Tag Archives: Capital

Renewing America’s economic promise through older industrial cities

By Alan Berube and Cecile Murray – Despite a robust national economy, deep regional divides persist with technology hubs in the coastal states pulling away from the nation’s industrial Heartland. This growing regional inequality poses serious economic, social, and political consequences for the nation.

The middling performance of communities with historically strong manufacturing cores is a key feature of America’s uneven economic growth. These so-called older industrial cities, predominantly located in the Midwest and Northeast, have struggled over time to grow jobs in new sectors and to boost employment and income, particularly for their communities of color.

They range from very large cities like Baltimore and Detroit, to smaller communities like Schenectady, New York, and Terre Haute, Indiana.

With increasing interest in local, state, and national policies to revive the fortunes of struggling communities, older industrial cities represent promising regions for strategic investment and critical centers for promoting inclusive economic growth. more>

The Labor Market Basis For Populism

By Carl Melin and Ann-Therése Enarsson – All over the world, populist parties and movements are growing ever more strongly, and established parties appear to lack effective strategies to combat this.

Changes in the labor market will not have the same impact on all groups. Routine tasks are more vulnerable to automation and we can see that many low-skilled men, often in jobs that have had a relatively high status and income, are more vulnerable than others. But traditional working-class jobs are not the only ones affected, as digitization and the emergence of artificial intelligence (AI) are also affecting many white-collar employees.

The trend of increased populism that we have seen over the last decade mirrors what happened during the Great Depression in the 1930s when such movements seized power in countries such as Germany, Italy and Spain, with the disastrous consequences we all know.

The question is: what can be done to counteract a similar trend.

Even if automation may mean that some people lose out, there is no alternative as the new technology is a precondition for old jobs not simply disappearing, but also being replaced by new ones.

What can be done, however, is to reduce people’s anxieties and the personal cost of these changes. On the-job-training and other forms of education are the most important tools, but security in times of change is also about effective unemployment insurance.

Far too many politicians have chosen to respond to populist parties by adopting their world view. Instead of trying to deal with the concerns that are driving people to these kinds of movements, many politicians have often chosen to confirm and reinforce them. more>

We Need More Social Investment But No More PPPs

By Richard Pond – Europe needs to spend €1.5 trillion on social infrastructure between now and 2030 to redress the massive under-spend over recent years and to address the increasing demands on social services. This is one of the main arguments of the report, Boosting Investment in Social Infrastructure in Europe.

While the report is very good in identifying the scale of the problem, it fails to address some of the key reasons why spending on social infrastructure has been too low for too long and so puts too much emphasis on an increased role for private finance.

There is an alternative view that puts public investment at the center of the solution and this requires an analysis of why the cuts in public investment have been so deep for so long.

It identified three key problems:

  1. The relatively low political cost of downsizing/delaying government investment programs compared to current expenditure programs and subsidies;
  2. An undervaluation of the role of government investment for growth, including its crowding-in effect in times of low growth; and
  3. A set of European and national fiscal sustainability regulations that do not incentivize the prioritization and ring-fencing of capital spending, especially at the sub-national level.

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Reinventing And Humanizing Management: How Agile And Beyond Budgeting Have Converged

By Steve Denning – “What is required in today’s creative economy,” wrote Gary Hamel recently, “is a radical rethink of our top-down, tradition-encrusted management principles and processes. The challenge: building organizations that are as innovative as they are efficient, as passion-filled as they are pragmatic… This is not merely about implementing a new practice, process or structure. Instead, we have to start with a new set of management principles.”

The Agile movement began in software development, while the Beyond Budgeting (BB) movement started from a re-think of budgeting principles. What’s interesting is to see how far these two movements, which had such radically different origins, have steadily converged.

The purpose of the Beyond Budgeting movement is not necessarily to get rid of budgets. The purpose is to create these organizations that are more adaptive, more human, call it more agile. In order to do that, we need to change traditional management.

