Tag Archives: UK

Surprising statistics that may change your perception of London

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So on the day that the super cars of the super rich descended on London, it was also announced that ‘world’s greatest city‘ has more millionaires than any other city worldwide.  In addition, London now accounts for 72 billionaires – almost 10 per cent of all the billionaires in the world. Some would see this as great news, a true testament of London’s economic might and status as a global powerhouse and  – you don’t have to go far to hear this kind of rhetoric from the media and politicians nowadays.

While it is true that London alone, is currently the ninth biggest economy in western Europe and represents 22.5% of the entire UK economy, there also is another side to the city.  A side where 2.14 million people (28% of the population) live in poverty and 10% of the population own 60% of the assets, and where child poverty sits at 36% and 25% of economically active young adults (aged 16 to 24) are unemployed.  These statistics (which I came across today whilst at work), among others, make for grim reading but serve as a reminder of the stark contrasts and challenges within this ‘great’ city.

The website from which these statistics are taken (www.londonspovertyprofile.org.uk), provides a great insight into the challenges faced by the city through visualisations and summary statistics – I highly recommend a visit.  From my point of view it would be interesting to see where London ranked among the world’s cities if a full range of socio-economic indicators (such as those listed on the website) were taken into account.  It might just turn out to be the case that we have to think more carefully about how we use the term ‘great’.

Photo courtesy of Simon and his camera : Neon Westminster London City – Blended Big Ben , please consult page and licence before reproducing

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Scroungers and immigrants, a British obsession

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In recent times the UK has begun suffering with a what seems to be a social benefits and immigration neurosis. It seems that since 2009 any group seen to be taking from the state undeservedly is now a target. What started as a media fueled obsession has now been set ablaze by the government. Wide ranging reforms have been made to the welfare state and immigration, all due to the fear that someone might be getting something for nothing. However as always the situation is blown up to proportions which scarcely resemble the reality. To show this lets start with the issue of benefits.

Britain’s ‘scroungers’ and the Dependency Culture

Recently the word ‘scrounger’ has been creeping evermore into the media. The Sun for example launched its campaign to ‘Stop the £1.5 billion benefits scroungers‘ whilst the daily mail is never hesitant to remind us that there is a family with 10 kids living nearby claiming your hard earned tax money. Dealing with the general public I hear the complaints day in day out; anyone who diverges from this attitude is also generally targeted as I found out in a recent debate with a customer in my store.  In a joint report by Elizabeth Finncare and the University of Kent, the paper found that attitudes have charged in the last 20 years with more people viewing claimants as undeserving – this is backed up by the British Social Attitudes survey which find that 62% of people believe that unemployment benefits are too high and discourage work. In addition the paper found that the usage of negative vocabulary in media articles, such as the word ‘scrounger’, has increased since the recession.

So what is the reality. Well firstly, as the Prime Minister is all too happy to remind us, we are spending more than ever on welfare. As the graph below, from the guardian, shows the welfare bill has increased in nearly all areas in period 2011-12 compared to 2001-02.

Graph 1. Total Welfare Spending by type

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Source: The Guardian

This is a fact a lot of the media would like to cling to. The Sun for instance has taken pleasure in proclaiming ‘benefits have increased 20% in the last 5 years’ whilst the daily mail has cried out that benefit spending has rose by 60% since 1997/98. With such exclamations one could not be forgiven for believing that the increase in spending on welfare is the result of a long term upward trend.

Graph 2

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However as the graph above shows, when welfare spending is viewed as a proportion of GDP, the story changes. For instance in the late 1980s and early 1990s the proportion of GDP spent on welfare was over 10%. Since then it has come down to a more manageable level, with a recent increase from 2008 on wards. Why? Well recessions are a underlying cause of unemployment and unemployment means more claimants! So much for the usual George Osborne mantra of a ‘welfare state we cannot afford’.

In addition, when we measure the share of welfare paid out as unemployment benefit (% GDP) we find that the UK ranks the third lowest in Europe at 1.13% – only Italy and Slovakia rank lower.

