The Past, Present and Future of Global Inequality

By: Buyi Wang

Income and wealth are increasingly in the hands of the top 1%. How have we arrived at this stage of global inequality and what does the future have in store?

How much do you have to earn to be considered rich? According to Bloomberg, if you live in countries like China, where income and wealth inequality are relatively moderate, you need to earn $105k annually to be considered as the top 1%. In the United Arab Estimates, the number is $891k. In the United States, the number is $478k.

Inequality is a global phenomenon. According to the World Inequality Report 2018, from 1980 to 2016, almost every region in the world has experienced increasing income inequality. The United States, for example, stands out compared to Western Europe. In the 1980s, the two regions shared the same level of inequality, with the top 10% accounting for roughly 10% of the national income. However, by 2016, the top 10% in the U.S. took up 20% of national income while their counterparts in Western Europe took up 12%. Aside from income, the U.S. also has one of the highest levels of wealth inequality. In 2014, the top 1% in the U.S. held 39% of national wealth, while the figure was 30% in China and 20% in the UK.

Although some might find global inequality an outdated subject(global inequality in this article means income inequality and wealth inequality), a closer look at the world today invalidates such belief. For instance, many regions in the world, especially Europe and North America, are still recovering from the 2008 financial crisis, which has made inequality actually grow. While the upper class was less impacted, the sluggish economic growth during the recovery period has especially eroded the living standards of the lower and middle class in these developed countries. Such imbalance was partially the reason why populism emerged. In other parts of the world, especially the Middle East, Latin America and Africa, inequality has not increased much but remained high. The rich and the poor live drastically different lives. While the wealthy might be able to enjoy high quality healthcare and send their children to study abroad, the poor might be struggling to get medicine and supporting their children to even finish primary school. In general, global inequality must continue to be addressed.

Throughout history, inequality has been driven by inter-country inequality and within-country inequality. According to a research by Brookings, which gives a well-analyzed summary of how these two forces evolve, before 1980s, inter-country inequality was the main force of global inequality. Countries in Western Europe and North America outperformed others economically thanks to the Industrial Revolution. After 1980s, inter-country inequality started decreasing as developing countries, especially China and India, caught up with the developed world. The strong economic growth has transferred huge number of people out of poverty into the global middle class. At the same time, within-country inequality became a more serious issue. The extent of within country inequality depends on national policies. For instance, both China and Russia have gone through the transition from a planned economy to a more market-oriented economy. However, inequality increased slower in China due to a more timid pace of privatization.

Like many other global trends, the development of inequality has produced its winners and losers. Not surprisingly, the global top 1% is the biggest winner. According to the elephant curve in the Inequality Report pictured at the very beginning which shows how economic growth was captured by people of different income levels from 1980 to 2016,  the bottom 50% has captured 12% of total economic growth while the top 1% has captured 27%. The Brooking paper, which  provided an analysis from a different perspective, regards middle class in developing countries and upper class in developed countries as the biggest beneficiaries of growth since 1980s. Lower and middle classes in developed countries saw the least growth.

The World Inequality Report also discusses three potential future inequality outcomes. In the first case, inequality follows the pace experienced by the U.S. In the second case, inequality follows the moderate growth experienced in European countries. In the third case, inequality continues to grow at its current pace. The report concludes that inequality would rise the most under the first case where the global income the top 1% would capture would increase from 20% to 27.5%. Inequality  would only decrease under the third case where the this share would fall from 20% to around 19%. Seeing the future through another perspective, if emerging markets can still be counted to deliver strong economic growth, inter-country inequality can be expected to decrease continually. However, this might not be the case with China’s growth. As previously mentioned, the strong economic growth of China since the 1980s has decreased global inequality because of rising Chinese middle-class population. Nevertheless, income inequality in China has been rising fast. China is the country with the greatest number of billionaires in 2018 and the rich captures one third of the national wealth. Further growth of inequality within China might thus exacerbate global inequality.

In conclusion, global inequality is still a major issue today. If emerging markets can still deliver strong economic growth, then inter-country inequality can continue falling. Within-country inequality would be more difficult to solve. National governments still should carry out reforms to ensure that income and wealth are not under the full control of just a few.

Works Cited:

Image Source: Figure E2a, World Inequality Report 2018. https://wir2018.wid.world/files/download/wir2018-summary-english.pdf

  1. Steverman, B., Pickert, R. (2019, Feb 4). This is what it takes to be in the 1% around the world. Bloomberg. Retrieved from https://www.bloomberg.com/news/articles/2019-02-04/a-global-guide-to-what-it-means-to-be-part-of-the-1?te=1&nl=dealbook&emc=edit_dk_20190205&fbclid=IwAR3jE_ic27M5EkpjBDLWCZMvwnPfLYnSgenGWjw-wMGIwDyzsL3TqhXEsRw
  1. Alvaredo, F., Chancel, L., Piketty, T., Saez, E., Zucman, G.(2018). World Inequality Report 2018. WID. World. Retrieved from https://wir2018.wid.world/files/download/wir2018-summary-english.pdf
  1. Qureshi, Z. Trends in income inequality: global, inter-country, and within countries. Brookings. Retrieved from https://www.brookings.edu/wp-content/uploads/2017/12/global-inequality.pdf.
  1. Alvaredo, F., Chancel, L., Piketty, T., Saez, E., Zucman, G.(2018). World Inequality Report 2018. WID. World. Retrieved from https://wir2018.wid.world/files/download/wir2018-summary-english.pdf

The Economic Story Behind the Yellow Vest Movement

By: Buyi Wang

The Yellow Vest Movement has exposed the decreasing living standard experienced by many ordinary French citizens. The anguish is not only directed at Macron, but also at the entrenched economic problems of the French economy.

When someone mentions France, what usually surfaces in people’s mind is Paris. The chic boutique and delicate bakery have long coaxed people into believing that French life is all about glamour and abundance. Nevertheless, the Yellow Vest movement at the end of 2018 tells a story about France that many are unfamiliar with. It has called attention to areas beyond Paris and exposed the anguish that many French citizens feel towards the Macron government and the general economy.

The Yellow Vest movement is a protest against President Macron’s proposal to raise fuel tax. The tax aims to show the world France’s determination to combat global warming. However, to many working-class French citizens living in small towns and rural areas, some of whom barely have enough money for food, the tax has further squeezed their purses. Therefore, they come to Paris, demanding their voice to be heard.

The movement has had some serious economic consequences. According to the finance ministry of France, the movement “knocked 0.1 percentage points off growth in the final three months of 2018, further exacerbating a French economy that has already seen a significant slowdown from the previous year. While in 2017 the economy grew 2.3%, in 2018 the economy grew 1.5%. Consumer spending, for example, fell as the protest spreads through the traditional shopping season in last few months of the calendar year. According to the research arm of Moody’s Analytics, consumer spending increased by 0.22% during the fourth quarter of 2018, compared to an 0.79% increase during the third quarter of 2018 . Moreover, the movement, which has seen protesters breaking shop windows, has also discouraged business confidence. According to Moody’s, confidence in doing business fell by 2.65% during December of last year compared to a 1.44% increase in November. Apart from these general economic aspects, industries including tourism and hospitality have received a direct blow. To pacify the protest, President Macron has promised to increase  minimum wages for workers by €100 a month.Such measure, of course, come at  costs. It’s estimated that the wage rise will cost the government approximately €10 billion, putting further pressure on the national deficit.

