Tag: economics

Hold Your Nerve – More Individualised Solutions to Structural Problems!

Millions of UK homeowners face huge increases to their mortgage repayments as interest rates continue to increase (1)

According to the Office for National Statistics, the average monthly repayment for a mortgage on a semi-detached house in the UK rose 61% to year ending December 2022.

This increase will be even greater now… the news over the last week has focused on how another 2 million people are coming off lower fixed rate mortgage deals between now and 2024, meaning their interest rates are going to increase from around 2% to 6%.

I’m one of these people, my current 2% rate ends in September this year, and I’ll have to switch onto a higher rate, which with my current provider is 6% or 5% on a two year fixed deal. I might of course switch, but that gives me a bench mark, I don’t imagine I’ll get much better than that.

Thankfully my current mortgage is so low that it’s not a big deal for me to manage the increase in repayments In fact if I just extend the mortgage by a few months I can keep my repayments level, which for me means pushing it back from 5 years of repayments to around 5 years and 3 months.

However, obviously I’d rather pay less than more over the next five years or so and it’s difficult to make a judgement as to whether I’m better of fixing now at say 5% for three years, or slightly higher at 5.5% for the full five years, or just going onto the 6% variable rate.

Obviously fixing for a longer period is the strategy IF interest rates are going to go up, while going on the variable rate is best IF interests rates are going to come down.

The problem is I don’t know what’s going to happen to interest rates, but it’s 100% on me to make a decision and 100% on me to bear the consequences of paying more in mortgage interest if I make the wrong the decision.

What’s causing inflation?

The bank of England keeps putting interest rates up because of high inflation, inflation being the rising cost of living.

The government put this down to a squeeze of food and energy because of the legacy of covid and the war in Ukraine putting a squeeze on supply chains, and all of this hasn’t been helped be Brexit making it more difficult to trade with the EU.

Personally I also think there’s a longer term trend of the rise in middle class consumers in countries such as India and China, which will increase demand for all goods and services

neoliberalism is also a problem – as increasing inequality means more wealth sits in tax havens not being used for innovation and more money gets sucked upwards, increasing inequality meaning a higher proportion of our resources go on meat and yachts for rich, which also pushes up prices.

Finally, the UK government has been printing money for years in response to various crises, which reduces the value of the pound. It’s printed almost £1 trillion since 2009 in Quantitative Easing Measures.

In short, there is no obvious immediate end to this inflation crisis because all of the causes are outside of the Government’s control, and many of its responses to global forces over the last decade have made matters worse.

Individualised solutions to Structural Problems (Again)

As to the solutions to the current mortgage crises, all that the current super-rich PrimeMinister Rishi Sunak has is to suggest people should ‘hold their nerve on interest rates‘.

In short, ‘just suck it up’, you’re on your own, deal with it, folks.

Signposting and Sources

This post is really just a general reminder of how damaging neoliberal economic policies are to ordinary people in the long run.

To return to the homepage – revisesociology.com

(1) https://www.theguardian.com/money/2023/jun/17/uk-homeowners-face-huge-rise-in-payments-when-fixed-rate-mortgages-expire

The Tory Spring Budget

The Chancellor’s Spring Budget was a conservative and reactionary mixture of soft-policies which do little for ordinary people and probably won’t help sort out Britain’s economic problems…

The three main priorities of the budget were to

  • reduce inflation
  • Stimulate economic growth
  • Bring down government debt.

Taken together these are very conservative and reactionary goals, nothing at all radical.

The government repeatedly says that current high inflation rates of around 10% are due to Putin’s war in Ukraine increasing energy prices, but many people know this is just a simplification, as there are many other causes of inflation… such as Brexit pushing up the cost of doing business and quite possibly just the failings of the capitalist system in general.

This and bringing down government debt are the government reacting to events that have already happened – the debt in large part being due to the government’s chosen response to the Covid Pandemic and Liz Truss.

This feels like a government catching up rather than driving the country forwards. If we use Anthony Giddens’ ‘steering the juggernaut’ analogy, it feels very much here like the global economy is out of control of the government, and there’s not a lot they can do!

One also has to question whether economic growth is the right strategy. Not only because the growth forecasts are dismal, but also because redistribution seems to be a more sensible goal.

Dismal Economic Growth Figures

There is plenty of money in the form of wealth out there, as the Equality Trust points out, what we need is for the government to tap into that and use it effectively to improve the quality of people’s lives through, for example, massive investment in education and green technologies.

At least one area of policy makes the rich richer: increasing the amount people can put in their pensions tax free from £40K a year to £60K a year: a really nice little perk for very high income earners, but 90% of population see no benefit from this.

The rise in Corporation Tax from 19% to 25% for companies making annual profits of more than £250 000 seems like a fair move to make, and the government have to be commended on this, it seems like a roll back of neoliberalism, but we will still have the lowest rate in Europe, and also remember that we only dropped it to 19% relatively recently, so let’s not get sucked into a false sense of this being radical, it isn’t, it’s just going back to a slightly higher version of a low tax norm!

