Why Garbagemen Should Earn More Than Bankers

How more and more people are making money without contributing anything of value.
By Rutger Bregman – Thick fog envelops City Hall Park at daybreak on February 2, 1968. Seven thousand New York City sanitation workers stand crowded together, their mood rebellious. Union spokesman John DeLury addresses the multitude from the roof of a truck. When he announces that the mayor has refused further concessions, the crowd’s anger threatens to boil over. As the first rotten eggs sail overhead, DeLury realizes the time for compromise is over. It’s time to take the illegal route, the path prohibited to sanitation workers for the simple reason that the job they do is too important.

It’s time to strike.

The next day, trash goes uncollected throughout the Big Apple. Nearly all the city’s garbage crews have stayed home. “We’ve never had prestige, and it never bothered me before,” one garbageman is quoted in a local newspaper. “But it does now. People treat us like dirt.”

When the mayor goes out to survey the situation two days later, the city is already knee-deep in refuse, with another 10,000 tons added every day. A rank stench begins to percolate through the city’s streets, and rats have been sighted in even the swankiest parts of town. In the space of just a few days, one of the world’s most iconic cities has started to look like a slum. And for the first time since the polio epidemic of 1931, city authorities declare a state of emergency.

Still the mayor refuses to budge. He has the local press on his side, which portrays the strikers as greedy narcissists. It takes a week before the realization begins to kick in: The garbagemen are actually going to win. “New York is helpless before them,” the editors of The New York Times despair. “This greatest of cities must surrender or see itself sink in filth.” Nine days into the strike, when the trash has piled up to 100,000 tons, the sanitation workers get their way. “The moral of the story,” Time Magazine later reported, “is that it pays to strike.”

Rich without Lifting a Finger

Perhaps, but not in every profession.

Imagine, for instance, that all of Washington’s 100,000 lobbyists were to go on strike tomorrow. Or that every tax accountant in Manhattan decided to stay home. It seems unlikely the mayor would announce a state of emergency. In fact, it’s unlikely that either of these scenarios would do much damage. A strike by, say, social media consultants, telemarketers, or high-frequency traders might never even make the news at all.

When it comes to garbage collectors, though, it’s different. Any way you look at it, they do a job we can’t do without. And the harsh truth is that an increasing number of people do jobs that we can do just fine without. Were they to suddenly stop working the world wouldn’t get any poorer, uglier, or in any way worse. Take the slick Wall Street traders who line their pockets at the expense of another retirement fund. Take the shrewd lawyers who can draw a corporate lawsuit out until the end of days. Or take the brilliant ad writer who pens the slogan of the year and puts the competition right out of business.

Instead of creating wealth, these jobs mostly just shift it around.

Of course, there’s no clear line between who creates wealth and who shifts it. Lots of jobs do both. There’s no denying that the financial sector can contribute to our wealth and grease the wheels of other sectors in the process. Banks can help to spread risks and back people with bright ideas. And yet, these days, banks have become so big that much of what they do is merely shuffle wealth around, or even destroy it. Instead of growing the pie, the explosive expansion of the banking sector has increased the share it serves itself.

Or take the legal profession. It goes without saying that the rule of law is necessary for a country to prosper. But now that the U.S. has 17 times the number of lawyers per capita as Japan, does that make American rule of law 17 times as effective? Or Americans 17 times as protected? Far from it. Some law firms even make a practice of buying up patents for products they have no intention of producing, purely to enable them to sue people for copyright infringement.

Bizarrely, it’s precisely the jobs that shift money around – creating next to nothing of tangible value – that net the best salaries. It’s a fascinating, paradoxical state of affairs. How is it possible that all those agents of prosperity – the teachers, the police officers, the nurses – are paid so poorly, while the unimportant, superfluous, and even destructive shifters do so well? more>

Updates from ITU

Build back better after COVID-19: Key learnings from 20 years of ICT regulatory reform
By Stephen Bereaux – As we look back at 20 years of telecommunication/information and communication technology regulation at this year’s milestone Global Symposium for Regulators (GSR-20), there is no better time to understand how the responses and initiatives from the ICT sector during the COVID-19 pandemic can help ITU Members – and the world – to build back better.

Two decades have seen GSR become the pre-eminent global meeting for regulators and policymakers to tackle the many challenges emerging from the convergence of ICT services. From digital taxation frameworks to consumer trust, infrastructure sharing to network investment, the symposium also serves as a choice venue for regulators to interact and collaborate with the private sector to solve these and other critical challenges.

