China’s Wealthy Getting Richer in a Declining Economy

Sara Hsu

As China’s economy declines, inequality is growing. A recent study by Yu Xie and Xiang Zhou finds that China’s Gini coefficient surpassed 0.50 in 2010, remaining high through the present period. Despite the decline in investment and production, the sheer number of wealthy is increasing—Forbes states that China had 157 billionaires in 2013. The number of high net worth individuals, individuals with over US$1 million of investable wealth, rose by 17.8% in 2013 to 758,000, according to consultancy Capgemini and RBC Wealth Management.

Rapidly increasing wages in the financial and IT industries, contrasted with stable or slowly increasing wages in most other sectors (for example, utilities, construction, and transportation) has led to a sharp divergence between the income of the average worker and incomes of workers in privileged industries. What is more, the skyrocketing pay of top executives has enriched certain individuals over the masses.

China’s private financial wealth amounts to US$22 trillion, according to the Boston Consulting Group. This is equivalent to well over double China’s GDP in 2013. While the average per capita income was US$6,747 in 2013, Chinese executives averaged well over US$100,000. The poorest workers have also face delayed or partial payment of wages. In many cases, this has led to protests and legal action against employers.

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Climate Policy as Wealth Creation, Part 5

James K. Boyce

This is the final installment of a five-part series on climate policy adapted from regular Triple Crisis contributor James K. Boyce’s March 31 lecture for the Climate Change Series at the University of Pittsburgh Honors College. This installment lays out his case for a cap-and-dividend policy, which Boyce argues would put into practice the “widely held philosophical principle … that we all own the gifts of creation in equal and common measure.”  The first four installments of the series are available here, here, here, and here.

The full lecture and subsequent discussion are available, as streaming video, through the University of Pittsburgh website. Click here or on the image below.

The Case for Cap and Dividend

A carbon price is a regressive tax, one that hits the poor harder than the rich, as a proportion of their incomes. Because fuels are a necessity, not a luxury, they occupy a bigger share of the family budget of low-income families than they do of middle-income families, and a bigger share for middle-income families than for high-income families. As you go up the income scale, however, you actually have a bigger carbon footprint—you tend to consume more fuels and more things that are produced and distributed using fuels. You consume more of everything; that’s what being affluent is about. If you’re low-income, you consume less. So in absolute amounts, if you price carbon, high-income folks are going to pay more than low-income folks.

Well, under a policy with a carbon price, households’ purchasing power is being eroded by that big price increase, that big tax increase. But money is coming back to them in the form of the dividend. Because income and expenditure are so skewed towards the wealthy, the mean—the average amount money coming in from the carbon price and being paid back out in equal dividends—is above the median—the amount that the “middle” person pays. So more than 50% of the people would get back more than they pay in under such a policy. As those prices are going up, then, people will say, “I don’t mind because I’m getting my share back in a very visible and concrete fashion.” I would submit to you that it’s politically kind of fantastical to imagine that widespread and durable public support for a climate policy that rises energy prices will succeed in any other way.

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Make India Drought-Proof

Sunita Narain

Meteorologists are still not sure of the timing and intensity of El Niño. But it is clear that this monsoon will not be normal and there is a serious possibility that some parts of the country will be hit by drought and crop failure. The question is why we remain so unprepared to deal with crippling water shortages year after year. Why have all our efforts to drought-proof India failed? What should we do now?

We have been gravely remiss about water management. I say this because we had no excuse not to act. The past 10 years have been good rainfall years. This is the bounty that governments had no right to squander away. It was in these 10 years that everything could have been done to harvest rain, to recharge groundwater, to build rural ponds and tanks and to improve the efficiency of water use. There is no excuse because the problems are known and the solutions have been tested, just not applied and worked upon.

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Can "Natural Capital Accounting" Come of Age in Africa? Part 1

Patrick Bond

In early June, a University of Pretoria conference at the Governance Innovation Centre, keynoted by Indian eco-feminist Vandana Shiva, contemplated how to go “beyond GDP.” The current system of economic bean-counting is terribly inappropriate for a continent “rising” in rhetoric but, in reality, being looted at a breakneck pace.

