Escaping the Inequality-Data Dark Ages

PARIS – We are living in the Dark Ages of inequality statistics. More than a decade after the “Great Recession,” governments are still unable to track accurately the evolution of income and wealth. Statistical agencies produce income-growth statistics for the population as a whole (national accounts), but not for the “middle class,” the “working class,” or the richest 1% and 0.1%. At a time when Google, Facebook, Visa, Mastercard, and other multinational corporations know intimate details about our private lives, governments still do not capture, let alone publish, the most basic statistics concerning the distribution of income and wealth.

This failure has huge costs for society. The perception that inequalities are reaching unjustifiable heights in many countries, combined with a lack of any possible informed choice for voters, is fodder for demagogues and critics of democracy.Making matters worse, experts in the field of inequality are sometimes depicted as being overly reliant on specific methodological approaches, as illustrated in The Economist’s recent cover story, “Inequality illusions.” But, of course, data in the social sciences are by their very nature open to challenge, which makes methodological debates largely unavoidable. The question is where to draw the line between legitimate academic disagreement about inequality levels and trends and outright inequality denialism.

Whether or not inequality is acceptable – and whether or not something should be done about it – is a matter of collective choice. To help inform the debate, more than 100 researchers from around the world have joined forces to develop innovative methods for compiling inequality statistics through the World Inequality Database, which now covers more than 100 countries. The WID includes the widest possible array of available data sources, from household surveys, tax-administration data, national accounts, and wealth rankings published in the media, to the “Panama Papers,” through which the International Consortium of Investigative Journalists exposed stockpiles of wealth stashed in various tax havens.The WID’s methodology is set up in a way that allows results to be reproduced and debated, while contributing to the expansion and improvement of the available data. When consistently applied to various regions and countries, divergent patterns appear, with inequality increasing in some countries, and stagnating or declining in (a few) others. And the WID is just one of multiple institutions – including the LIS Cross-National Data Center, the Commitment to Equity Institute, the World Bank, and the OECD – now fruitfully working to improve our understanding of these issues.But progress in measuring inequality has been hampered by recent policy developments, which belie narratives about greater transparency. Many advanced economies have reduced the number of tax audits performed each year, making it harder to access and analyze this key source of information. Likewise, as progressive taxes on capital incomes have been phased out, and as wealth and inheritance taxes have been repealed, some of the most basic sources of data on wealth inequality have disappeared.

Owing to the lack of high-quality fiscal and administrative data on capital incomes and wealth, many observers will turn to other sources, such as billionaire rankings published by a number of magazines. But while these sources can provide valuable insights, they do not meet the standards of methodological rigor and conceptual clarity on which an informed public conversation should be based.For these reasons, researchers, the media, and civil-society organizations need to get more involved. It is critical that we develop an internationally recognized set of indicators and methods for tracking income and wealth. Government statistical agencies should be publishing the income and wealth levels of the top 1%, 0.1%, and 0.001%, as well as the effective taxes paid by these groups.To that end, a particularly important milestone will come with a revision, due in the next three years, of the United Nations System of National Accounts. (We are currently working with national statistical offices, the OECD, and the UN on this effort.) GDP statistics were originally born of researchers’ stubborn commitment to provide evidence of national incomes during the Great Depression. It would be a pity to wait for the centennial of GDP – or for another recession – to craft distributional growth statistics.All societies must start to engage more in the production and dissemination of transparent economic information. We call on all interested parties from civil society, the media, governments, and the academic community to join the effort to bring inequality data into the twenty-first century.

Flailing at China

Aug 27, 2019 | Stephen S. Roach, Yale University

NEW HAVEN – This will be the tenth year that I have taught a course at Yale called “The Next China.” The course focuses on modern China’s daunting economic transitions. It frames the moving target that eludes US President Donald Trump’s administration, which is taking dead aim at the Old China (a convenient target for a leader who wants to resurrect Old America). The incoherence of Trump’s trade and economic policies, with all their potentially grave consequences for the global economy, is a destabilizing byproduct of this disconnect.

