The Rise of Megacities

For thousands of years, cities have been at the center of human experience, social organization, and innovation. Even though the vast majority of humanity throughout history has, until very recently, lived in rural areas, it was the cities from where rulers governed, goods and services were traded, and ideas were born and disseminated.

Given that precedent, it is no surprise that today’s cities — bigger and more sophisticated than ever — have begun to rival whole nations, including the very ones in which they are located, as centers of culture, economic activity, scientific research, and political influence.

Writing in Quartz, Parag Khanna discusses the emergence and future of “megacities” — metropolises numbering tens of millions of citizens and accounting for anywhere from a third to even half of a nation’s economic output. Spanning every continent, but most especially Asia and Africa, these massive urban conurbations will reshape our species’ development in every sphere, from economy to culture.

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For a larger version of the above map, click here.

As can plainly be seen, the developing world — once largely rural — will lead the way in the formation of megacities, albeit not by design; most megacities have formed organically, driven by heady economic growth and the influx of migrants from rural areas and smaller cities. The process has often been as rapid and haphazard as the political, social, and economic forces of the cities’ nations.

Within many emerging markets such as Brazil, Turkey, Russia, and Indonesia, the leading commercial hub or financial center accounts for at least one-third or more of national GDP. In the U.K., London accounts for almost half Britain’s GDP. And in America, the Boston-New York-Washington corridor and greater Los Angeles together combine for about one-third of America’s GDP.

By 2025, there will be at least 40 such megacities. The population of the greater Mexico City region is larger than that of Australia, as is that of Chongqing, a collection of connected urban enclaves in China spanning an area the size of Austria. Cities that were once hundreds of kilometers apart have now effectively fused into massive urban archipelagos, the largest of which is Japan’s Taiheiyo Belt that encompasses two-thirds of Japan’s population in the Tokyo-Nagoya-Osaka megalopolis.

China’s Pearl River delta, Greater São Paulo, and Mumbai-Pune are also becoming more integrated through infrastructure. At least a dozen such megacity corridors have emerged already. China is in the process of reorganizing itself around two dozen giant megacity clusters of up to 100 million citizens each. And yet by 2030, the second-largest city in the world behind Tokyo is expected not to be in China, but Manila in the Philippines.

For its part, the United States, which is the world’s third most populous nation, and which is expected to grow steadily over the next century, is seeing the rise of several megacities thus far: the Northeast Megalopolis, which runs from Washington, D.C. through New York City to Boston; the Southern California Megaregion, which runs from San Francisco to San Jose; and the Texas Triangle, which includes Dallas-Fort Worth, Houston, Austin, and San Antonio. Though not as large as their counterparts in the developing world, they will be formidable economic and cultural centers in their own right, and are already economically larger than some medium-sized countries.

 

Khanna goes on to note that the sheer size and influence of these megacities, in conjunction with the rapid pace of globalization, will make them as much a part of the world as of the nations in which they are located.

Great and connected cities, Saskia Sassen argues, belong as much to global networks as to the country of their political geography. Today the world’s top 20 richest cities have forged a super-circuit driven by capital, talent, and services: they are home to more than 75% of the largest companies, which in turn invest in expanding across those cities and adding more to expand the intercity network. Indeed, global cities have forged a league of their own, in many ways as denationalized as Formula One racing teams, drawing talent from around the world and amassing capital to spend on themselves while they compete on the same circuit.

Megacities will also redefine the relationship between the developed and developing worlds, and as well as between themselves and the rest of their countries. They will be polities of tremendous influence to reckon with in their own right.

The rise of emerging market megacities as magnets for regional wealth and talent has been the most significant contributor to shifting the world’s focal point of economic activity. McKinsey Global Institute research suggests that from now until 2025, one-third of world growth will come from the key Western capitals and emerging market megacities, one-third from the heavily populous middle-weight cities of emerging markets, and one-third from small cities and rural areas in developing countries.

There are far more functional cities in the world today than there are viable states. Indeed, cities are often the islands of governance and order in far weaker states where they extract whatever rents they can from the surrounding country while also being indifferent to it. This is how Lagos views Nigeria, Karachi views Pakistan, and Mumbai views India: the less interference from the capital, the better.

Needless to say, megacities will pose as many challenges as they do opportunities: urban planning, social organization, resource management, law and order, and infrastructure will need to be subject to considerable investment and re-imagining. Political challenges will no doubt emerge between certain megacities and their smaller peers, as well as their national governments.

