"Axis of Oil," Kennebunkport, Etc.

You guys and gals who tune in to the US-based financial news media should be familiar with the peripatetic and irrepressible Phil Flynn. This guy is simply everywhere. Until recently, I was unaware that he had a blog on the website of the firm he works for--Alaron Trading. While I don't always agree with him, he usually makes lots of lively commentary. To set the background for this week's increase in oil prices, let's get some quotes in the Wall Street Journal from (surprise!) Phil Flynn. To be honest, I see little connection between the attempted bombings in London to higher oil prices Stateside due to fears of attacks on the oil infrastructure, but here it is anyway:

"This week's rally was driven by a host of issues, from technical factors to stronger-than-expected demand to the increased threat of terror," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

"Going into the weekend, traders have to be prepared that maybe al Qaeda will attack targets other than people, perhaps an oil facility," he said.

Light, sweet crude oil for August delivery on the New York Mercantile Exchange ended 87 cents higher at $70.44 a barrel after rising as high as $71.06.

I have just added Phil Flynn's blog, the Energy Report, to my blogroll (beware that it solicits investors, though). Here are further Flynn-isms from his blog regarding this week's increase in oil prices and the tendency for certain oil-rich states to use oil revenues for furthering their geopolitical interests. Then again, has it ever been different?:

What is the biggest threat to the world energy markets and the future security of all oil consuming nations? It is of course the “Axis of Oil". And it seems as the weeks go on the "Axis of Oil” is spinning its errors [errors? Flynn does have a way with words...] faster and faster and seems to be getting to the point where they are out of control.

Who or what is the “Axis of Oil”. Well as I have mentioned before they are the countries of Venezuela, Russia and Iran. Countries that are increasingly becoming intoxicated with the power of oil. The power comes from controlling all that oil and natural gas in a world that is becoming increasingly more and more dependent upon what they have or seek to steal [and I thought I was cynical].

This week two members of the “Axis of Oil” - Russia and Venezuela - were especially active and transparent so the world can see their true colors. Venezuela nationalized their oil industry and kicked all US oil interests out. Russia is doing their best to do the same. They want to use oil not only as an economic tool but as political weapon. It was a bad week for those who care about freedom, free markets and the future security of oil and gas for consuming nations.

The most obvious assault on the rule of law and the security of the world's oil supply was the strong arm tactics used by Hugo Chavez to force US and Canadian oil companies out of Venezuela. And now Mr. Chavez is hinting that he wants to pursue nuclear weapons.

Russia and the errors they've made with oil and natural gas have been well documented. Putin, like Chavez, has little regard for the rule of law and the first sign that things were not all right with Russian President Vladimir Putin was when he took over YUKO’s. Then Russia started squeezing out Shell and BP from large oil field projects. Now Russia wants to lay claim to all the oil.

Russia is even laying claim to gas and diamonds to be found in the North Pole! This is impossible because everyone knows that the North Pole belongs to the great man himself...Santa Claus! But a report from the Daily Mail says that the Russian President and his scientists claim that an underwater ridge near the North Pole is really part of Russia’s continental shelf. I guess it's kind of the same way Saddam Hussein used to think Kuwait was part of Iraq.

This is another disturbing development from the Axis of Oil and very bullish factor the entire oil complex. Once again while the US Congress sits idly by our economic future is being divvied up and exploited by the “Axis of Oil”. Is anyone in Washington paying attention?

By the way, something to watch out for along the lines of political engagement Flynn discusses is Putin's upcoming meeting with Dubya at the Bush family's famed Kennebunkport vacation house. I assume Bush will look into Putin's soul once more. In any case, the Hudson Institute offers some talking points, not least of which is energy:

On the eve of the Bush-Putin summit meeting in Kennebunkport, four members of a Russian-American study group organized by the Hudson Institute said today that the present Russian regime is moving toward “a durable system of anti-Western authoritarian rule” and called on the U.S. to counteract this tendency by demonstrating strict fidelity to democratic principles.

Zeyno Baran, a senior fellow at Hudson, Evgeny Kiselyev, a well known Russian radio and television personality, Richard Pipes, a professor emeritus of Russian history at Harvard, and David Satter, a senior fellow at Hudson and research fellow at the Hoover Institution at Stanford said in the joint statement that “Russia is reverting to patterns of behavior characteristic of the Soviet Union.”

The four were members of a seven member group that also included Mikhail Delyagin, the director of the Institute of Globalization Studies in Moscow, Andrei Piontkovsky, a visiting senior fellow at Hudson, and Lilia Shevtsova, a senior associate at the Moscow Center of the Carnegie Endowment for International Peace.

The joint statement made the following recommendations:

• The U.S. should not reach agreements with Russia at the expense of third countries, in particular, former Soviet republics because such bargains would only open the way to “new and more outrageous demands in the future.”
• U.S. – Russian relations should be based on complete frankness. Self censorship on the part of the U.S. has not induced Russia to moderate its international behavior.
• The U.S. and the European Union should develop a strategy to prevent Russia from using energy as a political weapon, including measures to protect against the consequences of a sudden cutoff of supplies.
• The U.S. should take the commitments on the rule of law and human rights that Russia undertook in order to gain access to Western clubs like NATO, the G-8 and the Council of Europe seriously. In the event of flagrant violations, Russia should be expelled.
• The U.S. should strengthen contacts with Russian civil society, encouraging exchanges and expanding broadcasts.
• The U.S. should emphasize to Russians that, although it supports democratic institutions, the core of the U.S. position is support for moral values. This means opposing criminality, corruption, the assassination of political opponents and the reckless waste of lives in hostage situations.

The statement emphasized that, with the destruction of independent centers of power in Russia, the regime is actually fragile and the internal struggle for power opaque and uncompromising. Under these conditions, it is important for the U.S. to expand and preserve its moral capital with the Russian people.

BRICs Challenge US in Energy

The current issue of the Economist features an article on how America has been weakened by--among other things--its troubles in Iraq and Afghanistan, its diminished "soft power," and its continued abasement of the US dollar. Repeated yet again is the economic challenge of the so-called BRICs (Brazil, Russia, India, and China) countries. As Gideon Rachman has pointed out, Goldman Sachs research estimates that China will surpass the United States in real GDP terms sometime in the mid-2020s. However, the Economist did not really focus much attention on the current usurpation of the United States and Europe as well by the BRICS players in the domain of energy. The Associated Press has more on the energy angle for us:

The main challengers to U.S. economic power - Brazil, Russia, India and China - have overtaken the United States in dominating the global energy industry, according to a new study by Goldman Sachs.

The rising power of the four countries - the new economic tigers nicknamed the BRICs - is already evident in the metals and mining sector and is starting to be felt in insurance and consumer-related industries, said Anthony Ling, a managing director at the investment bank...

At the end of the first Gulf War in 1991, 55 percent of the 20 largest companies in the energy industry by market capitalization were American, and 45 percent were European, according to the Goldman Sachs Group Inc. study.

But in 2007, 35 percent of the 20 largest energy companies are from BRIC countries, about 35 percent are European, and about 30 percent are American, the study said.

"The U.S. is now lagging with the smallest percentage number of energy companies worldwide," Ling said.

"If you think about the global resource industry typically being a leader in terms of global trends, we're starting to see this replicated in the mining industry, where 20 percent of the top 20 companies are now from BRIC countries," he said. "We believe this sort of pattern will be repeated industry by industry."

It is already evident in the insurance business, where BRICs account for about 10 percent of the top 20 companies, and in the global beverage industry, where the new economic powers are just starting to show with about 5 percent. Ling predicted the BRICs would soon be moving into the food and pharmaceutical sectors.

If investors and corporations don't take the growing power of the BRICs in the global economy into account, he warned, they will lose out on investment growth and competitive advantage for their companies...

Ling, who has been involved in analyzing the energy industry for 20 years, said he did not believe anyone polled after the first Gulf War "would come remotely close" to predicting the market capitalization of the energy industry today.

"I think there's a number of factors, which I think is a very good case study for just how rapidly changing the competitive environment for most industries are," he said.

Irving, Texas-based Exxon Mobil Corp. is still the No. 1 energy company by market capitalization today, as it was in 1991, Ling said.

But he said it is now followed by the likes of PetroChina Co., a unit of state-owned China National Petroleum Corp.; OAO Gazprom, the Russian state-controlled gas monopoly; Petroleo Brasileiro SA, or Petrobras, Brazil's government-run oil company; Sinopec, also known as China Petroleum & Chemical Co.; Russian oil producers OAO Rosneft and OAO Lukoil; China National Offshore Oil Corp.; and Oil & Natural Gas Corp., India's state-owned oil company.

"So you have major state energy companies that have entered the market capitalization ranks," he said. "I think it's a combination of the U.S. energy industry falling dramatically behind the rest of the world for a number of reasons."

First, Ling said, energy production has changed.

Goldman Sachs analyzed about 170 new projects around the world, each in excess of 500 million barrels, "the so-called legacy assets that will drive production in the future," he said.

Ling said 70 percent of that new production is coming from outside the Organization for Economic Cooperation and Development, which includes the world's richest nations including the U.S., Japan, South Korea, Canada, and major European nations.

Historically, he said, the bulk of that production was coming from the U.S., Canada, Norway and Britain.

"So what has happened is there's been an enormous spate of new projects in new areas," he said.

In many cases, Ling said, "it really does look like the attitude of European and also the BRIC countries' oil companies has been very different to the more traditional-based players in the Anglo-American world - much less colonialist, much more inclusive, really working together to come up with solutions in a way that seems to have been beyond the traditional competitors."

That means "they've seen their market share of new projects grow," he said.

There's also been "a conspicuous bout of acquisition, and many of the American companies have been acquired," including Amoco and Arco by London-based BP PLC.

Another factor, Ling said, is the declining number of petroleum engineers in the U.S., especially compared with the Middle East, India, China and Russia, where "being a petroleum engineer is still a highly sought after job relative to going into technology or finance."

"I think all of those things have led to a dramatic shift in the spread of market capitalization within the energy industry - and all of that within a 15-year period," he said. "And it is simply accelerating."

It's worth keeping this perspective in mind when the Economist opines that America will bounce back again from its recent setbacks, although I remain profoundly unconvinced that these setbacks are due largely to mistakes made by Bush as the magazine wants us to believe. Rather, these challenges to American hegemony have been building well before Bush came in, IMHO. The removal of Bush from office will not restore diminished US hegemony overnight:

If America were a stock, it would be a “buy”: an undervalued market leader, in need of new management. But that points to its last great strength. More than any rival, America corrects itself. Under pressure from voters, Mr Bush has already rediscovered some of the charms of multilateralism; he is talking about climate change; a Middle East peace initiative is possible. Next year's presidential election offers a chance for renewal. Such corrections are not automatic: something (a misadventure in Iran?) may yet compound the misery of Iraq in the same way Watergate followed Vietnam. But America recovered from the 1970s. It will bounce back stronger again.

Living Without "Made in China"

Reuters has an interesting recent story of an American family trying to live (survive?) without buying any stuff made in China for a year. This story coincides with the release of a new book by Sara Bongiorni entitled A Year Without "Made in China": One Family's True Life Adventure in the Global Economy. Her family's story is featured in the book. My initial thought upon reading the title of this thing was, "well, that's impossible" as that nation has become the workshop to the world. Ultimately, Bongiorni comes to nearly the same conclusion as she ends her quest. Although several recent books have provided thoughtful accounts on China's rise as an economic power, this one seems to bring globalization to light in a different, more personal manner. In my opinion, though, the questions we all must confront sooner or later are the following and you can easily add several more:

• Do our purchases enable a regime noted for its human rights abuses to escape scrutiny?
• By transferring manufacturing industries to China, are we complicit in making it a pollution haven whose pollution problems we must eventually confront anyway?
• Should China be prodded on labor rights, or is this prodding mere cover for Western protectionism?

There are no easy answers to these questions, and they are well worth pondering as they will help determine our collective future. Hopefully, the book provides more food for thought. I suspect though that it may be less than overtly critical of China as the Reuters story has been featured by the Party mouthpiece China Daily. Perhaps its emphasis on seeking a middle ground to "China-bashing" pleased China's platoon of censors:

Lamps, birthday candles, mouse traps and flip-flops. Such is the stuff that binds the modern American family to the global economy, author Sara Bongiorni discovers during a year of boycotting anything made in China.

In "A Year Without 'Made in China,"' Bongiorni tells how she and her family found that such formerly simple acts as finding new shoes, buying a birthday toy and fixing a drawer became ordeals without the Asian giant.

Bongiorni takes pains to say she does not have a protectionist agenda and, despite the occasional worry about the loss of U.S. jobs to overseas factories, she has nothing against China. Her goal was simply to make Americans aware of how deeply tied they are to the international trading system.

"I wanted our story to be a friendly, nonjudgmental look at the ways ordinary people are connected to the global economy," she said in an interview before the book appears in July.

As a business journalist in Baton Rouge, Louisiana, Bongiorni wrote about international trade for a decade. "I used to see the Commerce Department trade statistics, the billions of dollars, and think it had nothing to do with me," she said.

The reality was far different.

As the year unfolded, "the boycott made me rethink the distance between China and me. In pushing China out of our lives, I got an eye-popping view of how far China had pushed in," she wrote.

About 15 percent of the $1.7 trillion in goods the United States imported in 2006 came from China, economist Joel Naroff writes in the foreword. Much of that is the manufactured stuff that fills Wal-Mart and other retailers -- the necessities and frivolities sought by lower- and middle-income Americans.

Lower prices have been one benefit of Beijing's rise and make it very hard for consumers to forswear Chinese imports...

For all of 2005, minor purchases required dogged detective work as Bongiorni scoured catalogues and read labels.

She repeatedly struck out trying to buy inexpensive shoes for her son, and even the chic local boutique that sold fancy European labels had gone out of business. So she shelled out $68 for Italian sneakers from a catalogue.

Broken appliances gathered dust because the spare parts came from China. And, with the Asian country having a near lock on the toy aisles, her 4-year-old son grew tired of taking Danish-made Legos to birthday parties as gifts...

Bongiorni got a lesson in the global economy after products advertised as Made in USA turned out to have Chinese parts. She decided to keep a lamp with just this problem after speaking to the manufacturer and learning how China is "eating the lunch" of the few U.S lamp producers left.

Since the boycott's end, Bongiorni has chosen a middle ground. Her family seeks alternatives but accepts Chinese products when most practical. But one habit from the boycott remains: It required her to think hard about what she buys.

"Shopping became meaningful," she said.

Rupert Murdoch, "The Last Tycoon"

The latest issue of TIME Magazine has an extensive feature on Rupert Murdoch that you might be interested in, especially if you read the previous post I featured on his China offensive. Here, TIME discusses in more detail Murdoch's attempts to win over Dow Jones' Bancroft family, which has owned the firm for over a century:

Two months earlier, at a secret March 29 breakfast in the News Corp. building, Murdoch had told Dow Jones CEO Richard Zannino about his $60-a-share offer for the company — a staggering price for a stock that had been trading around $36. But the family that has controlled Dow Jones for more than 100 years, the Bancrofts, at first rejected Murdoch's bid because some of its members loathed his tabloid style and feared he would trample the Journal's independence. The family haggled for two weeks over a proposal designed to buffer the Journal's newsroom from Murdoch. A few hours earlier on this Friday afternoon, Zannino had called Murdoch to say the proposal was finally on its way — and Murdoch had gathered that he'd be pleased with it.

It didn't turn out that way. Murdoch hated the proposal. In his view, it would give the Bancroft family more involvement over the Journal after they sold it than they had exercised before. So he rolled up his sleeves and started working the phones, making his feelings known to key players in the deal, turning up the pressure and threatening to pull his offer — a move that would have sent Dow Jones stock plummeting back to earth. "Dave, you can put the $5 billion away," he told News Corp. CFO Dave DeVoe. He consulted with three advisers about whether to withdraw: group general counsel Lon Jacobs and corporate-affairs chief Gary Ginsberg, who were in the room, and his son and News Corp. heir apparent James Murdoch, the CEO of News Corp.'s European satellite-TV system, who called in from a yacht near Valencia, Spain. Murdoch wanted to jolt the Bancroft family back to reality, and if the deal was going to die, he wanted to be the one to kill it. "If we clean this up to our satisfaction, the family will reject it. So why don't we just reject them?" The phone buzzed again. Zannino was on the line.

"Hello, Rich. I've read it," Murdoch said. "I don't know what you were thinking." He walked through all the ways the proposal was unacceptable. "Oh, yes, we reject this."

As it turned out, Murdoch didn't have to withdraw his bid. The threat of pulling was enough to get the family to budge. Within days, Murdoch and the Dow Jones board had agreed on an independent editorial-oversight committee; a sufficient percentage of the Bancrofts were expected to agree as well, though that wasn't a sure thing. Any deal can blow apart at any time, and this one was especially combustible, but what seems clear is that the Bancrofts, whose Class B supervoting shares give them effective control of Dow Jones, would now find it difficult to pull back from selling their cherished newspaper and the company that owns it.

Should the deal close as expected, Murdoch — the ultimate outsider, the ink-stained interloper who started in 1953 with a single paper in Adelaide, Australia — would add capitalism's daily chronicle to an empire that now comprises the Fox movie studio and television network, satellite TV systems in Europe and Asia, more than 100 newspapers and a fast-growing Internet division that includes MySpace, the massively popular social networking site. Two years ago, Murdoch's archrival, Sumner Redstone of Viacom, thought he had a deal for MySpace, but News Corp. swooped in and snatched it, bidding $580 million, $30 million more than Redstone and far more than anyone else thought it was worth. Then the site grew from 20 million members to almost 200 million, Google paid $900 million for the right to advertise on the site, and suddenly Murdoch's price looked cheap — and Murdoch looked like an Internet visionary. "I love being called that," he says, "but the truth is, I'm just lucky and nimble." He generates his own good fortune by being perhaps the most gifted opportunist in media, a man whose nose for a deal makes him the last of the true media moguls, the one who's still building — grabbing Dow Jones, dreaming about trading MySpace for a big chunk of Yahoo!, trying to launch a Polish TV network. News Corp.'s voting stock, of which the Murdoch family owns 31%, has gone up 18% in the past year, making him worth $9 billion...

Murdoch has invested billions in newspapers when few others were willing, but he has also kept them alive through a lowest-common denominator approach typified by the trashy Sun, with its topless Page 3 girls on the breakfast tables of a million Britons. Murdoch wouldn't be Murdoch if he didn't love sticking it to sanctimonious J-school toffs. "When the Journal gets its Page 3 girls," he jokes late one night, "we'll make sure they have M.B.A.s."

Egadzooks! Does Murdoch purchasing Dow Jones mean that we'll soon be seeing Page 3 Girls in the esteemed WSJ? We already have the CNBC "business" news channel, don't we? Martin Wolf doesn't suggest this may happen, but is concerned that it will move downmarket nonetheless. For once, Wolf doesn't sing the praises of markets:

Rupert Murdoch is a great businessman. The Wall Street Journal is a great newspaper. Which of these reputations is likely to survive Mr Murdoch’s prospective purchase of the Journal? Despite the high price he offers, “his” is the plausible answer.

Business magazines and business television stand on the shoulders of the few newspapers that do the reporting, and analysis, day in and day out. The Journal is the world’s leader, if only by circulation. It is also two papers in one. Its news coverage is independent, questioning and authoritative. Its research is superb and its editing professional. Meanwhile, its editorial pages are the engine of US conservatism [TRANSLATION: it is a neocon bastion].

The WSJ’s readers should imagine what their world would be like if it disappeared. The obvious response is that the WSJ is not threatened with disappearance. But it is threatened, instead, with inclusion in the world’s most dynamic media empire. There it will reside alongside such beacons of excellence as the UK’s News of the World and the New York Post.

Why should that matter? After all, Mr Murdoch owns some better products: the perennially lossmaking London Times, for one, and the more profitable Sunday Times, for another. Many admired former colleagues of mine work for News International.

Yet I wonder how many even of his admirers would argue that Mr Murdoch, for all his successes, has created even one serious, authoritative and truly independent newspaper. That is not what Mr Murdoch is about. He is a populist, a lover of tabloids and a brilliant businessman. We already know three things about his influence on his publications.

The first is that the editorial line will almost certainly be pro-business and conservative. In the case of the WSJ, this would mark no change from its present line [well, duh]. That was untrue in the case of the New York Post, to take a celebrated earlier example. Indeed, since Mr Murdoch is sensitive to changes in the political mood, he may take the WSJ’s editorial line to the left (it can hardly be taken to the right). But wherever it ends up, it is unlikely to be as independent.

The second thing we know is that the paper is likely to become shriller and more populist, across the board. Down-market is the direction Mr Murdoch knows. That has been the direction in all of his publications with which I am familiar. Mr Murdoch can take substantial credit for the tide of vulgarity that now floods the UK. For good or ill, he has helped transform my country...[Murdoch has blighted Blighty?]

...Many newspapers exist to entertain. Business papers exist to inform. Any doubt about the accuracy and independence of their coverage destroys their value as tools. Such questions are, in this case, inevitable.

A notionally independent board can be created to protect editors’ independence, as at The Times. But in the end, editors must be aware of the interests and prejudices of the people who employ them. In some cases, they can be sure that the owner will not interfere. Where Mr Murdoch and a paper as influential as the WSJ are concerned, how credible could that belief possibly be?

A cynical employee of the FT might argue that any faltering of the Journal can only be to its benefit. I am not that cynical. The world needs at least two respected, editorially independent and authoritative English-language business papers. One is too few. None would be a catastrophe. Great newspapers are more than just businesses. They provide the public good of reliable information on which our knowledge-intensive society depends. Competitive markets do not provide public goods well. We may discover quite soon just how bad at it markets can be.

Paulson on Private Equity + Hedgies

The clip above from the Wall Street Journal Deal Journal shows Treasury Secretary Henry Paulson defending the status quo of tax treatment for private equity and hedge funds at the WSJ's "Deals & Deal Makers Conference" [yes, well, what did you expect?] If you will recall, a raft of legislation on limiting the perceived tax advantages gained by private equity and hedge funds has made the news.

Democrats in the U.S. House of Representatives introduced a bill on Friday that would more than double taxes on the pay of managers of private equity funds, hedge funds and other investment partnerships.

Throwing down a challenge to some of the nation's savviest and richest financiers, the bill would set a higher tax rate for "carried interest." That is the 20-percent cut of profits beyond targeted returns typically kept by senior managers of private equity firms and other firms on major transactions.

The bill, introduced with the backing of two senior Democratic committee chairmen, ratcheted up a confrontation between Congress and the booming private equity sector, a driving force behind a global surge in corporate buyouts.

Under present law, carried interest is taxed at the 15-percent capital gains tax rate, not the income tax rate of up to 35 percent. The low tax rate makes carried interest a key source of vast fortunes for private equity's top ranks.

"Congress must ensure that our tax code is fair," said Michigan Democrat Sander Levin, one of the 14 lawmakers who introduced the bill.

"We have to be sure that the lower capital gains tax rate is not being inappropriately substituted for the tax rate on wages and earnings," Levin said in a statement.

Joining Levin in introducing the bill were Ways and Means Committee Chairman Charles Rangel of New York, and Financial Services Committee Chairman Barney Frank of Massachusetts...

Citing concerns about the Blackstone IPO, Senate Finance Committee leaders last week introduced a bill they say would close a loophole that allows private equity firms to float as publicly traded partnerships without paying corporation taxes.

The bill was co-authored by Finance Committee Chairman Max Baucus and senior Republican Charles Grassley. It would require publicly traded partnerships deriving income from investment adviser and asset management services to pay the corporation tax rate instead of the capital gains rate.

The Deal Journal adds the following commentary:

Private-equity honchos’ worried that the tax man is coming after them have a powerful ally: Henry Paulson.

At The Wall Street Journal’s Deals & Deal Makers Conference, the Treasury Secretary made it clear he is opposed to emerging efforts in Congress to raise taxes on publicly traded private-equity firms and hedge funds and the people who run them. Paulson was asked by the WSJ’s David Wessel about moves afoot in Washington that could raise the taxes private-equity executives pay to the ordinary-income rate from the lower capital-gains rate.

“This is not the approach that I believe makes sense,” Paulson said. “I don’t think it makes sense to single out one industry.”

(Speaking of private equity, here’s what Paulson had to say about the turmoil sweeping the leveraged-credit markets: “I clearly believe this is a wake-up call to focus on some of the excesses.” He specifically mentioned so-called covenant-light loans that give investors fewer protections against default. )

Paulson’s comments echo Glenn Hubbard, the Columbia Business School Dean and former Bush administration economic adviser. He said in an earlier appearance at the gathering that “the last time we tried to personalize the tax code we got the AMT.” He was referring, of course, to the Alternative Minimum Tax, the provision of the tax code put in place nearly four decades ago to clamp down on tax breaks for rich individuals.

With the Bush administration’s chief spokesman on such matters pooh-poohing higher taxes for private equity, Senators and members of Congress trying to “level” the income-tax playing field may have a high hurdle to clear.

Bloomberg also has more on Paulson's defense

Treasury Secretary Henry Paulson warned that raising taxes on hedge funds and buyout firms may have ``unintended consequences'' and said Congress shouldn't ``single out'' firms that go public, such as Blackstone Group LP.

``I don't believe it makes sense to single out one industry,'' Paulson said when asked about proposed legislation at a conference hosted by the Wall Street Journal in New York. Senate legislation would force Blackstone to pay taxes at corporate rates of 35 percent instead of as a partnership, with a burden as low as 15 percent. ``We need to be careful dealing with something like this piecemeal,'' Paulson said.

Paulson, the former chief executive officer of Goldman Sachs Group Inc., was the second senior Bush administration official today to raise concerns about efforts to increase taxes on many hedge funds and buyout firms. White House spokesman Tony Snow also suggested the administration will oppose such an effort.

``This is not an administration that's predisposed toward tax increases,'' Snow told reporters this morning. He said at a later briefing that he was speaking generally and wasn't addressing specific legislation. ``We're going to take a look at what Democrats have to offer,'' he said...

Shares of Blackstone, which traded as low as $29.13 about 15 minutes before Snow's first remarks, jumped 3.5 percent to more than $30.40 afterward. Shares of Fortress Financial Group LLC, the first hedge-fund manager to go public in February, increased as much as 6.2 percent after Snow's remarks. Shares of Blackstone fell 83 cents, or 2.7 percent, to close at $29.92 at 4 p.m. in trading on the New York Stock Exchange. Fortress shares gained $1.18, or 5.32 percent, to close at $23.25.

The tax structure of such funds has drawn congressional attention in the wake of billion-dollar paydays for fund managers.

The Senate legislation, introduced June 14 by Finance Committee Chairman Max Baucus, a Montana Democrat, and Charles Grassley, an Iowa Republican, would stop financial firms that become publicly traded partnerships from using a 20-year-old law that allows publicly traded investment firms that derive 90 percent of profits from passive investments to pay lower taxes.

The broader June 22 House legislation, backed by top Democrats, would tax the share of profits that managers receive for investment services at ordinary income-tax rates as high as 35 percent and affect all partnerships, public and private. Currently, that income, known as ``carried interest,'' is taxed at capital-gains rates as low as 15 percent.

The House bill, initiated by Representative Sander Levin, a Michigan Democrat, would also affect other partnerships, including those that invest in commercial real estate and oil and gas pipelines as well as venture-capital firms.

Although Paulson was asked about the Senate bill, he didn't distinguish between the two measures in his comments. More broadly, he said higher taxes on hedge funds and buyout firms would potentially affect other industries that use the partnership model. He also said the issues should be studied in the context of broader tax reform.

``We have tended to single out companies and industries to respond to the pressures of the moment,'' he said. ``We need to think comprehensively. We need to be careful of unintended consequences.''

Baucus and Grassley issued a joint statement later in response to Paulson's comments, saying their legislation is intended to equalize tax treatment, not target any one industry.

``We're simply clarifying that private equity firms and similar businesses should not receive special treatment in the tax code,'' they said. ``No one group of businesses should gain an edge over its competitors by subverting congressional intent and claiming a tax status for which they do not qualify.''

The Levin proposal is supported by House Ways and Means Committee Chairman Charles Rangel of New York and Financial Services Committee Chairman Barney Frank of Massachusetts.

Frank said fund managers are getting undue benefits from the tax code.

``I think they are getting a tax reduction they don't deserve,'' he said in an interview yesterday. ``I don't think you should be getting a capital-gains tax for managing other people's money.''

Levin's proposal has drawn sharp criticism from trade groups representing partnerships.

``It is a blow to capital formation,'' Jeffrey DeBoer, president and chief executive officer of the Real Estate Roundtable, wrote in a letter yesterday to Levin.

Lisa McGreevy, executive vice president of the Washington- based Managed Funds Association, the primary lobbying group representing hedge funds, said last week ``this is not about compensation for services. This is about the nature of long-term investment and capital formation.''

