Run-Up to Bali: A Whole Lotta Carbon Emissions

In the run-up to the UN Climate Change Conference in Bali from 3-14 December 2007 where a successor to the Kyoto Treaty will be on the drawing board, I've decided to put up some features that place the challenges in establishing a global carbon trading regime into focus. I'm sure you're aware of Kevin Rudd's election as Australian PM and his stated intention of signing on to Kyoto which further isolates the US as the only developed country enviro-renegade. Yet, a few developed countries which have already signed on to Kyoto don't seem to be happy campers right now. Bloomberg points out that Japan, Italy, and Spain have been hit with a combined tab totaling $33B [!] for exceeding their caps. Worse, Italy and Japan are sticking taxpayers with a lion's share of the bill:

Japan, Italy and Spain face fines of as much as $33 billion combined for failing to reduce greenhouse-gas emissions as promised under the Kyoto treaty. The three countries are the worst performers among 36 nations that agreed to curb carbon dioxide gases that cause climate change. The 1997 Kyoto accord designed to slow global warming demands that polluting nations buy credits for their excess emissions from other industrial polluters or investors.

``They're looking at a huge bill now,'' said Mike Rosenberg, management professor at the University of Navarra's IESE Business School in Barcelona. ``That is because none would pay to reconvert factories, power plants and paper mills'' to trim gases blamed for the planet-warming ``greenhouse effect.''

Penalties imposed by the Kyoto treaty have spurred emission reductions. Spanish utility Iberdrola SA in the last five years turned itself into the world's largest owner of wind-energy parks, cutting CO2, or carbon dioxide, emissions per kilowatt by 15 percent this year.

Spain, Italy and Japan are likely to miss their Kyoto commitments because they underestimated economic growth and future emissions from factories and utilities.

Under the Kyoto Protocol to the UN Climate Change treaty, endorsed by 175 nations and organizations, countries that exceed their emission caps must buy credits in the market. The sellers are typically investors or industrial polluters that have accumulated a surplus of credits, also called permits. Spain faces a $7.8 billion cost, and Italy and Japan each may owe about $13 billion, based on estimates by their governments and the current price for permits.

``They were all too optimistic about mitigation measures,'' Milo Sjardin, a senior associate at London-based New Carbon Finance, an emissions research firm, said in an interview. ``They're going to have to go out and buy credits for the excess...''

Spain will pass 40 percent of the cost for the extra emissions on to businesses, Secretary of State for Energy Ignasi Nieto told journalists in Madrid July 31. The rest will come from taxes. The penalties will hit local utilities including Endesa SA and refiners such as Compania Espanola de Petroleos SA, or Cepsa. ``Our negotiators didn't have a clue what they were getting into'' at Kyoto, Cepsa Chairman Carlos Perez de Bricio said at a conference in Madrid June 8.

In Italy, taxpayers will foot 75 percent of the bill for extra permits. ``Italy's behind, and we need to keep cutting emissions,'' said Environment Minister Alfonso Pecoraro Scanio on Sept. 13 in Rome. Japanese taxpayers will pay for two-thirds of that nation's excess, New Carbon Finance estimated, based on the current sharing between state funding and industry.

The government of Japan has begun buying credits. It may consider introducing daylight saving time and emissions trading. Emissions were 1.341 billion metric tons in the year ended March, up 6.4 percent from 1990 levels, a preliminary report released on Nov. 5 by the environment ministry showed.

Japan is missing milestones because road-transport emissions jumped 23 percent since 1990, and power and heat production gained almost as much, the Paris-based International Energy Agency data shows. The country was ``overly optimistic'' on potential benefits from nuclear generation and forestry to curb CO2, Sjardin said.

Even the somewhat more ecologically sensitive Brazil (by LDC standards) joins developing country opposition to including LDCs in a carbon regime. Brazil is the world's 4th largest GHG emitter, largely due to deforestation. Their reasoning is similar to China's: since the dawn of industrialization, developed countries have accounted for the bulk of carbon emissions and so must bear a greater share of the burden in combating climate change:

Brazil reiterated its opposition on Wednesday to imposing targets on developing countries' carbon emissions, days before a major international conference on climate change. A United Nations report on Tuesday recommended that developing countries cut their carbon emissions at least 20 percent by 2050. Rich nations should cut theirs by 80 percent over the same period, it said. [Visit the UN Development Program site for this report.]

"We are not in favor of targets," Sergio Serra, a foreign ministry expert on climate change, told a news conference in the capital Brasilia...

"The principal responsibility lies with the industrialized countries," said Everton Vargas, under-secretary for political affairs at the foreign ministry.

"Our offer is to adopt verifiable policies at a national level to combat climate change -- we have our own targets," Vargas added...

Brazil is a pioneer in low-emissions ethanol derived from sugar cane and most of its electricity is derived from clean hydropower. But it is also a large carbon emitter, due largely to the destruction of the Amazon forest. Tropical forests release stored carbon dioxide when trees are burnt or decompose.

Brazil wants rich nations at the Bali conference to pay for poor countries to adapt to climate change. It also hopes for pledges of technology transfers to help coal-dependent countries, such as China or Mozambique, control emissions.

Speaking of burning down tropical forests, Indonesia, the world's third largest greenhouse gas emitter after China and the US largely due to forest clearing, is also coming to grips with biofuel's role. It turns out that the rising demand for supposedly environmentally-friendly biofuels is now driving a growing portion of distinctly environmentally-unfriendly forest clearing in Indonesia:

Which is exactly what Riau province is, in a way. Roughly the size of Taiwan, the area has become the focus of a green-versus-green tussle pitting environmentalists trying to protect Indonesia's disappearing forests against a fast-growing alternative-energy business. Palm oil, a byproduct of the oil-palm tree such as those being planted in Riau, is used for cooking and as a food additive. Growing it has long been a big business in Southeast Asia. But it can also be used in the production of a relatively clean-burning alternative fuel: biodiesel. As oil prices have soared in recent years, Indonesian companies have been converting vast tracts of forests and peat bogs into palm-oil plantations to feed a rapidly expanding biodiesel industry; between 1995 and 2005, the amount of Indonesian land being used to grow oil palms increased by some 8.6 million acres (3.5 million hectares), more than doubling total plantation area, according to a recent report on the industry by Credit Suisse.

The biodiesel boom has a high environmental cost, however. Critics say it's contributing to global warming. Tropical forests help remove millions of tons of carbon dioxide from the atmosphere every year. Burning and clear-cutting not only eliminates one of the planet's crucial air-filtration systems, the process also releases even more carbon dioxide into the air, in smoke or as gases released during the decomposition of forest waste. Annual clearing of Indonesia's carbon-rich peatlands alone releases some 1.8 billion tons of greenhouse gases, according to a Greenpeace report. Indonesia is the world's third largest emitter of greenhouse gases behind the U.S. and China, says the World Bank. "We liken what's going on [in Indonesia] to pouring petrol on a fire," says Martin Baker, a Hong Kong–based communications officer for Greenpeace International. "It's completely ridiculous to produce green fuels from places like this."

It doesn't seem so ridiculous to poor countries like Indonesia, where leaders are torn between the need to develop the country's natural resources and increasing international pressure to preserve remaining forests. This dilemma is expected to be a hot topic this month at a U.N.-led conference on climate change in Bali, where representatives from 189 nations are gathering to negotiate a set of environmental rules to succeed the Kyoto protocols, the main provisions of which expire in 2012.

With 20% of the world's emissions coming from carbon released into the atmosphere via deforestation, one of the more controversial ideas to be floated at the conference will likely be a proposal to create an international carbon-trading system that would, in effect, allow countries such as Indonesia to be paid for not cutting down their forests. Although details have yet to be hammered out, the concept is similar to a European Union carbon-trading system that sets limits on greenhouse-gas emissions, allowing companies exceeding those limits to buy "credits" from companies that produce less than their fair share of pollutants. Thus, heavy polluters are penalized (they have to pay for credits to stay within the cap), while greener groups are rewarded (they get paid for being under the cap), and the continent as a whole meets its emission targets.

Climate change and economic growth: are they in conflict? I like to think that they need not be, but the technological capabilities which minimize this conflict are largely not in place yet for advanced countries such as Japan, Italy, and Spain, let alone for LDCs. Those meeting in Bali will have a tough time hashing out a deal. However, there are few issue with more pressing global importance than this one. We'll see how things pan out soon. Bali beckons.

Different Views on China in Africa

Regular IPE Zone readers are probably aware of my pessimistic views on Chinese involvement in Africa. To sum it up, it's meet the new boss, same as the old boss--the yellow man's burden has replaced the white man's burden. Self-interest, not altruism drove outsiders to Africa then and the same holds true now. Of course, there are many other points of view. Let's view some of them. For the economic angle, I highly suggest this recent IMF paper by Jian-Ye Wang on "What Drives China's Growing Role in Africa?" The author focuses on economic motivations, particularly China's voracious need for raw materials to power its industrial steamroller, especially energy supplies. While it may seem that China is buying up Africa lock, stock, and barrel sometimes, do note that due to colonial legacy and geographical proximity among other things, Africa's largest trade partner remains the EU. All the same, note the large gains made in African exports to China:

Here is the conclusion from the IMF paper:

This paper intends to provide an assessment, based on fractional information, of China’s economic involvement in Africa and to identify the forces shaping burgeoning China-Africa economic relations. The study is undertaken against the background of a rapidly changing landscape of international trade and finance that has eclipsed traditional aid flows to middle-income countries, making Africa ever more central for development finance.

For Africa, China has been a market, a donor, a financier and investor, and a contractor and builder. While aid historically was of major importance, two significant changes have occurred since the turn of the new century. Because trade and investment have become much more significant in volume than aid flows, economic relations between China and Africa are clearly commercial rather than aid-driven. Meanwhile, the private sector has stepped to center stage. Here China’s foreign economic relations mirror changes in its domestic economy. China-Africa economic exchanges have become much more decentralized and broad-based.

The paper identifies four factors associated with recent changes in China’s economic engagement with Africa: Chinese government policies, growing Chinese and African markets for each other’s exports, Africa’s demand for infrastructure, and China’s approach to financing. China’s state financial institutions have been instrumental in cementing the new, commerce-based economic ties. In the process, they are helping correct chronic undervaluation of Africa by investors and helping fund new investments in Africa’s export and infrastructure sectors.

Africa will become an increasingly attractive market as incomes rise and progress in regional integration makes its markets even more attractive. It will also become a key destination for FDI, and it will continue to need infrastructure. Together these powerful market forces may put Africa-China economic relations firmly on a commercial footing. Both public and private sectors have a part in ensuring that the expanding trade and investment ties are mutually beneficial and contribute to sustainable growth and development in Africa. The impact of possible changes in Chinese demand on African terms of trade, trade patterns, and the economic prospects of countries in Africa are worthwhile topics for further research.

Meanwhile, Newsweek has an interview with Yang Guan of the state-sponsored Chinese Academy of Social Sciences. To no one's surprise, he strikes an upbeat tone on China's involvement in the region. Below are some excerpts. Reiterating a point made in the IMF report, he says that Chinese investment in the region is not as large as some make it to be. Irksome to me is his legalistic excuse for selling arms to Sudan as in "selling arms is allowed by international conventions, and Darfur isn't the point of arms sales." What's legal isn't moral, but don't get me started on this...

The media likes to talk about China's thirst for African oil, but oil investments are just one part of China's investments on the continent. What other areas are Chinese firms involved in?
Chinese investment is involved in many sectors. At the beginning it was concentrated on a few sectors, such as resource development, including oil, agriculture, and fishing. But nowadays you can see Chinese investment in many manufacturing industries, such as textiles, consumer electronics, and China has also invested in tourism, telecommunication, and construction of roads. So it is much broader than it used to be.

China is a latecomer in the investment market in Africa. Chinese enterprises began investment in Africa in the late 1980s, but the value of investment has increased rapidly. So by the end of 2006, the accumulated amount of Chinese investment in Africa totaled 11.7 billion U.S. dollars. This is not a big number, if you compare it with the total direct investment or inflow into this continent. If you look at the 2005 figure, the total Chinese direct investment in Africa was 400 million U.S. dollars, but that made up only 1.3 percent of the total inflow of direct investment in Africa that year. The amount of Chinese investment in Africa should not be overestimated.

There have been quite a few reports saying that Chinese firms sell military equipment to the Sudanese government, and some people say that equipment is being used for violent purposes in Darfur.
China is an exporter of conventional arms, but this is done in the framework of international law.

I don't think China has provided conventional arms to the Sudanese government in order to fight against the tribes in Darfur. China has not done that. You can see weapons made in China in many places of the world, and it is very hard to say how they get these weapons. I don't know if the Sudanese government got the weapons directly from China, they may have gotten them from anywhere. So it is hard to say—if you find a weapon made in China, it doesn't mean that China supports this kind of war. This is not logical, because there are a lot of transfers of weapons worldwide.

Lastly, Newsweek also has an article on the challenges of Sino-African economic interaction. If you had the impression that things were all hunky-dory as long as China waved wads of cash, you'd be mistaken. Here are excerpts concerning cross-cultural communication issues. I get on my knees and pray we don't get fooled again?

Western executives—hidden behind the walls of their villas—have bred a certain kind of resentment in Africa. In Angola the much more numerous and adventurous Chinese are suffering from another. Perhaps as many as 100,000 Chinese workers have spread out across the country, many breaking rock on highways or pouring concrete at construction sites. Most live in isolated camps. Few speak English; fewer still speak Portuguese.

State-owned Chinese companies prohibit any type of fraternization between their employees and Angolans. If a worker becomes romantically or sexually involved with a local, he's quickly hustled back to China. "Africans and Chinese think differently," says Xia Yi Hua, a regional director for China Jiang Su, a massive construction conglomerate with offices across Angola. Xia has been in the country for four years, and his company still sends him shrink-wrapped packets of Chinese food from back home, along with regular sets of chopsticks. Everything in his office comes from China. One coffee table is made of Angolan wood, he admits, but he flew in a Chinese carpenter to fashion the table.

Racist stereotypes are common: both sides accuse the other of looking or behaving like monkeys or pigs. The Angolans claim (without good evidence) that the Chinese eat their dogs. At most work sites Chinese supervisors oversee black laborers, which has created friction. "You Chinese come to Angola and order us around, but in your own country you are suffering," says an Angolan who works for a Chinese company. (He asked not to be named for fear of losing his job.) At one Chinese-run construction site NEWSWEEK visited, hungry workers begged for food, saying their Chinese bosses never fed them. (The bosses say that's not their responsibility.) Angolans laying fiber-optic cable for Huawei near Benguela say they must dig 16 feet a day, or else they won't be paid their $5 daily wage. They claim their Chinese bosses only use one Portuguese word, cavar, which is repeated again and again: dig, dig.

China Backs Down in Subsidies Case

US Trade Representative Susan Schwab has come to an agreement with her Chinese counterparts over the subsidies case filed at the WTO Dispute Settlement Body. Yes, China engaged in all sorts of posturing, but at the end of the day, it backed down. Score one for the USTR [U-S-A! U-S-A!] The National Association of Manufacturers is understandably elated as well. It seems American politicians are keen on capitalizing on these gains by ramming through all sorts of legislation aimed at making China "play fair." Will China also give in on the intellectual property dispute, for instance? You could argue that China is keen on not angering the world with yet more subsidized exports as the US and EU are getting quite angry over mounting trade imbalances. IP is a more difficult issue though as policing the world's most populous nation for pirated software is not exactly an easy task. Anyway, let us begin the beguine with a Bloomberg recap that provides a good overview of things:

China agreed today to abolish subsidies that the U.S. had challenged at the World Trade Organization. Officials from the two nations signed an agreement in Geneva in which China agreed to eliminate a series of tax rebates on exports by the end of this year, the U.S. trade office said today. Another subsidy will end by the end of next year. In the meantime, the U.S. will suspend its WTO complaint.

``The agreement demonstrates the two great trading nations can work together to settle disputes to their mutual benefit,'' U.S. Trade Representative Susan Schwab said at a press conference in Washington.

The breakthrough bolsters the Bush administration as it tries to pry open the Chinese market to more U.S. products and head-off legislation in Congress aimed at punishing China for what many lawmakers says are unfair policies.

Treasury Secretary Henry Paulson, Schwab and other Cabinet officials are to travel to China early next month for a summit on issues ranging from easing caps on U.S. bank investments to clamping down on piracy of U.S.-made movies, music and software. [That's for the Strategic Economic Dialogue.]

The resolution of this complaint demonstrates that ``real results'' can come from engagement with China, Schwab said. ``This clearly shows the wisdom of serious dialogue over some legislative approaches that would simply impose retaliatory tariffs,'' she said.

China ran a record $187.6 billion trade surplus with the U.S. in the first nine months of this year, putting it on course to exceed last year's $232.5 billion trade gap and prompting complaints among lawmakers, union officials and small manufacturers.

In February, the U.S. lodged its complaint against China at the WTO, the largest one to date against the world's fastest growing major economy. The U.S. argued that the Asian nation violated global trade rules by unfairly subsidizing its steel, wood products, information technology and other industries. The case centered on tax rebates for foreign investors, including U.S.-owned companies, and Chinese exporters.

This is the second time a U.S.-filed WTO complaint has caused China to reverse course and withdraw provisions that the Bush administration argued violated global trade rules. China scrapped a rebate on a value-added tax on semi- conductors after the U.S. filed a case in 2005. A dispute over anti-dumping duties on kraft linerboard, a type of heavy-duty paper used in cardboard boxes and other shipping applications, was settled the day the U.S. was to file its complaint to the WTO.

Three other WTO cases are still pending: One on auto parts and two others concerning protections for intellectual property rights. Critics of the Bush administration say the resolution of this case shows that the U.S. needs to take tougher action against China to get it to remove barriers to exports, raise the value of its currency and clamp down on dangerous products, such as toys coated with lead paint.

For years, Democrats in Congress have presented to the U.S. Trade Representative's office a list of WTO cases the U.S. should bring. They are also mulling legislation that would make it easier for U.S. producers to get tariffs on Chinese imports to compensate for the effect of government subsidies or a weak Chinese currency.

``This is an overdue, yet welcomed step toward holding China accountable for its trading violations,'' Representative Sander Levin, a Michigan Democrat and chairman of the House Ways and Means trade subcommittee, said in a statement. Levin said his committee would still push for new measures aimed at China. ``We need a comprehensive trade policy toward China, requiring action on piracy, import safety, dumping and currency manipulation,'' he said. [Miss anything, Levin? Maybe you should throw in giant jellyfish as well.]

Others argued that the agreement today demonstrates the limits of U.S.-China summits, such as the one Paulson and Schwab will participate in next week. ``When the U.S. uses its power, it's effective with China,'' said Robert Cassidy, who helped negotiate China's accession to the WTO as a U.S. trade official in the 1990s. ``A more assertive trade policy would bring more real results.''

UPDATE: The Financial Times has a few more interesting tidbits on the emerging story in line with the idea that China was in the process of rolling back subsidies anyway:

The case, which covered a variety of industries including steel, wood products and information technology, had the potential to affect hundreds of millions of dollars’ worth of trade and tie up the countries in a lengthy legal dispute at the WTO. In Thursday’s deal, China agreed to eliminate illegal subsidies by January 1.

An official at the Chinese mission in Geneva denied that the agreement represented a total climbdown by Beijing. The official said that some of the subsidies had already been repealed and some were due for repeal under a new income tax law for enterprises. Other subsidies, such as a refund on value-added taxes for Chinese companies buying domestically produced equipment, were not prohibited under WTO rules, the official said.

