Professional Documents
Culture Documents
Securing Livelihoods EIU
Securing Livelihoods EIU
SECU R I N G LIVE LI H O O DS
Reprinted from The Economist in 2014
In this issue:
Long-term living standards
Crises and their impact
Technology and jobs
Pensions
Migration and climate change
Contents
Reprinted from The Economist - 2014
20 Pensions
In this issue:
Falling short
Long-term living standards
22 Working women Crises and their impact
3
Livelihoods: The big picture
Reprinted from The Economist - 2014
4
Livelihoods: The big picture
Reprinted from The Economist - 2014
was a rarity. By the end of the 19th century effects of the imperialism driven by European it becomes easier to break production down
huge plants in massive industrial cities were industrialisation continued to be felt by billions. into routine components, then automate those
the norm. The great shift was made possible The impacts of technological change take components as technology allows.
by automation and steam engines. their time appearing. They also vary hugely If, that is, automation makes sense. As David
Industrial firms combined human labour from industry to industry. Although in many Autor, an economist at the Massachusetts
with big, expensive capital equipment. To simple economic models technology pairs Institute of Technology (MIT), points out in
maximise the output of that costly machinery, neatly with capital and labour to produce a 2013 paper, the mere fact that a job can be
factory owners reorganised the processes of output, in practice technological changes do automated does not mean that it will be; relative
production. Workers were given one or a few not affect all workers the same way. Some costs also matter. When Nissan produces cars
repetitive tasks, often making components of find that their skills are complementary to in Japan, he notes, it relies heavily on robots.
finished products rather than whole pieces. new technologies. Others find themselves At plants in India, by contrast, the firm relies
Bosses imposed a tight schedule and strict out of work. more heavily on cheap local labour.
worker discipline to keep up the productive Take computers. In the early 20th century a Even when machine capabilities are rapidly
pace. The Industrial Revolution was not simply “computer” was a worker, or a room of workers, improving, it can make sense instead to seek
a matter of replacing muscle with steam; it doing mathematical calculations by hand, often out ever cheaper supplies of increasingly skilled
was a matter of reshaping jobs themselves with the end point of one person’s work the labour. Thus since the 1980s (a time when, in
into the sort of precisely defined components starting point for the next. The development of America, the trend towards post-secondary
that steam-driven machinery needed—cogs in mechanical and electronic computing rendered education levelled off) workers there and
a factory system. these arrangements obsolete. But in time it elsewhere have found themselves facing
The way old jobs were done changed; new jobs greatly increased the productivity of those increased competition from both machines
were created. Joel Mokyr, an economic historian who used the new computers in their work. and cheap emerging-market workers.
at Northwestern University in Illinois, argues Many other technical innovations had similar Such processes have steadily and relentlessly
that the more intricate machines, techniques effects. New machinery displaced handicraft squeezed labour out of the manufacturing
and supply chains of the period all required producers across numerous industries, from sector in most rich economies. The share of
careful tending. The workers who provided textiles to metalworking. At the same time it American employment in manufacturing has
that care were well rewarded. As research by enabled vastly more output per person than declined sharply since the 1950s, from almost
Lawrence Katz, of Harvard University, and craft producers could ever manage. 30% to less than 10%. At the same time, jobs
Robert Margo, of Boston University, shows, in services soared, from less than 50% of
employment in manufacturing “hollowed Player piano employment to almost 70% (see chart 2). It
out”. As employment grew for highly skilled For a task to be replaced by a machine, it was inevitable, therefore, that firms would
workers and unskilled workers, craft workers helps a great deal if, like the work of human start to apply the same experimentation and
lost out. This was the loss to which the Luddites, computers, it is already highly routine. Hence reorganisation to service industries.
understandably if not effectively, took exception. the demise of production-line jobs and some A new wave of technological progress may
With the low-skilled workers far more sorts of book-keeping, lost to the robot and dramatically accelerate this automation of
numerous, at least to begin with, the lot of the spreadsheet. Meanwhile work less easily brain-work. Evidence is mounting that rapid
the average worker during the early part of broken down into a series of stereotyped technological progress, which accounted for
this great industrial and social upheaval was tasks—whether rewarding, as the management the long era of rapid productivity growth
not a happy one. As Mr Mokyr notes, “life did of other workers and the teaching of toddlers from the 19th century to the 1970s, is back.
not improve all that much between 1750 and can be, or more of a grind, like tidying and The sort of advances that allow people to
1850.” For 60 years, from 1770 to 1830, growth cleaning messy work places—has grown as a put in their pocket a computer that is not
in British wages, adjusted for inflation, was share of total employment. only more powerful than any in the world 20
imperceptible because productivity growth But the “race” aspect of technological years ago, but also has far better software and
was restricted to a few industries. Not until the change means that such workers cannot rest far greater access to useful data, as well as to
late 19th century, when the gains had spread on their pay packets. Firms are constantly other people and machines, have implications
across the whole economy, did wages at last experimenting with new technologies and for all sorts of work.
perform in line with productivity (see chart 1). production processes. Experimentation with The case for a highly disruptive period of
Along with social reforms and new political different techniques and business models economic growth is made by Erik Brynjolfsson
movements that gave voice to the workers, this requires flexibility, which is one critical advantage and Andrew McAfee, professors at MIT, in “The
faster wage growth helped spread the benefits of a human worker. Yet over time, as best Second Machine Age”, a book to be published
of industrialisation across wider segments of practices are worked out and then codified, later this month. Like the first great era of
the population. New investments in education industrialisation, they argue, it should deliver
provided a supply of workers for the more Long time coming 1 enormous benefits—but not without a period of
skilled jobs that were by then being created in Britain’s average annual growth, % disorienting and uncomfortable change. Their
ever greater numbers. This shift continued into argument rests on an underappreciated aspect
Real output per person Real wages
the 20th century as post-secondary education of the exponential growth in chip processing
1.8
became increasingly common. speed, memory capacity and other computer
Claudia Goldin, an economist at Harvard 1.5 metrics: that the amount of progress computers
University, and Mr Katz have written that 1.2 will make in the next few years is always equal
workers were in a “race between education to the progress they have made since the very
0.9
and technology” during this period, and for beginning. Mr Brynjolfsson and Mr McAfee
the most part they won. Even so, it was not 0.6 reckon that the main bottleneck on innovation
until the “golden age” after the second world 0.3 is the time it takes society to sort through the
war that workers in the rich world secured real nil many combinations and permutations of new
0
prosperity, and a large, property-owning middle 1760-1800 1800-30 1830-60 1860-1900
technologies and business models.
class came to dominate politics. At the same A startling progression of inventions seems to
Source: “Engels’ Pause: Technical Change, Capital
time communism, a legacy of industrialisation’s Accumulation, and Inequality in the British Industrial bear their thesis out. Ten years ago technologically
harsh early era, kept hundreds of millions of Revolution” by R.C. Allen, Explorations in Economic minded economists pointed to driving cars in
History (2009)
people around the world in poverty, and the traffic as the sort of human accomplishment
5
Livelihoods: The big picture
Reprinted from The Economist - 2014
opening the way to eventual automation this will be real, even if they mostly accrue to
Bring on the personal trainers ?
could reduce the satisfaction from such work, the owners of the machines. Some will be
Probability that computerisation will lead to job just as the satisfaction of making things was spent on goods and services—golf instructors,
losses within the next two decades, 2013 reduced by deskilling and interchangeable parts household help and so on—and most of
(1=certain)
in the 19th century. If such jobs persist, they the rest invested in firms that are seeking to
Job Probability may engage Mr Graeber’s “bullshit” detector. expand and presumably hire more labour.
Recreational therapists 0.003 Being newly able to do brain work will not Though inequality could soar in such a world,
Dentists 0.004 stop computers from doing ever more formerly unemployment would not necessarily spike.
Athletic trainers 0.007 manual labour; it will make them better at The current doldrum in wages may, like that of
it. The designers of the latest generation of the early industrial era, be a temporary matter,
Clergy 0.008
industrial robots talk about their creations as with the good times about to roll (see chart 3).
Chemical engineers 0.02 helping workers rather than replacing them; These jobs may look distinctly different from
Editors 0.06 but there is little doubt that the technology those they replace. Just as past mechanisation
Firefighters 0.17 will be able to do a bit of both—probably more freed, or forced, workers into jobs requiring
Actors 0.37 than a bit. A taxi driver will be a rarity in many more cognitive dexterity, leaps in machine
Health technologists 0.40
places by the 2030s or 2040s. That sounds intelligence could create space for people to
like bad news for journalists who rely on that specialise in more emotive occupations, as yet
Economists 0.43
most reliable source of local knowledge and unsuited to machines: a world of artists and
Commercial pilots 0.55 prejudice—but will there be many journalists therapists, love counsellors and yoga instructors.
Machinists 0.65 left to care? Will there be airline pilots? Or Such emotional and relational work could
Word processors and typists 0.81 traffic cops? Or soldiers? be as critical to the future as metal-bashing was
Real estate sales agents 0.86 There will still be jobs. Even Mr Frey and Mr in the past, even if it gets little respect at first.
Technical writers 0.89
Osborne, whose research speaks of 47% of job Cultural norms change slowly. Manufacturing
categories being open to automation within jobs are still often treated as “better”—in some
Retail salespersons 0.92
two decades, accept that some jobs—especially vague, non-pecuniary way—than paper-pushing
Accountants and auditors 0.94 those currently associated with high levels of is. To some 18th-century observers, working
Telemarketers 0.99 education and high wages—will survive (see in the fields was inherently more noble than
Source: “The Future of Employment: How Susceptible are
table). Tyler Cowen, an economist at George making gewgaws.
Jobs to Computerisation?” by C.Frey and M.Osborne (2013) Mason University and a much-read blogger, But though growth in areas of the economy
writes in his most recent book, “Average is Over”, that are not easily automated provides jobs,
that computers were highly unlikely to master. that rich economies seem to be bifurcating into it does not necessarily help real wages. Mr
Now Google cars are rolling round California a small group of workers with skills highly Summers points out that prices of things-
driver-free no one doubts such mastery is complementary with machine intelligence, made-of-widgets have fallen remarkably in past
possible, though the speed at which fully for whom he has high hopes, and the rest, decades; America’s Bureau of Labour Statistics
self-driving cars will come to market remains for whom not so much. reckons that today you could get the equivalent
hard to guess. And although Mr Brynjolfsson and Mr of an early 1980s television for a twentieth of
McAfee rightly point out that developing the its then price, were it not that no televisions
Brave new world business models which make the best use of that poor are still made. However, prices of
Even after computers beat grandmasters at chess new technologies will involve trial and error things not made of widgets, most notably
(once thought highly unlikely), nobody thought and human flexibility, it is also the case that college education and health care, have shot
they could take on people at free-form games the second machine age will make such trial up. If people lived on widgets alone— goods
played in natural language. Then Watson, a and error easier. It will be shockingly easy whose costs have fallen because of both
pattern-recognising supercomputer developed to launch a startup, bring a new product to globalisation and technology—there would
by IBM, bested the best human competitors market and sell to billions of global consumers have been no pause in the increase of real
in America’s popular and syntactically tricksy (see article). Those who create or invest in wages. It is the increase in the prices of stuff
general-knowledge quiz show “Jeopardy!” blockbuster ideas may earn unprecedented that isn’t mechanised (whose supply is often
Versions of Watson are being marketed to returns as a result. under the control of the state and perhaps
firms across a range of industries to help with In a forthcoming book Thomas Piketty, an subject to fundamental scarcity) that means
all sorts of pattern-recognition problems. Its economist at the Paris School of Economics, a pay packet goes no further than it used to.
acumen will grow, and its costs fall, as firms argues along similar lines that America may So technological progress squeezes some
learn to harness its abilities. be pioneering a hyper-unequal economic incomes in the short term before making
The machines are not just cleverer, they also model in which a top 1% of capital-owners
have access to far more data. The combination and “supermanagers” grab a growing share of Not what it was 2
of big data and smart machines will take over national income and accumulate an increasing US employment by sector, % of total employment
some occupations wholesale; in others it will concentration of national wealth. The rise of
allow firms to do more with fewer workers. the middle-class—a 20th-century innovation— 70
Text-mining programs will displace professional was a hugely important political and social 60
jobs in legal services. Biopsies will be analysed development across the world. The squeezing out Services
more efficiently by image-processing software of that class could generate a more antagonistic, 50
than lab technicians. Accountants may follow unstable and potentially dangerous politics. 40
travel agents and tellers into the unemployment The potential for dramatic change is Manufacturing 30
line as tax software improves. Machines are clear. A future of widespread technological
Government
already turning basic sports results and financial unemployment is harder for many to accept. 20
data into good-enough news stories. Every great period of innovation has produced 10
Jobs that are not easily automated may its share of labour-market doomsayers, but Agriculture
still be transformed. New data-processing technological progress has never previously failed 0
1948 60 70 80 90 2000 11
technology could break “cognitive” jobs down to generate new employment opportunities.
Source: US Bureau of Labour Statistics
into smaller and smaller tasks. As well as The productivity gains from future automation
6
Livelihoods: The big picture
Reprinted from The Economist - 2014
3 than a bygone peasant to have savings. This concentration of incomes over the past 30 years,
A history to repeat? means that the “reservation wage”—the wage on a scale that matches, or even exceeds, the
Average real wage, year 1=100 below which a worker will not accept a job—is first Gilded Age. Including capital gains, the
Britain, year 1=1770 now high in historical terms. If governments share of national income going to the richest
180
United States, year 1=1970 refuse to allow jobless workers to fall too far 1% of Americans has doubled since 1980, from
160 below the average standard of living, then this 10% to 20%, roughly where it was a century ago.
140 reservation wage will rise steadily, and ever Even more striking, the share going to the top
more workers may find work unattractive. And 0.01%—some 16,000 families with an average
120 the higher it rises, the greater the incentive to income of $24m—has quadrupled, from just
100 invest in capital that replaces labour. over 1% to almost 5%. That is a bigger slice of
Everyone should be able to benefit from the national pie than the top 0.01% received
80 productivity gains—in that, Keynes was united 100 years ago.
1 10 20 30 40 50 60 70 80 90 100
with his successors. His worry about technological This is an extraordinary development, and
Years since start
unemployment was mainly a worry about it is not confined to America. Many countries,
Sources: “Pessimism Preserved: Real Wages in the
British Industrial Revolution” by R.C. Allen (2013); a “temporary phase of maladjustment” as including Britain, Canada, China, India and
US Bureau of Labour Statistics society and the economy adjusted to ever even egalitarian Sweden, have seen a rise in
greater levels of productivity. So it could the share of national income taken by the top
everyone richer in the long term, and can drive well prove. However, society may find itself 1%. The numbers of the ultra-wealthy have
up the costs of some things even more than it sorely tested if, as seems possible, growth soared around the globe. According to Forbes
eventually increases earnings. As innovation and innovation deliver handsome gains to magazine’s rich list, America has some 421
continues, automation may bring down costs the skilled, while the rest cling to dwindling billionaires, Russia 96, China 95 and India 48.
in some of those stubborn areas as well, employment opportunities at stagnant wages. n The world’s richest man is a Mexican (Carlos
though those dominated by scarcity—such as Slim, worth some $69 billion). The world’s
houses in desirable places—are likely to resist largest new house belongs to an Indian. Mukesh
the trend, as may those where the state keeps Ambani’s 27-storey skyscraper in Mumbai
market forces at bay. But if innovation does occupies 400,000 square feet, making it 1,300
make health care or higher education cheaper, The world economy times bigger than the average shack in the
it will probably be at the cost of more jobs, and slums that surround it.
give rise to yet more concentration of income. For richer, for The concentration of wealth at the very top
7
Livelihoods: The big picture
Reprinted from The Economist - 2014
96
36 18.6
4.0 Russia
421‡ Britain
More or less unequal 10.5
Income inequality, Gini coefficient* 55 95
United States 7.2 48 2.6
1980 or earliest 2010 or latest 10.9
Germany China
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 India
South Africa % change in
Brazil inequality
1980-2010†
China 37
More equal 6.2 Number of
United States <-20 Brazil billionaires§
Britain Net worth
-1 to -20 as % of GDP
India 0 to 20
Germany *0=perfect equality, 1=perfect inequality,
>20 No data inequality of disposable income; where
Sources: Forbes; unavailable consumption or expenditure data
Sweden More unequal IMF; The Economist †Or closest year available ‡September 2012 §March 2012
around 50% to 0.42 (and by some measures narrowing seemed so inevitable that Simon economies, more inequality often means that
to 0.48). The biggest exception to the generalKuznets, a Belarusian-born Harvard economist, people at the bottom and even in the middle
upward trend is Latin America, long the world’s
in 1955 famously described the relationship of the income distribution are falling behind
most unequal continent, where Gini coefficients
between inequality and prosperity as an not just in relative but also in absolute terms.
have fallen sharply over the past ten years. upside-down U. According to the “Kuznets The Occupy Wall Street campaign proved
But the majority of the people on the planet curve”, inequality rises in the early stages of incoherent and ephemeral, but inequality and
live in countries where income disparities industrialisation as people leave the land, fairness have moved right up the political
are bigger than they were a generation ago. become more productive and earn more in agenda. America’s presidential election is
That does not mean the world as a whole hasfactories. Once industrialisation is complete and largely being fought over questions such as
become more unequal. Global inequality—the better-educated citizens demand redistribution whether taxes should rise at the top, and how
income gaps between all people on the planet— from their government, it declines again. big a role government should play in helping
has begun to fall as poorer countries catch Until 1980 this prediction appeared to have the rest. In Europe France’s new president,
up with richer ones. Two French economists, been vindicated. But the past 30 years have put François Hollande, wants a top income-tax
François Bourguignon and Christian Morrisson, paid to the Kuznets curve, at least in advanced rate of 75%. New surcharges on the richest
have calculated a “global Gini” that measures economies. These days the inverted U has turned are part of austerity programmes in Portugal
the scale of income disparities among everyoneinto something closer to an italicised N, with and Spain.
in the world. Their index shows that global the final stroke pointing menacingly upwards. Even in more buoyant emerging economies,
inequality rose in the 19th and 20th centuries Although inequality has been on the rise inequality is a growing worry. India’s government
because richer economies, on average, grew for three decades, its political prominence is under fire for the lack of “inclusive growth”
faster than poorer ones. Recently that patternis newer. During the go-go years before the and for cronyism that has enriched insiders,
has reversed and global inequality has startedfinancial crisis, growing disparities were hardly evident from dubious mobile-phone-spectrum
to fall even as inequality within many countries
at the top of politicians’ to-do list. One reason auctions and dodgy mining deals. China’s leaders
has risen. By that measure, the planet as a was that asset bubbles and cheap credit eased fear that growing disparities will cause social
whole is becoming a fairer place. But in a life for everyone. Financiers were growing unrest. Wen Jiabao, the outgoing prime minister,
world of nation states it is inequality withinfabulously wealthy in the early 2000s, but has long pushed for a “harmonious society”.
countries that has political salience, and this
others could also borrow ever more against Many economists, too, now worry that
special report will focus on that. the value of their home. widening income disparities may have
That changed after the crash. The bank damaging side-effects. In theory, inequality
From U to N rescues shone a spotlight on the unfairness has an ambiguous relationship with prosperity.