Earlier in the day, Michael Graetz, a Yale University tax professor who served in the tax department of President George H.W. Bush's Treasury Department, endorsed both the Senate measure and the Levin bill.

``I think it's odd'' that fund managers pay lower taxes on their labor income than their secretaries, Graetz told the Senate Finance Committee in Washington.

To nobody's particular surprise, the Bush administration has signaled that it will likely veto legislation aimed at reducing tax advantages for private equity and hedge fund operators. Paulson does represent the interests of the financial services industry. Remember, too, that 9 out of the top 10 contributors to the Bush re-election campaign were from the financial services industry. It's about par for the course whether you buy the official line that these operators diversify risk and create new opportunities for investors or not.

Policing Human Trafficking

This informative guide on the policing of human trafficking comes from, of all places, the International Association of Chiefs of Police. As human trafficking is a widespread problem, however, the IPE Zone is obligated to cross interdisciplinary boundaries to bring you the latest from whatever field. Contained herein are advice on the following:

• Definitions of human trafficking and the various forms of exploitation
• Distinctions between trafficking and smuggling
• Dynamics of human trafficking and the traumatic effects upon victims
• Strategies for victim identification and assistance
• Methods for effective response and investigation
• Avenues for legal assistance and visa provisions under federal law
• A pocket card for quick reference

This illustration sets out the three elements of human trafficking discussed in the paper:

Upcoming Water Wars in Asia

China's relentless attempts to muzzle all dissent in Tibet may strike some as unnaturally harsh, especially when it comes to dealing with the Dalai Lama. The International Herald Tribune, however, points out that Tibet has great strategic significance as its glaciers are the wellspring for many of the region's major bodies of water. Water is not especially abundant in Asia, and quarrels over this precious natural resource are set to ratchet up as countries become more progressive and demand more water. China's continued exploration of damming projects has naturally elicited complaints from countries that lose out from rerouting of rivers to benefit the Chinese (don't you dam that river):

The sharpening Asian competition over energy resources has obscured another danger: Water shortages in much of Asia are becoming a threat to rapid economic modernization.

Water has emerged as a key issue that could determine if Asia is headed toward cooperation or competition. No country would influence that direction more than China, which controls the Tibetan plateau, the source of most major rivers of Asia.

Tibet's vast glaciers and high altitude have endowed it with the world's greatest river systems. Its rivers are a lifeline to the world's two most-populous states - China and India - as well as to Bangladesh, Burma, Bhutan, Nepal, Cambodia, Pakistan, Laos, Thailand and Vietnam. These countries make up 47 percent of the global population.

Yet Asia is a water-deficient continent. Although home to more than half of the human population, Asia has less fresh water - 3,920 cubic meters per person - than any continent other than the Antarctica.

The looming struggle over water resources in Asia has been underscored by the spread of irrigated farming, water-intensive industries and a growing middle class that wants high water-consuming comforts like washing machines and dishwashers. Household water consumption in Asia is rising rapidly, although several major economies there are acutely water-stressed...

While intrastate water-sharing disputes have become rife in several Asian countries - from India and Pakistan to Southeast Asia and China - it is the potential interstate conflict over river-water resources that should be of greater concern.

This concern arises from Chinese attempts to dam or redirect the southward flow of river waters from the Tibetan plateau, starting point of the Indus, the Mekong, the Yangtze, the Yellow, the Salween, the Brahmaputra, the Karnali and the Sutlej Rivers. Among Asia's mighty rivers, only the Ganges starts from the Indian side of the Himalayas.

The uneven availability of water within some nations has given rise to grand ideas - from linking rivers in India to diverting the fast-flowing Brahmaputra northward to feed the arid areas in the Chinese heartland. Interstate conflict, however, will surface only when an idea is translated into action to benefit one country at the expense of a neighboring one.

As water woes have intensified in its north owing to intensive farming, China has increasingly turned its attention to the bounteous water reserves that the Tibetan plateau holds. It has dammed rivers, not just to produce hydropower but also to channel the waters for irrigation and other purposes, and is presently toying with massive inter-basin and inter-river water transfer projects.

After building two dams upstream, China is building at least three more on the Mekong, stirring passions in Vietnam, Laos, Cambodia and Thailand. Several Chinese projects in west-central Tibet have a bearing on river-water flows into India, but Beijing is reluctant to share information.

Having extensively contaminated its own major rivers through unbridled industrialization, China now threatens the ecological viability of river systems tied to South and Southeast Asia in its bid to meet its thirst for water and energy.

The idea of a Great South-North Water Transfer Project diverting river Tibetan waters has the backing of President Hu Jintao, a hydrologist. The first phase of this project calls for building 300 kilometers of tunnels and channels to draw waters from the Jinsha, Yalong and Dadu rivers, on the eastern rim of the Tibetan plateau.

In the second phase, the Brahmaputra waters may be rerouted northward, in what be tantamount to the declaration of water war on lower-riparian India and Bangladesh. In fact, Beijing has identified the bend where the Brahmaputra forms the world's longest and deepest canyon just before entering India as holding the largest untapped reserves for meeting its water and energy needs.

Rupert Murdoch's China Offensive

Here's an interesting article on Rupert Murdoch's attempts to spread his media empire to the Middle Kingdom by building up guanxi with the Chinese leadership and business elite. Having done so already in the UK, Australia, and the US, Murdoch mixes the personal with business in pursuit of profit$ in China. His Chinese wife, Wendi, figures large in his charm offensive to enter the Chinese media market. The Chinese leadership seems to cotton up to Mr. Murdoch more than most media barons as he is willing to parrot the Party line and muzzle his operations accordingly. From the New York Times:

Many big companies have sought to break into the Chinese market over the past two decades, but few of them have been as ardent and unrelenting as Rupert Murdoch’s News Corporation.

Mr. Murdoch has flattered Communist Party leaders and done business with their children. His Fox News network helped China’s leading state broadcaster develop a news Web site. He joined hands with the Communist Youth League, a power base in the ruling party, in a risky television venture, his China managers and advisers say.

Mr. Murdoch’s third wife, Wendi, is a mainland Chinese who once worked for his Hong Kong-based satellite broadcaster, Star TV. Her role in managing investments and honing elite connections in China has underscored uncertainties within the Murdoch family about how the family-controlled News Corporation will be run after Mr. Murdoch, 76, retires or dies.

Regulatory barriers and management missteps have thwarted Mr. Murdoch’s hopes of big profits in China. He has said his local business hit a “brick wall” after a bid to corral prime-time broadcasting rights fell apart in 2005, costing him tens of millions of dollars.

But as he seeks to buy Dow Jones, the parent company of The Wall Street Journal, his track record in China has attracted attention less because of profits and losses than for what it shows about his management style.

Mr. Murdoch cooperates closely with China’s censors and state broadcasters, several people who worked for him in China say. He cultivates political ties that he hopes will insulate his business ventures from regulatory interference, these people say.

In speeches and interviews, Mr. Murdoch often supports the policies of Chinese leaders and attacks their critics. A group of China-based reporters for The Journal accused him in a letter to Dow Jones shareholders of “sacrificing journalistic integrity to satisfy personal and political aims,” a charge the News Corporation denies.

His courtship has made him the Chinese leadership’s favorite foreign media baron. He has dined with former President Jiang Zemin in the Zhongnanhai leadership compound in Beijing and repeatedly met other members of the ruling Politburo in Beijing, New York and London. Television channels affiliated with Mr. Murdoch beam more programming into China than any other foreign media group.

“The reality is that the Chinese government is not going to let anything radical happen in media,” says Gary Davey, an Australian who once ran Star TV for Mr. Murdoch. “But we got a lot farther than anyone else did...”

China has never been a make-or-break proposition for the News Corporation, since its operations here represent a small part of the company, which is valued at $68 billion. But Mr. Murdoch pushed for nearly 15 years to create a satellite television network that would cover every major market in the world, including China.

He coveted the $50 billion in ad spending that flows mainly to China’s state-owned news media whose products, even after years of improvements, still reflect propaganda directives as well as consumer demand...

The News Corporation and its joint venture partners controlled 9 of the 31 foreign channels, including news, movies, music videos and sports, more than any other foreign media company. Officially, however, it could still reach only government and foreign compounds and luxury hotels, as well as homes in Guangdong. Mr. Murdoch wanted more.

Good news appeared to come in 2004. The authorities began allowing Chinese-foreign joint ventures to produce shows that could be broadcast locally without the restrictions that apply to overseas content.

Mr. Murdoch interpreted the order liberally. The News Corporation allied itself with a state-run broadcaster in the western province of Qinghai. The arrangement covered not only production but also distribution. Through middlemen, the News Corporation also purchased prime-time slots in 25 Chinese provinces. It had become a backdoor national broadcaster.

Aware that the venture pushed the limits of what regulators allowed, the News Corporation sought to arrange political cover, people involved in arranging the deal said. It recruited a media and stock market entrepreneur named Ding Yuchen to join the venture as a partner. Mr. Ding’s father, Ding Guangen, was the longtime propaganda chief. A second partner was the Central Committee of the Communist Youth League, considered the political power base of China’s new top leader, Hu Jintao.

Scrutinizing Sovereign Wealth Funds

Unocal, Global Crossing, P&O...the list of American firms that have been prohibited from being owned by foreign investors supposedly for security reasons runs long. Two recent features have made me think about this issue once again. As you know, America keeps on piling on debt, yet expects foreigners to remain content with buying relatively low-yielding US bonds instead of equity stakes in American companies. However, the recent trend of bigtime reserve accumulators creating "sovereign wealth funds" (SWFs) to invest these proceeds in equities is bound to again rouse, shall we say, protectionist passions in America. Let us begin with Sebastian Mallaby of the Washington Post on the next battleground over globalization--you guessed it, sovereign wealth funds:

The next globalization battle lurks over the horizon, but you can already guess its contours. It will be shaped by two revolutions in finance and business: the growth of vast government-controlled investment funds abroad and the muddled progress toward shareholder democracy in this country. Taken together, these changes will give foreign governments a say in how corporate America is run. Lou Dobbs is going to love this one.

The rise of government investment funds suddenly preoccupies financiers. Treasury officials who never before gave a thought to these outfits now want them on their speed dials. Five years ago, governments were sitting on $1.9 trillion in foreign currency reserves, which was roughly what they needed to stave off financial crises. Now they have $5.4 trillion, way beyond their prudential needs and more than triple the amount in the world's hedge funds. Increasingly, this cash is being moved into "sovereign wealth funds," which have come from obscurity to manage assets worth an additional $1.6 trillion.

These reserves are likely to keep growing. A big chunk of the expansion has occurred in energy-exporting states, and the prices of oil and natural gas show no signs of falling. High energy prices explain why Russia's government, which had negative assets at the time of its default in 1998, now has reserves worth $315 billion, plus an investment fund worth $90 billion. They explain why Nigeria, which pleaded poverty and secured debt relief as recently as 2006, is now sitting on reserves of $80 billion. The Kuwait Investment Office is rumored to manage $500 billion, and the United Arab Emirates has an investment fund worth perhaps $1 trillion (the Arabs won't disclose the real numbers).

The second motor behind sovereign funds is the global trade imbalance. East Asia's exporters rake in dollars that they convert into domestic currency, and the dollars wind up in the region's central banks: China has accumulated an astonishing $1.2 trillion in foreign currency reserves and Japan around $900 billion. Even though the U.S. trade deficit is starting to shrink, it remains huge by historical standards. The flip side is that East Asia's trade surpluses will persist, and the region's central banks will bulge with yet more money.

When central banks amass reserves, they park them in U.S. Treasury bills and risk-free bonds issued by other rich governments. But the buzz about sovereign wealth funds signals that this is changing. The newly wealthy governments are following forebears that grew rich a generation back -- the Gulf states, Singapore, Norway. They want a better return on their savings than they can get from Treasury bills, so they are going to invest in companies.

This need not be sinister. As former Treasury secretary Lawrence Summers argues in the new book "Sovereign Wealth Management," a government that fails to invest excess reserves in corporate assets is irresponsible. Sovereign wealth funds can professionalize the management of national wealth, argues the book's editor, Jennifer Johnson-Calari of the World Bank. A generation ago, the government of Sao Tome might have hidden its oil revenue in Swiss accounts. Today it is consulting the state government of Alaska about sound and transparent management.

But the political backlash is already beginning. China just bought a $3 billion stake in Blackstone Group, the American private-equity firm that sold a chunk of itself to outside investors last week. Blackstone's IPO was controversial even without the China connection -- private-equity firms are already viewed as the engines of ruthlessly competitive global capital, and now they are allied with the engine of ruthlessly competitive global labor. Sen. Jim Webb (D-Va.) raised the predictable red flag. Blackstone may own firms with sensitive national-security information, the senator maintained; therefore, the Chinese investment in Blackstone should have been delayed by regulators.

Imagine Webb's protests if the Chinese do what they say they will do: emulate one of Singapore's national wealth funds, Temasek Holdings, which buys direct stakes in foreign companies without going through a middleman such as Blackstone. Chunks of corporate America could be bought by Beijing's government -- or, for that matter, by the Kremlin. Given the Chinese and Russian tendency to treat corporations as tools of government policy, you don't have to be paranoid to ask whether these would be purely commercial holdings.

If you will recall, I recently posed the question of whether the IMF is America's lackey after the Fund announced that it will monitor "misaligned" currencies more hawkishly. Perhaps this next article from the Financial Times will convince you that the affirmative is the right answer. Echoing the US, the IMF is now voicing its concern over the governance of these SWFs...

The International Monetary Fund has joined calls for greater scrutiny of state- controlled sovereign wealth funds, which it said lacked transparency and could pose risks to financial stability.

Simon Johnson, the IMF’s chief economist, expressed concern that “increasing numbers of financial flows are going through black boxes”, such as sovereign wealth funds. “We don’t know what happens and we should worry about that.”

His comments followed last week’s public warning by the US government that the spread of sovereign wealth funds could create new risks for the international financial system.

Clay Lowery, acting under-secretary for international affairs at the US Treasury, called on the IMF and the World Bank to develop a set of best-practice guidelines for such state-owned funds, which invest excess foreign exchange reserves.

Speaking in Frankfurt on Tuesday, Mr Johnson said the IMF was still at the early stages of its investigations but that the concerns were comparable to those expressed over the rapid growth of hedge funds.

“I think that what the US is calling for is a similar debate on sovereign wealth funds,” he said.

Morgan Stanley has estimated the total assets of Chinese, Russian and Middle Eastern state-controlled funds at $2,500bn (€1,858bn, £1,252bn).

Mr Johnson said his initial impression was that sovereign funds followed conservative strategies. But the degree to which they were leveraging investments to boost returns was unclear. He argued that the best model for such funds was to save resources for future generations, especially if wealth was being generated by the sale of a country’s non-renewable natural resources...

Mr Lowery of the US Treasury had warned in the US that the size of sovereign wealth funds could “fuel financial protectionism.”

Financial market stability could be hit as “little is known about their investment policies, so that minor comment or rumours will increasingly cause volatility [in markets]”.

Keep in mind that tensions are already running high over the accumulation of reserves that enable the creation of these SWFs in the first place. In the US-China trade war, for instance, the IMF is caught in between and is accused of (with good justification, IMHO) serving as a tool for American interests. This dispute rolls on...

When two elephants fight, a senior International Monetary Fund official once told the Financial Times, the grass gets trampled.

The official was referring to the danger that the fund could get caught in the midst of a struggle between the dominant economic power – the US – and the most important rising power – China – over exchange rates and who is to blame for giant trade imbalances.

That prospect moved closer recently when the IMF board, made up of representatives of governments that are the lender’s shareholders, adopted a new mandate for international surveillance in the face of outright opposition from China. The old framework, which dated back to 1977, needed modernisation.

But there was no hiding the international political context. The US hailed the decision as a sign that the IMF was finally heeding its call to get tough on exchange rates. Hank Paulson, the Treasury secretary, said: “The reform will permit firmer surveillance in areas such as insufficiently flexible exchange rates”.

Mr Paulson, who has to date tried to deal with China largely through bilateral channels, said IMF surveillance “has the potential to be a strong complement to bilateral diplomacy”. The US vowed to press the fund to implement the new surveillance regime firmly. “The key issue is enforcement,” said Morris Goldstein, a former IMF official now at the Peterson Institute, a Washington based think-tank.

Beijing immediately pushed back. A critical statement by the People’s Bank of China, the central bank, was followed by the publication in the official press of comments by Ge Huayong, China’s representative at the IMF.

“Supervision under the new rules will put more pressure on emerging market countries especially, but will have little impact on developed countries. This is unfair,” Mr Ge said.

He said China’s stance “received support and understanding from some developing countries, but, due to the push by a tiny number of developed countries with major voting power in the IMF, the decision still passed”. This was “regrettable”.

Ha Jiming, a former IMF economist now with China International Capital Corporation, the largest domestic investment bank, said: “The new ruling has largely been influenced by the US...”

He Fan, an economist with the Chinese Academy of Social Sciences, said many officials were now worried that it would be used to put pressure on China over its exchange rate.

IMF officials insist that the new framework, which was ultimately supported by most developing countries, is not intended to target China [yeah, sure, and you can call me "Chuck Woolery"].

...the official admitted there was no escaping the fact that China presented the IMF with a unique challenge. “China is such an important country, its exchange rate policy is so important, this decision cannot not be about China,” he said. “How to make clear to the Chinese what their obligations are has been part of this whole process.”

Furthermore, while the IMF will look at exchange rate and other policies, its new mandate is far more detailed on exchange rates. With more objective metrics for judging currency policy, the official said, “logically we ought to be more explicit now in terms of whether members are actually meeting their obligations”.

That would tilt the IMF – which has always straddled the twin roles of umpire and adviser to governments – towards being more of an umpire, a long-standing US demand.

Many in and around the Fund are uncomfortable with this idea. A former senior official said the IMF “lacks the ability to declare somebody out and send him off the field”. Officials fear that if China is put in the dock it will ignore the fund and develop Asian monetary arrangements to supplant it.

The former official said the IMF had to continue to approach global imbalances as a multilateral problem with many contributing factors besides China’s exchange rate – not a problem caused by it.

“I hope we do not become a battlefield between the US and China,” one of the senior officials said.

A multilateral approach to dealing with China, he argued, would not work if the IMF was seen as doing the bidding of the US. “I hope Mr Paulson understands this.”

Is Zoellick a "Wolfowitz Lite"?

A few moons ago, I described how incoming World Bank President Robert Zoellick has pretty impressive "neocon" credentials. Now, it seems that Zoellick will retain Wolfowitz's strong rhetoric on anti-corruption. If you will recall, Wolfowitz brought two longtime cronies to the World Bank, Kevin Kellems (the "keeper of the comb") and Suzanne Rich Folsom who heads the "Department of Institutional Integrity" [nice title, eh?] Kellems resigned before his boss's early departure, but Folsom is still there, presumably to the chagrin of World Bank veterans. One of the things World Bank watchers will be awaiting is what sort of role Folsom will have under Zoellick. As the International Herald Tribune notes, she's not terribly well-liked. Zoellick needs to rebuild a semblance of trust with World Bank staffers that was put under stress by Wolfowitz. How he deals with Folsom will be interesting to watch:

Combating corruption was a signature issue for Paul Wolfowitz in his two stormy years as bank president. Last year he hailed the belated blacklisting of the firms on the Lesotho project as helping to ensure "that precious public resources go to help the poor, for whom they are intended."

But the corruption issue was also been a source of anger at the bank that contributed to Wolfowitz's forced resignation last month amid charges favoritism. Some bank officials fear, and others hope, that with his departure the issue would fade.

All indications are, however, that his successor, Robert Zoellick - who won the unanimous approval of the World Bank's board on Monday - would not let that happen...

"Corruption is a cancer that steals from the poor, eats away at governance and moral fiber and destroys trust," Zoellick said. "The challenge is how best to clean corruption out. That's what the World Bank must diagnose, determine and execute in concert with developing and developed countries."

Zoellick has vowed in private meetings to press an anti-corruption agenda but also avoid Wolfowitz's mistakes, like cutting off money and punishing poor people dependent on bank programs in countries that happen to be poorly governed, bank officials say.

Zoellick, a former top trade envoy and deputy secretary of state under President George W. Bush, said he realized that much of the controversy under Wolfowitz had occurred because corruption was sometimes identified by him as more important than fighting poverty.

In addition, the head of the department of institutional integrity, Suzanne Rich Folsom, a Wolfowitz appointee and a Republican, has drawn fire for her management style.

Under Folsom's leadership, the department has gotten a 50 percent increase in funding and an expanded mandate to investigate corruption cases. Folsom's defenders say that it was inevitable that she would be unpopular, while critics say she has trampled on employee rights and been selective in her inquiries.

"There are definitely tensions in the system," Zoellick said. "What I've found is a high degree of distrust over the real purpose of the anti-corruption campaign. Our challenge now is to find real guidelines that can restore everyone's trust and assure governments that the bank is not wasting money."

How much corruption exists is a matter of conjecture. A former top official, requesting anonymity because of the sensitivity of the subject, estimated that it might affect, at least in small ways, as many as 40 percent of bank projects. Others say the money lost to graft may not be more than a few percentage points of bank lending.

No one disputes that in its six decades of existence, the bank did not do much about corruption until a decade ago, when its then president, James Wolfensohn, declared that something must be done to combat it.

The department of institutional integrity was established only seven years ago. It has barred 148 individuals and 190 firms from doing business with the bank. In an institution that employs 10,000 workers, 74 employees have been cited for cases of fraud and corruption...

But however grounded in realities, the institutional integrity reviews have left a legacy of tension between the department of institutional integrity and the rest of the bank. Many officials at the bank say that some of their colleagues believe that minor graft is a small price to pay to speed vitally needed programs for the poor.

"Relations between the bank staff and the department have really soured in the last two years," said a former top official of the institutional integrity unit. "There is a lot of pushback from everyone at the bank, because of the us-against-them attitude created by Wolfowitz."

Christopher Burnham, a former United Nations under secretary general in charge of financial management, said that Zoellick must figure out how to enlist suspicious bank officials in his agenda. "International bodies operate by consensus," Burnham said. "He has to bring everybody along with him."

Zoellick has not signaled his intentions about Folsom's office, other than to say that he has learned of the distrust between her and others, according to bank officials. For example, the bank's staff association, which represents the bulk of its employees, has charged that her office has trampled on employees' rights and targeted some unfairly...

Folsom said that, on the contrary, the department had moved in the last two years to "a new level of processing cases" and establishing a series of reforms to expedite cases, including a program under which companies and individuals may voluntarily disclose cases of graft.

"This department has been unpopular since its creation seven years ago," she said. "This type of department is always going to be unpopular. There are going to be some people who just don't want to be bothered."

EU's Horse Trading with China

The Wall Street Journal notes that the EU is trying a new tack with China aimed at getting the latter to move more quickly on the matter of intellectual property (IP) protection. By designating China as a market economy well ahead of time, the EU may get a better response from China, or so it hopes:

In the struggle to manage its rising tide of Chinese imports, the European Union is considering a subtle but important shift in its approach to Beijing.

The EU strategy, which people familiar with the matter say is still under discussion, would be to offer China recognition as a "market economy" in the hope of extracting a range of concessions the Europeans deem crucial to balancing the trade relationship.

While the shift would largely be a technical matter, it is a priority for Chinese trade officials and does offer practical gains. Beijing would find it easier to defend against persistent European complaints that Chinese goods compete unfairly with local manufacturers.

In trade jargon, a country achieves market-economy status when it limits state aid, bans monopolies and fulfills other criteria. Only 56 of the World Trade Organization's 150 members give China full market-economy status; the U.S. and the EU, by far China's biggest trade partners, are among those that don't. The U.S. isn't planning to change its policy, and in fact has recently pursued a more aggressive approach against Chinese imports than the EU, imposing extra duties and filing two suits at the WTO.

When China joined the WTO in 2001, it agreed to a 15-year delay before being granted market-economy status. So no matter what, the WTO's 149 other members must offer the label by 2016.

The EU's thinking, according to people familiar with the matter, is to use the designation as a bargaining chip while it still has value to help coax Beijing to stem the proliferation of pirated goods and to offer greater market access to European companies -- especially in the services sector. There are also EU officials who believe China has made legitimate progress, they add.

China has been lobbying for market-economy status for some time. "If 498 out of 500 Fortune 500 companies do business in China, it's because we're a market economy," Chinese Commerce Minister Bo Xilai told reporters in Brussels recently.

Countries labeled as having nonmarket economies are generally more vulnerable to punitive import tariffs on their goods. That is because the designation forces trade investigators to assume companies in places such as China or Cuba receive some level of state support.

To research complaints, therefore, investigators use a surrogate "market economy" to determine what costs really should be and calculate whether goods are being unfairly underpriced on world markets -- a practice known as dumping.

Critics say that method is arbitrary, time-consuming and wildly imperfect.

In China's case, for example, EU and U.S. trade officials often use costs in Turkey or India as a proxy for those in China, though domestic prices in those countries tend to be higher than China's. That makes it easier for U.S. and European companies to level dumping charges.

Countries with heavy manufacturing sectors such as Spain, France and Italy are eager to preserve this leverage. They recently lashed out at a report by the office of EU Trade Commissioner Peter Mandelson that said China had made considerable progress toward earning market-economy status.

Pope Benedict XVI on Globalization

As a very well-informed doctrinaire, it is of very little surprise that the Pope offers some thought-provoking words on globalization. While he sees opportunities to be gained from improved material conditions, he also acknowledges that globalization needs to more clearly pronounce human well-being as its end. Typical arguments for globalization discuss enhanced economic efficiency; however, the Pope offers suggestions on how it can serve, yes, a greater calling. Like several others, the Pope in concerned with equity as well as efficiency. Zenit offers a concise statement of the Pope's thoughts on the subject:

Amid the ongoing debate over issues of economics and ethics, Benedict XVI has addressed these issues on several occasions in recent months. On May 26 he spoke to a group of young people from Confindustria, the General Confederation of Italian Industry.

Every business, the Pope noted, should be considered first and foremost as a group of people, whose rights and dignity should be respected. Human life and its values, the Pontiff continued, should always be the guiding principle and end of the economy.

In this context, Benedict XVI acknowledged that for business, making a profit is a value that they can rightly put as an objective of their activity. At the same time the social teaching of the Church insists that businesses must also safeguard the dignity of the human person, and that even in moments of economic difficulties, business decisions must not be guided exclusively by considerations of profit.

The Pope also dealt briefly with the theme of globalization. This is a phenomenon, he commented, that gives hope of a wider participation in economic development and riches. It is a process not without its risks, however, leading in some cases to worsening economic inequality. Echoing the words of Pope John Paul II, Benedict XVI called for a globalization characterized by solidarity and without marginalization of people.

Other principles that need to guide the economy are justice and charity, Benedict XVI explained in a message, dated April 28, to the president of the Pontifical Academy of Social Sciences, Mary Ann Glendon. The letter was sent on the occasion of the plenary session of the academy, held April 27-May 1.

The pursuit of justice and the promotion of the civilization of love, the message stated, are essential aspects of the Church's mission in its proclamation of the Gospel. Justice and love cannot be separated, the Pope observed, because of the Church's experience of how the two were united in "the revelation of God's infinite justice and mercy in Jesus Christ."

Justice, he continued, must be "corrected" by love, a love which inspires justice and purifies our efforts to build a better society. "Only charity can encourage us to place the human person once more at the center of life in society and at the center of a globalized world governed by justice," the Pope stated.

The Pope took a closer look at some of the problems facing workers in a couple of speeches earlier this year. In a message dated March 28, sent to participants in the 9th International Youth Forum organized by the Pontifical Council for the Laity, Benedict XVI commented that in recent years economic and technological changes have radically changed the labor market.

This has given hope to young people, the Pontiff conceded, but it also brings with it the need for greater skills and education, and the demand that workers be prepared to travel, even to other countries, in searching for jobs.

Work, he explained, is part of God's plan for humanity and through it we participate in the work of creation and redemption. We will live this better, the Pope urged, if we remain united to Christ through prayer and sacramental life.

Then, on March 31, Benedict XVI spoke to a gathering of Confartigianato, an association of Italian artisans. Work is part of God's plan for man, even if because of original sin it has become more of a burden, the Pope explained.

It is important, he exhorted, to proclaim the primacy of the human person and the common good over capital, science, technology and even private ownership. As Christians, we can testify to the "Gospel of work," in our daily lives, the Pope reminded them.

The Pontiff also had words for those directing workers, in an address to a group from the Italian group, the Christian Union of Business Executives on March 4. Justice and charity, the Pope said, are inseparable elements in the social commitment of Christians.

"It is incumbent on lay faithful in particular to work for a just order in society, taking part in public life in the first person, cooperating with other citizens and fulfilling their own responsibility," said the Pope.