This year, as its own response to COVID-19 restrictions, GSR is going digital and will be held as a virtual meeting from 1-3 September 2020. As the world moves from response to recovery in the face of the COVID-19 pandemic, look for the upcoming points to be covered in GSR’s online sessions as they reflect what ITU members and the wider ICT community will need to bear in mind as the so-called ‘new normal’ takes shape.

5 key approaches to the ‘new normal’

First, how might institutional frameworks be made fit for purpose in a post-COVID world? Key issues to be addressed are privacy and data protection – especially concerning health information. Does the advent of contact tracing and tracking apps require even closer collaboration between data protection agencies and telecoms? What is the role of telecoms in tackling the global issue of COVID-19-related misinformation and disinformation? What is clear is that new and existing institutional frameworks must be designed to support data privacy and help combat misinformation.

It is also important to understand the sector competition impacts of the post-pandemic era – particularly in terms of data sovereignty, and data ownership. Changes in market power between industry segments also come into play here. For example, operators may face long-term reduced demand or higher costs as the world recovers from the pandemic. At the same time, initial indications suggest that so-called “tech giants” may become significantly stronger under a range of potential future scenarios. Such a situation could arise not only because of the sizeable market power of these companies, but also because of their critical role as the gatekeepers for smartphone operating systems, which must be opened for contact tracing apps, tackling COVID-related disinformation, and more. This shifting balance of market power between these two segments of the communications and technology industries may, in turn, require new regulatory settings. more>


Updates from Ciena

5G will require a new way to deliver IP connectivity
User demands are changing. The next generation of mobile networks requires far more than capacity upgrades. Ciena’s Vinicius Santos explains why the associated IP networks must evolve to become more streamlined, adaptive, and cost-effective to facilitate your unique 4G to 5G journey.
By Vinicius Santos – The creation and development of mobile communications dramatically changed our daily personal and professional lives. Initially, it gave us simple mobile voice communications, Short Message Service (SMS), and Multimedia Message Service (MMS). Then just over a decade ago smartphones were introduced and they quickly become an essential part of how we interact with each other and machines. Now sensors, automation, and artificial intelligence are driving a new wave of applications, resulting in a unique technological inflection point that requires mobile technology and networks to evolve.

As a fundamental building block of the mobile infrastructure, IP connectivity is responsible for providing data services and communication between wireless air interfaces and wireline mobile network elements, such as switches, routers, and optical transport gear. As mobile use cases and applications evolve, how standards-based IP connectivity is implemented must also evolve.

In the last couple of years, mobile applications have changed from being “nice to have” to an essential part of the way we do business, interact with each other, and make informed decisions. This has resulted in an ever-more demanding quality of experience. This is only going to become more challenging.

The next wave of applications will be stricter in terms of network performance requirements. Autonomous vehicles, cloud-based gaming, extended reality (XR), and telehealth, to name just a few, create amazing business opportunities. But in order for them to be successfully commercialized there are significant technological challenges in the communication infrastructure that need to be addressed.

This is especially true for mobile networks. 4G technology based on LTE, LTE Advanced, and LTE-Advanced Pro will be deployed alongside initial 5G Non-standalone (NSA) mode supporting enhanced Mobile Broadband (eMBB) use cases. The next phase of the mobile network evolution starting in 2021, with 5G Stand-Alone (SA) mode, will allow MNOs to offer more sophisticated use cases related to ultra-reliable Low-Latency Communications (urLLC), massive Machine-Type Communications (mMTC), as well as even higher performance eMBB services. more>


Updates from Chicago Booth

Do both brands benefit from co-branding?
By Andrew Clark -Some Dell laptops have an Intel processor inside, and some Betty Crocker brownie mixes use Hershey’s chocolate. The idea behind such co-branding is to generate synergies and marketing efficiencies. Does the strategy really work?

Yes, suggests research by Chicago Booth’s Sanjog Misra and Bradley Shapiro and Booth PhD candidate Yewon Kim—although it works better for some parties than others. And a difficult reality for managers and researchers is that predicting the magnitude of such a collaboration effect prospectively is nearly impossible.

