TRIGGERnometry - Dr Linda Yueh on Inequality, China and the End of Poverty

Episode Date: June 19, 2018

Economist Dr Linda Yueh discusses the economics of inequality, the gender pay gap, China, North Korea, the death of the American Dream and ending poverty with the guys at TRIGGERnometry. Find us on Social Media: https://twitter.com/triggerpod https://www.facebook.com/triggerpod https://www.instagram.com/triggerpod About TRIGGERnometry: Stand-up comedians Konstantin Kisin (@konstantinkisin) and Francis Foster (@failinghuman) make sense of politics, economics, free speech, the culture war, feminism, AI, drug policy and WW3 with the help of presidential advisors, renowned economists, award-winning journalists, controversial writers and notorious comedians. Learn more about your ad choices. Visit megaphone.fm/adchoices

Padaday presents, in the red corner, the undisputed, undefeated weed whacker guys. Champion of hurling grass and pollen everywhere. And in the blue corner, the challenger, extra strength, Hannity! Eye drops and work all day to prevent the release of histamines that cause itchy allergy eyes. And the winner, by knockout, is Padaday. Hadiday, bring it on. Hello and welcome to Trigonometry. I'm Francis Foster.

I'm Constance and Kissen. And this is a show for you. If you were bored of people arguing on the internet about subjects they know nothing about. At Trigonometry, we don't pretend to be experts. We ask the experts. We're here at the world famous Angel Comedy Club and our amazing expert guest this week

is an economist, author and the presenter of several series on economics. Linda, you welcome to Trigonometry. Thank you. Good to be here. Linda, would you tell us a little bit about your... personal story about how you came to be literally sitting on this seat in your career? Well, I'm an economist. I'm also a broadcaster. So I am at Oxford University. I'm also at London Business School. But that's part of what I do. The other part of what I do is I'm also a broadcaster. So I have presented a number of TV and radio programs for the business.

BBC. I was the BBC's chief business correspondent. I was economics editor at Bloomberg TV. So I find myself in a very, well, a very fun mix of things to do. So doing teaching economics, researching economics, but also getting to talk about economics. And I have just finished a book that brings both of those sides together, talking about economics in an accessible way to a non-specialist audience, basically normal people. Like us, basically. Finish a book called The Great Economist, How Their Ideas Can Help Us Today.

Oh, wow. And I'm reading it at the moment. It's absolutely fascinating. I was just saying to you before we started the show that it's eminently readable for people who are not specialist in economics. Thank you. Well, I guess we've talked about a moment ago.

One of the quotes I was happening in back of my mind is that the former U.S. Congressman Dick Army defined economics as the science of telling you things you've known your whole life, but in a language that you can't understand. So I have avoided that. Well, that's why we do the show, is we'll try and break more complex things down

when we bring on amazing experts like you to actually explain to us what we're trying to understand. So you talk about the big challenges that the economists of the past could help us address and how their ideas could do that. And the number one challenge that I think you raised in the book earlier on is growth, right? That's something that you bring center stage.

And this is going to sound like a very, very stupid question. But why is growth important? Growth is important because it gives people a sense of possibility about the future. So if you think about countries which are stagnant, so actually Japan comes to mind, it's a rich country, it's the world's third biggest economy, but it's essentially being stagnant for about three decades. And when you go to Japan, you get a sense that people are not that optimistic about their future. And so I think one of the most important. important things about thinking about how economies can grow is what possibilities for employment,

for entrepreneurship, it offers so that people can look to the future and say, yeah, I think the future looks brighter. And I think that's probably the main reason why economists look at growth. But I would also say, especially for rich countries, I think we're in a privileged position where we can think about the quality of growth. So in the book, I stress that it's not just the speed of growth, it's actually the kind of society that you want to live in. So one of the chapters is called Is inequality Inevitable? And so by taking a more holistic view about why we would look at economics as a way, a set of tools to get to outcomes such as better economic prospects, but also creating a society with good standards of living, less inequality for everyone.

I think that's where the economic tools are really useful. But I should stress the aim of how much inequality or what shape the society takes. Those are actually political aims. Economics is the tools to help you analyze the route to get there or not to get there. No, it's very interesting you were talking about inequality. I've been reading a lot recently about how the millennial generation are actually going to be one of the first generations that are essentially less well off than the previous and the baby boomers. Do you think that that is going to be a major problem for society?

I think it is. I think in Britain, I think a lot of that is seen in the housing market. So I think the latest figure say that people over the age of 50 control three quarters of the housing wealth in the country. Wow. And in America, the idea of the American dream is that regardless of your background, you have the ability to move up. And that's also not really true anymore. And so I think that will have implications for this kind of outlook towards the future that I was describing a moment ago.

