Opinion

Edward Hadas

Why “suzhi” should go global

Edward Hadas
Apr 18, 2012 11:58 UTC

What’s the goal of development? A standard answer is higher gross domestic product. A few specialists prefer to talk about building capabilities. I have another idea: development should be about suzhi, a Chinese word usually translated as quality.

China has been worrying about development for a long time. Reformers in the 19th century wrestled with how to overcome the people’s backwardness without losing what was truly great and distinctive about the Middle Kingdom. They saw that development, as it’s now called, involved a major reworking of culture and society. It encompassed the economy, education, law, politics, the military, the arts and medicine.

Today’s international community has adopted a much narrower understanding. Leaders of poor countries and experts in the field pay often think of development as being centred on economic growth. Social and cultural changes are treated as little more than tools to help increase GDP.

A more sophisticated alternative is the “capabilities approach”. Amartya Sen, a philosophically minded economist, argues that the poor countries should develop whatever capabilities are needed for their residents to be free. His idea of freedom is multifaceted: it includes freedom from starvation, premature mortality, illiteracy, political disenfranchisement and censorship.

But the capabilities approach has some flaws. First, it assumes that the final goal of development is an individualistic, secular and democratic welfare state, as found in Europe and the United States.

Towards a better society in China

Edward Hadas
Apr 11, 2012 15:18 UTC

As a slogan, the Three Represents was puzzling. It was in 2000 that Jiang Zemin decided that the once revolutionary Chinese Communist Party would represent the private sector, which he called “advanced productive forces”; along with its traditional constituencies of intellectuals (“advanced culture”) and workers (“the overwhelming majority of the people”).

The 2000 strategy of Jiang, then the General Secretary of the CCP, did help bind the peculiarly Chinese political system into promoting the common good. The challenge was to ensure that the nation’s single political force did not lose touch with the country’s increasingly diversified economy. The inclusion of bourgeois businessmen and grasping capitalists has kept the Party credible and effective in a poor and ideologically scarred country. But as China leaves impoverishment behind, its leaders need to worry about more than mere material prosperity. The time has come to plan for a broader national agenda – a move from the Three Represents to the Five Responsibilities.

First, China must honour the responsibility to its past. For the past two centuries many Chinese leaders have seen their homeland as backward. They enthusiastically cast aside ideas and ideals which – until about 1700 – had made Chinese culture so sophisticated, its philosophy so profound and its government so impressive.

More charity, less bureaucracy

Edward Hadas
Mar 21, 2012 13:02 UTC

“Charity is a cold, grey, loveless thing. If a rich man wants to help the poor, he should pay his taxes gladly, not dole out money at whim.” Clement Attlee wrote that in 1920. As British prime minister after World War Two, Attlee turned thought into policy. The welfare state that he helped create has decimated private charities for the poor.

It’s much the same in all rich countries. Governments now take the prime responsibility for the care of the poor. Even in the United States, where the charitable (voluntary) sector is relatively large – twice as high a share of GDP as in the UK, according to the charity Philanthropy UK – the share of GDP taken by federal and state welfare programmes, as measured by the OECD, is 10 times higher.

But Attlee’s judgment has been proved wrong. If organised charity was cold, the carefully calibrated payments and entitlements of the welfare state are icy. The welfare state has many aspects but in terms of the alleviation of misery it has not worked as intended. The decline of hunger and voluntary homelessness – and the spread of electricity, telephones and the like – might suggest otherwise. But the increase in overall prosperity and the establishment of the principle of a “living wage”, rather than the mechanisms of government entitlements, have wrought these changes.

What’s really wrong with Europe?

Edward Hadas
Mar 14, 2012 15:14 UTC

The euro zone debt crisis shows that something is seriously wrong with Europe. But what is it?

Most financial professionals think the problem is economic. They have long considered continental Europe something of a mess – slow GDP growth, inept governments, smothering regulation and a culture that doesn’t “get” markets. European residents seem equally gloomy, especially about the economy. In the most recent Eurobarometer survey, 71 percent of respondents did not expect the crisis to be over two years hence.

The economic worries of both financiers and citizens are misplaced. Even if the slow patch does last a few more years, the European economy will continue to do what a modern economy is supposed to do. European consumers are basically as well off as Americans after adjusting for longer European holidays and different lifestyle choices. There is probably greater justice in the distribution of incomes and consumer goods in Europe than in the United States. The euro zone’s low trade deficits – less in total since 1990 than the United States ran in the last six months – suggest that Europe is globally competitive. Europe probably has a worse unemployment problem than the United States, but national governments are belatedly trying to remedy that.

The lesson of Fukushima

Edward Hadas
Mar 7, 2012 15:01 UTC

The first anniversary of Japan’s nuclear disaster is a good time to take stock. Opponents and proponents of nuclear power are doing so, and they have come to the same conclusion: “We were right all along.”

The meltdown at the Fukushima power plant is certainly grist for the mill of the anti-nuclear crowd. It forced the evacuation of 300,000 people and will cost as much as $250 billion to clean up, according to the Japan Center for Economic Research. If a natural disaster can trigger such a dangerous, disruptive and expensive crisis in a country as advanced as Japan, then it’s impossible to guarantee safety anywhere. Efforts to do the impossible will make nuclear power even more expensive and, by some analyses including that of the Worldwatch Institute, it already costs more than solar energy.

The technical and economic data, though, may offer less support for the anti-nuclear brigade than the images from Fukushima, including explosions, mass evacuations to escape the deadly and invisible threat of radiation, and workers in white safety suits. The pictures reinforce the visceral fear that radioactivity is just too hot to handle.

