What does Islamic Finance do towards secure and fast recovery?

May 17, 2021

Islamic finance has grown rapidly worldwide which estimates USD 2.52 Trillion assets to USD2.88 trillion by 2019. However, due to the impact of Covid-19 crisis, the value of Islamic finance is expected to show slow growth by 2020 but its predicted to grow by 5% from 2019 onwards to reach up to USD3.69 trillion by 2024 (Global State Islamic Finance Report, 2019). The number shows its valuable growth in the future, nevertheless, it will be the main question, does Islamic finance has a role to tackle the crisis?

Indonesia faced its sharp contraction in more than two decades during the second quarter of 2020 due to pandemic. Indonesia’s economy contracted because of demand declining during the pandemic period up to -5.3% yoy in Q2 2020. It is known that covid-19 shock has affected both sectors and households. Many sectors also hit by pandemic including transportation (-30 in Q2), hotel and restaurant (-20 in Q2) and also retail trade (-5 in Q2) are the biggest sector that most affected. It is obvious to see that the affected sector is due to declining socio-economy activity in all country, and even more unemployed was getting increased into 30 million people (Ministry of Employment, 2020).

However, Indonesia has committed to mainstream Islamic economy and finance to the national contribution. It is evidenced through the executed act as well to the national agenda in accelerating Islamic Economy and Finance through each ministry and stakeholders program. First of all, it is known that Islamic finance has a huge potential, the financing product through Islamic banking may be still questionable among people since it is noticeable as no competitive price in the market, however, the development of Bank Syariah Indonesia is another prove the government commitment to optimize the role of Islamic banking for Indonesia. The common issue that has been crucial is an effective product of financing including banking and non-banking sector. To tackle the economic recovery should involve different parties, including government and non-government, whereabouts supposed to be a target to be achieved gradually to bring socio-economy back. It can be seen during the pandemic and post-pandemic period that should be a more inclusive and socially financial product, whether crowdfunding, peer to peer lending, public-private partnership or any supporting tools for sustaining the SMEs to bring them back and turn on the supply demand system. Therefore, the role of Islamic finance also should address the above aspects and answer ‘what does Islamic finance do’.

Indonesia has committed to mainstream Islamic economy and finance to the national contribution. It is evidenced through the executed act as well to the national agenda in accelerating Islamic Economy and Finance through each ministry and stakeholders program.

Islamic social fund, in this case, play a vital role to stimulate the consumption and production aspect for mustahik to run a supply and demand system towards continuous recovery. Beyond that, some private sectors have allocated a number of rupiah to provide medical tools, while others give direct charity to the impacted people including SMEs, and unemployed people. Islamic financing is also supposed to provide an extraordinary product to give an effective scheme for the consumer, it is complicated however since some regulatory issues should be first addressed, such as the unoptimized product that implemented to its uniqueness of Islamic finance, secondly related rules of investment product in Islamic banking makes unequal consequences between return and the risks.

Digitalization, however, may take a further and faster action to provide a reliable definition of Islamic contract which has a socio-economy impact in the long period. The opportunity is seen through financial technology and practicing Islamic contract basis, for instance musharakah/cooperative contract through a particular platform that connects between the capital owner to the business practitioners, its transparency and multiplier effect should give a significant impact for national economy recovery. The other platform also runs a unique business to support the SMEs by connecting between parties, as well many platforms that provide different models to help sustainable financing for household sectors. The financial technology may come as a first-mover to start effective financing in Indonesia, not only give a transparency system but also beyond socio-economic advantage.

The COVID-19 pandemic has also affected to food security aspect and put it high quality. Global and national food markets and supplies were irrepressible during the pandemic, and food prices were stable however many households run into food shortages due to income losses. It can be seen that the government responsibly expanded social protection programs to help households cope on an ambitious food estates development agenda. The halal industry should come into this opportunity to look at its core value of ‘halal and thayyib’ as a way of food hygiene and secure food. The above aspects are highly interrelated to realize the ecosystem of integrated Islamic economy and finance that aspire in Indonesia. It has a huge potential to championing the halal product through sustainable business in both the banking system and financing digital platform. There were 3 parties that can be categorized for digitalization aspect, first, people in the urban area that may be well literated about financial technology, second, rural area with well-educated about the digitalization including fintech, third, rural area with low education and literation about fintech, therefore, it is those target cannot be excluded in developing Islamic financial inclusion and should be well socialized.

The dynamic circumstances may create unprecedented change, but the Islamic economy and finance should go faster to realize its uniqueness and establish a multiplier effect for rapid economic recovery. This is not only to realize its potential of Islamic Economy in Muslim majority country such Indonesia, but beyond that is to contribute the national development. Thus, Islamic economy and finance will be valued as substance over the form in the socio-economy aspect. In line with that, the Indonesian economy is expected to start rebounding in 2021 and to gradually strengthen in 2022 (Indonesia Economic Prospects, 2020), the supporting factors should take a place, the real action should be executed including the Islamic economy and financial industry.

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About the Author

Nuha Qonita, is a senior analyst in National Committee of Islamic Economy and Finance Indonesia. She earned Master Degree in Islamic Finance at Durham University Business School, UK. Her research interests are Islamic Finance, Socio-economic Development, Financial Inclusion, Islamic Digital Finance and Community Based Financing Development.

How the World Press Freedom Index Was Politicized – Long Before the New Cold Wars

May 17, 2021

By Dr. Dan Steinbock

For years, the press freedom index by the Reporters Without Borders (RSF) has been widely quoted, even though its methodology is biased and RSF was long led by a white supremacist with a penchant for US-led regime change. Now RSF is targeting Asia.

According to the recently-issued new World Press Freedom Index (WPFI), the greatest media freedoms prevail in Western Europe and North America and the worst in emerging and developing economies.

Most media NGOs are led by veteran journalists, whereas the organization behind the Index was founded by Robert Ménard whose media experience was limited to a pirate radio station and an unpopular magazine that performed so poorly it had to be closed down.

It was then – in 1985 – that Ménard and three of his colleagues co-founded the Reporters sans Frontières (Reporters Without Borders, RSF).

RSF founder’s white supremacist ventures

As the RSF’s secretary general and its director-general, Ménard ruled the organization almost three decades (1985-2012), like the autocrats it presumably opposes. In the process, he managed to alienate all other co-founders.

The RSF’s stated aim is to “safeguard the right to freedom of information.” Yet, Ménard’s political ambitions overshadowed the organization’s mandate. In spring 2008, he and his colleagues tried to disrupt the lighting of the Olympic Flame before the Beijing Summer Olympics, presumably as a protest for Tibetan civil rights. These stunts coincided with campaigns by U.S. neoconservatives, CIA and the National Endowment for Democracy (NEDA), which have funded RSF activities.

Inspired by political extremism since a child, Ménard grew of age in a family with links to the far-right terrorist OAS; a French paramilitary group that contributed to Algeria’s massacres in the 1950s and terrorism in France, including assassination attempts against President De Gaulle and philosopher Jean-Paul Sartre.

Toward the end of his RSF reign, Ménard embraced far-right publicly. Since 2014, he has served as Mayor of Béziers in Southern France. A known Islamophobic, he has warned Muslim refugees they are not welcome in France. Like ex-President Trump’s far-right mobs, he touts the white genocide conspiracy that “Jews and globalists” seek to replace whites with Muslims from the Middle East.

