts of that era were those with special expertise in those areas. And policymakers who could combine an understanding of both, such as Kissinger, George Kennan, and Zbigniew Brzezinski, ascended to the top of the heap, winning the admiration of both politicians and the public.

Once the Cold War ended, however, geopolitical and ideological issues faded in significance, overshadowed by the rapidly expanding global market as formerly socialist countries joined the Western free trade system. All of a sudden, the most valuable intellectual training and practical experience became economics, which was seen as the secret sauce that could make and unmake nations. In 1999, after the Asian crisis abated, Time magazine ran a cover story with a photograph of Summers, U.S. Treasury Secretary Robert Rubin, and U.S. Federal Reserve Chairman Alan Greenspan and the headline “The Committee to Save the World.”

In the three decades since the end of the Cold War, economics has enjoyed a kind of intellectual challenge. It has become first among equals in the social sciences and has dominated most policy agendas as well. Economists have been much sought after by businesses, governments, and society at large, their insights seen as useful in every sphere of life. Popularized economics and economic-type thinking have produced an entire genre of best-selling books. At the root of all this influence is the notion that economics provides the most powerful lens through which to understand the modern world.

The crisis of 2008 may have been the wake-up call, but it was only the latest warning sign. Modern-day economics had been built on certain assumptions: that countries, companies, and people seek to maximize their income above all else, that human beings are rational actors, and that the system works efficiently.

But over the last few decades, compelling new work by scholars such as Daniel Kahneman, Richard Thaler, and Robert Shiller has begun to show that human beings are not predictably rational; in fact, they’re predictably irrational. This “behavioural revolution” landed a debilitating blow to mainstream economics by arguing that what was perhaps the centrepiece assumption of modern economic theory was not only wrong but, even worse, unhelpful.

Let me be clear: Economics remains a vital discipline, one of the most powerful ways we have to understand the world. Economics remains a vital discipline, one of the most powerful ways we have to understand the world.

Economics promotes understanding of and insight into problems specific to our times, including everything from education and the environment to health care and national security.

“One of the principal jobs for economists is to understand what is happening in the economy and investigate reasons for poverty, unemployment and low economic growth. For example, in a political debate such as – Should, the UK leave the EU? There are many emotional arguments made about immigration. Economic studies can try and evaluate the costs and benefits of free movement of labor.

Economic studies can try to examine the economic effects of immigration. This can help people make a decision about political issues,” says Economics Help

The problems that we want economists to help us solve are more like predicting how leaves will fall on a windy day than predicting how objects will fall in a vacuum. Economic phenomena are affected by a very large number of causal factors of many different kinds.

The world is now facing what observers are calling a “synchronised” growth upswing. What does this mean for the economic “convergence” of developed and developing countries, a topic that lost salience after the Great Recession began a decade ago?

The answer will depend on developing economies’ ability to find and tap new, more advanced sources of growth. In the past, the key engine of convergence was manufacturing. Developing countries that had finally acquired the needed skills and institutions applied advanced-country technologies locally, benefiting from plentiful, low-cost labour.

Rising interest rates, increasing trade tensions, Brexit uncertainty… the world economy in 2019 faces many headwinds, but there are also many positive signs that global growth will continue in the coming year. The incoming and outgoing chief economists at the IMF discuss in this video where we are headed.

Maury Obstfeld, Outgoing Economic Counselor, IMF; Gita Gopinath, Incoming Economic Counselor, IMF; Gerry Rice, Director, Communications Department, IMF

Moreover, today’s cutting-edge technologies – such as robotics, artificial intelligence (AI), and bioengineering – are more complex than industrial machinery, and may be more difficult to copy.

And, because intelligent machines can increasingly fill low-wage jobs, developing countries’ cost advantage may have been diminished significantly.

Of course, for robotics and AI to appear in developing-country value chains, including services that rely on frontier technologies, a minimum set of specific skills and infrastructure will be needed. But deploying some new technologies and tasks in the emerging economies may turn out to be no more difficult or costly than in advanced countries.

Here, much will depend on what kind of complementary labour is required. It is often assumed that a pool of very highly skilled labour is crucial to deploy AI. That may be true in some cases, but the opposite may be true in others.

For example, the new labor-displacing technologies could make feasible activities for which there had been insufficient skilled labour. Thus, complete automation can lead to a greater share of an economic activity being located in a developing country.

Another factor that will shape the process of technological upgrading in developing countries is global firms’ willingness to invest. Global market structures and pricing will partly determine the distribution of benefits. But so will countries’ efficiency at learning regulatory lessons, including how to design rules that attract investors, capture important segments of value chains, and secure a sufficiently large share of the gains from innovation. Those countries that learn quickly may actually grow faster than advanced economies, even in high-tech sectors.

Of course, for many countries and sectors, there remains considerable room for traditional catch-up – a process that will likely continue to fuel growth. But it will not be enough to fuel true convergence. For that, developing countries will need to deploy new technologies relatively efficiently, taking into account the role of labour-market skills and regulations. This will not be easy, and we may never return to the “golden age” of convergence that preceded 2007. But new technologies should not be expected to stop convergence, even if, as is likely, they slow it down.

