1844. Social Liberal Proposals on Income Inequality

By Eduardo Porter, The New York Times, May 5, 2015

The United States economy is one of the most effective on earth in terms of generating new wealth. But for all the wealth it generates, it does an exceptionally dismal job at sharing it broadly among Americans.

Is this the best we can do?

Over the last four decades the debate in Washington about poverty and inequality has been bogged down in a somewhat pointless, often surreal debate about the size of government and the amount spent on behalf of the poor.

Over that same period, the earnings of workers in the bottom half of the income pile have progressed little. American society has buckled under the strain.

The actual size of government? Measured by the taxes we pay, it was about 25 percent of our gross national product in 1970. It is still about 25 percent of our G.D.P. today. And the share of our wealth spent on the poor, apart from money devoted to the rising cost of health care, has not changed very much, either.

And yet there are other tools. In the furious partisan bickering, the debate has bypassed all the other ways the government affects the distribution of the nation’s prosperity, selectively placing its thumb on the scales.

The trick to achieving a more equitable society might simply be to turn the government from an active participant in widening inequality, to one that at least seeks — through norms, laws, regulations — to narrow the gap.

What has driven the stagnation of the incomes of typical workers? It’s clearly not just lagging educations or a drop in their productivity. Olivier Giovannoni of the Levy Economics Institute at Bard College calculates that the share of national income going to the entire bottom 99 percent of workers has shrunk by 15 percentage points since 1980.

The task is to redress this dynamic. This requires acting on many fronts — economic but also legal and regulatory.

Joseph E. Stiglitz, the prominent left-leaning Nobel laureate in economics, has just published a second book on inequality called “The Great Divide” (W.W. Norton & Company). He stresses a range of economic and institutional changes weakening ordinary workers that serve to benefit the wealthiest in society.

This includes, he argues, the weakening of unions and the proliferation of trade agreements, which have protected the rights of corporations to move operations outside the country and done little to protect the formerly middle-class workers on the wrong side of trade.

It includes the steady tightening of intellectual property rights and the rise of finance, with its lavish rewards for activities of dubious social value. It includes the furious consolidation of industry, which has reduced competition across the economy.

Professor Stiglitz is particularly incensed by the Obama administration’s attempt to include investment pacts in trade agreements it is negotiating with Asia and Europe, which would allow multinationals to sue governments for compensation if regulation hurts their profits.

“We have been consistently weakening workers’ bargaining position,” he told me. “We are creating a legal framework for rules that lock in inequality.”

Shi-Ling Hsu at the Florida State University College of Law articulates a similar thought in a critique of the central proposition of Thomas Piketty, the French economist. Perhaps it is true, Professor Hsu concedes, that inequality will grow relentlessly because the rate of return to the capital of the rich is higher than the rate of economic growth, as Mr. Piketty proposed.

Still, he notes, “Piketty, his supporters and his critics are all missing a huge piece of the puzzle: the role of law in distributing wealth.” Subsidies, tax treatment, legal protection and other mechanisms conspire to aid the wealthy while often serving to damp economic gains.

Grandfathering existing businesses to protect them from new regulation is a classic way to protect profits, shielding incumbent businesses and deterring new entrants that would face costlier regulations. Granting water rights to whoever first uses the water amounts to another gift to business that can entail large social costs.

While the power of money in politics should never be underestimated, institutions can be changed. Thomas Philippon of New York University and Ariell Reshef of the University of Virginia argue, for instance, that financial deregulation produced a huge wage premium for finance executives, even as it increased risks for the rest of society.

One solution, Professor Hsu argues, would be to replace options in bankers’ pay packages with subordinated debt, to impose losses on executives if their bets went bad down the road. Banks could be forced to issue contingent capital that converts to preferred stock in times of distress, imposing losses on existing shareholders.

This kind of thinking is gaining purchase beyond our borders. In his forthcoming book “Inequality, What Can Be Done?” (Harvard University Press), due to be published this month, Anthony B. Atkinson of Oxford puts forth a set of proposals to reduce inequality in Britain.

They include not just a higher minimum wage — set at a living wage standard — but also a guarantee of government employment up to 35 hours a week, to address unemployment and the proliferation of unstable hourly jobs that make it so hard for the working poor to earn a living.

He proposes strengthening unions and creating a “social and economic council” where representatives of labor and civil society could have a say in policy, offering a counterweight to corporate power.

The government could aim its research budget toward technologies that might help the employability of workers rather than substitute for them. It could reform antitrust law, to broaden its narrow focus on efficiency and explicitly consider its impact on the distribution of wealth.

At the same time, marginal income tax rates could be pushed higher — Professor Atkinson proposes a top rate of 65 percent in Britain, compared with just under 50 percent today — not only to raise more revenue but also to reduce the incentive for executives to do whatever it takes to increase the next quarter’s profit and bolster their own compensation. (Top marginal rates in the United States, including state and local taxes, can also reach around 50 percent, but few actually pay anything close to that.)

