Foundations of Financial Management: An Analysis (part 1)

Surplus wealth is a sacred trust which its possessor is bound to administer in his lifetime for the good of the community.

Andrew Carnegie

 The Goals and Functions of Financial Management

by

Charles Lamson

 Corporation

In terms of revenue and profits produced, the corporation is by far the most important type of economic unit. While only 5% of business firms are corporations, 62% of revenues can be attributed to the corporate form of organization (Tax Foundation). The corporation is unique---it is a legal entity unto itself. Thus the corporation may sue or be sued, engage in contracts, and acquire property. A corporation is formed through articles of incorporation, which specify the rights and limitations of the entity.

A corporation is owned by shareholders who enjoy the privilege of limited liability, meaning their liability exposure is generally no greater than their initial investment. A corporation also has a continual life and is not dependent on any one shareholder for maintaining its legal existence.

A key feature of the corporation is the easy divisibility of the ownership interest by issuing shares of stock. While it would be nearly impossible to have more than 50 or a hundred partners in most businesses, a corporation may have more than a million shareholders.

The shareholders' interests are ultimately managed by the corporation's board of directors. The directors, who may include key management personnel of the firm as well as outside directors not permanently employed by it, serve in a stewardship capacity and may be liable for the mismanagement of the firm or for the misappropriation of funds. Outside directors of large public corporations may be paid more than $50,000 a year to attend meetings and participate in important decisions (Block & Hirt, 2005, Foundations of Financial Management, 11th ed., p. 9). At the high end you could earn seven figures: former AOL CEO, Jonathan Miller earned more than $1 million in 2015 for sitting on 8 corporate boards (Investopedia), and former Merk & Co. CEO, P. Roy Vagelos, earned more than $20 million, mainly in stock options, as a chairman of a single board in 2014, the Boston Globe reports (Sacha Pfeiffer & Todd Wallack, Dec. 2, 2015, BostonGlobe.com).

Because the corporation is a separate legal entity, it reports and pays taxes on its own income. Any remaining income that is paid to the shareholders in the form of dividends will require the payment of a second tax by the shareholders. One of the key disadvantages to the corporate form of organization is this potential double taxation of earnings. The tax rate on qualified dividends is 0%, 15%, or 20%, depending on your taxable income and filing status. The tax rate on nonqualified dividends is the same as your tax bracket. In both cases, people in higher tax brackets pay a higher dividend tax rate (Orem, T., July 31, 2020, Dividend Tax Rate 2020, nerdwallet.com).

There is, however, one way to completely circumvent the double taxation of a normal corporation and that is through formation of a Subchapter S corporation. With a Subchapter S corporation, the income is taxed as direct income to the stockholders and thus is taxed only once as normal income, similar to a partnership. Nevertheless, the shareholders receive all the organizational benefits of a corporation, including limited liability. The Subchapter S designation can apply to corporations with up to 75 stockholders.

While the proprietorship, traditional partnership, and various forms of limited partnerships are all important, the corporation is given primary emphasis in this analysis. Because of the all-pervasive impact of the corporation on our economy, and because most growing businesses eventually become corporations, the effects of most decisions in this analysis are often considered from the corporate viewpoint. 

Corporate Governance

As we learned in the previous section, the corporation is governed by the board of directors, led by the chairman of the board. In most companies the chairman of the board is also the CEO or Chief Executive Officer of the company.

The issues of corporate governance are really agency problems. Agency theory examines the relationship between the owners and the managers of the firm. In privately owned firms, management and owners are usually the same people. Management operates the firm to satisfy its own goals, needs, financial requirements, and the like. However, as a company moves from private to public ownership, management now represents all the owners. This places management in the agency position of making decisions that will be in the best interests of all shareholders. Because of diversified ownership interests, conflicts between managers and shareholders can arise that impact the financial decisions of the firm. When the chairman of the board is also the chief executive of the firm, stockholders recognize that the executive may act in his or her own best interests rather than those of the stockholders of the firm.

