Only Skilled Workers Will Make It In The Global Economy

WASHINGTON – We can argue that in America may be about half the work force is doing alright because it is positively connected to the fast-moving global economy. For them globalization is good. Most of them are “knowledge workers”. They design the sophisticated technologies which power global or globally connected businesses, or at least are familiar with them and know how to work productively with them.

Some do well, many do not

If they are in high-tech, renewable energy, complex global logistics, medical science and diagnostics, digital design, supply chains creation, management and sustainability these American workers are probably doing alright.

However, most of the others –those who perform low value, repetitive tasks or who are engaged in manual labor — are or will soon be at the bottom of the skills pyramid. Unfortunately this means that their jobs are not and cannot become stepping stones to future employment in more challenging and more rewarding sectors. In many cases, the jobs that involve repetitive tasks will probably be outsourced, or will disappear altogether, as victims of the relentless automation wave.

Lack of skills, lack of opportunity

If you belong to the bottom half of the “old economy”, your current position is bad and likely to get worse. If you do not have and cannot acquire the skills that give you dexterity with machines that work with numbers, (most likely because you had a poor education and therefore you do not know how to work with these systems), you have no career future. You are or will soon be pushed down into dead end manual labor jobs like janitor, landscape worker, bus boy, or nursing home attendant.

The unlucky former manufacturing workers who lost their jobs due to globalization and automation are equally in bad shape. If they cannot be retrained so that they could aspire to the more sophisticated positions in new high-tech manufacturing or services, in most cases they will end up in one of those dead end, low paying occupations.

Getting the jobs back 

Of course, when then candidate Donald Trump came along in 2016 arguing that the only reasons these fine factory workers lost their jobs is the greed of their corporate employers seeking easy profits by exporting jobs overseas, along with unfair trade competition from China, Germany, South Korea, Japan, Mexico and everybody else, these displaced workers were eager to listen. And they were willing to believe that, indeed, all it takes to restore their old manufacturing jobs, (with all the perks and benefits), is a new President who really wants to help the little guy by turning things around in Washington.

Yes, they believed that a President can reverse the negative impact of globalization. Yes, he can force U.S. companies to stay at home and hire more American workers. Yes, he can re-negotiate unfair trade deals, so that the avalanche of cheap imports will stop, while American companies will find new markets abroad.

A nice dream 

This is unfortunately only a nice dream. No, no President, however well-intentioned, can stop, let alone reverse, globalization. Yes, he can strong arm corporations in order to slow down or stop the outsourcing process. But this is no long term solution.

In the end, American companies will succeed only if they can be and stay competitive. Forcing them to keep expensive or money-losing operations in America, so that workers can collect a pay check, while their nimble foreign competitors conquer markets leads only to eventual economic decline.

The way out

So, what is the proper way of addressing this crisis brought about by the competition of cheap labor (mostly from Asia) and the relentless march of automation?

The only way is for the unskilled to become skilled.

Those who are not employable today because they lack the knowledge and the basic understanding of how the high-tech knowledge economy works need to get those skills. And fast. Those who do not, are left behind. For them there is no upward mobility, no career ladder.

The old adage that “hard work” is the key ingredient to success in America is no longer valid. Yes, diligence and discipline still matter. But only when accompanied by the sophisticated knowledge that allows mastery of complex systems.

How is France doing? 

Well, if this is the rather gloomy picture for millions of Americans who may have missed the bus leading to the global economy, what about elsewhere? What about France, for instance?

France recently embarked in a an incredibly ambitious political experiment. The French voters ditched the established political parties, of the left and the right, and elected President the young and completely untested Emmanuel Macron. And the reason is that this investment banker turned politician, promised nothing less than economic renaissance.

While he phrased his campaign slogans differently, he promised the same end results promised by candidate and now President Donald Trump: a complete bottom-up economic transformation.

Newly elected French President Emmanuel Macron claims that his policies will kick-start France into high gear. This rather old and unimaginative country will become a “Start-Up Nation”. As a result of fresh pro-growth policies, there will be a fresh crop of entrepreneurs and innovators.

Reform labor laws 

Well, in principle this is possible. However, how do you make this happen? One good place to start is by reforming the antiquated French labor market. France is still prisoner of the old, pro-union leftist agenda which is all about the protection of workers rights. Nothing wrong with that, in principle.

The problem is however that by focusing on the protection of those who are employed, French labor laws make it much harder for employers to hire new workers. Indeed, when a new worker is hired, given all the protections he/she is entitled to, it becomes almost impossible or at least extremely costly to dismiss him/her when business is down.

In other words, by offering maximum protection to employed workers, French labor laws made sure that fewer workers would be hired, even in good times. In addition, the perks and benefits going by law to employees made French labor costs too high, this way making French companies less competitive in the global market place.

Bite the bullet

It seems that President Macron is willing to bite this bullet. His government wants to tackle labor laws reform.

But here is the political and psychological problem. Even if well designed and skillfully implemented, labor law reforms will threaten the job security of existing workers before they will be able to broaden the labor market, therefore offering new opportunities to those who cannot get into it today. Which is to say that there will be pain first (guaranteed), and (possible, hoped for) gains later.

Can Macron convince France? 

Can President Macron convince the French people that he can manage this complicated process well? Can he convince workers who may lose their jobs now, on account of more flexible labor laws, that in the future, given greater overall flexibility, more appealing jobs will sprout across the nation, this way creating brighter prospects for millions of old and new workers? This is going to be a tough sale.

In the end, it is obvious that a brittle French jobs market will not help advance Macron’s vision of France as a “Start-Up Nation”. Economic renaissance is very appealing until voters realize that change may entail threats to their current security. I am a bit pessimistic about the depth of France’s newly discovered enthusiasm for enterprise and innovation, once the French realize that this hoped for transformation is not pain free.

I doubt that Macron will have the ability to convince most of the country that a more fluid society with fewer protections is also a more flexible society that creates more opportunities. No doubt most French would like to see more competitive companies and more jobs created. But those who are employed now do not want to lose whatever job security they have.