More recently, the RSF has been led by Christophe Deloire, who is more cautious in rhetoric but shares Ménard’s geopolitics and touts the RSF’s new Information and Democracy Forum. Like his predecessor, Deloire has alienated the RSF organization, thanks to restructuring, departures and layoffs.

Regime change from Latin America and Middle East to Asia

From Ménard to Deloire, the RSF has cherished odd bedfellows. Amid the 2002 coup against Venezuela’s Hugo Chavez, the RSF sided with the plotters, as it did in the coups against Haitian President Jean-Bertrand Aristide, Manuel Zelaya in Honduras, and Evo Morales in Bolivia. According to critics, as Ménard and his colleagues have acknowledged, the RSF has cooperated and coordinated with US State Department against Cuba, Bolivia, Venezuela, and Nicaragua.

The regime-change activities were funded by USAID Cuba Program, “Freedom of Information” initiatives and the NEDA. In return, the Bush administration funded RSF and like-minded NGOs. In 2007, the thankful RSF justified the Iraq invasion, with Ménard arguing for the legality of torture. Similar joint interests mark RSF activities in the Middle East (Libya, Iran, Iraq).

Now RSF hopes to achieve the same in Asia. In 2017, it appointed Cédric Alviani the head of its first Asia bureau based in Taiwan, in convergence with the goals of the Trump administration and Taiwanese government. Alviani aligned RSF with Hong Kong’s turmoil, while offering interviews to the Epoch Times, which has touted RSF and Alviani for “warning people to beware of China’s disinformation about the Chinese Communist Party virus, commonly known as novel coronavirus.” The key supporter of ex-President Trump, the QAnon and conspiracy stories, the Epoch Times is a far-right Taiwanese media outlet whose cultist members believe that in the Judgment Day they will rise to Heaven and all Communists will go to Hell.

Like some of his RSF colleagues, Alviani is not a veteran journalist. The longtime Taiwan resident is an ex-head of the Taiwan European Film Festival funded by Taiwanese government and ministries, after stints in other Taiwanese-related and French foreign ministry posts.

Biased methods, funders’ agendas

Today, the RSF’s total budget is 6.1 million euros. It funds only 20% of its activities internally. Over 40% is based on “institutional grants” (French foreign ministry, French defense ministry), whereas 35% stems from “private foundations and NGOs” (e.g., NEDA, Ford Foundation) and “corporate and individual donations” (e.g., American Express, French bank Société Générale).

Through their funding, billionaires, including George Soros via his Open Society and Pierre Omidyar, have indirectly shaped RSF activities. In return for French and US funds, the RSF has been largely silent about media abuses in France and the West.

Behind the official facades, the RSF’s Index (WPFI) has attracted much controversy. As it should: it is something of a racket.

Officially, the WPFI “is determined by pooling the responses of experts to a questionnaire devised by RSF.” The questionnaire presumably evaluates very broad criteria, such as “pluralism, media independence, and self-censorship.” The qualitative analysis is augmented with quantitative data on abuses and acts of violence against journalists. Yet, questions about media ownership and concentration are effectively ignored.

Moreover, when a limited sample of some 150 journalists and 18 NGOs are asked to analyze and respond to 87 questions for each country, the probability of biases and thus disconnect with realities increases accordingly.

Furthermore, many of the respondents and NGOs are funded by the RSF, while researchers, jurists and human rights activists, which are said to be selected by the correspondents. Such pre-selections tend to reinforce the agendas and priorities of RSF’s sponsors – foundations and NGOs – since it lacks adequate internal funding.

A simple example: Even as the Philippine 2021 WFPI ranking fell, the UNESCO World Press Freedom Prize was awarded to CEO Maria Ressa of Rappler, a key player in the recent South China Sea media debacles. Previously, Ressa had served as the prize jury’s member and its president. Like RSF, Ressa and her Rappler have been funded by billionaire Pierre Omidyear. Ressa has a dual US-Filipino citizenship and upscale properties in both countries, although Rappler is no cash cow and remains in a legal quagmire.

Media predators only in developing economies

The RSF publishes a gallery of “Predators of Press Freedom,” presumably highlighting the most international violators of press freedom, based on its Index. The slick image of “predators” reflects the RSF’s reliance on campaign ads by Saatchi & Saatchi that once orchestrated the campaign that brought Margaret Thatcher to power in the UK.

Most RSF Predators are countries that the US has broadly criticized, sanctioned, or targeted in new cold and hot wars, and regime change efforts, including China, Venezuela, North Korea, Iran, Turkey, Russia, Syria, Yemen, Pakistan, and so on.

Some 15 years ago, Singapore’s then-PM Goh Chok Tong denounced the Index as “a subjective measure computed through the prism of Western liberals.” Not much has changed since then. The RSF gallery does not feature a single Western country, despite known media abuses in the high-income Western countries. Indeed, the French daily Libération, which has funded the RSF, has criticized it for keeping mum about the abuses of the Western media: “Many blame the group for its ferocity against Cuba and Venezuela, and indulgence toward the United States.”

Here’s the problem: Some RSF targets do have a questionable media record. But as the RSF and its sponsors politicize and weaponize its mandate, methodology, targets and objectives, an objective scrutiny of media freedoms is undermined.

What is needed is a global media watchdog that comprises both rich and poor major economies and methods that cannot be easily weaponized for ulterior agendas.

An organization that represents reporters with borders is not a solution. It is part of the problem.

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About the Author

Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net

An easyMarkets Review – Is It a Legitimate Forex Trading Platform?

May 17, 2021

The advantages of easyMarkets are many and they include a very easy to use interface, a large variety of indicators, the ability to trade with a minimal account size and unlimited leverage. In order to become a successful forex trader you will need more than these features. However, if you think that you’re ready to take the plunge then you’ll find this review useful. The following article will discuss the advantages of easyMarkets for the forex trader.

Read TradingGator’s easyMarkets review to get all the details before opening a trading account.

easyMarkets’ Advantages Reviewed

One of the advantages of easyMarkets is that it is designed to be easy to use. This forex trading software has been designed in a manner so that even a beginner forex trader can start trading without having to have any prior experience. You can start for as little as $100.

As a forex trading platform, it allows its users to trade using either one of its three different indicators which are namely the line charts, the bar charts and the candle stick charts. You are also given the flexibility to set your own risk level, you can try a lower risk strategy if you’re a newbie while you can go for a higher risk strategy if you are an experienced forex trader. You will have the flexibility to trade manually or automatically. Lastly, you can also make use of the built-in support system which offers instant assistance when you need it.

Another advantage of easyMarkets is that it comes with a demo account. This is great for a forex trader who wants to test the waters before risking their own money. With this account you are provided with a small amount of fake money so that you can practice all the features which are available on the platform such as; trading, open limits, stop loss and leverage. All of these features are fully functional and provide for a more secure trading experience.

The Trading Platform

easyMarkets works in conjunction with a number of other forex trading platforms. For instance, most of the forex brokers now also offer a feature wherein you can trade options along with your stocks. This is something that was not available in the past few years and was only available in a handful of brokers. easyMarkets is also compatible with Forex Contingency Plan (FCP), which is a form of managed forex account. It allows the trader to set premiums based on the performance of the underlying portfolio.