Brendan McGivern, a lawyer at White & Case in Geneva, said the US had learned that threatening litigation concentrated minds in Beijing and made a negotiated settlement more likely. “Litigation kicks an issue right up the political system and raises its profile in the minds of senior officials,” he said.

Lawyers say China, which joined the WTO in 2001, appears to have moderated its initial view that WTO litigation was an intrinsically hostile and inflammatory act. The US, with the EU threatening to follow suit, has increased its use of legal tools in its many trade disputes with China, also imposing so-called “countervailing duties” against Chinese imports it considers to be illegally subsidised.

And here is the press blurb from the US Trade Representative's site. I've been a Susan Schwab admirer, strangely enough [1, 2], and this episode just shows you that she's a woman of action. There's a PDF file of her full remarks as well:

U.S. Trade Representative Susan C. Schwab today announced that China has agreed to terminate subsidies that the United States alleged were illegal under World Trade Organization (WTO) rules.

"I am very pleased that today we have been able to sign an agreement with China that should lead to full elimination of these prohibited subsidies. This outcome represents a victory for U.S. manufacturers and their workers. The agreement also demonstrates that two great trading nations can work together to settle disputes to their mutual benefit,” said Ambassador Schwab.

“Earlier this year, when China had not removed these market-distorting subsidies after we repeatedly voiced our concerns about them, the United States took action. This outcome shows that President Bush’s policy of serious dialogue and resolute enforcement is delivering real results. While many challenges still remain, today’s news is concrete and welcome.”

The Memorandum of Understanding (MOU) is designed to settle a WTO case the United States and Mexico initiated in February of this year. The United States had alleged that China was maintaining several subsidy programs prohibited under WTO rules and that these programs were providing significant benefits across the spectrum of industrial sectors in China − including steel, wood products, information technology, and many others. Mexico also filed as a co-complainant.

Most of the challenged subsidies were tied to exports, giving an unfair competitive advantage to Chinese products and denying U.S. manufacturers the chance to compete fairly with them in the United States and in third country markets. The remaining subsidies, known as “import substitution” subsidies, encouraged companies in China to purchase Chinese-made goods instead of imports. These subsidies were designed to give Chinese-made goods a significant edge in the China market over high-quality, fairly priced goods from the United States and other countries.

Under the MOU, China has committed to complete a series of steps by January 1, 2008 to ensure that the WTO-prohibited subsidies cited in the U.S. complaint have been permanently eliminated, and that they will not be re-introduced in the future. U.S. companies and workers will benefit from the removal of China’s trade-distorting subsidies much sooner than would have been possible if the United States had litigated this case to its conclusion. At the same time, if for any reason China does not meet its MOU commitments, the United States has the right to re-start WTO proceedings.

I don't like tooting my own horn, but yes, I did say in February...

I would be wary of using the term "protectionist" here. Going by the WTO rule book, some of China's measures are difficult, nay, almost impossible to defend.

However, I am unsure whether this move by the Chinese is a prelude to giving in on currency revaluation and intellectual property. China likely moved on the subsidies matter in line with its goals to reduce pollution-intensive production (why subsidize it?) and lessen trade frictions a bit. As the Bloomberg article notes, EU and US officials will soon visit Beijing. On currency revaluation I think China will be more reluctant to make big moves, though I may be wrong. In any event, the yuan seems to be revaluing at a pretty decent clip that Chinese officials can point to as an act of good faith when EU officials visit soon and the SED begins again. Don't expect all parties to be holding hands and signing "kumbaya" anytime soon.

Automakers, Retailers Take On Indian Market

Markets in the Western world are near saturation--that is a common theme you get from carmakers Nissan-Renault and retailer Metro AG in the stories that follow. The opportunities lie in fast developing countries, especially India, China, and Russia. It's an oft-heard line, but the challenges are many. The so far unconsolidated Indian auto market practically asks that foreign automakers seek out many partnerships with several local firms since they are unsure which ventures will pan out. Meanwhile, foreign retailers are also not allowed to open up their own stores and must tag up with local entities.

We begin with the latest exploits of a legendary auto magnate, the peripatetic Carlos Ghosn. He recently went on a tour of India signing deals with anyone and everyone to ensure that the future of India's car market has a distinctly Renault-like future. Industry observers are guessing what Ghosn is playing at by signing deals with so many local firms, but I simply see it as portfolio diversification in an uncertain, rapidly evolving market. Ghosn is hedging his bets in the domestic automobile industry. From the Economic Times:

On October 29, Nissan Renault chief Carlos Ghosn made a whistle-stop trip to India to crack two mega deals. He touched down in Chennai to ink the $500-million alliance between Nissan and Ashok Leyland for light trucks and then hopped on to a chopper for a flying visit to Bajaj Auto’s Chakan plant for a chat on the $3,000 car.

Although he started with a low-key, sourcing trip two years ago, right now Ghosn seems to be working at break-neck speed to get his India strategy in place. In just over six months since the launch of the Logan, he has worked out a multi-partner strategy, tied up with Ashok Leyland for Nissan trucks, worked out an ultra small car project with Bajaj Auto and is reputedly talking to both Eicher and Bajaj for Renault light commercial vehicles. Add to that the global production arrangement with Suzuki through Maruti and the greenfield plant and powertrain facility in Chennai and his plate looks full indeed.

Suddenly some of the biggest names in India’s automobile business have tied in a part of their fortunes with his somewhat radical plans for this market. And Ghosn has managed to put his finger in just about every pie — from light trucks to a $3000 car. In the next three years, his strategies and plans for India will have a profound impact on the busiest segments of this market as well as on his partners.

Ghosn — who is considered both a maverick and a messiah by global auto analysts — is clearly a man in a hurry. Hence the flurry of India deals this year. Says a senior official with one of his Indian partners: “The sense that one gets talking to his team is that he is almost making up for lost time. The question is, will the organisation be able to keep up with the man?”

What may have his partners worried is whether Ghosn is spreading himself and his companies too thin. Says a Delhi-based partner with an MNC consultancy firm: “What his partners may be wondering is whether they will get as much as they expect from the deal. Or will Ghosn’s multi-partner strategy end up confusing and cannibalising?”. No other auto MNC has entered India through three joint ventures.

Often described as Motown’s only rockstar, for Ghosn that sorbiquet is not just PR hyperbole. In India he has often kept his potential partners guessing, sometimes lobbing surprises through his announcements in the press. In late April he told ET: “Cooperation with M&M [Mahindra & Mahindra] on LCVs [light commercial vehicles] has neither been discarded not decided.” But analysts say M&M’s existing tie-up with ITEC put it out of contention on the LCV front and Anand Mahindra was simply not interested in the small car game.

By August, Ghosn was already talking to both Leyland and Bajaj and had announced his plans to enter the $3000 car. There hasn’t been a single dull moment since the Logan launch.

Ghosn is an almost mythical figure in the auto industry. A turn around agent who managed to bring Nissan back from the brink, he is credited with his group’s solid bottomline and, till recently, equally decent topline. Most of the Ghosn lore comes from Japan where he is widely revered. But even in clubby Europe, he is something of a hero, a local Lee Iacocca of sorts.

Auto analysts though say the India story has become more and more important to Ghosn as home markets Japan and Europe come under pressure. Ghosn’s dream run as CEO No 1 was already in trouble by the time he was posing for pictures with Anand Mahindra in Paris last November. Renault’s sales at home are stuck in first gear and Nissan was facing a product pipeline problem that prompted Ghosn to extend the “Nissan Value-Up commitments” by one year when he announced the company’s 2006 results late April

Unflinchingly candid, Ghosn is the first to admit he is pressing the accelerator in India because things aren’t going that well elsewhere. “All across developed markets—in western Europe, US and Japan—sales are not growing,” he told ET two weeks ago. “The growth is here, in India, China, Russia. We already have a big JV up and running in China and we have doubled sales in Russia. In India, we need partners who will help us learn the market and get it right. And of course we can also learn something from our partners about India’s famed frugal engineering culture,” he explained.

Analysts say there’s a reason why the biggest names in India are flocking to Ghosn. Unlike the rash of alliances in the early 90s, when the Indian partner brought little more than a local distribution network to the table, this time round the focus is on moving up the food chain. At the joint press conference in Chakan, Bajaj Auto MD Rajiv Bajaj said: “We wish to participate in the ultra low cost car project because we feel we can add value across the supply chain from deals to vendors and right through. It will be a learning experience for Bajaj.” Ghosn dittoed that heartily: “What we want to do is take forward the skills and cost structures of two/three wheelers to four wheelers.” That’s why, he said, Bajaj will “lead” the project.

Ghosn is clear his strategy of having a partner in every segment makes perfect business sense. “It will work if you are very clear what you are partnering about,” he said. “We will have multiple partners for multiple segments. There is no fuzziness. Even the agreement with Suzuki doesn’t overlap with the ultra low cost car because they are completely different products at different price points.”

Ghosn may see no fuzziness. But try as he might to make it all appear seamless, some in the auto industry say he is playing a clever game to not rely too much on a single partner and to keep each guessing about his plans with the others. Auto analysts liken this to a giant jig saw puzzle. If the pieces fit, some of Ghosn’s rockstar reputation will rub off on India. His partners are hoping that’s exactly how things turn out.

Meanwhile, the Wall Street Journal has an interesting story on how German retailer
Metro AG has practically had to reinvent the Indian grocery supply chain to ensure that produce arrives fresh and on time. These are no mean challenges given the weight of tradition and India's famously spotty infrastructure. I've already posted about the entrenched and often belligerent retail system of mom-and-pop operators. This article also talks about the seemingly endless chain of middlemen in the current Indian retail system which drives up costs and makes it more likely that produce gets spoiled before reaching consumers.

To open stores in India, German retailer Metro AG first had to teach farmers like N. Madhu to stop piling vegetables on the ground after picking them -- the bacteria from the dirt can slash the shelf life. Today, Mr. Madhu's gourds go directly from the vine to the plastic crates Metro gave him.

"They taught me if I stop using sacks and give them uniform sizes they will pay me the best price," said Mr. Madhu one recent morning as he unloaded crates of green, foot-long gourds from his small family farm at the Metro distribution center in Hyderabad. Farmers like Mr. Madhu are a critical part of operating in India for Metro, the world's fourth-largest food retailer measured in sales.

Metro is the first Western retailer to tackle a fundamental problem facing Wal-Mart Stores Inc. and other retailers trying to enter India today: how to stock their huge supercenter stores with produce that must travel India's rough roads, in outdated trucks, and that come from farmers, shepherds and fishermen who use techniques from a century ago. For all the promise that India's retail industry holds -- it is estimated today at $300 billion and growing -- it requires focusing as much on managing its supply chain as it does on attracting shoppers.

Metro's advantage over the others may appear slight. Since entering India in 2003, it has opened just three wholesale markets -- its customers are small retailers, restaurants and hotels -- with another two scheduled to open next year. But it has a huge advantage in infrastructure -- it has set up one of the first supply chains transporting refrigerated goods across India.

"Stores are just the tip of the iceberg -- 90% of the work is under water," says Thomas Hübner, chief executive officer of Metro Cash & Carry International, the division that runs the company's India operations. "People must be aware that setting up a business in India can take 10 to 15 years."

Wal-Mart, which used its supply-chain expertise as a critical weapon against rivals when expanding in the U.S., is teaming up with an Indian partner, Bharti Enterprises Ltd. "Our wholesale cash-and-carry venture will invest in setting up an efficient supply chain that will link farmers and small manufacturers directly to retailers, thereby maximizing value for farmers and manufacturers on the one end and retailers on the other," said a Wal-Mart spokesman...

Foreign retailers aren't yet allowed to own stores in India. They have to come in through franchise agreements with Indian companies or as wholesalers. They can also own logistics companies to supply to Indian retailers.

"You have to start from scratch," says Ira Kalish, director of consumer business for Deloitte Research LP in Los Angeles, who has studied the Indian consumer market. "You start with an inefficient supply chain and gradually invest in improvements."

India's traditional way of transporting vegetables can be seen in the southern city of Hyderabad. While the city is nicknamed Cyberabad for its high-tech companies, its wholesale vegetable market is decidedly low-tech. Large open trucks, piled high with loose onions and carrots and sacks of green chilies sit roasting in the midday sun as they are unloaded onto the backs of long lines of wiry men. The produce is weighed and then piled high in unrefrigerated warehouses. Vegetable traders use bags of squash as chairs and beds.

The produce is only about halfway on its journey to the consumer, and it is already looking sad. Large distributors buy from the market and sell to midsize retailers, who then sell to the mom-and-pop shops and cart pushers that make up the bulk of the Indian grocery trade. The chain can involve up to seven intermediaries.

Economists estimate that up to 40% of produce in India is ruined or lost. Metro is working to get that figure to 7% at most. Metro says its supply chain for fruit and vegetables is too new to reliably say how much progress the company has made in fighting waste.

Metro, based in Düsseldorf, has experience building supply chains to stock its 2,400 retail and wholesale stores in 31 countries. Wal-Mart, by comparison, operates in half as many markets. Metro, which posted $85.3 billion in sales last year, is under pressure to succeed in India because, like Wal-Mart, it increasingly relies on international operations for growth.

"It's a way of securing our future," says Metro's Mr. Hübner. "At some point, our business in India and China will be bigger than that in Europe. My successor, or that person's successor, might be Indian or Chinese."

When Metro first opened a shop in Bangalore four years ago, locals didn't eat much fish because seafood didn't make it inland fresh enough to be edible. So, Metro taught fishing crews how to cool fish by immediately gutting and stuffing them with shaved ice. Before, few fishermen had ice and most used -- and reused -- chunks of ice that damaged the fish. The company now sells up to five tons of seafood (between 80 and 120 types of fish) in the Bangalore region every day.

Metro managers visited shepherds to show them how to vaccinate their herds and treat the animals for sicknesses like bluetongue and foot-and-mouth disease. Metro imported British sheep to breed with their Indian counterparts, which tend to be too skinny for Metro's meat rack.

Metro also had straightforward lessons for vegetable farmers: Don't water spinach the night before it is picked; don't place cucumbers on the ground after you pick them; pack fruit and vegetables in crates instead of burlap bags; and don't store onions in warm warehouses or they will sprout and spoil.

Metro cut out middlemen by sending its own truck drivers to collect directly from some farmers, in trucks refrigerated to between 42 and 46 degrees. It had to make sure its suppliers didn't turn off the refrigeration in their trucks to save gasoline, a common practice among Indian drivers. To check, Metro started measuring ice cream from the center of the package to make sure there had been no melting along the way. "In a place without any cooling systems at all, a truck cooled to exactly [42 degrees] looks like a thing from the moon," says Mr. Hübner.

Such efforts to build a modern supply chain have met some resistance from middlemen who are used to transporting produce and now seeing their jobs eliminated under Metro's plan. To protect the middlemen and local small retailers, some Indian states have banned foreign companies from selling agricultural products. Mr. Hübner says he expects this ban to be lifted soon because the company has gone through lengthy administrative steps with local authorities.

Metro's efforts have attracted restaurant owners who say they shop there because it has everything in one place and is rarely out of stock. They used to buy vegetables, rice, meat, and drinks from many small suppliers that often run out.

Wolfensohn: The End of Development

James Wolfensohn, World Bank president from 1995 to 2005, has remained active after his spell at the controversial international financial institution. In 2005, he set up a strategic consulting firm focused on emerging markets that bears his name, Wolfensohn & Associates. In 2006, he became the chairman of Citigroup's International Advisory Board. Clearly, Wolfensohn still has an affinity for taking a "big picture" view of international matters, particularly development. Though he doesn't say so explicitly, James Wolfensohn appears to be touting--you guessed it--the end of development. According to him, "the North-South divide is now obsolete" and we should "bid farewell to old development divides." Francis Fukuyama proposed The End of History, Kenichi Ohmae The End of the Nation-State, and Jeffrey Sachs The End of Poverty. If I had a dime for every End of... book purporting something which hasn't happened or isn't likely to happen, I'd be a millionaire. You know, I'd like to write The End of Books About the End if it means finishing off endless books with this sort of hanckeyed title.

Interested? Read on, by all means. BTW, YouTube has a recent interview with Wolfensohn about his post-World Bank days. And when The End of Development hits the bookstores, you can say you've been there, done that, saw the movie, bought the t-shirt...

The notion of a divide between the rich north and the poor and developing south has long been a central concept among economists and policymakers. From 1950 to 1980, the north accounted for almost 80 percent of global GDP but only 22 percent of its population, and the south accounted for the remainder of global population and 20 percent global income.

But the north-south divide is now obsolete. The dynamic process of globalization has resulted in unprecedented levels of growth and interdependence. However, while this has blurred the old division, new ones have emerged, splintering today's world into four interconnected tiers.

The first tier comprises the affluent countries, notably the United States, European nations, Australia and Japan — with a combined population of around one billion and per capita incomes ranging from $79,000 (Luxembourg) to $16,000 (Republic of Korea). For the past 50 years, these affluent countries have dominated the global economy, producing four-fifths of its economic output. However, in recent years, a new set of economies has emerged that is contesting the affluent countries' economic dominance.

These emerging economies — call them the Globalizers — constitute a second tier of about 30 poor and middle-income countries (including China and India), with per capita GDP growth rates of 3.5 percent or more, and a total population of 3.2 billion, or roughly 50 percent of the world's population. These countries have experienced unprecedented levels of sustained economic growth that may well enable them to replace the "Affluents" as engines of the world economy.

The Globalizers are a large and diverse group of countries — in size, geography, culture and history — that have learned how to integrate optimally with, and leverage, the global economy to catalyze their development.

A third tier is made up of roughly 50 middle-income countries with a combined population of 1.1 billion. They are also home to many of the world's critical natural resources, possessing around 60 percent of proven oil reserves. But these "Rentiers" have not been able to translate the rents of their natural resource wealth into sustained economic growth.

The fourth tier comprises countries that are lagging behind — the world's poorest economies, with more than a billion people. They continue to stagnate or decline economically. Mostly located in sub-Saharan Africa, these "Laggards" are largely isolated from the global economy, and they face crucial development challenges.

This emerging four-tier world presents three key challenges.

First, we need to increase our efforts to ensure that the Laggards are no longer left behind. This requires policy changes as well as more generous and more effective aid. If one considers the issue of aid flows, one finds that though development aid rose in 2005 to $107 billion, most of the increase was geared toward "special circumstances," such as debt forgiveness and for Iraq and Afghanistan. The sad truth is that development aid to Africa has decreased from $49 per person in 1980 to $38 per person in 2005. The true development needs of Laggard countries and other parts of the world are not being met, despite the rhetoric of scaling up aid.

Second, the old powers need to accommodate the rise of Globalizer economies — particularly China and India — by reforming our international order. The Affluents will continue to be major global players, but as the Globalizers' relative economic power rises, they will demand a greater role in international affairs. Most Affluents seem unprepared for this change, but such demands will need to be accommodated.

Finally, while the Globalizers have lifted millions of people out of poverty and reduced global inequality, this has not resulted in a more equal world, because star economies like India and China are experiencing a rise in domestic inequity. Whether it is coastal versus inland or rural versus urban, these countries must tackle the widening disparities, because high inequality may well threaten their very ability to continue growing as they have.