Aside from the fuel tax increase, some of the anger is directed at President Macron and his unpopular general social-economic reforms. These reforms have all created an impression that the president favors the rich instead of the poor. One of President Macron’s biggest agendas is labor market reform. To attract big operations to France, Macron wants to loosen the rigid French labor law so the company has more ease in hiring and firing workers. Unsurprisingly, such reform has caused dissatisfaction among workers, who complained that the president favors industrialists over ordinary French citizens. What further alienates the president from the public is his reform on the Solidarity Wealth Tax. The tax, which applies to those earning more than €1.3 million annually, was originally created to decrease income inequality in France. It’s a common belief in France that the rich should contribute part of their wealth in helping the poor. However, to encourage investment, President Macron has decided to exclude investment gains from the tax and apply the tax only on property assets. People complained that such measures would not benefit the majority of French citizens.

Nevertheless, it’s not all Macron’s fault. Some of the distress is over the entrenched problems of the French economy. Like many other European countries, France has experienced a sluggish wage growth. The majority of French people has barely seen its wage increase since the 1980s. According to VOX, starting from 1980s, annual wage growth was 0.9%, compared to a growth of 3.7% from 1945-1980. At the same time, inequality has been increasing. Data from VOX reveals that today, the top 10 % of the earning distribution takes up 10% of the national income, which is significantly higher than the 7% in 1980s, when inequality was at one of its relative lowest points. Moreover, there is a continuously high unemployment rate. According to CEIC, in June 2018, the unemployment rate in France was 9.1%, which was higher than the EU average of 6.8%. Even though Macron has promised to bring down the unemployment rate, until now the effect of his labor market reform has been insignificant due to a too short time horizon.

All in all, the Yellow Vest movement isn’t simply a movement against rising fuel taxes. What lies underneath is a dissatisfaction over President’s Macron reforms and a frustration over the long-run problems of the French economy. The protests will eventually die down. However, if the French economy isn’t lifted from the current state, people’s anguish will continue and living standards will keep on falling.

Works Cited

Image Source: https://pixabay.com/en/yellow-vests-event-revolution-3854259/

Thomas, L. (2019, Jan 30). French economy ended 2018 on a firmer footing than feared. Reuters. Retrieved fromhttps://www.reuters.com/article/us-france-economy/french-economy-ended-2018-on-a-firmer-footing-than-feared-idUSKCN1PO0I7

Moody’s Analytics. France-private consumption index. Retrieved from https://www.economy.com/france/private-consumption

Moody’s Analytics. France-business confidence index. Retrieved from https://www.economy.com/france/business-confidence/seasonally-adjusted

Garbinti, B., Lebret, J., Piketty, T. (2018, Sep 05). Income inequality in France: Economic          growth and the gender gap. Vox. Retrieved from  https://voxeu.org/article/income-inequality-france

CEIC. France-Unemployment rate. Retrieved from https://www.ceicdata.com/en/indicator/france/unemployment-rate

Mid-Year Review: US Social and Economic Issues

By: Buyi Wang

During the first half of 2018, major economic and social issues in the US such as the trade war between America and China and the Parkland School Shooting have stirred much debate and tension. The following article briefly summarizes these issues and provides diverse  opinions and data on them and on the broader topics they concern.

Topic 1 : Gender Equality

Related Major Event: MeToo movement during 2018 Golden Globes

Date: January 7th, 2018

Picture2
(Celebrities wore black in support of MeToo Movement at 2018 Golden Globes|Getty Images)

The 2018 Golden Globes is more than a star-struck Hollywood party. On the red carpet, celebrities wore black in support of the MeToo movement, which fights against sexual harassment and has opens a broader conversation on gender equality. A 2018 survey conducted by The Pew Research Center demonstrates that “59% of women and 27% of men say they have personally received unwanted sexual advances or verbal or physical harassment of a sexual nature, whether in or outside of a work context.”

Various studies on sexual harassment have found a commonality: that the majority of victims choose to remain silent. According to a 2016 report of US Equal Employment Opportunity Commission(EEOC), “common workplace-based responses by those who experience sex-based harassment are to avoid the harasser (33% to 75%); deny or downplay the gravity of the situation (54% to 73%); or attempt to ignore, forget or endure the behavior (44% to 70%).” This muteness can be explained by multiple factors, such as the fear of being revenged by the perpetrator, the shame that society puts on victims, the unclear definition of what counts as sexual harassment and so on. Unfortunately, this silence eventually gives more power to the perpetrator, increasing the toxicity of sexual harassment.

Sexual harassment brings huge economic loss to the people and company involved. On one hand, workers might experience a decrease of work efficiency or simply quit their jobs after being harassed. One research discovers that “eighty percent of the women in our sample who reported either unwanted touching or a combination of other forms of harassment changed jobs within two years. Among women who were not harassed, only about half changed jobs over the same period”.  On the other hand, companies lose large amount of time and human resources in the legal process. The 2016 report of EEOC shows that “since 2010, employers have paid out $698.7 million to employees alleging harassment through the Commission’s administrative enforcement pre-litigation process alone.

At the center of sexual harassment is an imbalance of power between the perpetrator and the victim. This is testified by discovery that at industries where the workers have less bargaining power, sexual harassment are more common. Since the majority of senior positions is held by men, women largely fall prey to the abuse of power. Therefore, in the future, while updating their sexual harassment training, companies need to counteract the imbalance by promoting more women to the leadership positions.

 Topic 2: Gun Violence and Gun Control

Related Major events: Parkland School Shooting

Date: February 14th, 2018

Picture3
(Parents wait for news about their children after parkland school shooting. Joel Auberbach)

On February 14th, a mass shooting took place at Marjory Stoneman Douglas High School in Parkland, Florida, taking the lives of 17 people. On March 24th, millions of people, especially students, gathered in Washington DC and other US cities for March of Our Lives, a demonstration calling for tighter gun control.

After the shooting, Florida passed a bill which increases the legal age of gun ownership to 21 years old and mandates a 3-day-waiting period before the purchase of a gun. Meanwhile, certain school staffs would be armed and trained to handle an emergence. The federal government has also taken actions. In the omnibus spending bill passed after the shooting, there were two positive measures. The first measure is the creation of FixNICS, which incentives local governments to timely and accurately upload data about gun-related crime to the federal background check system. The second measure is the allowance of Center For Disease Control (CDC) to conduct research on gun violence. Such measures would facilitate the creation of a federal-level background check system and foster people’s understanding about gun violence.

Such researches are indeed instrumental in creating effective gun control policy. Recently, there have been interesting discoveries about the nature of gun-violence. One such finding is that the majority of gun-related death is caused by gun suicide, not gun homicide. When people think about gun-violence, lots of them automatically jump to mass shootings. Thus, when people call for tighter gun-control, it’s usually for the sake of reducing gun homicide. However, according to New York Times, more than 60 percent of people in this country who die from guns die by suicide. Thus, gun suicide shouldn’t be neglected as politicians create policies: “Efforts to ban so-called assault weapons or to reduce the number of bullets that could be loaded into a gun at once would probably not make suicide any less likely.”

Another finding is that gun violence is largely concentrated among certain demographics of certain neighborhoods of certain cities. Using gun violence data in 2015, researchers at The Guardian find that “though these neighborhood areas contain just 1.5% of the country’s population, they saw 26% of America’s total gun homicides. “In Oakland, analysts found that networks of just 1,000 to 1,200 high-risk people, about 0.3% of Oakland’s population, were involved in about 60% of the city’s murders. In New Orleans, just 600 to 700 people, less than 1% of the city’s population, were involved in more than 50% of fatal incidents.” This discovery also suggests a change to the philosophy and measure of gun control: that gun control might become more effective if measures become more micro-based, focusing on certain neighborhoods and groups of people.

Gun control will continue to be debated in US society. Apart from concentrating on reducing mass shootings, policy makers and general public should also give attention to reducing gun suicide and controlling the small group of people that are responsible for the majority of shootings.