My course starts with the urgency of the challenges addressed by Deng Xiaoping in the late 1970s. But its main focus is how the resulting Chinese growth miracle presents President Xi Jinping with four transitional imperatives: the shift from export- and investment-led growth to an economy driven increasingly by domestic private consumption; the shift from manufacturing to services; the shift from surplus saving to saving absorption in order to fund the social safety net desperately needed by China’s rapidly aging middle class; and the shift from imported to indigenous innovation, which ultimately will be decisive for China’s goal of being a “moderately well-off society” by the middle of this century.The confluence of these four transitional challenges would be daunting for any country. That is especially true for China, with its blended political economy – the so-called socialist market system, with an ever-changing balance of power between the Communist Party and a vibrant private sector. It is a very tricky balancing act, to be sure.I date the pivotal point on the path from Old China to the Next China to early 2007, when then-Premier Wen Jiabao correctly diagnosed the high-flying Chinese economy of the time as increasingly “unstable, unbalanced, uncoordinated, and unsustainable.” The Four Uns, as they famously came to be known, sparked a vigorous internal debate in China that led to major rethinking of the Chinese economic-growth model and a series of new strategic plans and reforms – the 12th and 13th Five-Year Plans (of 2011-15 and 2016-20, respectively) and the so-called Third Plenum Reforms (of late 2013).Notwithstanding all the criticism of China in the West (to say nothing of the bipartisan political angst now boiling over in Washington, DC), progress on the road to the Next China actually has been quite extraordinary over the past dozen years. The middle-class Chinese consumer has come to life, and the services sector has emerged as an increasingly powerful growth engine. China’s outsize current-account surplus has all but vanished, a trend that is crucial to the saving absorption that its domestic economy requires. And the signs of indigenous innovation are everywhere, from e-commerce and fintech to artificial intelligence and breakthroughs in the life sciences.True, like all sagas of economic development, China’s progress since 2007 has been uneven at times, and new challenges have emerged along the way. Wen’s Four Uns provide a useful way to frame the pitfalls that still lurk. Instability remains an ever-present threat, underscored by China’s voracious appetite for debt, which has sparked an aggressive deleveraging campaign aimed at avoiding the dreaded Japan syndrome. Imbalances persist, underscored by private consumption’s sub-40% share of Chinese GDP – a shortfall that can be addressed only by a more robust social-safety net (especially pensions and healthcare). Persistent regional disparities, in conjunction with mounting income inequality, are visible manifestations of a lack of coordination. And, of course, despite recent progress in dealing with air pollution, environmental degradation remains central to China’s challenging sustainability agenda.

From Project Syndicate

China and the U.S. need to embrace the idea of benign competition. Here’s why

China-U.S. relations have entered into an era of strategic competition. As such, the U.S. has deemed China its foremost, primary, and long-term strategic rival, highlighted this in multiple official documents, and embarked on a comprehensive approach to contain China in all sectors.

In the meantime, China sees the U.S. as its biggest external challenge when it comes to national rejuvenation. The trade war between the two countries unfolding over the past year is only the tip of the iceberg of intensified competition between China and the U.S. in science and technology, military, foreign policy, and other sectors.

Views differ on the essence of China-U.S. competition. Most watchers see it as a classic power competition caused by a shrinking gap in strength between the two countries. That said, some see it as a competition between two competing ideologies, or between two competing systems.

In particular, right-wing conservatives in the U.S. government regard it as an ideological competition that decides whether the future world order will be defined by liberal or authoritarian ideas.

The Indo-Pacific Strategy Report (pdf) released by the Department of Defense in June stated that the competition between a liberal and authoritarian world order is a primary security concern of the U.S.

The U.S. believes that China is rising as a power not only in the economic and military domains, but also in soft power, manifested in the appeal power of its development model. China’s political system and ideology are a source of anxiety for the U.S., fuelled more by the perception of a “China threat.”