If we are to create a more equitable world, then traditional levers of development such as trade, investment, aid, and migration need to be scaled up comprehensively and coherently, and global institutions must be reformed. This would improve our ability to address global challenges and better our prospects for building a more equitable world. Otherwise, we might bid farewell to old development divides only to welcome new ones.

Marx, Globalization, and EU Labor

Cool Papa Marx strikes again. Just in case you thought the IPE Zone had gone all neoliberal on you, here's news to stir every left-leaning reader and worry even the most rabid pro-globalizer. It's a pattern which repeats itself in other parts of the developed world, especially the US of A: Labor's share of income (GDP) in the European Union has fallen to yet another all-time low. If you apply a classic Marxist critique, the inherent contradictions of capitalism are becoming evident: capitalism is such that there is a tendency for the bourgeoisie or capitalist class to accumulate an ever-greater share of the fruits of production at the expense of the proletariat or working class. (The culprit? Technologically-enabled globalization.) However, this system cannot continue indefinitely for there comes a point when exploitation of the working class is such that all the wonderful fruits of capitalism can no longer be purchased by labor since its share of income has diminished so much. Then you get revolution and the eventual dictatorship of the proletariat. Does that sound convincing? Make up your own minds; I've featured Marxist-types of analysis to some contemporary issues [1, 2], though there are far more sophisticated readings you can find elsewhere on the Web, comrade.

Believe it or not, I am irked that this news has been buried in the media as it is of undoubted importance. Have people become so sheep-like as to expect this trend to continue without complaint? It's a shame in particular that American academics do not apply Marxist styles of analysis to political-economic questions. As this blog's manifesto [!] notes, there are three main IPE perspectives--liberalism, realism, and Marxism. Their loss, I guess; those of us here in Europe have the bases covered with more leftist academics than you can shake a stick at (excluding yours truly who's more of a centrist). Yes, mainstream economists, you can also say that this phenomenon may be Hecksher-Ohlin at work, but Marx is so much more...evocative (and hirsute):

European workers' income as a percentage of the economy has fallen to a 40-year low as globalization increased labor supply and technology improved manufacturing processes.

Labor income share of gross domestic product in the European Union fell to 57.8 percent last year, compared with an average of 64.2 percent since 1960, the European Commission in Brussels said in a report today. That compares with a 60.2 percent share in Japan last year and a 60.9 percent share in the U.S. in 2005.

"Technological progress made the largest contribution to the fall in the aggregate labor income share," according to today's report. "Globalization also had a negative impact" as the supply of labor worldwide quadrupled between 1980 and 2006.

Technological advances in machinery and production processes have allowed companies to boost output without adding workers, which can boost economic growth without an increase in labor income. Still, unskilled workers are more negatively affected, as capital and new technology "complement skilled workers," according to the report.

The EU's labor income share, which measures the part of value added allocated to labor in GDP, peaked at 69.9 percent in 1975. The Japanese rate also reached its highest that year, at 76.4 percent, while the U.S. achieved 65.9 percent, its highest level, in 1970.

A Sino-Japanese Enviro-Economic Jellyfish Quarrel

As a SpongeBob SquarePants fan, I find jellyfish rather charming. Japanese fishermen, however, do not. Regions which have traditionally been fishing grounds in Japan have been inundated by jellyfish which are making it difficult to catch fish. They destroy fishing nets, poison fish, and generally make life hard for anglers. Who's to blame? Why, of course, that universal bogeyman for what ails the world, China. From a 2005 Economist article:

The jellyfish spawn along the coasts of the East China Sea and the Yellow Sea and some drift towards Japan. It usually takes two months or more for the first to reach the Japanese island of Tsushima, in the middle of the strait between South Korea and Kyushu. This year, however, the jellyfish arrived a month earlier than usual, in August, and in big numbers. In May and June, heavy rains in the basin of the Yangtze river had created an enormous flow of fresh water, and this jet had sluiced the jellyfish towards Japan...

No one knows the exact reason for the rise in the jellyfish population, but there are suspicions. One is the development of ports and harbours along the Chinese coast, which has created many more structures to which echizen larvae can attach themselves. Another is that the seas off China are choked with nutrient-rich run-off from farms and industry. A third is Chinese overfishing in local waters: with fewer fish, there are more of the kinds of plankton on which the jellyfish feed.

[UPDATE: You must see these photos to appreciate the size of these jellyfish.] See? Even Japanese fishermen are going China bashing; it's the global sport of choice. Unfortunately, things have not gotten any better since 2005. Here is more from the accompanying Wall Street Journal article to the clip above. Interestingly, the mega-disastrous Three Gorges Dam even figures its way into the story:

Fisherman Ryoichi Yoshida pulled in his nets before dawn one morning, hoping for lots of yellowtail and mackerel. But the fish were overwhelmed by a heaving mass of living pink slime. The creatures, called Nomura jellyfish, can measure six feet across and weigh up to about 450 pounds. They have been drifting en masse to places like Oki, a small island 40 miles off the coast, bobbing beneath the surface of the water like pink mines. They rip holes in fishermen's nets, and they poison fish.

"Normally, we just bring up the nets and it takes about an hour," said the weather-beaten Mr. Yoshida, 61 years old, after his crew had cleared the jellyfish out of the nets using long poles and hooks. "Now it takes two or three hours. And some of the fish escape."

Until 2002, these giant creatures were seen only occasionally in Japanese waters. But for the past five years, they have been swarming every year into the Sea of Japan, the water that separates Japan from mainland Asia. During the biggest invasion so far, in 2005, an estimated 500 million jellyfish -- not yet mature -- drifted in each day.

It's hard to calculate financial damage to fishermen, but the Japanese government last year counted about 50,000 incidents of jellyfish trouble. Fish poisoned by jellyfish tentacles die with their mouths agape. That mars their appearance and reduces their value by as much as 20%. "When their mouths are wide open, it means they've died going, 'I'm in pain! I'm in pain!' " explains Mr. Yoshida.

Scientists have various ideas about what causes the outbreak. One has devised a computer model of ocean currents that suggests the jellyfish are breeding off the Chinese coast near the mouth of the Yangtze River. One theory is that pollution, perhaps linked to industrialization in China, is helping create more algae in the sea. The algae are food for plankton, which is food for jellyfish.

Then, too, there is speculation about a link to the Three Gorges Dam, the world's largest hydroelectric-power project under construction in the Yangtze, which could be changing water flows to the sea. A dam in a section of the Danube that runs between Serbia and Romania completed in 1972 changed the river flow, after which the jellyfish population of the Black Sea exploded.

Chinese officials and scientists deny that Chinese pollution has caused the outbreaks [would they say otherwise?] "No research evidence in China supports a connection between pollution and jellyfish," says Li Qi, a dean of the Ocean University of China. "Floating jellyfish are mostly in the Sea of Japan....That's Japan and Korea's problem."

Eager for a solution, slasher squads of fishermen went out last year armed with barbed poles to attack jellyfish that were jamming up nets. If the jellyfish are cut into three or more bits, they usually die and get eaten by other sea creatures. Fishermen have also taken a trawl net and added a wire grill like a large potato masher at the trailing end: When the net is pulled through a swarm of jellyfish, they float through and are sliced up. [So violent...]

The Japanese government is doing what it can. It tracks the progress of jellyfish as they swarm through the Sea of Japan, urging trawlers to steer clear of them. The Japanese harvest some jellyfish to eat. Jellyfish can be boiled and added to salads -- though smaller varieties are said to be more tender and tasty. Trying to win converts, the fisheries ministry has drawn up a manual with tips on cooking with giant jellyfish. Menus include jellyfish-flavored biscuits, jellyfish soaked in rum and a dessert of jellyfish chunks in coconut milk...

One fear among scientists is that the creatures are multiplying in a "jellyfish spiral." Shinichi Uye, a leading jellyfish researcher at Hiroshima University in western Japan, thinks overfishing off China has led to fewer plankton-eating fish, leaving more plankton for the jellyfish to suck up. This growing army of jellyfish then also eats fish eggs, resulting in even fewer fish. Whatever the details, says Prof. Uye, the problem seems to be industrial development. "It's like a harmless living thing has been angered," he says. "The reason for its anger might lie with human activity."

Trying to understand why the jellyfish have started appearing in such numbers, marine biologist Kohzoh Ohtsu studies their reproductive cycle on another part of Oki. One afternoon he and a colleague -- dressed in rubber clothing to protect against the poison -- cut lumps of tentacle from a 200-pound jellyfish with a knife to make it light enough to bring aboard. One cause of the mass invasions, he says, "could be rising sea temperatures" making it easier for the jellyfish to breed and feed near China. Though he doesn't know details of the sea temperatures there, the peak water temperature in the Sea of Japan has been four or five degrees Fahrenheit higher than normal in a couple of recent years, indicating warmer seas in the region. One fear is that higher temperatures or other environmental changes might one day even allow the giant jellyfish to breed around Japan, adding further to their numbers.

WPP's DC Lobbying "Monopoly"

Left...right...center: whatever your avowed political predisposition, there's likely someone at one of WPP's lobbying firms who's willing to fight for your cause in the hallowed halls of Congress, at a price. The UK-based WPP is one of the world's largest marketing services companies, offering public relations, advertising, and most importantly for this post, political lobbying. The Financial Times has an interesting story on how various lobbying firms under the WPP umbrella feature several influential Beltway figures including Hillary Clinton's point man Mark Penn, Michael Whouley, Dan Bartlett, Norman Mineta, and Anne Wexler (see this cast of characters). If you still have any remaining notions that politics involved principles, read this story and be disillusioned. These lobbying firms are effectively political mercenaries; name your rent-seeking activity of choice and pay up.

How influential are WPP's firms? When New York Mayor Michael Bloomberg and others started a "Mayors Against Illegal Guns" campaign, they hired Dewey Square Group. Meanwhile, the National Rifle Association enlisted its own favored firm, Oglivy Government Relations. Perhaps unsurprisingly, both are owned by WPP. Washington, DC is WPP's oyster:

When New York City's Michael Bloomberg launched Mayors Against Illegal Guns, a nationwide campaign seeking to stop the flow of illicit weapons in cities and towns across America, he became a favourite verbal target of the National Rifle Association. To bring more muscle to its fight in Washington, the mayors' coalition in May hired lobbyists at Dewey Square Group. To succeed, Dewey Square would have to go head-to-head with the NRA's own veteran lobbyists at Ogilvy Government Relations, one of the most powerful and well-connected such operations in Washington.

Although they are on opposite sides in the gun issue, the lobbying outfits do have one thing in common: both are owned by WPP, the UK marketing group.

WPP is best known as a powerhouse in the corporate communications business. Sir Martin Sorrell, its chief executive, has transformed what was once a business making wire baskets into the world's second-largest marketing services group. What has received less attention, however, is how WPP has also grown into a force in US political communications. In setting its sights on Capitol Hill, WPP has targeted one of the most promising growth industries in America. The influence-peddling business was worth $2.45bn (£1.18bn, €1.65bn) last year, a 72 per cent increase from as recently as 1998, according to the Center for Responsive Politics, a research group that tracks money in politics.

The lobbying and public relations industry influences nearly every significant decision made in Washington. Lobbyists finance campaigns, shape proposals that become law, help create regulatory loopholes and tax breaks and play a key role in directing billions of dollars in government contracts to their clients. In 2000 there were 16,342 registered lobbyists. Today, that figure has more than doubled to 35,844.

At a time when the capital's public relations and lobbying organisations are more influential than ever, no single company has concentrated as much Washington influence under one corporate roof as WPP. The British group owns three big public relations companies with Washington expertise: Burson-Marsteller, Ogilvy, and Hill & Knowlton. It owns BKSH & Associates, a lobbying shop, and Penn, Schoen and Berland, a pollster, both of which are units of Burson. It also owns Timmons and Company, Quinn Gillespie, and Wexler & Walker, three other lobbying operations.

It owns smaller niche entities, such as Dewey Square and Direct Impact, which specialise in creating "grassroots campaigns" for corporate clients who are seeking to influence local elected leaders and community groups. It also owns Public Strategies, a lobbying and consulting business based in Texas.

WPP's network of companies in Washington is remarkable not just because of the cache of brands it has acquired over the years but because of the number of political heavyweights who run the operations and count themselves part of the WPP family. They include some of the most important fundraisers, former government officials, consultants and media advisers of recent political campaigns and in the 2008 presidential race.

Among them are Mark Penn, the chief executive of Burson and chief adviser to Senator Hillary Clinton, the Democratic frontrunner; Wayne Berman, a top fundraiser to President George W. Bush and vice-chairman of Republican Senator John McCain's White House campaign; Dan Bartlett, who served as counsellor to Mr Bush; Mark McKinnon, who was chief media adviser for Mr Bush in his 2000 and 2004 campaigns and these days advises Mr McCain; and Michael Whouley, a former senior adviser to Senator John Kerry who helped the 2004 Democratic candidate clinch his crucial caucus victory in Iowa.

Mr McKinnon and Mr Whouley, in particular, are seen as being among the slickest political operatives in their respective parties - with skills that WPP's network of companies offers to corporate clients and foreign politicians seeking to make inroads in the US and at home.

The WPP network has even represented both sides of the political fight in Pakistan. Early this year, the People's Party of Pakistan and Benazir Bhutto, the former prime minister who leads it, hired Burson and its subsidiaries for $28,500 a month (plus a one-time fee of $75,000) to help convince US government officials that Ms Bhutto was still "relevant" to the democratic process in Pakistan. Last year, the government of General Pervez Musharraf, Ms Bhutto's political rival, had turned to WPP for help in building its image in the US when it hired Quinn Gillespie, a lobby group whose co-founder, Ed Gillespie, now serves as a White House counsellor.

Its mission was to convince lawmakers to support a free trade agreement with Pakistan and promote it as a "reliable and attractive member of the global economic community". The work of the two units overlapped for a month, according to records.

WPP's reach raises questions about whether there is a limit to the number of companies, candidates and issues a single corporation and its network can represent. Craig Holman, a campaign finance lobbyist for Public Citizen, a Washington watchdog, says WPP epitomises the "monopolisation" of the influence industry that has Capitol Hill in its grip.

"It represents the devolution of lobbying through American history," he says. "The right to petition the government is in the constitution, so it is a constitutional right. But it has devolved from citizens into these huge for-profit conglomerates. It has got to the point where citizens have been pressed out of Capitol Hill and these for-profit businesses have a permanent voice here."

Mr Holman adds: "Those types of huge conglomerates can afford hiring former members of Congress. They go for about $2m a year and, once you hire those, you are the one who is controlling Capitol Hill." He says the government's interaction with business interests has become less transparent because of the convergence of lobbying groups, which must disclose who their clients are, with public relations companies, which do not have to reveal their clients' identity.

The increasing blurring of lines between political and corporate advisers, which is epitomised by Mr Penn's dual role as chief executive of Burson and adviser and confidant to Mrs Clinton, has also drawn scrutiny from the New York senator's rivals and union organisers.

At the heart of the criticism are allegations that the leading Democratic candidate espouses one set of values, while her chief strategist runs an operation that contradicts them by being pro-corporate and representing "union-busting" clients such as Cintas, the business services group that has fought unionisation efforts by its workers. Mr Penn says he personally does not represent clients on labour issues and adds that those who attempt to connect his work for Burson with the campaign are playing a "false game of gotcha".

"First, Burson is not working for the Clinton campaign, only myself and people from Penn, Schoen and Berland," says Mr Penn. (That company is a unit of Burson.) "Second, Burson has a 50-year history as a bipartisan firm and the clients that have been referenced are not clients I ever worked for, nor had any connection with," he says.

Burson has come under fire for its representation of other controversial clients. Last month it cut ties with Blackwater USA, the security group whose Baghdad guards are accused of killing 17 Iraqi civilians in September. The relationship, which began after the deaths, ended following criticism from John Edwards, Mrs Clinton's rival, who likened Mr Penn to Karl Rove, former senior adviser to Mr Bush. It was a WPP executive who made the decision not to extend the contract, according to people familiar with the matter.

Burson also recently ended its work with Countrywide, the embattled mortgage lender, though the circumstances of that separation are unclear. "Countrywide was a client of Burson but that ended," says Mr Penn, declining to elaborate.

In Washington, where lobbying and public relations are not closely regulated by any independent body, the saying goes that a conflict is only a conflict when a client says there is one. Some WPP clients, when asked, seem relaxed about the possibility that the outfit they hire to represent their interests may have the same owner as one that works for a competitor.

In the case of Mayors Against Illegal Guns and the NRA, each says it is not concerned about the potential for conflict even though each relies on companies that are owned by WPP. A spokesperson for Mr Bloomberg's anti-gun coalition initially said he was not familiar with WPP or the fact that it owned another unit that represented the NRA. A day later, after discussing the matter with lobbyists at Dewey Square, the coalition said it was happy with its representation.

Mr Bloomberg, the billionaire businessman-turned-politician, also has other ties to WPP. In 2005, his campaign for the mayoralty paid more than $17m to Penn, Schoen and Berland, in the most expensive electoral tussle in New York City history. It paid off on polling day, when Mr Bloomberg beat Fernando Ferrer, his Democratic rival, by 20 percentage points.

Since then, Mr Bloomberg has been castigated by the NRA for using his "tentacles" to extend "his reach, and his illegal anti-gun tactics, across America". Whatever WPP's role was in helping its rivals, the NRA nevertheless expresses satisfaction with its lobbyists at the WPP-owned Ogilvy: "They do a good job for us," says Andrew Arulanandam, an NRA official. "We are aware of that relationship . . . But there have been assurances of firewalls." The pro-gun lobby has paid Ogilvy $720,000 in fees since WPP took over the company, previously the Federalist Group, in 2005.

WPP is not the only company in Washington that has built up its arsenal in the US lobbying industry. But it is among the largest. In the first six months of this year, companies held by WPP generated an estimated $33.6m in lobbying fees, not including its public relations and consulting work in the capital, which is not publicly disclosed.

The figure represents only a fraction of WPP's total sales of roughly $12bn a year, but it trumps lobbying fees generated by two large law firms in town that are the largest single-brand lobby shops in Washington: Patton Boggs and Akin Gump. They generated $19.2m and $15.2m respectively in publicly disclosed lobbying fees during the first six months of 2007. Lobbying entities owned by Interpublic, a WPP rival that owns Cassidy and Associates, another big lobby shop, recorded $15.9m.

One financial services lobbyist who asks not to be named says he is sceptical about the role of large groups such as WPP that serve as holding companies for competing lobby and public affairs operations, because there are no regulatory restrictions that prevent senior corporate officials from discussing clients with one another.

"You could conceivably have company A and B working against each other on one issue and working together on another issue. This is a big country club," the person says, recalling how one lobbying industry veteran used to quip that there was no such thing as a conflict for clients who were worth less than $40,000 in fees.

To this ambiguity is added the complication that public relations houses do not have to disclose who they are working for or which corporate or political interest lies behind a campaign.

For example, Burson has recently been conducting a behind-the-scenes campaign on behalf of Microsoft, the software provider, to generate opposition to the proposed takeover of DoubleClick, the online advertising company, by Google, the internet giant.

When Burson sent an e-mail to a Financial Times journalist this year that pointed to "severe risks to privacy" posed by Google's desktop search product, the company suggested it was doing so on behalf of a group of "privacy experts" including Larry Ponemon, an independent researcher. In the e-mail, Burson did not identify its client as Microsoft.