*For more data and graphs on US gun culture, please click:

https://www.vox.com/policy-and-politics/2017/10/2/16399418/us-gun-violence-statistics-maps-charts

*For more data and graphs on the concentration of gun violence, please click:

https://www.theguardian.com/us-news/ng-interactive/2017/jan/09/special-report-fixing-gun-violence-in-america

Topic 3: Trade War

Related Major Events: US trade wars with China and the world

Date: March 2018-Present

Picture4
(World leaders and Donald Trump during 2018 G7 Summit in Canada.  Jesco  Denzel—EPA-EFE/Shutterstock)

During the first half of 2018, President Trump initiated a global trade war. During his presidential campaign, President Trump promised that he would punish countries who the US has a trade deficit with. Even though most economists argue that trade deficits are neither good nor bad, it’s obvious that the president deems it detrimental. President Trump started the trade war on March 8th, by imposing a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports, with Mexico and Canada exempted. Then, the President targeted China by putting tariffs on a list of Chinese goods, used in various industries such as energy and medicine. During the G7 summit this June, the president presses further by threatening to put steel and aluminum tariffs on the EU, Canada and Mexico.

The market, the corporate and the academic have started responding. With respect to the market, it has expressed reserved concern. Despite occasional disruptions brought by Mr Trump’s latest trade rhetoric, the stock market mirrors a continuing confidence in the US economy. The S&P 500 index “has gained 2 percent since the end of February, when Mr. Trump began to take action on trade in earnest, and it remains up 30 percent since his election in November 2016. The US economy is indeed experiencing  healthy growth. Consumer confidence and corporate earnings have been boosted by the tax cut. Moreover, it’s commonly believed that the tariff wouldn’t come into effect and reasonable agreements could be reached.

Businesses seem more worried. Jerome Powell, the Fed Chairman, stated that “for the first time the central bank’s business contacts are talking about postponing hiring, investment and decisions. Despite the strong growth of US economy, businesses eventually have to face the higher production cost brought by the tariff. Harley Davidson, the world famous motorcycle brand, recently announced that it would move certain amount of production jobs outside of US. The move is to avoid the EU tariff posed on the US as a retaliation, which could amount to $100 million per year for the company.

Scholars have also been keeping up closely with the trade tension. One research attempts to quantify the trade war’s negative impact by showing how important foreign trade is to every US state. According to American Enterprise Institute, “the dollar value of international trade activities (exports + imports) represented more than 20% of the dollar value of state economic output (GDP) for almost one in three US states in 2017.” Among all states, Michigan, Louisiana, Kentucky, Tennessee and South Carolina are five of the most dependent on international trade. One of the most globalized US industries is the automobile. According to the Center of Automotive Research,  “counter to the incoming Trump Administration’s goal of creating manufacturing jobs, the withdrawal from NAFTA or the implementation of punitive tariffs could result in the loss of at least 31,000 U.S. automotive and parts jobs.”

Up to now, great uncertainties still surround the trade tension. The market, the corporate world and the academic world would have to wait and see what would happen next.

*For more data and graphs US states’ dependence on international trade, please click:

http://www.aei.org/publication/how-important-is-international-trade-to-each-us-states-economy-pretty-important-for-most-us-states/

Topic 4: Data Security

Major Related Event:  Facebook-Cambridge Analytica Data Scandal

Date: March 2018-Present

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(Mark Zuckerberg testifies in front of US Congress on data scandal| Michael Reynolds//EPA-EFE/REX/SHU)

The Facebook-Cambridge Analytica scandal has brought data security into the public’s attention. Through an app it created on Facebook, Cambridge Analytica, a London based political consulting firm, harvested data of 87 million Facebook users. The data was then used to support Trump by sending users fake news on Facebook. After the scandal was exposed, Facebook CEO Mark Zuckerberg responded by vowing to strengthen users’ control of their own data. On April 10th, 2018, Mark Zuckerberg testified in front of the US Congress about the scandal.

Data security has been a concern since the coming of the digital age. However, during the recent decades, the emergence of tech giants such as Facebook and Google has complicated the issue even more. Tech giants control the majority of personal information. Their monopoly power enables them to abuse data in a way that small and medium-size tech companies are incapable of. Therefore, the need of regulation strikes a chord within the general public. EU has taken actions more quickly than the US. Within EU, the updated version of General Data Protection Regulation(GDPR) is planned to come into effect on May 2018. Under the new rule, the company has to ask for the consent of the customer for using the data. If the customer wants to delete the data, the company is expected to comply. The EU’s decision has been applauded. However, certain people point out that the new regulation favors the monopoly. First, even though the reputation of Facebook and Google have been challenged now and then, they are still among the tech companies that customers trust the most. Customers would more likely to give consent to companies that they trust. Second, extra business cost would be produced by the requirement to ask for consent. Not every company can burden the new cost.

Facebook and other tech giants have been responding to the policy change. Currently, non-US users are protected by the data security law of Facebook’s international headquarter in Ireland. Nevertheless, to avoid the new, stricter EU policy, Facebook planned to switch their non-EU and non-US users to be protected by the US data security law, which is less strict than the EU one. Linkedin is said to have made the same decision to avoid the EU’s regulation.

In the future, the US should quickly adapt to the need for an universal, federal-level regulation on data security. Within the regulation, tech giants should be held to a higher standard to counteract the advantage of its position as a monopoly.

 *For more information GDPR, pleaase refer to a previous Economics Review article: https://theeconreview.com/2018/06/15/american-firms-and-gdpr-a-new-era-of-digital-privacy-rights/

Works Cited

  1. (2018, 04 Apr). Graf, N. Sexual harassment at work in the era of #MeToo. Pew Research Center. Retrieved from http://www.pewsocialtrends.org/2018/04/04/sexual-harassment-at-work-in-the-era-of-metoo/
  2. (2016, Jun). Report of the co-chairs of the EEOC select task force on the study of harassment in the workplace. Retrieved from https://www.eeoc.gov/eeoc/task_force/harassment/upload/report.pdf
  3. McLaughlin, H. Uggen, C. Blackstone, A. The cost of sexual-harassment. Retrieved from https://workinprogress.oowsection.org/2017/08/17/the-cost-of-sexual-harassment/
  4. (2016, Jun). Report of the co-chairs of the EEOC select task force on the study of harassment in the workplace. Retrieved from https://www.eeoc.gov/eeoc/task_force/harassment/upload/report.pdf
  5. (2015, 08 Oct). Gun deaths are mostly suicides. The New York Times. Retrieved from https://www.nytimes.com/2015/10/09/upshot/gun-deaths-are-mostly-suicides.html
  6. Ibid
  7. Aufrichtig,A. Beckett, L. Diehm, J. Lartey, J. Want to fix gun violence in America? Go local. The Guardian. Retrieved from https://www.theguardian.com/us-news/ng-interactive/2017/jan/09/special-report-fixing-gun-violence-in-america
  8. Ibid
  9. (2018, 17 Jun). Eavis, P. Investors fret about a trade war, but they aren’t fleeing the stock market. The New York Times. Retrieved from https://www.nytimes.com/2018/06/17/business/investors-trade-war-stock-market.html
  10. (2018, 20 Jun). Robb, G. Powell, Draghi express concern over trade wars. MarketWatch. Retrieved from https://www.marketwatch.com/story/powell-draghi-express-concern-over-trade-wars-2018-06-20
  11. (2018, 09 Mar). Perry,M. How important is international trade to each US state’s economy? Pretty important for most US states. American Enterprise Institute. Retrieved from http://www.aei.org/publication/how-important-is-international-trade-to-each-us-states-economy-pretty-important-for-most-us-states/
  12. (2017, Jan). Dziczek, K. Swiecki, B. Chen, Y. Brugeman, V. Schultz, M. Andrea, D. NAFTA Briefing: Trade benefits to the automotive industry and potential consequences of withdrawal from the agreement. Center For Automotive Research. Retrieved from http://www.cargroup.org/wp-content/uploads/2017/01/nafta_briefing_january_2017_public_version-final.pdf

 

American Policies on Obesity- A Battle Plagued by Complexity

By: Buyi Wang

A system of policies is needed in accordance to the complexity surrounding obesity

America, like many other countries in the world, has been battling with obesity. Governments at all levels have created policies that promote healthy diet. For instance, on the city level, New York has created the Stellar’s Farmers’ Markets program, which opens farmers’ markets and gives cooking workshops in low-income neighborhoods. On the national level, the Food and Drug Administration has required major fast-food brand to provide calorie information on menus. Despite all the effort, obesity manages to rise. According to statistics released by Centers for Disease Control and Prevention in 2017, “almost 40 percent of American adults and nearly 20 percent of adolescents are obese — the highest rates ever recorded for the U.S”1.

