Wednesday 17 September 2014


Tuesday 16 September 2014

Scottish Independence: THE CURRENCY QUESTION

Thursday has the potential to be the most significant day in 2014 for Britain, or even perhaps Europe- it is the day of the Scottish Referendum. It's been talked about for months, with various 'Yes' and 'No' campaigners working tirelessly to attack the other side whenever possible, notably in the form of numerous intense televised debates between Scottish firebrand Alex Salmond and curiously black-eyebrowed pro-unionist Alistair Darling.

The world has never been quite certain over what the result of the referendum is to be- while an ICM poll for the BBC on the 11th of September claimed 42% to vote No, and 40% to vote Yes, a poll from the same agency for the Daily Telegraph on the 13th of September found 54% of Scots to be in favour of a 'Yes' vote. It really is shaping up to be an incredibly close call.

But what are some of the economic arguments for and against separation?
This is the first part of a series looking at some of these arguments.

It's been one of the biggest conflict points in the independence debate- in the event of a Scottish Independence, which currency would it use? Well there are three main possibilities, and they all don't seem too welcoming:

Currency Union- the most likely possibility in the event of independence, this would mean Scotland would continue using the pound and relying on the Bank of England. 
A Currency Union would in the main be in the interests of both an independent Scotland and the UK- Scotland is the UK's second largest trading partner, and the UK is Scotland's principal trading partner. 
A Currency Union would allow for trade between these two partners to continue relatively smoothly- there would not be the currency exchange fiasco that would be inevitable should Scotland create its own currency. It would allow the flow of money and labour to continue more smoothly.

'Sterlingisation'- this would be similar to a currency union, in that Scotland would continue to use the pound- but the similarities would pretty much stop there. The Scottish would have even less power than currently over the currency, and the UK would be less careful of Scotland when designing monetary policy- meaning certain policies that affect the pound could have negative effects on Scotland. 
Sterlingisation is kind of like desperate hitchhiking- you can't really control the car, or the route to a certain extent, but at least you can get a lift.

Creation of a new currency- This would certainly have the most interesting outcome of the three mentioned options. A new currency would indeed extend Scotland's powers of autonomy- a 'Bank of Scotland' would be able to control money supply and programmes such as Quantitative Easing, though it could have serious ramifications with regards to Scotland's international trade.
A new currency, especially one created by an independent Scotland whose international political power would not be as solid as it is currently, would create uncertainty in its initial years. Businesses may hesitate to trade in whatever currency Scotland create, unsure about its long-term stability, and as a result transaction fees (costs for making sales in ones own currency) would increase for Scottish businesses trading abroad. 
This would make it more difficult for the new Scottish currency to achieve that initial boost that it would need to announce itself on the worldwide stage.

So Independence would indeed have a profound effect on Scottish currency.
Despite the numerous warnings from the pro-unionists, it seems as though an Independent Scotland would go on to form a currency union with the UK- while it's not the ideal result for Westminster, perhaps the alternatives present complex and fiddly issues both the UK and Scotland would prefer to avoid.

Monday 8 September 2014

iPhone 6, Apple Watch: why today, Apple will the centre of the world's attention.

Tuesday September 9th will be a huge day for the technology industry worldwide.
One of Apple's famous presentations will be made in just a few days, in front of selected journalists and no doubt thousands of online spectators, who will be waiting with bated breath to hear what exactly the largest publicly traded corporation in the world has up its sleeve.

Apple hasn't made any major hardware announcements this year- so what can we expect after all this silence from the technology giant?
Let's explore two rumoured products.

iPhone 6
Perhaps one of Apple's less secret revelations, the iPhone 6 is a shoe-in to be announced on Tuesday. Rumours suggest Apple will not announce one but two models- both of which will sport larger displays, up from the iPhone 5S' 4-inch to 4.7 and 5.5 versions.

The new models are expected to have a new case design also, which, following previous trends, will most probably be thinner than its predecessor (at this rate what will the iPhone 16 be, a sheet of paper??).

