CORPORATE GREED IS KILLING THE ECONOMY (AND THE PLANET).

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Climate change is showing it’s effects everywhere at the moment. Floods, forest fires, hurricanes, mud slides, heat waves and just about everything that could go wrong with the planet is happening right about now.

Yet there are people claiming that climate change is a hoax. It is no coincidence that all of these people make profit off industries that are pretty much killing our planet. Profit is the sole reason why we “haven’t found a solution” to climate change yet. Corporate greed already has many adverse effects on various societies/economies in the world, but soon there will be no societies or economies and there will be no world because of it.

Let’s see what climate change will cost us on the basis of few of the factors economists use to study economic development & well-being:

  • GDP  “Natural disasters” will have a massive impact on the macro economies of the world. Initially, only the local economies of the affected countries will be impacted, however this impact will gradually spread out and influence other economies. Also, extreme weather conditions lead to governments having to spend millions for extensive repair of infrastructure. The GDP at risk of just the major cities in the world is $1.5 trillion (this might near $2.2 trillion by the year 2025). The global GDP per capita is predicted to be 23% lower in 2100.
  • Productivity Climate change will lead to a huge loss in productivity. As we saw with hurricanes Harvey and Irma – many industries were affected; production and trade had to pause and the over all productivity of the areas affected went down drastically. People can’t get to work, consumers can’t reach shops, supply chains don’t function efficiently at all; basically the entire economy is damaged. Climate change will also lead to a less healthy population (more below) which will in turn reduce the productivity of labor in any economy.
  • Health Climate change will lead to impure air, unsafe drinking water, insufficient food and fewer options of shelter. The increase in global temperatures is predicted to cause an increase in diseases like malaria, dengue, diarrhoea and heat stress. According to WHO, the direct damage costs to health (i.e. excluding costs in health-determining sectors such as agriculture and water and sanitation), is estimated to be between US$ 2-4 billion/year by 2030.
  • Well-being The well-being of majority of the world’s population will be at risk. According to Business Insider, “a 2014 study published in Environmental Research Letters predicted that sea level rise created by a temperature increase of 3 degrees C would force more than 600 million people to find new homes.” The social  and environmental factors impacting health will be affected. About 20 million more children are estimated to go hungry by 2050.

Every day we at WFP see the effects of the ravages of weather-related hunger on the people we assist. Every day we see people suffer from droughts and floods. Every year the situation gets worse.’ – Executive Director, World Food Programme

It’s easy to tell that climate change is going to cost the macro economies of the world a lot. Anybody that says fighting climate change isn’t easy because it’s expensive should know that not fighting it means just throwing your money away. (also the cost of fighting it is less by at least $7 billion). Corporate greed and capitalism are the only things stopping us from fighting climate change. Owners of big corporations want us to believe that climate change is a hoax because they’re the ones making profit from causing it. Immediate action against climate change is the only way to sustain the macro economies of the world and the world itself!

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“Rise of the Shadow Economy”

The shadow economy, perhaps known to us as the black market or the underground economy goes by many names. The first thing that comes to our mind when we hear about shadow economy is probably the illegal stuff like drug dealing and selling kidneys. But that is not all of it.

It is the total value of transactions carried out by individuals and  businesses that occurs “off the book”( or under the table) to avoid tax and standard business practices. Some of these activities can sure be illegal but most of it are completely mundane. For example, take the nanny and house keeper who gets paid off the books, or when you sold lemonade across the street.

The black market boomed during the global financial crises and still continues to grow strong.

Such activities cost the government trillions of dollars every year 20130323_FND002_0with various economist believing  that shadow economy is now the worlds second largest economy.

The World Economic Forum’s Agenda council on illicit trade during the years 2012 to 2014 projected the global shadow economy to be worth $650 billion .The council also predicted the cost of counterfeiting alone could reach $1.77 trillion over the course of that year across the global economy.

Today, most countries in  Europe have burgeoning shadow economies with Greece especially notable among them. Besides the legal aspects of the black market, the shadow economy has negative implications in terms of tax collection. The Kowloon walled city was  known as Hong Kong’s shadow economy because of the thousands of tiny workshops and factories scattered throughout that provided products for businesses across Hong Kong.