My final word: Economics remains a vital discipline, one of the most powerful ways we have to understand the world. Economics remains a vital discipline, one of the most powerful ways we have to understand the world.
But in the heady days of post-Cold War globalisation, when the world seemed to be dominated by markets and trade and wealth creation, it has become the dominant discipline, the key to understanding modern life. That economics has since slipped from that pedestal is simply a testament to the fact that the world is messy.

The social sciences differ from the hard sciences because “the subjects of our study think,” said Herbert Simon, one of the few scholars who excelled in both. As we try to understand the world of the next three decades, we will desperately need economics but also political science, sociology, psychology, and perhaps even literature and philosophy. Students of each should retain some element of humility.

As Immanuel Kant, an influential German philosopher, in his doctrine of transcendental idealism said:

“Out of the crooked timber of humanity, no straight thing was ever made.”

Posted on

Will globalisation actually happen?

The age of globalisation began on the day the Berlin Wall came down. From that moment in 1989, the trends evident in the late 1970s and throughout the 1980s accelerated: the free movement of capital, people and goods; trickle-down economics; a much diminished role for nation states; and a belief that market forces, now unleashed, were unstoppable.

There has been pushback against globalisation over the years. The violent protests seen in Seattle during the World Trade Organisation meeting in December 1999 were the first sign that not everyone saw the move towards untrammelled freedom in a positive light. One conclusion from the 9/11 attacks on New York and Washington in September 2001 was that it was not only trade and financial markets that had gone global. The collapse of the investment bank Lehmann Brothers seven years later paid to the idea that the best thing governments could do when confronted with the power of global capital was to get out of the way and let the banks supervise themselves.

Now we have Britain’s rejection of the EU. This was more than a protest against the career opportunities that never knock and the affordable homes that never get built. It was a protest against the economic model that has been in place for the past three decades.

Extraordinary times are leading to extraordinary challenges. Linda Yueh, Fellow in Economics, Oxford University addresses these geopolitical challenges and demographic changes and how it will affect global economics and the asset management industry.

Modern humans have created many thousands of distinct cultures. So what will it mean if globalisation turns us into one giant, homogenous world culture?

The importance of the tribe in our evolutionary history has meant that natural selection has favoured in us a suite of psychological dispositions for making our cultures work and for defending them against competitors. These traits include cooperation, seeking affiliations, a predilection to coordinating our activities, and tendencies to trade and exchange goods and services. Thus, we have taken cooperation and sociality beyond the good relations among family members that dominate the rest of the animal kingdom, to making cooperation work among wider groups of people.

And so in a surprising turn, the very psychology that allows us to form and cooperate in small tribal groups, makes it possible for us to form into the larger social groupings of the modern world. Thus, early in our history most of us lived in small bands of maybe 50 to 200 people. At some point tribes formed that were essentially coalitions or bands of bands. Collections of tribes later formed into chiefdoms in which for the first time in our history a single ruler emerged.

But two factors looming on the horizon are likely to slow the rate at which cultural unification will happen.

One is resources, the other is demography. Cooperation has worked throughout history because large collections of people have been able to use resources more effectively and provide greater prosperity and protection than smaller groups. But that could change as resources become scarce.

This must be one of the most pressing social questions we can ask because if people begin to think they have reached what we might call ‘peak standard of living’ then they will naturally become more self-interested as the returns from cooperation begin to leak away. After all, why cooperate when there are no spoils to divide?

If we try to draw some conclusions from the ‘why’ we can see high levels of global employment and any form of prosperity will elude us and big reductions of poverty in the emerging world will not happen quickly enough.

Obviously, it is important to base these conclusions on where people are located and their individual views about the economies in which they live: how they see the problem, how they see their future, and whether the ambitions of different countries’ citizens can be advanced by stronger, more coordinated action around the world.

If you were to ask Americans what America has to do now to sort out its economy, some would say ‘cut deficits’; many would say ‘cut taxes’; but most would say ‘cut the foreign imports that are stealing our jobs’.

If you were to ask Europeans what their answer is, they would probably say ‘cut the debt’; and some might even complain about the very viability of the Euro and Brexit.

If you asked the Chinese what their solution was for their best future, they would probably answer that they are a developing country so other countries should stop threatening them with protectionism and complaining about their currency.

If you asked the developing world, they would call for an end to unfair trading practices that ruin their basic ability to export and say that aid is unfairly being cut or withheld.

If I asked the question a different way, asking the citizens ‘what do you really want to achieve as a country? I am sure that the answer would be very different.

In America people would say the main issue for them is jobs and rising living standards for the working middle class.

In the countries of the European Union people would say that Europe needs to get its young people into work and cut its high levels of unemployment.

In China people would say they want to see more personal prosperity and that means cutting the numbers of poor people and giving the rising middle class the opportunity to buy homes and access opportunities.

In many developing countries, people would tell you the problem was poverty.

Yet in the absence of a bigger vision of what can be achieved, the politics of each country inevitably pulls towards the narrow tasks and not the broad objectives.

So how can this wider debate contribute to global growth and collaboration?