Finding a way to make finance less sacred

Edward Hadas
Feb 29, 2012 15:25 UTC

Has finance become a “false divinity in the world”? Pope Benedict XVI thinks so. “We see that the world of finance can dominate the human being,” he has said.  “[It is] no longer an instrument to foster well-being… [it] becomes a power that oppresses, that almost demands worship.”

As well as warming the hearts of banker-haters everywhere, the Pope’s criticism is well aimed. Not only did the finance industry’s arrogance help spur crisis and recession, but there’s something dangerous at the core of finance. The human good can all too easily be lost when people’s past work and future hopes are expressed in purely monetary terms.

In the Old Testament, the ancient Israelites were warned that too rigid a view of financial obligations is cruel and socially divisive. Aristotle added another essential objection. The ancient Greek philosopher pointed out that monetary wealth can keep on increasing forever — unlike our appetite for the things that money can buy. Yet while the worldly infinity of finance is alluring, it is ultimately false. Money has no human meaning on its own, but only when it serves a meaningful purpose.

Don’t obsess about GDP measures

Edward Hadas
Feb 22, 2012 14:57 UTC

An American, a Frenchman and a physicist were talking about some unusual weather. “It was twice as hot this afternoon as this morning”, said the American, “the temperature went up from 40 to 80 degrees.” The Frenchman interjected: “That’s in Fahrenheit. In Celsius, it was six times hotter.” The physicist was scornful. “On the only really scientific measure, the Kelvin scale, the increase was a piffling 5 percent.”

Who’s right? Well, all the measures are accurate and it certainly was hotter. But no single ratio – whether twice, six times or 5 percent – captures just how much hotter it actually felt. The feeling of hotness, like the feelings of pain or anger, cannot be measured with genuine precision.

It is the same for the feeling of prosperity – any measure will be arbitrary and quite possibly misleading. Consider gross domestic product, the most common index of economic success. GDP is the sum of spending on everything in the economy, from shoes to shoe-shines, from cars to child care. In comparing countries with each other or over time, GDP is usually adjusted for inflation to calculate what is ambitiously called “real GDP”. It is then often divided by the population, creating “real GDP per person”. This is usually measured in “constant dollars” and, for 2011 in the United States, becomes $43,149 of 2005 dollars.

In praise of cooperative thinking

Edward Hadas
Feb 15, 2012 14:41 UTC

Nothing stimulates anti-capitalist feelings like large sums of money changing hands in the hope of huge profits. A recent example: the prospect that Facebook could be worth some $100 billion to its shareholders. The website’s users might prefer less advertising and a lower valuation. But no one asked them. This inspired my Reuters colleague Paul Smalera to suggest that Facebook go co-op. Smalera won’t get his way, but he’s right to wonder whether the hunt for shareholder profits makes the world a better place.

In modern economies, most companies are supposed to be run for the benefit of the providers of equity capital, the shareholders, considered co-owners. Cooperatives and mutuals are owned by and supposed to be run for different groups: customers (the Cooperative Wholesale Society in the UK and American credit unions), suppliers (Sunkist citrus growers in the United States) or workers (the Mondragon group of companies in Spain and the UK retailer John Lewis).

The original thinking behind almost all these organisation was idealistic, even utopian: greedy capitalists had polluted the economy. Their exclusion would help promote the best aspects of human nature.

The great race for jobs

Edward Hadas
Feb 8, 2012 14:06 UTC

The financial markets rejoiced last week because the U.S. unemployment rate fell to 8.3 percent in January, 0.8 percentage points lower than a year earlier. Back in the real world, the gain looks less impressive. The proportion of the adult American population with a job has hardly changed since January 2011 – it is up from 58.4 to 58.5 percent. That number peaked in 2000 at 64.4 percent.

The decline in American so-called “participation rate” is a serious economic problem. Many blame the cyclical downturn or inadequate GDP growth, but they are too focussed on output. The real issue is input: the supply and the need for labour. This is not just an issue for the United States. But the current shortage of jobs in most rich countries is the latest leg of a long race between technological forces that lead to job destruction and socio-economic forces which provide new kinds of employment.

Over the last two centuries, the contest has been fairly even. The labour savings in field, factory and home have been nothing short of amazing. Imagine that today’s technology and labour skills were available when Adam Smith wrote The Wealth of Nations in 1776. If people today worked as many hours a week as they did then, and for as many years of their lives, and if they consumed roughly the same quantity of goods and services, the unemployment rate would more like 70 than 8 percent.

The tough road to sensible taxes

Edward Hadas
Feb 1, 2012 15:03 UTC

President Barack Obama thinks taxes can help the government achieve a precise policy objective. In last week’s State of the Union address he outlined a complex set of tax adjustments  to discourage companies from moving American jobs to foreign parts.  In the same speech, Obama also suggested that taxes can be made simple and clear:  “No side issues.  No drama”, he said. He applied that description to the extension of the cut in the U.S. payroll tax rate. It was followed by pushing for “common sense” on a minimum tax rate for the rich. “Washington should stop subsidizing millionaires”, the president said.

The rhetoric may not be entirely contradictory, but it points in quite different directions. If the tax code is written to reflect particular concerns, whether of the government or of influential taxpayers (and non-payers), it will never be simple. And if simplicity is the guiding principle, it is hard to understand why the president wants to add to a U.S. law which already has 9834 sections. 

The current president is not the first person to dream of improving a complex, arbitrary, inefficient and unjust tax system. On the contrary, the history of taxes in every country is replete with efforts at reform, although they come along far less often than desperate measures to squeeze more money out of unwilling subjects. Governments’ consistent need for more revenue and the governed’s equally consistent reluctance to pay helps explain why reformers find progress so difficult.

  •