A 500-year-old Renaissance masterpiece reflects the state of the world economy, even as buyers shy away from conspicuous consumption. The comparison wasn’t just about aesthetics; it delved into the intricate nuances of economic uncertainties, much like the enigmatic smile of the Mona Lisa
By Alam Srinivas
- Through 2023, economists debated about employment (strong or weak, and the case of millions of missing workers), inflation and recession
- Policy makers in Europe wanted to boost green technology, reduce reliance on external suppliers like China, and give incentives to ‘make-in-their-countries
- Claudia Goldin received the 2023 Nobel Prize in Economics for groundbreaking research on the deep-rooted societal factors contributing to gender pay gaps
- In the late 1900s, married women re-entered the workforce as kids grew, opportunities shaped by educational choices made 25 years earlier
IN April 2023, the globally-renowned weekly, Economist, talked about the Mona Lisa effect. An article in the magazine said that the post-pandemic global economy seemed like the famous painting – at first glance, Mona Lisa is smiling but the smile fades if one looks at it again, and then she appears to smile again. The reason: “Leonardo da Vinci (the painter) achieved this ambiguous effect with the use of sfumato, where he blurred the lines around Mona Lisa’s face. No matter how many times you look, you are unsure quite what is happening.” The same was true about the world economy now.
A financial wellbeing website (teamhewins.com) explained the magazine’s piece in simpler terms. It stated that like the uncertainty about whether Mona Lisa is smiling or not, the world economy “seems somewhat enigmatic these days – it is a mix of good things and troubling things, and some things that are hard to explain.” Through 2023, economists debated about employment (strong or weak, and the case of millions of missing workers), inflation (high or moderate), and recession (inevitable or not). “Questions, questions. We are living in interesting times; unlike anything I can remember in the decades I have been doing this,” wrote Roger Hewins on his blog.
Combined with the fear of the pandemic, the economic apprehensions and social nervousness led to the initial rise, and then the endurance and longevity, of ‘hermit consumers.’ These include global buyers, especially in wealthy nations, who have switched off services like hospitality, travel, and entertainment, and are focused on essential goods that they require at home, such as computers, exercise bikes, and stoves. The Economist calculated that such hermit buyers shifted $600 billion out of the service economy. And the trend that started in 2020 during Covid-19 has endured in 2023.
Medium.com delved into the reasons why hermit behaviour may be here to stay. “First, the fear of infection and a preference for privacy and safety of one’s own vehicle or home continue to influence consumer decisions. Secondly, changes in work patterns, with more people working remotely, have reduced demand for services typically purchased during office hours. Lastly, the pandemic may have genuinely shifted people’s inclinations towards solitary pursuits and lessened their interest in social activities.” But, as said above, different nations follow different trajectories. The behaviour patterns in the US, for example, are different from those in India.
Since people behaved differently as consumers, they did the same as workers and employees. Several ‘established’ truths about issues, such as the present and future of work, employment, and even nature of work, were overturned. New research emerged that work-from-workplace was more efficient and productive than work-from-home, contrary to earlier studies. The existing thinking about the impact of artificial intelligence (AI), and large language model-based chatbots like ChatGPT on jobs and productivity was challenged this year. Woke, which became a buzzword, philosophy, and identity marker over the past few years, influenced economic thinking.
New research emerged that work-from-workplace was more efficient and productive than work-from-home, contrary to earlier studies. The existing thinking about the impact of artificial intelligence (AI), and large language model-based chatbots like ChatGPT on jobs and productivity was challenged this year
We do not need to stretch our imaginations to go from woke to economic discrimination among races, classes, communities, religions and, of course, gender. In theory, says www.economist.com, the woke believers state that all disparities among groups trace to structural reasons; grand issues such as free speech, individualism, and universalism camouflage discrimination; and this injustice will persist unless the system of elitism and privileges is dismantled. In effect, systemic barriers, and inherent traditions and beliefs are responsible for most of the socio-economic inequalities among people.
Not surprisingly, the Nobel Prize for economics in 2023 was awarded to Claudia Goldin, who has done seminal work on innate and ingrained societal factors that are responsible for gender disparities in salaries. Her research spans more than two centuries, and looks at the changes in women’s salaries since the Industrial Revolution in the late 1700s and early 1800s. She believes that most reasons cited for the differences are based on inherent stereotypical reasons. The reality is that while government policies and workplace practices help, wage parity is impossible without changes in the hearts and minds of people.
