Why 'secular stagnation' matters

Kannu

A fascinating debate has been running over the past 3 days. Read this little article to get a summary. 

I've got another point here. People aren't including the impact of technology and automation. More technology and automation and more the economic activity goes outsides the purview of economic levers. 

Secondly, why isn't there any mention of productivity? After all, if you can improve productivity by doing more investments and education, then secular stagnation can be addressed. 

Anyway. Fascinating minds at work son. Hugely influential and amazing debate. Reminds me of the time I read the proceedings of the Bretton Woods agreement. Keynes was the guru then. 

Love

Baba

I saw this on the BBC News App and thought you should see it:
Why 'secular stagnation' matters

A debate between three major economists highlights a key macroeconomic issue.

How India lost the cotton war to the British

First the paper.

During the early modern period, India was the world's main producer of cotton textiles, with a substantial export trade. Indian textiles were exported to Britain on a large scale from the seventeenth century.² By the early nineteenth century, however, Britain had become the world's most important cotton textile producer, dominating world export markets, and even exporting to India.³ This dramatic change in international competitive advantage, which must surely rank as one of the most important developments of the industrial revolution period, is often described entirely in terms of developments within Britain, without any reference to India, and with little or no reference to factor prices.⁴ This paper attempts to redress the balance.

……..

As early as the seventeenth century, an unskilled labourer earned four to five times as much in Britain as in India.¹⁰ In the middle of the nineteenth century, an unskilled labourer earned less than twice as much in America as in Britain.¹¹ Similarly, the British unskilled silver wage during the second half of the eighteenth century was also less than twice as high as in much of western Europe.¹² The Anglo-Indian factor price comparison is of particular importance in cotton textiles, where India was Britain's major competitor. ………However, there appears also to be a second reason, arising from a reluctance to characterize Britain as a high-wage economy during the industrial revolution, a period where the focus has been on the slow growth rather than the high level of British wages…….The story of Anglo-Indian competition in cotton textiles begins with the growth of cloth imports into Britain via the East India Company from the seventeenth century. The new cloths, patterns, and designs became increasingly fashionable and thus threatened the livelihood of domestic producers of fine woollens and linens, which were the closest substitutes for printed cottons from India.¹⁷ The pressure from these groups led to protective legislation that remained in force between 1701 and 1774, and opened up new opportunities for British manufacturers via a strategy of import substitution.¹⁸ However, high silver wages in Britain meant that cotton textiles produced domestically using labour-intensive production methods could not compete with Indian goods in third markets. This stimulated a two-stage process of technological change.

First, high wages led to the adoption of a more capital-intensive technology in Britain. Second, this choice of technology resulted in a faster rate of productivity growth in Britain, because of the greater incentive to devote resources to improving technology where capital intensity is higher. This is consistent with the positive relationship between capital intensity, resources devoted to research and development, and the rate of technological progress, highlighted in Schumpeterian models of economic growth.¹⁹ This effect can be explained partly by the greater learning potential on capital-intensive technology.²⁰ In Britain, however, the effect was amplified by the existence of an effective patent system.²¹

There was thus a stronger incentive to devote resources to innovation in the machine-intensive industry of Britain, compared with the labour-intensive industry of India. As productivity increased in the machine-intensive British cotton textile industry and stagnated in India, a shift in competitive advantage occurred. However, the shift was delayed in international markets during the late eighteenth and early nineteenth centuries by a temporary rise in raw cotton prices in Britain, as the increase in production put pressure on factor markets. The shift of competitiveness in the Indian market was delayed further by transport costs, which prevented the British from breaking into the Indian market on a large scale until after 1830

And this is again a rather salutary lesson about how one has to keep running after productivity, invest in people, equipment and technology improvements. Also interesting, and something not quite discussed, is how the import protection works. As it did in the 18th century UK.

India does the stupid thing, it has import protection, but doesn't do anything to invest. So the opportunity costs increases all the time and we become poorer and poorer. At this moment, China is eating India’s lunch…guess the old adage, people who do not learn from history are condemned to repeat it.

What happens when you decentralise education?