The challenge

As noted above, even here in America, until not too long ago the quintessential “Start-Up Nation”, in many sectors of our society and economy we are failing to live up to the old and time-tested “can do” spirit of flexibility and quick adaptation to new circumstances.

We failed to build the education, vocational training and retraining structures that would have allowed millions of workers to have a relatively smooth transition from old-fashioned, large scale manufacturing to a new, complex and more demanding knowledge economy.

Can an even more ossified France do a better job? Can a young, optimistic President Macron inject a new vigor into a declining economy?

Time will tell.

 




The Moral Case For Capitalism

WASHINGTON – Would Hillary Clinton make a moral case for American capitalism? I am not so sure. First of all, let’s point out that Hillary Clinton will not be Bill Clinton 2.0. Remember that Bill Clinton came along in 1992 as a “sobered up” new centrist Democrat who proclaimed the end of the era of Big Government and actually as President passed welfare reform, notwithstanding the fierce resistance of the left of the party. (More on this later).

But that was then. Today, strongly challenged from the left by a vociferous Bernie Sanders openly advocating wealth redistribution, Hillary Clinton’s message is about expanding benefits, subsidies, tax breaks to the poor, the disadvantaged and the minorities. Her presidency will be about more of the neo-Keynesian deficit-spending stuff that failed over and over again, and yet seems to be the only medication in the cabinet of most Western left of center political forces.

More failed neo-Keynesian remedies 

Therefore, should Clinton become President, this will be America’s death by a thousand cuts. More public programs, more welfare, more aid and assistance to this or that needy constituency. More unproductive publicly funded jobs. More stupid and counter productive regulations; and, of course, higher taxes needed to finance all this ill-advised social engineering. The combination of ad instincts and bad policies will stifle innovation, enterprise and private sector jobs creation.

Nobody makes the case for capitalism 

Here is the real tragedy of American politics. In this critical election year, no one has been able to articulate in a simple, clear and cogent manner the moral case for free market capitalism. (In fact those who tried, mostly Jeb Bush and John Kasich, did not do it well, and got no attention)

By this I mean the ability to convince people, especially the poor and disadvantaged, that capitalism and free enterprise are good for everybody, including those who are currently at the bottom of the pile. And by that I do not mean that people should be convinced that on balance capitalism delivers better results than social democracy. This is true in principle. But this truth does not resonate with people who are and feel helpless because they believe that they do have any open path forward.

By “morally superior” I mean the ability to explain how capitalism empowers people, and therefore makes them better human beings.

Here is the simple truth. Even if well-intentioned, welfare programs make recipients perpetually dependent and listless. Whereas a system that fosters personal responsibility encourages people to take charge of their own lives. And this makes them more self-confident, more optimistic.

Bill Clinton’s welfare reform worked 

Let’s go back to Bill Clinton’s partial welfare reforms. That was about public aid to single mothers. These were mostly uneducated, poor African American young women with small children, trapped in an endless cycle of dependence on public subsidies.

Being poor, they were entitled to get enough money to survive. But the programs as designed provided no incentives so that recipients had to do something in order to get out of poverty. The reform passed by Clinton was about sun setting benefits, while giving the women tools, so that they could find work.

“It will not work” 

The critics cried that this would never work. This bad reform was about taking the life jackets away from shipwrecked, defenseless women, thereby drowning them.

Well, the reformers argued instead  that the goal was to teach these women how to swim before taking their life jackets away.

And, on balance, it worked. With assistance, women found jobs. There were lots of testimonials by women who had received training, and found work, so that they could care of themselves and their children. As a result, they felt more optimistic and more confident.

The “moral case” for capitalism

This is what I mean when I talk about “the moral case for capitalism”. An economic system that encourages people to become self-reliant and independent is morally superior.

If we recognize this basic premise, then the purpose of enlightened public policy should be to make sure that all citizens “learn how to swim”, so that they do not need the perpetual life jacket of public assistance.

In today’s ultra competitive world, this means that all children should have access to quality public education. And meaningful adult education and/or training should be made available to all adults who did not have a chance to get an education as children.

Educated citizens do not need welfare 

I am not suggesting that this is easy. It is not. But deep down this is the case for a rules based competitive system in which all participants have a fair shot at doing something and making a decent living without help, because they are empowered by a good education that gives them the tool to become active participants.

Of course, there are special circumstances in which public assistance is warranted. But these should be the exceptions, not the rule. Temporary relief should not morph into a permanent subsidy.

Making a case

What both Democrats and Republicans have failed to do is to make a moral case for free market economics and the role of public policy in enabling and fostering it. Indeed, if we are convinced that free market capitalism on balance works, then public policy should be about making sure that everybody can and will participate.

Public policy is about giving everybody a good chance 

Good public policy is not about more subsidies or about creating fake jobs. It should be about making sure that all citizens get into adulthood “knowing how to swim”. And this means that everybody –all Americans– should be reasonably healthy and educated.

It is obvious that education is the functional equivalent of knowing how to swim. Without good to superior public education, the poor do not have a chance to get out of poverty. They really do not. Again, if we want capitalism to be fair, then all people should have good tools, so that they will be able to participate.

Until know we have tried to deal with poverty attacking the symptoms. While well-intentioned, this approach has done nothing to eliminate it, or substantially reduce it.

Capitalism works well if all citizens are active participants 

The “moral case” for capitalism is about reaffirming the superiority of a free market economy, because it empowers people; making them self-reliant and self-confident, therefore better human beings.

At the same time, the goal of public policy, (this is the job of elected officials), must be to enable everybody to participate. Sound public policy will focus on health and education, so that all Americans can do their best, without the burden of feeling perennially disadvantaged.

It is going to be difficult

I realize that transforming our value systems and the content of public policy so that it will focus on these objectives is very difficult. But this is a worthwhile cause. Perhaps the most critical one we can think of.

In the end, a successful moral case for capitalism is about more prosperity, and about self-confident citizens who know that they have the ability to take care of themselves.