As the Pretoria host, Prof. Lorenzo Fioramonti, author of the 2012 book Gross Domestic Problem, explained, “Gross Domestic Product focuses exclusively on market activities—that is, present income and production flow—whereas alternative measures of inclusive wealth highlight the importance of stocks of assets and their changes over time. The politics of GDP makes countries blind by rewarding short-term consumption and wholesale exploitation of natural assets at the expense of social justice and sustainability.”

The head-in-sand, ostrich-mimicking economists and financial journalists who use GDP without correction probably aren’t even aware that the figure does not include resource depletion, unpaid women’s and community work, pollution, loss of farmland and wetlands, family breakdown and crime. There are many substitutes for GDP, and one—the Genuine Progress Indicator—shows a substantially lower level of world welfare, around $36 trillion using GDP compared to less than $10 trillion using GPI in 2005, once these corrections are made.

World corrections to Gross Domestic Product (GDP)

Source: Rethinking Progress

Africa is hardest hit by two of these corrections—resource depletion and white collar crime—so any fantasy of “Africa Rising” must be completely rethought once we recalculate. Regarding crime, as University of Massachusetts economist Leonce Ndikumana has shown, more than US$1.7 trillion was looted from Africa through Illicit Financial Flows (IFF) not tracked through GDP from 1970-2010.

According to Simon Mevel, Siope Ofa and Stephen Karingi from the UN Economic Commission on Africa, IFF includes “1) Corruption, which is the proceeds from theft and bribery by government officials; 2) Proceeds from criminal activities, including drug trading, racketeering, counterfeiting, contraband, and terrorist financing; 3) Proceeds from commercial tax evasion mainly through trade mispricing and laundered commercial transactions by MultiNational Corporations (MNCs).” As they concede, the problem is getting worse, with trade mispricing alone rising from less than $30 billion a year before 2006 to more than double that level in the subsequent four years.

Source: Simon Mevel, Siope Ofa and Stephen Karingi, United Nations Economic Commission for Africa

The NGO Global Financial Integrity lists five African countries as having lost the most to IFFs during the period 1970-2008:

1 Nigeria $217.7 bn

2 Egypt $105.2 bn

3 South Africa $81.8 bn

4 Morocco $33.9 bn

5 Angola $29.5 bn

Here in South Africa, misinvoicing has become a major national controversy. Dr. Dick Forslund, a Swedish economist based at Cape Town’s Alternative Information and Development Centre, recently questioned how the big MNC mining houses could fail to get market-related prices during international platinum sales, which in turn meant they were underpaying their own books by at least $1.5 billion over the last decade.

The firms denied it, and as if on cue, African National Congress general secretary Gwede Mantashe immediately launched a paranoid attack on Forslund, who was assisting the Association of Mineworkers and Construction Unions (AMCU): “The articulation of the AMCU position by white foreign nationals signals the interest of these foreign forces in the destabilisation of our economy.”

Mantashe did not mention ANC deputy president Cyril Ramaphosa, for many years a 9% shareholder and board member of Lonmin, the London firm once run by Tiny Rowland, who was “the unacceptable face of capitalism” according to then Tory prime minister Edward Heath in 1973. Lonmin’s Marikana platinum operations became infamous in August 2012, because of what appears now as a pre-meditated massacre that took place the day after Ramaphosa sent emails to the police and mining minister upgrading a labour dispute to “dastardly criminal.” The police shot 34 dead, many execution style.

In the same spirit, Pretoria’s diamond valuators have winked and nodded while DeBeers apparently mispriced US$2.83 billion from 2004-12, according to Africa Report columnists Sarah Bracking and Khadija Sharife.

These are just some of the reasons why in South Africa, the country that PricewaterhouseCoopers recently reported was the world’s worst for corporate fraud, “natural capital” should be carefully counted. Otherwise, the mining and oil MNCs will loot us blind.