When asked about the e-mail, the Burson employee who sent it said it was meant to "support" Mr Ponemon's institute. She later confirmed that it was sent on behalf of a Microsoft-sponsored initiative that is opposed to the DoubleClick deal. Mr Ponemon says he is flattered by the attention but did not hire Burson and is concerned about the "optics" the e-mail created.

Attempts to regulate influence- peddlers in Washington have generally been feeble. While public relations outfits are not regulated at all, lobbying reforms passed by Congress in the wake of the scandal surrounding Jack Abramoff, the lobbyist convicted of corruption in 2006, are centred on relationships with lawmakers, not on duties to clients...

Daniel Joseph, a partner at Akin Gump who also serves on the Washington DC bar's legal ethics committee, says one theory behind the conflict-of-interest rules that apply to all individuals who work at law firms is that attorneys, who are obliged vigorously to represent their clients, might pull their punches if they thought that by helping one client they could hurt the interests of another. "A law firm could not simultaneously represent two clients who were taking opposing positions in lobbying," he says.

With no such stricture applying to public relations houses, activists such as Mr Holman raise the persistent issue of how many clients, on how many issues, a company such as WPP can take on before the interests of clients begin to conflict. "We are seeing a mega-corporation hold many of the largest, most influential firms in Washington under one roof. They have clients who are competing against each other. Any individual client that hires one of these firms cannot be guaranteed that the firm will represent their interests," Mr Holman says.

Sitting in his office just a block off the lobbyist-favoured K Street, Howard Paster, vice-president of public relations and public affairs at WPP and former head of legislative affairs during the Bill Clinton administration, says he is not bothered when companies within the WPP family have clients that oppose one another on issues on Capitol Hill. The situation is no different, he says, from two advertising agencies within WPP working for competing shampoo manufacturers...

Mr Paster contends that WPP does not "hide" the companies it owns - indeed, a list is provided on WPP's corporate website. Yet it is not by accident that the WPP brand is itself not widely known in the US capital, says Dale Leibach, the founder of Prism Public Affairs, a Washington public affairs company, who worked at Ogilvy when it was acquired by WPP in 1989.

"If WPP was a household name, it would be tough to say, 'Burson, you can work for tobacco companies and Ogilvy, you can work for the American Cancer Society'. I'm not saying it is a giant conspiracy theory - I think it is trying to be smart," says Mr Leibach.

Another person familiar with WPP underscores the point. Two years ago, Sir Martin made "a big push", the person says, for all the WPP companies to consolidate their office space into one or two buildings to save costs. "Nobody in Washington wanted to be a part of that, because the notion of clients coming into the building, seeing all of them, knowing these companies were opposed to them on key issues, wouldn't fly very well..."

WPP's assertion that its operations in the US capital consist of little more than a group of independently run PR and lobby groups contrasts with the vision Sir Martin set out in an interview with the Financial Times two years ago. Then, the executive pointed out that his belief in WPP's activist corporate "centre" set him apart from his competitors, who operated "holding companies", not a parent company.

But asked about the Washington operations for this article, Sir Martin plays down WPP's across-the-group role: "Unlike accountancy firms or consulting companies or investment banks, which operate as single brands and sort out a conflict at the centre, we have many brands, operating independently with their own authority, so there is no risk of conflicts among our operating companies," he maintains.

"We often have very complex arrangements to ensure that those Chinese walls are enforced. You do that by physical audit, financial audit, by ensuring geographical separation of people and ensuring people don't work on conflicting business unless there is a strict and significant cooling-off period."

When it comes to Mr Penn, both WPP executives and Mrs Clinton's campaign say the pollster's day job as Burson chief executive has no crossover with - and, indeed, is irrelevant to - his work as her top adviser. Mr Paster insists that WPP has no role in deciding which clients its companies represent - though he says they will not work for states or groups that would bring disrepute to WPP.

On Women as Sex Tourists in Kenya

Sex tourism is definitely within the subject realm of international political economy, incorporating IPE topics such as gender relations, tourism, and, yes, trade. One of our IPE instructors here at the University of Birmingham does research work on the topic, so this recent Reuters article on older English women becoming sex tourists in Kenya caught my attention. Much of the coverage in the past has focused on this phenomenon in the Caribbean [1, 2, 3, 4]. Now, attention seems to be shifting to Kenya. The questions raised, however, remain the same:

Is sex tourism by women any better or worse than sex tourism by men?

Does it just represent a new twist on exploitation of the Third World poor -- in other words, prostitution with the roles reversed, the woman paying the man? Or is it simply a case of women exercising their right to choose what to do with their bodies?

There is no single correct answer, just points of view coloured by politics and morality. But scholars agree on one thing: Female sex tourism is common enough and big enough to merit serious academic attention.

It's interesting stuff, most definitely, but also hard to make straightforward conclusions on as the subject matter is fraught with difficult questions. Commerce comes in all sorts of forms...

Bethan, 56, lives in southern England on the same street as best friend Allie, 64. They are on their first holiday to Kenya, a country they say is "just full of big young boys who like us older girls." Hard figures are difficult to come by, but local people on the coast estimate that as many as one in five single women visiting from rich countries are in search of sex. Allie and Bethan -- who both declined to give their full names -- said they planned to spend a whole month touring Kenya's palm-fringed beaches. They would do well to avoid the country's tourism officials.

"It's not evil," said Jake Grieves-Cook, chairman of the Kenya Tourist Board, when asked about the practice of older rich women traveling for sex with young Kenyan men. "But it's certainly something we frown upon."

Also, the health risks are stark in a country with an AIDS prevalence of 6.9 percent. Although condom use can only be guessed at, Julia Davidson, an academic at Nottingham University who writes on sex tourism, said that in the course of her research she had met women who shunned condoms -- finding them too "businesslike" for their exotic fantasies.

The white beaches of the Indian Ocean coast stretched before the friends as they both walked arm-in-arm with young African men, Allie resting her white haired-head on the shoulder of her companion, a six-foot-four 23-year-old from the Maasai tribe.

He wore new sunglasses he said were a gift from her. "We both get something we want -- where's the negative?" Allie asked in a bar later, nursing a strong, golden cocktail. She was still wearing her bikini top, having just pulled on a pair of jeans and a necklace of traditional African beads. Bethan sipped the same local drink: a powerful mix of honey, fresh limes and vodka known locally as "Dawa," or "medicine."

She kept one eye on her date -- a 20-year-old playing pool, a red bandana tying back dreadlocks and new-looking sports shoes on his feet. He looked up and came to join her at the table, kissing her, then collecting more coins for the pool game.

Grieves-Cook and many hotel managers say they are doing all they can to discourage the practice of older women picking up local boys, arguing it is far from the type of tourism they want to encourage in the east African nation.

"The head of a local hoteliers' association told me they have begun taking measures -- like refusing guests who want to change from a single to a double room," Grieves-Cook said. "It's about trying to make those guests feel as uncomfortable as possible ... But it's a fine line. We are 100 percent against anything illegal, such as prostitution. But it's different with something like this -- it's just unwholesome." [Not inflight magazine fare, eh?]

These same beaches have long been notorious for attracting another type of sex tourists -- those who abuse children. As many as 15,000 girls in four coastal districts -- about a third of all 12-18 year-olds girls there -- are involved in casual sex for cash, a joint study by Kenya's government and U.N. children's charity UNICEF reported late last year. Up to 3,000 more girls and boys are in full-time sex work, it said, some paid for the "most horrific and abnormal acts."

Emerging alongside this black market trade -- and obvious in the bars and on the sand once the sun goes down -- are thousands of elderly white women hoping for romantic, and legal, encounters with much younger Kenyan men. They go dining at fine restaurants, then dancing, and back to expensive hotel rooms overlooking the coast.

"One type of sex tourist attracted the other," said one manager at a shorefront bar on Mombasa's Bamburi beach. "Old white guys have always come for the younger girls and boys, preying on their poverty ... But these old women followed ... they never push the legal age limits, they seem happy just doing what is sneered at in their countries."

Experts say some thrive on the social status and financial power that comes from taking much poorer, younger lovers. "This is what is sold to tourists by tourism companies -- a kind of return to a colonial past, where white women are served, serviced, and pampered by black minions," said Nottinghan University's Davidson.

Many of the visitors are on the lookout for men like Joseph. Flashing a dazzling smile and built like an Olympic basketball star, the 22-year-old said he has slept with more than 100 white women, most of them 30 years his senior.

"When I go into the clubs, those are the only women I look for now," he told Reuters. "I get to live like the rich mzungus (white people) who come here from rich countries, staying in the best hotels and just having my fun."

At one club, a group of about 25 dancing men -- most of them Joseph look-alikes -- edge closer and closer to a crowd of more than a dozen white women, all in their autumn years.

"It's not love, obviously. I didn't come here looking for a husband," Bethan said over a pounding beat from the speakers. It's a social arrangement. I buy him a nice shirt and we go out for dinner. For as long as he stays with me he doesn't pay for anything, and I get what I want -- a good time. How is that different from a man buying a young girl dinner?"

EU Still Fears Frankenfoods

Having stayed in the United States for a few years sometime ago, I'm quite sure that I've ingested a good amount of genetically modified produce. As far as I can tell, I haven't turned into a Teenage Mutant Ninja Turtle or whatever anti-GM campaigners fear. Why is the EU still reluctant to import GM produce even with food costs spiraling? It even maintains a high-cost inspection regime to keep GM-related stuff out of the Eurozone. My hypothesis is that food is more tied with the national identities of several European countries; there's a certain romance to "the land" which simply isn't mythologized to the same degree in the US and elsewhere. The International Herald Tribune points out that the debate in Europe has not advanced at all in over a decade. Let the consumers decide whether to buy "Frankenfoods," I say. The more things change (to food prices), the more (GM opposition) things stays the same:

The European agriculture commissioner, Mariann Fischer Boel, warned farm ministers on Monday that resistance in Europe to imports of genetically modified products was contributing to the rising cost of raising pigs and chickens, and could pose a threat to the meat industry.

Her warning, made during a closed-door lunch in Brussels, highlighted renewed debate over whether Europe could afford to impose tougher rules on genetically modified, or GM, products than other parts of the world.

Some EU officials say the region should maintain its skeptical stance toward the technology on safety grounds, while others argue for a more pragmatic approach to enhance the region's competitiveness and help the agricultural sector.

"Along with our zero-tolerance policy toward GM feed stuffs in Europe there also is a major potential major cost impact," Michael Mann, a spokesman for Fischer Boel, said Monday.

One of the reasons why European policies toward GM feeds raise costs is that ships bound for Europe must be thoroughly cleaned to make sure that feeds are not intermingled with feeds grown using GM seeds that have not yet been approved for use in the EU.

Fischer Boel did not explicitly recommend relaxing EU rules during the lunch, according to one official from an EU member state that broadly opposes GM products. But she seemed to be stepping up pressure for an eventual modification of EU policy, the official said.

Meanwhile, Germany's agriculture minister called on the EU to suspend its approval procedure for new GM crops and seeds, demanding governments undertake a review of how such products can be used in Europe.

This system "should be stopped and we should check: can the procedures stay as they are," Horst Seehofer said before the meeting.

He said that the current system in place, which has already received criticism from several EU nations, is "highly unsatisfactory."

Environmental groups that oppose any slackening of the rules on imports of GM products say many of the arguments used to justify a relaxed policy on GM feed in Europe are specious.

Helen Holder, a GM expert with Friends of the Earth in Brussels, said prices were rising because more farmers in parts of the world like the United States were growing crops for biofuels at a time when demand was rising for crops to feed livestock.

Holder called on the EU to drop proposals to mandate more use of biofuels and change EU rules so that farmers can use more home-grown feeds rather than relaxing rules on imports from parts of the world like the United States.

"The EU needs to stand firm and defend its biosafety rules," she said.

One Laptop Per Child: A Big Flop?

Let me admit at the outset that I thought the much-ballyhooed One Laptop Per Child (OLPC) project by digital visionary Nicholas Negroponte made a pretty solid case: a rugged, energy-efficient unit which could be used where Wintel (PCs running Windows operating systems and Intel processors) machines dared not go. Remember, the OLPC uses Linux for its operating system and has an AMD processor. What I didn't count on were efforts from Microsoft and Intel to undermine OLPC. After all, the OLPC is a non-profit project. As you will read in the Wall Street Journal article below, however, Microsoft has been lowballing Windows and Office at a price of $3 in a number of developing countries. Also, Intel, which previously was more of a parts supplier than a computer seller, decided to sell its Classmate low-cost Wintel machine. Both of these efforts have helped derail OLPC. The reasoning goes, "Why not just buy a 'real' (read: Wintel) machine instead of a 'toy?'"

In addition, there have been several computer manufacturers selling Wintel machines near the OLPC's current $188 level. (Aside from the WSJ clip above, there is a more self-promotional clip on OLPC from YouTube.) Did Microsoft and Intel really fear the OLPC and respond in a less-than-friendly manner? I really can't say right now. As Negroponte concedes, there may be a silver lining if more affordable PCs are made available by the actions of Wintel and others in reaction to the OLPC initiative. To paraphrase Deng Xiaoping, "It matters not whether the computer is green or black as long as it reaches students in the developing world." For that we may thank Nicholas Negroponte, whatever the fate of the OLPC project:

In 2005, Nicholas Negroponte unveiled an idea for bridging the technology divide between rich nations and the developing world. It was captivating in its utter simplicity: design a $100 laptop and, within four years, get it into the hands of up to 150 million of the world's poorest schoolchildren.

World leaders and corporate benefactors jumped in to support the nonprofit project, called One Laptop Per Child. Mr. Negroponte, a professor on leave from the Massachusetts Institute of Technology, hopscotched the world collecting pledges from developing nations to buy the laptops in bulk.

But nearly three years later, only about 2,000 students in pilot programs have received computers from the One Laptop project. An order from Uruguay for 100,000 machines appears to be the only solid deal to date with a country, although Mr. Negroponte says he's on the verge of sealing an order from Peru for 250,000. The first mass-production run, which began this month in China, is for 300,000 laptops, tens of thousands of which are slated to go to U.S. consumers. Mr. Negroponte's goal of 150 million users by the end of 2008 looks unattainable.

Mr. Negroponte's ambitious plan has been derailed, in part, by the power of his idea. For-profit companies threatened by the projected $100 price tag set off at a sprint to develop their own dirt-cheap machines, plunging Mr. Negroponte into unexpected competition against well-known brands such as Intel Corp. and Microsoft Corp.'s Windows operating system.

A version of Mr. Negroponte's vision is starting to come true. Impoverished countries are indeed snapping up cheap laptops for their schoolchildren -- just not anywhere near as many of his as he expected. They now have several cut-price models to choose from, raising the possibility that One Laptop Per Child, or OLPC, will end up as a niche player.

"I'm not good at selling laptops," Mr. Negroponte has told colleagues. "I'm good at selling ideas."

"From my point of view, if the world were to have 30 million" laptops made by competitors "in the hands of children at the end of next year, that to me would be a great success," he said in a recent interview. "My goal is not selling laptops. OLPC is not in the laptop business. It's in the education business."

From its inception, One Laptop Per Child posed a threat to the personal-computing dominance of software giant Microsoft and chip maker Intel. Mr. Negroponte's team, drawn from MIT, designed a machine that didn't use Windows or Intel chips. It uses the Linux operating system and other nonproprietary, open-source software, which users are allowed to tinker with.

Last year, Intel, which normally doesn't sell computers, introduced a small laptop for developing countries called the Classmate, which currently goes for between $230 and $300. It has marketed the computer aggressively, although it stands to make little money on the initiative. But it hopes to prevent rival Advanced Micro Devices Inc., or AMD, whose chips are in Mr. Negroponte's competing computer, from becoming a standard in the developing world.

By most accounts, Mr. Negroponte and his 20-member team have created a rugged, innovative laptop with good software for learning. The small green-and-white device is designed to operate on very little power -- a small solar panel can keep it going -- and to resist rain and dust. Its unique, high-resolution screen stays bright even in direct sunlight. The laptop has a built-in video camera and connects wirelessly to the Internet and to other laptops of its kind.

But the project has hit snags. The $100 price target is proving difficult to hit, although Mr. Negroponte's team has succeeded in creating a device that's cheaper than other laptops. It now sells for $188, plus shipping. Potential buyers in the developing world have expressed concern about the availability of training for schoolteachers, and after-sales support. Mr. Negroponte's plan is for the machines to be simple enough that students can train themselves -- and solve any glitches that arise...

The One Laptop initiative is facing competition from Taiwanese, Indian and Israeli sellers of inexpensive Windows laptops, who see the developing world's more than one billion potential young customers as a big opportunity.

Intel, based in Santa Clara, Calif., so far has proven the biggest competitive threat. The introduction of the low-cost Classmate sparked accusations by Mr. Negroponte that Intel was trying to undermine his nonprofit initiative. Intel made a multimillion-dollar contribution to the One Laptop project and joined its board in July.

Nevertheless, Intel has continued to compete with the nonprofit, and it appears to be winning. It recently inked deals to sell hundreds of thousands of Classmates in Nigeria, Libya and Pakistan -- countries that Mr. Negroponte had been counting on. Intel has launched a series of pilot projects in those countries, and has said it will test the Classmate in at least 22 other nations, donating thousands of machines.

In recent months, Mr. Negroponte has abandoned his initial strategy of trying to persuade a half-dozen developing countries -- Argentina, Brazil, Libya, Nigeria, Pakistan and Thailand -- to buy one million laptops each. The project has begun accepting much smaller orders, and is attempting to persuade wealthier countries, including Italy and Spain, to finance laptops for poorer ones.

As sales problems mounted, the project recently reversed course on its plan not to sell the device to American consumers. On Nov. 12, it began selling pairs of laptops to U.S. and Canadian buyers for $399. Under the program -- called "Give One. Get One." -- one goes to a student in a poor country like Haiti, the other to the buyer. The program was supposed to last just two weeks, but on Thursday One Laptop said it was extending the offer through Dec. 31 because "people want more time to participate." Mr. Negroponte says there were about 45,000 two-laptop orders in the first nine days, with nearly half coming on the first day...

He seems most frustrated with Intel, whose overseas sales force has trumpeted the Classmate over his laptop in Nigeria and Mongolia, using marketing materials that claim the Intel machine is superior. "These are not isolated examples," he said in a recent interview. "They are daily events..."

Publicly, Intel and Microsoft officials didn't hide their disdain for Mr. Negroponte's machine. In December 2005, Intel Chairman Craig R. Barrett called an early version a "$100 gadget" that wasn't likely to succeed. At a conference in March 2006, Microsoft Chairman Bill Gates said: "Geez, get a decent computer where you can actually read the text and you're not sitting there cranking the thing while you're trying to type."

This year, Mr. Gates announced in China that Microsoft would offer developing countries a $3 software package that includes Windows, a student version of Microsoft Office and educational programs. Mr. Negroponte said the move was a direct response to his project. James Utzschneider, general manager of Microsoft's Unlimited Potential Group, a unit whose targets include young people in developing countries, denies this.

Libya and Egypt plan to buy the $3 software, Mr. Utzschneider says. Mr. Negroponte had hoped to sell his Linux-based laptops to both countries. Mr. Utzschneider says an organization in Russia has signed an agreement to buy at least 200,000 copies, with an option to buy up to 800,000 more. The Russians, he says, initially will load the software onto a low-cost laptop made by Asustek Computer Inc. of Taiwan, another One Laptop competitor.

