Monday, February 8, 2016

What is holding back the world economy; Bad debt worries South Africa; How social media is transforming the fashion industry

1 What is holding back the world economy (Joseph Stiglitz in The Guardian) Seven years after the global financial crisis erupted in 2008, the world economy continued to stumble in 2015. According to the United Nations’ report World Economic Situation and Prospects 2016, the average growth rate in developed economies has declined by more than 54% since the crisis. An estimated 44 million people are unemployed in developed countries, about 12 million more than in 2007, while inflation has reached its lowest level since the crisis.

More worryingly, advanced countries’ growth rates have also become more volatile. This is surprising, because, as developed economies with fully open capital accounts, they should have benefited from the free flow of capital and international risk sharing – and thus experienced little macroeconomic volatility. Furthermore, social transfers, including unemployment benefits, should have allowed households to stabilise their consumption.

But the dominant policies during the post-crisis period – fiscal retrenchment and quantitative easing (QE) by major central banks – have offered little support to stimulate household consumption, investment, and growth. On the contrary, they have tended to make matters worse.

Neither monetary policy nor the financial sector is doing what it’s supposed to do. It appears that the flood of liquidity has disproportionately gone towards creating financial wealth and inflating asset bubbles, rather than strengthening the real economy. Despite sharp declines in equity prices worldwide, market capitalization as a share of world GDP remains high. The risk of another financial crisis cannot be ignored.

There are other policies that hold out the promise of restoring sustainable and inclusive growth. These begin with rewriting the rules of the market economy to ensure greater equality, more long-term thinking, and reining in the financial market with effective regulation and appropriate incentive structures.

But large increases in public investment in infrastructure, education, and technology will also be needed. These will have to be financed, at least in part, by the imposition of environmental taxes, including carbon taxes, and taxes on the monopoly and other rents that have become pervasive in the market economy – and contribute enormously to inequality and slow growth.

2 Bad debt worries South Africa cities (Shenaaz Jamal & Penwell Dlamini in Johannesburg Times) South Africa's low economic growth is squeezing the life out of municipalities as ratepayers fail to pay for council services.

In Gauteng, which boasts higher job opportunities, the three metros have about R30-billion of irrecoverable debt. Although Ekurhuleni, Tshwane and Johannesburg got unqualified audit opinions, the a uditor-general expressed concern about the money he considers irrecoverable.

This is debt the cities are unlikely to recover and has been on the books for more than one year. A City of Johannesburg source said its irrecoverable debt is about R17-billion. Its capital budget for 2014-15 is R10.8-billion. For Ekurhuleni, which received a clean audit, the auditor-general identified R9.1-billion of irrecoverable debt. The metro's budget is R3.9-billion. Tshwane had a capital budget of R4.1-billion and irrecoverable debt of R800-million.

SA Local Government Association's Nhlanhla Ngidi said: "Once you alleviate the poverty levels in your supply area, a lot of people will be able to pay their bills. In a place where you have people who can afford to pay and choose not to, when you cut their energy, they find a way to [pay]. But, if you cut energy of a person who cannot afford to pay, they will connect illegally."

3 How social media is transforming fashion industry (Katie Hope on BBC) When Brooklyn Beckham revealed on his Instagram feed that he would be photographing Burberry's latest fragrance ad campaign, the outrage was palpable. Commentators rushed to criticise the fashion house's choice of the 16-year-old son of David and Victoria Beckham for the shoot, instead of an established industry professional.

But Burberry boss Christopher Bailey suggested it might have been Brooklyn's 5.9 million Instagram followers, rather than his parents, that got him the gig. This is the new reality: the choice of Brooklyn as photographer was less about how well-connected famous people can get their kids into competitive professions than a reflection of just how much social media has shaken up the fashion industry.

It's now the number of followers on Instagram, Pinterest, Facebook and Twitter, rather than your experience necessarily, that can secure you a top job. The influence of social media has rapidly changed how models are chosen. Kendall Jenner, who shot to fame thanks to the Keeping Up with the Kardashians reality TV show, has been dubbed the "ultimate Instagirl" for her huge social media fan base: 48 million followers on Instagram and 15.3 million on Twitter.

Behind-the-scenes pictures and videos shared on its Instagram and Snapchat feeds of the Brooklyn shoot had some 15 million impressions in the eight hours the shoot was live. The fashion retailer has nearly 40 million followers across 20 different social media platforms and openly admits that it has become as much a media content producer as a design company.

Yet not all the big fashion houses have embraced social media due to concerns over the potential loss of control over their brand image. This may be a risky approach, however. Online sales in 2014 accounted for just 6% of the $250bn global market for luxury goods, but they're growing at a much faster rate than shop sales, according to management consultancy McKinsey.

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