Edge of Chaos Summary and Review

by Dambisa Moyo
Has Edge of Chaos by Dambisa Moyo been sitting on your reading list? Pick up the key ideas in the book with this quick summary. When the world is in flux and uncertainty reigns, it makes sense to understand exactly what is going awry and what the solution could be. When you’re confronted with the potential downfall of the present day world order and its globalized economic system, there’s not a more beneficial guide than Dambisa Moyo, an internationally renowned economist. Economics and the political system can be difficult topics to wrap ones’ head around, whether you’ve been taught in the field or not. But this book summary provides you with the prognosis. It describes how the world economic system should be operating to ensure that it’s working in everyone's favor. Further, it delves into what’s going wrong at the moment, and how the powers of protectionism, anti-globalization and populism will only worsen these predicaments. However, this book summary is no lament to a lost world. It also offers a practical guide, informing you of what you can do to secure the preservation of liberal democracy and a strong economy that can ultimately help to protect and provide for all of us. In this summary of Edge of Chaos by Dambisa Moyo, you’ll learn:
  • why Chinese economic growth may not be all that it’s cracked up to be;
  • exactly how good Americans are at math in comparison to the rest of the world; and
  • how much was raised in donations for the 2016 US presidential election.

Economic Growth Versus Political Instability and Short-Term Policies 

Economics is a rich and complicated discipline. Yet, when you see a news report about how a company or country is doing, it gets boiled down to a few simple figures. And mostly, growth is being discussed. We’re obsessed with and expect it: if a country’s economic growth is stagnating, you can be sure that a politician is coming in for criticism. Let’s backtrack a tad: why is growth so desirable? Simply, growth produces economic opportunity, upward mobility, and enhanced living standards. China is an example par excellence here. Its growth over the last 40 years has been spectacular and now it stands as the world’s second-largest economy. By 2014, China’s purchasing power parity – how much a country's money can buy in different countries – was $17.6 trillion, overtaking the United States’ $17.4 trillion. China's economic growth also led to economic opportunity. Their economy generated new jobs, particularly for the rural poor. In only one generation, over 300 million Chinese were raised out of poverty. In 2013, the Chinese State Council’s income distribution plan made it apparent in which direction the economy would be guided. China would work toward reducing income inequality by increasing low wages, raising education spending and providing more affordable housing. This begs the question – what factors result in a country not growing? As we already know from Argentina, when economic growth fails to develop, it often ends in political instability and short-term thinking. In 1913, Argentina was, per capita, the world’s tenth-richest country. However, from 1930 to the mid-’70s, the country underwent six military coups. Along with this political instability, three separate periods of hyperinflation surpassed 500 percent per year, while economic “growth” rates dropped below zero for several years. Moreover, Argentine governments weren’t considering what could be done to benefit the country long-term. They didn’t invest in education and preferred to instead develop a low-cost, poorly educated agricultural labor force which is hardly a tactic for economic success. During the ‘40s, Argentina had the lowest rate of secondary-school attendance in the entire world, and the outcome of inadequate education was eventually a shortage of innovation and competitiveness. The full impact was felt in Argentina’s economic and political crisis during 1998-2002. Unemployment peaked at 25 percent, their currency dropped 75 percent of its value and poverty rates worsened from 35 percent in 2001 to 54.3 percent in 2002. Getting an economy right is complex, but one point is clear: growth matters.

Government Debt, Limited Resources, and Population Growth 

If you’re maintaining a household budget, going into debt can be scary. However, with national economies, the circumstances are considerably different; going into debt can actually stimulate economic growth. Let’s use the United States as an example. After the Second World War, the country acquired a large amount of debt to finance its education, health care, and infrastructure. An abundance of capital was set aside in 1956 for an extensive interstate highway system. The same was true for the 1944 G.I. Bill, which strived to instruct and offer business loans to war veterans. Correspondingly, over 2 million veterans went to college and over 5.5 million received training; US workforce’s quality was improved. That being said, debt isn’t always a positive thing. If it becomes too high, difficulties are sure to be close at hand – that much is apparent from the 2007 global financial crisis. Thanks to lofty levels of debt, Greece, Italy, and Ireland all experienced a drop in growth. The interest payments on their public debt rose to 10 percent of tax revenue, and all of the funds that each government possessed had to be redirected to debt repayment rather than measures like advancing education. This debt crisis additionally hindered economic growth. But there are other problems that can weaken economic growth. For instance, global population growth inflates the demand for natural resources, even as their limited supply diminishes. Within merely 60 years, the world's population has risen from 2.5 billion in 1950 to 7 billion in 2011 and will probably hit 9 billion by 2050. Being that the world’s resources are limited, commodity costs will definitely grow. As these increases pervade the economy, it is certain to end in inflation and, in turn, negatively affect both the economy and people’s standards of living. Water is a great example: though 70 percent of the Earth is covered in water, approximately 97 percent of it is too salty to be utilized for drinking or irrigation. As the demand for water grows with the population, water shortages are subject to prevent the cultivation of food and the generation of hydroelectricity in numerous countries. Global food markets and economic growth are unavoidably going to suffer as a consequence of this deficit.

