If the stock market’s wild fluctuations in 2020 weren’t evidence enough, a group of Reddit day traders showed us this past week how easy it is to manipulate share prices in a way that bears little connection with the true state of affairs at a company. It’s clear that traditional indicators such as the stock market’s performance, employment data and GDP growth rate, while important, are nowhere near enough to tell us how the economy is faring. As we’ve seen in recent months, they can even point in opposite directions. This Sunday Magazine probes new gauges of economic health that make more sense today, explores fresh ideas and surprising economic revelations, and brings you insights into how China and other economies are preparing for the future.
bold new ideas
Could they fundamentally reset our economic approach?
Back to the Moon. We’re conditioned to think of the government and private sectors as antagonistic forces within the economy, with opposing motives. But leading economist Mariana Mazzucato argues against that assumption. The most efficient way for the world economy to recover from setbacks like COVID-19 might be to replicate America’s moonshot strategy from the 1960s. Success in the race to the moon was a result of public-private collaboration, as were cutting-edge technologies from GPS to the internet. Countries need to channel that spirit to rebuild their economies most effectively, she argues in a new book, Mission Economy: A Moonshot Guide to Changing Capitalism. READ OZY’S 2018 PROFILE OF MAZZUCATO
Teach Trading in Schools. Google searches for “short squeeze” rose by more than 800 percent this past week, as Americans tried to decode an ambush by Reddit traders on Wall Street hedge fund managers who had bet against brick-and-mortar video game firm GameStop. By collectively buying GameStop shares, the group of traders on Reddit forced a surge in the firm’s stock price, leading to nearly $20 billion in losses for those who expected the value to plummet, and prompting commission-free online brokerages like Robinhood to pause trading in GameStop shares. The controversy — and the frenzy on Google’s search engine — proves one thing: It’s time to teach the basics of stock trading to all students in school. The good news? A bunch of apps and services are already looking to tap that demand, which has grown amid the pandemic. READ MORE ON OZY
Pay Transparency. It’s a good idea to help fight hidden biases within companies and organizations. Sharing payroll data works even better as a means of economic incentive, some experts argue. A fair firm gives employees a true picture of where they stand and what they need to do to rise. The concept is picking up in the U.S. tech sector. And starting this year, all job postings in Colorado are required by law to include a salary range. The state also mandates gender pay equity for similar jobs and bars employers from punishing workers for discussing their salaries with each other.
African Free Trade Area. On Jan. 1, while much of the world was recovering from a hangover and Europe officially lost the U.K. from its single market, Africa launched its most ambitious economic idea ever. The African Continental Free Trade Area will be twice the size of the European Union, covering 1.3 billion people. It could raise the continent’s GDP by 7 percent. Can it replicate — or even surpass — the success of the EU by finally improving connectivity and trade among Africa’s 54 nations?
Pay-If-You’re-Cured Health Care. For decades, Americans and their insurers have generally paid for each medical procedure (with more bills for resulting lab work), whether it’s effective or not. Now a growing movement within the medical community sees advantages for both hospitals and patients in an alternative model called value-based care, where you pay for an outcome rather than a procedure. And the benefits to the economy are hard to overemphasize: medical expenses contribute to two-thirds of U.S. bankruptcies, while nearly $1 trillion is wasted on health care each year — from failed procedures to needless bureaucracy. READ MORE ON OZY
New Thinking About Taxes. As the global economy changes, countries are devising creative new tax regimes to catch up. Indonesia and Kenya have introduced taxes on global digital firms. With the embrace of electric vehicles threatening the gasoline taxes many countries depend on, multiple Australian states have introduced an alternative plan: Electric vehicle drivers would need to pay based on the distance they drive. And Barbados, Costa Rica and Greece are slashing income taxes for digital nomads who want to live and work in their nations. READ MORE ON OZY
new measures of economic health
Are these new indicators better barometers of where the economy is headed?