Where Oil Comes From and Goes

I came across a nifty set of graphics on the Financial Times website on where oil production and consumption are highest and where the largest oil movements take place. It's pretty much self-explanatory. First, here are the world's ten largest oil producers:

Next, here are the world's ten largest oil consumers:

Finally, here is a map indicating the largest movements of oil in terms of thousands of barrels a day:

Green Cars: Detroit's Last Stand?

I've seriously suggested that Detroit's large (and loss-making) automakers GM and Ford should just be sold to the Chinese given the way things are going for them. But no, it seems that there is a (quixotic? masochistic? both?) drive within them to make a last hurrah at reviving the glory days of the American automobile. (The GM Volt website is worth a visit.) I may be exaggerating a bit to say that green cars are the last stand for Detroit, but what else alternative is there? Can clean tech automobiles establish a beachhead before Chinese automakers expand their plan of attack to encompass North America? From Reuters:

Detroit's auto industry, which has given the world the "muscle car" and "gas guzzler," may finally be seeing "green." Top auto executives, investors and industry analysts sang the same tune at this week's Reuters Auto Summit: newfound hope for competing in the market for fuel-efficient, environmentally friendly cars and trucks. Green, it seems, is good.

"I think whether global warming is science fact or not no longer matters," said billionaire investor Wilbur Ross. "It's going to be treated as if it were science fact, and it's clear there will be lots of pressure and lots of encouragement toward green activity," said Ross, who has bought several big auto supply companies in recent years.

General Motors Corp, at risk of being displaced by Toyota Motor Corp as the world's top seller of vehicles, has earned much scorn -- and suffered a steady erosion of its once-dominant market share -- due to gas-guzzling creations like the Hummer, jumbo sport utility vehicles and giant trucks.

"We somehow ... let Toyota get ahead of us in terms of environmental technology because they did the Prius hybrid, and we elected not to do that kind of hybrid," GM's vice chairman and product development chief Robert Lutz told the Reuters Summit. "We have since realized that letting Toyota gain that mantle of green respectability and technology leadership has really cost us dearly in the marketplace."

Lutz, a 40-year veteran of Detroit and an outspoken champion of American technology, bristled at the thought. He said GM will introduce 12 new hybrids over the next 3 years. "It has gotten to the point where people buy Toyota because it is seen as the sane and responsible thing to do because, after all, Toyota is the company that brought you the Prius."

GM plans to launch its mass-market, plug-in electric car, the Chevrolet Volt, by the end of 2010, despite skepticism within GM about meeting that deadline. Revolutionary lithium ion battery technology is only one daunting challenge.

"People are biting their nails, but those of us in a leadership position have said it has to be done," said Lutz. "We have to re-establish GM's leadership, and the Volt is, frankly, an effort to leapfrog anything that is done by any other competitor," Lutz said.

If federal regulators will count the Volt's 40-mile battery-only range in calculating its fuel-efficiency, Lutz said the car would achieve "off-the-chart fuel economy ratings" that could be "way over 100 miles-per-gallon. "That, in turn, could help GM meet tough new fleetwide fuel economy ratings expected to clear Congress, he said. The Volt could represent "the only financially feasible way to achieve these numbers that Congress is talking about," he said.

GM is the only automaker to have provided a timeline on such a car, even though other companies, such as Ford Motor Co and Toyota, are working on similar technology.

Ford global product chief Derrick Kuzak said that "green issues," led by fuel economy, were No. 1 on his to-do list. "It's at the top of our customers' list, given the price of oil, the price of gasoline and the increasing environmental sensitivity," Kuzak said.

But Ford, which lost $12.6 billion in 2006, has no plans for a new iconic vehicle like the Volt. Kuzak said Ford's focus is on new direct-inject gasoline turbo technology, based on diesel engines, that offered up to 25 percent gains in fuel economy.

Stefan Jacoby, chief executive of Volkswagen AG's U.S. operations, agreed that you can have "much bigger efforts by doing things simple: smaller cars, right away, and of course new engine generations," he said. "Do the first things first." That includes plans to boost VW's popular Jetta diesel. "It's a very easy way to save fuel and do something for the environment," he said. "American consumers are as environmentally concerned as everybody else in the world. But they really did not get the right offers."

Parts suppliers -- from tiremakers to makers of lightweight alloys to power train, battery and emissions makers -- have all seen the green light at the end of Detroit's tunnel.

Gregg Sherrill, CEO of Tenneco Inc, a maker of emission control devices, said issues of consumer confidence about global warming were becoming "enormous." "If you look at the concern over greenhouse gases, which is primarily CO2, the only way to really address that is through better fuel economy," he said, citing tougher regulations and legal rulings now appearing regularly on emission controls. "I have no idea what's coming, other than to say I don't believe for one minute that in any country in the world there is a lessening of environmental concern going on over the next several years," Sherrill said.

The Mighty Sarko, Live from Beijing

After doing what his predecessors had been unable to do by subduing militant labor unions at home, French President Nicolas Sarkozy has headed for China to meet with the Middle Kingdom's political-economic powers that be. Unsurprisingly, it's also a trade promotion trip by Sarkozy with many heads of French "national champions" in tow:

Nicolas Sarkozy...will press leaders in Beijing to sign contracts with Areva SA, Airbus SAS and Alstom SA, aiming to narrow a widening trade deficit and spur exports...

``The only area where he'll achieve something is with the contracts,'' said Valerie Niquet, director of the Asia center at the French Institute for International Relations in Paris. ``Given China's growing importance in global economic and strategic matters, there will be more contentious issues...''

France's trade deficit with China, including Hong Kong, widened 28 percent in the first nine months to 13.1 billion euros ($19.5 billion), according to the French Trade Ministry. French goods represent 1.4 percent of Chinese imports, compared with a more than 4 percent for German products. Chinese products represent 5.8 percent of French imports.

The French president will be accompanied by three dozen corporate leaders [36 nat-champs!], including Anne Lauvergeon, chief executive officer of Areva, Louis Gallois, CEO of Airbus parent European Aeronautic, Defence & Space Co., and Patrick Kron, CEO of Alstom, a Paris-based power-station and train maker.

Areva, the world's largest builder of nuclear reactors, hopes to win contracts worth 7 billion euros to build two European pressurized water nuclear reactors, or EPRs, for China Guangdong Nuclear Power Holding Co., and to supply uranium for several Chinese nuclear plants, Chief Financial Officer Alain- Pierre Raynaud said in a telephone interview on Nov. 20.

Contracts are also pending for an order of Airbus planes and Alstom power turbines. China plans to order 100 to 150 Airbus planes, with 100 belonging to the A320 family, La Tribune reported today, without saying where it got the information.

Airbus, the world's largest commercial-aircraft maker, is building a factory in Tianjin, eastern China, its first final assembly plant outside Europe. Alstom this year bought a majority stake in Wuhan Boiler Co. to expand there...

After the sight-seeing trip to Xian, best known for its thousands of terra cotta warriors and horses dating back to the third century B.C., Sarkozy will attend a dinner with Chinese President Hu Jintao in Beijing the same day. He also meets Hu and Prime Minister Wen Jiabao on Nov. 26 before traveling to Shanghai on Nov. 27.

Prior to meeting with Hu, Sarkozy is already making noises to the effect that "a great nation should have a great currency." Will the mighty Sarko get China to move on the yuan in a way that Bush & Co. haven't? Probably not as he's been somewhat more effective at home, but there's no harm in trying:

French President Nicolas Sarkozy said China must let its currency appreciate against the euro and other currencies to prevent creating trade ``imbalances'' that might crimp global economic growth.

``A great country must have a strong currency,'' Sarkozy said today at a conference organized by the French chamber of commerce in Beijing. ``China has a great role to play, in concert with other players, not to let imbalances accumulate to a point where we wouldn't be able to get out of them,'' he said.

``Global harmony, which is dear to China, must translate into a fair balance between large currencies, whether it is the dollar, the euro, the yen or the yuan,'' the French president said on the first day of a three-day state visit in China, after an earlier dinner with Chinese President Hu Jintao.

John Howard's End: Environment > Economy?

It has finally come to pass: John Howard, Australia's second-longest serving prime minister with four election victories under his belt, has failed to secure a fifth term in office. I've long been following this story [1, 2, 3, 4, 5] because it may augur the shape of things to come. John Howard has delivered economic growth to Australia throughout his lengthy stay in office. However, he too has been rather nonchalant about environmental matters. The prolonged drought in the Land Down Under has done much to raise questions in the minds of the electorate as to whether Howard is still the man in an era of heightened environmental concern. Just as Bill Clinton once said "It's the economy, stupid," what we may have here is "It's the environment, stupid" as environmental concerns trump economic ones--at least in the case of Australia where folks have become used to economic growth. The Financial Times had yet another informative piece on the enviro-political angle:

Fuelled by a seven-year drought that is regarded as the country’s worst in a century, the environment has for the first time in Australian history overtaken the economy in terms of political importance.

Three opinion polls this year found the environment rated higher than the economy, with the latest showing it was considered a “very important” issue by 69 per cent of respondents, versus the economy on 67 per cent.

The shift has caused Mr Howard and Kevin Rudd, the Labor opposition leader who heavily outguns the government in the polls, to deploy two of the country’s highest-profile politicians into the battle.

In one corner is Labor’s Peter Garrett, promoted last year to shadow environment spokesman. A law graduate and former lead singer with campaigning rock band ­Midnight Oil, which topped the Australian charts in the 1980s and 1990s, Mr Garrett is the former president of the Australian Conservation Foundation. [Outgoing Treasurer Peter Costello memorably poked fun at Garrett, but who's laughing now?]

Not to be outdone, Mr Howard responded by putting Malcolm Turnbull into the environment port­folio. The Rhodes scholar, journalist and former Goldman Sachs executive rose to prominence in the 1980s when, as a barrister, he beat Margaret Thatcher’s British government while defending former MI5 agent-turned-novelist Peter Wright in the Spy Catcher trial...

Labor, on the other hand, has said it will ratify Kyoto and has won plaudits for a mandatory renewable energy target of 20 per cent by 2020, an urban water programme and a Barrier Reef protection proposal.

John Connor, the chief executive of the Climate Institute, a research group, believes the [outgoing] coalition have missed their opportunity to take a leadership role on the ­environment.

“They have left their run too late,” he said, adding that conservative leaders in others parts of the world, including David Cameron, the UK opposition leader, Arnold Schwarzenegger, California’s governor, and ­Angela Merkel, the German chancellor, had refused to let left-leaning parties claim the environmental high ground.

Mr Turnbull, who is also tipped as a possible successor to Mr Howard as leader of the Liberal party, claims the government was not a late convert to the environmental cause. “We have a good reputation and John Howard has been prescient on water,” he said on Friday while on the campaign trail.

Mr Turnbull, like Mr Howard, is fighting for political survival in his own seat. He is neck-and-neck against Labor’s George Newhouse in the now marginal seat of Wentworth, which the Liberal party and its predecessors have held since Australia’s Federation in 1901.

Also like Mr Howard, he is coming under attack on his environmental record by a successful businessman. Geoff Cousins, a former high-profile advertising executive, has launched a campaign against him in Wentworth over his decision to back a controversial pulp mill in Tasmania. But Labor also supports the mill, a fact that could undermine Mr ­Garrett’s green credentials.

Mr McHarg this week elected to stand down from Colliers International, a real estate company, in order to wage his political campaign. Mr Howard and his team may have that choice made for them when Australia votes next Saturday.

Worse yet for Howard, he's now been turfed out of his own parliamentary seat. An ignominious end indeed for the Iraq invasion supporter and pseudo "friend of the earth." Growth lubbers beware if environmental matters begin to take greater precedence over economic ones in more developed countries:

Kevin Rudd’s Labor party swept to power in Australia’s federal election on Saturday delivering a stunning defeat to the 11-year rein of prime minister John Howard and his ruling centre-right coalition.

Mr Howard, one of the world’s longest-serving Western leaders and an important ally of US president George W Bush over the war in Iraq, faced a humiliating end to his 33 year political career after conceding he was likely to lose his own federal seat of Bennelong, becoming Australia’s first sitting prime minister to be voted out of parliament in nearly 80 years.

Mr Rudd, a 50-year old Mandarin-speaking diplomat elected to lead Labor less than 12 months ago, is an economic conservative who has promised to ratify the Kyoto protocol on climate change in a move that will leave the US isolated, to withdraw Australian troops from Iraq and to restore workers' bargaining power.

Labor was on course to win more than 85 of the 150 seats in Australia’s House of Representatives, recording one of the biggest swings against an Australian government since World War II. Mr Rudd’s success was assured after a landslide in his home state of Queensland after Labor picked up an extra 10 seats, with a number electorates recording swings of close to 15 per cent.

It is only the third time since WWII that an opposition Labor party has won government in Australia. However, Mr Rudd becomes Australia’s 26th prime minister at a sensitive time. Although the country is coming into its 17th year of expansion, the economy is suffering from inflationary pressures and interest rates are on the rise.

Rudd now faces a series of environmental challenges left over from the Howard years. Australia's water shortage has resulted in all sort of interesting stories like a topless carwash in Brisbane and fatal episodes of water rage. Make no mistake, however: environmental challenges are no laughing matter.

Air Travel & (or vs.) the Environment

Here are two recent features on the supposed tradeoff between air travel and the environment. Is traveling by air an especially damaging activity environmentally? The answer to that question will in great part help determine the outcome to an EU proposal to cap air travel carbon emissions and the fate of a much-needed third runway at London Heathrow, Europe's largest airport. Let us begin with the EU draft proposal which has just been approved in the European Parliament. It's interesting in that if it passes, countries outside the EU may have to follow suit in the same way that California often set the standard for auto emissions for the rest of the US. Remember, aircraft emissions were not included in the Kyoto protocol:

One of the boldest attempts by the European Union to impose its climate policy on other parts of the world received a boost Tuesday when legislators voted to strengthen a plan to cap carbon emissions from aircraft flying to and from Europe.

The proposal mirrors an existing carbon credit trading system that the EU uses to combat global warming and meet its emissions targets under the Kyoto Protocol. Under the current system - which exempted airlines - governments set carbon dioxide limits for producers of power, cement, fuels, pulp and paper. Companies must then purchase credits if they exceed those targets.

The new measures, approved by the European Parliament, drew immediate criticism from the U.S. government and from the airline industry. They argued that the rules broke with international aviation practices, would cost companies billions of dollars and could lead to sharp increases in airline ticket prices.

"Any sort of emissions trading system should be done on the basis of mutual agreement between governments," said Carl Burleson, the director of the office of environment and energy at the U.S. Federal Aviation Administration. "If one government wants to include another airline in their system, then it should come and talk to that government."

Burleson said the EU measures remained proposals, and so it was premature for him to comment on whether the United States would bring a case against Europe for unfair trade practices at the World Trade Organization [!]...

But members of the European Parliament said that including airlines in Europe's emissions trading system would set an important precedent and could be emulated by other countries.

"We want a worldwide system as soon as possible," said Peter Liese, a German member who helped to guide the legislation through the assembly, which met in Strasbourg. "There must be an end to the status quo that nothing is done in the aviation sector, which has predominated for many years now." Liese added that two-thirds of all aircraft emissions are from intercontinental flights.

Under the draft approved Tuesday, all flights arriving or departing from Europe would be included under the European system from 2011, rather than from 2012 - the date originally proposed by EU officials.

Airlines would be allocated some permits for their emissions but would have to buy more than originally planned in an auction. In addition, airlines would have to buy more than other regulated industries to compensate for the more severe kinds of damage aircraft are believed to be causing while emitting greenhouse gases at high altitudes.

The vote was a blow to the airline industry, which has been lobbying against the legislation and which branded the move by Europe as an ineffective regional attempt to tackle a problem that requires a global solution.

"Even if Europe shut aircraft emissions down to zero but didn't bring the rest of the world with them, it would have minimal impact on the environment," said Anthony Concil, a spokesman for the International Air Transport Association. "We fear that legislators have succumbed to winning political favors with a local audience, but that is short sighted as it could result in diplomatic and trade wars."

Liese said the EU officials had "very good legal arguments" for their plan. He said the Parliament approved amendments making it possible to modify the legislation in the future so that it could be made compatible with other countries, like the United States, if they came up with a comparable plan to tackle emissions from aviation.

The legislation represents another looming cost to the industry and to passengers, who would pay more for tickets at a time when airlines already are raising ticket prices to offset the rising costs from the spike in the price of a barrel of oil, which has been hovering at levels approaching $100...

Taneli Hassinen, a spokesman for Finnair, said that his airline had calculated this year that the EU system would cost the airline €50 million each year. With the amendments made Tuesday, he said that figure would be higher still.

Passengers would face more expensive ticket prices as airlines passed through the costs, and he warned that European airlines would be at a disadvantage to overseas competitors that operate fewer European routes.

"For European carriers the worry is that this emissions system will probably have a certain impact on competition if the other guys - American, Asian, and African carriers - are not participating," said Hassinen.

The legislation still must be approved by Parliament in a further reading and by individual EU governments before it can become law.

Yet it was already being criticized by some environmentalists as insufficient to tackle the contribution that aviation makes to climate change. "The legislation is inadequate and threatens EU targets for cutting emissions," said Richard Dyer, an aviation campaigner with Friends of the Earth.

EU governments agreed this spring to cut greenhouse gas emissions by as much as 30 percent by 2020. But Dyer said that the aviation industry was growing so rapidly that if it was left unchecked while other industries make cuts, it could become the industry responsible for the majority of emissions in Europe before 2050.

Dyer was particularly disappointed that under the EU proposal, jets weighing less than 20,000 kilograms, or 44,000 pounds, would be exempted from the system. That category includes many business jets: "We don't think it sets a very good example to exclude a very rapidly growing sector that ferries high earners around the world," he said.

But Liese said legislators had struck a blow against special exemptions by including diplomatic and other government flights in the system. "Governments have to set an example and should not have privileges," he said.

Burleson of the FAA said that the experience in recent years in the United States showed that airlines could reduce emissions without the legislative approach taken by Europe. U.S. airlines, Burleson said, were carrying more passengers and more freight than they were just seven years ago, and he said the industry still had been able to cut CO2 emissions by several million tons a year because of more efficient aircraft and other reasons, including improvements to air traffic management.

Environmental campaigners say that even if fuel efficiency is increasing - leading to a reduction in carbon dioxide emissions on each flight - the number of flights still is growing faster rate than fuel efficiency is improving.

Meanwhile, the story on a third runway Heathrow facing the ire of environmental activists is a recurring one (see an earlier post on the Battle of Heathrow). The Beeb offers a comprehensive take on the matter, with an illuminating angle on the massive air traffic the airport must currently handle day in and day out:

Heathrow is bursting at the seams. Its two runways are now used by an astonishing 80 planes an hour. The pressure means half of all arriving aircraft have to circle in holding patterns until there's space to land. Even when you're on the ground there can be a complicated and congested taxi to a gate. And that is on a good day. The airport's rivals in Europe handle fewer passengers, yet Frankfurt has three runways, Paris Charles de Gaulle has four and Schipol in Amsterdam, five. So the pressure from the aviation industry for the massive expansion of Heathrow is intense.

The third runway, two kilometres long, would be built to the north of the airport and would largely be used by smaller aircraft bound for domestic and European flights. This would allow the airport to increase passenger numbers from 67m to 128m, helped also by the opening of Terminal Five next year. The airlines, businesses and trade unions all say expansion is vital to support the economies of London and Britain as a whole.