In order to get started with easyMarkets, you need to open a free demo account. This is offered by most brokers and is accessible from within your online brokerage. This way you have the chance to experience all that easyMarkets has to offer and see if it’s right for you. The free accounts usually last around 7 days and you are given access to real money within a week. Once you’re comfortable enough with everything, you can then open an account with a real money account.

A Modern Interface

One of the things that make easyMarkets stand out from other forex platforms is its easy-to-use interface. Even beginners to forex can figure out how to trade through the various screens. All you need is a very basic trading system, an internet connection and you can be ready to go. The reason why easyMarkets has made it easy for everyone to get into trading stocks is that the training platform takes care of everything. All you have to do is follow the easy-to-understand tutorials and you’re set to earn profits.

Successful Forex Traders Can Improve

If you’re already a successful forex trader but want to improve your techniques, look for more information about Easystocks and its sister companies. There are many Easystocks review sites that you can check out and get a general idea about the firm and the product line. There are many successful forex traders who are willing to share their experiences with potential customers. This is where you can learn about the success rate of the company’s trading platform. When you do this, you’ll know if the company’s forex training system can really improve your trading skills or not.

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How To Streamline Your HR In 2021

May 15, 2021

Do you find that your current HR processes are taking up a lot of time? Having an HR team can be useful when it comes to managing employees and ensuring everything is completed on time, but it can also be expensive, especially if their time is not being used wisely. For this reason, you might want to consider some of the ways that you can streamline your HR in 2021. Read on to hear what some of our suggestions are.

Review Your Existing Processes

When was the last time that you really sat down and reviewed your existing processes? It could be that you just haven’t realised how extensive the tasks are and how small your team really is. We recommend doing an audit and review of sorts of your current HR processes and talk with the team managing these tasks on a day-to-day basis. You might just spot some issues that are easily streamlined or resolved.

Outsource Your Payroll

Payroll is extremely time-consuming and if there are any errors, it can be a nightmare to resolve. If you don’t have a team dedicated to managing the payroll in your business, you might find that you end up spending a lot of your time working on these issues. If you really want to streamline your HR in 2021, you should consider outsourcing your payroll services. An external company can help to identify any better processes and make sure that your team gets paid on time every month.

Keep It Online

Another great way to streamline your HR in 2021 is to move almost everything online. If you are still using paper-based records, then you could be missing a trick and wasting your resources. Cloud-based systems exist, and they are used by many businesses around the world to manage HR. Not only can cloud-based systems help with payroll and holiday entitlements, but they can also help with recruitment. Think about how easy it will be to recruit next time with a bank of CVs online!

Give Employees Access

For many HR teams or employers, a lot of the time is spent answering questions from employees who need answers quickly. Sure, one question from a team member about how many paid holidays they have left might be easy to manage but what if you have an entire department to respond to every single week? If you can find a way to give your employees access to their records and their holiday entitlement or payslips, you can find that the entire process is streamlined relatively quickly.

Keep It Central

Finally, you should aim to centralise your HR processes if you want to make sure that everything is streamlined. Having one centralised system can make it easier for different teams to get the information that they need, without having to ask the HR team all the time. On top of that, it can ensure that nothing goes missing and that all of the records are there when you need them. Consider investing in a centralised system to streamline your processes this year.

Get Started

Now that 2021 is in full swing, it is time to start making some real changes to the way that you run your business. Think about the way in which you run your payroll system and how your team learns about any policy updates or their holiday entitlement. If you can invest in some new processes or outsource some of the work, you’ll find that the entire HR system is streamlined. Try out some of the ideas that we have given you!

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How to Keep Your Finances Afloat After the Death of a Spouse

May 14, 2021

By Mark Scott

The death of a spouse is one of the most devastating losses that you could experience. But in the middle of grieving, you are likely to also experience severe financial hardship due to the loss of the extra income associated with your spouse’s death.

Fortunately, there are ways to keep your finances afloat after the premature death of a spouse.

Give Yourself Grieving Room

When you lose your spouse, you may immediately begin to worry about the heavy financial burden resulting from his or her death. For that reason, experts warn that it is tempting for many to take on too much at once. Trying to get a new job while also dealing with your grief can be a major mistake.

Instead, give yourself time to grieve. While grieving, you can consider your next step to ensure that your finances stay afloat.

Determine the Importance of Each Financial Task

Not every potential financial task needs to be taken care of immediately. Personal finance experts recommend that you sort your financial responsibilities by level of urgency. Trying to take care of everything immediately can be overwhelming.

Instead, fit your financial obligations into categories based on whether they need to be taken care of immediately, soon, or later.

Notify Credit Bureaus of Your Spouse’s Death

One step that is easy to miss when your spouse has just died is the need to notify credit bureaus about your spouse’s death. This step can benefit you in three ways:

Creditors will receive death notices when they try to report any failed payments on accounts that your spouse alone owed.
You will not receive threatening notices from creditors as often, which can greatly reduce your stress levels.
Your own credit files will be updated with your joint accounts now being solely in your name, which could benefit your long-term credit goals.

Make Sure All Accounts Are in Your Name

While credit bureaus can take care of certain issues, when it comes to making sure that every company has your joint accounts in your name, you will need to be responsible for making the changes.

You should make sure the following accounts are taken care of and put in your name if you previously had a joint account with your spouse:

Retirement accounts
Life insurance
Safe deposits
Bank accounts.

Understand What Your Cash Flow Currently Is

When your spouse dies, your cash flow situation will change immediately. You need to sit down and take a good look at your finances, which includes looking at how much money is coming into your household.

You might need to liquidate some funds or seek other means of obtaining financial support. By contrast, you could postpone worrying about your finances immediately if your cash flow is in good shape.

Contact an Attorney for a Wrongful Death Suit

It may be that your spouse died as the result of someone else’s negligent actions, like a careless driver or negligent doctor. If that is the case, then you could sue the person responsible or file a wrongful death claim with an insurance company.

You may also be able to obtain legal funding for a wrongful death lawsuit if you lack the resources to conduct the litigation. The best part about this type of funding is that you don’t have to repay the loan if you lost the case.

If you believe that you have grounds for a wrongful death suit, you should discuss your case with an attorney who specializes in wrongful death suits to determine if you are eligible to file a lawsuit. Look for a lawyer that offers a first free case evaluation and works on a no-wi-no-fee basis if your budget is tight.

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About the Author

Mark Scott With a law degree under his belt and years of experience, Mark Scott set off to make the law more accessible to all. He decided to help people lost in the maze of legal terminology to find their way. Mark writes clear and concise pieces and gives simple advice that is easy to follow. On account of positive feedback from readers, he decided to dedicate more of his time to this goal and became a legal columnist. In his writings, Mark covers a wide array of topics, like how to seek legal counsel, or how to deal with different procedures. Furthermore, he directs his readers toward other trustworthy resources for more in-depth information.

5 Ways to Pursue Compensation After a Car Crash

May 14, 2021

By Michelle Eddy

Car accidents often lead to tremendous loss. In addition to totaled vehicles, victims may sustain serious physical injuries and are slapped with astronomical medical bills. Some car accidents may cause traumatic brain injuries, disfiguring injuries, and many other problems that keep people away from work.