It’s not a surprise that public policies have failed to decrease obesity. After all, people’s food preferences are complicated. A person’s food choice is a product of multiple factors, such as income, distance to the supermarket, education level and so on. No single factor can predict a person’s food choice. For long, low-level income is said to cause fast food consumption. The scarcity of fresh products is believed to be the origin of unhealthy-eating. Nevertheless, in real life, where situations are more complex, such assumptions don’t hold water. Research shows that poor people actually eat less fast-food than middle-class people, and only slightly more than their rich cohorts. Another research discovers that even when fresh goods become available, people tend to purchase the same unhealthy food as before.

Having failed to see this complexity, policy-makers have difficulties creating effective policies. One of the most famous cases is that of Los Angeles. In 2008, the city decided to ban stand-alone fast-food restaurants from opening in South LA. South LA has long been an area plagued by obesity. Statistics shows that in 2008, 63% of its residents were obese. The area is also called a food desert, where high-calorie and over-processed food dominates. “By the council’s estimate, there are nearly 1,000 fast-food restaurants in the 30 or so square miles of South Los Angeles covered by the regulations”2. To supporters’ dismay, in 2011, the obesity rate of south LA increased to 75%. Simply restricting the number of fast food restaurants turns out to have trivial effect. Along with the ban, policy makers planned to open new supermarkets in the area. They believed that supermarkets would improve people’s access to fresh products and thus decrease unhealthy-eating. However, just because there are now fruits and vegetables in the neighborhood doesn’t mean that people would buy them. If people are used to consuming unhealthy food such as sweets and sodas, then they would continue. As confirmed by a research, when poor people live in a more affluent neighborhood, where healthy options are more abundant, their food consumption behaviors are still typical to those of the poor. Providing healthy options are important, but other measures are required as well.

Another policy that has raised controversy is calorie labeling. As of May 5, 2017, the Food and Drug Administration required major fast food brands to post calorie information on the menu. The effect is limited. In Philadelphia, where such law has already existed since 2008, only 8 percent of surveyed customers are likely to eat more healthily. Researchers criticize that customers don’t have enough information to interpret those calorie numbers. Customers not only need to know that a big Mac has 540 calories, but also that 540 calories are ¼ of the 2000 daily calorie intake recommended by nutritionists. The nonchalance that fast-food consumers have towards health might also limit the effect of the policy. When going to a Mcdonald, customers might not necessarily be looking for something healthy. Instead, they might be looking for something cheap, fulfilling and convenient. As a result, even though they might have actually noticed the calorie information, they might not take it into consideration.

The previous two cases have delivered some important lessons. First, a single policy cannot decrease obesity. A system of approaches is required. Second, policies should provide motivation for healthy eating. Simply throwing a big supermarket into the neighborhood or putting some abstract numbers on the menu is passive. They are similar to putting a bowl of vegetables next to a plate of cake, and ask a person with a sweet tooth to choose. They provide minimal encouragement for people to change their eating habits.

One systematic approach that has produced promising effect is the combination of excise tax on unhealthy food and food education. There are many reasons why it would work in the US. First, even though price elasticity of demand for food is generally inelastic, certain unhealthy food such as soda is found to have a relatively large one. According to one research conducted by Yale scholars, estimated price elasticity of demand for soft drink is -0.79.  This suggests that“ a 10% tax on soft drinks could lead to an 8% to 10% reduction in purchases of these beverages”3. This effect may sound small, but remember that it would influence American people across all backgrounds. Even though the elasticity of other unhealthy food is still unknown, the fall of smoking achieved through cigarette tax suggests something promising. Like cigarette, fast food is not an necessary product. A small increase in the price might thus reduce consumption by a fair amount. Second, the tax motivates both producers and consumers to adopt changes. Once nutrition standards are integrated into the tax, producers would create healthier products in avoidance the tax. Consumers, seeing the rising price, might choose to consume less unhealthy food. Food education is also crucial in decreasing obesity. Consumers might indeed eat less unhealthy food in response to the tax, but they might still be stuck in an unhealthy diet, such as only eating eggs and whole-wheat bread. Therefore, citizens should still get education on healthy eating.

All in all, obesity is an issue cursed by the complexity of people’s food preferences. Instead of finding a single policy that tackles obesity, policy makers should strive to come up with a system of approach. Moreover, policies should be more active in encouraging people to eat healthily. Without incentives, people would continue their unhealthy-eating habits and obesity would continue troubling America.

Sources

  1. Gussone, F. (2017, 13 Oct). America’s obesity epidemic reaches record high, new report says. NCBCNews. Retrieved from https://www.nbcnews.com/health/health-news/america-s-obesity-epidemic-reaches-record-high-new-report-says-n810231
  2. Medina, J. (2011, 15 Jan). In south Los Angeles, new fast-food spots get a ‘No, Thanks’. New York Times. Retrieved from https://www.nytimes.com/2011/01/16/us/16fastfood.html
  3. Andreyeva, T., Long, M., Brownell, K. (2010, 1Feb). The impact of food prices on consumption: a systematic review of research on the price elasticity of demand for food. American Journal of Public Health 100, no. 2. Page 216-222. Retrieved from https://ajph.aphapublications.org/doi/ref/10.2105/AJPH.2008.151415
  4. Cover picture. Retrieved from https://pixabay.com/en/appetite-beef-big-bread-bun-1239200/

 

Pyeongchang and the Winner’s Curse

By: Buyi Wang

As Pyeongchang warmly welcomes the 2018 Winter Olympians, bleak economic forecasts loom in its future. Pyeongchang is about to discover what dozens of other host cities have learned too late: they’ve crippled themselves with debt.

Pyeongchang is a small mountain town famous for cattle and potatoes. It’s one of the least developed towns in South Korea, despite being only 80 miles from Seoul. This meek town would seem quite insignificant if it wasn’t hosting the 2018 Winter Olympic Games. Now, suddenly in the global spotlight, Pyeongchang is basking in the vibrant culture of the Winter Games. However, when the celebration fades, the town will have to reckon with huge debts and sunk costs. The shocking reality is that hosting the Olympics may leave Pyeongchang economically worse off than it was to begin with.

Certain aspects of the local economy are sure to improve, most notably transportation, which has already made considerable advancements. Pyeongchang has historically been investment-deprived, largely because it’s hard to reach. Fortunately, that’s been changing in recent years. Before the Olympics, the journey from Seoul to Pyeongchang went through a mountain road that locals describe as “a sheep’s intestines” (Premack 2018). Nowadays, the Wonju-Gangneung double track railway, built for the Olympics, has made the journey faster and more pleasant. According to the Olympic Legacy report, released before the railway’s completion, “When the construction is finished, it will only take an hour from Cheongnyangni, Seoul to Jinbu-myeon, Pyeongchang-gun, Gangwon-do” (2016, p. 133).

When transportation improves, investment and tourism are expected to increase, contributing to regional development. To that end, 97 tunnels, 78 bridges, a new bullet train and a highway have also been built, greatly streamlining transportation between Pyeongchang and the capital city of Seoul (Sang-Hun 2018). Meanwhile, stadiums have risen from the ground, and forests have been replaced by ski slopes. A bold new Pyeongchang has emerged, marketing itself as the latest national and global haven for winter sports.