And that's why I think looking hard at how you can resolve. economic challenges like slow growth, inequality, and all these things should be front and center in terms of our public debates. Or debates on podcasts like this one. Well, going on that debate, then you talk about, you mentioned the housing kind of people holding onto housing who are older. Francis and I have been talking about this all the time. And one of the things I was saying was it's not Russian oligarchs and Chinese billionaires

that are doing this. It's actually, my opinion, is it's the government policy of propping up the housing market. Does that make any economic sense, or am I talking nonsense? No, no, I think the help to buy scheme, for instance, the government has implemented. It helps first-time buyers get onto the housing ladder. But if you have the same supply of housing, but you up demand for housing, it has the effect of raising house prices. So that's not quite solving the problem, which is you need a bigger supply.

of housing that's affordable because higher supply pushes down prices, house prices. It makes it more affordable for people. So I think that is spot on. I think there are ways the housing market could be regulated. And at the moment, we're just not really seeing enough supply. So we need to build more homes on the one hand. But on the other hand, if politically it's a massive problem for the government that house prices fall because people feel less wealthy, they then don't vote for the party.

You're very good. That's called the wealth effect in economics. Oh, great. I know what I'm talking about. Well done. You're learning. Is that something that's ever going to get fixed? I mean, if it politically and electorally, it makes no sense to do the right thing in this sense.

Is that ever going to change? I think one of the reasons why housing is, always on the agenda. There are new initiatives now, for instance, to take away land from councils which are not a building number of houses is because of the issue we talked about a moment ago, which is inequality.

So if you have a great intergenerational divide, the younger people who are part of generation rent, if they can't get on the housing ladder or feel it's going to be out of reach for probably until their way into their middle age, that is not going to make for a happy electorate. So those are voters. So yes, there's certainly, you wanted the housing market to be buoyant.

You want prices to be, nothing dramatic happening to prices. But I think even the baby boomers would say that no one really expects the housing market to be rising the way that it used to. And maybe that's a good thing because it does increase the prospect. that younger people can get on the housing ladder, and that would help with social cohesion. And importantly, as I said a moment ago, they are also voters,

such they could voice their dissatisfaction at the polls. Yeah, it was quite interesting, as you touched on the United States, and you were saying about the American dream, which is to better yourself and to, you know, essentially rise up through the rungs of society, and you touched upon the fact that that really doesn't seem to exist anymore.

Are you sort of saying, Linda, that the American dream is dying? I think the American dream has always been an aspiration. I'm not sure if the economic reality really has matched it for some time. This is actually a work done by Joseph Stiglitz, the Nobel Laureate. His latest book actually traces I think the disconnect between what the American dream represents and the reality of a lack of social mobility for lots of young Americans. So what is the American dream?

White pick a fence, a house, a good job. I think that's sort of the trappings of it. And you're the aspiring, thinking you can do that regardless of your own background, is part of what makes, gives, I think, America the sense of entrepreneurship that it's had. because in one sense, America is pretty extraordinary, right? The world's biggest economy, very technologically advanced, and they keep producing innovation and innovators. It's not like anyone rests on their laurels.

So that is still there, and there are some who still break through the ranks. They come from nothing, and they end up tech billionaires or what have you. But in Stiglitz's book, he documents that for lots of the, American public, doing better than your parents isn't likely to happen. And so that's, I think, one worrying trend in America. So a couple of economic trends to, behind that, which I do also discuss in my book, is that quite extraordinarily, median income, so that's the income of the person in the middle of the income distribution, the very rich, the very poor. Median incomes have been stagnant in America for four decades. So that means that America's economy has grown,

GDP per capita average incomes have grown, but that's going to the wealthy. So that means that for the average person, incomes have stagnated for a very long time. And the middle class, which is defined as those in the middle of the income spectrum, that has now shrunk to be less than half of the American population for the first time since at least the 1970s. So you have a shrinking middle class, stagnant incomes for 40 years, in a country that by all accounts is a rich country with lots of great innovators. And I think that divide really suggests the American dream is possible for some, but for a lot, it's not really, it's not a reality for them, it's not within their grasp.

Look, I spend a lot of time telling you what's wrong with the world, so let me tell you about something that's actually right. Sleep, specifically getting more of it, better quality, the kind where you wake up and feel like a human being, rather than someone who's been thrown down a staircase. Most mattresses are just layers of synthetic foam and crossed fingers. You're spending a third of your life on the thing, and most people have no idea what's actually in it.

Avocardo green mattress is different. Their mattresses are certified organic, built from natural material, designed to actually support your body properly rather than just hold you in one position until morning. The craftsmanship is real. These are mass-produced objects. Someone has put thought into them. I'll be honest. I'm not the person who thinks carefully about where he sleeps. My dating history will tell you that. I'm the person who's been on the same mattress for eight years and called it fine. But the older I get, the more I notice that fine isn't actually fine. Your body tells you, if you're going to invest in anything for your home, your bed is.

is the one that pays you back every single night. Avocado products are made, not manufactured, and thoughtfully crafted with real materials to deliver lasting comfort and support. Go to avocado greenmatress.com slash trigger to check out their mattress and furniture sale. That's avocado green mattress.com slash trigger. Avocado green mattress.com slash trigger.