Khanna concludes that these issues, along with the sheer potential and influence of megacities, should change the way we map the world — metropolitan areas should be given as much attention as the 200 or so countries that make up the world. It is an interesting argument, and one that I think bears some consideration. I look forward to exploring the topic further in Khanna’s new book Connectography.

What are your thoughts?

 

What Nigeria’s Rapid Growth Says About Economic Analysis

Nigeria is one of Africa’s leading powers — an significant achievement in a continent of 54 nations and over 1 billion people, almost 16 percent of whom are Nigerian nationals. With Africa’s largest economy as of 2014, and now the 20th largest one in the world, it has been classified as an emerging global power for its impressive speed of development.

As The Atlantic observes, this turnaround has massive implications for both the country and the developing world at large. Continue reading

The World Goes a Little Less Hungry

For most of us in the developed world, hunger is no worse than a nuisance, and can be easily rectified by the abundance of options offered by restaurants, fast food joints, convenience stores, and supermarkets. So it is mercifully easy to forget the horrific toll that malnutrition and chronic hunger continue to reap across vast swathes of humanity.

A person who is chronically hungry would feel more than just hunger pangs. The body produces less energy and develops a daily sense of weakness. “They feel tired, they don’t feel like they can perform their work optimally,” says Rafael Perez-Escamilla, a chronic disease epidemiologist at Yale University. “They feel fatigued and a sense of apathy.” He adds that the hunger can become so severe that a person barely has the ability to get up from bed.

The lack of nutrients is especially detrimental for children under 5, for whom hunger is the leading cause of death. Each year, hunger kills some 3.1 million children under 5, accounting for 45 percent of child mortality within that age group. Those who survive suffer a lack of physical and mental development. Roughly 100 million are underweight, and 1 in 4 children are stunted, meaning their height is below the fifth percentile for their age.

… And To The Brain

Perez-Escamilla warns that the physical consequences are only part of the problem. “The vast majority of people facing chronic hunger cannot concentrate very well,” he says. “You start having a headache and getting into a bad mood, and you can’t concentrate on your work.”

Now, he says, imagine that happening every day. Add the distress of not being able to provide for your family. He recalls a study in which he asked people what hunger meant. “People talked about how hunger is the worst form of violence against human beings,” he says. “It’s the worst thing that can happen to the dignity of a human being.”

Given such grim details, it is all the more gratifying to see that this scourge has been declining at an impressive speed: according to the most recent U.N.report published last summer, 795 million people were hungry as of 2014 (the most recent year for which there is reliable data). While that is still a terribly high number, it is over 200 million less than in 1990, when 1  billion people — one out of five people — were hungry, compared to one in nine today.

Also keep in mind that the world’s population has grown by another 2 billion, making this achievement even more impressive.

To top it all off, the rate of hungry has nearly halved, from 23.3 percent in 1990 among developing countries, to a little less than 13 percent today.

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Countries in green have either halved the proportion of people who are malnourished, or reduced it to less than 5 percent; those in yellow have made slow progress, while red indicates no progress.

For a larger version of the above map, click here.

As the map shows, much of the progress was led by East Asia, Latin America and the Caribbean. China halved its malnourished population, while Vietnam and Korea lifting millions out of hunger. The number of underweight children dropped dramatically in Brazil, Chile, Guyana, Nicaragua, Peru, and Uruguay, with only Guatemala seeing its undernourished population grow.

What accounts for such incredible progress? As you might imagine with an issue of this magnitude, quite a lot of strategies have been involved, including improvements in infrastructure and communications, which ensures more quality food makes it to more tables; public and private investments in agriculture, particularly to boost yields and grow more nutrient-dense food; government programs to provide greater food access for the poor; and a decline in abject poverty.

Clearly, a lot of work remains in reducing chronic hunger in this world of plenty. But given the incredible progress thus far, even the challenges posed by climate change might be overcome if we continue to apply solutions across the political, economic, and technological spheres.

Sources: NPRNational Geographic

Universal Basic Income is About to Get Its Biggest Test Yet

After decades of discussion and support among academic circles, as well as a few small-scale but promising experiments, universal basic income is about to get its biggest and possibly most decisive try yet. Writing for Slate, the co-founders of one of the world’s leading nonprofit charities lay out their plan to give this innovative idea its due:

The organization that we founded, GiveDirectly, has decided to try to permanently end extreme poverty across dozens of villages and thousands of people in Kenya by guaranteeing them an ongoing income high enough to meet their basic needs—a universal basic income, or basic income guarantee. We’ve spent much of the last decade delivering cash transfers to the extremely poor through GiveDirectly, but have never structured the transfers exactly this way: universal, long-term, and sufficient to meet basic needs. And that’s the point—nobody has and we think now is the time to try.

