Chart of the day: Poverty reduction in Brazil in the age of globalization

Economist story on Dilma Rousseff's apparently successful job to win the presidency in Brazil on Lula's coat-tails.

Taking a lot at the chart, it's easy to see why that strategy should work.

Proof positive:  opening up to markets and globalization can reduce poverty while not increasing income inequality.

Yes, the inequality is still high in Brazil by international standards, but the poor are increasing their income faster than the rich, and that's a success story no matter how you slice it.

The article says, region by region, inequality is also decreasing.  Just over half of Brazilians now sit in the lower-middle class.

The long hard slog that is China's attempt to placate the Uighurs in Xinjiang

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Pair of FT stories by Kathrin Hille on Xinjiang one year after the outbreak of Uighur riots.

Beijing's response has been two-fold:  install all sorts of officials through Xinjiang and push social programs designed to make the locals feel less squeezed out of economic opportunities by the influx of Han Chinese settlers.  Good example: the government checks all families and if it finds one that has everybody out of work, a job is automatically arranged for one member.  Another:  gov plans to make Kashgar (prominent city) a special economic zone.

Kashgar is sort of a gateway city to Central Asia--part of the old northern Silk Road.

Beijing is now promising "leapfrog development" for the region: per capita GDP raised to the national average by 2015 and more revenues from oil and gas development.  The north side of Xinjiang has done well with O&G, but the south has not benefitted particularly, and that's where the Uighurs are concentrated.

What is this but domestic pre-emptive COIN?

Can Kashgar become a vibrant SEZ?  That would require creating or tapping local markets, and the question is, will Beijing risk all that connectivity with Muslim Central Asia?

You should begin to see the strong overlap of US and Chinese security/economic development interests for Central Asia.  We're there because of 9/11, and the Chinese are increasingly there because of their restive West.

The fabled Asian century comes with unprecedented resource strains

FT op-ed by Kevin Brown.

It has become a truism, buttressed by the hard realities of economic performance, that the 21st century will belong to Asia. But there is a big problem to overcome first, and it is not the flashpoints in North Korea, the Taiwan Straits and Kashmir. It is the region’s dangerous pace of population growth, and the health, environmental and security problems caused by urbanisation on a scale unique in human history.

The United Nations is forecasting that the world’s population will rise by more than 40 per cent to 9.3bn by 2050, with the proportion living in cities increasing to 70 per cent from slightly more than 50 per cent today. But the impact will be concentrated in Asia, where two-thirds of the world’s population lives, and where rapid economic growth is accelerating the natural process of urbanisation. While Europe is dealing with the problems of ageing, Asia (excluding Japan) will be trying to cope with a rush to the cities estimated at nearly 140,000 people a day.

How well it succeeds will have a huge impact on whether this really does turn out to be the Asian century. So far, the signs are not good. 

The quintessential logic behind my mantra that the "New Core sets the new rules."  It was my primary take-away from the NewRuleSets.Project work I did on the future of globalization with Cantor Fitzgerald.  Once Asia is pulled into globalization fully, we reach a tipping point from which there is no turning back. The resulting evolution is necessarily rapid and will have global influence--and it will be centered primarily in cities.

It's why I see megacity mayors as the natural political leaders of this century.

Great line in the piece from head of UN's economic and social commission for Asia and the Pacific: governments in Asia "simply do not have the luxury of growing first and cleaning up later."

The changing face--and pocketbook--of India

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FT story on how the rise of India's middle class changes the nature of charity in that country.

First glimpse I got was with the Christmas Tsunamis of 2004, when giving by the public outpaced government aid--a very positive sign.

Story details how Oxfam now raises money inside India for Indian operations.

For decades, international charities such as Oxfam, Care International and Save the Children raised money in the industrialized world--the US, Europe and Japan--to provide basic social services to the poor in remote corners of the developing world which dysfunctional local governments failed to reach.  Yet today, global charities are tapping large emerging markets' own increasingly prosperous middle classes--and their successful local companies--to address the deep-rooted poverty and profound social challenges these up and coming middle-income countries still face.