Triple Crisis welcomes your comments. Please share your thoughts below.

Can “Natural Capital Accounting” Come of Age in Africa? Part 1

Patrick Bond

In early June, a University of Pretoria conference at the Governance Innovation Centre, keynoted by Indian eco-feminist Vandana Shiva, contemplated how to go “beyond GDP.” The current system of economic bean-counting is terribly inappropriate for a continent “rising” in rhetoric but, in reality, being looted at a breakneck pace.

As the Pretoria host, Prof. Lorenzo Fioramonti, author of the 2012 book Gross Domestic Problem, explained, “Gross Domestic Product focuses exclusively on market activities—that is, present income and production flow—whereas alternative measures of inclusive wealth highlight the importance of stocks of assets and their changes over time. The politics of GDP makes countries blind by rewarding short-term consumption and wholesale exploitation of natural assets at the expense of social justice and sustainability.”

The head-in-sand, ostrich-mimicking economists and financial journalists who use GDP without correction probably aren’t even aware that the figure does not include resource depletion, unpaid women’s and community work, pollution, loss of farmland and wetlands, family breakdown and crime. There are many substitutes for GDP, and one—the Genuine Progress Indicator—shows a substantially lower level of world welfare, around $36 trillion using GDP compared to less than $10 trillion using GPI in 2005, once these corrections are made.

World corrections to Gross Domestic Product (GDP)

Source: Rethinking Progress

Africa is hardest hit by two of these corrections—resource depletion and white collar crime—so any fantasy of “Africa Rising” must be completely rethought once we recalculate. Regarding crime, as University of Massachusetts economist Leonce Ndikumana has shown, more than US$1.7 trillion was looted from Africa through Illicit Financial Flows (IFF) not tracked through GDP from 1970-2010.

According to Simon Mevel, Siope Ofa and Stephen Karingi from the UN Economic Commission on Africa, IFF includes “1) Corruption, which is the proceeds from theft and bribery by government officials; 2) Proceeds from criminal activities, including drug trading, racketeering, counterfeiting, contraband, and terrorist financing; 3) Proceeds from commercial tax evasion mainly through trade mispricing and laundered commercial transactions by MultiNational Corporations (MNCs).” As they concede, the problem is getting worse, with trade mispricing alone rising from less than $30 billion a year before 2006 to more than double that level in the subsequent four years.

Source: Simon Mevel, Siope Ofa and Stephen Karingi, United Nations Economic Commission for Africa

The NGO Global Financial Integrity lists five African countries as having lost the most to IFFs during the period 1970-2008:

1 Nigeria $217.7 bn

2 Egypt $105.2 bn

3 South Africa $81.8 bn

4 Morocco $33.9 bn

5 Angola $29.5 bn

Here in South Africa, misinvoicing has become a major national controversy. Dr. Dick Forslund, a Swedish economist based at Cape Town’s Alternative Information and Development Centre, recently questioned how the big MNC mining houses could fail to get market-related prices during international platinum sales, which in turn meant they were underpaying their own books by at least $1.5 billion over the last decade.

The firms denied it, and as if on cue, African National Congress general secretary Gwede Mantashe immediately launched a paranoid attack on Forslund, who was assisting the Association of Mineworkers and Construction Unions (AMCU): “The articulation of the AMCU position by white foreign nationals signals the interest of these foreign forces in the destabilisation of our economy.”

Mantashe did not mention ANC deputy president Cyril Ramaphosa, for many years a 9% shareholder and board member of Lonmin, the London firm once run by Tiny Rowland, who was “the unacceptable face of capitalism” according to then Tory prime minister Edward Heath in 1973. Lonmin’s Marikana platinum operations became infamous in August 2012, because of what appears now as a pre-meditated massacre that took place the day after Ramaphosa sent emails to the police and mining minister upgrading a labour dispute to “dastardly criminal.” The police shot 34 dead, many execution style.

