Weekend reading links

1. Times points to a new report that highlights the lack of dynamism in the US economy,

They cite federal data showing that in 1977, more than 16 percent of firms in the United States were less than a year old, a figure that had fallen to half that by 2014. New businesses have similarly done less to power new jobs than they once did, while the biggest, oldest firms account for a rising share of economic activity. Market concentration increased for two-thirds of industries between 1997 and 2012, the report found. That coincided with a steady rise in corporate profits as a share of gross domestic product, and in a decline in the share going to workers’ wages. The job market has become less fluid. The proportion of workers who change jobs in a given year has fallen from 12 percent in 2000 to 7 percent in 2015. Workers are also less likely to migrate within the country. In the 1970s, more than 3 percent of the population moved across state lines in a given year; since 2006, the number has hovered around 1.5 percent. Most startlingly, the creation of new companies has been concentrated in a small number of metropolitan areas: Dallas, Houston, Los Angeles, Miami and New York. From 2010 to 2014, those five regions created as many new businesses as the rest of the country combined. 

More evidence that the fundamental structure of the economy has changed significantly over the years and protectionist rhetoric that harp on returning manufacturing jobs may remain just that, rhetoric.

2. Yet more reminder that fixing complex challenges like improving farm incomes has to go far beyond elimination of middle-men through commodities exchanges and online trading platforms. This from the experience of Ethiopia Commodity Exchange (ECX), 

By connecting smallholder farmers to global markets, the exchange, launched with a fanfare in 2008, was supposed to help reduce hunger. The hope was it would reduce price volatility and incentivise farmers to plant crops. But staple foods such as haricot beans today account for less than 10% of its trade. Its annual turnover—worth about $1bn—is dominated instead by two export crops, coffee and sesame seeds. In 2015, despite a dire drought, Ethiopia did avoid famine, but the ECX played little role: its maize and wheat contracts had lapsed by then because of concerns that exports would jeopardise domestic food supplies. Cutting out middlemen seems not to have done much for smallholders: studies suggest that the share of international prices received by coffee farmers has barely budged over the past decade.

I had written earlier cautioning against excessive optimism with the electronic trading platform established in India with the objective of creating a unified national agricultural market.

3. Jayan Jose Thomas has a decomposition of the new entrants to India's work force,

They (NSSO and Census) suggest that between 2004-05 and 2011-12, the population in the age group of 15-59 increased at the rate of 16.2 million a year. During the same period, the population of students 15 years or older increased at the rate of 5.9 million a year. Students do not form part of the workforce. Therefore, if we subtract the growth of students from the growth of the working-age population, we obtain an estimate of the growth of the potential workforce. This is found to be 10.3 (that is 16.2–5.9) million a year for India between 2004-05 and 2011-12. During the same period, however, the workforce engaged in agriculture and allied activities declined at the rate of 4.4 million a year. Assume that the workers who shifted out of agriculture sought employment in industry and services. If so, the potential workforce in industry and services in India grew at the rate of 14.7 (that is, 10.3+4.4) million a year between 2004-05 and 2011-12.

4. Donald Trump is a master of shifting the frames of reference. He takes outrageous public positions with his tweets, be it abusing opponents, intimidating judges, maligning journalists, or indulging in naked nepotism. Once the dust settles down, he would have invariably shifted the terms of discussion on the issue the next time it crops up.

The first instance of such expressions (or tweets) would have shaken up the social conscience and aroused anger. But after two or three iterations of such abuse, intimidation, or nepotism, the moral indignation of the social collective becomes attenuated. They become the new normal!

The gradual social reconciliation with the massive conflicts of interest that is egregious is the perfect example. This is a teachable example of how public morals slip down the slope, most likely irreversibly.

5. Times has this story of Foxconn's largest factory in Zhengzhou which makes nearly half of all iPhones,

Zhengzhou, a city of six million people in an impoverished region of China. Running at full tilt, the factory here, owned and operated by Apple’s manufacturing partner Foxconn, can produce 500,000 iPhones a day. Locals now refer to Zhengzhou as “iPhone City.” The local government has proved instrumental, doling out more than $1.5 billion to Foxconn to build large sections of the factory and nearby employee housing. It paved roads and built power plants. It helps cover continuing energy and transportation costs for the operation. It recruits workers for the assembly line. It pays bonuses to the factory for meeting export targets...

Foxconn receives a bonus when it meets targets for exports. Those subsidies, according to the government records, totaled $56 million in the first two years of production, when the factory was exclusively dedicated to the iPhone. The bonus is small on each of the tens of millions of iPhones produced during that period. But the subsidies add up: The government records list more than a dozen other forms of financial aid at the Zhengzhou operation. The Zhengzhou government eliminated corporate taxes and value-added taxes that Foxconn pays for the first five years of production; they are half the usual rate for the next five. The city lowered Foxconn’s social insurance and other payments for workers, by up to $100 million a year. The customs operation is also in a so-called bonded zone, an area that China essentially considers foreign soil, subject to different import and export rules. This setup allows Apple to sell iPhones more easily to Chinese consumers.

Foxconn is clearly able to have its way with national governments, even in China. No wonder its similar expectations from state governments in India.