Because institutional investors such as pension funds and mutual funds own a large percentage of stock in major U.S. companies, these investors are having more to say about the way publicly-owned corporations are managed. As a group they have the ability to vote large blocks of shares for the election of a board of directors. The threat of their being able to replace poorly-performing boards of directors makes institutional investors quite influential. Since pension funds and mutual funds represent individual workers and investors, they have a responsibility to see that firms are managed in an efficient and ethical way. 

*MAIN SOURCE: BLOCK & HIRT, 2005, FOUNDATIONS OF FINANCIAL MANAGEMENT, 11TH ED., PP. 9-11*

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Anunnaki (Documentary)

Analysis of the Age of Perplexity: Rethinking the World We Knew (part 4 - The Conclusion)

If Christians will obey the instructions given to them by Christ and his inspired apostles, they will adorn the religion of the Bible, and save themselves much perplexity and severe trials, which they attribute to their afflictions in consequence of believing unpopular truth.

Ellen G. White

 A Financial System for Inclusive Growth

by

Charles Lamson

 There are differences in opinion regarding the direction, magnitude and speed of the impact of the technological revolution on the global economy. But there are none regarding its disruptive effect on production sectors and companies.

The first sectors that experience disruption coming from the development of the internet and the digital economies were those with a greater informational content in their inputs or outputs: communications, media, music, many distribution sectors, etc. These industries have already transformed completely, with great improvements in efficiency and productivity, and therefore they have been able to offer consumers new and better products at a very low cost.

In most cases, these changes arrived to the market brought by new, more innovative and agile competitors, who are able to satisfy the demands of a quickly growing wave of consumers that have developed new needs and habits, thanks, to a great extent, to the access to more and better information and to the greater connectivity permitted by intelligent mobility (the optimized movement of people and goods).

All this forces companies to reinvent the way in which they design, produce, and distribute products and services, and generates profound changes in companies in their sectors. This is already happening in industries that rely completely on material assets and on physical services to clients, such as the hotel or the transportation industries. Airbnb or Uber both show us that the technological revolution has no sectorial barriers.

Something that is demonstrating great power regarding the disruption of consolidated sectors is the development of platforms that are leveraged in exponential technologies (cloud computing, mobile connectivity, big data, artificial intelligence, blockchain, etc.) that traverse supply and demand, putting numerous suppliers and clients in touch. These innumerable interactions produce an enormous amount of data and information that allows companies in turn, to create and distribute products and services with new features that offer clients a much better experience.

Today, the five largest companies in the world in terms of market capitalization (Apple, Google, Microsoft, Amazon and Facebook) are, basically, platforms of this kind.

The banking system is an industry with an extremely large amount of information: its inputs and basic products are data, or information, and money; and the bank's money is ultimately an ensemble of accounting entries, which is, information.

As a result of this, it could have been an early example of digital transformation. But even though the banking system has changed very much in the last two decades, it has not undergone changes of a magnitude similar to those in other aforementioned sectors. And this is due to several reasons: in the first place, the conservatism of most of the people that have money; secondly, the strong growth and profitability of the industry in the period previous to the recent economic crisis did not encourage radical change; and thirdly, and this is fundamental, regulation, that on one hand limited the freedom of banks to innovate, and, on the other hand, protected them against the entrance of new competitors.

But all this is changing. Basically, it is the clients who are changing. A new generation of clients has grown up in a digital environment and it demands different services and new ways of gaining access to them. Banking's traditional clients are also attracted by the advantages of a new offering, and are increasingly following this trend.

Many new suppliers mainly startups or, in some segments, large digital companies are already supplying solutions to these demands. These companies do not have the costly legacy of banks, and the form of obsolete structures and systems, and can work faster, more flexibly and at a lower cost.

On the other hand, the banking system faces an environment of much lower growth and profitability. With very low interest rates and much more demanding regulation, stemming from the global financial crisis. All this increases the pressure and the urgency for banks to take advantage of the abilities of technology to improve their productivity or ethically.

