Monday, March 31, 2014

Eurozone inflation falls to 0.5%; Who the job creators really are; Capitalism making way for the age of free

1 Eurozone inflation falls to 0.5% (BBC) Inflation in the euro area fell to 0.5% in March, down from 0.7% in February and its lowest rate since November 2009. The Eurostat estimate puts the inflation rate well below the European Central Bank target of just below 2%. The figure is lower than the 0.6% rate expected by analysts.  The lower-than-expected rate may reinforce concerns that the 18-nation eurozone risks a damaging period of deflation. It is the sixth consecutive month that the rate of inflation has been below 1%. 

And analysts believe that the sharp drop in the inflation rate could prompt the European Central Bank (ECB) to take action this Thursday. At its last meeting, which took place earlier this month, the central bank left interest rates on hold at 0.25% and took no new measures to bolster the eurozone's fragile recovery. Analysts have suggested the ECB could cut interest rates even further or buy bonds in a similar manner to the US Federal Reserve. On Friday, figures from Spain showed that prices in the country fell 0.2% in March compared with a year earlier.

2 Who the job creators really are (Jared Bernstein in The New York Times) If you want to protect someone in Washington, call them a “job creator.” Such wonderful, rare creatures must be insulated from taxes, regulation, and especially unfriendly rhetoric. But it’s not clear who the job creators really are. Of course they’re employers who hire people. But they’re not hiring people to save America. They’re doing so because if they didn’t, they wouldn’t be able to meet the demand for the goods or services they produce, and they’d be leaving profit on the table to be scooped up by a competitor.

In this framing, as venture capitalist Nick Hanauer stresses, the job creator is the consumer or investor. They are the ones, by dint of their extra spending, who incentivize the employer to hire someone. What about when many consumers are temporarily out of the picture, as in a sharp recession? Then the government and the Federal Reserve need to step in and boost consumer demand with fiscal and monetary stimulus, making them the job creators.

One can continue to peel the onion in revealing ways here. You know what’s been the biggest job creator over the last few decades? Financial bubbles. The labor demand created by the dot-com bubble in the 1990s and the housing bubble of the 2000s created millions of jobs and sent the unemployment rate below 5 percent in both cases. 

Globalization is in play: Multinationals don’t depend on healthy American consumers. Productivity is often cited as a factor in play here, as well, suggesting that firms are squeezing more work out of fewer workers, while automation is increasingly displacing more jobs. But while productivity has increased in this expansion, it hasn’t accelerated in ways that would support this explanation; in fact, it has decelerated.

Here’s what I think is happening.  Profits equal revenues minus costs, and labor is a cost. Maximizing profits means minimizing costs, and when labor’s bargaining power is as weak as it’s been in recent years, that’s not hard to do. Revenues, or companies’ earnings, haven’t been particularly strong, and this too implies that squeezing labor costs has been the key factor driving profitability.

First, we must think broadly about job creators and discount simple links between profits and jobs. If booming share prices and corporate profits lifted the poor and middle class, believe me, we’d know it by now. Second, we should be equally skeptical of arguments about the job-killing impact of taxing and regulating. We should not beggar our fiscal accounts or our environment to protect phantom job creators. Third, we must pursue policies that increase the bargaining power of those who depend on paychecks as opposed to portfolios. There is of course nothing wrong, and a lot right, with robust profits. It’s when that is all there is that we have a big problem.

3 Capitalism making way for the age of free (Jeremy Rifkin in The  Guardian) In a capitalist market, governed by the invisible hand of supply and demand, sellers are constantly searching for new technologies to increase productivity, allowing them to reduce the costs of producing their goods and services so they can sell them cheaper than their competitors, win over consumers and secure sufficient profit for their investors.

Marx never asked what might happen if intense global competition in the future forced entrepreneurs to introduce ever more efficient technologies, accelerating productivity to the point where the marginal cost of production approached zero, making goods and services "priceless" and potentially free, putting an end to profit and rendering the market exchange economy obsolete. But that's now beginning to happen.

Over the past decade millions of consumers have become prosumers, producing and sharing music, videos, news, and knowledge at near-zero marginal cost and nearly for free, shrinking revenues in the music, newspaper and book-publishing industries. Lawrence Summers, former US treasury secretary, and J Bradford DeLong, professor of economics at the University of California, Berkeley, have focused on the new communication technologies that are already reducing the marginal (per-unit) cost of producing and sending information goods to near zero.