6. The always excellent Dani Rodrik takes aim another holy cow among liberals, the "global citizen". He questions what global citizens do, 

Real citizenship entails interacting and deliberating with other citizens in a shared political community. It means holding decision-makers to account and participating in politics to shape the policy outcomes. In the process, my ideas about desirable ends and means are confronted with and tested against those of my fellow citizens. Global citizens do not have similar rights or responsibilities. No one is accountable to them, and there is no one to whom they must justify themselves. At best, they form communities with like-minded individuals from other countries. Their counterparts are not citizens everywhere but self-designated “global citizens” in other countries.

Despite its apparent simplicity, most intellectuals fail consistently to grasp this insight,

We have to live in the world we have, with all its political divisions, and not the world we wish we had. The best way to serve global interests is to live up to our responsibilities within the political institutions that matter: those that exist.

I cannot agree more and it is amazingly ubiquitous.  

7. Talking about Dani Rodrik, see this nice profile. And this captures the essence of the difference between conventional economists and people like Dani,

THERE ARE ECONOMISTS who teach the well-known postulate that free trade improves global well-being. There are other social scientists and popular critics who contend that laissez-faire trade can be bad for equality, for social stability, and even for economic efficiency, just as pure laissez-faire is not optimal at home.

And then there is Dani Rodrik.

This applies to not just free trade, but as I have blogged earlier automation, capital account liberalisation, migration, global citizenship etc.

8. Economist has a good article which once again highlights the implications of big data on privacy and why it has to be dealt with extreme care,

But critics fear too much data-crunching could actually increase financial exclusion. The riskiest customers, and those offline, might be priced out. The more the industry relies on complex—and proprietary—algorithms, feeding machines that keep learning, the harder it will be for customers, and regulators, to untangle why they were rejected. And algorithms can be wrong. A bilingual speaker’s search-engine entries could look erratic; a social-worker’s location-tracker could imply a risky lifestyle. And since it is unclear how judgments are made, says Frederike Kaltheuner, from Privacy International, “you could get stuck in a Kafkaesque situation where you’re put in a certain box and can’t find out why, and can’t get out.”... People give uninformed consent to all sorts of things online. But users can feel tricked and spied on if they learn their data have been sold or used in unexpected ways... 

Regulators have a role to play, particularly in dealing with questions of discrimination and exclusion. If using someone’s browsing history to exclude them from an offer for a cheap flight is OK, is it also reasonable to use those data to lock them out of health insurance (eg, by assuming that someone who Googles doughnut shops is a bad risk)? Now that Amazon sells loans, Alibaba has a payments business and Facebook has patented a credit-rating system, regulators should be at least as worried about non-traditional financiers and fintech startups, which sometimes escape regulation. 

9. On the increasingly relevant subject of whether internet companies, especially on e-commerce side, should be regulated like regular entities performing similar services. As the Economist writes, currently "they are not legally responsible, either for what their users do or for the harm that their services can cause in the real world". Accordingly, Airbnb and Uber have disclaimed any liability from their services and been spared the more rigorous standards followed by their brick-and-mortar counterparts. But as this market expands problems are emerging,

Airbnb’s inventory of 2.3m rooms makes it bigger than the three largest hotel chains—Hilton, Marriott and InterContinental—combined. Incumbents are demanding that online rivals obey rules that constrain everyone else... Airbnb stands accused of reducing the supply of affordable housing in big cities. Uber is said to worsen traffic problems and to weaken public-transport systems by luring away passengers. Facebook and Twitter are accused of enabling the spread of fake and biased news during America’s election. Such services have also become favourite hangouts for bullies and trolls...

It is also becoming exceedingly hard to maintain that platforms are—like telecoms networks—“neutral”. The argument that they do not interfere in the kind of content that is shown was a key rationale for exempting them from liability. But they are starting to resemble regulators themselves, which makes it odder still that they act outside legal limits. Facebook’s algorithms determine what members see in their news feeds. Uber’s software decides what drivers get paid. It is getting easier to police platforms, too, thanks to artificial-intelligence techniques which can recognise and predict patterns of bad user behaviour.

10. Finally, the popular narrative on migration is largely confined to the refugees and migrations from South to North. As the Economist writes, a much larger migration happens in Asia. Consider this, 

China has long been able to satisfy its demand for labour by moving rural citizens to cities. Over the past 30 years around 150m Chinese have left the countryside to staff factories, cook in restaurants and clean homes. But with China’s population ageing, foreign workers have begun filling the gap: as many as 50,000 Vietnamese illegally cross the border into the southern province of Guangxi each spring to help harvest sugar cane. In 2015 the provincial government started a programme to bring Vietnamese workers into local factories in one city. Off to a good start, it is being introduced in other parts of Guangxi.

China remains a net exporter of labour, but the balance is shifting quickly. Over the next 30 years its working-age population will shrink by 180m. How China handles this fall will play a large role in shaping Asian migration patterns. Manufacturers can move factories to labour-rich countries, or invest in automation. Other industries lack that option. The ILO forecasts that China will need 20m more domestic workers as it ages.

The impending collapse of the workforce is not an exclusively Chinese problem. To keep the share of its population at working age steady, East Asia would have to import 275m people between the ages of 15 and 64 by 2030. South-East Asia would have to attract 6m... South Asia, meanwhile, could afford to lose 134m workers—India alone could send more than 80m abroad—without worsening its dependency ratio. China’s projected shortfall in 2030 is equivalent to 24% of its current working-age population; in Bangladesh the likely surplus is 18%.