That's very interesting. And another question I wish to ask, it's two questions, actually. how much of a part does race play in that? Is it, are you more likely to succeed if you are white? Are you less likely to succeed if, for instance, you were black or you come from a Latino-Hispanic background? And also as well, do you think that ultimately gave rise to somebody like Trump,

who famously said that we need to drain the swamp, as it were? I think socioeconomic background is very much linked to privilege. So I think there is a racial element to it, but I think a lot of it is socioeconomic. So if you're born to a household with college-educated parents, if your parents are professional workers, entrepreneurs, that's going to be a massive determinant as to whether or not you become college-educated

and move up in terms of income. And that, of course, is linked to race in ethnicity and racial minorities in America. And I think what's worrying about it, obviously lots of things are worrying about it, but one of the things that's worrying about it is that America is also the land of immigrants. So part of the American dream is this belief that you could go to America with nothing and you could arrive in Ellis Island or Angel Island from Italy. I'm thinking the godfather. You could, yeah, great film, you know, from Asia and you could literally make yourself into anything you want to be.

And if that isn't actually what the evidence is suggesting, then that is really striking at the heart of what is part of the American identity. Did President Trump capitalize on this? I think he did to a large extent. I think he realizes that despite America's overall prosperity, there's a lot of people who feel left behind by the changes that have caused some of these trends that we're discussing. So globalization is part of the reason why you see this divide by this. actually not the biggest factor. The biggest factor is technology. So technology, automation is why you have a hollowing out of mid-scale jobs, which is contributing to stagnant median incomes and the shrinking of the middle class. But technology is

harder. It encroaches, it's slow, it's kind of pervasive but not in a tangible way. It's much harder to grasp that on the campaign trail than if to talk about globalization, unfair trade, immigration. And so I think a lot of the rise of populism, which is not limited to Trump, is related to this economic malaise that has characterized America very quietly, but it's now coming to more of the forefront.

It's interesting. I think we've started talking about inequality. We've probably said the word inequality about 100 times since we started in 10 or 15 minutes. The day that we're recording this, figures have come out here in the UK about the gender pay gap in different companies. What do you make about this whole conversation?

Because the figures that we're seeing, essentially, they're averages. So they don't take into account the fact that men and women have different positions within companies. They're very broad-based measurements. So I imagine for someone who's in a economist-like-you, you'd want to drill further down in order to understand what they mean. What can you tell us about the gender pay gap, what's causing it, what are the different factors that affect it? I think there's been a lot of research on why it is you have a gender pay gap. And I'm not sure that we fully understand it's yet. But the British government's forcing companies to declare in quartiles the pay gap between men and women as a huge level of transparency.

So what you tend to find in these companies is at entry level jobs, men and women tend to be paid around the same. The gap is not huge. But as you move up the ranks, the gender pay gap widens, and it tends to be the highest in the top quarter. So what that's suggesting is that women are not being promoted to senior positions with higher pay. It could also be suggesting that women are not as able to ask for raises or bonuses, and partly perhaps that's a lean-in argument that Cheryl Sandberg has made, but maybe it's also an unconscious bias on the point of, on the point of, on the part of employers where if a woman asks for something, maybe it's viewed less favorably

than if a man asked for it. So I think unconscious bias is probably part of the explanation. Quite a lot of the economic studies on gender suggests that once you control for observable characteristics, such as your education, your occupation, your level of experience, your years in the job, even taking into a case. labor market interruptions, such as if you go and have children, it's still the case. There's an unexplained portion of the gender gap. And how big is that?

It varies across countries. I think the British reporting has given us the most immediate data. I think something like eight out of ten firms have a substantial gender pay gap. And I think across industry, some of the pay gap is as small as maybe two, three percent. But if you get into finance, construction, the gender pay gap is in the double digits. But are we talking about like-for-like comparison? This is the counter-argument I'm putting to you because I was actually on Mumsnet this morning, reading the forums about this issue because there was a particular airline,

I don't want to mention their name, that had a big one. And there were people discussing women from both sides. And one of the arguments that was made by many people there is when they're making these comparisons, they're not a like-for-like comparison. So you're not comparing someone in the same pay grade or someone. someone in the same position. So the reason I'm asking you is I'm trying to understand if say two people, man and woman, do the same job and there is that unexplained difference in their pay, what kind of difference are we talking about in terms of these people who are doing exactly the

same thing with the same qualifications? It depends on the industry and it differs across countries as well. So I think the, you know, I think probably as a rough rule of thumb, women are probably paid, if you looked across studies over a number of years, 10 to 20 percent less than men, something like that. But it's bigger for some industries like construction and finance. So what the government's pay revelations have shown is that they have, it's not completely comparable. If you're in the top quartile of wage earners in a company, then you are, you're unable, without declaring everybody's income, which some countries in Scandinavia, I believe, do, without actually

declaring everyone's income, there's no way you could do what I described in economic studies, which is to control for your level of education, your skill, your experience. And let's not forget, as you rise up in corporate ranks, a lot of soft skills are involved, which are very difficult to measure. But what you do find, and this is also part of the reporting, is people in the top quarter, a quartile of income, it's also broken down in terms of numbers of men and women, and there are fewer women in senior jobs.