In the same spirit, Pretoria’s diamond valuators have winked and nodded while DeBeers apparently mispriced US$2.83 billion from 2004-12, according to Africa Report columnists Sarah Bracking and Khadija Sharife.

These are just some of the reasons why in South Africa, the country that PricewaterhouseCoopers recently reported was the world’s worst for corporate fraud, “natural capital” should be carefully counted. Otherwise, the mining and oil MNCs will loot us blind.

Triple Crisis welcomes your comments. Please share your thoughts below.

Picking Up the Pieces from a Failed Land Grab Project in Tanzania

Timothy A. Wise

I arrived in Tanzania, one of the frontlines in the battle over land grabs in Africa, just as another round of international negotiations on guidelines for “responsible agricultural investment” (RAI) wrapped up in Rome late last month. The policy document is intended to curb so-called “land grabs” in Africa and other developing countries.

Negotiations were not going well. The governments of developed countries were debating every point in the guidelines, which are slated for approval by the UN’s Committee on World Food Security (CFS) in October. They were resisting many of the most basic principles to guarantee the right to food and land for farmers and herders who have seen their land and livelihoods given away to foreign companies and governments.

Those distant policy debates seemed urgent as I sat down with villagers from the Kisarawe area of Tanzania, southwest of Dar es Salaam, where 11 villages have given up 20,000 acres of land to the British-owned Sun Biofuels for a large-scale biofuel plantation. The biofuel project has failed, and now the villagers are staring at 5,000 acres of useless jatropha trees surrounded by guards hired to keep villagers off what used to be their land.

When the villages agreed to give up the land, they’d been promised compensation for it and, more importantly, more than 1,000 jobs, a variety of community development projects—roads, wells, schools, health clinics—and agricultural investment in local farms.

But those security positions were the only jobs the farm was providing. The local village councils and some farmers have gotten a little compensation for the land, but have nothing else to show for it.

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Climate Policy as Wealth Creation, Part 4

James K. Boyce

This is the fourth installment of a five-part series on climate policy adapted from regular Triple Crisis contributor James K. Boyce’s March 31 lecture for the Climate Change Series at the University of Pittsburgh Honors College. This installment focuses on how the revenues from a carbon price will be distributed: Who gets the money? The first three installments of the series are available here, here, and here.

The full lecture and subsequent discussion are available, as streaming video, through the University of Pittsburgh website. Click here or on the image below.

Who Gets the Money?

How much money are we talking about, when we put a cap on carbon emissions? What I want to share here are some “back of the envelope” calculations. Don’t take these to the bank, but they’ll give you some idea of the ballpark we’re talking about, what kinds of prices are likely to be associated with what levels of emission reduction. These are figures that trace the trajectory if we’re going to achieve an 80% cut in emissions by the year 2050.

In the first five years of the policy, if we were to have such a policy in 2015, we’d be emitting on average about 6 billion tons of carbon dioxide per year, a little bit less than in the absence of a policy. The price associated with that would probably be in the neighborhood of $15 a ton, so we’d be talking about $90 billion a year, or about $540 billion over those first six years. In the next decade, we’d be ratcheting those emissions down further to about 4.5 billion tons. To do so, the price would have to be about $30 a ton, generating a total cost to consumers and therefore a pot of money of about $135 billion a year, or $1.35 trillion over the decade. In the next decade, getting down to about 3 billion tons of carbon, we’d be raising the price to about $60 a ton, generating about $1.8 trillion over the decade. And the last decade, ratcheting down further to 1.5 billion, perhaps somewhat optimistically assuming here that the price needed would be only $120 a ton—that would assume that a lot of R&D has happened, a lot of new technologies come online, investments in public mass transit are online, etc., so you don’t have to push the price through the roof—that would generate another $1.8 trillion.

You add it up and over that 35-year period, we’re talking about something to the order of $5.5 trillion. Economists have a technical term for it—“a hell of a lot of money.” So the question is: Who owns that atmospheric parking lot and, therefore, who will get the money?

