Articles

“The benefits of globalisation are widely dispersed, often unseen and thus all too easily taken for granted

– The Economist

Globalization has become a buzzword used to describe the international exchange of ideas, products, political movements, music and many other aspects of culture. While the world has changed dramatically as a result of this phenomena, disentangling what that means and how good it is, is an overwhelming feat.

The Economist took this challenge and tackled the pros and cons of globalization in its “Special report: The world economy”. Through a series of articles the magazine argues that globalization, on the whole, is a positive force that must be embraced but that must also be managed with better policy.

Specifically, the magazine proposes a “three-pronged agenda” for the course of globalization including  demand management, active labor-market policies, and competition.

Demand Management.

The magazine proposes that workforce retraining and adequate immigrant integration are critical to fortifying dynamic economies.

Workforce retraining

  • “Too little effort and money has been expended on taking care of those who have been hurt by the opening up of markets. America in particular makes little attempt to assist people find new jobs to replace lost ones.”
  • “Members of the OECD…set aside an average of 0.6% of GDP a year for…job centres, retraining schemes and employment subsidies—to ease the transition to new types of work. America spends just 0.1% of GDP”
  • “Jobs and pay have been greatly affected by technological change. Much of the increase in wage inequality in rich countries stems from new technologies that make college-educated workers more valuable.” Government-led retraining must support less educated workers left with fewer employment opportunities.

Immigrants

  • “Along with trade, migration is one of the two main sources of public anxiety about globalisation” however, it’s important to remember that immigration enriches the workforce [by raising] average productivity and living standards”.
  • “To deal with the tension between immigration and the welfare state, three rules suggest themselves. First, make benefits conditional on having paid into the system. Second, tie the funding of local public services to local tax revenues to ensure an automatic response to an influx of migrants. Third, restrict migration to prime-age, skilled workers who are more likely to get jobs and less likely to lose them in a recession”
  • A lesson from America’s engagement with Mexico is that a formal system for low-skilled immigration, perhaps with fewer entitlements than for skilled workers, is far preferable to turning a blind eye to informal migration.

Active labor-market policies.

Politicians should work together to end imprudent international corporate tax breaks and should understand that creating trade barriers would hurt the poorest.

Capital

“For developing economies, capital mobility is a conduit for new technology, management know-how and business networks. It also allows investors to vote with their feet, encouraging governments to follow prudent regulatory, monetary and fiscal policies.” However, “rather than imposing discipline, access to foreign capital seemed to allow countries to get into bigger messes. Whereas academics argue about the pros and cons of free movement of goods or people, they now mostly agree that liberalising capital flows can sometimes do more harm than good”

 

The growing practice of using offshore investment to avoid corporate tax might make capital mobility the target of popular anger, alongside trade and immigration.

“Many people see footloose global companies and deregulation as the handmaidens of the worst kind of corporate practice. Yet economic ills such as weak real incomes, inequality and immobile workers may be partly due to a failure to liberalise product markets further…Deregulation is almost always a difficult task. Those whose interests are hurt by such reforms protest noisily. The political costs quickly become apparent, whereas the gains may not become clear before the next polling day…. In an age of insecurity, it is hard to persuade anyone that they should give up such protections for the greater good”

 

“A study…suggests that in an average country, people on high incomes would lose 28% of their purchasing power if borders were closed to trade. But the poorest 10% of consumers would lose 63% of their spending power, because they buy relatively more imported goods”

Market

 

Factory jobs peaked in the 1970s, but manufacturing output has continued to increase. Indeed, America’s share of world manufacturing output, on a value-added basis, has been fairly stable at a bit under a fifth for the past four decades. Thanks to advances in technology, fewer workers are needed to produce the same quantity of goods. But since trade with lower-cost countries and technological change have similar effects on labour-intensive production in the rich world, it is hard to disentangle their effects.

“America has run a trade deficit every year since 1976. But this does not mean that America is ‘losing’ at trade, as Mr Trump suggests…a trade surplus is not a virility symbol”

“In most rich countries, particularly America, the trade deficit widens when GDP growth is strong, and shrinks during recessions. To balance trade, Americans would have to invest less or save more. Neither would create jobs”

“Almost two-thirds of the new jobs that will be added to America’s economy in the next decade will be low-skilled or mid-skilled jobs, according to a projection by the country’s Bureau of Labour Statistics. Such demand may not easily be met by indigenous workers, even at higher wages”

Competition. 

