Convergence in Economies, Is it really happening?

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In my third year in university in 2004, I followed the Economic Development course delivered by a very good professor, Elif Çepni, in Istanbul. I remember her telling us about the convergence in economies over time.

The concept is pretty simple and logical. It is the hypothesis that the emerging market economies and developed market economies will in the end converge in terms of GDP per capita. The underlying reasoning is that the rate of the growth in the developing world is higher than the rate of the growth in the developed world.

Have developing economies really been catching up with the developed economies since 2004?

 

The share of the developing world’s population living on less than $1.25 a day (the international definition of poverty) has fallen from 30 per cent in 2000 to below ten per cent according to an estimate by the Centre for Global Development, based on new data published by the World Bank in April 2015.

According to an article in The Economist in 2014, were the emerging world able to maintain a 4.5 percentage point growth advantage over the rich world, then, all other things being equal, its average income per person would converge with that in America in just over 30 years—scarcely a generation.

Unfortunately, since the global financial crisis in 2008, a lot of things have changed. The growth rate of emerging market economies has slowed down and the convergence has faltered.

Growth rate is not the only factor, but it is one of the main reasons that convergence is not happening. Emerging markets have been still dealing with implementing efficient governing policies, productivity levels (technology) and rules of law.

Red tape in emerging markets is very high and corruption does not really help. According to a recent report by Transparency International, emerging markets continue to be more corrupt than the developed world. This reports highlights that Brazil and Turkey have seen the largest fall in terms of cleanliness in the last four years.

Unfortunately, corruption leads to less productivity, and less productivity leads to poor citizens, which in turn leads to less educated communities and bad governing policies along with weakened rule of law.

It is a vicious circle for emerging markets.

I personally believe India has very much potential, but with the current red tape level (opening a business is one of the hardest), the potential of the country is still not being realised. President Modi has been elected to change this, but easier said than done: it will take time.

A paper written by Harvard economist Dani Rodrik in 2011 argues that generalized, rapid convergence is possible in principle, but unlikely in practice. His baseline scenario has to be one in which high growth remains episodic. Sustained convergence is likely to remain restricted to a relatively small number of countries. I totally agree with his conclusions.

According to an Oxfam report, the combined wealth of the richest one per cent will overtake that of the other 99 per cent of people next year unless the current trend of rising inequality is checked. Oxfam made headlines at Davos last year in 2015 with the revelation that the 85 richest people on the planet have the same wealth as the poorest 50 per cent (3.5 billion people). That figure is now 80—a dramatic fall from 388 people in 2010. The wealth of the richest 80 doubled in cash terms between 2009 and 2014.

 

A prominent Turkish conglomerate, Ali Koc, has mentioned in a conference that we have to sort out the inequality in the system in order not to face bigger problems in the near future. The existence of large inequalities always open the door for correction, which may lead to a global war. The migrant crisis, for example, is an early symptom of this.

Sustainable growth is unlikely, so it will remain just a hypothesis. It is true that we have more middle class now, but we have still one in nine people living below the poverty line (less than $1.25 per day).

On the other hand, there are some voices claiming that the emerging markets’ catch-up with the developed markets will continue into the 2020s. A prominent economist, Kemal Dervis, believes it is not the end of the party for the emerging markets yet.

As a final note, I would like to share with you Dani Rodrik’s 2013 slides about the subject, with which I completely agree.

With low commodity prices; capital flowing back to the mainland; the Chinese slowdown and discussion about whether the landing will be soft or hard; geopolitical developments in the Middle East and Russia, it is likely that the growth rate of the emerging markets will be surpassed in the near future.

This weekend I am in Bintan, a beautiful island just one hour away from Singapore. I will write my observations about the island and my short journey next week.

All the best from Indonesia.

Sukru Haskan
Twitter:@sukru_haskan

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Inspire, Trust, and Do Business!

Interaction plays an important part in our lives. We interact with friends, colleagues, strangers and family members. Each interaction creates good and bad feelings in us and, most importantly, each interaction has social or business impact on us.

Since it is important to interact, how can we make each interaction efficient in our social and business lives?