Even as economists and experts grappled with various kinds of discrimination, an aggressive and populist brand of nationalism, which is yet another form of differentiation and is in vogue for the past few years, showed new colours. Green resource nationalism became fashionable as governments entered the frenetic race to achieve climate change and green economy targets. At the same time, the European Union felt compelled to combat the protectionist attitudes pursued by the US. Policy makers in Europe wanted to boost green technology, reduce reliance on external suppliers like China, and give incentives to ‘make-in-their-countries initiatives’.
NOBEL FOR NOBLE WORK
Over the past few decades, Goldin, the Nobel laureate , busted many myths related to women employment. In her book, Career & Family, she writes about the “problem with no name,” as Betty Friedan did in 1963, when she fleshed out the career-related frustrations of college-educated women. “Women continue to feel short changed. They fall behind in their careers while earning less than their husbands and male colleagues,” adds Goldin. Women are told that the problem is of their own making – they do not compete aggressively, negotiate sufficiently, or ask for enough. But the puzzle is also “not their own doing” due to discrimination, harassment, and exclusion.
Goldin feels that while the above-mentioned factors are “real”, they do not comprise the root of the quandary. This is because “we are often guilty of disregarding the enormous scale and long history of gender disparities.” We take shortcuts to find answers. “A single company slapped on the wrist, one more woman who makes it to the boardroom, a few progressive tech leaders who go on paternity leave – such solutions are economic equivalent of tossing a box of Band Aids to someone with bubonic plague,” she writes. We still pigeonhole women into typical typecasts, and create fables around them.
For instance, the greatest fiction among economists and policy makers is that progress, including industrialization, aids the financial empowerment of females. In a sense, economic growth leads to more women in paid jobs. But Goldin found that the correlation between the two equates to a U-shaped curve. Between 1790 and 1910, the percentage of married women in work tumbled down from nearly 40% to below 10%, initially in agriculture, and later in industry. Only in the past 100 years has the curve consistently moved upwards, and reached the earlier high levels by the1990s.
Education, which energised females from the earlier part of the 1900s, and expectations, which impacted them after World War II, had both positive and negative effects on jobs. Obviously, literate women, with higher social and financial expectations, were more willing to work – and they did. But for most of the 1900s, at least until the 1970s, they “underestimated how much they would work”, which influenced the educational choices they (or their mothers) made when they were young. Only in the past few decades have expectations and education converged with actual work-related outcomes.
These trends can be explained, states a paper on www.nobelprize.org, in terms of generations, and linkages between their decisions. “In the early twentieth century, for example, most women were only expected to work for a few years prior to marriage and then to exit the labour market upon marriage, which influenced their educational choices.” In the second half of the 1900s, married women “often returned to the labour force once their children were older.” But the opportunities they had were based on educational choices made 25 years ago. Their daughters, who too wanted to work after marriage, had less options as they had “already chosen their educational paths.”
However, the expectations went through a radical change due to the birth-control pill. The contraceptive helped women to delay marriage and childbirth. “They also made other career choices, and an increasing proportion… started to study economics, law, and medicine.” The affected generations were born in the 1950s, and had access to the pill in the next decade. According to research by Goldin and Lawrence Katz, which was summarised on www.nobelprize.org, “the pill meant that women could better plan their future and thus also be clearer about what they expected, giving them entirely new incentives to invest in their education and careers.”
JOBS: W-F-H OR W-F-W
Our interests in the past few decades changed from the nature of jobs to the future of jobs. In the 1990s, the fall of the Berlin Wall, the breakup and disintegration of Communist USSR, and what looked like the triumph of capitalism and free market led to economic reforms across nations. Suddenly, the comfortable and safe public sector jobs were limited, and the private sector would hire more, but could fire easily. Technology made things worse, as existing jobs began to vanish, and workers were required to acquire new skills. These trends intensified in this century. The AI Tsunami hit us this year. With the popularity of ChatGPT, the future of jobs seems even more uncertain. One expert said that the difference today is that AI does simpler and practical work, rather than the most difficult ones as it was perceived and expected to do earlier. This is reflected in the journalism and writing professions – more news websites showcase AI-generated content, as do online book sellers. More journalists and writers take the help of ChatGPT to create new content. In a recent piece in the New Yorker, a competent computer coder predicted that AI and its algorithms will kill the coding industry.