The widening of income gaps is a reversal of of a system in which affluent bankers were It can boost growth, because richer folk save
the pattern in much of the 20th century, when bailed out whereas ordinary folk lost their and invest more and because people work
inequality narrowed in many countries. That houses and jobs. And in today’s sluggish harder in response to incentives. But big
Gini coefficient*, late 2000s Global inequality, Gini coefficient* Top 1% income share‡, %
Market income Disposable income US Britain Germany France Sweden
Sources: The World Top Incomes Database; IMF; OECD; World Bank; “Inequality among World Citizens: 1820-1992", by Bourguignon & Morrisson, The American *0=perfect equality, 1=perfect inequality †Estimate
Economic Review, 2002; "A short history of global inequality: The past two centuries”, by Branko Milanovic, Explorations in Economic History, May 2011 ‡Includes capital gains, except Britain and France
8
Livelihoods: The big picture
Reprinted from The Economist - 2014
income gaps can also be inefficient, because do not do very well. Yet the 20th century’s focus
they can bar talented poor people from access on redistribution brought its own problems.
to education or feed resentment that results in Too often high-tax welfare states turned out to
growth-destroying populist policies. be inefficient and unsustainable. Government
The mainstream consensus has long been cures for inequality have sometimes been
that a growing economy raises all boats, to worse than the disease itself.
much better effect than incentive-dulling This special report will explore how 21st-
redistribution. Robert Lucas, a Nobel prize- century capitalism should respond to the present
winner, epitomised the orthodoxy when challenge; it will examine the recent history
he wrote in 2003 that “of the tendencies of both inequality and social mobility; and it
that are harmful to sound economics, the will offer four contemporary case studies: the
most seductive and…poisonous is to focus United States, emerging Asia, Latin America
on questions of distribution.” and Sweden. Based on this evidence it will poverty could be halved in the past two decades,
But now the economics establishment has make three arguments. First, although the why should the other half not be got rid of
become concerned about who gets what. modern global economy is leading to wider in the next two? If 21% was possible in 2010,
Research by economists at the IMF suggests gaps between the more and the less educated, why not 1% in 2030?
that income inequality slows growth, causes a big driver of today’s income distributions Why not indeed? In April at a press conference
financial crises and weakens demand. In a recent is government policy. Second, a lot of today’s during the spring meeting of the international
report the Asian Development Bank argued inequality is inefficient, particularly in the financial institutions in Washington, DC, the
that if emerging Asia’s income distribution most unequal countries. It reflects market and president of the World Bank, Jim Yong Kim,
had not worsened over the past 20 years, the government failures that also reduce growth. scrawled the figure “2030” on a sheet of
region’s rapid growth would have lifted an And where this is happening, bigger income paper, held it up and announced, “This is it.
extra 240m people out of extreme poverty. gaps themselves are likely to reduce both social This is the global target to end poverty.” He
More controversial studies purport to link mobility and future prosperity. was echoing Barack Obama who, in February,
widening income gaps with all manner of Third, there is a reform agenda to reduce promised that “the United States will join with
ills, from obesity to suicide. income disparities that makes sense whatever our allies to eradicate such extreme poverty
The widening gaps within many countries your attitude towards fairness. It is not about in the next two decades.”
are beginning to worry even the plutocrats. higher taxes and more handouts. Both in rich This week, that target takes its first step
A survey for the World Economic Forum and emerging economies, it is about attacking towards formal endorsement as an aim of
meeting at Davos pointed to inequality as the cronyism and investing in the young. You could policy round the world. The leaders of Britain,
most pressing problem of the coming decade call it a “True Progressivism”. n Indonesia and Liberia are due to recommend
(alongside fiscal imbalances). In all sections of to the UN a list of post-2015 MDGs. It will be
society, there is growing agreement that the headed by a promise to end extreme poverty
world is becoming more unequal, and that by 2030.
today’s disparities and their likely trajectory There is a lot of debate about what exactly
are dangerous. Poverty counts as poverty and how best to measure
it. But by any measure, the eradication of
Not so fast Not always with us $1.25-a-day poverty would be an astonishing
That is too simplistic. Inequality, as measured achievement. Throughout history, dire poverty
by Gini coefficients, is simply a snapshot of Reprinted from The Economist, Jun 1st 2013 has been a basic condition of the mass of
outcomes. It does not tell you why those gaps mankind. Thomas Malthus, a British clergyman
have opened up or what the trend is over The world has an astonishing chance to who founded the science of demography, wrote
time. And like any snapshot, the picture can take a billion people out of extreme poverty in 1798 that it was impossible for people to
be misleading. Income gaps can arise for good by 2030 “feel no anxiety about providing the means of
reasons (such as when people are rewarded subsistence for themselves and [their] families”
for productive work) or for bad ones (if poorer IN SEPTEMBER 2000 the heads of 147 and that “no possible form of society could
children do not get the same opportunities as governments pledged that they would halve prevent the almost constant action of misery
richer ones). Equally, inequality of outcomes the proportion of people on the Earth living in upon a great part of mankind.” For most
might be acceptable if the gaps are between the direst poverty by 2015, using the poverty countries, poverty was not even a problem;
young people and older folk, so may shrink rate in 1990 as a baseline. It was the first of it was a plain, unchangeable fact.
over time. But in societies without this sort a litany of worthy aims enshrined in the To eradicate extreme poverty would also
of mobility a high Gini is troubling. United Nations “millennium development be remarkable given the number of occasions
Some societies are more concerned about goals” (MDGs). Many of these aims—such as
equality of opportunity, others more about cutting maternal mortality by three quarters Hooray! 1
equality of outcome. Europeans tend to be and child mortality by two thirds—have not Global poverty rate, %
more egalitarian, believing that in a fair society been met. But the goal of halving poverty has 50
there should be no big income gaps. Americans been. Indeed, it was achieved five years early. Baseline scenario
and Chinese put more emphasis on equality In 1990, 43% of the population of developing Range based on best 40
of opportunity. Provided people can move up countries lived in extreme poverty (then and worst scenarios
the social ladder, they believe a society with defined as subsisting on $1 a day); the absolute 30
wide income gaps can still be fair. Whatever number was 1.9 billion people. By 2000 the 20
people’s preferences, static measures of income proportion was down to a third. By 2010 it was
gaps tell only half the story. 21% (or 1.2 billion; the poverty line was then 10
Despite the lack of nuance, today’s debate over $1.25, the average of the 15 poorest countries’
inequality will have important consequences. own poverty lines in 2005 prices, adjusted for 0
The unstable history of Latin America, long the differences in purchasing power). The global 1990 95 2000 05 10 15 20 25 30
continent with the biggest income gaps, suggests poverty rate had been cut in half in 20 years. Source: Laurence Chandy, Natasha Ledlie and
Veronika Penciakova
that countries run by entrenched wealthy elites That raised an obvious question. If extreme
9
Livelihoods: The big picture
Reprinted from The Economist - 2014
since the 1930s. The three regions with the would have to be maintained at something like
The fireman’s helmet 2
largest numbers of poor people all registered its current rate. Most forecasters do expect that
Number of people in poverty, m strong gains in GDP after the recession: at 8% to happen, though problems in Europe could
$1.25
a year in East Asia; 7% in South Asia; 5% in spill over and damage the global economy. Such
80 Africa. As a rough guide, every 1% increase in long-range forecasts are inevitably unreliable but
1990
70 GDP per head reduces poverty by around 1.7%. two broad trends make an optimistic account
GDP, though, is not necessarily the best measure somewhat plausible. One is that fast-growing
60
2000 of living standards and poverty reduction. It is developing countries are trading more with
50 usually better to look at household consumption each other, making them more resilient than
2010
40 based on surveys. Martin Ravallion, until they used to be to shocks from the rich world.
2020 recently the World Bank’s head of research, The other trend is that the two parts of the
30
2030 took 900 such surveys in 125 developing world with the largest numbers of poor people,
20
countries. These show, he calculates, that India and Africa, are seeing an expansion
10
consumption in developing countries has of their working-age populations relative to
0 grown by just under 2% a year since 1980. But the numbers of dependent children and old
0 1 2 3 4 5 there has been a sharp increase since 2000. people. Even so, countries potentially face a
Mean daily consumption (PPP $)
Before that, annual growth was 0.9%; after it, problem of diminishing returns which could
Source: Laurence Chandy, Natasha Ledlie
and Veronika Penciakova
the rate leapt to 4.3%. make progress at the second stage slower
Growth alone does not guarantee less than at the first.
when politicians have promised to achieve poverty. Income distribution matters, too. There is no sign so far that returns are in
the goal and failed. “We do have an historic One estimate found that two thirds of the fact diminishing. The poverty rate has fallen
opportunity this year to make poverty history,” fall in poverty was the result of growth; one- at a robust one percentage point a year over
said Tony Blair, Britain’s prime minister in third came from greater equality. More equal the past 30 years—and there has been no
2005. Three years before that, Thabo Mbeki, countries cut poverty further and faster than tailing off since 2005. But diminishing returns
South Africa’s president said that “for the unequal ones. Mr Ravallion reckons that a could occur for two reasons. When poverty
first time in human history, society has the 1% increase in incomes cut poverty by 0.6% within a country falls to very low levels, the
capacity, the knowledge and the resources to in the most unequal countries but by 4.3% in few remaining poor are the hardest to reach.
eradicate poverty.” Going further back: “For the most equal ones. And, globally, as more people in countries
the first time in our history,” said Lyndon The country that cut poverty the most was such as China become middle class, poverty
Johnson, “it is possible to conquer poverty.” China, which in 1980 had the largest number will become concentrated in fragile or failing
That was in 1964. Much will have to change of poor people anywhere. China saw a huge states which have seen little poverty reduction
if Mr Kim’s piece of paper is not to become increase in income inequality—but even more to date.
one more empty promise. growth. Between 1981 and 2010 it lifted a
So how realistic is it to think the world can stunning 680m people out poverty—more The sweetest spot
end extreme poverty in a generation? To meet than the entire current population of Latin In a study for the Brookings Institution, a think-
its target would mean maintaining the annual America. This cut its poverty rate from 84% tank in Washington, DC, Laurence Chandy,
one-percentage-point cut in the poverty rate in 1980 to about 10% now. China alone Natasha Ledlie and Veronika Penciakova look
achieved in 1990-2010 for another 20 years. accounts for around three quarters of the at the distribution of consumption (how many
That would be hard. It will be more difficult world’s total decline in extreme poverty over people consume $1 a day, $2 a day and so on)
to rescue the second billion from poverty the past 30 years. in developing countries. They show how it has
than it was the first. Yet it can be done. The What is less often realised is that the recent changed over time, and how it might change
world has not only cut poverty a lot but also story of poverty reduction has not been all in future. Plotted on a chart, the distribution
learned much about how to do it. Poverty can about China. Between 1980 and 2000 growth looks like a fireman’s helmet, with a peak in
be reduced, albeit not to zero. But a lot will in developing countries outside the Middle front and a long tail behind. In 1990 there
have to go right if that is to happen. Kingdom was 0.6% a year. From 2000 to 2010 were hardly any people with no income at
the rate rose to 3.8%—similar to the pattern if all, then a peak just below the poverty line
Growth Decreases Poverty you include China. Mr Ravallion calculates and then a long tail of richer folk extending
In 1990-2010 the driving force behind the that the acceleration in growth outside China off to the right (see chart 2).
reduction of worldwide poverty was growth. since 2000 has cut the number of people in As countries get richer, the helmet moves to
Over the past decade, developing countries extreme poverty by 280m. the right, reflecting the growth in household
have boosted their GDP about 6% a year—1.5 Can this continue? And if it does, will it consumption. The faster the rate, the farther
points more than in 1960-90. This happened eradicate extreme poverty by 2030? to the right the line moves, so the strong 4.3%
despite the worst worldwide economic crisis To keep poverty reduction going, growth annual growth in consumption since 2000 has
pushed the line a good distance rightward.
Chapters one to three 3 But the shape of the line also matters. The
chart shows that in 1990 and 2000, the peak
Number of people in poverty, m 1990 2010 2030
was positioned slightly to the left of the poverty
China India Sub-saharan Africa line. As the shape moved to the right, it took
$1.25 $1.25 $1.25
30 30 30 a section of the peak to the other side of the
25 25 25 poverty mark. This represents the surge of
20 20 20 people who escaped poverty in 1990-2010.
15 15 15 At the moment the world is at a unique sweet
10 10 10 spot. More people are living at $1.25 than at
5 5 5 any other level of consumption. This means
0 0 0 growth will result in more people moving
0 1 2 3 4 5 6 0 1 2 3 4 5 6 0 1 2 3 4 5 6
across the international poverty line than
Mean daily consumption (PPP $) Mean daily consumption (PPP $) Mean daily consumption (PPP $)
across any other level of consumption. This
Source: Laurence Chandy, Natasha Ledlie and Veronika Penciakova
is a big reason why growth is still producing
10
Livelihoods: The big picture
Reprinted from The Economist - 2014
big falls in poverty. a wish list and persuade them to put more
But as countries continue to grow, and as resources into the items on the list. This may
the line continues to be pulled to the right, have helped in some areas but it is hard to
things start to change. Now, the peak begins to argue that aid had much to do with halving
flatten. In 2010, according to Mr Chandy, there poverty. Much of the fall occurred in China,
were 85m people living at or just below the which ignored the MDGs. At best, aid and the
poverty line (at a consumption level between MDGs were marginal.
$1.20 and $1.25 a day). If poverty falls at its The changing geography of poverty will
trend rate, the number of people living at pose different aid problems over the next
$1.20-1.25 a day will also fall: to 56m in 2020 20 years. According to Mr Chandy, by 2030
and 28m in 2030. nearly two-thirds of the world’s poor will be
This is good news, of course: there will be living in states now deemed “fragile” (like the
fewer poor people. But it means the rate of Congo and Somalia). Much of the rest will
poverty reduction must slow down, even if First, the range of outcomes is wide, implying be in middle-income countries. This poses a
consumption continues to grow fast. As Mr that prospects for eradicating poverty are double dilemma for donors: middle-income
Chandy says, unless growth goes through the uncertain. The range is also not symmetrical, countries do not really need aid, while fragile
roof, “it is not possible to maintain the trend suggesting the risk of failure is greater than the states cannot use it properly. A dramatic fall in
rate of poverty reduction with so many fewer hope of success. It is also noticeable that no poverty requires rethinking official assistance.
individuals ready to cross the line.” one is forecasting zero poverty. If that were Yet all the problems of aid, Africa and the
So what impact, in practice, might diminishing taken as the post-2015 target, then it would intractability of the final billion do not mask
returns have? Messrs Chandy and Ravallion be missed. However, reducing the rate to 3% the big point about poverty reduction: it
try to answer that by calculating what different would lift a billion people out of poverty and has been a hugely positive story and could
rates of household consumption mean for that would be remarkable enough. In the best become even more so. As a social problem,
poverty reduction and how much household case, the global poverty rate falls to a little poverty has been transformed. Thanks partly
income would have to grow to eradicate over 1%, or just 70m people. That would be to new technology, the poor are no longer an
extreme poverty. astonishing. To get to these levels, the studies undifferentiated mass. Identification schemes
Mr Ravallion provides an optimistic projection. suggest, you cannot rely on boosting growth are becoming large enough—India has issued
If developing countries were to maintain or improving income inequality alone. You hundreds of millions of biometric smart cards—
their post-2000 performance, he says, then need both. that countries are coming to know their poor
the number of extremely poor people in the Second, the geography of poverty will be literally by name. That in turn enables social
world would fall from 1.2 billion in 2010 to transformed. China passed the point years programmes to be better targeted, studied and
just 200m in 2027. ago where it had more citizens above the improved. Conditional cash-transfer schemes
This would be a remarkable achievement. poverty line than below it. By 2020 there will like Mexico’s Oportunidades and Brazil’s Bolsa
It took 20 years to reduce the number of be hardly any Chinese left consuming less Família have all but eradicated extreme poverty
absolutely poor people from 1.9 billion in than $1.25 a day: everyone will have escaped in those countries.
