First, they came for the factory workers, but I did not speak out –
Because I was not a factory worker.
Later, they came for the bank tellers, but I did not speak out –
Because I was not a bank teller.
Soon, they’ll come for the taxi drivers, but I do not speak out –
Because I am not a taxi driver.
Are they coming for me?
This adaption of Martin Niemöller’s famous poem about the Nazis’ creeping reign of terror is supposed to illustrate the ambivalence of ordinary people to technological change.
We like the fact that TVs, computers, mobile phones and domestic appliances are better and cheaper than in the past. Progressive automation in manufacturing has been a key driver of the productivity gains that allowed this happen.
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The IMF recently published its updated outlook for the global economy. The good news is that recovery from the crisis seems to be finally picking up some momentum after a decade of sub-par growth. The bad news, as they see it, is that this momentum could be stopped in its tracks if the sword of Damocles that is the threat of protectionism – whether emanating from Trump’s White House, May’s Westminister or elsewhere – falls. This could throw the process of globalisation into reverse, they worry, and slow growth in the size of the economic pie.
Alongside their biannual economic forecasts, the IMF also publishes its latest thinking on various themes. In light of increased focus on the issue of inequality since the global financial crisis, to which the recent rise in political populism has been attributed, the IMF provides a timely chapter on “Understanding the downward trend in labour income shares”. It explores the reasons why the share of wages in GDP has declined markedly – in advanced, emerging and developing economies alike – in recent decades. Between the mid-1970s and its 2006 low, the labour share has declined from around 55% of GDP to around 50% in advanced economies, before recovering only slightly since the financial crisis, while income inequality has increased significantly over the same period.
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Economists are fixated with what they can easily measure, but sometimes this means they can’t see the wood from the trees and focus on what is really important.
There are very good reasons why Gross Domestic Product, the sum of all goods and services produced for sale in an economy in a given time period, is the most widely watched economic indicator across the world. With adjustments for changes in prices over time and across countries, it is relatively easily comparable. When measured on a per capita basis, it is a useful – if far from perfect – proxy for the standard of living.
However, the intense focus on GDP numbers can distort public debate and political incentives as hitting growth targets becomes a holy grail. All growth is treated equally, no matter how broadly shared its benefits or how environmentally sustainable. People-centered priorities like jobs and incomes become secondary. Continue reading →
Here is a post on the World Bank’s ‘The Trade Post’ blog written by Gonzalo Varela, Sjamsu Rahardja and myself on our recent working paper.
Recent research by the OECD is unequivocal, if hardly surprising: reducing the fiscal deficit by raising taxes makes society more equal, but doing so by reducing welfare spending makes society more unequal. This holds for all 29 OECD countries studied, although the magnitude varies by country, depending on how large and progressive are their respective tax and welfare systems. Continue reading →
On foot of a recently published Policy Research Working Paper, exploring the potential for reforms to Indonesian service sector FDI policy to drive productivity in downstream manufacturing sectors, my co-authors and I have prepared a – much more digestible! – Economic Premise note for the World Bank’s Poverty Reduction and Economic Management Network. Published today, and available here.
In 2013, Côte d’Ivoire will be aiming to go one better than in 2012 across two fronts. The national football team will try to improve on last year’s runners-up spot in the African Cup of Nations, while the Ivorian authorities are targeting an increase in real GDP growth from 8.6% to 9%.
Having contracted by -4.7% in 2011 on foot of the post-electoral political crisis that saw 3,000 people killed, real GDP rebounded strongly in 2012. Whether this represents a one-time recovery of lost ground or is indicative of higher trend growth remains to be seen. The Ivoirian authorities are aiming for double-digit growth rates from 2014 in a bid to position the country as an emerging market by 2020. Although slightly less bullish, the IMF expects a still impressive average growth rate of 7.5% over the 2013-2015 period. Continue reading →
We saw the first ripples of the US sub-prime crisis in the summer of 2007. A year later, the global economy was on the precipice of disaster. Only resolute action by world leaders, Gordon Brown not least among them, and coordinated fiscal and monetary stimulus prevented a re-run of the Great Depression.
Cracks in the Eurozone edifice which had been papered over during the good times were soon brutally exposed. As the crisis enters its seventh calendar year, we are more than half way through a lost decade. The question, particularly on Europe’s periphery is whether one lost decade will turn into two.
2013 promises to be yet another momentous year in Irish economic history; the year Ireland hopes to cease being a ward of the troika; a year plagued with potential banana skins. Without doubt, the fallout from yet another hair-shirt budget will dominate the early months of the year. It follows that we will face into a similarly challenging budget cycle as 2013 draws to a close. Like peeling an apple, the closer you get to the core, the more the pips squeak. Budgets will only get harder. Continue reading →
After the trauma of the 1997-98 Asian financial crisis, Indonesia has come roaring back, growth averaging over 6% in recent years even as the world struggles with the first financial crisis of the 21st century, and the deepest since the 1930s.
If the developed world remains wracked by ‘slowing pains’, many of Indonesia’s economic challenges can be classed as ‘growing pains’.
Creaking infrastructure, for instance, results from under-investment, but the problem is rendered far more acute by the capacity strains that come with break-kneck economic growth. Roads may be of insufficient number and quality, but the trebling of road traffic over the past decade is the real source of bottlenecks.
Policymakers aim to help the economy kick on to reach its full potential, with growth in the 7-8% range which would see Indonesia become one of the world’s top ten economies by 2025.
While Indonesia’s large domestic market and burgeoning middle class shield the economy to a certain extent from ongoing economic weakness and uncertainty in the developed world, so-called ‘decoupling’ has been proven a mirage for emerging markets. Indonesia is no different. The combination of slowing growth in China and stagnation in developed export markets are two challenges on the immediate horizon.
Economic transition in China, however, brings its own opportunities. Increasingly, rising wages in China mean Indonesia is being sought out as a low cost production hub. Increased domestic demand in China means a massive, growing export market on Indonesia’s doorstep.
During my time working with the World Bank in Indonesia, I made a modest contribution to the latest Indonesian Economic Quarterly.
These are its top five take-aways: Continue reading →
What role has financial liberalization, including capital account liberalization, played in recent financial crises in emerging markets? What policy conclusions should one draw from this?
You can’t have smoke without fire. Recent economic history would suggest that neither can you have financial crises without weak macroeconomic fundamentals. Certainly, capital flows can increase vulnerability to, and the amplitude of, emerging market crises. Moreover, it is often capital flow reversals that signal the onset of financial crises in dramatic fashion.
While it is true that prohibiting global capital flows would prevent or dampen many economic crises, it does not necessarily follow that this is the appropriate policy course. If you can’t have smoke without fire, then it’s also true to say that you can’t have fire without tinder. Removing all tinder would surely prevent future fires, but we should not forget that learning to use fire was one of homo sapiens’ most important social evolutions.
This this is not to say that all capital flows are good flows, or even that restrictions on flows could not yield a pareto improving outcome. It is simply recognition that a certain degree of international mobility of capital is critically important if emerging and developing economies are to have some chance of converging with advanced economies. Continue reading →