Mobility Data. With traditional economic indicators like GDP or employment, there’s always a lag before the data is collected and processed. One indicator that’s up-to-the-second and might just be the smartest measure to track in a post-coronavirus world? Mobility data. Using anonymized cellphone location data, researchers and authorities alike are already tracking potentially contagious foot traffic. But such data can also highlight economic hot spots and commercial deserts — in real time. But can we trust governments or private firms not to misuse such a gold mine of data?
Bounceback Potential. As countries scramble to rebuild economies battered by the worst slowdown in nearly a century, some are poised to do better than others. A detailed measure of the resilience of different economies rates Norway at the top overall, while Singapore has the most robust supply chains to withstand crises. Haiti, Venezuela and Ethiopia sit at the bottom. Economic resilience might be just as important a metric for the future as economic growth.
Fossil Fuel Withdrawal. If phasing out fossil fuels is a critical element of securing our future, countries best positioned to do so have an edge that will only grow as the shadow of climate change lengthens. At the front of the pack is Uruguay, whose economy is now driven almost 100 percent by renewable energy after a conscious government push in recent years: Clean energy sources contributed only 40 percent of the country’s power mix as recently as 2012. Others just behind Uruguay include Scotland, Costa Rica, Nicaragua, Sweden and Morocco.
Living Standards Framework. Since 2011, New Zealand has used this measure — which tracks everything from levels of trust and rule of law to the state of the environment, incomes and housing — to shape its policies and determine budget allocations. The country’s success against the coronavirus has already won it plaudits. But even before the pandemic, the Living Standards Framework had helped the 5 million-strong country emerge as the perfect bolt-hole for the world’s wealthiest to escape to when catastrophe strikes.
Lipstick Test. Just how much in the red is the economy? Strictly speaking, this isn’t a new measure. But the pandemic has inverted how it’s interpreted. Traditionally, lipstick sales go up during an economic recession, as people spend on relatively inexpensive acts of self-indulgence when they can’t afford more. But the current economic crisis has seen lipstick sales crash, with masks eliminating much of their purpose, to say nothing of the smearing. READ MORE ON OZY
These trends will determine whether China emerges as the world’s top dog.
Challenging Reputations. China’s shifting economic landscape is creating new opportunities in the world’s largest consumer market, challenging the country’s reputation for fake goods and food scandals. As more members of China’s middle class enjoy higher disposable incomes, they are willing to pay for protection from counterfeiting. That, in turn, is supporting companies that provide blockchain tech for meat producers and services that root out fake handbags on Chinese e-commerce platforms. Cities are also embracing a “slow economy,” moving away from the high-intensity, fast-paced living China’s become known for. READ MORE ON OZY
Buzzword: Innovation. Beijinger Sam Wong, 35, recalls that when he was young, the country’s media “highlighted vast production figures from China’s factories as proof of economic success.” Now, they tout China’s world-leading technologies as evidence of the nation’s “journey from Made in China to Created in China,” he says. Building on that shift is central to China’s post-pandemic and post-Donald Trump economic strategy. For instance, Beijing hopes to use its carbon-cutting transportation tech to forge collaboration with the Biden administration on fighting climate change.
Money Wars. Tech giants Alibaba and Tencent have dominated digital payments through Alipay and WeChat Pay. Now, as the Chinese Communist Party targets the country’s fintech behemoths with regulations aimed at curtailing their influence, Beijing is also expediting the launch of its own virtual currency through the People’s Bank of China. Rumors are circulating that it is unsafe to store currency on Alibaba and Tencent platforms, and the PBOC has rolled out limited trials of the state-controlled digital currency in Shenzhen and Shanghai.
Impressive (But Uneven) Growth. After its initial stumbles, China’s relative success in containing COVID-19 has allowed it to register 2.3 percent GDP growth in 2020, a year that saw all other major economies shrink. China also became the world’s leading recipient of foreign direct investment as it dropped 42 percent globally. But this success hasn’t been distributed evenly, and China’s wealth gap has widened further.
The stories behind some unexpected lessons.
