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In the fight against obesity and diabetes, the UAE's new sugar tax policy could be a handy arrow in its quiver
In the fight against obesity and diabetes, the UAE's new sugar tax policy could be a handy arrow in its quiver

The National

time8 hours ago

  • Business
  • The National

In the fight against obesity and diabetes, the UAE's new sugar tax policy could be a handy arrow in its quiver

The UAE's decision to switch from a fixed tax on sugary drinks to one that depends on the sugar content per 100 millilitres is a positive step in the fight against obesity and diabetes. Embedding such interventions in holistic approaches to public health is equally important, as humans will always struggle with the innate attractiveness of carbohydrates. While there are a number of ways to induce changes in people's behaviour, economists will invariably suggest using prices. In the case of convincing people to consume less sugar, that means applying a tax that makes sugar-laden commodities more expensive to purchase, also known as a 'sin tax'. This straightforward principle can be applied in different ways. The nation's leadership has long been using a holistic strategy to address the complex problems associated with poor health choices The most straightforward is applying a tax to goods that have high sugar content, which is the approach that the UAE has taken – and many other countries took in the past. The key advantage of this approach is administrative simplicity: authorities need only to determine whether a good is subject to the tax, and then to apply it. One of the most salient applications of this method is cigarettes, which cost consumers a lot more to buy than the production cost due to steep excise duties that governments around the world levy. One of the potential drawbacks to this approach, however, is that it creates an incentive for producers to redefine what constitutes a unit of the good to minimise the tax's impact. This dynamic is illustrated by the 18th-century stamp duty that the British government imposed on newspapers based on the number of pages in an issue. Editors responded by increasing the size of each page and cutting down the number of pages, spawning what is now referred to as the unwieldy 'broadsheet' newspaper. In the context of modern sugary drinks, the analogous process is producers increasing the volume of sugar in drinks either by upping the concentration or simply filling the container with more liquid. Thus, while the tax does make some people less likely to purchase sugary drinks, those who continue to purchase them may end up consuming more sugar than they would have done absent the tax. The result is a muted and potentially indeterminate net effect on the societal consumption of sugar. Governments are aware of this possibility, and some – such as Mexico and the UK – have responded by applying a tax that depends proportionately on the volume of sugar supplied in a unit of the good, rather than the binary (on-off) form that can motivate producers to increase sugar concentrations. This closing of the loophole follows in the footsteps of the highly successful application to petrol. In the earlier part of the 20th century, vehicles were taxed at a flat rate. This created an incentive to purchase bigger cars, and did not dissuade people from driving more since the tax would be paid whether the car stood stationary in your driveway or travelled 100,000 kilometres a year. Once states transitioned towards taxing petrol proportionately, drivers now had an incentive to buy smaller cars, and to use their cars less, switching to walking, cycling and availing of public transport to economise on travel expenditure. This can clearly be seen when comparing the large cars that people own and operate in a low fuel tax environment with the petite ones seen in high fuel tax countries. The UAE is aiming for something analogous to occur in the case of sugary drinks. One of the associated challenges will be administrative: measuring sugar content precisely and ensuring that producers do not fraudulently report the figure require significant resources, and reflect one of the reasons why some governments continue to prefer the flat taxes. The more serious challenge that policymakers are likely to face is that the consumption of sugary drinks makes a small contribution at best to the adverse societal outcomes they are looking to abate – obesity, diabetes, heart disease and so on. After all, several other dietary factors also play a role, as do lifestyle ones such as exercise and sleep patterns. Yet, this is a step in the right direction towards addressing some of the critical public health challenges of our time. And so, the UAE government is correct in its decision to avoid the 'drop in the bucket' fallacy, whereby people defeatedly avoid taking small steps because they believe that the impact will be negligible, even though big results are typically built on accumulated micro efforts. The nation's leadership has long been using a holistic strategy to address the complex problems associated with poor health choices, and there is no doubt that every little helps, including this sugar tax.

The AI arms race with China demands scale. The West must think bigger.
The AI arms race with China demands scale. The West must think bigger.

Japan Times

time14 hours ago

  • Business
  • Japan Times

The AI arms race with China demands scale. The West must think bigger.

