Stock markets continue to respond strongly to China’s economic woes, fearing a crippling slowdown since China suddenly devalued its currency two weeks ago — a move widely interpreted as a desperate attempt to support growth.
But Chinese growth in the future will be limited until the government makes fairly substantive structural reforms.
China’s growth model is one in which the role of the state in the economy has become more intrusive. For years, many US observers hailed China’s government-led and investment-heavy model as a pillar of strength. Their favorite comparison is between the spunky new airports in Beijing and Shanghai and the supposedly dilapidated New York JFK and Los Angeles airports. While comparison has an element of convenience to it — you have to depart from a US airport and arrive at a Chinese airport when you visit China — the “airportology’’ is flawed, because it doesn’t take into account that China has clearly overbuilt, and at a considerable cost to its middle class.
MIT Sloan alumna Aliza Blachman O’Keeffe, SM ’90, and chair of the alumni board, sits down with Dave Vellante and Stu Miniman from theCube for the live post-show to the MIT Conference on the Digital Economy: The Second Machine Age. O’Keeffe discusses the purpose of the MIT Sloan Alumni Board and how its members are using technology and innovation to reach a global alumni base.
On April 10, 2015, the MIT Digital Economy Conference: The Second Machine Age, led by Erik Brynjolfsson, director of the Initiative on the Digital Economy, and Andrew McAfee, co-director of the Initiative on the Digital Economy, featured a series of discussions that highlight MIT’s role in both understanding and shaping our increasingly digital world.
Aliza Blachman O’Keeffe, MBA ’90, is chair of the alumni board.
Next week is a big week for those keeping track of the success of Japanese economic policies. New interest rate numbers will be released on October 29 and these numbers represent the most current report card on Abenomics, as the policies of Japan’s Prime Minister Shinzo Abe are called.
Abenomics was presented just weeks after Abe took office in 2012 as the ultimate solution to almost two decades of stagnation in the country. The program has three pillars: monetary easing, structural reforms and renewed fiscal stimulus. One of the most important goals of Abenomics is increasing inflation, and ultimately changing inflation expectations—hoping to reverse a decade of deflation. To do so, the government began printing Yens in abundance.
Initial signs of success showed in the exchange rate, asset prices, and inflation rate. In fact, the official CPI for July 2014 shows a large annual inflation rate by Japanese standards: 3.4 percent. And from that perspective, it seems as if Abe’s policies have been effective and the job has been accomplished.
More recently, however, the economy has once again shown signs of weakness: Inflation expectations remain surprisingly low at around 1 percent, asset prices and bond markets seem to be unconvinced by the achievements, and the real economy is starting to slow.
In an exclusive interview with CNBC-TV18’s Malvika Jain on July 02, 2014, SP Kothari, Deputy Dean, MIT Sloan School of Management gave his take on the expectations from Arun Jaitely’s maiden Union Budget and his outlook on the road ahead for the Indian economy.
Below is the verbatim transcript of the interview:
Q: Government is in the process of preparing its first Budget since it took charge. What should be the priority areas where the government should focus?
A: Mr. Jaitley has to recognize and Mr. Modi also has to recognize that changing the furniture around the house is not going to make the house look that much different. It might make it look somewhat different but that is not a game changer and they have to think in terms of policies that dramatically alter if the goal is to increase the per capita income from where it is currently at about 1500 to say about USD 5000 in 10 years. Those game changing policies will have to focus on population growth, they will have to focus on FDI, they’ll have to focus on how our governance is and how our law enforcement is. Just to name a few set of policies that Mr. Jaitley should pay attention to in the maiden budget that he would be presenting on the 10th of July.
Q: Arun Jaitley has indicated that sector specific FDI is something that the government is going to be looking at. Do you think that that is going to be sufficient to spur investment flow into the country?
A: People’s decision to spur investment only partially hinges on what sectors are open for an investment. People’s decision to invest is influenced to a large extent by what kind of climate there is; climate includes what kind of law enforcement there is, what kind of labour supply there is, what kind of tax regime there is, what kind of regulation exists in general and is it easy to do business or not – open new businesses as well as close new businesses. So, the look has to be much more holistic in attracting foreign investment rather than a piecemeal approach by saying that we will open certain sectors for investment and wait for foreign investment to flow. I don’t think that is going to change or make a dramatic improvement in the investment climate.
As the release of January’s jobs report will likely remind us on Friday, unemployment is a double whammy for white-collar American workers. In addition to experiencing financial stress, many unemployed workers end up fearing that something is deeply wrong with them.
I interviewed more than 170 white-collar job seekers in the U.S. and Israel between 2004-2006 and between 2011-2012 for my new book, Flawed System/Flawed Self: Job Searching and Unemployment Experiences, and I was surprised by how many of the unemployed Americans confided that, in the course of their job searches, they had come to feel “flawed.” Israelis who had gone just as long without finding a job didn’t tend to blame themselves that way; they were convinced it was a flawed system that kept them unemployed. It didn’t seem likely to me that Americans were inherently more self-blaming than Israelis. Instead, my research revealed how the particular and peculiar process of American white-collar job searching — a process I call the “chemistry game” — renders the players vulnerable to a debilitating self-blame.