The extension of childcare

This is a significant move – that 30 hours per week of free childcare will be offered for children aged one and two, rolled out gradually from 2024, extended down from the current age of three.

This should go at least some way to tackling the gender pay gap as it is mainly women who take time off work to look after younger children.

To my mind this is long overdue and should have been tackled many years ago, I know so many people with young children that struggle with childcare costs just because they are working and lack the friend and family network to look after them.

The Budget: Final Thoughts

There’s nothing radical or really big-picture in here, it just feels like a failing State struggling to keep up with global economic forces that are making a life a challenge for British people.

But most of what is being proposed is like a sticking plaster, rather than the government committing to really improving people’s lives in the long term.

Also consider that there’s no mention of funding public sector wages for teachers and nurses, for example, no mention of how to tackle soaring inequality, no real long term vision.

It’s just an epic fail on nearly every level.

To return to the homepage – revisesociology.com

Why Did Liz Truss’ Budget do so Much Damage…?

The Tory U-turn on its disastrous tax-cutting mini budget demonstrates how little power the British government has in relation to the forces of economic globalisation

Liz Truss and then then chancellor Kwasi Kwarteng announced a mini-budget on September 23rd 2022 which outlined tens of billions of pounds of tax cuts:

  • corporation tax was to be cut from 25% to 19%
  • the basic rate of income tax from 20% to 19%,
  • while the top 45% rate of income tax was also to be slashed for the extreme minority of higher income earners. 

At the same time the budget also committed the government to an increasing in spending to fund the energy-price cap which also ran into several billions of pounds annually for two years.

This package of tax cuts amounted to a planned reduction in government income of £45 billion, and the budget included no mention of how this shortfall was to be funded.

The extreme negative market reaction to Truss’ Mini-budget

The financial markets reacted immediately and violently to the Tory mini-budget with the interest rates on government bonds increasing rapidly.

For example, the 30 year bond rate increased from 4% to 5% – this is the amount of interest the UK government pays on its debt, meaning the UK government would have to pay a lot more going forwards.

The value of the pound also fell relative to the dollar and other currencies meaning it would be more expensive for businesses and individuals to buy imports.

What are government bonds?

Bonds are government backed loans – the government issues bonds when it wants to raise money to pay for various investments – and they promise to pay interest to whoever buys these bonds.

Bonds range from short term (3 years) to the very long term – over 60 years and the interest rates on bonds vary according to primarily three factors:

  • national interest rates – higher interest rates = higher interest payments (obviously!)
  • inflation – higher inflation is correlated with higher interest rates so the same pattern as above
  • a country’s credit rating – if a country is deemed to be at a higher risk of defaulting on its bonds, its credit rating drops and the interest payments go up.

The total value of UK government bonds, (in other words UK government debt) is at time of writing in October 2022 $2.6 trillion. (Also see source 1 below, for the latest UK Government data)

And huge debt also means huge annual interest payments, and so when bond rates increased by even just 1% as a result of the tragic Tory mini-budget, this means the UK government has to find tens of billions more every year just to service the interest on that debt, and this means less of our tax money going on public services.

The extent of government debt and why the Tory mini budget was so harmful

Even before the tragic mini-budget announcement Britain’s annual deficit stood at 2.3% of Britain’s GDP (according to latest government figures that’s £2.3 trillion) and so Britain was already spending approximately £50 more EVERY YEAR than it was bringing in in tax receipts.  

The Tory mini-budget increase that deficit by around another £50 billion, meaning the total annual deficit would have been £100 billion, EVERY YEAR and the budget laid out no specific information about where that extra £100 billion was going to come from.  

These policies would have had the further effect of feeding inflation, which had already been creeping up, and increasing interest rates which would have increased the cost of government borrowing while at the same time undermining the capacity of the government to pay the yield (interest rate) on its bonds.

Essentially the markets (i.e. the pension funds, countries and other companies who held UK Bonds (or debt)) looked at the Tory’s economic plan and said ‘there’s no way this is sustainable – you’re committing to running a national deficit of £100 billion a year with no indication of how you’re going to pay for it, which means you’re going to be less likely to pay back our debt, or the interest on our bonds’.

These policies which have since been reversed in a U-turn only two weeks after they were first announced (which completely undermines Liz Truss’ credibility as a leader and neoliberal economics more generally)

The Tory U-Turn

Shortly after the original mini-budget Liz Truss sacked her chancellor and appointed Jeremy Hunt in his place.

On Monday 19th of October, less than one month after the announcement of the original mini budget, Jeremy Hunt announced the scrapping of nearly all the measures outlined in that original budget, in what was the biggest U-turn in British economic history.