[…]

We’re planning to provide at least 6,000 Kenyans with a basic income for 10 to 15 years. These recipients are some of the most vulnerable people in the world, living on the U.S. equivalent of less than a dollar. And we’re going to work with leading academic researchers, including Abhijit Banerjee of MIT, to rigorously test the impacts.

By “rigorous” we mean a few things. First, the test must be experimental, so that we generate unbiased and transparent estimates of impact. Second, the guarantee must be a long-term commitment. We already know quite a bit about the beneficial effects of giving people money for a few years; the key question is how the knowledge that your livelihood is secured for more than a decade affects your behavior now. Do you take more risk? Get more schooling? Look for a better job? Third, the guarantee needs to be universal within well-defined communities, since the goal is as much to understand social dynamics as individual behaviors. While various other basic income pilots have been conducted in the past, none so far have met all three of these criteria.

The group estimates that this evaluation will cost roughly $30 million, 90 percent of which will go directly to the poorest households, and the remainder to the staff, office, payment fees needed to deliver it. Because it is being tried in a developing country, the costs to make people’s needs will be lower, thereby making the project more affordable. It will also complement similar experiments being planned in FinlandCanada, and elsewhere.

And even though it will provide some well needed empirical evidence, on the largest scale thus attempted, the authors point out that there is plenty of data already available from prior attempts:

As it turns out, that assumption was wrong. Across many contexts and continents, experimental tests show that the poor don’t stop trying when they are given money, and they don’t get drunk. Instead, they make productive use of the funds, feeding their families, sending their children to school, and investing in businesses and their own futures. Even a short-term infusion of capital has been shown to significantly improve long-term living standards, improve psychological well-being, and even add one year of life.

On the other hand, well-intentioned social programs have often fallen short. A recent World Bank study concludes that “skills training and microfinance have shown little impact on poverty or stability, especially relative to program cost”. Moreover, this paternalistic approach is often for naught: Jesse Cunha, for example, finds no differences in health and nutritional outcomes between providing basic foods and providing an equally sized cash program. Most importantly, though, the poor prefer the freedom, dignity, and flexibility of cash transfers—more than 80 percent of the poor in a study in Bihar, India, were willing to sell their food vouchers for cash, many at a 25 to 75 percent discount.

Whatever the results might be, I am definitely looking forward to seeing what we can learn from this approach. Favored by economists and political scientists across the political spectrum, UBI promises a streamlined, transparent, and affordable way to alleviate poverty, stimulate economic activity, and adapt to a possible future of mass automation and scarce jobs. Or so we will see in due time, hopefully!

Graph: Countries By Wage Tax Burden

While income taxes seem to get the lion’s share of attention in the U.S., they make up only about half the government’s revenue — taxes on payroll, paid by both workers and employers, make up most of the remainder. In many ways, these taxes are more consequential, as they place a burden on all formal workers, and are used to fund things like social security and Medicare.

Hence why the OECD, a club of 34 mostly developed countries, published a report that compares the tax burden on wages in each of the world’s wealthiest nations, and how this has changed since the “Great Recession”. In particularly, the study analyzed the “tax wedge” — personal income taxes, plus payroll taxes and social security taxes, minus any cash benefits. It then calculated the average tax wedge for various types of households, giving us the following results.

 

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The country with the highest average tax burden is Belgium, at 55.6 percent of income, while the country with the lowest was Chile, at just 7.0 percent — though neither saw any change between 2007 and 2014, when the most recent data.

In terms of the biggest shifts, Hungary saw its tax wedge drop by 5.5 points, while Ireland’s grew by a considerable 6.0 points.

As the OECD points out, in some respects, a rising tax wedge might be indicative of progress: countries with rising wages will consequently experience rising tax burdens, all things remaining equal, as more workers enter higher income-tax brackets.

In many cases, however, particularly in regard to hard-hit countries like Greece, Portugal, and Spain, the higher tax burden may reflect desperate attempts for cash-strapped governments to get more revenue, as high unemployment and a decline in economic activity leaves them few other sources.

Source: Business Insider

The Countries That Are Working Hard and Hardly Working

Courtesy of Business Insider and Vizual Statistixs is a map displaying which members of the Organisation for Economic Co-Operation and Development (OECD), a club of 34 mostly-developed nations, works the hardest. This is determined by combining the average number of hours worked annually by each person, the average retirement age, and life expectancy. (See a larger version here.)