The current British Government is well known to centralise down to buttock clenching levels right up to the Prime Minister’s backside. Specially with targets, budgets, inspections, report cards and the like. Typical control freaks. But what happens when you decentralise education? let it be free? become easy to control at a local level? Well, a peek across to Sweden will give us some indications (I quote some bits from the paper)

 

Sweden undertook a conscious spatial decentralization of its system of higher education beginning in 1987. This policy was motivated by a complex variety of political, social, and economic factors. In this paper, we analyze the effects of university research activity on economic productivity and upon the level and distribution of innovative activity in the economy. We provide quantitative evidence on the effects of the decentralization policy upon output per worker and upon the award of commercial patents for innovations and discoveries. We also provide new evidence that the policy has increased aggregate productivity and economic output, but that the economic impacts are greatly attenuated over space and distance.

During the past 15 years, Swedish higher education policy encouraged the decentralization of post-secondary education. We investigate the spatial and economic effects of this decentralization on productivity and creativity. We provide several tests of the hypothesis that the establishment or expansion of university research in a region improves productivity and enhances creativity. We find systematic evidence that output per worker is higher and the award of patents is greater in regions that have received larger university-based investments as measured by the number of researchers employed on staff. We also find that changes in productivity are higher and new patent awards are more frequent in regions in which the “new” universities and institutions are located than in regions in which the “old” universities are located.

Our analysis permits us to hold constant the important factors affecting economic activity by municipality, labor market area and time, thereby improving the precision of estimates. The results are broadly consistent across theoretical models and statistical results. There is strong evidence that an expansion of university presence in a community, measured by the number of university-based researchers, is associated with increased output per worker in that community and with increases in the patents awarded to inventors in that labor market area.

The importance of the university in affecting productivity and creativity is consistently larger at the margin for the new institutions. For patents, at least, this could arise if the new institutions specialize more narrowly in technical specialties than do the more traditional institutions of higher education. Of course, some of the new institutions are, in fact, expansions of institutions that formerly provided some technical training (e.g., military facilities). This may explain some of the differences.³⁰

The productivity gains are highly localized. The spillovers from researchers employed at the old established institutions are concentrated. Roughly 40% of the cumulative gain in productivity is within 10 km of the institution. For the new universities the attenuation is even more pronounced; between one-third and one-half of the total effect upon productivity is registered within 5 km of the university.

Our findings are consistent with a substantial, but highly attenuated, external effect of investment in higher education, augmenting the productivity of local areas and the local economies in which they are situated.

Now this is quite interesting. And lessons are to be learnt from this. The first one is that the universities need to have their purse strings removed from central government and handed over to local regional authorities. That will push the decision making lower down the chain. Second that I would say is that the local universities should also have their fees handcuffs taken off. If you can charge more, go ahead and charge, plus with a system of bursaries if required to top up on means tested students. Third, local industry and banking/financial services needs to be brought into the picture for the universities to make sense of potential employment and/or SME generation. Finally, overall investment in universities helps in dramatic improvement in local labour productivity, the holy grail. But looking at this anal, stupid government, I despair that anything of import will be done. They will starve the universities by tying them to the government and because of their anal controlling nature, will not let them loose either. Why on earth cannot we have more private universities, I dont understand. Even India is letting them being setup now. sighs.

Now that's a good religion which tells you to be good, work hard and be happy!

Now this is good, this is what religion is all about, working hard, being good, be happy. People see far too much into religion, and well, at end of the day, it boils down to this, work hard, be good and be happy. Is it really too much to ask? Apparently so, but not for these very good people!

Read and be motivated!