The U.S. sees China as “the other,” and finds the rise of China with a different development system difficult to appreciate. Moreover, the U.S. is worried that China intends to alter, and even upend, the current world order and norms led by the U.S. in favour of an anti-U.S. order.

It is dangerous to let China-U.S. competition spill over into the ideological and civilization domains, and undue emphasis on ideological differences will lead to a cold-war style stand-off. Fundamentally, it is a conflict of interests that is driving the current confrontation between the two countries rather than anything ideological.

The U.S. aims to contain the rise of China, while China seeks to rise above the current tensions so that it can gain more space for development and become a truly strong country. In sum, it is power and interests that drive the current competition between the two countries, while ideological and political differences are but aggressive tools at their disposal.

Low risk

As things stand now, the probability of a new Cold War is rather low. The Cold War happened because, over the course of building a post-war world order, the competition between the U.S. and the Soviet Union underpinned the process.

As both powers upheld a “me or the other” mindset, they gave up talks altogether and confrontation ensued. But for China and the U.S., their competition is unfolding under the same international system, with both parties participating in the same global institutions and norms.

China grows and prospers in this global system and order created and led by the U.S., so it is hard to extricate itself from it. Other national and international actors cannot afford the cost of fragmenting the system, either.

On the economic front, China and the U.S. are inextricably intertwined as two economic powers, with unprecedented interdependence binding them together. The two countries also share broad interests in non-proliferation, climate change, and other non-traditional security threats on a global level, despite their conflicts of interest in bilateral and regional affairs. Ideological and system competition between China and the U.S. is still only at a moderate level.

New engagement model

As such, China-U.S. competition is still manageable and of low intensity: it is centred on national interests and happens in the context of the same system. Both are nuclear powers, but a hot war between them is unimaginable.

A long and tortuous journey, even one lasting decades, may be needed for one or the other to emerge stronger in the competition on trade and other, less sensitive, fronts.

Such competition will only conclude when one side believes the other has lost its competitive edge or no longer constitutes a threat. For this reason, the strategy-minded circles in both countries should examine how China and the U.S. could arrive at a new engagement model in the coming decades.

Power competition doesn’t have to be zero sum, either. Like the Chinese saying goes, “the enemy lost one thousand soldiers, but your own army shed eight hundred.”

In the Cold War, the U.S. contained and isolated the Soviet Union and led to the latter’s demise. But China has a population of 1.4 billion with a prosperous economy — it would be next to impossible to isolate China into its collapse. Not to mention that the global industrial chain has bound the two countries closely together. Even in the unlikely scenario of a successful containment, the U.S. would still stand to suffer rather than relive the glorious Cold War-era victory it has craved.

The fundamental challenge is not trade disputes, but transcending the you-win-I-lose mentality

If competition is inevitable, the two countries must find a way to avoid zero-sum competition or a slide into a cold war. Any competition should be benign and push the two countries towards co-development and co-evolution.

As Dr. Henry Kissinger pointed out in 2018, China-U.S. relations are at a critical moment: the fundamental challenge is not trade disputes, but transcending the you-win-I-lose mentality and finding a way to coexist in a new global political environment.

Therefore, benign competition should be the shared objective of both countries: neither should challenge the core interests of the other and both should work toward managing differences and avoiding conflicts.

As the lesser power, China cannot forestall the U.S.’s intention of strategic competition, but it can try to draw the line of competition, and seek to foster an environment for benign competition. The U.S., on the other hand, should find a way to peacefully coexist with China in the world, as that will serve to protect U.S. values and interests.

International rules

China and the U.S. could resort to multilateral mechanisms to manage differences. An open, rules-based international order benefits the U.S. and stands for what China pursues, as it would provide a good environment for the internal adjustment of both countries. Both should uphold the current international system and fulfill their international obligations, and more importantly, they should see maintaining China-U.S. relations as part and parcel of such obligations.

