Author: Awareness News

The Power of Peers: How we are influenced by others 

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Have you ever found yourself overthinking about that party you did not go to or the sunset you missed out, and now that is the only thing you can think about? Or maybe something even smaller than that? I bet so. We all have felt that way at least once in our lives.  

FOMO, a constant in our lives 

This feeling can be described as FOMO – fear of missing out – and not only it is common, but it also plays a big role in our lives. Even in the smallest decisions we take into consideration (most of the time unintentionally) what our peers do or what will they think of us.  And despite being aware to some extent that our actions are affected by others, the question is: do we truly understand how broad/strong this influence can be? 

Imagine the following situation: you are in a room full of strangers, and all of you are being asked the same simple questions. In the first round of questions, you are the last one to answer. All before you give the correct answer and, when your turn comes, give the correct answer as well. However, in another round, at some point those before you all make a very evident mistake, giving the wrong answer. So, what would you do? Give the (correct) answer that you are sure about, or conform to what others said and give the wrong answer as well? 

As obvious as it may seem to answer correctly independently of the other answers, almost 75% of the people did not, despite knowing the right answer, and conformed to the group’s incorrect answer.

Shocking results, right? However, this experience only confirms the considerable influence that others have in our actions, which can be reflected in all aspects of our daily life, from college performance to drug consumption. 

Peer influence is related with many other situations  

Social Identity Theory 

For starters, in order to understand why people behave in such a way it is necessary to grasp the basics of Social Identity Theory. This concept first appeared in 1979, when Henri Tajfel and John Turner made a breakthrough in social psychology, changing the way we perceive intergroup behaviour.  

Whether we like it or not, our brains tend to categorize society into a variety of groups, going as far as also categorizing ourselves, be it by social class rank or favourite football team. This is a common cognitive process, vital for humans to function as a society. Nevertheless, such train of thought may result in the exaggeration of both the differences between the groups and similarities within the same group. People in a group(the in-groups), by considering their peers similar between each other and acting alike, distinguish themselves from those who belong to other groups (the out-groups) and, consequently, tend to view them in a negative light as to enhance their own self-image. 

Aside from the prejudice and discrimination matters which may arise from this, social identity is crucial in providing pride and self-esteem to an individual. By affiliating oneself with a group, one adopts its identity and will act accordingly to that group’s characteristics in order to preserve their sense of belonging. To illustrate this, we do not need to go far from our own realities. By categorizing ourselves as students, we embrace that identity and start to behave in ways we believe students do (by conforming to the norms of the group). 

When we belong to a group, we start to see ourselves as the same and to act identically 

Boomerang effect 

Another concept that arises when discussing peer influence is the boomerang effect. This effect occurs when efforts to persuade someone result instead in the opposite outcome.To further understand this concept, we can think of an actual boomerang. If there is some wind, throw it to one direction and it may go to one completely different from what you wanted.  

There are many real-life examples demonstrating this effect, some by which you might have been through already, except you did not know it was, in fact, the boomerang effect.

A simple example is when we are kids, and many times, when told not to do something, we intentionally do the opposite. We can even go as far as thinking of situations when parents forbid teenagers to go out and drink alcoholic beverages, which only result is having them wanting to do so even more. Thus, their efforts only contribute to the outcome being the opposite of what they intend originally. This effect demonstrates that one must be careful on advising close peers, for the effect can be precisely the opposite. 

Is peer influence positive or negative? 

The human vulnerability when it comes to peer influence on decision making can have both negative and positive consequences. As to illustrate this idea, we may consider a reality that is familiar to us all, our academic life: let’s suppose that you belong to a well-behaved group of friends that studies a lot and has good grades. Naturally, your sense of belonging will motivate you to increase your study hours, as to make sure you are still welcome in that group, even if done unconsciously. This is a clear example of how our peers can have a positive influence in our lives. However, the opposite can also be true: if your group of friends decide to lower their academic performance because they shifted their priorities and would rather engage in other activities, you will not enjoy feeling an outsider and will gradually shift your priorities as well, perhaps leading to lower your performance as well, until you match the group’s standards. 

The risks associated with this issue are found mostly in early ages, among which tolerance is lower and the risk of dependency is higher. As so, peers and family have a key role in promoting good behaviours during adolescence, not only serving as role models, but also providing easy access and encouragement in performing good actions. As the Social Learning Theory suggests, teenagers do not need to observe a given action in order to adopt it, they only need to get acceptance from the peer group in order to be able to perform that action. 

An important factor that is proven to impact the extent to which an individual is influenced by its peers is the reciprocity of the relationships in discussion: individuals may only be affected by social groups they feel they belong to and the peers they are particularly attached to may have a stronger impact in their decision-making. Studies show that the negative influence of the peer group is usually more connected to the involvement in risk behaviours, whilst the positive influence is more connected with protective behaviours. Stronger friendships may lead teenagers to an appropriate environment to develop in a healthy way and to achieve good academic results.  

Negative peer influence can lead us to pursue negative habits 

All in all, the need for belonging is something common to all of us, humans, and it is that same need that leads us to categorize people, to conform with groups, and to behave in ways we never thought we would. Nonetheless, peer influence will always be present in our lives, and as mentioned previously, it can have both positive and negative impacts, and we can try to use it in our favour, by surrounding ourselves with the right people.  

Sources: THALER, Richard; SUNSTEIN, Cass – Nudge. 3ª edição. Lisboa: Leya, 2021,  Simply psychology, Science Direct, Raising Children, National Center for Biotechnology Information, SpringerLink, Behavioural Scientist, Taylor & Francis Online       

Benedita Elias

Mariana Gomes

Madalena Andrade

Does Europe have any energy left?

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Europe is facing a record-breaking surge in energy prices after coming from historical lows in the second quarter of 2020. A series of market, geographic and political factors are weighting in and creating the perfect conditions for further rises. This not only threatens the post pandemic recovery and the European green transition but will certainly impact households’ income. Data from Eurostat showed that, in Europe, 37% of the total household energy consumption in 2016 was Natural Gas, with Dutch TTF Gas Futures up more than 350% this year. Electricity and petroleum products are also up 70% and 60% year to date. The trend observed in energy prices can have a serious impact on Portuguese households that pay some of the highest energy prices as percentage of income in Europe.

What factors are driving the surge in energy prices?

The Electricity Market

To understand the reasons behind climbing electricity prices it is important to grasp the basis of how the electricity market works in most of Europe. At the first level, we have production of electricity. In this part of the market, producers of electricity and sellers of electricity trade in the wholesale market. For the Iberian Peninsula this market is the MIBEL (Mercado Ibérico de Electricidade). At an intermediate stage, electricity needs to be distributed. Usually, there are single, state-regulated entities which handle the necessary infrastructure for the electricity grid. At a final stage, there is the retail of electricity, where electricity companies sell to final consumers.

The recent rapid rise in electricity price to consumers is mostly due to price increases in the wholesale market. This market is structured in a way where renewable energies are normally firstly supplied given their low costs per unit of electricity produced while sources like natural gas, coal and fuel oil are only supplied after since they are more costly.

The weak wind speeds in most of Europe during 2021 has reduced much of the available energy supply in renewables, making the price jump to higher levels of the supply schedule. In addition, the extra demand for natural gas, coal, and fuel, has raised the prices of these commodities considerably, leading to a further increase in the cost of producing electricity with these resources.

Germany, for instance, which is phasing out its nuclear power plants until 2022, has had to rely more on energy production using coal, whose price has greatly increased. In addition, the price of carbon emission allowances in Europe (EUA – EU Allowances) has also greatly increased. The need for burning fossil fuels and the increase in the cut of supply per year, dictated in July by the European Comission, have ratched up the demand for these allowances.