Fake Prada fuels Senegal's Muslim brotherhood
Sun Nov 11, 2007 9:23pm EST

By Nick Tattersall
TOUBA, Senegal (Reuters) - For Senegalese street sellers from Manhattan to the Vatican, selling fake Prada purses and Chinese-made Gucci sunglasses is as much a question of religious devotion as of making a quick buck.
Many traders are members of the Mouride brotherhood, a branch of African Sufi Islam which has become Senegal's most influential religious, political and economic force.
A unique mix of militant capitalism and moderate Islam, its central doctrine of hard work as a means to paradise has led thousands to leave Senegal's sunny shores with one goal -- to earn money and send it back to the holy city of Touba.
"Work and don't complain much. That's the only doctrine they have," said Moustapha Diao, 53, a Mouride born in Touba who now lives in Harlem, the heart of New York's Senegalese community.
Diao used to peddle goods on Manhattan streets at a mark-up after buying them cheaply in Chinatown.
"The only network they have is workaholic," he said.
Remittances from Mourides abroad have helped the brotherhood grow exponentially since it was founded in the 1880s by Cheikh Ahmadou Bamba, a Muslim mystic, poet and pacifist sent into exile by French colonial authorities who feared his influence.
Known as "little Mecca", the holy city of Touba has grown from a tiny village into the hub of a global network of small businessmen whose trading acumen means the latest gadgets are available in Senegal as quickly as anywhere in the world.
"My conviction is that if it weren't for Ahmadou Bamba, I wouldn't have all this," said Djily Diop, 22, among fridges, televisions and satellite receivers in his shop in Touba.
SCHOOL OF HARD KNOCKS
Diop had wanted to finish school and maybe go to university. But in a country with tens of thousands of graduates unable to find work, his parents encouraged him to go to a Daara, a Koranic school run by a Marabout or religious teacher.
Unemployment is so high that many young Senegalese have risked their lives taking unseaworthy, overcrowded fishing boats to Spain's Canary Islands in the hope of finding work in Europe.
"My classmates went to university for three years and now they are unemployed. My parents knew (a Daara) was the best route," Diop said, dressed in gold-coloured robes.
His access to the Mouride network has enabled him to set up a business and will support him wherever he travels.
"If I go to New York, even if it is someone who does not know me, when I say I am a Mouride he will take me as his brother and share with me," he said.
"What we have in common -- the Marabout -- is more important than family ties, community ties, even the fact we are from the same country."
Cheikh Ahmadou Bamba's teachings -- notably "pray as if you will die tomorrow and work as if you will live forever" -- are learned from an early age by many of his followers.
In the peanut fields around Touba, given by the state to the brotherhood's current caliph Serigne Saliou Mbacke, children as young as 10 tend the crops, part of a Daara education based on hard physical labour as well as religious texts.
"I learned never to get angry. There were people who beat me but it taught me to be strong," said Cheikh Beye, a Daara-educated trader who sells goods sent by his brother from Dubai and China. "Mourides want to succeed whatever the cost."
POWERFUL BUT TOLERANT
The brotherhood dominates life in much of Senegal.
Homages like "Djeuredjef Serigne Saliou" -- thank you Serigne Saliou -- are painted all over brightly coloured buses and taxis. Bedroom walls and pendants carry images of the movement's Marabouts.
Some critics argue the Mourides' reverence for Bamba and the Marabouts eclipses their respect for the Prophet Mohammad, one of the pillars of Islam, and say the brotherhood has become too powerful a political force in Senegal.
Bamba's followers emphasize the tolerant nature of his teachings. They say support from Mouride leaders helped keep independence president Leopold Sedar Senghor, a Christian in a predominantly Muslim country, in power.
They regard their readiness to engage other cultures as central to the brotherhood's global success.
"Here, we do not know this fierce form of Islam in which you have to kill others because they do not believe the same as you, because they are Christian or Jew," said Cheikh Bethio, one of the most influential of the movement's living Marabouts.
"That is why it hurts us when the West confuses Islam and terrorism," he told Reuters as his followers knelt around him in a courtyard near Touba, his brand new Hummer off-roader parked in the shade of a tamarind tree.
(Additional reporting by Edith Honan in New York and Silvia Aloisi in Rome; Editing by Pascal Fletcher and Sara Ledwith)


All this to be taken with a grain of piquant salt!!!

A peek at France from an American

This was brilliant, i was chuckling away to myself. Some particularly good sentences quoted here:

In an interview, Lagarde says that more than two decades at a U.S.
corporation taught her: “The more hours you worked, the more hours you billed,
the more profit you could generate for yourself and your firm. That was the
mantra.”
The equivalent mantra in the French bureaucracy might be: the fewer
hours you work, the more vacation you take, the more time you have to grumble
about the state of the universe and the smarter you feel, especially compared to
workaholic dingbats across the Atlantic with no time for boules.

But all joking aside, France has to do something about it and between Sarko and Legarde, I hope France does wake up. We here in London have the largest population of very high earning French expatriates. Why are they here? because they are taxed out of their trousers in France and it is almost impossible to get good people to work in France.

Take the 35 hour week for example, yesterday, the FT reported some shocking news. I quote:

Introduced 10 years ago last week, the 35-hour week was a flagship
policy of the former Socialist-led government, which had hoped the policy would
generate more jobs. While the shorter work week has given many people more
time off, its effect on lowering the country’s rate of unemployment – which
still hovers at around the 9 per cent mark – has been less
obvious.
Instead, the bold social experiment has been blamed by its critics
for everything from throttling the country’s growth to destroying its work
ethic. Workers also complain of wage stagnation and a more stressful work
environment as they are asked to do more in less time for the same pay. The result, says Yves Riesel, founder and owner of the Paris-based company, is that white-collar workers, many of whom have the means to take advantage of the extra weeks of holiday, benefited from the 35-hour week. By contrast blue-collar workers who are paid by the hour found themselves odd
shifts with little opportunity to increase their earnings through overtime.