Yet expanding Heathrow, a stated government aim, is also the biggest challenge facing its aviation policy.

First of all, there is the impact on the environment. The main issue for ministers is not the wider one of the effect of air travel on global warming. Instead, the government has to ensure the bigger Heathrow doesn't make the air quality in the local area worse. The main pollutants are Nitrogen Oxide, and PM10 particles which can cause lung problems. But much of the smog is not produced by the airport, it comes from the surrounding road traffic. The government's consultation document claims the airport can increase by around 220,000 flights a year, but the air will get cleaner. After three years of investigations, civil servants conclude that better engines, both on aircraft and in cars passing the airport, will make the difference, with no further changes.

Then there's the noise of departing and arriving aircraft. This is measured using what's known as a noise contour - the boundary around the airport within which the sound levels, measured as an average over time, are said to be an annoyance. The idea is that it shouldn't get any bigger, and that is what the government is promising, even with the third runway. But opponents of expansion say the noise is already building up to the point where the boundary will start expanding, and the idea that an extra 240,000 flights might land and take off each year without a major increase in noise isn't believable. Yet aircraft have got considerably quieter due to improvements in engine technology. Even Airbus's enormous A380, with its four engines creates less of a stir than the scream of an aging Tristar. The question is, have aircraft got quiet enough to allow more of them to fly?

Regardless of whether Runway Three is built, the government does have a plan B. It wants to remove some of the operational restrictions on how Heathrow uses its two runways. The Runway Alternation rule means planes take off from one runway and land in the same direction on the other. This spares local residents at each end of the runways half a day's disruption from noise. The airport also sticks to the Cranford Agreement, which dates back to 1952, stating that wherever possible, and wind permitting, planes won't take off over this village, one of the airport's nearest neighbours.

Scrapping these agreements would allow more flexibility, and, the government says, increase capacity by 15%, with no major investment needed. But it would also infuriate local people and they, along with seasoned environmental campaigners, are threatening a long and bitter battle against expansion.

Regardless of the effect on the local environment, many opponents will fight the proposals because of their concerns about climate change. After all, the government is promising to cut greenhouse gas emissions by 60% before 2050. The government's response is two-fold. Ministers believe better aircraft technology will push down emissions, but they also believe aviation should be allowed to produce more, as long as other areas of Europe's economy produce less. The plan is to sell permits to emit carbon, some of which airlines will have to buy on an emissions trading market from industries that are getting cleaner.

Green activists say this is environmental hypocrisy, and won't work. The government and the industry say it has got to work, if Britain's aviation industry is to remain competitive in the wider world.

The EU and China: 50 Ways to Bash Your Partner

"The problem is all inside your trade", Pete said to thee
The answer is easy if you take it logically
I'd like to help you in your struggle to be free
There must be fifty ways to bash your partner...

Pardon the Paul Simon reference, but EU Trade Commissioner Peter Mandelson is once again on the warpath against China as he ups the rhetoric before an upcoming summit in Beijing over trade matters. Given EU bellyaching over light bulbs, steel, the value of the yuan, and what else have you, things are deteriorating fast. Mandelson now claims that, like the US, the EU will initiate anti-dumping measures and haul China to the WTO dispute settlement mechanism if the EU-China trade imbalance continues to mount. From the Financial Times:

Peter Mandelson, the European Union trade commissioner, warned China on Thursday that the EU could be forced to use anti-dumping measures to defend itself against Chinese exports if Beijing failed to help reduce an “unsustainable” trade deficit rising by €15m ($22.3m) an hour.

Mr Mandelson’s comments reiterated the call he made in Washington this month highlighting Brussels’ concern ahead of a Sino-EU summit in the Chinese capital next week.

European frustration with China’s limits on market access for foreign companies and an exchange rate policy seen as undervaluing the renminbi has been fuelled by the growth of a trade deficit with China to €86bn in the first seven months of the year.

“Europe is becoming more open to China, but I can’t sustain that unless China shows the same openness to us,” Mr Mandelson told the Financial Times, warning he would come under increasing pressure to take tougher action if Beijing did not move to clear market barriers.

“During the six days that I spent in China, the trade deficit will grow by over €2bn, or €15m an hour – that is what I call unsustainable,” he said. “There are real issues of market access, legal protection, as well as the other issues we are dealing with – like counterfeiting and export of fake goods.”

Mr Mandelson’s call on China reflects frustration among European companies at what they see as Beijing’s failure to act on a host of long-standing complaints. He said Chinese leaders needed to reduce non-tariff barriers, regulation and discrimination against European companies.

“When we pin them to the actions, they respond in terms of trade fairs and investment promotion,” he said. “I don’t want take-aways or overnight presentational devices. I want real sustained action to remedy the problems.”

Mr Mandelson made clear a Chinese failure to deliver change could force Brussels to resort to trade defence measures, such as anti-dumping duties, or – in extremis – complaints to the World Trade Organisation.

China should “manage its currency better” for its own economic good and to address the widening trade gap, he said. Mr Mandelson’s warning will add to tensions surrounding next week’s EU-China summit.

A survey of EU companies by the European Union Chamber of Commerce in Beijing highlighted dissatisfaction with China’s lack of government transparency, its record on intellectual property protection and its cumbersome bureaucratic procedures.

“The investment climate is unfortunately not changing much, not getting better,” Jörg Wuttke, the chamber president, said. Intellectual property rights protection remained a problem for 66 per cent of responding companies, he added. “There has been a lot of talk and not much walk.”

In spite of such complaints, 61 per cent of companies reported being profitable and 73 per cent were optimistic about future growth, the survey found.

Islamic Banking, a CSR Concept?

The International Herald Tribune has a fine article on how Islamic banking is gaining traction worldwide even in financial centers like London, Tokyo and Hong Kong in addition to predominantly Muslim nations in the Middle East and elsewhere like Malaysia. (I've previously noted that the aforementioned financial centers are trying to avoid losing business if those petrodollars stay at home.) It's fascinating what sorts of mechanisms they've devised to get around not having to charge interest which is prohibited under Shar'ia law. Notably, these mechanisms do not do away with a time value of money. That non-Muslims are becoming attracted to Islamic banking services is also interesting, as is the CSR angle on the prohibition of anything to do with alcohol, gambling, pornography, tobacco, weapons or pork:

Rising oil wealth is lifting Islamic banking - which adheres to the laws of the Koran and its prohibition against charging interest - into the financial mainstream.

Big banks, including Citigroup, HSBC and Deutsche Bank, as well as financial capitals like London, Tokyo and Hong Kong, are all going into the Islamic banking business. An estimated 300 Islamic financial institutions hold at least $500 billion in assets, an amount that is increasing more than 10 percent a year.

In addition to Islamic loans, there are Islamic bonds, Islamic credit cards and even Islamic derivatives. Loans and bonds that conform to the Koran are already available in the United States. And Britain, Japan and Thailand are contemplating issuing Islamic bonds of their own.

"This is an industry on its way from a niche industry to becoming a truly global industry," said Khawaja Mohammad Salman Younis, the managing director for operations in Malaysia for Kuwait Finance House, the world's second-largest Islamic bank, after Al-Rajhi Bank. "In the next three to five years you'll see Islamic banks coming out in Australia, China, Japan and other parts of the world."

In Islamic banking, financiers are required to share borrowers' risks, meaning that depositors are treated more like shareholders, earning a portion of profits. Financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.

The stampede into Islamic finance is mostly an effort to tap an estimated $1.5 trillion of funds sloshing around the Middle East, largely from higher oil prices. Although a lot of this oil money was parked in the United States, Britain and Switzerland before Sept. 11, 2001, bankers say many wealthy Arabs are investing closer to home, in part to avoid the hassle of increased scrutiny.

At the same time, many Middle Eastern investors are eager to capitalize on Asia's breakneck growth.

By some estimates, as much as $800 billion of Arab money has moved from the United States and Europe to other regions. Those investments have helped ignite an economic revival throughout the Muslim world at a time of increasing religious conservatism among Islam's 1.6 billion faithful.

A result is expanding demand for financial services that adhere to Islamic law, or Shariah.

"The middle class have the luxury of making these Islamic versus non-Islamic decisions," said Nordin Abdullah, who runs KasehDia, a firm in Kuala Lumpur that advises companies on how to comply with Shariah. "They're educated and have money."

Last year, Saudi Arabia's largest lender, National Commercial Bank, overhauled its entire retail business to make it Shariah-compliant. Tunisia and Morocco authorized their first Islamic banks this year.

And while the biggest Islamic banks are in the wealthy Gulf states, the most attractive potential markets are in Turkey and North Africa and among European Muslims. Indonesia, the most populous Muslim nation, with more than 190 million Muslims, is the mother lode.

Malaysia, a predominantly Muslim nation with a secular government and a fast-growing, export-driven economy, has emerged as a center for the industry's development. Here, even non-Muslims are taking advantage of a growing range of Islamic products offering competitive returns.

For instance, David Ong-Yeoh, a public relations executive tired of fretting over the rising interest rate on his adjustable rate mortgage, refinanced to a 30-year fixed loan from an Islamic financial institution. Now, he pays regular installments that include a predetermined profit margin for the bank. "The terms are better than on conventional loans," said Ong-Yeoh, 41.

Islamic finance also avoids other prohibited practices. Shariah-compliant bankers cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.

Proponents of Islamic banking say these are limits any socially conscious investor can support, Muslim or not. They also envision wider appeal for Islamic banking's ban on interest, which stems from the Koran's prohibition against usury...

But when Britain took advantage of Egypt's mounting foreign debt in 1875 to buy Egypt's stake in the Suez Canal and occupy the country, it generated a backlash against traditional banking in the Muslim world. The belief that all interest charges are unjust now underpins Islamic finance.

"It's about respecting the interests of the different parties, avoiding taking advantage of any situation of any counterparty and putting in place fair treatment," said Rasheed Mohammed al-Maraj, governor of the central bank of Bahrain.

Hoarding is frowned upon in the Koran, so savings earn no return unless put to productive use.

"Money should be used for creating better value in the country or the economy," Maraj said. "Money cannot generate money." Nor can Islamic banks simply trade money.

"In the Islamic finance model, the banks are supposed to mobilize funds through a fund management concept," said Rafe Haneef, head of Islamic banking in Asia for Citigroup.

Indeed, Islamic banking is supposed to function more like private equity firms than conventional banking. "Private equity is an Islamic concept," Haneef said.

Industry proponents say this risk-sharing requirement helps reduce the kind of abuses that led to the subprime mortgage mess in the United States. Scholars consider it un-Islamic to overload a customer with debt or invest in a company with excessive debt.

But this approach has inherent problems. Because Islamic financial transactions must have an underlying asset, Islamic bankers tend to have high exposure to real estate and construction projects.

Hedging that exposure is difficult; though Islamic derivatives exist, scholars differ on whether they are permissible under the Koran.

"There's a general acceptance that risk needs to be managed and therefore some form of financial instrument needs to be developed," said Zeti Akhtar Aziz, governor of Malaysia's central bank. But "in Islamic finance, you can't have such securities," he added. "We need to be able to look at some of the issues that revolve around this."

Industry skeptics also say the difference between Islamic financial products and their conventional counterparts is purely semantic. And most Muslims, they say, are not averse to accepting interest.

To ensure that they are strictly Shariah-compliant, Islamic financial institutions rely on their own boards of Shariah scholars to approve every product. Shariah scholars are rare, and those with financial understanding even rarer, so many scholars sit on several boards, earning up to $100,000 in retainers.

"If they're complaining there is a shortage, what are they doing to solve this problem?" asked Sheik Nizam Yaquby, a scholar based in Bahrain who sits on the boards of Citigroup, AIG and HSBC, among others. Shariah scholars, he noted, still earn less than accountants or corporate lawyers.

As part of longstanding efforts to develop the industry, Malaysia has created scholarships and training programs. Ungku Abdul Aziz, the father of the central banker, established the first modern Islamic financial institution, Tabung Haji, in 1962 to help poor Malays finance pilgrimages to Mecca and to mobilize rural savings.

Later, the Malaysian government set up Islamic banks as part of a reformist platform to promote national development and blunt the appeal of fundamentalist Islamic political rivals.

In early 2001, the government began offering tax incentives aimed at converting at least a fifth of the nation's assets to Islamic finance by 2010. (They now make up roughly 12 percent.) With China siphoning away some economic opportunities from Malaysia, Islamic finance has become part of a broader effort to lure tourism, trade and investment from the Middle East.

"We are trying to position ourselves as being acceptable to the Middle East, to petrodollars," said Wong Fook-Wah, chief executive of RAM Rating Services in Kuala Lumpur. "Hopefully they'll fund economic growth in Malaysia."

But as the price of oil has rebounded, Islamic finance has boomed elsewhere.

Clearly, faith is not the only thing driving the market. At Kuwait Finance House's Malaysian unit, Younis said, 40 percent of its depositors and 60 percent of its borrowers are non-Muslims.

E-lene Kee, a Buddhist corporate lawyer here who advises clients to use Islamic loans to finance construction projects, described his view this way: "We look at these things just like Apple or Berkshire Hathaway."

Ong-Yeoh, the public relations executive, said he felt the same way: "It's just taking advantage of the system." After taking out an Islamic loan for his home, he took another for his car.

A Migration Empire: Western Union

Ace New York Times migration reporter Jason DeParle has yet another good 'un, this time on the incredibly vast network of agents handling remittances for the American firm Western Union. Western Union is by far the world's largest money transfer operator. Indeed, we can probably say that the sun never sets on Western Union. As migration has grown worldwide, so has the need for sending home migrants' remittances. While the vast reach of Western Union's network is an advantage, it has not escaped scrutiny in that it is usually the highest cost option for migrants sending home remittances. That is, it usually charges the highest fees and is especially able to do so when there are few competitors for a particular "corridor" such as, say, from Mali to France as in the example given in the story.

I've previously written about the NGO group TIGRA faulting Western Union over high fees. The NYT article explains why TIGRA has not gained so much traction as a movement against Western Union. It seems that the company has made inroads into various communities by championing migrants' rights. For back reference, here too is a link with details on the class action suit by Mexican migrants that eventually resulted in Western Union and MoneyGram settling to the tune of $375 million. Has Western Union become a force for good since then?

To glimpse how migration is changing the world, consider Western Union, a fixture of American lore that went bankrupt selling telegrams at the dawn of the Internet age but now earns nearly $1 billion a year helping poor migrants across the globe send money home.

Migration is so central to Western Union that forecasts of border movements drive the company’s stock. Its researchers outpace the Census Bureau in tracking migrant locations. Long synonymous with Morse code, the company now advertises in Tagalog and Twi and runs promotions for holidays as obscure as Phagwa and Fiji Day. Its executives hail migrants as “heroes” and once tried to oust a congressman because of his push for tougher immigration laws.

“Global migration is the cornerstone of how we’ve grown,” said Christina A. Gold, Western Union’s chief executive.

With five times as many locations worldwide as McDonald’s, Starbucks, Burger King and Wal-Mart combined, Western Union is the lone behemoth among hundreds of money transfer companies. Little noticed by the public and seldom studied by scholars, these businesses form the infrastructure of global migration, a force remaking economics, politics and cultures across the world.

Last year migrants from poor countries sent home $300 billion, nearly three times the world’s foreign aid budgets combined [that figure appears to be from a UN study which estimates both formal and informal remittance flows. Western Union-handled remittances are, by definition, formal].

Western Union’s dominance of the industry casts it in a host of unlikely new roles: as a force in development economics, a player in American immigration debates and a target of contrasting attacks.

Its unparalleled reach gives millions of migrants a safe way to transmit money, and may even increase the amounts sent. But critics have long complained about its fees, which can run from about 4 percent to 20 percent or more. And the company’s lobbying for immigrant-friendly laws has raised the ire of people who say it profits from, or even promotes, illegal immigration.

Western Union tracks migrants so closely that it has made pitches to illegal immigrants just released from detention camps. Its agent in Panama offered customers legal aid to keep them from being deported.

After settling a damaging lawsuit that accused it of hiding large fees, Western Union set out a few years ago to recast its image, portraying itself as the migrants’ trusted friend. It has spent more than $1 billion on marketing over the past four years, selectively cut prices and charged into American politics, donating to immigrants’ rights groups and advocating a path to legalization for illegal immigrants.

While some migrant groups still complain of predatory pricing, the company has won unlikely praise. “Western Union has become a company that values and protects its customers,” said Matthew J. Piers, the Chicago lawyer who sued the company over its fees. “Nobody was more surprised at the change than me, because I was Western Union critic Numero Uno.”

Western Union’s zealous pursuit of migrants can be seen in a government office in Manila, where a half million Filipinos a year wait to have their papers processed before leaving for overseas jobs. Everything in the waiting room is labeled “Western Union”: the backs of the chairs, the tops of the desks, the bottom of the queue sign and the front of the menu in the adjacent cafeteria. The walls are even painted Western Union yellow.

The Philippines requires each outbound migrant to attend a predeparture seminar. Western Union paid to offer migrants instructions on sending money home. “We tell them about the services of Western Union,” said Steve Peregrino, the marketing director in the Philippines, “with the basic idea of seeking out Western Union when they go abroad.” In and around the waiting room, reviews are positive.

Ernald Vincent Mendoza, a restaurant supervisor in Saudi Arabia, dismissed his wife’s argument that the company’s pricing hurt the poor. Though banks are cheaper, the money can take a week to arrive, he said, while Western Union sends it instantly. “If they have good quality and service, you have to pay for that,” he said.

Emmanuel Ellorian, a waiter in Dubai, said Western Union agents came to the hotel where he worked and processed the transfers there. “If any of the Filipino clubs have an event,” he said, “one of the sponsors is Western Union...”

In 1998, Mr. Piers sued the company, alleging that Western Union and a rival, MoneyGram, deceived customers with advertisements like “Send $300 to Mexico for $15,” since the companies typically made much more (in this case an additional $25) by setting foreign exchange rates to their advantage. While denying any wrongdoing, the companies paid millions to settle the case.

Western Union appeared “money oriented” and “cold,” warned an internal marketing document that called for a more empathetic image. The goal, as one plan put it, was to capture a “share of mind” and a “share of heart” to preserve a “share of wallet.”

Having once stressed efficiency (“the fastest way to send money”), Western Union now emphasizes the devotion the money represents. One poster pairs a Filipino nurse in London with her daughter back home in cap and gown, making Western Union an implicit partner in the family’s achievements. “Sending so much more than money” is a common tag line.

The company sponsors hundreds of ethnic festivals, concerts and sporting events, from cricket matches for Indians in Dubai to sack races for Jamaicans in Queens. Last year it paid a Filipino pop star, Jim Paredes, to record a Tagalog song urging migrants to send money home. It paid the producers of a Bollywood film, “Namastey London,” for a scene in which a Western Union wire transfer helps rescue the heroine...

“Every time an immigrant is forced outside the country, we lose a potential customer,” said the agent, Jaime Lacayo, who provided the legal services for two years and still runs the radio show. “We have participated in many marriages of foreigners marrying Panamanian ladies, because that is the best way to legalize your status.”

Western Union boasts of 320,000 locations worldwide. Many agents are large organizations, like the Chinese postal system or grocery store chains. (About 60 percent of Western Union’s person-to-person transfers occur wholly outside the United States.) But companies also battle block by block for trusted local figures.