The researchers studied brand collaboration in an unusual setting. Rather than analyze data involving commercial products, Kim, Misra, and Shapiro looked at three major museums all located in the same US city. While arts institutions aren’t typical commercial products, the fast-growing arts industry represented $704 billion in spending in 2013, compared with $619 billion for construction and $270 billion for utilities, write the researchers, citing data from the National Endowment for the Arts and the US Bureau of Economic Analysis.

The researchers don’t identify the museums involved, citing a nondisclosure agreement, but write that during the time period they studied, “one major museum with a highly recognized brand” closed for a three-year renovation. While the work was being done, this museum collaborated separately with two other museums and held exhibitions in their buildings, with both the primary museum’s and the partners’ branding. The participating institutions shared their collections as well as their curatorial staffs. Exhibitions were displayed cohesively, mixing collections from both the primary institution and its partners. Marketing campaigns emphasized the joint nature of the exhibitions, and the collaborating institutions used the same descriptions on their websites and in other promotional materials. They jointly hosted membership events.

To gauge the effects of co-branding, Kim, Misra, and Shapiro tapped SMU DataArts, a collection of information compiled by the National Center for Arts Research, for four years’ worth of the museums’ membership sales. They find that collaborating with the major museum led to an increase in memberships at both partner museums. During the collaboration year, people who hadn’t previously been members of the partner museums joined them. Meanwhile, demand dropped among people who had previously been members. more>


How digitization must be harnessed to save jobs

A framework agreement between the social partners should ensure job security and worker involvement are prioritized across the European Union.
By Esther Lynch – The announcement of jobs losses around Europe as a result of the Covid-19 pandemic has become an almost daily occurrence, as all sectors struggle to cope with the impact of lockdown. Preliminary research indicates that restructuring job losses have doubled in the second quarter of 2020, compared with previous years. Some 60 million EU workers are at risk of unemployment as the consequences of the crisis play out.

Trade unions are at the forefront of efforts to protect workers’ livelihoods. At the end of June, the European Trade Union Confederation and the three major EU-level employers’ organizations—BusinessEurope, CEEP and SMEunited—signed an Autonomous Framework Agreement, to work together on the introduction of digitalisation in workplaces across Europe. In the context of Covid-19, the deal has much wider relevance, as it provides a blueprint for negotiating a ‘just transition’ and change in the world of work.

The priority is to encourage an approach that fully involves workers and their trade unions. This must apply to restructuring situations caused by the virus, as well as to planned change. The agreement sets out that, instead of making redundancies, employers need to look at other options for maintaining and investing in their workforces, creating new opportunities and enabling workers to adapt to change.

The agreement applies across the EU, covering both public and private sectors and all economic activities, including online platform workers. The right of trade unions to represent workers is recognized and the agreement specifies that, in preparing for negotiations, unions must be able to consult all employees and should have the facilities and information required to participate fully throughout.

The issues of digitization, restructuring and equipping different sectors to respond to the coronavirus crisis are all interlinked. The fact that so many workers have suddenly found themselves relying on digital technologies to carry out their tasks has created a step change in terms of work organization. One survey indicates that 74 per cent of companies expect some of their staff to continue working remotely in the long term. These workers must have full employee rights and representation, with no erosion of pay and working conditions. more>

Updates from Adobe

Drawing Fashion
By Kasia Smoczynska – Kasia Smoczynska finds her inspiration on the catwalk.

At the launch of Givenchy’s 2019 Spring Collection in Paris, it was a technicolor gown that took her breath away. Created by British fashion designer Clare Waight Keller, the dress is a kaleidoscope of moving ribbons topped with an Elizabethan ruffle. To Smoczynska, it looked like “thousands of colorful fringes moving in every direction.”

“I had to draw it,” she says.

A few days later, Smoczynska was back in Leeds, England, where she lives and works. She dropped her iPad Pro onto an easel she had once purchased to make gouache paintings. (“I did maybe two paintings, and now I use it only for my iPad,” she admits.) Then, firing up Adobe Fresco, Smoczynska started to draw the gown with sweeping digital brushstrokes of yellows, blues, and reds. “I knew it would be fun to illustrate all those fringes,” she recalls.

