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Global Winners & Losers: The “Elephant” Diagram

By Shlomo Maital

Source: World Bank: Christoph Lakner, Branko Milanovic, 2014

     The above diagram tells the story. On the “X” axis: the global distribution of income, from the poorest 5% to the richest 5%. On the “Y” axis:   the global rate of growth of the income for each of the 20     5% groups.   The time period is the two decades, from 1988 through 2008. In these two decades, the Berlin Wall fell, global trade boomed, China grew by double digits, Asia prospered…and then it ended, in 2008, when the ceiling fell, with the global financial crisis.

     The diagram has been dubbed the ‘elephant’ diagram, because it does look like an elephant, trunk and all.

       What is the story it tells?   The poorest 5% were left out – their incomes did not grow at all. The ‘middle class’ in the poorer countries, mainly China, enjoyed strong growth. The ‘middle class’ in the wealthy countries were hard hit — the 80th percentile did not grow at all, in income.   And the top 5%?   Their income soared.

     Now — looking at elections in the UK, in the US, and elsewhere — I think you could have made strong predictions just based on the ‘elephant’. A large underclass, in the left-out economy. A large middle-class hard hit and struggling. A wealthy elite, able to buy political influence. The rising economic power of China.

     Britain’s Labor Party leader Corbyn was crushed, because he lost touch with his voters. There is a real and present danger that the Democrats in the US may do the same – though I understand, they are studying the UK election closely.

       The two groups of big-time losers, in the elephant diagram, will stay home or vote against you, if you ignore what matters to them and if you ignore policies that they believe will help them. It happened before – it could happen again.*

* “Lakner & Milanovic: “democracy is correlated with a large and vibrant middle class, its continued hollowing-out in the rich world would, combined with growth of incomes at the top, imply a movement away from democracy and towards forms of plutocracy. Could then the developing countries, with their rising middle classes, become more democratic and the US, with its shrinking middle class, less?”

Yuval Noah Harari: 21 lessons for the 21st C

By Shlomo Maital

Yuval Noah Harari

   Historian Yuval Noah Harari has written two smash hit books: Sapiens (about the past – a huge bestseller, a vest pocket overview of human history and progress) and Homo Deus (about mankind’s future ). Now comes his third – about the present.

The book was reviewed by none other than Bill Gates, in The New York Times (Sept. 1-2).

   The structure of the book is very well organized: Part I. The Technological Challenge (disillusionment, work, liberty, equality), Part II. The Political Challenge (community, civilization, nationalism, religion, immigration), Part III. Despair and Hope. (Terrorism, war, humility, God, secularism)   Part IV   Truth. (ignorance, justice, post-truth, science fiction) and Part V. Resilience (education, meaning meditation).

   Harari writes in his introduction: What are today’s greatest challenges and most important changes? What should we pay attention to? What should we teach our kids?

     As Bill Gates notes, Harari does not really offer ‘lessons’, prescriptions or solutions in depth, but instead, helps formulate the key questions – far more valuable, I believe. And he is basically optimistic. True, globalization (the amazing system of cooperation among nations, in which goods, services, ideas, technology, money and people flow freely among countries, driven by opportunity) is under assault. But it is irreversible and Gates notes, “though we took two steps backward in the past two years [since Trump’s election in 2016] before that we took a thousand steps forward.”

     So why does it seem that the world is in decline? Because, Gates rightly observes, “we are much less willing to tolerate misfortune and misery”. And, he might have added, because the enormous resonating sound board of the media obsessively harps on the bad news, because it seems that is what brings them eyes and ears and ratings (and ad money).

   One prediction of Harari that I think is correct:  In the past, land was the source of wealth, then, machinery, then, technology and creativity – and today? It is, he says, data. It is as if social media mine our data (gold) for free, collect it (for free), then sell it directly and indirectly for a high price.

   Harari thinks social media create political polarization, because they help people build cocoons, interacting only with ‘friends’ who share their views and consume only information they like and agree with, even if false.