Even more so, when we look at the rising cost of welfare in nominal terms (see graph 1) we see that it is the rising number of pensioners which has added the most to the welfare bill not the unemployed. But hang on what about all those families who feed off the state with up to 5 or more dependent children? What about Mick Philpott and his 17 children, doesn’t this bring into question the welfare state? Isn’t the welfare state encouraging those receiving benefits to have more children and become ever dependent? The data says otherwise.

In truth this is a very small problem, as the Economist explains in 2011 there were only 130 families with over ten children claiming at least one form of out-of-work benefit. Similarly only 8% of claimants had 3 children or more. The Economist then goes on to declare that current evidence shows that on average unemployed people have similar numbers of children compared to those who are employed – dispelling the myth that benefits encourage large families! In addition to this the Joseph Rowntree foundation has found that benefits do not encourage inter generational claimants.

If more evidence is needed that Britain’s ‘dependency culture’ is overstated, then take a look at a recent study by the government department for work and pensions. In a sample of 32-33 year olds who had claimed job seekers allowance (JSA) in 2010-11, over 40% had not made a claim in the previous four years. Furthermore 63% of the sample had not claimed JSA for a period of more than 6 months in those previous 4 years. This again challenges the common perception that many claimants are ultimately dependent on JSA and are part of a ‘dependency culture’.

Britain and the soft touch myth on immigration

This brings me onto the next issue of immigration and the common perception that most immigrants flock to the UK for its generous welfare system whilst giving nothing in return. In a number of key speeches David Cameron has vowed to crack down on the problem and shed the UK’s image as being a soft touch. But how serious is the problem and what would happen is we cut net immigration to zero (A recent YouGov poll found 64% of UK participants in the study wanted net immigration reduced to 0%).

Firstly it should be noted that economically, a majority of studies agree that immigrants are a benefit to the UK. For instance a recent OECD report found that immigrants make a net contribution equivalent to 1.02% of GDP or £16.3 billion. This is because the majority tend to be of working age and are therefore more economically active.  Moreover the Office of Budget Responsibility (OBR) predicts that if net immigration was reduced to zero, public sector debt would rise by £18 billion in the next five years. Increase this time span to 50 years and by 2062-63 the OBR predicts that net debt to GDP ratio could increase to 174%. To put this in perspective Greece’s current level of national debt is 161% .*

Okay, but what about the benefits these immigrants claim I hear you ask. Isn’t Britain turning into a prime location for welfare tourism? A commonly cited report by the government Department for Work and Pensions (DWP) claims that there are 371,000 immigrants claiming benefits from the state. Chris Grayling, the employment minister, has also used this statistic to highlight the issue of benefit tourism, arguing that the past Labour government opened the doors to such problems. Naturally before the study was properly analysed, the media pounced on the story with papers such as the daily telegraph proclaiming that there are, ‘370,000 migrants on the dole’.

In fact due to the statistical method used, the actual number is closer to half the cited figure*. As the DWP explicitly points out, the study shows;

These statistics do not provide a measure of non-UK nationals currently claiming benefits based on their current nationality. The statistics do provide an estimate of the number of  people currently claiming benefit who, when they first registered for a NINo (that is, first entered the labour market), were non-UK nationals. (pg. 4)

This means that the number includes migrants who may have emigrated to the UK decades ago, worked, subsequently claimed UK citizenship and unfortunately now find themselves claiming benefits. In fact the DWP estimates that 54% of the ‘370,000 migrants on the dole’ are actually UK citizens! Furthermore the report shows that the number of migrants claiming benefits unlawfully or fiddling the system is as low as 2%.  Not quite the wide scale problem that some would like us to believe.

A more useful overview of the situation is provided by economist Jonathan Portes of the National Institute of Economic and Social Research. In his post, Portes uses the data compiled by the DWP and the ONS Labour Force Survey to summarize the extent of migrant claimants in the UK. He shows that:

  • migrants represent about 13% of all workers, but only 7% percent of out-of-work claimants;
  • migrants from outside the European Economic Area (EEA) represent about 9-10% of all workers, but about 5% of out-of-work claimants
  • foreign nationals from outside the EEA represent about 4.5% of all workers, but a little over 2% of out-of-work benefit claimants.