The finished piece is typical of Smoczynska’s work: expressive, spontaneous, and charged with energy. “In my eyes it’s a look for a modern queen,” she says, explaining why her model sits atop a throne instead of marching down the catwalk. more>


Updates from Ciena

Planning for 5G Success: A Tale of Two Operators
The industry is moving forward with 5G deployments, motivated by differentiated service offerings. Blue Planet’s Soumen Chatterjee describes how 5G Automation is helping two mobile network operators plan their own path to 5G success.
By Soumen Chatterjee – In my earlier blog, I wrote about the promise of 5G network slicing, which opens the door to a variety of service offerings, to support differentiated requirements across industry sectors. In the interim, the current challenging economic time of the coronavirus pandemic has given mobile network operators (MNOs) a chance to re-assess their 5G strategies and double-down on pursuing new service opportunities.

The shift in consumer lifestyle patterns may have impacted the timing of some 5G use cases – industrial automation demand may slow, but interest for multi-media remote sporting experiences is anticipated. 5G brings unprecedented opportunities to provide customers with new services and an exceptional user experience, given performance of up to 100 Gbps and latency in the order of 1 millisecond. But 5G also brings additional operational complexity with network slicing technology, new radios, rearchitected transport, and a virtualized 5G core. 5G needs automation in the backend to manage this increased complexity and to contain associated operational costs. For MNOs, automation is a must, not an option.

In my discussions with MNOs, it is apparent that planning for 5G deployments is heavily influenced by an operator’s legacy infrastructure – infrastructure that exists in the field and systems that exist in the network operations center (NOC). However, no matter the starting point, it is essential to have dynamic planning capabilities that simplify and accelerate each phase of the process.

At one incumbent mobile operator, they are planning to roll-out small cell 5G radios alongside their 4G radios, in non-standalone (NSA) mode. However, they first need to get visibility of their current network assets. Their legacy inventory and operational support systems (OSS) are disjointed, so it is difficult to obtain an accurate and comprehensive view.

Furthermore, those OSS are not up to the task of modelling new 5G constructs. It would be an extremely heavy lift to shoehorn 5G data in, with very limited scope for extensibility. On the other hand, introduction of a new system could further fragment or duplicate operational data.

This is when Blue Planet’s federation capabilities prove to be a crucial step for 5G planning. With Blue Planet’s 5G Automation solution, data from existing systems is federated, reconciled, and synchronized into a new unified data model built on state-of-the-art graph database technology which can accommodate complex 5G relationships. There are also existing business processes – mostly manual – that rely on OSS, which need to be modernized to support automated 5G workflows.

Another MNO customer is a new entrant who is not encumbered by pre-existing infrastructure and OSS, has more flexibility in designing new systems and processes to support their 5G strategy, and can implement them more quickly. This MNO is planning to deploy tens of thousands of 5G cell sites in standalone mode (SA) within a few years. To scale expediently, they need to design-in automation of their business processes from the outset. Blue Planet’s 5G Automation solution is a natural fit, as it provides multi-vendor service orchestration and assurance founded on a unified inventory of hybrid physical and virtual infrastructure

Beyond the radio infrastructure, both MNOs are looking ahead to architecting customizable network slices end-to-end across the radio access network (RAN), transport and cloud domains, to satisfy their customers’ requirements. To this end, Blue Planet provides the holistic operational system to help determine the placement of 5G Core (5GC) virtualized network functions (VNFs) at the edge or in the core, with necessary compute capacity, to best support a variety of latency and bandwidth needs. more>


Updates from Chicago Booth

Can regulation rein in algorithmic bias?
By Sendhil Mullainathan – Last year, you published a paper documenting how an algorithm used by health-care organizations generated racially biased results. What takeaways did that offer in terms of how algorithmic bias differs from human bias?

That paper might be, by some measures, among the strangest papers I’ve ever worked on. It’s a reminder of the sheer scale that algorithms can reach.

Exact numbers are hard to get, but about 80 million Americans are evaluated through this algorithm. And it’s not for some inconsequential thing: it is an algorithm used by many health-care systems to decide which patients should get put into what are called care-management programs. Care-management programs are for people who are going to be at the hospital a lot. If you have many conditions, you’re going to be in the system frequently, so you shouldn’t have to go through the normal front door, and maybe you should have a concierge who works just with you. You get additional resources to manage this complex care.

It costs a lot of money to put somebody in a care-management program. You really want to target these programs. So the question is, who should be in them?

Over the past five years, there have been algorithms developed using health records of people to figure out who is at highest risk of using health care a lot. These algorithms produce a risk score, and my coresearchers and I wanted to know if there was any racial bias in these scores.