No matter how severe or minor these events may be, drivers need to know how to seek the compensation they are due.

1. Never Accept a Cash Payment at the Scene of the Event

When drivers know that they’re at fault, and when they’re worried about how these events will affect their insurance rates, or what the legal consequences might be, they may offer to cover damages out-of-pocket.

Accepting cash payments at the scene of an accident can jeopardize your ability to obtain fair compensation. It is far better to follow due process and to get an accurate calculation of your losses.

Car accidents can leave you with:

Lost wages
Crippling medical debt
Serious vehicular damages
Latent injuries that take days or even weeks to show symptoms.

Some accidents have even left people with post-traumatic stress disorder and a lingering fear of getting back on the road. You cannot know how much a car accident claim is worth until you have been seen by a doctor, have had your auto inspected by a mechanic, and have been given an estimated time for your physical and emotional recovery.

2. File an Official Police Report

One of the most important steps to take after a car accident is filing a police report. If an officer has not been called to the scene, contact the police yourself. Responding officers document these events from an unbiased, third-party perspective.

Once you’ve contacted your insurance carrier or the insurance company of the other driver, the police report will serve as the basis for determining who was at fault or how fault should be distributed.

3. Visit the Emergency Room to Have Your Injuries Assessed

Going to the emergency room is always important after a car accident even if you don’t have any deep cuts, broken bones, or visible bleeding. There are several soft tissue injuries, internal injuries, and other problems that accident victims might not be aware of. These events’ physical and emotional shock can make it difficult to determine exactly how injured you are.

The primary goal of emergency room doctors is to ensure that you are in a stable condition before you are released. These professionals regularly diagnose concussions, contusions, soft tissue injuries, and minor musculoskeletal injuries from auto accidents such as whiplash or other forms of joint dysfunction.

For a more comprehensive view of how this jarring, impactful event has affected the health and alignment of your spine, you may want to follow up by consulting with a chiropractor as well. Any medical imaging produced during those visits can be used to bolster your claim.

4. Contact a Personal Injury Lawyer

Although you certainly have the option of navigating the claims process on your own, car accident victims tend to be more successful in their efforts to obtain fair compensation when working with qualified attorneys.

A skilled lawyer, like this car accident attorney in Lafayette, can handle all interactions with insurance claims adjusters so that you’re never at risk of making statements or taking actions that might jeopardize the outcome of your case.

This professional can additionally:

Accurately assess your damages based on your medical records, using historical case information, and other acceptable types of data.
Negotiate with the at-fault driver and their insurer on your behalf.
Help you access various forms of contingency-based medical care.
Refer you to a trusted health care professional.

Working with an attorney will also give you more room to focus on your recovery.

5. Keep All Receipts

Car accident claims are rarely settled before the healing process is complete. Once claimants accept and receive settlement offers, they become unable to request additional funds in a courtroom.

Delaying settlement negotiations until medical treatments are complete ensures that accident victims are compensated for all their time away from work, and out-of-pocket medical expenses. So, keep all receipts and evidence of accident-related expenses to bolster your case.

Conclusion

There are several important legal protections in place for ensuring that car accidents do not cause lasting financial harm. With a qualified attorney, you can receive compensation for all auto damages, physical injuries, and physical pain and emotional suffering.

Taking the right steps to protect your interests throughout the claims process will greatly increase your likelihood of obtaining the full, fair settlement that you deserve.

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About the Author

Michelle Eddy is a staunch consumer advocate, fresh libertarian convert, and proud mother of three. Besides her legal career, she enjoys blogging about topics related to her expertise and life experiences, like parenting, child development, education, and law. In her writings, Michelle places emphasis on helping people to fight for their rights. She also works as a collaborative editor for Laborde Earles Law Firm. Her favorite quote is: “Sir, we are outnumbered 10 to 1″. “Then, it is a fair fight”.

Financial Applications of Blockchain

May 14, 2021

By H. Kent Baker, Hugo Benedetti, Ehsan Nikbakht, Sean Stein Smith, and Andrew C. Spieler

Blockchain is a growing technology that started in the cryptocurrency sphere with bitcoin but expanded to many business fields and beyond. In contrast to a traditional database, blockchain extensively uses cryptography (i.e., writing security codes) and permanently maintains the data. Although many industries worldwide use blockchain for various purposes, we discuss financial applications in the financial services, real estate, and accounting and auditing sectors. Before examining these applications, let’s review some basics about blockchains.

The Anatomy of Blockchains

This section provides an overview of blockchain’s essential elements and presents some additional features tailored to specific use cases. As Figure 1 shows, a blockchain has five key elements: (1) a block structure, (2) a chain sequence, (3) a cryptographic process, (4) a distributed or replicated configuration, and (5) a consensus mechanism.

The block structure refers to the approach used to record data. Think of each block as a filing cabinet containing a cabinet/block number used to identify it, a reference to the previous cabinet/block summarizing its data, the data to be stored in the blockchain, and a timestamp registering the date and time of the cabinet/block creation.

The chain sequence implies a strict ordering of blocks. Each new block of data is ordered sequentially and includes a summary of the previous block’s data. As the last block also contains a summary of its previous block, the chain sequence creates a recursive data recording process. Thus, each block includes a trace of data from all previously recorded blocks. Figure 2 shows a block’s contents and its link in the chain sequence.

The cryptographic process is a data transformation process that creates a unique summary of each block. This transformation uses a one-way deterministic function called a “hashing function” to reduce the stored information’s length to a predetermined number of bytes. The “one-way” qualification means that undoing the transformation is impossible with current technology. The deterministic qualification means that transforming the same input always results in the same output. However, different inputs could lead to the same output, underscoring the difficulty of undoing the transformation. The most used function is the SHA-256 (secure hash algorithm), which reduces any length of data to 256 bytes. The summary of previous blocks corresponds to the hashing process result, called a block’s “hash.”

Thus, a blockchain is a data storage structure that records information on sequential blocks linked together by including the previous block’s hash. Each block contains the hash of its last block, which cryptographically links all blocks. These elements help secure the block’s data. If a block writer modifies data within a block, the block’s hash changes. Most importantly, it changes the hash stored in all subsequent blocks. Data tampering, therefore, becomes evident.

A blockchain is a data storage structure that records information on sequential blocks linked together by including the previous block’s hash.

The fourth element – the distributed or replicated configuration – enables multiple parties to record the blockchain simultaneously. In a replicated blockchain, each participant stores a full copy of the blockchain, while in a distributed blockchain, each participant stores a segment of the blockchain.

The consensus mechanism refers to the rules and incentives to ensure adherence to basic blockchain guidelines. For example, what type of information can a block writer record? Which parties can record and modify data? How do parties agree if they detect different versions of the blockchain?

The last two elements create an additional layer of data security by maintaining several copies of the blockchain. Manipulating data modifies the block’s hash and the following blocks in one of the copies but not others. The consensus mechanism allows the blockchain storing parties to agree on which version of the blockchain is correct.

Blockchain’s five key elements work in unison to provide a secure data storage infrastructure, which can be enhanced to accommodate specific requirements. Some of these features include data and block encryption; differentiated user, validator, and data storage access; interconnections with other blockchains, registries, or physical devices via the Internet of Things (IoT); and a programable blockchain language. The list of potential features continues to expand due to increased research and development in the area.