We human beings are strange and unique creatures and we like to interact with people that we like. We always try to find common points with the people with whom we interact. Finding a common point is a good ice breaker when you meet a stranger.

Through my life experience, I have found that I like to interact with people that I get inspired by. A person that pushes me to think differently and helps to enhance my vision always manages to gain priority in my life. Interestingly, when I look back and think, I chose my friends and my best colleagues through this inspiration channel.

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How can you inspire a person?

You may use your status in the community, such as the CEO of XXX, or your financial strength, such as being one of the thousand richest in the world, but this is not really influential in the long term. Given that status in the community and financial strength can be lost in a day, they are not really a permanent inspirational asset in a human being.

Is it a coincidence that many rich people are left alone when they suddenly become poor? Or that a retired Prime Minister or a high level business executive starts living an ordinary life?

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I believe that a permanently inspirational character exists when you have a vision and continual viable ideas that you can share with people. I don’t mean that you have to be a scientist or an innovator; most importantly you have to have a strong ability to make good observations of people, understand developments in economics and politics or other types of social sciences, and implement these new ideas into people’s lives while taking into consideration the history and other aspects of your counterparty.

Easily said. But once you have all these skills, you are a candidate for a good leader, a mentor and a friend for everyone. I believe that acquiring these skills requires a tremendous amount of energy and motivation and a desire to update yourself constantly. A lot of people want to achieve this, but since it is long journey, many of us turn back while we are still quite close to the start.

When you inspire people, it is much easier to build trust. You don’t really have to work on building trust, since a person inspired by you will be much open to listening more to you and will be more willing to spend time with you.

And once the trust is built, it is very easy to do business with those people.

Instead of inspiring and building trust, if you want to jump to a conclusion (in business), it is very likely that you will fail. Even if you don’t, it will not be a very long term relationship.

A good leader or mentor should be able to inspire their subordinates with their vision and way of living—otherwise that leader is just an ordinary leader, and most likely he will be left alone once he gives up his status in the community. And a good friend should be able to show you new ways of looking at things while having a good time.

A lot of people are advising that you split your social and business circles, which I strongly oppose. Conversely, combine your social and business circles!

It will definitely create more synergy, as one plus one sometimes does not equal two. In addition, doing business within your social circle is a good test to see how much your friends are inspired by you.

All the best from Singapore.

Sukru Haskan
Twitter:@sukru_haskan

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Autonomous Cars: Are you ready?

I love technology and I hate driving. The inclusion of both love and hate presents a conflict, but the two can help each other in numerous ways.

Many news stories have recently emerged regarding autonomous cars, which makes me very excited. Having lived in Istanbul, London, and briefly in Zurich and Singapore, I know that the traffic can be annoying; in Istanbul, the commute can be trying.

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According to CNN, commuters spend 125 hours per year stuck in traffic, which is not an acceptable way to live one’s life. Since, when driving, we are in front of a steering wheel, we cannot be effective during those hours: this is a perfect way of explaining the term “waste of time”.

At present, technology is evolving, will continue to ease our lives, and, most importantly, enable us to be more effective.

Autonomous cars are breaking into the market in a big way. In other words, driverless and fully robotic cars will soon be widely used.

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Silicon Valley has become recently one of the top destinations for car companies. An increasing number of conventional car companies are teaming up with technology companies to explore this market. If they do not make this transition, conventional car companies are at risk of having their market captured by companies like Google.

Google has been testing the driverless car technology for some time now, and Ford has just tested its own autonomous car in snow!

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The CEO of Tesla, a revolutionary car company, believes that fully autonomous cars will be hitting the market shortly. In fact, Tesla is preparing for an immense test drive: from one coast to the other in the US. “If you’re in New York and the car’s in Los Angeles, you can summon your car to you from your phone and tell the car to find you, and it’ll automatically charge itself along the journey,” Tesla’s CEO said on a conference call prior to the Detroit Auto show this week.

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Not only will the technology enable us to be effective in terms of our time, it will help us to be safer. Specialists believe that autonomous vehicles will be significantly safer than human-driven vehicles. Toyota is another car company that is exploring the options in this market.

