Opinion

Chrystia Freeland

Capitalism is failing the middle class

Chrystia Freeland
Apr 15, 2011 14:37 UTC

Global capitalism isn’t working for the American middle class. That isn’t a headline from the left-leaning Huffington Post, or a comment on Glenn Beck’s right-wing populist blackboard. It is, instead, the conclusion of a rigorous analysis bearing the imprimatur of the U.S. establishment: the paper’s lead author is Michael Spence, recipient of the Nobel Prize in economic sciences, and it was published by the Council on Foreign Relations.

Spence and his co-author, Sandile Hlatshwayo, examined the changes in the structure of the U.S. economy, particularly employment trends, over the past 20 years. They found that value added per U.S. worker increased sharply during that period – 21 per cent for the economy as a whole, and 44 per cent in the “tradable” sector, which is geek-speak for those businesses integrated into the global economy. But even as productivity soared, wages and job opportunities stagnated.

The take-away is this: Globalization is making U.S. companies more productive, but the benefits are mostly being enjoyed by the C-suite. The middle class, meanwhile, is struggling to find work, and many of the jobs available are poorly paid.

Here’s how Spence and Hlatshwayo put it: “The most educated, who work in the highly compensated jobs of the tradable and non-tradable sectors, have high and rising incomes and interesting and challenging employment opportunities, domestically and abroad. Many of the middle-income group, however, are seeing employment options narrow and incomes stagnate.”

Spence is neither a protectionist nor a Luddite. He prominently notes the benefit to consumers of globalization: “Many goods and services are less expensive than they would be if the economy were walled off from the global economy, and the benefits of lower prices are widespread.” He also points to the positive impact of globalization on much of what we used to call the Third World, particularly in China and India: “Poverty reduction has been tremendous, and more is yet to come.”

Can autocrats tolerate citizen participation?

Chrystia Freeland
Apr 8, 2011 14:28 UTC

What are the lessons the world’s dictators are drawing from the uprisings in North Africa and the Middle East? The most obvious and the most depressing is to shoot first and ask questions later. As in Tiananmen in 1989, and Tehran in 2009, the lesson of Bahrain and Syria — at least so far — is that regimes that have the will and the political unity to crack down on protesters can stay in power. (That bitter conclusion, by the way, is one reason the battle in Libya is so important: if Col. Muammar el-Qaddafi’s brutal repression of his own people works, autocrats around the world will have more evidence of the efficacy of massacre.)

Robert B. Zoellick, the president of the World Bank, is urging us all to learn something quite different and more cheering from a political transformation he believes is as profound as the 1848 “springtime of nations.” In a powerful speech he delivered in Washington this week and in an interview afterward with me and my colleague Lesley Wroughton, Zoellick argued that even dictators must empower their citizens — or risk facing their wrath in their local Tahrir Squares.

“Let’s take it to the ground in the Middle East and North Africa,” Zoellick said. “If you’re a transition leader or somebody that is going to be trying to run for election in Tunisia or Egypt, doesn’t it make sense to try to figure out, ‘How can I engage these people that were in the street? How can I connect them to the development process?”’

from Newsmaker:

Chrystia Freeland and Felix Salmon on the World Bank and dictatorships

Apr 5, 2011 14:18 UTC

At 2:15 p.m. tomorrow, on Wednesday, April 6, Chrystia Freeland will interview World Bank President Robert Zoellick in Washington, D.C. In this video, Reuters Financial Blogger Felix Salmon and Reuters Editor-at-Large Chrystia Freeland discuss what they think the World Bank's role should be in the uprisings in the Middle East and in supporting countries run by dictatorships versus helping the poor in undeveloped countries.

from Newsmaker:

Mohamed El-Erian on Egypt, Japan, and the U.S. economy

Mohamed El-Erian
Apr 4, 2011 13:42 UTC

Below are Mohamed El-Erian’s responses to questions asked by readers during the March 31 Reuters Newsmaker interview with Global Editor at Large Chrystia Freeland. An earlier set of questions and answers can be found here.

Would you give us your views on how Egypt shall grow economically and socially?

It is important to remember that Egypt is still in the midst of its revolution whose objective is greater democracy and individual freedoms. In the process, it is navigating a complex set of economic and social transitions, as well as a political one.

The economic component must deliver the conditions for sustained and inclusive economic growth, curtail rent seeking activities, and re-establish financial stability. Importantly, this speaks to both policies and institutions.

How cybertools can improve politics

Chrystia Freeland
Apr 1, 2011 14:55 UTC

Conventional wisdom has it that the Internet is dumbing us down and making politics more partisan. Sound bites are more effective than substance. The punditocracy that shapes these truisms is, needless to say, pretty certain they apply most powerfully to people in the hinterland, especially those with a history of voting for the right.

That is why the election of Naheed Nenshi, a 39-year-old former business school professor, as mayor of Calgary, was a watershed event that should be of interest far beyond Canada, where he has already become a political superstar.

When Mr. Nenshi earned his upset victory last October, the first flutter of outside enthusiasm was about the fact that an Ismaili Muslim son of South Asian immigrants who moved to Canada from Tanzania had been chosen to lead the capital of the country’s conservative heartland.

from Newsmaker:

Mohamed el-Erian on global markets, Japan, and the chances of default

Mohamed El-Erian
Apr 1, 2011 13:30 UTC

Below are Mohamed El-Erian's responses to questions asked by readers during the March 31 Reuters Newsmaker interview with Global Editor at Large Chrystia Freeland.