As this paradigm goes, shift happens.

As charities move from basic services to more complex goals like mitigating the effects of climate change, more local buy-in is essential, so this change is for the better.

China will be working its Gap for a while

WAPO story on how much farther China must go to shrink the Gap of its interior West.

China's economic boom had largely left the west behind. Spreading the wealth was as important politically as economically -- it was a way of increasing domestic stability and cementing the government's control.

Chinese officials rattle off all the statistical measures of the program's success: Highways were constructed. Houses were built. Nomads were resettled in "model" villages. Millions of people have electricity and clean drinking water. A rail line links Beijing in the east to Lhasa on the Tibetan plateau. And annual economic growth in the west is about 12 percent, higher than the national average.

But beneath the barrage of official statistics lies another reality. China's west -- defined as the dozen provinces and "autonomous regions" stretching from Inner Mongolia to Xinjiang and Tibet -- remains the poorest, least-developed and least-educated part of the country.

The massive investment, critics say, has mainly benefited state-owned companies that build the roads and railways and mine the minerals. There is little indigenous industry and scant foreign investment. Hundreds of thousands of people have been displaced from their homes, and nomads have been resettled into villages where they have no livelihood. Locals complain that China is primarily interested in extracting minerals to keep the factories back east running.

My point: China is treating its own internal Gap the same way it treats much of the Gap at large. That's why it's crucial that we offer them real competition instead of just criticism, because what we teach China in this regard is crucial to its own internal coherence.

That's also why I view any local blowback to China's embrace to be a good and useful development for all involved.  China's influence is simply too vast and too crucial for such evolution not to occur, so the more trouble it gets into overseas, the better.

Africa on the upswing

WSJ story of McKinsey & Company report released 24 June in Johannesburg concerning Africa’s burgeoning economic growth.  The report (“Lions on the Move”) states that “global businesses cannot afford to ignore the potential,” in part because it’s much more widespread than popularly realized.

Some factoids:  the continent now has more mobiles than the US (316m), Africa’s billion people spend more ($860B in 2008) than India’s 1.2B, and Africa grew twice as fast in the 00s than in the 80s and 90s.  Only Asia and Africa grew through the Great Recession.

China’s role is recognized in infrastructure development:  its investments in that sector now outpace those of the World Bank.

Most important one to remember:  the average annual number of conflicts in which 1k or more die in a year declined from just under 5 in the 1990s to 2.6 in the 00s (basically cut in half).  Again, my one regret from “The Pentagon’s New Map” was my undue pessimism on Africa.

Also impressive:  the non-resource-blessed countries grew almost as fast as the resource-heavy ones (4.6% annually in the 00s compared to 5.4%).  Inflation also dropped across the continent from an average of 22% in the 90s to 8% in the 00s.  FDI shot up from $8b in 2000 to $62B in 2008.  The demographics, despite AIDS, are decent:  by 2040 Africa will have 1.1B working-age people—more than either India or Africa.

The great Achilles heel long term?  Poor education systems, but here again I suspect the Chinese and Indians will move in, because both know how to teach at that socio-economic range.

How afraid of the Chinese people is the CCP? Let me get back to you on that, sir!

Interesting Economist story on how the Party uses the press to do all sorts of special reporting on the masses that only the Party elite gets to read.  So Xinhua journalists are simultaneously real journalists and spies on their own readers. 

From the story:

Many of China’s main newspapers also have classified versions covering news considered too sensitive for public consumption.

In America, the press publishes classified stuff and love leaks.  In China, it’s the reverse.

Which is a superior system?  Do I even have to ask?

Great closing line from the newspaper: 

In the realm of the censored, half-censored content is king.

Why workers' unrest in China is just beginning to rear its ugly head

Newsweek story on the growing number of Chinese white-collar workers NOT living the Chinese dream.

Liu and Vlaskamp, two good journalists, call it "an unprecedented and troublesome development in China:  a fast-growing white-collar underclass."

Since the 90s, college admissions have doubled, but jobs for professionals have not.

Beware when the "ants," as they are called, start marching.

