China’s “miracle economy” and its impact on world poverty

china-street-market
rural Chinese street market

Perhaps many of my associates have been waiting patiently for frontier markets equity funds to produce some positive returns. Frontier markets number some 63 nations that are so latently emergent that they are not classified as “emerging”, the more common satellite asset class in advisor portfolios. So what is the prospect that we will see some progress by them? Part of the issue is the continuing divide; even antagonism between the economically developed world and the global frontier economies. Critics decry “neoliberal” policies demanded by the US and European dominated World Bank and the International Monetary Fund that steer emergent economies away from socialism. The US and European dominated World Bank and International Monetary Fund, for instance may demand the privatization of state-owned infrastructure such as railroads in exchange for credit. These policies, critics argue do more to open developing economies to predatory multinational corporations than strengthening these economies. This fosters dependence on the developed world economies and do little to foster development; the key element in frontier markets returns.

Mark Weisbrot, Co-Director of the Center for Economic and Policy Research takes issue with President Obama’s assertion at the UN yesterday that “globalization” is responsible for a substantial reduction in world poverty. Inadvertently, Weisbrot argues, the President gave high marks to the Chinese economic miracle and its patient transition from a planned (sometimes called “command”) economy to an economy of mixed socialism and capitalism. Weisbrot observes that most of the 1.1B people who have moved out of extreme poverty in the last 25 years live in China. Weisbrot argues that the Chinese economy is hardly the poster-child of “open markets”; the “way forward, not backward” in Obama’s words. China has also had a great impact on other frontier economies through liberal trade with these markets; increasing their share of frontier markets exports  from less than .1% in 1980 to more than 3% in 2010. China, Weisbrot observes has also “provided hundreds of billions of dollars in investment, loans, and aid to low- and middle-income countries in the 21st century”. Weisbrot does not support the Trans Pacific Partnership; the 11 country trade deal that has become a signature policy of Obama’s.

The myth of the young, jobless gamer?

video-gamer-devolutionHave young men abandoned dead end, minimum wage jobs for their old room and hours of cheap video gaming fun? Dean Baker at the Center for Economic and Policy Research does not deny the trend but believes they are the victims; not the perpetrators of this phenomenon.

Baker’s weekly blog, “Beat the Press” tells us that the non-peer reviewed theory, reported in the Washington Post does not hold up very well because it does not explain the declining labor force participation by women and also older men. Baker believes that slack demand is responsible for this spurning of work. The slackness is in young non-college educated men who have retreated to (or remain entrenched) in their parents’ home, blissfully whiling away the hours gaming according to the WaPo.  Baker blames the balanced budget hawks who have imposed economic austerity on the country. He implies that that the 18-24 year old men are spurning low wage, low reward jobs if they can and are, in fact happier as a result. Keep in mind that the current Federal Minimum Wage is $7.25 / hour. This wage is probably not enough for a single young man to live independently upon; at least not like a Spartan. The Washington Post article implies that this, well call them millennials, are layabouts who can have more fun on their parent’s couch.

As I reflect upon my own struggle to find work without my degree, I realize that I did not live independently but I shared a house with peers. Even in this arrangement, I had assistance on occasion from my parents and financial student aid.  The first job I had that could sustain me as a single man required me to work very long hours on a low salary and with big responsibilities. It had nothing to do with what I studied in college. I was lucky to find an industrial job (mining copper) with union scale wages and benefits. Again, I was working alongside of workers who had no college education at all. I like to hold responsible the fact that 1975, the year I graduated from college was the peak of the worst US recession since the Great Depression and entry-level college education jobs were not plentiful. It was not until nearly 10 years after I graduated that I found my first job based upon my education.

It remains to be seen if Hillary Clinton is elected and is successful in raising the Federal minimum to $15/hour will these “lazy young millennials” then answer the call to low reward jobs that do pay a living wage.

Paid sick leave mostly a “win” for business

"The Sick Child" -Gabriel Metsu
“The Sick Child” -Gabriel Metsu

The Center for Economic and Policy Research (CEPR) has once again scooped the major dailies with this story about a study that was conducted of 352 New York City businesses of five or more employees. All of these businesses are subject to a new New York City ordinance requiring employers to provide paid sick time for their employees. The study found that only 14% of those businesses reported an increase in costs and 98% reported there was no abuse of the policy.