Economics

What is GDP, and how are we misusing it?

www.themirrorinspires.com The Elephant in the Conversation on FaceBook You shouldn’t judge a country by its GDP. Gross Domestic Product (GDP), and growth thereof, has been widely used over the years to measure economic progress. But what is GDP, and why does it matter? Mathematically it is the sum of consumption, investment and government spending (plus exports, minus imports). It is regularly cited in discussions related to the economic health and wellbeing of countries and regions, with some governments such as China going so far as to set specific targets for GDP growth (placed between 6.5 and 7% at the recent National People’s Congress in the new Five Year Plan). And even without specific targets, the evolution of GDP remains a fixation for governments around the world and is also a regular topic on the agenda of global and regional groupings such as the G20 and the European Union. What does GDP miss out? Amid this GDP obsession, it is easy to forget that it was not initially intended for this purpose – it merely provides a measure of the final goods and services produced in an economy over a given period, without any attention to what is produced, how it’s produced or who is producing it. Simon Kuznets, who defined the modern version of GDP in the 1930s, specifically cautioned against using it as a measure of welfare. Yet its relatively straightforward measurability has led it to be used widely over the decades for precisely that purpose. Of course, GDP is highly correlated with a lot of the things that we prize in a society: good education, quality infrastructure, functioning markets. And yet, as has been […]

Will electric cars cause the next oil crisis?

Some inventions are an immediate success. When Apple released the iPhone in 2007, customers lined up outside stores, desperate to get their hands on what the media called the Jesus phone, a reference to the device’s popularity. Other innovations aren’t quite as successful. Take electric cars. They’ve been around longer than you might think – they were first invented early in the 19th century – but were quickly overshadowed by their oil-guzzling counterparts. For a long time, it looked as though things were set to stay that way. Despite all the benefits – electric cars could help cut carbon emissions and air pollution, for example – there were very few takers. In 2011, President Barack Obama predicted there would be 1 million plug-in cars on US roads by 2015. He was off by over 700,000. But electric vehicles might be set for a revival: “A shift is under way that will lead to widespread adoption of EVs in the next decade,” Bloomberg reported last week. What’s behind the change? It’s simple, really: electric vehicles are set to get a whole lot cheaper. While many people liked the idea behind electric vehicles, even with government subsidies they’re too expensive: “If there’s a price penalty, people just don’t buy,” Carlos Ghosn of Renault-Nissan told the Guardian last year. His company sells more than half of the world’s electric cars. One of the reasons for the price difference between electric and conventional vehicles is scale. Of the billions of cars on the world’s roads, only 1% of new cars are electric, which means higher production costs. Another is the cost of the batteries that power electric cars. And this is where the big changes are happening. Battery prices fell by 35% last year, and it’s a trend that will probably continue. As the […]

Protecting their crops through green technologies, Caribbean women fend for themselves

Through workshops, women farmers in Barbados, Grenada and Jamaica are learning more sustainable farming techniques and securing their livelihoods. Often totally dependent on rainfall for irrigation, battling increasingly longer droughts and intense bursts when the rain does come, Caribbean women farmers are looking to more sustainable means of crop production. With UN Women support, the Caribbean Policy Development Centre (CPDC) has led a project focused on women agricultural producers’ role in sustainable development in the Caribbean. Implemented in Barbados, Grenada and Jamaica, the project aims to reduce women’s lack of access to resources. Their crops include Irish potatoes, organic mushrooms, strawberries, vegetables and other fruit for the production of juices, pepper sauces and dried fruits. The women sell them at local markets in their communities and to tourists. “After I began growing mushrooms, I was able to support my family. For now, I sell mainly to hotels,” says 52-year-old Theresia Msacky, from Grenada. For many women, farming is their only income, particularly if they have children still in school. Through workshops on the evolving green economy – an approach that will result in improved human well-being and reduced inequalities, while not exposing future generations to significant environmental risks and ecological scarcities– the women learn to use more sustainable farming methods as a more stable and reliable way of making a living. Theresia said the workshops taught her about the value and importance of protecting the environment for her livelihood. She learned about water conservation and rain-water harvesting. “We learned about the importance of crop rotation,” she explains, “not planting an entire area in one crop but rotating the area … and using natural materials in the environment to conserve the moisture and increase the fertility of the soil. Now I am also using natural barriers like lemongrass to eradicate the […]