As a percentage of GDP, it ranges from 25-60% in South America, and from 13-50% in Asia,” according to a recent paper by Prof. Terr.

More than half of the workers are part of the shadow econo

my. By the next 3 years, that will be up to two- thirds. So we are dealing with majority of the people on the planet and hence we got to care about it!

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So how can the government drag the shadow economy into light or bring it under control?

The government should not abandon the participants in these economies, rather encourage them to join the legitimate economy.  The government can  knock off the barriers between the dual economy by  improving the economic standing of its people. And this is the key to the transition!

Wages, benefits and standard of living can have a major impact on the level of crime in a region or a country. Therefore, it is important to focus on economic and social inequities faced by the people to find links between their struggles and their option to choose the black market. Improvement in education, government policies and business can reverse this trend.

The shadow economy can have an impact on everyone including the citizens as well as the government and businesses in an economy. The first thing we must do is increase transparency within various entities. Secondly, we must make individuals aware of illicit economy can affect them and how they may be unknowingly participating in them. Thirdly, seek out for alternative methods the reduction of crime, illicit trade programmes to reduce harm to society.

At the end of the day these black market traders might not be always criminals, but supporting their family and relatives, hiring people, and putting their kids through school—all without any help from the government .

 

 

 

“TOWARDS A GREEN ECONOMY”

 

A Green Economy is an alternative method of development and growth ; which can result in both growth and improvement in people’s lives in a sustainable way. It is a triple line bottom which promotes:

  • environmental and social well-being
  • sustaining and advancing economics

The current economic growth model only focuses on increasing the GDP above all other goals. While this model can improve income and reduce poverty for hundreds of millions, it comes with an irreversible social, environmental and economic cost.

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The persistence of poverty and degradation of the environment is due to market and institutional failures that makes the current economic model far less effective than it otherwise would be in advancing sustainable development goals. These market failures are well-known by the economist, but they are still not been taken into concern.

A Green Economy tries to solve these problems through various institutional reforms and regulation, tax, and expenditure-based economic policies and tools.

Several countries around the world are going greener by adopting national green growth and low-carbon strategies which aims to increase economic growth in a sustainable manner.

  • NORTH KOREAhad taken up a national strategy and a 5 year plan for green growth from 2009-2013, investing 2% of its GDP in green sectors such as renewable energy, lean technology and water.
  • CHINAhas now invested more than any country in renewable energy. The total wind capacity grew 64% in 2010. This growth is due to a strong national policy that sees clean energy as an important market in the near future, and one in which china wants to have a competitive edge.
  • NAMIBIAis now using its natural resources to create economic, social,and environmental benefits. With an economic incentive to sustainably manage the forest areas, food and jobs have been provided to thousands of Namibians in rural area. As of right now, half of the jobs are filled by women, and wildlife populations have tremendously increased.

Businesses are now increasingly aiming progress towards a Green economy. For example, the carpet manufacturer, Interface its competitive positioning  by using its waste products as manufacturing inputs. This reinforces the company’s goal. When employees within the organisation knows tat they are making a difference in the world, they make the enterprise more productive.

Delaying green investment is same as delaying economic recovery. According to IEA’s world energy outlook 2020,

“For every [US]$ 1 of investment avoided in the power sector before 2020, an additional [US]$ 4.30 would need to be spent after 2020 to compensate for the increased emissions”

Delaying action is a false economy. Money “saved” in the next few years by avoiding climate-friendly investments will lead to a much higher spending later.Image result for a ship of fools and the rocks of

 

Greening and growing our economy are both equally important. A green economy will provide sustainable basis of long-term resource efficient growth, providing millions of new jobs and also a new business model .

 

 

 

THE GLOBAL ECONOMY HAS RECOVERED – WILL IT LAST ?