Yet another reason to fear Chinese failure more than its successes.

Chart of the day: % Indian population living on less than $1.25/day

From WSJ story where India is considering whether or not to liberalize its welfare rolls by lowering the threshold definition of poverty.

But what caught my eye here is the clear trend.  We can argue about what the cut-off for welfare should be, but it gets hard to make the case that globalization and marketization has impoverished Indians.

The future face of China captured in a perfect NYT headline

David Barboza (frequently brilliant) piece in NYT with perfect, crystalizing headline:  

In China, Unlikely Labor Leader Just Wanted a Middle-Class Life

Story comes out of the recent strike at a Honda factory.

The dynamics here are also perfect:

Tan Guocheng is hardly a self-styled labor leader. Age 23 and introverted, he grew up among rice paddies and orange groves far from China’s big factory towns.

But last month, an hour into his shift at a Honda factory in the southern city of Foshan, Mr. Tan pressed an emergency button that shut down his production line.

“Let’s go out on strike!” he shouted. Within minutes, hundreds of workers were abandoning their posts.

Colleagues described Mr. Tan’s leadership as an uncharacteristic act of courage; Mr. Tan said he simply wanted a pay raise. Regardless, he has helped touch off a wave of strikes at Honda plants and other workplaces in China that are still playing out in surprising and significant ways.

Though Mr. Tan has since been fired by Honda for “sabotage” and moved back to his village, striking workers at another Honda plant less than 100 miles away in Zhongshan marched in the streets on Friday and made a new demand: the right to form an independent labor union.

“This is a remarkable development,” said Anita Chan, a labor expert at the University of Technology in Sydney. “Most strikes in China tend to be about not being paid or being mistreated. This was different. The workers were demanding very high salaries. And they want to elect union leaders democratically.”

The two-week strike at Mr. Tan’s plant forced Honda to shut down its four assembly plants in China and to eventually offer 1,900 workers in Foshan a 24 to 32 percent pay raise. That got to the heart of Mr. Tan’s complaint.

Leaving his home in central China four years ago, Mr. Tan had hoped that working on an assembly line for a global company like Honda would be his path to a middle-class future.

But the pay was meager, he says, and inflation ate away at his earnings. And last January, when Honda offered to increase his $175 monthly salary by a mere $7, Mr. Tan, who planned to marry soon, was distraught. It was not enough money to buy a house or raise a child.

“I couldn’t understand how they could give us so little,” he said. So he decided to fight back.

This is a story about what China becomes when it's all grown up and industrialized.  

There will be countless more Tans in this story, and they will be the best thing that's ever happened to the country.

God bless the fellow for just wanting what he's due.

Pollution in China: the recovery trumps the reduction

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WSJ piece by always good Shai Oster.

Despite tougher government measures, pollution in China rebounds right along with the economy. There had been hopes that China turned a corner last year when emissions dropped, but thank the financial crisis for that.

Still, only the first quarterly rise in SOx emissions since 2007, so some props in order.

No surprise here:  reductions took a back seat to recovery.

Remember all the Great-Depression-leading-to-World-War-III nonsense in the BS-osphere?

Well, it was worth it.

China: the labor revolution has begun

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FT article and editorial on the recent spate of Western companies giving into local Chinese labor demands for higher wages.  The FT says “Chinese workers are now in revolt”!

Believe it or not, but these are the next-best set of problems for both China and the global economy.

As the FT editorial argues: “Higher wages are a goal of successful development.”

These wage hikes are just the beginning; the Chinese labor force is starting to understand its own power in this ongoing struggle.  The FT editorial says:

The remarkably low share of wages and salaries in GDP makes China the most “capitalist” large economy in history.

What will Chinese and Western firms do?  They will be forced to move ever inland—a self-limiting prospect in terms of profit (longer overland transpo costs), and yet, this is the best possible trend for China itself—the harmonization of development coastal-versus-inland.

Then there’s the larger reality that the numbers of youth entering the workforce will slowly decline over the long-term, raising their bargaining power ever more.