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Locking Out Financial Regulation

Jayati Ghosh

The world of international trade negotiators is an increasingly secret one,    with even other agencies of national governments not fully aware of what is being offered by their negotiators in such deals. One current example is a pending “trade” deal called the Trade in Services Agreement (TISA), which is being negotiated among 50 countries, including the United States, the EU, Australia, Canada, Chile, Costa Rica, Hong Kong, Iceland, Israel, Japan, Liechtenstein, Mexico, New Zealand, Norway, Panama, Peru, South Korea, and Switzerland. This agreement is apparently supposed to be “classified” information – in other words, secret and unknown to the public that will be affected by it – for a full five years after it is enters into force or the negotiations are terminated!

That an international treaty that has binding and enforceable obligations can be treated as secret for five years after it comes into force is not only bizarre but almost unthinkable. The need for such secrecy would be inexplicable even if such agreements were actually in the interests of people whose governments are involved in such negotiations. That secrecy is sought would on its own be reason for concern, but the little that has been leaked out of the state of the negotiations suggests even more reasons for alarm, especially because such a deal would have far-reaching implications for financial stability and adversely affect everyone in the world.

One critical element of this relates to liberalisation of rules around financial services, discussed in an Annexe. An April 2014 draft of this Annexe is now available on Wikileaks in yet another important public service provided by this organisation. This draft may have been already superseded by the ongoing negotiations, which are apparently to continue in Geneva in the last week of June, but if it is an indication of what is under way then it deserves to arouse much more public outcry.

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Marking 50 Years of G77

Martin Khor

Political leaders of developing countries gathered in the Bolivian city of Santa Cruz last week to commemorate the 50th anniversary of the Group of 77, the main umbrella organisation of the South.

Presidents, Prime Ministers, Foreign Ministers and Ambassadors from a hundred countries celebrated the event with speeches and a declaration that pledged their continued fight for a fairer world order, but also to improve the condition of life of their people.

President Evo Morales of Bolivia, who hosted this G77 summit gave a stirring speech enumerating nine key tasks that lie ahead for the developing world, and chaired the meeting of interesting reflections from leaders on what the South has achieved so far, the present crises and big challenges ahead.

On June 15, 1964, when most developing countries had just emerged from colonial rule, the officials of 77 developing countries met and issued a joint statement announcing the birth of the G77, at the first ever meeting of the UN Conference on Trade and Development in Geneva.

In that historic statement, the developing countries pledged to promote equality in the international economic and social order and promote the interests of the developing world, declared their unity under a common interest and defined the Group as “an instrument for enlarging the area of cooperative endeavour in the international field and for securing mutually beneficent relationships with the rest of the world”.

Fifty years later at Santa Cruz, on June 14 and 15, the leaders affirmed that the developing countries need to unite under the G77 even more than before, as the global economy is in turmoil and the world order remains still imbalanced against their interests.

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Roads are Meant for Walking

Sunita Narain

In India, traffic accidents are not on the health agenda. It is time the agenda is changed. Last week when the Union Minister for Rural Development met with an unfortunate and tragic accident on the road in Delhi, the issue was highlighted. But as yet, there is little understanding of the seriousness of the problem, and why India, which has just begun to motorise, needs to take action, and fast.

For me, the news of the minister’s death was particularly distressing. It hit me that seven months ago I was on the same road—South Delhi’s Aurobindo Marg—when my cycle was hit by a reversing car. I was lucky that Good Samaritans picked me up, took me to the same Jai Prakash Narain Apex Trauma Centre at AIIMS where minister Gopinath Munde was taken. The same wonderful group of doctors, who tried their best to resuscitate Munde, worked to repair my hands and nose, and stop internal bleeding. I was fortunate. I survived. But Munde, who had much to do in his life, did not. This waste of human lives because of sheer apathy and negligence should make us angry. It should make us change the way we design our roads, enforce traffic rules and, most importantly, take responsibility for our driving.

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