 




Fight Inequality With Improved Public Education

WASHINGTON – In the course of a popular national radio show, an important journalist declared that “the Big Issue” that Americans will have to contend with in 2016 is how to reduce “inequality” through public policy measures. The respected quarterly journal Foreign Affairs agrees, and it goes one step further. The cover story of its current issue is “Inequality“. And inside one can read several articles focusing on inequality from every possible angle: global, regional and domestic. 

Ideological parochialism

This is really amazing. This is the triumph of ideological parochialism over reality. The very term “inequality” assumes that there is a preordained, presumably mandatory level of equality that we are all supposed to comply with. Veering away from the golden middle is unjust, unethical, and immoral. In fact it should probably be illegal.

This is profoundly wrong and terribly misleading. There is no such thing as a “proper balance” between rich and poor, between the income of those at the top and those at the bottom of any society. There is no formula that can correctly assess when someone has “enough” and when enough gets to be “too much”, or “too little” for that matter. These are all political notions, based on personal ideological preferences and biases. There is no healthy “natural equilibrium” that we should all strive for and then comply with.

And, more to the point, “inequality” is not a problem to be solved. It is instead a symptom: the result of complex dynamics that go well beyond the simplistic notion of an unfair allocation of national wealth.

Real inequality 

Of course, we can talk ad nauseam about specific cases in which inequality was or is the direct result of a political set up. In the Soviet Union only party elites had access to education, good jobs and perks. In today’s China, notwithstanding a vibrant private sector, the Communist Party senior leaders enjoy immense advantages that cannot even be dreamed about by the average citizen. In apartheid South Africa only Whites could aspire to have anything. In other societies small elites by mixing force, intimidation and cunning (Cuba, Venezuela, Burma, Saudi Arabia are good examples) have managed to control almost everything, while the majority of the people is left with crumbs.

But these are extreme examples of politically or ideologically sanctioned inequality. This is not the rule in most Western countries, and certainly not in America. In the West laws apply to everybody, while discrimination is forbidden. We have open markets in which everybody can compete. Besides, there is accountability, transparency, an independent judiciary, and social mobility. Inequality does indeed exist; but in most cases not because someone gamed the system.

People feel squeezed

That said, I am not surprised that “inequality” is getting so much attention right now in America and in Europe. Most people in western countries are squeezed. While some segments of society, most of them made out of  people working in the financial or high-tech sectors, are doing extremely well, most of the others are not. This builds resentments and a great deal of conspiracy theories in which many villains are featured.

The illusion of “social justice” 

But here is the thing. While it is legitimate to question what value if any is added by people and companies who charge enormous fees for manipulating existing wealth without creating anything new, it is silly to believe that if their excessive wealth were taken away from them and redistributed through taxation, welfare programs, or other public policy mechanisms, we would all be better off. The fact is that this is a dangerous illusion. Redistribution is a social justice policy with temporary and very modest results. It is “feel good” stuff that will not even begin to attack the roots of inequality.

The point is that the growing inequality we are experiencing in America is largely the effect of other problems. It is the byproduct of systemic changes mostly beyond our control. Which is to say that it is wrong to believe that you are not doing so well only because someone else (more powerful and more influential) gamed the system and got all the goodies.

Millions of new Asian workers changed the global labor market dynamics

Here is the story. For the past 20 years, the American middle class (a broad definition that includes factory workers with generous union wages and other perks) has been hammered by the ill effects of globalization.

All of as sudden, (beginning circa 1990), an enormous addition to the global work force, mostly due to literally hundreds of millions of better educated Asians willing and able to perform many jobs at a fraction of what it costs in America, meant the loss of millions of manufacturing jobs in the US (we call this “outsourcing”) and the squeezing of wages for those lucky enough to retain their employment.

Technology eliminated jobs 

At the same time, rapid technological progress also hurt the old middle and lower middle class. Robots replaced and will keep replacing people in factories, while most routine white-collar office functions are and will be increasingly performed by intelligent machines.

Those who do well 

In very simple terms, this means that in this new world those who design, produce, manage and service the high-tech machines, the value chains and supply chains connected to them, and the software on which they run are doing well, while all the others are not. If you are a lead engineer at Boeing or Intel you are fine. You work for a market leader with state of the art technology and a global presence. If you work at the local small tool and die factory, you are on shaky ground. You do not make anything unique, and Chinese competitors are coming in with cheaper products. 

Disappearing jobs 

The grim reality is that if today you are working in any sector that is challenged by better robotics or new IT applications your job is in jeopardy. You are probably only one step away from unemployment. This being the case, you have no bargaining power with your employer. You are lucky to have a job. Forget about wage increases or additional benefits.

And so you, along with millions of others, have the sinking feeling to be stuck in a dead end job, or falling behind; while few people at the top of market leaders are doing very well.

Some are doing well 

Indeed, those who started or invested in high-tech companies that fuel this enormous technological and economic transformation make millions or even billions, while the shrinking old work force has only known jobs losses and wage stagnation for the past 20 or 30 years.

In addition, it is clear that only those who have a good or superior command of the new technologies and how they relate to the unfolding “knowledge economy” have an opportunity to do well, or very well. Their skills are in high demand.

At the opposite end, a factory floor worker is a small, fungible cog that can be replaced or eliminated at a moment’s notice. Same thing for an accountant who performs back office repetitive functions.

Negative global trends 

While this is not the entire story, it is clear that increased inequality in advanced western countries is mostly due to the negative effects of globalization and rapid technological change that resulted in automation. There is unfortunately an overabundance of “old-fashioned” semi skilled or skilled labor, while robots reduced the number of necessary factory jobs. Furthermore, those who do not have the education to climb up to the next skills level in this more complex environment are stuck or, much worse, they fall behind.

This being the case, politicians who point at inequality as the big issue to be resolved by taxing the rich a lot more are deceiving themselves and the voters. Inequality is mostly the result of these global trends that cannot be stopped, let alone reversed.

Well, then what can we do? How can we reverse the impoverishment of the working class and what used to be a large and thriving middle class? There is no easy answer.