1990 to 1.2 billion in 2010 (a fall of less than poverty. China wrote the first chapter of the As the numbers of poor fall further, not
half). Mr Ravallion’s projection would lift a book of poverty reduction but that chapter is only will the targets become fewer, but the
billion people out of poverty in 17 years and all but finished. cost of helping them will fall to almost trivial
implies almost halving the number in just ten The next will be about India. India mirrors levels; it would cost perhaps $50m a day* to
(from 2012 to 2022). the developing world as a whole: growth will bring 200m people up above the poverty
But even this projection does not get to zero push a wave of Indians through the $1.25 line. Of course, there will be other forms of
poverty. The figure of 200m poor implies a barrier over the next decade (see chart 3). poverty; the problems of some countries and
poverty rate of just over 3%. To get to zero The subcontinent could generate the largest places will remain intractable and may well
would require something even more impressive. gains in poverty reduction in the next decade require different policies; and $1.26 a day is
Mr Ravallion estimates that to reach a 1% (which is why the current Indian slowdown still a tiny amount.
poverty rate by 2027 would require a surge is worrying). After that, though, continued But something fundamental will have shifted.
in household consumption of 7.6% a year—an growth will benefit relatively comfortable Poverty used to be a reflection of scarcity. Now
unrealistically high level. Indians more than poor ones. it is a problem of identification, targeting and
The last chapter will be about Africa. Only in distribution. And that is a problem that can
Drops of good cheer sub-Saharan Africa will there be large numbers be solved. n
Mr Chandy and his co-authors get similar of people below the poverty line. Unfortunately
results. They take a projection of falling poverty they are currently too far below it. The average
based on forecasts of consumption by the consumption of Africa’s poorest people is only
Economist Intelligence Unit, our sister company. about 70 cents a day—barely more than it was
If growth were two points better than forecast, 20 years ago. In the six poorest countries it The world economy
then the poverty rate would be just over 3%; if falls to only 50 cents a day. The continent has
two points worse, it would be almost 10%—a
big disappointment. If income distribution
made big strides during the past decade. But
even 20 more years of such progress will not
A game of catch-up
within countries gets progressively better move the remaining millions out of poverty. Reprinted from The Economist, Sep 24th 2011
or worse (ie, if the poorest 40% do better or At current growth rates, a quarter of Africans
worse than the top 10%), then the range of will still be consuming less than $1.25 a day The shift in economic power from West to
outcomes would be the same as if growth were in 2030. The disproportionate falls in Africa’s East is accelerating, says John O’Sullivan. The
higher or lower. And if you combine all these poverty rate will not happen until after that date. rich world will lose some of its privileges
variables, then the range is wide indeed, from
a miserable 15% poverty rate (lower growth, Make Bono history QUARRY BANK MILL is a handsome five-
more inequality) to a stunning 1.4% (higher The record of poverty reduction has profound storey brick building set in the valley of the
growth, less inequality). implications for aid. One of the main purposes river Bollin at Styal, a small English village a
Two conclusions emerge from these exercises. of setting development goals was to give donors few miles south of Manchester. It was built
11
Livelihoods: The big picture
Reprinted from The Economist - 2014
in 1784 by Samuel Greg, a merchant, who power and population, increasingly so as the
found profit in supplying cotton thread to West got richer. Being able to make a lot more
Lancashire’s weavers. The raw cotton shipped stuff with fewer workers meant that even
from America’s slave plantations was processed a small country could be a giant economic
on the latest machinery, Richard Arkwright’s power. By 1870 the average income in Britain
water frame. Later Greg extended the factory was six times larger than in India or China.
and installed coal-fired steam engines to add But by the eve of the first world war Britain’s
to the water power from the Bollin. All this income per head had been overtaken by that
gave a huge boost to productivity. In 1700 a of America, the 20th century’s great power.
spinster with a pedal-driven spinning wheel America remains the world’s biggest economy,
might take 200 hours to produce a pound of but that status is under threat from a resurgent
yarn. By the 1820s it would take her around China. With hindsight, its change in fortune
an hour. can be traced to 1976, the year of America’s
Greg’s mill was part of a revolution in bicentennial and the death of Mao Zedong. By
industry that would profoundly alter the world’s then income per person in China had shrunk
pecking order. The new technologies—labour- of a developing-world crisis: large capital to just 5% of that in America, in part because
saving inventions, factory production, engines inflows channelled by poorly regulated banks of Mao’s extreme industrial and social policies.
powered by fossil fuels—spread to other parts to marginal borrowers to finance a property The average Indian was scarcely richer than
of western Europe and later to America. The boom. The speed at which bond investors the average Chinese. Both China and India
early industrialisers (along with a few late turned on Greece, Ireland and then Portugal had turned inward, cutting themselves off
developers, such as Japan) were able to lock was reminiscent of a run on an overborrowed from the flow of ideas and goods that had
in and build on their lead in technology and emerging economy. made Japan and other less populous Asian
living standards. Because there is as yet no reliable and liquid economies richer. India’s economy, like China’s,
The “great divergence” between the West bond market in the emerging world to flee was largely closed. Huge swathes of industry
and the rest lasted for two centuries. The mill to, scared investors put their money into US were protected from foreign competition by
at Styal, once one of the world’s largest, has Treasury bonds and a few other rich-country high import tariffs, leaving them moribund.
become a museum. A few looms, powered by havens instead. So few are the options that even China was first to reverse course. In 1978
the mill’s water wheel, still produce tea towels a ratings downgrade of American government Deng Xiaoping won approval for a set of
for the gift shop, but cotton production has long debt in August spurred buying of the derided economic reforms that opened China to foreign
since moved abroad in search of low wages. Treasuries. Indeed the thirst in emerging markets trade, technology and investment. India’s big
Now another historic change is shaking up the for such safe and liquid securities is one of the liberalisation came a little later, in 1991. The
global hierarchy. A “great convergence” in living deeper causes of the series of crises that has GDP of China and India is many times bigger
standards is under way as poorer countries afflicted the rich world. Developing countries now than it was in the mid-1970s. In both
speedily adopt the technology, know-how and bought rich-world government bonds (stored economies annual growth of 8% or more is
policies that made the West rich. China and as currency reserves) as insurance against considered normal. Average living standards
India are the biggest and fastest-growing of the future crises. Those purchases pushed down in China are still only a sixth and in India a
catch-up countries, but the emerging-market long-term interest rates, helping to stoke a fourteenth of those in America at PPP exchange
boom has spread to embrace Latin America boom in private and public credit. rates, but the gap is already much smaller than
and Africa, too. Today’s faltering GDP growth is a hangover it was and is closing fast.
And the pace of convergence is increasing. from that boom and adds to the sense of Moreover, the great convergence has spread
Debt-ridden rich countries such as America malaise in the rich world. Many households in beyond India and China. Three-quarters of biggish
have seen scant growth since the financial crisis. America, Britain and elsewhere have taken to non-oil-producing poor countries enjoyed faster
The emerging economies, having escaped the saving hard to reduce their debts. Those with growth in income per person than America
carnage with only a few cuts and grazes, have spare cash, including companies, are clinging in 2000-07, says Arvind Subramanian, of the
spent much of the past year trying to check on to it as a hedge against an uncertain future. Peterson Institute for International Economics, in
their economic booms. The IMF forecasts that A new breed of emerging-market multinational his new book, “Eclipse: Living in the Shadow of
emerging economies as a whole will grow by firms, used to a tough business climate at home, China’s Economic Dominance”. This compares
around four percentage points more than the seem keener to invest in the rich world than with 29% of such countries in 1960-2000. And
rich world both this year and next. If the fund most Western firms, which have lost their mojo. those economies are catching up at a faster
is proved right, by 2013 emerging markets (on rate: average growth in GDP per person was
the IMF’s definition) will produce more than Grandeur and decline 3.3 percentage points faster than America’s
half of global output, measured at purchasing- People who grew up in America and western growth rate in 2000-07, more than twice the
power parity (PPP). Europe have become used to the idea that the difference in the previous four decades.
One sign of a shift in economic power is that West dominates the world economy. In fact it If emerging markets keep on growing three
investors expect trouble in rich countries but is anomalous that a group of 30-odd countries percentage points a year faster than America
seem confident that crises in emerging markets with a small fraction of the world’s population (a conservative estimate), they will account
will not recur. Many see the rich world as old, should be calling the shots. For most of human for two-thirds of the world’s output by 2030,
debt-ridden and out of ideas compared with history economic power has been determined reckons Mr Subramanian. Today’s four most
the young, zestful and high-saving emerging by demography. In 1700 the world’s biggest populous emerging markets—China, India,
markets. The truth is more complex. One economy (and leading cotton producer) was Indonesia and Brazil—will make up two-fifths
reason why emerging-market companies are India, with a population of 165m, followed of global GDP, measured at PPP. The combined
keen for a toehold in rich countries is that the by China, with 138m. Britain’s 8.6m people weight in the world economy of America and
business climate there is far friendlier than at produced less than 3% of the world’s output. the European Union will shrink from more
home. But the recent succession of financial Even in 1820, as the industrial revolution in than a third to less than a quarter.
blow-ups in the rich world makes it seem Britain was gathering pace, the two Asian Economic catch-up is accelerating. Britain’s
more crisis-prone. giants still accounted for half the world’s GDP. economy doubled in size in the 32 years from
The American subprime mess that turned The spread of purpose-built manufactories 1830 to 1862 as increased productivity spread
into a financial disaster had the hallmarks like Quarry Bank Mill separated economic from cotton to other industries. America’s
12
Livelihoods: The big picture
Reprinted from The Economist - 2014
GDP per person, 2010, PPP $'000 Population migrants to urban jobs becomes harder to
EMERGING WORLD
<5 5-10 10-16 30-35 35-40 >40
RICH WORLD 2010, bn
repeat. The rapid growth rates of the recent
Canada
past are unlikely to be sustained.
0.03
Britain
0.06
2.0
Central &
E. Europe 4.7
Russia
0.14 Status anxiety
1.3 0.18
Few forecasters expect America to be a poorer
6.8
Euro area 1.1
4.3 CIS* place in ten or 20 years’ time than it is now.
10.6
0.33 0.14 Japan
1.8 0.13 The present may be grim, but eventually the
United States
0.31
Middle East
& N. Africa
8.0
India
China
1.34
0.6
hangover from the financial crisis will fade and
0.42 4.9 1.23
unemployment will fall. What rich Western
2.2
Mexico
Sub-Saharan
Africa
countries face is a relative economic decline,
0.11 0.80
not an absolute fall in average living standards
Brazil
0.20 5.8 Indonesia
0.24
(though a few of their citizens may become
5.5
3.9 worse off). That matters politically, because
Latin America
& Caribbean Australia
most people measure their well-being by how
0.28
4.6 0.02
3.1 they are doing in relation to others rather than
by their absolute level of income.
Official foreign-exchange reserves, Q2 2011 The effect of the loss of top-dog status on the
GDP growth, 2001-11, %
2011 forecast
10
Emerging world Rich world well-being of the average American is unlikely
$6.5trn $3.2trn
to be trivial. Britain felt similar angst at the
5
Breakdown by currency
Allocated reserves, Q2 2011, % beginning of the 20th century, noting the rise
1
*Commonwealth of
Independent States
0 20 40 60 80 100
of Germany, a military rival. It seemed stuck
0 Sources: IMF; UN; The Economist
$ ¤ ¥ £ Other
with old industries, such as textiles and iron,
whereas Germany had advanced into fields
such as electricals and chemicals. That Britain
GDP doubled in only 17 years as it overtook around the world, creating new jobs and was still well off in absolute terms was scant
Britain in the 1870s. The economies of China destroying or displacing existing ones. Low- consolation. The national mood contrasted
and India have doubled within a decade. skilled manufacturing and middle-skilled starkly with the triumphalism of the mid-
This is cause for optimism. An Indian with service jobs that can be delivered electronically 19th century, says Nicholas Crafts of Warwick
a basic college education has access to world- have been outsourced to cheaper suppliers in University. A wave of protectionist sentiment
class goods that his parents (who might have China, India and elsewhere (indeed, China is challenged the free-trade consensus that had
saved for decades for a sputtering scooter) now rich enough to be vulnerable to losing prevailed since 1846. It was seen off, but not
could only have dreamed of buying. The jobs to Vietnam and Indonesia). The threat before it had split the Tory party, which lost
recent leap in incomes is visible in Chinese of outsourcing puts downward pressure on the 1906 election to the Liberals.
cities, where the cars are new but the bicycles pay, though most American studies suggest No country, or group of countries, stays
look ancient, and in the futuristic skyline of that trade accounts for only a small part of on top forever. History and economic theory
Shanghai’s financial district. the increase in wage inequality. suggest that sooner or later others will catch
China is still a fairly poor country but, by A third concern, which is at odds with the up. But this special report will caution against
dint of its large population, it is already the first two, is that the emerging markets are relying on linear extrapolation from recent
world’s second-largest economy measured in prone to crises that can cause a still-fragile growth rates. Instead, it will suggest that the
current dollars. It may overtake America as the world economy to stumble. Sluggish GDP transfer of economic power from rich countries
world’s leading economy within a decade (see growth in the rich world means developing to emerging markets is likely to take longer
box), a prospect that has given rise to many countries have to fall back on internal spending, than generally expected. Rich countries will
concerns in that country. More generally, there which in the past they have not managed be cursed indeed if they cannot put on an
are worries about what the ascendancy of well. It raises the risks of the overspending, occasional growth spurt. China, for its part,
emerging markets would mean for jobs, pay excessive credit and inflation that have spurred will be lucky to avoid a bad stumble in the
and borrowing costs in the rich world. past emerging-market crises. Even if crises next decade or two. Emerging-market crises
The first worry is about direct competition are avoided, emerging markets are prone to have been too quickly forgotten, which only
for things that are in more or less fixed supply: sudden slowdowns as they become richer makes them more likely to recur.
geopolitical supremacy, the world’s oil and and the trick of shifting underemployed rural Education and social security will have to
raw materials, the status and perks that come adapt to a world in which jobs continue to be
with being the issuer of a trusted international created and displaced at a rapid rate. The cost
currency. For most people, most of the time, their of oil and other commodities will continue
country’s ranking in terms of military power is to rise faster than prices in general, shifting
not a big issue. The emerging world’s hunger the terms of trade in favour of resource-rich
for natural resources, on the other hand, has countries and away from big consumers such
made rich-world consumers palpably worse as America. The yuan will eventually become
off by pushing up the prices of oil and other an international currency and rival to the
commodities. The yuan’s increased use beyond dollar. The longer that takes, the less pressure
China’s borders is a (still distant) threat to the America will feel to control its public finances
dollar’s central role in trade and international and the likelier it is that the dollar’s eclipse
finance, but if the dollar were eventually shoved will be abrupt and messy.
aside, it would make Americans poorer and The force of economic convergence depends
raise the cost of their borrowing. on the income gap between developing and
A second set of anxieties relates to job developed countries. Going from poor to less
security and pay. Ever stronger trade links poor is the easy part. The trickier bit is making
between rich and would-be rich countries the jump from middle-income to reasonably
will mean a reshuffle in the division of labour rich. Can China and others manage it? n
13
The pillars of livelihoods
Reprinted from The Economist - 2014
Has the ideas machine broken down? because they are catching up with technologies
already used elsewhere. The rich world has
no such engine to pull it along, and it shows.
Reprinted from The Economist, Jan 12th 2013
This is hardly unusual. For most of human
history, growth in output and overall economic
welfare has been slow and halting. Over the
The idea that innovation and new technology University, argued that the financial crisis past two centuries, first in Britain, Europe and
have stopped driving growth is getting was masking a deeper and more disturbing America, then elsewhere, it took off. In the
increasing attention. But it is not well “Great Stagnation”. It was this which explained 19th century growth in output per person—a
founded why growth in rich-world real incomes and useful general measure of an economy’s
employment had long been slowing and, since productivity, and a good guide to growth
BOOM times are back in Silicon Valley. 2000, had hardly risen at all (see chart 1). The in incomes—accelerated steadily in Britain.
Office parks along Highway 101 are once various motors of 20th-century growth—some By 1906 it was more than 1% a year. By the
again adorned with the insignia of hopeful technological, some not—had played themselves middle of the 20th century, real output per
start-ups. Rents are soaring, as is the demand out, and new technologies were not going person in America was growing at a scorching
for fancy vacation homes in resort towns to have the same invigorating effect on the 2.5% a year, a pace at which productivity and
like Lake Tahoe, a sign of fortunes being economies of the future. For all its flat-screen incomes double once a generation (see chart 2).
amassed. The Bay Area was the birthplace of dazzle and high-bandwidth pizzazz, it seemed More than a century of increasingly powerful
the semiconductor industry and the computer the world had run out of ideas. and sophisticated machines were obviously
and internet companies that have grown up a part of that story, as was the rising amount
in its wake. Its wizards provided many of the Glide path of fossil-fuel energy available to drive them.
marvels that make the world feel futuristic, The argument that the world is on a technological But in the 1970s America’s growth in real
from touch-screen phones to the instantaneous plateau runs along three lines. The first comes output per person dropped from its post-
searching of great libraries to the power to from growth statistics. Economists divide second-world-war peak of over 3% a year to
pilot a drone thousands of miles away. The growth into two different types, “extensive” just over 2% a year. In the 2000s it tumbled
revival in its business activity since 2010 and “intensive”. Extensive growth is a matter below 1%. Output per worker per hour shows
suggests progress is motoring on. of adding more and/or better labour, capital a similar pattern, according to Robert Gordon,
So it may come as a surprise that some and resources. These are the sort of gains an economist at Northwestern University: it
in Silicon Valley think the place is stagnant, that countries saw from adding women to is pretty good for most of the 20th century,
and that the rate of innovation has been the labour force in greater numbers and then slumps in the 1970s. It bounced back
slackening for decades. Peter Thiel, a founder increasing workers’ education. And, as Mr between 1996 and 2004, but since 2004 the
of PayPal, an internet payment company, and Cowen notes, this sort of growth is subject annual rate has fallen to 1.33%, which is as
the first outside investor in Facebook, a social to diminishing returns: the first addition will low as it was from 1972 to 1996. Mr Gordon
network, says that innovation in America is be used where it can do most good, the tenth muses that the past two centuries of economic
“somewhere between dire straits and dead”. where it can do the tenth-most good, and so growth might actually amount to just “one
Engineers in all sorts of areas share similar on. If this were the only sort of growth there big wave” of dramatic change rather than a
feelings of disappointment. And a small but was, it would end up leaving incomes just new era of uninterrupted progress, and that
growing group of economists reckon the above the subsistence level. the world is returning to a regime in which
economic impact of the innovations of today Intensive growth is powered by the discovery growth is mostly of the extensive sort (see
may pale in comparison with those of the past. of ever better ways to use workers and chart 3).