The way we looked for it was to take two people given the same score by the algorithm—one white and one Black. Then we looked at those two people and asked whether, on average, the white person had the same level of sickness as the Black person. What we found is that he or she didn’t, that when the algorithm gives two people the same score, the white person tends to be much healthier than the Black person. And I mean much healthier, extremely so. If you said, “How many white people would I have to remove from the program, and how many Black people would I have to put in, until their sickness levels were roughly equalized?” you would have to double the number of Black patients. It is an enormous gap.

I say it’s one of the craziest projects I’ve worked on in part because of the sheer scale of this thing. But there are a lot of social injustices that happen at a large scale. What made it really weird was when we said, “Let’s figure out what’s causing it.” In the literature on algorithmic bias, everyone acts like algorithms are people, like they’re biased [in the sense that people are]. It’s just a little piece of code. What went wrong in the code?

What we found is something that we’re finding again and again in all of our A.I. work, that every time you see that an algorithm has done something really bad, there’s no engineering error. That’s very, very different than the traditional bugs in code that you’re used to: when your computer crashes, some engineering bug has shown up. I’ve never seen an engineering bug in A.I. The bug is in what people asked the algorithm to do. They just made a mistake in how they asked the question. more>


China’s Coming Upheaval

Competition, the Coronavirus, and the Weakness of Xi Jinping
By Minxin Pei – Over the past few years, the United States’ approach to China has taken a hard-line turn, with the balance between cooperation and competition in the U.S.-Chinese relationship tilting sharply toward the latter. Most American policymakers and commentators consider this confrontational new strategy a response to China’s growing assertiveness, embodied especially in the controversial figure of Chinese President Xi Jinping. But ultimately, this ongoing tension—particularly with the added pressures of the new coronavirus outbreak and an economic downturn—is likely to expose the brittleness and insecurity that lie beneath the surface of Xi’s, and Beijing’s, assertions of solidity and strength.

The United States has limited means of influencing China’s closed political system, but the diplomatic, economic, and military pressure that Washington can bring to bear on Beijing will put Xi and the Chinese Communist Party (CCP) he leads under enormous strain. Indeed, a prolonged period of strategic confrontation with the United States, such as the one China is currently experiencing, will create conditions that are conducive to dramatic changes.

As tension between the United States and China has grown, there has been vociferous debate about the similarities and, perhaps more important, the differences between U.S.-Chinese competition now and U.S.-Soviet competition during the Cold War. Whatever the limitations of the analogy, Chinese leaders have put considerable thought into the lessons of the Cold War and of the Soviet collapse. Ironically, Beijing may nevertheless be repeating some of the most consequential mistakes of the Soviet regime.

During the multidecade competition of the Cold War, the rigidity of the Soviet regime and its leaders proved to be the United States’ most valuable asset. The Kremlin doubled down on failed strategies—sticking with a moribund economic system, continuing a ruinous arms race, and maintaining an unaffordable global empire—rather than accept the losses that thoroughgoing reforms might have entailed. Chinese leaders are similarly constrained by the rigidities of their own system and therefore limited in their ability to correct policy mistakes. In 2018, Xi decided to abolish presidential term limits, signaling his intention to stay in power indefinitely. He has indulged in heavy-handed purges, ousting prominent party officials under the guise of an anticorruption drive. What is more, Xi has suppressed protests in Hong Kong, arrested hundreds of human rights lawyers and activists, and imposed the tightest media censorship of the post-Mao era. His government has constructed “reeducation” camps in Xinjiang, where it has incarcerated more than a million Uighurs, Kazakhs, and other Muslim minorities. And it has centralized economic and political decision-making, pouring government resources into state-owned enterprises and honing its surveillance technologies. Yet all together, these measures have made the CCP weaker: the growth of state-owned enterprises distorts the economy, and surveillance fuels resistance. The spread of the novel coronavirus has only deepened the Chinese people’s dissatisfaction with their government.

The economic tensions and political critiques stemming from U.S.-Chinese competition may ultimately prove to be the straws that broke this camel’s back. If Xi continues on this trajectory, eroding the foundations of China’s economic and political power and monopolizing responsibility and control, he will expose the CCP to cataclysmic change.