Natural Gas has also seen a surge in price due to high demand as industrial production surges. The price was also ramped up by natural disasters and geopolitical factors with Russia State-owned company Gazprom withdrawing some of its gas reserves located in the EU.     

Installing new renewable energy capacity can grasp as a possible solution yet it is unlikely to be an effective strategy to combat high energy prices in the short-run since it requires time to implement.

Figure 1 – European electricity markets price per MWh. Source: AleaSoft

The Oil Market

When it comes to what is undoubtedly the most used fossil fuel around the world, oil prices have been accompanying the increasing price trend that almost all energy sources have been experiencing all over the world lately. In oil’s specific case, this phenomenon can be clearly explained by the demand and supply forces/dynamics at play.  

On the consumer’s side of the equation, demand has been gradually growing after many months of stagnation during covid lockdowns in most countries. Indeed, with the recent lift of COVID restrictions, particularly in the US and the EU, there has been a boost in consumer’s demand for petrol fuel. Nevertheless, consumption levels are still significantly behind pre pandemic levels, with major oil-dependent industries such as air travel still slowly recovering.  

Combined with this scenario, on the supply side, OPEC+ producers have yet to improve much from the huge supply cut that was agreed upon last year to face off the drastic reduction in demand. Therefore, supply levels are still far below what would be the optimal level to respond to the current boost in demand, contributing henceforth to a spike in prices. Whether this restriction comes mostly from a strategic viewpoint so as to keep prices high, from recent disputes in OPEC+ meetings which have led to impasses in defining the quantity to be supplied by each member or to the impossibility of raising production due to underinvestment issues in countries like Nigeria and Angola is not entirely clear – most likely, it’s a combination of all of those three. Nonetheless, there is no doubt that this has greatly contributed to market instability and uncertainty, adding to the already high pressure on prices.

  Figure 2 – Brent Crude Oil Prices. Source: DailyFX

How do Portuguese Energy Prices compare with the EU?

Even though energy prices of EU countries differ from one another due to specific factors such as geographic location, taxation, network charges, environmental protection cost or severe weather conditions, the recent surge in prices was seen across all Europe. This surge was mainly driven by an increase in price of the raw commodity, which affects rather similarly all EU countries.

Analyzing the electricity price in EU over the last 10 years we can observe a general growth trend. In Portugal its price has increased 13%, with the UK having the most significant increase of 39%. On the opposite side there is Hungary that saw electricity prices fall 34% during this period.

In 2020, Portugal occupied the 14th place in terms of electricity prices without accounting for taxes and charges, below the EU-27 average. However, accounting for taxes and charges takes Portugal to the 8th place, barely below the European average. For Portuguese households, the taxes and charges on their energy bills accounts for almost half of the final price.

    Figure 3 – Electricity prices for domestic customers. Source: EDP

In the gasoline market the story is similar. In 2021, 60% of the price of gasoline is coming from taxes. This places Portugal among the top six for EU countries in terms of absolute value of taxes per liter.

The increase in the commodities’ price directly affects the living standards of the Portuguese population. As seen before, the prices practiced in Portugal are in line with the EU-27 average, yet one important factor is that the Portuguese purchasing power is below the European average. If we compare electricity prices with purchase power, Portugal has the 5th highest price in EU.

Conclusion

Despite the impressive surge in energy prices, it may just be the beginnings of a bigger move. The interactions between supply and demand, and the geopolitical factors may continue to have an imperative roll on the development of these prices in Europe. Also, Central Banks policies can also impact the dynamics seen in the energy markets. A weaker Euro will mean higher commodities prices, ceteris paribus.

The current prices of these commodities are already significant when compared to Portuguese households’ income and a persistence in this trend in prices may strain their budgets. Not only, but also Portuguese companies will suffer from the increase in costs and the consequent reduction in margins. This fact can be especially important given the predominance of low added value sectors in the Portuguese economy.

Sources: Busines, EDP, Markets Insider, Reuters

Diogo Almeida

João Baptista

Inês Lindoso

João Correia

Turbulent times in Afghanistan

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The retreat of NATO forces from Afghanistan in late August 2021 was no surprise by any means: the Doha Agreement that had been signed in early 2020, between the US and Taliban, had long foresighted this event. Nonetheless, the quickness with which the Taliban managed to seize the territories of the former Islamic Republic of Afghanistan left much of the world in awe. Who was this new political force, one that in days could defeat an entire nation?

History of the Taliban

The Taliban, meaning a group of students in Pashto, one of the many languages of Afghanistan, emerged as a political identity out of the englobing Mujahideen warriors who, with the financial backing of the US, China, Pakistan and others opposed the soviet aligned Democratic Republic of Afghanistan. With the Soviet retreat in the Soviet-Afghan war in 1989, followed by the DRA collapse in 1992, the path was clear for the Mujahideen to take control of the nation.

Unfortunately for them, the different political movements who fought under their banner failed to settle their differences and, without the existence of their common foe, the DRA, a new civil war erupted. It was amidst this chaos, in late 1994, that the Taliban emerged, as a new group mainly encompassed by students from different madrasas, schools focused on the teaching of Islam, of the region. With their conquest of Kabul in 1996, they became the de facto rulers of the country, forming the Islamic Emirate of Afghanistan.

This dominance lasted until 2001, when the American-led NATO forces invaded the country under the pretext of the Taliban government allowing the creation of terrorist training camps, led by Osama Bin-Laden’s AL-Qaeda, in their nation. After being ousted out of power, it was only now, in August of 2021, that the group has managed to reclaim political power over the region.

Figure 1 – Picture in a British Journal depicting Osama Bin-Laden and the Mujahideen in their fight against the DRA

Political Structure  

As one can imagine, this series of conflicts and civil wars severely impacted the country, with much of it needing reconstruction. As such, it is not surprising that in the first conference after the reconquest of Kabul the Taliban spokesperson, Zabihullah Mujahid, said that there would be no purges of supporters of the old regime, to guarantee stability to the local population. Nonetheless, NATO-aligned intelligence servers have warned about the risk of collaborators of the previous government being persecuted by the Taliban.

Figure 2 – Zabihullah Mujahid, the Taliban spokesperson, in his first conference after retaking Kabul

Furthermore, the Taliban quickly announced the creation and dissolution of new ministries for the nation. Headed by Mohammad Akhund, who had previously worked as the Foreign Minister of the country in the ‘90s, 11 men have been appointed to guide the nation within the framework of Sharia law. One of these men, however, has particularly raised concerns among western nations: Sirajuddin Haqqani.

Having been appointed as the new interior minister, who is responsible for the organization of the police and internal security, Haqqani is the leader of the Haqqani network, an organization that has been accused to have had links with al-Qaeda in the past, according to American sources. He is also on the FBI’s most-wanted list, leading to increased concerns regarding the maintenance of human rights in the country. 

Human Rights Concerns

Having already ruled the nation in the 1990s, many analysts have already drawn attention to the previously alleged violation of human rights by this group: in 1996, the Islamic group had prohibited women from studying or working due to concerns over their security. This ban lasted until the administration was toppled in 2001.

Furthermore, the EU and the US have criticized the lack of representation of women in the new Afghani government, claiming that this new institution ought to preserve the rights of existing minorities. Likewise, the former leader of the Afghan Ministry of Women Affairs, which was dissolved by the Taliban, Hasina Safi, has requested international donors to only provide foreign aid to the country on its commitments to respect women’s rights.