At the core of traditional management, you find the budgeting process and the budgeting mindset. So the budget is “the elephant in the room.” An organization can never be truly agile unless you also address that mindset, and that process. It is necessary but not sufficient. more>

Updates from Chicago Booth

Why hasn’t technology sped up productivity?
By Chad Syverson – You can think of all productivity measures as ratios of output to input. The most common one you hear about is labor productivity, or output per worker hour.

This is the one that economists have been following the longest, and we have good confidence that we measure it as well as we can. It’s also where technological progress ought to show up: these new technologies ought to let us make great new things without having to put new resources into the production of those things.

Making better things using the same amount of resources, or making the same things using fewer resources, is, in the end, where economic growth comes from. If this phenomenon is taking place, you should see it in the data reflected as productivity growth. The problem is, if you go look for it in the United States, you don’t find it. Productivity growth hasn’t stopped altogether, but since the mid-2000s, the rate of growth has fallen considerably.

These studies typically produce figures in the neighborhood of $100 billion–$200 billion in the US. That’s not pocket change, but it’s nothing compared to the $3 trillion of output that is missing because productivity growth has slowed.

So how worried should you be? If productivity growth stays where it is, you should be worried. We are going to be considerably poorer than we would be otherwise. We already are. Ten years into the slowdown, we’re each already $9,000 poorer per year. more>

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Will China Really Supplant US Economic Hegemony?

By Kenneth Rogoff – True, it is highly unlikely that President Donald Trump’s huffing and puffing and bluffing will bring about a large-scale return of manufacturing jobs to the US. But the US has the potential to expand the size of its manufacturing base anyway, in terms of output if not jobs.

But China’s rapid growth has been driven mostly by technology catch-up and investment. And while China, unlike the Soviet Union, has shown vastly more competence in homegrown innovation – Chinese companies are already leading the way in the next generation of 5G mobile networks – and its cyber-warfare capacity is fully on par with the US, keeping close to the cutting edge is not the same thing as defining it. China’s gains still come largely from adoption of Western technology, and in some cases, appropriation of intellectual property.

In the economy of the twenty-first century, other factors, including rule of law, as well as access to energy, arable land, and clean water may also become increasingly important. China is following its own path and may yet prove that centralized systems can push development further and faster than anyone had imagined, far beyond simply being a growing middle-income country. But China’s global dominance is hardly the predetermined certainty that so many experts seem to assume.

China might lead the digital future if the US drops the ball, but it won’t become the dominant global power simply because it has a larger population. more>

Rentier Capitalism And Basic Income

By Guy Standing – Fostering globalization in the context of the ongoing technological revolution has been favorable for economic growth globally. But governments and international bodies have signally failed to counter adverse distributional outcomes within countries.

Similarly, in advocating labor market flexibility, negligible attention has been given to the widespread economic insecurities this has generated.

Meanwhile, the neo-liberal phase of globalization has evolved into ‘rentier capitalism’, in which more and more income is going to those possessing physical, financial, or so called intellectual property. Rental income has been boosted by increased firm concentration in many economic sectors – epitomized by the rise of ‘superstar firms’ = and by government action, most notably the strengthening of intellectual property rights protection and the growth of the subsidy state, as governments have chosen to compete by throwing subsidies at large corporations and rich individuals. In so doing, they have regressively depleted public budgets.

One term to describe this conventional fiscal policy is pluto-populism, hereby tax cuts and subsidies are concentrated on so-called entrepreneurs and ‘wealth creators’ while state benefits and public services are cut for low-income groups, ostensibly to reduce the budget deficits that result from the fiscal generosity to the rentiers.

Consequently, in most countries, the share of income going to capital has risen sharply and the share going to labor has plunged. Within the share going to capital, the share going to rentiers has risen; within the share going to labor, the share going to higher earners has risen.

If we wish to escape from the regressive economic paradigm, we must nurture a narrative and vocabulary that focuses on emerging socio-economic groups. In that regard, a global class structure has been taking shape, in which the new mass class is the ‘precariat’. more>

Creating Shared Value (CSV)

Operationalizing CSV Beyond The Firm

BOOK REVIEW

How to Fix Capitalism and Unleash a New Wave of Growth, Authors: Michael E. Porter, Mark Kramer.

