Finland’s basic-income trial did not much affect work incentives
But it made participants happier
Feb 14th 2019
Among the adherents of universal basic income (ubi) are the Italian government, India’s opposition party and Alexandria Ocasio-Cortez, a Democratic congresswoman in America. Boosters argue that a minimum income would be a safety-net for people in precarious jobs—eg, those at risk of being displaced by automation. Others see a way of eliminating complex, even corrupt, social-security bureaucracies.
Naysayers, horrified by the potential cost of ubi, fret that state handouts will put recipients off work. Early results from Finland’s basic-income experiment, released on February 8th, suggest that such fears are overdone, but don’t resolve much else.
Researchers randomly chose 2,000 people on the dole to receive for two years a monthly payment of €560 ($634) instead, whether or not they sought or started work. After a year, recipients were no less likely to be working than those on the dole. On average, both groups worked nearly 50 days a year and earned around €4,250.
Some ubi supporters may be disappointed that the scheme did not increase time worked. Unlike other benefits, which are withdrawn as claimants find work and so tend to discourage them from accepting a job offer, the basic income creates no such disincentive, because it is paid even after claimants take up work. But most proponents do not see employment as ubi’s primary goal. They will be cheered by the fact that the participants reported being happier.
There are limits to the lessons from the experiment. The results only assess its first year. Even the trial’s full two-year duration—a time period settled on because of a lack of resources, and ministerial impatience—may not be enough to observe changes to behaviour, says Minna Ylikännö, a researcher on the project. The scheme was also restricted to the unemployed. Other pilots, such as that funded by y Combinator, a startup accelerator, in America, will also shed light on how low earners might respond if they are paid a basic income. Evidence so far is scant. But that has not stopped Italy, which begins its “citizens’ income” scheme—a variant paying €780 a month to those living below the poverty line—in the spring. True believers need no proof.
Signs of progress in China-US trade talks, but gaps remain big
Negotiations hinge on how to enforce China’s pledges
Feb 16th 2019| SHANGHAI
Last year, when American officials visited Beijing for trade negotiations, they spent more time fighting among themselves than against China. They could not agree on who should lead the talks or what their goal should be. Seeing such amateurism, their Chinese interlocutors reckoned that they had little to worry about.
Many of the same Americans have been back in Beijing for more talks in recent days. But this time they had an undisputed leader—Robert Lighthizer, the hard-nosed United States Trade Representative—and a clear set of demands. Their Chinese counterparts, having seen President Donald Trump’s zeal for tariffs, knew that they had something to worry about after all.
America has set a deadline of March 1st for an agreement. If it is missed, tariffs on $200bn-worth of imports from China are due to rise from 10% to 25%, inflicting more pain on a slowing Chinese economy. That would invite a sharper backlash from China. Its ability to direct firms to shift purchases to other countries has already hurt American exporters (see chart). Chinese officials resent the deadline but it has focused minds. The latest talks, which began on February 11th and were due to end on February 15th, are the third round this year.
All this has fed expectations that the two sides could soon make peace—or at least extend their truce. Mr Trump told reporters that he might let the deadline slide if a good deal is within reach. Another meeting between Mr Trump and Xi Jinping, China’s president, is under discussion. Investors have taken heart. American and Chinese stockmarkets have both risen by about 10% this year.
The outlines of a deal have been in view for a while. China would probably promise to buy lots of goods from America, from soyabeans to natural gas, and allow foreign companies more access to its economy. America would cut tariffs and perhaps promise to remain open to Chinese investors, as long as they are not part of a state-backed assault on sensitive technology.
Yet when negotiators get into the details, problems surface. After many frustrating years waiting for China to open its markets, the Americans suspect that its pledges will be empty. The Chinese suspect that America is motivated by a desire not for fair trade but for thwarting a new rival.
Two key outstanding questions are thus how to measure whether China lives up to its word, and what America can do if it fails. Scott Kennedy of the Centre for Strategic and International Studies in Washington says changes should be measured by China’s economic outcomes, not by its stated policies. The government has, for instance, agreed to scrap rules that foreign firms must find local partners to make cars in China. The test, says Mr Kennedy, ought to be whether foreign carmakers actually do set up wholly owned firms in China and operate them successfully.
And if it is judged that China is not keeping its promises? One option is to submit disputes to neutral arbitration. Mr Lighthizer is said to dislike this idea. Another is to give America the right to slap tariffs unilaterally on Chinese goods—which China is understandably loth to accept. Even as the trade war seems to be cooling, a chasm still lies between the combatants.
