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Here at INTN worldwide headquarters, we romanticize beginnings. The evolution of jazz in early 20th century New Orleans is an almost mythical time for us, as are the Sun Studio recordings of the early 1950s. So it is not a surprise that we are a big fan of The Get Down, the new Netflix show that fancifully tells the story of the beginnings of hip hop in 1970s NYC. One of our fondest memories as a youngster is visiting our grandparents on the lower eastside of Manhattan and being allowed at the end of the day to pull the security gate down on their children’s shoe store. The five boroughs back then also had a mythical feel, full of noise, grime, crime, fantastical creatures and above all, creativity. New York is safer and cleaner nowadays but not nearly as interesting. Even as we speculate that somewhere, someplace a new musical or cultural moment is being born today (probably either in an impoverished city overseas or in a down and out suburb of America) we ponder on Asia’s recent rise out of poverty, gaze again at China’s state owned enterprises and at the same time worry about Chinese productivity.  It’s this week’s International Need to Know, using our digital crayon to find the get down on international happenings.

Without further ado, here’s what you need to know.

Asia’s Rise Out of Poverty…

Via Ian Bremmer, we recently saw the graph below from the Harvard Business Review(HBR) showing the amazing income gains of the Asian middle class. As Branko Milonovic of HBR notes, “The ‘winners’ were the middle and upper classes of the relatively poor Asian countries and the global top 1%.” But the relative “losers”, at least for the years 1998-2011, were lower and middle income percentiles in the already rich countries. The researchers also note that, “It’s also the first time that global inequality has declined in the past two hundred years.” They calculate that the global Gini number (a measure of inequality—in our estimation a very crude measure) decreased to 64 from 69 (but not 867-5309–wait, Gini, not Jenny). This is an underreported phenomenon: income inequality has gone up within many countries but for the world as a whole, income inequality is down. But, the Harvard Business Review takes this one step further, believing increases in Asian incomes must occur at the expense of Western incomes: “If we then visualize the world over the next 30-50 years, in which other, even poorer countries, become the ‘new Chinas,’ the stagnation of middle-class incomes in the rich countries may continue.” But there are many roads, highways and even back alleys to prosperity. Most need not be lined with western stagnation. Today’s future has very different starting conditions than the last two decades and so the path forward will lead in a different direction. As the investment advisors say, even while selling swampland in Florida (or southern China), past performance is not an indicator of future results.

    

More on China’s SOE’s

No sooner do we write last week that China’s corporate debt is in many ways government debt because state owned enterprises account for more than 50% of such liabilities, than Fortunemagazine comes out with their list of the 500 largest companies (ranked by revenue) and lo and behold it trumpets that China now has more than 100 companies on the list. Three of these are in the top ten and every single one of them is a SOE—China National Petroleum, State Grid and Sinopec Group. I expect this top ten list to be volatile, partly because the Fortune 500 is volatile(the Global 500 likely even more so) and partly because China is changing so quickly that so too will its companies on this list. We live in a Ferris Bueller world, if you don’t stop and look around every once in a while, you’ll miss it. Many of the companies on this list will disappear soon like Cameron’s father’s Ferrari.

The World is Doing Nothing

A number of months ago we noted the worldwide decrease in productivity. The chart we posted showed slowdowns in productivity around the world but did not include China. However, China’s productivity growth, while still above Europe’s, Japan’s, Korea’s and the U.S., is also steadily decreasing, now down to 6.6%. It peaked at 13% growth in 2007 and has gone down ever since. Are Chinese workers just as susceptible to cat videos on the Internet as the rest of us? As we noted in the previous post, the worldwide decrease in productivity is worrisome for the prospects of future GDP growth. GDP can only grow through increased productivity or working age population growth (the latter is decreasing in most countries save Africa and India). More worrisome for China, though their productivity and economic growth has been extraordinary the last 25 years, they have still not caught up to developed countries (see second chart below) or even to the world average. Each Chinese worker is producing far less than a Japanese, European or American, even as the costs of Chinese labor rises, leading to more automation. As we saw above, the Harvard Business Review is worried about Asian workers’ gains causing western income stagnation. The story is likely to be more complicated than that. As always, we await the next chapter eagerly but also with a bit of trepidation.