Figure 3  – Afghan women protesting in Herat

As a response, the spokesperson Zabihullah Mujahid has asserted that there was still the possibility of having women appointed to the new cabinet and that “women will be afforded all their rights, whether it is at work or other activities, as they’re a key part of society. We are guaranteeing all their rights within the limits of Islam”.

In addition, the new higher-education minister has said women will be allowed to get an education, but women and men had to attend different universities. Likewise, female students would only be taught by female teachers, with the same teachers not being allowed to teach male students. While this would be an improvement over the previous state of affairs, it is unclear whether in the eyes of international entities this would be enough.

External Relations

The opinion of foreign entities might prove to be crucial to the development of the Afghani society, as the Taliban have inherited a country whose economy is overwhelmingly dependent on foreign aid, therefore keeping positive relations with their neighbours will be a must. To the northeast, the winds seem to have been favourable to the Taliban, as the People’s Republic of China has announced a 31 million dollars’ worth foreign aid donation, including 3 million Covid vaccines to the Afghan people.

Figure 4 – Taliban and Chinese representatives in a joined meeting in Tianjin

Likewise, Vladimir Putin proclaimed his willingness to cooperate with the new Afghan administration, as “Russia is not interested in the disintegration of Afghanistan. If this happens, then there will be no one to talk to”. In a joint meeting with his Chinese counterpart, Putin echoed Xi’s call for all regional capitals to increase their cooperation on sharing information on potential terrorist organizations. Finally, the fact that Pakistan was one of the only countries that formally recognized the Taliban government in the ‘90s indicates that both countries will continue their long history of cooperation.

There will be many challenges for the Afghan people in the nearby future, as their country is in dire need of political stability and reconstruction. With a median age of 18, one can only hope that the newer generations can guide the country to a sustainable future. It’s time that the Graveyard of empires stops being the graveyard of its people and becomes a blossoming and prosperous sovereign society.

Sources: Stanford, Human Rights Watch, New Cabinet, Chinese Aid, Putin Cooperation

Afonso Monteiro

André Rodrigues

Hugo Canau

João Sande e Castro

Gamification in Behavioral Economics 

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Game mechanics that drive people to Action

Behavioral science is openly related to psychology, economics, and marketing. However, not as many individuals make the same relation with game design or software engineering. Where can we set borders? In reality, there is a broad set of tools and frameworks used in behavioral economics that benefit from other sciences. In this article, we aim to address the increasingly important engineering area Game Mechanics, and its applications to the educational sector. 

Definition of Gamification: “The addition of game elements to non-game activities”, is particularly effective for increasing people’s engagement, motivation, or improving learning. 
(Deterding et al., 2011) 

First of all, why gamify something? Especially in economics, where we already have game theory, cost-benefit analysis, and other theoretical frameworks that facilitate complex reasonings and aid in perfecting the decision-making process, it may seem redundant. Nevertheless, the objective of gamification is substantially different. The main purpose lies in engaging and leading the consumer, and not so much in dictating their action. As a result, more and more real-life problems are being adapted to game situations where the consumer/user is nudged towards a specific path. Essentially, it leverages fun to create motivation, just like in addicting video games. 

In every job that must be done, there is an element of fun. You find the fun, and – SNAP – the job’s a game! – Mary Poppins 

In conventional behavioral economics (if we already arrived there), the focal point of any consultancy project is the experiment. The solution to a problem, being it in marketing, human resources, or any other area, passes through understanding what behavior an organization wants to stimulate in its target group or society. This is precisely why corporations are searching for better solutions through gamification. Certain human psychological actions are difficult to stimulate through “normal” methods and even harder to predict from game theory or related tools that perceive the representative agent as rational. 

Let’s take Duolingo.com for example. If the reader has ever tried to learn a foreign language independently (without any teacher, book, or guide), then probably has encountered this user-friendly website. Duolingo was founded 10 years ago and today is a publicly-traded company valued at USD 161.7 million, with more than 400 employees, 500 million users, and 106 different language courses in 40 different languages1. But, if the reader has ever tried to learn a foreign language independently, then probably has found it not as captivating or easy as it may seem. How did Duolingo achieve this level of success? Can we restrict its merit to simply better or more disciplined users? 

Well, the internet plays an important part in today’s world of education, but game mechanics might also be a source of success in this case. The difference between learning a language from a regular website and Duolingo lies in how the language is taught. The latter brings about different features that the reader may not encounter often, such as storytelling, goal framing, badges, points, levels, and other virtual incentives that promote the user to be disciplined and maximize their learning experience. The key lies in turning actions and exercises into fun challenges and creating a story behind the user’s progress so that he stays addicted to the “game” and finding out what is next. These gamified features transform the user’s involvement and the nature of the task at hand (from boring L to exciting J). 

This concept may appear to the reader as simple, straightforward, or even common. However, behind these ideas and their application, there is a team of designers, whose objective is to put themselves in the users’ point of view and trace their mental steps. Where would they quit? There is the need, as in any problem-solving situation, to identify and understand the problem, conceptualize the right game mechanic, and finally test it to figure out if the correct mental aspects of the user’s cognitive perception were addressed. In fact, this is a complex process. Amongst all the known (and unknown) biases, being able to understand the real drivers of a specific human choice is a behavioral trial by itself, thus this synergy between behavioral science and gamification enhances the strengths of both areas. 

Like Duolingo, many other non-game situations are being transformed by fun, consequently increasing motivation and creativity. Yet, we should never take this as a closed subject. Taking Education, for example, it has been a static, unchanged sector for several decades, that stimulates risk aversion. As Scott Hebert said in his 2018 Ted Talk on gamification uses for education, “the Education system is a system in an engagement crisis”. Children are in school to learn, and shouldn’t be scared to fail or be creative and innovative. We should encourage autonomy and make learning fun so that the behavior and opinion towards school takes a positive and rewarding turn. The setup of a non-game question needs to address the participants (as different individuals), their expectations, and all the time-sensitive and contextual factors, hence it is clear that children’s opinions on how to learn should be taken into consideration. Only then can their behavior be effectively altered over time, possibly creating a new generation of learners. 

In sum, gamification constructs a setting where the user is led towards a specific outcome, like learning a new language or a new subject in school, through the construction of a fun, engaging, and playful setting. At the end of it all, it is a win-win. 

Sources: John Bell’s Website, Nudge Unit , Dr. Zac Fitz-Walter, The Power of Gamification in Education

Ana Clara Malta

Scientific revision: Patrícia Cruz

China’s Victory on Absolute Poverty

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On the 25th of February 2021, President Xi Jinping of the People’s Republic of China (PRC) announced that China had achieved an outright victory in eliminating absolute poverty in the country by lifting 770 million people out of poverty in the past 40 years. It was also stated that over 70 percent of the total global reduction in absolute poverty was attributed to Chinese efforts, for the same time frame.  

Nevertheless, there has been plenty of scepticism from western media regarding these achievements, especially concerning potential differences between what the World Bank and the PRC consider to be absolute poverty. With this article, our aim will be to analyse the veracity of these claims by examining the statistics concerning China’s poverty alleviation efforts, while also assessing what policy measures were adopted to reduce abject poverty. 

What does the PRC consider to be poverty? Concerning China’s poverty line, there have been three different standards employed by the Chinese government to characterise poverty: the 1978, the 2008 and the 2010 ones, the latter being 2300 yuan per person per year, meaning 6,3 yuan ($0,94) per day. For the World Bank, the most recent standard for poverty sits at $1,90 per day (at 2011 Purchasing Power Parity (PPP)). Unfortunately, for the untrained eye and sensational media, this glaring 1 dollar difference implies that it exists a discrepancy in criteria between the two institutions. However, this thought process has a crucial failure: it fails to put China’s poverty line value in 2011 PPP prices. 