As such, they could shape the current system to be more resilient and robust, and fend off attempts to reinvent the wheel altogether.

In a nutshell, defining a competitor or rival is one thing, but steering the competition is another. In an era of strategic competition, China and the U.S. will have to focus more on effective and positive competition management and clarify the rules underwriting such a competition, manage the economic consequences, and fend off ideological and military competitions.

Examining the Essence and Features of China-U.S. Competition, Du Lan, China Institute of International Studies

Globalization 4.0 – what does it mean?

After World War II, the international community came together to build a shared future. Now, it must do so again. Owing to the slow and uneven recovery in the decade since the global financial crisis, a substantial part of society has become disaffected and embittered, not only with politics and politicians, but also with globalization and the entire economic system it underpins. In an era of widespread insecurity and frustration, populism has become increasingly attractive as an alternative to the status quo.

After all, this moment of crisis has raised important questions about our global-governance architecture. With more and more voters demanding to “take back control” from “global forces,” the challenge is to restore sovereignty in a world that requires cooperation.

But populist discourse eludes – and often confounds – the substantive distinctions between two concepts: globalization and globalism. Globalization is a phenomenon driven by technology and the movement of ideas, people, and goods. Globalism is an ideology that prioritizes the neoliberal global order over national interests. Nobody can deny that we are living in a globalized world. But whether all of our policies should be “globalist” is highly debatable.

After all, this moment of crisis has raised important questions about our global-governance architecture. With more and more voters demanding to “take back control” from “global forces,” the challenge is to restore sovereignty in a world that requires cooperation. Rather than closing off economies through protectionism and nationalist politics, we must forge a new social compact between citizens and their leaders, so that everyone feels secure enough at home to remain open to the world at large. Failing that, the ongoing disintegration of our social fabric could ultimately lead to the collapse of democracy.

Moreover, the challenges associated with the Fourth Industrial Revolution (4IR) are coinciding with the rapid emergence of ecological constraints, the advent of an increasingly multipolar international order, and rising inequality. These integrated developments are ushering in a new era of globalization. Whether it will improve the human condition will depend on whether corporate, local, national, and international governance can adapt in time.

Meanwhile, a new framework for global public-private cooperation has been taking shape. Public-private cooperation is about harnessing the private sector and open markets to drive economic growth for the public good, with environmental sustainability and social inclusiveness always in mind. But to determine the public good, we first must identify the root causes of inequality.

For example, while open markets and increased competition certainly produce winners and losers in the international arena, they may be having an even more pronounced effect on inequality at the national level. Moreover, the growing divide between the precariat and the privileged is being reinforced by 4IR business models, which often derive rents from owning capital or intellectual property.

Closing that divide requires us to recognize that we are living in a new type of innovation-driven economy, and that new global norms, standards, policies, and conventions are needed to safeguard the public trust. The new economy has already disrupted and recombined countless industries, and dislocated millions of workers. It is dematerializing production, by increasing the knowledge intensity of value creation. It is heightening competition within domestic product, capital, and labor markets, as well as among countries adopting different trade and investment strategies. And it is fueling distrust, particularly of technology companies and their stewardship of our data.

The unprecedented pace of technological change means that our systems of health, transportation, communication, production, distribution, and energy – just to name a few – will be completely transformed. Managing that change will require not just new frameworks for national and multinational cooperation, but also a new model of education, complete with targeted programs for teaching workers new skills. With advances in robotics and artificial intelligence in the context of aging societies, we will have to move from a narrative of production and consumption toward one of sharing and caring.

Globalization 4.0 has only just begun, but we are already vastly underprepared for it. Clinging to an outdated mindset and tinkering with our existing processes and institutions will not do. Rather, we need to redesign them from the ground up, so that we can capitalize on the new opportunities that await us, while avoiding the kind of disruptions that we are witnessing today.