Bradford DeLong once wrote: ‘History teaches us that when none of the three clear and present dangers that justify retrenchment and austerity – interest rate crowding-out, rising inflationary pressures on consumer prices, national overleverage via borrowing in foreign currencies – are present, you should not retrench’.

Yet in the absence of seeing a different and global route to greater prosperity, each country is trying, post-crisis, to return to its old ways. However, the security people crave will come not from countries clinging to an old world, but from reinventing themselves for our new interdependent world: Asia reducing poverty and building their new middle class; America and Europe exporting high-value-added goods by building a more skilled middle class; all undertaking structural reforms but in a growing economy.

This is the answer to those who travel today not with optimism but in fear. But there is no old world to return to: it has gone. The transition between epochs is always the moment of maximum danger. It is also the moment of maximum opportunity.

Final thought: against this backdrop the seemingly unstoppable and ever accelerating cultural homogenization around the world brought about by travel, the internet and social networking, although often decried, is probably a good thing even if it means the loss of cultural diversity: it increases our sense of togetherness via the sense of a shared culture. In fact, breaking down of cultural barriers – unfashionable as this can sound – is probably one of the few things that societies can do to increase harmony among ever more heterogeneous peoples.

So, to my mind, there is little doubt that the next century is going to be a time of great uncertainty and upheaval as resources, money and space become ever more scarce. It is going to be a bumpy road with many setbacks and conflicts. But if there was ever a species that could tackle these challenges it is our own.

It might be surprising, but our genes, in the form of our capacity for culture, have created in us a machine capable of greater cooperation, inventiveness and common good than any other on Earth.

And, of course it means you can always find a cappuccino just the way you like it no matter where we wake up.

As Herbie Hancock once said:

“Globalization means we have to re-examine some of our ideas, and look at ideas from other countries, from other cultures, and open ourselves to them. And that’s not comfortable for the average person.”

Posted on

Is there room in the boardroom for Generation Y

Question-Mark-HeadAs globalisation and the fast pace of the digital economy speeds up, customer expectations shift, and the impact of social media rises, the global market place is now more complex than ever before. Businesses that want to stay ahead of the competition – especially in customer-facing sectors like finance, retail and media – need Generation Y to help them understand and respond to the big trends that are already shaping the future: understanding tomorrow’s customers; responding to the desire for more responsible business; and gaining a competitive edge in emerging markets.

Rapid cultural change has been matched and it driven by rapid technological and demographic change. Today’s consumers are heavily influenced by social media, which has given them more access to information about how companies do business than ever before. If the industrial revolution gave power to corporates, the digital revolution has empowered the consumer. Companies that fail to respond to Gen Y’s desire for good business find their brands tarnished and their valuations plummeting. Generation Y business leaders can add value by acting as cultural translators, helping their colleagues navigate the new business environment.

As traditional models of business leadership break down, demand for Gen Y leaders who understand these changes will only rise. Globalisation has created increasingly complex decision-making environments which require new skill sets and fresh perspectives that were simply not around when many of today’s board room executives entered the labour market. Simply accumulating decades of experience in a corporate silo no longer means you will become a successful leader. In the fast-paced, digitally-enabled, multi-cultural and multi-lingual market place, every company now needs to balance Gen X’s experience with Gen Y’s dynamism, inherently global outlook, digital aptitude and understanding of responsible business.

So who are Generation Y? Sometimes referred to as millennials – employees who entered the workplace after 2000 – they are broadly classified as those born in the 1980s and early 1990s. They are characterised as a tech-savvy group, whose members are visionary, highly ambitious and not afraid to fail or to speak their mind. Mark Zuckerberg and Sergey Brin are among the elite few who have become standard-bearers for this generation.

The influx of these fresh, talented individuals, many of whom find themselves among the business elite at a relatively young age, has proved a magnetic draw for organisations. Some businesses in pursuit of greater diversification have sought to bring Generation Y on board through such strategies as reverse mentoring (junior staff advising seasoned executives) or mergers and acquisitions, thus subscribing to a meritocratic culture that helps push aspirational young people to the top table.

The problems of ‘generation integration’ in the boardroom do not only lie with senior executives. Being a director, particularly of a large multinational, is not just about applying a standard set of procedures that might occasionally benefit from a shake-up and youthful energy.

Understanding that it can take time for individuals, particularly those of a different generation, to ‘click into’ the language of a board and have their point heard by colleagues is crucial to avoid this imbalance of power developing.

Integrating fresh young talent into businesses has always been crucial but is not without its challenges. Each generation can disrupt custom and practice within an organisation, but the hope is always that this disruption can be a catalyst for something better to take its place. This is where it gets interesting, because Generation Y has not just opened up new markets with revolutionary products. Over the last few years we have also seen the huge impact of their input on core traditional industries.

A final view on the way Generation Y can disrupt traditional industries is akin to a new industrial revolution. While such rapid change may make some feel uncomfortable, an even bigger upheaval is right round the corner. Just behind Generation Y is Generation Z. Born after the mid-1990s these are the first generation of ‘tech natives’, who have grown up never knowing life without the internet. Their impact on the workplace could make Generation Y seem like a mere blip in comparison.