When these claimant figures are compared to those from the native population the story changes. It turns out that migrants are much less likely to claim benefits than us Brits. This again is explicitly highlighted in DWP study which explains;

As at February 2011, 16.6% of working age UK nationals were claiming a DWP working  age benefit compared to 6.6% of working age non-UK nationals.

Yet again this challenges the misconceptions held about immigrants who come to the UK. More importantly, it should be questioned why some of our most read newspapers and senior ministers failed to highlight this.

Two closely linked issues

So what does it all mean then. To me it seems like these two issues are closely interlinked. Morally many individuals never like to see others getting something for nothing. Such feelings may also be at their strongest when nominal wages are stagnant and the cost of living is increasing – the recent YouGov polls are a testament to this. Naturally it is those at the margins who are targeted; in this case those who have lost their jobs or have recently migrated to the UK.

It seems the government has done its utmost to capitalize on this national sense of insecurity. After all reducing the size of the state is a principle goal of the conservative right. Despite this the other main political parties have also pandered to public opinion with Ed Miliband declaring his intention to tackle low skilled immigration. Overall this brings into question the idea of an informed electorate, if people were aware of the true extent of these issues would the opinion be so in favor of targeting those on the margins. Just one example of this can be seen from a revised YouGov poll (Yes I know YouGov again!) which shows when individuals are informed of the benefits of immigration their opposition to it drops. It would be interesting to see if same was true for those claiming unemployment benefits.

*It should be noted however that the OBR research makes some key assumptions. For instance it assumes immigrants tend to arrive at working age and therefore don’t require state funded education in early life. As a result they tend to make a net tax contribution until old age where they may be more inclined to return home. There is also some disagreement on whether the children of such migrants should be classified as natives – read the study for further details.

*The statistics used in the study were compiled by matching data from those who had applied for a National Insurance number with data from individuals currently claiming working age benefits. The study, as the DWP declares, therefore shows;

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Removing the World Bank Blinkers – Income Categories and Foreign Aid

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In one of my very first posts I looked at the recent decision by the UK government to cut foreign aid to India. One of the main justifications used by policy makers was that India had now reached a level of development which enabled it to fight poverty on its own. Arguably the main driving force behind this opinion was India’s graduation to middle income country status (MIC) in 2007. However these average income based measures adopted by the World Bank and OECD have rarely come under close scrutiny. Whilst income has always been highly correlated with many other development indicators, such measures can still mask many important macro level issues.

In a 2011 publication by the ODI, Jonathan Glennie highlights some of the main problems which can evolve from using such measures. Firstly, although low income countries (LICs) tend to have larger proportions of people living in poverty, the bulk of the world’s poor live in MICs. For instance in 1990 94.4% of those living on less than $1 a day were situated in LICs, however by 2008 this number had diminished to just 23.3%. This shift has been mainly attributed to the five major countries known as the PICNIs who recently graduated from LIC to MIC status. The group includes China (which reached MIC status in 1999), Indonesia (1999), India (2007), Nigeria (2008) and Pakistan (2008); all which combined account for 70% of the world’s poorest individuals.

Next Glennie explains that such measures have been criticized for being arbitrarily set with bandwidths that exhibit little rationale. For instance in table 1 we can see that the MIC category has an extremely large bandwidth.

Table 1. World Bank Income Categories

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This means that for at country at one end of the spectrum can be up to 12 times more richer than those at the the lower end. Unfortunately, as highlighted by Glennie, such categorizations can lead to countries receiving less in aid once they cross over into the MIC category. Prominent examples include Japan which has reduced the proportion of its total aid dedicated to MICs from 66% to around 34% over a ten year period. Similarly countries such as Canada and the Netherlands have cut theirs by around a third.