Since taking power in 2012, Xi has replaced collective leadership with strongman rule. Before Xi, the regime consistently displayed a high degree of ideological flexibility and political pragmatism. It avoided errors by relying on a consensus-based decision-making process that incorporated views from rival factions and accommodated their dueling interests. The CCP also avoided conflicts abroad by staying out of contentious disputes, such as those in the Middle East, and refraining from activities that could encroach on the United States’ vital national interests. At home, China’s ruling elites maintained peace by sharing the spoils of governance. Such a regime was by no means perfect. Corruption was pervasive, and the government often delayed critical decisions and missed valuable opportunities. But the regime that preceded Xi’s centralization had one distinct advantage: a built-in propensity for pragmatism and caution.

In the last seven years, that system has been dismantled and replaced by a qualitatively different regime—one marked by a high degree of ideological rigidity, punitive policies toward ethnic minorities and political dissenters at home, and an impulsive foreign policy embodied by the Belt and Road Initiative (BRI), a trillion-dollar infrastructure program with dubious economic potential that has aroused intense suspicion in the West. The centralization of power under Xi has created new fragilities and has exposed the party to greater risks. If the upside of strongman rule is the ability to make difficult decisions quickly, the downside is that it greatly raises the odds of making costly blunders. The consensus-based decision-making of the earlier era might have been slow and inefficient, but it prevented radical or risky ideas from becoming policy.

Under Xi, correcting policy mistakes has proved to be difficult, since reversing decisions made personally by the strongman would undercut his image of infallibility. (It is easier politically to reverse bad decisions made under collective leadership, because a group, not an individual, takes the blame.) Xi’s demand for loyalty has also stifled debate and deterred dissent within the CCP. For these reasons, the party lacks the flexibility needed to avoid and reverse future missteps in its confrontation with the United States. The result is likely to be growing disunity within the regime. Some party leaders will no doubt recognize the risks and grow increasingly alarmed that Xi has needlessly endangered the party’s standing. The damage to Xi’s authority caused by further missteps would also embolden his rivals, especially Premier Li Keqiang and the Politburo members Wang Yang and Hu Chunhua, all of whom have close ties to former President Hu Jintao. Of course, it is nearly impossible to remove a strongman in a one-party regime because of his tight control over the military and the security forces. But creeping discord would at the very least feed Xi’s insecurity and paranoia, further eroding his ability to chart a steady course.

A strongman who has suffered setbacks—as Mao Zedong did after the Great Leap Forward, a modernization program that centralized food production, leading to some 30 million deaths by famine in the early 1960s—naturally fears that his rivals will seize the opportunity to conspire against him. To preempt such threats, the strongman typically resorts to purges, which Mao did four years after the end of the Great Leap Forward by launching the Cultural Revolution, a movement intended to eliminate “bourgeois elements” in society and in the government. In the years ahead, Xi may come to rely on purges more than he already does, further heightening tensions and distrust among the ruling elites.

A key component of Washington’s strategic confrontation with Beijing is economic “decoupling,” a significant reduction of the extensive commercial ties that the United States and China have built over the last four decades. Those advocating decoupling—such as U.S. President Donald Trump, who launched a trade war with China in 2018—believe that by cutting China off from the United States’ vast market and sophisticated technology, Washington can greatly reduce the potential growth of China’s power. In spite of the truce in the trade war following the interim deal that Trump struck with Xi in January 2020, U.S.-Chinese economic decoupling is almost certain to continue in the coming years regardless of who is in the White House, because reducing the United States’ economic dependence on China and constraining the growth of China’s power are now bipartisan aims.

As the economy weakens, the CCP may have to contend with the erosion of popular support resulting from a falling or stagnant standard of living. In the post-Mao era, the CCP has relied heavily on economic overperformance to sustain its legitimacy. Indeed, the generations born after the Cultural Revolution have experienced steadily rising living standards. A prolonged period of mediocre economic performance—say, a few years in which the growth rate hovers around three or four percent, the historical mean for developing countries—could severely reduce the level of popular support for the CCP, as ordinary Chinese grapple with rising unemployment and an inadequate social safety net.

In such an adverse economic environment, signs of social unrest, such as riots, mass protests, and strikes, will become more common. The deepest threat to the regime’s stability will come from the Chinese middle class. Well-educated and ambitious college graduates will find it difficult to obtain desirable jobs in the coming years because of China’s anemic economic performance. As their standard of living stalls, middle-class Chinese may turn against the party. This won’t be obvious at first: the Chinese middle class has traditionally shied away from politics. But even if members of the middle class do not participate in anti-regime protests, they may well express their discontent indirectly, in demonstrations over such issues as environmental protection, public health, education, and food safety. The Chinese middle class could also vote with its feet by emigrating abroad in large numbers.