As we develop a new approach to the new economy, we must remember that we are not playing a zero-sum game. This is not a matter of free trade or protectionism, technology or jobs, immigration or protecting citizens, and growth or equality. Those are all false dichotomies, which we can avoid by developing policies that favor “and” over “or,” allowing all sets of interests to be pursued in parallel.

To be sure, pessimists will argue that political conditions are standing in the way of a productive global dialogue about Globalization 4.0 and the new economy. But realists will use the current moment to explore the gaps in the present system, and to identify the requirements for a future approach. And optimists will hold out hope that future-oriented stakeholders will create a community of shared interest and, ultimately, shared purpose.

Klaus Schwab, Founder and Executive Chairman, World Economic Forum

One thing to change: Think more like children

The one thing I would change about the world is to transform my colleagues in academia to kids all over again, so they would follow the sincere path of learning about the world.

We are born innocent and humble, wondering about the world around us and trying to figure it out, initially without even having a language to express our findings. There is no bigger privilege to being alive than this learning experience. As kids, we tolerate mistakes and take risks because these are inseparable from the process of expanding our knowledge base. These aspects make most childhoods exciting and authentic.

But somewhere along the way, when some of these same kids join academia and are accorded the privilege of tenure, they lose the traits of childhood innocence and unbounded curiosity. As senior professors, they can get attached to their egos and navigate in directions that maximize awards, honors, and affiliation with prestigious societies or organizations. To enhance their reputations, tenured professors often tend to create “echo chambers” of students and postdocs who study theses with references to their papers and conference contributions. The loud echo amplifies the mentor’s influence in the academic community.“There is no bigger privilege to being alive than this learning experience.”

Is there anything wrong in this progression from childhood curiosity to academic fame? By chasing self-interest, we often lose track of the real goal of academic pursuit: learning about the world. This conflict is apparent when the popular view advocated by authority is not aligned with the truth.

One inevitably makes mistakes and takes risks when exploring the unknown. Even Albert Einstein argued, toward the end of his career, for the lack of “spooky action at a distance” in quantum mechanics, and against the existence of black holes and gravitational waves. We now know from experiments that those assertions were wrong. But the benefit of science is that we learn by making mistakes. If we will not allow ourselves to venture into the unknown, by assuming that the future will always resemble the past based on our gut feelings, we will never make discoveries.

Research can be a self-fulfilling prophecy. By forecasting what we expect to find and using new data to justify prejudice, we will avoid creating new realities. Innovation demands risk-taking, sometimes contrary to our best academic instincts of enhancing our image within our community of scholars. Learning means giving a higher priority to the world around you than to yourself. Without the humble attitude of a child, innovation slows down and the efficiency of the academic pursuit of the truth grinds to a halt. We all become static museum items rather than dynamic innovators.

As Galileo reasoned after looking through his telescope, “in the sciences, the authority of a thousand is not worth as much as the humble reasoning of a single individual.” I would add the footnote that sometimes Mother Nature is kinder to innovative ideas than people are. When we study the world, there is a lot to worry about. But at the same time, there is a famous quote by Nachman of Breslov: “The whole world is nothing but a very narrow bridge, and the key is not to be fearful at all.”

The fundamental purpose of tenure is to enable individuals to take risks and venture into unexplored territories of knowledge without concern for the security of their jobs. Honors should be merely makeup on the face of academia, but they sometimes become an obsession.

Despite the notion that is often advanced by textbooks, our knowledge should be regarded as a small island in a vast ocean of ignorance. The most efficient way to add landmass to this island is by not being afraid of the consequences of originality, by being dedicated to the thrill of finding the truth irrespective of whether it boosts our ego or reputation as tenured professors.

We live for such a short period of time on one small planet out of a hundred-quintillion other habitable planets in the observable volume of the Universe. Let us not pretend that we are so special. Let us maintain some cosmic modesty and study the world sincerely, just like kids.