As it stands there will be no tax cuts after all and the energy price cap guarantee will only hold until April 2023, rather than a year after that as had been the case in the original disaster budget.

Relevance to A-level sociology

In my experience most A-level sociology students have very little understanding of economics, but personally I think every student needs at least a basic level of understanding of national economics, taxation, public spending, the sheer scale of national debt, interest rates and inflation.

Without an understanding of these basic economic concepts students are missing out on a deeper understanding of how economic structures and the ‘macro’ picture affect social life at a more personal level.

This material is most relevant to the Global Development module to illustrate how important economic globalisation is!

What this case study demonstrates is just how far the power of the British Government (and ANY government for that matter) has declined in relation to international bond markets and ratings agencies, because they are so massively in debt.

Britain owes so much money that it can now no longer do anything which undermines its capacity to repay that debt which is largely held by international financial corporations.

In this case the markets forced the UK to abandon its plans to cut taxes, and one might reasonably expect this means that the government would not be able to increase public spending either – because that would put a similar level of strain on the government’s capacity to pay back its enormous amount debt.

Interestingly one of the things Jeremy Hunt said in his ‘biggest U turn in political history’ speech was that….

“Governments can’t prevent market stability but they can manage the situation so that people don’t suffer – in terms of rising prices, mortgages and pensions”.

As a final word I also think maybe it illustrates the looming division between the old and the young… pension funds hold huge amounts of UK bonds and so these moves have been another strategy to protect the old while the young will pick up the costs again, as there are public spending cuts coming.

Please click here to return to the homepage – ReviseSociology.com

The Economic Consequences of Coronavirus (part 1)

what are the economic consequences of covid-19?

Coronavirus has had a negative effect on economic growth. Lockdown measures imposed by governments the world over have seen disruption to global supply chains, a decrease in international trade, an increase in unemployment, and a decrease in investment and global wealth in general.

Coronavirus has decreased global wealth

Probably the easiest way to summarise the economic consequences of coronavirus is to look at the impact it has had on Global Wealth, which I’ve already summarised in this blog post here.

Global Wealth has decreased by $8 trillion compared to where it was projected it would have been before the outbreak of the pandemic.

Personally I find this the most useful individual indicator, as it just takes one static gross snap shot figure and compares it with another, it’s very easy to understand.

Coronavirus has pushed most countries into recession

The latest data from the International Monetary Fund shows most countries with less than 0% GDP growth for 2020, so negative growth, that’s all countries in red below, accessed November 2020.

However, we need to look at a lot more figures to get a fuller picture.

Further reports emphasise the near universal negative consequences of Coronavirus:

This report (June 2020) by the World Bank predicts a 5% decrease in global GDP over the coming year, the largest decline since the 1870s, with all regions and countries showing significant cuts to their expected (pre-covid) economic growth rates.

The consequences of this economic slowdown which will be declining rates of investment, job losses and a corresponding decline in the rate social development in many developing countries.

Some sectors have been especially badly hit – the price of oil fell drastically with the Pandemic, but the agricultural sector has not been so badly effected. As a general rule, you might say that the less essential the sector, then the more it has been affected!

This report highlights that no country will escape the effects of Covid-19 unscathed, but China and Asia will probably fair better than the rest.

How Coronavirus Disrupted Global Supply Chains

The immediate impact of Coronavirus was a significant disruption to global supply chains, meaning that many global retailers struggled to maintain stocks of their products.

Supply chain problems also meant that manufacturers had to slow down or cease production of their products altogether, because they struggled to source raw materials.

Lockdown measures imposed in China in early 2020 were the main cause of this, because China is the world’s biggest manufacturer – it not only produces a lot of ‘end products’ (such as iPhones) but it also manufactures a lot of components that factories in other parts of the world need in the products they produce.

To find out more, this article by Bloomburg outlines how disruption to global supply chains impacted a variety of businesses all over the world – from watchmakers in Hong Kong to Lobster fishermen in New Zealand, it does a great job of highlighting the truly global effects of the Pandemic.

According to analysis of data on Tradeshift (a global supply platform) by the World Economic Forum global trade fell dramatically in February – April 2020. Chinese trade transactions fell by over 50% in March 2020, and the United States and Europe followed suit with a 26% drop in April, and a 17% drop after that.

The article suggests that as Chinese trade declined because of lockdown measures, global manufacturers struggled to source materials from other countries and so their production also slowed down.

What Coronavirus has revealed is that the world has become very dependent on China as the source of products – and when it goes into lockdown the rest of the world suffers.

The article further suggests that manufactures will probably look to diversify their supply bases in the future so as to be less dependent on China – and countries such as India, Vietnam and Mexico will probably be the main beneficiaries from this.

Another possible change might be more production in developed countries, further decentralising global supply networks,

So maybe the long term impact of globalisation will be a much more diverse form of economic globalisation (with China being less dominant) and maybe a reversal of the globalisation of manufacturing if we end up with more manufacturing taking place in developed countries?