Focus on quality public education 

Still, as a minimum, we must address the quality and focus of American public education. It is obvious that in a high-tech world only those who master the new technologies will thrive.

Leaving aside for the moment the adult population, let’s think of the next generation and its prospects. If you are an inner city minority kid attending today a mediocre or bad public school, your chances of “making it” in this ultra competitive economy are practically zero.

If you are not fully literate, let alone skilled in computers, and IT and therefore capable to manage sophisticated equipment, you cannot aspire to get any of the good jobs. You are condemned to compete –you and millions of others– for low skills, low pay jobs in basic services. Yes, you can become a janitor, a landscape worker, a store clerk, a bus boy or a waiter. But even assuming that you are lucky and get one of these jobs, there is no chance that they will become rungs on your upward mobility ladder. You have no ladder.

Since you have no higher education, no high-tech skills, and no chance to go to college in order to acquire engineering, business or management skills, you are stuck.

Better education, less inequality 

So, at the very minimum our society should seriously work to drastically improve the quality of public education. Sadly, in this ultra-competitive global economy in which only the well-educated have a chance the seeds of future, stubborn inequality are planted in bad schools serving poor children.

Demanding a mandatory higher minimum wage is a silly feel-good remedy. Uneducated people are paid little because they add little value. By creating politically mandated higher wages we improve their conditions only by a little, while hurting some low margin businesses that can survive only because of low labor costs.

New sectors? 

All right, is that all? No, for sure there is more. It is quite possible that new technologies will open up new sectors and possibly new employment opportunities. Which sectors? I have no idea. At some point politicians were talking about millions and millions of new jobs to be created by the green economy. Well, this has not happened, yet.

High-tech jobs only for skilled workers 

Still, whatever the new economic sectors that will be generated by scientific and technological progress, it is obvious that only those who have the appropriate math and science education and the additional high-tech skills that will enable them to manage complex machinery and programs will have a seat at the table.

Yes, these highly competent individuals will have jobs and promotion opportunities. And they will make a lot more money.

But all the others will not.

Not a conspiracy 

Politicians who argue today that growing inequality is a moral outrage and obviously the outcome of a rigged game are delusional. In truth, the game is occasionally rigged. Yes, some sectors of the economy get preferential treatment. Some corporations should not get subsidies and should pay more taxes.

But this global technological and workforce tsunami has not been concocted in Washington by a few clever lobbyists. This is the product of globalization and of the current direction of technological progress.

Give tools 

Instead of promising to fight inequality by taxing the rich, political leaders should work to give to as many people as possible, especially young people moving their first steps into society, the best intellectual tools to compete in this new world.

Good or excellent public education (including re-training for adults) will not provide a complete remedy against inequality. But for sure without it we shall make no progress. Uneducated people cannot compete. They will remain poor and marginalized.

 




Where Is The New African Middle Class?

WASHINGTON – In a recent article focusing on why the African middle class is still rather small, The Economist points out that rosy expectations about more broad-based prosperity failed to materialize. Indeed, while sub-Saharan African economies have experienced significant economic growth in recent years, this is simply not enough to expand the ranks of a new middle class.

Scaling back 

The news is not entirely negative. There has been some expansion. But far less than what many had predicted. For example, the article points out that Shoprite Holdings, a major South African retailer, just a few years ago announced that it planned to open anywhere between 600 and 800 stores in Nigeria, Africa’s most populous country, (173 million).

Well, Shoprite ended opening up only 12 stores. You see the difference. 600 stores assume a large, reasonably affluent middle class that can afford supermarket shopping, as opposed to low income buyers who do their shopping with street vendors who barely get by with a tiny volume of sales. A total of 12 stores in a country of 173 million indicates that this scenario of more widespread prosperity failed to materialize. Most Nigerians are still poor.

The commodities boom is over

In truth, many African economies are growing. But in recent years this growth was the result of the global commodity prices boom triggered in large measure by Chinese unprecedented demand. This commodities explosion proved to be a short-lived, exceptional phenomenon. Now that China’s artificial boom is over, demand for Africa’s raw materials has declined. And this means lower revenues and stagnant standards of living.

Beyond this, you have to add Africa’s chronic malaise, a mixture of inefficiency, cronyism, lack of accountability, and corruption. This malaise in many cases translates into large income inequalities. Those in power and the well connected benefit in a disproportionate way from whatever growth is produced. Most of the others get little. Hence a small middle class.

Fine. We get all this. However, while good governance matters, the real reason why the middle class is not expanding in Africa is that the economic base is still very narrow.

Lack of electricity is the number one problem 

And by far the main reason for this is lack of electricity. Yes, lack of electricity. We can talk all we want about democracy, transparency, the need to fight corruption while creating systems that improve accountability. However, the fact is that without electricity you cannot have broad-based economic growth.

For many readers in developed countries this may sound really odd. We take electricity for granted. But imagine a situation in which, if you live in a city, power is cut off for several hours, every day. And if you live in a rural area there is no electricity whatsoever, period. Imagine doing routine things, (reading, ironing, riding an elevator, running a washing machine, watch TV, use your computer), without any power.

No power, no growth 

Of course, if you are a rich city-dweller in Africa, you can buy a generator. But making your own power is expensive. Imagine running a small manufacturing company relying on your generator for several hours, every day. This is possible, of course. But it adds to costs, in a major way. And this means non competitive products and smaller markets. If you live in a city and you are poor, forget about expensive generators. Lack of electricity means no lights, no refrigeration, no chance to watch TV.

If you live in an African village with no power, you are essentially cut off from the larger economy. Sure enough, these days you probably have a cell phone, and you may have access to a solar-powered phone charger.

The rural poor stay poor 

But you have no electricity. This means using wood or charcoal for cooking. Alternatively, you have to spend a large percentage of your truly small income, (we are talking about people surviving on a couple of dollars a day), to buy fuel for a stove.

And forget about basic developed world amenities such as refrigerators. Forget about switching on the (non existing) lights at night. In such circumstances of basic deprivation it is very difficult, in fact nearly impossible, to advance to the middle class. Lacking electricity, most African are condemned to a life of perpetual poverty in which at best people survive thanks to subsistence agriculture.