"Unfortunately, partly because of current economic difficulties, these values often run the risk of not being followed by those business persons who lack a sound moral inspiration," he also noted. Values which, together with sound economic policies, could go a long way in finding solutions to the ethical challenges in a globalized world.

J-Curve, Mugabe, and the World Cup

Ian Bremmer's recent book The J-Curve presents a simple thesis. Take a look at the illustration taken from the Daily Telegraph review of the book. Openness increases as you move from west to east, while political stability increases as you move from south to north. According to Bremmer, the least open regimes (like North Korea) tend to be more stable than those undergoing a transition to openness which are least stable (like Iraq), while those that are most open are also the most stable (like the US).

I bring this matter up for I recently came across this article in The American which illustrates J-Curve reasoning. Sanctions imposed on Robert Mugabe's regime have only had the effect of strengthening his grip on a highly dysfunctional country through isolation. Hence, the argument in the article is that the upcoming World Cup presents a better opportunity to make Mugabe shape up if Zimbabwe is to take advantage of the goodwill and business that the Cup will bring to the African continent:

Western sanctions—principally travel bans on Zimbabwean public officials allied to Mugabe and the suspension of most aid programs—have done nothing for Zimbabwe’s politics other than giving its pernicious leader a handy “foreign devil” to frame for his own misdeeds. The World Bank suspended all aid to Mugabe’s kleptocracy, with little effect (thanks in part to Chinese willingness to step in with loans), and at any rate, it did so not for geopolitical reasons, but because Zimbabwe wasn’t making good on its outstanding debts. Even now Zimbabwe remains eligible for “technical assistance” and civil service reform advice from the bank...

Is there no force, persuasion, sanction, or pressure—short of warfare—that can bring Mugabe to heel? Maybe not, but hope should not be abandoned. Where the World Bank has proved feckless, the World Cup may step in to fill the breach.

Zimbabwe, like all of southern Africa, has been counting on big economic and goodwill gains from the 2010 Cup to be hosted by South Africa. It wants to host teams for training, lure in tourists, and get a waiver from FIFA, the global governing body for football, to allow teams to live on-site in Zimbabwe, even during the competition. In fact, with South African support, Zimbabwean football has been assuming the waiver would be granted.

Too presumptuous, maybe: FIFA said earlier this month that no waiver decision has been made, putting a damper on plans to build two entirely new stadiums in Zimbabwe and renovate older ones.

Indeed, FIFA might want to hold that thought, and take it a step further. Already it’s clear that FIFA’s decisions matter more to Zimbabwe than anything the IMF or the G8 might do. The critical pressure point again is South Africa, which has been quite accommodating of Mr. Mugabe. If President Mbeki truly is expected to carry the ball for Tony Blair here, let him work with FIFA and the African Union to keep the World Cup goodies away from Zimbabwe altogether, so long as Mugabe rules. Here at least is a form of pressure that may begin to bite.

FIFA, fortunately, can still help some Zimbabwean workers even if it does act to harm the regime. Zimbabwean construction workers are earning true living wages (denominated in US dollars, not Zimbabwe dollars) by crossing into South Africa to work World Cup construction projects. That’s a lot more effective than western hand-wringing.

EU's I'm-Hurt-By-Globalization Fund

Somehow, I am not surprised to learn that the French are the first to take advantage of the EU's new "globalization adjustment fund". From Agence-France Presse:

The European Commission on Monday approved the first two payments of cash from a new EU fund aimed at cushioning the impact of globalisation.

Small companies that supply French car makers Peugeot-Citroen and Renault will receive 3.8 million euros (5.1 million dollars) to help "workers made redundant due to company failures in a climate of changing global trade patterns," the EU executive said.

Commission spokeswoman Katharina von Schnurbein said the money would be disbursed once EU member states and the European Parliament gave their approval, which could take "three or four months."

The fund was set up at the end of last year to help workers who lose their jobs because of globalisation get back to work.

Schnurbein said that other candidates for cash from the fund were "in the pipeline," including the Finnish telecoms sector and textiles workers in Malta.

US Bullies Antigua in the WTO

Previously, I detailed the case of the tiny island nation of Antigua and Barbuda winning its case against the US over online gambling restrictions. If you will recall, Antigua was severely hurt when the US effectively banned offshore online gaming operations from plying their trade Stateside. The significance of this matter is perhaps far greater than the stillborn Doha round. Can the US simply flout the WTO's rule-based regime by ignoring its decisions? It would be terribly unfair if this matter is not resolved in favor of Antigua. Hearteningly, several other countries have now joined Antigua to face down America's bullying tactics. Things will come to a head when the WTO's judicial system, the Dispute Settlement Body (DSB), meets on July 24:

Important questions will be raised in Geneva on July 24, about whether rules based on international systems can be used by the relatively powerless (Antigua), if the most powerful (United States), chooses to ignore or circumvent the World Trade Organization’s legally binding decisions.

The issue is whether the United States will comply with a WTO ruling in favor of Antigua, along with other countries, and compensate its government for loss of earnings because of Washington’s decision that effectively led to the end of online gambling in the U.S.

"There is something clearly wrong with the concept that after a long, difficult struggle covering years of dispute resolution at the WTO, an offending member could ultimately avoid the consequences of its loss by withdrawing the commitment that gave rise to the claim in the first place," said Dr. John Ashe, Antigua's Ambassador at the WTO.

Brazil has joined Antigua & Barbuda, along with the European Union (27 member states, including the United Kingdom), China, India, Japan, Costa Rica, Mexico, and China Taipei, to claim compensation on legal matters of principle involved.

In 2004, the WTO ruled that the U.S. had violated global trade rules with the ban on internet gambling, and that this was an unfair trade barrier that hurt Antigua’s gaming industry. Citing that the U.S. prohibition on internet gambling was inconsistent with its obligations under the 1995 General Agreements on Tariffs and Services (GATS).

The WTO also noted that the U.S. ban on online gambling represented an "arbitrary and unjustifiable discrimination between countries," and was a "disguised restriction on trade." The United States has lost its appeal and has decided to withdraw its commitment on this service from the GATS.

An op-ed in the Jamaica Gleaner also reiterates this theme. The US may try to delay proceedings yet again:

As discussions continue in Germany to see whether an outline agreement is achievable on a new global-trade round, a more fundamental exchange is just beginning in Geneva.

It is one that raises important questions about whether rules based on international systems can beused by the relatively powerless if the most powerful choose to ignore or circumvent the World Trade Organisation's (WTO) legally binding decisions.

At issue is whether the United States (U.S.) will comply with a WTO ruling in favour of Antigua and compensate its government for loss of earnings as a result of Washington's decision that effectively led to the ending of online gaming from or through the United States.

In an extraordinary twist that turns the issue from one in which Antigua was essentially alone in pursuing justice, it has emerged in the last few days that the small island has been joined by Europe, Brazil, Japan and others in its claim for compensation and the matters of legal principal involved.

Antigua will attempt to obtain $3.4 billion worth of IP sanctions against the United States in return for the harm it has done over copyrights, trademarks, industrial designs, patents, and protection of undisclosed information as noted by the International Economic Law blog. See Antigua's official document as well. This story encapsulates matters:

Meantime Antigua and Barbuda has announced its sanctions against the USA specifically by withdrawing intellectual property protection for US trademarks, patents and industrial designs worth up to US$3.4 billion in order to recover the amount it has lost in revenue.

"We feel we have no other choice in the matter, we have fought long and hard for fair access to the US market and have won at every stage of the WTO process," said Finance Minister Errol Cort. "Until such time as the United States is willing to work with us on achieving a reasonable solution to this trade dispute, we will continue to use every legitimate remedy available to protect the interests of our citizens."

According to reports, the US is now willing to consider a solution with Antigua and Barbuda but not with other countries filing claim on Friday.

Antigua and Barbuda has filed claim saying that its revenue from Internet gambling had dropped from US$1 billion annually to US$130 million as a result of the US action.

Needless to say, I am rooting for the little guy. What is the point in having a rule-based system in the WTO if the US merely brushes off its decisions?

China's Tied Aid to Africa

The Who song "Won't Be Fooled Again" ends with the lyric "meet the new boss...same as the old boss!" That lyric came back to mind as I read this Financial Times article describing how the much-ballyhooed (by the Chinese, at least) China-Africa Development Fund is nothing but another exemplar of tied aid, with China replacing developed countries as the givers with strings attached. What else is new:

The much-trumpeted $5bn China-Africa Development Fund, portrayed by Beijing as economic assistance, will be used to invest exclusively in Chinese enterprises and their projects in the continent.

Such policy of “tying” aid to purchasing goods and services from the donor country has been attacked by development experts as wasteful and inefficient, and most donor governments have been abandoning the practice.

State-owned China Development Bank was due to launch the first $1bn phase of the fund on Tuesday for Chinese businesses whose “trade and economic activities have reached or will reach Africa”, as well as companies and projects in Africa in which Chinese enterprises have invested, according to the fund’s official mandate.

Investments will concentrate in companies and projects related to natural resources, as well as infrastructure, agriculture, manufacturing and industrial parks set up by Chinese companies in Africa, the bank said.

Tied aid has been a feature of European, American and Japanese assistance to poor nations for decades. But more recently they have been dropping such conditions, given the evidence that tying aid reduces its effectiveness by as much as a quarter.

Daniel Large, a researcher in China-Africa relations at the School of Oriental and African Studies in London, said: “This fund was announced as economic assistance with much fanfare last year but in fact it looks like more of the same and is very much anchored in China’s interests.”

Hu Jintao, the Chinese president, announced plans for the fund in November last year at a China-Africa Co-operation Summit in Beijing.

In most of its aid assistance to Africa, Beijing requires infrastructure construction and other contracts to be divided up, with 70 per cent going to “approved”, mostly state-owned, Chinese companies and the rest handed to local firms, many of which are also in joint ventures with Chinese groups...

Many aid groups and other large donors criticise Beijing for supporting unsavoury regimes in Sudan and elsewhere and say those policies are aimed solely at securing oil and mineral resources with little concern for environmental and social consequences...

CDB will manage the new fund on a semi-commercial basis by taking equity and quasi-equity stakes in Chinese firms doing business in Africa.

At a meeting of the African Development Bank in Shanghai last month, China said that it wanted to provide about $20bn in infrastructure and trade financing to Africa over the next three years.

Political Economy of Medical Tourism

The clip above of a 60 Minutes segment features Bangkok, Thailand's Bumrungrad Hospital, which claims to have the most international patients of any medical operation in the world (BTW, its last syllable is not pronounced like StalinGRAD or LeninGRAD; it's BumrungRAD as I managed to confuse my Thai friend by pronouncing it wrongly). As you will see from the clip, it is furnished as grandly as any luxury hotel. Indeed, it is a very $eriou$ operation; you can even use your Thai Airways frequent flier miles toward paying for your medical expenses there. Fortunately, the medical care appears to be of a high international standard as well. If you're into click-and-watch, there's another clip by Focus Asia on Bumrungrad.

I recently became interested in medical tourism as a spate of recent articles have mentioned it. In particular, the publication of Josef Woodman's recent book entitled Patients Beyond Borders: Everyone's Guide to Affordable, World-Class Medical Tourism has attracted significant press coverage to the growing prominence of the medical outsourcing trade--especially in light of the ongoing debate over unaffordable and sometimes ineffective health care in the US. First up is this article by Arthur Frommer of the well-known Frommer's travel guides:

For a travel writer, there is no surer way to attract a barrage of hate mail than to suggest foreign travel for the purpose of obtaining medical or dental treatment. Immediately, dozens of U.S. doctors and dentists accuse you of putting people's lives at risk, since only U.S. doctors and dentists are able to safely treat us. And U.S. medical and dental treatments, as we all know, are the absolute best.

If the United States had universal medical and dental insurance, and every American was able to afford treatment here at home, I would not be disposed to argue the matter. But more than 40 million Americans are without such insurance and are unable to afford many elective treatments here at home.

The proposed remedy will, therefore, not go away. Outside the United States are medical facilities and myriads of doctors and dentists willing to charge modest sums within the financial reach of nearly everyone. And more and more observers are claiming such care to be impressive and safe, the frequent equivalent of what many wealthier or insured Americans are able to obtain at home...

Let's assume that the arguments for medical tourism or dental tourism — namely, going overseas to obtain such treatment — aren't completely established. Let's assume that an operation costing a fraction of what you'd spend in the U.S. is not always guaranteed to be the equivalent of what you'd obtain at home. What do you say to the American who can't afford such treatment at home? What do you say to the person who is able to afford medical or dental treatments only if he or she can go overseas to obtain them? Do you advise such Americans simply to pass them up and do nothing about their health?

In Patients Beyond Borders, Woodman claims that the quality of the foreign facilities he describes is impressively high. He makes that claim for, among others, several leading hospitals in Bangkok and Phuket, Thailand (cardiovascular treatments, orthopedics and ophthalmology, neurology, dental care and oncology); for hospitals in Cape Town and Mossel Bay, South Africa (including the famous Christiaan Barnard Hospital, which is noted for heart- and kidney-transplant surgeries); for several highly accredited clinics in Singapore; for hospitals and clinics of every sort in Mumbai, Bangalore and Chennai, India; for low-cost dentistry in Budapest and northwest Hungary (where thousands of residents of Vienna go each year for their dental work); for cosmetic and dental care in Prague; for cosmetic surgery in Brazil (including the clinic and institute of Ivo Pitanguy, the world's most renowned plastic surgeon); for the addiction recovery and fertility clinics of Antigua and Barbados. These facilities are discussed in detail, as are the methods of traveling and staying there, the anticipated costs and the accreditation they possess.

Medical and dental tourism are obviously part of an increasing globalization of life. Just as numerous high-quality commercial and manufacturing processes are now found overseas, it is becoming fairly obvious that the medical and dental professions of numerous foreign countries also are gaining fame. They also are gaining American patients who travel there for affordable treatment.

Joshua Kurlantzick of the New York Times also vouches for the quality of medical treatment at Bumrungrad while deriding the "care" he found back home. From a political economy perspective, he also notes that medical tourism may be sucking away health care professionals in the developing world from providing care to ordinary citizens. Eventually, a shortage of medical care provision for locals may trigger a backlash against these medical tourism operations:

...my Bumrungrad doctor, trained in America, immediately put me at ease. Surrounded by a gaggle of nurses ready to care for my every complaint at any time of day, the doctor informed me, ''We're pretty sure you have dengue fever,'' referring to a dangerous tropical disease also known as breakbone fever. My temperature had topped 104, but the doctor quickly determined I did not have dengue hemorrhagic fever, the worst strain of the disease. While I rested in a spotless room, he designed a program for my recovery, recommended a week of convalescence, and prescribed an array of medication for the searing joint pain. When I visited Bumrungrad's cashier, passing the hospital's high-end restaurants and plush waiting rooms along the way, an assistant handed me the bill. For admittance to the emergency room, a consultation, a room and bags of medications, the total cost came to less than $100.

My unscheduled visit to Bumrungrad taught me an old lesson -- and a new one. For decades, Americans have known they could obtain cheaper health care abroad, and have slipped off to Mexico for small surgeries or Canada for prescription drugs. But more and more people now recognize foreign hospitals can deliver not only cheap but also high-quality health care, and are considering medical tourism even for serious health problems. When I returned to the United States, in fact, I found myself longing for Bumrungrad. On a follow-up visit to an American doctor, I waited in a small room after telling him about my dengue fever diagnosis. After a while, when he hadn't returned, I poked my head into the hall, and discovered him thumbing through a book to find information about dengue fever...

But just as American travelers begin getting comfortable with the safety of foreign hospitals, they face a new question. With developing world hospitals focusing on medical tourists, some may take doctors away from understaffed public clinics in nations like India and Thailand, potentially leading to a public backlash against medical visitors. Already, the press in Thailand and India has warned that medical tourism, which can be more lucrative for physicians, is sucking doctors away from public clinics.

Only days after my luxury dengue treatment at Bumrungrad, I saw this other side. At a larger Thai hospital where I'd walked in after feeling my fever spiking, I sat on a hard bench in the middle of a waiting room littered with cigarette butts and empty plastic bottles. For over an hour, no one called me. When a nurse finally approached me, she warned there wouldn't be any doctors around for hours, and then turned and walked away. I got up and took a cab to Bumrungrad.

The Economist notes the development potential inherent in medical tourism. Also, a backlash from medical professionals in the developed world may emerge should medical tourism eat more into their share of the business:

America's soaring health-care costs, already $2 trillion a year, are predicted to double in the coming decade. Dissatisfaction with the rocketing price of care will only get worse as demanding and health-conscious “baby-boomers” hit retirement and start to suffer the costly ailments of old age. In countries like Britain and Canada, with supposedly universal coverage, state spending is not keeping up with growing demand, so patients face long and agonising waits for operations. And in the prosperous bits of Asia and the Middle East growing numbers of people are rich enough to demand high-quality medical care that they cannot get locally.

All this presents a fantastic business opportunity for those Asian countries, principally Thailand, Singapore and India, which have excellent private hospitals that are used to treating foreigners and where costs are a fraction of those in rich countries. “Medical tourism” is booming as patients look abroad for cheap, fast treatment, often combined with a holiday afterwards. Josef Woodman, the author of “Patients Beyond Borders”, a new guide for those seeking surgery abroad, reckons that 150,000 Americans did so last year, and predicts the numbers will double this year.

Booming demand is encouraging rapid expansion at big stockmarket-listed hospital operators such as Thailand's Bumrungrad and Bangkok Dusit, Singapore's Parkway and Pacific Healthcare and India's Apollo Hospitals. This week Pacific Healthcare said it would build seven medical centres across Asia. Bumrungrad, which treated 430,000 non-Thais last year, has just expanded its Bangkok hospital and is setting up in the Philippines and Dubai...

But the Asian hospital operators are now courting American health insurers and employers desperate to rein in soaring costs. Bumrungrad's marketing chief, Ruben Toral, who was in America this week for talks with insurers and big employers, says they were very keen. BlueCross BlueShield of South Carolina already offers Bumrungrad's cut-price treatments to members whose policies do not cover the surgery they need.

To reassure foreign patients, many hospitals are seeking accreditation from the Joint Commission International (JCI), the international arm of the body that accredits American hospitals. Thailand's Bumrungrad and nine Singaporean hospitals already have JCI certificates. Raymond Chong, the boss of Bangkok Dusit's Samitivej Hospital, reckons it will be only a year or two before big American insurers and employers routinely offer patients lower premiums if they are prepared to travel to a foreign JCI-accredited hospital for surgery.

For patients, employers and insurers the benefits are clear. But the hospital operators are bracing themselves for a backlash from the rich countries' medical vested interests whose jobs are, in effect, being outsourced. Expect much shroud-waving from doctors' associations and health-care unions as they highlight the few cases of foreign surgery that go wrong—as though such a thing never happens back home.

Finally, the FT too has another nice backgrounder, along with some advice on minimizing the chances of things going wrong should you want to give medical tourism a go:

Enter countries such as India, Thailand, Mexico, Costa Rica, Malaysia and Singapore that cater to the maladies of well-heeled foreigners. In fact about 150,000 Americans a year leave the US to have medical work done and the industry is growing by about 15-20 per cent annually. The quality of care in top hospitals is said to beat most American hospitals, while providing savings of 30-80 per cent. In fact, in 10-15 years, “the best offshore hospitals will routinely be included in networks offered to insured Americans”, predicts Arnold Milstein, chief physician for the consulting firm Mercer Health & Benefits.

Not that medical tourism is a worry-free venture. From the training of foreign doctors and the conditions of far-flung facilities, to the legal limbo should something go awry, to the wisdom of getting on long-haul flights after major surgery, there are troubling questions to consider. But when patients are facing a major operation – a hip replacement, say, that could cost anywhere from $55,000-$85,000 stateside – it seems that more Americans are proving able to get beyond their doubts.

“Many people just can’t afford the procedures here in the US and the value overseas is so much greater,” says Patrick Marsek, managing director of Chicago-based group MedRetreat, which is facilitating 650 overseas surgeries for clients this year. While historically most Americans have gone abroad for dental or cosmetic work, he says, it is now extending to other areas – hip and knee replacements, heart surgery and hysterectomies.

Indeed, there is now a cottage industry growing up around medical tourism, led by companies such as MedRetreat and Planet Hospital. Not just in the US, but in countries with creaky national health systems such as the UK, where lengthy waiting lists for non-emergency surgery have spurred many to look abroad. “Now you can buy a travel package where they’ll literally handle everything for you,” says David Hancock, author of the newly published guide The Complete Medical Tourist. “They pick you up at your front door, take you to the airport, fly you in and accompany you to all clinical visits and operations. Then you’re off to a five-star hotel to recuperate for two weeks, before flying you back and getting a private car back home. And it all comes in at half of what it would be at a private hospital in the UK...”

So why isn’t everyone jetting off for a few dental crowns or a tummy tuck? For one, heading abroad will put you in a hazy legal zone should anything go wrong. Where a botched surgery might lead to a multi-million-dollar settlement in the US, malpractice awards abroad tend to be capped at a much smaller amount – never mind the potential nightmare of navigating through a foreign legal system.

To avoid ham-handed foreign surgeons, remember that all venues are not created equal. If a hospital has only done 50 relevant surgeries and cannot produce success rates or dossiers on their top surgeons – who have ideally been board-certified in the US or Europe, before returning to their home countries – steer clear.

To do medical tourism right, there are a few key steps to take. Whether you are on your own or working with a healthcare planner such as MedRetreat, look for hospitals accredited by the nonprofit Joint Commission International, and those affiliated with top American institutions.

As your search narrows, do your due diligence and find out how many surgeries your target hospital has performed, and what the documented success rates are. To wit: Wockhardt Hospital in India, which caters to foreigners, has a success rate of 98.4 per cent after 15,000 cardiovascular surgeries, which compares favourably with any US hospital and means “you won’t be coming back with a scalpel in your belly”, Woodman says.

With that in mind, here is the list of Joint Commission International (JCI) accredited organizations worldwide. Plus, here is a sample of national medical providers that have banded together to promote their services from India, Singapore, and the Philippines. The three main political economy questions, as I see it so far, are these:

• Will the quality of medical services for local residents diminish as more health care professionals serve the medical tourism trade?
• Will there be a backlash among developed-world health care professionals as more medical tourists go abroad in search of treatment?
• Can medical tourism promote development?

On the last point there is an interesting book forthcoming concerning Medical Tourism in Developing Countries that looks quite interesting. It is more of an academic work though in contrast to the how-to emphasis of the Woodman book. Here's its description:

Western patients are increasingly traveling to developing countries for health care and developing countries are increasingly offering their skills and facilities to paying foreign customers. This international trade in medical services has huge economic potential for developing countries and serious implications for health care across the globe. The potential is explored in this book through analysis of the market for medical tourism and identification of its link to economic growth. The authors propose that medical tourism is not a universally feasible growth strategy. Instead, it is successful only in countries with economic and political advantages that enable them to navigate around international and domestic obstacles to trade in medical services. It is also suggested that a successful medical tourism industry, when coupled with cooperation between the private and public sectors, may lead to public health improvements in developing countries.

Screw Globalization, Join Uncle Sam

Dear readers, rest assured that I do not read USA Today on a regular basis, but this feature caught my eye. Its basic thesis is this: globalization has forced down salaries in the private sector, therefore you're better off joining the federal sector where salaries are less affected by the forces of globalization AND the pay is better on the average. Obviously, it's welcome news for this political science major. By the way, for a counterblast to the typical abuse hurled at public sector work like what the Heritage Foundation regurgitates below, read Charles Goodsell's The Case for Bureaucracy: A Public Administration Polemic. That's its title, I'm not kidding. It's an eye-opening book that makes you question the neoliberal conventional wisdom that has made prejudice against government workers an acceptable form of discrimination. Anyway, to the article:

Sometimes the easiest way to find a job that pays well is to ask a wealthy relative to hire you.

For many, that relative is Uncle Sam.

Federal workers, on average, are paid almost 50% more than employees in the private sector, an Asbury Park Press analysis of salary data shows.

The average federal worker made $59,864 in 2005, compared with the average salary of $40,505 in the private sector, according to the latest data from the U.S. Bureau of Labor Statistics.

And that pay gap appears to have widened in the first nine months of 2006.

The gap may be driven by increased competition in the private sector, where globalization and technological advances have held salaries down. Meanwhile, the federal workforce has no harsh business realities to face, said James Sherk, a labor policy analyst at the conservative Heritage Foundation in Washington [oh, that big, bad, unaccountable and bloated bureaucracy!]

"The government doesn't have to worry about going bankrupt, and there isn't much competition," Sherk said...

Private industry managers do make more than their federal counterparts in most cases. This is because a cap is imposed on many federal jobs based on the president's $400,000 a year salary. For example, the U.S. Attorney for New Jersey is in charge of all federal law enforcement in the state, but he was paid $145,400 last year. A top job in a law firm pays several times that salary.

Experts say federal workers earn more on average than private-sector workers because federal workers typically have more education, they are often unionized and they remain in their jobs longer. Federal workers usually stay longer because of good health benefits, job security and high pay.

Harvard University's John Donahue said federal jobs have become the preferred career choice for many workers as manufacturing and other jobs have disappeared.

"You have a lot of people sheltering in government from an inhospitable private economy," Donahue said [ditto].

The union that represents 600,000 federal workers cites other reports that contend federal workers are underpaid by about 18% nationally when salaries are adjusted for education and job longevity.

But even if federal workers are paid more, the American Federation of Government Employees said that shouldn't be an issue.

"We do not apologize for the fact that the federal government makes sure its lowest paid employees, who work full time year-round, don't live in poverty," said Jacqueline Simon, AFGE's public policy director. "The federal government is a model employer, as it should be..."

"We have two parallel economies: One is hyper-capitalism, and one is from the Eisenhower administration, a 'Leave-It-To-Beaver' world," said Donahue, author of the forthcoming book, The Warping of Government Work.

"The basic story is that government pays everybody the same, no matter their level of productivity," Donahue said. "But the private sector pays people differently. So the government employment becomes a safe harbor from a stormy private economy. It is a backwater. (Yet) government doesn't have the winner-take-all rules that the private sector has adopted."

Selling Green Technologies to China

MarketWatch recently featured an interesting article on American firms capitalizing on China's need for green technologies to reduce its environmental woes. For example, given China's dependence on coal as a power source, coal gasification may enable it to lessen emissions. There are a host of other technologies though that may help China in improving its environment. As you probably know by now, China is already the world's largest greenhouse gas emitter, or will become so this year:

Just a year before thousands of athletes and tourists descend on Beijing for the 2008 Summer Olympics, China's government recently vowed to crack down on its air pollution.

In the next three years, China aims to cut harmful sulfur dioxide emissions by 10% from their 2005 levels and rein in the heavy industrial activities that have made its cities among the smoggiest in the world.

A push to clean up its cities' notoriously grimy air -- combined with huge and growing electricity needs -- spells opportunity for the handful of international companies that make pollution control systems for the power industry.

Niche player Fuel Tech, Inc., global engineering firms Foster Wheeler Ltd. and McDermott International Inc. unit Babcock & Wilcox Co., and industrial behemoths like General Electric Co. and ABB Ltd. are all positioning themselves to sell more low-emissions electric generation parts to China.

"If you're in the air pollution control business, you go to where the need is," said John Norris, chief executive of Fuel Tech, a Batavia, Ill. company makes products to reduce plants' nitrogen oxide emissions.

"The two biggest-fossil burning entities in the world are China and the United States," he said in a recent interview.

Some 23% of Fuel Tech's $75 million in revenues last year came from international customers, with China the largest contributor. In January, it won two contracts to supply Chinese coal-fired power plants with its nitrogen oxide reduction equipment.

Norris is hopeful the government's labeling of plants using Fuel Tech gear as demonstration projects will lead to more deals. "We've got a lot of bids in there," he said.

At the other end of the spectrum, $163 billion-revenue General Electric is selling China Jenbacher engines that capture methane gas from coal mining, gas turbines that reduce nitrogen oxides, and gasification systems. The Fairfield, Conn. conglomerate is also partnering with a Chinese university to research cleaner coal generation.

"What intrigues me is going right to China and India with these technologies," said Jeff Immelt, CEO of General Electric, at a conference last month to promote the company's success selling $12 billion last year in environmentally friendly products, from cleaning systems for coal-fired boilers to wind turbines...

China's energy demand grew by a staggering 8% in 2006, nearly four times the 2.4% annual rate for the rest of the world, according to the 2007 edition of BP's Statistical Review of World Energy.

Due to its vast reserves, coal is the obvious choice for running its power plants. The country is now the world's leading coal producer, which accounts for 61% of its power generation.

"When you look at India, China, Russia -- coal is the energy source that they indigenously have, and they will use it," Steve Leer, chief executive of U.S. coal producer Arch Coal, Inc. said at an investment bank conference last week.

