Our digital economy index assesses preparedness across four dimensions: quality of internet infrastructure and engagement of business, households and governments. From Beijing to Brasilia, getting the right mix of smart investment, skilled workforce, innovation capacity and effective governance in place is already tough to do. The 2.8 percentage point decline in corporate profits’ share of national income since 2012 was due mainly to a 2.2 percentage-point rise in employee compensation’s share, with wages and salaries accounting for virtually all of that increase. Data, it must be acknowledged, have their limitations. Searching for a development model, policy makers are now as likely to look East as to the West for an example. By 1932, one out of four people was unemployed. Policies matter. Saudi Aramco reported a 44% collapse in full year earnings, as the coronavirus punched the global economy, oil prices, volumes and refining margins. Also, the bars in the chart go up to 100.4% in 1932 and 1933 not because of some quirk in national income accounting but because corporate profits were negative in those years and our charting software doesn't know what to make of a negative number in a stacked-bar chart. That’s not the end of the story. We use two metrics: the share of GDP exposed to U.S.-China trade, Brexit, U.S. automobile tariffs and other disputes; and a measure of trade uncertainty developed by IMF economists Hites Ahir and Davide Furceri and Stanford’s Nicholas Bloom. The result, in various configurations, has been protectionism, opposition to immigration, unfunded tax giveaways, attacks on central bank independence and head-spinning policy uncertainty. Economic growth but fall in average wages It is possible economic growth could lead to a rise in company profit, but companies do not share this increase in profit with their employees. Protectionism is blocking access to global markets.   Wages for those who still had jobs fell precipitously—manufacturing wages dropped 32% from 1929 to 1932. Corporate profits did rebound a bit in the second quarter, according to the preliminary estimate from the Bureau of Economic Analysis that was released last week along with the second estimate of second-quarter GDP. At an international level: new rules of the road on trade in goods, preparation for the digital surge in trade in services, and renewed momentum in the fight against climate change. The threat of climate change looms. Featured in Bloomberg Businessweek, Nov. 4, 2019. Globally, close to four billion people are connected to the internet. Unemployment rate, change since global financial crisis; labor force participation, latest; projected population change, ages 15-24 in 2015-30, 25-year change in the trade balance as a percentage of GDP, 25-year change in the international migrant share of the population, World Governance Indicators Political Stability & Absence of Violence score, World Governance Indicators Voice and Accountability score, Exports and imports as percentage of GDP; Global value chain participation index, World Bank, Bloomberg Economics calculations based on the UNCTAD-Eora Global Value Chain Database, Simoes and Hidalgo: The Economic Complexity Observatory, Share of value added exposed to U.S.-China, the U.K., U.S. auto imports, and U.S.-Mexico trade; trade balance with the U.S.; trade uncertainty index, BLOOMBERG ECONOMICS CALCULATIONS BASED ON THE OECD TIVA DATABASE; UNITED NATIONS; AHIR, BLOOM & FURCERI, Average percentage of applied tariff rate, all products, International Monetary Fund (Das and Hilgenstock), Projected old-age dependency ratio in 2030, Composite: total spending on the labor market and training (high-income economies only); total social protection spending percentage of GDP (all economies), Projected total tertiary education, percentage of population aged 15-64, in 2030, Mobile and fixed broadband speeds; percentage of people using the Internet; mobile and fixed broadband subscriptions per capita, Speedtest Global Index (Ookla), International Telecommunication Union, Share of population older than 15 that used the internet to pay bills or make a purchase in past year; total number of active users, World Bank, United Nations, International Telecommunication Union, ICT services as percentage of intermediate manufacturing consumption; Global value chain-participation index; World Bank Digital Adoption Index: Business, World Input Output Database, UNCTAD-Eora Global Value Chain Database, World Bank, World Bank Digital Adoption Index: Government. One captures the drivers of development, while the other captures exposure to the disruptive forces creating new risks and opportunities in the global economy. This transforms the data for the separate series to a common scale of zero to 100, allowing us to take a weighted average of the components. Rapid modernization of infrastructure, advances in education, investment in research and development and can-do government has delivered four decades of stellar growth. The CEOs of global companies also get credit for the profits. Climate change will compound stresses on a long coastline and a population already threatened with water scarcity. Doing it this way makes more sense — among other things, profits earned overseas by American corporations are counted in national income and not GDP. As this report makes clear, some economies are getting it right, and some are not. Distance from the frontier gives low- and middle-income economies space to grow simply by learning from advanced technology and management practices in the developed world. As proxies for the quality of that investment, we use the Heritage Foundation’s Investment Freedom Index and gross government debt as a share of GDP. At a national level: policy that creates the right environment for investment and innovation, provides training for workers adapting to automation, and opens opportunities in the digital economy. The 2008 