However, such drastic transformations tend to come at exorbitant costs, which in this case begin with the bidding process to become the host city. Traditionally, to improve their chances of winning, cities make bold promises to build huge, fancy stadiums and a luxurious Olympic Village. An interesting phenomenon called “The Winner’s Curse” enters the scene here. The phenomenon typically occurs at an auction where the winner overpays for an asset for the sole sake of winning. When it comes to the Olympics, the winning city is usually the one which most severely over-values the economic benefits that the Games can bring, and ends up spending itself into an economic disaster. In particular, small towns like Pyeongchang are often enticed to bid aggressively because they have more potential for economic growth. However, they face costs which generally amount to a much higher percentage of their GDP. For some reason, this seems to happen much more often in the Winter Olympics than in the Summer Olympics, which are more commonly hosted by big cities.

Budget overruns are one of the most common problems commonly faced by host cities. Research by the World Economic Forum has shown that “no Games since 1960 has come in under budget. In fact, nearly half have cost overruns of more than 100%. Montreal 1976 had a cost overrun of 720%, Barcelona 1992 of 266% and Lake Placid 1980 of 324%” (Myers 2016). The $13 billion budget of the Pyeongchang Games, though modest compared to that of the previous Winter Olympics in Sochi, severely overruns its own initial goal of $7 billion; the cost overrun exceeds 85%. Moreover, budget overruns are already troubling Tokyo, the city hosting the 2020 Summer Olympics.

The excess investment in the Olympics will become more obvious after the event ends. For instance, the main stadium at Pyeongchang cost approximately $109 million to build. However, it’s only going to be used to hold the opening and closing ceremonies of both the Winter Olympics and the Paralympics, a total of 4 events. To make matters worse, the main stadium, which can hold 35,000 spectators, is going to be torn down after the Games end. This is to be expected since Pyeongchang only has a population of 40,000 people.

Interestingly, not 100 miles away, close to the North Korean border, stands the remains of a once-famous ski resort. Nowadays, it’s a ghost town that nobody cares to visit. Some people worry that the same fate will befall Pyeongchang after the Olympics. There are many other examples of stadiums being abandoned and wasted. For instance, in Athens, a training pool has become a dirty container for rain-water. Rio saw the exteriors of some of its stadiums fall only six months after the end of its Olympic Games.

The abandoned stadiums aren’t the only problems haunting the host. The long-term economic growth seemingly promised by the Olympics doesn’t always come to pass. For example, there are hopes that Pyeongchang will become a world-class ski destination following the Olympics, but there are many reasons that this might not happen. First, for most international ski lovers, Austria, Switzerland, France, the U.S. and Canada are still overwhelmingly popular. Meanwhile, it’s very costly and time-consuming for ski lovers in Europe and US to come to South Korea. The proximity of Pyeongchang to North Korea– only 50 miles– might be a deterrent as well.

The government of Pyeongchang is in a difficult position right now. The national government in Seoul has stated that it has declined to help Pyeongchang maintain the remaining facilities after the Olympic Games, believing it would be unfair to other Korean cities that have held similar events. Consequently, Pyeongchang is left on its own to take care of six Olympic stadiums, which are projected to cost the province a total of $8.5 million every year (CBC 2017). Considering Pyeongchang’s relatively low income levels, this is a serious burden.

Hosting the Olympics is like throwing a massive party. You have lots of guests, great entertainment, and state-of-the-art amenities. For years to come, everyone will remember what a good time they had. Despite all this, when you wake up alone the next morning, you realize that you’re stuck with bills that will plague you for the rest of your life. Only then do you regret what you’ve done.

The Pyeongchang Games are sure to leave a unique legacy. During the Opening Ceremony, the North Korean and South Korean delegations historically marched as one. Adam Rippon, one of the few openly homoesexual athletes, inspired millions during the figure skating event. There were countless moments of triumph, shock, and pure thrill. Despite all of this positivity, the Pyeongchang Olympics are unlikely to be considered economically successful for the host city.

The Olympic motto, “Faster, Higher, Stronger,” will leave a bitter aftertaste in Pyeongchang for years. “Faster” will serve as a reminder of the fleeting nature of the Games; “Higher” will only describe their rising costs; while athletes grow “Stronger,” Pyeongchang natives will be stuck in a weak economy. The good news is that the International Olympic Committee’s Sustainability and Legacy Commission has stated that it intends to provide more guidance for host cities in the future, in order to make the Games more sustainable and economically sensible. Hopefully, future Olympic competitions can provide all of the spectacular entertainment we’ve come to expect, without the economic burdens that host countries have historically shouldered.

References

CBC Sports. (n.d.). South Korea trying to ensure positive legacy from Winter Olympics. Retrieved from http://www.cbc.ca/sports/olympics/pyeongchang-games-post-olympics-costs-1.4447984

Lee, Y. N. (2018, February 15). The future of the Olympics may depend on how South Korea makes this one work. Retrieved from https://www.cnbc.com/2018/02/15/south-koreas-pyeongchang-winter-olympics-costs-benefits-of-hosting.html

Myers, J. et al. The cost of hosting every Olympics since 1964. Retrieved from https://www.weforum.org/agenda/2016/07/the-cost-to-cities-of-hosting-the-olympics-since-1964/

Premack, R. (2018, January 30). Pyeongchang Is Hoping The Olympics Will Make It A Winter Sports Capital, But It’s A Costly Gamble. Retrieved from https://www.forbes.com/sites/rachelpremack/2018/01/30/pyeongchang-is-hoping-the-olympics-will-make-it-a-winter-sports-capital-but-its-a-costly-gamble/2/#630fbb35671f

Pyeongchang 2018 Olympic Committee. (2016). Legacy reports. Retrieved from https://www.pyeongchang2018.com/en/sustainability/reports/legacy

Sang-hun, C. (2018, February 03). Pyeongchang’s Winding Path From Obscurity to Olympics Fame. Retrieved from https://www.nytimes.com/2018/02/03/world/asia/pyeongchang-winter-olympics-south-korea.html

A Female Economist? That’s Hard!

By: Buyi Wang

Study shows that women have been struggling in the field of economics.

Sarah is a student at a prestigious university. Having finished freshman year, she now starts to reflect on the subject she should major in. She loves economics and would like to pursue an academic career in it. However, as she stares at the male-dominated economic faculty page, she hesitates a little bit. Unfortunately, Sarah’s concern is not unreasonable. Women indeed have been struggling to succeed in the field of economics.

It’s no secret that female economists are rare. “According to information from university websites, about 20% of Europe’s senior economists are women. In America, 15% of full professors are women”1. Nevertheless, being the minority isn’t the only issue. On the undergraduate level, economics is less appealing to female students. Scholars at the American Economic Association discovered that  “the percentage of females at the undergraduate level in economics is well below the percentage of females in other social sciences, in business, in humanities and even below the percentage females in STEM fields”2. Moreover, female students are more likely to stop pursuing economics after introductory level courses. Professionally, female economists have  difficulties getting a tenure. “Women economists are 21 percentage points less likely to have a tenured academic job ”3  for 10 years after finishing their PhD. It’s worth noticing that such trends aren’t displayed in other academic fields such as statistics, political science or life science. In another word, economics is an out-lier.

Therefore, one cannot help but wonder about the factors negatively influencing the success of women in economics.

The fact that economics is and is presented as male-dominated might have discouraged female students from entering at the first place. In real life, economists are mainly male. The only female economists people can think of might be Janet Yellen of the Fed and Christine Lagarde of the IMF. Not to mention that out of all the winners of the Nobel Prize for Economics, only one is female. In textbooks, men dominate as well. A group of researchers have recently gone through eight major textbooks for introductory level economics, recording names mentioned in real-life examples and made-up exercises. They discovered that among the 2800 names mentioned, “a striking three-quarters were of men”4. The real problem is that this gender ratio doesn’t match with real life data. “For example, in America women owned 36% of businesses in 2012…In the books, however, just 6% of the real-world business leaders were female.”5 What’s worse is that in made-up scenarios, while men get to create important economic policies, women are associated with less prestigious fields of economics such as home economics. Such gender-biased textbooks are likely to give students the idea that economics isn’t a field for women to explore.