Doesn’t mean China declines rapidly as a manufacturing power.  It just means this playing field evens out progressively over time.

All good stuff that shows how China pays the globalization “price” just as much or more than the world suffers the “China price.”

Nothing magical about China’s state capitalism; the same leveling market dynamics work their wonderful magic here as anywhere else.

What hath teleGod wrought?

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More FT on Africa as part of the World Cup focus.

The explosion of mobiles across Africa is described as the most important economic development of the last half century, revolutionizing lives and transforming society in ways all that official developmental aid never did. 

No surprise, all that rising individual-level connectivity coincides with dramatic growth in GDP and sweeping new public attitudes toward business.

Ah, but what did Barnett’s “connectivity” ever do for poor people?!?

Plenty, it turns out.

But doesn’t it just piss them off when they realize they can’t be rich like the West?

Apparently, not as much as it jazzes them to exploit new opportunities.

And we’re talking an Africa that’s still only in the 40-50% mobile penetration rate.  The continent as a whole is predicted to pass the 50% mark this year, with at least 8 nations bragging about a 100% penetration level!

Turns out the poor are not to poor for mobiles to be significantly empowering—and profitable—for everybody involved.

The FT piece:

Such success has revealed the continent’s entrepreneurial flair—when the dead hand of the state is lifted—and revived other sectors, particularly banking and consumer industries.

You know that bit about the Indian farmer choosing a mobile over an indoor toilet?  Well, a lot of Africans will pick the mobile over that much additional food.

Why?  Connectivity breeds opportunity.  Along with the mobile penetration, we see foreign direct investment balloon for both oil & gas nations and non-O&G economies.  Both groups attracted about a billion in 1989.  Both now attract in the range of $4B annually now.

Chart of the day: How much aid is too much?

Click smaller one below to enlarge.

Experience says once a country gets above approximately 15% of the GDP in aid, they're in trouble (it's a diversionary effect that also allows the government to care less what its public thinks).

This slide shows net aid as a percentage of government expenditures, where the percentages are naturally going to stand far higher.

What stands out:  

1) the single-digit crowd of North Africa and the southern cone (Morocco, Algeria, Tunisia, Libya, Egypt, South Africa) and the outlier of Equatorial Guinea; and 

2) the 100-plus-% crowd of Guinea-Bissau, Sierra Leone, Liberia, C.A.R., Congo, Mozambique, Malawi, Rwanda, Ethiopia and Uganda (98%).

I am Africa, hear me roar!

FT story citing Boston Consulting Group report:  Africa’s top 40 firms are beginning to compete successfully on the global stage, helping trigger national growth rates that rival those of the BRICs.

So yeah, countering the notion that globalization impoverishes, we’re seeing broad boat-lifting on the poorest continent in the world—right on the heels of the worst financial/trade crisis ever endured by the modern global economy!

Since 1998, the 500 top African companies have been growing in the range of 8% a year—or the China pace.

No question the resource draw from the rising New Core cohort propels a lot of this growth.

The  so-called lions are Algeria, Botswana, Egypt, Libya, , Mauritius, Morocco, South Africa and Tunisia.  So really the northern tier and the southern cone and the great, Singapore-like connector in Mauritius.

The collective per capital GDP of this crew stands at roughly $10,000, which outranks the BRICs collectively. 

So the old Asian tigers are now being matched by the African lions.

Quite the “de-globalization.”

More evidence of China's evaporating "cheap labor"

Foxconn is the world’s largest electronics contract manufacturer, meaning it’s contracted by huge Western firms (Dell, HP, Sony, Apple, Motorola) to build on its behalf in cheaper-labor locales, like Asia and China in particular.  This is how the West remotely controls the bulk of China’s manufacturing exports.

Well, that easy labor advantage for China is fast evaporating.  I routinely harp on the demographics (2010 is the “golden year” when the ratio of dependents to workers hits its lowest mark, only to rise from here on out thanks to a rising number of elders as China ages more rapidly than any society in history), but the more compelling short-term issue is rising demand among coastal labor for higher wages.