Figure 1 – China’s 2010 poverty line at constant prices

From the graph above, it can be observed that China’s poverty line value is not a constant 2300 yuan for each year, but rather one that has adapted to price changes, with a poverty value of 2536 yuan per year, equivalent to 6,95 yuan per day, for 2011. According to the 2011 PPP, 1$ would be equivalent to 3,52 yuan, meaning that China’s poverty line would be approximately 2,00$ day (2011 PPP), which is in fact a higher value than the World Bank’s. 

Figure 2 – China’s Population living in poverty throughout the years (2010 standard) 

Regarding the second claim made, the data indicates that it was in fact in China where most poverty alleviation occurred: in the 1980–2018 timeframe, the 750 million Chinese who were lifted out of poverty represent approximately 63% of the total change in the poverty population, which went from 1926 million people in 1980 to 698,4 in 2010 (at the $1,90 Standard). 

One might still think that the 1,90$ standard is still too unambitious for a person to be considered lifted out of absolute poverty, because even if an individual does earn this minimum amount of money, he/she might still not have access to clean water or proper medical care. In fact, while the World Bank claims that in 2018 there were around 700 million people living in extreme poverty, the UN reported a whopping 1,5 billion people as being food insecure and unable to conduct normal human activity. 

Two assurances and three guarantees

Consequently, the Chinese government, when establishing the 2010 poverty line, deemed essential to include in the poverty alleviation objectives the “two assurances and three guarantees”: the two assurances, also called the two no worries, being adequate access to proper food and clothing, which would be assured if the 1,90$ benchmark was to be achieved, whereas the three guarantees are the following ones: 

The access to compulsory education, which was boosted by investing in new public-school facilities in poorer regions, especially for pre-school children who lack the independence to go to distant schools on their own. In addition, the PRC government established a subsidy program where families only gained access to extra income if their children attended compulsory schooling.  

The access to basic medical care, which, once again, was boosted by investing in new health care facilities and in the number of medical personnel employed by the state. For remote impoverished villages, a program was created where poor families were ensured at least a visit from a state physician each month.  

Figure 3 – Chinese Government’s investment in Poverty alleviation measures 

Finally, the access to secure housing, as most of the previously impoverished counties, in this past decade, were in mountainous regions, such as the Sichuan or Yunnan provinces, which have limited potential for economic growth. These citizens’ decrepit homes, which lacked access to essential amenities, combined with their low incomes derived from old-fashioned agricultural practices, possessed a significant challenge to their lives’ improvement. Thus, the Chinese government subsidised the construction of new houses where the access to clean water and electricity was assured in areas with less arduous conditions, allowing these citizens to relocate to them for free. 

Figure 4 – Newly built relocation homes for Sichuan’s impoverished families

The Job-Placement

Evidently, when establishing these new communities, the necessity to create new job opportunities for the relocated citizens arose. For those that were re-established in different rural areas, they were able to maintain their agricultural practices, albeit with renewed tools and machinery funded by local governments. For those that were moved into urban areas, most were able to find new jobs in the secondary sector, many of which were propelled by the e-commerce sector.

The prevalence of e-commerce in China means that it has never been so easy for local firms to ship their products to other parts of China, which increases their potential consumer pool and allows for remote regions to have more profitable firms. As such, local governments were able to cooperate with the private sector in establishing new factories to employ these relocated citizens. 

This job-placement example demonstrates what has been a continuous process in Chinese society for the past 40 years: the organised cooperation between the government/public sector and private enterprises. As a market-socialist nation, China’s economy is organized in a considerably different way than Western Countries’: if not for the prevalence of Public State Enterprises in the economy, then the regulatory hand of the Chinese government vastly outweighs the West’s, who more often adopts a laisse-faire style approach to solving economic problems. 

Nonetheless, despite running these government projects, China’s debt-to-GDP ratio has remained at relatively low levels, although it has recently risen, mainly due to COVID19. Likewise, its GDP growth rate has remained positive throughout this period, meaning that these types of projects are not some sort of far-fetched utopian idea, but rather they are feasible projects that tackle poverty problems at their core. 

Figure 5 – China’s real GDP per capita (at 2017 dollars PPP)  

China as an example to follow 

In conclusion, it is vital for policymakers, especially those working in the field of development economics, to understand how China’s implemented policies could be adopted in other parts of the world, because, as it stands, it was in China where most progress has occurred. Furthermore, as the UN 2030 goal is to eliminate absolute poverty, the effective way to achieve it will surely involve getting a better grasp on past data and policy decisions guiding the world towards a better future. 

Sources: The World Bank, National Bureau of Statistics of China, The Guardian, Beijing Review, BBC, CGTN, Council Pacific Affairs, Xinhua News Agency 

André Rodrigues

The ugly truth about palm oil

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Reading time: 5 minutes

Palm oil is a silent presence in most of our daily lives. It can be found from bread to ice cream, from toothpaste to chips and from soap to fuel, but do we really know the truth about it? 

Palm oil is an edible vegetable oil original of a palm tree named Elaeis guineensis, native from Africa, even though most plantations nowadays are in south-east Asia, with Indonesia and Malaysia representing 85% of global production. Due to its characteristics, such as high saturation, oxidation resistance, stability at high temperatures, low cost and versatility, it is widely adopted on a globe scale.  

It can be found in more than a half of packaged products consumed in the US, in 70% of personal care items and it can be used as animal feed, as a biofuel or as cooking oil, and it is estimated that we consume, in a global average, 8kg of palm oil per year, making it the most used and demanded vegetable oil in the world.  

On the one hand, this crop is the most efficient when compared with others, such as soy, coconut or sunflower. Also, its costs of production are lower than every other animal or vegetable oil, making it very cheap and accessible to the consumer, allowing it to be the used widely as a cooking oil in Asia, where the economic and demographic growth would lead to the increase in demand in the future (today India, China and Indonesia account for 40% of the world’s consumption). In the west, it was adopted in some diets, because it is healthier than other fats, and its use as a biofuel corresponds to more than half of its importation into Europe. 

To supply all the palm oil demand with alternative vegetable oil, it would take almost five times more land than coconut, sunflower and rapeseed, and more than eight times soy. Due to this, palm oil supplies 35% of the world’s vegetable oil, on just 10% of the land. Thus, the suppliers were encouraged to increase production, and, for that purpose, they counted with the support of private funds, bank loans and the IMF (International Monetary Fund). 

This industry has a considerable impact on the economies of its producers, accounting for 13,7% of Malaysia’s gross national income, and it is the product more exported by Indonesia, the world’s top producer, accounting for nearly 40% of the worldwide production, providing employment to over two million Indonesians directly. 

Between 1995 and 2015, its annual production quadrupled, from 15.2m tonnes to 62.6m tonnes and by 2050, it is expected to quadruple again, reaching 240m tonnes, which lead the production to spread through Africa and Latin America. This production expansion promoted an increase in employment in this sector and, consequently, could lead to a decrease in poverty. However, this is not what has been happening. 

The workers in Malaysia and Indonesia complain about gender inequality: “The women on the plantations have no rights, not even the right to a salary in many cases” says Herwin Nasution, president of SERBUNDO, a trade union alliance representing mainly agricultural workers in Indonesia. The inexistence of an official employment contract makes these workers vulnerable to illegal conditions, turning the plantations into a place where labour exploitation and human rights abuse are a reality, and where, sometimes, child labour is found.  