This highlights a worrying trend whereby aid is being shifted away from MICs despite the fact that they contain the highest number of poor individuals. The Economist also stresses this issue by stating that policymakers may soon face a dilemma where global poverty is mostly focused in countries which may be seen as rich enough to not require aid. Naturally, with the current economic difficulties,  policymakers and the media in the west will look to these arbitrary categories to justify cuts in aid.  In contrast, if more multidimensional indicators of development were accounted for such cuts would be more difficult to justify.

For instance former international secretary Andrew Mitchell has recently proposed for aid to be withdrawn from Ghana, Uganda and Zambia by stating,

“The aim of aid is to do itself out of business so it should not be needed any more. Ghana, Uganda and Zambia are countries making significant progress and are candidates.”

Both Ghana and Zambia achieved middle income country status in 2011 and Uganda is expected to reach the threshold by 2017. On this basis alone it would be easy to accept Mr Mitchell’s claim. After all the word ‘middle’ conjures up connotations of faring okay or not doing too bad. Its the center ground, not too poor but still striving for top. However look at a multidimensional indicator of development such as the UN’s Human Development Index, which takes into account statistics such as life expectancy and education, and the picture changes dramatically.

In the latest 2012 rankings all three countries rank outside of the top 100 countries, Ghana ranks 135th, Uganda 161st and Zambia 165th. With a total of 186 countries included in the measure these countries no longer reflect the middle ground. Likewise it is hard to justify that these countries are making ‘significant progress’ in relation to the rest of the world. If you click on the graph below you can also see that the countries also exhibit high levels of poverty (Y Axis),  in Zambia for instance 68.5% of the population live on less than $1.25, and score among the highest for gender inequality (X Axis) – I also added India’s position on the graph to further highlight how misleading the MIC classification can be.

Graph 1. HDI Data showing headcount poverty and gender inequality measures.

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Source: UN HDI Website

After observing these statistics it is extremely hard to accept that these countries are prime candidates for the immediate withdrawal of aid. Although they may be exhibiting high levels of economic growth and a middle income status these countries still have a long way to go when we look at a broader definition of development.

A new focus is therefore needed, policymakers must shrug their dated view that most poor people live in poor countries, this is no longer the case. Aid allocation models should no longer be modeled upon World Bank income categories. Instead they should take into account absolute levels of poverty and other social indicators of deprivation. In this sense aid should be focused on the poorest and most deprived individuals not the poorest sovereign states. After all this is the key principle for giving aid in the first place.

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We don’t make anything any more…..

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One of the most common complaints which I hear working in a machinery retail outlet is that the UK doesn’t make anything any more. Looking around the store this is an easy argument to accept, indeed most of the machinery I sell including lathes, welders and circular saws all come with a ‘Made in China’ tag. Furthermore most of the media reverts to this constant rhetoric, I have seen numerous articles posted in the media over the years foretelling the final demise of the UK manufacturing sector. So what is happening? Are we in a perpetual decline where we no longer have the ability to make anything? Such statements could be no further from the truth.

To begin with here are some interesting facts from a 2009 Price Waterhouse Coopers report that might surprise you. Firstly as of 2009 the UK was the 6th largest manufacturer in world (Some more recent measures vary between 5th and 10th)this includes large global shares within individual markets – the UK holds a 15% global share in the Aerospace sector. Secondly, UK manufacturing output had reached an all time high just before the 2008 global crisis took hold. Lastly, UK manufacturing achieved a 50% increase in labour productivity over the period 1997-2007. Although struggling due to the global downturn in the recent years, the facts show that the UK manufacturing sector is far from dead.

It can be argued that this idea that the UK manufacturing sector is in terminal decline emanates from a number of relative not absolute comparisons. When the relative figures are observed one could be forgiven for believing the above statement. For instance the graph below shows how manufacturing has contributed less and less to the national economy in recent years relative to other sectors.

