[BRIEF NOTE] Is globalization a phantom here, but positive and solid elsewhere?
Is the past decades' globalization politically viable if it amounts to a mechanism for wealth transfers from stagnant wealthy countries to dynamic poor ones? That's the question that's been in my head thanks to the Globe and Mail's Doug Saunders, who has been writing a series of interesting articles examining the consequence sof the collapse of the last decades' economic boom, filing reports from Europe while considering the wider world. In last Saturday's "Was the boom worth it?", he considered just that question.
If we do it all over again, should we avoid that risk - or were there sustainable gains that made the volatility worth it? To formulate an answer, I enlisted the assistance of economic researcher Allison Martell, who spent the week scouring the latest economic statistics for North America and Europe.
[. . . ]
The after-tax incomes of the bottom 20 per cent of Canadians had fallen slightly during the crisis of the 1990s, from $21,000 to $19,000 (in constant 2008 dollars); beginning in 1997, they rose steadily, to just shy of $24,000. Among the next highest 20 per cent, they rose from $32,000 to 40,000 - and, with both groups, the purchasing power of their earnings seems to have levelled off but not fallen.
The same was somewhat true in Britain, though incomes have fallen in recent years. In the United States, it’s a different picture: After-tax earnings peaked in 2000, fell somewhat throughout the 2000s, and went off a cliff after 2008, dropping to 1997 levels (though not yet to pre-boom 1994 levels).
[. . .]
Statistics Canada’s General Social Survey shows that home ownership rose from 65 per cent in 1993 to somewhere above 75 per cent in 2008 with a slight dip, of 4 percentage points, at the end. In the U.S., it rose from 64 per cent in the 1990s to 69 per cent in 2005, then slumped every year after that, back to 1999 levels in 2009. European rates have generally held steady, except in Ireland, where they have plummeted to pre-boom levels (some European figures aren’t yet available).
But we should be wary: A study by the U.S. Federal Reserve last month looked at “real” homeownership, by discounting people who owe more than their homes are worth (and thus are unlikely to own them forever). That cuts the rate by 5.6 percentage points, killing most boom-period gains. We don’t know these figures for other countries, but Britain, Spain and Ireland all have plenty of “underwater” mortgages, and Canada generally doesn’t.
Indeed, the debt that made possible all those gains could end up undermining them completely. We looked at total consumer debt compared with income and, in almost every Western country, it rose sharply - even during the boom years, when incomes were rising. In the U.S. and Britain, debt went from 65 per cent of income in 1994 to almost 100 per cent in 2009; in Spain, from 40 per cent to 90 per cent; and in Ireland, from 60 per cent to 130 per cent.
The outliers were France and Canada, which saw debt rise less sharply, and Germany, where consumer debt has fallen since 1999. The answer is hard to avoid: In the countries that kept a lid on consumer and mortgage lending, the economic boom was worth all the hype. Everywhere else, it was like a bad dream.
This Saturday's article modified the picture somewhat for rich countries and brought the rest of the world into focus, with "Boom, bust and the end of certainty".
The first thing to remember is that the crisis has been contained, and the most important features of our world have remained stable, because our major democratic institutions worked. When markets proved to be as capable of cascading destruction as they are of escalating creation, it was big governments and transnational institutions that worked. It was independent central banks that worked. It was regulations, when present, that worked. And in the countries that recovered quickest, it was well-funded social safety nets that worked.
[. . .]
The second thing to remember is that this was not a global crisis. Quite the contrary: It was the end point of a new readjustment. In the most populous two-thirds of the world, this has been a period of increasing growth and prosperity only mildly dusted by the grey ashes from the West.
When it began in earnest in 2008, I was in Shenzhen, China, speaking to officials who were baffled to find that a million workers had failed to return from the Spring Festival holiday. It seemed that the collapse of orders from the U.S. had precipitated a Chinese crisis. By the end of the year, however, the workers had returned - though on new terms. City officials were forced to raise the minimum wage from 450 yuan ($68) to 750 ($113) and then to 900 ($136) a month; this year, they’ve raised it to 1,100 yuan ($166). Their city still faces a labour shortage of about 20 per cent, as officials worry that their raises have driven the cheap-garment trade to lower-wage Bangladesh.
And, indeed, we saw the other shoe drop this week (even if it was a hastily stitched canvas high-top with a questionable logo). Bangladesh announced that, in the wake of months of rollicking garment workers’ strikes against deplorable pay, the minimum wage would rise by 80 per cent, from 1662 taka ($25) a month to 3,000 taka ($45).
That’s the other answer to the question I posed last week: Was the boom worth it? If you look just at the West, real purchasing-power incomes of working people improved only slightly, if at all, over the past 15 years.
But it’s probably better to look at it this way: Our living standards remained exactly the same, and our large governments and institutions prevented them from deteriorating. And those in the East improved dramatically, as we used our non-changing incomes to buy their products. The boom-and-bust period was essentially a transfer of gains from the privileged centre to the margins. If we can hold on to what we’ve got, then the experience was worth it.