 

   

We read earlier this week that seeing live music reduces your stress levels. That’s according to a new study from the Imperial College of London. Levels of the stress hormones cortisol and cortisone both decreased in the volunteers who attended concerts as part of the research. The study also says, “It is of note that none of these biological changes were associated with age, musical experience or familiarity with the music being performed.” Apparently the study only had volunteers attend classical musical concerts so no word on whether seeing Metallica, Jurassic 5 orHardwell will calm our savage beasts. But even as we stationed a classical cellist near our keyboards, we still became stressed at the effect automation may be having on developing countries, worry about where dementia is most prevalent but we remain calm, cool and collected about where in the wild millionaires are to be found. It’s this week’s International Need to Know, keeping a constant drum beat on the strange rhythms of a complicated world.

Without further ado, here’s what you need to know.

Automating Against Development

As we are fond to point out, the last forty years have been remarkably good for we humans. More people have risen out of poverty during that time period than at any other time in history, both in raw numbers and in percentage of the population. The rapid development of South Korea, Taiwan, Singapore, China and India has alleviated poverty and pain for hundreds of millions of people. The hope is additional countries will follow suit. But will automation make that more difficult to do in the future?  A new study by the International Labor Organization (ILO) paints some red-alarm shades of worry on the matter. The ILO analyzed five ASEAN countries–Cambodia, Indonesia, the Philippines, Thailand and Vietnam–which account for 80% of the ASEAN countries workforce, to determine which sectors are most at risk for automation. They found that “approximately 56 per cent of all employment in the ASEAN-5 is at high risk of displacement due to technology over the next decade or two.” For Cambodia, which because of China’s rising labor rates, has become a large textile hub, the ILO already sees automation endangering jobs: “…close to half a million sewing machine operators face a high automation risk.” As Tyler Cowen points out in a new eBook, “At a growth rate of five percent per annum, it takes just over eighty years for a country to move from a per capita income of $500 to a per capita income of $25,000.” We need additional countries to achieve the rapid growth that led to the large alleviation of poverty the last 30 years. But will automation make that more difficult? While we wait to find out, check out Asian country labor costs below:

   

Live Long and Don’t Get Dementia

We were perusing data on which countries have the highest rates of dementia (What? What do you do for fun and recreation?). They are unsurprisingly all highly developed countries whose populations have lengthy life spans. But, they do not correlate completely with life expectancy. As you can see below, only three countries (those shaded in yellow) are in the top ten for both dementia rates and life expectancy. Of course, all of the countries with the top ten highest dementia rates are in the top 40 of countries with the highest life expectancy–the United States is the lowest, ranked 31st for life expectancy. Also of somewhat interest, all the countries in the top ten rates of dementia, save the geographically diverse United States, are countries located fairly far north. Not until Cuba, which has the 15th highest rate of dementia, do we find a country that is not fairly far north. Chile and Uruguay are 16th and 17th but they are somewhat south though not as far south as the top ten are north (in Chile’s case it is north and south but the main population center is about mid-way). Thus ends our unscientific meanderings into world health. We await our NIH grant where we can control for diet, genetic diversity and other factors.

Who Wants to be a Millionaire?

Many months ago we pointed out where the billionaires are. But that is a particularly rare species, surviving in the wild through luck, circumstances and, of course, often hard work and a good idea. But where are the millionaires? No surprise, the U.S. is home to the largest percentage of the world’s millionaires with a whopping 46%. Next up is the UK, Japan, France, Germany and then comes China. A pretty remarkable feat for China, all accomplished in the last 35 years. Scan the list below with whatever greed and envy you care to bring to the table, er, pie chart.