Financial Services Applications

Blockchains and the associated distributed ledger technology (DLT) can potentially improve many aspects of financial services. For example, record-keeping, shareholder voting, and trade confirmation are time-consuming and subject to human error and potential fraud. Real-time access to transactions and verifiability offer marked improvements. Distributing the data across interested parties reduces and sometimes eliminates the need for centralized marketplaces or intermediaries. This section discusses specific blockchain applications for shareholder voting, dividend payments, foreign exchange transactions, and insurance markets.

Shareholder Voting

Although shareholder voting is primarily electronic, the current system is fragmented and inefficient. Large shareholders tend to vote to support their interests, but small shareholders are often apathetic. Shareholders can vote in various ways, including using a paper ballot, submitting electronically, attending the annual meeting, or proxying votes to a third party. Because maintaining accurate voter rolls is difficult for companies, brokers manage the ownership records in street name. Methods to are available to reduce the current system’s substantial costs involving mailing materials, engaging a proxy solicitor to contact shareholders to meet quorums, and tabulating results, including vote changes. Companies with multiple share classes and time-phased voting rights further complicate the process. Thus, blockchain technology transparency increases shareholder involvement by improving corporate governance, reducing fraud, increasing accountability, and lowering capital costs.

Dividend Payments

The dividend cycle is similar to shareholder voting with redundancies and inefficient record-keeping. The dividend cycle begins when the board of directors declares a dividend (declaration date) and ends with cash or stock distributions. The board also announces the payment date. Cash payments occur via check or bank deposit to the shareholder owning the shares on the record date (holder of record). Between the declaration date and payment date lies the ex-dividend date and holder-of-record date. The ex-dividend date is the last date the shares trade with the dividend, typically one day before the record date. That is, the holder-of-record receives the dividend when the company eventually distributes it. A blockchain can improve the process by distributing the dividends instantaneously into all eligible wallets, withholding or directing tax payments, and identifying the holder-of-record. Blockchains can also benefit international investors where companies make payments in other currencies or situations with different tax rates.
Additionally, companies can pay dividends using different tokens, such as Ethereum, or stablecoins.

Foreign Exchange Transactions

The foreign exchange market, also known as forex, FX, or the currency market, is a vast, decentralized, primarily unregulated market dominated by large institutional players, central banks, and corporations. Trades occur in the spot market for immediate delivery and the forward market for delivery at a future date. The foreign exchange market also includes derivative transactions, including options and swaps. Each trade involves considerable paperwork involving front, middle, and back-office personnel. Further, each trade requires counterparty verification. Each counterparties’ custodian and other interested parties receive information on the trade. Netting of positions occurs to reduce the transactional burden and movement of funds. Permission-based blockchain systems can track position sizes and reduce pricing errors. Therefore, blockchains could transfer and store (“capture”) information about the trade and transfer and store value/currencies directly. For example, JP Morgan developed JPM Coin, a permissioned, shared ledger platform, to allow real-time cross-border USD customer deposits.

Another advancement is Hyperledger (HL), a global enterprise blockchain project offering the necessary framework, standards, guidelines, and tools to build open-source blockchains and related applications for use across various industries. HL intends to be self-sustaining, governed by a collective to maintain and update the network. The primary features include modularity, security, interoperability, cryptocurrency agnostic, and API-friendly. In 2018, Goldman Sachs and Morgan Stanley began using the DLT payment netting service called CLSNet, which may signal increased popularity in the future. More recently, JP Morgan, Citigroup and BNP Paribas joined CLSNet. Benefits include broader market participation, improved intraday liquidity, and risk mitigation for non-CLS banks.

A blockchain solution is also available for other insurance types, including flight insurance. Suppose an airline agrees to pay a fixed amount based on a predetermined condition, such as a flight delay.

Insurance Markets

The insurance industry can also benefit from blockchain technology. Consider life insurance, which is a contract between the insured (payee) and the insurer (responsible party) to make payment to the beneficiary upon a verifiable event (e.g., death of the insured). The blockchain stores the contract terms and payment history. One concern with life insurance is that a lengthy process is required to provide payment if a death benefit is due, but the beneficiary is unaware. Entrusting a third-party with permissioned access to the blockchain allows the third party to identify the event and provide an almost seamless payment to the beneficiary.

A blockchain solution is also available for other insurance types, including flight insurance. Suppose an airline agrees to pay a fixed amount based on a predetermined condition, such as a flight delay. The flight delay is stored in a public record and easily verified. Similarly, reinsurance companies (insurance for insurance companies) benefit from the blockchain by the trusted record-keeping. Companies often use reinsurance for catastrophic events. It also helps assess the severity by aggregating the losses. Blockchains are a natural solution since companies typically make payments after reaching an aggregate loss level.

Despite the intense competition among insurance companies, the industry is collectively better off by having access to aggregated data stored on a shared blockchain. For example, suppose each company experiences a small number of health-related payouts with no discernible pattern between the seemingly unrelated claims. Analyzing the chain may reveal clusters of similar payouts indicating an environmental problem like a cancer cluster.

Real Estate Applications

Real estate consists of various forms, such as residential properties, commercial properties, and real estate investment trusts (REITs). When buying or selling residential and commercial properties, the acquisition process requires numerous and cumbersome sequential steps. After negotiation between a buyer and a seller for the price and terms, parties exchange a series of memos, documents, and addenda before closing a final deal. The acquisition process may involve many participants: the initial buyer (investor), the seller, the legal team, construction or remodeling firms, engineers for inspections, escrow agents, home insurance companies, title insurance companies, banks, home appraisers, state and local agencies for variances and compliance with local codes, environmental agencies, and town clerks for recording and updates.

Blockchain technology offers opportunities and challenges. On the positive side, blockchain can streamline all or part of the transaction process to acquire and manage real estate properties. Its unique features, including immutability (i.e., data cannot be deleted or altered), contribute to making the real estate transaction process more efficient and accurate. If appropriately used, blockchain is a tool to avoid misunderstanding among parties or potential grievances and help to resolve lawsuits since all transactions are permanently recorded and available to the parties, courts, and regulators if needed. A well-developed blockchain platform can help with due diligence in protecting buyers, sellers, and local authorities’ rights to ensure compliance and resolving variance issues.

Advanced features of blockchain can enhance the existing electronic recording systems used for real estate transactions. It can incorporate all incremental additions and deletions into the block permanently and then review and retrieve them as needed. Thus, blockchain developers have ample opportunities to examine current deficiencies and develop efficient alternatives for real estate transactions.

However, applying blockchain in the real estate industry has challenges. In many municipalities, the ownership and recording data are often incomplete or difficult to retrieve for verification. In most cities, the delivery of property deeds still uses traditional mail. Data are not fully digitized, or if digitized, they do not follow universal standards and are subject to alteration. Searching for real estate data and historical transactions underlying the asset can be cumbersome.