While the notion of near-zero marginal cost raised a small flurry of attention 12 years ago, as its effects began to be felt in the music and entertainment industry and newspaper and publishing fields, the consensus was that it would likely be restricted to information goods, with limited effects on the rest of the economy. This is no longer the case.

Now the zero-marginal cost revolution is beginning to affect other commercial sectors. Summers and DeLong glimpsed that as marginal costs approach zero, "the competitive paradigm cannot be fully appropriate" for organising commercial life, but admitted "we do not yet know what the right replacement paradigm will be". Now we know. A new economic paradigm – the collaborative commons – has leaped onto the world stage as a powerful challenger to the capitalist market.

An increasingly streamlined and savvy capitalist system will continue to operate at the edges of the new economy, finding sufficient vulnerabilities to exploit, primarily as an aggregator of network services and solutions, allowing it to flourish as a powerful niche player. But it will no longer reign. Hundreds of millions of people are already transferring bits and pieces of their lives from capitalist markets to the emerging global collaborative commons, operating on a ubiquitous internet-of-things platform. The great economic paradigm shift has begun.

Sunday, March 30, 2014

Global growth faces risks; China's political gamble of the century; Climate change impacts 'overwhelming'

1 Global growth faces risks (Khaleej Times) Known unknowns are multiplying in a new threat to global economic expansion. While economists Mohamed El Erian of Allianz, Allen Sinai of Decision Economics and Morgan Stanley’s Joachim Fels see growth speeding up this year, mounting geopolitical strains in Ukraine and elsewhere are prompting them to turn more guarded about the outlook. Sinai sees a 10 per cent chance of a global recession triggered by escalating tensions between Russia and the US and Europe over Ukraine.
The crisis in Crimea isn’t the only concern financial markets must grapple with. On the lengthy list of what former US Defence Secretary Donald Rumsfeld dubbed “known unknowns” are elections in some emerging markets starting with Turkey on March 30, the Syrian civil war and negotiations over Iran’s nuclear programme, which could be complicated by the US-Russia standoff in eastern Europe. Global investors are on the alert. The share of cash in their portfolios is the highest since July 2012, according to a survey by Bank of America Merrill Lynch.
Russia has consolidated control over Crimea and the confrontation between Moscow and Washington is the most serious since the Soviet Union collapsed more than two decades ago. “It raises an unknown,” said Russ Koesterich, chief investment strategist at New York-based BlackRock, which manages $4.3 trillion in assets. “This may be a longer-term issue that doesn’t significantly resolve itself in the next two to three months.” Citigroup’s Ebrahim Rahbari and colleagues said in a report that "A major crisis in Russia could impart a substantial negative impulse to the euro-area growth.”

2 China's political gamble of the century (Timothy Garton Ash in The Guardian) Xi Jinping is trying to turn China into an advanced economy and three-dimensional superpower, drawing on the energies of capitalism, patriotism and Chinese traditions, yet all still under the control of what remains, at its core, a Leninist party-state. He may be a Chinese emperor but he is also a Leninist emperor. This is the most surprising and important political experiment on the face of the earth. No one in the 20th century expected it. No one in the 21st will be unaffected by its success or failure.

Back in 1989, as communism was trembling in Warsaw, Berlin, Moscow and Beijing, who would have predicted that 25 years later we would be poring over the 60-point Decision of the 3rd Plenum of the 18th Party Congress, so as to understand exactly how the party leadership proposed to keep China both economically growing and politically under control?

You may exclaim, Beijing in 2014 is light years away from Moscow in 1974, let alone 1934! Of course you are right. For every bit of the old there is a byte of the new. My point is not for a moment that there is nothing new under the Chinese sun. On the contrary, there is a fizzling cocktail of new and old. My point is that we should not lose sight of the old inside the new, and imagine that the politbureaucratic language of a 3rd Plenum is purely formalistic. Wherever you turn, whether in the factory, the newspaper, the farm or the university, the party secretary retains a decisive voice. There are Communist party committees or cells inside private companies, including foreign-owned ones.