The Rubik’s Cube of Economics

Deciphering real world issues in economics is like solving a Rubik’s Cube, says SMU Assistant Professor Zhang Haiping. By Yamini Chinnuswamy “The job of an economist is to explain how the world economy works – from analysing economic data, conceptualising economic phenomena, forecasting economic trends to making policy suggestions,” says Assistant Professor Zhang Haiping from the Singapore Management University (SMU) School of Economics, whose work focuses on international finance and trade. Like the Rubik’s Cube, a three-dimensional combination puzzle where every twist also scrambles the face opposite of it, economics puzzles are similarly interlinked—a change in policy may lead to repercussions elsewhere. “My research is motivated by empirical puzzles in economic literature,” he says. “As economists, we seek to augment or update existing economic theories to explain real world data. The challenge lies in the fact that markets and economies seldom function in a frictionless manner.” For example, Professor Zhang notes that capital has been flowing “uphill” from the poor to the rich, and from emerging economies to developed ones since the end of 1990s. This stands in stark contrast to neoclassical economic theory which states that capital should flow from the rich to the poor, as the rate of return on investments in poor countries should be higher than in rich countries. Financial friction and the resulting borrowing constraints in poor countries can explain such a puzzling fact, he explains. Similar income levels, different patterns of capital flows Patterns of international capital flows in emerging economies are another real world puzzle Professor Zhang has studied. Although income levels per person were comparable in emerging Asia (Indonesia, Malaysia, Philippines, Thailand and Vietnam) and emerging Europe (countries such as Hungary, Poland and Romania in Central and Eastern Europe), their patterns of international capital flows were not. “We looked at the data […]

Productivity across all sectors

Over the last couple of years I have been receiving information from Wal Mart workers in the USA about their conditions and terms of employment and salary. They have a very intensive campaign which continues their push for improved wages so they have a fair deal and can afford to pay their bills. So my ears pricked up here – naturally enough – when the plight of the takeaway workers became apparent with their employers over zero-hour contracts. At this time, let’s give some credit for the role of the trade unions doing the right thing by the above mentioned workers. Trade unions support workers, they want to see people getting a fair go and being able to feed their children and not left at the bottom of the pecking order. Trade unions are a compass to show the direction to better things. And even if you are not a member of a union you can still applaud their pro-activity for attempting to make life better for others. If we measure the take away worker on a low income as against, say, a tradesman the salary is miles apart. The take away worker is still productive, however, and through their efforts allows their employer to add to the nation’s GDP. Maybe less skilled but still a valued member of society, of a community and contributing in domestic and business environments. New Zealand is a high tech country. However, not all of our citizens are into hi-tech working at Fisher & Paykel or the Reserve Bank. We are all, though, the sum of parts that make up this country and contribute to our going forward. All countries are categorised as having blue and white collar workers. The colour of your collar is not what makes you a better person, is it? […]

Water-Man-of-India-gets-Stockholm-Water-Prize

“Water man of India” makes rivers flow again

Revival of traditional rainwater harvesting has transformed the driest state in India, and could be used to combat the effects of climate change across the world. School textbooks in India have been telling children for generations that Rajasthan is an inhospitable state in the northwest of the country, constrained by the hot, hostile sands of the Thar Desert. But the driest state in India has a softer, humane face as well – that of Rajendra Singh, known as the “Water Man of India”, whose untiring efforts in water conservation in arid Rajasthan have led to him being awarded the Stockholm Water Prize, commonly referred to as the Nobel Prize for Water. Singh did not attempt to design a new technology to address Rajasthan’s water problems. He began simply by de-silting several traditional surface level rainwater storage facilities – called “johads” in the local Hindi language − that fell out of use during British colonial rule. And, in doing so, he has quenched the thirst of villages that were dying. Thousands of villages followed his example, and so much water was captured and soaked into aquifers that dry rivers have begun to flow again. Water wars Singh believes that water conservation is vital to combat the effects of climate change and to avoid “water wars” in the future. And such is his reputation on water issues that he received a call from Prince Charles, heir to the UK throne, seeking advice on how to handle the devastating summer floods in England in 2007. In an interview with Climate News Network, Singh recalled how he began making water flow again in perennially dry Rajasthan by inculcating do-it-yourself initiatives in the villagers. He explained: “I imbibed Gandhian ideals during my school days that emphasised working for empowerment of villages. “As an Ayurvedic (traditional […]

G7 have created 4.5 million jobs since before the crisis

But productivity remains key to escaping the clutches of the financial crisis, says PwC report. Almost seven years on from the global financial crisis and a broad based global rebound remains elusive. But one of the most damning and tangible metrics of the crisis – the huge upturn in unemployment in the G7 – is moving decisively in the right direction in most economies. In simple terms, and at an aggregate level, there are more jobs in the G7 and E7 now than there were before the crisis. There are now around 4.5 million more jobs, in net terms, across the G7 than there were at the end of 2007. This figure takes into account the overall number of jobs created and lost during the period. Canada has led the way with the biggest percentage increase in employment, as its economy was the first of the G7 to regain its pre-crisis GDP level. And in absolute terms, Germany and the US have created over 4 million jobs between them. The financial crisis didn’t have the same impact on the labour market in the E7, as around 90 million jobs have been created over the same period. But in the last year the pace of job creation has decelerated in some of these economies. For example, in the past year the economies of Mexico, Turkey and Brazil combined created around 300,000 jobs, compared to around 2.7 million a year on average between 2007 Q4 and 2013 Q4. And when it comes to job creation, a key factor is the type of jobs created. In the US and across Europe the trend has been rising part-time employment, with part-time job creation outperforming full-time employment gains in most of the economies in the sample. Only the UK and Germany have posted growth in […]