Our interests in the past few decades changed from the nature of jobs to the future of jobs. In the 1990s, the fall of the Berlin Wall, the breakup and disintegration of Communist USSR, and what looked like the triumph of capitalism and free market led to economic reforms across nations
In fact, in the fields of music and entertainment, AI may create a scenario where the number of billionaire celebrities can be counted on fingers, but there may be a billion influencers and content creators who earn a few thousand dollars a month. The earnings pyramid, so to say, will become narrower like the edge of a knife at the top, and broader at the bottom. This trend has begun, and can possibly lead to a democratization in incomes in the future. Obviously, the powerful and wealthy will hope to cap its expanse and reach, as they successfully did with the Internet, mobile, and social media.
Monopolistic capture of technology, even though the opposite is thought to be the result of innovations, was evident in 2023. As per media reports, the US Justice Department charged Google with abusing the dominance of its search engine, which has around 90% of the search market, to “throttle competition and innovation.” In his testimony, Microsoft’s CEO, Satya Nadella, dubbed the Internet as “Google web.” The US Federal Trade Commission alleged that Amazon, the e-commerce giant, “overcharged customers and independent sellers on its platforms to illegally maintain monopoly power.”
But, as usual, technology is a double-edged sword. It has its benefits, which was clear from the post-pandemic workplaces. As more people were forced to work from home (W-F-H), they became comfortable due to technology aids. Luckily, research proved that employees were more productive in the W-F-H environment. This changed in 2023, both due to new studies that proved the opposite, and the insistence of the bosses to call people back to offices. Work from workplaces may work for some, and may not for others. Yet another uncertain inflection in the future of our jobs.
HERMIT MEETS MONA LISA
More doubts about financial security crept in, seeped through, and overwhelmed us due to constantly-changing predictions about the global economy, or the Mona Lisa effect. Since January 2023, economists have changed their tunes several times. Initially, they talked of recession, then a soft landing and, finally, a slowdown. This was due to the inflationary pressures that shockingly built up despite an economic meltdown in 2020 due to Covid-19, and central bankers desire to raise interest rates. Couple this with the post-pandemic shockwaves in the technology sector.
Last month, a Reuters poll showed that the world economy might grow by 2.9% in 2023, and a lower 2.6% the next year. But there is a silver lining. “Most economists expect the global economy to avoid a recession, but have flagged possibilities of ‘mild recession’ in Europe and the UK.” Yet, there are red flags. While the US may witness a soft landing, things can go haywire as it enters the election year in 2024. The same is true for India, whose growth rate, though still high, will be lower than the expected figure. China remains a question mark, as it may continue with a weakening growth rate.
For policy makers across the globe, the economic forecast implies that they need to continue with their populist-nationalist efforts. America’s protectionist attitudes have forced the hands of the European Commission. India is intent on its Make-In-India to counter the import invasion of Chinese goods. China, as per its original aim which was concretized during Covid-19, will focus on the domestic market, as other nations pursue efforts to lower their reliance on Chinese products, and seek a new China+1 logistic strategy. Whatever experts may talk about globalisation and the free market, nationalism is here to stay.
Economic nationalism couples with Green Nationalism due to the fight for non-fossil fuel sources. The nations that have access to minerals, some of them rare ones, needed for green energy have ramped up moves to nationalise or control the trade in them. The potential buyers are aggressively inking deals with future suppliers, or hoarding the rare minerals, as is the case with China. One wonders if this wave of resource nationalism will result in a resource curse, as was evident during the boom cycle in traditional commodities. The truth is that global thinking will continue to tussle with local mindset.
What does this mean for you and I? As mentioned earlier, the consumers in wealthy nations are becoming hermits. In growing economies like India, the purse strings are more open, but people are more selective and discerning about what they buy, and at what prices. In developed nations, retail investors are switching from riskier stocks to the safety of bonds and treasury bills. In India, stocks seem to be the flavor of the year, which is visible from the dazzling successes of IPOs (initial public offerings by new companies), and the rise of start-up unicorns (at least a billion-dollar valuation).
Irrespective of what you do, or do not do, do not become complacent. The job market is in a flux, and will remain so. There is no surety about earnings, or the places where you will work from (home or office). Growth is not certain, and there will be a few twists and turns on the way to economic stability. Policy makers will veer harder towards nationalistic tendencies, which may not be entirely good. Technology will continue to disrupt your lives in unimaginable ways. In such a scenario, there are no rights or wrongs, no riskier or safer decisions. You will be forced to fly with the winds or flow with the waves. Happy flying or swimming. And Happy New year.