To give ordinary workers a real stake, he calls for a universal capital endowment for every adult — financed through a substantial wealth transfer or estate tax — and a sovereign wealth fund to invest in promising companies. And he argues for a government bond that offers a real return — perhaps linked to the rise of average household income — to evade the predatory fees that banks impose on the middle class’s investments.

Dreaming? Indeed, many of these ideas may strike classic American economists as outdated lefty proposals that already failed in the 1970s.

But they look increasingly relevant in what many are calling the Second Gilded Age. “One of the key messages, given the kind of redistribution we need, is that we can’t achieve it simply through taxes and transfers,” Professor Atkinson told me. “We are stuck in a narrow set of ideas. The most important thing is to broaden the agenda.”

1487. Africans Fuller Wallets Promise an Expanding Consumer Society

By Nicholas Kulish, The New York Times, July 20, 2014

A saleswoman in a red shirt talking to shoppers at a furniture and appliance store in the Daveytown mall outside Johannesburg. Credit Joao Silva/The New York Times.

JOHANNESBURG — Across sub-Saharan Africa, consumer demand is fueling the continent’s economies in new ways, driving hopes that Africa will emerge as a success story in the coming years comparable to the rise of the East Asian Tigers in the second half of the 20th century.

After seeing years of uninterrupted economic expansion across Africa, governments, analysts and investors are focusing on this fast-growing continent’s shoppers and workers rather than just the usual upswing in commodity prices that have driven past cycles of boom and bust.

The African Development Bank projected in its latest annual report in May that foreign investment in Africa would reach a record $80 billion this year, with a larger share of the money going to manufacturing and not just the strip-mining of resources.

“The development is real, and on the back of that, there’s a lot of commercial opportunity that’s emerging,” said Simon Freemantle, senior political economist at Standard Bank here.

At times messy and difficult to quantify, Africa’s economies give pessimists and optimists plenty of statistical ammunition to support their narratives of the future. Growth is uneven. Inequality is rising in many corners. Millions of people still live in extreme poverty. With violence simmering in the Central African Republic, South Sudan and elsewhere, it’s easy to fall back on the old pessimistic plotline for sub-Saharan Africa.

The middle class has expanded rapidly across the continent, but the population has grown so quickly that the absolute number of impoverished Africans has gone up at the same time. Sushi restaurants in Dakar, Senegal, and fancy coffee shops in Kigali, Rwanda, do not improve the lives of subsistence farmers in the hinterland.

Yet a sign of confidence is the success with which African countries have been able to tap international capital markets of late. In spite of recent terrorist attacks, Kenya sold $2 billion worth of bonds to international investors last month, which will be used in part to pay for infrastructure projects; two months earlier, it was Zambia with a $1 billion offer.

Exports from sub-Saharan Africa leapt from $68 billion to more than $400 billion from 1995 to 2012. A total of $300 billion of that came from natural resources, the extraction of oil, natural gas, precious metals and diamonds. Angola pumps 1.8 million barrels of oil a day which is why its capital, Luanda, hosts fancy designer boutiques.

But some of the most rapid growth is now coming from other sectors. In South Africa, for example, the broader economy has been sluggish, but the black middle class now spends more money than the white middle class.

For decades, this country’s long-neglected black consumers spent their money on the far edges of the economy, buying necessities like soap, salt and milk at informal convenience stores called spaza shops. During the hard years of apartheid, Itumeleng Mothibeli’s grandparents ran one such shop in a township, the peri-urban communities to which blacks had been exiled under the racist system.

Now Mr. Mothibeli manages 14 shopping centers spread across four provinces of South Africa for the Vukile Property Fund. The company targets the long-shunned township market for its high volume, turnover and foot traffic. Instead of the one-story brick stand adjacent to his grandparents’ house, these are enormous Western-style shopping malls that are doing brisk business.

“In the old days, you had cathedrals in the middle of towns,” said Mr. Mothibeli, 30, as he drove a gold Toyota Corolla company car into the parking lot of the Daveyton mall. “Now you have shopping centers.”

The African Development Bank gave the so-called Africa Rising debate a significant jolt in 2011 with a report declaring that the African middle class had grown to 350 million people in 2010 from 126 million in 1980. The Organization for Economic Cooperation and Development put the figure in 2010 at a mere 32 million, “or roughly the same as Canada.”

Middle class is a fraught, even political, expression. In the United States, it conjures the image of a suburban house with a white picket fence and a car in the garage. The African Development Bank, on the other hand, defines someone as middle class if he earns $2 a day or more.

“The future is about that lower middle class that’s expanding quickly,” said Staffan Canback, managing director of the consultancy Canback & Company, who has done business in Africa for decades. He was talking about the people with enough money left over for small packets of detergent or who can save money for name-brand shoes.

“You’re starting to see a middle class even in a place like Angola,” Mr. Canback said. “There’s a long way to go, but I think it’s incorrect to say that it’s only a few families that make all the money and no one else makes money. That’s definitely not true.”

In April, Marriott closed a deal to buy the 116-hotel Protea Hospitality Group, based in South Africa. Clothing companies like Forever 21 and Sweden’s H&M plan to open their first shops here as well. Wal-Mart’s South African arm, Massmart, has stores in a dozen African countries, including Uganda and Mozambique, and plans to expand into Angola next year.