So another way to look at it is why are senior positions not being filled by men and women equally if they enter at the entry level about equal numbers? what you find is a tailing off of women compared to men as you move into the top. There was an interview which went viral on Channel 4. I'm not sure if you're aware of it. Jordan Peterson, he's a professor of psychology Canadian. And he was saying that the reason that there's this big gender pay gap is that a lot of getting a higher pay grade is due to reasonableness.

And men tend to be more aggressive when it comes to arguing. negotiating a salary. And he said that women... And also in their general behaviour of work in general. And their general behaviour, whilst it is not as socially acceptable for a woman to behave in that manner, would you think that would impact it? Or do you think it's something far more complex? I do think, I mean, it's, when we ascribe things to unconscious bias, it's just sort of a

catch-all because there must be. behaviors that when men do it, it looks more acceptable than if a woman were to do it. And I can think of instances where it works the other way. But what we do know is unconscious bias also captures a concept called cognitive dissonance. So people like people who are like them. So you understand people who are culturally similar to you. maybe you share an interest in similar interests. And I think that's part of the unconscious bias.

So maybe with greater transparency, what that allows people to do is to say, okay, have I really thought hard about the qualifications of the applicants for this job or how much of what I'm basing it on is other unarticulated traits? And where it gets tricky at the senior levels is that soft skills of leadership are very hard to objectively assess whether you're good manager. It's not really something that comes off your CV because you have so many years of experience or training. And I think that's why at the senior levels,

you do find a bigger gender cap, both in terms of income but also in terms of promotions and employment. But quite a lot of progress has already been made. I think you already see, for instance, women going on to boards. There's a lot of focus on putting women on the executive track, So I think there have been a number of policies and efforts around this. But I think what's probably we shouldn't expect is for this issue to be solved quickly. As in now that we see the numbers, I think there's going to be quite a lot to debate for some time around why it exists, what can be done about it,

whether it's, you know, and this is not something it's just happening here, it's happening in different countries around the world. So, Linda, you wrote a really fascinating article in The Guardian that I read about the trade war between the United States and China and Trump is saying that he wants to implement it. And you think this would be disastrous for both countries. Could you give a little bit of explanation as to why? Yeah, anything that has war in it is probably...

that's a simple way of analyzing. I think the difficulty of the U.S.-China trade tension, let's not use war for the moment, is that I think it almost certainly will raise prices because when you impose tariffs, that's just a fancy word for tax. So you're just going to tax things. and both the U.S. and China obviously produce a lot of stuff.

The world's two biggest economy. So we're talking about higher prices, and lots of us buy stuff that are made in China and made in America. So we'll probably be paying higher prices as well because they're slapping on like 25% taxes on products. So I think that's not very good for consumers anywhere. And I think what's potentially really worrying about the U.S.-China trade, dispute is that they are talking in a parallel, quiet, backroom way about resolving the trade dispute.

But that hasn't really stopped these further rounds of tariffs and the next stage is going to be restricting investment. And that's potentially really economically damaging because trade isn't actually Portugal selling wine to Britain and Britain, you know, selling back textiles. Trade today is based on multinational companies setting up supply chain. So Apple produces the iPhone in different parts of the world. It gets partly finished in China. It gets sent back to the United States. So if you restrict investment, you're affecting firm's abilities to decide where best to locate their production. and that is hard to reverse once you start down this road of making supply chain distortions.

In other words, you can reverse a tariff tomorrow. But once an investment decision is made, that's very difficult to change. And that affects people's employment, affects taxes, it affects a local market. And so I think this is all, if this is the next step, really quite worrying in terms of where this potential trade war is headed. They're not just looking at tariffs. They're looking at almost that kind of economic nationalism. And this is somewhat consistent with what President Trump has said. He wants American companies to bring production back to America, but they went overseas to produce things because it was cheaper and more efficient. So that's also going to

raise costs and prices for Americans. And then the final thing I find really worrying about all of this is who's going to resolve this dispute if the Americans and the Chinese can't agree quietly, which so far they haven't been able to agree on how to stop this escalation. The World Trade Organization is the body that oversees global trade. And President Trump has described the WTO as a disaster. And if he pulls America out of the WTO, I think that would upend the global trading system as we know it. So the global trading system was actually formed based on American rules and American standards, but it's provided more of a level playing field.

So that means that a developing country like Thailand can take America to the WTO to say your standards on nets is unfair. That's a protectionist measure. It has nothing to do with the nets. And that's exactly what, and they won. So prom producers in Thailand couldn't sell their prongs to America because they weren't using the right kind of nets. but before the WTO, they make that argument and they win, America backs down. If America pulls out, then I think we are really going back to the law of the jungle, which is bilateral resolution.