In fact, the working conditions are very poor, with long shifts, limited access to clean water and use of toxic chemicals without adequate protective equipment, and the workers receive no support from their employees regarding health insurance, maternity license or school facilities.  

Additionally, palm oil production has a devastating impact on the environment. In order to produce the palm trees, tropical forests were burned and cut down, in one of the regions of the globe with more biodiversity and making it responsible for about 8% of the world’s deforestation between 1990 and 2008 (only in Indonesia there was recorded a loss of 25.6 million hectares of tree cover, during the period from 2001 to 2018). By burning these forests, greenhouse gas is released, namely CO2, having a severe contribution to global warming, and it is the main reason why Indonesia is the third country in the world with more gas emissions. Moreover, the intensive cultivation method without planning or care for the environment could lead to soil erosion and water pollution.  

Furthermore, it destroys the habitat of hundreds of species, even when it is considered illegal, as it happened in Riau, Indonesia, one of the most affected regions, where 84% of elephants living there died after losing 65% of its forest, in the last quarter a century. But Bornean Pygmy elephants weren’t the only ones affected by the deforestation. More than 100,000 Bornean orangutans, a critically endangered species, died between 1999 and 2015, and almost 75% of Tesso Nilo National Park in Sumatra, that secured the habitat for the endangered Sumatran tiger is now covered with illegal palm oil plantations.  

You could think that a way to solve this would be if we stopped producing or consuming it, and instead started buying other vegetable oils, such as soy. However, the problem would remain, because the need to make way to the plantation would stay the same. Also, these other plantations would need more land than palm oil, making these alternatives possibly worse, and, besides that, none of them would be a perfect substitute since none of them has the same versatility, utility or functionality as palm oil.

Despite this, the palm oil problem could still be lessened. The solution to this problem could be to change the way it is produced to a more sustainable one, that respects the rights of workers, recognizes the responsibility with the environment and uses the effluents and waste to other activities, along with the increase of inspections in order to close all the illegal plantations. The consumer could distinguish the products produced in a sustainable way through the RSPO (Roundtable on Sustainable Palm Oil) certificate (around 20% of the world’s production), that forbids deforestation and promotes the conservation of these highly diverse habitats.

The awareness regarding this topic has increased and, as a consequence, several companies and countries demand the production of this vegetable oil to have a certification of sustainability or are applying measures against it. In Norway, all importations of this oil as biofuel were banned, and in the UK, the supermarket chain Iceland started a campaign[1] to ban palm oil from their label products until it is proven to be of sustainable origin. In some cases, we can already see the results, such as in the UK, where 75% of the total palm oil imported was sustainable, by 2016.  

With development economies pursuing an exponential growth in palm oil production, such as Colombia, where fields that were formerly used to coca plantation or to raise cattle are converted to palm trees plantations, making it more sustainable, a new tomorrow to palm oil production arises.

[1] An example of this campaign is the following advertisement: https://www.youtube.com/watch?v=oA10-oZi4Xc

Sources: The Guardian, Org, WorldWildlife, Statista, Dialogochino, Cell, BBC

Mariana Gomes

European Football | Cash is king in the king of sports

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Reading time: 7 minutes

Football is king in Europe; it is a sport that moves millions of die-hard fans as well as billions of euros every year, 28.9 in 2019 to be precise. Despite the fact that the COVID-19 pandemic took a major hit on the finances of most football clubs, the revenue of the big five leagues (England, Germany, Spain, Italy and France) is expected to reach a new record of 18.2 billion euros in 2021.

Even tough business seems prosperous, there are a number of problems to be addressed, and the Super League, the international competition announced earlier this year that quickly fell apart, suggests that the elite of football wants to solve only their own problems. It is, however, important not to forget that this competition points to a huge problem in modern football – the growing asymmetries within the sport.  

How did we get here?

Disregarding the health-driven financial crisis lived today, Football’s health has been struggling for a while now, as there has been an overall overspending by teams, mainly from larger clubs, either on the acquisition fees or payroll. Moreover, most domestic leagues have become uncompetitive and monotonous and, there has been a lack of commercial interest in most of the “smaller” confronts.

The importance of the competitions and broadcasting’s income for the clubs and their rapid growth have led to major “financial confronts” outside the pitch, with every club looking for the best talent out there. This has been transformed into skyrocketing wages and transfer fees between clubs, with the average Premier League transfer fee having more than tripled since 2007, to an average of more than £16 million. 

Figure 2 – Average Premier League Transfer Fee
Source: Chronicle Live

This has been made possible by overleveraging clubs, through debt or the help of wealthy owners, who can invest large sums of money in hope titles. In fact, only one of the 12 initial clubs in the Super League is free of debt, with several of them having a large net debt as of 2021, which, by not being accompanied by positive profits, keeps increasing from season to season. This has led to enormous asymmetries between those who can sustain said debts, or have wealthy owners who can bail them, and those who rely solely on their revenues from more conventional sources.

Figure 3 – Net Debt of Super League Founding Member
Source: Bloomberg

On the other hand, leagues have been struggling with commercial interest on some of their games, especially those between smaller teams. TV broadcasting rights and sponsorships, which play an important role on clubs’ revenues, also help perpetuate the differences between teams, with some in leagues where there is no “unified type” of TV rights selloff seeing a larger disparity, whereas in the Premier League or Bundesliga there is a more centralized and organized revenue sharing.

This reality leads to the final problem Football is facing: most domestic leagues are becoming uncompetitive. Looking at Top-5 leagues, only the Premier League has constantly 6 teams fighting for the title, whereas the others either have 2 main competitors (La Liga and Bundesliga), or even a single competitor that stands immensely (Serie A and Ligue 1). This era has become more and more polarized between title candidates, and the others, with the second group playing on an unleveled playing ground, and only in some rare occasions being able to surprise the recurrent candidates. This diminishes the spectacle of football, and only helps perpetuate the problems in Football, the inequalities and the surviving difficulties small teams suffer recurrently.

Figure 4  – Market Size of Professional Football Leagues in Europe from 2017 to 2019, by league type (in billion euros)
Source: Statista

How did COVID-19 put the Super League on the table again?

The COVID-19 pandemic affected our lives in every possible dimension, with football not being an exception. According to KPMG, the pandemic had a $5 billion impact on the sport, with the biggest clubs alone having $1 billion losses in revenues.

Figure 5 – Aggregate revenue in European top divisions (in EUR million)
Source: KPMG and UEFA

With the major European clubs taking major hits to their finances because of COVID-19, the plan of a European Super League (ESL) came abruptly to the foreground this April, in an attempt to ramp up revenues.

What is the plan, then?

According to the official ESL plan put out in mid-April, 12 major European clubs (+3 that would be announced) would join as Founding Clubs and the competition would consist of a closed tournament between those teams and 5 other teams in rotating slots that would be chosen each season.

This plan has major implications for the economics of European football:

Firstly, each founding member would have received around $400 million for the founding of the ESL. Secondly, revenues coming from broadcasting and advertising would be much more concentrated on the ESL founding member-clubs, because such a league would siphon off much of the attention from the Champions League and other competitions in Europe. Furthermore, as an essentially walled-off competition, the ESL would hurt revenues of smaller clubs which would be left out of the ESL’s elite roster, thus losing access to the millions of the European stage.

Finally, it could have large impacts on the wages paid to players and on the clubs’ finances, as many large clubs spend considerable percentages of their revenues on players’ wages to attract the best players in the world, and ultimately win titles.