“Competition policy needs to become more vigorous” to break with current industry concentration.

“A landmark Supreme Court judgment in 2004 said monopoly profits were the just reward for innovation. That has made it harder for trustbusters to root out rent-seeking or block mergers”

 

There must be greater competition with large firms so that “startups can thrive and incumbent firms are kept on their toes…the growing habit of big tech firms to swallow startups that might become rivals is worrying. Such deals often suit both sides—the buyer gets the innovation and the startup makes a lucrative exit—but the practice saps dynamism from the economy”

Without competition, there is “less chance of the dynamism that boosts productivity (and earnings) and creates new job opportunities”

The article goes on to make the following recommendations:

  • As borders have been steadily opened up, policies needed to complement globalisation have not kept pace, particularly in America. They need to catch up.
  • Dani Rodrik, of Harvard University, argues that a good way to build public support for globalisation would be to link trade pacts with agreements on, for instance, the taxation of multinational companies. Such a deal would give national governments more rather than less policy autonomy.
  • In America and Britain, a strong case can be made for locking in low-cost long-term funding to finance a programme to fix potholed roads and smarten up public spaces. Private pension funds with expertise in infrastructure have a role to play in such schemes.
  • Skeptics say that those who stand to lose from globalization are given little thought when trade deals are signed. That is a fair point. But there is also a risk of the opposite error: that the enormous good that free trade has done for the bulk of humanity in both rich and poor countries over several decades is forgotten at times when people are feeling anxious about it.

A wave of anti-establishment and anti-globalization parties across Europe are on the rise. Many have called for referendums on their membership to the European Union following suit with Brexit. Before any (further) reckless decisions are taken, politicians, policy-makers, and citizens should consider that “closing borders to trade, capital and people would cause great harm and do very little to tackle inequities in the economy” in fact, “blocking imports would only entrench the market power of rent-seeking firms, further harming the prospects for higher productivity and pay.”

** The primary source is The Economist’s “Special report: The world economy”. All quotes have been taken from the report.

Read original article: http://www.economist.com/news/special-report/21707837-how-make-economic-liberalism-fairer-and-more-effective-reset-button

 

Not intended to be a comprehensive study of globalization, rather a quick read of The Economist’s take on this global matter.

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Una de las maneras más efectivas y prometedoras de crear empleos y oportunidades económicas en Colombia se basa en el desarrollo del talento tecnológico y digital. La comunidad de tecnología que existe hoy debe ser expandida para capturar las oportunidades económicas que existen en la exportación de software — un mercado que supera los US$600 mil millones de dólares. Esta expansión requiere el apoyo del gobierno Colombiano el cual debe ayudar a promover las oportunidades que existen para los individuos que sean parte o que desee ingresar de la comunidad del talento digital.                   

Los Hechos

Impacto Económico del Desarrollo de Software       

“En los últimos 20 años, el software se ha convertido en un insumo esencial para el funcionamiento de prácticamente todos los negocios, en todas las industrias y sectores. Como resultado, la industria del software ha tenido efectos desproporcionadamente positivos en la productividad, las exportaciones y el empleo

“Los mercados emergentes se están convirtiendo en los nuevos centros de gravedad de la economía mundial, y la competencia por el talento es cada vez más feroz. El acceso a los trabajadores con talento es considerado por algunos como el indicador más importante de la competitividad de un país.”

El poder económico del Desarrollo de Software           

“Sólo en año 2012 la industria del software contribuyó $526 mil millones al PIB de EEUU. Sobre un período de 10 años la industria del software ha crecido 130,4% más rápido que el resto de la economía norteamericana y ha ofrecido 3,5 millones de empleos a la economía”

Impacto socioeconómico de inversión en Desarrollo de Software           

“Las inversiones empresariales en software están destinadas a aumentar la productividad de una empresa. Las ganancias de productividad…crean puestos de trabajo mediante la generación de riqueza y el ingreso adicional.”

Nuevo software dará lugar a la aparición de nuevos hubs de estilo Silicon Valley…Durante los próximos 10 años, las batallas entre empresas establecidas y los insurgentes de software serán [tan] épicas [como los impactos económicos que traerán].