While the idea of a world with fewer global inequalities appeals to me, and the idea of compensating for stagnant incomes with relatively inexpensive manufactures from the former Third World instead of with consumer debt likewise works for me personally (although it's certainly tough on the rich-country manufacturers that don't adapt to find a durable niche), is this an arrangement that will last for any length of time?
If we do it all over again, should we avoid that risk - or were there sustainable gains that made the volatility worth it? To formulate an answer, I enlisted the assistance of economic researcher Allison Martell, who spent the week scouring the latest economic statistics for North America and Europe.
[. . . ]
The after-tax incomes of the bottom 20 per cent of Canadians had fallen slightly during the crisis of the 1990s, from $21,000 to $19,000 (in constant 2008 dollars); beginning in 1997, they rose steadily, to just shy of $24,000. Among the next highest 20 per cent, they rose from $32,000 to 40,000 - and, with both groups, the purchasing power of their earnings seems to have levelled off but not fallen.
The same was somewhat true in Britain, though incomes have fallen in recent years. In the United States, it’s a different picture: After-tax earnings peaked in 2000, fell somewhat throughout the 2000s, and went off a cliff after 2008, dropping to 1997 levels (though not yet to pre-boom 1994 levels).
[. . .]
Statistics Canada’s General Social Survey shows that home ownership rose from 65 per cent in 1993 to somewhere above 75 per cent in 2008 with a slight dip, of 4 percentage points, at the end. In the U.S., it rose from 64 per cent in the 1990s to 69 per cent in 2005, then slumped every year after that, back to 1999 levels in 2009. European rates have generally held steady, except in Ireland, where they have plummeted to pre-boom levels (some European figures aren’t yet available).
But we should be wary: A study by the U.S. Federal Reserve last month looked at “real” homeownership, by discounting people who owe more than their homes are worth (and thus are unlikely to own them forever). That cuts the rate by 5.6 percentage points, killing most boom-period gains. We don’t know these figures for other countries, but Britain, Spain and Ireland all have plenty of “underwater” mortgages, and Canada generally doesn’t.
Indeed, the debt that made possible all those gains could end up undermining them completely. We looked at total consumer debt compared with income and, in almost every Western country, it rose sharply - even during the boom years, when incomes were rising. In the U.S. and Britain, debt went from 65 per cent of income in 1994 to almost 100 per cent in 2009; in Spain, from 40 per cent to 90 per cent; and in Ireland, from 60 per cent to 130 per cent.
The outliers were France and Canada, which saw debt rise less sharply, and Germany, where consumer debt has fallen since 1999. The answer is hard to avoid: In the countries that kept a lid on consumer and mortgage lending, the economic boom was worth all the hype. Everywhere else, it was like a bad dream.
This Saturday's article modified the picture somewhat for rich countries and brought the rest of the world into focus, with "Boom, bust and the end of certainty".
The first thing to remember is that the crisis has been contained, and the most important features of our world have remained stable, because our major democratic institutions worked. When markets proved to be as capable of cascading destruction as they are of escalating creation, it was big governments and transnational institutions that worked. It was independent central banks that worked. It was regulations, when present, that worked. And in the countries that recovered quickest, it was well-funded social safety nets that worked.
[. . .]
The second thing to remember is that this was not a global crisis. Quite the contrary: It was the end point of a new readjustment. In the most populous two-thirds of the world, this has been a period of increasing growth and prosperity only mildly dusted by the grey ashes from the West.
When it began in earnest in 2008, I was in Shenzhen, China, speaking to officials who were baffled to find that a million workers had failed to return from the Spring Festival holiday. It seemed that the collapse of orders from the U.S. had precipitated a Chinese crisis. By the end of the year, however, the workers had returned - though on new terms. City officials were forced to raise the minimum wage from 450 yuan ($68) to 750 ($113) and then to 900 ($136) a month; this year, they’ve raised it to 1,100 yuan ($166). Their city still faces a labour shortage of about 20 per cent, as officials worry that their raises have driven the cheap-garment trade to lower-wage Bangladesh.
And, indeed, we saw the other shoe drop this week (even if it was a hastily stitched canvas high-top with a questionable logo). Bangladesh announced that, in the wake of months of rollicking garment workers’ strikes against deplorable pay, the minimum wage would rise by 80 per cent, from 1662 taka ($25) a month to 3,000 taka ($45).
That’s the other answer to the question I posed last week: Was the boom worth it? If you look just at the West, real purchasing-power incomes of working people improved only slightly, if at all, over the past 15 years.
But it’s probably better to look at it this way: Our living standards remained exactly the same, and our large governments and institutions prevented them from deteriorating. And those in the East improved dramatically, as we used our non-changing incomes to buy their products. The boom-and-bust period was essentially a transfer of gains from the privileged centre to the margins. If we can hold on to what we’ve got, then the experience was worth it.
While the idea of a world with fewer global inequalities appeals to me, and the idea of compensating for stagnant incomes with relatively inexpensive manufactures from the former Third World instead of with consumer debt likewise works for me personally (although it's certainly tough on the rich-country manufacturers that don't adapt to find a durable niche), is this an arrangement that will last for any length of time?