Since the next few years are crunch time for the Chinese economy, the Chinese question is now sharply posed. It is no longer: could evolutionary political reform, gradually increasing transparency, constitutional-type balances, freedom of expression and civil society dynamism be used to complement and reinforce economic reform? Rather it is: can a reinvigorated party-state, harnessing in unprecedented fashion the energies of capitalism, patriotism and older Chinese traditions, succeed in mastering the ever more difficult challenges of continuing modernisation?

And the answer is? Within the space of a few hours, I spoke to two of the most experienced foreign correspondents in China, both of them formidably well informed. Their diagnosis of the problems was almost identical, and their predictions spectacularly different. One thinks the party can still keep the show on the road, with skilful management of state-led development. The other foresees economic meltdown, social revolt and political upheaval. In short, nobody knows. But at least we should be clear about the question.

3 Climate change impacts 'overwhelming' (BBC) Scientists and officials meeting in Japan have published the most comprehensive assessment to date of the impacts of climate change on the world. Members of the UN's climate panel say that their report provides overwhelming evidence of the scale of these effects. Natural systems are bearing the brunt right now but the scientists fear a growing impact on humans.

Our health, homes, food and safety are all likely to be threatened by rising temperatures, the summary says. Be it the melting of glaciers or warming of permafrost, the summary highlights the fact that on all continents and across the oceans, changes in the climate have caused impacts on natural and human systems in recent decades. In the words of the report, "increasing magnitudes of warming increase the likelihood of severe, pervasive and irreversible impacts".

Michel Jarraud, secretary-general of the World Meteorological Organization, said that, previously, people could have damaged the Earth's climate out of "ignorance". He added, "Now, ignorance is no longer a good excuse". Animals, plants and other species will begin to move towards higher ground or towards the poles as the mercury rises. Humans, though, are also increasingly affected as the century goes on.

Friday, March 28, 2014

Blackberry posts $5.9bn loss; Facebook buys UK drone firm; India's C curse

1 Blackberry posts $5.9bn loss (BBC) Troubled smartphone maker Blackberry has reported a net loss of $5.9bn for its latest financial year. However, in the three months to 1 March it recorded a smaller-than-expected loss of $423m, compared with a loss of $4.4bn in the previous quarter. The company said it was pleased with its fourth quarter performance, and that it was on "a path to returning to growth and profitability". Boss John Chen said the firm was moving to a "sounder financial footing".

Blackberry devices have recently lost out in the high-end smartphone market to Apple's iPhone and phones powered by Google Android operating system. As part of its turnaround plan the firm is focusing on its services arm, and is also putting renewed emphasis on its keyboard devices. Mr Chen was appointed as interim chief executive in November 2013. "The guy is on the move fast," said Colin Gillis, an analyst at BGC Partners. "He can control expenses but you can't magically make revenue happen."

2 Facebook buys UK drone firm (Juliette Garside in The Guardian) Facebook has bought a Somerset-based designer of solar-powered drones for $20m as it goes head-to-head with Google in a high-altitude race to connect the world's most remote locations to the internet. Mark Zuckerberg, Facebook's chief executive, has unveiled plans to beam broadband connections from the skies, using satellites, lasers and unmanned high-altitude aircraft designed by the 51-year old British engineer Andrew Cox.

Facebook is building its Connectivity Lab as a direct challenge to Google's Project Loon, which is launching high-altitude balloons over New Zealand and hopes to establish an uninterrupted internet signal around the 40th parallel of the Earth's southern hemisphere. The race to put the first man on the moon was led by the US and Russian governments, but today it is private companies – the cash-rich digital corporations of Silicon Valley – that are driving the sub-space race. The ambition is to connect the billions of people who currently have no access to the world wide web.

"Our team is actively working on building our first aircraft now," Zuckerberg said. "Key members from Ascenta, whose founders created early versions of Zephyr, which became the world's longest flying solar-powered unmanned aircraft, will be joining our Connectivity Lab to work on these aircraft. We expect to have an initial version of this system working in the near future." With 1.3 billion users, Facebook has already reached a large number of the estimated 3 billion people who use the internet. Connecting the other 4 billion will hugely expand its potential user base.

In what the website describes as "one of the greatest challenges of our generation", engineers are trying to solve the problem of beaming fast, responsive internet signals to and from the Earth's surface from heights of 20,000 metres. Facebook is exploring the potential of two types of craft – satellites, which could be used in remote rural locations from the Highlands of Scotland to the Amazon basin, and drones, which would fly over suburban areas.