The effects of Coronavirus on Transnational Corporations

A 2020 World Bank survey of Multinational Enterprises found that more than 90% had been negatively impacted by the Coronavirus Pandemic.

75% reported decreasing reliability of supply chains (meaning more difficulty in producing stuff) and decreasing worker productivity.

Half of MNEs surveyed have cut investment in developing countries by an average of 30% and 40% have reduced employment by an average of 16% – so overall that’s an average reducing of 15% investment and around 7% in employment.

The report (linked above) calls on governments to provide tax breaks to MNEs as well as more deregulation, so in other words more neoliberalisation, which is unsurprising coming from the World Bank.

Not all sectors have been affected equally

As has been reported widely, sectors of the economy associated with travel and leisure, such as the oil and aviation sectors have been affected very badly, with the number of flights taken being significantly reduced.

However, one sector which is doing better, with the hope of a vaccine coming soon, is the Pharmaceutical sector:

NB – these aren’t the only economic consequences of Coronavirus – I will cover the human cost in a separate post, in which I focus on the disruption to people’s working lives – the small enterprises struggling with lockdown measures, and how so many people are struggling to cope with reduced income and job losses.

Selected Sources

World Economic Forum: Here’s how global supply chains will change after COVID-19

Bloomburg: The Virus is interrupting Supply Chains

Explaining South Korea’s Economic and Social Development #2

South Korea is one of the real success stories of development post world war two, but what policies led to it rapid economic and social development?

NB – you might like to read part one of ‘Explaining South Korea’s Development‘ first!

During the early phases of its economic development, there were few vested interests In South Korea to oppose Import Substitution Industrialization: there was no landlord class (like in South America) and no foreign ownership of industry (like in much of Africa), so there were no vested ‘extractive’ interests to block the consumption of imports which was required to boost manufacturing.

During the 1980s South Korea also benefited from global political and economic trends: it gained an ally in America who wanted a stronghold in Asia to prove that a free-market economy was a viable alternative to communism; it was also able to benefit from the increasing global demand for cars and other industrial products – cheaper labour in South Korea meant it was eventually able to build a very successful automobile industry, spruing on the decline of manufacturing in places like Detroit.

The Hyundai factory in Ulsan is now the biggest automobile factory in the World, an honor which used to belong to the River Rouge Ford Factory in Detroit.

By the 1990s South Korea was being categorized as a Newly Industrialized Economy…however, the idea that this success was because of neoliberal policies is a myth. Rather, the strong economic growth post WW2 was because the authoritarian government (not beholden to either of the vested interests above) was able to protect industries, much in the same way as Britain and America did during their strong phases of economic growth.

In short, South Korea’s economic success is because the state played a highly interventionist role in steering, stimulating and constraining the market.

Explaining South Korea’s Development #1

Korea was a Japanese Colony from 1910 to 1945, providing food and fuel for the ‘motherland’.

Following the fall of the Japanese Empire at the end of World War II, Korea was divided along the 38th parallel into North and South Korea, North Korea controlled by communist Russia, and South Korea governed by the United States, pitching Communist and Capitalist modes of development against each other.

Following the brutal Korean War of 1950 to 1953 (which was the first war of the ‘cold war’ and was brutal enough to result in 4 million deaths) both North and South Korea lay decimated: plundered by 50 years of colonial rule and then a decade of fighting their infrastructures lay in ruins.

South Korea’s economy stagnated in the decade following the Korean war, but then grew rapidly, and today South Korea is one of the world’s leading economies, whereas North Korea stagnated under hard-line communist rule.

Given the fact that the two countries share common histories up until the end of WW2, and given that they share similar cultures and climates, these things cannot explain their divergent experiences in development since 1950 – and thus South Korea’s development (and North Korea’s lack of it) can only be explain by the social and economic development strategies (and their consequences) adopted by the South Korean government since the 1950s.

Following the war South Korea received some support for reconstruction from the US. As a percentage of gross national income South Korea received a very similar level of support to Kenya in the 1960s. But International Development Assistance was not the answer to Korean poverty. USAID reported that Korea was a ‘bottomless pit’ that could not be helped by development funding.

In 1961, when General Park Chung-Hee came to power in a military coup, South Korea’s yearly income was just $82 per person (for comparison Ghana’s was $179 at the time). In 1962 Park turned civilian and went on to win three elections before seizing the presidency for life. His rule was strict and South Korea was a highly disciplined society.

Park surrounded himself with able colleagues and made some astute political moves: During the Vietnam war, South Korea sent troops to support US efforts and was richly rewarded. In the mid 1960s, revenues from the Americans for Korean troops in Vietnam were the larges single source of foreign-exchange earnings.

Park was authoritarian and stifled liberties, but he put in place policies which effectively modernized South Korea.