At the World economic forum, the IMF said that the world economy seems to have recovered but this may not last. The event was held on the 10th anniversary of the Global Financial Crisis. The IMF is on its toes since the last economic crisis and continues to keep a watch out for any indicators. In the World Economic Outlook (WEO), they have said that governments can be made complacent by the booming markets . But what has them concerned? Is it justified concern or is it just the fear talking?

THE SIGNS

There are few signs of a global crisis around the world in

  • BREXIT
  • Catalonia’s split from Spain
  • China’s growing debt

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The BREXIT and its fallout will have a huge impact on the global economy. This depends on how the ongoing negotiations go, the IMF is just hoping for the transition to go smoothly and costs to be minimal for both sides. This will be the best outcome so that the UK and the countries in the EU are not hugely affected. The UK’s growth forecast has been cut by 0.3 points to 1.7% since April as a result of the consumer-led slowdown in activity in the first half of the year, caused by the pound’s depreciation. The UK’s economic report has showed that the IMF’s concerns may be justified with a 5.5% fall in GDP. As the negotiations proceed we can say how much of an impact it will have on the economy. But the IMF has predicted a recession in the UK next year as a fallout of the BREXIT.

Catalonia is on the verge of seceding from Spain after a messy referendum In terms of size and population, Catalonia is comparable to several European countries, such as Switzerland. Although it has 16% of the Spanish population, it generates 19% of Spain’s GDP and 25% of its GDP. The GDP per person in Catalonia is actually more than Spain’s so technically Catalonia and the rest of Spain can both be perfectly viable countries.

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The Catalan government would immediately gain because they transfer significantly more to the central Spanish government than it gets in return in the form of public services and investment. Most of this gain would be used to fix the underfunded railway and improve the infrastructure that many Catalan leaders claimed to be essential. But Catalonia would have to spend on embassies and a new central bank which will increase its cost. After the split, however, they would most likely try to arrive at a mutually beneficial agreement but that may not happen with their past history which could have a dramatic impact on their neighboring countries in the EU.

China – the factory of the world – holds the fate of a significant number of the world’s major economies in its hands. Any crisis in China will impact many other economies as well. The IMF has warned China of its increasing debt and how it could lead to a crisis. China is expected to grow by 6.7pc this year and 6.4pc next year which is better than the 6.6pc and 6.2pc growth rates that the IMF had forecasted. Strong global growth as well as increased government spending has helped China’s economy. But their growth has been slowing down gradually over the past few years. The major concern is their massive debt bubble that could lead to trouble in the future. The IMF has said that almost every time a country’s debt has gone above a 100pc it has led to a financial crisis but It is not just China’s economy that will suffer. It could start a domino effect that may lead to the next major global crisis, because China represents a huge market to sell goods and services and it is also where manufacturing of many products takes place. The IMF has advised China to invest heavily on sustainable development so that it can maintain its growth rate while lowering its expenses. It has taken too this and invested heavily in sustainable energy, mainly Solar energy. As part of the Paris climate treaty 2015, China has vowed to stick to its plan of reducing its emissions between 2025 and 2030.

 

These are worrying prospects and it is quite hard to imagine the scale on which it would impact the world economy as a whole. Ten years after the GFC the markets have recovered but how long will it last. We are treading on thin ice and if it cracks we could be heading into another major financial crisis.

 

 

 

“Cashless India”

‘Cashless Economy’ and ‘digital money’ are the buzzwords today in India.

Up until the recent demonetisation, India was a  cash driven economy. Cash accounted for 95 percentage of all the transactions within the country. For example, 90% of the vendors did not have credit card readers or any means of electronic payment, 80% of the employees were paid in cash — the only country in the world where this option is available — and ‘cash on delivery’ was the preferred choice of 75% of all online shoppers.

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By temporarily turning off the engines which drove the cash economy, Indian government hoped that more people within the country would switch to options such as debit cards, e- wallets etc.

But the currency experiment had its own disadvantages too. The removal of 86% of its currency without having the required supply of new notes to replace it with had left millions of people without any means to engage economically and several businesses were left without any means of readily available mechanism to buy or receive goods and to pay their staffs; considering the fact that India was heavily reliant on cash.