      

Recently International Need to Know had the occasion to test out a virtual reality device and coincidentally shortly thereafter we met with the head of a virtual reality company. We’ve been curious about this technology but skeptical of just how earth shattering some claim it will be. But, when we tried out the technology not only were we impressed we immediately imagined dozens of applications for its practical use–from real estate to training to therapeutic uses. Of course, the head of the company has many more ideas in more depth than ours. We are living in a sci-fi world, or at least on the brink of it. But when we took off the goggles, removed the headphones and set down the controllers, we gazed steely-eyed at the reality of Brazil’s water issues, wondered at the expansive imagination of China’s government, and considered where the largest number of Internet users are.  It’s this week’s International Need to Know, augmenting reality with facts, analysis and critical information.

Without further ado, here’s what you need to know.

Thirsty Brazilians

Almost as much attention has been focused on Brazil’s water as on gold medals at the Olympic Games this week. What with blue water turning to a suspicious green and athletes told to keep their mouths shut (always good advice for the finally retiring athlete that was Alex Rodriguez), Brazil’s polluted water is much in the news. But did you know that Brazil has more water than any other country, controlling 20% of the world’s water supply? And yet, Brazil has water shortages. Their problem is not quantity, it’s quality. Or even more accurately, policies and practices affecting water management. About 62% of Brazil’s energy comes from hydropower. But the real water hog in Brazil is agriculture. Irrigation for agriculture consumes 72% of Brazil’s water. Of course, the fact that so much of Brazil’s water is polluted is a problem as well. Only 43% of Brazil’s toilets are connected to a networked sewage system. The good news is that is up from 33% in 2004 so progress is being made. Brazil has the water they need (it is a resource rich country after all) but it is in desperate need of reforms to have clean abundant water. Like the movie, Chinatown, water is a metaphor for the corruption and stasis that plague Brazil as a whole.

China’s Marshall Plan?

When people discuss China’s external activities most of the focus is on their shenanigans* in the South China Sea or on its large infrastructure investments in Africa. But we’ve been tracking what is being called “One Belt, One Road”, a plan to build infrastructure as China works to create a modern day Silk Road. The plan would build highways, rail, ports and more stretching from Moscow to Jakarta (see Bloomberg map below). Essentially One Belt, One Road (a great title for an old country western song, btw), would connect China to the west by a land route through Central Asia and via maritime routes to the south through Southeast Asia, South Asia, Africa, and Europe. Estimates are that China will spend $1.4 trillion on this effort over the next 30-40 years, which one analyst notes is more in real dollars than the U.S. spent on the Marshall Plan after World War II. China trade with the countries affected by One Belt, One Road is already worth $1 trillion. If this ambitious new infrastructure effort creates economic development in these countries, China’s economy stands to reap the benefits. A Bloomberg article notes the ”soft power” that China wields with this plan. And certainly so. But, will China be able to continue such spending with slower economic growth? And how much mal-investment will take place in such a grand scale endeavor? In fact, China’s large investments in Africa have suffered from backlash and misallocation of resources and we should expect more of the same with One Belt, One Road. Nonetheless, such a grand undertaking affecting such a large chunk of the world economy deserves our continued attention.

 *A technical term that Foreign Policy Magazine should use more often

Internet Users Around the World

The Internet feels ubiquitous nowadays but there are still large swathes of people without access to the medium that provides essential viewing of cat videos. Which countries are the top users of the Internet? Scale matters so China is number one even though only just over half the country has Internet access. Still that means 721 million Chinese use the Internet and with a 2.2% growth rate, millions more are coming online in the future. Only a third of India has access to the Internet but that country’s large population means despite low rates of usage, it is still in second place with 462 million Internet users. And, India has a remarkable 30% growth rate so that low rate of Internet usage is transforming quickly. Iceland has the highest percentage of its population using the Internet–100%.  Every single person in the country uses the Internet. I would have thought that grandma Bjarkardóttir was disconnected but apparently not. The top ten list for your perusal below.