Some suspect that the rich world’s economic resources. This is the sort of growth that Mr Gordon sees it as possible that there were
doldrums may be rooted in a long-term allows continuous improvement in incomes only a few truly fundamental innovations—
technological stasis. In a 2011 e-book Tyler and welfare, and enables an economy to grow the ability to use power on a large scale,
Cowen, an economist at George Mason even as its population decreases. Economists to keep houses comfortable regardless of
14
The pillars of livelihoods
Reprinted from The Economist - 2014
outside temperature, to get from any A to years in terms of their speed. Computers have
Flattened out 1
any B, to talk to anyone you need to—and sped up immeasurably. Unless you can show
that they have mostly been made. There Real hourly earnings in manufacturing sector that planes matter more, to stress the stasis
will be more innovation—but it will not 2005=100 over the progress is simply a matter of taste.
change the way the world works in the Mr Gordon and Mr Cowen do think that
120
way electricity, internal-combustion engines, United States now-mature technologies such as air transport
plumbing, petrochemicals and the telephone 100 have mattered more, and play down the
have. Mr Cowen is more willing to imagine economic importance of recent innovations.
big technological gains ahead, but he thinks 80 If computers and the internet mattered to the
there are no more low-hanging fruit. Turning Britain economy—rather than merely as rich resources
terabytes of genomic knowledge into medical 60 for intellectual and cultural exchange, as
Germany
benefit is a lot harder than discovering and experienced on Mr Cowen’s popular blog,
40
mass producing antibiotics. Marginal Revolution—their effect would be
Japan
The pessimists’ second line of argument is 20 seen in the figures. And it hasn’t been.
based on how much invention is going on. 1956 70 80 90 2000 11 As early as 1987 Robert Solow, a growth
Amid unconvincing appeals to the number of Sources: OECD; The Economist theorist, had been asking why “you can see
patents filed and databases of “innovations” the computer age everywhere but in the
put together quite subjectively, Mr Cowen change. The gizmos are more numerous and productivity statistics”. A surge in productivity
cites interesting work by Charles Jones, an digital displays ubiquitous, but cooking is growth that began in the mid-1990s was seen
economist at Stanford University. In a 2002 done much as it was by grandma. as an encouraging sign that the computers
paper Mr Jones studied the contribution of Or take speed. In the 19th century horses were at last becoming visible; but it faltered,
different factors to growth in American per- and sailboats were replaced by railways and and some, such as Mr Gordon, reckon that
capita incomes in the period 1950-93. His work steamships. Internal-combustion engines the benefits of information technology have
indicated that some 80% of income growth and jet turbines made it possible to move largely run their course. He notes that, for all its
was due to rising educational attainment more and more things faster and faster. But inhabitants’ Googling and Skypeing, America’s
and greater “research intensity” (the share of since the 1970s humanity has been coasting. productivity performance since 2004 has
the workforce labouring in idea-generating Highway travel is little faster than it was been worse than that of the doldrums from
industries). Because neither factor can continue 50 years ago; indeed, endemic congestion the early 1970s to the early 1990s.
growing ceaselessly, in the absence of some has many cities now investing in trams and
new factor coming into play growth is likely bicycle lanes. Supersonic passenger travel has The fountains of paradise
to slow. been abandoned. So, for the past 40 years, Closer analysis of recent figures, though,
The growth in the number of people working has the moon. suggests reason for optimism. Across the
in research and development might seem Medicine offers another example. Life economy as a whole productivity did slow
to contradict this picture of a less inventive expectancy at birth in America soared from in 2005 and 2006—but productivity growth
economy: the share of the American economy 49 years at the turn of the 20th century in manufacturing fared better. The global
given over to R&D has expanded by a third to 74 years in 1980. Enormous technical financial crisis and its aftermath make more
since 1975, to almost 3%. But Pierre Azoulay advances have occurred since that time. Yet recent data hard to interpret. As for the strong
of MIT and Benjamin Jones of Northwestern as of 2011 life expectancy rested at just 78.7 productivity growth in the late 1990s, it
University find that, though there are more years. Despite hundreds of billions of dollars may have been premature to see it as the
people in research, they are doing less good. spent on research, people continue to fall to effect of information technology making
They reckon that in 1950 an average R&D cancer, heart disease, stroke and organ failure. all sorts of sectors more productive. It now
worker in America contributed almost seven Molecular medicine has come nowhere close looks as though it was driven just by the
times more to “total factor productivity”— to matching the effects of improved sanitation. industries actually making the computers,
essentially, the contribution of technology and To those fortunate enough to benefit from mobile phones and the like. The effects on
innovation to growth—that an R&D worker the best that the world has to offer, the fact the productivity of people and companies
in 2000 did. One factor in this may be the that it offers no more can disappoint. As Mr buying the new technology seem to have
“burden of knowledge”: as ideas accumulate Thiel and his colleagues at the Founders Fund, begun appearing in the 2000s, but may not
it takes ever longer for new thinkers to catch a venture-capital company, put it: “We wanted yet have come into their own. Research by
up with the frontier of their scientific or flying cars, instead we got 140 characters.” A Susanto Basu of Boston College and John
technical speciality. Mr Jones says that, from world where all can use Twitter but hardly Fernald of the San Francisco Federal Reserve
1985 to 1997 alone, the typical “age at first any can commute by air is less impressive suggests that the lag between investments in
innovation” rose by about one year. than the futures dreamed of in the past.
The first thing to point out about this Rising tide 2
A fall of moondust appeal to experience and expectation is that GDP per person, 1990 $’000*
The third argument is the simplest: the evidence the science fiction of the mid-20th century,
of your senses. The recent rate of progress important as it may have been to people 35
seems slow compared with that of the early who became entrepreneurs or economists 30
and mid-20th century. Take kitchens. In 1900 with a taste for the big picture, constituted United States
25
kitchens in even the poshest of households neither serious technological forecasting nor
were primitive things. Perishables were kept a binding commitment. It was a celebration 20
cool in ice boxes, fed by blocks of ice delivered through extrapolation of then current progress 15
on horse-drawn wagons. Most households in speed, power and distance. For cars read 10
lacked electric lighting and running water. Fast flying cars; for battlecruisers read space cruisers. World
forward to 1970 and middle-class kitchens in Technological progress does not require all 5
America and Europe feature gas and electric technologies to move forward in lock step, 0
hobs and ovens, fridges, food processors, merely that some important technologies are 1820 50 1900 50 2008
microwaves and dishwashers. Move forward always moving forward. Passenger aeroplanes Source: Angus Maddison,
University of Groningen *At purchasing-power parity
another 40 years, though, and things scarcely have not improved much over the past 40
15
The pillars of livelihoods
Reprinted from The Economist - 2014
16
The pillars of livelihoods
Reprinted from The Economist - 2014
great minds that might otherwise have toiled in his mother’s lap. But the cat is hard to see,
at subsistence farming can instead join the because young Agus cannot hold himself
modern economy and share the burden of upright. His body is bowed by microcephaly,
knowledge with rich-world researchers—a an undersized skull and brain, which plays
sharing that information technology makes havoc with his motor functions.
ever easier. His mother has been advised to seek therapy
It may still be the case that some parts of in Bandung, 60km (37 miles) away from
the economy are immune, or at least resistant, their home in Gunturmekar, a village in the
to some of the productivity improvement that Indonesian province of West Java. The family’s
information technology can offer. Sectors medical bills there would in principle be paid
like health care, education and government, by the government under a scheme called
in which productivity has proved hard to Jamkesmas, which has covered over 76m of
increase, loom larger within the economy Indonesia’s poorer citizens since 2008.
started in the 1970s radiated outwards from than in the past. The frequent absence of But his mother says she cannot afford
the most energy-intensive sectors, a product market pressure in such areas reduces the to make the trips. Her hopes now rest with
of the decade’s oil shocks. Dear energy may pressure for cost savings—and for innovation. another scheme called PNPM Generasi. It gives
help explain the productivity slowdown of For some, though, the opposite outcome is the funds to the village (about 47m rupiah, or
the 2000s as well. But this is a trend that one one to worry about. Messrs Brynjolfsson and $5,300 last year) which a board of 11 villagers
can hope to see reversed. In America, at least, McAfee fear that the technological advances decides how to spend. But it is doubtful Agus
new technologies are eating into those high of the second half of the chessboard could will qualify. PNPM Generasi is dedicated
prices. Mr Thiel is right to reserve some of be disturbingly rapid, leaving a scourge of to improving school attendance, maternal
his harshest criticism for the energy sector’s technological unemployment in their wake. health and infant nutrition. But feeding is
lacklustre record on innovation; but given the They argue that new technologies and the not Agus’s problem, his mother admits. He’ll
right market conditions it is not entirely hopeless. globalisation that they allow have already eat anything.
Perhaps the most radical answer to the contributed to stagnant incomes and a decline For decades Indonesia’s government
problem of the 1970s slowdown is that it in jobs that require moderate levels of skill. has tried to improve the lot of villages like
was due to globalisation. In a somewhat Further progress could threaten jobs higher Gunturmekar through piecemeal projects.
whimsical 1987 paper, Paul Romer, then at up and lower down the skill spectrum that Some, like Jamkesmas, have breadth but no
the University of Rochester, sketched the had, until now, seemed safe. depth: it has an annual budget of less than
possibility that, with more workers available Pattern-recognition software is increasingly $10 per person. Others, like PNPM Generasi,
in developing countries, cutting labour costs in good at performing the tasks of entry-level respond to the community’s demands not the
rich ones became less important. Investment lawyers, scanning thousands of legal documents individual’s. But Indonesia is now embarking
in productivity was thus sidelined. The idea for relevant passages. Algorithms are used to on something more systematic: it is laying the
was heretical among macroeconomists, as it write basic newspaper articles on sporting foundations of a welfare state.
dispensed with much of the careful theoretical outcomes and financial reports. In time, they Last October Indonesia’s parliament passed
machinery then being used to analyse growth. may move to analysis. Manual tasks are also a law pledging to provide health insurance
But as Mr Romer noted, economic historians vulnerable. In Japan, where labour to care for to all of the country’s 240m citizens from
comparing 19th-century Britain with America an ageing population is scarce, innovation in January 1st 2014. One government agency
commonly credit relative labour scarcity in robotics is proceeding by leaps and bounds. will collect premiums and foot the bills,
America with driving forward the capital- The rising cost of looking after people across making it the biggest single-payer system in
intense and highly productive “American the rich world will only encourage further the world, says Dr Hasbullah Thabrany of
system” of manufacturing. development. Universitas Indonesia in Jakarta. The same
Such productivity advances should generate law also committed the government to extend
The view from Serendip enormous welfare gains. Yet the adjustment period pensions, death benefits and worker-accident
Some economists are considering how Mr could be difficult. In the end, the main risk to insurance to the nation by July 2015. The
Romer’s heresy might apply today. Daron advanced economies may not be that the pace government has said little about the cost
Acemoglu, Gino Gancia, and Fabrizio Zilibotti of innovation is too slow, but that institutions or generosity of these broader benefits. If
of MIT, CREi (an economics-research centre in have become too rigid to accommodate truly Indonesia tried to universalise the kind of
Barcelona) and the University of Zurich, have revolutionary changes—which could be a lot package now enjoyed by civil servants and
built a model to study this. It shows firms in more likely than flying cars. n 9m salaried employees, it would have to
rich countries shipping low-skill tasks abroad collect over 18% of wages to fund the scheme
when offshoring costs little, thus driving apart fully, according to calculations by Mitchell
the wages of skilled and unskilled workers at Wiener of the World Bank. Passing the law
home. Over time, though, offshoring raises is always easier than paying for it.
wages in less-skilled countries; that makes Asian welfare states Indonesia is not the only country in developing
innovation at home more enticing. Workers
are in greater demand, the income distribution New cradles to
narrows, and the economy comes to look
more like the post-second-world-war period graves
than the 1970s and their aftermath.
Even if that model is mistaken, the rise Reprinted from The Economist, Sep 8th 2012
of the emerging world is among the biggest
reasons for optimism. The larger the size The welfare state is flowering in Asia. Will
of the global market, the more the world it free the continent from squalor? Or sink
benefits from a given new idea, since it can it in debt?
then be applied across more activities and
more people. Raising Asia’s poor billions into A CARTOON cat decorates the T-shirt worn
the middle class will mean that millions of by Agus Kurniawan, a two-year-old cradled
17
The pillars of livelihoods
Reprinted from The Economist - 2014
18
The pillars of livelihoods
Reprinted from The Economist - 2014
insurance card do not belong to the bottom Indonesia has promised to offer to the nation
3
Fast track to an old problem 30% for whom such cards are intended, says in 2015 will be partly on a “defined benefit”
Workers per retiree*, forecasts Matthew Wai-Poi of the World Bank. With basis, under which a person’s pension may
Singapore Hong Kong Italy the bank’s help, the government has drawn not necessarily match his contributions. The
South Korea Germany Japan up a new list of the indigent, based on proxies government thus has crucial decisions to
for poverty (dirt floors, unprotected wells, make about the size of the benefits and the
7
shared toilets without drains, and so on) that distribution of the burden. Unfortunately,
6 are easier to verify and harder to manipulate. Mr Widianto says, “no one is doing those
5 That said, in other countries people have been calculations right now.”
known to hide their motorbike and borrow Statutory retirement ages tend to be low in
4
the neighbours’ kids to seem more deserving developing Asia: averaging 59 for men and
3 than they are. 58 for women, according to the OECD. In
2 At least Jamkesmas attempts to target Thailand, people can withdraw their pension
the poor. One of Indonesia’s biggest fiscal fund at 55 and many workers are required
1
giveaways subsidises motor fuel regardless to retire at 60. Thai women can expect to
0 of who uses it, and thus mostly ends up with live for 27 years after retirement, the OECD
2015 25 35 45 55 60 calculates; Sri Lankan women for almost 35
the car-owning rich. Last year those subsidies
*15-64-year-olds per cost the government nine times what health years. Fortunately, the fiscal problems implicit
Source: UN Population Division 65+ year-old
care did. in such longevity can be headed off before
The third problem is the sheer size of some the new schemes mature. As M. Ramesh of
change as Asia ages, but high co-payments (in countries and their range of living standards. the Hong Kong Institute of Education points
South Korea), low payments to hospitals (in Enforcing national welfare standards in a out, South Korea cut the benefits offered by
Thailand) and sparse facilities (in Indonesia country like China, India or Indonesia is more its national pension scheme, introduced in
and elsewhere) have also contained costs. akin to establishing common standards, not 1988, before anyone had made the 20 years
The results of the region’s welfare-state- in a single country like Germany or Greece, of contributions required to qualify for it.
building are neatly summarised by the Asian but in the European Union as a whole—not New technological possibilities should
Development Bank’s Social Protection Index (see something that has advanced noticeably far make Asia’s schemes cheaper to run than the
chart 2). It divides a country’s social spending in 50 years. West’s old ones. Britain’s NHS spent almost
by the number of potential beneficiaries and ten years and £6.4 billion trying to get its
expresses the result as a percentage of the Second-mover advantage records digitised before abandoning the effort
country’s GDP per head. If Japan’s social- Under the current system migrant workers in last year. India’s new health-care scheme for
security spending were divided in this way, China worry that their pension entitlements the poor aims to be cashless and paperless
each beneficiary would receive about 13% of will not follow them if they move from one from the start, using swipeable smart cards
the country’s GDP per head. For South Korea, province to another. The owner of the Fukang to make payments and convey information.
even after two decades of democracy, that Market store in a village outside Beijing is In Pakistan over 140,000 poor people have
figure is only 7.1% originally from Shanxi province, 500km away. received cash transfers over the phone under
Asian countries have tended to spread He and his wife have not joined the local the Benazir Income Support Programme.
their spending thin. South Korea’s means- pension scheme, worried that if, say, their Some Asian countries will increasingly
tested basic pension covers about 70% of store were torn down, they would have to stake out the welfare frontier. The region has
the elderly but pays only 5% of the average move—but their pension would not follow. already set some records. Singapore must be
wage, according to Randall Jones of the OECD. However, as latecomers to the welfare state, the only capitalist society to house more than
Indonesia’s Jamkesmas scheme purports to Asian countries also have certain advantages. 80% of its population in public housing. South
cover everyone in the bottom 30%. But in They can learn from the West’s mistakes, Korea beats the world in college enrolment (it
reality, about 80% of cardholders do not and they can leapfrog some of its obsolete has more students than 18- to 23-year-olds).
know what they are entitled to, and some, practices.
like Agus’s mother, could not make it to a The starkest lesson they can learn is fiscal. Beyond catch-up
hospital even if they did. Bambang Widianto, the head of Indonesia’s But Asian countries will also face new
The paucity of Asia’s coverage partly reflects task-force against poverty, confesses to being challenges—or at least old challenges accelerated
distinctive problems. One is informal workers, scared by the example of Greece. Unlike (see chart 3). Singapore, South Korea and
who remain a big share of the labour force Singapore, where citizens are required to Hong Kong are ageing faster than any other
by rich-world standards even in relatively contribute to a provident fund from which countries. By 2040 they will have fewer than
prosperous countries, where they include their pensions will be drawn, the pensions two people of working age to support every
everyone from day labourers to self-employed person aged 65 or more. They will have to
lawyers. When Thailand tried to enroll people pioneer ways to lighten that burden and keep
who were neither poor nor employed by big the elderly active. In the West, the welfare
firms in a voluntary health-insurance scheme state rescued the elderly from indigence.
in the 1990s, the sick tended to join but the In the East, it will have to spare them from
healthy stayed away, leaving a large share indolence.
of the population uncovered. In 2001 the South Korea already subsidises the
government decided it was cheaper to pay employment of the elderly. It is now also
for their coverage itself, demanding only a beginning to socialise the burden of caring
30-baht co-payment per visit to the doctor. for them. In 2008 it introduced insurance for
Just as contributions are hard to collect, so long-term geriatric care. Needy cases are given
beneficiaries are often hard to identify. Many a score out of 100 for decrepitude, based on
Asian programmes are intended only for the whether they can brush their teeth, remember
poor, but they can be hard to distinguish from their birth date, and so on. If their score is
everyone else. Over half of the Indonesians bad enough, they may get help from the state
who now hold the free Jamkesmas health- with daily tasks like bathing or housework.