   Gates, still a hard worker, wants Harari to address THE fundamental question – when machine learning, artificial intelligence and other technologies give us longer, happier, wealthier lives, with little or no human labor – where will we find meaning in our lives? Why get up in the morning?  

     Perhaps that world is hard for us to imagine today. Perhaps we will have to deal with it in real time – if and when it happens.           

An Increasingly Messy World: What We Each Must Do About It

By Shlomo Maital    

         messy world                

  My friend Bilahari Kausikan, a veteran Singapore diplomat and now Ambassador at Large, has written an excellent study titled “East Asia, US-China Relations and A New Global Architecture”.   Some of the points he makes have major implications for each and every person.  Here are a few excerpts:

   1.  We need a new ‘global architecture’:   “… once an American President has acknowledged the need for a new global architecture, it is a view that must be taken seriously. Only the US can lead and manage the transition from one system to another.    To reach a new global architecture, three sets of more or less tandem and inter-related adjustments will be necessary: a) global, b) regional, particularly in East Asia, and c) domestic in key countries, especially in the US and China.    All are complicated and the interregnum between one type of international system and whatever may come after will be prolonged, measured in decades. Along the way there will be stresses to be managed and recurring political, financial and economic crises to be navigated.  It will be a more than usually messy and unpredictable environment for East Asia and for the world for a quite long time to come. 

2.  “… while US leadership is still irreplaceable, the imperative of US leadership is no longer self-evident, both to other major countries and to many Americans who now question the burdens and sacrifices of global leadership.  America will in all probability look increasingly inwards for some time.   This is what it has been historically been prone to do after major wars, and the wars in Iraq and Afghanistan were the longest in American history.   It would thus be prudent to anticipate a global leadership deficit of some degree.”

3.  “The US and China will eventually grope and stumble their way towards a new modus vivendi. The questions that cannot now be answered are what the contours  of the future US-China relationship will look like; what trade-offs they will make between themselves; how long it will take to reach a new equilibrium; and what excitements the region will have to endure along the way?” 

4.  “In the 21st century, ‘normal’ politics is all too often dysfunctional.  This is a global phenomenon manifest in all polities legitimated by some variant of the notion of the sovereignty of the people. The experience of countries around the world has shown that the validation of politics by this 18th century political philosophy sooner or later sets up a dynamic that makes governance more difficult.”

    So what does all this mean for ordinary people and for companies? 

    As Bilahari notes, the world is going to remain highly unstable, for years to come.  It is not a multipolar world, but a NONpolar world.  America still has the clout to impose order, but it lacks the will do to so, after futile wars in Iraq and Afghanistan.   Moreover, normal 18th. C.-style democracy has become dysfunctional, in a fragmented era of social-network protest. 

   For companies, strategy will need to be flexible, agile, rapid, alacritous.  Survivors will be those best able to react quickly and correctly to unanticipated changes.

   For individuals,  the precise opposite.  We cannot forecast labor markets, we do not know which skills, products, industries or even geographies will prevail.  So, best to look inward, identify our passions, and work to fulfill them,  irregardless of the typhoons raging around us.   This was always the best path.  It it even more so in the turbulent world that Bilahari Kausikan decribes.

    One more thing.  A USAToday Poll finds that young Americans have a strong impulse to contribute to their society – but not through politics.  Only 17% of Caucasians, and just 8% of all blacks, say they seriously considered running for elective office (at any level);   only 22% of college grads, and only 25% of those who earn $100k or more;  only 22% of men, and just 8% of women!    America’s dysfunctional politics, about to push the Obama administration off the fiscal cliff, will be dominated by second-rate scoundrels, precisely at a time when strong leadership is needed.

     How in the world do we get young Americans to clean up America’s political mess, which is polluting not just America but the whole world?

Blog entries written by Prof. Shlomo Maital

Shlomo Maital