Another key rumoured addition will be that of NFC- Near-Field Communication. This technology basically allows devices to communicate with each other within a short distance, but Apple's specific application of this that is expected to create most waves in the tech community is how it could make the iPhone 6 into a 'digital wallet'- allowing you to simply use your phones at a checkout to pay for your shopping, just as you would a credit card.
Commentators expect Apple to pioneer further the digitalisation of commerce- we've already seen online payments grow hugely, and now it could be time for digital real world payments to lift off.

A product that has been rumoured for almost forever, but is not quite as certain to be announced as the iPhone 6. The general consensus among the tech community is that Apple may announce the legendary device in Tuesday's event, but hold sales until early 2015.
Despite the fact it has not even been announced yet, the iWatch has gained a huge following. Many expect it to be the product that launches off another technology product category, just as the iPad kicked off the tablet market in 2010, or the iPhone in 2007.
The iWatch is expected to act like a mini phone- relaying emails, messages, notifications and whatnot to your wrist- rumours suggest it may even allow you to view maps and receive navigation.
Apple is also rumoured to set fitness as a key component of the iWatch- with health applications such as Apple's Healthkit and the Nike+ app, and numerous sensors for various bodily measurements, set to be key attractions in the device.

And what's more, we could even see the aforementioned NFC make its way to the iWatch- meaning you could pay for your daily coffee with your watch!

Perhaps you've noted this article to be not quite the usual poponomics article- where is the economics, or business in this? Well, here we come to the juicy bit. Listen up.

The iPhone 6's larger displays? The Samsung Galaxy S5 currently on sale worldwide already has a 5.1 inch display, bigger than the expected 4.7 inch iPhone. The HTC One Max has a whopping 5.9 inch display, larger than the 5.5 iPhone.

NFC on the iPhone? Not a big deal. The Google Nexus 7 had that two years ago, and via Google Wallet you can already perform touch and pay payments.

Heard of this before? Don't blame you...
The iWatch- the first digital watch companion? Wrong again Bob- the past year has been chock full of watch announcements, from Samsung, from Motorola, and various other tech companies. They can relay notifications, they can monitor your heart rate, and they've been out for ages- heck, Samsung has already released two iterations of its Samsung Galaxy Gear.

But if you don't follow tech closely, you may not have heard of Samsung's Gear (which was first announced a year ago), or Motorola's 360 smartwatch, yet you've probably heard of Apple's iWatch, which we don't actually know exists yet. Isn't this weird? Why is this?

There are numerous reasons. Many indeed. A key reason is of course the quality and consistency of Apple's product environment, and the products themselves- but Apple's business strategy also has been hugely successful.

Apple has built for itself a truly iconic brand. An Apple logo, be it on an iPod nano, an iPhone or a 27-inch iMac, carries with it connotations of high quality materials (note how commonly that silver aluminium material is used in Apple products), luxury (take a look at some of Apple's prices) and reliability (most Apple product owners would agree on this one).

A large part of this has been thanks to consistency- a key factor in a business' success, but only if it is done right- of course no company should be creating consistently poor products (*cough*Blackberry*cough*).

Apple has created consistency at every corner of its business. Take a look at the two screenshots from Apple's webpage above, and the event invite at the top of the article. The same font (Helvetica Light I am led to believe) is used consistently, the same white-grey colours, the same minimalist design in general is consistent throughout most of Apple's site.
Of course certain products are given their own display style reflective of the product's character, but in general Apple's design (be it the design of the site, the design of the advertisements or the design of the products themselves) are all cohesive. They are certainly decisively minimalist- Apple doesn't make use of any cheesy patterns or frilly designs, it just selects one or two colours and sticks with it throughout the product. And this is throughout Apple's whole product line.
The Mac line is a particularly good example of such consistency- the distinctive aluminium material used as the outer shell for the devices act as a cohesive for all Macs- it links them all together, it lets you know that an iMac is from the same family as a Mac Mini. Not only is this beneficial from a design standpoint, but it creates a subtle familiarity in product users, one that makes people more comfortable in purchasing a second or third or fourth Mac computer.