Lastly, regulators already perceived, together with the risks, the ability of technology to improve the financial industry, and, as a consequence, they are already modifying regulation to reinforce competition, preferably in those segments or products that have a lower impact on its stability. This has favored the entrance of new competitors and market niches. 

Present technologies (not to mention those that may be developed) have enormous potential to transform the banking system. We are already witnessing great changes, but the future implications are almost unimaginable: cloud computing allows the storage and processing of an unlimited volume of data with greater agility at much lower prices. The mobile phone has already radically changed people's lives, and has become the main contact point with banks, with increasingly larger and better functionality. Big data analysis has innumerable applications, and it is absolutely decisive for dealing with the multitude of different financial and non-financial demands in a customized way in real time. Biometry allows for secure operations with clients, without the need of the physical presence or documents. Distributed ledger technologies (such as Blockchain) could eliminate the need for intermediaries and a great variety of transactions, changing the status quo of the banking system as well as that of many other industries. Artificial intelligence makes it possible to automate increasingly complex cognitive tasks, and this alters the way in which clients are served and the solutions that they may be offered. 

All this entails potentially enormous benefits for consumers and companies in terms of quality, variety, convenience, and the pricing of products. And it will also allow thousands of millions of people, in the lower incomes strata, and to whom the conventional banking system cannot reach efficiently and profitably, to gain access to financial services, increasing their chances of prosperity and improving their lives.

The profound evaluation of financial regulation is an indispensable task, but it is also extraordinary difficult. In the first place, because the technological and competitive scenario changes constantly and will continue to do so in the future; and in the second place, because digital means global, and the new regulatory framework must have a much larger degree of international homogeneity than the current one.

The challenge for authorities is to design and Implement a regulatory and supervisory framework that accomplishes an appropriate balance between the improvements in efficiency and productivity, and the preservation of financial stability and consumers' protection. And all this in a changing environment with a multitude of new suppliers provided with state-of-the-art technologies whose implications may not have been tested well enough. That is to say, to support innovation by maintaining an adequate degree of protection against the risks that it entails. 

Together with this, and given the initial diversity of the organizations that participate in the market, from the closely regulated big banks to the startups, including the large digital companies, a balanced competitive field must be created, focused on the fact that similar products and services must receive a similar treatment, regardless of the organization that provides them. And lastly, it must have a "holistic" comprehensive approach, in the sense that it must have in mind all the angles of the question: technological, legal, financial and competitive. And finally, it must be a closely coordinated framework at the supranational level, open and flexible enough to face future changes.

Regarding the participants in the market themselves, they face a very complex scenario. The sector is becoming fragmented due to the entrance, every year, of hundreds of new competitors that join the more than 20,000 banks that still exist around the world. On the other hand, the industry is becoming disaggregated as these new entries break the banking system value chain, offering highly specialized products and services focused on very specific market niches in this value chain. Most probably this trend will reverse in the future primarily because the banking system is the sector that already demonstrated strong overcapacity, something the aforementioned phenomena exacerbated even more. Therefore, we must expect that many banks will disappear together with many startups, whose mortality rate is all always very high. In this way, technological change might be the factor that triggers a much-needed consolidation of the sector. 

On the other hand, the users' convenience demands much more complex and integrated solutions, and points towards the need of re-aggregating supply, and this will require the combination of different products and services offered by different suppliers.

In light of what has happened in other sectors, this react re-aggregation will most likely be achieved through platforms where different suppliers will compete and will also, and very frequently, cooperate to better meet the demands of clients.

Probably, the number of these platforms will decrease, and their scope will become wider due to the huge economies of scale and network that they may generate.

A future might be foreseen in which there are a multitude of participants and the financial industry, most of them highly specialized, and that cooperate and compete in a few large platforms. Therefore, only a few of these participants will have a central role, as the owners and managers of these platforms. By implementing the rules, validating the transactions, and thereby controlling the information generated and the access to the final clients, they represent an enormous source of value.