China is rapidly adding to its fleet of generators. Every week, the country builds the equivalent of two 500 megawatt coal-fired power plants, estimates the Massachusetts Institute of Technology. By 2030, China's coal-fired electricity generation will more than triple, say Lazard and International Energy Agency estimates. All that coal comes with a price.

Here are some of the technologies mentioned in the article sold by General Electric (GE): the Jenbacher Coal Mine Gas Engine which uses methane from coal mining operations as an energy source, the Dry Low NOx (DLN) 1+ combustion system which reduces nitrogen oxide emissions, and the Gasification Combined Cycle system which claims to reduce conventional pollutants by nearly 50%. GE now claims that its business strategy focused on green technologies called "Ecomagination" is beginning to reap tangible payoffs:

The Fairfield, Conn., conglomerate says it's already reaping benefits from a two-year push into energy-efficient equipment and technology. It reeled in $12 billion in sales last year of what it calls its "ecomagination" products, which include wind turbines, super-efficient jet engines and long-lasting lightbulbs.

"Green is green," GE Chief Executive Jeff Immelt told an audience in Los Angeles. "This is about a hard-nosed business initiative," not a soft touch to mollify critics chiding the company for its environmental policies, he added.

Faster-growing units, such as GE's energy-infrastructure practice, are hiring thousands of engineers and rolling out hundreds of new products, including the recent debut of a hybrid freight-train locomotive. Power-hungry China and India beckon.

"I think this stuff has real potential, and they're off to a good start, and that's why we continue to own the stock," said Mike McGarr, a portfolio manager and analyst for Becker Capital Management in Portland, Ore., which owns 900,000 shares of General Electric.

Selling China green technologies kills two birds with one stone. Doing so helps reduce America's trade deficit with China and China's considerable environmental problems. Becoming more energy-efficient per dollar of GDP is a goal that should be targeted not only by China but the rest of the world as well.

Merkel, Savior of the EU

I had a lot of doubts about Angela Merkel becoming Germany's Chancellor, but pretty much all of them have been dispelled by this extremely able woman. Successfully hosting the World Cup, boosting Germany's economic performance, gaining consensus on climate change among G-8 members, and now reviving the DOA-MIA EU Constitution are now part of her impressive resume. Although repackaging the EU Constitution so that it didn't face the same challenges of obtaining successful referendums in member states by going down the ratification route through calling it a "Treaty" instead sounds easy, consider what she had to put up with. Those flowers from Barroso are well-deserved, indeed. First, Poland's ruling Kaczynski twins (no relation to Ted, I hope) threatened to veto any deal that didn't use a square root formula for weighing EU votes:

Poland's twin leaders Lech and Jaroslaw Kaczynski have a mathematical war cry as they try to impose their views on how a new EU governing treaty should allocate voting clout to member states: "Square Root or Death!"

The slogan is at odds with diplomatic-speak, but sums up Warsaw's uncompromising stance within the 27-nation European Union ahead of the bloc's crucial June 21-22 summit.

Jaroslaw Kaczynski, the prime minister, has said that Poland is "willing to die" to push through the changes it wants to the way EU members' voting powers are calculated, and that there will be "no horse-trading" on the issue.

Germany, which holds the rotating EU presidency until the end of this month, released a report Thursday for the summit on efforts on a new treaty to reform the bloc's institutions after French and Dutch voters spiked efforts to adopt a constitution two years ago.

The report did not mention Poland's demands, angering Warsaw, which fears losing its punch in decisions affecting the whole EU.

In a rather tasteless non-sequitur, the Kaczynskis raised the matter of Poland being ravaged by Germany in World War II as a reason why Poland's population didn't compare favorably to that of Germany:

In arguing for Poland to receive more voting influence in a reworked EU treaty, Prime Minister Jaroslaw Kaczynski has said his own reform plan takes the number of Poles killed in World War Two into account.

The prime minister told Polish state-run radio on Tuesday that his own plan for EU voting reform, which would give the Polish vote more weight than the plan endorsed by Germany, is based on the population that the country would have today had not over six million Poles been killed in the six years of World War Two.

The remarks were confirmed by the broadcaster on Thursday.

"We're only demanding that which was taken from us," Kaczynski said afterwards in an interview. "If Poland had not experienced the years between 1939 and 1945, it would today be a country of 66 million if you look at the demographic data."

During World War Two, which began when Nazi Germany invaded Poland in September 1939, around 6.5 million Poles died, including three million Polish Jews. That was about one-fourth of the pre-war population.

Today, Poland's population is just under 38 million.

Then, the supposedly pro-business Nicolas Sarkozy tried to pull a fast one by removing provisions regarding competition that could have enabled more French "national champions," though the Times took it as mere pandering on Sarko's end [sneer, jeer, boo]:

President Sarkozy’s sleight of hand in removing one of the European Union’s key objectives almost slipped through the final meeting of the 27 nations’ top diplomats preparing for the Brussels summit...

The failed EU constitution proposed that the EU shall have “an internal market where competition is free and undistorted”. The phrase was included to make free competition one of the objectives of the EU, upgrading its status from the Treaty of Rome, where it features as a sub-clause.

Minutes from Tuesday’s meeting seen by The Times show that, near the mid-point of the discussions, the Hungarians drew attention to the redrafted statement. It included commitment to the internal market but omitted the phrase “where competition is free and undistorted”.

The Hungarian questioned whether this would affect EU competition policy – a huge area of European Commission activity combating cartels and illegal state aid that could distort fair trade...

Mr Barroso explained to Mr Sarkozy yesterday that the status quo – the position of the Treaty of Rome – would have to be bolstered with a protocol to the new treaty. The pair sat together over lunch until late into the afternoon. Mr Sarkozy, who had discussed the matter with Tony Blair earlier, agreed to the compromise, although not before the French media had acclaimed a successful feat of summitry at his first European Council.

The episode is revealing about the summit debutant Mr Sarkozy and his economic doctrine, “Sarkonomics”. Compared with previous French presidents, he is a business-friendly reformer. But he has never hidden his traditional French belief that trade is too serious to be left to mere markets – or the European Union.

Mr Sarkozy won the election in May with promises to shield France from what the country sees as the hostile force of globalised trade. Like Britain, he also needs the treaty to be sufficiently different from the failed constitution to avoid holding a referendum.

For more than a decade, supposedly unfair competition from low-cost nations inside and beyond Europe has been blamed as the underlying cause of France’s domestic ills.

The first line of defence must be the European Union, but Mr Sarkozy insists that it is failing. He earned credit in the campaign with his argument that the union is acting like an innocent among predators when it aspires to scrap all internal and external barriers to trade. He has ensured the ire of Brussels – and Britain – with his demand that the EU must impose tariffs on “unfair” imports.

Mr Sarkozy’s chief villains are the United States and the emerging world giants led by China. He has waged a campaign against the EU Commission and Peter Mandelson, its British trade chief, for feebleness in the face of US pressure on farm subsidies and protection of its entertainment industry. He accuses China of forcing down its currency to flood Europe with its goods while the European Central Bank turns a blind eye to the “overvalued” euro. Never one to beat about the bush, Mr Sarkozy has repeatedly called for Mr Mandelson to be stripped of the job of negotiating trade for Europe.

Mr Sarkozy hardened his interventionist views with the French “non” in the referendum on the European constitution in 2005. Voters in France and the Netherlands rebelled because Europe was failing to protect them from the harsh winds of globalisation, he and the rest of the political world concurred.

On the night of his May 6 election victory, Mr Sarkozy sent a message to European leaders: “Do not remain deaf to the anger of the people who view the European Union not as a protection, but as the Trojan Horse for all the threats that are contained in the transformations of the world,” he said.

Sarkonomics mixes state intervention with a supply-side desire to lighten regulation. For example, he supports government promotion of “national champions” in industry while also pushing for further privatisation of state companies such as Areva, the nuclear energy giant. “In some economic sectors, the market isn’t the be-all and end-all,” Sarkozy said in a TV interview in March. “The market sees short term.”

Even incoming UK Prime Minister Gordon Brown had to tell current PM Tony Blair to reconsider Sarkozy's tomfoolery:

Gordon Brown dramatically intervened in a crucial European summit yesterday to overrule the prime minister in his last week in office and demand that Britain challenge a French move to dilute Europe's commitment to a free market.

Nicolas Sarkozy, the French president, triggered a row at the Brussels meeting by watering down a pledge to maintain "free and undistorted competition" in the operation of the single European market.

Mr Brown, who was not attending the summit, intervened with Tony Blair after the prime minister assented to the French demand. He phoned Mr Blair three times in Brussels as he digested the potential impact of the Sarkozy coup. A chastened prime minister was forced to go back to the negotiating table to demand a new "protocol" to guarantee that the EU's powers to regulate cartels and anti-trust issues were not impaired.

In summary, here are the provisions of the deal, which now requires ratification by member states, hopefully bypassing any more referendum shenanigans...

— Permanent President A powerful new post to chair European Council meetings, held for two-and-a-half years and renewable for an extra term. Tony Blair has denied he wants to be first.
Status agreed

— Smaller European Commission Ends the practice of every member state having commissioner. Instead two thirds (18) will hold top jobs in Europe. Designed to streamline EU.
Status agreed.

— Amending previous treaties Idea of a constitution dropped, along with references to EU flag and anthem, to stop the treaty looking like the basis of a European superstate. Instead, the reform treaty will update previous European agreements, not replace them.
Status agreed

— Single legal personality The constitution carried a formal statement that would give the EU treaty-signing powers but it was objected to by several countries including Britain as giving the appearance of too much power.
Status dropped

— EU Foreign Minister A single figure to represent the EU internationally, combining the role of the current High Representative and the Foreign Affairs Commissioner. Britain wanted limits on powers to ensure that job would not conflict with national foreign ministers – and never threaten Britain’s seat on UN Security Council.
Status agreed after Britain retreated

— Common Foreign and Security Policy The EU constitution proposed shifting the decision-making basis for common foreign and security policy, which would threaten the British veto. Britain and others wanted guarantees in the new treaty that policy would still be decided intergovernmentally, preserving the veto.
Status British position agreed

— Tax and benefits One of Britain’s “red lines” was to retain a veto over anything that would influence the tax or benefits system.
Status easy to meet because there were no serious proposals for harmonising welfare systems

— European Parliament A limit of 96 on the number of MEPs for large countries, meaning that Germany will lose three MEPs, and on the minimum number of MEPs for small countries of six.
Status agreed

China Pushes Services Outsourcing

China now makes almost every possible manufactured article possible as the workshop to the world. Now, Chinese officials seem bent on promoting service offshoring as the next step in the country's remarkable development story. Recently, I featured a consultancy firm's note that mentioned India's lead in acquiring financial services offshoring activity. Sure enough, the Chinese are arguably doing the right thing in joining forces with Indian business process outsourcing (BPO) powerhouse Tata Consulting. The main barrier to the China doing well in this area is its relative lack of fluent English speakers compared to India and the Philippines, though this situation may change quickly. [NOTE: Although the terms outsourcing and offshoring are sometimes used interchangeably, I have a slightly different interpretation of them. Outsourcing means contracting things previously done in-house to another firm--it can be done by another firm in the same country or another one. Offshoring, however, means having these tasks done in another country; that is, these tasks may still be done by the same firm, but in a different location.] Here is the article from the China Daily:

The government is to roll out a slew of incentives, including tax rebates and credit support, to boost the nation's services outsourcing industry, a senior official from the Ministry of Commerce said.

"The commerce ministry will work with related government departments such as the Ministry of Finance and the State Administration of Taxation to launch more favorable policies for the services outsourcing industry," Shan Qingjiang, deputy director of the ministry's department of trade in services, said.

Shan was speaking yesterday at the China International Software and Information Services Summit, a major annual event for the industry.

Ron Machan, chairman and chief executive of BearingPoint Management Consulting Greater China, said: "Government support is indispensable for China to boost the growth of the sector and build itself into a top outsourcing destination."

Already a manufacturing powerhouse, China has been making efforts to boost its services outsourcing sector over recent years in a bid to move up the value chain and boost innovation in the IT sector.

Its offshore outsourcing revenue grew more than 40 percent in 2006 to $1.4 billion, but that still accounts for just 2 percent of the global market.

According to Shan, the government will further encourage multinational companies to set up services outsourcing operations in the nation. They are also welcome to set up joint ventures with Chinese counterparts.

"We will first promote some key regions such as the Yangtze and Pearl river deltas," Shan said. [As an aside, why not move these activities inland to promote development there and lessen regional inequality? Information services don't need to be loaded onto ships.]

"Local governments will be encouraged to support major outsourcing companies in those regions."

The Ministry of Commerce launched a pilot project last year to develop 11 bases, including Beijing, Shanghai and Dalian, for services outsourcing across the country. These are expected to attract 100 multinational corporations to transfer part of their outsourcing businesses to China, and create 1,000 large-scale international services outsourcing companies.

Outsourcing companies from around the world have been expanding aggressively in China in recent years, in a bid to tap into its low-cost talent pool and take a slice of the booming IT services market. HP, one of the world's largest IT firms, currently has some 2,700 engineers in China.

Tata Consultancy Services, one of India's most powerful IT outfits, established a new outsourcing joint venture in Beijing with Microsoft and three Chinese partners in February. It expects to increase its headcount in China tenfold to 5,000 by 2010, making it one of the largest players in the country.

Tales of African Migration x3

The New York Times has a wealth of recent stories on migration in Africa. First up is a feature by ace immigration reporter Jason DeParle on how all aspects of global migration can be found on the small island nation of Cape Verde:

Virtually every aspect of global migration can be seen in this tiny West African nation, where the number of people who have left approaches the number who remain and almost everyone has a close relative in Europe or America.

Migrant money buoys the economy. Migrant votes sway politics. Migrant departures split parents from children, and the most famous song by the most famous Cape Verdean venerates the national emotion, “Sodade,” or longing. Lofty talk of opportunity abroad mixes at cafe tables here with accounts of false documents and sham marriages.

The intensity of the national experience makes this barren archipelago the Galapagos of migration, a microcosm of the forces straining American politics and remaking societies across the globe.

An estimated 200 million people live outside the country of their birth, and they help support a swath of the developing world as big if not bigger. Migrants sent home about $300 billion last year — nearly three times the world’s foreign aid budgets combined. Those sums are building houses, educating children and seeding small businesses, and they have made migration central to discussions about how to help the global poor. A leading academic text calls this the “Age of Migration.”

But it is also the age of migration alarm, as European ships patrol African coasts to intercept human smugglers and new fences are planned along the Rio Grande. Countries that want migrant muscle and brains also want more border control. Many of them see illegal migrants as a security threat, especially in a terrorist age, and worry that large-scale migration, even when legal, can undercut wages, require costly services and subject national identities to bonfires of religious and cultural conflict.

The stakes can be seen here in Mindelo, a semicircle of barren hillsides that gaze out at the only sign of natural life, a beckoning sea. In a country with little rain and a history of famine, migration began as a necessity and became part of the civic DNA. You can dine at Café Portugal, drink at the Argentina bar and stroll Avenida da Holanda.

Yet Holland — the Netherlands — now requires would-be migrants to pass a test on Dutch language and culture. Other countries have raised the cost of visa applications, discouraged applicants by requiring them to travel to the Cape Verdean capital, Praia, and placed new penalties on employers who hire illegal immigrants. While the Netherlands has long been a favorite destination for residents of this island, a Cape Verdean song now warns that “Holland belongs to the Dutch.”

Also of interest is an accompanying interactive map that graphically provides a snapshot of global migration. It consists of the (1) net flow of migrants; (2) share of total migrants; (3) share of local population; (4) money sent home by migrants through remittances; and (5) money sent home as a percentage of GDP. It is well worth viewing. Lastly, I recently featured a Foreign Policy article that described Zimbabwe as having one of the world's worst currencies with an inflation rate of 3,714% and rising. The terrible economic situation there has made several Zimbabweans flee to South Africa, which has proven to be less than welcoming:

As Zimbabwe’s disintegration gathers potentially unstoppable momentum, a swelling tide of migrants is moving into neighboring South Africa, driven into exile by oppression, unemployment and inflation so relentless that many goods now double in price weekly.

South Africa is deporting an average of 3,900 illegal Zimbabwean migrants every week, the International Organization for Migration says. That is up more than 40 percent from the second half of 2006, and six times the number South African officials said they were expelling in late 2003.

And that reflects only those who are captured. Many more Zimbabweans slip into the country undetected, although estimates vary wildly. In a nation of 46 million, most experts say, undocumented Zimbabweans could number several hundred thousand to two million.

Social tensions are ratcheting up in both nations, as Zimbabwe’s adult population dwindles and South Africans, already burdened by high unemployment, face new competition for jobs and housing. The migrants also pose a diplomatic problem, because South Africa is trying to broker an end to Zimbabwe’s long political crisis without criticizing its government or appearing to have a major stake in the outcome.

The situation is inflicting ever more misery on the Zimbabweans. The vast majority flee their country’s penury to find a way to support their families back home. But in South Africa they often find xenophobia, exploitation and a government unwilling and ill-equipped to help them.

“There’s a lot of competition” with South Africans “for other resources like housing in informal settlements, access to limited primary health care and education,” said Chris Maroleng, an expert on Zimbabwe at the Institute for Security Studies, a research organization in Pretoria.

South Africa’s government already struggles to provide free housing, medical care and employment for its own poorest, including the millions living in shantytowns. Here, where joblessness runs from 25 to 40 percent of adult workers, the Zimbabweans — now the nation’s largest migrant group — are increasingly seen as intruders, not victims, and clashes between the groups are not uncommon.

Unquestionably, the Zimbabweans are victims first. A rising number claim to be refugees from persecution by President Robert G. Mugabe’s police and by supporters of his ruling party, the Zimbabwe African National Union-Patriotic Front. Just six Zimbabweans sought political asylum in South Africa in 2001; last year, the total was nearly 19,000, more than a third of all asylum applications in South Africa.

But most are fleeing privation, not persecution. Zimbabwe’s annual inflation rate was officially 4,530 percent in May; economists say it is at least twice that. Industries are operating at barely 30 percent of capacity, unemployment exceeds 80 percent and a disastrous harvest is likely to leave up to four million in need of food aid this year.

A memorandum prepared by 34 international aid agencies, including the United Nations and the International Federation of Red Cross and Red Crescent Societies, predicted this month that the country’s economy would cease to function by the end of this year.

Remittances keep the economy afloat: half of all households get most of their money from distant friends and relatives, a Global Poverty Research survey concluded last June. More than one in five of those who sent money lived in South Africa, the most of any nation except Britain.

Megalopolis Megatrend

It seems that the trend towards ever-larger urban agglomerations in the Pacific Rim shows little signs of abating, at least according to recent World Bank research by Shahid Yusuf of the Development Research Group. The map here shows major urban regions in Asia. The abstract of the paper follows:

Mega urban regions are not a passing phenomenon. They are likely to persist and to enlarge their economic footprints because they benefit from the advantages of market scale, agglomeration economies, location, and the increasing concentration of talented workers. Metropolitan regions which are polycentric, relatively well managed, and have invested heavily in transport infrastructure are able to contain some of the problems attendant upon a concentration of people and industry. Moreover, with energy and water resources becoming relatively scarce and many countries anxious to preserve arable land for farming, the economic advantages of densely populated urban areas are on the rise because they have a lower resource utilization quotient.

During the next 15 years, mega urban economies could coalesce in three Southeast Asian locations: Bangkok, Jakarta, and the Singapore-Iskander Development Region (IDR, South Johor). The Bangkok and Jakarta (Jabotabek) metropolitan regions have passed the threshold at least in terms of population size but they have yet to approach the industrial diversity, dynamism, and growth rates of a Shanghai or a Shenzhen-Hong Kong region. Singapore, if coupled with IDR, has the potential but it is still far from being an integrated urban region. This paper examines the gains from closer economic integration and the issues to be settled before it could occur.

The paper notes that a tightening of localized economic links between two sovereign nations through the formation of an urban region would involve a readiness to make long-term political commitments based on a widely perceived sense of substantial spillovers and equitably shared benefits. Delineating these benefits convincingly will be essential to winning political support and a precondition for a successful economic flowering.

Undocumented Migrants in US Speak

Here are the results of a "historic national poll of undocumented immigrants, and their attitudes toward the provisions currently being discussed in the immigration reform debate" sponsored by Senators Diane Feinstein (D-CA) and Ted Kennedy (D-MA). It provides more fuel for the immigration debate regardless of which side you're on. From the summary:

Undocumented immigrants by an overwhelming majority are following the debate over immigration reform with close attention and would comply with proposed legislation to legalize their status, including paying stiff fines and fees and undergoing criminal background checks. Eighty-three percent say they would apply for the new “Z” work visa. Their greatest anxiety is over any requirement to return to their country of origin without a guaranteed right to return. The vast majority report that anti-immigrant sentiment has negatively impacted their families.

The “Z Visa”

1. If new immigration legislation is approved by the Congress of the United States, the overwhelming majority of Latin American undocumented immigrants – 83 percent – would apply for the new “Z” visa that would allow them to live and work in the United States legally.

The undocumented immigrants interviewed were given the following information about the new “Z” visa: “The proposed law would offer a new visa to undocumented immigrants living in the United States. To qualify for this new visa, undocumented immigrants would have to register at a government office and admit that they were in the United States illegally. The head of the family would have to pay $3,000 in fines and fees and each undocumented member of the family would have to pay an additional $2,000. Undocumented immigrants would also have to show that they have a work record in the United States and pass a criminal background check. Those who qualify could then live and work in the United States legally. They would be able to travel between the United States and their home country without problems. The new visa could be renewed every four years by paying $1,500 in fines and fees.”

A small percentage of the undocumented – 14 percent – said that they would not apply for the new visa. They felt that it would be easier to remain undocumented.

2. Substantial majorities of Latin American undocumented immigrants reported that they would be able to comply with all of the requirements of the new “Z” visa. Ninety-four percent were willing to be fingerprinted and to undergo a criminal background check; 89 percent felt that they would be able to show that they had a work record in the United States; 83 percent were willing to pay the $3,000 in fines and fees for the head of the family and the additional $2,000 for each undocumented member of the family; and 85 percent were willing to register at a government office and admit that they were in the United States illegally.

3. More than one quarter – 27 percent – of the undocumented immigrants from Latin America who would otherwise apply for the “Z” visa would not do so if they had to return to their home country to pick up their new work visa. Another 10 percent told our interviewers that they were not sure that they would still apply for a “Z” visa if one of the requirements was to return to their home country.

The “Green Card” and Citizenship

4. The study indicates that approximately three-quarters of the undocumented immigrants who are willing to apply for the new “Z” work visa would also be “very interested” or “somewhat interested” in applying for a “green card” and eventually becoming a citizen of the United States. The undocumented immigrants interviewed were given the following information about the requirements necessary to apply for a “green card” and eventually to become a citizen of the United States: “The new law would require undocumented immigrants to wait 9 to 13 years to receive a “green card” and another 5 years to become citizens. They would have to pay a $4,000 fine and pass an English proficiency test. Undocumented immigrants would also have to return to their home country to complete the application for a “green card” at the United States consulate.

5. The willingness of undocumented immigrants to return to their home country to complete the application for a “green card” depends on whether they are guaranteed re-entry into the United States. Eighty-five percent of the undocumented were willing to apply for their “green card” at the United States consulate in their home country “if they were guaranteed that they could return to the United States without a problem.” But only 35 percent were willing to travel back to their home country for that purpose if there were no such guarantee.

6. The other requirements for a “green card” and citizenship were less controversial. Ninety-two percent were prepared to pay the $4,000 fine; 90 percent were willing to take an English proficiency test; and 71 percent were prepared to wait 9 to 13 years for their “green card” and another 5 years to become a citizen.

Quality of Life Issues

7. A substantial majority of undocumented immigrants from Latin America – 78 percent – agree with the statement that “the anti-immigrant sentiment is growing in the United States” and 64 percent of them report that it is having a negative effect on their families. And they are following the debate about immigration policy in the United States Congress with a great deal of interest. Eighty percent report that they are following it “very closely” or “somewhat closely.” Nevertheless, these immigrants have a very optimistic point of view about their quality of life in the United States. Eighty percent rate it as “excellent” or “good.” And even though the annual income of the majority is less than $20,000, three-quarters of undocumented immigrants consider their economic situation to be positive.

8. Less than one-quarter - 23 percent - of the undocumented immigrants in the United States have health insurance. When someone in their family gets sick, one third of them told our interviewers that they visit a doctor's office or a community clinic, one sixth go to the emergency room at the nearest hospital while another sixth report that they try to take care of the problem at home without medical assistance. The other ten percent either return to their home country for treatment or find other ways of dealing with their health problems.

The Offshoring of Financial Services

This new report by the consulting firm of Deloitte and Touche suggests that the trend towards financial services offshoring will hardly let up over the coming years. To the right is a chart depicting cost savings achieved by financial service firms that have taken advantage of offshoring. As you may have guessed, India leads the way as the destination country:

Financial services continue to lead the way in offshoring. Many of the world’s major financial institutions are continuing to set the offshoring benchmark. As offshoring matures, the gap between the best and the rest widens. This report charts the widening gulf across the financial services industry. It outlines how a small number of financial firms are outperforming the rest of the industry. The move offshore has clearly changed the dynamics of the global financial services industry.

Offshoring has matured at a rapid pace. Less than 10 percent of major financial institutions had moved processes offshore in 2001, according to research by the DTT GFSI group. By 2006, over 75 percent of major financial institutions had operations offshore. US and UK banking and capital market institutions continue to lead this shift, but mainland Europe is showing increasing interest.

Offshore headcount has grown dramatically. The DTT GFSI group estimates there has been an 18-fold increase in the average number of staff each financial institution has employed offshore over the last four years, from 150 in 2003 to 2700 in 2006. Over the last year alone, this has led the proportion of group headcount in lower cost countries to double, from three to six percent by year end 2006.

India remains offshoring’s hub but is likely to lose share in the future. The DTT GFSI group estimates that about two-thirds of global offshored staff are employed in the sub-continent. China threatens to be India’s principal offshoring competitor. Some 200 million Chinese people are currently learning English, providing a growing pool of skilled labor that may compete with India over the next 10 years. China’s share of offshored labor is already rising, with a third of financial institutions now having back-office (mainly IT) processes based in China. China’s growing competitiveness may dampen salary inflation among Indian offshoring industry workers. Further, there are growing concerns over the supply of skilled workers in India. Only 10 to 15 percent of Indian college graduates are considered suitable for direct employment in the offshoring industry. This may result in a shortfall of up to half a million professionals by 2010.

Shoppers of the World, Unite!

This report by consulting firm A.T. Kearney on opportunities for retailers in the developing world provides an interesting glimpse into the shopping space for multinational retailers. A summary of the report is followed by a league table for the Global Retail Development Index. The main suggestion appears to be bypassing often oversaturated major cities for second- and third-tier cities:

As larger cities in India, China and Russia reach retail saturation, some retailers are entering countries through smaller second- and third-tier cities where consumers are ready to embrace Western-style retail concepts and products thanks to the influence of television, movies and the Internet.

This is one of the findings of the sixth annual Global Retail Development Index™ (GRDI), a study of retail investment attractiveness among 30 emerging markets conducted by management consulting firm A.T. Kearney.

Published since 2001, the GRDI helps retailers prioritize their global development strategies by ranking emerging countries based on a set of 25 variables including economic and political risk, retail market attractiveness, retail saturation levels, and the difference between gross domestic product growth and retail growth. The GRDI focuses on opportunities for mass merchant and food retailers, which are typically the bellwether for modern retailing concepts in a country.

India and Russia continue to occupy the top two spots of the GRDI in 2007, as they have for the last three years. China vaulted past Vietnam and Ukraine to place third in this year's index, largely on the strength of continued growth in consumer spending and retailers moving into smaller markets. Modern retail formats grew between 25 and 30 percent in India and 13 percent in both China and Russia in the last year.

Until recently, such rapid growth was confined to the largest cities in each country. However, increased competition in those cities is quickly forcing domestic and global retailers to expand into smaller second- and third-tier cities to drive growth. In China, foreign retailers such as Wal-Mart and Tesco, and Hong Kong-based retailers are branching into smaller mainland cities, such as Yuxi, Weifan, Nanchang and Wuhu. In Russia, Carrefour recently announced it is entering the country via tier-two cities. And in India, shopping center developer Prozone is focusing development on smaller cities in anticipation of growing demand for modern retailers.

But all cities are not created equal.

"Retailers should not go into second-tier cities armed with a first-tier strategy," said Mike Moriarty, a partner with A.T. Kearney and co-leader of the GRDI. "Successfully entering a new country via smaller cities requires careful identification of cities with consumers who are ready to embrace modern retail formats. Incomes are smaller and products need to be customized for different markets. But with the right strategy, smaller cities can be attractive targets for retailers that missed the 'window of opportunity' in major cities and for established retailers looking for growth."