Figure 6 – Wage burden of clubs looking to join the new Super League
Source: FT

The new ESL founding clubs would commit to spending limits of 55% on wages. This would reduce competitive behaviour between these large clubs, leading to lower wages for players and more profits for clubs.

The potential negative effects on smaller clubs and the fact that the 15 founding clubs would have their place in the ESL guaranteed, no matter what, led to outrage from both football fans and football confederations, who claimed that this would further increase the inequality between clubs and would hurt the spirit of the sport. The UEFA went further threatening sanctions against the clubs who would undertake the project, namely barring clubs from all its competitions and preventing their players from representing their national teams.

Eventually, as pressures from the backlash increased against the large clubs, even from politicians, English clubs began to pull out from the ESL project and the ESL put out a statement saying that the project was “suspended”.

What does the future hold for European Football?

Though the Super League was killed off earlier this year, it does not mean that European Football will stay the same, as a new format of the Champions League is to come into effect in 2024. Moreover, an all-new tournament is coming in 2021, the UEFA Europa Conference League, a third-tier competition. The new Champions League will adopt a swiss-style model instead of the traditional group stage, and there will be a single league in which teams play 10 games each against “teams of their level” to qualify for the knock-out stage. This new format addresses some complaints of the biggest clubs regarding the quality of the matches, as the best teams will face each other more frequently. Furthermore, the addition of 4 more teams to the competition serves the same purpose as the Conference League, that is allowing for more teams to have a chance in the European stage, hopefully making the sport more competitive, which is what fans look for. The problems that football faces today are not exclusive to the sport. We have witnessed sports introducing significant changes in order to remain relevant. Formula 1 is a great example, as the sport has changed itself over the years, managing to attract a new generation of fans in return. F1, perhaps the most expensive sport in the world in which money means titles, recently announced budget caps, as well as sliding scale for car development, which intends to create a level playing field for teams and ultimately make the sport more interesting for fans.

Figure 7 – F1 rebranded itself in 2017 to attract new fans
Source: F1

Football faces the same challenges as F1 in terms of competitiveness and the difficulty to resonate with a new generation of fans that, due to social media, is more interested in the accomplishments of players such as Ronaldo or Messi than in their teams’. Consequently, football must constantly reinvent itself too, without losing the essence that made it what it is today.

Football is at a crosswalk; the sport must remain relevant in the modern era of entertainment and social media, while still being a profitable business. The innovations brought by UEFA show that the sport is evolving. However, that alone will not make it. Certainly, the smaller teams will get a bigger pie of the money and the elite better matches, though that will be verified only in the short run.

Sources: Bloomberg, Chronicle Live, FiveThirtyEight, Financial Times, KPMG, The New York Times, Statista, UEFA

Tiago Rebelo

João Baptista

Jorge Lousada

Are robots taking our jobs?

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Reading time: 6 minutes

A brief overview of technological disruption on industries

The automation of activities via technological breakthrough is no novelty to society. It no longer strikes us as surprising the fact that pilots only steer the plane themselves for around 10% of the course, or that money is drawn from ATMs rather than from a bank teller, as opposed to what happened a few decades ago. However, as we experience AI and machine learning development at an ever-accelerated pace, the future of many industries and employment as we know it may be at stake.

Overall, economies had to adapt to maximise the value they get from the digital disruption phenomenon, but at a micro level how did businesses across industries changed? First, they transferred some of their power to consumers, making their needs the main focus of the company. Also, they changed the way they operated, shifting to a more agile and sharp way of acting, simplifying the decision-making process and making their dynamics more competitive. And lastly, firms reinvented their operating models, using advanced analytical tools in order to reduce costs and to drive revenue, while improving insights.

Recently, AI has been subject to groundbreaking discoveries, accounting for significant advances in many sectors and placing us in the middle of the fourth industrial revolution. As the world’s top enterprises strive for the best AI in order to capture its vast market (Amazon with Alexa, Apple with Siri, IBM with Watson, and countless other examples), we observe time and again a wider scope of industries that are possible to restructure and enhance via technology – healthcare, retail,  manufacturing, finance, customer service and transportation, only to name a few.

As more companies adopt artificial intelligence for revenue boost and cost reduction, global AI startup funding has been growing vertiginously over the past years. The ease with which manipulation of AI capabilities can be done allows each industry to tailor it to their value chains and, consequently, increase efficiency.

Source: McKinsey

What’s more, machine learning is also a tool increasingly more explored by corporations, from financial services to entertainment. PayPal, for instance, makes use of machine learning to analyse and compare users’ activity in order to detect legitimate and fraudulent transactions, namely money laundering. Netflix makes use of intelligent machine learning algorithms that compare viewing activity in order to make recommendations on what to binge-watch next. These sorts of tasks involve the quick analysis of big data, a task in which humans cannot compete with machines.

One of the sectors that is already being revolutionized by technology is transportation, and one does not even have to go as far as Tesla to mention automated vehicles. As Mobicascais rolls-out its first automated bus, the future of self-sufficient public transportation  is imminent. And it does not stop here: with multiple trials on autonomous ships, mining trucks and aircrafts, the only thing stopping driverless vehicles from becoming mainstream is regulation.

When it comes to manufacturing, the automotive sector is historically known for using cutting-edge technology to improve efficiency. While Industry 4.0 technology brought considerable gains in productivity, ranging from production design to quality control, being able to keep up with increasing consumer demands for more choice, it has also been able to mitigate the fear that this industry belongs to the robots. Breakthroughs in the field of robotic technology brought the so-called “co-bots”, artificial intelligent robots that are much lighter and agile – thus safer for humans to work around – and, more importantly, they are trained rather than programmed. A study conducted by the MIT in alliance with BMW found robot-human teams to be 85% more productive than either of them alone, and the manufacturing industry is responding, tending towards a common-ground future for man and machine.

By affecting industries, automation is bound to change labour. In fact, this has been a trend for decades now and the further development of AI will inevitably change the workplace and how we work, which will bring positive and negative consequences. The global impact, however, is still unknown.

In the US, since the 80s, computers have led to 3.5 million jobs destroyed, according to a McKinsey study. Nevertheless, in that same time frame, over 19 million jobs were created as a result of the personal computer, as technology increased productivity and spending power, which consequently created new demand and new jobs. Technology has changed labour, not destroyed it. As the service sector gained weight, so did the median household income, as a result of some low-paying and low-skill jobs being replaced. Also, automation led to vast improvements in terms of quality of life, hours of work as well as replacing repetitive tasks, meaning its impact extends beyond just economic indicators.

AI, machine learning and other recent technologies stand to change the labour market similarly to how computers did, although to a further degree. The World Economic Forum claims that from 2018 to 2022 automation will destroy 75 million jobs, but, as was seen previously, 133 million jobs will emerge in that period due to the same event. However, when talking of automation and job destruction, it is important to distinguish between occupations and activities. According to McKinsey, 45% of activities performed can be automated by adapting currently demonstrated technologies. When it comes to occupations that may be fully automated that figure is only 5%. This scenario is far less drastic, because the change affects primarily tasks rather than occupations themselves. Nonetheless, 60% of occupations could have 30% or more of their constituent activities automated, which means the vast majority of professions will still suffer significant changes, namely job redefinition along with transformation of business processes.