Five year plans for economic development were at the heart of his strategy. Growth was steady during the 1960s as new factories producing basic goods were built, and in 1973 Park launched the ‘Heavy and Chemical industrialization programme’ which estalished the first steel mills and car manufacturing plants, which formed the backbone for industrial development and moved South Korea away from reliance on agricultural products.

As a result of Park’s economic policies, Per Capita income grew by more than 5 times between 1972 and 1979, reaching $1000 per capita by 1977, and all of this with very little reliance on aid.

Growth depended on Import Substitution Industrialization (ISI), which mean reducing dependence on imports and replacing them with domestically produced products. In practice this meant protecting basic goods such as clothing, hand tools and processed food.

Citizens were also heavily disciplined: they were mobilized like soldiers into factories and consumption was also tightly controlled: for example, foreign cigarettes were band, and citizens were encouraged to report anyone smoking imported tobacco products.

Every spare cent of foreign exchange earned from exports was used to import new machine imports to further industrialization and over many years South Korea’s manufacturing processes evolved to become more and more technologically sophisticated and eventually the nation transitioned to producing manufactured goods for export to foreign markets.

The history of the Samsung Corporation illustrates the successful development of the South Korean economy.

Samsung began selling dried fish, fruit and vegetables to China in 1938, before moving into flour milling and confectionery manufacturing, then textile weaving. In the early 1970s it invested in heavy, chemical and petrochemical industries and produced the first black and white television for domestic sale in South Korea in 1972. In the second half the 1970s Samsung moved into producing home electronics for export, and today is one of the world’s leading technology companies.

The result of all of this is that South Korea has seen one of the fastest rates of economic growth since WW2 – it’s GDP was over $28 000 in 2016.

However, South Korea’s development did come at a cost: political freedoms were limited (although Korea is now a democracy) working hours were very long, and gender inequality high. Today, South Korea has one of the highest suicide rates in the world and widespread alcohol dependency.

Sources:

Summarized from Brooks (2017) The End of Development.

 

 

 

The Scale of the World’s Largest Corporations

I thought it’d be useful to do a little post on the sheer scale of global corporations, so below I simply list the top 10 by revenue and then in italics next to them I’ve put the countries who rank immediately below them by nominal GDP* at 2016 figures.

The Fortune 500 magazine publishes the list of the top 500 global corporations by revenue annually.

wal-mart.jpg

The Fortune Global 500 top 10 list by annual revenue (published 2017) are:

  1. WalMart Stores (US)  – $485.8bn (Poland – $467 bn, GDP rank 35 )
  2. State Grid (China) – $315.1bn (Denmark – $306 bn, GDP rank 24 )
  3. Sinopec (China) – $267.5bn
  4. China Natural Petroleum (China) – $262.6bn (Chile – $247 bn, GDP rank 44)
  5. Toyota Motor (Japan) – $254.7bn (Finland – $246 billion, GDP rank 45)
  6. Volkswagen (Germany) – $240.2bn
  7. Royal Dutch Shell (Netherlands) – $240bn
  8. Berkshire Hathaway (US) – $223.6bn
  9. Apple (US) – $215.6bn
  10. Exxon Mobil (US) – $205bn (Portugal, $204 billion, GDP rank 47)
  11. (The 10 poorest countries in Africa – approx combined GDP = $190bn)

The top 10 companies in the list above consists almost entirely of Chinese and American firms – just three are from different countries: Germany, Japan and The Netherlands. The largest British firm on the list by revenue – BP – comes in at number 12.

More than a fifth of those on the latest list – 109 companies – call China home, up from only 29 companies a decade ago.”

Banking was the industry with the most number of companies on the list, at 55, followed by automakers/parts suppliers with 34, and petroleum refiners with 28.

In terms of countries, all of the very large population countries are way more economically powerful than any of the TNCs, and nearly every relatively large population Western European countries are richer than those TNCs.

However, there are plenty of European powers which are mixing it in with these corporations and only TWO African countries which mix it with the top ten TNCs – Nigeria and South Africa.

POLA0001
Walmart – had a higher 206 Revenue than Poland’s 2016 GDP

*I know there are problems comparing GDP and Revenue! I covered that in a previous post…

Just for contrast… the Top 10 Largest UK companies by revenue are:

  1. BP – $186,606m
  2. Legal and General Group – $105,235m
  3. Prudential – $96,965m
  4. HSBC Holdings – $75,329m
  5. Aviva – $74,628m
  6. Tesco – $74,393m
  7. Lloyds Banking Group – $65,208m
  8. Vodafone Group – $58,611m
  9. Unilever – $58,292m
  10. SSE – $37,813m

It’s probably worth noting that 5 out of 10 on the above list are finance related companies (banking or insurance), while the rest really just provide ‘basic’ products – energy, communications and retail products. So the top end of the UK economy consists of a wierd combination of companies producing ‘the basics’ and ‘the evil dark arts of finance’. Thus you might say that our economy is 50% tangible or real.