It is scary, but whatever industry you are in may be swallowed by a tech company in the next decade. Thus, perhaps it is better to collaborate with them rather than trying to compete with them.

Consider an example: banks. Conventional retail banks are at risk of being swallowed by fin-tech companies if they lag behind the curve in the coming years.

Fiat Chrysler’s CEO, Sergio Marchionne, stated that carmakers risk losing proprietary control. He said, “Having initially manufactured all their own components, carmarkers currently retain primary control of making only vehicles power trains – their engines and transmissions. If we start losing any of that … we will not be able to hang on to any proprietary knowledge and control of that business.”

On the other side of the coin are drivers, whose responsibility will be overturned shortly. It will be difficult to reallocate workers in low-skill positions in the next decade. Governments should prepare training programmes for these people to ensure that they continue to have a place in the economy. Otherwise, while these improvements are positive, they may create conflicts.

The world is becoming a very competitive place, and survival for the weak is becoming difficult.

The Detroit Motor Show began this week, and it will be interesting to watch: not because I am interested in cars, but because I am interested in the current evolving technologies.

All the best from Singapore.

Sukru Haskan
Twitter: @sukru_haskan

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A weekend in London – What would I do?

I lived in London for 7.5 years and I became a true Londoner in this period of time. Since I have been living in Singapore for the last 2.5 years, I sometimes miss London, and whenever I have a chance to go to London, it is a great opportunity for me to get into my old routine for a few days.

What would I do in a weekend in London?

London, the capital, is a place where new ideas are generated so it is a place to visit museums, shows, restaurants but, most importantly, bookstores. You will not get any night life advice here.

In a typical weekend, I would start my day walking to Marylebone: this is my London centre since I lived in Bickenhall Street for 3.5 years.

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Marylebone is a very special place for me as I have a lot of memories of every single corner of it, and my first visit would be Daunt Bookstore on Marylebone.

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Technology is evolving and many argue that books will be history, since a lot of people have already shifted to e-books. Daunt Bookstore definitely fights quite strongly against this idea.

It is a great place for me to spend a couple of hours. It is an Edwardian bookstore with long oak galleries. This bookstore specialises in travel books, but there are other sections such as history and literature. I love to look through its travel books, but I would always buy a history, politics or economics book over a travel book. Since this is my first stop early in the morning, I won’t buy any books but I decide on what to buy on my return.

Now the long walk to Hampstead starts.

I cross the Marylebone Road and reach Regent’s Park, where I spent many of my early mornings and late nights. Through Regent’s Park, I reach Prince Albert Road and then I continue to walk towards Hampstead. The nonstop walk will take about an hour to reach beautiful Hampstead Heath.

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My stop would be at The Wells, a gastropub, by Hampstead Heath. It is a family friendly pub with an evolving menu. I would stop here for an hour or two before heading back to Marylebone to buy the books that I decided to buy earlier.

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I find a lot of similarities between Marylebone and Hampstead Heath. A boutique cinema chain (Everyman) and my favourite bookstore Daunt Books are only two of them. I feel both have distinct characteristics, not like Chelsea, and they are both true London boroughs.

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The time would hit 4–5 pm now and I would have to go and leave my books and maybe rest a bit. I have a lot of favourite restaurants in London, and I would prefer Big Easy on Kings Road, Alounak in Westbourne Grove or a new London restaurant recommended by a friend.

If I could a squeeze in a theatre at night, that’s perfect. Sometimes it is quite difficult, but I would definitely try.

The walk should take about 17–18 km that day. In other words, around 35,000 steps. Not too bad! And thank God that London is flat.

I would wake up as early as possible on my second and final day in London. I would try to go to Trafalgar and Covent Garden, to walk without any aim. Then I would walk to Parliament and would cross Waterloo Bridge.

This would enable me to walk towards London Bridge and should take about 45 minutes. On my way, there are the Tate Modern, a nice pub by the river, Shakespeare’s Globe Theatre and Vinopolis—which I heard that it is closing down.

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Lunchtime should be about there and I would take a cab or a tube from London Bridge and go to my favourite spot once more, Marylebone. My lunch would take place at Casa Becci, an authentic Italian restaurant run by an Italian family for a long time.