Blockchain applications may also extend to the financing part of real estate. After the initial financial transactions, including second, third, and other mortgages, blockchain allows maintaining data sequentially, broadcasting the data to all parties, and tracing and retrieving the data through blockchain layers if questions arise. Cases exist where a borrower (the property owner) went through multiple lenders for second or third mortgages without the first borrower’s full consent. Blockchain can help avoid such possible unauthorized actions. As soon as a buyer applies for an additional loan, blockchain automatically transfers the information to all parties, such as banks and insurance companies. The process cannot continue without the full consent of prior lenders and title insurance companies. Thus, blockchain can make real estate transactions more transparent and cost-effective for all parties involved

Accounting and Auditing Applications

Blockchain and crypto assets possess far-ranging applications and use cases outside of financial services and real estate. However, realizing the full potential of these technologies requires meeting two conditions. First, the accounting and reporting of blockchain information must be consistently applied and reported across various market actors. Second, the processes confirming or auditing this information must be consistent and replicable in a blockchain-based business environment. Broader use of blockchain and crypto-asset applications requires examining these issues.

Accounting

Although crypto assets, especially cryptocurrencies, are the highest-profile example of blockchain technology, tax and reporting rules remain ambiguous. In the face of no specific guidance from either the Financial Accounting Standards Board (FASB) or the International Accounting Standards Board (IASB), a market-driven approach has resulted in classifying cryptocurrencies as intangible assets. Although this approach seemingly makes sense because cryptocurrencies are assets and are also intangible, implementing this approach generates several unanswered questions. For example, how should these intangible assets be tested for impairment? How often should this impairment testing occur? What exchange price is appropriate since the cryptocurrency marketplace has no opening or closing bell? This classification as an intangible also leads to uncertainty. For example, what happens if, after a write-down or impairment in value, the recovery price exceeds the previous high-water mark, the highest price that the cryptocurrency has reached.

Classifying cryptocurrencies as intangible assets raises another issue. Given that not every crypto asset is equivalent, they should not be valued, reported, and treated in the same way. Many view crypto assets and cryptocurrencies as an all-encompassing term, but substantial differences exist. The market contains decentralized cryptocurrencies, privately-issued stablecoins, coins and tokens linked to tokenized physical assets, and potentially central bank digital currencies. Treating these assets as equivalent is illogical and inconsistent with treatments for other asset categories. Besides a lack of consistent guidelines and reporting rules, the existing rules and frameworks can vary widely depending on the jurisdiction.

Auditing

Although blockchain technology has potential use cases in many economic sectors and industries, auditing and attestation are where use cases seem to be accelerating in terms of implementation. The fundamental traits of blockchain – traceability, transparency, encryption, consensus methodologies, and real-time updates – already affect the audit processes. An effectively operating blockchain creates a tamper-resistant record available to network members when updated and agreed upon by those same network members. Implementing a blockchain-based or blockchain-augmented data-sharing platform does not render the audit or audit processes obsolete or irrelevant. Instead, it reallocates the time and resources involved in the audit process to cybersecurity or technology-focused role.

Some basic tasks and processes will be rendered less necessary, but doing so does not mean that an audit has value or benefit diminishes over time. Instead, increasingly integrating blockchain into business operations will change some audit tasks. Specifically, the auditor’s role and the audit process need to evolve, focusing less on the information itself and more on how to add to and export data from the blockchain. This process is already underway at many large accounting and audit organizations, which increases the confidence and transparency in this information over time.

In summary, the accounting and auditing of any information form the basis for treating, reporting, and storing data. A consistent and comprehensive accounting and auditing process may foster wider blockchain adoption. No blockchain or crypto-specific guidance or rules are available on how to account for or audit these data. Obtaining blockchain’s full benefits requires developing comprehensive accounting and audit frameworks. Accounting and auditing play an integral role in the functioning of financial markets. This trend is unlikely to change in the blockchain and crypto-asset sectors.

Conclusions

Blockchain applications extend well beyond cryptocurrency and financial applications. This pragmatic and revolutionary technology affects various sectors by creating greater transparency and fairness while saving businesses time and money. It can also make life easier and safer. In the future, examples of real-world blockchain use cases are likely to grow and change how businesses operate.

Some material contained in this article comes from H. Kent Baker, Ehsan Nikbakht, and Sean Stein Smith, The Emerald Handbook on Blockchain for Business (Emerald Publishing, 2021)

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About the Authors

Kent Baker, DBA, PhD, CFA, CMA, is a University Professor of Finance in the Kogod School of Business at American University. Professor Baker is an award-winning author/editor of 39 books.

Hugo Benedetti, PhD, is an Assistant Professor at ESE Business School, Universidad de los Andes (Chile). His research agenda focuses on the implications of blockchain technology adoption in the financial industry. His work appears in The Economist, Bloomberg, The Wall Street Journal, and Nasdaq.

Ehsan Nikbakht, DBA, CFA, FRM, is the C.V. Starr Distinguished Professor in Finance at the Zarb School of Business, Hofstra University. His current research is on blockchain applications in finance and investments.

Sean Stein Smith, DBA, CPA, CMA, CGMA, CFE, is an Assistant Professor at Lehman College, City University of New York. His award-winning research, focusing on blockchain, cryptoassets, and financial market implications, has been featured in Forbes, Bloomberg, and dozens of academic articles.

Andrew C. Spieler, Ph.D., CFA, FRM, CAIA, is the Robert F. Dall Distinguished Professor in Business at the Zarb School of Business, Hofstra University. He has received numerous research and teaching awards and authored over 50 articles and book chapters.

Indonesia Needs More Large Companies

May 13, 2021

By Mohammad Zeqi Yasin

The Indonesian economy is supported by the manufacturing sector for decades. However, there is an irony when evidently this sector remains striving to obtain efficient performance. How shall Indonesia deal with this issue?

The Indonesian economy has been supported for several decades by the manufacturing sector. However, the contribution of this sector has continued to decline since 2009, until in 2019 the third quarter of its contribution reached 19 percent, much lower than its contribution in 2001 of 29 percent.

Many scientific studies contented that even though it contributes the largest, this contribution is not followed by the good performance of the processing industry, especially in indicators of production efficiency. The findings of various empirical studies identified that the processing industry still utilizes old machines and too low allocation for Research and Development (R&D), as well as limited managerial expertise. Consequently, even though it generates high output and contributes greatly to the domestic economy, the cost of the production process remains inefficient.

The fact that the performance of the manufacturing industry continues to decline is then exacerbated by the fact that the presence of large-scale domestic processing companies in Indonesia remains small. In a book published by the World Bank entitled “Making it Big: Why Developing Countries Need More Large Firms” written by Ciani et. al. (2020), empirical evidence revealed that Indonesia has merely nine large-scale companies for every 100 medium-sized companies in the non-agricultural sector.

On the other hand, to take an extreme comparison, the United States has 20 large-scale companies for the same number of medium-sized companies. This difference certainly indicates that the high output of the processing industry tends to be supported by medium to small scale companies.

An increase in the number of large-scale companies is mandatory as large companies can accelerate the improvement of the domestic processing industry through a more advanced system. Large companies are significantly more intensive in developing R&D, innovating, carrying out export-import activities, and implementing international standard quality in their operational production. If the quantity of this type of company increases, the performance of the Indonesian processing industry is more likely to improve.

Indeed, large companies might contribute to improving Indonesia’s manufacturing sector. However, this argument does not merely discourage small and medium scale companies that are being claimed by many people as pillars of the Indonesian economy. In fact, captivating more big companies in Indonesia might enhance the possibility of an externality process which is theoretically called the spill-over effect. Large companies that possess agile performance may become best practice or benchmarks for medium and small-scale companies through their involvement in the value chain, demonstration process, or identification process.

