The Limited Times

Now you can see non-English news...

Russia in free fall - and why the success of German elites is crucial for the future of Europe

2022-06-18T02:58:55.291Z


Russia in free fall - and why the success of German elites is crucial for the future of Europe Created: 06/18/2022, 04:49 am By: Christiane Kuehl Russian President Vladimir Putin and oligarch Alisher Usmanov. © imago stock&people In an interview with IPPEN.MEDIA, economist Tomas Casas explains how Russia's oligarchs are doing – and what the quality of elites means for a country's development.


Russia in free fall - and why the success of German elites is crucial for the future of Europe

Created: 06/18/2022, 04:49 am

By: Christiane Kuehl

Russian President Vladimir Putin and oligarch Alisher Usmanov.

© imago stock&people

In an interview with IPPEN.MEDIA, economist Tomas Casas explains how Russia's oligarchs are doing – and what the quality of elites means for a country's development.

St. Gallen/Munich – The University of St. Gallen (HSG) recently presented the “Elite Quality Index 2022” for 151 countries for the third time.

This index measures the power and value creation of elites in the respective states.

The more power local elites have, the worse a country performs on the index.

And the higher the added value of the elites, the better.

According to the researchers led by economist Dr.

Tomas Casas crucial to the progress and development of any state.

Why?

Casas spoke about this in an interview with

Merkur.de

from

IPPEN.MEDIA

.

The elites represent what the researchers call coordination capacity.

The business models of the elite can do both: create value and exploit value.

Which model the elites choose determines the future and prosperity of a country.

On the other hand, if a country's elites extract values ​​from society, then this has a negative impact on the ranking in the index.

Political and economic elites are considered separately.

According to Casas, the goal of the research group is to develop a theory that can be used to understand and change the world: the

elite theory of economic development

(see info box below).

Also this year, small countries like Singapore, Switzerland, Israel and the Netherlands occupy the top places on the index from St. Gallen.

Larger countries like the USA or France fare worse.

China led emerging markets ahead of the still unclear impact of the zero-Covid policy, while Russia continues to slide.

Germany was able to move up four places in the current index and is now in eleventh place.

Elite quality: Small countries at the top - USA falls in the ranking due to the corona pandemic

Singapore is in first place in 2022, Switzerland in second place.

What characterizes the elites in these states?

How do these rankings come about — because the two countries are very different.

Tomas Casas: The comparison between Singapore and Switzerland shows that there are several paths to prosperity and to the top spots in the EQx.

Countries like Switzerland — or even the USA or Canada — do relatively well in the area of ​​power.

That means their elites have no power.

We see power as a potential future extraction or transfer of value into the hands of elites.

If you don't have power, you can't force others to give up anything of value.

In Singapore, on the other hand, the political elites are relatively powerful.

But they don't use their power for extraction or value transfer - but for creating new value.

How dangerous is it when elites have a lot of power — like in Singapore?

Is such a system unstable?

As long as the elites use their power well in Singapore, all is well.

Elites in many countries around the world add to the whole pie: these are the good, the "high-quality" elites.

But if they started using their power to extract stats, then we'd have a problem.

It can happen very quickly that in times of economic recession, pandemics, shocks, war or financial crashes, elites decide to use their power to maintain or increase their income.

In doing so, however, they only increase their share of the pie — at the expense of society.

also read

Five ways to early retirement - how to make the jump before 63

Pensions are increasing: You will get so much more from July 2022

Because if the whole cake shrinks and the elites don't shrink proportionally, then they just extract value at the expense of others.

That was a problem during the pandemic in the US.

The US financial markets performed as well as ever despite the general economic downturn.

As a result, some economic elites did not have to accept a slump in their business models at all.

That means they've increased their slice of the pie relative to society. 

Exactly the same thing happens when inflation rises.

That was already a problem in the US in 2021 and is now one in Europe.

With higher inflation, those parts of the population that depend on a salary see themselves devalued.

But among the elites who own stocks or real assets, wealth grew.

This could result in 60 percent of society transferring value to the top 1, 10 or 20 percent.  

Is that why the USA fell ten places from 5 to 15 in the ranking from 2021 to 2022? 

The US is in very good shape in terms of political power and institutions.

They are number one in political power because the US elites have very little power and compete fiercely with each other.

