Category Archives: Economic development

From an industrial renaissance to an economy of value

By Francisco Jaime Quesado – While having to endure the ongoing era of a global pandemic, we are facing the prospect of an effective industrial renaissance that can change the way our economy works

In the new global economy, in which industry is becoming more important, companies have a new challenge – to redefine its value chain and to integrate the existing global networks with new ideas, new solutions and new proposals of competence. This industrial renaissance will be a contract of trust in this new agenda of change and a new effective vision for the future as it should mobilize those that have a set of effective value creations in the economy.

A post-pandemic industrial renaissance is the point of contact between those that believe in the power of people to create new solutions to more complex problems that are arising in society and those that want innovation and creativity to be the platform for the creation of value in a globally competitive economy. This ‘renaissance’ is, in essence, the confirmation of a process of integration of people into society – an individual’s contribution must be a commitment to the organization of society and its main elements.

The next stage in the process of rebirth must apply to the most critical factors of competence and trust, which includes a focus on innovation and the sharing of positive dynamics. We need society to have a new challenge. Society must be able to be the real platform of a more entrepreneurial society that is centered on new areas of knowledge and sectors of value.

In a modern and active society, the keyword is ‘co-creation’, which is used to promote a dynamic and active creation process that involves each citizen in the next big challenge for society. more>

Updates from ITU

GPS and garbage trucks: Mapping digital divides in U.S. cities
By Sarah Wray – Addressing the digital divide has become a top priority for cities around the world as COVID-19 has forced study, work and socializing online.

City leaders are increasingly recognizing the opportunity that remote work and technology can offer their citizens and local economy – as long as the right infrastructure is in place.

During a digital roundtable in a series organized by consulting company Ignite Cities and advocacy group the National League of Cities (NLC), Adrian Perkins, Mayor of Shreveport, and Alejandra Sotelo-Solis, Mayor of National City, detailed how closing the digital divide means not only getting residents connected but also helping them upskill for a changing job market. Perkins said:

“If our low-income communities don’t have access to reliable internet, you are cutting them off in so many ways,” including opportunities for remote work, high-paying jobs and educational tools.

He noted that mayors must work alongside the private sector and foster partnerships to close the divide but that leveraging public assets is also key.

“[Telecom companies] are private corporations and they have pushed for their bottom lines and people that could most afford [connectivity],” Perkins added.

“If you are a mayor that hasn’t started to yet work on the public side, on the public fibre that’s available and pushing your public agenda when it comes to bridging the digital divide, you are behind the power curve.” more>

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Gig workers: guinea pigs of the new world of work

Most discussion of gig workers has focused on their material insecurity. More attention also needs to be paid to what goes on in their heads.
By Pierre Bérastégui – The ‘gig’ economy has grown to become an intrinsic part of our society and yet the benefits and risks of this new way of working are still much debated. Understandably, the employment status of gig workers captures most public attention.

Most European Union member states lack clear regulations on this, so a platform’s terms and conditions determine the status of its ‘users’, based on the existing regulatory framework. Although there are instances of platforms offering employment contracts, most consider gig workers as self-employed.

This is often referred to as ‘bogus’ self-employment: workers are treated as such for tax, commercial and company-law purposes, yet remain subject to subordination by and dependence on the contractor and/or platform. As new forms of work outpace regulation, the key legal challenge is to ensure no workers are left outside of the regulatory framework.

That should, however, not hide the fact that gig workers deal with unique challenges when it comes to working conditions. In addition to the specific hazards entailed by the different types of activities mediated through online labor platforms, there are also risks related to the way gig work is organized, designed and managed. Addressing these is essential, to safeguard working conditions and ensure a socially responsive transition to the new world of work. more>

What Do Economists Mean When They Talk About “Capital Accumulation”?

