Ease of Doing Business and U.S. Inequality

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From the course by IE Business School

Business Opportunities and Risks in a Globalized Economy

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IE Business School

Business Opportunities and Risks in a Globalized Economy

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Course 3 of 3 in the Specialization Globalization, Economic Growth and Stability

This is the last of the three courses part of the Globalization, Economic Growth and Stability Specialization.¨Business Opportunities and Risks in a Globalized World¨ is the the 3rd and final course of the ¨Globalization, Economic Growth and Stability¨ Specialization taught by IE Business School's Professor Gayle Allard. This course is designed to help an investor, businessperson or economist approach macroeconomic, institutional and international data and derive information from the indicators that point to the types of opportunities and risks that they present. Students will gain practice by handling the data of some of the largest economies in the world –the United States, Japan, the European Union, China and India—and “reading the story” of their economies from their data, yielding surprisingly profound conclusions about their present and future. The course is the third in a series for the specialization but it is also a stand-alone course for anyone who wants practice in practical macroeconomics. This course includes 4 modules, each one deep-diving into the macroeconomic circumstances that have been brought up in the recent history of four key regions: the USA, Japan, Europe, and China and India. Students will analyze the ways in which international economies relate with one another, the benefits of trade and migration and economic development and how it occurs, among other themes. Professor Allard takes overarching macroeconomic theory and turns it into a practical tool for those interested in the opportunities and risks of investment and doing business in each of the four regions covered.

From the lesson

The USA: GDP, Inflation and Unemployment; Growth and Gaps: Reviewing the Basic Relationships.

The US economy is not only the world´s largest, but also one of the most free-market developed economies; and its data is abundant and excellent. It provides an ideal opportunity for students to review the basic macroeconomic and policy variables and relationships, and to identify these or detect their absence in the real world. In the process, they can make the first steps toward determining how “normal” or especially good situations provide business opportunities and how departures from the rules point up situations that are risky for businesses operating in that country.

Fiscal Indicators and the U.S. Business Cycle6:40

Does the U.S. Have a Public Debt Problem?5:21

Monetary Policy in the United States4:54

The U.S. Current Account and its Risks5:27

Ease of Doing Business and U.S. Inequality3:43

Risks and Opportunities for Investors in the U.S.4:27

Meet the Instructors

Gayle Allard
Professor
Economics

What else can we say about the United States, and again,

thinking about the business perspective using

the macroeconomic and international economic data to tell us a story

about this country and to show us what risks and opportunities it presents?

Well, one of the interesting things about the United States

is it's a very easy country in which to do business.

Here you've got the ease of doing business index,

which is a fabulous resource for anybody considering doing business in another country.

And this is a global ranking in 2017.

And here you find that the United States is the easiest of

the countries I put on this graph in which to do business.

In fact, it's the sixth easiest in the world.

So that's very attractive for investors.

You see, the UK is right behind them and spot number 7.

And then some of the other countries that we will not look at in this course,

you move over to the right, and you'll find them.

For instance, it's pretty hard to do business in India.

It's not so easy to do business in China,

but United States stands out as a country that's very business-friendly.

On the other hand, the United States,

with its very deregulated free market economy,

has a problem that could become a serious risk in the future,

which is that inequality is quite high.

And here, this is the Gini coefficient which we

talked about in understanding economic policy making.

And this is a number that goes from 0-100, the way I'm showing it.

Low numbers mean that people are more equal.

High numbers mean that they are less equal.

The incomes are less equal within the country.

Looking at this, you can see actually the United States is one of the

most unequal of the countries who we're going to be looking at in this course.

Considerably, more unequal than the United Kingdom,

lot more unequal than most European countries and also than Japan.

Why do we care about inequality where there

are two things that investors might want to keep in

mind if they're thinking of whether this high level of inequality,

which is rising, presents a risk?

One issue is that countries with high inequality tend to become less stable.

Politically, they may become less stable because people feel like they're being left out.

They may go for populist solutions.

They may become violent or protest.

So, unequal countries tend to be less stable,

and this would be a potential concern for the United States.

Another feature of unequal countries is that over the long run,

growth doesn't tend to be as robust.

In other words, if incomes are very equal in a country,

that means you've got a big middle class that's receiving most of the income.

And so, they spend it because the middle class tends to spend most of their income.

They spend it, and this keeps growth strong.

But once you start to be an economy where an upper class is

holding a lot of the income and

the middle class is shrinking as it is in the United States,

then the upper class doesn't spend most of their income.

And so, you find that consumption weakens,

and consumption is the driver of all modern economies.

So, if inequality continues to rise,

we could have trouble sustaining growth in

the future in the United States at the rates we've sustained it in the past.

So, this is a bright side and a dark side once again of the US economy.

Easy place to do business could have

potential problems in the future due to its rising inequality.

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