And when you don’t give it to them, they start staging nasty, attention-grabbing suicides in your factories.

So booyah!  Here comes a 30% increase for worn-out workers in that communist paradise, and guess what?  That increase eventually gets passed on to consumers, meaning China’s labor advantage erodes.

Where does it go next?

Some goes to interior China.  Some goes to SE Asia.  And China will direct some to Africa as part of its penetration/accommodation there, as it seeks to slot in cheaper African labor under itself as it moves up production chains.

All good stuff, but it shows you, there is no such thing as a permanent advantage in cheap labor.

A familiar sort of populism, from the ground (literally) up

NYT story that warms my heart:  average Chinese citizens getting uppity over development issues--or the real estate sort.

When China’s land boom excited a frenzy of popular resistance late last year — including headline-grabbing suicides by people routed from their homes — Chinese policy makers finally proposed a solution: rules to protect citizens from unchecked development and to fairly compensate the evicted.

Today in Laogucheng, a dingy warren of apartments and shops slated for redevelopment on Beijing’s far west side, the fruits of that effort are on vivid display: a powerful developer is racing to demolish the neighborhood before the rules are passed. And about 700 gritty homeowners are adamantly refusing to move until they get the fair deal they hope the rules will provide.

“This is a limbo period,” one holdout, Tian Hongyan, 49, said after a stroll amid the rubble of his half-bulldozed neighborhood. “And during it, we’re seeing even more sudden and violent demolitions occur around the country.”

China is not a good setting for a Frank Capra tale, but people do have influence over their autocratic masters. Top officials are worried that the property rush — which has led to soaring prices for urban real estate and low prices for old homes and farmland seized for development — is enriching local governments and well-connected developers at the expense of ordinary people and social stability.

Protests like those in Laogucheng — including self-immolations and deadly standoffs — have forced officials to at least consider measures to make it harder to seize property and turn it over to developers without fully compensating those who live on it or use it. 

The lack of rules is the usual suspect, and nastiness ensues:

Without updated rules, local governments pick renewal sites at will, then leave negotiations with residents to developers, demolition companies and low-level “demolition and relocation offices.” They frequently low-ball home-purchase offers, cut off utilities and even hire gangs of thugs to terrorize homeowners.

Powerless to stay and too poor to move, many Chinese have rebelled.

As usual, the Party is forced to choose and/or balance between growth and angering the population too much.

Honda disabled by strike at Chinese factory! I blame the communists!

WAPO, FT and WSJ stories.

Honda hit by strike from 1,800 workers at transmission factory that disabled adjacent production in three other plants.

How much stomach does Honda have for labor unrest in China? Even less than the Chinese Communist Party, whose rep for working labor within an inch of their lives is capitalistic enough.

So a weekend later we get news of a 24% pay increase.

Expect to read a LOT of these stories in coming years.  It's not just the demographic shift (adding more old people after years of only cutting down the number of babies) that ends China's legendary-but-momentary "cheap labor" advantage.  Workers, with practice, will get uppity.

What Confucians saw in Thailand

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Brilliant piece by Daniel Bell out of Tsinghua U (my favorite Beijing stomping ground) in Japan Times via WPR's Media Roundup (indeed, a great example of what WPR brings to your attention).

I will quote at dangerous length:

Whatever the effects of political turmoil in Thailand, they have not helped the cause of democracy in China. The images of prodemocracy protesters and the subsequent military crackdown in downtown Bangkok have been openly shown in Chinese media without any apparent bias. Indeed, there is no need to embellish the political message for China.

If a relatively well-off and religious country known as the "land of smiles" can so rapidly degenerate into bloody class warfare, what would happen if the Chinese Communist Party lost its monopoly on power?

It is not hard to imagine a Chinese-style red-shirt rebellion, with populist leaders tapping resentment and hotheaded youth torching symbols of privilege in Beijing. If multiparty democracy leads to violent and uncompromising electoral blocs, then most reflective people will prefer one-party rule that ensures social stability.

