EQUILIBRIUM LITE IN THIS ISSUE
UK & GLOBAL NEWS UPDATE
CREATIVE DESTRUCTION AND THE COVID PANDEMIC
IS THERE SUCH THING AS ETHICAL CONSUMPTION UNDER CAPITALISM?
THE ECONOMIC VALUE OF THE PREMIER LEAGUE
BOOK REVIEW: THE ALMIGHTY DOLLAR BY DHARSHINI DAVID THE WORLD WE LIVE IN NOVEMBER 2021 ISSUE 5
UK & GLOBAL NEWS UPDATE JOSH HEIMANN & ZAVER DHANANI UK Update: Rishi Sunak, Chancellor of the Exchequer, recently announced the U.K.'s annual Budget, which focused on the ‘post-Covid’ era. It forecasted that inflation would continue to rise to 4% in 2022, whilst annual economic growth is set to rebound by 6.5% in 2021. The National Living Wage will rise to £9.50 an hour (from £8.91) and schools and the NHS will receive substantial increases in government spending. In October the UK reached a trade deal with New Zealand. Tariffs will be removed on UK goods including clothing, ships and bulldozers, and on NZ goods including wine, honey and kiwi fruits. The PM argues this will cut costs for exporters and increase the UK firms competitiveness in NZ, however the real impact on the economy will be negligible as NZ represents only 0.2% of U.K. trade. The UK jobs market has shown surprising strength registering only 4.5% unemployment from a Covid-era peak of 5.2% and a pre-Covid level of 4.2%
Global Update: More than 130 countries have signed up to a global deal, facilitated by the OECD, on corporate tax reform aimed at eliminating tax havens. The deal is expected to bring in over US$150bn a year from multinationals. Ireland has scrapped its 12.5% corporation tax rate in favour of the agreed global rate of 15%, which would cost the country around €2 billion in lost annual revenue. The United Nations Food and Agriculture Organization found that disruptions caused by the pandemic, increasing commodity demand and poor harvests exacerbated by climate change have led to rises of over 30% in global food prices. The Pandora Papers have exposed the private financial dealings of a group of billionaires, politicians, and government officials. The leaked documents reveal details of a controversial deal involving Chile’s President Sebastián Piñera. These findings led to Chile’s House of Congress to vote in favour of impeaching the president. Jordan's King Abdullah II and Kenya's President Uhuru Kenyatta are among many others who have been named in the papers.
CREATIVE DESTRUCTION AND THE COVID PANDEMIC JACK TEOH The pandemic has brought about some substantial changes to the structure of the UK economy. The reason for this – creative destruction. Creative destruction describes the process by which recessions often force firms to innovate and quickly adopt new technologies (providing they manage to survive the initial shock) in order to adapt to the shifting economic environment. This enables the economy to boost its growth in the long term as more efficient methods emerge to replace old ones, thus raising productivity (output per unit input). Instances of creative destruction at play can be found throughout history. The industrial revolution of the early 1800s initiated the growth take-off in developed countries. The invention of the lightbulb in 1879 began the application of electricity in production process as well as revolutionary changes to the common household. In more recent times, the internet transformed all aspects of the economy such as communications, retail, and banking. In fact, many well-known businesses were established during recessions, including Uber (2009), Microsoft (1975) and Disney (1923). Creative destruction is not unique of economic downturns, it is just more prevalent because such circumstances create holes in the market for entrepreneurial opportunities. Crisis creates an incentive (and necessity) to reallocate resources to find greater efficiency and new markets to expand into. During the pandemic travel, accommodation, food services and high-street retailers were completed halted by the imposition of lockdown restrictions in the fight against the virus. Concurrently, the situation led to the success of sectors such as digital entertainment, e-commerce, pharmaceuticals, and home goods. The pandemic accelerated many rising trends into action, which are likely going to entrench themselves as normal practice in the future. Greater online retail access, homeworking, virtual schooling, and tele-health amongst many others were all on a steady rise throughout the previous decade or so – the pandemic acted as a springboard for their accelerated growth. The extensive experimental time during the lockdowns has revealed improvements to efficiency and cost-reduction in many cases. The next step is supposedly the integration of automation and artificial intelligence into the production of goods and services. The use of mRNA technology in vaccines could set off the development of new medicine to treat other diseases like cancer, cystic fibrosis, and HIV. Technological waves are known to have a delayed effect before ensuing large change in the structure of the economy – the possibilities we are seeing now could take years of development before they can be fully applied into the economy. Despite the enormous damages that COVID has caused, it has unlocked the potential for monumental innovation in years to come.