In the end, this article boils down to the question “how can the government increase the number of large companies in the manufacturing sector? Briefly, the answer is through foreign direct investment (FDI). This solution may sound classic and normative, but it is essential to revisit it anyhow. FDI, in the form of multinational companies, is important in the process of extending large domestic companies because of the access and extensive international market networks because of its affiliation with parent companies, which are generally located in developed countries. Through multinational companies, domestic companies can learn to create innovations. In other words, the process of creating innovation is a key indicator needed to increase the scale of production of processing companies in Indonesia.

Captivating more big companies in Indonesia might enhance the possibility of externality process which is theoretically called the spill-over effect.

A South Korean economist, Keun Lee, in his book entitled “The Art Economic of Catch-Up” suggested the “more-less-more-again” strategy carried out by large South Korean companies, which were not big at first, in the process of creating innovation. In the initial phase, these companies were active in the global value chain (GVC). This phase requires companies to meet stringent product standards and learn about the dynamics of innovation from international markets.

In a later phase, these companies withdrew from GVC and focused on building their domestic value chains and the domestic-product-consumption campaign for the Korean citizens. The exposure to the international market in the prior phase made the second phase successful, shown by the presence of gigantic companies such as Samsung, Hyundai, and KIA and lifting South Korea’s economy out of the middle-income trap of the 1960-1980s.

Reflecting on South Korea, Indonesia’s manufacturing sector as one of the targets for the giant FDI market should also be able to do the same. Multinational companies can become a benchmark for the dynamics of innovation for Indonesian domestic companies that are able to produce giant companies in the global market. Finally, the manufacturing sector as the largest contributor of Indonesian economy can be a central point of reliance as it may help to escape Indonesia from the trap of a middle-income country.

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About the Author

Mohammad Zeqi Yasin is a Head of Research – Research Institute of Socio-Economic Development (RISED), Surabaya.

References

Ciani, A., Hyland, M. C., Karalashvili, N., Keller, J. L., Ragoussis, A., & Tran, T. T. (2020). Making It Big: Why Developing Countries Need More Large Firms. The World Bank.
Lee, K. (2019). The art of economic catch-up: Barriers, detours and leapfrogging in innovation systems. Cambridge University Press.

Eight Ideas For Relaxing Weekend Activities To Destress & Recharge

May 13, 2021

Let’s face it – due to the busy pace of modern life, we spend most of our workweeks in a frantic race for chores, schedules, to-do lists and deadlines. Those much-needed 48 hours should be time to de-stress, unwind and tune into things and activities we enjoy. Here are eight tips on how to use your time off to actually relax and recharge.

Take A Long Soak In Bathtub

During an especially busy week, most people usually don’t have time for pampering themselves with a long soak in a bath. If you are one of them, this is just what you need to relax on your days off.

Get the right temperature, bring some entertainment like the magazine or book you meant to read and keep a glass of ice-cold water to stay hydrated. Also, don’t forget the importance of creating the right atmosphere for ultimate relaxation. In this case, make sure to dim the lights, turn on soothing background music and light some of your favourite candles. You could also spend some time if you happen to have your own Barrel Saunas at home for easy and immediate access to stress relief and physical relaxation. Home Saunas have become increasingly popular to experience all the sauna health benefits in the privacy of your own home.

You can combine your soothing ritual with CBD products to make your experience extra relaxing. Whether you choose to buy CBD vape juice for your vape pen, capsules, tinctures or edibles, using CBD oil for sleep and anxiety can help to diminish stress levels, promote more restful sleep as well as relieve your pain and aches.

Movie Marathon

No matter if you prefer to have a movie date with a loved one, invite your family members, call a group of your close friends or just spend some “me” time – organising a movie marathon is an ideal way to relax, improve your mood and forget about reality for a while.

For the great experience and viewing pleasure, it is essential to agree on what movies or TV show you will all watch during the marathon. Since everyone has different tastes, try to stay away from shows/movies that are too niche or have explicit content, especially if you have kids in your group. It also might be a great idea if each of your friends will bring a movie they want to watch. But if everyone’s tastes are too different, you can choose a particular actor or director and watch several films from their filmography.

Also, make sure to find the perfect seating location, bring enough pillows and blankets and surround yourself with your favourite snacks and beverages to have easy access to food and keep each person comfortable throughout the film.

Cook Something

You can simply prepare something with whatever ingredients you have in your fridge while keeping in mind your preferences in flavours and meals. However, if you want to follow a certain recipe, do so by all means, but don’t forget to enjoy the process itself, not strive for perfection. You can also watch various online lessons from world-class and celebrity chefs to try out something new and unusual and bring your cooking skills and techniques to the whole next level.

Escape From Reality With A Good Book

How many interesting books do you have on your shelves that you haven’t read yet? Many people buy tons of great books with the best intentions to actually consume the useful information that is written in them but then fall behind in getting them to read.

There is nothing more relaxing than being immersed in literature. It helps the mind escape the stresses of daily life as well as sharpens your brain and helps boost your intelligence. You can also have fun, get inspired and actually learn something new. In fact, some of these books can be even read over the weekend. Therefore, consider setting aside some time for reading a good book. Find a quiet spot with great light, bring a cosy blanket, sit in a comfortable chair and dig in.

Plan A Staycation

You don’t need to travel hundreds and thousands of miles for adventure or a relaxing weekend. Visit your local sauna in Sydney for a relaxing time or book a hotel on the water for the weekend. With a getaway in your own city, you can still get that much-needed break, away from the strains and stresses of everyday life. Also, since most people often take for granted the cultural benefits and natural beauty of their own neighbourhood or city they live in, a staycation will you to find undiscovered beauty on your doorstep.

Spend Time Outside

Getting outside to spend some time in the fresh air and get sunbathes will truly change your mood and general well being. You can try different activities such as photography, cycling, canoeing, hiking or camping with your family. Find the one you like and consider spending part of your weekend outside!

Reconnect with Nature

You can plan a bike ride or road trip, go for a picnic or geocaching, take a walk in nature, or just try camping in your backyard. Hiking is also ideal for spending time with your family and friends. By reconnecting with nature, exploring new places and staying with your loved ones, you can take a break from the daily routine, relieve stress levels and allow yourself to experience new thoughts and fresh ideas.

Get Ready For The Week Ahead

The weekend is also a perfect time to spend a few minutes preparing for the upcoming week. Just 30 minutes of planning can dramatically increase productivity and reduce stress levels. The workweek seems a lot more manageable when you go into it with a proper plan, as all you have to concentrate on is getting all things done.

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Is this the end of trickle-down economics?

May 13, 2021

By Graham Vanbergen

The global pandemic has changed everything, highlighting the failures of economic policy that has dominated the Western world for the last 50 years. Graham Vanbergen writes that change has already arrived and that trickle down economics has effectively been killed off by the new ideals of ‘building back better’.

Trickle-down economics or ‘supply-side economics’, sometimes known as ‘Reagonomics’ and in more critical circles neoliberal capitalism has now seemingly entered the end stage of its lifecycle because it failed when tested. It failed because the pendulum swung too far. The evidence of this failure lies in the two countries that promoted it most of all – the USA and Britain.

