Wednesday, 3 September 2014

7 Shocking Facts about Economic Inequality in the USA.

VIDEO: https://www.youtube.com/watch?v=a4QkvGJgDoc



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.








2. THE USA IS THE MOST UNEQUAL ADVANCED ECONOMY... IN THE WORLD (Credit Suisse Global Wealth Databook)

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.

4. CLOSE, BUT NO BISCUIT (MOTHER JONES) 

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.

SOURCES:
http://www.baserler.com/onur/isletme/Privatization%20of%20British%20Airways-Before%20and%20After.htm

http://news.google.com/newspapers?id=R1YVAAAAIBAJ&sjid=a-QDAAAAIBAJ&pg=4326,3087813&dq=staff+british+airways

https://www.princeton.edu/~achaney/tmve/wiki100k/docs/British_Airways.html

http://www.telegraph.co.uk/finance/personalfinance/investing/shares-and-stock-tips/9989430/Thatchers-legacy-how-has-privatisation-fared.html

Friday, 29 August 2014

Poponomics trailer (short)


The first poponomics trailer- giving you a reminder of what's happened and a taste of what's to come! 

Wednesday, 27 August 2014

Privatisation: what is it?

Royal Mail- the latest major privatisation. 
Privatisation: it's been a contentious issue in the UK, especially since the Thatcher era. It's salvation to some, a criminal act to others.

Thatcher, guided by the principles of free-market, non-interventionist saint Friedrich Hayek, led the privatisation of over 50 British public sector companies- notably British Gas, British Telecom (BT) and British Leyland (see, the names all make sense now). It's interesting how privatisation has integrated into our society over the last 30 years or so- while there was outroar from many when Thatcher privatised utility, automotive, financial industries and so on, nowadays it's difficult for much of the youth to believe that companies like BT, Jaguar and British Airways could be owned by their government.

So what is privatisation? It's a relatively simple concept to explain- there are various particular types of it, but privatisation is essentially the transfer of public, nationally owned assets (companies in this case) into private hands, which can be via sale, like we saw recently with Royal Mail.
Royal Mail was until recently a public sector company, essentially run by the government- but in October 2013 the company was broken up into shares and sold on the stock exchange (it was later
discovered to have been shockingly undervalued). It was open to investment from anyone.
A portion of the Royal Mail is still owned by the government via an intermediary, 10% by its 150,000 staff, and significant amounts are owned by foreign state-backed organisations from countries such as Kuwait and Singapore.

So, that's a basic introduction to privatisation- but stick around for a more detailed evaluation of the benefits and negatives of this controversial transformation. It'll certainly be an interesting ride.

SOURCES (and recommended reads): 
Margaret Thatcher: one policy that led to more than 50 companies being sold or privatised http://www.telegraph.co.uk/finance/comment/alistair-osborne/9980292/Margaret-Thatcher-one-policy-that-led-to-more-than-50-companies-being-sold-or-privatised.html
Royal Mail: Government of SINGAPORE is the second biggest private owner of our postal service
http://www.mirror.co.uk/money/city-news/singapore-governments-sovereign-wealth-fund-2558278#ixzz3BaHXfUtW 

Royal Mail: Sovereign Funds To Get Shares

http://news.sky.com/story/1152622/royal-mail-sovereign-funds-to-get-shares


Monday, 25 August 2014

The Uber Issue

Uber, a relatively new business seeking to revolutionise the taxi services of cities around the world, has been one of Silicon Valley's hottest new startups. Valued in June 2014 at $18.2 billion, the company has taken the world by storm, with its simple model: you can, via your smartphone, hail a taxi to your GPS destination, and get it to take you to any destination you choose on your device. You don't need cash- money is transferred via online payment, with a credit
card or PayPal, just with a press of a button.

Uber's driver hiring process is relatively simple- you need a car, a driving licence, insurance and need to pass various background checks. Uber takes commission from every ride and pays drivers the rest of their fees weekly.
What's more, passengers can rate and review drivers (and drivers can rate passengers), giving all parties involved the incentive to give good service.
It's a simple, efficient system.

However, Uber has come under increasing attack in recent times- not so much from its customers, or the public in general, but from its competitors (unsurprisingly) but most importantly the governments of various local and national authorities.

Cabbies took to the streets of London to protest against Uber
The main issue seems to be that Uber is undercutting local taxi fares- at most times offering fares lower than their standard counterparts. Also, Uber drivers are not forced to pass the same background checks and inspections as their counterparts- a separate background check is needed. Local cab services claim this is too dangerous and should be outlawed.
London has seen protest from taxi drivers against Uber in the form of 4000 cabbies causing a huge traffic jam in the centre of the city, claiming that Uber illegal due to its lack of a meter on every cab.

There has been anger across the world from drivers part of the same cause- to remove Uber from their streets.
Is this a fair point from the taxi drivers or are they simply trying to eradicate what they may see as a growing threat to their comparatively dated services?

Firstly, it's important to consider that Uber is usually cheaper than the regular taxi services. I took an Uber once from Paddington to a friend's house; normally it cost £24 by cab, but by Uber the same route at roughly the same time was £15.
The cheap fares, quick payment, the lack of a need for cash, these are all advantages that have made Uber so popular- and undoubtedly their nearing obsoletion is frustrating many traditional taxi drivers (though they may not admit it).
As for the question of Uber background checks, perhaps more needs to be done- Uber drivers have received their fair share of bad press, but so have taxi drivers. However, perhaps a unified background check system would ensure all transporters are relatively reliable (background checks don't ensure total safety).

As for meters, it's fair to say that they can prevent exorbitant fares- though perhaps regulation should allow for different systems of fare calculation and regulate those, rather than give them all a blanket ban.

My personal opinion is that the taxi drivers must accommodate innovation in their industry, and, even better, take it up themselves. As a customer of taxi services I want a low fare, I want to be free from the worry of 'do I have cash?', and I want to be able to pay quick and easily. I want a service like Uber, that is innovative and not caught up in 'tradition'- and obviously I am not alone, considering the company's popularity.

So perhaps taxi drivers should embrace change, and innovation. Uber has shown that in this case (though refinement is needed), it will be for the best of the average consumer.

SOURCES (and recommended reads)
http://www.heraldsun.com.au/business/breaking-news/uber-drivers-will-be-fined-sa-govt/story-fnn9c0hb-1227036403657?nk=c226658d765e4f3742a7ba82aefc4ed4

http://www.ft.com/cms/s/0/f07810f6-293f-11e4-8b81-00144feabdc0.html#axzz3BPEs4lxZ

http://www.bbc.co.uk/news/uk-england-london-27799938

http://www.theguardian.com/commentisfree/2014/jun/11/why-london-taxi-drivers-protesting-uber-tfl