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Service sector growth has far outpaced growth in the manufacturing sector in recent times. This has further led to a decline in the relative number of manufacturing jobs. In 1980 manufacturing accounted for 25% of all UK jobs, by 2008 this number had fallen to 10%. Combine these figures with the fact that the UK’s share of global manufacturing has dropped significantly in the last few decades and you are left with a national sense of pessimism regarding the manufacturing sector. Yet as the paper argues the UK has been punching well above its weight for the last century in terms of size and population. It is therefore inevitable that we are to be caught up or overtaken in relative terms by countries with more abundant natural resources and supplies of labour as the Solow growth model predicts (the theory of diminishing returns states that the introduction of one more unit of capital into a capital scarce country will lead to a greater increase in output than in a country which is in comparison capital rich).

Despite the relative decline of the manufacturing sector as a component of total GDP, it is a rather unheralded fact that UK productivity in the sector has grown by 48% over the period 1987-2007.  The gradual decline of manufacturing jobs is arguably attributable to such productivity increases and more broadly our natural progression to a knowledge economy. Better technologies and workplace practices have meant that we can now produce much more per individual worker. In an similar process which was seen in the agricultural revolution, these technologies and processes mean we require less manpower to produce the same amount of output compared to say, 1950. This fact should be celebrated, not frowned upon as it often is due to its impact upon jobs.

The manufacturing jobs of the future will not be based as much upon an assembly line but instead in the R & D departments where companies attempt to find a niche markets and thereby gain competitive advantages. This is where the knowledge economy comes in, although the UK is not gifted with large surpluses of labour as in China, it does retain a high level of human capital (the level of knowledge and know how an individual possesses) and this will be the driving force of growth in the long term as new innovations are made. So in this sense it is we should not be pessimistically stating we don’t make anything any more, we should be looking with optimism at what we will be making in the years to come.

Some additional facts of note.

  • The UK has the 3rd largest automotive industry in Europe.
  • The UK is home to the 2nd largest maker of aircraft engines in the world (Rolls-Royce).
  • The UK has the 3rd largest pharmaceutical company in the world (Glaxo-Smith Kline)
  • The UK has the 4th largest oil refining capacity in Europe.
  • The UK manufacturing sector attracted £30 billion of net foreign direct investment in 2010.

This is quite a short post as I have only just returned after from the Philippines after a 3 week trip to see my girlfriend. I have intentionally omitted some of the more crucial challenges that the sector faces to focus on what it has achieved contrary to popular belief. Furthermore it should be acknowledged that the transition to a knowledge economy requires a strong manufacturing base and the current economic crisis may threaten this.

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Thatcherism – Some hard truths

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In recent news I have been particularly concerned by the vast outpouring of sentiment for Margaret Thatcher over the past day or so. The same rhetoric has been repeated over and over again such as, “She changed the world” and, “the greatest prime minister in modern peace time“. However the most astonishing comment has to be from a fellow named David Cameron who proclaimed, “She saved our country“.

Now I am against the need to follow the standard cultural etiquette of not speaking against someone just because they have passed away. Individuals, particularly influential individuals should be judged on their contribution whether dead or alive. The ability to do this however has non-surprisingly been attacked by many Tory affiliates, for instance former Tory MP Louise Mensch has tweeted, “Pygmies of the left so predictably embarrassing yourselves, know this: not a one of your leaders will ever be globally mourned like her”.

So lets look at the facts, in 1979 when she came to power the country was experiencing double digit inflation, many major industries were in decline and trade unions had brought the country to a standstill in instances such as the winter of discontent. However by a combination of sweeping changes such as privatization, deregulation, industrial relations reform, taxation and deflationary measures the country began to find its feet again. After an initial recession the end result was what has be termed an economic miracle. The graph below shows the change in both inflation and GDP since Thatcher was elected.

