Economy is recovering, pay isn't; Strikes roil South Africa economy; India, Pakistan and the economic theory of democracy

1 Economy is recovering, pay isn’t (Andrew S Ross in San Francisco Chronicle) You're going to have to be patient. Very patient. The wage "stagnation" workers are experiencing even as the economy and job numbers continue to improve is going to last considerably longer than expected, according to economists at the Federal Reserve Bank of San Francisco.

That wage increases come to a complete halt during recessions and don't recover immediately after is not unusual. But this time, the freeze and the decline in the real value of wages is "more pronounced than the pattern observed in past recessions. The economy has been recovering for four years and unemployment has declined considerably, but wage growth has continued to slow.

The upside: Could that be one of the reasons export manufacturing has been doing so well lately - its best in 50 years as a share of the US economy? Yes, according to the Boston Consulting Group, which says the declining "cost of labor" is a key driver in America's new global competitiveness. Companies like Toyota, Siemens and Rolls Royce, are locating export manufacturing facilities here. The good news for US workers: The shift will create up to 5 million new factory and service jobs here in the next few years, according to the BCG report.

So, what makes the US labor market "more attractive than that of all other major manufacturers among the developed economies"? Labor costs, factoring in productivity, are far lower; the US market has greater "flexibility" (i.e., less regulation); and it is "far easier and less costly to adjust the size of the workforce in response to business conditions."

2 Strikes roil South Africa economy (Robert Nicolai in Johannesburg Times) Sadly, our (South Africa’s) unions were years ago trained by then powerful and equally destructive British unions and are using irresponsible and destructive strike models. The picture is created that the union bosses do not suffer the dire consequences they create time and again for members who follow blindly. They still receive their salaries and drive the luxurious cars paid for by membership fees.

Admittedly, companies have in the past been too keen to pay out obscene amounts in bonuses to their directors and CEOs. But why did the unions not engage in a constructive manner to have caps and controls to curb this irresponsible practice?

Workers and unions should realise that when the mines, factories and the airlines become uneconomical, eventually the "economic tree" they have been sitting on will collapse, and nobody will have gained anything. (Erwin Schwentzek, by e-mail)

The biggest strike threats in three years are upon us. I want to point out to the unions that the world's economic growth has slumped since 2010, and the gold price has fallen from $1980 to about $1390. Protesting for a 60% to 130% pay increase will not help prices recover. Automobile workers know that automation and robotic assembly lines may be a large investment to make, but going on strike for above-inflation increases will make this seem like the only viable option.

3 India, Pakistan and the economic theory of democracy (Anjum Altaf in Dawn) A Seminal book of the 20th century, at least for academics, was An Economic Theory of Democracy, published in 1957. In it, Anthony Downs applied economic theory to the study of politics and, among other things, inferred what a rational government would do given its incentives. At its simplest, the theory claims that a government aims to stay in power and therefore, if it is democratic, adapts its policies and actions to appeal to a majority of the electorate.

In India, electoral strategy demands the amelioration of some constituency at the very least. Governments could guess wrong (as with the Shining India strategy) but none could afford to ignore all the constituents all the time. The complete apathy towards citizen needs in Pakistan is plausible in this perspective. A victim is the democratic process itself. Unlike in India, the real opposition is no longer represented by alternate political parties but increasingly by groups that reject the worldview of electoral politics altogether.

In exploring the fundamental divide in the politics of India and Pakistan, I often think back to the 300 years of the Mughal Empire. Half this period was dominated by the six Great Mughals whom everyone recognises. The other half was populated by dozens of emperors most of whom few can recall. This was the period dominated by behind-the-scene king-makers who shuffled puppet emperors at will, retaining them only for the legitimacy they conferred.

This could explain how democratic India and Pakistan both remain overwhelmingly dynastic and yet on different political trajectories. I am tempted to conclude that Indian politics is a continuation of the first half of the Mughal Empire while Pakistani politics resembles more the second — the rule of kings versus that of king-makers.

Of course, in the age of democracy kings don’t rule till they die or are deposed — they can take turns in office. From the viewpoint of incentives it makes a huge behavioral difference if a leader knows he has to remain at home when out of power as opposed to one prepared to flee abroad to seek a patron. These contrasting imperatives, incentives, and strategies have led to divergent political trajectories in Pakistan and India and thereby to the different fate of their citizens — the one ignored, the other appeased.