Dambisa Moyo's book is about economics, specifically growth, and is adorned with brush strokes that paint a rising China (followed by the other three BRIC countries, Brazil, Russia, India) overtaking the west (or just the US) in size, clout, and several kinds of agenda-setting. Such prognostications are neither new nor scarce, and this reviewer never finds herself gripped with fear by them (as she often suspects she is supposed to be) and they fall into the uninteresting category. Likewise so does supposedly rousing end chapter about how this situation can be turned around. To be fair the author is a bit restrained at framing things as zero sum, but she seems rather focussed on the matter of who is "winning" as well.
Partly due to the above, your reviewer was not expecting she would write this up. But it turns out there is enough reason to do so anyway, as there was plenty in the first half of the text that struck her as worthy, outside of the matter about which the book's title speaks. This relates, again, to growth. As Moyo states early on, growth comes from the input of labour, capital (kit) and innovation/skills (normally jargonised as total factor productivity). And it is across this trinity that she generates her thesis: all three resources are being squandered, or misallocated in the west. More than they were and more than they should be. And waste (leaving gains on the table) is unambiguously bad in its own right, leaving aside global tournaments.
Capital first. Most of us have apparently forgotten the anatagonistic yet synergistic relation between debt and equity. Creditors don't want more of themselves, nor do they want volatility in an enterprise. Shareholders love volatility and more debt. Over-arching this conflict of objectives, both claimants do still want the business to do well. So far, so self-correcting. What's gone wrong? Too much demand for debt from households who are cognitively dissonant to the rights they give up/don't have (control, or use, feels a lot like ownership but it isn't). And too much supply of it from lenders happy to (and encouraged to by governments who themselves also lend big time) exploit the illusion that an asset position that looks bigger, is bigger (as long as they get repaid). The result is a systematic neutering of one side of a balance, and a binge of leverage. Worse, banks that manage to a fixed leverage ratio cause a situation where what goes up, is far more damaging when it comes (even a short way) back down; the round trip experience from a bubble is starkly net negative. Worse still, the bad kind of bubbles--"negative carry" ones in low or zero yield stuff--tend to be favoured now. Cash flow producing assets (even tech stocks) are less bad. (Moyo puts housing into the negative carry bucket, apparently because the yield is consumed)
What about labour? This is misallocated because of pension promises about the future which "make labour seem cheaper than it is" by delaying some of its cost. Moyo calls this mispriced optionality: employees consider it certain while firms, or governments anyway who don't subject themselves to international accounting standards, reflect its present value as though it will never happen. Yet such schemes are intergenerational and actually (pace Ms Moyo) whether funded or not, this time mismatch falls foul of trends in fertility and longevity, not to mention real interest rates, that have insidiously transferred benefits towards the baby-boom generation, and costs towards generation Y. In a second labour waste, remuneration attracted by superstars in non socially-productive disciplines (sports, high frequency trading) motivate too many to waste their human capital trying and failing to join these ranks, sacrificing the acquisition of transferable skills. Immigration is also unusefully opposed too much--kneecapping labour mobility is using it badly.
With productivity, Paul Krugman's "almost everything" (in the long run), the author alternates a bit between worrying how well the rest is doing, and observing legitimate shortcomings in the west. Popular voting devalues slow but large payoff things like infrastructure investment (China isn't hobbled by such tedium). Beyond this the west suffers leakage of too-high externalities to the rest in the arena of military spending and drug innovation (both of which Moyo characterises as a free rider problem) and patent theft. Whether any of the foregoing is a moral crusade or not, she points out that it costs lots of money, the other side of which is a massive freebie which hastens the ascent of the rest. This phenomenon is almost, but not quite, linked to American wages mostly rising slower than productivity has.