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This is what David Cameron was referring to when he proclaimed Thatcher saved the nation, GDP growth averaged 3.09% in the 1980s compared to 2.07% in the 1970s. Meanwhile inflation was reduced significantly to single digit values. However all too often politicians, the media and economists focus on such indicators as a sign of development and prosperity. There is a large debate within economics whether GDP is indicator we should be targeting when considering development and well-being. For instance, economist Richard Easterlin discovered empirically that found differences in income across countries and time did not signify a change in levels of happiness and well being. However he found within countries levels of income did positively correspond with levels of happiness.  The findings which became known as the “Easterlin Paradox” led Easterlin to theorize that changes in income do not affect happiness and well-being, relative income is what really matters. In this sense individuals derive happiness from being more well off than their peers, human beings are therefore constantly trying to “Keep up with the Jones”.

In this sense it could be argued that income inequality would be a better indicator to judge Thatcher’s economic performance. During her time in power the UK’s gini coefficient, a measure of income inequality with 0 representing a situation of perfect equality and 100 a situation of perfect inequality, increased from 27.39 in 1979 to 30.54 in 1980. Now this may not seem a great amount but in comparison from 1963 to 1979 (the furthest back the data goes) income inequality had only increased from 26.3 to 27.39 despite surges in inflation.

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Other measures of income inequality by the IFS estimate the rise in income inequality to be even higher (gini coefficients and inequality measurements are usually dependent on the method used and can vary considerably).

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In the above graph we can see that the level of inequality increased by nearly 8 points from 25.3 in 1979 to 33.9 in 1990. In addition to this the level of poverty also increased substantially during Thatchers reign.

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The graph above shows that the percentage of people living below 60% of the median income increased from 13.4% in 1979 to 22.2% by the end of her reign in 1990. The webpage from which these graphs came paints an even grimmer picture such as a rising gender pay gap and record unemployment.

Thatcher’s policies such as the deregulation of the financial markets; the weakening of the trade unions; income tax cuts and the adjustment of industrial policy have all been highlighted by a number of authors as contributing to a wider gap between rich and poor. Although her policies promoted economic growth, this growth was not inclusive and the majority of the benefits accrued to the top end of the income scale. Furthermore it could be argued that the her legacy of promoting the deregulation of financial markets started a inevitable slide towards the 2008 financial crisis.

The death of Margaret Thatcher therefore leaves us to look at how we judge economic performance and development. If economic growth is all that matters then Thatcher’s reign could be considered a relative success. However if we are more concerned with the wider benefits of such growth issues of income inequality should become more prioritized.  Unfortunately this seems to have bypassed our current leader who unquestioned claimed that Margaret Thatcher saved the country. The reality is however, that in the long term, Thatcher’s policies led to a sustained increase in income inequality, decreases in social cohesion and arguably an inevitable road to economic collapse.

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Visualizing Income Inequality in the UK

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I thought I would share this image as it was the first to really draw my attention to income inequality and the massive wealth disparities in the UK. The image above taken from an article by The Atlantic represents a famous picture of income inequality construed by the Dutch economist Jan Pen. Using data from the UK in 1971, he asked us to visualize a parade of people which would take one hour to pass, however this parade would have two intriguing features. Firstly the people involved would be arranged by their levels of income – the poorest at the front leading to the richest at the back. Secondly the heights of the people in this parade would be directly proportional to what they earn. Pen asserted that the following parade would look rather peculiar. Instead of a steady progression of people with increasing heights during parade, we would observe mostly a continuous line of dwarfs and then unimaginably tall giants at the very end.

The unfortunate part about this story is that since Pen came up with this image the number of dwarfs has increased, whilst the giants have become even larger. Since the data he compiled in 1971, the UK’s level of income inequality has risen considerably. The UK’s gini coefficient, which takes a value between 0 (perfect equality) and 1 (perfect inequality), sat at 0.26 in 1979 whilst the last estimate in 2005 put the score at 0.34 (Data from UNWIDER). When the next inequality figures come out the gini coefficient is surely set to rise whilst the some early reports have suggested that income inequality is now at its highest since the 1930s. Substantial cuts to welfare, rising inflation and tax breaks for the top earners will all further add to this problem and ultimately lead to negative effects both socially and economically.

 

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