This article appeared in the Finance and economics section of the print edition under the headline"An ocean apart"
Germany’s long expansion comes under threat
The slowing is a consequence of its export-oriented model
Feb 9th 2019| BERLIN
Germany’s exporting prowess is so impressive that other countries seek to import even its policies. France recently passed labour reforms inspired by its neighbour to the east. British politicians periodically try to copy its vocational-training system. Governments far and near have sought to emulate the Mittelstand, its small and mid-size producers. Germany’s knack for producing goods desired by emerging economies, notably a booming China, helped it recover rapidly from the financial crisis of 2007-08, and cushioned the impact of the sovereign-debt crisis that subsequently engulfed the euro zone.
Now Germany is propelling the currency bloc into a slowdown. The economy shrank in the third quarter of 2018 and probably grew only slightly in the fourth. Over the year as a whole, gdp grew by 1.5%, down from 2.2% in 2017 and below the euro-zone average (see chart 1). New emissions tests slammed the brakes on car production in the summer; low water levels in the Rhine delayed shipments. But even without these temporary disturbances, says Holger Schmieding from Berenberg, a bank, annualised gdp growth would have slowed to below 1% in the second half.
Domestic-facing sectors, and planned rises in public spending, should help Germany avoid outright recession. But the flip side of exporting success is vulnerability to conditions abroad. Exports make up half of gdp, compared with 12% for America and 30% for Britain. The risks of increasing protectionism and a hard Brexit mean that manufacturers expect another poor year.
After a robust 2017, net exports detracted from gdp growth in 2018, which probably slightly lowered Germany’s mammoth current-account surplus of 8% of gdp. Exports to Britain fell. Those to a number of emerging economies slowed. China’s appetite for German goods became a little less voracious (see chart 2). Volkswagen, a large carmaker, reported a drop in sales to China in the second half of 2018. Wolfgang Schäfer, the chief financial officer for Continental, a car-parts manufacturer, notes that an unprecedented fall in Chinese demand and the new emissions tests dented revenue growth in the car industry. Cars, their parts and accessories make up over 15% of German exports.
There was also disappointment at home. Spending by consumers grew more slowly last year than in 2016-17, despite rock-bottom interest rates, the lowest unemployment rate since reunification and annual wage growth picking up to a heady—by German standards—2.8%. Instead they saved more. Some economists think households are preparing to weather a downturn; others see an ageing population preparing for retirement. Either way, they are unlikely to propel growth this year.
The industrial slowdown seems set to continue. Figures published on February 7th showed that industrial production fell in December. Mr Schäfer expects the first half of the year to reflect a continuation of the declining demand seen in the second half of 2018. Analysts at Deutsche Bank think that data for January are consistent with gdp shrinking in the first quarter. Both the imf and Germany’s economy ministry have marked down their forecasts for gdp growth this year to 1-1.3%.
Worse is quite possible. Three of Germany’s five biggest export markets—America, China and Britain—could suffer sharp slowdowns this year. Trade tensions could heat up. If President Donald Trump acts on his threat to whack tariffs on imports of European cars it could knock 0.2% off German gdp, says the Institute for Economic Research, a think-tank in Munich.
Some cooling, German officials say, is only to be expected in an expansion’s tenth year. Reports of rising capacity utilisation and skills shortages had stoked fears of overheating, even though price pressures remain subdued. In January Jens Weidmann, the head of the Bundesbank, said he saw no need for the European Central Bank to loosen monetary policy. Philipp Steinberg, the chief economist at the economy ministry, points out that social-security spending and income-tax relief will support demand. Tax incentives for research and development have also been agreed on. And if recession looms Germany has plenty of room for stimulus. A fifth consecutive budget surplus last year brought government debt to below 60% of gdp.
But behind these short-term considerations looms a bigger worry: that Germany could lose its competitive edge. Despite recent high immigration, the imf expects the workforce to start shrinking in 2020. Together with lacklustre productivity growth, that will limit the economy’s potential. Businesses and economists want to spur investment, which has been chronically weak, and to upgrade public infrastructure, from roads to broadband.
In an industrial strategy published on February 5th Peter Altmaier, the economy minister, warns that Germany’s economic strengths are not “God-given” and must be earned—particularly as China shifts from consumer to competitor. Proposals include lowering energy prices, and supporting industry and increasing investment with tax incentives. More controversially, Mr Altmaier wants to loosen antitrust rules and protect “national champions” from foreign takeovers, so that they can compete with Chinese behemoths. For all that other countries may want to learn from Germany, its government is looking East.
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