An economic slowdown would also disrupt the CCP’s patronage structure, the perks and favors that the government provides to cronies and collaborators. In the recent past, a booming economy provided the government with abundant revenue—total revenue in absolute terms tripled between 2008 and 2018—providing the resources the CCP needed to secure the loyalty of midlevel apparatchiks, senior provincial leaders, and the managers of state-owned enterprises. As the Chinese economic miracle falters, the party will find it harder to provide the privileges and material comforts that such officials have come to expect. Party elites will also need to compete harder among themselves to get approval and funding for their pet projects. Dissatisfaction among the elites may spiral if Xi’s prized priorities, such as the BRI, continue to receive preferential treatment and everyone else must economize.

Finally, in the event of a dramatic slowdown, the Chinese government will most likely find itself confronting greater resistance in the country’s restive periphery, especially in Tibet and Xinjiang, which contain China’s most vocal ethnic minorities, and in Hong Kong, which was British territory until 1997 and retains a different system of governance with far more civil liberties. To be sure, escalating tensions in China’s periphery will not bring the CCP down. But they can be costly distractions. Should the party resort to overly harsh responses to assert its control, as is likely to be the case, the country will incur international criticism and harsh new sanctions. The escalation of human rights violations in China would also help push Europe closer to the United States, thus facilitating the formation of a broad anti-China coalition, which Beijing has been desperately trying to prevent.

Although middle-class discontent, ethnic resistance, and pro-democracy protests won’t force Xi out of power, such pervasive malaise would undoubtedly further erode his authority and cast doubts on his capacity to govern effectively. Economic weakness and elite demoralization could then push Beijing over the edge, leading the CCP toward calamity.

The events of the past few months have shown that CCP rule is far more brittle than many believed. This bolsters the case for a U.S. strategy of sustained pressure to induce political change. Washington should stay the course; its chances of success are only getting better and better. more>

Updates from McKinsey

How to drive winning battery-electric-vehicle design: Lessons from benchmarking ten Chinese models
Our analysis of the Chinese battery-electric-vehicle market revealed important clues for OEMs that want to thrive in this sector.
By Mauro Erriquez, Philip Schäfer, Dennis Schwedhelm, and Ting Wu – Many automotive OEMs and suppliers in Europe, Japan, and the United States are starting large-scale launches of battery electric vehicles (BEVs) in their core markets. But in China, a rapidly growing BEV market and ecosystem have already emerged.

To help global automotive OEMs and suppliers truly understand the major challenges and opportunities of the Chinese BEV market, we analyzed ten BEVs that are popular in China using McKinsey’s electric-vehicle index. We covered a large portion of the market, looking at vehicles from both incumbent OEMs and new players. The benchmarking consisted of a detailed technical analysis, as well as a cost estimate down to the level of individual components. We summarized our findings in our report, How to drive winning battery-electric-vehicle design: Lessons from benchmarking ten Chinese models (PDF–501KB).

The Chinese automotive market is the world’s largest automotive profit pool, accounting for one-third (about $40 billion) of the global total. The market is now shifting toward e-mobility. From 2014 to 2019, BEV unit sales in China increased by 80 percent a year. With more than 900,000 units in 2019, 57 percent of the BEVs sold throughout the world were sold in China, making it the world’s largest BEV market. A look at OEM market shares reveals that Chinese OEMs dominate the market almost completely. International OEMs had a mere 15 percent of annual BEV sales in 2019.

The outlook for the market is promising: BEV penetration in China is expected to grow from 3.9 percent in 2019 to 14 to 20 percent in 2025—a sales volume of roughly 3.8 to 5.0 million vehicles. With the COVID-19 crisis affecting global BEV markets, China’s central government decided in March 2020 to extend purchase subsidies by two more years to fuel BEV sales. Therefore, we expect that after stagnation in 2020—compared with the double-digit growth before COVID-19—the BEV market will pick up again, both absolutely and relatively, in 2021.

Several BEVs have the potential to be profitable, as their product cost structures benefit from several unique characteristics of the Chinese market. The reuse of existing internal-combustion-engine (ICE) platforms decreases time to market, and off-the-shelf components and a high level of modularization keep down capital expenditures. These design principles and their effects are supported by an ecosystem of local suppliers with long-established expertise across electronics and batteries. more>