Other factors also matter 

Of course, there are additional factors that prevent economic growth, and therefore the expansion of a fledgling middle class. Health and education are key issues. Difficult to have economic progress with too many semi-illiterate and sick people.

Right next to these constraints, you have infrastructure, or lack thereof. While electricity is fundamental to any kind of economic development, good road, ports and modern customs systems that allow the easy movement of goods are also critical.

Yes, while this may sound odd, moving goods by truck on old roads is quite complicated in Africa. Likewise, clearing goods through antiquated (and often predatory) customs systems may take several days, or even weeks. All these obstacles hurt commerce and all companies that want to be engaged in international activities.

Economic growth will lead to the expansion of the middle class 

So, what about the future of the African middle class? Very simple. Hard to picture any significant expansion without basic modernization that will make more economic growth possible. Africa has come a long way. There are hundreds of millions of cell phone users, there are plenty of ATM machines, and internet penetration is improving. But African societies must fill huge gaps. While many issues are relevant and should be addressed, the number one problem is still power generation and distribution.

In Africa this is literally the difference between day and (hopelessly dark) night.

 




Europe’s Refugee Crisis Getting Worse

WASHINGTON – According to UNHCR, the UN refugee agency, so far in 2015 Europe received about 300,000 refugees who landed on EU countries after crossing the Mediterranean Sea from North Africa. For the entire 2014 the number was 219,000. So, we are trending up. And there is no end in sight. People escape from poverty, war, persecution and civil strife. Unless major changes occur in their countries, they will continue to flee.

Many are coming 

And these numbers are about those who were processed, and therefore counted. It is a safe bet to assume that the actual numbers are much higher. (And here we are not adding to the total count other refugees streaming into Europe from the Balkans, through Macedonia, Serbia, Hungary and other countries).

Well, beyond the humanitarian crisis, is this injection of millions and millions of new people (over many years) good or bad for Europe?

Mostly bad for Europe

Unfortunately, it is mostly bad. In order to explain why, let’s understand the broader context.

In most European countries the indigenous population is slowly declining, while on average it is getting older. All statistics about fertility rates point to a steep fall, especially in Southern and Eastern Europe.

This means that existing (and often generous) entitlement programs that provide cash transfers and free health care services to seniors citizens can no longer be funded via the financial contribution of the active population.

Costly entitlements

Add to this worrisome trend anemic economies that generate very little wealth, and you get an ugly picture of older populations progressively consuming more resources in countries that produce less and less.

As politicians are afraid of engaging in reforms that would amount to lower benefits, the only “solution” is to borrow part of the funds destined to transfer payments. This means that these shrinking and increasingly older societies, bit by bit, are also getting more indebted, and therefore poorer.

Is immigration a remedy? 

Given all this, allowing, in fact promoting more immigration could be a remedy. New, younger immigrants getting into the labor force would strengthen the productive base, while adding to the pool of active workers paying into the welfare systems.

Yes, this is true. Except that much depends on what kind of immigrants you get. Unfortunately, most of the refugees getting into Europe seek help rather than work. They are mostly unskilled. Many of them are Muslims, something that makes it even harder to be integrated in historically Christian societies.

Immigration into America 

On balance, America, with all its real problems caused by a broken legal immigration process, is still a magnet for people “who want to do something”.

On balance, America is still viewed by would-be immigrants as the “Land of Opportunity”. “Over there, we shall be able to do things that we cannot do here at home”. The perception of a country that offers a good combination of personal freedom and economic freedom creates a real incentive for motivated immigrants.

Needless to say, America also gets a lot of poor, illiterate people who have a really hard time adapting, once they get to the USA. They do not speak any English. They have no education. They have no skills.

High end 

But, on balance, most immigrants come to America seeking opportunity, not welfare. At the very high end, the highly educated Indians, Chinese or Korean immigrants who settle in Northern California quite often end up setting up and running successful high-tech ventures. While they make money, they create businesses. They create jobs. They enrich America.

The poor 

Sure, there are also hundreds of thousands, in fact millions, who end up at the bottom of the labor market. We find them as janitors, entry level construction or landscape workers. We see plenty more behind a counter at a 7/11, or working as parking attendants.

Still, on average, the new immigrants try to fit in, and eventually they rise within the existing economic and social fabric.

And then there are also truly remarkable stories. The Vietnamese “Boat People” who came to America, back in the 1980s, had nothing. Well, in many cases, because of their incredible ability to work hard and use any opportunity for economic advancement, their children ended up going to good universities. And this is also the case for other Asian immigrants who tend to value work and education.

In Europe, a different story 

Well, in Europe it is mostly a different story.

First of all, we are dealing with a different group of immigrants, with vastly different motivations. These immigrants are mostly poor or very poor people who come from Africa, North Africa, and the Middle East. Many of them are real refugees, escaping from conflict or civil strife in Syria, Iraq or Afghanistan. Just like the Central American immigrants crossing the US-Mexico border, most of them are illiterate.

But here is the fundamental distinction. America is viewed as a “Land of Opportunity”. America is a “Can do country” that is natural magnet for“Can do people”.

Go to Europe to get help

Europe instead is viewed by the would-be immigrants as a peaceful, tolerant place where the state has many generous social programs. In other words, you go to America to get work, while you go to Europe to get help.

Granted, this is a broad generalization that will not do justice to many highly motivated people. Still, by and large poor people are attracted to Europe as the place to go to not in order “to do something”, but in order to “get something”.

No benefit for Europe

For all these reasons, demographically challenged Europe will get very little benefit from this relentless migratory wave from Africa and the Middle East. Instead of the immigrants learning European customs, while focusing on improving their education, skills and work opportunities, we see that larger and larger parts of Europe start resembling the countries where the immigrants came from.

A giant welfare agency 

Look, I am not against multiculturalism –as long as the new cultures enrich the existing one. But this is not the case. The immigrants bring into Europe mostly their problems, including out of step customs regarding the value of education, and the place of women in society.