And to me, that would be the most worrying outcome of a potential trade war. Do you think that the number one, that the Americans are going to back out, and do you think that Trump's stand against globalization will work? I think the Treasury, the Commerce Secretary, Wilbur Ross has already gone on air to say even physical shooting wars end in negotiation. So what they've been trying to do is to calm markets. So markets are pretty unhappy at the escalation of trade tension. And so I think they're trying to say hint at this is just the way of getting China to open its markets.

And to be fair, China's markets are relatively less open than the United States. But it's also not true that the U.S. is the least protectionist country in the world. The U.S. has the same tariff levels as the European Union, another target of President Trump. So I think will this work for President Trump in terms of his voters, his electorate, I think if he got China to open up a bit more, that would work, if the only way to reduce the trade deficit is to reduce imports make those more expensive, I don't think that's going to help most of his voters. So there's two ways to reduce a trade deficit. It's a difference between exports and imports.

You can either import less because it's more expensive and then therefore your trade deficit narrows or better export more. And that requires opening up China's markets. So I think if you were to open up China's markets a bit more, I think he would view that as a win. But China's a hard negotiating partners. So China is targeting their tariffs on Trump voters districts, including soybean farmers, and also manufacturing products in the districts of Congress, members of Congress. Wow. So they're literally trying to hit them where it hurts. Exactly. And there's midterm elections coming up in the United States. Congress gets, the House of Representatives is reelected every two years. A third of the Senate is re-elected.

every two years, the six-year terms. So you're hitting members of Congress and saying, do you really want economic damage here, especially when the Republicans are free trade party? And then that would, and there's already some pressure coming from Republicans telling Trump to sort of, you know, not escalate this. And remember, and this is a really, you know, another kind of another step way outside the normal. discussions is there's even talk in Congress of restraining the president's powers when it comes to trade. So the president's powers on trade is a delegated power from Congress, which is the legislative branch. So Congress, in theory, could restrict the president's trade powers. And that would be extraordinary.

That's very interesting because I was just about to ask you the opposite, because the opposite movement seems to be happening in China where the power is being more centralized and more in one man's hands and for however long we don't know. What is happening in China and why is it happening in terms of the political structure and system? Well, President Xi Jinping has, I think, set himself up to be president indefinitely. I think President Trump joked that something they should try in America. Yeah, yeah, yeah, yeah. I think Xi Jinping is politically very powerful. That's clear. from what he's been able to do. One of the, I think, challenges around whether he can really be president indefinitely

is that one of the tricky things about China's economic development is that it's happened without political reform in any substantive way. So it's always the case as a country becomes richer. People need their policymakers to be accountable. and if you have a president you can't get rid of, before Chinese elections were not really elections, and presidents served two, five-year terms. I'm from Russia. I know what you're talking about. And so I'm not suggesting that it was, you know, that may not be much different than it was.

But I think China is now richer than it was 30, 40 years ago. So if you don't have a safety valve for people's dissatisfaction, then delivering on the economy. becomes very important. And Xi Jinping has really focused on local official corruption to try, because he knows that's an area that the Chinese people are just very unhappy with local officials taking their possessions, being arbitrary, all of violent, all of those things. So his policies are trying to keep him in power,

stabilize the system, address where a lot of the grievances are. but I suppose that the economy slows down, will the system work? And I suppose every time I think about where China is headed, to me, that's one of the biggest unknowns, which is at some point most economies have to have some degree of rule of law that's independent from the politicians so people can protect their homes, protect their livelihoods. And in China, that's very weak. and that's unlikely to get any stronger when you have centralized political power.

It's very hard to see a judiciary that might be able to stand up to the executive. Do you think that China will ever become a democracy or do you think that's a forlone hope for our lifetime in particular? I find these things really hard to predict. The history, if you look around East Asia, is that countries have become democracies through a really rocky path.

So if you look at South Korea, if you look at Taiwan. It's one of those things where I still remember the Arab Spring when you first had the initial, you know, pretty small incident in Tunisia, as in it wasn't Tahrir Square straight off. And it's just really hard to predict what could spark something that really brings about change.

But no, at the moment, I think China has its own version of democracy as an intra-party competition, but that's being eroded by Xi Jinping's centralization of his power. So, you know, like the Arab Spring, I find this area very, very difficult to assess and predict. Well, of course, an advantage of a more authoritarian system is continuity and strength and power as a country, isn't it?

There is that element to it. And do you think what's happening in North Korea now is an example of China flexing its muscles essentially? I think with North, well, I think North Korea has been a headache for some time for China because it's a very unstable regime on their doorstep, the bulwark between it and South Korea, which is aligned to the United States. This is left over from the Cold War. And I think whether there's no question that China is the most influential. player when it comes to North Korea. And the fact that the North Korean leader made a

initially quite quiet trip to Beijing where nobody was sure if he was there or not, you know, in a train probably suggests that China is indeed powerful in this respect, because he was, they discussed what might be discussed between President Trump and Kim Jong-un. And there's never been a meeting between the North Korea leader. and the President of the United States, but the North Korean leader went to China first to, and that tells you a lot. By the way, if President Trump were to sit down

with Kim Jong-un, and they resolved the North Korea issue, I mean, like, wow. Yeah, absolutely. I was just gonna ask you that that could be a huge success story for Donald Trump, could it not, if that were to be achieved? Yeah, if he did nuclearized North Korea, if he normalized it.