Green Companies/Apple, Eco-fiend?

I recently came across this new set of rankings on corporate greenness by Climate Counts, a non-profit initiative designed to spur corporate action on global warming. It classifies companies as stuck (red), starting (yellow), or striding (green) based on four criteria on a per-industry basis: reviewing a firm's own contributions to global warming; reducing its climate footprint; supporting public policy initiatives on climate change; and reporting publicly efforts to address global warming. The following tables rank companies from 0 to 100 based on these aforementioned criteria:
What's surprising to me at least is that Apple Computer is dead last in the electronics category with a score of 2/100. Climate Counts assesses Apple thusly while discouraging the environmentally-conscious consumer from buying Apple products:

STUCK - A choice to avoid for the climate-conscious consumer. This company is not yet taking meaningful action on climate change. Let this company know you want them to get serious and that you're steering clear until they do.

Review: 0/22 points. Climate Counts found no public information to indicate that Apple has started to measure the impact it has on global warming (i.e. its greenhouse gas emissions or climate footprint).

Reduce: 2/56 points. Climate Counts has found that Apple has started to review the overall impact its products have on global warming and intends to release the data later this year.

Policy Stance: 0/10 points. Climate Counts found no public information to suggest that Apple supports public policy that addresses climate change.

Report: 0/12 points. Climate Counts found no information on any efforts that Apple has made to address climate change.

It seems Climate Counts wasn't too impressed with Apple's web page touting its green credentials. Google doesn't come out very well either, which is probably a reason why they've announced a new effort to go green. Sometimes, the less-fashionable firms are ahead on the fashionable mandate of eco-friendliness.

Is the IMF America's Lackey?

One of the longstanding accusations leveled against the Bretton Woods institutions over their history is that they were created by the US to serve US interests. Joseph Stiglitz, for example, famously said that there was a Wall-Street-(US) Treasury-IMF complex that mishandled the Asian financial crisis for its interests lay in safeguarding American ones and not in alleviating the crisis. More recently, I hinted that the new Baucus-Grassley-Schumer-Graham bill targeted at perceived Chinese currency undervaluation was difficult to implement in practice as it involved so many parties--Treasury, Federal Reserve, other central banks, the IMF, World Bank, and the WTO--that it would be unwieldy in practice. However, it seems that the IMF is now falling in line with calls from many in the US to become more proactive on the matter of currency manipulation. Here is the IMF's new guidance on what constitutes currency manipulation. First, the IMF defines "external stability":

IMF surveillance aims at fostering stability in the international monetary system by encouraging national policies that do not disrupt or compromise external stability. Here, the interest is in both the balance of payments stability of the country and the effect of its balance of payments position on the balance of payment stability of other countries.

External stability has been achieved when the balance of payments position does not, and is not likely to, give rise to disruptive adjustments in exchange rates. This requires both (i) an underlying current account (that is, the current account stripped of temporary factors, such as cyclical fluctuations, temporary shocks, and adjustment lags) broadly in equilibrium-a situation in which the country's net external asset position is evolving consistently with the economy's structure and fundamentals; and (ii) a capital and financial account that does not create risks of abrupt shifts in capital flows, whether through the presence of financing constraints or the buildup or maintenance of vulnerable external balance sheet structures.

When the underlying current account is not in equilibrium (which may be due to exchange rate policies but also to unsustainable domestic policies or to market imperfections), the exchange rate is "fundamentally misaligned." In other words, fundamental exchange rate misalignment, an important indicator of external instability under the 2007 decision, is a deviation of the real effective exchange rate from its equilibrium level-that is, the level consistent with a current account (stripped of cyclical and other temporary factors) in line with economic fundamentals.

While the concept of misalignment is clear, it is subject to significant measurement uncertainties. Accordingly, the IMF will exercise appropriate caution in reaching conclusions about misalignments. Moreover, an exchange rate would only be judged to be fundamentally misaligned if the misalignment was significant.

Next, it states four principles for members' exchange rate policies. These are iffy to me on definitional grounds once again:

The 2007 Decision outlines the following four principles for members' exchange rate policies.

A. A member shall avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members.

B. A member should intervene in the exchange market if necessary to counter disorderly conditions, which may be characterized inter alia by disruptive short-term movements in the exchange rate of its currency.

C. Members should take into account in their intervention policies the interests of other members, including those of the countries in whose currencies they intervene.

D. A member should avoid exchange rate policies that result in external instability.

Third, here's the heart of the matter. Currency manipulation is given a definition:

The IMF's Articles of Agreement provide that member countries shall "avoid manipulating exchange rates ... to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members." But the Fund had provided little guidance on what constitutes such exchange rate manipulation. The 2007 Decision on Bilateral Surveillance that the IMF's Executive Board approved on June 15 provides guidance to the IMF's 185 member countries on the type of behavior that is at issue.

The 2007 Decision provides that a member would be "acting inconsistently with Article IV, Section 1 (iii)," if the Fund determined it was both engaging in policies that are targeted at-and actually affect-the level of the exchange rate, which could mean either causing the exchange rate to move or preventing it from moving; and doing so "for the purpose of securing fundamental exchange rate misalignment in the form of an undervalued exchange rate" in order "to increase net exports."

Last, seven indicators are flagged as to whether a member country is in violation:

In its surveillance of the observance by members of the Principles in Box 1, the IMF shall consider the following developments in a country's economy as among those requiring thorough review and might indicate the need for discussion with a member:

(i) protracted large-scale intervention in one direction in the exchange market;

(ii) official or quasi-official borrowing that either is unsustainable or brings unduly high liquidity risks, or excessive and prolonged official or quasi-official accumulation of foreign assets, for balance of payments purposes;

(iii) (a) the introduction, substantial intensification, or prolonged maintenance, for balance of payments purposes, of restrictions on, or incentives for, current transactions or payments, or

(b) the introduction or substantial modification for balance of payments purposes of restrictions on, or incentives for, the inflow or outflow of capital;

(iv) the pursuit, for balance of payments purposes, of monetary and other financial policies that provide abnormal encouragement or discouragement to capital flows;

(v) fundamental exchange rate misalignment;

(vi) large and prolonged current account deficits or surpluses; and

(vii) large external sector vulnerabilities, including liquidity risks, arising from private capital flows.

What is significant to me is how the rhetoric here--from "fundamentally misaligned" currencies to "large-scale intervention in one direction in the exchange market"--seem straight out of the US senators' playbook. This decision of the IMF to make its Article IV surveillance tougher sounds like the step in the senators' playbook of asking the IMF to determine just how "undervalued" a currency is (such as the yuan) before approaching the WTO to apply commensurate sanctions for manipulation. Clearly, the playing field is being tilted in America's favor by the IMF.

Understandably, China is alarmed by these new IMF surveillance guidelines which supersede the previous ones dating back to 1977; it appears to be squarely in the IMF's crosshairs. The Financial Times notes that China has warned the IMF not to go too far with this matter:

China on Wednesday issued a pointed warning to the International Monetary Fund not to back US pressure for a faster appreciation of the renminbi in a planned review of global exchange rates.

The People's Bank of China, the central bank, said in a statement on its website that the IMF "should carry out its duties based on mutual understanding and respect", especially for the views of developing countries.

Without directly naming the US, the PBoC said the IMF should step up supervision of member states issuing "major reserve currencies that play a pivotal role on the global systemic stability" [tit-for-tat].

China is coming under increasing pressure from the US over its swelling trade surplus, which many of its critics claim is the result of an undervalued currency.

US senators recently introduced a bill that would see disputes over exchange rates sent to the World Trade Organisation by treating them as unfair export subsidies. The bill did not specifically name China, but the renminbi is the most immediate target of the legislation.

China has committed itself to making its currency more flexible, but insists it needs to be done gradually to ensure the stability of its economy…

"An unregulated and massive adjustment will not only worsen external instability, but also influence the sustainability of domestic economic growth, and therefore global growth and the stability of international financial markets," the PBoC said.

Although China is the world's fourth largest economy and is on track to become the biggest trading nation, the PBoC statement stressed its participation in the IMF as a "developing country". The statement expressed reservations about the IMF review because "it fails to reflect opinions of developing countries".

The IMF said the PBoC's call for equal treatment of all countries and due regard to countries' circumstances "is fully reflected in the decision that has been approved and the IMF and its staff are dedicated to implementing it in this spirit".

Meanwhile, Hank Paulson, US Treasury secretary, hailed the IMF surveillance reform in testimony to Congress on Wednesday, saying it will "permit firmer surveillance in areas such as insufficiently flexible exchange rate countries".

He said the US would keep up the pressure on the IMF over its surveillance work, warning "nothing is more important for the relevance of the IMF than rigorous execution of its most fundamental responsibility".

Mr Paulson - who has emphasised the bilateral channel of diplomacy with China through the special economic dialogue he set up - said "firm, multilateral based exchange rate surveillance has the potential to be a strong complement to bilateral diplomacy".

Meanwhile, Deputy PBoC Governor Wu Xiaoling urges patience (just a little patience) on the matter for China to gradually acclimate itself to a stronger yuan. This, of course, is the official PRC line:

China urged on Thursday other countries to be patient on yuan exchange rate reforms and said a stronger renminbi is no panacea.

The main problem China is facing is the economic imbalance caused by the high-flying surplus in both current and capital accounts, which cannot be solved by yuan appreciation alone, said deputy central bank governor Wu Xiaoling at a forum in Beijing.

China is taking measures to enlarge citizens' income, boost domestic consumption, and increase imports and reduce exports, Wu told the forum on the 10th anniversary of the Asian financial crisis.

"However, China is a big country in the process of economic transformation and needs more time," she said. "So we hope the other countries can be more patient with China."

She went on to cite the examples of Germany and Japan, saying a stronger exchange rate alone was not the solution. The two countries retained big trade surpluses despite powerful rises in their currencies.

Those countries balanced their external accounts by exporting capital, she noted, adding: "Therefore the Chinese government hopes its companies can go out under the capital account."

To that end, China is loosing controls on overseas investment by domestic companies and individuals. In the latest move, the China Securities Regulatory Commission Wednesday gave the go-ahead for Chinese securities and fund-management firms to invest overseas…

The major difference between the old and new rules is the new one discards the requirement that IMF should prove the country concerned intentionally uses its exchange rate to make its exports cheaper.

In response, China's central bank, the People's Bank of China (PBoc) called on the IMF to pay attention to each nation's circumstances.

"An unregulated and massive adjustment will not only worsen external instability, but also influence the sustainability of domestic economic growth, and therefore global growth and the stability of international financial market," the PBoC said in a statement.

Chinese analysts called the new IMF rules a product of heavy US pressure. American lawmakers, manufactures and businesses are accusing China of keeping the yuan artificially low, by as much as 40 percent, to give an unfair advantage to its exports [my emphasis; they’re right, you know.]

So far, China has not really made large countermoves to actions designed to make it move on the matter of yuan undervaluation, preferring a softer line such as calling for "patience." I suspect that, if concrete action is taken to brand China a currency manipulator, it will have little choice but to scare the US by selling Treasuries to show just who is boss in today's international political economy. Stay tuned for the exciting conclusion to this trade squabble which has now been joined by the IMF on America's side, it seems. Answer for yourselves the question I posed at the beginning: Is the IMF American's lackey?

Another North-South Doha Deadlock

Recently, I called the Doha round of WTO trade negotiations the Freddy Krueger of trade deals while voicing a lack of optimism for the meeting in Potsdam among the G4--the EU, US, Brazil, and India. It turns out that my pessimism was well-placed. You can safely re-bury Freddy/Doha and wait for yet another sequel. The Potsdam talks were killed off early as the North-South divide was left intact with the North being unwilling to budge on agricultural subsidies and the South on tariffs on manufactured goods. Unlike previous Doha stalemates, this particular discussion may have greater repercussions since Bush's fast-track authority over trade deals--which allows him to negotiate trade deals and have the US Congress vote on it unchanged--expires at the end of the month. There are few signs that Bush will successfully get this authority extended, meaning that future trade deals struck are subject to congressional amendment, possibly delaying matters further. The Financial Times offers this summary:

The chance of a global trade deal being clinched before President George W. Bush leaves the White House shrank dramatically on Thursday with talks between core negotiating partners collapsing again in division and acrimony.

In a near-exact repeat of events last summer, talks in Potsdam, Germany, between the four partners at the centre of the so-called Doha round of negotiations – the EU, US, Brazil and India – broke up with sides still far apart on cutting agricultural subsidies and goods tariffs.

The collapse makes it unlikely that an outline deal can be agreed before the summer, a step necessary to complete a detailed agreement by the end of the year. With the US presidential race starting in earnest next year, many in the talks believe the political sensitivities in any deal mean no agreement can be concluded until there is a new incumbent in the White House.

Kamal Nath, the Indian trade minister, accused the rich countries of arrogance and inflexibility. He told the Financial Times: “It is not just a question of figures. It is a question of attitude. The US does not realise that the world has changed.” The US and the EU said Brazil and India offered no serious access to manufactured goods markets in return for proposed reductions in US farm subsidies and European agricultural tariffs.

The failure of the so-called G4 to broker an outline deal will throw the ball back to the entire membership of the World Trade Organisation in Geneva, where the chairmen of the farm and industrial goods talks are preparing draft versions of a deal. But trade officials were pessimistic...

Unlike last year’s collapse, when the US found itself isolated, the EU on Thursday joined the Americans in demanding bigger cuts in goods tariffs. Peter Mandelson, EU trade commissioner, told reporters: “It emerged from the discussion on [industrial goods] that we would not be able to point to any substantive or commercially meaningful changes in the tariffs of the emerging economies.” He said Mr Nath unilaterally declared the talks over without consultation.

The four parties to the Potsdam talks were US Trade Representative Susan Schwab, EU Trade Commissioner Peter Mandelson, Brazilian Foreign Minister Celso Amorim, and Indian Commerce Minister Kamal Nath. I have been yet unable to find the official statements of Amorim and Nath. So, first up is Schwab, who has a lengthy commentary on the matter on the USTR website. Notice the common US/EU refrain that this is not a north-south disagreement. Their implication is that Brazil and India are, in so many words, obstructionists whose bargaining positions may not be representative of other developing nations':

We regret the outcome of this week's talks. We had high hopes for Potsdam and the ability of the G4 to reach convergence. [Agricultural] Sec. Johanns and I came with a full mandate to deal, and in spite of real progress, particularly progress made by the senior officials in the last many months, including I might add progress on all three agricultural pillars--in spite of that progress, there were more barriers put up to the dialogue than the talks could sustain.

Now the United States is not giving up on the Doha Round, and we continue to be supportive not just of the Doha Round but obviously of the World Trade Organization. At some point, though, when you realize that not everyone in the room has the same intention, and you have to give up.

The G4 may not ever be able to reach closure, but that certainly does not mean the end of the round. And in fact, I look forward to going to Geneva at some point and engage with the negotiation chairs with Pascal Lamy with likeminded countries [i.e., not Brazil and India], developed and developing countries that want to see a successful, ambitious end to this round.

Some may want to portray this as a north/south breakdown [like yours truly]. But resorting to that kind of rhetoric masks the lack of new trade flows that would be generated by what is currently on the table, and this is particularly true in the manufacturing side [natch]...

But this is not a north/south breakdown. Unfortunately, the bigget losers from the current status of the negotiations will be the dozens and dozens of developing countries who need to be exporting not just ot the mature markets of the developed world, but also to the markets of the advanced developing countries--and that includes countries like Brazil, like Indian [sic], like China, among the fastest-growing countries in the world.

Next up is Mandelson on this latest stalemate:

On the big numbers the triangle of domestic support, AMA [agricultural market access], NAMA [non-agricultural market access], we have not, as I already said, reached convergence. But - and this is my personal view, I firmly believe we have a broad landing range in agriculture which is fair and forthcoming to developing countries and takes to the limit what the EU can do. We have moved, moved, and moved again in the last year or so in different parts of the agricultural negotiation and as I and Commissioner Fischer Boel have made clear we had a final move left in us to reach a balanced, equitable, ambitious conclusion.

But we cannot negotiate with ourselves. It remained totally unclear from our discussions whether there is a comparable landing range in industrial goods, without which it would not be possible to find a reasonable trade off. We were asked to put our last best agriculture offer on the table in the knowledge that this would not attract anything in return within the scope of our negotiation mandate and within the concept of proportional effort by all G4 members.

This is a development round. The developing countries - but only those in a position to do so - should make less effort and receive more than the developed countries. In the case of the poorest they should only receive from a successful trade round.

But, while in Europe, we are prepared to pay a lot - and more than others - we cannot do so for next to nothing in return. It emerged from the discussion on NAMA that we would not be able to point to any substantive or commercially meaningful changes in the tariffs of the emerging economies, as a reasonable return on what we are paying into the round.

I would have hoped that this would have not been the last word exchanged in the G4 meeting today. But, quite simply, there was nowhere else I could take it under the circumstances. The last plenary this afternoon did not happen as planned. I regret that. We will not resume I will report back to the EU Member States on Monday and of course share every available information and encouragement with the WTO's membership in Geneva.

This is not a North South showdown [see?]. It is not only we who want something out of the round. Both the developed world and the fast growing competitive countries of the developing world must create trade-offs for the most needy. These are the countries who should not be overlooked otherwise they will never cease being the most needy.

That means lowering tariffs in the developed world and proportionally, over time, reducing them in developing countries who are in a position to do so. Something, incidentally, that will help spur their own economic reform and future growth.

Lastly, let's hand over the mike to WTO Director-General Pascal Lamy, who moves the discussions back to Geneva for multilateral talks [see, I told, you--Freddy Krueger, etc.]:

G4 Members (US, EU, Brazil and India) have been meeting in Potsdam to try to bridge gaps in their negotiating positions. Prior convergence among these Members would have been helpful to pave the way towards multilateral convergence. But helpful does not mean indispensable. This negotiation is an endeavour among the 150 Members of the WTO.

The negotiating process is driven by the Chairs of the negotiating groups, who have responsibility to table compromise texts in their respective areas.

I now call on the members of the G4 to contribute to the multilateral negotiating process, which will continue as of today in Geneva.

Dear readers, please provide links to official statements by Amorim and Nath if you can find them for I have come up dry thus far. What's next? I still see this round being completed, but a long way down the line. As the FT suggests, perhaps after the next US president is elected. The Uruguay round which led to the GATT becoming the WTO took seven years; this one may last even longer. While Doha may be on the backburner, the WTO soldiers on--just as the EU did after France and the Netherlands voted down the EU constitution in 2005. Obladi-oblada, life goes on.

UPDATE 1: There are signs of an emerging rift between Brazil/India and other developing countries. The so-called G90+ and the African, Caribbean and Pacific (ACP) groups are voicing concern that they are not adequately informed of goings-on in G4 negotiations. However, neither do they say that the US/EU position is more palatable to them as Schwab and Mandelson imply. From Agence-France Presse:

Developing countries in the World Trade Organisation expressed annoyance on Thursday at being excluded from talks in Germany between the four key players in the global commerce body...

Brazil and India both count as developing countries, but Jamaica's ambassador on behalf of the G90 Plus group said the two states alone could not negotiate on everyone's behalf and that other developing economies felt out of the loop.

"The majority of members have little or no knowledge of the progress and content of the G4 process," said Gail Mathurin, whose country also heads the Africa-Caribbean-Pacific (ACP) group of 78 mostly former European colonies.

"Although two of the G4 are developing countries, they cannot be expected to carry the responsibility of representing the views of all developing countries," she added.

The G90 Plus urged a greater role for full multilateral discussions to resolve the impasse in the WTO's Doha round of global trade talks, rather than talks between select groups of countries.

"The multilateral system cannot be used to rubber stamp and legitimise decisions made by a few," the group said in a statement.

It called for "full participation of all members in discussion and in preparing the drafts and final texts."

The group also voiced concern that "development concerns have been left behind in the rush to agree a deal in the Doha Round."

"Content cannot be sacrificed for timelines," it added.

Negotiations to conclude a trade liberalisation deal, which is mainly meant to provide an economic boost for developing nations, have missed several deadlines since their launch in the Qatari capital in late 2001.

UPDATE 2: Tony Blair has made a phone call to Brazil's President Lula in a last-minute effort:

Outgoing U.K. Prime Minister Tony Blair called Brazilian President Luiz Inacio Lula da Silva Friday to urge a strong last-ditch effort to save the Doha round of World Trade Organization talks from possible failure, Brazil presidential spokesman Marcelo Baumbach said.

In a 20-minute phone call, Blair reportedly told Lula that the next 48 hours would be decisive for the success of the talks and requested that the Brazilian president intercede in favor of agreement.

The call came a day after authorities from the WTO's four most-powerful members - the U.S., the European Union, Brazil and India - announced they had failed to reach a preliminary agreement that would cement the basis for the Doha round.

During Friday's conversation, Blair reportedly urged Lula to accept a reduction in industrial import tariffs to an average of 12.7% from 35%. Brazil has offered to accept a reduction to 16%.

According to Baumbach, Lula said that the steeper tariff reduction proposal was very ambitious and would require the U.S. and the E.U. to make a better offer for Brazilian agricultural goods.

"The key now is in political dialogue and an improvement in the offers from wealthy economies," the spokesman said.

Pollution in China: Peril and Hope x5

Here is a collection of recent news on China's environmental situation. The first three are rather depressing, but the last two show some hopeful signs for the country. You know, you could have your hands filled 24/7 with a blog that covered environmental issues in China alone. Although Gideon Rachman makes the argument that environmental damage hasn't hurt Chinese growth till now so it is doubtful if it will in the future, he ignores the cumulative damage that has already been caused which may lead to a proverbial "tipping point." In any event, I highly recommend the book The River Runs Black by Council on Foreign Relations scholar Elizabeth Economy (great name, by the way) if you are further interested in China's environmental challenges.

As you might have probably read by now as it's been splattered all over the Web like in this piece from Bloomberg, the Danish environmental authority MNP has determined that China surpassed the United States as the world's top greenhouse gas emitter last year. This contrasts with earlier International Energy Agency prognostications that China would surpass the US this year, not last year (I have reproduced the chart above depicting a considerable increase in China's share of world GHG emissions for your viewing pleasure):

In 2006 global CO2 emissions from fossil fuel use increased by about 2.6%, which is less than the 3.3% increase in 2005. The 2.6% increase is mainly due to a 4.5% increase in global coal consumption, of which China contributed more than two-third. China’s 2006 CO2 emissions surpassed those of the USA by 8%. This includes CO2 emissions from industrial processes (cement production). With this, China tops the list of CO2 emitting countries for the first time. In 2005, CO2 emissions of China were still 2% below those of the USA. These figures are based on a preliminary estimate by the Netherlands Environmental Assessment Agency (MNP), using recently published BP (British Petroleum) energy data and cement production data. In the 1990-2006 period global fossil-fuel related CO2 emissions increased over 35%.

Next, China is also seeking to reduce emissions which arise from agricultural activities, though it needs to balance environmental concerns with those of food security for its citizens:

Pressure from global warming is unlikely to change China's policy of maximizing domestic grain production, a prominent climate scientist said, but the country is starting to look at ways to reduce greenhouse gas emissions from farming.

Water scarcity and extreme weather related to global warming could cut the country's agricultural production capacity by 5 to 10 percent by 2030 if adaptive steps are not taken, according to estimates included in China's Climate Change Assessment.

But Lin Erda, a climate expert at the Chinese Academy of Agricultural Sciences who advises the government, said officials were confident their grain goals would not be badly dented.

"The Ministry of Agriculture believes it can find ways to offset that and maintain output levels," Lin told Reuters.

"China can't afford to give up its grains sufficiency goals. We're such a big country -- where can we buy from?

Even if overall output levels are maintained, China's patterns of grain production could change along with shifting water availability and temperatures.

Third, here is an article from China Daily on how major lakes that are sources of drinking water have once again suffered from algal bloom as industrial and agricultural runoff as well untreated sewage have gotten into these bodies of water. If you haven't got an idea of what these outbreaks of algae look like, the picture to the left provides a rather vivid image. We're not talking about your average, ordinary seaweed here but large-scale breakouts of yucky stuff. These outbreaks can debilitate entire marine ecosystems by draining them of oxygen and nutrients:

Huge algae outbreaks again pose a threat to drinking water supply from Taihu and Chaohu, two of China's major freshwater lakes.

Satellite pictures showed blue-green algae covering about a third of both lakes in the country's densely populated east, according to the National Satellite Meteorological Center.

In the 2,400-sq-km Taihu Lake, the country's third largest freshwater lake on the border of Jiangsu and Zhejiang provinces, about 800 sq km is covered with the fast-growing and foul-smelling green plant.

A large outbreak a few weeks ago contaminated the lake and resulted in the shutdown of tap water to about 2 million residents in Wuxi, Jiangsu Province.

But the latest outbreak has not affected drinking water safety because the algae is found far from the water intake points, said Li Jianqiu, a spokesman with Wuxi utilities bureau…

The nearby city of Changzhou, which uses the Yangtze River as its water source, has also not been affected, said a government spokesperson.

In the 780-sq-km Chaohu Lake in Anhui, China's fifth largest freshwater lake, 280 sq km is carpeted by algae.

Last week, the satellite monitoring system showed that patches of algae had spread over 40 sq km in the lake, a source of drinking water for some 260,000 people...

Zhang Bangguo, an expert with the Chaohu bureau of environmental protection, said excessive nutrients in the lake, including nitrogen and phosphate from fertilizers, industrial runoff and untreated sewage, as well as high temperatures, have provided good conditions for the algae bloom.

Clearly, China needs to find a balance between development and a sustainable environment. After all, that's what sustainable development is all about. One way of killing two birds with one stone is lessening its dependence on export markets and pollution-intensive production. As I have noted elsewhere, export-tax rebates have been used by China in its export policy. These rebates grant refunds for certain taxes based on export performance. China has gradually been lessening the rebates granted to exports from highly polluting industries, and has raised the bar again in this regard:

China will remove or reduce tax rebates on nearly 3,000 export categories, including some metals products, textiles, shoes and other manufactured goods, to help reduce its trade surplus, the Finance Ministry said Tuesday.

The long-anticipated changes could temporarily stem a flood of exports, particularly of steel and aluminum products, that helped widen China's trade surplus to $216.7 billion in the 12 months through May.

"The export tax rebate policy adjustment is an important part of a series of measures to curb export growth and to mitigate the excessive trade surplus problem," the ministry said in an announcement on its Web site.

The rebate changes are expected to have a cooling effect on exports, but "will not have a significant negative impact," it said without elaborating. The changes will take effect starting July 1.

There will be no grace period for most products, except ship sections and some construction equipment, since previous grace periods on export-policy changes resulted in many cases of fraudulent export contracts, the announcement said...

"The trade surplus is not merely an economic issue, it's also a political problem," said Wang Yuanhong, an economist at the State Information Center in Beijing, a unit of the government's top planning agency. "China must adjust its cost of production, including the cost of labor, resources and the environmental impact, to rein in the trade gap."

The U.S. Congress, labor unions and manufacturers have accused China of spurring exports by keeping its currency weak against the dollar and giving rebates.

"It's rare to see so many items changed at once," said a European diplomat in Beijing. He noted that China usually balanced lower rebates on low-end products with higher rebates to encourage exports from higher value-added industries.

China has cut export rebates three times this year. The Chinese tax bureau in April reduced tax breaks on seven products, including stainless steel and cold-rolled coils.

Lastly, the International Herald Tribune features this story on the renewal of the historic Grand Canal in Hangzhou. The measures taken may be emulated elsewhere, to the benefit of China's water quality--especially in major cities:

Until the early 1990s, crews on barges and boats chugging down the 2,400-year-old Grand Canal in China didn't need familiar landmarks to tell them they were approaching the scenic city of Hangzhou.

They could smell it.

"The water was black," said Zhu Jianbai, assistant director of the city government's Grand Canal Restoration and Development Group. "There was no life in it. If you lived beside it, you had to live with the stink."

Effluent from textile and petrochemical factories lining the canal, combined with raw sewage from the surrounding suburbs, had poisoned this section of the world's oldest man-made waterway.

At the time, Hangzhou was in the midst of a gathering economic boom that has since transformed this traditional tourist center into one of China's richest centers. But, this new wealth and a growing sense of civic pride did not sit easily with the foul stretch of canal winding through the city.

"It was an embarrassment," Zhu said.

That shame and a growing realization that the canal could contribute to economic development were the catalyst for a makeover that has seen more than $250 million spent since 2001 on improving water quality and urban renewal along a section of its banks stretching for 39 kilometers, or 24 miles.

There is no deadline for finishing the cleanup and restoration work, but Zhu estimates that the final cost will reach about $2.5 billion.