Still, it would be a mistake for the Chinese government to treat the events in Thailand as an excuse to postpone political reform. The gap between rich and poor is about the same in both countries, and there are tens of thousands of class-based "illegal disturbances" in China every year.

The Chinese government is promoting social welfare in the countryside, but it must also give more institutional expression to social grievances. That requires more representation by farmers and workers in the National People's Congress and subnational legislative organs, more freedom for public-spirited journalists to investigate cases of social injustice, and more freedom for civic organizations to act on behalf of the environment and those who do not benefit from economic reform.

Can China open up without going the way of multiparty rule?

In fact, the great 19th-century British political thinker John Stuart Mill advocated liberal government without multiparty rule ... In Mill's view, an open society ruled mainly by educated elites is the most desirable form of government.

In a similar vein, the Confucian tradition has long emphasized the value of political meritocracy. Confucius himself emphasized that everybody should have an equal opportunity to be educated. But not everybody will emerge with an equal ability to make informed moral and political judgments. Hence, an important task of the political process is to select those with above-average morality and ability. In subsequent Chinese history, the meritocratic ideal was institutionalized by means of the Imperial examination system.

Confucians do not oppose electoral democracy, but they argue that it must be constrained by meritocratically selected political leaders who look after the interests of nonvoters . . .  

As it happens, the Chinese Communist Party is becoming more meritocratic. Since the 1980s, an increasing proportion of new cadres have university degrees, and cadres are promoted partly on the basis of examinations. But choosing educated elites is only part of the story.

The elites are also supposed to rule in the interest of all, and to allow for their voices to be heard.

In practice, it means a more open and representative political system, but not necessarily multiparty politics.

Okay, I cut about 200 words.

Just a brilliant piece that shows how China will seek to be different, based on deep local custom, but will invariably have to conform to the demands of its people for more say.  

Is the system described here that much different from ours professional political class?

Yes, in the sense that few of them are great minds.  But no in the sense that the professional bureaucracy (highly educated and highly ethical, in my experience) runs much of DC.

I think this is how China evolves:  increasingly smarter, increasingly competitive, increasing use of polls that simulate voters' preferences (already being done at the top).  But I also think China will need, for a stretch (meaning another 20-25 years) the illusion of single-party unity.  

My democratic breakthrough for China is a 2030s deal.  Can come earlier, but unlikely to go longer.  The complexity will grow too great and the people far too competent.

But until such critical masses are reached, expect China to remain as Chinese as possible while submitting to huge and pervasive and magnificent change/stress.

No one wants that place to blow up, because no one will benefit from that pathway.

China spans globalization's wealth and poverty

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Trudy Rubin op-ed in Miami Herald via WPR's Media Roundup.

Notion that China contains all four "worlds" of globalization.

I've typically tried to capture this notion by saying that, to make America China's true demographic/economic equivalent, you'd have to invite all of the Western Hemisphere, plus most of Sub-Saharan Africa to come and live inside our territory (we are roughly the same geographic size as China at 9.5m square kilometers).  That way you'd have quite a chunk of rich people, a big middle class, and a huge impoverished rural population.  

Oh, and to make it like China, you have to keep America's pop distro still overwhelmingly concentrated along the coastlines--as it is today.

Rubin leverages the notion of multiple worlds from a Chinese academic (Hu Angang), who says China's "first world" are the coastal cities, and its "second world" is a somewhat affluent belt just inside the coastal line.

That combo makes up about 300m of China's 1.3B.

The "third" and "fourth" worlds are just belts that exist farther inland, with the impoverished western provinces accounting for the bulk of China's most impoverished--and most Muslim and most restive.

So it's a series of north-south bands; the farther in you go, the poorer it becomes.

Old chart, but you get the notion.

Point being, when you think of China, be impressed with the first and second worlds along the coast, but remember that a billion Chinese are still to join that party--by and large.

Thus, China doesn't exactly buy into the notion of being our economic peer--just yet, and really won't have that mindset for a long time. It will also justify all manner of mercantilism and protectionism and tough trading on the basis of needing to make economic development spread inland.  

Without it, the Party fears the growing inequality inside China will tear the place apart.