IS THERE SUCH THING AS ETHICAL CONSUMPTION UNDER CAPITALISM? MADDY SMITH The idea of ethical consumption is to try to spend your money in a way where nobody gets exploited. In a capitalist system, must someone along the line be "exploited" so that turning a profit is possible? Capitalism teaches us to maximise utility, and for firms to maximise profits. This seems good in theory, but in the long run it creates unsavoury side effects. Consumers are more likely to go for cheaper products, but producers want to make more money, and therein lies the paradox; how can firms charge less to make more? The answer doesn’t lie in a particularly nice place. It lies in sweatshops and in caged farms, and between the nail beds of underpaid workers- in the seedy underbelly of capitalism. It is important to note that none of these practices are specific to capitalism, and can crop up under any financial system, but it seems that capitalism magnifies, or perhaps facilitates them best. To be able to consume ethically is a luxury, one mainly belonging to the middle class liberal elite. But it is actually harder to do than is demonstrated by the ease of tote bags, reusing jars and not shopping at Primark. Let’s take the example of clothes shopping. If I know that shop X isn’t the most sustainable, maybe I try a more upmarket store Y in the hopes that by paying more for my clothes, they will be better made. Turns out this isn’t the case- perhaps the materials are more expensive or in trend, but the manufacturing practices remain similar to shop X, if not the same. That’s fine, perhaps I will go to a charity shop- there all the money I spend will go towards a good cause. But problems arise here too; now the people who need to shop at charity stores for their affordable prices have to go elsewhere (likely to shops such as shop X) due to the gentrification of charity shops that have been flooded by consumers looking to soothe their conscience and be ethical. Fine, can’t do that- well maybe I will just buy fabric and sew my own clothes. But no, this wouldn’t help either- Human rights coalitions say that cotton produced in camps in Xinjiang region finds its way into one in five cotton products worldwide. China produces more than 30% of the world’s cotton, with an estimated 85% of this originating in the Xinjiang camps.
So how can we solve this nasty side effect of capitalism? How do we solve the issue of sweatshops, for example? With more sweatshops. This seems illogical yes, but actually it is the best way to ensure better conditions for workers. If we try to boycott sweatshops, this will actually harm the workers more than helping them- manufacturing grinds to a halt with no demand, and the workers are let go, only to be unemployed or find new, worse jobs. If we encourage the creation of more sweatshops, as counterintuitive as this seems, it will actually help the workers. The model is this- two sweatshops are hiring. As a worker, you are more inclined to work at the sweatshop that has better conditions, or better pay. As a sweatshop, you want more workers, and so you are likely to offer better working conditions than your competition. And your competition will retaliate by offering better than you, and you retaliate in turn, creating a virtuous cycle for workers. As consumers, small changes to our behaviour can therefore induce positive effects.
THE ECONOMIC VALUE OF THE PREMIER LEAGUE ARMAN SOMANI The Premier League is widely regarded as ‘the best league in the world’ from a footballing perspective, but the statistics shows that it is also contributing heavily to the UK economy. It is currently the third largest league in the world, only behind Major League baseball and the National Football league in the US. Its economic impacts are far reaching, and this article will explore them closely. Firstly, the numbers. The Premier League contributed £3.3 billion in tax last year and it contributes £7.6 billion to the UK’s overall GDP. 12,000 people are directly employed by Premier League clubs, and there are almost additional 100,000 jobs supported by the league. Almost 700,000 people visit the UK just to visit a Premier League club. It also helps over 150 clubs in the UK to deliver programs for local communities, so has a trickle down effect in the economy. For example, the Premier League sponsors Argyle F.C., located more than 100 miles from any Premier League club. They receive funding from the league for their academy and charitable foundation.
The major economic impact of the Premier League is tourism. VisitBritain’s study found that the Premier League had a greater pull for tourists than any other top league in the world. 66% of those who had travelled to watch a football match in the UK saw a Premier League match. This compares to just 39% in all other top leagues in the world. The biggest clubs in the league have a global fanbase, such as Manchester United who have a fanbase of over 659 million people, showing their global reach. Additionally, many clubs choose to go abroad for pre-season games such as Arsenal who frequent the US and Manchester United who have visited China and Europe in recent years. Another reason for the tourism may be the abundance of global superstar players in the League. An example is South-Korean Heung-Min Son, who plays for Tottenham Hotspur. When you visit the newly opened Tottenham Hotspur Stadium you see South Korean flags all over the ground. Other global superstars such as Egyptian Mohammed Salah of Liverpool and American Christian Pulisic of Chelsea. These factors all make the Premier League attractive to an international audience. This increased tourism has many positive multiplied impact to local businesses near to Premier League grounds. It was found in VisitBritain’s study that the 700,000 international visitors to Premier League grounds spend approximately £684 million annually during their time in the country.