Walkways and parkland now line sections of the canal, and some of China's most expensive apartment buildings have sprung up in what has become prime real estate. Water taxis connect historic piers and bridges along the winding route through the city where old shop houses and tenements are now being restored.

The canal does not smell, and small fish swim between the pylons supporting cargo wharves.

For a growing number of activists campaigning for the preservation of the 1,794-kilometer canal and its many cultural and historical sites, this success is an important step in reversing almost two centuries of neglect, during which long sections of the waterway that links Hangzhou with the capital, Beijing, were abandoned or fell into disrepair.

"We can borrow from this experience," said Zhu Bingren, a well-known Hangzhou artist who with fellow activists has called on the central and local governments to develop a comprehensive strategy for rehabilitating the canal. "It can't be copied for every city, but a lot of experts are generally satisfied with Hangzhou's method."

World's Worst Currencies

Boy, Foreign Policy is on a real roll with the on top people smuggling routes and now this one on "the world's worst currencies." There are five debauched denominations described (though shouldn't the US dollar be in here as well as it seems t0 have depreciated against pretty much everything recently save for the yen?) I feature two here:

Somalia

Currency: Somali shilling (SOS); Somaliland, an independent region not recognized by any country, also issues its own currency called the Somaliland shilling

Inflation rate: Nobody knows. Whatever it is, it’s not low.

Exchange rate: 1,387.77 SOS per US$1

What went wrong? Everything. It’s no surprise that the U.S. dollar and not the shilling is the Somalis’ currency of choice for large transactions and foreign trade. When the Somali state collapsed in 1991, the Central Bank of Somalia collapsed with it, along with the entire banking system. The Somaliland and Puntland regions developed their own versions of central banks, and what remains in the rest of the country is an informal monetary system run by speculators in outdoor markets like Bakaara, Somalia’s largest. With no central regulating authority, traders make up the rules and prices as they go along, and counterfeiting is rampant. When the defunct Central Bank stopped printing notes, private businessmen and warlords merely imported new shillings printed in Canada or Southeast Asia as needed. The World Bank estimates that as much as 80 percent of the currency in circulation is forged, reprinted, or new currencies. The worst part? The 1,000 shilling note is the only note available in some parts of the country, even though a cup of tea costs 500 shillings.

Iraq

Currency: The new Iraqi dinar (NID)

Inflation rate: 40.92 percent in April 2007

Exchange rate: 1,260 NID per US$1

What went wrong? The war. In October 2003, the U.S. Coalition Provisional Authority introduced the New Iraqi Dinar to replace the old “Swiss” dinars that featured the likeness of ousted dictator Saddam Hussein. But the new design may have been the high point for the NID. Iraq’s inflation rate averaged 50 percent last year, as spiraling security costs and persistent shortages of gasoline fueled rampant inflation, while black market profiteers bid up the unofficial price of petrol. Struggling to keep inflation in check, Iraq’s beleaguered central bank allowed the dinar to appreciate by 14 percent and raised interest rates to 20 percent in December 2006. Inflation reached a peak of more than 66 percent in January 2007, but declined to a “mere” 40 percent in April. It’s an encouraging sign, but unless the country’s raging sectarian violence gets under control, not even Alan Greenspan will be able to turn Iraq’s economy around [Well, bah humbug on that point. There's even a whole website on the maestro's shenanigans.]

World's Top Human Trafficking routes

From Foreign Policy online comes this interesting article on what they consider as the world's top people smuggling routes. Here's a brief excerpt for you. By all means, though, do read the whole article which contains five routes in all:

The Long Road from Guatemala to the United States

Trends: Mexicans are still by far the largest group of illegal immigrants to the United States: In 2005, 86 percent of apprehensions across the U.S.-Mexico border were of Mexicans. But as Mexicans head north to find a better life in the United States, Guatemalans are falling in behind them—between 45,000 and 75,000 Guatemalan peasants cross the southern Mexican border each year, according to the Migration Policy Institute. Disturbingly, drug lords are seizing control of the human-smuggling business across the Americas, using migrants as human decoys for diverting border authorities from shipments of drugs.

Hot new route: The new fence along the U.S.-Mexico border in California and Texas merely shifted migration routes away from traditional entry ports near San Diego and El Paso. The hot new gateway is the area around Tucson, Arizona, which saw a 64 percent increase in the number of apprehensions in 2004 compared with the previous year.

Why they leave: It’s the economy, stupid. Most migrants from Latin America are looking for a better-paying job in order to send remittances home to their families left behind. But violent crime could also play a role: Increasing numbers of asylum seekers from El Salvador, Honduras, and Guatemala cite fear of “gang violence” on their applications.

What they find: In the United States, a crackdown: tough Border Patrol agents, the National Guard, and the Minutemen, anti-illegal immigrant activists who are taking enforcement into their own hands.

Northeast Asian Exodus

Trends: In an indication of just how bad the situation in Hermit Kingdom has gotten, apprehensions of North Koreans skyrocketed in Thailand in 2006. Since the mid-1990s, at least 200,000 Chinese have moved to far southeastern Russia.

Hot new route: Desperate North Koreans are forced to get creative in fleeing to the more prosperous South. A common way to get there is via Thailand through China and Laos. Many never make it out of China.

Why they leave: The severe famine that hit North Korea after disastrous economic reforms prompted thousands to leave their homes. Along with China’s surplus of males, this migration has fueled a new kind of sex trade: Chinese smugglers attract young women, many of them from North Korea, with the promise of a good job, and then sell them to local Chinese men as “wives.” At the same time, Chinese living in the three underdeveloped provinces nearest a depopulated region of southeastern Russia have responded to growing demand for labor across the border.

What they find: A rude welcome. Beijing stubbornly calls North Koreans refugees “defectors” and pledges to hand them back to Kim Jong Il. For its part, the Russian media has labeled Chinese immigration a “yellow peril,” a threat to Russian identity.

Online Dating Commodity Fetishism

Marx used the term "commodity fetishism" in referring to the treatment of more and more aspects of human life as things to be bought and sold. Some Internet entrepreneurs who I accidentally found while searching for stuff to post about seem to have taken "commodity fetishism" to its logical online conclusion. The online dating service SeekingMillionaire claims to be "the largest dating website for rich and wealthy individuals, or beautiful girls and attractive guys," and that their service is "designed to meet the needs of wealthy men and women seeking relationships with young and attractive girls and guys, and vice versa." I swear, I did not make up this advert to the left featuring a self-described hottie extolling this service while wrapped in a bathing towel as her presumably wealthy mate holds a glass of champagne in a bubbly hot tub [!] It seems straight out of MAD Magazine, but no. Sometimes, truth is stranger than fiction. Besides, what kind of persons "work 7 days a week just to make ends meet"? Y'all know the answer to that...

Further confirmation of what really counts in this purported playground for wealth and beauty is this statement: "Members may search profiles and add favorites. Attractive members may initiate contact with other Wealthy members. Wealthy members may initiate contact with all Attractive and Wealthy members" [their emphasis]. Offhand, I'm not putting this service down. I try to be open-minded and non-judgmental--cast the first stone, etc. Heck, I might put up my profile and end up being featured in one of these silly adverts as well:

SCENE: (I am seated on a leather sofa with an 85-year old grandmother, my "lover," whose right hand I am holding and who I am looking at with heartfelt longing.)

"I used to be a PhD student when I figured that I was way too sexy to be a mere schoolteacher. Through SeekingMillionaire, I was able to find the charming, goddess-like blue-haired woman of my wildest dreams who was also filthy, stinking rich because her arms dealer husband kicked the bucket. If you are sexy, why be a petty bourgeois academic when you can be a full-blown burgeois oppressor of the masses?"

Karl Marx Foretold Globalization

Above is a chart depicting the ratio of income of those in the 90th percentile to those in the 10th percentile for a sample of OECD countries. As you can see, it's become more lopsided except for Ireland and Spain over a period of ten years. The new OECD report which contains this chart raises alarm bells over this strong trend of income polarization. [UPDATE: NPR has audio commentary on this report.] Some of its suggestions may surprise you, such as stronger social protections in the age of the "competition state":

Rather than seeing globalisation as a threat, OECD governments should focus on improving labour regulations and social protection systems to help people adapt to changing job markets.

That is the message from the 2007 edition of the OECD’s annual Employment Outlook. It reviews the possibility that offshoring may have reduced the bargaining power of workers, especially low-skilled ones. Whether real or threatened, the prospect of offshoring may be increasing the vulnerability of jobs and wages in developed countries.

Wage inequality is also rising. In 18 of the 20 OECD countries where data exist, the gap between top earners and those at the bottom has risen since the early 1990s. Ireland and Spain are the only exceptions to this trend (see graph).

The OECD report makes a number of recommendations on policies governments should put in place to create more and better jobs.

In countries where social security contributions are high, such as Belgium, France and Sweden, the OECD suggests moving to broader sources of financing public social protection. Social contributions are largely based on wages and act as a tax on labour, limiting job creation. Given the falling share of wages in national income, it is key to reduce the role of social contributions and increase that of broader tax bases, such as income taxes and/or VAT, to fund social protection.

Globalisation requires mobility to ensure that workers are not trapped in jobs with no future. The report praises the so-called “flexicurity” approach adopted in Austria and Denmark to address this. In Austria, for example, workers have individual savings accounts, instead of traditional severance pay schemes, that move with them as they move jobs. If they lose their job, they can choose to withdraw funds from the account or save the entitlements built up towards a future pension.

Job losers should be compensated through social protection systems which are employment-friendly, the report notes. This can be done by providing adequate benefits hand-in-hand with “activation” policies which increase re-employment opportunities. Experience of Nordic countries and Australia shows that such policies, if well-designed, improve the job prospects of laid-off workers, thereby easing their fears about globalisation.

We've been down this road before. We've even taken a Marxist route to problematizing rising income inequality in the developed world. Today, let us consider yet another proposition beyond the tendency for capitalism to polarize society into haves (capital holders) and have nots (labor). Globalization is mentioned in Marx's works. Simply put, increasing exploitation in the developed world --as is arguably happening now with labor being squeezed--eventually results in labor becoming so marginalized that new markets for capitalism's fruits need to be found. Hence, the natural tendency is for capitalism to seek new "patsies" after it has already chewed up and spat out those in the developed world, if you adopt a Marxist perspective. That, in a nutshell, is the Marxist version of globalization. Now, a good case can be made that Marx saw globalization coming well in advance. Prominent Marxist Jacques Attali has this to say:

What is very modern also in his [Marx's] view is that he considered that capitalism would end only when it was a global force, when the whole of the working class was part of it, when nations disappeared, when technology was able to transform the life of a country. He mentioned China and India as potential partners of capitalism, and said, for instance, that protectionism is a mistake, that free trade is a condition for progress.

For Marx, capitalism has to be worldwide before we think about socialism. Socialism for him is beyond capitalism and not instead of capitalism. He has much say on globalisation, what is happening to movement of companies, delocalisation and everything that is linked to the way we live today. In a sense, the Soviet Union was destroying or interrupting the validity of Marx’s thinking and the fall of the Berlin Wall is giving back a raison d’etre to his work, because Marx was thinking of the world globally and the Soviet system was a nightmare that he did not forecast.

Marx biographer Francis Wheen believes Marx "had globalization sussed 150 years ago." Despite writings about "The End of History" and other comic stylings, the Marxist revival continues apace as globalization confirms a lot of what Marx suggested would come:

A penniless asylum seeker in London was vilified across two pages of the Daily Mail last week. No surprises there, perhaps - except that the villain in question has been dead since 1883. 'Marx the Monster' was the Mail's furious reaction to the news that thousands of [BBC] Radio 4 listeners had chosen Karl Marx as their favourite thinker. 'His genocidal disciples include Stalin, Mao, Pol Pot - and even Mugabe. So why has Karl Marx just been voted the greatest philosopher ever?'

The puzzlement is understandable. Fifteen years ago, after the collapse of communism in Eastern Europe, there appeared to be a general assumption that Marx was now an ex-parrot. He had kicked the bucket, shuffled off his mortal coil and been buried forever under the rubble of the Berlin Wall. No one need think about him - still less read him - ever again.

'What we are witnessing,' Francis Fukuyama proclaimed at the end of the Cold War, 'is not just the ... passing of a particular period of postwar history, but the end of history as such: that is, the end point of mankind's ideological evolution.'

But history soon returned with a vengeance. By August 1998, economic meltdown in Russia, currency collapses in Asia and market panic around the world prompted the Financial Times to wonder if we had moved 'from the triumph of global capitalism to its crisis in barely a decade'. The article was headlined 'Das Kapital Revisited'.

Even those who gained most from the system began to question its viability. The billionaire speculator George Soros now warns that the herd instinct of capital-owners such as himself must be controlled before they trample everyone else underfoot. 'Marx and Engels gave a very good analysis of the capitalist system 150 years ago, better in some ways, I must say, than the equilibrium theory of classical economics,' he writes. 'The main reason why their dire predictions did not come true was because of countervailing political interventions in democratic countries [i.e., the welfare state which the OECD now seems keen on reviving--at least in part]. Unfortunately we are once again in danger of drawing the wrong conclusions from the lessons of history. This time the danger comes not from communism but from market fundamentalism.'

In October 1997 the business correspondent of the New Yorker, John Cassidy, reported a conversation with an investment banker. 'The longer I spend on Wall Street, the more convinced I am that Marx was right,' the financier said. 'I am absolutely convinced that Marx's approach is the best way to look at capitalism.' His curiosity aroused, Cassidy read Marx for the first time. He found 'riveting passages about globalisation, inequality, political corruption, monopolisation, technical progress, the decline of high culture, and the enervating nature of modern existence - issues that economists are now confronting anew, sometimes without realising that they are walking in Marx's footsteps'...

Like Molière's bourgeois gentleman who discovered to his amazement that for more than 40 years he had been speaking prose without knowing it, much of the Western bourgeoisie absorbed Marx's ideas without ever noticing. It was a belated reading of Marx in the 1990s that inspired the financial journalist James Buchan to write his brilliant study Frozen Desire: An Inquiry into the Meaning of Money (1997).

'Everybody I know now believes that their attitudes are to an extent a creation of their material circumstances,' he wrote, 'and that changes in the ways things are produced profoundly affect the affairs of humanity even outside the workshop or factory. It is largely through Marx, rather than political economy, that those notions have come down to us.'

Even the Economist journalists John Micklethwait and Adrian Wooldridge, eager cheerleaders for turbo-capitalism [I just love that put-down :-0], acknowledge the debt. 'As a prophet of socialism Marx may be kaput,' they wrote in A Future Perfect: The Challenge and Hidden Promise of Globalisation (2000), 'but as a prophet of the "universal interdependence of nations" as he called globalisation, he can still seem startlingly relevant.' Their greatest fear was that 'the more successful globalisation becomes the more it seems to whip up its own backlash' - or, as Marx himself said, that modern industry produces its own gravediggers.

The bourgeoisie has not died. But nor has Marx: his errors or unfulfilled prophecies about capitalism are eclipsed and transcended by the piercing accuracy with which he revealed the nature of the beast. 'Constant revolutionising of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones,' he wrote in The Communist Manifesto.

Until quite recently most people in this country seemed to stay in the same job or institution throughout their working lives - but who does so now? As Marx put it: 'All that is solid melts into air.'

In his other great masterpiece, Das Kapital, he showed how all that is truly human becomes congealed into inanimate objects - commodities - which then acquire tremendous power and vigour, tyrannising the people who produce them.

The result of this week's BBC poll suggests that Marx's portrayal of the forces that govern our lives - and of the instability, alienation and exploitation they produce - still resonates, and can still bring the world into focus. Far from being buried under the rubble of the Berlin Wall, he may only now be emerging in his true significance. For all the anguished, uncomprehending howls from the right-wing press, Karl Marx could yet become the most influential thinker of the 21st century.

As I've mentioned, I'm less into ideological quarrels as I am interested in explanations. And, it seems Marx has a pretty good one to offer on inequality and globalization. Andrew Glyn, another left-leaning scholar, sees in Marx's ideas the shape of today's globalization. Shifting our attention to the developing world, let it never be said that Marx was a small thinker:

A piece of conventional wisdom about the world dear to economists is that the share of national income going to workers stays pretty stable. Karl Marx disagreed; he argued that labour-saving capital investment would limit demand for labour, while also bankrupting small-scale producers, in agriculture for example. They would swell the labour supply, creating a permanent "reserve army of labour" that would prevent real wages growing as fast as labour productivity. Workers would thus spend an increasing proportion of working time producing profits for capitalists - a falling share for labour or a rising rate of exploitation, in Marx's terminology...

The Communist Manifesto proclaimed the inevitable spread of capitalism across the globe. This process was halted and even reversed during much of the 20th century by the isolation of the Soviet Union, eastern Europe and China from the world economy and the very slow pace of economic development in poor countries such as India. However, the extraordinary transformation of China's and India's economies promises to bring Marx and Engels' prediction to completion. What might be the implications for workers in rich countries?

At first glance, the eruption of China into the world economy seems to be just the latest example of Asian countries catching up with the leading industrial powers. China's export growth has been spectacular, but so was that of Japan and Korea in earlier decades.

What makes China (and India) fundamentally different, however, are their vast labour reserves. Total employment in China is estimated at around 750 million, or about one and a half times that of all the rich economies, and nearly 10 times the combined employment of Japan and Korea. About one half of China's employment is still in agriculture; together with tens of millions of urban underemployed, they constitute a reserve army of labour of quite unprecedented magnitude.

The effect of this reserve army has been to hold down wages. After nearly 25 years of rapid economic growth, wages in China's manufacturing sector are still only 3% of the US level; after similar periods of rapid expansion in Japan and Korea, wages were some 10 times as high.

Much attention has naturally been devoted to the effects on industrialised countries of the flood of imports. But there is another, more ominous, possibility. What if there was a major drain of capital spending, from the rich countries to China and the rest of the south?

Investment in developing countries by multinational companies has been growing, but it is still only 3-4% of their investment at home each year. Could the trickle turn into a flood? Television pictures of the machinery at the Longbridge car plant being packed up for shipment to China may be an extreme case. However, with such low wage costs in China and growing numbers of skilled workers, why should northern producers continue investing to maintain their capital stock in the north, let alone extend it? If investment peters out, where would northern workers find jobs? When Longbridge closed, a government minister was ill-advised to suggest that the car workers could seek jobs at Tesco. Hardly a comforting response.

It is not too far-fetched to imagine a long period of investment stagnation in the industrialised countries, with "emerging markets" being so much more profitable. This could bring intense pressure on jobs and working conditions in Britain and elsewhere. Even sectors where relocation was not possible, like retailing or education, would be flooded with job seekers. The bargaining chips would be in the hands of capital to a degree not seen since the industrial revolution. Fluctuations in labour's share being confined to the range of 65-75% could disappear too, with Marx's rising rate of exploitation re-emerging, a century and a half after he first predicted it.

Could the economy become ever more dependent on the luxury consumption of the wealthy, who receive a disproportionate share of the higher profits? Alternatively, would taxation of profits be increased to expand government services such as health and education? With recent trends in favour of the wealthy intensifying, the fundamental issue of who gets what could no longer be confined to hesitant debates about minor changes in the share of taxation in national income, or adjustments to the top rate of income tax.

A New Deal for the Globalization Age

Egadzooks, this is turning into a "globalization creates inequality so social protections are necessary" blog rather quickly. Instead of excerpting this new Foreign Affairs article at length, I will just note its summary below and part of its introduction. The rest can be found at their website:

Summary: Globalization has brought huge overall benefits, but earnings for most U.S. workers -- even those with college degrees -- have been falling recently; inequality is greater now than at any other time in the last 70 years. Whatever the cause, the result has been a surge in protectionism. To save globalization, policymakers must spread its gains more widely. The best way to do that is by redistributing income.

Kenneth F. Scheve is Professor of Political Science at Yale University. Matthew J. Slaughter is Professor of Economics at the Tuck School of Business at Dartmouth and Adjunct Senior Fellow for Business and Globalization at the Council on Foreign Relations. He served on the White House Council of Economic Advisers from 2005 to 2007.

Over the last several years, a striking new feature of the U.S. economy has emerged: real income growth has been extremely skewed, with relatively few high earners doing well while incomes for most workers have stagnated or, in many cases, fallen. Just what mix of forces is behind this trend is not yet clear, but regardless, the numbers are stark. Less than four percent of workers were in educational groups that enjoyed increases in mean real money earnings from 2000 to 2005; mean real money earnings rose for workers with doctorates and professional graduate degrees and fell for all others. In contrast to in earlier decades, today it is not just those at the bottom of the skill ladder who are hurting. Even college graduates and workers with nonprofessional master's degrees saw their mean real money earnings decline. By some measures, inequality in the United States is greater today than at any time since the 1920s.

Advocates of engagement with the world economy are now warning of a protectionist drift in public policy. This drift is commonly blamed on narrow industry concerns or a failure to explain globalization's benefits or the war on terrorism. These explanations miss a more basic point: U.S. policy is becoming more protectionist because the American public is becoming more protectionist, and this shift in attitudes is a result of stagnant or falling incomes. Public support for engagement with the world economy is strongly linked to labor-market performance, and for most workers labor-market performance has been poor.

"Manipulator is Congress, not China"

The Bloomberg columnist Caroline Baum has come out swinging in favor of a gradual resolution to trade tensions between the US and China by branding the US Congress the currency manipulator in question, not China. Apparently, the Chinese were rather pleased with this column as they put it front and center on the China Daily website. In her column, Baum repeatedly cites someone from the Cato Institute, that bastion of libertarian virtue. I usually agree with Baum when she comments on domestic (US) economics, but I have several nits to pick here. My opinion on the matter is trickier to explain, though I will try to get my counterpoints to Baum across:

China may not qualify as a currency manipulator, according to the terms set out in Section 304 of the Omnibus Trade and Competitiveness Act of 1988. Not to worry: The U.S. Congress is happy to fill those shoes...

On the same day that Treasury was punting on name calling -- preferring, instead, a Strategic Economic Dialogue between the two countries -- four U.S. senators picked up the ball, introducing legislation that would make it easier for American companies to seek redress under anti-dumping laws.

``For too long our currency policy has left American workers and businesses unprotected from foreign governments seeking an unfair financial advantage,'' said Senate Finance Committee Chairman Max Baucus, Democrat of Montana, one of the bill's sponsors.

In case the good senator hasn't noticed in his 32 years in Congress, the U.S. has no currency policy. And as for getting China to adopt a more flexible exchange rate, anything Congress does will probably be counterproductive. Sovereign nations don't like to be seen caving in to pressure from other countries.

``What country has changed as much as China in the last 30 years in terms of opening its markets?'' said Dan Griswold, director of the Cato Institute's Center for Trade Policy Studies in Washington. ``And how much has the U.S. benefited? The whole debate is based on a false notion of mercantilism. You can't realize real gains through currency manipulation.''

In the Asian financial crisis in 1997, ``some currencies practically dropped 40 percent overnight,'' Griswold said. ``It didn't create prosperity.'' [This is a ridiculous comparison. Capital flight, not currency manipulation, caused these countres' currencies to devalue. Besides, prior to the crisis, these currencies were perceived as overvalued, not undervalued.]

Two of the other sponsors of the Currency Exchange Rate Oversight bill, Republican Lindsey Graham of South Carolina and Democrat Chuck Schumer of New York, are back for their second China go-round. Last year, the duo sponsored legislation that would have slapped tariffs of 27.5 percent on Chinese imports. They withdrew the bill when it became clear that it wasn't compliant with World Trade Organization rules.

``Our previous legislation got China's attention,'' Schumer boasted at a June 13 press conference. ``The purpose of this legislation is to require them to change.''

Schumer's ``elegant solution'' to the China conundrum involves identifying ``fundamentally misaligned currencies'' for ``priority action'' in 180 and 360 days if the misaligned country fails to adopt ``appropriate policies'' to realign itself. The final step would require the Treasury and Federal Reserve Board to consult with other central banks and consider ``remedial intervention in currency markets.'' [Yes it is unwieldy, but the threat of action will more likely affect things than any sort of intervention undertaken in the currency markets.]

As a practical matter, how would that work? Schumer's elegant solution seems to have some inelegant operational difficulties. For example, how exactly would the Fed sell dollars and buy yuan, a currency that isn't freely traded in the open market? ["Non-deliverable forwards."]

Graham's protectionist motivations derive from the fact that South Carolina competes, so to speak, with China in textile and apparel manufacturing. At the top echelons of that competition is billionaire Roger Milliken, head of a multinational textile empire based in Spartanburg and a major Graham supporter. It wouldn't be a huge leap to assume a connection between Milliken's contributions and Graham's trade positions.

Critics of China's currency-management policy claim the yuan is undervalued by as much as 40 percent, giving the country's exports a competitive advantage. [It is the most undervalued currency to the tune of -56% in a list compiled by the Economist using a simple purchasing power parity measure called the Big Mac Index.]

You never hear much about the disadvantages, about China paying artificially inflated prices for the capital goods and intermediate materials it imports. It overpays for vast amounts of raw materials, everything from oil to copper to steel. [Did you ever consider that the reason why the prices of these goods are artificially inflated is because the yuan is kept artificially weak?]

At the same time, do American consumers want to pay 40 percent more for underwear and other low-end apparel from China? (China's lost market share would be other emerging countries' gain, but it would still mean higher import prices for Americans.) [Maybe keeping their jobs is more important to certain key constituencies than being able to buy Jockeys on the cheap.]

China still has a long way to go to reform its domestic financial system and move from a managed to a flexible exchange rate. Because it lacks developed capital markets and a monetary policy of its own, China has to resort to various administrative measures to manage its booming economy. [Like accumulate $1.2 trillion in reserves instead of spending it on social safety nets like health care, education, and pensions.]

The People's Bank of China raised its one-year benchmark rate by 100 basis points in the last two years, hardly an onerous increase in an economy that continues to barrel ahead at 11 percent. It increased reserve requirements five times this year.

In addition, China cut tax breaks for exporters, imposed limits on real-estate investment and land use, implemented environmental controls and tripled the stock transfer tax.

Change doesn't happen overnight, especially in a country impoverished by decades of state control of the economy. Congress seems to have run out of time. [It's called the election cycle.]

Schumer said there's broad bipartisan support for the currency bill in the House and the Senate, and he expects it to pass with a veto-proof majority. [Don't bet against it.]

``A large number of people in both parties got the China issue wrong,'' Griswold said. ``To intentionally weaken the dollar to gain some illusory trade advantage is a fool's errand.'' [That may be so, but the momentum is against you.]

Now there's a challenge Congress won't be able to resist.

WTO: Potsdam Conference II

The original Potsdam Conference of 1945 involved the Big Three Allies represented by Winston Churchill (then Clement Attlee after Churchill was turfed from office), Harry Truman, and Josef Stalin hammering out a deal for the future of postwar Europe—particularly that of Germany. The symbolic stature of the Potsdam Conference figures large in world history and marks an important transition point in global affairs. This week, the German town of Potsdam is holding yet another conference that may have large repercussions on our collective future. For, the Doha Development Round may further near permanent vacation should a deal not be reached yet again. Whereas matters of security held pride of place back in 1945, matters of trade take center stage in 2007.

Take a look at the picture on the right of flags that line up at the WTO. It looks mighty impressive and conveys a sense of grandeur which was probably intended. Like during the 1945 conference, however, the fate of the Doha Development Round lies not with the community of nations but with a select few in the G-4 of the EU and US representing the developed world, and India and Brazil (the "new power alliance") representing the developing world. Only four flags matter this week--one of which is blue, has twelve stars in a circle, and doesn't represent a country but a customs union. Instead of carving up Europe, the concern now is carving up the pie of international trade. Yes, who gets what, when, where, and how. As you probably know, the sticking points for a deal remain the agricultural subsidies of developed nations and the market access restrictions of developing nations. Agence France Presse has the details:

The four key players in the World Trade Organisation -- the United States, the European Union, Brazil and India -- arrived in Potsdam outside the German capital on Tuesday for critical talks to break deadlock over a global trade deal.

The so-called "G4" group will meet "with their backs against the wall," said a Geneva-based diplomat, with all players mindful that a similar meeting last year got nowhere and ultimately led to negotiations being suspended for all of the WTO's 150 members.

The talks are expected to continue until the weekend.

Germany, which holds the EU presidency until the end of this month, invited EU Trade Commissioner Peter Mandelson, US Trade Representative Susan Schwab, Indian Commerce Minister Kamal Nath and Brazilian Foreign Minister Celso Amorim to meet at the Cecilienhof palace in Potsdam.

Amorim has warned that this meeting would be "decisive" [endgame for Doha?]

The delegates will certainly feel the weight of history on their shoulders, as it was at Cecilienhof that the Allied leaders Churchill, Stalin and Truman met in 1945: the issue then was the division of post-war Europe after the defeat of Nazi Germany. The purpose of these talks now is to open the world up further to trade.