By Henning Meyer – Under the CSV concept, firms participate in different markets to create social and economic value but Porter and Kramer do not analyse the nature of markets nor do they provide any explanation for how the creation of social value via market mechanisms is necessarily rooted in the social nature of markets themselves.

The standard neoclassical model of transactional markets that are driven by purely rational players is an ideal type in Max Weber’s sense, i.e. an abstract model not to be found in this pure form. Any approach assuming the creation of social value by market mechanisms, however, should provide a deeper understanding of the social nature of markets themselves. This is a crucial backdrop to defining, creating and measuring social value: it is dependent on this context.

On this basis, in a further step, it is vital to develop an understanding of public policy and the government’s role in markets. Public policy’s character is not limited to basic regulation and market-fixing where market mechanisms left to themselves would produce externalities.

Government policy, moreover, aims at market creation and incentive shaping. Understanding the interplay between companies and governments in markets that themselves are social in nature is therefore fundamentally important to understand social value and to move beyond the narrow organzational focus of Porter and Kramer. On this basis, in addition to the three operational dimensions within firms that Porter and Kramer describe, CSV can be more broadly operationalized using a corporate diplomacy approach and the tools of non-market strategy to provide a more holistic and comprehensive view of the CSV process.

There has been significant criticism undermining the academic credibility
of CSV and the way in which Porter and Kramer present their work. In essence, these criticisms refer to the originality of CSV as well as the concept being superficial about a company’s role in society and naïve about the trade-offs between social and economic goals and business compliance.

There is also a question about shared value itself. It is clear what the economic value part of shared value is: a better bottom line for corporations. But beyond the obvious win-win situations, what is social value and how does one define and measure it?

What are the trade-offs involved? (pdf) more>

Rational Irrational Exuberance?

By Andrés Velasco – The timing was exquisitely ironic: equity markets peaked – and a week later began crashing – just as pundits left this year’s World Economic Forum meeting in Davos, where they concluded that the global economy was on a steady upswing. In the weeks since, experts have divided into two camps.

Some, including new US Federal Reserve Board chairman Jerome Powell, believe that economic fundamentals are strong, and that what stock markets experienced in early February was only a temporary hiccup.

Then there are those who believe that fundamentals are in fact weak, that the current upswing will prove unsustainable, and that investors should regard stock-market gyrations as a necessary wakeup call.

Both schools of thought share a focus on fundamentals, unlike a third – and, in my opinion, highly plausible – view: that the asset-price volatility we have been seeing has little or nothing to do with changes in fundamentals.

The human brain is wired to structure knowledge around narratives in which we can tell if and how A (and B and C) causes X. We tend to be uncomfortable with the notion that an economy’s fundamentals do not determine its asset prices, so we look for causal links between the two. But needing or wanting those links does not make them valid or true. more>

Three Cheers for Financial Repression

By Tom Streithorst – “Financial repression.” It sounds terrifying, right? It smacks of authoritarian bureaucrats sucking the life-blood out of hard-working, innovative makers and doers.

Umm, no. That’s not even close. It’s about bondholders. Economists started using the term in the 1970s when bondholders were losing money because inflation exceeded the interest rate.

These days, it’s market forces more than government policy that push real interest rates below zero. Whether you call it a savings glut or secular stagnation, our collective desire to save far exceeds our collective desire to invest. Savers want safe assets more than borrowers want to invest in productive capacity.

Don’t cry for the rentier class. For the past forty years (ever since Federal Reserve Chairman Paul Volcker manufactured a brutal recession in order to eliminate 1970s inflation) economic policymakers have concentrated on ensuring the profitability of the bond market more than just about anything else. They focused their attention on financial stability and low inflation rather than the traditional goal of promoting full employment.

Consequently, the financial sector has quadrupled in size relative to the rest of the economy, the rich absorb most of the benefits of growth, and workers’ real wages have stagnated or even declined. Financialization has made wealthholders richer than ever, but it hasn’t done much for the rest of us.

What is good for the bankers has not been good for the economy as a whole. more>