Consistency spreads further than just the design of Apple products- Apple's retail stores are among the most valuable in the world, thanks largely to their design. Apple makes use of the same materials for all the tables, the walls to give customers familiarity and comfort in their environment- while still allowing for stores to have their own individual appeal (such as the Regent Street store in London).

Consistency goes into the use of the products, too- Apple is well known for its lack of device software fragmentation (basically most Apple users are always running the same latest software on their devices, as opposed to say Android where people are spread across numerous iterations of the software, or Windows where many people are still running XP), its iCloud service allows people to access photos and videos across all of their devices without having to transfer anything manually, and features of the upcoming Mac OSX computer operating system will allow Mac users to send and receive phone calls and text messages on their computers- provided there is an iPhone connected to the same wifi network.
This feature, named Continuity, is another genius move from Apple. Creating this greater connection between the Mac and iPhone is a very effective way of attracting customers to purchase both- as items that complement each other rather than separate items completely. This could easily sway an iPhone user to purchase a Mac, and vice versa.

Through design, brand and functioning consistency Apple is successfully crafting not just a line of products but more an environment of products, all related and cooperative with one another.

We know this, perhaps unawarely, but this expectation of consistency that many people have come to associate with Apple is perhaps the greatest reason why we are so interested in the rumoured iWatch and the iPhone 6, despite the apparent competence of these products' already existent competitors.

Consistency is key in a business- and clearly for Apple, when combined with quality products, it has paid dividends, big time.

SOURCES (and recommended reads):

Wednesday 3 September 2014

7 Shocking Facts about Economic Inequality in the USA.


The GDP growth rate in the United States of America has averaged 3.27% between 1947-2014- such a growth rate is a sign of a healthy, thriving economy. And certainly the USA's economy has thrived, but have its citizens enjoyed their fair share of the pie?
It appears not; wealth inequality has become one of the major problems in the US; numerous presidents have come and go promising reform on the matter, but little effective change has been made. 
Here are some shocking facts about just how bad the problem of economic inequality is in the USA right now.

1. CEO PAY (Business Insider)

Between 1990 and 2005, CEO pay had tripled- meanwhile the minimum wage dropped, and the pay of the average production worker increased just 4%.  
CEOs in 1965 made 24 times more than the average production worker; whereas in 2009 they made 185 times more.


The USA's GINI coefficient (the most widely accepted mathematical calculation of economic inequality) is the highest of all developed economies- at 85.1%, this high GINI scores confirms America's place as the most economically unequal developed country in the world. To compare, the UK scored a modest 67.7%, China 69.5% and India 81.1%. 

3. "THE POOR STAY POOR, THE RICH GET RICHER" (Emmanuel Saez., Berkeley)

In 1982, the top 1% families in terms of salary were earning 10.8% of all income in the USA (pre-tax)- the bottom 90% received 64.7%. 
However, in 2012 the top 1% received 22.5% of pre-tax income- while the share of the bottom 90% dropped to just 49.6%.

Berkeley economist Emmanuel Saez also estimates that between 2009 and 2012, the time of America's 'economic recovery', the top 1 percent captured 95 percent of total income growth.


This drop in share of wages experienced by the bottom 90% comes despite the fact that productivity has drastically increased in recent decades- though this is also attributed to developments in work methods, technology- Americans are more productive today than ever- yet overall wages have overall stagnated. 
This graph shows quite clearly who has benefited from the increase in productivity.
Had median household incomes kept up with the growth of the economy since 1970, they would be around $92,000. The current median wage being $50,000 is quite a clear indication that something is out of balance.

5. DEEP IN DEBT (Domhoff, UCSC)

Meanwhile the bottom 90% enjoy responsibility of 72.5% of the US' debt, as opposed to the paltry 5.9% held by the top 1%.