Obviously, the competition to reach this lofty position will be very fierce, and we do not know what kind of companies will actually arrive there: particularly successful startups? Large digital companies? Banks that know how to adapt to this new environment? Unquestionably, very few of the present banks will accomplish it, but those who do will have to have started well in advance, a very complex and radical transformation process. This is the process that many banks have already begun in their search of excellence in the digital era.

And it is this competition, this search for excellence, that will take us to a much better, more efficient and productive financial system, capable of designing and offering better solutions for a larger number of users (including the thousands of millions that cannot currently access financial services) capable of encouraging growth and an increase in well-being that includes everybody. 

*Main Source: Gonzalez, F., 2018, The Age of Perplexity, pp. 19-23*

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Brazil, an african heritage, on board the Rhapsody (Documentary, Discove...

Analysis of the Age of Perplexity: Rethinking the World We Knew (part 3)

The perplexity of life arises from there being too many interesting things in it for us to be interested properly in any of them.

Gilbert K. Chesterton

The "current technological revolution could change our economy, our society, our everyday life . . . to a magnitude even greater than the Neolithic Revolution (first Agricultural Revolution) or the Industrial Revolution, and at a much faster speed." Brynjolfsson and McAfee (2014, The Second Machine Age) have called the period that is now underway "the Second Machine Age," and there is a basic difference with respect to the first, which was based on the steam engine surpassing the physical limits of men and animals. The current revolution relies on the digital technologies surpassing the limits of human intellectual abilities. The rapid progress of artificial intelligence, robotics, or biosciences will force us, in the not so distant future, to undergo a far-reaching reassessment of the bases of our economy, society, culture, our ethical principles, and even our basic ontological foundations.

To all this uncertainty, we must add that, in the last few years, global economic growth and productivity have experienced lower performance than in previous decades, in contradiction to the historical evidence that periods of technological acceleration caused substantial increases in productivity and growth. 

This contradiction has provoked intense debate among economists. In short, the controversy appears to be that the "techno-pessimists" think that digitalization is having a lower impact on productivity than other innovations of the past (Gordon, 2016, The Rise and Fall of American Growth) and/or that its positive effect is counteracted by the democratic decline in developed countries and or/by the increase in inequality, that persistently depresses aggregate demand (Piketty, 2013, Capital in the Twenty-First Century; Stiglitz, 2015, Inequality and Economic Growth).

On the other hand, we find the "techno optimists," who are those that think that there is a problem of under measuring products, because the improvements in quality and their benefits are not calculated correctly, or because they are increasingly concentrated in services and intangible assets, that are much more difficult to assess (Feldstein, 2017, Underestimating the Real Growth of GDP, Personal Income, and Productivity) or, in other cases, that we are in a transition stage that is still greatly affected by the consequences of the crisis. The global economy may still be going through a much-needed period of deleverage and correction of the weaknesses of the global banking system, which depresses consumption and investments along with the provision of public services. If this is the case, this stage would be followed by another one of much quicker growth encouraged by the technological progress. 

In fact, historical experience shows that new technologies, especially the most disruptive ones, need some time until the moment comes when their price and level of adoption allow their widespread use, when they also combine with other technologies. And from that point on, they have an increasingly stronger impact on productivity and living conditions. Brynjolfsson & McAfee (2014, The Second Machine Age) think that we are reaching that turning point, which would equate to the start of what Klaus Schwab (2016) calls "the Fourth Industrial Revolution." 

If this were so, we could be entering a period of high growth and improved well-being driven by a combination of different technologies, including computing, increasingly complex, interconnected networks, artificial intelligence and cybernetics, biotechnology, and, probably, others that we do not even know of yet.