Cash Handouts Help Forests. Green shoots for the economy can go hand in hand with literal green shoots. Researchers have found that a cash payment program targeted at the rural poor in Indonesia also led to a 30 percent reduction in deforestation, as struggling communities tend to clear more farmland. But scientists point out that the approach could also have unintended consequences: Different research in Mexico showed that farmers used cash payments to buy more cattle, then cleared more trees to create pastureland. Either way, the roots of deforestation often lie in poverty. Tackling that is a good start.
Migration Loop. America was deporting migrants it didn’t want long before Donald Trump arrived in the White House in 2017. But sometimes, what seems smart in the moment can create a feedback loop that only accentuates the problem. Under the Illegal Immigration Reform and Immigrant Responsibility Act of 1996, the U.S. dramatically ramped up deportation of members of Salvadoran criminal gangs. But that fueled a spike in crime in El Salvador, pushing Salvadoran migrants toward the U.S. Maybe trying the criminals in U.S. courts would have helped? (Or, if we’re going further back, not meddling in El Salvador’s politics to prop up its brutal regime in the 1980s.)
Obama’s Backfire. Want more recent evidence of bad economic policy driven by good intentions? The Dodd-Frank Act signed by President Barack Obama in 2010 included a section that made it mandatory for companies to disclose the presence of any “conflict minerals” from African nations in their supply chains. The aim was to dry up funding for violent groups and force an end to civil wars. Instead, the law dramatically reduced trade in even non-conflict minerals from the Democratic Republic of Congo, drying up incomes for entire populations. The result? Even more conflict in the DRC. Researchers have also observed a similar pattern in neighboring Burundi and the Central African Republic.
UBI Doesn’t Breed Laziness. Some of the biggest economic debates of our time focus on automation, the threat of robots replacing workers and whether societies should introduce a universal basic income. It turns out some of our concerns might be overblown. Researchers have found that workers don’t become less efficient when they’re guaranteed an income or protected (via taxes on automation) from losing their jobs to robots. Meanwhile, the threat of being displaced by machines doesn’t improve worker efficiency.
Kids Rule. It’s a simple rule of economics: Families cut expenses during slowdowns and periods of rising unemployment. But 2020 revealed an exception. Parents can avoid buying themselves new clothes and books, but their growing children can’t wait. They might not fit into the jeans they wore six months ago and their developing brains need fresh stimulation. Add lockdowns to the mix, and you have parents struggling to think of new ways to engage their children at home, making industries that target kids not just recession-proof, but booming sectors amid the broader economic crisis. READ MORE ON OZY
Burnout Business. It’s not just kids whose needs have fueled economic spending in this era of tumult. Work-from-home has erased the already blurry lines between office hours and our own time, leading to a dramatic spike in workers struggling with burnout, surveys suggest. Some startups are approaching this opportunity with workshops, counseling and app-based services, with California’s Coa offering the “world’s first gym for mental health.” READ MORE ON OZY
unlikely digital economies
These countries are ahead of the game.
Estonia. No country was better prepared for 2020’s disruptions than this tiny state that made an early commitment to digital government after it emerged from the Soviet Union. It offers e-residencies — documents that allow entrepreneurs to remotely set up businesses in the country, even if they’re actually lounging in the Bahamas. When the pandemic hit, 99 percent of government services were already online and so remained available, 87 percent of schools were already using e-learning, and digital health records meant patients could access their treatment while leaving doctors to focus on COVID-19.
Rwanda. It’s the country that’s best positioned to utilize the launch of the African Continental Free Trade Area. Rwanda already has an online business registration system that allows entrepreneurs to start businesses in less than half the time it takes in rich Western countries. Can it replicate Estonia’s success with a similarly integrated Europe?
Chile. While the big daddies of global trade continue to bicker over tariffs, Chile joined hands with New Zealand and Singapore in January 2020 to finalize a pact under which they’ll devise common rules for digital trade. Chile is already ahead of much of Latin America in perceived e-commerce safety and online privacy. Now it could show the Western hemisphere what a future digital free trade zone might look like.