The foregoing, of course, stand as valuable (or otherwise) diagnoses of western plight regardless of competition for (or "threats to") economic hegemony, and your reviewer could have done without the latter. But she is grateful to have encountered Moyo's analysis and also would plug the author's novel seeming way of introducing much of it (which she probably can't transfer here). And in respect of winners and losers Moyo's last chapter does open with "in theory [ . . . ] the west should be happy about [ the lives of] hundreds of millions of people will be meaningfully improved.". Pretty much in practice, too.
Partly due to the above, your reviewer was not expecting she would write this up. But it turns out there is enough reason to do so anyway, as there was plenty in the first half of the text that struck her as worthy, outside of the matter about which the book's title speaks. This relates, again, to growth. As Moyo states early on, growth comes from the input of labour, capital (kit) and innovation/skills (normally jargonised as total factor productivity). And it is across this trinity that she generates her thesis: all three resources are being squandered, or misallocated in the west. More than they were and more than they should be. And waste (leaving gains on the table) is unambiguously bad in its own right, leaving aside global tournaments.
Capital first. Most of us have apparently forgotten the anatagonistic yet synergistic relation between debt and equity. Creditors don't want more of themselves, nor do they want volatility in an enterprise. Shareholders love volatility and more debt. Over-arching this conflict of objectives, both claimants do still want the business to do well. So far, so self-correcting. What's gone wrong? Too much demand for debt from households who are cognitively dissonant to the rights they give up/don't have (control, or use, feels a lot like ownership but it isn't). And too much supply of it from lenders happy to (and encouraged to by governments who themselves also lend big time) exploit the illusion that an asset position that looks bigger, is bigger (as long as they get repaid). The result is a systematic neutering of one side of a balance, and a binge of leverage. Worse, banks that manage to a fixed leverage ratio cause a situation where what goes up, is far more damaging when it comes (even a short way) back down; the round trip experience from a bubble is starkly net negative. Worse still, the bad kind of bubbles--"negative carry" ones in low or zero yield stuff--tend to be favoured now. Cash flow producing assets (even tech stocks) are less bad. (Moyo puts housing into the negative carry bucket, apparently because the yield is consumed)
What about labour? This is misallocated because of pension promises about the future which "make labour seem cheaper than it is" by delaying some of its cost. Moyo calls this mispriced optionality: employees consider it certain while firms, or governments anyway who don't subject themselves to international accounting standards, reflect its present value as though it will never happen. Yet such schemes are intergenerational and actually (pace Ms Moyo) whether funded or not, this time mismatch falls foul of trends in fertility and longevity, not to mention real interest rates, that have insidiously transferred benefits towards the baby-boom generation, and costs towards generation Y. In a second labour waste, remuneration attracted by superstars in non socially-productive disciplines (sports, high frequency trading) motivate too many to waste their human capital trying and failing to join these ranks, sacrificing the acquisition of transferable skills. Immigration is also unusefully opposed too much--kneecapping labour mobility is using it badly.
With productivity, Paul Krugman's "almost everything" (in the long run), the author alternates a bit between worrying how well the rest is doing, and observing legitimate shortcomings in the west. Popular voting devalues slow but large payoff things like infrastructure investment (China isn't hobbled by such tedium). Beyond this the west suffers leakage of too-high externalities to the rest in the arena of military spending and drug innovation (both of which Moyo characterises as a free rider problem) and patent theft. Whether any of the foregoing is a moral crusade or not, she points out that it costs lots of money, the other side of which is a massive freebie which hastens the ascent of the rest. This phenomenon is almost, but not quite, linked to American wages mostly rising slower than productivity has.
The foregoing, of course, stand as valuable (or otherwise) diagnoses of western plight regardless of competition for (or "threats to") economic hegemony, and your reviewer could have done without the latter. But she is grateful to have encountered Moyo's analysis and also would plug the author's novel seeming way of introducing much of it (which she probably can't transfer here). And in respect of winners and losers Moyo's last chapter does open with "in theory [ . . . ] the west should be happy about [ the lives of] hundreds of millions of people will be meaningfully improved.". Pretty much in practice, too.
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