Automation and the Decline of the Global Workforce

Economies are delicate matters: one misstep and the entire structure can come crumbling down. It might seem counterintuitive, but one of the greatest threats an economy faces is people, and particularly its workforce, or in other words, those in an economy who actively add to its growth. In the developed world, both the size and quality of workforces are decreasing, and this poses a significant issue. The core problem is aging populations, which the United Nations has classified as a global phenomenon. According to the UN’s projections, one in six people will be older than 65 in 2050, compared to one in 12 in 2015. An aging population increases the dependency ratio of retirees to workers, which successively impedes productivity. If people are living longer, we can also expect longer retirements. This indicates that more must be spent on health care and pensions, which is no meager economic burden. Particularly, developed nations are experiencing aging populations. Take Japan; predictions estimate that 40 percent of their population will be over the age of 65 by 2060. As Japan will have fewer younger workers, it will undergo labor shortages, decreased productivity and stagnant economic growth. Numbers aren’t the sole dilemma: the quality of the workforce will shrink as well. Thanks to an established underinvestment in education, the United States is already observing the beginning of this issue. On the 2015 Programme for International Student Assessment (PISA) test, 15-year-old American students placed thirteenth out of 35 countries in math. When this generation of students enters the workforce, the United States will possibly cease being competitive in technological innovation. An additional threat to the economy appears in the form of automation. Technology is increasingly making jobs redundant, leading to higher income inequality. A 2013 Oxford Martin School report predicted that 47 percent of all United States jobs were vulnerable to automation. The introduction of driverless vehicles was recognized to be especially problematic. For example, the trucking industry individually accounts for 3.4 to 4.5 million jobs in the United States. Truck, bus and taxi drivers could all be affected. Critically, as technology will first displace low-wage jobs, it is sure to worsen income inequality. Plus, those disparities are also bound to raise the risk of social and political instability, as more people start to lose trust in the governmental and economic systems.

Trends Toward Protectionism and How They Affect the Global Economy

Two events during 2016 seemingly indicated that the global economic consensus was turning a corner. First, the United Kingdom voted to depart from the European Union in the Brexit referendum. Then, Donald Trump was elected President of the United States later in the year. These point to the notion that the world is moving away from globalization and back toward protectionism. Unfortunately, protectionist trade policies hurt the global and national economies. Protectionist tariffs and quotas on imported goods and services result in limiting trade thus restricting the flow of cross-border capital  for global economies  That’s understandable, but, national economies are the other victims of protectionism. Consider the 1930 Smoot-Hawley Tariff Act, which imposed an effective tax rate of 60 percent on over 3,200 products imported into the United States. In theory, protectionist policies are intended to safeguard local businesses, therefore bolstering the domestic economy. But the Smoot-Hawley Tariff Act didn’t accomplish this at all. Instead, other countries countered by inflicting tariffs on American products. The consequence was job losses and diminished living standards: America’s GDP plunged from $104.6 billion in 1929 to only $57.2 billion in 1933. Also, protectionism harms generators in developing countries, with EU and US farm subsidies as prime examples. Though these measures were created to subsidize domestic farmers in the domestic market, farmers in South America, Africa, and Asia generally struggle to compete. As a result, agricultural trade in developing countries is incapable of producing money that could be put toward building infrastructure and the like. Additionally, it’s important to remember that those types of countries account for more than 80 percent of the world’s population. Another outcome of protectionism is a global labor imbalance. According to the International Labour Organization, globally, there are 73.4 million people who are unemployed, between the ages of 18 and 24. But, at the same time, there are labor deficits in advanced countries, like Japan, due to aging populations. One approach to dealing with labor shortages is implementing effective immigration policies. Canada and Australia both faced this problem. So, in order to draw in labor from the countries that had a surplus, they set up a points-based system, created to assess migrants based on academic achievements and work experience.