While middle class households exchanged their currency in banks, the unbanked poor had to rely on informal lenders who exchanged the old currency for new ones, at predatory rates. Without adequate savings and high rates of illiteracy, these people have low chance of joining Modi’s dream of turning India into a cashless, digital economy.

Image result for cashless economy india shops

 

However, questioning the timing of India’s big cashless push at this point is irrelevant. It’s happening, ready or not.

 

India is on its way of modernizing the way things are paid for. E- payment services are increasingly growing and digitally – focused sectors like online hoping have started booming.  As of right now,  Paytm has reported 3 times increase in new customers- just 14 million new accounts in the last month. On the other hand, Oxigen Wallet’s daily users increased by 167% since the demonetization occurred.

The lack of cash within the economy combined with the electronic payment systems has bought up some very innovative ideas. The farmers’ market of Telangana has now began experimenting with their own electronic payment system where customers with Aadhar-linked bank accounts can now buy vegetables using tokens which is purchased via debit cards at specialized kiosks.

Economic digitization also enhances government’s ability to improve its taxation systems. As of right now, billions of dollars are exchanged every year without tax collector taking his cuts. Only 1% of India’s population pays income tax. Through digitalization, India will be able to create a more transparent economy which can form an improved climate for economic growth and foreign investment creating the next chapter of its emerging markets story.

 

WILL AUTOMATION TAKE AWAY ALL OUR JOBS?

Machines, you might have heard, are coming for our jobs!

If you look around, you would find jobs that were done by human beings taken over by machines or robots. Robots are now flipping burgers and driving cars. Artificial intelligence now has taken over jobs like basic bookkeeping, legal research, and even basic HR tasks.

And hence, the automation apocalypse is on!

There has been a lot of research and studies predicting most of the human workforce will be taken over by automatons and machines in the years to come. Due to the advancement in the field of artificial intelligence, people now fear that major job crises could take place where jobs would be performed more efficiently and accurately by machines.

download.jpgSo, are the machines going to replace the human resources? Are we heading towards a future where human labour would be completely replaced by automatons and intelligent machines?

 

Well, I don’t think so because this is not something new. The use of automation has been practiced from the 19th century where textile workers were replaced by weaving machines that made their skills inessential. Tractors were introduced to replace mechanical power for human physical toil. Computers were developed to avoid the error-prone, inconsistent human calculation with digital perfection.

And yet, in countries like the US, the number of people employed in the labour market is higher now in 2017 than it was 125 years back. To relentlessly argue that automation and artificial intelligence is going to take away jobs ignores the potential for productivity gains from it.

One of the studies has actually found that revolution and development in the IT field have actually led to increased labour productivity by 0.6% and overall growth of 1% in countries like Japan and Europe between 1996 and 2005. New technologies have resulted in the creation of jobs that had not existed in the past, such as social-media managers.

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So how can automation lead to job creation in the future?

To begin with, when a business saves money on labour through automation or robot, it will either:

  1. Lower the price of the goods or products which makes it more appealing, which can result in the increased demand. This can result in the need for more workers.
  2. Produce more profit or pay higher wages to its employees. This can lead to increased investment or increased consumption, which in turn increases production and employment.

 

We can take Amazon as an example!

Amazon has increased the number of robots for its warehouses from 1400 to 4500 and yet the number of workers hired hasn’t changed much over the years.

Since Amazon keeps its prices low, people buy more goods, and hence it needs more people to man in its warehouses.

The agricultural field is the only one which had a very drastic impact due to the introduction of automation in the 1800s. But as agricultural industries dwindled, jobs in other sectors such as working in factories, working with computers, flying airplanes, and driving cargo across the country—occupations that weren’t feasible in 1900 grew.

Lastly, even artificial intelligence can have its own limitations which prevents its dominance over humankind. Aspects which has a major role in business, aspects relating to sentiments, feelings, judgements can never be copied by artificial intelligence. Such aspects are human prerogative because even robots fail to use the flexibility and creativity in finding solutions and that is a major drawback to the application of artificial intelligence.Marketing-Automation-2560.png

 

UAE VAT – A boon or a bane?