In every other science, this inability to measure the key category of the theory would be devastating. But not in the science of economics.
By Shimshon Bichler and Jonathan Nitzan – What do economists mean when they talk about “capital accumulation”? Surprisingly, the answer to this question is anything but clear, and it seems the most unclear in times of turmoil. Consider the “financial crisis” of the late 2000s. The very term already attests to the presumed nature and causes of the crisis, which most observers indeed believe originated in the financial sector and was amplified by pervasive financialization.

However, when theorists speak about a financial crisis, they don’t speak about it in isolation. They refer to finance not in and of itself, but in relation to the so-called real capital stock. The recent crisis, they argue, happened not because of finance as such, but due to a mismatch between financial and real capital. The world of finance, they complain, has deviated from and distorted the real world of accumulation.

According to the conventional script, this mismatch commonly appears as a “bubble”, a recurring disease that causes finance to inflate relative to reality. The bubble itself, much like cancer, develops stealthily. It is extremely hard to detect, and as long as it’s growing, nobody – save a few prophets of doom – seems able to see it. It is only after the market has crashed and the dust has settled that, suddenly, everybody knows it had been a bubble all along. Now, bubbles, like other deviations, distortions and mismatches, are born in sin. They begin with “the public” being too greedy and “policy makers” too lax; they continue with “irrational exuberance” that conjures up fictitious wealth out of thin air; and they end with a financial crisis, followed by recession, mounting losses and rising unemployment – a befitting punishment for those who believed they could trick Milton Friedman into giving them a free lunch.

This “mismatch thesis” – the notion of a reality distorted by finance – is broadly accepted. In 2009, The Economist of London accused its readers of confusing “financial assets with real ones”, singling out their confusion as the root cause of the brewing crisis (Figure 1). Real assets, or wealth, the magazine explained, consist of “goods and products we wish to consume” or of “things that give us the ability to produce more of what we want to consume”. Financial assets, by contrast, are not wealth; they are simply “claims on real wealth”. To confuse the inflation of the latter for the expansion of the former is the surest recipe for disaster. more>

Updates from Chicago Booth

Psychology can help set the stage for business success
Use the environment you create to help employees, and your company, succeed
By Linda E. Ginzel – Remember the traditional classrooms you’ve learned in throughout your life. What do they look like and have in common?

You’re probably picturing a large space with few distractions, desks facing the front of the room, and all eyes on the teacher. Most students are taking notes; the teacher attempts a joke and students attempt to laugh. The people in the room are a diverse set of individuals and yet they all behave exactly the same way. They are all engaging in classroom behavior.

The first educators to create this environment didn’t know it at the time, but they were thinking like social psychologists. In particular, they were following what would later be the advice of the father of the discipline, Kurt Lewin, who said that behavior is a function of a person and their environment.

Business executives and teachers have similar goals for obtaining certain desired behaviors from employees and pupils, but there is little they can do to change the people themselves. Under Lewin’s equation, that leaves the environment, which is something managers have at least some control over. If you want to change someone’s behavior, including your own, your best bet is to go to work changing the circumstances.

Social psychologists focus on the external circumstances that affect the behavior of individuals. They talk about creating strong environments that help to move people in the direction of their goals, which is what I teach my executive MBA students in classrooms much like the one described above.

So, how do you do it? Business executives decide who is on a given team, the roles they play, how they are compensated, and the resources at their disposal. Your own behavior is a big part of the situation. If you want to change the behavior of others, start with your own actions. As an example, think about how you give team members feedback since that will shape how they feel about coming to you with suggestions or questions in the future. more>

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Rapid Money Supply Growth Does Not Cause Inflation

Neither do rapid growth in government debt, declining interest rates, or rapid Increases in a central bank’s balance sheet
By Richard Vague – Monetarist theory, which came to dominate economic thinking in the 1980s and the decades that followed, holds that rapid money supply growth is the cause of inflation. The theory, however, fails an actual test of the available evidence. In our review of 47 countries, generally from 1960 forward, we found that more often than not high inflation does not follow rapid money supply growth, and in contrast to this, high inflation has occurred frequently when it has not been preceded by rapid money supply growth.

The purpose of this paper is to present these findings and solicit feedback on our data, methods, and conclusions.