But here's another part that would be interesting. So say, They have the summit, and North Korea agrees to dismantles nuclear weapons, which, okay, this is all a bit of a long shot. And it began to talk about reunification with South Korea. A unified Korea, which is attached in terms of a land border to China, isn't necessarily something the Chinese would want, because a unified Korea is probably going to be Western-orientated. And so China would want the status quo. And so even if the South Koreans and the Americans think the only way to stabilize North Korea

would be to remove the DMZ, normalize, integrate, all the kinds of things they've been hoping to do for a very long time, I wonder how much support they would get from China for that, because China would be worried about having so clearly U.S.-orientated, country that is on their doorstep. So I think the status quo would be what the Chinese would want. And I think realistically, that's probably what we'll end up with. But who knows? Well, another possibility that's been mooted, of course, is the idea of a soft annexation of North Korea by China, which kind of allows the West to say, well, it's been dealt with the Chinese are controlling. The Chinese don't have a unified career on their border sitting there,

frustrating them because it's a Western ally. Do you think that might happen? Do you think Donald Trump, because that's never happened before because the West hasn't probably wanted that to happen, but now Donald Trump has kind of pulled back America's influence. Could that happen? Is that something that the Chinese would go for and would be interested in? I think they would still prefer the status quo. I think taking responsibility for a regime that, because essentially you would have to take responsibility for the Kim regime, I think it's probably a step they'd be very quite unwilling to take. So the Chinese have operated for a long time based on a doctrine of non-interference.

They don't interfere in the affairs of other countries, and by implication you don't interfere in the affairs of China. So they don't, for example, mess with congressional districts in the United States or anything like that? No, unlike perhaps some other countries. Okay. And another thing on China that we wanted to talk to you about as well is there's been a lot in the news recently about the social credit system. Can you tell anyone who doesn't know anything about it like us what it is, why it's happening? What are the consequences of it? Just anything, really. Yeah, it's very big brotherish. Of course, now we've realized with Facebook. It's happening here as well. Yeah. I think, well, the Chinese. control the internet pretty closely. So the great Chinese firewall, I think, is pretty well known.

But they also monitor pretty actively what's posted on the internet. So this idea of the social credit system is if you're a good citizen, then they're going to develop a digital profile of you that could end up getting you cheaper train tickets if you're good or things like that. How do they measure your good citizenship? How do you tell if someone is a good citizen? Yeah, it's a good question. Probably, I guess, if you post good things about the country. You're a patriot. I don't know.

But I read all kinds of crazy stuff. Like if you're j-walking, if you're walking on the street rather than the pavement, there's facial recognition cameras can tell that you're doing that. And that effect, you're correct. Is this just kind of conspiracy stuff or is that part of the package? No, we'll have to see. It's very hard to know what they're actually,

I'm sure they're monitoring all of that. But what goes into the algorithm, I don't really know. But it is worrying the big brotherish. And I think when they first, I started discussing this system. I think a lot of people were thinking, oh my gosh, you know, this is really, yeah, this is Orwellian.

And then we find out that in the West, we've been tracked digitally as well. And now I kind of feel in general we are obviously not as extreme as what China is proposing. But I think our, yeah, I think our digital lives have been tracked probably far more than we realize. One thing I found very interesting when I visited China, which was a few years ago, no it was 2006, is the division in wealth.

It's completely changed. Oh, right. Okay. Everything you ever knew about China is completely wrong, made. Just forget about it. The economy doubles in size, you know, every 10 years, so it's completely changed. But go on. You'll ask your super question.

Ask your irrelevant question. But one thing that always struck me about the place was, and I don't know, I mean, it is to, we have it in all societies to a certain degree, but the horrendous difference between rich and poor, like going to a mall in Beijing, and it was like a, I remember I walked into one shop, and it was like a superstore for Gucci. And just people buying just bags and bags and bags of, you know,

of products, you know, Gucci products that are worth literally thousands and thousands of dollars, and then you go outside, and there were people there were unable to afford a bowl of, rice I mean surely that must create tension in society where you have this ostentatious display of wealth and then you have extreme poverty especially and somebody told me they looked down about I mean I might be wrong with this they made the Chinese society looks down on people who are from rural or agricultural backgrounds yeah I think they I think for quite a long time urban

dwellers think that migrant workers you know from the countryside they do the kind of meniote Inequality in China is a massive problem. At one point, China was more unequal than the United States by a measure of what's called the Genie Coefficient, which measures inequality. That's extraordinary. China is a communist country. Everybody's supposed to be equal, right? Yeah. So, I think one of the challenges that Xi Jinping's administration is going to have to try and face is when you have, I mean, income inequality has already has plateaued. It's actually not gotten

worse, but it's plateaued at a very high level, is what they would do about it. And it's not clear a lot has been done about it. But in China, you also now have, and this is under Xi Jinping's, one of his policies, and they talk about the Chinese stream, which is even if you are from the countryside and you're a migrant worker, then you too can have a house, a picket fence, a car, a good job. So it's basically a mirror of the American dream. And so in that way, communist China is very similar to capitalist America because they're both not going to reduce inequality in the way that you would see in Northern Europe, which is more equal because governments redistribute incomes. to reduce inequality. Both America and China seem to be using social mobility

and economic opportunity as a way of counteracting very high levels of inequality. I'm not sure that we'll see how it works out. I'm not sure that is going to be socially acceptable given how vast the income divide is in a country which is still only a middle income country. So it's not as if on average people are well off. On average, average incomes are $9,000 US dollars per year.