Among them is Michael Lee, 35, who owns an electronics store called World Top Communications in New York’s Chinatown. Sharing a building with a “lupus and tumor consultant,” on a block of East Broadway that smells of dried shrimp, he was told by Western Union to expect a few hundred transactions a month.

He now does 100,000 a year, he said. Mr. Lee, who earns about $2.50 per transaction, is so enthusiastic he persuaded his landlord to paint the building yellow, and the company donated $16,000 worth of paint.

Many of his customers are in the country illegally. Mr. Lee, who was once an illegal immigrant, said his business fell by about 40 percent last spring after a series of nationwide immigration raids. “A lot of people don’t have green cards — they are afraid,” he said.

Salo Eduardo Levy, Western Union’s Mexico director, echoed that theme at a September meeting of industry executives. “We have customers calling agents before they go: ‘Is it safe? Is La Migra around?’”

A 2006 survey by the Inter-American Development Bank found that illegal immigrants made up 41 percent of the Latin Americans in the United States who used money transfer companies.

Western Union says it does not know what share of its customers are illegal immigrants, but at times it has made pitches directly to them. As Central Americans surged across the Texas border in 1999, an overflowing federal detention center bused them to a homeless shelter in Brownsville, the Ozanam Center. Western Union sponsored a lunch there, dispensing T-shirts, bandannas and fliers in Spanish with the company’s toll-free telephone number.

Western Union also held marketing events around the same time for people deported from the United States to Honduras and El Salvador.

“They would arrive in a special holding area, and we would have an agent in there — a young lady in tight jeans, tight T-shirt” to promote Western Union products, said a former company official who spoke only on the condition of anonymity. “We knew that within a week they would be back on their way to the U.S.”

Fred Niehaus, a company vice president, said, “I can tell you that’s something the company would not do now.”

Western Union’s views on immigration have brought conflicts with Tom Tancredo, the Republican congressman who represents the Denver suburb where the company has its headquarters, Three years ago, when Mr. Tancredo, a fierce critic of illegal immigration, proposed taxing the money that migrants send, First Data formed a political action committee to drive him from office.

“We’re tired of his antics,” Mr. Niehaus told The Rocky Mountain News. “We’re opting for change.”

After winning re-election, Mr. Tancredo attacked Western Union for co-sponsoring a Spanish guide that he said promoted illegal immigration. The guide said that schools and clinics would not check migrants’ papers and advised them to “always carry the name and number of an attorney.”

Mr. Tancredo, who is running for president, said the company’s activities occupied “a gray area” between aggressive marketing and “aiding and abetting illegal immigration.”

“Western Union wants to encourage illegal immigration in order to expand the number of people in their market,” he said. “Believe me, if I were president, I would ask the Justice Department to look into it.”

In 2004, Charles T. Fote, then First Data’s chairman, gave a speech calling for “comprehensive” reform, a term used by supporters of legalization plans for illegal immigrants.

The company sponsored public forums to promote the idea and donated $100,000 to a group unsuccessfully fighting Proposition 200 in Arizona, which requires proof of citizenship from people seeking to vote or collect certain public benefits.

As the debate moved to Washington, Western Union gave money to many groups supporting legalization plans. The United States Chamber of Commerce received “in the high six figures,” a Chamber official said, while an Illinois group used some Western Union money to bring busloads of immigrants to Capitol Hill. When a bipartisan Senate bill emerged last spring, company officials flew to Washington to lobby directly, urging Senator Ken Salazar, a Colorado Democrat, to support the measure. He did, though it ultimately failed.

“Most companies are afraid to speak up,” said Frank Sharry, executive director of the National Immigration Forum, which has received $40,000 from Western Union in the past three years. “When it got hot, they stayed with it.”

But proponents of stricter border controls see commerce, not courage, at play. “Western Union has decided that its business model depends on a continuing flow of illegal immigrants,” said Mark Krikorian, director of the Center for Immigration Studies, which advocates low levels of immigration...

The company spun off from First Data a year ago, and it has an estimated global market share of 14 percent, versus 3 percent for its closest competitor, MoneyGram. Though Western Union has responded to increased competition by cutting its charges, it typically remains the most expensive service.

An Oakland group, the Transnational Institute for Grassroots Research and Action, began a boycott campaign in September, demanding that Western Union lower its prices and increase its corporate giving. But it has gained little traction, in part because of the company’s recent courtship of migrant groups.

China's D-I-Y Private Equity Firms

Holy smokes, this is interesting stuff: China's ever-so-bourgeois Communist Party is now encouraging the formation of local private equity firms. In other words, what we have are state-sponsored locusts [bzzzzzz]. I'd like to know what Hans Munterfering has to say about this new sort of entity. The interesting thing is that most of these homegrown private equity firms will naturally want less tight controls on their high finance shenanigans, possibly pitting them against other financial service providers in the country that may not be granted as much leeway from the good burghers of Beijing. I'd also tend to assume that given the fallout over state investment in Blackstone which isn't faring too well, the Party will not be encouraging large-scale state ownership of these entities but instead oversee their formation and regulation to a certain extent. From Reuters:

Beijing is encouraging domestic equity funds to supplant global private equity titans such as Carlyle on Chinese turf, but their small size and lack of experience mean it will be years before they threaten their international rivals.

The government has stepped up its efforts to bolster home-grown private equity by allowing yuan currency fund-raising, erecting hurdles for foreign rivals and encouraging IPOs on domestic markets.

Foreign private equity funds, while not quaking in their boots, see the writing on the wall.

"Our greatest competition will not be from one another but will be the indigenous Chinese private equity firms," David Rubenstein, co-founder and managing director of The Carlyle Group told a recent conference in Hong Kong.

A pilot for Beijing's private equity ambitions is Bohai Industrial Investment Fund, controlled by Bank of China, which is amassing a war chest of 20 billion yuan ($2.7 billion).

Bohai is run by Au Ngai, a former dealmaker at U.S. fund TPG which has $40 billion under management. His new fund recently bought a stake in Tianjin Pipe Group and is expected to buy 10 percent of Chengdu City Commercial Bank, sources have said.

Other funds will follow. Last month China gave the go ahead for five new Chinese industrial investment funds to raise 56 billion yuan ($7.5 billion).

There are already a proliferation of hybrid firms; founded by Chinese nationals, head-quartered in China but with foreign investors, such as the up and coming CDH China Management and Hony Capital.

Private equity firms founded by Chinese nationals signed about a fifth of all the deals done by funds in China so far this year, according to HK-based research house AVCJ based on data related to 68 local firms and 846 foreign private equity firms.

Total investment by funds in China has hit $9.7 billion in 2007 to date AVCJ said, a fraction of the volume seen in Europe and the United States but growing.

Keeping it Chinese will give the government more control over capital flows in and out of the country and spur the development of its financial markets.

China's belief in private equity was underscored this year when its new $200 billion sovereign wealth fund invested $3 billion in the initial public offering of U.S. buyout heavyweight Blackstone Group.

China has been looking for ways to divert cash away from its overheating real estate and stock markets, so this year Beijing made it easier for Chinese to invest in private equity.

Chinese yuan-based funds do not need central government approval for deals, a significant advantage when foreign funds such as Carlyle have seen purchases slowed or derailed during the approval process.

Global firms have shown interest in forming yuan funds. But difficulties ensuring equal tax treatment for investors across funds with different currencies means it may take some time before this becomes practical.

M&A is also becoming tricky. Traditionally, foreign funds and Chinese entrepreneurs have set up offshore investment vehicles to buy domestic companies and then floated them abroad.

But the Chinese government, keen for companies to list at home in order to add depth to its markets and plug the leak of tax dollars, has been slowly barring that route with regulations.

Entrepreneurs, fed up with waiting for foreign funds to gain regulatory approval and worried the investment cycle might turn, are talking more to home-grown teams in the hope of speedy deals.

"It may be more convenient for a company to accept investment from a local fund because the approval process is much, much simpler," said Maurice Hoo of law firm Paul Hastings, referring to yuan funds making investments in approved sectors.

Chinese funds have remained relatively small and had patchy success to date, limiting their global reach.

It was U.S. buyout firm Bain Capital, for example, that joined with China's Huawei Technologies to bid $2.2 billion in September for U.S. network gear maker 3Com.

"Not surprisingly, local funds' advantages are proprietary contacts, government relationships and the ability to value Chinese companies more accurately," said David Eich, a partner at law firm Kirkland & Ellis.

"However, the most complex transactions require lots and lots of experience and resources and the local funds aren't there yet."

Putinomics and Ever After

Russian President Vladimir Putin is keen on keeping the political economy of Russia the way it is now. You know how this story goes: Those vile Westerners tried to foist privatization on Russia to make it succumb to the West's will, vote for my party in the upcoming elections instead of those traitorous Western sympathizers, Russia was rescued just in time by standing up to American imperialism, etc. It's standard-issue demagoguery, but given America's ill-fated attempts at pseudo-empire, kicking Uncle Sam while he's down is pretty easy nowadays as he is in the gutter together with his little girlie man currency. Maybe our fearless leader of the free world Dubya should take another look into Putin's soul abs of steel and reassess what's going on. From the International Herarld Tribune comes this latest installment from the ever-popular Putin cult:

In one of his most aggressive attacks on opponents to date, President Vladimir Putin on Wednesday accused foreign governments and his domestic opponents of seeking to turn Russia into a "weak and ill" state and warned against the return of oligarchs and other figures from the 1990s, when the Russian economy indeed was feeble.

"Our opponents want to see us disunited," Putin told about 5,000 supporters gathered in a sports stadium to rally around the man who has presided over eight years of oil-based growth and is leading the dominant United Russia party into Dec. 2 parliamentary elections. "Some want to take away and divide everything, and others to plunder," Putin said.

"They will now come out into the streets - got a crash course from foreign experts, got trained in neighboring republics and will try here now," Putin said, apparently referring to opposition activists who plan to take to the streets this weekend. Putin and his government have long accused the West of training the organizers of successful anti-government revolutions in recent years in Ukraine and Georgia.

An audience member shouted: "We will not let this happen!" Putin responded, "That's right."

"Those who want to confront us need a weak and ill state," he said. "They want to have a divided society, in order to do their deeds behind its back."

He described his foes with a Russian word that translates roughly as "jackals."

Putin was speaking at an event organized by the For Putin movement, which denies strong ties to the Kremlin but aims to persuade the president to stay on as leader after his second term in office ends next spring. Behind him was a huge banner reading, "Believe in Russia! Believe in Ourselves!" and featuring a United Russia logo.

The carefully choreographed event, attended by about 5,000 activists from youth movements like Nashi [see a previous post on the Nashi] and the Young Guard, party functionaries and celebrities, followed various other mass events that had cast the popular president as indispensable.

Putin stressed that he had not participated in such rallies before and did not particularly like to do so. He called on the audience to vote for United Russia. "If there's a victory in December, then there will be a victory in March of next year, too," he said, referring to the presidential vote.

Putin is not eligible to run and has said he will not try to have the Constitution amended to allow him a third term as president. It thus remains unclear who has a real shot at running; the Kremlin has said candidates will be announced next month.

In his half-hour speech, Putin said that Russia's current achievements had come amid an "acute political struggle" and that unidentified forces were trying to speculate on the country's hardships.

A poll by the state-controlled Vtsiom polling agency this week showed that support for United Russia had increased to 63.8 percent from 50 percent in the previous survey conducted Nov. 3-4 - a surge in popularity that has occurred despite inflation-fueled increases in food prices...

Putin assailed unnamed former officials who, a decade ago, adopted "irresponsible budgets" that led to the collapse of the ruble and a debt default, and those who "made corruption the main tool of political and economic competition."

"There should be no illusions. All of these people have not left the political arena," he said. "They want to come back, to return to power, to spheres of influence. And gradually restore the oligarchic rule based on corruption and lies."

Putin was interrupted several times by activists waving flags and chanting, "Russia - Putin!" and "We believe in ourselves! We believe in Russia!"

He repeated criticism of foreign governments who he suggested sponsor opposition parties and internal foes.

"Unfortunately, inside the country there are those who scrounge at foreign embassies, importune diplomatic missions, count on support of foreign funds and governments and not the support of their own people," he said.

Before Putin took the stage, celebrities and activists took turns eulogizing him before the cheering crowd.

Ivan Demidov, a well-known television personality and a Young Guard leader who headed up the event, painted a grim picture of the 1990s, saying it was Putin who had saved Russia from collapse. A test pilot, Anatoly Kvochur, told the crowd that Putin had rescued the nation from a "deep, deathly nose-dive."

Other speakers praised Putin as a smart, independent leader who does not look up to the West. "Unlike leaders of some states, Putin doesn't fly to Washington when he needs to make a principally important decision," said Vladimir Solovyov, a television host. "Putin loves the motherland..."

Other celebrities at the event included the Soviet-era figure skating champion Irina Rodnina; the film director Fyodor Bondarchuk and the arms designer Mikhail Kalashnikov [the designer of the AK-47], who spoke via video link from Izhevsk.

The Wednesday rally at the Luzhniki stadium was a strange blend of Russian and Soviet-style propaganda and - as some like Solovyov pointed out - American-style political conventions.

When asked why there was such a massive outpouring for Putin, Solovyov said that nothing prevented Russians from rallying around other candidates. Speaking to journalists, he said that if the riot police or unspecified other factors were the reasons for the absence of such rallies, then the candidates simply did not have enough support.

Ivan Melnikov, first deputy chairman of the Communist Party, said later Wednesday that United Russia was turning into a "sect" and called Putin's speech "extremely unfortunate."

"After all, if everything in our country were that well and right, if the course were evidently correct, then the president would not have to throw himself every day on the altar of propaganda," Melnikov said.

Big Heating Bills? Burn Firewood

With gas prices flirting with $100 a barrel, many cash-strapped Americans have felt the crunch of large heating bills. What is the alternative? It's back to the Stone Age: Get the ax out, Pete, and start chopping firewood. The problem is that burning wood for heating is definitely a high-emissions activity. In this case, there's a tradeoff between fuel savings and emissions. It's interesting what folks need to resort to in trying times, but you've got to do what you must to stay warm. From Bloomberg:

More American households, faced with an 83 percent increase in heating-oil prices over the past year, are turning to an alternative as old as the Stone Age: wood.

While the typical wood stove emits as much as 350 times more pollution [eat that, Gore!] than an oil furnace, according to the U.S. Environmental Protection Agency, some homeowners find the economics compelling. Firewood costs less than half as much as heating oil in terms of energy produced, based on prices from the U.S. Energy Department and firewoodcenter.com.

``I got nearly a $2,500-a-year saving by putting in a wood boiler,'' says Wendy Wells, a 39-year-old New Hampshire bookkeeper who replaced her oil furnace two years ago with a $3,700 wood-oil combination.

Sales of wood-pellet stoves, the least environmentally harmful wood-heating devices, more than tripled since 1999 to 133,105 last year, according to the Hearth, Patio & Barbecue Association in Arlington, Virginia. At Thayer Nursery in Milton, Massachusetts, owner Josh Oldfield says firewood sales are 15 to 18 percent higher than a year ago.

``As oil creeps up toward $100 a barrel, firewood sales have increased dramatically,'' Oldfield says. ``There is definitely a correlation.''

Business also has picked up for sellers of wood stoves, boilers and ovens used to dry wood, or kilns, says Sherri Latulip, co-owner of Mountain Firewood Kilns in Littleton, New Hampshire. The company's sales have tripled, says her husband, Bill. Mountain Firewood's kilns retail for $21,800, and combination wood-oil boilers, for as much as $6,490.

``We really started getting the run on them at the end of August, early September,'' he says. ``When people hear oil is going to get expensive, they start buying...''

Heating oil futures, which represent wholesale prices, have gained 56 percent in the past year, pushed higher by crude oil...Wood prices have increased more slowly than oil because of abundant supply and people's ability to gather and split their own wood, particularly in the Northeast where usage is concentrated.

Ray Colton, owner of Colton Enterprises Inc. in Pittsfield, Vermont, says he sells kiln-dried firewood for $220 a cord, the same as last year. A cord, 128 cubic feet (3.6 cubic meters) of stacked firewood, is about equal to the amount that can be loaded onto two full-sized pick-up trucks. The national average is about $160 a cord, according to firewoodcenter.com.

Wood was the primary heating source for about 1.3 percent of U.S. households in 2005, according to the most-recent Energy Department data. That was down from 7.1 percent 20 years earlier. Seven percent of homes use heating oil, 58 percent natural gas and 30 percent electricity. Propane and other fuels account for the remainder.

Pollution is the big drawback. Even stoves that burn dog- food sized pellets of compressed sawdust emit about 40 times more particulate matter, similar to soot, than an oil furnace, according to the EPA.

The emissions can contribute to respiratory illnesses such as asthma, says David Wright, a supervisor with Maine's Department of Environmental Protection. Wood burning for residential heating accounted for 57 percent of toxic air emissions in the state, he says.

The federal EPA issued regulations for woodstoves in 1989, mandating that they emit no more than 4.1 grams of smoke an hour for catalytic stoves, which convert particulates and harmful gases into less-polluting exhaust, and 7.5 grams an hour for ordinary stoves. Manufacturers that fail to meet those standards may be fined as much as much as $100 a stove, says John Dupree, supervisor of the EPA's wood heater program.

Several states, including New Jersey, Vermont and Washington, also have regulations to control pollution, says George Allen, a senior scientist at the Boston-based Northeast States for Coordinated Air Use Management, a nonprofit association of state air-quality agencies.

New Jersey has a law, enforced by fines, that forbids use of outdoor wood boilers that emit smoke, says Lisa Rector, senior policy analyst for the group. States including Connecticut and Vermont have rules that require wood boilers to be placed a given distance from a neighbor's property.

Wells says air quality isn't a major concern for people in her part of New Hampshire, where the temperature falls to minus 20 degrees Fahrenheit (minus 29 degrees Celsius) for weeks at a time. Almost everyone burns wood, she says.

``It is very expensive to heat our houses up here because we are so far north and the climate is so cold,'' Wells says. ``We live among the trees, where the deer and antelope play.''

WB Graft Slayer Zoellick's 1st Victim

New World Bank President Robert Zoellick has notoriously decided to continue his predecessor Paul Wolfowitz's emphasis on stamping out the scourge of graft and corruption. Zoellick played a role in nixing a $232 million road-building project in the Philippines by the China State Construction Engineering Company over evidence of bid-rigging. No one ought to be surprised by this tainted deal between the notoriously corrupt Philippines and China which isn't that far behind. Still, the matter is unlikely to improve relations between Zoellick and Bank staff who disliked Wolfowitz's emphasis on fighting corruption. Are developing countries indeed being punished by the sins of contractors which have engaged in corrupt practices? Bank staff believe that their input was simply disregarded on governance matters. The beat goes on. From the Wall Street Journal:

Although the World Bank's new president, Robert Zoellick, has pledged to make rooting out corruption a priority, the institution continues to flail over the issue.

The bank's governing board this month blocked a $232 million loan for road-building in the Philippines because it felt bank staff hadn't fully handled corruption issues in reviewing the loan -- and hadn't briefed Mr. Zoellick on the proposal. Investigators had uncovered evidence that China State Construction Engineering Co., a state-owned company, was involved in bid-rigging on an associated loan program, bank officials said.

While it isn't a formal requirement that every board recommendation be shown to the president, bank officials said that such consultation would have made sense, given the turmoil the bank has undergone trying to deal with graft.