crisis was no exception. As distinguished from corporations and government entities, for which there is no breakout of rental income; nonprofits are included, though. (Some even question the value of the term as a catch-all category.) The New Economy Drivers and Disrupters Report captures the new forces narrowing the path to development and upending the pattern of winners and losers in the global economy. The third economic issue is the way the lack of wage growth is being slowly eaten up by “benefits.” Since the year 2000, the percent of payroll spent on “benefits” went up by 32%. Low- and middle-income economies are more vulnerable to coming disruptions to the global economy. Economic theory consequently suggests that unions raise the wages of their members at the cost of lower profits and fewer jobs, that lower profits cause businesses to … Cultural and institutional factors are hard to capture. But then the decline that began in late 2006 was followed pretty quickly by the Great Recession. Digital platforms such as China’s Taobao connect entrepreneurs to new customers, empowering both sides of the transaction with a high degree of transparency. Today’s New York Times tells us that wages should be rising, since we live in a world in which stock markets are soaring, the global economy is … Low- and middle-income economies with high temperatures, reliance on agriculture, exposed populations and limited resources to adapt are the most exposed in the Notre Dame index. Most of it is the “imputed rent” that homeowners are assumed to be receiving from, um, themselves for the privilege of living in their own homes (aren’t economic statistics fun?). Expanding production leads to overcapacity, falling profit margins and stagnant wages across the entire economy. We incorporate a measure of workforce skills and flexibility, spending on workforce training and income support, and the share of the population with university education. The main finding: Catching up is getting harder to do. We incorporate projections on growth in the working-age population through 2030. Our automation index starts with data from a study by IMF economists Mitali Das and Benjamin Hilgenstock. NEW YORK (BLOOMBERG) - The United States is proposing that countries should be able to tax more corporate profits based on revenues within their borders in a bid to reach a global … Automation is delivering advances in productivity and profits at the expense of increased job insecurity. The weights reflect evidence in the academic literature, as well as empirical analysis by Bloomberg Economics. Malta’s disrupter ranking is not displayed due to insufficient data. Looking forward, forging the right response requires action at national and international levels: Combining the two—and part of the motivation for the New Economy Forum—opportunities to learn from best practice and steer clear of missteps. Of course, the data doesn’t capture all the factors at work. Uniquely, we also measure performance on the big disrupters—populism, protectionism, automation, digitization and climate change—showing which economies are exposed to heightened risk and which are poised to seize opportunities. For occasional missing data points, we impute scores, based on alternative sources of data or—where those are unavailable—assume that a economy’s scores are in line with the average for the available indicators. The rental income increase over the past decade thus can’t be attributed to the fall in home ownership and rise in renting in the aftermath of the housing bust, but it probably does have something to do with high housing costs. Extreme weather events, from floods in Thailand to category-five storms battering the U.S., are wreaking havoc on housing, infrastructure and supply chains. The Canada Emergency Business Account (CEBA) provides interest-free, partially forgivable, loans of up to $60,000, to small businesses and not-for-profits, that have experienced diminished revenues due to COVID-19 but face ongoing non-deferrable costs, such as rent, utilities, insurance, taxes and wages. That includes bumping the corporate tax rate to 28 percent from 21 percent, imposing a strict new minimum tax on global profits and cracking down on companies that try to move profits … In Russia, Poland and other former communist countries, a shrinking working-age population is a drag. Answers: 2 to question: Give the meaning of this. Twenty years ago, China’s economy was a tenth the size of the United States. India will have leapfrogged Japan and Germany to claim the No. As a share of GDP, companies are bringing in less while workers take home more. The economic impact is far-reaching. And while the transition to a low-carbon economy brings new opportunities, a trade-off between emissions and growth may be tough to avoid. In 2039, on the current trajectory, it will be more than 10% bigger. Industrials are off 12.2%, while energy is down 9.8% and information technology has seen an 8.2% drop. Turkey—where policy missteps have already contributed to a current-account crisis—shows up among the most vulnerable. The productivity gauge includes six underlying indicators. The Drivers and Disrupters Report evaluates economies on two sets of metrics. Almost half of this is an increase in health care insurance, but the rest includes retirement benefits, wellbeing benefits, and other benefits employees badly need. Protectionism threatens to hammer trade flows and slow technology catch-up with global leaders. Elon Musk Leaves Vladimir Putin Stranded on Earth, The Future of Digital Currency May Be Chinese, Why New York May Emerge From Covid Richer Than Ever. Since 2012, though, the corporate profit share in the U.S. has been mostly falling: As a percentage of gross domestic product, *Adjusted for inventory valuation and capital consumption, meaning that this represents profits from current production. To capture the risk from climate change, we use the