History shows that in the same way that technological progress brings about growth and wealth, it also creates jobs, more jobs, very different from any previous, more productive, that improve people's lives, in spite of growing inequality (Mokyr, 2014, The History of Technological Anxiety and the Future of Economic Growth; Autor, 2015, Why Are There Still So Many Jobs?). This is also what we have seen in the last few decades. 

Despite all this, some authors have pointed out that this time it could be different, even if growth accelerates, for three main reasons:

1. The advances in robotics and artificial intelligence will replace not only the people that carry out routine jobs, but also those with increasingly higher qualifications who carry out non-routine jobs.

2. Technology offers people the possibility of doing more things for themselves, reducing the need for jobs in the service sector.

3. Swift technological progress would force people to retrain themselves and to change jobs more frequently as more and more tasks are susceptible to automation. This higher friction (the need for more frequent adjustments in people's skill set) would increase unemployment structurally.

Using these arguments, authors like Frey and Osborne (2013, The Future of Employment) have pointed out that up to 47% of the employment in the United States would be at risk of being automated. Others (Arnts et al., 2016, The Risk of Automation for Jobs in OECD Countries), however, show that if we bear in mind the different tasks implied in each job, only 9% of the employment is automatable, as an average, in 21 OECD (Organization for Economic Co-Operation and Development) countries. The latter would, for instance, be a much lower figure than that of the jobs lost in the agricultural sector in the last few decades, which have been regained in other sectors.

In conclusion, it is impossible to foresee the magnitude and the speed at which the effects of growth, employment, equity, and general welfare caused by such a vast technological revolution that is being born will show.

We can fear all kinds of dystopias, but we can also consider the technological revolution as a great opportunity to improve the welfare of citizens all around the world. 

Even if, as many of us believe, progress and social welfare have always been the result of technological advances (and at this time does not have to be an exception), positive effects have always appeared after a transitional process, with winners and losers. And this fourth Industrial Revolution poses especially complex challenges.

In any case, the results will always be better and the costs lower if the right policies are implemented; policies that do not create any resistance against technological progress, but, rather, promote equal opportunities: That means making them available for all, and reducing transition costs in the short and the medium term.

There are lines of actions that contribute, simultaneously, in order to reach all these goals: We must promote research, development, innovation, as well as entrepreneurship, and encourage transparency and competitiveness in the markets, and develop the required infrastructures.

Equal opportunities require an exceptional effort in the area of education; education focused on obtaining additional skills that do not replace those required for technological progress, that promote continuous education and ongoing training, and which evolves along with the needs of society.

The labor market must be another important priority. Barriers to the growth of companies, investment, and job creation must be eliminated. Better active and passive policies against unemployment must be developed. A balance in taxation must be found so that district redistribution does not damage investment. And regulation must be updated to care for the wider diversity of employment status and the needs of self-employed workers. 

In spite of these policies, transition costs could still be considerable for certain segments. Due to this, it is vital to develop social protection systems that guarantee equal opportunities and provide protection for people in a rapidly changing environment, with high employee turnover and very different kinds of jobs. These policies must be closely integrated with education and employment systems designed to reduce economic and human costs.

But this task of encouraging the adoption of our economy and our society to the technological revolution, obtaining the most from it while reducing its costs to a minimum, does not belong to the public authorities. It is the task of companies and people, the whole civil society. And in this scenario, the financial system and its institutions can play a very important role. And it is to the financial system we turn our attention in the next post "A Financial System for Inclusive Growth." 

*Main source: Gonzalez, F., 2018, The Age of Perplexity, pp. 16-19*

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Analysis of The Age of Perplexity: Rethinking the World We Knew (part 2)

Perplexity is the beginning of knowledge.

Khalil Gibran

Periods of both globalization and great technological acceleration have been recurrent throughout the history of human civilization, and these have both normally overlapped.

In this manner, the intense phase of globalization that took place immediately before this current one occurred in the latter decades of the nineteenth century and the first few years of the twentieth century, and was driven by steam, electricity, the internal combustion engine, telegraphy, and the telephone. It was a period of accelerated growth, only interrupted by World War I. This was why, after the war's end, John Maynard Keynes (1919, The Economic Consequences of the Peace) proposed returning to globalization in order to relaunch growth and consolidate peace.