The institutions are also very good.

But the value added of the elites has fallen: the USA is only 29th. This is not a catastrophe, but it is a cause for concern.

This is mainly due to the fact that the political elites in the USA do very poorly when it comes to value creation.

They would actually be responsible for health, for example the fight against Covid, or the big drug problem in society, general education or safety on the streets.

But the USA is rather bad at that, and that falls back on the political elites.

In contrast, in the US, as we all know, there are business elites in technology, finance, or security who create immense value. 

China's Powerful Elites Create Material Value - Zero Covid Strategy Could Change Development

According to the EQx, China has the best elites (rank 27) among the upper-middle-income countries, and does so as an authoritarian socialist one-party state.

How is that possible?

We now have 120 indicators.

The datasets we use are very western and international.

We don't use Chinese data, we use data from the International Monetary Fund, the World Bank and similar sources.

We also examine datasets on human rights such as the Global Slavery Index, on justice or freedom of the press.

If we took Chinese datasets, China would do even better. 

China's relatively high ranking is food for thought, that's right.

As scientists, we are system-political agnostics, we have to remain factual and neutral.

We only look at the business models of the elite, whether they create or extract value.

For example, we don't measure the level of democracy.

A democracy can create value, but so can a socialist state, an Islamic state or a Confucian state like Singapore.

At the same time, however, we look at whether freedom of the press and freedom of religion are guaranteed in a country, how many journalists are murdered, what the position of women is in society, or whether there is slavery.

That shows the oppression of a part of the population - and thus its potential for value creation.

So what do you think make up China's elites?

China's political elites create a relatively large amount of value, despite everything.

That could change now, however, because of zero-Covid.

But in the first two years of the pandemic, China's approach has done very well, with few deaths and a rapid economic recovery.

China also scores quite well on research, life expectancy, food safety, schooling, and other parameters.

There is also, for example, less crime or drug addicts than in many other countries.

But the data also shows how powerful the political elites are in China.

The country is only ranked 60th. Surprisingly, the political elites in particular have so far used their power to create values.

China's economic performance and rise over the past 30 years can hardly be explained without word-creating elites.

But as said before, the situation could change at any time should there be a crisis. 

This risk is certainly lower in Western, democratic countries.

If in democracies the elites wanted to extract values, it would in principle be much more difficult. 

Russia: Oligarchs in free fall, Germany's elites with room for improvement

China is considered an ally of Russia in the Ukraine war.

What about the Russian elites?

The Russian Elites are ranked 67th. That is mediocre, and of course Russia will fall very low this year.

We have seen that China's political elites are powerful.

But not nearly as powerful as Russia's political elites, i.e. the Kremlin or the state-owned companies.

They are ranked 112th for power, which is a very low ranking for a European country.

There are 30 to 40 indicators of political power.

This is where Russia and China differ.

The freedom of the press is in bad shape in China, but now also in Russia.

But Russia, for example, is much more centralistic than China.

Also interesting is that China's business elites have very little power;

they are in 14th place and thus on a European level.

Russia's business elite — the oligarchs — have significantly more power (ranked 81st).

The added value of the oligarchs is significantly greater than that of Russia's political elite.

But despite this, the powerful oligarchs have far less power than the political elites.

What do you say about the elites in Germany (11th place)?

The German elites fare relatively well compared to the other great powers of the EU, i.e. France (24), Italy (40) or Spain (34) — but worse than those in Holland (5), Sweden (6) or Estonia (10th ).

The problem: Germany, as the leading economic power in Europe, should do even better.

For example, the German state could create even more value.

The economic elites (14th place) could also bring more.

There are no German companies among the world's top 100 companies in terms of market capitalization.

The German elites apparently do not have the ability to scale and understand new business models.

They are efficient and honest bureaucrats, but bad innovators: good operationally, but not so strategically.

That's a shame because the German elite can count on the best employees, technicians, engineers and doctors in the world.

Therefore we say that German elites could create much more value.

Of course, Germany is already very wealthy.

But it will only continue to grow if the business models of its elites improve significantly.

Otherwise there is a risk of stagnation. 

Can you give a few examples of what is imminent if we experience a stagnation of ideas in Germany?