Are Corporations more Powerful than Nation States?

This is all very well and good, but what does all this tell us about the power of TNCs compared to countries? Are TNCs actually more powerful, or is using revenue and GDP misleading? While they do both provide a measure of money flowing into a Corporation or a country on a yearly basis, they don’t take into account the nation state’s power of taxation and its (supposed) monopoly on certain forms violence…

Of course if we take the countries which rank above the top 10 companies – the USA, China and so on, it seems sensible to suggest that these two entities work hand in hand (Rex Tillerson being just the most obvious example), but when it comes to African nations, who barely register among the big boys, do they have any chance of standing up to such huge TNC entities?

Or is all of this moot with the rise of alternative economies, given that all of the above is measured in dollars?!?

 

 

What is Neoliberalism?

Neoliberalism is the idea that less government interference in the free market is the central goal of politics.

Neoliberals believe in a ‘small government’ which limits itself to enhancing the economic freedoms of businesses and entrepreneurs. The state should limit itself to the protection of private property and basic law enforcement.

Neoliberalism is most closely associated with Thomas Hayek and Milton Friedman, and the policies of Ronald Reagan and Margaret Thatcher.

Milton Friedman.png

Neoliberals advocate three main policies to increase the role of the private sector in the economy and society: privatization, deregulation and low taxation.

Some examples of Neoliberal Policies include:

  • Lowering taxes on income, especially high income earners. When Thatcher came to power in 1997 she reduced income tax on the very highest earners from 83% to 60%.
  • Lowering Corporation tax – The government reduced the main corporation tax from 28% in 2010 to just 21% in 2014.
  • Privatising public services – Privatisation began under the Thatcher government of 1979 and continues today (2017). Britain’s rail, energy and water industries all used to be run by the state, but now they are run by private companies. Education and Health services are also being ‘privatised by stealth’, as more and more aspects of these services are contracted out to and run by private sector companies.
  • Reducing the number of rules and regulations which constrain businesses: This involves national and local governments monitoring private businesses less: by reducing the number of ‘health and safety standards’ businesses need to conform to and doing fewer health and safety and environmental health inspections for example.

deregulation UK.jpg
The ‘Red Tape Challenge’ offers some good examples of deregulation…

Further Background on Neoliberal Thought 

Neoliberalism emerged in the 1950s as a reaction against ‘Keynesianism’ – the idea that nation states should play a significant role in managing free market capitalism through high taxation in order to provide public services such as unemployment benefit, free health care and education (‘the welfare state’).

Keynsianism itself was a development of the earlier doctrine of ‘Liberalism’ which believed that individual freedom was the central goal of politics. Obviously the question of what kind of society allows for the most or best freedom is open to debate, but by the 1950s a consensus had emerged that ‘liberty’ was best guaranteed if the state provided a high degree of regulation of the economy and investment in social welfare.

Neoliberals such as Friedman believed that this ‘Keynesian’ model of organising the economy was inefficient, one of the reasons being that it restricts the freedoms of successful economic actors to reinvest their money as they see fit, because the state takes it away from them through taxes and gives it to the less successful, which in turn can create a perverse situation in which society punishes success and rewards laziness.

Evaluations of Neoliberalism

Arguments for neoliberalism

  • What right does the state have to tax money earnt through individual effort, innovation and risk?
  • Neoliberals argue that the private sector run services more efficiently than the state sector.
  • The argument for deregulation is that red-tape stifles business.

There are many critical voices of neoliberalism, mainly from the left and from within the green movement. Some of the main criticisms can be summarised as follows:

  • Cutting taxes on the rich has resulted in greater inequality and a lower standard of public services, especially for the poor.
  • Privatisation of public services has resulted in a massive transfer of wealth from the majority to the rich –
  • Deregulation has made society less safe and stable – critics blame deregulation of the finance sector for the 2007 financial crash and the deregulation of health and safety legislation as being linked to the Grenfell Tower disaster.

Critical Points

It can be difficult to evaluate the impact of neoliberalism because the term is so broad, and there is actually quite a lot of disagreement over what it actually means.

Even if we just focus on the policy aspect of neoliberalism – and try to evaluate the impact of lowering taxation, privatisation and deregulation, you would almost certainly need to break these down and look evaluate the impact of each aspect separately, and maybe even subdivide each aspect further to evaluate properly.

Selected Sources used to write this post…

https://en.wikipedia.org/wiki/Neoliberalism

http://www.fsmitha.com/h2/ch37-thatcher.htm

https://www.theguardian.com/commentisfree/2012/mar/29/short-history-of-privatisation

https://www.theguardian.com/commentisfree/2012/mar/29/short-history-of-privatisation

http://www.slobodaiprosperitet.tv/en/node/847

https://fee.org/articles/what-is-neoliberalism-anyway/

http://webarchive.nationalarchives.gov.uk/20150326105407/https://www.redtapechallenge.cabinetoffice.gov.uk/themehome/rtc-results-2/

What are the Most Useful Indicators of Development?