   

We were absent last week from our INTN responsibilities, traveling to NYC where we visited with family, friends and the tour guides of the modest but cool Louis Armstrong house in Queens. We also saw Ken Griffey, Jr. take his rightful place among the greats of Cooperstown. So we missed most of the chatter of the two political conventions but heard enough to be reminded that rhetoric is unfortunately like food: what tastes good and makes us feel better is rarely good for us.* Sad but true we live in a world where broccoli is better for you than ice cream. Nonetheless, we offer a bit of both as we examine whether China has reached peak coal usage, ponder the EU’s weak economic recovery and track down where those under 20 live. It’s this week’s International Need to Know, providing tasty bones of information in the dog days of summer.

But one more ado, before we jump in, our friend, six-year-old Maya Gladhart was recently diagnosed with kidney cancer. She is as brave a girl as you would want to know, who after having her kidney removed is now facing months of chemotherapy. Fortunately her cancer is eminently treatable and we know she will beat it, but there is also a financial toll that is affecting her wonderful and courageous parents, Pete and Jackie. A You Caring account has been set up and should any of our dear readers like to contribute to help Maya, Pete and Jackie, please do so. Here’s the link to help Maya.

Now, and finally without further ado, here’s what you need to know.

China Peak Coal?

A few months ago” href=”https://gittesglobal.com/2016/01/14/real-peak-oil-self-driving-cars-and-beer-star-wars-and-china/” target=”_self”>A few months ago, we noted that peak oil (usage) is imminent. But forget about black gold, coal usage appears to be peaking too with some claiming peak coal usage in China is already here. After rapidly increasing for over a decade, in 2014 coal usage in China dropped 2.9% and in 2015 by 3.6%. Is this just another underlying sign that China’s economy is not really growing at the rates its leaders claim? Or, is something else going on? According to that great summer beach read,Nature Geoscience, “Slowing GDP growth, a structural shift away from heavy industry, and more proactive policies on air pollution and clean energy have caused China’s coal use to peak. It seems that economic growth has decoupled from growth in coal consumption.” Up until 2014, China’s GDP growth rate and power consumption had a 1-1 relationship. But in 2014, China claimed GDP growth of 7.4% while power demand grew by only  3.8%. Again, this may be an indication that China GDP growth is like my belief each year that the Seattle Mariners will finally make the playoffs–a bit rosy and optimistic. Regardless of the reasons why, China, which represents half of global coal consumption, is a big reason why world consumption of Santa’s favorite gift for bad kids has stalled too. Coal consumption decreased by 0.9% in 2015 after averaging 4.2% annual growth for the ten years before that. Just as with China, lower coal usage may be a sign of worldwide economic stagnation. But if so, this economic malaise could be a bridge of despair to a cleaner land by providing time for the exponentially increasing use of solar to further dampen the use of coal. We may not be at peak coal yet, but there’s a good chance within a decade we will be.

   

The EU’s Slow Crawl

Speaking of slow economies, the EU continues to lag behind the other democratic market economies of the OECD (Organization for Economic Cooperation and Development) as you can see in the chart below. Back in 2007, the EU was already behind in terms of the percentage of the population of 15-74 year olds working. Over the last nine years, the gap has increased. In the OECD as a whole, the percentage of that age bracket working has finally reached the 2007 pre-financial crisis level. In fact, Germany and Chile are above the pre-crisis level as is Turkey (although with all the teachers, judges and journalists now out of work thanks to the purges of Erdogan, their employment percentage is surely decreasing!). For much of the rest of the EU, however, tough times remain, including and especially in Greece, Italy, Ireland and Spain, who are all still below pre-financial crisis levels. The Brexit vote and other fracturing events in the EU take place in a context of continued economic difficulties. The fracture is a symptom of a long-standing more challenging disease–whether Europe can heal itself is a huge question for the world economy.

    

Follow the Young

We’ll admit to having a bit of an obsession with demographics, but there are worse obsessions to have and we’re fairly certain we will not end up in jail or rehab over this one. Nonetheless, we are compelled to inform you of where the under 20-year-old set lives. We’ve noted before that Africa has the youngest demographics. According to the World Bank, in 40 of Africa’s 54 countries, over half the population is under the age of 20.  In Niger, remarkably over 60 percent of the population is under the age of 20. The United States has more people (25.4%) too young to drink than China (23%). France has the most south-of-20 people in Europe, a continent full of aging demographics. Japan, of course, has the fewest under 20s overall, though Germany is not far behind.  Overall, a third of the world’s population is under the age of 20. Follow the young people if you want to understand our future for economics, violence (at least in terms of young men) and good times.