Fuentes:

Software & Information Industry Association: https://www.siia.net/Admin/FileManagement.aspx/LinkClick.aspx?fileticket=yLPW0SrBfk4%3D&portalid=0

Emerging Market Talent Strategies Creating an effective global talent model http://dupress.com/articles/emerging-market-talent-strategies/

Software & Information Industry Association: https://www.siia.net/Admin/FileManagement.aspx/LinkClick.aspx?fileticket=yLPW0SrBfk4%3D&portalid=0

Why Software Is Eating The World By Marc Andreesen http://www.wsj.com/articles/SB10001424053111903480904576512250915629460

 

One of my goals for 2015 is to read an average of a book per week. Partly to fulfill this goal I will attempt to read every book that Mark Zuckerberg posts in his book club ‘A Year of Books’ (which averages to two books per week). My intent is to build a stronger hypothesis / perspective on the events taking place around me.

Below are my notes and thoughts on Moises Naim’s “The End of Power”.

Summary:

Naim—an economist, author, former Minister of Trade and Industry for Venezuela, and Executive Director of the World Bank—argues in his book that today “power is easier to get, harder to use and easier to lose”. Previously, and notably in the 19th century, large organizations became powerful because they were able to maximize profits and operate more efficiently than individuals because they were able to “internalize a broad range of necessary tasks, thereby saving on…transaction costs”. This gave rise to bureaucratic corporations, labor unions, large political parties and organizations that emphasized size, hierarchy, and centralized control. Today, he argues, these organizations are no longer advantageous because there is a notable decay of power due to three overarching trends he calls the “more”, “mobility”, and “mentality” revolutions.

The more revolution basically notes that because there is more of virtually everything today, power has become more easily decentralized due to the abundance of products/ choices consumers have at their disposal. Better stated, the Economist explains that the ‘more’ revolution describes a world of abundance. There are “more young people [who] they live in cities—65m people a year move to cities and more than half of the human population now lives in urban settings. There are more weapons, more medicines, more political parties, more companies, more NGOs, more religions, more communications. There is also more money—global GDP has increased five-fold and per capita GDP by three and a half times”.

There is also more mobility in our world. This allows people to travel, communicate and transfer goods with little control by national states or large bureaucracies. It creates what Naim calls the “end of captive audiences” for nation states, or as the Economist explains “the number of people living outside their country of origin has increased 37% according to the United Nations. Therefore, people are becoming harder to govern”.

Finally, there is a change in mentality that has brought higher expectations for people across the world who now have a “greater moral consensus about the proper behavior of nations than humanity has ever known before”. According to the Economist “this change in cultural norms is corroborated by the World Values Survey which shows a clear movement towards openness, gender equality and increased tolerance of difference”. (Related: The Athena Doctrine)

Nat’s Notes:

One of the consequences of these ‘revolutions’, especially to large players, is that micro-actors and micro-powers have become more relevant/ influential today than ever before. An interesting statistic related to this trend is that:

 “…when nation-states go to war these days, big military power delivers less than it once did. Wars are not only increasingly asymmetric, pitting large military forces against smaller, nontraditional ones such as insurgents, separatist movements, and militias. They are also increasingly being won by the militarily weaker side…A study by former Harvard scholar Ivan Arreguin-Toft on asymmetric conflicts shows that between 1800 and 1949 the weaker side won 12% of the time, but between 1950 and 1998 the weaker side won 55% of the time”

This trend also seems to signal that large, powerful players (CEOs, politicians, public figures), pay a steeper and more immediate price for their mistakes than did their predecessors due to the increased power of micro-actors (ie. bloggers, opinionated tweeters, startups, etc).

It is an interesting trend because, as the book points out, it creates a potentially stagnating situation in which “everyone has a little bit of power…everyone can constrain and veto but nobody has the power to get things done”. In a sense, this quote reminds me of the power that ‘sharing economy’ companies have gathered—companies like Airbnb and Uber—who have tremendous power over relatively vast resources and customer bases, but who sometimes cannot act because larger governmental / hotel / taxi lobbying powers prevent them from being fully legal. Against so many stakeholders the state does seem to not have the resources, decisiveness, and maybe even power, to definitively take a stance on the legality of these companies, making it so that users continue to rent out their apartments in a stagnated grey area of moral correctness / legality.