You need to use a range of economic and social indicators to get a full picture of how developed a country is….

There are hundreds of economic, political and social indicators of development, ranging from ‘Hard’ economic indicators such as Gross National Income (and all its variations), to various poverty and economic inequality indicators, to the Sustainable Development Goals, which focus much more on social indicators of development such as education and health, all the way down to much more subjective development indicators such as happiness.

In this blog post I consider what the most useful indicators of development are for students of A level sociology, studying the excellent module in global development.

I’ve thus selected the indicators below to try and represent:

  • the most commonly used indicators collected by some of the major development institutions, both multilateral agencies such as the World Bank, as well as NGOS.
  • The indicators you need to know for the ‘indicators of development topic – most obviously GNP, the HDI and the MDGs.
  • Other indicators which are useful to know for different sub-topics within the global development course (health, education, gender, conflict, the environment etc…)

Taken together these indicators should provide enough breadth of measurements to gain a very good (for A level standards) insight into the level of development of a country, without resulting in information overload and mental meltdown…

Most of the above indicators below have been developed and are monitored by either the World Bank or the United Nations, but I’ve also included others, such as the Global Peace Index, which are collated by other agencies, so as to broaden out the data sou

The indicators I consider in more detail below are as follows.

  1. Total nominal Gross Domestic Product
  2. Gross National Income per capita (PPP)
  3. The percentage of people living on less than $1.25 a day
  4. The percentage of people living below the poverty line within a country.
  5. The unemployment rate.
  6. The Human Development Index score
  7. Progress towards the Sustainable Development Goals (overlaps with many other aspects)
  8. School enrollment ratios
  9. PISA educational achievement rankings
  10. Percentage of population in tertiary education.
  11. The infant mortality rate.
  12. Healthy life expectancy
  13. The gender inequality index
  14. The global peace index
  15. Total military expenditure
  16. Carbon Dioxide emissions
  17. The corruption index
  18. The Happiness Index.

NB – As with many other posts on this site, this is a work in progress, to be gradually updated as and when I get a chance!

Nominal Gross National Income

Nominal Gross National Income is the total economic value of domestic and foreign output by residents of a country.

It roughly works out like this: Gross National Income = (gross domestic product) + (factor incomes earned by foreign residents) – (income earned in the domestic economy by nonresidents).

Nominal Gross National Income rankings (2015)

  • 1st – USA = $17 trillion
  • 2nd –  China – $$10 trillion
  • 6th – UK = $2.8 trillion
  • 7th – India = $2.0 trillion

Nominal GNI is useful for giving you an idea of the ‘economic clout’ of a country compared to other countries. The real global power players (in terms of military expenditure) are all towards the top of this.

These figures, however, tell you very little about the quality of life in a country…. for that you need to divide the figure per head of population and factor in the cost of living in the country….

Gross National Income Per Capita (PPP)

Gross National Income Per Capita – is GNI divided by the population of a country, so it’s GNI per person.

(PPP) stands for Purchasing Power Parity – which alters the raw GNI per capita data to control for the different costs of living in a country, thus modifying the GNI figure in U.S. dollars to reflect what those dollars would actually buy given the different costs of living in different countries.

Gross National Income Per Capita (PPP) rankings (2013)

  • 1st – Qatar – $123 000
  • 11th – United States – $53 000
  • 23rd – Finland – $38 000
  • 27th – United Kingdom – $35 000
  • 126th – Nigeria – $5360
  • 127th – India – $5350
  • 185th – Democratic Republic of Congo – $680

More up to date data sources for various GNI stats:

GNI per capita (PPP) gives you a general idea of what the general economic standard of living is like for the average person in a country, however, there are serious limitations with this indicator – the main one being that it does not tell you how much of that income actually stays in a country, or how income is distributed. Quality of life will thus be a lot better for some people, and a lot worse for others than these gross statistics indicate.

The Percentage of People Living on Less than $1.25 a day

There are still around 800 million people around the world living on less than $1.25 a day (PPP), the figures for some of these countries are below:

  • The Democratic Republic of Congo (88%)
  • Bangladesh (47%)
  • India (26%)
  • China (6%)

Looking at absolute poverty statistics like this gives us a much fuller understanding of the lack of development in certain countries – in DRC, you can clearly see that poverty is endemic (absolute poverty is a significant problem in many Sub-Saharan African countries), and we can also see that absolute poverty is still a significant problem in India (mainly rural India) and while the 6% is quite low in China, this 6% represents 10s of millions of people, given the large overall population size.