Last year, Honda opened its third motorcycle subsidiary in Africa, based in Kenya, including a new assembly plant. Heineken plans to invest nearly $700 million a year in Africa to keep up with the demand of the continent’s beer drinkers. The Chinese shoemaker Huajian is spearheading the construction of a $2 billion special economic zone in Ethiopia that will focus on light manufacturing.

Perhaps no country illustrates the pitfalls and opportunities quite as starkly as Nigeria. Even as the country is projected to grow at a swift 7.3 percent clip this year and next, the kidnapping and murdering by Boko Haram militants, who operate with impunity in Nigeria’s northeast, transfix the world.

Adewale Opawale, executive director at Strategic Research and Management (Stream) Insight, a market and social research company in Lagos, said he had witnessed drastic change not just in the number of cars on the streets and airplanes taking off from the international airport there, but in the way that people do business.

Consumers are moving from running around with cash for purchases to using their Internet-enabled cellphones (many with more than one phone) to place orders from online retail chains that have started to cash in on the country’s rising middle class.

“It’s loads of opportunity in the Nigerian consumer market,” he said. “Nigeria is on track to become one of the 20 largest economies in the world.”

The commercial gains are not spread equally across society or across the continent. A study of the top African brands found that of the top 25, all but one — Kenya’s Safaricom — came from Nigeria or South Africa. Seven of the top 10 brands were South African. How the spoils of growth are shared is as important as the national averages that mask deep inequality. The goal is a broad-based improvement in the lives of the masses, which has proved elusive.“The question of how the poor fared in the period of rapid growth in the last decade in Africa is a subject of controversy,” said Mthuli Ncube, chief economist at the African Development Bank. “The precise relationship between poverty and growth in the long term depends crucially on a growth pattern that is accompanied by structural shifts where labor moves from a low productivity to high-productivity sectors.”

That means more good jobs in manufacturing and services and fewer subsistence farmers. But that has been a goal for leaders across Africa since the dawn of the postcolonial period.

Whether the continent’s governments are up to the task, there is no question that the individual, entrepreneurial drive is present and pushing Africa ahead.

“There’s just this amazing determination to get places,” said John Simpson, director of the Unilever Institute of Strategic Marketing at the University of Cape Town.

“It’s a relentless desire to make more, to get better, to have a better lifestyle.”

1486. Global Industrial Production Shakes Off 2007 Doldrums

By Floyd Norris, The New York Times, July 18, 2014

INDUSTRIAL production around the world plunged after the Great Recession began, and in most advanced economies has yet to fully recover. But that is not the case in many emerging economies, with production hitting new highs.

The United States this week reported that industrial production, excluding construction, rose 0.2 percent in June and was up 4.3 percent from a year earlier. That is a faster rate than any other major advanced economy has shown recently, but it pales next to the rates of growth in such countries as China and India.

The accompanying charts show the change in levels of industrial production since the end of 2007, as the recession was beginning in the United States. The latest report indicates that production in the United States was 3 percent higher in June than it was in December 2007. That is, however, largely because of increased oil and gas production. Overall manufacturing output is still a bit below the pre-recession levels, although production in the motor vehicle industry has been strong.

Asia Leads the Way in Industrial Production

Industrial production in the United States has recovered from the Great Recession, but most other advanced countries continue to struggle. Emerging economies, led by those in Asia, have raised production much more rapidly. The charts show changes from production in December 2007, the month the recession began in the United States, with the world average shown for comparison.

The Netherlands government compiles industrial production reports from 27 advanced economies and 54 developing economies around the world, and computes international averages. Its latest report shows that world production in April was almost 12 percent higher than it had been at the end of 2007, but that production in the advanced economies was nearly 5 percent lower than it had been.

In the emerging economies, production was up by more than a third from the 2007 level, primarily because of the performance of Asian countries, where production is up by more than 60 percent.

China releases data only on annual changes, making any calculation of month-to-month changes hard to estimate, but it appears that its production has approximately doubled from the 2007 level. In India, production is up nearly a quarter since the recession began.

The Asian boom has not helped Japan, the largest advanced economy in the region. The latest production figure is nearly 14 percent lower than the 2007 number.

Until 2011, industrial production in Germany — the third largest exporter in the world, behind China and the United States — recovered more rapidly than did production in the United States. But since then, it has stabilized. In May, production remained nearly 3 percent below the 2007 level.

That is, however, much better than in any of the other major eurozone countries. Over all, production in the eurozone is 11 percent lower than in 2007. Among the three largest countries in the zone other than Germany, France has done the best, with production still down 15 percent. In Italy, production is off 22 percent and in Spain it is down 28 percent.

An exception to the eurozone doldrums seems to be Ireland, where production is now a little higher than it was in 2007. In May, the production figure was up more than 20 percent from the year before, a far better performance than in any of the major euro economies.

In Britain, which is outside the eurozone, production also seems to have stagnated. In May, the level was 12 percent below the 2007 figure.