In the meantime, Europe has become an extra-large social welfare agency that has just received and will continue to receive millions of new applicants, while its funding sources are dwindling.

This does not look good.

 

 




The Real Problem With Welfare Is Dependence, Not Cost

WASHINGTON – The standard argument in favor of the welfare state and its multiple entitlement programs is that modern, relatively affluent societies have a moral obligation to help their disadvantaged citizens.

Help the needy

The poor, the elderly, single mothers supporting sometimes many children struggle to survive. Quite often they fall further behind, and so they get into a negative spiral that leads them from poverty into despair.

Benign policy-makers cannot ignore this plight. Hence the idea to come up with various support programs. This is the “social safety net” that will prevent the weak from falling into the abyss of the perennially destitute.

Benefits for ever

Fair enough. However, while theoretically these programs are supposed to help people to “get back on their feet”, in practice it is not so. In practice, temporary assistance has a way to become permanent, while little is done to enable recipients to become once again (or for the first time) self-sufficient.

Moreover, once we have accepted as a society that there are some deserving categories of individuals who must be helped, we have also created an almost irresistible drive to augment the ranks of the deserving, while increasing, little by little, the range of subsidies, free services and more they are entitled to receive.

Huge cost

And this explains the huge financial burden created over time by large and growing social programs. In political terms, the “fiscally responsible” argue that all this public largesse is unaffordable. Therefore the ranks of the “entitled” have to reduced, while restrictions have to be enacted regarding how much can be given out and for how long.

Let the rich pay

The socially minded “progressives” argue that one can find the money to pay for all this by increasing taxation on the (undeserving) rich, many of whom gained their extraordinary fortunes by gaming the system.

Within most western democracies the political divide is indeed on these issue: “How much social spending is necessary, and how much can we afford”.

Welfare breeds apathy

But this is not the whole story. Empirical evidence shows that societies that devote a huge amount of resources to social programs tend to be affected by economic stagnation. Little innovation, no dynamism, no real growth. Many welfare state critics argue that there is a clear cause and effect relationship between spending a lot on entitlements and feeble growth.

Dependence is the issue

But allow me to look at the issue from a different angle. The real problem with entitlement programs is not that they cost too much. The real problem pointed out by many but difficult to express in political language is that they cause unhealthy dependence.

In other words, individuals who get progressively used to get enough to survive through public assistance programs lose the drive to look after themselves. They have little incentive to look for better jobs. Likewise, they have no motivation to learn new skills that would help them move up in the labor market.

Dependence: this is the insidious, unintended consequence of public assistance not tied to a commitment to self-improvement.

Self-sufficiency is the goal

Broadly speaking, modern psychology argues that a self-sufficient individual is also a more balanced person. It is now recognized that facing challenges is good for you, assuming that they are not in the shape of overwhelming calamities. Which is to say that reasonably competent, mature individuals can rise to the challenge of looking for a new job. Dealing with cancer, or with the consequences of a devastating hurricane is another matter.

So, where do we go with all this? If we accept the above, then we should agree that all public assistance to the needy has to be geared to make the needy self-sufficient within a reasonable period of time.

From assistance to independence

The emphasis should be not in giving enough money so that the person or family will not fall into destitution. The emphasis should be in devising “customized strategies” that will lead the recipients to increasing their chances of self-improvement. Learning new skills, getting more education, receiving training in marketable skills increases the chances of getting a job, or a better job.

If we accepted this approach, welfare programs would be redesigned so that they are no longer a life raft. They will become a ladder to self-sufficiency. In so doing, in the long term we achieve positive goals. We progressively reduce the cost of entitlement programs; and at the same time we increase the ranks of productive, self-confident citizens who are better positioned to be economically independent, while contributing to society.

Resistance to change

As you can imagine, the large, established constituencies of “the perpetually needy”, all the bureaucracies created to attend to their needs and their political patrons will resist reform, claiming that any proposed change is really a thinly disguised effort to cut benefits, this way condemning so many of our fellow citizens to be destitute outcasts.

A difficult task

Indeed, even with sufficient political support, this is going to be very difficult. Teaching people to find motivation from within, at the same time accepting that in life one has to learn how to face challenges is difficult.

Teaching these life skills to adults who never had the opportunity to learn any of this at a younger age is even more daunting. And yet this is the only way to overcome this dependence on costly welfare that condemns millions to be for ever semi-marginalized.

 




Democracy Is More Than Free Elections

By Paolo von Schirach

February 15, 2014

WASHINGTON – In America many, including well-educated people, believe that “democracy” is really about having a constitution that guarantees individual rights and free elections through which “the people” can freely express their preferences without fear of persecution. Nothing wrong with this list. The problem is that these are minimal, necessary preconditions. Fulfilling them does not guarantee a well-functioning democracy.

Rational debates

Real democracy is a lot more complicated. Democracy is about the proven ability to engage in fact-based, rational debates on what is necessary for the common good. Yes, “fact-based” and “rational” discourse. Sounds obvious and self-evident. But it is not. The fact is that an inordinate number of citizens are prone to “believe” in stuff that has no or little connection with reality. The list is long: “socialism”, “the welfare state”, “religion as the foundation of political values”, “nationalism”, and so on.

Idealists” are not superior

And indeed, the dominant culture encourages this disconnect. We call these mildly deranged  or totally deranged individuals “idealists”, this way creating the completely distorted notion that being prisoners of fantasies and therefore disconnected from reality is not a shortcoming. It is actually an attribute that confers superior morality.

Informed citizens

The Founding Fathers of America, in various ways understood and acknowledged that self-government was premised on a society made up of reasonably well-informed people who would tend to act rationally when dealing with matters pertaining to the common good. They acknowledged “passions” and the dangers of “factions”. But, even though they recognized that a form of government whose survival was founded on the intelligence and realism of the people was not at all a sure thing, overall they optimistically believed that realism, aided and fostered by the spreading of new knowledge through education, could and would prevail.

