Weekend Reads

For the profit and pleasure of subscribers, here's a few longer reads on economic, social and political matters for the weekend.

Bill English has been in Washington this week for the annual IMF and World Bank meetings. He would have read the latest IMF economic outlook, which lowered global growth forecasts and warned of political risks around the backlash against globalisation in the wake of the Global Financial Crisis. It also pointed out that boosting economic growth was the best way to encourage global trade and reduce those political risks.

There's a growing debate too about the need for Governments to do more of the heavy lifting to strengthen growth and raise inflation pressures through fiscal policies, rather than leaving it all up to central banks, which many worry have run out of firepower. English has loosened the purse strings a tiny bit over the last year, but the Reserve Bank's murmurings about the need for more 'monetary policy mates' are getting louder. Here's Graeme Wheeler from last December in our Hive News email from December 11 and John McDermott in our Hive News email from August 31.

The biggest political speeches this week came out of Britain where Theresa May and her Home Secretary Amber Rudd spoke to the Conservative Party conference. They surprised a few people with their comments and policies aimed at drastically scaling back migration and attacking the uglier sides of global capitalism. Here's Rudd's full speech, including a promise to jail landlords renting houses out to illegal immigrants and to crack down on low quality international education. Rudd also suggested forcing firms to list their foreign workers to shame them into hiring locals.

It's worth remembering that New Zealand's current annual net migration rate of around 1.5% of the population is three times faster than Britain's at around 0.5% so there is plenty of potential for a similar backlash here, as Winston Peters well knows. The issue of international education quality and migrant abuse surfaced again in this piece from Katie Bradford on an Indian student offered as little as NZ$9/hour to work for 60 hours a week as a receptionist, and that the Labour Inspectorate has prosecuted 54 employers in the last two years for migrant abuse.

May's full speech was even starker about what she thought the Brexit vote meant. It didn't sound like a speech from a Tory. It's worth reading in full to get a sense of how the political landscape has changed in Britain post-Brexit, and how it is changing in much of the Northern Hemisphere. The tone of it was striking.

Here's a taste: "The roots of the revolution run deep. Because it wasn’t the wealthy who made the biggest sacrifices after the financial crash, but ordinary, working class families. Within our society today, we see division and unfairness all around. Between a more prosperous older generation and a struggling younger generation. Between the wealth of London and the rest of the country. So change has got to come. Because if we don’t respond – if we don’t take this opportunity to deliver the change people want – resentments will grow. Divisions will become entrenched."

There's a lot of hype around these days about the growth of 'Transportation Network Companies' such as Uber and Lyft effectively replacing the need to build better public transport systems. Magically, somehow, more people will be able to move around in fewer cars on the same motorways. Izabella Kaminiska is suitably sceptical in this FTAlphaville piece.

"If you price these services (via investor subsidies or below-minimum wage rates) at levels that make the taxi option viable for every day commuting, then all the economies and efficiencies fall apart, leading to a bottlenecked system that actually ends up serving no-one’s needs, whether those are the needs of the driver to make a decent living or the customer’s needs to get from one place to the other quickly," she writes.

The FT's Jamil Anderlini is always worth reading and his take on the TPP frames it as part of a strategic battle between America and China. TPP's impending failure is being welcomed by Beijing as another reason why democracy is a bad idea. Anderlini, who thinks China's RCEP plan will now take centre stage, rightly points to this now famous quote from Barack Obama from January last year:

“China wants to write the rules for the world’s fastest-growing region. That would put our workers and our businesses at a disadvantage. Why would we let that happen? We should write those rules," Obama said.

Further to the risks around China, the New York Times' Chris Buckley says Xi Jingping seems to want to hold on to power for longer than his predecessors, which could destabilise China. He is apparently delaying his selection of a successor.

"Although Mr. Xi’s decision will not be known until late 2017, the suggestion that he intends to break with precedent and begin his second term without a probable successor is magnifying uncertainties about who will rise and who will fall in the expected shake-up, including questions about the fate of the premier, Li Keqiang," Buckley writes.

Talking of political risks, this WSJ piece is interesting on how spending by US political campaigners on Facebook could surpass spending on Google. It's ironic (and painful for news publishers) that the biggest beneficiaries of political ad spending are organisations that don't spend a cent covering political campaigns, but that do spend substantial amounts on lobbying politicians. It looks like a bit of a money merry-go-round.

The use of data in US political campaigning is now incredibly sophisticated, as this comment in the WSJ piece from an executive at a data science firm shows:

"Chief Data Officer Alexander Tayler says the firm has a database of 220 million U.S. adults with 4,000 to 5,000 data points on each. Cambridge Analytica can connect this database to vast quantities of other data—from voter-registration records to databases of shopping patterns and gun ownership—from consumer data brokers such as Experian PLC and Acxiom Corp. Facebook has made similar tools accessible to anyone with a credit card. The social network’s role in influencing political attitudes has been much discussed. But Facebook’s increasingly important role as a campaign advertising medium has gotten much less attention."

Who will use Facebook most aggressively and effectively in next year's election campaign here?

And finally, for the record, here's the full rebuttal from Branko Milanovic and Christopher Lakner to the Adam Corlett critique of their 'Elephant Graph' on global income trends.

Have a great weekend.