Greece and the US Federal Reserve have dominated economic headlines for the first half of the year, but several other economic stories of 2015 will have major long-term impacts.
Will the Federal Reserve raise rates in September or not? Unless something goes woefully wrong, that decision will not shape how the world economy looks in ten years. And while uncertainty still looms over Greece, the situation has hardly flown under the radar.
The opening of the Saudi Stock Exchange, Chinese Premier Xi Jinping’s corruption crackdown, and the gig economy are each changing the foundation of how economies function but have not received wall-to-wall coverage that the Fed and Greece have.
Could foreign investors in Saudi Arabia be a catalyst for larger change?
The Tadawul stock exchange in Riyadh, which is approximately the same size as both South Africa and Russia’s markets, opened in June for the first time to foreign investors.
Only a small number of investors are even qualified to invest (money managers with more than $5 billion in assets) and there is a dizzying list of foreign ownership limitations (a maximum of 20% of a single company by all foreign investors, 5% of a single company by each foreign investor, and 10% of the total market). However, the opening to international markets signals the beginning of a larger long-term shift.
Saudi Arabia has defined itself and its economy with oil, but it recognizes the need to diversify. An open market will make it easier for new and differentiated businesses to raise money and could force better corporate governance on those already listed. However, the bigger question is whether this marks the beginning of a more robust middle class and government accountability typically associated with it, which could reverberate throughout other Middle East economies dominated by oil.
The initial impact of foreign investors has been muted, but in approximately two years when MSCI begins to include Saudi stocks in its frontier or emerging market indexes, which asset managers use as performance benchmarks, the influx from the world’s most prominent investors will begin to flow into the Tadawul in earnest.
Chinese corruption crackdown spans Mainland & Macau
For years, the casinos in Macau have been lined with high-rolling VIPs spending absurd amounts of money on baccarat. But when Chinese Premier Xi Jinping began cracking down on corruption and money laundering, along with discouraging conspicuous consumption, the VIP rooms went silent. Gross gaming revenue is down 37% year-to-date and was down 2% in 2014.
For a while after the crackdown began in 2014, it appeared similar to previous incarnations: short and largely ceremonial. However, one year and several high-profile arrests later, Xi’s crackdown can no longer be seen as fleeting or cosmetic.
Worries about a broader economic slowdown in China, as well as the recent instability in the Shanghai Stock Exchange, point to a China that is coming to grips with the lack of good governance that cannot be swept under the rug anymore, which is much more easily done with an economy growing at a double-digit pace.
This is not to say that China’s civil society and government will mirror the US and Western Europe’s in a decade—it will always be motivated by a different social contract and culture—but it will look less like a Princelings’ kleptocracy.
What is employment anymore, anyway?
The California Labor Commission ruled in June that Uber was required to recognize a driver as an employee instead of an independent contractor and reimburse the driver for business expenses. The ruling was narrowly applied to a single driver and it still subject to appeal. However, it forces governments and businesses to rethink what employment means. After all, most employment regulation predates email.
Uber and other “gig” economy companies are successful because of a successful model: they found a shortcut in an existing business enabled by technology and improved profitability by avoiding paying for insurance and other employee benefits. Cheaper prices for consumers along with a flexible stream of additional income for contractors allowed the gig economy to take off.
The rise of freelancers and independent contractors has put many workers in an uncomfortable position, since much of the law in the US is predicated on the employer-employee relationship—including many necessary employment benefits such as insurance and retirement planning.
If the relationship between workers and employers continues to become unbundled, the government will either need to expand its role in providing an expanded social safety net for an increasing number of contractors or contractors will need to form more powerful unions to protect their interests.
Neither sounds particularly palatable, however, the goal of technologies like these was always to be disruptive. The focus has been on the benefits of disruption, but there is no such thing as a free lunch.