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So Mexico, South Korea, and Chile are by far the hardest working countries, while France, Germany, and Luxembourg are the least hard-working. The United States is slightly harder working than the median, but definitely more so than its Anglophone cousins and most of Western Europe. Also note that Greece is relatively hardworking by European standards, despite being widely denounced as a nation of laggards following its economic collapse (which certainly had to do with a lot more than average hours worked).

To be sure, this formula that does not take into account other details, such as how hard employees work per hour, but it is nonetheless something to go by. Also, I am not sure if working long hours and having less retirement time is, in and of itself, a good thing. Productivity per hour, the quality of the work, and for more importantly the quality of life in general, should count for a lot more.

A Map of Every Country’s Biggest Export

Every nation has something to offer to the world, and the following map from Bank of America Merrill Lynch, which uses data from the 2014 edition of the extensive C.I.A. World Factbook, shows exactly what that is. (You can find a larger version here.)

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In case you missed the fine print, the map looks only at material exports, not intangibles like finance or services.

Joe Myers of the World Economic Forum points out some big trends from this data:

Dark blue shading represents countries where oil is the biggest export and shows the importance of oil not just in the Middle East, but across Asia and Africa and South America.

Other commodities, including precious metals and minerals, also play a significant role in the global economy. Across much of Asia and Africa, large numbers of countries shaded in red and orange indicate the importance of exports such as gold, iron ore, and coal to these nations. Interestingly, and perhaps unexpectedly, India’s biggest export is precious stones.

Conversely, European exports are focused on machinery and transportation.

Electronics dominate in both China and the USA, while food and drink and textiles top the bill in a number of countries.

 

 

U.S. Taxes in Charts

Few things animate Americans more than taxes. As it is now cliche to point out, it was matters of taxation that in large part precipitated the revolutionary war that birthed the United States. Taxes are indicative of a society’s relationship with its government, as well as its priorities, policies, and even social views — and yet for all the passion and debate they entail, they are among the least well-understood aspects of our country.

The Atlantic clears up this complex and often dicey issue  with over a dozen charts detailing how taxes work in the U.S. While the source material is from 2010 to 2013, much of the data and fundamentals remain relevant as of this post. (Note that I am sharing most, but not all, the charts from the cited piece.) Continue reading

The System is Against Millennials

Millennials are endlessly criticized as lazy, self entitled, and narcissistic. But as Steven Rattner makes soberingly clear in a 2015 New York Times article, young Americans are among the most hapless generations in a century, due more to the economic system they have inherited than to flaws of character and work ethic.

Americans between 18 and 34 are earning less today (after adjustment for inflation) than the same age group did in the past. A typical millennial averaged earnings of $33,883 (in 2013 dollars) between 2009 and 2013. That was down 9.3 percent (after adjustment for inflation) in just a decade and is the lowest since 1980. Older Americans have fared considerably better; earnings of all full-time workers were roughly flat between 2000 and 2011.

Still more striking is that millennials have endured falling earnings even though they have attended college in record numbers.

I think the visual data speak louder than words:

Millennial Suffering IMillennial Suffering IIIMillennial Suffering IV

A major reason is the recession. Those who graduate in weaker economic times typically earn less than those who enter the work force during more robust periods. Starting behind often means never catching up.

Millennials who didn’t attend college have found their wages particularly squeezed, perhaps because of the decline of middle-skilled jobs in sectors like manufacturing, a clear consequence of globalization.

The wealth of millennials has been hit even harder than their incomes. Their median net worth was just $10,400 as of 2013, down 43 percent from the $18,200 that Gen Xers had in 1995 when they were under 35. With incomes squeezed, millennials are not only not saving much; they are dipping into whatever savings they do have.

That’s worrisome when combined with weak incomes and low net worths. Millennials also participate less frequently in 401(k) plans and, scarred by the recession, invest less and keep more than half their money in cash — not a great long-term strategy.

Another huge drag on the finances of younger Americans is the mountain of student debt that has been piled up in recent years. Members of this year’s graduating class left their campuses owing an average of $35,051, about twice the levels borne by their counterparts two decades earlier (after adjusting for inflation).

Indeed, as a college education becomes increasingly necessary to acquire a relatively better job, average tuition has risen by an incredible 234 percent since 1993, compared to an overall inflation rate of 63 percent. With all that debt and little income to show for it, it is no surprise that car and home ownership — once considered the staples of the middle class — are subsequently down as well.

While part of this trend can be attributed to changing tastes — for all the talk of their wanton materialism, young people today seem indifferent to acquiring luxuries — one has to wonder if such wariness of big purchases has been shaped by necessity. More to the point: young people are also holding off on marrying and having children, which are also expensive endeavors.