Notre Dame Global Adaptation Initiative vulnerability index. The U.K., with Brexit threatening to break its ties with the world’s biggest free trade zone, also features high on the list. Drawing on data from official, academic and market sources, we build a series of indexes to gauge performance on the traditional drivers of development: labor force, investment and productivity. Protectionism is deadening the trade flows that drove China’s rise. High inequality, low social mobility and high unemployment triggered by recession or financial crisis are common denominators. While the United States experiences renewed job and economic growth, wages continue to lag behind. How economies are positioned to deal with disruptive forces. In high-income markets, four out of five are online. Japan, for example, faces high exposure to automation, but also benefits from the competitiveness of its robotics industry, as well as labor market conventions that promote low unemployment. What the heck is that supposed to mean? In 2019, surging labor costs and slower revenue growth will likely lead to a decline in corporate profits in both the U.S. and other advanced economies, finds a new study on labor market trends. To contact the author of this story:Justin Fox at justinfox@bloomberg.net, To contact the editor responsible for this story:Sarah Green Carmichael at sgreencarmic@bloomberg.net, Huarong Is a Big Bad Mess and Bailing It Out Won’t Be Pretty, India’s Covid Crisis Has a Familiar Culprit, Wall Street for All? In addition, we incorporate exposure to future protectionist risk, gauging the importance of trade to the economy, trade balance with the U.S., current tariff levels, sophistication of exports and participation in global value chains. Even as disruptive forces loom, low- and middle-income economies face a continued challenge in mobilizing traditional drivers of growth. The consequence of temperatures 1°C above pre-industrial levels are already evident. Labor’s share is rising again! We define populist rulers as those who advocate for the common people against corrupt elites, common sense solutions versus complex policies, and national unity over international engagement. The authors cross-reference data on which tasks are easily automated with national surveys showing the composition of labor markets. At the upper end, they reach the trillions. Driven by rapid reductions in the cost of the communication, the digital economy holds out the promise of dramatic increases in productivity. Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world. Harvard’s Dani Rodrik finds that the combination of globalization and automation has resulted in “premature deindustrialization” in low- and middle-income economies, blocking their path to prosperity. High-income economies—with Singapore and Korea topping the list—have high-quality infrastructure and high levels of engagement across business, consumers and government. Trade without agreement on the rules of the game, and without compensation for losers, has resulted in a protectionist backlash that is anything but. Profits soar due to the greatly reduced wages for workers, and Wall Street rewards the big profit gains with higher stock prices. Adjusted for inventory valuation and capital consumption, More than 90% of this rental income is, as you might expect, housing-related. For China and other low- and middle-income economies, getting it right on the traditional drivers of development remains a necessary condition for economic success. Disruptive forces are sweeping the global economy. We measure GDP per capita as a percentage of the U.S. For emerging markets, lower wages reduce the incentive to automate. The index tracks exposure to climate change across food, water, health, eco-system services, human habitat and infrastructure. These higher prices are negative in that they reduce disposable income while creating no added value. Declining profit margins caused corporations to cut back on investment and hiring, which caused slowdowns that compressed margins even more. 9.5 The price-setting curve: Wages and profits in the whole economy. The law established a minimum wage of 25 cents per hour for all employees who produced products shipped in interstate commerce. The labor share of income in 35 advanced economies fell from around 54 percent in 1980 to 50.5 percent in 2014. The path to prosperity followed by such success stories as Korea and Japan is increasingly hard to follow. The origins of many of the changes sweeping the global economy can be traced to two sources: trade and technology. Even at the lower end of that range, the costs will be measured in hundreds of billions of dollars annually. Because trade raises the amount that an economy can produce by letting firms and workers play to their comparative advantage, trade will also cause the average level of wages in an economy to rise. Economists and policymakers are increasingly concerned that paychecks will shrink as corporate profits grow. Trade is a driver of prosperity. During the period 2010-2015, the UK experienced positive economic growth … Sixty years after Yuri Gagarin's historic flight, Russia's space industry can't get its act together. Sweden, Switzerland and Denmark top the rankings, reflecting high levels of education, openness and effective governance. Which maybe isn’t the greatest news for equity investors, but could mean a healthier, more balanced economy. Populist regimes are throwing out the policy rulebook. Without those drivers, projections by Bloomberg Economics show that growth could slump to 1.4%. Cities with strong foundations in technology should recover quickly from the pandemic, while the Sun Belt could go the way of the Rust Belt. The need for climate adaptation diverts resources away from more productive uses. But the overall profit trend, which became much more apparent after annual GDP revisions made in July,  is remarkable — it’s “the longest