Top 10% rich world incomes up 40% in 20 years as growth slowed
In a broad cross-section of advanced economies, incomes for the top 10% increased by about 40% in in inflation-adjusted terms in the past 20 years, while growing little at the bottom according to the International Monetary Fund (IMF). Meanwhile growth over two decades has slowed — most strikingly in Italy where the IMF expects another decade of stagnation.
Globalization came to a shattering halt in 1914 and its second phase that began in the 1950s, with Italy and Greece as Europe's star economic performers for almost a quarter of a century, with average real (inflation-adjusted) per capita economic growth of 5.0% and 6.2% respectively in 1950-1973 compared with 5% in West Germany, 4% in France, 3.1% in Ireland and 2.4% in the United States, according to calculations by Angus Maddison, the late renowned economic historian.
The end of the post-war boom and a surge in inflation to peacetime records in the mid-1970s, resulted in a plunge in growth while budget surpluses became rare in advanced countries.
Greece had a public debt/GDP ratio of less than 17% in 1973 and 111% in 2001 when it joined the euro system while Italy hasn't had an annual budget surplus since Fascist rule more than 90 years ago and it has had about 10 years of surpluses since reunification in 1861. Gross debt was at 34% in 1974 after hyperinflation in the war years and then growth. It was at 126% when Italy joined the euro in 1999 and is now at 133%.Greece and France have reported budget deficits every years from 1974 and 1975 respectively.
In the 20 years 1996-2015, World Bank data show GDP per capita adjusted for price differences (PPP in 2011 international dollars) at an average growth of 1.69% for the World (it was 3% in 2007 and 1.3% in 2015); 1.1% for the Euro Area; 1.34% for Germany; 1.44% in the US; 0.7% in Japan; 1.15% in France; O.16% in Italy (3.3% growth in 20 years!); and 0.85% in Denmark
We haven't included Ireland as the period covers boom and bust and a rise in GDP of 26% in 2015 related to mainly activity of multinational firms outside Ireland.
The IMF said last week that 2016 will be the fifth consecutive year with global GDP growth below its long-term average of 3.7% (1990-2007), and 2017 may well be the sixth. "Not since the early 1990s — when ripple effects from economic transition caused growth to slow — has the world economy been so weak for such a long time" — this is inflation adjusted change but not using PPPs and it's not on a per capita basis.
The United States has recovered better than other big advanced economies since 2009 but 2015 ranked as a record 10 straight years without 3% growth in real gross domestic product (GDP), according to data released by the Bureau of Economic Analysis. The BEA data calculates GDP for each year going back to 1929, the first year of the Great Depression.
Globalization on the rack
We reported last April that global inequality fell in recent decades for the first time since the Industrial Revolution.
Branko Milanović, a senior World Bank economist who focuses on inequality, recently wrote in The Harvard Business Review:
It is by now well-known that the period from the mid-1980s to today has been the period of the greatest reshuffle of personal incomes since the Industrial Revolution. It’s also the first time that global inequality has declined in the past two hundred years. The “winners” were the middle and upper classes of the relatively poor Asian countries and the global top 1%. The (relative) “losers” were the people in the lower and middle parts of rich countries’ income distributions, according to detailed household surveys data from more than 100 countries between 1988 and 2008, put together and analyzed byChristoph Lakner and myself , as well as my book Global Inequality: A New Approach for the Age of Globalization, which includes updated information to 2011.
The chart above, the Global Incidence Curve, shows the world’s population along the horizontal axis, ranked from the poorest to the richest percentile; real income gains between 1988 and 2008 (adjusted for countries’ price levels) are shown on the vertical axis.
Real incomes more than doubled between 1988 and 2011 (the extension to 2011 is not shown in this chart), a change that involved almost a third of the world population, most of them from Asia. "And although our data for the past are quite tentative and in some cases not much better than guesses, it is still the first time since 1820 that global inequality is deemed to have gone down, from approximately 69 Gini points to around 64. (On the Gini scale, 100 would be complete inequality while 0 would be complete equality)."
In Europe, in 1990 at the collapse of communism, the GDP per capita in Poland and the Ukraine were at the similar level, while five years later GDP per capita in Poland was twice higher than in Ukraine. After almost 25 years, in 2014, GDP per capita in Poland was almost five times higher than in Ukraine thanks to globalisation and membership of the European Union.
However, rising incomes in the rest of the world are no solace for large numbers in advanced countries with stagnant incomes, even though the quality of life may have improved compared with past times.
Despite two lost decades in Italy, the typical standard of living in Italy was above Ireland's in 2015, the year Ireland's GDP grew by 25%. In 2014 The New York Times noted in an analysis of the growing gulf between median household income and GDP in the US, that you can't feed a family with GDP.
In the 1950s the US took the lead on globalization and 1952 was the last time that a non-politician became the presidential nominee of a major US political party. That nominee Dwight D. Eisenhower had been a very rare five-star general, who had led the planning and invasion of Europe from late 1943 to 1945.
"Donald Trump is a phony, a fraud," Mitt Romney, the 2012 Republican Party candidate, said this year. "His promises are as worthless as a degree from Trump University. He's playing members of the American public for suckers: He gets a free ride to the White House, and all we get is a lousy hat."
Romney added that "dishonesty is Donald Trump's hallmark," pointing to his "bullying, the greed, the showing off, the misogyny, the absurd third-grade theatrics."