So it's still developing emerging economy to have this kind of inequality. We'll see how it sits. But I think the prognosis for it is that they seem like they're going down the American route. We'll do one more question, China. We'll move on. I remember at Kilconomics hosting a discussion between you and other experts on the subject of China. And one of the things that I remember absolutely struck me is that I'd come into into the conversation thinking that China's this big threat to the West and everything else. And what emerged actually as a result of one of the contributions that you made is the idea that China's financial system has got a lot of problems in it.

And those problems could affect China, which then would affect the rest of the world. And basically the idea being that China's biggest threat to the world, it's not its intentional actions. It's the collapse of its financial system potentially. Can you talk a little bit about that and tell us what that's about? Yeah, so I think China is likely to have a financial crisis. All major economies do. The only question is how big and when. And I don't know the answer to either of those.

Well, I remember you said you'd been predicting it for 10 years and it still hasn't happened. Well, I've been warning about it for quite a long time. And that's because they have such a legacy of debt from different, you know, there have been massive buildup. of debt since the 2008 crisis. So I think it matters a lot for the rest of the world because China's the world's second biggest economy. And we know that countries, when they have a financial crisis, and again, this depends on the scale, but data in China isn't very good. And so if China ends up having to deal with a banking crisis or something like that, the economy is likely to

stagnate. And for a lot of countries, the stagnation is a decade, or in the Japan's case, two decades, three decades. And that would really be a massive drag on the rest of the world in terms of growth, because China at the moment is a bigger contributor to driving global growth than America. And so we should all be quite concerned that China, whether China can deal with this debt problem. Maybe it can, but I wouldn't rule out any major economy having a financial crisis stemming from something. It's just, it's very unusual not to have one. It's more usual to have one. There's a book by Reinhard and Rogoff where they basically track over the last two centuries, all major economies have crises at some point. And China, in its current form,

since market-oriented reform started in 78, has not had a crisis. That's a very long run. So hopefully it'll continue, but I'm quite worried. This is the positive note of the whole show. Perfect. One of the things that you've talked about a lot in your talks and in your lectures is the process of ending global poverty. And you've mentioned the fact that a lot of progress has been made. I think you've said that since 1990, about a billion people have been lifted out of extreme poverty.

And then obviously if you go back to kind of the start of capitalism, it's pretty much most of the world that's been lifted out of extreme poverty. Where are we with that and what's happening? And also, how is that happening unevenly around the world? Because that's also another issue that you mentioned in terms of Africa and China and so on. Yeah. So the end of poverty was my TEDx talk. And probably the two things that I stress there is we have a very ambitious target to end extreme poverty by 2030 that's been adopted by the United Nations and all countries around the world.

But the second thing I stress is past performance doesn't necessarily predict future performance. And the reason is because we are at a historic point. One out of 10 people live in extreme poverty, less than $1.90 per day, adjusted for what a dollar buys in their country. That's the lowest it's been around the world through history. But a lot of that is due to China's remarkable growth and growth in East Asia. What you found, so you mentioned there, one of the stats is, since 1990, a billion people have been lifted out of abject poverty. But since 1990, sub-Saharan Africa has seen the absolute number of people in poverty increase,

even though it was the second fastest growing region in the world after Asia. So growth, if it's unequal, benefits people who are rich, and it doesn't lift those at the bottom. So yes, growth in China and East Asia is why we're at this historic point. But to eradicate poverty requires lifting the remaining 767 million people, half of whom are found in sub-Saharan Africa, out of poverty. And what you've worked before probably, well, didn't work, to raise Africans out of poverty over the past few decades. So it's unlikely we need to try something else looking forward.

But the good news is most people recognize that, that to deal with poverty now in Africa and in South Asia is going to have to, you're going to have to think of new models, new ways of incorporating, for instance, what I think of as more grassroots civil society organizations, they're reducing inequality as possible. part of that. But I think there is a recognition that something different has to be done because what's been done before just, well, it hasn't worked. Well, China growing more is not going to solve the problem of poor people in Africa is basically. That's right. And growth alone in Africa

isn't going to do it. So we're going to have to think of new ways of doing it. And why is that, why is that different in Africa as opposed to some in other places? Why is it the growth that doesn't have the same impact? Part of it is inequality. So if growth, growth happens and the benefits accrue to the rich, then that will raise the growth rate of the economy, it will increase GDP, but the benefits don't go to those who are poor, and therefore they remain poor. The answer also, even countries which, like Tanzania, is not in the midst of conflict, their numbers of people in poverty have increased as well.