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The transformation of U.A.E

U.A.E transformed from a desert into a dream destination in the blink of an eye! U.A.E ranks 27th in the Global GDP list  and is said to be one of the most efficient and booming economies. Today, it holds a population of  9,433,615 of which only 10% are Emiratis and the remaining are expatriates.  One can find a million reasons to consider U.A.E as their favorite destination. However , The introduction of Value Added Tax (VAT)  may or may not change this!

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BREXIT and its impact on the UK economy

The UK leaving the European Union known as the BREXIT was a major economic event. The economic impact of this move is still being debated about. Many economists predicted an economic crisis in the UK because of it and said that they should not leave the EU. But they have since left and the economic effect was not as severe as experts predicted.

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The people in favor of staying said that the trade market will be the most affected by the exit and people in favor of leaving said that it would allow them to cut taxes or increase government spending since there is no net contribution to the EU. As a member of the EU, UK companies could sell to customers anywhere in the EU without customers having to pay taxes to import them. British consumers and companies can also import from elsewhere in the EU without tariffs. Now the UK will have to strike new deals with EU members to allow free trade. But now until a deal is made, the UK will have to pay tariffs on goods it exports into the EU. These tariffs are set by the World Trade Organization (WTO). The UK might have to wait for deals to be formed in Europe in order to make deals with other large economies like the US, India and China.

Experts from the World Pension Council and the University of Bath have said that the countries attractiveness to investors will not be dimmed down by the exit. In other words the countries Foreign Direct Investment will not be greatly affected in the long run. Experts have said that the vitality of the market right now does not outweigh the fact that UK leaving the union will give them more control over their trade policies and reduce restrictions.6ae12d49fe1d0602da3fa651b6e914fb

After the BREXIT, the value of the pound fell to a record low of 15% below the dollar and 12% below the euro. Experts said that the sterling would remain volatile until the UK Brexit deal is clear. although the pound may have weakened, investors remain confident as share prices have held up and the stock market has grown since the vote. Overall economic growth has also not been affected as such. In fact, UK has grown at a better rate than other developed countries. The pound has fallen sharply and still remains below referendum levels. But its value against the US dollar is currently rising.

The result of the BREXIT was a serious concern for businesses. More than 2/3rd of businessmen believed that if UK left the EU, it would lead to fall in the value of the pound. This would lead to fall in investment because the cost to invest will be higher. But the UK is still considered as a good place to invest. In fact, the fall in pound actually helped certain industries such as aerospace and defence firms, pharmaceutical companies, and professional services companies; the share prices of these companies were boosted after the EU referendum.

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The UK was affected by the BREXIT but not as much as people thought. The UK is not in the complete economic woe that was predicted. While they are still not completely out of the woods as they say, we still have to wait and see how BREXIT talks go. These talks will have a big impact on how long it will take them to recover completely. The UK wanted to exit the EU order to gain more control over their policies, which can help them to improve economic growth in the long run. Only time will tell if this decision will pay off.

 

Welcome to Econ211

A warm welcome to the Econ 211: Macroeconomics course at IMT Dubai!

In the course syllabus, you will note that 15% of the assessment is allocated to ‘individual blog contributions’ and that is where this blog comes in …

Between now and midnight (GST) on Thursday 7 December, this is your space to make a contribution to your peers’ learning. Put simply, your task is to analyse, critically, articles and news reports. Other than this, I will not be too prescriptive! Indeed, this would be counter to the whole idea of a blog which is to provide an outlet for your creativity. The only real condition is that your posts must have something to do with macroeconomics!

You are also encouraged to tweet the URL of your blog posts including the hashtag #ECON211.

In terms of grades, I will be looking for quality rather than quantity. In other words, slabs of text cut-and-pasted from web sites are not likely to earn you high marks, nor will “Me too” or “I agree” responses. The main thing I am looking for is evidence of your powers of analysis and synthesis. This might be:

1. Challenging a point of view/forwarding a new perspective;
2. Relating the theory to one’s experience;
3. Offering support for a position based on the literature; and
4. Contributing to peers’ understanding.

Enjoy!