The difference from previous seen automation lies in the incidence. Whereas the industrial revolution led to mainly low-skill tasks disappearing and the computer age  affected workers more in the skilled middle, such as travel agents, this time technology will also affect high-paid occupations, such as executives and physicians. Machine learning and AI’s expertise will exceed humans’ and, as a result, more demanding tasks and decisions can be automated, making even high-skill professionals subject to the phenomenon, something not seen before. As profound as these changes may seem, they will not occur all at once, instead AI will slowly move into the workplace gradually replacing humans.

All in all, additionally to affecting companies financially, automation will deeply affect workers financially, because as labour becomes a less important factor in production, a majority of citizens may find the value of their labour insufficient to pay for a socially acceptable standard of living, which will require society to come up with solutions to prevent a part of the population from falling behind. AI and machine learning are successful as long as they create value for human lives. To safeguard human labour from becoming obsolete and inequality from increasing, it is vital that governments take an active role when it comes to defining policy. While it is important to stimulate investment in R&D, it is crucial to adopt a “humans first” position. Although it may be difficult to predict in which direction technological disruption may point towards, it will surely be impossible to go back from it, so legislation must be shaped in a way that advances in technology focused solely on corporate profit and disregard human capital are forfeit.

Sources: McKinsey, Statista, MarketLine, Forbes

Written by Diogo Alves, Lourenço Paramés and Tiago Rebelo

Scientific revision: Patrícia Cruz

German elections

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Reading time: 6 minutes

In September of this year, German voters will head to the polls to elect a new Bundestag or German Federal Parliament. However, for the first time in 16 years, they will not be able to vote for Angela Merkel, who announced in 2018, she would not run for a fifth consecutive term. Angela Merkel was the first female Chancellor of Germany and has been widely described as the de facto leader of Europe. If the reader wishes to know more about the legacy Merkel leaves behind, both in Germany and the European Union, we have written two articles that discuss this very topic. You can find part one here [Merkel Part 1] and part two here [Merkel Part 2]. So, if Merkel is out, who will be the next Chancellor of Germany? Let us look at the three front-runners.

Main candidates

Figure 1 – Armin Laschet; Source: FR.d; Taken by Federico Gambarini

Armin Laschet is a 60-year-old former layer and journalist. He is currently the State Premier of North Rhine-Westphalia, the most populous state in Germany. Laschet is the current leader of the center-right party, Christian Democratic Union of Germany (CDU), and he will head to the elections under a political alliance between CDU and the Christian Social Union of Bavaria (CSU), the latter being a sister party of the CDU that operates in the German state of Bavaria. Angela Merkel was the leader of this political alliance in the elections from 2005 to 2017, so the reader can think of Laschet as her successor.

Figure 2 – Annalena Baerbock; Source: buchreport.de

Annalena Baerbock is a 40-year-old member of the Bundestag, and co-leader of the center-left party alliance called the Greens. In April, the Baerbock was announced as the Greens’ candidate for Chancellor for this year’s federal elections, which was the first time the Greens announced a sole candidate for Germany’s head of government. She has been a member of parliament since 2013 but has never held any public office.

Figure 3 – Olaf Scholz; Source: globsec.org

Olaf Scholz, 62-years-old is the current Vice-Chancellor and Minister of Finance of Germany. He is the nominee of the center-left Social Democratic Party of Germany (SDP) for Chancellor. He has been part of the SDP since 1975 and has had a long political career. He is seen as being part of the more conservative wing of the SDP. Scholz is by far the most experienced candidate of the three.

What do the polls tell us?

As for the time of writing, it is still early to tell who will win the elections in September. The current polls show the Greens of Annalena Baerbock ahead in the polls. Despite her lack of political experience, Baerbock’s smooth nomination process and message of reshaping German politics have resonated with voters. In second in the polls and within the margin of error comes Armin Laschet’s CDU/CSU bloc. The long political battle between the two parties of this alliance to choose the nominee for Chancellor and widespread accusations of corruption against some CDU members of parliament have damaged the image of the bloc in the public sphere. In third, and quite far away from both the Greens and the CDU/CSU block, is Olaf Scholz’s SDP. Despite being either the largest or second largest party in every election since the end of WWII, the SDP has been on a declining trend over the last 16 years and had its worst result since 1932 on the last Federal elections. If the party does not manage to recover, it will have its worst electoral performance since 1887 (134 years ago).

The numbers now show that the winner in September will be either Baerbock or Laschet, however, both parties are polling quite far away from winning an absolute majority in the Bundestag. Therefore, either one will face the challenging task of forming a coalition able to govern Germany until 2026.

Consequences on for the EU

However, the Chancellor of Germany is often described as the de facto leader of Europe, so it is important to understand what type of policies the two favorite candidates defend for the EU.

Figure 4 – Time’s Magazine Cover from January 11th 2020

Both candidates are pro-European, with Laschet recently saying that “in any global problem-solving, we need multilateral solutions, we need a European Germany.” However, their views towards Europe are quite different.

Armin Laschet is one of Merkel’s closest political allies so his policies towards the EU and other European countries will follow in the steps of his predecessor. He is a strong defender of Merkel’s stance on the Covid-19 recovery package and controversial migration policy. He has also defended a closer relationship between Germany and France, and an attempt to improve diplomatic relations between the EU and Russia. In his program, “Impulse 2021”, Laschet states the importance of completing the Single Market, increasing the use of qualified majority voting, and reinforcing the European Border and Coast Guard Agency.

On the other hand, the election of Annalena Baerbock could dramatically change the EU and its relationship with the rest of the continent and the rest of the world. First, Baerbock has defended the reform of the German “debt brake” that prohibits the government from having a structural deficit above 0.35% of GDP, saying it leads to low public investment, which in turn, hurts the competitivity of the German economy, additionally it makes it harder for the country to fight global warming. This change in fiscal policy could translate into a less strict approach by Germany towards fiscal responsibility being forced upon highly indebted European countries, such as Italy and Greece. The Greens have also defended making the EU’s recovery package permanent, and that the Stability and Growth Pact is excessive and should be reformed. For the readers who do not know, the Stability and Growth Pact is a set of fiscal rules which state EU countries cannot have budget deficits above 3% of GDP and the national debt cannot surpass 60% of GDP. As of 2021, only 13 of the 27 member states meet both criteria, and Germany is not one of them. Baerbock’s dedicated support for action against global warming will also likely lead to a more climate-focused EU, she has even supported a transatlantic Green Deal. As for Russia, Baerbock defends the suspension of Nord Stream 2, a project set to deliver Russian natural gas to Germany through the Baltic Sea, and defends a tougher stance against Putin’s actions on Ukraine. Regarding China, the Greens see a necessity for Europe to cooperate with the country to fight climate change, however, the party advocates for EU sanctions on China over its treatment of the Uighurs minority. The reader can learn more about China’s violations of human rights against Uighurs in this previous article [Uighurs] we have written about the topic. The Greens have also shown opposition against the EU’s recently concluded Comprehensive Investment Agreement (CAI) with Beijing and seeks to block Huawei’s participation in Europe’s switch to 5G.  

As already mentioned in this article, it is still too early to know what will happen in this year’s election, and Laschet’s or Baerbock’s ability to change the European Union’s domestic and foreign policy will depend not only on their electoral result but on what sort of coalition they will be able to form to govern Germany. However, there is one thing we know for certain, with Merkel’s exit, come 2022, Germany and the EU will have a new leader.