19
The pillars of livelihoods
Reprinted from The Economist - 2014
Pensions
Falling short
Reprinted from The Economist, Apr 7th 2011
(as in much of Europe). In some cases the the employees. In theory, they can provide
People in rich countries are living longer. state has required such schemes to cover all an adequate retirement income as long as
Without big reforms they will not be able employees. Australia, for instance, has turned enough money is paid in, but employees and
to retire in comfort, says Philip Coggan itself into the world’s fourth-largest market for employers are contributing too little. Both sorts
fund management by setting up a compulsory of funded schemes, DB and DC, essentially
WHEN GERTRUDE JANEWAY died in 2003, national pension scheme for its 22m people. face the same problem. “The aggregate amount
she was still getting a monthly cheque for On top of that, people accumulate savings of pension savings is inadequate,” says Roger
$70 from the Veterans Administration—for a (sometimes called pensions and sometimes Urwin of Towers Watson, a consultancy.
military pension earned by her late husband, not) that they expect to draw on during their Estimating the cost of pension provision
John, on the Union side of the American civil declining years. has proved enormously difficult. People have
war that ended in 1865. The pair had married consistently lived longer than the actuaries
in 1927, when he was 81 and she was 18. The four challenges have expected. In 1956 a 60-year-old woman
The amount may have been modest but the Pension provision is higgledy-piggledy and retiring from a job in Britain’s National Health
entitlement spanned three centuries, illustrating often complex, but most rich countries are Service had a life expectancy of just under
just how long pension commitments can last. having to deal with four main underlying 20 years; by 2010 she could expect to live for
A pension promise can be easy to make problems. This special report will analyse another 32 years.
but expensive to keep. The employers who these in detail and suggest ways of tackling Paying a pension for longer is much more
promised higher pensions in the past knew them. The first is that people are living longer, expensive, particularly if the payout is linked
they would not be in their posts when the bill but they are retiring earlier than they were 40 to inflation. The Economist asked MetLife,
became due. That made it tempting for them years ago. A higher proportion of their lives an insurance company, to calculate what a
to offer higher pensions rather than better is thus spent in retirement. Second, the large couple in America would have to spend on
pay. Over the past 15 years the economics of generation of baby-boomers (in America, an annuity paying out the maximum level of
the deal have become clear, initially in the those born between 1946 and 1964) is now Social Security benefit (the state pension) at
private sector, where pensions (and health- retiring. But the following generations are age 66: $4,692 a month now and rising in line
care costs after retirement) were central to smaller, leaving the children of the boomers with inflation. The answer is almost $1.2m.
the bankruptcy of General Motors and many with a huge cost burden. Politicians tend to underestimate the cost
other firms. Third, some employees have been promised of financing PAYG systems. It is tempting to
There are big national differences, but in pensions linked to their salaries, known as look simply at the ratio of cash benefits to
most developed countries the bulk of retirement defined-benefit (DB) schemes. In the 1980s contributions, rather than allowing for the
income (around 60%, according to the OECD) and 1990s the true cost of these promises value of the promises being made to future
comes from the state. Most countries offer was hidden by a long bull market in equities. pensioners. But even on a cash basis, pension
some kind of basic safety net for those who But the past dismal decade for stockmarkets finances are deteriorating. In 2010 America’s
have no other income. In addition to this, they depleted those funds and left employers Social Security system ran a cash deficit for
may have a social-insurance scheme to which on the hook for the shortfall. Private-sector the first time since 1983 as more money was
workers and employers contribute. Despite employers have largely stopped making paid out in benefits than was collected in
the insurance label, these are essentially pay- such promises to new employees; the public contributions. This happened about six years
as-you-go (PAYG) systems in which benefits sector is beginning to face the same issues, earlier than expected, thanks to unusually
are paid out of current taxes. particularly in Britain and America. high unemployment.
In some countries workers also have pension Fourth, private-sector employers are now The immediate cash cost is only part of
rights that are linked to their employment, providing pensions in which the payouts are the problem; the longer-term calculation also
whether it is in the public or the private sector. linked to the investment performance of the involves the value of future pension promises.
Such schemes can be funded (as in America, funds concerned. These defined-contribution In bearing that burden, the key figure is the
Britain and the Netherlands) or unfunded (DC) schemes transfer nearly all the risk to ratio of workers to pensioners, known as
20
The pillars of livelihoods
Reprinted from The Economist - 2014
5.3 4.6
4.3
3.6 4.0 3.5
2.4 2.1 2.3
350
2010
1970
Number of people
2050* 2.4
over 65 in the OECD 2050* m N
*Forecast New Zealand
Total pension assets, 13 major pension markets, 2010 Life expectan
United States $trn, selected countries % of GDP
=$
26.5trn Australia
Netherlands
1.26
1.03
103
134
daughters born to Eugene and Alice Theriault
in Canada between 1920 and 1941.
They were all claiming a government
19
Unite
42% ($11.2trn) Germany 0.47 14 pension in 2007, with their ages ranging Britai
other major markets France 0.13 5 from 66 to 87.
the support (or dependency) ratio. This is future changes in the retirement age will be sector workers) do not show up in the debt-
deteriorating steadily in all rich countries indexed to the rise in life expectancy. to-GDP ratios that are used to analyse state
(see chart). As a result, the tax burden is set Sweden, Germany and Japan already finances. Adding them in makes the position
to rise, at a time when many countries are have an automatic balancing system to deal look even more alarming. On conservative
still struggling to cope with the fiscal deficits with deteriorating pension finances, largely accounting assumptions, the combined pension
left over from the financial crisis. by making the inflation-linking of benefits deficits of the American states are equal to a
Pensions paid through a funded scheme do less generous. The Netherlands, which has quarter of the gross federal debt.
not necessarily work better. Many American the best-funded (and widely admired) DB The problem is particularly acute at the level
states and cities have been underfunding the pension system in the world, also limits of America’s states because so many of them
pension schemes for their employees for inflation-linking, but delivers pensions that have balanced-budget amendments. When
years, gambling on the stockmarkets to bail are very close to average earnings. Research pension shortfalls require higher contributions,
them out. That gamble has failed, and now by Towers Watson shows that it has a higher the money must be found from somewhere:
taxpayers are expected to come to the rescue. ratio of pension assets to GDP than any other higher taxes, less spending on other services or
Either taxes must rise or benefits must be cut. country—and it benefits from economies of higher contributions from workers (amounting
scale, with pension provision dominated by to a pay cut). A further difficulty is that pension
A cut by another name the giant ABP and PGGM funds. However, rights have been deemed to be legally (and in
The most obvious “cut” is for people to contributions are high and the rules on solvency some cases constitutionally) protected—though
work longer so that pensions are paid over a are extremely strict, requiring liabilities to be some Republican governors have tried to cut
smaller proportion of their lifetime. In many more than 100% funded. unions’ bargaining rights.
countries reform attempts have accordingly Pension promises involve a transfer from The key figure is the ratio of workers to
concentrated on raising the minimum retirement one generation to another, even when one of pensioners, known as the support ratio. This
age or increasing the number of years for those generations is too young to vote. That is deteriorating steadily in all rich countries
which an employee has to contribute before is true even when schemes are funded, and Private-sector workers may be aggrieved at
qualifying for full benefits. In France a move the money invested in equities and bonds; having to fund the generous pensions of their
to raise the minimum retirement age to 62 future workers will have to generate the public-sector counterparts through their taxes.
was accompanied by a phased increase in the income needed to pay the dividends on those But unions are strongest in the public sector
minimum level of contributions from 40.5 to shares and the interest on that debt. and will fight hard. Nobody seriously disputes
41.5 years, a change that was duly attacked That is turning pensions into a battleground, that employees should keep the pension rights
by left-wing commentators as being unfair pitting young against old and taxpayers against they have accrued so far, although they may
to unemployed workers, part-timers and pensioners. The fiscal crisis has exacerbated receive the benefits later; the battle is over
students entering the job market late. Italy the fight. Pension promises made by the whether employees should be allowed to
has gone one stage further: from 2015 on, government (either to all citizens or to public- keep accruing the same perks in the future.
21
The pillars of livelihoods
Reprinted from The Economist - 2014
on the country.
Participation rates of 50-64-year-olds Retirement age Sir Winston Churchill The replacement ratio needs to be higher
Male became prime than average for the least well paid, who
% 1970 2008 minister at
65
% change Official Actual spend proportionately more on essentials such
1970 - 2008 0 20 40 60 80 2010 2004-09
as food, fuel and shelter. The OECD reckons
Turkey 60 62.8 that the net replacement ratio (allowing for
Italy 65 61.1 the effect of taxes) for the poorest workers,
Greece 65 61.9 on half mean earnings, averages just under
–then the 83%, but there are big national differences;
France 60 59.1 standard in Denmark, Greece and the Netherlands it
44 Spain 65 61.8 retirement age.
is more than 100%, but in Germany, Mexico
n Mexico 65 72.2 and Japan it is under 60%.
Defined-benefit So despite the need for cutting costs,
Netherlands 65 62.1 pension holders
American private-sector governments need to ensure that their elderly
Australia 65 64.8 workers* with no other citizens have enough money to maintain a
Britain 65 64.3 plan type decent standard of living. In the majority of
62
Denmark 65 64.4 1979 countries poverty rates among the elderly are
37 Germany 65 61.8
higher than those in the general population.
United States 66 65.5 % Women are in a worse position than men:
they live longer, typically earn less and spend
Japan
New Zealand
65
65
69.7
67.1
2009
7 %
a shorter time in the workforce. If they are
married, their pension entitlements often
*% of total with plans depend on their husbands’ earnings.
land
Japan, which started greying earlier than
Life expectancy at 65, male, years The first American to other developed economies, can be viewed as
1940 2007 receive a monthly Social
Security cheque was an ominous precedent. Its only advantage in the
France 9.90 18.15 Ida May Fuller. pensions battle has been that its workers tend to
She paid in only retire later than those in other countries—around
United States 11.94 17.52 $24.75 a decade after those in France. Nevertheless,
$ and got out the ageing of its population over the past 20
Britain 10.84 17.40 $22,888.92 years has been accompanied by deflationary
She died at 100. pressures, sluggish economic growth and
moribund asset markets. Public spending
on pensions has risen by more than 80%. In
Britain’s coalition government is desperately the employer or the government would the corporate sector lax accounting standards
trying to cut its deficit, so a rise in pension provide. In America and Britain the switch disguised the true cost of providing pensions.
costs is particularly inopportune; as it is, the from DB to DC schemes in the private sector When the standards were changed, the true
gap between public-sector pension benefits has left the responsibility with the individual horror was revealed: in 2003 the average plan
paid and contributions received is expected to worker, but employees have yet to rise to was just 42% funded, so the government had
widen from £4 billion in 2010-11 to £10.3 billion the challenge. They are not putting enough to take over the liabilities of many companies.
by 2015-16. A recent government-commissioned money in, and inevitably will not get enough Even after this rescue, Japan Airlines had to
report into the cost of public-sector schemes out. British pensioners with DC plans have slash pensions by 30% as part of a restructuring
by Lord Hutton, a former Labour minister, accumulated an average pension pot of only plan—a huge blow to pensioners’ standard
proposed a number of changes, including a later £27,000, according to Aviva, an insurance of living.
retirement age, higher employee contributions company—enough to buy a pension of just Where Japan has led, other ageing economies
and a pension based on the employee’s career- £2,000 a year, with no inflation protection. may follow. This special report will focus on
average, rather than final, salary. That will not go far to supplement Britain’s rich countries, where most of the problems
Since pensions are a form of deferred pay, meagre state pension. arise. The details may differ but the impact of
workers view such reforms as a pay cut, albeit Whether or not people can expect a the baby-boomers shows up everywhere; their
to pension rights they have not yet accrued. comfortable retirement depends on the pensions will be a huge burden on coming
There is room for debate about whether such replacement ratio—the proportion of their generations. n
cuts are fair. But in some countries the raid on lifetime average earnings that their pension
pensioners’ assets has been rather more brazen. will pay out. This does not have to be close
Hungary, for instance, set up a mandatory to 100% because generally pensioners need
pension system in 1998 to supplement the less to live on than full-time workers. They
state scheme, with contributions deducted avoid the expenses associated with work and Working women
from wages and invested in a private fund. By dependent children, have mostly paid off the
2010 the fund had amassed nearly $14 billion mortgage on their house and no longer need Still struggling
of assets, but the cash-strapped government to save for their retirement.
has in effect nationalised it by imposing stiff But the ratio often falls short of expectations. Reprinted from The Economist, Nov 25th 2011
financial penalties on workers who want to The OECD reckons that the average worker
remain in the private sector. Argentina, for in its member countries currently gets a state Women have made huge progress in the
its part, seized private-sector pension assets pension of around 42% of his average earnings. workplace, but still get lower pay and fewer
in 2008. If state benefits are cut, more of the burden top jobs than men
If all the burden is not to fall on the state, will fall on private provision. A recent survey
workers need to save more during their lifetimes. by Aviva suggested that European workers are SINCE 1970 the proportion of women in
That may require a change in attitude. The hoping for a replacement ratio in the region of the workforce across the rich world has
old system was distinctly paternalist: either 70% but are likely to get only 35-55%, depending increased from 48% to 64%, a sharp rise but
22
The pillars of livelihoods
Reprinted from The Economist - 2014
Brazil Executives*
10
Japan Board seats*
Management/
Italy professional 0
1980 2010†
India †Or
Sources: ILO; OECD; Catalyst Research *Fortune 500 companies latest available
50
Women in business 40
US, 2010, %
0 20 40 60 80 100
30
CEOs*
Top earners* 20
Executives* television. Over a drink and a snack in her maternity leave at all (though two states,
10
Board seats* stylish house in the woods outside Helsinki California and New Jersey, offer six weeks
Management/
professional she explains1980
that she plans 2010
0 to be at home for
†
at reduced rates of pay). In practice some
Sources: ILO; OECD; Catalyst Research *Fortune 500 companies about a year, but will keep in close touch with
Or latest available † 60% of women in jobs that require a college
her company and then resume work full-time. education do get paid while on baby leave, but
e, %
one which nevertheless Wage gap
Difference between average earnings
Her husband, Pekka Erkinheimo, a lawyer most women doing mundane work do not.
0
leaves
2010
women in rich of full-time male and female employees
% of male earnings
with another company, will do his share. In Until the Pregnancy Discrimination act of 1978
countries underemployed Japan United Sweden
this part of the world balancing work and women could be sacked for being pregnant
87.9 64.0
compared 83.0 with women States
children is for fathers as well as for mothers. or having a child, and until the Family and
Finland Britain France
in China. There are large 50 Finland’s gap between male and female Medical Leave act of 1993 they had no right
variations from country employment rates is less than three percentage to take time off to give birth. Now at least
n business
to country, but the broad 40
points, among the smallest in the world, and they get 12 weeks, albeit unpaid, after which
0 20 40 trend
60 in
80 most 100 places is
30 the vast majority of Finnish women have most return to work fairly promptly. Finding
still slightly upwards. full-time jobs. Anne Brunila, executive vice- child care is entirely up to the parents. It may
Yet while women have 20
president of Fortum, an energy company, seem surprising that American women are
made big strides in all 10
says that those who stay at home are often not put off by all this. They actually produce
kinds of careers they questioned about their choice. But working more children than most Europeans: more
find it harder than men 1980 2010
0
† women’s lives are made easier by employers’ than two per woman. The OECD average is
CD; Catalyst Research
to bag*Fortune
the most senior
500 companies †
Or latest available
enlightened attitudes, excellent public child- only 1.7, well below the replacement rate of
jobs. Just 3% of Fortune care provision and generous family leave. 2.1, and in most big European countries the
500 CEOs are women. And despite sheaves Almost all rich countries provide paid figure is much lower (see chart 4).
of equal-pay legislation, women still get paid maternity leave, averaging about 20 weeks.
less than men for comparable work. This Many also offer paid parental leave, which may What women want
week’s special report explores the reasons be available to either parent but is generally The only European countries whose birth
why progress seems to have stalled and what taken by the mother, so a number of countries, rates come close to America’s are France, the
can be done about it. n including Finland, now have separate “mommy Nordics and Britain, and except for Britain
and daddy quotas”, allocating periods of leave they all have excellent child-care facilities. In
to each parent that cannot be transferred. Four France the écoles maternelles play a big part
out of five Finnish new fathers take a month off. in allowing women to go out to work, and the
All this leave may seem rather expensive Nordic countries are famous for their affordable
Work and family for employers, but “we accept it”, says Ms
4
Inkeroinen of the Confederation of Finnish Birth dearth
Baby blues Industries: children are seen as the responsibility
of society as a whole. Not all employers are
Total fertility, children per woman
0 1 2 3
1950-1955
4 5
2005-2010
Reprinted from The Economist, Nov 26th 2011 so philosophical. There is anecdotal evidence World
A juggler’s guide to having it all hiring women who seem likely to start a family. France
“THE MOST STRESSFUL thing about having working women are heavily concentrated in Britain
this baby was arranging cover at work for the the public sector, which finds it easier than China
time I was going to be away,” says Sara Leclerc, many private firms to accommodate the Spain
fire-protection firm. Her new baby girl is America is in a class of its own as the Japan
asleep and her four-year-old son is watching only rich country where women get no paid Source: UN
23
The pillars of livelihoods
Reprinted from The Economist - 2014
2007 the government changed the incentives concessions and benefits makes it unattractive
because women were becoming disconnected for mothers of young children to work unless
from the labour market. Data on return rates they are very well paid. If governments in
are scarce, but in some European countries such countries want to get more women into
at least a quarter of the women go back to the labour force, they will need to ensure
work when their maternity leave runs out, that good-quality child care is more widely
and in Anglophone countries about half the available and more affordable, for example
women are back on their child’s first birthday. by making it tax-deductible.