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It is a very simple restaurant and price friendly, but, most importantly, great simple Italian food. My favourite here would be Spaghetti Aglio E Olio.

Unfortunately, the weekend has come to an end. I have to take a flight to continue wherever I need to go. I should walked about 15,000 steps that day, or in other words 10–11 km. Not bad!

London is not an easy city to live in, but it is definitely one of the best!

P.S. Most of my walking sessions started at Chelsea Bridge Wharf over the last three years as my beloved friend, Hakan Dikmen, kept hosting me without grumbling. Thank you, Hakan—you are such a great host!

All the best from Singapore.

Sukru Haskan
Twitter: @sukru_haskan

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The Psychology of Excessive Luxury Brands Purchase

Why do people buy an excessive number of luxury brands and spend so much money on these items? Not only rich people, but amazingly poor people save money to buy a branded handbag or a pair of boats.

For instance, I happen to know a lady who earns $1,500 per month and bought a bag for $5,000. Why?

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Since I believe one of the biggest social problems this century is improper distribution of goods and services, I have observed the buying patterns of different nationalities for many years.

Many of us want to feel ourselves special. No matter whether you are rich, poor, young or old, you want to be treated as someone special. It is a basic psychological state of human beings. In addition, many people want to prove to the outside world that they are different and important.

This pattern of behaviour mainly occurs when an individual is not really fully satisfied with their friends, their work, their own intellectual capacity or even how they spend their life. On top of that, if that individual feels that they are lagging behind their peers, many could choose to reduce the gap by showing off through luxury brands, luxury holidays or material stuff such as cars.

Actually, much of our surroundings is just a sense of feeling, and everything is psychological.

Of course, there are reasons behind this pattern of behaviour.

  • If a person suddenly gets rich and if they come from an underprivileged background, they may tend to exaggerate to get attention. All of a sudden, something (money) has become the only thing to get attention. Before, there was nothing to differentiate them, and they think now they have everything (money!) to get attention.
  • When they are not sure how long their wealth will hold out and they want to make the most of it by showing off. This happens mainly in emerging market economies, where governments choose some people to get rich. In other words, these people have not really achieved anything: they are simply chosen, and sadly they are unaware of it.
  • Everybody tries to establish a social status in their community. Whether you are rich or poor, you want to be respected. Here is my explanation as to why a poor person who should not buy that $5000 bag buys that bag—because they think they will be treated like rich people. They actually think that they are closing the gap between themselves and others! Actually, they are opening the gap even further by becoming poorer.
  • Last but not least, another reason is these people do not have anything better to do for themselves—and, more importantly, for their communities. Since intellectual capacity/ability is built over years, it takes time. As human beings, we take the easy route to earn respect.

I find distinct similarities between people who try to feel good and gain status through excessive buying of luxury goods and people who get married to very beautiful ladies with no education and proper life, or to fat ugly gentlemen with a lot of money.

In the end, the relationship is very artificial and does not survive in the long term.

Moreover, an institution such as marriage should create happiness, but in the end, this type of relationship only creates miserable and unhappy lives.

I personally adore those people who are respected in their communities for their knowledge and their own unique characteristics rather than for what they own. A family friend in London taught me several years ago that my wealth should not be my car and what I wear, but it should be my own intellectual capacity.

A Turkish foundation, Darussafaka, is currently running an excellent advertisement on Turkish TV channels. The title is “You can still survive without it”. A lady goes to a shop and likes a bag; a businessman goes to another shop and likes a pen; but they both say “I can still survive without it”. Then the ad continues that you can survive without many things, but not without the proper education of our children.

I want to make it clear that this article is not about criticizing any type of behaviour or a certain type of person. It is solely written according to my own personal observations. It is purely an attempt to produce an amateur socio-economic article.

In addition, I too occasionally enjoy buying some branded clothes and shoes—hopefully, though, not excessively.

I hope this article leads you to contemplate whether you overspend on luxury brands and perhaps encourages you to channel some of that spending into education or the other basic needs of the many.

All the best from Singapore.

Sukru Haskan
Twitter: @sukru_haskan

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