Sources: The Wall Street Journal, Rusi, Politico, BBC, CNBC, DW, The Economist, Financial Times, The Times

Francisco Pereira

João Sande e Castro

Pedro Afonso Estorninho

The Asian Tigers: Successful Economic Development in the XXth Century

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Reading time: 7 minutes

Introduction 

After the Second World War, East Asia was facing multiple political and economic problems. Few would predict that four countries in the region would be the best example of successful development: Hong Kong, Singapore, Taiwan, and South Korea embarked on an unprecedented economic transition. In the beginning of the 1960s they were all low-income countries. Rapid and sustained economic growth and equal income distribution provided for by intelligent industrial policy, with some state intervention turned them into some of the world’s richest countries by the end of the century. 

In this article we will present the decisive economic and political factors in each of four tigers’ trajectory, and what they teach us about economic development.  

Evolution of Real GDP per capita in
all four Asian Tigers

Hong Kong’s Positive Non-interventionism 

         The city of Honk Kong was a British protectorate until 1997. Thus, its economic development in the 20th century was made under colonial rule. The economy was devastated after the Japanese occupation in WWII and the embargo from China during the Korean War. Nevertheless, it was able to produce an industrial take-off in the 1950s. The reasons for this take-off are twofold: first, the city benefited from capital and know-how brought from refugees from communist China; secondly, the colonial authorities opted for a liberal approach to policymaking. 

Sir John Cowperthwaite (1915-2006), Financial Secretary of Hong Kong (1961-1971)

The authorities, headed by Sir John Cowperthwaite (financial minister from 1951 to 1971), chose a laissez-faire policy, with openness to trade and to capital flows, low taxes, balanced budgets and the creation of the necessary institutional conditions for agents to operate in free, competitive markets. At the same time, the government intervened in the supply of public goods, strong and efficient regulation, and some welfare measures such as supply of housing. 

         These institutional conditions provided a framework for a rapid economic growth in the 1950s through the 1970s that was heavily based on industry. Structural changes were brought by China’s relative openness after Deng Xiaoping’s reforms. From the 1970s onwards Hong Kong’s economy moved from an industrial economy to an economy based on trade and value-added services, with a particular emphasis on financial services. 

         Today Hong Kong is one of the technological, financial, and trading centers in the world. Its economic results are sound and believed to continue to be so in the future. After the 1997 handover, it has become more economic integrated with China. However, the economic freedom and progress coexisted with lack of democracy and basic freedoms both during Britain’s rule and today. 

Singapore: Growth without Freedom 

         The city of Singapore gained its independence from Britain in 1963 and it seceded from Malaysia in 1965. At the time it was an underdeveloped city, with most of its inhabitants living in poverty while unemployment soared. Furthermore, it was a small state lacking natural resources, and basic economic and well-being infrastructure. 

         Inspired by the example of Israel, the government of Singapore tried to reap gains from trade and globalization to develop its economy. The government embarked on a set of policies designed to attract foreign direct investment and develop and liberalize trade in the region. Taxes were low, incentives given to investors and the rule of law was strictly enforced. In a couple of years most production units were owned by foreign investors, particularly American and Japanese ones. In the 1960s and 1970s, the country’s GDP grew at an annual double-digit rate. To industrial economic dynamism Singapore created was further enhanced with investment in education, particularly on technical skills. 

      

 Lee Kuan Yew (1923-2015), Prime Minister of Singapore (1959-1990)

   Singapore produced real structural reforms that created a resilient economy that dealt with relatively ease with the Asian Financial Crisis of 1997-98, the Dot-Com bubble and the 2008 Crisis. Today the city-state is one of the world’s trading and financial services centers, with many exporting high-tech industries. Furthermore, it shows many good results in quality-of-life indicators. 

         However, development came at a cost. The reforms were made by a strong government, under the leadership of the People’s Action Party since the late-1950s. Particularly, the reforms are associated with the person of Lee Kuan Yew, prime minister from 1959 to 1990. The business-friendly measures were coupled with a strong authoritarian government that constantly curtailed individual freedoms. Prosperity came at the cost of democracy, which is not the most desirable model to emulate. 

Taiwan: an active government 

Taiwan became an independent country after the Chinese Civil War, which opposed nationalists and communists. As the communist regime of Mao Tse-tung was implemented, the Chinese business elite was forced to flee to Taiwan, bringing capital and economic power to the island.  

The miracle of Taiwan’s economic growth was only possible due to an active posture of the government, which encouraged enterprising and development of the economy, providing several incentives.  

The plan for this growth consisted of transforming an economy based on agriculture to manufacturers, namely in the textile industry, modernizing the stages of production and trying to make it self-sufficient. The support of the government was fundamental since it supported the investment and capital acquired. This plan proved to be a huge success, as it drove Taiwan’s economy, shifting from the primary sector to the services sector, increasing exports and attracting investors.  

Another factor to consider in this process was that the labour force was extensive and very cheap, as the degree of education was not very high in most of the population, lowering the costs of production and allowing an establishment in the world’s market with competitive prices. Besides that, Taiwan also invested in the consumption and production of electronics, namely in integrated circuits. As the know-how and quality of the products increased, it boosted Taiwan’s economy, receiving plenty of foreign capital and exporting most of the production.  

South Korea: an exemplary case of diverging paths 

South Korea’s case is interesting, because, unlike the other three nations, it is noticeably larger and borders one of the worst cases of regime failure – North Korea. 

General Park Chung-hee (1917-1979), ruler of South Korea (1963-1979)

The Korean peninsula was home to a mostly agrarian society prior to World War II, making it one of the poorest in Asia. With the end of the world war, Cold War followed, and the Korean war broke out in full force, pitting the communist forces of the North (backed by China and the Soviet Union) against the US-led troops in the South. This was a defining moment in the Korean economy, leading to a coup by South Korea general Park Chung-hee in 1961. Chung-hee was a de facto dictator; however, the country flourished with him spearheading efforts to transition from an agrarian to industrial economy. His iron-fisted rule ensured controlled growth in the early 1960s. A lot of South Korea’s early prosperity stems from foreign aid provided by the United States – the chaebols, family-ran corporations, the backbone of the Korean economy, benefited greatly from these donations, in addition to tax breaks and easy financing. This period, between the 1960s to the 1970s, led to the consolidation of household names, such as Samsung, LG, and Hyundai. 

During the Asian Tigers growth period, South Korea’s GDP grew at an exceptional average of 8% per year – one of the fastest in Asia. Contrary to its neighbor to the north, South Korea adopted an export-heavy economy, which contributed to this growth as the West turned to Asia for its industrial and electronic goods. South Korea also had a booming steel industry, with some of the largest shipbuilding yards in the world. 

Conclusion 

The ascension of the Asian Tigers would shape our world, changing the dynamics of the worlds’ economy and the balance of power in South-East Asia. 

There were differences, for instance Hong-Kong adopted a policy of laissez-faire, with a very reduced intervention from the government, unlike Taiwan, Singapore, and South Korea where that entity played a major role, controlling the reshape the economy. Despite the variety of measures and different approaches, the ultimate result was an astonishing economic growth. 

This series of economic growth is an example to follow, as they show how, with the right measures, adapted to each situation, economies can flourish in a sustainable way.  

Sources: 

American Economic Association; BBC; Berkeley Economic Review; Borgen Magazine; Corporate Finance Institute; CNN; Economic History Association; E-International Relations; Food Research Institute Studies; Geographical Association; Ichiro Sugimoto; Investopedia; International Development Society – King’s College London; Journal of Comparative Economics; Kellogg Institue; MacroTrends; Montreal Economic Institue; St. Louis FED; Taiwan Today; The China Quarterly; The Economist; ThoughtCo; VoxEU; Wikipedia; WorldAtlas; World Bank; ZBW. 

Team

Rui Ramalhão

Guilherme Barroca

Mariana Gomes