A second consequence, and one that I find especially relevant to my age group (18-34), is that because power has become increasingly decentralized it may no longer make sense for millennials to plan their careers around a single, powerful institution, but rather to focus on polishing personal skillsets and develop a brand that highlights individual potential. Related, the Economist recently published an article titled “There’s an app for that: Freelance workers available at a moment’s notice will reshape the nature of companies and the structure of careers”.

In this article the Economist explains that:

For a while after the second world war everybody seemed to benefit from [the large institutional] model: workers got security, benefits and steady wage rises; companies got a stable workforce in which they could invest with a fair expectation of returns. But the model started to get into trouble in the 1970s, thanks first to deteriorating industrial relations and then to globalization and computerization. Trade unions have lost power in the private sector, particularly in America and Britain, where legislation has reduced their ability to take action. Companies kept stricter control of their labor costs, increasingly contracting out production in industrial businesses and re-engineering middle-management. Computerization and improved communications then sped the process up, making it easier for companies to export jobs abroad, to reshape them so that they could be done by less skilled contract workers, or to eliminate them entirely….

The on-demand economy is unlikely to be a happy experience for people who value stability more than flexibility: middle-aged professionals with children to educate and mortgages to pay. On the other hand it is likely to benefit people who value flexibility more than security: students who want to supplement their incomes; bohemians who can afford to dip in and out of the labour market; young mothers who want to combine bringing up children with part-time jobs; the semi-retired, whether voluntarily so or not…

…The on-demand economy will inevitably exacerbate the trend towards enforced self-reliance that has been gathering pace since the 1970s. Workers who want to progress will have to keep their formal skills up to date, rather than relying on the firm to train them (or to push them up the ladder regardless). This means accepting challenging assignments or, if they are locked in a more routine job, taking responsibility for educating themselves. They will also have to learn how to drum up new business and make decisions between spending and investment”

If this is the case then it is likely very worthwhile for people in my age group to approach a career differently than our parents once did. If the ‘App Economy’ demands sharp, on demand, opinionated contractors we should devote more time crafting a strategy that allows us to position ourselves for a professional future that anticipates individuals to sell themselves, over having a companies sell the individual.

Sources:

There’s an app for that: Freelance workers available at a moment’s notice will reshape the nature of companies and the structure of careers  (http://www.economist.com/news/briefing/21637355-freelance-workers-available-moments-notice-will-reshape-nature-companies-and )

The End of Power: From Boardrooms to Battlefields and Churches to States, Why Being In Charge Isn’t What It Used to Be (http://www.amazon.com/End-Power-Boardrooms-Battlefields-Churches/dp/0465065694/ref=sr_1_1?ie=UTF8&qid=1422550637&sr=8-1&keywords=the+end+of+power)

Quick study: Moisés Naím on power “It ain’t what it used to be” via The Economist (http://www.economist.com/blogs/prospero/2013/03/quick-study-mois%C3%A9s-na%C3%ADm-power)

In the late nineteenth and early twentieth centuries, cities tried to respond to [internal] issues with active government–what historians have labeled progressivism. Despite the persistence of corruption, widespread poverty, and racial discrimination, cities increased municipal expenditures, professionalized their administration, and constructed buildings and infrastructures that supposed the most vibrant and successful era in American urban history. in the late twentieth century, by contrast, the response to similar issues was the withdrawal of active government, evident in reduced federal funds, reliance on market based solutions to urban problems, and the need to turn to private initiatives, like special service districts to carry out public functions, such as street cleaning and security. The results are everywhere to be seen, in homelessness on city streets, poverty spreading outward to inner suburbs, uncontrolled sprawl eating up open space, crumbling infrastructure, gross inequity on public education, the future of urban finance mortgaged to casino gambling, the incapacity to prevent or respond effectively to the devastation of Hurricane Katrina in 2005, and the subprime mortgage crisis. The widely heralded comeback of American cities is thing and fragile. If you move away from shiny center cities, it is not nearly so visible. Look at city budgets, and it does not seem nearly so robust. The question, What is an American City? has begun to elicit both a cacophony of definitions and an array of intelligent and promising ideas about ow to respond. But we have yet to see a powerful and pervasive new urban progressivism. Clearly,, though, without the will to forge an effective and coordinated political response, the future of American cities, however defined, is unlikely to be as buoyant as their past.

Michael B. Katz, “What Is An American City?” Dissent 56, 3 (2009)