In Britain, where it is not, even highly
Home or away? paid professional women such as corporate
What is best for the children? The answer lawyers and accountants complain that
is far from clear-cut, and cultural attitudes after paying their nanny’s salary, tax and
play a part. In Germany a woman who social-security contributions they see little
contracts out the care of her young children or nothing of their own after-tax earnings.
is still called a Rabenmutter, a bad mother. In For low-paid parents the calculation becomes
day-care centres with well-qualified staff. In America nobody thinks anything of dropping even more unattractive. Women in single-
Finland local authorities must guarantee a off the kids at a childminder. parent households—which in rich countries
place for every child under three. Parents The academic literature has turned up now make up one in five households with
on low incomes get it free; the better-off some evidence that if the mother is back children—are often financially better off
pay up to €250 ($340) a month. The centres in employment within less than a year of not working.
are open from 7-8am to 5-6pm and provide the birth the child’s cognitive development But the calculation is not just about
breakfast and lunch. School hours for older may be slightly slowed, and the more so immediate payback. Across the earnings
kids are similarly work-friendly, about the the more hours she works. But the person spectrum, women who have been out of
same as an adult working day, with a free who looks after the child at home does not the labour force for a while find it hard to
lunch. Moreover, those schools produce necessarily have to be the mother: the father get back in because their skills deteriorate,
sparkling results: Finland regularly comes or another person who is well disposed they become less confident and employers
near the top the OECD’s PISA rankings for towards it may do an equally good job. In fret about the hole in their CV. Studies of
educational achievement. some countries grandparents play a big part the effect of career breaks show that even a
A study by the ILO of child care in ten in children’s upbringing. few years away have a devastating impact
countries last year found huge national And much depends on other factors: the on lifetime earnings and pension rights,
differences in provision. In some countries quality of the parenting when the mother is not only because there is no pay coming
nurseries are seen as a public entitlement, at home, the child itself (boys are more likely in but because of the loss of seniority and
rather like schools. In others the care of small than girls to suffer from a mother’s absence) promotion. That is why many women are
children is considered a private matter. Most and the family’s economic circumstances. prepared to work for only a small net return
countries come somewhere in between. Poverty is very bad for children, so if the while their children are young.
Denmark puts the most money into child mother’s work helps to avert it they will All this is assuming that every woman
care, followed by other Nordic countries. benefit. will have a family. Most do, though they
France is also high on the list, as, perhaps If the child care is being outsourced, leave it increasingly late: in rich countries
surprisingly, is Britain. America and Japan then its quality makes all the difference. the average age at which they have their
spend well below the average. Poor child care can set a child back. Yet in first child is now 28, compared with 24 in
The study found that most countries are Denmark, where women tend to go back 1970. But growing numbers of women are
seriously short of good-quality child care to work within a few months of giving forsaking motherhood altogether. Of those
for children under three. The market does birth and public child-care provision is born in 1965 (who will by and large have
not provide enough of it because if done first-class, studies have found no ill effects completed their families), 18% are childless,
properly it is too expensive for most parents, on children’s behaviour in their first year of with large variations from country to country.
so governments often subsidise it. Provision life. And once the child is older than one, In Portugal the figure is only 4%, in Italy
for older pre-school children is better but still being in formal child care may actually be around 20%. Some of these women may not
patchy, and the hours are usually too short good for it, particularly if it comes from an have been able to have a family, but most
to allow parents to work full-time. And even underprivileged background. In France pre- will have chosen not to. The more highly
when the children start school, facilities for school attendance at an école maternelle educated and successful they are, the more
keeping them in after hours are often lacking. from age two seems to have positive effects likely they are to have made that choice.
That is a particular beef of working parents on later academic performance. Sylvia Ann Hewlett, founder and president
in Germany where most schools finish at But even if the kids are all right, women of the Centre for Work-Life Policy in New
lunchtime, hours before parents get home still need to figure out whether work will York, notes that among American college-
from their jobs. actually pay. That depends not just on wages educated women aged 41-45 in white-collar
How quickly women should return to work and child-care costs but also on a number jobs, two-fifths have no kids.
after having a child is a vexed question. Clearly of other factors such as tax policies and In future women will have to retire much
they need time to recover physically, to get benefits. The OECD reckons that across later than they do now because they live
the baby into a routine and to find child care, its member countries the net average cost ever longer and current pension ages are
so something longer than the basic maternity of child care after allowing for fees, cash becoming ever less affordable. If they have
leave at first sight seems preferable, but it benefits and tax concessions is 18% of the no children, their careers will be just as
makes it harder to settle back into the job average wage, which makes children seem long as men’s. And even if they do, as most
afterwards. If new mothers are off for only a bit of a luxury. Child-care arrangements will, the time spent bringing them up will
a few months their skills will still be fresh are often a complicated patchwork quilt of account for only a minor part of their total
when they return and their employers find it paid help, family, friends and neighbours. working life. Women’s role in perpetuating
easier to arrange temporary cover. Germany In some countries, including Switzerland, the species is not nearly enough to explain
used to encourage women to stay home for Ireland and Britain, the combined effect the huge gap in opportunities at the top of
up to three years after having a baby, but in of the cost of child care and the lack of tax organisations. n
24
Challenges and opportunities for livelihoods
Reprinted from The Economist - 2014
25
Challenges and opportunities for livelihoods
Reprinted from The Economist - 2014
of leaving home.
It is still small, but oDesk shows how
globalisation and innovation in information
Working CENTRAL/SOUTH-EASTERN
EUROPE & CIS*
59.6
technology, the two big trends that have been
under way for some time, are moving the world
the figures DEVELOPED ECONOMIES
& EUROPEAN UNION
nearer to a single market for labour. Much of
60.2 SOUTH ASIA
Unemployment rate 61.7 EAST ASIA the work on oDesk comes from firms in rich
2010 or latest, % NORTH AFRICA 72.6
LATIN AMERICA & 51.8 economies and goes to people in developing
CARIBBEAN
16+ 12.0- 8.0-
15.9 11.9
4.0-
7.9
0.0- No
3.9 data 65.9
MIDDLE EAST SOUTH-EAST
ASIA & PACIFIC countries, above all the Philippines and India.
50.7
69.3 Getting a job done through oDesk can bring the
0.0 Total labour-force SUB-SAHARAN
cost down to as little as 10% of the usual rate.
participation rate, 2011, % AFRICA
71.0
WORLD So the movement of work abroad in search
TOTAL of lower labour costs is no longer confined to
Youth unemployment 2007 2010
65.1
Aged 15-24, % manufacturing but now also includes white-
50.5
45.5
41.7
collar jobs, from computer programming to
27.9 27.8
copywriting and back-office legal tasks. That
18.2 20.4 19.6
23.3
14.3
19.5 18.4 21.2
16.1 is likely to have a big impact on pay rates
10.6 11.1 10.1
8.9 7.7 9.3 everywhere.
South Africa Spain Ireland Italy France Britain United States Brazil Germany Japan
Global employment, bn Global workforce†, 2009-10, % Global employment- Who ate my job?
to-population ratio
Unemployed 7 Employed full-time 40
% 1991
This is causing alarm among middle-grade
Employed part-time,
do not want
62.3 white-collar workers in the rich world, who
full-time 10
saw what happened to manufacturing jobs
2.3 2.7 3.1 in their economies. But workers in emerging
markets who have those sorts of skills and
1991 2001 2011
Employed part-time, 61.2 qualifications are delighted. “I’m making in a
want full-time 12 Self-employed full-time 31 2011
Biggest employers, 2010
Number of employees, m week on oDesk what I made in a month as
3.2 a schoolteacher, and I get to spend far more
2.3 2.1
1.7 1.7 1.6
time with my family,” says Ayesha Sadaf
1.4 1.4
0.9 0.8
Kamal, a freelance copywriter in Islamabad.
Conversely, Janet Vetter, who used to have a
full-time job as a copywriter for a magazine
US Department
of Defence
Chinese Army‡ Walmart McDonald’s§ China National
Petroleum
State Grid
Corporation
National Health
Service
Indian
Railways
China Post
Group
Hon Hai
Precision in New York, lost her job and now moves
Corporation of China (England) Industry
†Surveys conducted in 129 countries and areas ‡2008 §Includes franchise employees
between part-time and freelance work. “I
Sources: IMF; ILO; Gallup; Fortune; EIU; The Economist All 2011 data are forecasts *Commonwealth of Independent States
feel isolated as a freelancer and have had no
mix of jobs available to Americans in the challenges not only to governments but also to health insurance since the start of the year;
tradable sector (including manufacturing) that employers and individual workers. Yet they it’s too expensive,” she says.
serves global markets is shifting rapidly, with also have the potential to create many new It is tempting to think of the globalisation
a growing share of the positions suitable only jobs and substantial new wealth. of the labour market as a zero-sum game in
for skilled and educated people. To understand why these changes are so which Mrs Kamal in Pakistan is benefiting at
Fear of continuing high unemployment exciting for some people and so scary for the direct expense of Ms Vetter in America.
also made a bestseller of Tyler Cowen’s book, others, a good place to start is the oConomy But economists point out that such calculations
“The Great Stagnation: How America Ate All section on the website of oDesk, one of several suffer from the “lump of labour fallacy”—the
the Low-Hanging Fruit of Modern History, booming online marketplaces for freelance belief that there is only a fixed amount of work
Got Sick, and Will (Eventually) Feel Better”. It workers. In July some 250,000 firms paid some to go round. A better explanation, they say,
argues that for much of its history America (and 1.3m registered contractors who ply their trade is the theory of comparative advantage, one
to some extent other rich countries) enjoyed there for over 1.8m hours of work, nearly twice of the least controversial ideas in economics,
the benefits of free land, lots of immigrant as many as a year earlier. which suggests that free markets make the world
labour and powerful new technologies. But ODesk, founded in Silicon Valley in 2003, is better off because everyone can concentrate
over the past 40 years these advantages have a “game-changer”, says Gary Swart, its chief on doing what they are best at.
faded and America has found itself on a executive. His marketplace takes outsourcing, A global labour market will not make every
technological plateau, he says. To the obvious widely adopted by big business over the past individual in the world better off: there will
question about the internet, he retorts that the decade, to the level of the individual worker. be losers as well as winners
web has provided lots of utility for users but According to Mr Swart, this “labour as a All the same, a global labour market will not
much less in the way of profits—and relatively service” suits both employers, who can have make every individual in the world better off:
few new jobs. workers on tap whenever they need them, and there will be losers as well as winners, and
Lowering this new natural rate of employees, who can earn money without the they may put up stiff resistance to change
unemployment will require structural reforms, hassle of working for a big company, or even if the losses prove too painful. For instance,
such as changing education to ensure that people total global GDP could double if all barriers to
enter work equipped with the sort of skills the free movement of labour were removed,
firms are willing to fight over, adjusting the tax argues Michael Clemens in a recent paper,
system and modernising the welfare safety net, “Economics and Emigration: Trillion-Dollar Bills
and more broadly creating a climate conducive on the Sidewalk?”. Yet the political implications
to entrepreneurship and innovation. None of of such mass migration make it improbable
these reforms is easy, and all will take time to that governments, especially in rich countries,
produce results, but governments around the would unconditionally open their doors.
world should press ahead with them. Compared with previous bursts of global
The changes now under way will pose huge integration and technological upheaval, the
26
Challenges and opportunities for livelihoods
Reprinted from The Economist - 2014
changes now taking place in the labour market wonderful products emerge, in the short term on workers. When Instagram, a popular photo-
may produce an unusually large number of income gaps will widen, causing huge social sharing site, was sold to Facebook for about
losers, partly because they have coincided dislocation and perhaps even changing politics. $1 billion in 2012, it had 30m customers and
with a particularly deep recession and partly Technology’s impact will feel like a tornado, employed 13 people. Kodak, which filed for
because they are happening exceptionally fast. hitting the rich world first, but eventually bankruptcy a few months earlier, employed
The priority for policymakers must be to keep sweeping through poorer countries too. No 145,000 people in its heyday.
the number of losers as small as possible. n government is prepared for it. The problem is one of timing as much as
Why be worried? It is partly just a matter of anything. Google now employs 46,000 people.
history repeating itself. In the early part of the But it takes years for new industries to grow,
Industrial Revolution the rewards of increasing whereas the disruption a startup causes to
productivity went disproportionately to capital; incumbents is felt sooner. Airbnb may turn
Technology and jobs later on, labour reaped most of the benefits. homeowners with spare rooms into entrepreneurs,
27
Challenges and opportunities for livelihoods
Reprinted from The Economist - 2014
who works has a reasonable income, through a headlines can tarnish a brand. Companies companies undergoing multiple audits. Other
bold expansion of the tax credits that countries need to pay heed. factories escaped entirely.
such as America and Britain use. Wages for factory workers in China have Another challenge is preventing corruption,
Innovation has brought great benefits to been soaring at double-digit rates for years, says Alan Hassenfeld, a former boss of Hasbro
humanity. Nobody in their right mind would for reasons that have little if anything to do who is now the driving force behind the
want to return to the world of handloom with Western activists and a lot to do with International Council of Toy Industries’ code,
weavers. But the benefits of technological productivity improvements. But some workers called ICTI Care. Factory managers sometimes
progress are unevenly distributed, especially are abused, as even Apple admits. In February bribe auditors. Some firms use fake books
in the early stages of each new wave, and it it invited the Fair Labour Association (FLA), showing shorter hours and higher pay. Some
is up to governments to spread them. In the a prominent non-governmental organisation workers collaborate in these violations more
19th century it took the threat of revolution (NGO), to look at the factories it uses in China, willingly than is assumed. Many migrants, for
to bring about progressive reforms. Today’s including those of Foxconn, which assembles example, want to work long hours to save as
governments would do well to start making iPhones and iPads for Apple and is owned by much money as possible in a short time—and
the changes needed before their people get Hon Hai, a Taiwanese. The FLA report, expected then go home.
angry. n soon, is unlikely to give Apple a clean bill of NGOs can be both a help and a hindrance,
health. Auret van Heerden, the organisation’s reckons Mr Hassenfeld. Some only campaign.
boss, gripes that although conditions in the Others work with firms to help put things right.
factories are better than he expected, there Some do both. Campaigning NGOs can put
are “tons of issues”. pressure on a firm to do better, but they rarely
Working conditions in factories In the past 20 years what has become known support it when expelling a factory from its
as the “ethical supply chain” movement has supply chain, which also hurts workers, says
When the jobs targeted brands such as Nike, Gap and Coca-
Cola. But its army of activists, some in business
Mr Hassenfeld. “One of the things we need
to do is be tougher with repeat offenders, to
inspector calls themselves, are grappling with growing evidence
that appointing an outside body to audit and
make an example of them,” he adds.
“Governments are not pulling their
Reprinted from The Economist, Mar 31st 2012 set standards, as Apple has done, is not going weight,” complains Aron Cramer of BSR, an
as well as it should. Apple could turn into a NGO. He thinks there has been “too much
Do campaigns for “ethical supply chains” test case of how to improve things. outsourcing of enforcement to the private
help workers? sector”. Individual firms may find enforcement
Not a bad Apple difficult. Governments may do better, but few
Tim Cook, Apple’s boss, this week visited a governments of emerging markets like to be
new Foxconn factory in central China which bossed around.
employs 120,000 people. He has insisted “Nobody thinks this process is perfect, but
that Apple is doing a lot to improve working we have made progress,” says Mr Hassenfeld.
conditions. But he also echoes the concerns of Mr Cramer agrees. At least for firms at the top
critics. “We think the use of underage labour of the supply chain, “the old problems of forced
is abhorrent. It’s extremely rare in our supply labour and child labour are largely gone,” he
chain, but our top priority is to eliminate it says. The worst abuses tend to be further down
totally,” he declared. the supply chain, and in particular sectors,
After a bad press in the early 1990s, Nike is such as agriculture and mining. Nonetheless,
now one of the loudest advocates of improving there remains much to do even among first-tier
working conditions. In 1992 it established a suppliers on things like excessive hours and
code of conduct for suppliers. (Apple did not inadequate pay, says Mr Cramer.
get around to that until 2005.) In 1996 Nike Richard Locke of the Massachusetts Institute
helped create the Apparel Industry Partnership, of Technology has taken a detailed look at how
which drew up a code of conduct for factories, things really work. He persuaded four global
and in 1999 evolved into the FLA. firms regarded as leaders in ethical supply
Having a code of conduct and being part of chains (Nike, Coca-Cola, HP and PVH, a big
“DEATH to Apple executives,” a protester an industry initiative on workers’ rights has American producer of clothing) to let him
shouted after a recent performance of “The become standard practice for multinationals. analyse six years of data from their factory
Agony and Ecstasy of Steve Jobs”, a popular But there are big differences in the toughness of audits, starting in 2005. His research, to be
off-Broadway play. Apple executives must codes, how rigorously compliance is monitored published this year in a book, “Promoting
have been delighted when Mike Daisey, the and how remedial action is taken. Labour Rights in a Global Economy”, drew
playwright and star, recently retracted his Factory audits also vary. Nike first published four conclusions.
nastiest allegations about the mistreatment of the overall results of its monitoring in 2000, First, codes of conduct, compliance
workers making Apple’s products in China. but did not list details of all the factories in its programmes and audits “[do] not deliver
Apparently, he did not meet a worker poisoned supply chain until 2006. (Apple did not publish sustained improvements in labour conditions
by exposure to chemicals, or child workers at details of its supply chain until this year.) over time,” he says. Rather, these things help
the factory gate. With its share price soaring as When Nike opened up it was a conscious gather information that highlights the problem
the latest iPad storms the market, Apple might effort to challenge industry norms. Clothing without remedying it. At HP, for example, only
be tempted to forget about the fuss over its and shoe firms took it for granted that revealing seven of the 276 factories in its supply chain
labour practices. But that would be a mistake. which factories they used would put them at fully complied with its code of conduct at the
Any big company that makes things in a competitive disadvantage. But Nike reckoned last audit. At the factories he visited, Mr Locke
poor countries faces scrutiny of its supply the downside was negligible and the lack typically found that many suppliers serving
chain. Campaigners against harsh working of transparency hindered the monitoring global brands drift in and out of compliance.
conditions (and unions back home that hate process, says Hannah Jones, the firm’s head
competition from low-wage countries) will of corporate social responsibility. Secrecy led Down the chain
pounce on any hint of scandal. Horrified to some factories that worked for a variety of Second, investing time and money in helping
28
Challenges and opportunities for livelihoods
Reprinted from The Economist - 2014
factories improve their managerial and technical replacements. With hindsight, the criticism migration until the onset of the economic crisis.
capabilities did produce some benefit in improved seems to have been good for Nike. Could the But as unemployment has risen, governments
working conditions. But his third conclusion same be true for Apple? n have grown more sensitive to arguments that
found that for significant and sustained immigration can be a drain on public services
improvement to take place, the relationship and damage the job prospects of the native
between a company and its suppliers needed population.
to change too. The relationship had to become Take Britain, where the government has
more collaborative. In particular, gains from Migration after the crash introduced a “migration cap” for workers
changes in the production process needed coming from outside the European Union.
to be shared.