Once they decide to study economics and pursue an academic career, women face stricter standards when trying to get their articles published. For Econometrica, an influential academic journal, “average male-authored paper takes 18.5 months to complete all revisions; papers by women need more than half a year longer”6. Female economic professors also receive worse course evaluations. Even when students use the same textbook and receive the same grade, “the evaluations place female instructors an average of 37 slots below male ones.”7. Again, this would not be in women’s favor when they try to get a tenure.

Another potential factor that has catched scholars’ attention is the gender-neutral policy. Certain universities allow tenure-seeking academics to leave temporarily for the sake of child-care. Theoretically, this policy would reduce the pressure on female professionals. However , research finds that, “women’s chances of gaining tenure fell by 22 percentage points”8 after they have taken the leave to care for the baby. Men take the leave too, but see their chances of tenure rising. The reason? It turns out that women tend to have a larger share in child-caring. While women are fully occupied by the baby during the leave, men have relatively more time to continue their research and get published. This boosts their chances of receiving the tenure.

The fourth possible explanation might simply be that certain economic professionals are sexists. A recent research has studied conversations on Economics Job Market Rumors, a job-offering forum used by certain young economic professionals. The study reveals that when talking about a male economist, comments usually revolve around his career and professional skills. When evaluating a female economist, topics are more readily deviated to personal lives.  At the same time, female economists are more likely to be sexualized and the following words are only used when talking about a female professional: “hotter, lesbian, bb (internet speak for “baby”)…”9. Even Janet Yellen, one of the most powerful women in economics, has suffered from certain extent of sexism. When she was about to become chairman of the Fed, people worried that she lacks the “gravitas” to deal with the financial crisis and would be too soft-spoken, despite of the fact that Mrs Yellen has excellent backgrounds, has been at the Fed during the financial crisis and her predecessor, Ben Bernanke, is a soft-spoken chairman. Certain media outlets even as far as to hint at the idea that under Yellen’s leadership, the dollar would become “gender-backed”.

The under-representation of women could undermine the subject itself. Less diversity translates into narrowed view points. Research conducted at the American Economic Association reveals that male economists are more skeptical of government intervention. Also, “male economists express greater support than women economists for reducing tariffs and express greater opposition to linking trade openness to partners’ labor policies and greater opposition to mandating that employers provide health insurance”10 . A more diverse work-group would induce more discussion and better policies.

A good news is that action is on the way. On October 27th, 2017, the American Economic Association issued a statement, saying that it has created a committee to look at factors that decrease diversity within the profession. Having more female economists is not a political issue. It roots from the notion that diversity leads to more opinions which in turn creates more comprehensive policies that serve society better, especially in a field as important as economics.

Sources

  1. (2017, 19 Dec). Women and economics. The Economist. Retrieved from https://www.economist.com/news/christmas-specials/21732699-professions-problem-women-could-be-problem-economics-itself-women-and
  2. Fleisher, C.,& Schoder, D. (2017, 8 Sep). The gender gap in economics. American Economic Association. Retrieved from https://www.aeaweb.org/research/gender-gap-economics-profession-interview-with-amanda-baye
  3. Ginther, D.,& Kahn, S. (2004). Women in Economics: Moving Up or Falling Off the Academic Career Ladder. Journal of Economic Perspectives, volume 18, number 3, page 193-214. Retrieved from https://pubs.aeaweb.org/doi/pdfplus/10.1257/0895330042162386
  4. (2018, 17 Jan).How gender is (mis)represented in economics textbooks. The Economist. Retrieved from https://www.economist.com/blogs/graphicdetail/2018/01/daily-chart-11
  5. Ibid
  6. Hengel, E. (2017 Dec). Publishing while female. Retrieved from http://www.erinhengel.com/research/publishing_female.pdf
  7. (2017, 21 Sep). Research suggests students are biased against female lecturers. The Economist. Retrieved from https://www.economist.com/news/science-and-technology/21729426-how-long-does-prejudice-last-research-suggests-students-are-biased-against
  8. Wolfers, J. (2016, 24 Jun). A Family-friendly policy that’s friendliest to male professors. New York Times. Retrieved from https://www.nytimes.com/2016/06/26/business/tenure-extension-policies-that-put-women-at-a-disadvantage.html?action=click&contentCollection=The%20Upshot&module=RelatedCoverage&region=EndOfArticle&pgtype=article
  9. Wolfers, J. (2017, 18 Aug). Evidence of a toxic environment for women in economics. New York Times. Retrieved from https://www.nytimes.com/2017/08/18/upshot/evidence-of-a-toxic-environment-for-women-in-economics.html
  10. May, A.,& Mcgarvey, M., & Whaples, R. (2013, 25 Feb). Are disagreements among male and female economists marginal at best?: a survey of aea members and their views on economics and economic policy. Contemporary Economic Policyvolume 32, issue 1, Pages 111-132. Retrieved from http://onlinelibrary.wiley.com/doi/10.1111/coep.12004/full
  11. Cover picture. https://www.executivegrapevine.com/uploads/articles/Why-women-in-finance-earn-less.jpg

France faces a butter crisis

By: Buyi Wang

Behind a supermarket’s shelf empty of butter lies complicated factors leading to the shortage.

For long, butter has been the staple and pride of French society. Whether it’s a plain croissant or a chocolate crepe, butter makes up the majority of the ingredient. However, concern takes over as France, the biggest butter-consuming country in the world, sees the shelves of its supermarkets become devoid of butter. On the Internet, someone teases the shortage by auctioning a buttered toast. At pastry shops in Paris, owners complain about the rising price of butter, which almost tripled from 2016 to 2017. As the shortage continues to disrupt French society, people start searching for the leading factors.

A shortage takes place when there’s strong demand and weak supply. International demand has indeed surged as countries such as China and United States consume increasingly amount of butter. Meanwhile, discoveries that sugar instead of butter shall be blamed for health issues have broken the bad reputation that calcifies around butter. A pursuit of more natural food has also made people choose butter over its artificial substitute: margarine.

Unfortunately, the rising demand has been accompanied by a fall in supply. “New Zealand, the world’s largest dairy producer, exported 11% less butter”1 in 2017 due to harsh weather conditions. Domestic supply is also troubled by the rigid pricing system. In France, the price of butter is decided annually and remains fixed throughout the year. Thus, even though the actual market price is rocketing, what farmers gets paid for is still the annual contract price, which is lower. The monopolistic French supermarkets simply refuse to rise the price they pay for butter. In Germany, “butter prices in supermarkets rose by 72% in the year to August, rather than France where they rose by just 6%”2. As a result, French farmers export their products abroad, where profits are higher. The end of E.U’s milk quota has also damaged supply. Before the quota was introduced in 1984, EU protected its agriculture sector by promising to buy up excess supply of milk and butter. The decision has led to what people refer to as “milk lakes” and “butter mountains’- an extreme case of excessive supply. To decrease excess production, the EU introduced the milk quota, fining countries for excessively producing dairy goods. However, as global demand rises, EU removed the quota in 2015, encouraging its farmer to enlarge production. As production increases, the price of dairy products falls, driving down profits for many farmers and forcing them to exit the market, causing at last a decrease in total production.

With the shortage, consumers might end up paying more for the same butter product than before. The rising price and falling quantity have also forced many producers to cut down production. “Claude Francois, the owner of a small pastry producer in the central Cher region, has cut her workers’ hours by 70% because she cannot source enough butter to maintain output”3.