6. HOMELESS AMERICA (Western Regional Advocacy Programme)

An estimated 22,000 children live homeless on the streets of New York City alone; the largest such number since the time of the Great Depression. But these children represent just a part of a nation wide problem, with roughly 1.2 million children being reported homeless in March 2014.

7. THE AMERICAN NIGHTMARE? (Saez., Kopczuk., Song., Columbia University)

Despite the grand vision of the 'American Dream', the 'land of opportunity', since the 1950s probability of socio-economic mobility has been almost constantly decreasing.

Monday 1 September 2014

The benefits of privatisation.

In the previous article we went through a brief introduction of privatisation; now let's go onto the benefits of it.

The benefits come under various categories, however a theme runs throughout- that is of efficiency, a key component of business management.

A prominent difference between private and state companies is the (usual) difference in motive. Whereas state companies can have an unclear, difficult-to-measure motivation (usually to 'serve the public'), private companies are generally far more strictly profit-driven; they seek to serve shareholders primarily (who want their pockets to be lined handsomely).
Now there is debate over whether profit is such a good motive for companies (that we'll discuss in the next article), but profit motivation usually drives companies to increase their efficiency.

A common criticism of state-owned enterprise is its tendency to over-employ, often in order to score the ruling political power popularity points when it came to annual employment figures. Another crucial factor in this overemployment was the power of unions- public-owned enterprises were often under strong pressure from labour unions to avoid firing staff, which in many cases was not so helpful in terms of keeping staff in line and also efficiency.

Overemployment is crucial as it leads to increased losses in the form of wages, for employees who the company could, essentially, perform healthily without. Private companies tend to avoid inefficient practices such as overemployment- in fact they look at doing the contrary, to shed costs: and cutting down on staff is often the easiest way to do this.

British Airways, under Lord King's leadership developed from
an oversized, outstretched struggler to a world-class airline.
The privatisation of British Airways was notable for its crackdown on 'unnecessary' employees. Before privatisation, BA were employing almost 60,000 staff; a huge number, especially when compared to close competitor Qantas' 15,000.
However, following privatisation and under the rugged leadership of Lord King, the workforce was reduced to 38,000 in a period of just three years- among these over 50 senior executives, the company was rebranded entirely to a more 'American' style- enlisting help of a San Francisco-based design firm to lead rebadging, and cutting costs wherever possible- in inefficient flight routes, in excess staff members and so on.
These almost ruthless cutdowns paid dividends indeed- in 1987 BA posted after-tax profits of around £166 million, among the highest airline profits globally and certainly one of the highest BA had ever experienced.

Introduction of competition is often heralded as a crucial feature of privatisation. Privatisation often comes with an opening of the market to other private companies as well, a good example being the gas market following the privatisation of British Gas. Competition is often a great thing to have in a market, as it forces companies to innovate and provide what consumers want, in order to maintain and expand their market share (and receive more profits, of course). Competition introduces pressure on businesses; often a good influence from a customer's perspective.
This argument has its pitfalls- but in general competition in a market is necessary for development (think how competition between Apple and Samsung has boosted the rate of development in the technology market, or BMW and Mercedes the car market).

Another feature of privatisation is that it is a a way for a government to quickly raise some cash, to reduce deficits in particular. Between 1979 and 1999, the Treasury raised over £70 billion from asset sales such as that of British Airways, British Gas and other companies that were privatised.
However, this is not such a strong proponent of the pro-privatisation argument as we'll explore in the next article (but I'll give you a hint: *cough* Royal Mail *cough*)

So efficiency is the general theme of the pro-privatisation argument. Privatisation can cut down on the poor decisions driven by political motives rather than efficiency, it can introduce competition into a market by smashing state monopolies and it can be a quick boost to a nation's coffers.

Stick around: next time we'll explore the other side of this argument, and have a look at why privatisation may be in fact quite a bad idea.