To analyze the issue, we developed a database of 47 countries that together constitute 91 percent of global GDP and looked at each episode of rapid money supply growth to see if it was followed by high inflation. In the majority of cases, it was not. In fact, the opposite was true—a large percentage of the cases of high inflation were not preceded by high money supply growth. These 47 countries all rank within the top 70 largest economies as measured by GDP and include each of the top 20 countries. If a country was not included, it was because we could not get a complete enough set of historical data on that country.

There are several reasons to want to better understand the causes of inflation. Currently, central banks in Japan, Europe and elsewhere are trying to engender a moderately higher level of inflation in order to stave off the drift toward deflation and under the belief that it will add to job and economic growth. Also, both public and private debt have reached such high levels in ratio to GDP that some policymakers are beginning to reflect on potential paths to deleveraging, and inflation is one such path. Lastly, a number of countries are trying to moderate levels of inflation that are deemed too high. For these countries, too, a deeper understanding of the mechanisms of inflation is important. more>

Updates from ITU

Regulating for resilience: Reigniting ICT markets and economies post-COVID-19
By Raúl Katz – As the COVID-19 pandemic continues its relentless spread, governments, regulators, academics, and the global information and communication technology (ICT) community keep rethinking policy and regulatory frameworks to mitigate the effects of the crisis and chart a way out of it.

The 7th Economic Experts Roundtable convened by ITU provided a platform to generate ideas and solutions to render ICT markets an even more important contributor to social and economic resilience in the face of COVID-19.

The current crisis has brought new challenges to the ICT sector. Regulatory frameworks need to be adjusted to stimulate investment while maintaining a moderate level of competition. Markets and consumer benefits are now examined by decision-makers through the lens of financial adversity and uncertain outlooks.

Amid disruption, policy-makers and regulators need evidence-based guidance that provides a solid ground for their reforms.

A new study released at the Roundtable provides fresh insights backed by authoritative data on the evolution of ICT regulation since 2007, the ICT Regulatory Tracker, and a global dataset on ICT markets economics.

The study shows that ICT regulation has had a measurable impact on the growth of global ICT markets over the past decade.

The analysis uses econometric modelling to pinpoint the impact of the regulatory and institutional frameworks on the performance of the ICT sector and its contribution to national economies.

It provides policy-makers and regulators with evidence to advance regulatory reform and address the challenges and gaps in current regulatory frameworks for digital services and applications. more>

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TThe US jumps on board the electric vehicle revolution, leaving Australia in the dust

By Jake Whitehead, Dia Adhikari Smith and Thara Philip – The Morrison government on Friday released a plan to reduce carbon emissions from Australia’s road transport sector. Controversially, it ruled out consumer incentives to encourage electric vehicle uptake. The disappointing document is not the electric vehicle jump-start the country sorely needs.

In contrast, the United States has recently gone all-in on electric vehicles. Like leaders in many developed economies, President Joe Biden will offer consumer incentives to encourage uptake of the technology. The nation’s entire government vehicle fleet will also transition to electric vehicles made in the US.

Electric vehicles are crucial to delivering the substantial emissions reductions required to reach net-zero by 2050 – a goal Prime Minister Scott Morrison now says he supports.

It begs the question: when will Australian governments wake up and support the electric vehicle revolution? more>

Finance Is Not the Economy

An economy based increasingly on rent extraction by the few and debt buildup by the many is a feudal model
By Dirk Bezemer and Michael Hudson – Why have economies polarized so sharply since the 1980s, and especially since the 2008 crisis? How did we get so indebted without real wage and living standards rising, while cities, states, and entire nations are falling into default? Only when we answer these questions can we formulate policies to extract ourselves from the current debt crises. There is widespread sentiment that this crisis is fundamental, and that we cannot simply “go back to normal.” But deep confusion remains over the theoretical framework that should guide analysis of the post-bubble economy.