Mr Locke’s fourth conclusion poses the
Moving out, on and David Cameron, the prime minister, has said
that the aim is to cut unskilled immigration. A
toughest challenge. For firms trying to improve back “points system” is meant to identify immigrants
working conditions the fault may well be who will be most useful to the economy. In
in their own business model. Just-in-time Reprinted from The Economist, Aug 27th 2011 addition, the student visa regime is to be
manufacturing has made supply chains leaner. tightened. (Only the churlish would point
Slimmer inventory cuts costs and allows firms Migration after the global economic crisis out that both he and Nick Clegg, his coalition
to move more quickly. As products’ life-cycles is different, but still continuing partner, were themselves beneficiaries of time
shorten, this is a crucial competitive edge. But spent abroad before studying.)
a last-minute design change or the launch of Britain may be going further than other
a new product can mean suppliers having to countries, but it is by no means alone. Young
pull out all the stops to keep up—or face a stiff east European democracies such as Poland
financial penalty. are piloting schemes to restrict the numbers
Timberland, a bootmaker and vocal supporter of incomers. The Danish government has
of ethical working practices, admitted as much recently reintroduced limited border controls
in 2007 in a company report, noting that “some in defiance of the European Union’s Schengen
of our procedures were making it difficult for agreement, which permits passport-free
factories to control working hours”, including travel between 23 of the 27 EU countries. The
developing a huge number of new styles government claims this measure was needed
and the simultaneous launch of many new to combat crime and smuggling, though many
products. Nike has since said much the same. suspect that it is really about pandering to the
As part of his research, Mr Locke visited an anti-immigration Danish People’s Party, on
inkjet-printer factory in Malaysia which, at its which it relies for support.
historic peak in 2007, produced 1m products Spain, Denmark and Japan are among those
a month for HP. The factory, which made LISA RAKOCZY arrived in north London in countries giving a new meaning to the phrase
six to eight models a year with an average the mid-2000s from Krakow to study English, “pay as you go”: they compensate workers
lifespan of less than nine months, experienced hoping to support herself by working as a who agree to return to their country of origin.
extreme demand volatility—with the result cleaner. All went well—until the crash and The effect of such measures seems limited.
that it sometimes had to increase monthly ensuing economic crisis hit her previously Up to April 2010, only 11,400 immigrants in
output by 250%, then cut it again. This forces prosperous clients. Competition for jobs Spain had taken up the offer. This summer, the
suppliers to ask their workers to put in vast became fiercer as middle-class families started government in Madrid reintroduced controls
amounts of overtime. Apple’s product launches to spend less on household help. For a while, on Romanian immigrants. And France has
presumably produce similar surges. she eked out enough to pay for her language
Nike’s Ms Jones says her company has course by cleaning lavatories in railway Hitting the buffers
taken this to heart by trying to incorporate stations. Later, her sister, a teacher in Poland,
Inflows of permanent immigrants
the need to protect workers into the design helped her to make ends meet. But by the % change on a year earlier, 2009
of its production process. She is now jointly end of last year, Ms Rakoczy had tired of the
accountable for enforcing the code of conduct trials of an immigrant’s life and headed home.
50 40 30 20 10 – 0 + 10 20
with the head of the supply chain, a change A typical case, you might think. Indeed, in
which she says has removed an “us-versus- the wake of the crash, many immigrants have Britain
them problem”. Members of Nike’s 140-strong gone back. Just as predictably, many would-be Russia
corporate social responsibility team are now emigrants have stayed at home, either because
Australia
involved in all branches of the supply chain. moving abroad no longer seems worth the
The firm is thinking harder about how it effort or because immigration rules in many United States
schedules product launches. And it espouses countries have become more restrictive. Canada
a philosophy of continuous improvement by Yet at the airport, Ms Rakoczy may have
Sweden
delegating more responsibility to workers. crossed a young Briton bound for Shanghai,
This will only work if they are treated well, a Chinese computer programmer moving to France
says Ms Jones. Canada or a Portuguese worker on his way to Germany
Apple’s sales continue to boom despite all oil-rich Norway. The recession has not stopped
Denmark
the stories about the working conditions of the all migration, but rather led to new patterns
people who make iPads and iPhones. So how and different destinations. Never before—or Switzerland
seriously should firms take these issues? Nike at least not in recent history—has the map of Spain
claims its approach means that good labour global migration been at the same time so
South Korea
and environmental practices boost profits—even varied and so changeable.
without taking into account any reputational Liberalisation of travel after the end of the Japan
benefits they may deliver. Productivity is cold war, the West’s economic boom of the Ireland
rising and the turnover of workers is down, 2000s and rapid growth of emerging markets— Source: OECD
which saves money recruiting and training all of these contributed to a new surge of
29
Challenges and opportunities for livelihoods
Reprinted from The Economist - 2014
sought to deport Romanian gypsies. insisted that it is not an “immigrant country”, is good news: migrants did not contribute to
Other governments, more squeamish has nonetheless quietly increased the number the economic crisis, and they may yet help to
about targeting distinct ethnic minorities or of skilled migrants it allows in. Sweden has overcome it. n
social groups, have tried to revive the “buffer liberalised its work-permit system.
theory”—that migrants return home when the An even more intriguing development is
economy contracts, freeing jobs for the native that America and China have begun to reverse
population and providing what some call a roles. America has always been the greatest
“conjunctural shock absorber”. To boost this immigration magnet of all. But stricter security Migration and climate change
effect, Australia has cut the number of skilled measures to thwart terrorist attacks and the
worker visas that it offers. Malaysia more or
less stopped issuing work permits in 2009.
severity of its recession have changed this. Both
legal and illegal immigration have tumbled,
A new (under) class
Yet the “buffer theory” seems to be based on with the greatest decrease among Mexican of travellers
weak empirical foundations. A recent study by illegal immigrants (only partly due to stricter
Policy Network, a think-tank, concluded that border controls, as potential immigrants can Reprinted from The Economist, Jun 25th 2009
trends in unemployment and income have now also find better jobs at home).
only a modest impact on net immigration. Victims of a warming world may be caught
Using data from the past three recessions in Go East in a bureaucratic limbo unless things are
Britain, they reckon that immigration falls when At the more educated end of the market, done to ease—and better still, pre-empt—
unemployment rises—but only for a limited foreign-born college graduates are increasingly their travails
period, after which it picks up again, often likely to leave America after gaining skills and
before there is any clear improvement in the qualifications. Some of this may be cyclical:
economy. Similarly, the number of returning they may return when the economy picks
immigrants goes up only temporarily, when up. Yet in the current climate, travellers have
those who always intended to return do so. a good chance of meeting an Asian-born
Still, the general picture now is of less graduate from an American college who is
migration. The OECD, an international think- moving somewhere else to work.
tank, says that migration into its member Even as America’s allure is fading, China is
countries dropped by 7% in 2009. Recent becoming a destination of choice for many
national data suggest that migration will have young workers. According to Chinese statistics,
fallen further in 2010. Dig deeper, however, last year Shanghai had 143,000 foreigners
and the position gets more complicated. with residents’ visas. That does not count the
Ireland was particularly attractive during its many thousands of Westerners believed to
banking and building boom. But in 2009 its be there on tourism visas, or the illegals from
net migration was negative. Ireland now has elsewhere in Asia. South Koreans (121,000) THE airstrip at Lokichoggio, in the scorched
its highest outward migration since 1989. top the list of expatriates resident in China, wastes of north Kenya, was once ground zero
Australia is also a magnet for young followed by Americans (71,000) and Japanese for food aid. During Sudan’s civil war, flights
Chinese, the largest group of immigrants in (66,000). Teaching English is the commonest from here kept millions of people alive. The
2010. Sweden, too, is proving increasingly job for Westerners, but there are also many, warehouses are quieter now, but NGOs keep a
popular. Meanwhile, Greece, plagued by an usually young, entrepreneurs opening shops, toehold, in case war restarts—and to deal with
unattractive combination of fiscal problems, bars and restaurants. what pundits call the “permanent emergency”
austerity and unemployment, has seen a new The boom in China and the country’s of “environmentally induced” migration.
wave of emigration, notably to America and activities in Africa have also encouraged more Take the local Turkana people. Their
Canada. As for Spain, modestly prosperous Africans to consider seeking their fortune in numbers have surged in recent decades, and
Britons and Germans no longer see the Costa the Middle Kingdom. Some 100,000 are settled will double again before 2040. But as the area
del Sunshine as their ideal retirement resort. in Guangzhou. But African immigrants are not gets hotter and drier, it has less water, grazing
“Circular” migration, in which people come the only ones who wind up in this bustling and firewood. The drought cycle in northern
and go between destinations, is on the rise, city in southern China. One recent academic Kenya has gone from once every eight years
as is “on-migration”, where a migrant moves study identified five different residential zones to every three years and may contract further.
first from China to Canada, say, and then on of immigrant populations. African traders and That means no recovery time for the Turkana
to America. OECD researchers reckon that at Koreans, for instance, live in crowded districts. and their livestock; the result is an increasingly
least 19% of migrants who arrived in America French and Indian workers congregate in high- frantic drift from one dry place to another.
at the turn of the millennium had left for other rise buildings. Successful immigrants from A local crisis with local causes? Only
destinations five years later. On-migration is the Middle East and west Africa cluster in a partly. Scientists think it is part of a global
also common among migrants from Africa large white-collar estate with private gardens. phenomenon: people across the world on the
and Asia. Europeans, for their part, tend to The world may be witnessing the beginnings move as a result of environmental degradation.
live abroad for only a limited time. of a big trek East. Students have started to move Just how many are moving, or about to move,
“The notion that migration is a one-way to South Korea and Japan. “Many international is maddeningly unclear.
movement of permanent settlement is students remain in their host country,” says The International Organisation for
outdated. Most of it is temporary—and it’s time Madeleine Sumption, a researcher at the Migration thinks there will be 200m climate-
the debate about immigration recognised this Migration Policy Institute in Washington, change migrants by 2050, when the world’s
reality,” argues Philippe Legrain, an analyst of DC. She expects this trend to fuel growth in population is set to peak at 9 billion. Others
immigration and the author of “Aftershock”, migration between Asian countries. put the total at 700m.
a recent book analysing economic changes in Far from disappearing in the wake of the These startling numbers may conjure up
the wake of the financial crash. crash, Ms Sumption says, migration is still a picture of huge, desperate masses, trekking
Some countries are starting to recognise “a sensible long-term investment for many long distances and if necessary overrunning
this. While sounding tough, politicians are people.” Although hard times may change border defences because their homelands
tweaking earlier decisions intended to restrict migrants’ destinations, they do not sap the have dried up or been submerged. But at least
immigration. Germany, which has long will to move in search of a better life. This initially, the situation in Kenya and other parts
30
Challenges and opportunities for livelihoods
Reprinted from The Economist - 2014
of east Africa is likely to be more typical: an Migrants’ rights may be easy to assert for Youth unemployment
already poor population whose perpetual islanders whose homes are drowned—but
search for adequate pasture and shelter grows
harder and harder. In such conditions, local
hard in the case of big, messy movements
across Africa and Asia. Most of the displaced
Generation jobless
disputes—even relatively petty ones between will drift to the next-most-liveable place, as Reprinted from The Economist, Apr 27th 2013
clans and extended families—can easily the poor do anyway.
worsen, and become embroiled in broader “Many states are already overwhelmed by Around the world almost 300m 15- to 24-year-
religious or political fights. And that in turn internally displaced populations,” says Mr olds are not working. What has caused this
makes it harder for everybody in the area Ehrhart. “Will they be able to support even epidemic of joblessness? And what can
to survive, and more desperate to find new more people on the move? If not, whose abate it?
places to live, even if they are not far away. duty is it to make up the difference?”. At
A new report—“In Search of Shelter”—by the the least, the gap between carbon usage
United Nations University, the charity CARE and climate change’s effects portends angry
and Columbia University in New York lists the North-South rows.
eco-migration “hot spots”: dry bits of Africa; Meles Zenawi, who as Ethiopia’s prime
river systems in Asia; the interior and coast of minister will speak for Africa at several global
Mexico and the Caribbean; and low islands gatherings this year, predicts that some parts
in the Indian and Pacific Oceans. of the continent will become uninhabitable
A one-metre rise in sea levels could displace and “those who did the damage will have to
24m people along the Ganges, Brahmaputra, pay.” At the December summit on climate
Irrawaddy, Salween, Mekong, Yangtze and change in Copenhagen, he hopes that Africa
Yellow rivers—which together support a will “aggressively” demand compensation
quarter of humanity. A two-metre rise could for environmental damage as well as help
uproot 14m people on the Mekong alone and with migrants and the mitigation of climate
swamp much of its farmland. Meanwhile, the change: in his view a demand of $40 billion HELDER PEREIRA is a young man with no work
melting of the Himalayan glacier will cause would be reasonable. and few prospects: a 21-year-old who failed
floods and erosion upstream, boosting the price Many agree that more research is needed to graduate from high school and lost his job
of rice and other staples. And many regional to pinpoint the reasons why migrants pick on a building site four months ago. With his
conflicts could be exacerbated. up sticks. People concur that climate change savings about to run out, he has come to his
The scale of the likely population shift fuels conflict in Darfur, but nobody knows local employment centre in the Paris suburb of
raises big questions. Will climate-change how big a factor it is. Drought helped jihadist Sevran to sign on for benefits and to get help
migrants be recognised? The classic definition fighters seize bits of south Somalia, but was it finding something to do. He’ll get the cash.
of refugees—tossed between states by war or the main reason? Work is another matter. Youth unemployment
tyranny—is outdated. Eco-migrants will be Gloom abounds. James Lovelock, an in Sevran is over 40%.
paperless paupers, whose multiple woes are environmental guru, posits a collapse in A continent away in Athlone, a gritty Cape
hard to disentangle. human population, in part related to migration, Town suburb, Nokhona, a young South
Poverty campaigners want a revised legal with a few “lifeboat” regions surviving. Then African mother of two, lacks a “matric” or
regime to protect the new migrants. However, there is the pace of social change. The number high-school qualification, and has been out of
this looks tricky. America resists calling them of “megacities”—with populations in the tens work since October 2010, when her contract
“environmental refugees”: the word “refugee” of millions—may grow to several hundred as a cleaner in a coffee shop expired. She
implies guarantees that cannot realistically by the middle of the 21st century. Most are hopes for a job as a maid, and has sought
be given to the coming torrent of migrants. poorly planned. help from DreamWorker, a charity that tries to
As American diplomats quietly admit, their Would a migrant from a collapsed city place young jobseekers in work. A counsellor
rich country is still reeling from Hurricane receive aid? “We’ve not experienced anything helps Nokhona brush up her interview skills.
Katrina in 2005, which killed 1,800 people and of this kind, where whole regions, whole But the jobless rate among young black South
displaced hundreds of thousands. countries, may well become unviable,” says Africans is probably around 55%.
Can the United Nations High Commissioner Jeffrey Sachs, head of Columbia University’s Official figures assembled by the
for Refugees (UNHCR) expand to cope with Earth Institute. International Labour Organisation say that
eco-migrants? It has already struggled to No wonder strategists see vast new security
widen its remit to include the internally risks, and a big expansion in the world’s
1
displaced (26m at the end of 2008) as well as “ungoverned spaces”. But much can be done Idle hands
strictly-defined refugees (10m, excluding the before the exodus turns biblical. In West Africa Youth unemployment and inactivity*
Palestinians who come under another agency). subsistence farming is badly irrigated. Improve By region†, 2012 or latest, m
A tenfold surge in the numbers within its orbit that, throw in some seeds and fertiliser, scrap Unemployed Inactive
would push the agency out of control, says tariffs, build warehouses and roads, and the 0 20 40 60 80 100
James Milner, a professor at Ottawa’s Carleton region may beat the worst of climate change. South Asia 31.1
University. Meanwhile some aid workers see Geographers at UN Habitat, a city-planning
signs of a competition between institutions to agency, say conurbations must adapt to the East Asia & Pacific 18.4
take ownership of the eco-migration issue, needs of climate-change migrants. “You can’t Sub-Saharan Africa 21.6
perhaps by oversimplifying it. just stockpile people,” says Alex de Sherbinin Middle East & 40.6
Charles Ehrhart of CARE thinks UNHCR of Columbia University. The pressure is tangible north Africa
will remain central, but wonders how it in Addis Ababa, which already has teeming OECD‡ 15.2
or anybody can now distinguish between slums. The price of teff, a staple, has surged
Latin America % of total 23.2
“forced” and “voluntary” migration. He says after a famine that is still pushing people to youth
Europe & Central Asia population 24.4
climate change may cut agricultural output the city. Mr Meles is not alone in his wrath. n
by half in lowland Africa by 2020. “In such *15-24 year olds not in education
Sources: OECD; World †Regions exclude OECD countries
a context, does migration constitute a choice ‡Not in education or training
Bank; The Economist
or a necessity?”
31
Challenges and opportunities for livelihoods
Reprinted from The Economist - 2014
2
young people out of work or in the informal make it hard to fire people, are bad places for
Turning grey sector. The population of 15- to 24-year-olds in the young jobless. In India big factories and
Youth unemployment, including those in education Africa is expected to rise by more than a third, firms face around 200 state and federal laws
and training, as % of population aged 15-24 years to 275m, by 2025. governing work and pay. South Africa has
Spain Britain United States In rich countries with generous welfare notably strict laws on firing. Despite a few
Greece France Germany
25 states this imposes a heavy burden on recent reforms, it is hard to fire older workers
taxpayers. One estimate suggests that, in 2011, in southern European countries (young jobless,
20 the economic loss from disengaged young often living with parents whose livelihoods
people in Europe amounted to $153 billion, or would be threatened, are wary of reform).