Typical!

All this to be taken with a grain of piquant salt!!!

Doing Business has just gotten better across the world

Very good news for many countries, they are listening to their people and others, and making it easier to do business. I was quite impressed by Egypt, which has made the biggest jump in rankings! It moved from 165th to 126th. And as the World Bank reports, it made starting a business simpler, slashing the minimum capital requirements, halving the startup time and costs. So you have better entrepreneurship help!. And there is nothing like getting entrepreneurs to kick off work. Make it easy for them and jobs, investment and better growth will follow.

See the example:

Starting a business is not easy in the Democratic Republic of Congo. It takes 13 procedures and 155 days—and it costs five times the annual income per capita. The situation is even worse for women: they need the consent of a husband. And if you are a single woman, a judge decides whether you can become a businesswoman. The result: Only 18 percent of small businesses are run by women in the DRC. Next door, in Rwanda, which has no such regulations, women
run more than 41 percent of small businesses.

See here for a great overview:

But not all were good. Venezuela, the great people's socialist wonderland fell to 172nd from 164th last year. But President Chavez is a ninny anyway and he is now the proud possessor of the title of being runner-up to the Democratic Republic of Congo for doing business in!.

India is mixed, it improved a bit but its still ranked 120th compared to 83 for China. In India, the time to obtain a business licence ranges from 159 days in Bhubaneshwar to 522 in Ranchi, compared to everything done and dusted and up and running in TWO days in Australia. I dont think the Australians are moaning are they?

Looking at the United Kingdom rankings, I am afraid the news is not that good either. Well, they are definitely better than India, but the competition for the UK is not against the Indians but against Singapore, New Zealand, USA, Hong Kong and Denmark. The UK is ranked 6th in terms of ease of doing business. The only place we hit the top is the ease of getting credit, but in all the other factors, we were rather bad. And some of them are really stupid (we can fix them very easily!)

We are 54th in terms of dealing with licences, 21st in terms of hiring workers, 19th on registering property, and 24th in terms of enforcing contracts, just to pick some of the most egarious aspects. Truly bureacracy gone wild, and these factors are gobsmacking. Why on earth are we 19th on the list of registering property? the land of the Domesday Book? And 24th in terms of enforcing contracts? the country which gave modern law to the world? Horribly Bizarre!. And the UK is getting worse if you look at the yearly progress instead of improving!

Read and Learn!

All this to be taken with a grain of piquant salt!!!

U.N. Report: U.S. Workers Most Productive in World; Each Produces $63,885 of Wealth Per Year

According to a UN report, the average U.S. worker produces $63,885 of wealth per year, more than their counterparts in all other countries, the International Labor Organization said in its report. Ireland comes in second at $55,986, followed by Luxembourg at $55,641, Belgium at $55,235 and France at $54,609.

Some more quotes

The U.S. employee put in an average 1,804 hours of work in 2006, the report said. That compared with 1,407.1 hours for the Norwegian worker and 1,564.4 for the French.

It pales, however, in comparison with the annual hours worked per person in Asia, where seven economies -- South Korea, Bangladesh, Sri Lanka, Hong Kong, China, Malaysia and Thailand -- surpassed 2,200 average hours per worker. But those countries had lower productivity rates.

America's increased productivity "has to do with the ICT (information and communication technologies) revolution, with the way the U.S. organizes companies, with the high level of competition in the country, with the extension of trade and investment abroad," said Jose Manuel Salazar, the ILO's head of employment.

The vast differences among China's sectors tell part of the story. Whereas a Chinese industrial worker produces $12,642 worth of output -- almost eight times more than in 1980 -- a laborer in the farm and fisheries sector contributes a paltry $910 to gross domestic product.

The difference is much less pronounced in the United States, where a manufacturing employee produced an unprecedented $104,606 of value in 2005. An American farm laborer, meanwhile, created $52,585 worth of output, down 10 percent from seven years ago, when U.S. agricultural productivity peaked.

All this to be taken with a grain of piquant salt!!!