  

*Although at least one speech we saw was a full, balanced, nutritional meal. To find out which, you will have to buy us a beer, a fine companion to such meals.

If you have a spare moment and dime, don’t forget to help Maya and her family. Donate here. 

  

Recently, in the midst of all the news of people trying to separate themselves from each other, whether in the recent UK election, current shenanigans in the United States, violent attacks in Turkey, Saudi Arabia and elsewhere, we were reminded that the world is more connected than ever before. A cinematographer in Tehran liked the Facebook page of a short film we made a few years ago with our friend, Michael Williams, called Please Hold. It’s a short (only 7 minutes) dark comedy about customer service. So even as the world is seemingly yelling collectively, “Get off my lawn,” it’s good to remember that we are all–including Iranians–united in our frustration with technical support. But even being caught up in such idealism, we are not distracted from warning bank shots in Italy, changes in countries’ economic status and locating the world’s megacities. It’s this week’s International Need to Know, driving far better than a Tesla down the international road of knowledge and information.

Without further ado, here’s what you need to know.

Italy’s Bank Shot

Early this year we noted the high rate of nonperforming loans in Italy. In the large turbulent wake of Brexit, as everyone waits for the next British made footwear to drop, markets and pundits are paying more attention to Italy’s challenges. In the chart below, we see that the non-performing loan rate in Italy is up to 17% (only surpassed by Greece, which at this point we should probably rename “Yikes”*). Italy is the third-largest economy in Europe, but it has not seen GDP growth rates above 2% since the 1980s. Italy is also a great illustration of the world’s aging demographics which we’ve referred to in this space. The median age in Italy is 45. Over a fifth of Italians are now senior citizens which is a higher percentage than in that mecca of retirees, Florida. You could turn Italy into a Disneyworld theme park for the movie, Cocoon. Earlier this week, Italy’s regulators banned short selling on Italy’s third-largest bank, Banca Monte dei Paschi Siena, whose stock has fallen, oh, uh, well, 99% from its 2007 highs. The EU Commission, which in the past was hardline on Italy and its banks, is now allowing the Italian government to use guarantees of up to $150 billion for short term liquidity support. Brexit, as we suspected last week, is forcing the EU to change. But regardless of what the UK does, the EU has deep ongoing structural challenges that have to be addressed to deal with its deep ongoing economic challenges. The problems in Italy are not new. New pressure to do something about them is. The race is on.

      

*As in: “If you go to Yikes, you should really check out the Parthenon.”

Moving on Up (and Down)

Every July, the World Bank revises its classification of world’s economies based on estimates of gross national income (GNI) per capita.  The categories for countries are low income; lower middle income; upper middle-income and high income. This year a number of countries moved into higher categories with Cambodia going from Low to Lower Middle, and Georgia from Lower Middle to Upper Middle. But two countries, like English Premiere Football clubs relegated to a lower division, fell from High Income status to Upper Middle:  Russia and Venezuela. We look forward to Putin and Maduro taking the walk of shame.

 

Meet Me in the City

As you’ve probably read, the world is urbanizing at a rapid rate. Everyone it seems wants to live in big cities, even as it turns out, Kevin Durant.  We wonder if 100 years hence, should our planet still be spinning reliably on its axis, whether great swathes of the world’s countrysides will return to their previous natural state as humanity huddles in tiny pods (save the lucky few in their penthouses and stray mansions) in huge megacities. While we wait to find out, we note that most of the current megacities in the world are located in Asia. In the UN graph below, Tokyo is listed at number one, followed by Delhi and Shanghai. America barely makes the top ten, with New York (where we’re headed in a few weeks) coming in at number 9. Africa is urbanizing faster than anywhere else in the world and if that trend continues, will soon dominate the top 20. That may, or may not, be good for elephants, rhinos and other endangered animals.