BOOK REVIEW: THE ALMIGHTY DOLLAR BY DHARSHINI DAVID HATTIE BOLCHOVER & HANNAH MOSHAL In this book, David follows a dollar around the world, from American saver supermarkets all the way to China, Nigeria, the U.K. and many other countries. By doing this, David highlights the importance of the dollar, a stable currency that is used as a medium of exchange throughout the world. David also gives an insight into a future where we would be able to see a continuation in a positive trajectory in GDP and where we would ultimately see a fall in power for some countries. For example, David looks at Germany, a country renowned for their impressive budget surplus (both the U.K. and USA run a deficit) and an overall booming economy. In Germany, she focused on the housing market, a key indicator of wealth and standard of living of a country. However, David points out that Germany (similar to Japan) has an ageing population and thinks that could indicate difficulty in sustaining such a high GDP if their labour force shrinks. On the other end of the spectrum, there is China, a country with a growing middle class which despite a significant slowdown in growth, still has potential to increase GDP by approximately 6% a year. China has used this wealth to assert dominance in countries with projects that go unnoticed in mainstream western media. Oil, or ‘Black Gold’ is an essential product for China as they operate large-scale industries that run on the fuel so hated by environmental activists, paying for this with the all-important Almighty Dollar. David informs us of the disadvantages these investments have produced in terms of social cohesion as in many parts of Nigeria, gated communities have had to be set up to protect the workers (and their families) involved with infrastructure projects. As well as its dominance as a medium of exchange, the dollar is also used as a reliable store of wealth and acted as a reserve currency during the height of the pandemic as it has during previous periods of economic crisis. But, will America continue to be looked at as a superpower with a strong currency? China is growing at a pace the West simply cannot keep up with, not even the USA. The Financial Times now refers to America as ‘the second biggest economy’, with China in the lead. America is losing its status. Joe Biden’s $1.9 trillion COVID-19 fiscal stimulus could be detrimental to the value of the dollar, decreasing its worth and fuelling inflation. Furthermore, even if America were able to stay incredibly powerful, will the dollar, or any currency for that matter? Due to the arrival of a digital Yuan and the decision by some national governments to accept Bitcoin, the dollar may not stay ‘Almighty’ and the future world economy could look very different. We would strongly recommend Dharshini David’s book as it illustrates how all our economies are connected and the importance of a stable and strong currency for global prosperity.
THE WORLD WE LIVE IN MRS G LYONS The disruption between supply and demand created by the pandemic is starting to press on the global recovery. World growth is being held back by three main things supply problems, rising prices and labour shortages. Rarely has the world economy faced such constraints. Consumers are facing reduced choice, delays and higher prices for some goods and services. Firms are facing the most severe shortage of parts (according to the Confederation of British Industry) since 1977. Disruption at ports has contributed to an almost sevenfold increase in shipping costs since the end of 2019. Now let’s make it real…McDonalds in the UK ran out of milkshakes and shortages of chicken forced Nandos to close some of its restaurants. I hope that got your attention! Should we (by that I mean economists) have expected this? The last year and a half has been the most synchronised shock to the global economy in modern history. In early 2020, the UK lost the equivalent of several recessions’ worth of GDP in a few weeks. Following that, the recovery has concentrated years of normal growth into only a few months. Demand for almost every good and service has been uneven and erratic. Making it real again…. The demand for any form of office attire collapsed while demand for Sweaty Betty and other sports gear such as bicycles skyrocketed. Firms need to plan and they haven’t been able to. Considering future demand levels allows companies to hire workers, put in place production, estimate stock levels and invest to grow. None of this has been possible ….as a result there has been a huge mismatch between supply and demand. Essentially what consumers want and what firms are producing do not tie together.
The recently announced increase in the minimum wage to £9.50 (from £8.91) will put additional pressure on firms who are already facing higher National Insurance contributions, rising business rates, higher corporation tax, slowing sales and disrupted supply chains. It will serve its purpose to go some way to help workers at the lower end of the wage scale deal with the increased cost of living. However, Clive Watson the boss of the City Pub Group said this would cost his company about £1m a year, which would translate to 30p on the price of a pint.
THE WORLD WE LIVE IN MRS G LYONS
On top of this, in the UK shifting patterns of demand and an exodus of foreign workers (largely brought about by Brexit) have created a labour market marked by skills shortages, look no further than the shortage of HGV (lorry) drivers. This Habs Boys economist thinks many of today’s supply problems should self-correct. Surging demand and prices will, in time, increase supply and expand capacity in most sectors. Higher wages in certain sectors will attract new entrants. This crisis has exposed vulnerabilities which must lead to some lasting change. Retailers are responding by narrowing product offerings, restaurants have slimmed down their menus, production lines are stockpiling products and have moved away from ‘just-in-time’ supply chains. Governments are thinking about their supply chains for everyday items and essentials. The rise of globalisation over the last 60 years is reversing and more production is likely to end up closer to home …systems are adapting. We will have to see what the impact on rising prices is….at the time this article was typed, inflation (rise in the general price level) was expected to exceed 4% (and possibly 5% according to the Bank of England) in 2022. Higher prices will have an impact on all – consumers, firms, workers and the government.
EDITING AND DESIGN TEAM: JOSH HEIMANN ZAVER DHANANI
STAFF SUPPORT TEAM: MRS G LYONS MS M SOROHAN
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ecosoc@habsboys.org.uk equilibriumlite2020-21@live.habsgirls.org.uk MAY 2021 ISSUE 4