For example, there is a danger if, in ten years, cars or machines will tend to be gadgets, as expected.

Germany may then be able to build the best cars and most precise machines.

But the brains of cars and machines, i.e. microchips or control software — this part with the greatest added value could then come from abroad, from the USA or China.

That would mean that Germany's companies would make less profits - and slip down the international value chain into increasingly marginal parts. 

Elites must be willing to take risks.

But the German elites have no appetite for risk;

they don't understand risk like American, Chinese or Israeli elites do.

This is an intellectual but also a cultural problem.

Successful start-up founders in Berlin, for example, have to work with US elites for larger venture capital sums, because German investors are not willing to take risks beyond a certain size.

It is as if a kind of fear of heights on the part of German business and political leaders suppresses the growth potential of German companies and talents.

English, French, Swiss or Dutch are clearly better.

The German elites are very important for the entire EU.

If the German elites don't achieve excellence, the EU has no future.

Elite theory of economic development: Finding ways to create sustainable value

The researchers want to encourage politics, the financial world and companies to carry out reforms and transformations towards sustainable value creation.

The team in St. Gallen is international and multidisciplinary: economists, sociologists, financial experts.

Casas himself comes from economics.

According to elite theory, not only the power structure and the institutions in a state are important, but also the incentives for elites and their business models.

Does the environment promote sustainable growth, innovation and responsible action by companies and politicians?

Does it include the concerns of future generations?

Or is it tolerated that everyone only strives to maximize their own profit - even at the expense of weaker parts of society?

It is called rent-seeking when elites in corrupt systems are always there immediately when the state has something to distribute. 

In the IPPEN.MEDIA interview: Tomas Casas from the University of St. Gallen develops a new economic development theory with the help of elite research.

© University of St.Gallen

What do you want to achieve with your new elite theory - and why do you think it is important?

Tomas Casas: We want to understand and change the world.

So far, when there is a crisis, there have only been two answers: monetary policy or fiscal policy — i.e. spending money or printing money to stimulate the economy.

We think these two ways don't work anymore.

Monetary policy no longer works because we have had a zero interest rate policy for so long and cannot lower interest rates any further.

The spending policy is also at the end, because who pays all the resulting debts?

The new generation is paying the debts of the old generation, which is a disaster and totally unfair.

How can we do this to the youth?!

Far too many business models transfer from the future to the present: through inflation, pollution, climate change.

The next generation has to pay for it.

And printing money leads to rising inflation.

However.

Inflation is one of the most exploitative business models ever invented.

So it's also about the question: Where will inflation rise more in the future, in China or in the West?

This also has to do with the quality of the elites. 

What we are saying is that all the problems of the economy and of humanity must be addressed through structural reforms instead.

What do you need to reform?

The business models of the elite.

This does not require a revolution, but targeted reforms and a transformation from within.

Systematic structural reforms based on sustainable value creation would be a new approach in political economy. 

To do this, we try to make a statement about the future of the countries.

For example, we hope to be able to say that a country will get better in the future because the elites' business models have measurably improved.

We want to develop models that allow us to forecast growth three, five or even ten years in advance.

Could you give an example?

China is interesting again here: According to our index, the value added of the elites in China corresponds roughly to that of the elites in Italy or France - although China's gross domestic product per capita is much lower.

Our assumption is that if the quality of Chinese elites remains the same, China will continue to grow until it reaches the GDP per capita of France today in about 30 years. 

Let's look at Africa.

Good news: we see that most countries will grow.

But not South Africa – the country only has further growth potential if the quality of its elites improves.

Rwanda, Ghana, Botswana on the other hand just need to keep elite quality constant and they will keep growing.

Rwanda has good business people and business elites — even if the political elites create relatively little value.

But they also have little power.

In countries like Sudan or Equatorial Guinea, the elites extract values.

These states are more likely to have problems.

(ck)

Source: merkur

All news articles on 2022-06-18

You may like

News/Politics 2024-03-24T10:34:33.709Z
Life/Entertain 2024-02-16T16:22:01.165Z
News/Politics 2024-02-02T12:01:01.865Z

Trends 24h

Latest

© Communities 2019 - Privacy

The information on this site is from external sources that are not under our control.
The inclusion of any links does not necessarily imply a recommendation or endorse the views expressed within them.