"It's not an innocent choice" of venue, the Geneva-based diplomat noted, adding that the EU was seeking to heighten the historical resonance of the meeting...

The four G4 powers represent a range of poor and rich country interests at the WTO. An agreement among them on the concessions needed to reduce barriers to trade in agriculture, industrial goods is regarded as essential to draw in the rest of the 150 members.

Negotiations to conclude a trade liberalisation deal, which is mainly meant to provide an economic boost for developing nations, have missed several deadlines since the WTO's current Doha round was launched to great fanfare in the Qatari capital in 2001.

Developing countries and wealthy nations are largely at loggerheads over the degree of state support for agricultural markets along with the level of protection against imports, primarily in the EU and the United States.

Rich nations are also looking for more concessions from developing nations on access to their markets for industrial goods or for services companies.

The WTO is now hoping to reach an agreement by the end of the year. Under the organisation's rules, it must be approved by consensus and even a single dissenting voice can block it.

Even so, agreement between the G4 members is seen as crucial if any final deal is to be reached...

Alternatively there could be the sort of "incremental progress" which falls short of an agreement, in which case a further G4 meeting could be held in July.

The US took a more low-key approach, with spokesman Sean Spicer saying only that the meeting will show "that there is some progress and that we will meet again."

"The only figure we'll hear is: let's order four dinners," he joked.

The Potsdam meeting will take place entirely behind closed doors, and it is not yet even known if there will be a final press conference.

Japanese "Immigration Battle Diary"

No, no, it's not what you think if images of a Japanese Pat Buchanan or Jean-Marie Le Pen are being evoked. Like many other developed countries, Japan, the world's second largest economy, is contemplating revisions to its migration policy. However, this challenge is greater for Japan as it is more culturally homogeneous than most other developed countries. On top of that, it does not really have a comprehensive immigration policy as this former civil servant attests in his book called the "Immigration Battle Diary." (I do hope that something is lost in the translation of the title as it sounds rather Hobbesian.) Hidenori-san sees two main possibilities for Japanese migration--maintain the status quo tight immigration policies and accept a dwindling population (the small option), or promote a large-scale influx to compensate (the big option):

A former director of the Tokyo Immigration Bureau, Sakanaka Hidenori ended his 35 year career as a Justice Ministry official in 2005. Shortly after retiring, he published Immigration Battle Diary probably the most detailed discussion yet on the future of Japanese immigration policy and the role of immigrants in the world’s second largest economy. The abridged translation presented here is based mainly on the book's final chapter, which summarizes Sakanaka's views on the immigration options facing Japan.

Sakanaka’s intervention could not be more timely. With little net immigration to offset a falling fertility rate, the population of over 127 million is set to plummet to just over 100 million by the middle of the century. The number of permanent foreign residents recently passed two million, or 1.57 percent of the total population, a tiny figure for a developed country. The contracting workforce will be asked to support a growing army of pensioners in a country with the longest life-expectancy in the world. By 2005, there will be just two younger workers supporting each retired person, down from 11 in 1960...

As an immigration officer's memoir, it is unsurprising that in the book's early pages Japan's foreign community comes across largely as a target for the attention of law enforcement. Yet, as you move through the book, it becomes clear that the author's view of Japan's immigrant issues is far from one-dimensional and his recommendations for immigration policy far from the official mainstream...

In this essay, Sakanaka acknowledges that if Japanese society is unable to reach a consensus on the benefits of large-scale immigration, demographics could be allowed to follow their present course. However, he points out that allowing the population to decline should be considered an active choice that should only be made with full awareness of the possible economic, social, political and cultural consequences.

Japan's population, which peaked at 128 million in 2004, is falling. If current trends continue, it will drop below 90 million within 50 years and fall by two-thirds to 40 million within 100 years [1]. As Japan's population falls, many people say the country's future is bleak. The general mood is pessimistic. Dire predictions include a massive decline in economic growth. I think it is unwise to spark fear with such predictions. Yet if current trends continue, Japan will inevitably witness an unprecedented population decline. What lies ahead? Radical change is required. The Japanese people must not shirk from addressing this national issue...

We can examine how Japan could address population decline by considering the following two extreme options. The Small Option is to allow the population to decline. The Big Option is to compensate for the impending population decrease by accepting immigrants, maintaining Japan's current position as an economic powerhouse. The Small Option would maintain the status quo. The Big Option would increase Japan's ethnic minority population. Whichever option is chosen, Japanese citizens will have to overcome difficult obstacles.

The Small Option would aim to accept the natural population decline and allow the development of a more laid-back society of perhaps 80 million people. An essential part of this scenario is the use of strict policies to limit immigration into Japan. However, if the population continues to fall, there is a high chance of economic depression and social stagnation. Choosing this option requires an awareness of these possible outcomes.

Under this scenario, native Japanese people would continue to play all the major roles involved in running the economy and society. Immigration controls would be tightened. The government could adopt immigration policies that basically barred entry to foreign laborers and other immigrants. The feasibility of The Small Option depends on whether the number of people from other countries seeking to work in Japan can be precisely controlled. As the population of the developing world rises and the desire of developing world workers to live and work in the developed world grows steadily stronger, Japan will need immigration controls strong enough to withstand the pressure of these migratory forces. Starting with China, many of Japan's neighbors have huge populations and outward migratory pressure. Japan will not be able to prevent a mass population influx without building stronger walls around its borders.

Citizens living in a society with a continually shrinking population will not only have to change their lifestyles but will also have to take on greater responsibility. They will have to take an outlook on life molded by an expanding society and modify it to fit a contracting one. They will need to move from a lifestyle that celebrates richness to one that celebrates simplicity. As the country tries to maintain its social welfare system, they will have to bear higher tax levels and accept lower levels of pension and other benefits.

If the Japanese people keep rigidly to the basic stance outlined above, we can imagine that in the latter half of the 21st century Japan may become a mature society with a moderate-sized population living a comfortable, relaxed lifestyle in a rich natural and social environment. It is quite possible that in a slow-paced, peaceful society, more people may want to have a large family and the population may bottom out and start to rise once again. In the 21st century, problems associated with population growth which affect the global future, such as resource depletion and environmental destruction, are expected to grow more serious. Japan's affirmation of population decline and attempts to build a more ‘compact’ society could well be welcomed by the international community...

The Big Option, on the other hand, would aim to compensate for the natural decline in the Japanese population through a mass influx of immigrants, supporting a "dynamic Japan" that maintained economic growth. Japan would keep its position as a leading global economy and maintain its current standard of living. The success of the policy would depend on how far Japan could develop an openness towards the new arrivals. If this path is chosen, immigrants would play important roles in Japan's economy and society. The Japanese people's tendency to embrace growth and fundamentals of the economy would not change.

To implement The Big Option, the country would need to accept over 20 million immigrants during the next 50 years. Before welcoming such an unprecedented influx, Japan would need to build a national consensus that new arrivals should be welcomed as "friends" and contributors to Japanese society. Japan would have to transform itself into a land of opportunity, building an open, fair society which guaranteed equal opportunity, judged people on their merits, and allowed everyone to improve their social status regardless of origin or ethnicity.

Japan's criteria for accepting new arrivals and its immigration procedures would have to be open, transparent and fair if immigration authorities were to appropriately process a vast number of immigration applications. A major issue would be how to define acceptance criteria. The state's basic attitude to the treatment of foreigners would also be called into question. Under Japan's current policies, which generally view foreigners as a target for control and regulation, Japan will not be able to make the leap and become a tolerant multiethnic society.

The government would have to emphasize deeper integration between Japanese and other nationalities. It would have to transform governmental administration to better account for immigrant needs and guarantee immigrants and ethnic minorities the same rights as native Japanese. The smooth integration of newcomers into society should be placed at the centre of government policy, with a particular emphasis on Japanese language education and employment assistance. The government would also have to ease the passage to citizenship.

Of course, if Japan were to become a multiethnic society, problems resulting from differences in ethnicity, culture and religion would be unavoidable. The government would have to mediate the conflicting interests of different groups and avoid provoking interethnic conflict. It would also take on the heavy responsibility of establishing principles to promote social integration, binding the various ethnic groups together as Japanese citizens. To responsibly tackle these serious issues, the state would need to establish a national Immigration Agency with a mandate to plan and implement comprehensive policies for the treatment of immigrants, promote the social integration of ethnic minorities, and monitor and prevent discrimination.

We should note that even if Japan managed to resolve its immediate problem of population decline through the acceptance of immigrants, Japan would, in the not-too-distant future, come up against various obstacles including the social burden of large-scale migration, and environmental and energy problems.

Terror, China and US Arms Spending

Make no mistake: The military-industrial complex needs to create bogeymen to perpetuate itself. For the US, the Soviet bloc admirably filled in this part for nearly half a century. However, its demise led to a lull in defense spending as Bill Clinton received a "peace dividend" on the Cold War's demise. In time, however, two new evils have emerged on the military-industrial complex front. First, 9/11 brought terror into the American psyche in a spectacular fashion. Of course, politicians have been keen to capitalize on keeping their citizenry safe from terror, with arms contractors supposedly providing the hardware for protection. This point is vividly illustrated in the documentary "The Power of Nightmares," which I referred to sometime ago.

Now, however, there is yet another unspeakable menace threatening freedom, justice, and the American way of life: big, bad, Red China. Recently, the US Department of Commerce slapped a whole new slew of restrictions on technology exports to China that are "dual use": civilian and military. Instead of loosening these controls as demanded by the Chinese, the US has done the opposite. Lest we forget, the US is obligated to defend Taiwan in the event of a Chinese invasion attempt. Although some parties gripe about being unable to export high-tech products to China, the US defense industry is exceedingly happy to play along. From the Financial Times is this article on how Boeing warns that lowering the US defense budget would mean al-Qaeda operatives hiding in closets in suburbia and the rise of Chinese hegemony, or something to that effect:

US defence spending needs to be kept at record levels to cope with the threat of global terrorism and the emergence of China as a military rival, the head of Boeing’s defence business has warned.

Speaking ahead of this week’s Paris Air Show, Jim Albaugh forecast a slowdown in the Pentagon budget but warned that a decline would leave the country relying on old and worn out weapons after recent conflicts.

“The question is what happens when we come out of Iraq and Afghanistan and the supplementals [additional payments used to fund the wars] start to dry up,” he said.

“Right now it’s a lot different to after the end of the cold war. Then the threat really went away and the equipment for the most part was new” [We need to replace worn out military hardware, natch...]

However, the Boeing defence chief said he could afford to be “pretty objective” [good one!] because his company was protected by its booming passenger jet business, unlike defence industry rivals.

Several high-profile Boeing projects face substantial cuts during the current round of budget negotiations in the Senate and Congress.

These include the $200bn Future Combat Systems programme to modernise the US army’s battlefield equipment, the controversial US missile defence system and an airborne laser weapon.

“It’s going to be a pretty sporty year for everybody,” Mr Albaugh said, commenting on the intense lobbying campaign that will carry on until after the summer. Boeing stands to lose $400m next year if Democrats block the creation of a third missile defence site in Europe [go Dems?], though Mr Albaugh said budget cuts and gains tended to even out.

2012 Olympic Logo Political Economy

I don’t claim to be an expert in the art of graphic design, but like many others, I’ve found the 2012 London Olympic logo visually challenging. It’s become the butt of jokes worldwide (see clip). Contrast the London logo with that for the 2008 Beijing Games. The former avoids primary colors and presents no reference to the town of London or the United Kingdom. In contrast, the latter is in primary colors and makes a clever spin on Chinese hieroglyphics representing an athlete—its font alone leaves little room for misinterpreting just which country is hosting the Games. Earlier on, forty-eight thousand folks signed an online petition to have this abomination logo changed to something better. Say, something that looks like it wasn’t designed by four-year olds, although I may be belittling their drawing skills excessively.

London Mayor “Red” Ken Livingstone suggested that the designers of this thing shouldn’t be paid a whopping £400,000 (almost $800K) for their doodlings. In any event, calls for it to be rescinded have gone unheeded. Almost expectedly, a chorus of interested parties have voiced their tacit support for the logo. All in all, they probably consider it a sunken cost for a project gone awry somewhere down the line. In private, however, I am sure that they too were gagging incredulously at this stupendous waste of money. First up is PM Blair:

INTERVIEWER: The logo has been criticised heavily in the last week. What is your opinion? Do you like it?

BLAIR: Do you know something? I have obviously thought about what I would say when I was asked this question, I mean it has either been great or awful, but which it is, I don't know. I am hopeless at telling these things. And it has got people talking, for sure. And I think probably the important thing is let's give it a bit of time and see how it settles in. Because I am always useless at judging these types of things, but sometimes you need to make really something that makes people sit up and take notice, and it has certainly done that.

Unsurprisingly, IOC Chairman Dennis Oswald claims that he just “loves” the logo:

The chairman of the International Olympic Committee has pledged support for the controversial London 2012 logo.

Speaking at the end of a three-day visit, Dennis Oswald told journalists he "loved it."

During their visit, inspectors received a full report on the row over the new brand and logo.

Mr Oswald also said preparations were "on time and on track" and that Britain's 2012 preparations would prove to be a model for future host cities.

Commenting on the new logo, Mr Oswald said: "I love it. It's very simple. We have a fantastic logo, it's very creative, very young and very dynamic. I'm very enthusiastic about it."

The most galling statements, however, come from the creators of this logo. They emerged in this weekend's Sunday Telegraph, probably after hiding in a bunker somewhere to cover themselves from this fine swindle. They claim that the logo “doesn’t ask to liked.” Yes, well, very well and good. How the Games’ promoters are to sell memorabilia tied to this monstrosity is beyond me. Ugh:

The men behind the widely criticised 2012 Olympics logo have defended their "raw" design and said that creating something people would love was not their top priority.

Patrick Cox and Bryan Boylan of Wolff Ollins and Chris Townsend of the Games organising committee

Speaking for the first time since the controversial design was unveiled, Patrick Cox and Brian Boylan said they were proud of the design and even pleased about some of the criticism it attracted.

Mr Boylan, 61, the chairman of Wolff Olins, the Islington-based consultancy responsible for the £400,000 logo, insisted: "Let's be clear: we won't change the design at all. We are proud of it. It will go down in history. We have created something original in a world where it is increasingly difficult to make something different."

Mr Cox, 41, who led the design team that created the logo, said: "It wasn't created to be warm and fuzzy.

"Its design is intentionally raw, which means it doesn't immediately sit there and ask to be liked very much. It was meant to be something that did provoke a response, like the little thorn in the chair that gets you to breathe in, sit up and take notice…"

Mr Boylan, who was in overall charge of the "brand project", said: "I don't think brands need only to be loved any more. They need to be useful, in terms of providing participation and a platform for people to do things with them. I think that is what this is going to be remembered for."

He admitted he had been surprised by the intensity of the criticism, but said that his travels to Switzerland and Denmark in the last two weeks had convinced him that opinion was getting behind the design.

Asked whether most Britons would ever love it, Mr Boylan said: "We are not confident or unconfident. The public will judge."

Last week, Dennis Oswald, the chairman of the International Olympic Committee's Co-ordination Commission, backed the logo at the end of a three-day visit to London. "I love it. We have a fantastic logo," he said. "It's very creative, very young and very dynamic."

Chris Townsend, the commercial director of the Olympic Games organising committee, said he had been enthusiastic when shown the first drafts just before Christmas.

"The senior management team was unanimous. We saw other designs, but this was the one. The more the brand is understood, the more it will be loved."

He added: "We were creating something we hope reflects the spirit of our times, partly youthfulness, and also the sense of participation."

The logo is intended to be a "blank canvas", a set of blocks in which people can place images of their choice. It is hoped that a "non-commercial" version will be available next year for use by bodies such as amateur sports clubs.

Mr Cox added: "When people are saying that a child could have done it, or are coming up with their own designs, that's what we want: we want everyone to be able to do something with it." [Like toss it in the trashcan, probably.]

Mandelson to EU: GIve in a Little

The current WTO Doha Development Round is the Freddy (not Anne) Krueger of trade deals. No matter how often you wish it would just go away, it keeps coming back to make terrible sequels. Here is EU Trade Commissioner Peter Mandelson again asking EU countries to give in a little, presumably on agricultural subsidies, so that talks in Germany to be held later in the week will move forward. Let's just say I'm not very optimistic. From Agence France Presse:

European Trade Minister Peter Mandelson urged the 27 European Union (EU) nations today to show flexibility at an upcoming meeting with major negotiating partners or risk the collapse of World Trade Organisation (WTO) talks.

Addressing EU foreign ministers gathered in Brussels, Mandelson said there were three possible outcomes of the G4 talks in Potsdam, Germany - between the EU, the US, Brazil and India - including total failure, a diplomat said.

"If each partner negotiates to the limits of their flexibility," then the talks, which open on Tuesday, will be a success, Mandelson told the EU ministers.

Alternatively there could be the sort of "incremental progress" which falls short of an agreement, in which case a further G4 meeting could be held in July. [Don't they think it's perhaps wiser to end this round already if it's still deadlocked six years after being started? The Uruguay Round took eight years, but still...]

In the worst-case scenario, with no common ground found, WTO chief Pascal Lamy "will be in a position to take the initiative and put more pressure on the EU concerning agriculture," Mandelson was quoted as saying [...and I'd bet on it].

British, Dutch and Swedish ministers stressed their support for the EU commission’s line, while France and Ireland - nations with big agricultural sectors - expressed their reserves at the idea of offering too much flexibility.

France voiced its fears of an "unbalanced" agreement which would benefit emerging powers - such as China, India and Brazil - but not the world’s poorest and hurt the EU’s "social and economic interests", the diplomatic source said.

The four main players in the Doha round of trade talks are at odds over levels of agricultural subsidies and market access.

The developing countries and wealthy nations are largely at loggerheads over the degree of state support for agricultural markets along with the level of protection against imports, mainly in the European Union and the US.

Rich nations meanwhile are looking for more concessions from developing nations on access to their markets for industrial goods...

Mandelson warned that the window of opportunity on reaching a deal was narrowing. "If the Doha round collapses then there will be recriminations with the EU and the US the targets of developing nations," Mandelson warned.

He said that WTO member states still hoped to conclude the Doha round, launched in 2001, this year.

Microfinance Banking w/ Cell Phones

I've been performing some research on emerging modes of financial service delivery in the developing world. This particular YouTube clip demonstrates a clever Filipino adaptation of using cell phones to transmit and receive funds. As some of you may know, the Philippines has the highest volume of text messaging anywhere in the world. At the same time, financial services are sparse in rural areas of the country since bank branches there are more widely dispersed. Throw in a marginal transportation infrastructure and accessing financial services becomes even more difficult for rural residents. They often have to resort to moneylenders and fly-by-night operators charging exorbitant rates.

Recently, however, a public-private partnership (PPP) involving Globe Telecom (the telecoms subsidiary of the country's largest business conglomerate), government-owned rural banks, the US Agency for International Development (USAID), and the Bill and Melinda Gates Foundation have banded together to promote cell phone microfinance by piggybacking on the short-messaging system (SMS or text messaging). This financial service is called GCash. Users can (1) pay bills, (2) repay loans, (3) make deposits, (4) make withdrawals, (5) load prepaid phone time, (6) buy and sell products and services, and get this--(7) send or receive remittances internationally. The last application is the most exciting one from my point of view as nearly a tenth of the Philippine population works abroad. Already, they have signed up a growing list of international partners to enable overseas workers to send remittances home with fees lower than those usually charged by conventional transfer services.

Finally, let me take this opportunity to note that this project is but one of the countless innovations you can find on the always-fascinating Development Through Enterprise site, which I've had on my blogroll since day one. As I've mentioned, harnessing creative means of alleviating poverty and not trying to be a China Jr. is likely to be a more fruitful path to progress for the Philippines as it is for several other developing countries.

Quarterly Guidance Under Seige

[UPDATE: The Aspen Principles have now been posted online.] This news is potentially big. Really big. As you all know, Wall Street engages in a quarterly game of beat-the-earnings-targets. Stock prices of firms that do are usually bolstered, while those that do not are punished. To this game's critics, it creates a short-term mentality of skimping on investment in the future to maximize on near-term reported earnings per share (EPS). Recent lackluster capital expenditures in the US despite healthy (reported) profits may reflect pathologies of this game. Looking back, I find it funny how firms were busy writing off things when the previous stock bubble burst while accounting frauds like Enron, WorldCom, Global Crossing, and Tyco were revealed. When the business cycle turns--as it inevitably does--accounting sleights of hand performed to meet earnings targets are often revealed.

The Financial Times now suggests that corporate executives, organized labor, and groups like the AARP are becoming fed up with this game of kowtowing to hedge funds and shortsighted investors:

An unprecedented coalition of large companies, pension funds, and trade unions will on Monday urge corporate America to scrap quarterly earnings guidance in an attempt to curtail the influence of hedge funds and other short-term investors.

The move, backed by leading corporate figures such as Jeff Kindler, chief executive of Pfizer, and Anne Mulcahy, his counterpart at Xerox, will increase pressure on companies and fund managers to focus on long-term objectives rather than short-term fixes.

The broad-based coalition, whose participants range from the Business Roundtable, which represents 160 leading US chief executives, to the AFL-CIO, the largest union federation, will also call for an overhaul in compensation practices to reward corporate and fund managers for long-term performance.

Monday’s publication of the new set of corporate principles – masterminded by the Aspen Institute, an influential not-for-profit group – underlines corporate America’s fear that the focus on quarterly results is hampering US companies’ long-term prospects and the country’s economic competitiveness...

The principles, which were also backed by PepsiCo, the Council of Institutional Investors and the five biggest audit firms [I'm surprised by the latter group coming on board], call on companies to “avoid both the provision of, and response to, estimates of quarterly earnings and other overly short-term financial targets”.

Instead, companies should talk to shareholders about their business strategy and their outlook over a number of years, according to the document, which has been seen by the Financial Times.

More than half of US companies offer quarterly earnings guidance and the percentage is higher among larger groups.

In private, many US chief executives say they have to provide their own quarterly earnings forecasts because analysts and investors demand them. Some express the fear that ending the practice would hit their companies’ share prices or that analysts would put out inaccurate forecasts.

Hedge funds and other short-term investors tend to like guidance because the discrepancies between actual and forecast earnings offers them lucrative trading opportunities.

However, corporate leaders and academics argue that the pressure to meet quarterly forecasts prompts companies to forgo long-term investments such as capital expenditure and research and development.

The principles say companies should look at a five-year horizon and urge both executives and fund managers to tie their compensation to long-term performance targets.

There's more from Bowne on an article detailing the growing backlash against providing quarterly EPS guidance and the challenges of discontinuing them:

A growing number of businesses are following the lead of companies such as Google and Berkshire Hathaway: they are moving away from publishing quarterly earnings guidance. Instead, they provide other data that reveal what they consider to be a more accurate picture of their finances. According to an annual study by the National Investor Relations Institute (NIRI), just two-thirds of US companies are providing traditional EPS guidance in 2006, compared with 71% a year earlier. Companies shun EPS guidance for a variety of reasons, Elizabeth Judd suggests. Some are wary of being wrong, particularly if short-term surprises such as bad weather or natural disasters wreak unexpected havoc. (To avoid missing the mark, 83% of the companies that provide guidance use a range for EPS; only 5% are still estimating a precise EPS point.) Others say increased awareness of earnings manipulation by unscrupulous managers has given investors a more jaded view of guidance announcements, even though one study shows that 40% to 50% of companies beat consensus earnings on a consistent basis.

In addition to re-thinking the way they provide guidance, companies are also taking a second look at the timing and frequency of their guidance. According to NIRI, the number of companies providing only annual guidance on earnings rose from 28% in 2005 to 43% in 2006. Updating investors as changes occur, regardless of a typical guidance timetable, is another strategy growing in popularity…

How discontinuing EPS guidance will impact analyst coverage remains unclear, the author observes. Companies that eschew the practice may not be sacrificing analyst coverage, because more and more analysts at larger research houses prefer doing their own research and drawing their own conclusions. However, at least one study has found that when a company ceases guidance, analyst coverage decreases and forecasts become less accurate. Companies contemplating a change in their EPS guidance policy should communicate the rationale clearly to investors, such as a desire to provide better information or to focus more on business matters. Explain the decision in a public forum, but to avoid information overload, one expert suggests, schedule discussions about longer-term strategy separately from earnings announcements.

Protesters: Media Feeds on Violence

Here's an argument for anti-globalization violence that I'm not entirely sure I agree with. Anti-globalization protesters need to walk a fine line between attracting attention to their cause and creating animosity towards their cause by engaging in actions that may be perceived as "antisocial" by the public at large. Recently, there have been protests ongoing in Halifax, Canada over the creation of a so-called Atlantica free trade zone which is to include parts of the Atlantic Northeast in Canada and the US. As with the G-8 riots in Germany, mayhem too broke out as more, shall we say, demonstrative protesters engaged riot police in yet another free-for-all. According to these protesters, they had little choice but to engage in violent act as that's what attracts media attention:

Organizers of an anti-free-trade protest in Halifax were blaming the media Saturday for a large part the violence that erupted a day earlier, saying the only way to get their message across was to produce images news outlets would "salivate" over.

Protests against an enhanced trading zone known as Atlantica turned violent on Friday when a group of roughly 50 protesters, dressed in black and wearing balaclavas, broke away from a larger group of peaceful protesters.

The group of self-described anarchists marched into a commercial district of downtown Halifax throwing paint-filled light bulbs, firecrackers and rocks at police, business and journalists.

Police used pepper spray and electric stun guns to try and subdue the protesters.

That scene, said protest organizer Pierre Blais, was exactly what reporters were looking for.

"Violent or so-called violent disruptive protest and property damage does attract media a lot more than marches or just the Atlantica deal itself," Blais, a member of the Anti-Capitalist Coalition, told a news conference.

Blais said the other reason protesters resorted to "confrontational tactics" was "the legitimate rage they feel at the violent poverty that they are feeling everyday."

The protest was in reaction to a conference focusing on Atlantica, a proposed trade zone between eastern Quebec, Atlantic Canada and parts of the northeastern United States.

By the end of the clash, the police had arrested 21 people and laid more than 70 charges, including unlawful assembly, assault to police, mischief and weapons related offence. The police had earlier said 20 people were arrested...

Another organizer, David Bush of the Alliance Against Atlantica, said the group also tried to raise awareness through other measures, such as teach-ins, flyers and petitions.

He said those had a limited effect, and Friday's violent protest was a success because it gained media attention.

"We did demonstrate that (Atlantica's) policies - rolling back environmental regulations, increasing shipping here, implementing policy distress factors such as lowering minimum wage - would engender the kind of response that we saw yesterday."

To me, it begs the question, "On the balance, do these attention-grabbing acts create more positive than negative attention to the issues at hand?" Certainly, there is the possibility that the protesters themselves become more the subject of attention than whatever free trade pact they're trying to undermine. The protesters in question think that the violence is worth it:

"We're pretty excited about what happened," said organizer Pierre Blais of the Anti-Capitalist Coalition. "We think it was a huge success, especially judging from the international media coverage it got."

Mr. Blais said the media didn't care about "working people" or the tamer protests, but claimed reporters "salivated" over black-clad protesters breaking windows.

"The media loves concentrating on acts of destruction. It's a shame the 400 people protesting did not get covered as much the Black Bloc did," Mr. Blais said, referring to a group of masked, black-clad protesters.

He called the "rage" on the streets a legitimate answer to the everyday violence of poverty and environmental damage.

Just when you thought anti-globalization protests were a relic of the past, they have erupted yet again. To what end we shall see. More pictures are available from Infoshop News.

Foreign Aid, Fungibility, and Growth

I've come across this fascinating paper which empirically demonstrates that one of the reasons why foreign aid hasn't resulted in much economic growth is that monies earmarked for development are often spent on things other than what they were intended for. That is, aid is often fungible--it can easily be spent elsewhere. Unfortunately, it is often spent on things which have less discernible developmental outcomes. This point might be obvious, but empirically demonstrating it has proven to be difficult in the past. In this paper, the authors determine that fungibility does serve as a mediator between foreign aid and growth. Forms of aid vary in their fungibility, and the extent to which aid is fungible has differential impacts on growth. Below is the abstract of the paper, which is available for download from the Institute for the Study of Labor (IZA) website. if you need more information on the concept of aid fungibility, do review this brief primer from Shanta Devarajan, who has written extensively about the topic.