China’s State-Regulated Economy and State Intervention 

Hundreds of millions of those in the developing world are living off of less than a dollar per day. When the most prominent concern is whether there will be food on the table each night, it’s expected that appeals for political freedom grow secondary. That’s why many people worldwide prioritize economic growth over a perfect, transparent democracy. China is a great example of this. It’s generated a type of authoritarian state capitalism that’s served them well by cultivating economic growth. It accomplishes that by prioritizing collectivism over individual liberties. Their record growth has resulted in a historically unprecedented decrease in poverty. One of the Chinese government’s key tactics in reducing income disparities is raising spending on affordable housing and education. Chinese secondary school attendance stands at 94 percent currently, which is unbelievable considering that it was merely 28 percent in 1970. The government has established an impressive infrastructure initiative as well. Now, thanks to a regularly expanding network of highways built over the last 15 years, China has more paved roads than the entire United States. However, not all that glitters is gold. As astounding as China’s success seems at first glance, in reality, government control and interference can really threaten long-term economic growth. The George W. Bush administration ran into exactly that issue. Through its “Housing for All” policy, the US government attempted to incentivize American households to invest their money in housing rather than stocks, goods, and cash. To do so, the government basically began partaking in financial markets, acting as a de facto mortgage lender. It offered affordable mortgages by way of two government-sponsored enterprises called Fannie Mae and Freddie Mac. Numerous Americans ended up purchasing a property they couldn’t afford and found themselves overwhelmed with crippling debt; these transactions played a major role in triggering the 2008 financial crisis. It goes to show that rising economies should be cognizant of the failings of an economic system built on state intervention. State-centric operations like China’s won’t be capable of printing money forever.

Economic Stability in This Climate

This past decade has witnessed the ascent of populism and increasing economic uncertainty; it has become more and more evident that Western democracies must adapt. Radical reforms are necessary to ensure that sound decision-making continues to be a key pillar in Western democracies. Furthermore, it’s us who have to force the issue. First, we need to make it harder for policymakers to simply revoke legislation. As things currently stand, it’s somewhat straightforward for policymakers to invalidate their predecessors’ choices. This changeability of policy builds skepticism that deters investment, which, in turn, is damaging for long-term economic growth. Take the Paris Agreement on climate change as an example. President Barack Obama signed it in December 2015 to grand hoopla, only for his successor, Donald Trump, to withdraw it in 2017. It’s evident, then, that what’s necessary are international agreements that secure governments to previously signed policies. That may include agreements made by the World Trade Organization (WTO) or NATO security agreements. Secondly, we need to ensure that campaign contribution is firmly restricted. This way, the disproportional influence of affluent interest groups on democratic elections can be restrained. Think about the following: an estimated $2 billion was collected in campaign contributions during the 2016 US presidential election. These types of contributions in the United States have steeply increased during succeeding elections, resulting in a political system where wealth is the only thing of importance. Politicians have altered their tactics to serve rich donors rather than the general voting public. Third, policymakers should be given a higher salary. That way, working in the public sector will be a more attractive idea for skilled individuals. As matters currently stand, the major pay gap between private and public sectors leaves the public sector looking like the poorer and less skillful relative. In comparison, the average CEO’s income in the United States rose tenfold from $1.5 million to $15 million between 1979 to 2013. And the President of the United States’ wage package wheezed its way up from $100,000 in 1969 to $400,000 by 2001.

Longer Terms and Compulsory Voting Breeds Better Politics

Improving the political system is no simple feat, but it’s a crucial one. And there are three further aspects that require adjusting. For starters, we should lengthen politicians’ terms in office, but concurrently require limits. More extended terms enable leaders to concentrate on long-term solutions due to heightened accountability. Mexico is a great example of this. Francisco I. Madero won Mexico’s presidential election in 1910, campaigning with the slogan, “Valid voting and no reelection.” Following that, Mexican presidents have only been able to have a single six-year term in office. The outcome has been a moderately stable political environment with high rates of economic growth contrasted with the country’s Latin American neighbors. Secondly, there must be some type of minimum requirement for candidates, especially in regards to “real-world” knowledge. Look at the British House of Commons for instance. A 2012 study by the British House of Commons Library revealed that the percentage of parliamentary representatives with backgrounds in manual labor declined dramatically from over 70 percent to 25 percent between 1983 and 2010. We should recognize that politicians who don’t have a lot of “real-world” experience often lack understanding and empathy for those facing real financial challenges. They're more inclined to make policy decisions with partiality to the upper classes – or essentially whatever it takes to retain their parliament seats. So, we should specify that to run for office, a candidate should have already worked a set amount of years of work outside the political field. Lastly, voting should be mandatory. According to the International Institute for Democracy and Electoral Assistance, just 36 percent of eligible voters in the United States voted in November 2014, the lowest turnout in over 70 years and a part of an alarming trend. Being that voters are basically responsible for selecting politicians and the policies they execute, it's imperative that turnout is improved. Fines are a means that this could be accomplished. Australia has a system like this: you’re fined $20 the first time you don’t vote, and $50 for every following no-show on election days. The result is that the country’s turnout rate is over 90 percent. Australia isn’t unique in this endeavor; Singapore and Belgium also impose compulsory voting. These countries are on their way to assuring that their democracies persevere in the future.

In Review: Edge of Chaos Book Summary

The key message in this book summary: We need long-term economic growth to attain more suitable living standards, which includes everything from improved wages and better education, to reduced income inequality and access to health care. However, modern liberal democracies are starting to prefer short-term policies and protectionism. If we don’t steer our democracies from that path, economic stagnation and lower standards of living are sure to develop.