15 more than 1% of GDP. And failure to employ North Africa and the Middle East suffer from a
the young not only lowers growth today. It bloated and over-regulated public sector, heavy
10 also threatens it tomorrow. taxes on labour and high minimum wages.
A clutch of academic papers, based mainly
5
on American statistics, shows that people Where are the skilled ones?
0 who begin their careers without work are Economists are now emphasising a third
2000 02 04 06 08 10 12 13 likely to have lower wages and greater odds problem: the mismatch between the skills
Sources: Eurostat; The Economist of future joblessness than those who don’t. A that young people offer and the ones that
wage penalty of up to 20%, lasting for around employees need. Employers are awash
20 years, is common. The scarring seems to with applications—but complain that they
75m young people are unemployed, or 6% of all worsen fast with the length of joblessness and cannot find candidates with the right abilities.
15- to 24-year-olds. But going by youth inactivity, is handed down to the next generation, too. McKinsey, a consultancy, reports that only 43%
which includes all those who are neither in The overall ageing of the population might of the employers in the nine countries that it
work nor education, things look even worse. blunt this effect by increasing demand for has studied in depth (America, Brazil, Britain,
The OECD, an intergovernmental think-tank, labour. But Japan’s youth joblessness, which Germany, India, Mexico, Morocco, Saudi
counts 26m young people in the rich world surged after its financial crisis in the early Arabia and Turkey) think that they can find
as “NEETS”: not in employment, education 1990s, has stayed high despite a fast fall in the enough skilled entry-level workers. Middle-
or training. A World Bank database compiled overall workforce. A large class of hikikomori sized firms (between 50 and 500 workers)
from households shows more than 260m young live with their parents, rarely leaving home have an average of 13 entry-level jobs empty.
people in developing economies are similarly and withdrawn from the workforce. The most obvious reason for the mismatch
“inactive”. The Economist calculates that, all Economists know much less about “scarring” is poor basic education. In most advanced
told, almost 290m are neither working nor in poor countries. A big study by Richard economies (whether growing or shrinking)
studying: almost a quarter of the planet’s youth Freeman of Harvard University and Wei the jobless rate for people with less than a
(see chart one). Chi and Hongbin Li of Tsinghua University secondary-school education is twice as high
If the figures did not include young women suggested any impact of joblessness on young as for those with university degrees. But two
in countries where they are rarely part of the Chinese earnings disappears after three years. more subtle reasons deserve attention, too.
workforce, the rate would be lower; South But studies elsewhere have reported more Countries with the lowest youth jobless
Asian women account for over a quarter of troubling results. An analysis of the labour rates have a close relationship between
the world’s inactive youth, though in much of market a decade after Indonesia’s financial education and work. Germany has a long
the rich world young women are doing better crisis in 1997 suggested that young people tradition of high-quality vocational education
in the labour force than men. who lost their jobs then were less likely to be and apprenticeships, which in recent years
On the other hand, many of the “employed” in the workforce, and if they were, to have have helped it reduce youth unemployment
young have only informal and intermittent only informal jobs. A study of Argentina and
jobs. In rich countries more than a third, on Brazil found that young people who joined 3
average, are on temporary contracts which
A blighted generation
the labour force during a recession fared
Youths not in employment, education or training
make it hard to gain skills. In poorer ones, systematically worse as adults. (NEETs), % of population aged 15-24 years
according to the World Bank, a fifth are unpaid The damage may be less in dynamic
family labourers or work in the informal economies and greatest in stagnant ones where Q1 2007 Q1 2012 NEETs, ’000, Q1 2012
economy. All in all, nearly half of the world’s unemployment comes in long bouts—as in the 0 10 20 30 40
young people are either outside the formal swathe of countries around the Mediterranean.
economy or contributing less productively Turkey 3,621.1
Spain, France, Italy and Greece have some
than they could. of the highest youth joblessness in the rich Greece 283.3
Young people have long had a raw deal world. Morocco, Egypt and other north African
in the labour market. Two things make the Italy 1,287.8
and Middle Eastern countries have among the
problem more pressing now. The financial worst rates in the emerging world. Though Spain 852.9
crisis and its aftermath had an unusually big they are at different stages of development,
effect on them. Many employers sack the Ireland 88.6
these countries all suffer disproportionately
newest hires first, so a recession raises youth from employment’s main curses: low growth, Britain 1,201.2
joblessness disproportionately. In Greece and clogged labour markets and a mismatch
Spain over a sixth of the young population United States 6,116.2
between education and work.
are without a job (see chart two). The number Low growth is the most obvious of the three. Euro area 4,895.5
of young people out of work in the OECD is Joblessness in southern Europe has surged as
almost a third higher than in 2007. France 910.8
economies have shrunk. South Africa’s high
Second, the emerging economies that have jobless rate is stoked by the fact that it is now Japan 1,163.2
the largest and fastest-growing populations of one of Africa’s slowest-growing economies.
young people also have the worst-run labour Germany 731.3
But rigid labour markets probably matter even
markets. Almost half of the world’s young more. Countries that let business cartels curb Sweden 91.4
people live in South Asia, the Middle East and competition; with high taxes on labour and Sources: OECD; The Economist
Africa. They also have the highest share of high minimum wages; and where regulations
32
Challenges and opportunities for livelihoods
Reprinted from The Economist - 2014
despite only modest growth. Countries with as their tuition. It also refers to them as “young time at work and the rest in college.
high youth unemployment are short of such meisters” in order to counteract the country’s In addition, technology is also providing
links. In France few high-school leavers have obsession with academic laurels. In Britain solutions as well as exacerbating problems.
any real experience of work. In north Africa some further-education colleges are embracing It is greatly reducing the historically high cost
universities focus on preparing their students the principle that the best way to learn is to of vocational education. “Serious games”
to fill civil-service jobs even as companies do: North Hertfordshire College has launched can provide young people with a chance to
complain about the shortage of technical skills. a business venture with Fit4less, a low-cost gain “virtual” experience at minimum cost:
The unemployment rate in Morocco is five gym. Bluegrass College in Kentucky and Toyota McDonalds uses competitive video games to
times as high for graduates as it is for people have created a replica of a car factory, where teach people how to use the till and interact
with only a primary education. The legacy workers and students go to classes together. with customers, for example. Mozilla, the
of apartheid means that young black South But it is not enough simply to embrace the creator of the Firefox web browser, has created
Africans often live and go to school many miles German model of training and apprenticeships: an “open badges” initiative that allows people
from where there are jobs. you need to update it. Some policymakers to gain recognition for programming skills.
Companies used to try to bridge that gap want to transform unemployment systems Technology is also making it easier to take
themselves by investing in training; today they from safety nets into spring boards, providing work to people who live in work-deprived
do so less. Peter Capelli, of Wharton business retraining and job placement. The Nordic areas or who are shut out of the market by
school, argues that companies regard filling a countries have been to the fore in this, cartels. Amazon’s Mechanical Turk, an internet
job merely like buying a spare part: you expect introducing “youth guarantees”—personalised marketplace, enables companies to hire workers
it to fit. In 1979, he notes, young workers in plans to provide every young person with to perform simple tasks such as identifying
large American firms received an average of training or a job. When Germany liberalised people in photographs. They can take part
two and half weeks of training a year. In 1991 its labour market in 2003-05 it also created from anywhere.
only 17% reported receiving any training during new ways of getting people back into jobs. For It is hard to be optimistic about a problem
the previous year. By 2011 only 21% reported example, to make someone who has been out that is blighting the lives of so many people.
gaining any during the past five. Accenture, a of work for a long stretch more employable, But it is perhaps time to be a bit less pessimistic.
consultancy, says that only 21% of the 1,000 the state will pay a big chunk of his wages Policymakers know what to do to diminish the
American workers they surveyed gained new for the first two years of a new job. problem—ignite growth, break down cartels
skills from company-provided training over Practicality constrains poorer countries’ and build bridges between education and
the past five years. ability to implement such active labour- work. New technology gives them powerful
Mismatch and training gaps may explain why market policies. The well-to-do Nordic tools too. Countries that make the investments
over the past five years youth unemployment countries found that they could hardly cope and choices needed to grapple with their
in flexible economies like America and Britain with the surge in unemployment after the unemployed youth could see some dramatic
has risen more than in previous recessions crisis, despite spending up to 2% of GDP on improvement ahead. n
and stayed high. Britain, which has one of training. Countries like Spain and Italy, with
the world’s most flexible labour markets, has millions of unemployed people, could not
around 1m NEETs. More than twice as many hope to follow suit in a time of boom let
young Britons (11.5% of the labour force) are alone one of austerity. Culture matters, too.
unemployed as young Germans (3.9%) (see Britain’s Labour government raised the number Health care and technology
chart three). Some blame the minimum wage, of apprenticeships but diluted their quality in
but Britain also has a long-standing prejudice
against practical education. In 2009 only about
order to keep unemployment figures down.
The coalition government has tried to improve
Fantastic Voyage
8% of English employers trained apprentices quality—but some firms have merely relabelled Reprinted from The Economist, Apr 16th 2009
compared with up to four times that number existing training programmes in order to obtain
in the best continental European countries. 29% taxpayers’ money. Technology is making health care more
of British employers say work experience is A deeper worry is that business is going portable, precise and personal
“critical” but the share of British children who through a particularly dramatic period of
get a shot at it has been falling for the past creative destruction. New technology is HALF a century ago, in a film called “Fantastic
15 years. Only 7% of pupils say they had any unleashing a storm of “disruptive innovation” Voyage”, a tiny Raquel Welch and her team
mentoring from a local employer and only which is forcing firms to rethink their were sent into a dying patient’s body in a
19% had visited one. operations from the ground up. Companies nano-submarine to save his life. Technology
A more entrepreneurial British economy are constantly redesigning work—for example has still not advanced quite that far, but today’s
may have worsened the problem. The share they are separating routine tasks (which can sophisticated devices and diagnostics are
of private-sector employees at big firms (with be automated or contracted out) from skilled getting ever closer.
250 or more workers) fell from 50% to 40% in jobs. They are also constantly redesigning At the university hospital in the German
1998-2000. The share at micro-businesses (4 themselves by “upsizing”, “downsizing” and city of Aachen, near the border with Belgium
and fewer) rose from 11% to 22%. Small firms “contracting out”. The life expectancy of and the Netherlands, complex heart surgery
are less likely to provide apprenticeships or companies is declining, as is the job tenure that would once have required a lengthy and
work experience. of chief executives. Policymakers are finding costly hospital stay has been turned into a
Many countries are now trying to bridge it more difficult to adapt their labour-market routine procedure. Harald Kühl, a professor
the gap between education and work by institutions quickly enough. of cardiology at the hospital, says that patients
upgrading vocational schools, encouraging However, some firms are taking more who have been given heart-valve replacements
standard schools to form closer relations interest. IBM has sponsored a school in New in the morning are now usually back on their
with local companies, and embracing York. McDonald’s has an ambitious new feet the same evening and discharged the
apprenticeships. In 2010 South Korea created training scheme. India’s IT giant, Infosys, next day.
a network of vocational “meister” schools— plans to train 45,000 new employees a year, The main operating room in Aachen is larger
from the German for “master craftsman”—to including 14,000 at a time at its main campus than normal and crammed full of advanced
reduce the country’s shortage of machine in Mysore. Americana Group, a regional food imaging technologies. In collaboration with
operators and plumbers. The government and restaurant company with headquarters in Philips, a Dutch electronics giant, the researchers
pays the students’ room and board as well Kuwait, allows trainees to spend up to half their have fused together X-ray, ultrasound and
33
Challenges and opportunities for livelihoods
Reprinted from The Economist - 2014
34
Challenges and opportunities for livelihoods
Reprinted from The Economist - 2014
remote areas to minimise the need for travel goes further, arguing that in future “medical
Ready for take-off 4
to distant hospitals. A trial concluded last devices for the home will simply disappear
Sales of US personal medical-monitoring month using video equipment made by Cisco, into our built environment, our consumer
devices and related services, $bn an American technology firm, found that products, our clothing or even our bodies.”
doctors and patients considered this high-tech Philips has already developed bedsheets
70
F O R E C A S T version of care to be as effective as personal with metal strands woven into them to
60 consultations. allow a patient’s heart to be monitored as
50 he sleeps. Dozens of firms, from clothing
Devices 40
Coming to a village green near you and shoe manufacturers to consumer-
The Mayo Clinic, another American electronics firms, are developing other such
30 hospital chain offering integrated care, “body-computing” tools, both for health
20 is also running a number of trials. Kaiser applications and for sports.
Services Permanente already offers remote medical Devices that will be deployed inside the
10
consultations to its patients in Hawaii, and body are just around the corner. Proteus
0
2004 06 08 10 12 14 16 18 20 conducts dermatological examinations this Biomedical, a Californian firm, has developed
Source: Forrester Research way in California. India’s Apollo hospitals a tiny computer chip that can be put inside a
regularly use remote video links to connect normal pharmaceutical pill. This “smart pill”
specialists with distant facilities. And Aravind sends an electrical signal when, for example,
the appropriate life-saving drugs. John Santini, Eye Hospitals, another pioneering Indian it is swallowed by a patient. The message
the boss of MicroCHIPS, believes that over chain, has set up many remote eye-care is read and stored by electronic equipment
the next decade devices will increasingly kiosks in villages. inside a small bandage worn by the patient.
interact with the body and communicate The sophisticated equipment in Aravind’s That information can be downloaded from
medical data directly to portable devices or kiosks is run by well-trained local women, time to time, or beamed wirelessly to a device
EHRs, thus helping patients to manage their not expensive and elusive doctors. Once an in the home that e-mails the patient’s doctor.
own chronic diseases. eye test is completed, the patient and all his The point is to monitor the patient’s health
For several decades now, visionaries digitised data are linked by internet video to and ensure compliance with drug regimens.
have tried to shift the medical model from a physician at the main hospital who decides This matters, because studies have shown
expensive hospital interventions for sick whether the patient just needs spectacles that patients often fail to take medication
people to cheaper preventive care in the (made on the spot) or has to go to the hospital. as instructed, sometimes with fatal results.
home. They have promoted ideas ranging Christofer Tomazou of Imperial College, The first clinical trial will be of smart pills
from kiosks for long-distance medical a pioneer in this field, argues that devices for tuberculosis. Proteus Biomedical’s
consultations to smart toilets that tell your and diagnostics could transform chronic boss, Andrew Thompson, sees scope for
doctor about the blood-sugar levels in your care if they can leave behind their baggage applications to tackle counterfeiting and even
urine. Most of these ideas have failed. of “clunky electronics and Big Brother interactions between drugs.
James Sweeney is one of the few monitoring methods”.
entrepreneurs to have achieved commercial Dr Oesterle of Medtronics, a market leader Wait for the catch
success, not once but half a dozen times, with in fields such as remote monitoring of patients Like all things that sound too good to be true,
businesses selling personal medical devices. with pacemakers, says that cheap “consumer- these technologies have a catch. The torrent
His current firm, America’s IntelliDOT, makes grade” electronics now make it possible to of medical data that will be generated by all
small wireless devices used for medical produce such devices as disposable insulin these smart devices will need to be analysed.
monitoring. pumps, which his firm plans to start selling Software can help by sending summaries
He says the biggest difficulty he has had to soon. As more such devices win consumer and alerts, but Kaiser Permanente’s Yan
confront is not the limits of technology but acceptance, care will get both cheaper and Chow thinks “technology is running ahead
the unwillingness of insurance companies better. His firm might become a provider of of our capacity to absorb it.” For instance,
and health systems to reward innovators services as well as hardware. will doctors be legally obliged to act on
for products that keep patients at home, For his part, Dr Tomazou believes the future that information? Still, he is an enthusiast.
where monitoring and care can be provided belongs not to medical devices enhanced by Moments later he is gushing about a devious
more easily and cheaply than at the doctor’s consumer electronics but to ubiquitous and software program designed for the Nintendo
surgery. But even this grizzled veteran thinks user-friendly devices like personal digital Wii, a popular videogaming system, that has
the tipping point for personalised medical assistants and mobile phones. These are “very proved highly effective in getting recalcitrant
devices has arrived, for three reasons. useful for hiding medical monitoring” and for children to stick to physical-therapy regimens.
First, thanks to much-improved displaying data in ways that enable patients The bigger concern is that technology
technologies for remote communications, to act on that information. Qualcomm, which can never be a substitute for personal
“telemedicine” is at last taking off. Second, makes wireless-communications equipment, responsibility. As Mr Gates points out,
thanks to cheap and ubiquitous consumer thinks a good way to do this is to integrate “bathroom scales have been around a long
electronics, medical devices in the home are at advanced sensors and short-range wireless time and obesity is still on the rise.” Yet there is
last moving beyond clunky medical monitors networks (known as “femtocells”) to create no denying that the medical technologies now
and creepy lavatories. Third, cheap sensors “home health hubs”. rapidly moving towards commercialisation
and smart phones are allowing a shift to On April 2nd Intel announced a $250m have the potential to empower patients and
“body computing”. joint venture with GE to market a range of give them the tools and data needed to take
Two different kinds of telemedicine are snazzy internet-connected devices that allow charge of their own health. This is already
being tried out in Britain. In three locations doctors to monitor patients at home. The beginning to happen. n
in England the NHS is now running one of company also helped organise a consortium
the largest trials of “telecare”, which aims of companies, known as the Continua Health
to monitor and offer remote medical care Alliance, that has produced standards on
to the elderly in their homes. The Scottish “interoperability” and communications for
Centre for Tele-Health has set up video such products.
kiosks offering medical consultations in Tim Brown of Ideo, a design consultancy,
35
For more information about
“The future of livelihoods”, please go to
www.VisionariesUnbound.com
Supported by