Friday, January 1, 2016
China factory slowdown deepens fears over economy; How crony capitalism shackles growth; The real reason for being jobless
1 China factory slowdown deepens fears over economy (Katie Allen in The Guardian) A further slowdown in China’s vast manufacturing sector has intensified worries about the year ahead for the world’s second largest economy.
The latest in a string of downbeat reports from showed that activity at China’s factories cooled in December for the fifth month running, as overseas demand for Chinese goods continued to fall. Against the backdrop of a faltering global economy, turmoil in the country’s stock markets and overcapacity in factories, Chinese economic growth has slowed markedly.
The country’s central bank expects growth in 2015 to be the slowest for a quarter of a century. After growing 7.3% in 2014, the economy is thought to have expanded by 6.9% in 2015 and the central bank has forecast that it may slow further in 2016 to 6.8%.
Friday’s figures showed that the manufacturing sector limped to the end of 2015. The official purchasing managers’ index (PMI) of manufacturing activity edged up to 49.7 in December from 49.6 in November.
There was upbeat news from the housing market, with signs that prices were boosted in December by six interest rate cuts in the year up to November, and by government moves to ease restrictions on homebuying.
Despite the more positive news from the services sector and housing market, economists have focused on the manufacturing sector. They worry that a weak series of PMI survey readings, from the national statistics offices and polls carried out by the private sector, point to GDP growth that is slower than official estimates suggest.
2 How crony capitalism shackles growth (Noah Smith in Gulf News) Economic inequality has skyrocketed in the US during the past few decades. Defenders of the status quo argue that rising inequality is a necessary by-product of economic growth: If we don’t allow people the chance to become extremely rich, they will stop working, investing, saving and starting businesses. A receding tide will then cause all boats to sink.
Critics have responded with the claim that inequality doesn’t help growth but instead hurts it. This view was given ammunition by a number of recent studies, which have found a negative relationship between how much income inequality a country has and how fast it grows.
They show that higher inequality has been associated with lower growth. But as with all correlations, we should be very careful about interpreting this as causation. It might be that countries whose growth slows for any reason tend to experience an increase in inequality, as politically powerful groups stop focusing on expanding the pie and start trying to appropriate more of the pie for themselves.
When poor people have more money, they can afford to invest more in human capital (education and skills) and nutrition. Because these investments have diminishing marginal returns — the first year of schooling matters a lot more than the 20th — every dollar invested by the poor raises national productivity by more than if it gets invested by the rich. In other words, the more resources shoring up a nation’s weak links, the better off that nation will be.
That’s a plausible hypothesis. But there might also be other factors contributing to the correlation between inequality and growth. It could be that there is something out there that causes both high inequality and low growth at the same time.
The obvious candidate for this dark force is crony capitalism. When a country succumbs to cronyism, friends of the rulers are able to appropriate large amounts of wealth for themselves — for example, by being awarded government-protected monopolies over certain markets, as in Russia after the fall of communism.
That will obviously lead to inequality of income and wealth. It will also make the economy inefficient, since money is flowing to unproductive cronies. Cronyism may also reduce growth by allowing the wealthy to exert greater influence on political policy, creating inefficient subsidies for themselves and unfair penalties for their rivals.
3 The real reason for remaining jobless (Ronald Alsop on BBC) As the job market gradually improves, businesses say they aren’t finding enough savvy graduates who can start contributing from day one on the job.
CareerBuilder, the online job search site, surveyed employers in the UK and India this year and found that they believe recent graduates are most lacking in problem-solving skills (60% India, 40% UK), creative thinking (56% India, 39% UK), and interpersonal skills (50% India, 49% UK).
Some studies show a big gap between employer and student perceptions. In a survey by the Association of American Colleges and Universities, students and employers clearly didn’t see eye to eye on how well prepared the students were in oral communication (62% of students versus 28% of employers); working with numbers and statistics (55% versus 28%); teamwork (64% versus 37%); applying knowledge and skills to the real world (59% versus 23%); and analysing and solving complex problems (59% versus 24%).
Is the problem that employers have unrealistic expectations or that universities and students are failing to develop critical skills? A little of both, most workplace experts say.
Some organisations are trying to help young people discern skills they may not realise they can offer employers. YouthNet, a UK charity, has just launched an online tool called Define Me that’s designed to help young people identify job-related skills they have acquired in everyday life experiences such as playing sports, traveling and volunteering, and then find the right words to describe them to potential employers.
Some universities are spurring students to focus very early in their studies on workplace preparation. At Bentley University in Waltham, Massachusetts in the US, freshmen take an introductory career development class and a skills assessment to get a better sense of their aptitudes, as well as weaknesses. Employees of such companies as Fidelity and TJ Maxx visit the class and provide feedback on resumes, elevator pitches and interview skills