In Europe the toxic cocktail of economic and cultural insecurities, against a backdrop of fears of terrorism, has emboldened right-wing extremists not only in countries that have struggled since the Great Recession but also in well-run economies such as Germany, Sweden, Denmark and Austria. The anti-immigrant UKIP Party played a key role in the success of the BREXIT referendum in the UK.
The McKinsey Global Institute says that between 65 and 70% of households in 25 advanced economies including Ireland, the equivalent of 540m to 580m people, were in segments of the income distribution whose real market incomes — their wages and income from capital — were flat or had fallen in 2014 compared with 2005. This compared with less than 2%, or fewer than 10m people, who experienced this phenomenon between 1993 and 2005. Government transfers and lower tax rates reduced the effect on disposable incomes: 20 to 25% of households were in segments of the income distribution whose disposable income was flat or down between 2005 and 2014, compared with less than 2% in 1993–2005.
Slower population growth and longer life expectancy are limiting growth in the working-age population. For the past half century, the twin engines of rapid population growth (expanding the number of workers) and a rising trend in labour productivity underpinned the expansion of GDP. Employment and productivity grew at compound annual rates of 1.7% and 1.8%, respectively, between 1964 and 2014, pushing the output of an average employee 2.4 times higher. However, this demographic tailwind is weakening and even becoming a headwind in many countries.
McKinsey says that in advanced economies since World War II it has become a common expectation that people will be economically better off than their parents but this faith is waning. Apart from ageing, the trends in inequality, automation, smaller households and declining output per worker (productivity) are hard to reverse and the consultancy says that if the low economic growth of the past decade continues, the proportion of households in income segments with flat or falling incomes could rise as high as 70 to 80% over the next decade.
Manufacturing in America
Employment in the US last month was just over 159m while 12.3m were employed in manufacturing — 7.7% of employment.
General Motor's US jobs peaked at 618,400 in 1979, making it the largest private employer in the country. Worldwide employment was 853,000.
In 2015 GM had 97,000 working in the US (about 50,000 factory workers) and 215,000 worldwide; global sales were 9m units in 1979 and 9.8m in 2015. US sales were 6.1m and 3m respectively.
The strong support for Trump from white males without third level education has been attributed to the decline in well-paid manufacturing jobs and racism.
17.1m Americans worked in manufacturing at the start of the century and about 12.3m workers are currently employed in the manufacturing sector.
Manufacturing has changed significantly in recent times thanks to technology and the Congressional Research Service cites data showing that 87,000 people were working in the steel industry in 2015 and produced 3% more steel than nearly 400,000 workers did in 1980.
Goods production is no longer the principal occupation of workers in the manufacturing sector. Only two in five manufacturing employees are directly involved in making things. Despite the loss of nearly 5m manufacturing jobs between 2000 and 2015, the number of manufacturing workers with graduate degrees increased by 32%.
The United States now has very few factories with large employment: of more than 292,000 manufacturing establishments counted by the Census Bureau in March 2014, only 846 employed more than 1,000 workers.
Over the 24-year period between 1990 and 2014, manufacturing employment fell by a much lower percentage in the United States than in the United Kingdom and by about the same percentage as in France, Japan, and Sweden. Other high-income economies, including the Netherlands, Italy, and Germany, also saw large declines in manufacturing employment over that period.
The CRS says that international comparison of manufacturing employment is somewhat different if viewed in terms of hours worked rather than by the number of workers. By this metric, Germany experienced a similar decline in manufacturing work to that of the United States over the 1990- 2014 period, while the declines in France, Japan, and the United Kingdom were larger.
The Wall Street Journal says Election 2016 Is Propelled by the American Economy’s Failed Promises
America had an economic model that wouldn’t fail.
American median household incomes, adjusted for inflation, have fallen 7% since 2000. In the process, a persistent majority of individuals have come to believe the country is on the wrong track.
Central banks can manage the balance between growth and inflation and the fallout from financial bubbles.
The Fed didn’t deliver the growth it expected, consistently undershot its own inflation objective, and missed the buildup of financial excesses which caused the 2007-2009 financial crisis.
Technology would lead to rising incomes and broadly shared prosperity.
Between 2000 and 2012, estimates Harvard economist David Deming, the hollowing-out of work spread to professions including librarians and engineers. Those with the right skills came out ahead, a big reason the income gap widened. The top 20% of American families accounted for 48.9% of total income in 2014, Census figures show, versus 44.3% in 1990.
Productivity and output growth have slowed and technology has been polarizing the workforce.
Trade with China and other nations would have a net positive impact on the economy as it would expose the world’s largest population to U.S. goods and services, while those hurt by trade in America would adapt and be supported.
Trade with China turned out to be a bigger shock to the economy than anybody expected, and the adjustment of the workforce slower.
Of America’s 100 counties with industries most exposed to Chinese imports, 89 voted for Trump in Republican primaries. Of the 100 least-exposed counties, before all of his competitors dropped out, 28 gave him the nod. Mr. Sanders takes a tough line on China.
Between 2000 and 2007, import competition from China accounted for 982,000 manufacturing jobs lost, about one-fourth of all manufacturing job losses. Between 1999 and 2011, work published this year found, China accounted for 2.4 million jobs lost, including manufacturing and service jobs.
Martin Wolf of FT: Why the tide of globalisation is turning — The dominant philosophy of our age has plateaued and in some areas is in reverse