However, the interwar period was a time of regression for globalization, marked by the Great Depression of 1929 and the protectionist and nationalist reactions caused by it. But, after World War II, the globalization process restarted again with great dynamism (continuing, to a great extent, Keynes's ideas), and this also coincided with the information revolution, that started in the 1950s and which has seen exponential growth since then.

The second half of the 20th century and the first few years of the 21st century have seen unprecedented global expansion. The increase in productivity has made it possible to support rapid growth of the global population from less than 2.5 billion in 1945 to 7.8 billion at present. And all this with unparalleled improvement in living conditions.

The World Bank measures global extreme poverty by counting the number of people that live on less than USD 1.90. In 1945, more than two-thirds of the world population was under this threshold, that is more than 1.6 billion people who lived in conditions of extreme poverty (Gonzales, F., 2018, Age of Perplexity, p. 11) . Today, even factoring in the effects of the COVID 19 crisis, the World Bank estimates that in 2020, 40 to 60 million people live in extreme poverty, about 9% of the world population (The World Bank).

This encouraging trend has increased in the last few decades. The proportion of those in extreme poverty with respect to the global population has been decreasing, although slowly, since the beginning of the nineteenth century, but its absolute number still grew until the 1970s. Since then, not only the proportion but the number of people living in extreme poverty has been falling at a quicker pace since the 1990s. In 1990, those in extreme poverty accounted for 35% of the world population some 1.5 billion people.

Globalization and technological advance have been the main driving force behind this progress. And recently another not entirely independent factor has also played a significant role; the strengthening of institutions in many emerging nations, with the consolidation of more stable and reliable political, legal, and economic structures, and the spread of the free market.

As a result, emerging countries, especially in Asia, have undergone an unprecedented leap in their development, leading and driving world growth.

The growth in developed countries from the end of World War II has been lower than that in the emerging countries. But nevertheless extraordinary in historical terms.

In countries such as the United States and the United Kingdom, that are very technologically advanced, and have been the principal actors in the current wave of globalization, GDP per capita has multiplied by 7.5 in the United States and 5.7 in the United Kingdom since the beginning of the 20th century. At the same time, standard working hours have dropped from 55 to 60 per week to some 40 per week currently (Age of Perplexity, p. 12).

That is to say, globalization and the technological progress have entailed dynamic increases in production, income, and employment, with clear Improvements in working conditions. Other contemporary analyses, which compared economies with varying degrees of technological advance and digitalization see (Gregory, 2016, The Natures of War) did not show that higher automation implies higher unemployment rates.

Undoubtedly though, there are still hundreds of millions of people that live in extreme poverty in the world, and billions of people whose living conditions are very unsatisfactory. A good number of countries, especially in Africa, have been left out of this wave of prosperity. But overall, the course of the global economy in the last decade does not warrant a growing insecurity, frustration and pessimism seen particularly in developed countries.

To explain this, we must resort to a combination of truth and fears, the fear is being partly generated by the pessimistic extrapolation towards the future of some of these truths.

Undoubtedly, A key factor has been the global economic crisis, which started back in 2008, and its consequences, such as the increase in unemployment, the damage inflicted on public accounts and austerity policies. The adjustments to social policies have had an especially significant impact on the population of developed countries, which is more protected and aging rapidly. The doubts surrounding the sustainability of the welfare state, which already came to surface in previous decades, have become exacerbated after the crisis.

And the insecurity caused by this has worsened due to a combination of other factors. Immigrants have frequently been considered a cheap workforce that competes unfairly against locals for jobs, keeping wages low, overloading social services and increasing their cost. And, also, the accelerated eastwards shift of the global economy, towards the large emerging countries that have been growing more quickly in the last few years.