Just 16% of Africa's population used the internet last year, compared with 75% in Europe, but the drones and balloons being sent into space could soon bring it to areas where individuals do not yet have electricity or computers. Even in areas where there are no masts, however, the mobile phone is nearly ubiquitous. One in five people already own a smartphone.

3 India's C curse (N Janardhan in Khaleej Times) India’s chaotic political, social and economic system is a victim of the C malaise — corruption, casteism, communalism, Congress, communism, crime, consumerism, Central Bureau of Investigation, crass capitalism (now, crony capitalism), and ‘chamchagiri’ (favouritism and nepotism) among others!

An old joke is that India grows when the government sleeps! The only saviour in recent years, ironically, is another C — courts, the Supreme Court in particular, which has served as the conscience of the nation. The worst of the Cs is corruption. A Lowy Institute poll in late 2013 revealed that 96 per cent Indians felt that graft is the biggest factor holding back the country. This links with another C — the Congress party. Time magazine in mid-2011 rated India’s telecom licence scandal second in the “Top 10 abuses of power” list, after the 1974 Watergate scandal in the US.

Moving on to a third C, it is time to initiate a debate on whether corruption or communalism has been the bigger threat. For those arguing that communalism undermines the constitution, the counter-argument is: Does the constitution sanctify corruption? What alternatives lie before us? Communism? Sadly, the greatest contribution of leftist ideology in India has been its intellectual and rhetorical input to political and secularism values and debates, and, sometimes, to the cerebral world of media and academia. Even communists have been remained untouched by capitalism and corruption, which was evidenced when a member of parliament from Tripura was found lying on a bed of currency notes in 2013.

Citizens, not just the government and the corporate sector, are equally culpable. For decades, the politically knowledgeable but indifferent middle class ranted and raved but did not vote. The youth particularly kept anything political at an arm’s length. But this is beginning to change. Consistent improvements in voter turnouts indicate that Indian democracy is reinventing and adjusting itself to changing times. The middle class, youth and even the rural masses are stating their preferences and claiming their due.

Historian and author Ramachandra Guha said a few years ago that he desired a political dispensation with the Congress but without the Gandhis, and the BJP without the Sangh Parivar. The new developments include the Anna Hazare anti-corruption movement and Arvind Kejriwal’s Aam Aadmi Party (AAP) that has captured the imagination of people, especially in the urban areas. The AAP — notwithstanding the 49 days of turbulence in Delhi — could still evolve into a viable alternative after the election and serve as an antidote to some of India’s C curses.

Thursday, March 27, 2014

Is IMF Mr Nice or Nasty in Ukraine issue?; China at the crossroads; PCs to lose more ground to tablets; The rise and rise of selfies

1 Is IMF Mr Nice or Nasty in Ukraine issue? (Robert Peston on BBC) Is tough love from the West the right economic prescription for Ukraine, as the Russian bear consumes the Crimea and appears to be salivating over the prospect of consuming rather more of that turbulent country? Or should the International Monetary Fund and other sovereign creditors be a little less insistent that Ukrainians should put on hairshirts as a condition of receiving vital official loans?

The IMF has announced it will provide between $14bn and $18bn over two years, and believes another $10bn or so will be "unlocked" from other international financial organisations and rich countries (such as the EU and Japan). The provision of new credit is vital. Without it, Ukraine risks not being able to service its external debts in the coming year, of defaulting, and of running out of reserves to pay for imports.

That way lies penury, for a country whose economy has been limp for years. Against that background, the IMF's imposed reforms are the conventional remedy. The status quo is the road to ruin. But as ever the debate is all about the sensible pace for the acquisition of economic prudence and fiscal rectitude. Now on this, the IMF's actions and statement are somewhat ambiguous (ahem).

On the one hand, the Ukrainian government yesterday said it would be whacking up the gas price paid by consumers by an eye-watering 50%, citing the looming agreement with the IMF as cause. On the other, the IMF insists that government spending cuts and tax increases will be "proceeding at a pace commensurate with the speed of economic recovery and protecting the vulnerable".