Most of these problems could be resolved by simply increasing the earning power of young people (and for that matter, most Americans). But that would require either government mandate, the initiative and goodwill of employers, or labor action on the part of workers. I wonder which, if any, will come first? All I know is that something will have to give, as tens of millions of young people around the world face an uncertain, unnerving, and unsustainable future.

Lessons From Ikea on the Merits of Better Pay

While many American employers regard higher wages as anathema to business success, Ikea, the world’s largest furniture retailer, is thriving in the U.S. in large part because of its generous compensation. As HuffPo reported:

Under the system that the ready-to-assemble furniture maker first established in January [2015], the starting wage for any given store in the U.S. reflects the cost of living in that particular area as determined by the MIT Living Wage Calculator, which takes into account the local cost of rent, food, transportation and the like. After the second round of raises, which is slated for this coming January, all of the company’s U.S. stores will be paying at least $10 per hour, and the average minimum wage across all locations will be $11.87 — a 10.3 percent increase over the previous year, according to the company.

Rob Olson, chief financial officer for Ikea U.S., told The Huffington Post that the company is already reaping dividends from its decision to hike the wage floor and to factor in the local cost of living in doing so.

“We’re very pleased so far,” Olson said.

So what types of benefits has Ikea seen?

For one, less turnover. Although it’s only been six months since the raises went into effect, Olson said Ikea is on pace to reduce turnover by 5 percent or better this fiscal year. Holding onto employees longer means the company is spending less on recruiting and training new replacements.

Ikea is also attracting more qualified job seekers to work at its stores, according to Olson. Pay for retail sales workers in the U.S. is generally very low, with an average industry wage of just $12.38 per hour, according to the Bureau of Labor Statistics. But Ikea’s average store wage is heading north of $15. After its living wage announcement [in 2014], the company opened two new locations — one in Merriam, Kansas, and another in Miami — and the higher wages (and attendant publicity) likely helped the company lure more candidates.

“At both of those stores, the applicant pool was fantastic,” Olson said.

The Swedish multinational is seeing the same benefits that just about every company that pays its workers well enjoys: lower turnover (and thus savings from training and recruitment); higher morale and productivity; and the attraction and retainment of talented, quality employees. It should be intuitive that when people are given a stake in a company — through better wages, benefits, and overall treatment — they will feel invested enough to stick around and work hard, thus giving back to their employers. That has always been the logic behind paying executives and higher managers so well, so why shouldn’t it apply to everyone else?

While I am not keen on giving the government too much power, I am not so sure companies are any more rational or knowledgeable about the matter either. Ikea is hardly the first anecdote proving that paying and treating workers better generally results in higher productivity and thus better long-term performance. Indeed, that makes intuitive sense, whatever the empirical evidence, and it is precisely this logic that companies use to justify the high payouts to executives (though rarely to average workers who contributed to said profits as well).

And yet so many companies — the majority in fact — continue to sit on their high profits, or allocate the lion’s share to the top of their corporate structure, all the while bemoaning the high costs of turnover, low productivity, etc. Mere ignorance, short-term thinking, and pressure from greedy shareholders interested only in immediate (and ever-higher and unsustainable) dividends are among the reasons for this problem (to say nothing of a culture that values profits and ruthless commerce at all costs). Being a business does not entail knowing, let alone caring about, the psychological and economical factors involved in corporate policy.

Personally, I am of the view that if the only way you can run your business is to knowingly beggar your employees — for example, paying far less than what can reasonably sustain basic necessities like shelter and healthcare — despite being able to well afford better pay by simply allocating a little less to yourself and your shareholders, then you do not deserve to run a business. I know that is an idealistic and moralizing approach, but why shouldn’t it be, given how integral business policies are (in the aggregate) to societal well-being. If we do not want government calling the shots, than it is contingent on all citizens — especially with the most power and resources — to do what they can to behave ethically and socially responsibly (indeed, this is what libertarians and many conservatives argue: that it is on the private sector, not the public sector, to create a more just and prosperous society).

My short answer: leave it to workers themselves, via unions, co-ops, or other empowering structures, to contribute to the decision-making process of corporate policy. It is hardly a perfect system — what institution is? — but it seems to be the best and most practical alternative to hierarchical and often out-of-touch corporate models, as well as government fiat (which of course is typically no less hierarchical and aloof). Otherwise, we would have to hope that low-wage employers come around to Ikea’s position, especially as it is as much in their interests as those of their workers.
What are your thoughts?