late-cycle contraction in post-war history,” as Gregory Daco of Oxford Economics put it. One possibility is that we are finally headed for the cyclical downturn that the profits/GDP chart has been pointing to for years. Earnings growth has been worst in the materials sector, which is down 18.5%. Wages have risen upwards of four per cent annually in recent months by some measures, the fastest pace since 2009. Workers who can produce more will be more desirable to employers, which will shift the demand for their labor out to the right, and increase wages in the labor market. Populist rulers differ. The next-biggest gainer in national income share since 2012 — and thus presumably the next-biggest contributor to the fall in corporate profits’ share of national income — has been “rental income of persons.” Our judgments are based on careful reading of the academic literature. We measure investment as a share of GDP. Mainly because employers in the U.S. spend so much money on health-care, it may not feel like labor is gaining on capital, even if according to the national income data it is. Increased labour market flexibility, such as more zero hour contracts, new gig economy and limited bargaining power of workers. As temperatures continue to move higher, the economic impacts will be wide-ranging. Following that definition, 43% of GDP in G-20 economies is now under the control of populist rulers, up from 8% in 2016. The U.S. is not. A growing labor force—either through natural increase or immigration—provides a basis for growth. We incorporate a set of measures to capture education, macro-economic stability, openness to trade, financial market development, innovation, business climate and governance. 3. The share going to wages and salaries, meanwhile, was at an all-time low (going back to 1929). McKinsey Global Institute estimate that by 2030, some 14% of the global workforce—375 million workers—may have to find new occupations. Something that has gotten much less attention in the capital versus labor discussion is the rise of rent. Wage trends in the global economy have worsened ... 2006 and 2019 was substantially lower when China is taken out of the reckoning. To build the composite series for both drivers and disrupters, we first score the economies on the underlying indicators, using the min-max approach. And it looks like the growing slice of the pie is going to workers: *Includes rental income, net interest and business current transfer payments. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. For most of the post-World War II era, sharp declines in corporate profits’ GDP share tended to coincide with, and sometimes presage, recessions. The decline has been much discussed and the rising power of companies vis-à-vis workers—whether from new technology, globalization, the hollowing out of labor unions, or market consolidation—has shaped much of that discussion. ... experienced a much sharper fall in wages … The last gauges capacity to benefit from complementarities with new technology. Argentina, which has spent a third of the time since 1950 in recession, demonstrates the cost of economic instability. We track traditional drivers of development across four pillars: Unsurprisingly, the results show that on the traditional drivers of development, high-income economies have a considerable advantage. Inward-looking leaders are ill-placed to confront an additional systemic risk: climate change. 1. The results show a stark digital divide. The drivers consist of a composite gauge of productivity, as well as the projected growth in the labor force, the scale and quality of investment, and a measure of distance from the development frontier. Populism is taking policy off track. On the evidence so far, populist rulers are better at identifying problems than they are at finding solutions. This inspired some understandable hand-wringing, and a growing body of economic research on what exactly had been causing this seeming income shift from labor to capital. Low- and middle-income economies are, in general, poorly positioned to adapt to coming disruptions. The U.S. needs to pay attention. From the U.S. to Italy, a tide of resentment has redrawn the political map. U.N. Education Index, years of schooling, five-year average, Five-year volatility of headline CPI inflation, Trade Logistics Performance Index, 2012-18 Aggregate, Financial Development Index, five-year average, Global Innovation Index, latest innovation output score, World Bank’s Ease of doing business index, World Governance Indicators Government Effectiveness Index, Real GDP per capita, percentage of distance from frontier, Composite: Gross domestic investment, percentage of GDP, five-year average; Investment Freedom index, latest score; gross government debt, percentage of GDP, five-year average, International Monetary Fund; Heritage Foundation, Population growth through 2030, men and women age 15-64, United Nations; Bloomberg Economics interpolation. Other factors—rising immigration, imports displacing domestic manufacturing, high crime rates and weak political institutions—are frequent contributors. Aramco still declared a … Trawling data on elections back to 1870, a team of researchers led by Manuel Funke at the Free University of Berlin found that financial crises trigger a surge in support for populist parties. This could happen even as the share of national income going to wages and salaries was at all-time lows because spending on non-wage compensation such as health insurance and pensions has risen. Expansion in the capital stock, efficiently allocated, boosts labor productivity. China is making major investments in innovation—necessary to move the economy up the value chain. Other emerging markets have found China’s example tough to follow. Many are ill-placed to seize it. ; Increased inequality with a relatively higher share of GDP growth going to pensions and company profit rather than wages.