The last quarter century’s macro-monetary management, and the theory and ideology that underpinned it, was lauded by leading macroeconomists asserting that “The State of Macro[economics] is Good” (Blanchard 2008, 1). Oliver Blanchard, Ben Bernanke, Gordon Brown, and others credited their own monetary policies for the remarkably low inflation and stable growth of what they called the “Great Moderation” (Bernanke 2004), and proclaimed the “end of boom and bust,” as Gordon Brown did in 2007. But it was precisely this period from the mid-1980s to 2007 that saw the fastest and most corrosive inflation in real estate, stocks, and bonds since World War II.

Nearly all this asset-price inflation was debt-leveraged. Money and credit were not spent on tangible capital investment to produce goods and non-financial services, and did not raise wage levels. The traditional monetary tautology MV=PT, which excludes assets and their prices, is irrelevant to this process. Current cutting-edge macroeconomic models since the 1980s do not include credit, debt, or a financial sector (King 2012; Sbordone et al. 2010), and are equally unhelpful. They are the models of those who “did not see it coming” (Bezemer 2010, 676).

In this article, we present the building blocks for an alternative. This will be based on our scholarly work over the last few years, standing on the shoulders of such giants as John Stuart Mill, Joseph Schumpeter, and Hyman Minsky. more>

Updates from McKinsey

How capital markets keep us connected
Nasdaq’s 50th anniversary reminds us that markets should be more inclusive, share more information, inspire innovation, and bring the world together.
By Tim Koller – Fifty years ago this February 8, a UNIVAC 1108 mainframe computer blinked on in sleepy Trumbull, Connecticut. Thus was born the National Association of Securities Dealers Automated Quotation system, or Nasdaq, the world’s first all-electronic stock exchange, where securities could be bought and sold online in real time.

Well, almost.

While the network did flash “bids” and “asks” of prices, users could not actually buy or sell through their computers. Instead, dealers sat before individual Nasdaq terminals and made their trades by telephone—as they would for the next 13 years. The Nasdaq came into being not as a platform for execution but as a source of information and innovation to help facilitate trades by participants across distant locations.

In that way, Nasdaq took its cues from the first modern stock market, the Amsterdam Stock Exchange (now known as Euronext). It didn’t convene at a single or set address during its early years, nor did it actually sell stock certificates, at least in present-day terms. Founded in 1602, the Amsterdam Stock Exchange arose initially as a means for people to subscribe to, and then to sell, percentages of Dutch East India Company net profits. The selling and reselling of these interests, in an iterative series of individual, bargained-for trades, aggregated into “the market.” Trades took place wherever merchants happened to meet, at any hour of the day.

As trading proliferated, the imperative for information did, too. Prices weren’t imposed by fiat; they couldn’t be. Why part from your money or your shares if you didn’t believe you would come out ahead in the bargain? Within a few decades of its founding, the Amsterdam Stock Exchange included trades by forward contracts (already well in use in Europe and around the world for commodities transactions), selling securities short and even buying on margin. Investors understood that the value of their trade relied on the probability of future profits, which meant that the advantage tilted to the diligent, the perceptive, and the informed.

Early stock market investors (there were more than a thousand of them, right from the start) were eager to subscribe when the Dutch East India Company “went public” because, as merchants and traders themselves, they could perceive the potential for high returns. It wasn’t unusual for ships sailing back from East India to realize profits of 100-fold. It also wasn’t unusual for profits to be zero; when fleets set out from Amsterdam, Delft, Rotterdam, and Zeeland, all might be lost to weather, pirates, or scurvy. That vessels did manage to travel the thousands of miles and back was a triumph of innovation and risk taking. Pooling investments and sailing multiple times allowed more investors to create wealth. It also helped protect against losing everything in a single, misbegotten voyage. 1

Soon, stock exchanges were forming or emerging out of existing bourses across the Atlantic and Mediterranean. The more people the better. Larger markets meant greater liquidity, the opportunity to sell and resell equity interests to an ever-growing pool of investors. More markets also meant more opportunity to be closer to the action, as shipping, trade, and commerce brought continents and cultures together. more>