Trickle-down economics was an ideological change in economics brought about by President Ronald Raegan and Conservative Prime Minister Margaret Thatcher in the 1980s. They believed taxes on businesses and the wealthy in society should be reduced and then restrained as a means to stimulate business investment in the short term and benefit society at large in the long term. They also believed in the idea of the free market, where prices are regulated by the negotiation of willing buyers and sellers. They actively aimed at smaller government with privatisation at its heart – taking the stance that big government was bad for everything and what was left should be deregulated.

There is a reality for this 50-year experiment in failure, and many in-depth studies have shown this to be the case.

“50 years of data concludes that trickle-down economics does not promote jobs or growth.”

An analysis published in 2012 by the Congressional Research Service found that reductions in top tax rates were not correlated with economic growth but were associated with income inequality (1). More recent studies suggest a link between trickle-down economics and reduced growth, and a 2020 study that analysed 50 years of data concluded that trickle-down economics does not promote jobs or growth and that “policymakers shouldn’t worry that raising taxes on the rich will harm their economies” (2).

Furthermore, an IMF study published in 2015 concluded that there was no evidence that cutting taxes on the wealthiest lifted the incomes of everybody. In fact, it found the reverse was true – “if the income share of the top 20 per cent increases, then GDP growth actually declined over the medium term, suggesting that the benefits do not trickle down.“

To cap all of that, the London School of Economics examined data from 18 OECD economies over the past 50 years and found that tax cuts for the rich tended to increase inequality but had no discernible effect on GDP growth and unemployment (3).

The continued focus on expanding the services sector over the 1980s, 90s and 2000s over manufacturing, especially financial services, led to more deregulation, leading directly to the bank-led financial crisis of 2008. Ten million Americans had their homes repossessed. In Britain, the national debt doubled over the following decade, and every household in the country was made £30,000 worse off for it. With it came austerity, increased deprivation, poverty, homelessness – and ultimately hopelessness. It was, of course, the deindustrialised towns and cities that felt the pain the most.

Now there is consensus by experts that trickle-down economics has had its day. The lived experience of this failure can be seen in the rust belt – a region of the Northeastern and Midwestern United States that saw industrial decline starting in the early 1980s. The same can be said about the industrial regions of the north of England.

And as the global pandemic recedes, the new rhetoric is to build back resilience. In reality, this now means reversing the failed economic ideology that Reagan and Thatcher legislated for and bring supply chains back home.

The election of Donald Trump in America and the Brexit referendum result in the UK was the desperate response of the people in these same places that were most negatively affected – known as the ‘left behind’ (4). And what they voted for was change – because the economic ideology of the day had dramatically failed them. In America, Trump promised the working class big change but doubled down on tax cuts for the rich. It didn’t work.

Both Joe Biden and Boris Johnson’s advisors have understood this. The result is that significant change really is coming to the economic management of the USA and the UK. It will come in the form of expanded government and increased taxes. The colour of the tribe makes little difference – just as it did not over the decades.

“My fellow Americans, trickledown has never worked. It is time to build America from the bottom up and middle out”

President Biden made a speech to Congress to mark his first 100 days in office. He focused on the fact that since the start of the global pandemic, some 20 million Americans had lost their jobs, highlighting at the same time that nearly 650 American billionaires had increased their combined net worth by $4 trillion. His response to this is $6 billion of government spending on welfare and infrastructure. However, the financing of this expenditure is through higher taxes on companies and the wealthiest individuals. “My fellow Americans, trickledown has never worked. It is time to build America from the bottom up and middle out,” – Biden declared. Those words truly are telling.

Two weeks after Biden’s speech, Boris Johnson declared (the same day of gains made in local elections) – “These election results are an instruction to us to keep our focus on what matters – more jobs and investment, better public services and the (northern) levelling up opportunity. There will be no let-up in levelling up.” In effect, Johnson is taking up the traditional ground of the left.

The Times newspaper reported in the same week that – “The (British) government will pledge today to put “rocket fuel” under its levelling-up agenda with a Queen’s Speech aimed at the “forgotten” 50 per cent who didn’t go to university.” Vast amounts of taxpayers money will be aimed at reversing the failed ideology of the last 50 years of neoliberal economic policy.

Biden is reversing out of the economic system as it stands. He is gambling that by increasing taxes on the wealthiest (defined as those earning more than $400,000 a year) and raising the current corporate tax rate from 21 per cent to 28 per cent, to the benefit of lower-income households, it will drive faster growth and therefore living standards. He is also focusing government spending on desperately-needed infrastructure.

In Britain, the chancellor, Rishi Sunak, has made a similar gamble with his decision to raise corporation tax by six per cent to 25 per cent in two years. Boris Johnson’s ‘levelling up’ agenda in one thing – saving the Union of the United Kingdom by spending billions on infrastructure in Scotland is another.

I keep repeating the words’ gamble’ because that is precisely what we are talking about. The last fifty years has demonstrated that economists and policymakers got it wrong. This huge change confirms it. Who knows if this latest plan will work.

However, capital seeks holes in the system to make profits – it’s what it does best. Innovation and entrepreneurialism go hand in hand. In a world of globalised opportunity, both Biden and Johnson should be wary of taxing capital. More importantly – they should enforce that due tax is paid in the first place. For instance, Amazon generated €44billion (£38bn) of revenue in Europe last year – and paid not a single cent in corporation tax (5). In Britain, 1 in 5 of the biggest corporations paid no corporation taxes. Tax dodging, also known as the tax gap, is between £40 billion (HMRC estimates) and £100 billion (independent tax experts (6).

In the USA, the tax gap recognised by the IRS is now nearly $500 billion a year. If Britain is anything to go by, that figure is likely to be much higher.

In saying all that, this is a significant change of economic policy – taxing wealth that generally sits idle and aiming its windfalls at the other end of the wealth spectrum, where it becomes more productive – is bigger than most people give credit for.

The administrations of both Biden and Johnson seem to be aware of the risks. This is because the risks of neoliberal policies – effectively a race to the bottom, the most significant threat to our national welfare and prospects, have to be replaced. Of course, this change of direction – and a new set of promises has got them both into power.

Whether this new gamble pays off is another question. National debt will inevitably continue to increase. The threat of inflation may well cause questions over interest rates in the medium to long term, and capital may seek new hunting grounds. But what all this demonstrates more than anything is that the ‘build-back-better’ agenda in the post-pandemic world also means the rules have changed, especially for economic policy. The era of trickle-down economics or neoliberal capitalism has quietly come to an end.

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About the Author

Graham Vanbergen is a publisher, author (Brexit – A Corporate Coup D’Etat), communications strategist and journalist.

References

https://en.wikipedia.org/wiki/Congressional_Research_Service
https://en.wikipedia.org/wiki/Trickle-down_economics
https://www.lse.ac.uk/News/Latest-news-from-LSE/2020/L-December/Tax-cuts-for-the-rich
https://www.amazon.co.uk/Brexit-Corporate-DEtat-Graham-Vanbergen-ebook
https://www.theguardian.com/technology/2021/may/04/amazon-sales-income-europe-corporation-tax-luxembourg
https://www.thisismoney.co.uk/money/news/article-6522913/Almost-1-5-biggest-firms-paid-year-5-got-handout-taxman.html