The crisis also poses a political impact. During the political campaign, Emmanuel Macron promised to protect farmers’ benefits from monopolistic retailers. Even though France is distinguished for their agricultural products, farmers earn an exceptionally small income. “Last year a third of farmers earned less than 350 euros ($403) a month, the Agricultural Mutual Assistance Association (MSA) said, a third of the net minimum wage”4. Under the butter crisis, the profit of the farmer is once again threatened by the powerful supermarkets. The French president could see support wane if he keeps on failing to protect farmers’ benefits.

To solve the crisis, in the short run, the government should immediately create a meeting between the supermarkets and farmers, encouraging them to come up with a new price that satisfies both sides. In the long run, France should dismantle the current price system for butter, allowing the price to fluctuate according to the market throughout the year.

Even though the French Agriculture Minister, Stephane Travert states that the shortage is due to the hoarding behavior of certain customers and would end soon, there’s not yet a sign to prove that. Nevertheless, the shortage hasn’t changed the pride that French people hold for its butter.  “We use French butter or nothing,” said a baker in central Paris5.

Works Cited

  1. Schofield.H. (2017, 28 October). Is there a butter crisis in France. BBC. Retrieved from http://www.bbc.com/news/world-europe-41766352
  2. (2017, 4 November). The French are fretting over a sudden butter shortage. The Economist. Retrieved from https://www.economist.com/news/europe/21730877-forget-about-making-croissants-margarine-french-are-fretting-over-sudden-butter
  1. Chrisafis.A. (2017, 25 October). Croissants in crisis: could french bakers crumble amid butter shortage. The Guardian. Retrieved from https://www.theguardian.com/world/2017/oct/25/croissants-in-crisis-could-french-bakers-crumble-amid-butter-shortage
  2. (2017, 11 October). Macron calls for french food chain changes to help farmers. Reuters. Retrieved from https://www.reuters.com/article/us-france-politics-food/macron-calls-for-french-food-chain-changes-to-help-farmers-idUSKBN1CG2NW
  1. (2017, 4 November). The French are fretting over a sudden butter shortage. The Economist.. Retrieved from https://www.economist.com/news/europe/21730877-forget-about-making-croissants-margarine-french-are-fretting-over-sudden-butter
  2. (2016, 13 June).[Digital image]. Retrieved from https://pixabay.com/en/butter-ingredient-yellow-cooking-1449453/

China on High Speed

By: Buyi Wang

China has gained tremendously by the high-speed railway, but is it time to stop building and exporting more.

Mr Huang was born in a small town in the Northwest of China. During Lunar New Year, he would take a 21-hour-long train ride from Beijing, the city he now works in, back to his hometown. For the past 22 years, the train is Mr Huang’s only means to return home, a place not developed enough to have an airport and too time-consuming to be reached by the highway. Fortunately for him, this year a bullet train station was opened, reducing his travel time to only 6 hours.

“Less than a decade ago China had yet to connect any of its cities by bullet train. Today, it has 20,000km (12,500 miles) of high-speed rail lines, more than the rest of the world combined”1. The World Bank points out that in China, the cost of building high-speed railways is “one third lower than in other countries”2. The resulting widespread construction of such high-speed transportation has brought extensive economic benefits throughout the country. Small towns that were once isolated are now seeing potential investors and residents pouring in. Big cities that were once dense are now witnessing satellite towns springing up and sprawling development. Not to mention that the Beijing to Shanghai line has become the world’s most profitable railway, attracting “a net profit of 6.6 billion yuan ($982 million)”3. From an international perspective, China has also been exporting its high-speed railway technology. For instance, now in Turkey, there’s a Chinese bullet train running between Istanbul and Ankara. In the future, chinese bullet trains are also expected in Los Angeles, Jakarta, Belgrade and more.

China’s newest high-speed transportation system has brought forth many sweeping benefits, but that is not to say that it does not have its share of problems. The low cost of building the railways is achieved through an unhealthy amount of debt financing. The railway company, China Railway Corporation, is owned and operated by the state. This means that it has access to credit with a pre-existing heavy debt burden. It’s stated that the Chinese railway giant “has debts of rmb 3.8tn ($558bn), much more than the national debt of Greece”4. Meanwhile, the company also has an administrative role to play: to invest unconditionally in China’s railway project according to the government’s plan. Moral hazard in mind and administrative responsibilities have led the company to keep on building, even though some lines are experiencing huge losses. “ A state-run magazine said the line between Guangzhou and the province of Guizhou owes 3bn yuan per year in interest payments—three times more than it makes from ticket sales”5. If the nature of the railway company is the deeper reason for these lines’ failure, there are also some more superficial reasons. Firstly, not every city in China has a big market demand for the bullet train, especially further inland. Those cities are relatively poor compared to the rest of the country, which means people there might not be able to even afford a bullet train ticket. Furthermore, some bullet train stations are located too far away from the central business areas. For instance, in Xiaogan,  located in the Hubei Province, the bullet train station is  “100 km from the city”6.

China’s export of its high-speed railway has begun to be problematic in many ways as well. Construction costs are higher and projects riskier due to the varying socioeconomic conditions in the countries that China exports its technology to. Indonesia is one such an example: it might not have a high enough  population density to ensure a profit for the bullet train. Moreover, some of these countries have very limited and even mountainous topography, making the railway more expensive to build. Furthermore, the railway company might need to buy the land themselves, whereas the government typically owns the land in China. It has been observed that the failure to buy up the land for the construction has substantially delayed the building of the Jakarta line. Regardless of these other factors, the point stands that few countries have the money and labor to build such infrastructure.

Among the issues related to the Chinese bullet train, the most important one to tackle is the unhealthy debt financing, caused partly by strong government support and control. There’s no need to say that the industry should embrace the free market more. The good new is that measures are on the way. Recently, the railway giant is encouraged by the government to set the price of train ticket according to “market competition and passenger distribution”7. The price was previously decided by the government’s economic planning agency. People have also suggested a break-up of the giant into several regional companies. These suggestions are beneficial, but not enough. The government should encourage more private firms to join the bullet train project. Meanwhile, the government should also encourage private firms to buy debts of Chinese Railway Corporation. By allowing these two things to happen, the free market participates in the problem-solving process.With respect to the export of the technology, China should first analyse the circumstances of the other country. If the other country doesn’t have the financial strength or a market large enough for bullet trains, then China should be cautious about exporting.

In conclusion, the bullet train does China good by promoting regional development. Nevertheless, the railway company needs to revolutionize itself by depending less on the government. Moreover, China shall not blindly export the bullet train to whichever a country it desires. Without considering the other side’s ability to burden the cost, the effort to export would not be successful. Even worse, it might bring bad reputation to China’s project abroad.

Works Cited

  1. (2017, 13 Jan). China has built the world’s largest bullet-train network.The Economist. Retrieved from https://www.economist.com/news/china/21714383-and-theres-lot-more-come-it-waste-money-china-has-built-worlds-largest
  2. (2014, 10 Jul). Cost of high speed rail in China one third lower than in other countries. The World Bank. Retrieved from http://www.worldbank.org/en/news/press-release/2014/07/10/cost-of-high-speed-rail-in-china-one-third-lower-than-in-other-countries
  3. Liu.C. (2016, 21 Jul). Beijing-shanghai railway most profitable high-speed line in the world. The NanFang. Retrieved from https://thenanfang.com/worlds-profitable-railway-beijing-shanghai-earned-1-billion-profit-2015/
  4. Kynge.J., Peel.M., Bland.B. (2017, 17 Jul). China’s railway diplomacy hits the buffers. Financial Times. Retrieved from https://www.ft.com/content/94aab54-624d-11e7-8814-0ac7eb84e5f1?mhq5j=e5
  5. (2017, 13 Jan). China has built the world’s largest bullet-train network.The Economist. Retrieved from https://www.economist.com/news/china/21714383-and-theres-lot-more-come-it-waste-money-china-has-built-worlds-largest
  6. Ibid
  7. Nan Z, Chang.L. (2016, 05 Jul). Debts spark calls to split up China railway corp. China Daily. Retrieved from http://europe.chinadaily.com.cn/business/2016-05/07/content_25124550.htm
  8. (2011, 19 Jul). Bullet Train-037 [Digital image]. Retrieved from     https://www.flickr.com/photos/29835843@N04/5953457487/in/    

China’s Sharing Economy- A Clever Solution or a Troublesome Bubble

As China’s sharing economy becomes increasingly heated, some express concern in the likelihood of a bubble.