Ideologies are the enemies

Well, fast forward to our times and the issues are exactly the same. The success of modern democracies is still premised on the existence of pragmatic realism. Without this key ingredient there is the dominance of ideologies, fantasies, and dreams. (Those who are not prisoners of ideologies often opt for cynical manipulation that inevitably leads to corruption). Sadly, elected officials who act to fulfil any of these dreams end up wasting enormous resources, meanwhile inflicting great pain without accomplishing much. Just look at what has been done in the name of “socialism”, in the Soviet Union, China or Cuba. And, at a different but equally pernicious level, look at the ruinous impact on human creativity of social democratic, egalitarian ideals in Western Europe.

Focusing on “what works”

In the final analysis, democracy –that is effective, successful self-government– is premised on an educated, indeed fairly sophisticated populace that will choose capable and ethical pragmatists as elected leaders. These leaders will engage in debates; but not in stupid ideological confrontations. In the end these leaders will opt for evidence-based solutions. They will enact what “works”, keeping in mind the desire to maximize the common good.

Sadly, if we look at the world around us, from the ruins of the Arab Spring, to rebellions in the Ukraine and Venezuela or populism in Thailand, we see that these societies are very far from achieving the fundamental preconditions for successful self-government.

Old democracies

And even if we look at mature democracies, like Europe and America, there is cause for major worries. Prisoners of their self-defeating egalitarian ideologies that discourage innovation and enterprise, the Europeans societies are in decline, slowly committing suicide. On the other side of the Atlantic, American politics are now dominated by rather stupid ideological battles, characterized by the almost comical demonization of one’s political opponents.

Education will lead to virtue

Thomas Jefferson and Benjamin Franklin were self-made intellectuals who believed that education would lead people to acquire greater knowledge. It was assumed at the time (that was the “Century of Light”) that a better understanding of the world and of nature would lead most men to become more virtuous, and therefore better citizens.

And so, it is not totally accidental that both Jefferson and Franklin sponsored the creation of universities. Whereas, today’s politicians inspire the creation of Super PACs aimed at fomenting hatred against their adversaries.

I prefer the good old days of universities aimed at discovering and teaching the new knowledge that will make us more virtuous. Without education and virtue democracies will not survive, let alone prosper.

 




The Tea Party Has Become An Ideological, “Anti-Everything” Group – The Republican Party Needs A Strong Message Of Opportunity And Inclusiveness – Chris Christie Could Articulate It

By Paolo von Schirach

November 11, 2013

WASHINGTON – At the very beginning, the Tea Party insurgency had some real merit. But now it has become a motley crew of “anti-everything” libertarians mixed with social conservatives profoundly out of step with the minimum standards of modernity. Anti-abortion, anti-gays, prayers in schools, guns for everybody principles will get you some votes; but not enough to win national elections, or even statewide contests as Virginia has shown. 

A good start

The Tea party Movement had a good start as a grassroots rebellion against ever-growing government and its exploding cost. The Tea Party activists could claim that their advocacy for limited government and low taxes was and is in keeping with basic American principles and traditions. “This is America and not France. We believe in the private sector and in a modest safety net for the truly disadvantaged. The rest is unnecessary welfare paid out to voters, so that they will kep re-electing unprincipled politicians who will keep the gravy train going, even though they know full well that this will cause higher debt and eventually fiscal disaster.”

Now the Tea Party is the anti-everything movement

But now this “small government” platform has become a bad mix of strident politics and ancient conservative values that as a minimum do not resonate with the broader public, while in too many instances (take abortion) they are perceived as deliberately offensive. The worst thing is that the Tea Party adherents seem to be “anti-everything”, while they are unable to rally large constituencies around programs “for something”.

Beyond that, their anti-spending platform is very thin on detail. It is easy to pick examples of stupid, wasteful and poorly conceived public spending. However, the problem is that the bulk of federal spending is about entitlement programs,  and not about funding for –say– “artichoke research in Iowa”. The Tea Party people are really disingenuous when they claim that most of America’s fiscal issues are about eliminating the classic mix of “fraud, waste and abuse”. As for a well thought Tea Party entitlement programs reform plan that would take care of the elderly while bending the spending curve, we have not seen any of that.

Bad tactics

And then we have the additional problem of bad tactics. The attempt to repeal Obamacare “by force”, through a government shutdown is an indication of political stupidity. Most conservatives agreed that it was a bad idea. But the Tea Party people in the House pushed for it anyway, with disastrous political results.

And now, in case we needed more lessons, we have the defeat of Ken Cuccinelli in the Virginia gubernatorial race. While Cuccinelli in the end did much better than expected as he could capitalize on the Obamacare launch debacle, Cuccinelli’ lost in large part because his strident socially conservative themes alienated women, minorities and young voters. How on earth can anybody run against women in today’s America, as they are now more than 50% of the voters? Only die-hard ideologues want to fight again over abortion, contraception, and then prayers in school, gay rights and more.

Of course, if your goal is to fight for your principles, you have every right to do so. But if these principles constitute the platform of the Republican Party, then it may as well forget about winning major elections.

Chris Christie can lead

And this brings us to Chris Christie. He sailed to a triumphant re-election as Governor of New Jersey. In a sense, he is a new and improved, truly  personable Mitt Romney, minus the Mormon faith and the Massachusetts health care reform (too close to Obamacare) issues. In a word, he is a non ideological reformist who promotes pro-growth policies. Christie combines in a nice way a combative spirit, charisma and pragmatism.

That said, it would help him immensely if his “style” (and this is not to deny that there is real substance  in Christie)  could be enshrined in a new, principled, easy to understand policy framework that would outline the goal of making America into an “Opportunity and Inclusiveness Society”. The Republican Party would gain a great deal by having a convincing national leader convincingly reasserting its credentials as the political force championing a modern Opportunity Society. Not a Welfare Society; but an America in which the private sector and government work together to enable people to become smart and strong, so that many more of them will make it on their own.

Smart, inclusive conservatism

This is not about hand outs, special subsidies or tax relief. No, this is about a serious effort to modernize public education so that it will provide a real foundation for competing in this globalized economy. This is about simplifying  regulations and the tax system, so that it will be easier to start a business and hire people. This is about an energy policy aimed at capitalizing on the huge advantage created by America’s low cost natural gas. At the same time, it would be great if the Republicans could articulate a  sensible immigration policy reform that would provide a path to legal status for millions of illegal immigrants while  making it easy for smart would-be immigrants who bring their talent, energy and entrepreneurial spirit to America. 

Christie can do all that, this way leading a GOP revival.

 




No Way For America To Compete Effectively Unless It Improves Its Dismal Public Education System

By Paolo von Schirach

September 25, 2013

WASHINGTON – There is really no dispute about the fact that in this hyper competitive global “knowledge economy” a super educated work force is not just an incredibly valuable asset, it is in fact an absolute precondition for success. In order to produce valuable new knowledge, societies need highly educated people whose combined talents will hopefully produce breakthrough innovation. If a country does not produce and sell valuable innovation, then it will have to be a user that  will have to pay for what has been produced by others. The innovators make money. The innovation users pay the innovators.

Invest in education

Given this unfolding scenario, it should be self-evident that all societies that wish to be competitive will invest vast resources in their public education systems. The better the effort to inform and train young minds, the better the chance that many well educated young people will be among tomorrow’s innovators.

All this is so obvious that it should be beyond debate. Well, in the US the principles are agreed upon, but there is a truly dismal record when it comes to implementation.

Simply stated, pro-education advocacy groups and policy-makers have yet to win decisive battles against the super conservative teachers unions that are de facto the main enemies of improved public education standards.

Bad schools in Philadelphia

Here is just one more depressing statistic extracted from a WSJ editorial. (Failure in Philadelphia, September 25, 2013). Last year only 40% of Philadelphia school children scored proficient or above in standardized readings tests, while 99.5% of teachers are doing a job. Note the contradiction. Less than 50% of the students are doing reasonably well, but their teachers are apparently doing great. 

This is clearly an impossibility. If the teachers were really that good, then the test scores would be much higher. And this data underscores a truly grim reality. In the US, the public education system main priority is not to educate the children. No, the main goal is to safeguard the career, job security, benefits and comfortable retirement needs of at best mediocre teachers.

Entrenched unions

As the teachers unions are quite powerful and capable in some instances of influencing local and state elections, politicians are unwilling to pick fights with them. The end result is the continuing status quo: tenured teachers who do little and students who do poorly. 

Education and income divide getting wider

Even worse, bad public schools tend to reinforce poverty and a growing opportunity and income divide. How so? Well, this is because the children of the well educated rich go to private schools or to the few well funded public schools located in very rich counties that have the means to enforce higher standards. It is plain obvious that well educated kids have a good shot at getting into prestigious universities that in turn will open good career paths.

The poor are trapped

The poor have no choices. They have to accept what is locally available. And the end result is more data like Philadelphia. If you are in school but you are not taught how to read the rest is almost meaningless. And yet it is common practice in US public schools to pass functionally illiterate children on to the next grade. While many will drop out, some of them will eventually graduate. However, in many instances their high school education is so bad that they will have trouble moving on to college or finding a decent job.

So, the children of the rich, with the huge advantage of a good education, have an excellent chance of getting into highly rewarding professions. The children of the poor have no opportunity ladder offered to them. They will stay uneducated and therefore poor.

We should do better

America as a whole will still move on, powered by the lucky ones who went to good schools. But we are becoming a two tier society, mostly because of a flawed public education system that policy-makers are still unable to fix. This is a horrible waste of human potential.

The country that sent a state of the art moving lab to Mars can and should do better.




Mediocre July Jobs Report Points To Lower Standards Of Living In The US

By Paolo von Schirach

August 3, 2013

WASHINGTON – The latest US jobs figures are alarming. Sure, we added 162,000 ne jobs in July. While these numbers are not wonderful, more people working is progress. On the surface this growth looks at least decent. The unemployment rate actually went down a bit, from 7.6% to 7.4%. Even though this is largely due to people who stopped looking for work and dropped out, this is the lowest jobless rate we have had since 2008.

Lousy jobs

So, why the unhappiness? Very simple: we are not creating great or at least decent jobs. We are creating mostly lousy, low paying jobs, mostly in retail and in the hospitality industry. On top of that, the percentage of part-time jobs for people who would really like to have full-time employment is growing, while the average worker has shorter work days.

Look, if you were jobless, getting something is surely better than having nothing. Still, these new jobs figures are part of a trend that indicates at best economic stagnation, (we know the economy grows at a mediocre 2% a year), and at worst downward mobility. And this is a problem.

Education, education

Here are the hard facts. In America, if you have a very good education and a super degree from a super university you have good chances to get into a vibrant sector, perhaps a into an industry leader, a GE or an IBM perfectly at ease in the globalized economy. If you are really smart, you will move up and do very well financially. You will have the money to give your kids the same excellent education that gave you a major advantage in life. The problem  is that there are very few of you. Very, very few who are doing and will be doing well.

Mundane jobs

Indeed, if you only have  a so-so degree, then you will be competing for mundane administrative jobs that now pay far less than they used to. Without top qualifications, your chances to move up are small. And if you only have a high school degree, then your chances of getting anything decent, let alone climbing the socio-economic ladder, are really poor. You get part-time jobs in bad times. In good times you get a low paying  job in retail, health care or equivalent. And that’s about it.

Good-bye to the American Dream?

If you do not even have a high school degree, then your chances of ending up in jail are much higher than you having any kind of career.  This is what the July jobs numbers indicate. Unless we shake up our truly mediocre public education system, while at the same time creating a more robust pro-growth policy environment, it is good-bye to the American Dream.

America used to be the land where everything was possible. In large part this was due to affordable, quality public education. Now the rich get their own high quality private education and the opportunities that it opens up . The uneducated get little, often times just the crumbs. 

Given these trends, the already horrendous income gap between the rich and a somewhat impoverished middle class is going to get wider; and we shall live in an overall poorer country marked by even deeper socio-economic divisions. This is not a good prospect for what used to be the most dynamic and optimistic society on earth.