The study uses a panel regression method as well. It seems panel regressions are all the rage these days in studies invovling the use of longitudinal data:

This paper examines fungibility as a possible explanation for the "missing link" between foreign aid and economic growth. The composition of aid plays a crucial role in determining the composition of government spending and, consequently, the magnitude of fungibility and its impact on growth. Embedding fungibility as an equilibrium outcome in an endogenous growth framework, we show that the substitution away from domestic government investment is higher than from government consumption. This leads to a reduction in domestic productive public spending and completely offsets any positive impact that aid might have on growth. The main predictions of the model are tested using a panel dataset of 67 countries for 1972-2000. We find strong evidence of fungibility at the aggregate level: almost 70 percent of total aid is fungible in our sample. We also find that investment aid is more fungible than other categories of aid. In the presence of fungibility, there is no statistically significant relationship between foreign aid and economic growth.

Tony Blair: The Musical!

Recent news out of London suggests that Nicolas Sarkozy ("Sarko" to the French press) is chatting up Angela Merkel about nominating Tony Blair to be the next EU president after the rather anonymous Barroso. With this bit of news the Tony Blair saga moves on, and what a saga it's been! Whether you like him or not--it's a love-hate thing for many including myself--there can be no doubt that the soon-gone leader of these fair Isles has left a lasting imprint on the global political economy. For me, the president of the USA and PM of the UK are the most visible of world politicians; perhaps even more so in this age of the English-dominated Internet. Professor Lord Giddens, the author of The Third Way, recently came to speak to us about his new book, Over to You, Mr Brown. While waiting to see what happens during Brown's term, let us recount the Blair years as the BBC, the Guardian, and countless others here in England have already done--but with a twist.

I recently went to see the London cast of Wicked perform the award-winning musical that purports to be a prequel to The Wizard of Oz. It was a fantastic performance that made this grown man weep, especially the showstopping number "The Wizard and I." I won't spoil the plot as I wish you all could see this stupendous musical, but let's just say the wizard isn't all he's cracked up to be--just as a certain Tony (award?) is. Thinking about things, it occurred to me that the Blair saga has much the same elements of a good tragedy according to Aristotle: Plot, Characters, Diction, Thought, Spectacle, and Melody (he plays guitar, right?) are all there in abundance. So, without further ado, I too have come up with my own idea for a musical. I am just waiting for Tim Rice or Stephen Schwartz to show up at my doorstep in my Inbox (this is the 21st century) waving wads of cash in my face for the rights to stage it. Yes, there have been films like The Queen and The Deal partly about him, but nothing this grand. The musical numbers follow (singing roles are noted where Blair doesn't lead). I have provided a brief synopsis below if you miss my references:

INTRODUCTION

(1) "Dinner for Two at Granita"
(2) "Spin to Win" [Campbell]
(3) "Gisela, What a Big Lead You Have!"
(4) "Princess Di and I"
(5) "I Love My Country, My Country Loves Me"
(6) "The Sofa of Power"
(7) "Racing Back To You"
(8) "Another Term"
(9) "Third Way or the Highway"
(10) "Sidekick Gordon's Delusions of Grandeur"
(11) "Take That, EuroBlair" [Brown]
(12) "Be His Friend" [Clinton]
(13) "Waltzes With Cowboys" [Bush]
(14) "A Million in the Streets of London" [Crowd of Displeased Labour Voters]
(15) "Bombs Over Baghdad / Bomb-Bomb-Bomb, Bomb-Bomb Iraq" (medley)

INTERMISSION

(1) "We Love Ya, Tony"
(2) "F--k Gilligan" [Campbell]
(3) "The Porn of Politics" [Major]
(4) "Yip-Yip, They Call Me 'Poodle'"
(5) "Lord Hutton, At Your Service" [Hutton]
(6) "Kick Me, Pleeze"
(7) "The Olympic Task of African Development"
(8) "No Margin for Terror"
(9) "Enough's Enough" [Gaggle of Labour MPs]
(10) "I Did the Right Thing / My Own Man"
(11) "Milord Cometh"
(12) "Middle Name Ain't Wolf"
(13) "Give Bandar a Billion"
(14) "EU Must Be Kidding"
(15) "Gordon, Have My Stratocaster"

CURTAIN CALL

A: 1-Blair and Brown are famously supposed to have made a deal at Granita restaurant over succession as PM with Blair going first followed by Brown; 2-Alastair Campbell, a seasoned tabloid journalist, was hired to stage New Labour's media push; 3-Something big was afoot when the traditionally Tory-leaning constituency of Edgbaston in Birmingham voted in Gisela Stuart, a lady of German descent allied with Blair. It turned out to be the first seat turned over to Blair's party in a landslide which ushered in New Labour in May of 1997; 4-Blair delivered a touching eulogy on the morning of Princess Diana's death and coins the term the "People's Princess"; 5-Blair's ratings reached the highest-ever for any PM; 6-Blair was accused of relying too much on a close inner circle who would sit around a sofa in 10 Downing Street; 7-Blair asks for forgiveness from the public over alleged favors given to Formula One impresario Bernie Ecclestone in exchange for a million pound campaign contribution; 8-Blair is reelected by a comfortable margin; 9-His confidence boosted by reelection, Blair becomes more aggressive in his approach to public sector reform, especially towards unionized labor; 10-By then, Gordon Brown had frequent spats with Blair, especially over succession; 11-Brown torpedoes Blair's dream of the UK adopting the Euro currency, claiming the UK didn't pass Brown's "five tests" for inclusion; 12-Blair sought Bill Clinton's input on the latter's successor and was given that fateful bit of advice; 13-Surprisingly, Blair and Bush bond after the 9/11 attacks; 14-More than a million Londoners take to the streets to protest the planned invasion of Iraq; 15-Iraq is bombed then invaded.

B: 1-Tony Blair receives a warm welcome in the USA over his extending support for the Iraq invasion; 2-Alastair Campbell's attack on BBC journalist Andrew Gilligan over the claim that Iraq could ready battlefield weapons of mass destruction in 45 minutes is blamed for the suicide of public servant David Kelly; 3-Former PM John Major accuses Blair of using media spin like "pornography"; 4-As Blair's popularity plummets to lows unprecedented for a Labour PM and he is called Bush's "poodle," he contemplates resignation; 5-Blair is partly vindicated to the surprise of many as the inquiry into the Kelly death did not find that Blair "sexed up" the Iraq WMD claim, leading to accusations that Hutton whitewashed the matter; 6-Alastair Campbell develops a "masochism strategy" for the 2005 reelection campaign involving Blair prostrating himself before the public over the Iraq mess; 7-Reelected, Blair makes two signature achievements in winning the 2012 Olympics Games for London and debt relief for Africa in a 24-hour span; 8-Blair's achievements are soon overshadowed by the London subway bombings, though he soon adopts a "war on terror" rhetoric similar to Bush's; 9-Blair's unwillingness to condemn Israel for its actions against Lebanon made junior ministers resign their posts to prod him to step down. Chastened, Blair says he would leave in 2007; 10-Blair plays the "conviction" statesman over Iraq instead of the vote-calculating politician; 11-Blair is embroiled in scandal yet again over the granting of peerages to Labour party donors; 12-Blair is mooted by some as a successor to James Wolfensohn and Paul Wolfowitz as World Bank president; 13-Blair shows little remorse over allegations that the government gave Prince Bandar of Saudi Arabia a billion pounds in kickbacks to win large arms contracts for BAE; 14-Sarkozy trumpets Blair as the next EU president.

15-OK, this hasn't happened, but I figure this number would bring the house down and have the audience reaching for their hankies [sniff]. Artistic license, you know. Blair apologizes for being such as boob to Gordon Brown over the years by reneging on the Granita deal. With tears in his eyes, Blair then hands over his beloved Fender Stratocaster guitar to Brown. I figure that the curtain call will feature a reprise of one of the more uptempo numbers. Anyway, here are some sample lyrics, though I am no Bernie Taupin:

Granita's all boarded up
New Labour's down on its luck
Yet I still remember that meal
When we struck a splendid deal...

Such drama! I think there's a good narrative flow to this musical with a mix of ups and downs to enliven the proceedings with musical numbers ranging from rockers to weepers. Please feel free to contribute casting suggestions, song lyrics, etc. It's good I got this out early so I can sue whoever is mad enough to stage a Blair musical in the future for stealing my idea. You know, I could use the money ;-)

Performance Pay and Inequality

I've gone through some potential explanations for the rise in income inequality in recent posts such as the Marxist "internal contradictions of capitalism" and the "offshoring" theses. The former holds that labor is not being rewarded for added productivity while the latter holds that productivity gains may be exaggerated by the attribution of additional productivity from offshoring to domestic productivity. Economists Thomas Lemieux (U of British Columbia), Bentley MacLeod (Columbia University), and Daniel Parent (McGill) present yet another view: some are more productive than others, and this difference is being magnified in wider salary differences as more firms adopt pay-for-performance compensation schemes. In their regression model, nearly a quarter of the variance in pay is accounted for by the adoption of pay-for-performance schemes. This paper is available from the Institute for the Study of Labor, and its abstract follows:

We document that an increasing fraction of jobs in the U.S. labor market explicitly pay workers for their performance using bonuses, commissions, or piece-rates. We find that compensation in performance-pay jobs is more closely tied to both observed (by the econometrician) and unobserved productive characteristics of workers. Moreover, the growing incidence of performance-pay can explain 24 percent of the growth in the variance of male wages between the late 1970s and the early 1990s, and accounts for nearly all of the top-end growth in wage dispersion (above the 80th percentile).

John Snow, Auto Magnate

Henry Ford, Alfred P. Sloan, Gianni Agnelli, Lee Iacocca, Ferdinand Piech, Carlos Ghosn...the names of the great auto magnates resonate through the annals of industrial history. And now, set to join them is the illustrious John Snow? Better known as Bush's loyal but ineffectual Treasury secretary, he is currently chairman of private-equity heavyweight Cerberus Capital Management. Last month, Cerberus bought Chrysler for $7.4 billion. As you know, Ford has put its remaining British operations Jaguar and Land Rover up for sale. According to the Financial Times, Cerberus is looking into buying up these outfits to add to its automotive holdings:

Cerberus, the private equity group that has just bought Chrysler, is now voicing interest in a possible bid for one or both of Ford Motor’s two UK luxury brands – Land Rover and Jaguar.

According to two people with direct knowledge of the matter, the buy-out group, which secured Chrysler last month for $7.4bn, has voiced preliminary interest in Ford’s sale of the two marques, for which other private equity groups and financial investors will also likely compete. “They are definitely one of the players in the game,” said one...

Ford’s advisers on the sale – Goldman Sachs, Morgan Stanley, and HSBC – have not issued an information memorandum or invited bids for the two carmakers.

The US carmaker was caught off guard when news of the politically sensitive sale leaked out this week, long before it was ready to start a formal auction process. Ford sees the British brands as a drain on its financial and management resources as it tries to turn around its lossmaking, core US operation.

News of the Cerberus overtures toward Land Rover and Jaguar – alongside those of other buy-out groups – will likely further fan a gathering UK backlash against private equity.

Jaguar and Land Rover are seen as “heritage” brands, and any buy-out group would be likely to slash jobs at the two carmakers, whose overlapping operations employ about 16,000. Jaguar Cars in the UK – its biggest market – reported a pre-tax loss of £533.7m in 2005, the last year for which accounts are available.

A private equity bid for the two carmakers could prove politically contentious for the incoming British prime minister, Gordon Brown, as the buy-out industry is attracting considerable adverse publicity in the UK.

Ford had an easier time selling Aston Martin to Arab and US investors because the consortium was led to Dave Richards, a well-regarded British automotive entrepreneur.

Offshoring: BusinessWeek vs. BEA

A recent series of articles [1, 2, 3, 4] in BusinessWeek by Michael Mandel claims that US GDP has been overstated by a whopping $66 billion since 2003. According to BW, accounting by the Bureau of Economic Analysis fails to consider the effects of offshoring on domestic manufacturing through a variety of ways as illustrated here:

A more detailed breakdown is offered as well on how these factors purportedly show up in the figures recorded by the BEA as seen in selected anomalies:

The basic story offered by BW is that production figures are being skewed for the BEA has not fully considered the effects of offshoring:

The short explanation is that the growth of domestic manufacturing has been substantially overstated in recent years. That means productivity gains and overall economic growth have been overstated as well. And that raises questions about U.S. competitiveness and "helps explain why wage growth for most American workers has been weak," says Susan N. Houseman, an economist at the W.E. Upjohn Institute for Employment Research who identifies the distorting effects of offshoring in a soon-to-be-published paper.

The underlying problem is located in an obscure statistic: the import price data published monthly by the Bureau of Labor Statistics (BLS). Because of it, many of the cost cuts and product innovations being made overseas by global companies and foreign suppliers aren't being counted properly. And that spells trouble because, surprisingly, the government uses the erroneous import price data directly and indirectly as part of its calculation for many other major economic statistics, including productivity, the output of the manufacturing sector, and real gross domestic product (GDP), which is supposed to be the inflation-adjusted value of all the goods and services produced inside the U.S.

The result? BusinessWeek's analysis of the import price data reveals offshoring to low-cost countries is in fact creating "phantom GDP"--reported gains in GDP that don't correspond to any actual domestic production. The only question is the magnitude of the disconnect. "There's something real here, but we don't know how much," says J. Steven Landefeld, director of the Bureau of Economic Analysis (BEA), which puts together the GDP figures. Adds Matthew J. Slaughter, an economist at the Amos Tuck School of Business at Dartmouth College who until last February was on President George W. Bush's Council of Economic Advisers: "There are potentially big implications. I worry about how pervasive this is."

By BusinessWeek's admittedly rough estimate, offshoring may have created about $66 billion in phantom GDP gains since 2003 (page 31). That would lower real GDP today by about half of 1%, which is substantial but not huge. But put another way, $66 billion would wipe out as much as 40% of the gains in manufacturing output over the same period...

Depending on your attitude toward offshoring, the existence of phantom GDP is either testimony to the power of globalization or confirmation of long-held fears. The U.S. economy no longer stops at the water's edge. Global corporations often provide their foreign suppliers and overseas subsidiaries with business knowledge, management practices, training, and all sorts of other intangible exports not picked up in the government data. In return, they get back cheap products...

More broadly, it becomes clear that "gains from trade are being measured instead of productivity," according to Robert C. Feenstra, an economist at the University of California at Davis and the director of the international trade and investment program at the National Bureau of Economic Research. "This has been missed."

Pat Byrne, the global managing partner of Accenture Ltd.'s (ACN ) supply-chain management practice, goes even further, suggesting that "at least half of U.S. productivity [growth] has been because of globalization." But quantifying this is tough, he notes, because most companies don't look at how much of their productivity growth is onshore and how much is offshore. "I don't know of any companies or industries that have tried to measure this. Maybe they don't even want to know."

Phantom GDP helps explain why U.S. workers aren't benefiting more as their companies grow ever more efficient. The cost savings that companies are reaping "don't represent increased productivity of American workers producing goods and services in the U.S.," says Houseman. In contrast, compensation of senior executives is typically tied to profits, which have soared alongside offshoring...

The import price index also misses the cost cut when production of an item, such as blue jeans, is switched from a country such as Mexico to a cheaper country like China. That's especially likely to happen if the item goes through a different importer when it comes from a new country, because government statisticians have no way of linking the blue jeans made in China with the same pair that had been made in Mexico.

Phantom GDP can also be created in import-dependent industries with fast product cycles, because the import price statistics can't keep up with the rapid pace of change. And it can happen when foreign suppliers take on tasks such as product design without raising the price. That's an effective cost cut for the American purchaser, but the folks at the BLS have no way of picking it up.The effects of phantom GDP seem to be mostly concentrated in the past three years, when offshoring has accelerated. Indeed, the first time the term appeared in BusinessWeek was in 2003. Before then, China and India in particular were much smaller exporters to the U.S.

However, the BEA retorts that these claims are exaggerated for the agency is not as slovenly in its methods as portrayed by Mandel:

A recent set of articles in BusinessWeek suggests that the real cost of offshoring has been understated because there is a “flaw” in the way that price statistics treat offshoring and that, as a result, real GDP and productivity growth are actually less robust than official statistics indicate. However, analysts at BEA—who are continuously updating the official estimates to reflect the impact of globalization—do not think that there is a significant bias on measured GDP or productivity growth.

The argument made in the articles hinges on the fact that the import price data—published by the Bureau of Labor Statistics and used by BEA to “deflate” or convert nominal imports to real imports—do not reflect the full cost saving when foreign suppliers are substituted for domestic suppliers. However, import price indexes are designed to measure the change over time in the prices paid by U.S. residents for imported goods and services; they do not directly compare the prices of imported goods (and services) to their counterparts produced in the United States.

This is a manifestation of an old and difficult problem in price measurement. The argument fails to recognize that an offset occurs when domestic goods and services are purchased in the United States. That is, if real imports are understated because shifts to foreign suppliers are not being adequately captured in the price data, it is also likely that domestic production is understated because of shifts to more efficient domestic suppliers. Furthermore, BEA uses chain-type measures that are designed to account for much of this substitution. Any remaining measurement errors should be offsetting because researchers have not demonstrated that errors in measuring imports are larger than offsetting errors in measuring domestic production.

There is no clear “fix” for the price measurement problem beyond the adoption of chained-dollar estimates to measure real GDP, which BEA adopted in 1996. Nominal, or current-dollar, GDP is not affected because the amount deducted from nominal GDP for imports represents the actual amount spent for imports. Further, there are no distortions in the nominal trade balance, or other nominal measures, such as corporate profits and wages and salaries.

Hu's right and who's wrong [sorry for the pun on Chinese premier Hu Jintao]? I too have gripes about BEA data, but all the same, I have serious conceptual problems with these "new economy"-type arguments that offshoring/outsourcing/globalization have rendered national statistical data collection as we know it obsolete. Still, it's food for thought and presents ammunition for the globalization-is-evil crowd whose numbers are legion.

EU's Bra Wars Rejoined

The "bra wars" of 2005 resulted from the expiration of the Multi Fibre Agreement (MFA), a system of quotas for textile exports from the developing to the developed world. Unsurprisingly, the EU was inundated with Chinese garments (yes, including the titular women's undergarments) that had EU clothing makers--particularly those in France, Italy, Portugal, and Spain--crying uncle. The interesting political economy angle here was that those EU countries were aligned against those with large retailing firms such as Germany (think of low-price powerhouses like LIDL and ALDI--which I shop at for I'm not a rich man). A temporary deal was reached by EU trade commissioner Peter Mandelson and Chinese trade minister Bo Xilai as described in this BBC article from 2005. The deal involved the establishment of "safeguard" quotas allowable under WTO rule that are set to expire at the end of 2007:

The EU and China have signed a deal to end the strife over textile quotas that has left more than 75 million Chinese garments piled up in European ports. Under the deal, half the blocked goods will be released unconditionally. The rest will count against 2006 quotas.

The EU imposed quotas in June to stem a huge surge in Chinese imports, after a worldwide, decades-old textile tariff and quota system ended in January…

European producers fear their business will be wiped out, but retailers say they risk empty racks…

Under the old 30-year-old Multi-Fibre Agreement, nations were set annual clothing export limits. The demise of that arrangement led to a massive increase in Chinese clothing exports to the EU, which reacted by imposing import quotas. But as soon as the quotas were announced, retailers and wholesalers rushed to order supplies from China - using up the limits almost as soon as they were introduced.

France, Italy, Portugal and Spain, all of whom have large domestic textile industries, have been most opposed to any change in the quotas. In contrast, several northern European states, including Germany and Sweden, are backing their retailers' calls for the garments to be let through.

During EU-China trade meetings this week, Mandelson and Bo agreed to let Chinese textile exports resume more or less unimpeded in 2008:

On textiles, the EU and China agreed to liberalise bilateral textile trade in 2008.

"Both sides have agreed to abide by the 2005 Shanghai textiles agreement and implement free textile trade in due time," said the press release.

In June 2005, following the so-called "textile war" between China and the EU, Bo Xilai and Peter Mandelson reached an agreement in Shanghai on resuming quotas on China's textile exports to the EU by 2007.

The press release said the EU and China will continue dialogue and cooperation on textiles so as to maintain the steady and smooth development of bilateral textile trade.

Mandelson told reporters that both sides were able to acknowledge and welcome the successful operation of the 2005 Shanghai textiles agreement.

"We were both cognizant of the-if I can put it in this way-re-entry problems of the return to normal trade and we agreed that we wanted to avoid any destabilisation of the market," he said.

"For our part our automatic licencing system will continue through 2008 so we can continue to monitor market developments and discuss jointly with Chinese authorities any actions that we need to take to ensure a smooth transition from the textiles agreement to normal trading," he added.

However, not all are happy about this outcome. Turkey, the second largest exporter of textiles to the EU, fears that its textile exports to the EU will be further affected by inexpensive, high-quality Chinese exports come 2008. Unsurprisingly, Turkey wants to move up the textile innovation ladder to avoid the Chinese steamroller. For Turkey's sake, I hope they can stay in the game:

In the face of China's textile boom and quotas on its trade expiring in 2008, players from the textile industry's private sector as well as government and other sector representatives of Euro-Mediterranean countries and Turkey gathered in Istanbul yesterday to discuss how they could collaborate in order to remain competitive.

Bülent Uygun, secretary general of the Denizli Chamber of Industry, said that the EU and participants at the meeting were trying to save the region's industry as it is in danger in the face of China's textile production and export capabilities. Quotas on China will expire in 2008. He explained that the solution lays in the creation of high value-added products such as technical textiles, geotextiles (establishment of which is in progress) and textiles that make use of nanotechnology. There's no future in conventional textiles for Europe and Turkey. We shouldn't insist on producing conventional products, he said. We are trying to manufacture technological textiles but we are slow.

Turkey is by far the largest textile and clothing producer in the Mediterranean region. It provides a broad domestic raw material basis. The EU estimates that 2.5 million workers are employed in the textile and clothing sector in Turkey. That is five times more than what official statistics say. The EU's major supplier of textile and clothing products is China followed by Turkey and India.

An EU Databank on Leftist Radicals?

In the aftermath of the violent riots which marred the G-8 summit in Germany, Uwe Schünemann, the state minister for internal affairs in Lower Saxony, has proposed the creation of a European databank that targets left-wing radicals. Although the breakout of voilent riots was indeed regrettable, establishing a security apparatus for tracking down anti-globalization left-wing radicals may be difficult and raise privacy issues as well. It sounds so...Nixonian. From Deutsche Welle:

Last week, Germany hosted the G8 summit of the world's richest countries on the Baltic coast for three days from June 6-8. Cars were torched and riots broke out, injuring about 500 policemen and scores of anti-globalization activists in the prelude to the big event.

"A total of 48 police helmets were demolished. That should give you an idea of the scale of violence," said Rüdiger Holecek, spokesman for Germany's Police Union in Berlin.

Now a politician from the center-right Christian Democratic party (CDU) wants to prevent such violent clashes from happening again. Uwe Schünemann, the state minister for internal affairs in Lower Saxony, has proposed setting up a pan-European databank that targets left-wing radicals. Many of them came from abroad and roiled this year's annual G8 summit in the seaside resort Heiligendamm.

Europol, the EU's criminal intelligence agency, should store data on those who have already been charged with violent acts, so that member states can access a central source to keep them out, said Schünemann.

The proposal has been criticized by Germany's opposition parties and even divided the CDU, but has strong backing from August Hanning, state secretary in the federal interior ministry and former head of the German Intelligence Agency (BND).

"We must closely monitor the (left-wing) scene, which is highly elusive, and use whatever means in our power within constitutional bounds, to infiltrate such groups, be it the use of phone taps or informants," said Hanning in the newsmagazine Der Spiegel.

Autonome was a militant anti-establishment movement that reached its peak in the late 1970s and 1980s in Germany, as well as Italy and France. Since the movement's adherents wore black, they were also dubbed the Black Bloc in the media.

Today the Autonome scene has lost some of its steam, although globalization summits such as the G8 fuel anti-capitalistic protests that turn disruptive and violent, including one death in the Italian city of Genoa in 2001.

Unlike the dangerous soccer hooligans who were kept out of Germany during the World Cup, the nebulous nature of the Black Bloc makes those prone to violence hard to catch.

"They have respectable jobs and blend in with the crowd, even down to their black Armani suits. Typically a politically motivated hooligan could be a former student activist from the 1970s, who harbors deep resentment against the establishment, so he lets out all that pent up energy by hurling stones and Molotov cocktails at the police," said Holecek...

Critics question the merits of such a databank. "We need to take the necessary precautions, but without infringing on the legal rights of demonstrators. I doubt that we need a special database for the Autonomen," said Thomas de Maiziere, minister for special affairs in Chancellor Angela Merkel's cabinet in an interview with Germany's ARD network.

"Setting up a databank that targets a specific group is completely unacceptable. All it takes is membership in a black listed organization. You are labeled a suspect and become a databank entry before you've done anything criminal," said Werner Rätz, an activist affiliated with Attac, a network that is critical of globalization [I have written some more about ATTAC].

Hans-Christian Ströbele, a parliamentarian from the German Green party warned, "Europe-wide databases already exist. The question is whether this mountain of data will be misused, and infringe on the rights of innocent people.

Gourmands' Case for Migration

Rent-seeking behavior is not always bad. Here's a case in point. The husband-and-wife team of Tim and Nina Zagat are famous for their restaurant and travel guides. It's an American success story which started when they released a guide to restaurants in New York City. From there, they have made their little red books [or is it maroon?] ubiquitous worldwide among gourmands and travelers alike. Instead of applying their "expert opinion" like the Michelin guide or others like it, they have made the process of rating restaurants and travel establishments more democratic by surveying other diners and travelers on the worthiness of these establishments.

Now, they are storming the gates of Capitol Hill in their op-ed for the New York Times. Ever since China became more prosperous, its cuisine has become more interesting according to the Zagats. Unfortunately, however, the US won't let in these innovative Chinese cooks to spice up hidebound examples of what passes for Chinese cuisine Stateside. I've heard the usual arguments for migration--a lack of manual laborers, a lack of caregivers, a lack of engineers...now a lack of Chinese cooks?! If the Zagats says it's so, I'm inclined to believe them:

Chinese food in its native land is vastly superior to what’s available here. Where are the great versions of bird’s nest soup from Shandong, or Zhejiang’s beggar’s chicken, or braised Anhui-style pigeon or the crisp eel specialties of Jiangsu? Or what about the tea-flavored dishes from Hangzhou, the cult-inspiring hairy crabs of Shanghai or the fabled honeyed ham from Yunnan? Or the Fujianese soup that is so rich and sought after that it is poetically called “Buddha Jumps Over the Wall,” meaning it is so good that a Buddhist monk would be compelled to break his vegetarian vows to sample it?

Like so many other aspects of Chinese life, the culinary scene in China is thriving. As capitalism has gained ground there, restaurants have become a place for people to spend their newfound disposable incomes. Cooking methods passed down within families over the centuries have become more widely known as chefs brought the traditions to paying customers. Today, there are a number of regional cuisines known in China as the Eight Great Traditions (Anhui, Cantonese, Fujian, Hunan, Jiangsu, Shandong, Sichuan and Zhejiang cuisines). Unless you’ve visited China, they most likely have never reached your lips.

That’s because the lackluster Cantonese, Hunan and Sichuan restaurants in this country do not resemble those you can find in China. There is a historic explanation for the abysmal state of Chinese cuisine in the United States. Without access to key ingredients from their homeland, Chinese immigrants working on the Central Pacific Railroad in the 1860s improvised dishes like chow mein and chop suey that nobody back in their native land would have recognized. To please the naïve palates of 19th-century Americans, immigrant chefs used sweet, rich sauces to coat the food — a radical departure from the spicy, chili-based dishes served back home.

But today, getting ingredients is no longer an issue. Instead, the principal obstacle to improving Chinese fare here is the difficulty of getting visas for skilled workers since 9/11. Michael Tong, head of the Shun Lee restaurant group in New York, has said that opening a major Chinese restaurant in America is next to impossible because it can take years to get a team of chefs from China. Chinese restaurateur Alan Yau planned to open his first New York City restaurant last year but was derailed because he was unable to get visas for his chefs.

If Henry Kissinger could practice “Ping-Pong diplomacy,” perhaps Condoleezza Rice could try her hand at “dumpling diplomacy”? China and the United States should work together on a culinary visa program that makes it easier for Chinese chefs to come here. With more chefs who are schooled in China’s dynamic new restaurant scene, we would see a transformation of the way Chinese food is served in this country.

Imagine, if you will, what it would be like to discover for the first time Memphis-style barbecue, New York deli food, soul food and Creole, Tex-Mex, Southwestern, California and Hawaiian cuisines all at once. Eating food prepared by an influx of Chinese chefs would be like opening up a culinary time capsule.

When authentic Chinese cuisines reach our shores, we can expect a revolution in ingredients and styles that will change the way we prepare food for years to come. Look how quickly our taste for offal, sous-vide cooking and tasting menus have grown. We have a much more ambitious dining culture today than we did 150 years ago.

So, we welcome Chinese chefs to share their authentic cuisines with us. American palates, unlike those of previous generations, are ready for the real stuff.