By: Buyi Wang

It’s a typical day for Mrs Feng, a middle-class Chinese person living in Beijing. Tired after work, she finds a public bike and rides home for 1 cent(USD). Looking forward to some entertainment, she rents a public basketball at a price of 50 cents per hour and gets her head in the game. Nevertheless, she soon gets an invitation for mini-karaoke. Through Chinese Uber, she gets to the nearest department store and finds a mini-karaoke bar, a small room with two seats and one screen. Located in the public area of the mall, the bar is easily accessed by everyone and every song costs only 80 cents.

Mrs Feng is one of the billion Chinese people that enjoys such a lifestyle. The idea of resources shared and thus enjoyed by all is welcomed with great enthusiasm in China. From bicycles to automobiles, from umbrellas to sleeping bunks, everything is labeled as “shared”. According to Li, “people joke that the time has come when you can share almost everything except your children and wife” (2017).

The appearance of such trend in China is not a mystery. Chinese metropolis are well-known for their large population, which puts a huge pressure on public resources. People stand shoulder to shoulder on subways. Roads on work-days are compared to parking lots. Apart from this, high living costs discourage private ownership. Take automobiles as examples. To purchase one, you need more than wealth. Obtaining a car starts with winning a car plate through the government lottery system, which was a system created in response to the growing number of cars on the streets. Unfortunately, according to Lu, “the success rate is currently lower than 1 percent” (2016). Another way of obtaining local car plates are through auctions, where they are sold at prices of more than 84,000 yuan (US$12,704). Not to mention that the government plans to charge congestion fees in the future. Together, the scarcity of public resources and the rocket-high cost of private ownership gave birth to services such as Uber, public bikes and so on.

Sharing services benefit people with cheaper substitutes to many things, and consumers are not the only beneficiaries. Companies are gaining wealth and valuable customer information at every minute. According to Ming, “last year, China’s sharing economy transactions were worth more than $500 billion……meanwhile, 600 million people were involved in activities related to that sharing economy, which could grow to account for 10 percent of China’s GDP by 2020” (2017). Apart from wealth, companies obtain datas such as the age of bike-renters and song-choices of the mini-karaoke goers, at a low cost, since the sharing service is cheap. They help the companies better analyze the market and create future plans. For example, after the company knows which artist is the most welcomed, it can add more songs of this specific artist to the karaoke machine, making the karaoke bar more popular.

However, every coin has two sides. Recently in Chengdu(a city in the Southwest), an angry pedestrian blocked the street with public bikes, complaining that they have taken too much space on the sidewalks. Walking on the street of many Chinese cities, one really marvels at how many and how new some public bikes are(which means they have not been used at all). The newly created sleeping bunks have also raised controversies. Aimed at tired shoppers in the department store, sleeping bunks have been shut down by the government. It’s said that in case of fire, it’s hard for customers to climb out of them. Together with “sharing sleeping bunks”, “sharing tissues” and “sharing umbrellas” are also denounced as the “ridiculous and meaningless” derivatives of the sharing trend. With the trend growing more and more heated, some critics concern and suggest that the Chinese “sharing economy” is a bubble.

People who deny the existence of a bubble point out that the sharing economy is doing pretty well. According to Pennington, “in 2015, the sector (the sharing economy) was reportedly worth $229 billion and is predicted to grow by 40% annually over the coming five years” (2017). Having achieved domestic success, the Chinese “sharing companies” have also made headlines as they expand their services to foreign cities.  For instance, Didi Chuxing is the Uber of China. With 400 million domestic customers, it has also been making an effort to have a share in European and African markets. To people who carry a very positive attitude towards the sharing economy, it’s apparent that the trend is welcomed and recognized by the free market. Therefore, there’s no need to worry about a bubble. Nevertheless, people also need to acknowledge several failures that could serve as the alarm. According to Qin, Zhou Wei, the chief executive of XNode, a startup accelerator and co-working space in Shanghai, said that “we’re seeing a lot of money bouncing around and foolish investments [are] being made” (2017).  One of the so-called ‘foolish’ investments might point to this idea of sharing umbrellas, promoted by a company called Sharing E Umbrella. Critics of the idea states that the profit is trivial as the price of renting for an hour is below one dollar. At the same time, large amounts of umbrellas are never returned, bringing huge losses to the company. As predicted, Sharing E Umbrella becomes a public joke as it lost 30 thousands umbrellas within a short period of time. Another story of failure surrounds a public-bike company called Wukong. It started its business in Chongqing, a hillside city, whose up-and-down roads are a pain for bikers. Reflecting on all the arguments and market reactions to the new economic trend, one realizes that it’s hard to tell whether it’s a bubble or not. It doesn’t qualify as a bubble because it’s a response to what the society needs: a cheaper substitute when public resources are limited and private ownership is too costly. Nevertheless, it can go out of control if the society just blindly shares everything without thinking if it would work out or not.

Stepping back a little bit, we would be able to realize that behind all the “craziness” of sharing, China has a huge and ever-growing appetite for innovation and entrepreneurship. The extremely convenient electronic payment system used by the majority of Chinese citizens have accelerated the success of the “sharing economy”. By scanning a QR code, you are able to purchase everything from furnitures, to groceries, to street snacks within seconds. There’s no need to carry a wallet or credit cards. With the belief that advanced payment systems hold the key to China’s global success in the future, start-ups and tech-giants attempt to incorporate as much of those systems into their ideas.Therefore, the question that whether the Chinese sharing economy is a bubble really becomes whether China has a constant ability to produce valuable, new ideas that would generate profits and have the ability to expand globally.

This question is hard to answer now. However, our vision is for China to strive to catch up to its western counterparts in technology and innovation.. The sharing economy is only one angle that China has taken  so far. Even though it has received some criticism, it’s a pretty good solution to its scarce public resources and climbing living costs.

 

Works Cited

Lu, A. (2016, 27 Jun). Owning a car in China is getting harder and harder. Shanghai Daily. Retrieved from

http://www.shanghaidaily.com/business/autotalk-special/Owning-a-car-in-China-is-getting-harder-and-hardershdaily.shtml

Li, R.(2017, 4 July). Is sharing basketball a reasonable idea. hear the view of four entrepreneurs. NetEase. Retrieved from

http://tech.163.com/17/0704/07/COG2AUE100098GRC.html

Ming, C.(2017, 19 July). From bikes to basketball: everything’s on loan in China’s sharing economy. CNBC. Retrieved from

https://www.cnbc.com/2017/07/18/from-bikes-to-basketballs-chinas-fast-growing-sharing-economy.html

Shared Bike [Digital image]. Retrieved from         

https://pixabay.com/en/the-little-yellow-car-shared-bike-2652215/

Pennington, J. (2017, 25 June). The numbers that make China the world’s largest sharing economy. World Economic Forum. Retrieved from

https://www.weforum.org/agenda/2017/06/china-sharing-economy-in-numbers/

Qin, A. (2017, 28 May). In China, umbrellas and basketballs join the sharing economy. The New York Times. Retrieved from

https://www.nytimes.com/2017/05/28/business/china-communal-sharing.html?_r=0