So it's not the kind of the correlates we do. typically look at are not the reasons, are not going to be enough. You can't just focus on no conflict or promoting growth to live people out of poverty. So there's no easy answer to what needs to be done, but I think there is a widespread recognition that economic development is going to have to look harder at institutions. So these grassroots groups that I refer to, it's something, it's one of my, actually the chapter, one of the chapters in my book is entitled why are so few countries prosperous? And the answer, part of the answer, is that the institutions in these countries need reform. So we've been focused, economists focus a lot on growth,

but actually it's about trying to get the institutions to work better, if that means using social capital or social networks or some other way to make growth more inclusive. But because there is a recognition that something different has to be done, it is possible, given how much nations around the world are focused on this, that we could end up by 2030 eradicating poverty or most extreme poverty. And on current trends, we will, by 2030, live in a world where for the first time, more than half of the global population is middle class. That means earning between $10 to $100 per day, it basically means you can afford a refrigerator. So that's the, that's the, but that's quite a...

I'm not sure a lot of middle class people in Britain are going to go with that definition. But I think, you know, we are on the cusp of potentially a transformative period in the world because there is, I think, yeah, a recognition that we need to think differently about it. And I'm always very hopeful that we will get to this point where, we'll see hundreds of millions of people in the middle class. In fact, I think the projections by the OECD are that there'll be 4.9 billion people who are in the middle class out of a global population of 8.6 billion in 2030, and that would be extraordinary. Linda, so the one thing we do like to do at the end of the show is we're always curious,

because we ask you questions that we think are interesting, but actually we're constantly aware that we may not know the most interesting questions. So what we'd like to ask is, is that an issue or several issues, you think we ought to be talking about or ought to be focusing on that actually no one is talking about or no one is focusing on. Is there something like that that you want to bring to our attention? I think probably, well, this is an issue that lots of people do talk about, but I think we should talk about it more, is the question of why are wages so low? So that's also a chapter in my book. And the reason I think this question is important is because typically when you, if you look

at what matters in economics. It has to be people's standard of living. So when you look at this question of why wages have not kept up with productivity, it gets you into this whole world of trends that we know is affecting our livelihoods, but I don't know that we've done enough research or analysis to understand some of these trends. So for instance, we've talked about globalization and a bit on technology. But technology is one of the, the biggest issues around what happens to the world of work. And automation is one of the issues that's causing this hollowing out of mid-skilled jobs and then therefore depressing median wages. So I think that's a massive issue. And another component of why wages are so low is that workers

in terms of bargaining power have been getting less. So if you look at the share of income, For instance, in America, the trend is very clear. The share of income going to owners of capital has been rising. The share of income going to workers has been falling. So why are workers losing bargaining power, and that's also contributing to their low wages? And this then all gets tied up into this dissatisfaction that people rightly have if they feel they're being left behind

by the growth of a country. So the populist movements we've seen in America and other parts of Europe, I think do reflect the fact that people do not feel, and they would be right, they're not better off than they were years ago. But we're not, I think, thinking hard enough about what to do about these trends. I think bargaining power for workers is one of the hardest things. There is a correlation with unionization, but that's not the whole answer either, because you don't have, as I say, kind of a simple solution to it. But until we get a hold of why it is that people are not being paid what they're actually producing,

because that's what it means for wages to keep up with productivity, that they're going to be dissatisfied with the status quo. If they're dissatisfied with the status quo, then you can get electorates which start to throw out the policymakers they view as part of the establishment and this kind of anti-establishment political mood is linked to people's economic circumstances. And just because you live in a rich country, it doesn't necessarily mean you feel better off. So to me, this issue around low productivity, slow growth and wages is one that we should be much more focused on. There you go. You're not being paid enough.

Yeah. Vote for Brexit. Well done. Yeah. So that was absolutely fascinating in there. Thank you so much. If you'd like to promote anything, your Twitter handle, or maybe your book. We'll have it up on the video as well, but it's at Linda, you, isn't it? Yeah.

Simply that. Linda has a great book coming out. It's out already. I'm reading it. I'm really enjoying it. So I recommend anyone buys that. Thank you so much for coming in. It's been an absolute pleasure.

We really appreciate it. And if people want to follow you on Twitter. Add Constance and Kissin. And I'm at Failing Human, so give me a follow on there. And, well, thank you very much for listening and watching. If you like it, please follow, click subscribe, share it. promote it, retweet it, all the rest of it. And thank you very much.

This episode is brought to you by Netflix's remarkably bright creatures. What if a Pacific octopus held the key to a mystery that could heal your heart? Well, that's Tova's reality. An elderly widow working at an aquarium. Tova forms an unlikely friendship with their cramudgeonly, Marcellus, whose remarkable intelligence leads her to a life-changing discovery. Remarkably bright creatures is now playing. Only on Netflix.