Are the current "mixed signals" by the various markets similar to the ones you said were being transmitted before the financial crisis, and do you think that the current stock market trading activity signals caution, confidence or complacency? (from i8emallup)

The most striking aspect of the "mixed signals" is the contrast between corporate (bottom up) indicators and macro (top down) developments.

Readers’ questions for El-Erian

Chrystia Freeland
Apr 1, 2011 00:09 UTC

As Chrystia threatened at the end of her interview with Mohamed El-Erian today, we’ve compiled all the questions our readers submitted via the Newsmaker blog and Twitter and e-mailed them to him. El-Erian will be flying to Europe tonight after he finishes up his business in New York, and while we do hope he gets a little sleep, we also hope he stays up long enough to answer all of your questions.  We’ll post his answers right here once we receive them.

Global Markets

Are the current “mixed signals” by the various markets similar to the ones you said were being transmitted before the financial crisis, and do you think that the current stock market trading activity signals caution, confidence or complacency? (from i8emallup)

Are the markets too complacent about potential risks to growth (disturbance in global production chains, fiscal tightening) and inflation (Japans expected demand for resourses, continued strength in China, core EMU)? (From Michael D-R)

Your cleanest dirty shirt

Chrystia Freeland
Mar 31, 2011 19:10 UTC

To Mohamed El-Erian, the world’s major reserve currencies — the dollar, the euro, and the yen — are a bit like your dirty laundry; every shirt is dirty, but compared to the alternatives, they historically have been the “cleanest dirty shirts.”  El -Erian thinks that arrangement will not last forever.  He tells Chrystia that a long-term trade that PIMCO likes is a long position in the currencies of the successful emerging markets — the clean shirts — funded by the currencies of the U.S., the EU, and Japan.

El-Erian forecasts a medium-term weakening of the yen as Japan will repatriate more funds than the market currently expects in order to finance reconstruction.  Of the three options Japan has for funding reconstruction — borrowing, repatriating funds, or monetizing debt — repatriation has the fewest risks.  With a debt-to-GDP ratio well north of 200% and a diminished credit rating of AA-, borrowing money or monetizing debt could each cause a rise in Japan’s interest rates.

In the near-term, though, before Japan can think about reconstruction it will have to muddle through the immediate aftereffects of the tsunami: a one-off destruction of wealth and a 25% reduction in Japanese energy generation.  El-Erian pointed out that auto companies and tech firms around the world continue to announce production slowdowns due to the tsunami’s of supply chains — just two days ago Ford announced a temporary shutdown of a factory in Belgium in order to preserve car parts.  His biggest worry is the “stagflationary wind” that’s blowing from Japan towards the rest of the global economy.

The bond vigilante speaks

Chrystia Freeland
Mar 31, 2011 18:22 UTC

Reuters finance blogger Felix Salmon has previously written that “if you wanted to put a face to the famous bond vigilantes, it would probably feature that famous moustache” of PIMCO CEO Mohamed El-Erian.  Well, this morning Chrystia sat down with this famous bond vigilante for an hour-long Thomson Reuters Newsmaker interview and asked him why PIMCO decided to dump all of its holdings of U.S. government bonds earlier this month.  Here’s what he had to say:

Everything you buy and hold must have value; it’s that simple…  And our estimation at the time was that there was better value elsewhere…  Now if the valuations of Treasuries change — and it has been changing; they have been getting cheaper — we will revisit that.  But when we looked at what else was available, you have Treasury-like instruments that offer you a lot more value than Treasuries.  You have government instruments in other countries that offer you more value.  We made a portfolio decision that said at these prices we find better value elsewhere in the fixed-income market for this mutual fund, and as it turned out, that was the right decision to make.

El-Erian listed three concerns PIMCO had about the market for U.S. bonds.  First, the Fed, which has been buying 70% of new Treasury issuance in its second round of quantitative easing, will cease it purchases in June, and it is unclear who will step in to buy Treasuries at current prices.  As El Erian said, “when you can’t identify a buyer, you don’t want to hold that instrument.”  Second, El-Erian doubts that Washington can find a political solution to the U.S.’s medium-term fiscal problem in the near future.  Finally, U.S. inflation is a worry for PIMCO.  Though increases in the prices of food and energy have yet to feed back into core inflation, El-Erian’s experience investing in emerging markets has taught him that the convergence point between headline and core inflation will be higher this time around than it has been in recent decades.

AT&T CEO Stephenson defends T-Mobile deal

Chrystia Freeland
Mar 30, 2011 18:38 UTC

Fresh off of last week’s announced bid for T-Mobile, AT&T CEO Randall Stephenson sat down with Chrystia following a breakfast this morning at the Council on Foreign Relations in New York.  He explained why this deal is good for his shareholders:

Over the last four years, since the mobile broadband era was introduced, the volumes on our network are up 8,000%.  We’re investing an incredible amount of capital, but we look out into the future and we do not believe, that given the growth rates we expect in the future, that there is adequate spectrum in the industry to accommodate this growth.  The infrastructure, the sell-side infrastructure — the build requirements –  are really extensive.  You do this transaction, it gives you an immediate lift of capacity in the neighborhood of about 30% in most of our major metropolitan areas.  That kind of capacity lift is future growth and future opportunity to serve customers, so this good for the shareowners.  The synergies associated with this from a shareowner standpoint represent in excess of $40 billion of synergies.

The AT&T chief was sanguine that the Department of Justice would ultimately bless the T-Mobile acquisition sometime next year, noting that in 18 of the top 20 mobile telecommunications markets in the U.S., consumers have a choice of at least five providers. When asked if he was prepared to offer consumer guarantees like price caps, Stephenson replied that recent history clearly shows consumer prices fall in the wake of this type of big merger.

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