Twenty-five years ago, the developed economies represented approximately 60% of the global GDP and terms of purchasing power parity (PPP); and the emerging economies the remaining 40%. In 2017, the proportions are the reverse: The emerging economies represent a little more than 60% of the global GDP, and the developed hardly reach 40%. In terms of the PPP, the Chinese economy is now larger than that of the United States. Even when assessed using market exchange rates, the emerging economies represent almost 45% of world GDP, and now, taken together, China (14%) And India (6%) almost reach that of the United States (22%) (Perplexity, p. 12).

According to all predictions, this process will continue until 2050, when the average annual growth of emerging countries will approximately double that of developed countries. China will overtake the United States as the largest world economy around 2030, and India will achieve that in around 2050. By then, six of the seven largest world economies will belong to emergent countries: Indonesia, Brazil, and Mexico will overtake Germany and Japan, and Turkey will overtake Italy. The whole of Europe will represent less than 10% of global GDP (pp. 12-13).

This swift loss of prominence of the developed countries in the global economy has reduced their political influence, and has affected their collective psychology, contributing to the sensation of decline and greater pessimism. But, surely, the fear of the effects of globalization and the technological change on labor markets is even more significant.

Globalism has particularly affected the manufacturing sectors, which have to a large extent been moved to emerging countries with lower labor costs. As for automation and digitalization, they have made routine and repetitive jobs redundant.

Conversely, jobs in the service sector, many of them being low-skilled with low wages (and for which most immigrants also compete) are more difficult to automate (Autor and Solomons, 2017, Does Productivity Growth Threaten Employment?), and the very high skill jobs, that are more abstract and less routine, have both increased. On the other hand, labor market instability and hire job rotation has generated a growing proportion of part-time, temporary or self-employed jobs, and this has been dubbed the "gig economy."

The weakness of the rise in wages in developed countries has been one of the more clearly substantiated effects of globalization and technological progress.

According to the Organization for Economic Co-Operation and Development (OECD), the real average income of families in the United States, Germany, Japan, Italy and France has grown by less than 1% per year from the mid-1980s to 2008. This data contrast with the previous decades that followed World War II, and the situation has worsened, in general terms, since the global financial crisis.

Lastly, the significant increases in productivity and economies of scale and network produced in the most digitalized sectors have given rise to a great accumulation of wealth and income in small, concentrated sectors of the population.

All this has very substantial implications on global income distribution, which are summarized very well in Branko Milanovic's (2016, Global Inequality) "Elephant Chart."

In this chart we see the real income accumulated growth of the population of 20 developed and emerging countries arranged according to income percentiles between 1988 to 2008. 

The average of the real increase in income is 25%, but the curves that give the chart its elephant shape tell us that the distribution was very uneven: those that came off better in the two decades were the ones that are, on the one hand, between percentiles 10 and 70, and on the other hand the ones above percentile 95 (especially percentile 99). However, the lowest percentiles (below 10%) and the higher ones (between percentiles 70 and 90) have had much lower increases in real income (close to 0 for certain segments). 

This is to say, the winner in these two decades of globalization and technological progress are the wealthy, both in developed and emerging countries, working women and the new middle classes, mainly in India and China. Conversely, the losers have been mainly the poorest among the poor in sub-Saharan Africa, the lower and middle classes in developed countries and in many of the nations of the old communist bloc.

In conclusion, the global economy has had a very favorable evolution since the mid-twentieth century. Nevertheless, the depressing effect of the financial crisis and of the subsequent austerity policies, wage stagnation, and the increase in inequality in developed countries, and, also, the greater global geopolitical instability, that has triggered flows of immigration, have augmented a body of opinion that is against globalization, and which is very distrustful about the effects of the technological revolution, especially regarding employment. All this has meant, in the political scenario, a consolidation of defensive, nationalistic, and protectionist trends. 

*Main Source: Gonzalez, F., 2018, The Age of Perplexity, pp. 11-16*

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Sa Pa, Vietnam, Hilltribe Homestay