What does that mean in terms of numbers? Well the IMF wants the fiscal deficit - the gap between government revenues and expenditure - to be halved (more or less) to 2.5% by 2016. Which is slower retrenchment than planned in the UK. So is this an occasion, where the West and its official financial institutions, could and should be a little more conspicuously generous - such that they should offer the Ukrainians more carrot, especially since there is little appetite to brandish an intimidating stick against the Russians?

2 China at the cross roads (Max Mason in Sydney Morning Herald) The rebalancing of China's economy will not be without its hiccups, but debate is rampant about whether the easing of growth will result in a soft-landing or a fall off the cliff face. Should China manage the transition successfully, the benefits for its citizens and the rest of the world will be ample. The repercussions, should it fail, are dire.

''On the monetary side, we believe the PBoC needs to send a stronger signal of policy easing. We believe a reserve requirement ratio cut of 50 basis points in the second quarter and another 50 basis point cut in the third quarter are likely. The probability of an interest rate cut is rising as well, although it is not yet part of our base case,'' Nomura research analyst Zhiwei Zhang said. The country has transformed itself from a nation of farmers into the world's second largest economy, largely through the manufacturing of goods for the developed world.

But following years of economic expansion, the Chinese government faces a difficult crossroads. Having developed to the point where GDP per capita places it in the middle of the World Bank's measurement for a middle-income nation, China is facing the task of shifting its economy from being the world's factory to one of domestic consumption.

''On the fiscal front, we believe fiscal spending will increase, so on a monthly basis the actual central government fiscal deficit may widen,'' Mr Zhang said. ''In the housing market, policies may loosen in de facto terms. The central government has decided to give local governments more freedom to choose housing policies that are appropriate for local circumstances. This will likely lead to policy easing, as local governments are under pressure to boost local housing markets.''

3 PCs to lose more ground to tablets (Sydney Morning Herald)  Sales of traditional computers will lose more ground in 2014 to tablets and other mobile devices, a market tracker says. The overall market for connected devices – PCs, smartphones and tablets – is likely to grow 6.9 per cent to nearly 2.5 billion devices in 2014, according to a report by research firm Gartner. More people will dump their PCs for other devices, but the drop in PC sales will moderate to about 6.6 per cent this year, with unit sales of 276 million.

Some surveys showed a drop of about 10 per cent in PC sales last year. The global tablet market is expected to grow 38.6 per cent, Gartner said. Total tablet sales will nearly equal that of PCs at 270 million, the firm said. Mobile phones, the largest segment, is seen as growing 4.9 per cent to 1.9 billion units – led by "the lower end of the premium phone market and the higher end of the basic phone market," Gartner said.

The Google Android platform is expected to extend its lead in overall devices, with more than 1.1 billion units in 2014, mostly in mobile phones. Microsoft Windows will remain the number two platform with 339 million devices and Apple's iOS and Mac OS will remain third with 286 million devices, Gartner said.

4 The rise and rise of selfies (Khaleej Times) One of the first teen selfies was taken by the Grand Duchess Anastasia Nikolaevna of Russia using a mirror and a Kodak Brownie box camera in 1914. A hundred years later, selfies — the pictures of self or a group — are all the rage thanks to smartphones. What raises serious concerns now is when selfies become an obsession, especially with teenagers who just can’t seem to get that “right selfie”! It just might be that selfies are becoming as damaging as doctors have been warning. 

It is time we say it is not okay to have kids spend large parts of their day with their cellphones, posting group pictures with friends. When a teenager tries to kill himself because he could not manage a “perfect” selfie, it is time for the alarm bells to ring and tell them it’s time to come back to real life. Danny Bowman could be anyone’s college-going teenager, having fun with friends and hanging out with them. Instead, he is in hospital in the United Kingdom, all because he did not find a single acceptable selfie from the almost 200 that he took every day. 

It is a case of technology addiction and body dysmorphic disorder. “I was constantly in search of taking the perfect selfie and when I realised I couldn’t I wanted to die,” he said recently, recalling instances of people making rude comments about the size of his nose or the state of his skin, when he first started posting selfies at the age of 15. The medical fraternit is cautioning people about what could be a wave of people harming themselves over their selfies. David Veal, a doctor whose clinic weaned Danny off his iPhone, said "This is a serious problem. It’s not a vanity issue. It’s a mental health one, which has an extremely high suicide rate.”