Size matters. Economists have long known that; economies of scale are among the building blocks of their science. In the digital era, it quickly became apparent that value was directly proportional to the size of the network (the number of users linked by a particular technology or system). The race to create scale is critical amid the sizzling geopolitical competition over leadership in new technologies. It has assumed even greater urgency in Western capitals in the wake of China's success in that race. They've had to reconceptualize scale to overcome the advantages China has a result of the size of its economy and its population. It's a work in progress and the results are mixed, at best. For those who've forgotten their introductory economics, economies of scale are cost advantages created by expanding operations. As companies build more products, they become more efficient, reducing cost per unit. This allows them to produce even more of that product, reinforcing their competitive advantage and keep the virtuous circle turning. Importantly, size is not the same as scale. Size helps achieve scale, but scale requires efficiencies. Scale is size made meaningful. Some 40 years ago, another economist concluded that the (financial) value or influence of a network — communication devices that could talk to each other — was proportional to the square number of connected users of the system. It's a positive feedback loop: the more users there are, the merrier, and the more money comes in, since consumers pay more for more connections. The two phenomena — economies of scale and network effects — are often confused, but there is a fundamental difference between them: economies of scale are a function of production, while network effects reflect demand. The demand for scale has become an imperative in the age of artificial intelligence. Working AI demands massive amounts of compute — millions of servers running algorithms nonstop to process data — and McKinsey, a global management consulting firm, estimates that it will cost $6.7 trillion worldwide to meet that demand by 2030. Bigger isn't better: it's required, not only to produce good outcomes but to pay for them. Small companies are inherently disadvantaged in this competition since they don't have the deep pockets. The competition to develop that capacity is often likened to an arms race. Spending mirrors that dynamic, as do the consequences of coming up short. (The shock of the DeepSeek AI breakthrough was triggered as much by its cost — a fraction of what the principal AI companies were spending — as its computing success.) Pick your perspective. In the U.S.-China race, the World Economic Forum estimates that the U.S. is winning as a result of $300 billion in AI infrastructure spending in 2024, six times Chinese investment. As a result, the U.S. has 10 times as many data centers as does China and spends nearly four times more on AI servers. In the U.S.-Europe competition, the WEF reckons Europe in 2023 invested $1.7 billion in GenAI, a tiny fraction of the $23 billion spent in the U.S. The EU developed a plan to support development of the European cloud infrastructure and ponied up €1.2 billion. Hold the applause: Amazon Web Services invests more than $30 billion annually. And Japan? Stanford research put its private sector AI investment in 2024 at just under $1 billion, trailing not only the main players but regional countries such as Israel, South Korea and the United Arab Emirates. The race for scale matters. Big companies have more to invest in the R&D that keeps them at the frontiers of the tech competition. The McKinsey Global Institute found that large European firms with more than $1 billion in revenue collectively invest $400 billion a year less than their U.S. counterparts and spend only half as much on R&D. As a result, they grow one-third the speed and generate 4 percentage points lower returns on capital. It should come as no surprise that in one list of 10 critical technologies of the future, Europe leads in just two. MGI estimated that €500 billion to €1 trillion of value added could be at stake annually by 2030. That aligns with the thinking of Microsoft President Brad Smith, who warned that 'AI and cloud data centers represent the next stage of industrialization.' Mary Meeker, one of the first analysts of the digital era, and her colleagues explained that the world's biggest tech companies are spending heavily on AI, 'not just to gather data, but to learn from it, reason with it and monetize it in real time. It's still about data, but now the advantage goes to those who can train on it fastest, personalize it deepest and deploy it widest.' But remember that scale is about making innovation effective. Lab rats aren't enough; their work must be deployed and integrated into the wider economy. Here, China's industrial model matters. Pushan Dutt, professor of economics at INSEAD, the preeminent European business school, explained that 'China's AI ecosystem — marked by a lower cost structure and the availability of open-weight models — lowers barriers and enables rapid scaling and diffusion across consumer and industrial sectors.' China's pragmatic approach — one that focuses on application — facilitates the spread of technology. Its AI policies prioritize solving problems from manufacturing to services. The success of that policy is evident from its domination of new technologies like electric vehicles and solar panels. The explosive growth of China's manufacturing generally is another reflection of its scale. It has a 32% share of global manufacturing, more than five times its share at the turn of the century. In five years, the United Nations estimates that China's share will be four times that of the U.S. — 40% vs. 11%. Sure, there are complaints about overcapacity and China exporting its inefficiencies, but that is just another expression of scale. This poses singular geopolitical challenges. Rush Doshi, a China hand who served in the Biden White House, studied the global U.S. role since World War II and warns that 'China represents the first competitor with true size and scale advantages against the United States.' Writing in Foreign Affairs, Doshi and Kurt Campbell, one of the original Democratic Party Indo-Pacific strategists, promote 'allied scale' as an alternative grand strategy for the U.S. Their logic is simple: 'Strategic advantage will once again accrue to those who can operate at scale. China possesses scale and the United States does not — at least not by itself.' Working with allies and partners, the U.S. can outpace China. Collectively, the U.S. and its allies have approximately three times China's nominal gross domestic product, twice China's purchasing power adjusted for GDP and more than twice China's defense spending. They would have 1.5 to 2 times China's share of manufacturing and would dominate in patents and top-cited publications. And while China currently is the number one trading partner to as many as 140 countries, a collective of the U.S. and its allies would supplant Beijing in those rankings, with the exception of North Korea. Scale is a bipartisan solution. Kori Schake, director of foreign and defense policy at the American Enterprise Institute and a former Republican National Security Council staffer, is on board. She writes that 'without allied assistance, the United States cannot adequately surveil and protect its networks or physical infrastructure, orchestrate an elective economic penalties campaign, project power across the vast Pacific Ocean, launch high-intensity combat operations, resupply its forces or produce necessary munitions.' For some of us, this logic is obvious and unassailable. Making it work, however, requires a new approach to partnership and cooperation. At this moment, it's hard to see a recognition of the need for scale driving decision-making in the West. Barriers to cooperation are proliferating, not decreasing. During the Cold War, the West didn't scale. It didn't need to. The U.S. had allies and partners, but America did the heavy lifting on security — the new reality is reflected in today's demand for bigger contributions — and for much of that time the United States was the unquestioned economic power. Allies and partners contributed manpower, territory (for forward bases) and legitimized U.S. leadership. That wasn't scale as we think about it now. This new world demands a new perspective. Scale is an essential element of that framework: We ignore it at our peril. Brad Glosserman is a senior adviser at Pacific Forum and the author of "Peak Japan." His upcoming book on the geopolitics of high-tech is expected to be released by Hurst Publishers this fall.

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