Proportion of population living below the poverty line within a country

The UN sustainable development goals states that one of its aims (under goal 1) is to ‘reduce at least by half the proportion of men, women and children of all ages living in poverty in all its dimensions according to national definitions’. (Source – The United Nations Sustainable Development Goals)

The United Nations collects this data for countries will lower human development, but not for countries with high human development, and so here we are reliant on data from national governments or other agencies  – and the problem here is that different countries measure their ‘poverty line’ in different ways, so this means making cross national comparisons are difficult. Some sources are below:

Selected Stats on the Proportion of People Living Below the Country’s own poverty line:

  • Most low income countries with high absolute poverty rates register percentages of between 30-60% living below their own poverty lines.
  • The USA has 15% of its population living below its poverty line (a household income of around $24000 per annum)
  • The UK also has around 15% of its population living below its poverty line, although its line is higher than the US – around $30000.

So how useful is this ‘relative measure of poverty’ as an indicator of a country’s level of development?

  • They give us far more insight than the GNI per capita PPP figures, because they tell us about income distribution. Can you really call a rich country developed if 15% of its population aren’t earning enough of an income to fully participate in that society?
  • We also need them as an addition to the absolute figures of poverty – absolute poverty doesn’t exist in the wealthiest countries, but clearly relative poverty does.
  • HOWEVER, the differences in how relative poverty figures are calculated does make it difficult to make comparisons.
  • Also, some figures in the UN’s data just don’t seem believable – some ex-communist countries (such as Kazakhstan) report that only 5% of the population live below the country’s poverty line – either than line is extremely low or there’s maybe a little bit of mis-reporting going on?

The Human Development Index

The Human Development Index is compiled annually by the United Nations and gives countries a score based on GNI per capita, number of years of actual and expected schooling and life expectancy, or in the words of the UN itself – the HDI is ‘A composite index measuring average achievement in three basic dimensions of human development—a long and healthy life, knowledge and a decent standard of living.’

Selected Countries by Human Development Index rankings (2015)

  • 1st – Norway
  • 8th – United States
  • 14th – United Kingdom
  • 24th – Finland
  • 32nd – Qatar
  • 39th – Saudi Arabia
  • 55th – The United States
  • 56th – Saudi Arabia
  • 90th – China
  • India – 130th
  • 137th- Bhutan
  • 176th – DRC

For the strengths and limitations of the HID, please see my aptly titled post: ‘the strengths and limitations of the Human Development Index’.

Percentage of children enrolled in secondary school

The Gender Inequality Index

The United Nations defines the Gender Inequality Index as ‘A composite measure reflecting inequality in achievement between women and men in three dimensions: reproductive health, empowerment and the labour market’.

More specifically, it gives countries a score between 0-1 (similar to the HDI) based on:

  • The Maternal mortality ratio: Number of deaths due to pregnancy-related causes per 100,000 live births.
  • The Adolescent birth rate: Number of births to women ages 15–19 per 1,000 women ages 15–19.
  • Proportion of seats held by women in the national parliament expressed as percentage of total seats.
  • The proportion of the female population compared to the male population with at least some secondary education
  • The comparative Labour force participation rate for men and women.

2015 Gender inequality index rankings

Selected countries according to their rankings for the Gender Inequality Index

  • 1st – Slovenia
  • 11th – Finland
  • 39th – The United Kingdom
  • 55th – The United States
  • 56th – Saudi Arabia
  • 97the – Bhutan
  • 127 – Ghana
  • 130th – India

The obvious strength of this is that we get to compare the life chances of women in a country to those of men. What’s (maybe) surprising is that while there does appear to be a general correlation between high GNI per capita (PPP), high human development and low gender inequality, the correlation is not perfect: as is evidenced by the USA being just one place above Saudi Arabia and Ghana being just a few places above India, despite these two pairs of countries having quite divergent levels of ‘human development’.

Notes 

Composite Versus ‘Single Variable’ Indicators

Some of the indicators above are ‘composite’ indicators – which are formed when individual indicators are combined into a single index, giving countries a simplified score, such as the Human Development Index, the Gender Empowerment Index and the Global Peace Index; others are ‘single variable’ indicators – such as the Child Mortality Rate, which just measure one thing.

My reasons for considering both composite and single indicators of development are that while composite indicators crunch more data into a single figure, and thus allow you to make more ‘in-depth’ snap-shot comparisons, single numbers simply don’t give you a sense of the real difference between countries, so these are necessary to highlight the extent of the difference between countries in terms of economic, social and political development, or lack of it.

(1) of course, studying development comparatively may or may not, in itself be useful!

Signposting and Related Posts

This topic is usually studied early on in the optional module on global development which is usually studied in the second year of A-level sociology.

Two related posts which explore some of the above indicators in more depth are:

Please click here to return to the homepage – ReviseSociology.com

%d bloggers like this: