It has become harder for the Asian tigers to prosper through exports

The trade war has not helped, either




Bonnie tu is laughing. She just discovered the crisp red “Make America Great Again” hat that a colleague left on her desk as a joke. The chairwoman of Giant, the world’s biggest bike manufacturer, is no fan of Donald Trump. His tariffs have messed with her supply chains and driven up costs.

“It’s a tax on biking, the healthiest activity in the world,” bemoans the feisty 70-year-old, an avid cyclist herself. In response, Giant has scaled back production in China and ramped up in Taiwan. “We had no choice,” she says.

Giant is not alone. Scores of Taiwanese companies have come back recently, including Compal, a computer manufacturer; Delta Electronics, a power-component supplier; and Long Chen, a paper company. In 2018 the government launched the “Invest Taiwan” office, promising low-cost loans for companies’ relocation expenses. It has already accepted applications from over 150 firms.

All this might make it sound like Taiwan has benefited from the trade war. Singapore and South Korea have also gained market share in America at China’s expense. But it would be a mistake to conclude that the trade war is good for the tigers.

Overall, it hurts. It is disrupting three things on which they intimately depend: an open global trading system, their Asia-based production networks and their biggest market, China. Goldman Sachs analysts looked at how 13 economies in Asia were faring relative to their potential this year; the Asian tigers occupied four of the five bottom slots.

That trade friction should unsettle them is only natural. Exports, after all, have been at the heart of their post-war success. South Korea began with tinplate, plywood and textiles. Its exporters benefited from cheap credit, exemptions from import duties and a devaluation of the won in 1964 (ironically, urged on it by America).

From February 1965 until his assassination in 1979, President Park Chung-hee attended nearly every monthly meeting of the country’s export-promotion committee, sampling products and rallying businessmen over lunch. He cried when South Korea’s exports exceeded $100m in 1964, declaring a national holiday known as “export day” (later renamed “trade day”).

Taiwan also started with cheap credit and tax breaks for exporters. Entrepreneurs soon emerged. Ms Tu remembers her uncle, King Liu, founder of Giant, remarking with astonishment in 1972 that “Americans are bringing cash here to buy bikes”. He soon found that local Taiwanese suppliers were not reliable: rubber tyres had a habit of falling off rims. So Mr Liu travelled around the island to persuade other manufacturers that they would all fare better if they adhered to the same dimensions.

Singapore and Hong Kong are often seen as entrepots. But they, too, were once exemplars of labour-intensive manufacturing. For a time, in the 1970s, Hong Kong was the world’s biggest toy producer. When Singapore became independent in 1965, it pitched itself as a base of production. Rivalry with Hong Kong was there from the outset: one of Singapore’s first big catches was ge, which chose to set up a clock-radio factory in the city-state, worried that the violence of China’s Cultural Revolution might spill over to Hong Kong.

Even as the tigers have grown far wealthier, exports have remained part of their dna. Their companies became more sophisticated over time, prodded by their governments (which were themselves often prodded by ambitious industrialists). In South Korea, after a decade of success in light industry, officials promoted heavier industries, such as shipbuilding and chemicals. Taiwan created science parks for advanced industries from optoelectronics to semiconductors. Singapore established a National Computer Board in 1981 to train high-tech workers.

Much of the world has lost ground to China over the past 20 years. Yet the tigers’ share of global merchandise exports has been steady at 10% (see chart). Japan, their erstwhile mentor, has seen its share fall to less than 4%, half what it was in 2000.



Like other wealthy economies, they have shifted much of their basic manufacturing to China. Most emblematic is Foxconn, a Taiwanese electronics company known now as the main assembler of iPhones. It opened its first plant in China in 1988; 30 years later it employs roughly 1m people there.

But as they offloaded low-end work to China, the tigers moved upstream. South Korea is the world’s biggest maker of memory chips. Taiwan has the biggest capacity for fabricating semiconductors. As a result, they each account for more than 12% of China’s final demand for electronic and computer products, twice as much as any other trade partner. They are, put simply, making things that China cannot.

They have also ridden on China’s coat-tails. As firms have clustered together in China, Asia as a whole has become a more powerful manufacturing region. Asia’s share of the global trade in parts and components rose from 19% to 30% between 2000 and 2016. Mainland China is home to four of the world’s seven busiest container ports; the others are in Singapore, Busan and Hong Kong.

Both Singapore and Hong Kong have strengthened their roles as the management hubs of “Factory Asia”. More than 4,000 companies have chosen Singapore as a regional headquarters, often to oversee South-East Asia. Hong Kong has fewer, with roughly 1,500 headquarters, but it has been far more successful than Singapore at luring Chinese companies to its stock exchange. Its stockmarket is worth more than $4trn; Singapore’s is closer to $700bn.

All these connections, however enriching, create vulnerabilities. America’s trade war is intended to inflict pain on China. But the tigers are, in many ways, more exposed to the damage because they are smaller and more open. In China, exports are worth about 20% of gdp. In South Korea it is more like 45%; in Taiwan, 65%; and in Singapore and Hong Kong, closer to 200%.

In tearing supply chains asunder, Mr Trump’s tactics pose a particular danger to the tigers’ cosmopolitan model of manufacturing. They remain highly dependent on inputs from other countries. They also serve an ecumenical range of clients, including some whom the Americans distrust. Taiwanese foundries produce chips for top American firms but also for Huawei, the Chinese telecoms giant that Americans accuse of spying. “We are everyone’s foundry. We exclude no one,” says an official at tsmc.

Faced with all the uncertainty, the tigers have a couple of options. One is to diversify their customers and their products. Taiwan has long pushed its companies to explore emerging markets other than China. South Korea’s government is keen to promote a wider range of products. On the most recent “trade day”, President Moon Jae-in of South Korea applauded new industries such as electrical vehicles and robots.

Another response is to try to patch up the global trading order. Before 2000 the tigers were party to just five regional trade agreements; they have since joined 49 more. Singapore was an originator of both the Trans-Pacific Partnership (a trade deal that once aimed to join America, Japan and ten other Pacific-Rim countries) and its supposed rival, the Regional Comprehensive Economic Partnership, which includes China. It is also among the countries working to broker a compromise between China and America that will keep the World Trade Organisation functioning.

But the tigers have little ability to dodge a full Sino-American clash. Hong Kong is most at risk. Its distinctiveness is recognised in American law, which treats it as a separate customs territory from the rest of China. That means it is a non-combatant in the trade war. But some companies appear to be exploiting this, routing goods through Hong Kong middlemen to lower the tariffs they face. America might yet tighten its scrutiny of goods from the city.

Problems in Asia can also be home-grown. A political dispute between South Korea and Japan, rooted in Japan’s occupation of South Korea in the first half of the 20th century, has morphed into a 21st-century trade squall. Japan has restricted sales to South Korea of materials vital for making semiconductor chips. The global division of labour is so finely sliced that it is difficult for South Korean chipmakers to find close substitutes.

The upshot of all the turmoil is that it is getting harder for companies to know where to operate and with whom to trade. At Giant Ms Tu’s conclusion is that companies need to stick to what they can control. “We have to focus on efficiency and automation,” she says.

That quest for efficiency is shared across the tigers. Automation is one way to achieve it. But there are others.


China’s internet interference is TikTok famous

The video app loved by teenagers is powered by artificial intelligence and protectionism

John Gapper

web_Tik Tok app
© Ingram Pinn/Financial Times


Had China set out to devise a disarming way to challenge US hegemony in technology and entertainment, it could have not done better than TikTok. Who could dislike a sweetly addictive mobile app filled with 15-second looping videos of teenagers lip-syncing and dancing?

Plenty of politicians, it transpires. TikTok’s blunder in temporarily taking down a video of 17-year-old Feroza Aziz criticising China’s inhumane treatment of Uighur Muslims last week inflamed suspicions about the intentions of ByteDance, TikTok’s Chinese parent company. Many young people want to be “TikTok famous” but TikTok is at risk of becoming infamous.

US criticism of TikTok, for everything from what Senator Marco Rubio called China’s “nefarious efforts to censor information inside free societies” to endangering national security is growing. TikTok is causing almost as much panic as Huawei, although its offence is knowing a lot about teenagers, rather than infiltrating broadband networks.

The anger is confusing, given the joyful innocence of much of TikTok’s content. Swiping through a stream of kids’ dance routines is a fine way to waste time (try it, if you have not). As Jia Tolentino wrote in the New Yorker, TikTok “feels unusually fun, like it’s the last sunny corner on the internet”.

The accusations are also tangential to TikTok’s true exploit: taking advantage of US openness when China has blocked Facebook, Google and others from its home market to encourage its domestic groups. “Our rapid development was an opportunity afforded us by this great era,” Zhang Yiming, ByteDance’s founder, said last year to mollify China’s government, and he was right.

China’s protectionism had a purpose beyond ensuring that US companies could not evade its rigorous censorship of free expression. It bought China time to turn into the world’s biggest internet market, with 830m users, and it enabled companies such as Tencent, Baidu and Alibaba to become technology innovators. After following Silicon Valley’s lead, China has surpassed it.

ByteDance exemplifies this. TikTok, the international version of its Chinese music video app Douyin, has been downloaded more than 1bn times and has 500m monthly users. An attempt by Facebook to copy it by launching a video app called Lasso last year, did not work. TikTok has quietly powered onward, amassing 200m users in India and expanding into 155 countries.

It was helped by acquisition — ByteDance bought the US video app site Musical.ly just after it launched TikTok in 2017. But ByteDance developed much of the artificial intelligence software that enables TikTok to adapt itself invisibly to users’ tastes. Machine learning demands data and the world’s teenagers provide lots of material.

The technology is not just a Trojan horse for censorship. ByteDance censors Douyin and other apps, including its news platform Toutiao in China. It has no choice but to obey President Xi Jinping’s government, as it found out last year, when Mr Zhang was made to apologise publicly for “deviation from public opinion guidance”.

China lets ByteDance and others work under different rules in the rest of the world. Internal opposition and bad publicity halted Google from running a censored version of its search engine in China, but ByteDance is less constrained. TikTok is a US company and user data are held in the US and Singapore, not China; it is more liberal about content than Douyin.

It might be in TikTok’s interest to block all political argument and social debate — not only discussion of Chinese policy in the Uighur province of Xinjiang, but anything about, for example, US President Donald Trump.

Politics is not much fun and TikTok has barred political advertising because its users seek “a positive, refreshing environment that inspires their creativity”.

But teenagers are wily and where does it draw the line? UK users are commenting on the December 12 general election and contributing to a meme about students from private schools.

Despite its inclination towards sunniness, its apology for blocking Ms Aziz’s video included a pledge to allow “content that may be serious or uncomfortable”.

To succeed, TikTok has to operate differently from Douyin, and ByteDance faces a trust deficit over the separation. It must do more than store data in different countries and have TikTok’s moderation policy guided by a committee of experts. That is a weak ringfence against a country that sees the law as subservient to party interests.

The looming threat is that the Committee on Foreign Investment in the US, which is examining the Musical.ly deal, will make ByteDance divest TikTok.

US tolerance for Chinese control of personal data through technology has been heavily eroded by political and trade tensions between the countries.

The committee has already told Beijing Kunlun to sell Grindr, the US dating app.

Such an order would be unfair in some ways — TikTok is an example of genuine innovation, blending entertainment and interactivity in a way that pleases the world’s pickiest consumers.

But the world lives with China’s technology protectionism and ByteDance will have to live with the response.

S&P 500 And The 'New Normal'

by: Victor Dergunov

 
Summary
 
- Despite trading close to all-time highs, cracks are starting to form beneath the surface of the U.S. economy.

- "Value" companies like McDonald's, Coca-Cola, Walmart, and many others are trading at P/E multiples of 22, 25, or higher.

- Despite the high multiples, many safe-haven sectors appear to have very little potential for earnings growth, and corporate profits may be peaking.

- Much of the economic data implies that a slowdown is occurring and a recession could strike sometime in 2020.

- The bear market could begin within the next 6-12 months, will likely cause multiples to contract substantially, and the S&P 500 could decline to around 1,800.

      Stock MarketSource: BusinessInsider.com
 
 
S&P 500: The "New Normal"
 
Despite clear cracks forming beneath the surface of the U.S. economy, the S&P 500/SPX (SP500) and other major stock market averages are trading near all-time highs.
 
Source: StockCharts.com
 
 
Prior to the recent slight dip, the SPX had appreciated by an impressive 35% from its 2018 December bottom, gaining approximately 800 points, as it surged from around 2,350 to over 3,150 in under one year.
 
This is rather remarkable, given that the economy does not appear to be in substantially better shape than it was one year ago. In fact, mostly what has changed is that stock multiples have expanded and stock prices have increased.
 
In fact, after a closer look, we see that the stock market may be on the precipice of another significant correction, and a recession, coupled with a bear market in equities, could materialize sometime next year.
 
The New Normal
 
What's with McDonald's (NYSE:MCD) trading at 25 times earnings? It's the "new normal" people say.
 
The company missed its latest earnings report, is projected to have zero revenue growth this year, and is projected to show a decline in EPS YoY in 2019. 2020 consensus estimates are for under 3% revenue growth and about 8% EPS growth.
 
So, why is McDonald's trading at 25 times earnings?
 
Right, the new normal, incidentally, like the S&P 500, MCD also appreciated by more than 30% from peak to trough in its latest share price surge. But where are the results to justify such moves? Moreover, what is the probability that MCD and other companies will continue to outperform to justify continued multiple expansion?
 
The new normal to me sounds a lot like the famous last words of many investors that have said "it's different this time". Also, the new normal reminds me of a phrase Alan Greenspan used, "irrational exuberance" when referring to markets in the late 90s.
 
These are value companies, right?
 
McDonald's, Coca-Cola (NYSE:KO), Walmart (NYSE:WMT), Procter & Gamble (NYSE:PG), Johnson & Johnson (NYSE:JNJ), etc. (this list can go on and on). These are value companies, not high growth tech or biopharma names. Typically, throughout history under relatively normal market conditions, "value" names trade at around 10, 12, maybe 15 times earnings. 16-18 and higher I consider expensive, excluding extraordinary sets of circumstances. So, why are value companies like JNJ, MCD, WMT, PG and many others trading at P/E multiples of 22, 25, or even higher in some cases?
 
The new normal seems to be increased capital being rotated into what investors perceive as "safe-haven" value stocks that pay dividends and whose businesses are not likely to be greatly affected by an economic downturn or even a possible recession.
 
But what about their stock prices?
 
When the bear market arrives, many of the "value" names will get hit hard as well, and given how much some of these stocks have been bid up they may decline by 50% or more in some cases.

In a bear market, it is not only about whether a business will survive but it is about multiple adjustment and compression. P/E multiples of many value companies will likely revert to their historic means of 10-15 times earnings.
 
We know that McDonald's and Coca-Cola are probably not going out of business no matter how severe the next recession will be.
 
People will continue to consume their products recession or no recession, bear market or no bear market. However, what will get adjusted are their P/E ratios, especially if their earnings begin to decline.
 
In my view, during the next bear market, you can expect to see McDonald's trading at 12-15 times earnings. Moreover, by that time, EPS may be $7 a share and not $7.84.
 
This would put MCD's stock price at around $84-$105, a steep way down from today's price of $195. In fact, this would equate to a decline of right around 50%.
 
The point is that the probability of multiple compression seems very likely in future years, and not just concerning McDonald's, but many of the "value" names, the S&P 500, and stocks in general.
 
 
Let's look at some sector valuations, in general
  • The Healthcare segment of the economy is trading at around 50 times last year's GAAP earnings and at about 46 times this year's projected P/E ratio.
  • The Consumer staples segment trades at around 29 times trailing and 27 times this year's estimates.
  • Real estate trades at 37 times trailing and at over 40 forward P/E.
  • Materials are trading at about 22 times both trailing and forward.
  • Industrials are at 23 times trailing and 20 times forward.
  • Information technology is at 30 times trailing and 32 times forward.
  • Utilities are at 27 times trailing and at around 20 times forward earnings.
  • The Energy sector is trading at 17 times trailing but about 35 times this year's estimates.
  • Financials are trading at about 13 times trailing and 12 times this year's estimates.
So, where is the value in this market?
 
It appears that some of the most defensive sectors are the most overbought ones right now. Real estate at 40 times this year's estimates is remarkably expensive, as is healthcare at 46 times this year's P/E projections. Consumer staples at 27-29 times earnings? Very expensive. Same thing with utilities trading at 27 times trailing P/E ratio.

These are defensive segments that typically trade at far lower multiples (10-15). Perhaps investors are bidding up stocks in these segments because they believe the underlying names will perform better in an economic downturn or a recession.
 
The problem with this assumption is that while their businesses may continue to function relatively well compared to more cyclical sectors of the economy, their P/E ratios will very likely contract substantially, cutting down stock prices significantly when a bear market occurs.
 
I expect many of these safe-haven names to readjust back to P/E ratios of 10-15, more in line with their historic averages when the repricing occurs. Essentially nothing outside of financials appears particularly cheap right now.
 
Furthermore, financials are relatively cheap for good reason, as many companies in this segment have very little to no revenue growth going forward. EPS will also likely get squeezed, especially as the Fed proceeds to lower rates in the future.
 
Finally, many financials are loaded with all types of debt, credit card, car loan, corporate, etc. and may have to face significant writedowns when the consumer begins to buckle.
 
Speaking Of The Consumer
 
We can see that the consumer confidence index CCI likely peaked in early 2018 and is now at a multi-year low, possibly heading lower. Nevertheless, we do not see this weakness reflected in SPX valuations and in stock prices in general.
 
Source: OECD.org
 
 
Moreover, if we take a longer-term view of the index, we see that just about after every peak a recession occurred. We see the index topped out in the late 1980s before the early 1990s recession, around 1999, before the dotcom bust in 2000, in 2007, before the "great recession", and we likely saw a peak in 2018 before a recession that could strike sometime in 2020.
 
As Far As Other Data Is Concerned: Mixed At Best
 
CB consumer confidence also came in lower than expected for November, 125.5 vs. an expected 127. Manufacturing remains in recession, with the latest ISM manufacturing PMI coming in at 48.1 vs the expected 49.2.
 
Furthermore, the November PMI figures were even lower than October's 48.3. ISM non-manufacturing PMI also came in lower than expected, 53.9 vs. an expected 54.5. Finally, employment data, the latest ADP non-farm employment change came in at just 67K vs an expected 140K and well below last month's 121K.
 
In other words, the economic picture is getting worse once again, not better. In fact, many indicators like those I just mentioned and others are implying that a recession is likely approaching, and there is little reason to expect corporate earnings to move significantly higher or multiples to expand next year.
 
Peak Earnings Could Be Here Already
 
If we look at corporate earnings for the first three quarters of this year, they are actually lower than last year for the first three quarters. On average, last year's $1.85 trillion per quarter topped this year's $1.843 trillion average per the first 3 quarters.
 
With global growth slowing, economic indicators softening, and other detrimental factors hitting corporate profits, I would not be surprised to see YoY declines in U.S. corporate earnings this year as well as in 2020.
 
Source: TradingEconomics.com
 
Still, for some reason consensus estimates suggest that earnings will increase, and will increase substantially in the S&P 500 particularly. First, if we observe closely, we see that the S&P 500 is trading at about 24.5 times trailing earnings.
 
This is about 13.4% more expensive than where the SPX was at one year ago. Additionally, the forward estimate is for a P/E ratio of just 19. This implies that S&P 500 companies will have about 30% earnings growth in 2020 YoY. This seems remarkably optimistic in my view.
 
The Bottom Line: As The Recession Approaches
 
As the recession approaches, it is likely only a matter of time until the S&P 500 and stocks in general enter a bear market. Investors are bidding up value, "safe-haven" names as they attempt to rotate capital into less cyclical stocks and sectors of the economy. However, with many non-cyclical sectors trading at irregularly high P/E ratios, multiple compression will likely drive share prices substantially lower when the economic downturn arrives.
 
For instance, the mean P/E ratio for the S&P 500 is roughly 15.77, yet the SPX is currently trading at around 23 times earnings (24.5 times trailing) earnings. Thus, if we use the 23 times figure the SPX would need to correct by roughly 32% from current levels to get back down to its historic mean of 15.77. This would bring the SPX down to around the 2,100 level.
 
If we use the Shiller P/E ratio gauge, we see that the SPX is trading at around 30.27, where the mean is only 16.67. This implies that a decline of roughly 45% is possible in the S&P 500 to bring earnings multiples (Shiller P/E ratio) back down to their historic average. A 45% decline from current levels would bring the SPX down to around the 1,700 point.
 
Source: multpl.com
 
 
Therefore, I believe that the "new normal" is not going to be a long-lasting phenomenon and will dissipate in time much like "it is different this time", and the irrational exuberance periods did in their times.
 
I am looking for substantial multiple compression to start to occur in most sectors within the next 6-12 months, including and especially in the non-cyclicals that have been bid up to irrationally high levels.
 
Ultimately, I expect the S&P 500 can bottom out at around 1,800, right between the 1,700 and 2,100 figures quoted earlier.

Measuring Growth Democratically

For decades, gross domestic product has captured the attention of economists and policymakers around the world, offering a single, simple proxy for economic growth. Yet for all of its convenience, it is a poor proxy for human progress, and could easily be improved with a complementary metric that weighs citizens more equally.

Kemal Derviş

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WASHINGTON, DC – Abhijit Banerjee and Esther Duflo, two of this year’s recipients of the Nobel Memorial Prize in Economic Sciences, are the latest among leading economists to remind us that gross domestic product is an imperfect measure of human welfare. The Human Development Index, published by the United Nations Development Programme, aggregates indicators of life expectancy, education, and per capita income and has long been available as an alternative to per capita income alone.

In 2008, Joseph E. Stiglitz, Amartya Sen, and Jean-Paul Fitoussi outlined the many failures of GDP for the French government-sponsored Commission on the Measurement of Economic Performance and Social Progress. Subsequent OECD-sponsored work elaborated on their findings, and related research by the Brookings Institution’s Carol Graham (on subjective wellbeing) and Duke University’s Matthew Adler (on the measurement of social welfare) has received well-deserved acclaim.

Nonetheless, GDP continues to reign supreme in the halls of power. Policymakers around the world are constantly awaiting the latest quarterly data on GDP growth, and variations of one-tenth of a percentage point are regarded as significant indicators of macroeconomic performance. The International Monetary Fund’s World Economic Outlook may include in-depth analysis across a wide range of topics, but it always starts with GDP.

To see why treating GDP growth as a proxy for progress even in terms of income alone is highly problematic, consider the case of a country with ten citizens and a GDP of $190, where nine citizens start with $10 each and the tenth citizen starts with $100. (Moreover, assume that GDP is equal to national income, so that net factor income from abroad is zero.)

Now, imagine that the first nine citizens experience no income growth in a given year, while the tenth enjoys a 10% increase. GDP will have increased from $190 to $200, implying an annual growth rate of approximately 5.26%. This is reflected in the usual way national income is computed. Individuals are weighed by their share of total income, and that 5.26% rate represents a weighted average in which the income growth of the tenth citizen counts nine times more than that of each of the other nine citizens.

Contrast this example with one in which the same country uses a “democratically” measured growth rate, weighing each individual equally as a share of the population rather than as a share of total income. Here, the growth rate would reflect the weighted sum of nine 0% growth rates and one 10% growth rate, each weighed at one-tenth, with a resulting total growth rate of 1%.

The weighing of individuals by their share of income is not generally perceived by the public. But this implicit practice is important to point out, because it enshrines the principle of one dollar, one vote, rather than one person, one vote. It is essential for assessing the total size of a market or the economic “power” of a country, but it does not capture an economy’s performance for its citizens.

This is hardly the only reason why GDP is an inadequate measure of human wellbeing. It also ignores people’s need for respect, dignity, liberty, health, rule of law, community, and a clean environment. But even if all of these other democratic “goods” were satisfied, GDP still would fail as a metric of progress, purely in terms of income alone.

Building on work by the economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, the Center for Equitable Growth has proposed “GDP 2.0,” a metric that would complement existing aggregate GDP reports by disaggregating the income growth of different cross sections of the population (such as income quintiles).

Providing this kind of distributional picture regularly would require increased coordination among government departments, as well as some conventions on, for example, how to use tax data to complement the usual national accounts. But conventions are also needed for existing national income accounting.

Provided that distributional data are routinely available, one could compute a growth rate based on the weighted average across each decile of the income distribution, with equal weighting for population, as in the example above. Individuals would still be weighed by their incomes within each group (which is why it would be preferable to use deciles rather than quintiles), but the final product would be much closer than current methods to the “democratic” ideal.

One of the main advantages of GDP growth is that it is expressed with a single number, whereas other performance indicators either are presented within dashboards comprising multiple metrics or aggregated in essentially arbitrary ways. The implicit use of income shares as aggregation weights is perfectly appropriate for macroeconomic analysis and is not arbitrary. The problem arises when GDP becomes a proxy for progress.

What we can measure easily and communicate elegantly inevitably determines what we will focus on as a matter of policy. As the Stiglitz-Sen-Fitoussi report put it, “What we measure affects what we do.”

Publishing a democratic metric like the growth rate of GDP 2.0 is no pipedream. A GDP growth rate using equal weights for each decile of the population would also produce a single number to complement the usual growth rate. True, it still would not capture the substantial differences within the top decile in many countries where the top 1% have been gaining disproportionately compared to everyone else.

And we still would need other metrics to measure performance in dimensions other than income.

But as a single figure published alongside GDP growth, it could go a long way toward changing the dominant conversation about economic performance.


Kemal Derviş, former Minister of Economic Affairs of Turkey and former Administrator for the United Nations Development Program (UNDP), is Senior Fellow at the Brookings Institution.