Great by Choice Uncertainty, Chaos and Luck

Morten T. Collins Jim/Hansen Random House $60 Following on from the worldwide bestseller Good to Great, Jim Collins returns with another groundbreaking work, this time to ask: Why do some companies thrive in uncertainty, even chaos, and others do not? In Great by Choice – based on nine years of research, buttressed by rigorous analysis and infused with engaging stories – Collins and his colleague, Morten Hansen, enumerate the principles for building a truly great enterprise in unpredictable, tumultuous, and fast-moving times. No mere sequel, Great by Choice distinguishes itself from Collins’s prior work by its focus not just on performance, but also on the type of unstable environments faced by leaders today. With a team of more than twenty researchers, Collins and Hansen studied companies that rose to greatness – beating their industry indexes by a minimum of ten times over fifteen years – in environments characterised by big forces and rapid shifts that leaders could not predict or control. The research team then contrasted these “10X companies” to a carefully selected set of comparison companies that failed to achieve greatness in similarly extreme environments. The study results were full of provocative surprises, such as: * The best leaders were not more risk taking, more visionary, and more creative than the comparisons; they were more disciplined, more empirical, and more paranoid. * Innovation by itself turns out not to be the trump card in a chaotic and uncertain world; more important is the ability to scale innovation, to blend creativity with discipline. * Following the belief that leading in a “fast world” always requires “fast decisions” and “fast action” is a good way to get killed. * The great companies changed less in reaction to a radically changing world than the comparison companies. The authors challenge conventional wisdom […]

Eco marketing: What price green consumerism?

Remember the innocent days of the 1980s ethical consumer movement? New Age entrepreneurs rode the green wave into the hearts and malls of the world. The promise? Buying pricey ice-cream or hair rinse made with Brazil nuts (or the stocks of the companies that made those products) would make the world a better place. That myth crashed. Consumers, it turned out, were not willing to buy idealism in a bottle if it came at a premium. Two decades later, green marketing remains with us, more intense than ever. Is green yet more than a fad? The Lifestyles of Health and Sustainability annual survey estimates that 13-19% of American adults are dedicated green buyers Ð a $290bn market. The US-based Cone Communications estimates that 70% of American consumers consider the environmental impact of their purchasing. The UK and Europe show similar numbers. According to marketing experts, however, these figures are wildly overstated, reflecting attitudes, not buying patterns. “Buying green products presents people with a social dilemma: they have to be willing to pay premium prices – not for their own direct benefit, but for the greater good,” says professor Shruti Gupta of Penn State University, a world expert in ethical behaviour. ‘While people love to voice their idealism to survey companies, the cold facts are they almost always put their self-interest first.” Take Elizabeth Romanaux, a consultant from New Jersey interviewed by the American Association of Retired People for a magazine piece about green buying. She considers herself environmentally conscious. She recycles. She composts. But she won’t pay a premium for an eco-friendly hotel room or cleaning products. “It isn’t that I can’t afford them,” she told AARP Magazine. “It just goes against my grain to pay more.” “Consumers will buy pricier green products,” Gupta says, “but only if they are […]

Funding entrepreneurship in developing countries a winner

NEW ZEALAND: A Victoria University student has collected the top award in a global business competition for a scheme to support entrepreneurs in villages in developing countries. Jake McInteer, a student from Victoria Business School, accepted the 2013 Global Enterprise Experience ANZ Champion Team Award at a function at Parliament on behalf of his international team. The seven members communicated across multiple time zones for three weeks to produce a business concept proposal on a profitable product or service that addresses a millennium goal of the United Nations Development Programme. Mr McInteer’s team, which included members from Nepal, Scotland, Colombia, Bangladesh and Nigeria, came up with the idea of creating a Student-Entrepreneur Finance Network, a microfinance institution offering loans of $50 to $150 to entrepreneurs in villages in developing countries. One of Mr McInteer’s team mates, Sumit Agrawal from Nepal, noted in his reflective journal that he was going to try his best to implement the team’s idea in his country. Mr McInteer says despite his team not meeting any of the deadlines they set and the difficulties of communicating from a distance, the end result was something they were all proud of. “As team leader, the whole process has taught me about cultural understanding and intercultural communication and given me a glimpse of what it means to be a global leader, today and in the future.” Five UNESCO Commitment Awards were given to participants who went to extraordinary lengths to overcome hardship to contribute to their global team. One recipient was Victoria University student Brady Austen who was hospitalised and had surgery for a motocross accident during the contest, but used his cellphone to continue to contribute to the global team he was leading. The Supreme Commitment Award went to Baha’i student Aziz’u’llah Samandari from Iran who has been […]

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