By Raymond Freeman
The Economist’s 113-page analysis, “The World in 2016,” is impossible to summarize. But here are some juicy bits (and my comments).
China’s economy won’t grow as robustly as before. By one calculation (gross domestic product at purchasing power parity), its economy is the world’s largest. So China’s economic slowdown will be “brutal” for Western companies, such as “Aussie miners” and “distillers of exorbitant French liquors” that relied on “selling China what it didn’t have, couldn’t make or should’ve resisted.”
Credit for China’s recent success is given to its “massive stimulus” that countered the 2008 global economic crash. But no stimulus alone can fix its deeply entrenched problems. So China is attempting to change its economy from an export-led, investment-driven model to a market-driven, consumer-based economy. But China is stumbling because such a huge transition in such a huge country isn’t easy. Therefore, globally, “The era of record corporate profits will start to fade.”
In the U.S., wages “will get a much harder shove.” This is good news. Consumers get money for consumption from their wages, as Henry Ford realized. When he famously doubled wages, sales of his cars and the size of America’s economy shot up.
But don’t get too excited because “rapid growth in wages is unlikely, for three reasons.” These are the decline of unions, a still-abundant labor supply, and weak growth in productivity. Therefore, America is heading for “secular stagnation,” meaning that low investment, low output and low consumer demand will persist for many years. We also have deeply-entrenched economic problems. Our free-enterprise consumption-driven economy isn’t growing much, because consumers have no money, because wages are so low.
There was more bad news. The share of global wealth owned by the top 1 percent will soon exceed that of the other 99 percent. This is unsound economically and morally. (Pope Francis has condemned it most strongly.) So don’t expect miracles from globalization.
Christine Lagarde is the managing director of the International Monetary Fund. She too condemned inequality: “What is needed from policymakers is support for demand, financial-stability measures and structural reforms in an all-out effort to boost investment and reduce unemployment.” Translation: Workers need more pay, Wall Street needs to be reined in, more jobs are needed and infrastructure needs fixing. (This is obvious to anyone using America’s crumbling freeways or miserable railroads.)
Lagarde is clearly attacking the stranglehold Reaganomics has had on America’s economic policy for 35 years. She’s joined the chorus of important figures saying it’s been a disaster.
Have you heard of Paul Tudor Jones II? You soon will. He’s a billionaire hedge fund manager. He believes that wages must rise to strengthen the economy and to prevent civil unrest. He recognizes just how badly Republican policies have damaged America. He gave his reasoning in The Economist, in Fortune magazine, and in a widely seen TED Talk entitled “Why We Need to Rethink Capitalism.”
Overwhelmingly, Americans say the No. 1 issue of fairness is wages. Jones will give oomph to their voices, using his money. He’s set up an economics outfit called Just Profits. It’s analyzing piles of numbers and will publish its findings in September. It will rank America’s companies 1-1,000 on a scale of “justness.” High marks will be given to companies that treat their workers well. He hopes that this effort will induce powerful, greedy, short-sighted corporations to pay their workers better.
Simply put, these companies are killing the goose that laid the golden egg: “Corporate after-tax profits are at their highest since 1929 (at 11.5 percent of revenues), yet labor’s share of income is hitting 65-year lows” (at 56.5 percent). This is why the economy is improving so slowly (as presidential candidate Bernie Sanders points out). All the productivity gains have gone to the very top. The money’s stuck in offshore tax shelters, doing nothing. In the old days it got spent and created jobs.
Jones says that, unless workers share productivity gains and spend extra money (like Henry Ford’s workers), there won’t just be economic stagnation, there’ll be riots. That’s why he hopes to get better pay for workers like you. He hopes that companies that treat their workers well will be rewarded with greater sales. Everybody prospers when the middle class prospers, including the self-employed who serve them, like baristas, mechanics and realtors.
Jones is no starry-eyed idealist. Another Big Cheese, the CEO of Goldman Sachs, agrees with him. Lloyd Blankfein recognizes that galloping inequality weakens the economy. He said in 2014: “Too much GDP (i.e., money) has gone to too few people, destabilizing the nation.”
That’s why Jones told Fortune: “We want to give the American public a voice where it’s never had a voice.” Given that Francis, Lagarde, Sanders and Blankfein all agree with him, it’s hard to argue. F
Raymond Freeman was recently awarded a Congressional Certificate of Recognition for his writing.