The board rejection represents a slap at the staff and indicates continuing divisions within the bank. A September report by former Federal Reserve Chairman Paul Volcker said that the bank wasn't prepared to respond "promptly and effectively" to findings of corruption.

The Philippine loan is the first major project involving corruption issues to come to the board since Mr. Zoellick became president July 1, according to bank officials. The World Bank's board represents the institution's 185 member nations. The bank's president is chairman of the board, as well as CEO of the institution.

Dealing with corruption has been divisive within the bank for years. The previous president, Paul Wolfowitz, was known to block or delay loans to poor countries suspected of graft. But in doing so he alienated many of the bank's staff and board members, who complained he was penalizing impoverished nations for the sins of contractors. Staff protests helped spur Mr. Wolfowitz to resign earlier this year.

Mr. Zoellick has sought a less confrontational approach, looking to get bank investigators to work more closely with bank departments that make loans. The softer touch may have created problems. The World Bank's East Asia department didn't inform him of its plans to seek board approval of the Philippines loan, despite unresolved graft issues. During a board meeting held in his absence, a European representative asked the staff members why they had used an expedited-approval procedure "when the president was out of town," said a participant.

Staff member James Adams, the bank's vice president for East Asia, said in an interview that he wasn't trying to go behind Mr. Zoellick's back. Rather, he said his department had worked closely with fraud investigators, added a variety of anticorruption measures to the Philippine project and believed the loan was ready for board approval. "Far from obscuring issues, we dealt with them directly," he sai

Mr. Zoellick declined comment. The episode played out in two meetings around Nov. 1 while Mr. Zoellick was traveling in South Asia. He was notified about the rejected Philippines loan after the second meeting, said a World Bank spokesman. At that time, "he made clear that project won't go back to the board unless and until the questions raised are answered," said the spokesman.

The World Bank road-construction project was designed to build asphalt-paved routes between cities in the Philippines. Around 2000, the bank approved a $150 million road-construction loan, but the project moved slowly amid years of corruption scandals and the government's difficulty in establishing a national road authority.

China State Construction Engineering Co. won a $5.6 million contract under the program in 2002. In 2003, World Bank investigators began to suspect that the company had tried to rig bids with a cartel of construction firms in two other road contracts, valued at $33 million.

Officials in China State Construction's U.S. subsidiary said Friday that they had no information regarding the World Bank investigation. Company officials in Beijing couldn't be reached.

From 2003 to 2006 the World Bank rejected three successive rounds of bidding involving China State Construction because of "strong signs of collusion and excessive pricing," a bank official said.

China State went on to win about a dozen other road-building contracts in the Philippines by 2005 as part of a consortium with several other Chinese firms, according to Philippine government reports.

The World Bank's antifraud unit has long been at loggerheads with departments that make loans. But in the Philippine road-construction case, said a spokesman for the fraud unit, investigators worked closely with the East Asia department on the investigation of China State Construction's contracts and in designing new anticorruption measures, including a citizen watchdog group called "Road Watch," to monitor future projects.

Around 2006, the bank was putting together a second phase of the road project, which was to be partly financed by a $232 million World Bank loan, although corruption concerns hadn't eased. "Corruption is a major issue in the [road-construction] sector, ranking as one of the worst in the country," said a World Bank analysis of the second-phase project.

The fraud unit had completed its investigation of the contracts -- and concluded that China State was involved in bid-rigging -- by the time the East Asia department asked the board to approve the second-phase financing at the end of October.

The 24-member board refused to authorize the project, arguing that the corruption issues in the first phase of the project hadn't been resolved and that Mr. Zoellick hadn't been apprised of the loan request. Representatives of the U.S. and Canada took the lead in raising the objections, said World Bank officials.

Mr. Adams, the East Asia department chief, said the department will seek an analysis by officials from outside his department into how his unit handled the loan issue.

Fraud-unit officials were dispatched to Manila to brief Philippine officials of the completed investigation and gauge their response. The board's decision is likely to be an embarrassment to Philippines President Gloria Macapagal Arroyo, who has pushed for the project and who has been under fire over alleged government corruption...

The Revival of Nuclear Power

Carbon dioxide, sulfur dioxide, and nitrogen oxide emissions are largely unavoidable when using coal, oil, or natural gas as fuels. But, nuclear power--radioactive waste aside--produces none of those emissions nasties. Zero, zip, zilch, nada. Hence, some environmentalists who used to bash nuclear power are now seeing it as the lesser evil in confronting global warming. Today's story concerns the much-touted renaissance of nuclear power Stateside in line with its somewhat rehabilitated reputation in the public sphere. The challenges in this sphere are not new: it hasn't really been worked out yet where to dispose of nuclear waste material (that old "not in my back yard" NIMBY syndrome) or even if building nuclear plants is economically viable. From Wired, of all places:

A recent application to build the first American nuclear power plant in nearly 30 years has the nuclear community aglow with talk of possible industry resurgence.

In September 2007, NRG Energy filed a proposal with the Nuclear Regulatory Commission to build a nuclear power plant in Texas. Last month, NuStart, a nuclear consortium, also filed an application. These represent the leading edge of a wave of renewed interest in domestic nuclear energy.

"We are expecting an additional three (applications) before the end of this calendar year," said Scott Burnell, an NRC spokesman, who said another 16 applications, some for multiple power plants, are likely by the end of 2009. "If all of these applications were approved, we would end up with a total of 32 new reactors in the United States," Burnell said.

Currently 104 reactors are spread across the United States -- approximately 20 percent of domestic-energy output. Assuming all goes well, the first plants could come online as early as 2015, according to Burnell.

This resurgence of commercial attention to nuclear power is coming about for several reasons. The increased attention on greenhouse gases and their effects on the global climate is spurring interest in carbon-neutral power-generation technologies, including nuclear power. Improved technologies make new nuclear plants safer and more reliable, supporters say. And federal tax credits and subsidies (.pdf) tucked into the Energy Policy Act of 2005 have kick-started a once-dormant industry.

"The performance record from an operational point of view is extraordinary," said David Crane, the CEO of NRG Energy, of the next-generation plants currently operating in other, more nuclear-friendly countries such as Japan, China and France. "The U.S. has missed two generations of design that's been carried out in other countries -- they're simpler to maintain."

Further, he adds, among the 104 reactors currently online in the United States, none have had any disasters since the infamous Three Mile Island incident in 1979.

However, industry analysts and scholars are not quite as bullish as industry representatives seem to be, and don't see a nuclear renaissance at all.

"We really see it as essentially a number of companies are getting in line for a set of significant taxpayer subsidies," said Geoffrey Fettus, a senior attorney with the National Resources Defense Council. "At this point we're years away from commitments from any of these companies to build."

The subsidies that Fettus refers to include a tax credit of up to $125 million total per year, estimated at 1.8 cents per kilowatt hour during the first eight years of operation, for the first 6,000 megawatts of capacity -- the same credit offered for plants that use renewable fuels.

In addition, the law provides support for construction of new nuclear plants costing over $1.18 billion, and an extension until 2025 of the Price-Anderson Act, which mitigates financial and legal risk for nuclear plant accidents.

Despite the incentives, experts point out that new nuclear construction may still be prohibitively expensive.

NRG Energy says its two proposed units, which would produce a total of 2,700 megawatts, or enough to power 2 million homes, would cost $6 billion to build. A conventional natural-gas plant of the same size would cost $2 billion, according to Jeremy Carl, a research fellow and PhD candidate at the Center for Environmental Science and Policy at Stanford University.

"To make money back you've got to charge a pretty high price for your power and it's not clear that the market will support that," Carl said.

Even if more nuclear plants do get built, Carl pointed out that the United States still does not have a definitive long-term strategy for dealing with nuclear waste.

Analysts also point out that American's energy demands continue to soar at a rate of 50 to 60 gigawatts each year, and there is no easy answer to America's constantly growing thirst for energy.

"You can't build wind and solar fast enough and their inherent production profiles are different enough such that you can't use them for base-load generation," said Michael Carboy, an analyst with Signal Hill.

"Wind power doesn't always occur during peak demand times and you don't have solar in the evening. You need something that's going to be a stable contributor to 20 or 30 percent of the daily power loads that's going to sit there and run all day long."

Towards the Remittance Holy Grail

The chart above depicts remittance flows to developing countries throughout the world. It accompanies a new report by the UN-IFAD (International Forum for Agricultural Development) on remittances which is quite important. One of the things that has hindered attempts to quantify just how much remittances are being sent to the developing world is the large presence of unrecorded remittance flows. That is, many remittances go through informal channels such as migrants asking fellow migrants returning home to deliver remittances to their relatives and informal remittance systems such as the hawala network. What this report does is attempt to quantify formal and informal remittances, the latter by means of extrapolation:

The following worldwide remittance map compiles the best available information drawn from data collected on migrant populations, percentage of migrants sending remittances, average amounts remitted annually, as well as the average frequency of annual transfers. Central banks and other official government sources, money transfer companies, international organizations and academic institutions were used for reference support. The map covers 162 developing countries – many for the first time – and, together with the accompanying analysis and data tables, it provides comparative indicators to measure the relative importance of remittances among twenty subregions of the developing world.

Going by the World Bank estimate for recorded remittances of $206B in 2006, the $301B figure arrived at by IFAD indicates that about half again as much remittances are sent via informal channels. Definitely, the associated brochure is a must-read if you are at all interested in migration and remittances. Here is its summary:

150 million migrants worldwide sent more than US$300 billion to their families in developing countries during 2006

Remittances, the portion of migrant workers’ earnings sent back home to their families, have been a critical means of financial support for generations. But, for the most part, these flows have historically been “hidden in plain view”, often uncounted and even ignored. All that is now changing – as the scale of migration increases, the corresponding growth in remittances is gaining widespread attention.

Today, the impact of remittances is recognized in all developing regions of the world, constituting an important flow of foreign currency to most countries and directly reaching millions of households, totaling approximately 10 per cent of the world’s population. The importance of remittances to poverty alleviation is obvious, but the potential multiplier effect on economic growth and investment is also significant.

The driving force behind this phenomenon is an estimated 150 million migrants worldwide who sent more than US$300 billion to their families in developing countries during 2006, typically US$100, US$200 or US$300 at a time, through more than 1.5 billion separate financial transactions. These funds are used primarily to meet immediate family needs (consumption) but a significant portion is also available for savings, credit mobilization and other forms of investment. In other words, the world’s largest poverty alleviation programme could also become an effective grass roots economic development programme, particularly in the rural areas that present some of the greatest challenges to financial inclusion.

China Tells Banks to Quit Lending

China's thus far futile tactics to control an overheating economy are straight out of an economics textbook. As any economics student worth his or her salt will tell you, the primary tools for conducting monetary policy include (1) setting target interest rates, (2) determining reserve requirements, (3) engaging in open market operations, and (4) using moral suasion. China has hiked its benchmark rate and increased its reserve requirement so many times I've lost count. Also, it's been busy issuing sterilization bills to ensure that its massive foreign exchange intervention does not result in excess domestic liquidity. So, they've tried (1) through (3) repeatedly without much desired effect. What's left? The old standby (4) "moral suasion" is a fancy term that, in plain English, involves monetary authorities telling financial institutions to do as they say--or else. When all else fails, threaten the @#$%^& implicitly with some form of implicit punishment for not playing along. It's what China has now resorted to as it tells everyone to stop lending so much. From Forbes:

China has reached for its customary tools to curb a surge in domestic liquidity, issuing directives restricting bank lending to business customers and consumers.

In the stealth administrative style preferred by China’s policymakers, the China Banking Regulatory Commission has since late September quietly instructed domestic banks not to hand out loans to industries now widely known as the “Two Highs, One Surplus.” The “two highs” are industries consuming high levels of energy or producing high pollution, while the ”one surplus” generally refers to industries suffering from excess capacity, top among them being real estate developers.

Domestic banks were given the orders at a meeting in late September; the instructions were passed on to foreign banks when they were summoned to a meeting last Thursday.

News of the lending curbs first surfaced in early October in local newspapers, when they started to track down incidents of qualified consumers unable to receive loans for housing mortgages, a line of lending that is among the safest and most lucrative for Chinese banks.

An evening newspaper in the northeastern city of Shenyang reported a suspension of housing loans to comply with regulators’ decrees as early as in mid-October, citing officials at several branches of Chinese commercial banks. The paper also said that lending to real estate was being affected by an earlier policy directive, issued in June by CBRC, which instructed banks to cap their yearly lending growth rate to the sector at 15%.

Lending has also been reportedly curtailed in Shenzhen and Guangzhou for small loans for new business owners as well as other consumer finance needs such as home repairs, particularly those made by a dozen midsized banks, including China Minsheng Bank, the Bank of Communications, China Everbright Bank, China Merchants Bank and Shenzhen Development Bank.

In late October, national business newspapers such as Securities Times confirmed an extension of the lending curb to the corporate sector, a tightening that would particularly affect loan growth at small and medium commercial lenders and corporate clients that are not deemed as “bright prospects.” It said the country’s big national banks were also starting to feel the pinch.

The latest development came in a report last week in China Business News, which quoted informed sources as confirming regulators’ concerns about the fast expansion by foreign banks into real estate lending as well as allowing money flowing into stock markets potentially to create a bubble.

Foreign banks have been more aggressive than their domestic rivals in extending domestic loans denominated in yuan, with their loan-to-deposit ratio at more than 1.5 as of the end of September for those banks based in Shanghai, up from just a 23.4% ratio early in the year, China Business News added.

Coercive policy like this, however, can only go so far. The lending curb could help temporarily prevent Chinese banks from rapidly building up their loan books and might put a damper on their profitability, but analysts were expecting pent-up demand to be unleashed at the beginning of the new year.

CBRC denied it is imposing a blanket freeze on lending, as it did with its previous lending freeze, back in April 2004.

The construction sector tends to be hit the hardest by policy-engineered credit controls, and commodity and property demand will likely be the areas first to be affected by credit tightening, according to Goldman Sachs economist Hong Liang. She said Beijing is facing a dilemma in resorting to traditional tightening tools such as interest rate hikes; this option "has become much more painful for the China’s central bank," mainly because the drying up of the speculative yuan carry trading may lead to more hot money inflows, a trend already under way since the Fed cut rates in September.

Hong also pointed to the pressure arising from the surge in China’s trade surplus, which grew by 27 times between 2003 and 2007. "If the growth rate of these [net foreign] assets continues to run at the pace we have seen in the past few years, the ‘ceiling’ on domestic credit growth would need to be lowered each year in order to keep the broad money supply growth stable," she wrote in a note issued on Monday.

Why Isn't Lame $ Causing Inflation?

Given the never-ending debasement of the US dollar, why hasn't inflation been evident Stateside caused by the rising prices of imports? That's the question posed by this Wall Street Journal article. According to the story, foreign exporters have been keen to retain their market shares in the USA. To do so, they've largely shouldered the costs of exchange rate revaluation instead of passing them on to US consumers. Whereas the "pass-through" used to be nearly 50% before the turn of the century--meaning that a 10% USD devaluation resulted in a 5% price increase in imports for US consumers, for example--it's now just 10-25%. It's interesting stuff. Have foreign exporters (a) lost pricing power, (b) decided it's better to retain market share at the expense of profitability, or (c) been bearing it in the meantime only to eventually succumb to price pressures? It will be intriguing to watch....

The plunging dollar has sent inflation alarm bells clanging across the U.S. But they may be false alarms.

A battery of research has been building over the years that the dollar doesn't drive U.S. inflation like it used to.

A key reason: Foreign exporters are so keen to keep U.S. market share that when the dollar weakens, they often lower their prices to keep them constant after the currency effect. That's especially true when the economy is slowing and consumers are less willing to pay higher prices.

A 10% decline in the value of the dollar -- the drop seen over the last year -- might be expected to raise the price of imports by 10%. But the actual pass-through is a fraction of that. Studies have found that only one-quarter to one-tenth of a currency depreciation gets passed through as higher prices for imported products.

That makes the U.S. Federal Reserve's job a bit easier during uncertain times. If the economy slows sharply, the Fed can lower interest rates -- a move that tends to weaken the dollar even more -- to boost the economy without worrying as much about inflation. Last month, Fed Chairman Ben Bernanke said that while a dollar depreciation leads to "some inflationary effect" as imports' costs rise, "our experience over the recent decade has been that those effects are relatively small."

The Fed's job is to balance growth and inflation, and few economists believe the central bank should act simply to preserve the dollar's value. Moreover, for Fed policy makers, the weak dollar has been a timely benefit: It is boosting U.S. exports, which helps ease the pain of a severe housing downturn and credit crunch.

"Right now, they're going to view this as good, not bad," said Brandeis University professor Stephen Cecchetti. "There are no tangible inflation risks that are coming out of it."

Markets seem to agree. The dollar's five-year decline hasn't raised inflation expectations, as expressed by the bond market. Prices of gold, oil and other commodities have surged, but much of the cause has been growing demand and speculation in financial markets.

A recent study by Fed staffers found that the U.S. consumer got special treatment from companies sending goods into the country -- they have been more willing to accept thinner margins, especially since 2002. They didn't give as much latitude to other countries, reflecting the dollar's international dominance and concerns about losing ground in a key market.

Even if the weak dollar has only a modest impact on inflation, there are other risks. Core inflation, which excludes food and energy, has remained tame in recent months, within the 1%-to-2% comfort zone for some Fed officials. But the dollar's decline could boost the public's expectation of future inflation, creating a self-fulfilling effect that pushes prices higher.

The dollar decline can create a communications problem for Fed officials, whose policy decisions aren't directed toward the dollar but may nevertheless depress the currency. "It sets the market backdrop which your policy actions will be interpreted against," said Vincent Reinhart, a resident scholar at the American Enterprise Institute and former head of the Fed's monetary-affairs division. "People might get confused as to why exactly you're easing policy."

The declining dollar used to have a bigger impact on import prices. From the mid-1970s through the 1990s, the pass-through rate was as high as 50% -- meaning a 10% drop in the dollar would raise import prices by 5%. This decade the pass-through rate has been less than 25%. For the overall economy, that's still a small increase because imports are a fraction of the goods consumed.

Of the roughly $2 trillion of goods imported by the U.S. last year, more than one-third came from Asia. Compared with the euro, Asian currencies have remained far more stable against the dollar, partly because some countries, such as China, manage their currencies to hold down their value.

In addition, in many cases, importers' costs for cheaper goods from China are just a fraction of the ultimate prices charged U.S. consumers, due to markups. The companies bringing goods into the U.S. have the choice of "eating it in their margin or jacking up their price when the exchange rate moves," Mr. Cecchetti at Brandeis said.

How a falling dollar affects imports can depend on the specific product: The prices of some luxury imports, such as BMW vehicles, have stayed steady as manufacturers accept lower profits. Airlines, however, operate on thinner margins and are quicker to raise ticket prices if their costs rise.

In addition, price increases in raw materials, including steel and other commodities, tend to pass through at much higher rates -- 90% or more -- in part because they are priced globally and hit firms equally.

Some economists question how long companies will accept weaker profits. "If oil continues on its path...we're going to see more pass-through from oil than we've seen before, says Joel Popkin, an economist who analyzes price trends for his own company. "You're starting to get to the point where the costs can't be absorbed."

Other economists are keeping a sharp eye out for dollar-induced inflation, even as they note that their economic models suggest little reason to worry. "We're not blind to the risk that something may have changed," said Lehman Brothers economist Drew Matus. "You can never really tell the regime shifts until it's too late."

How the Dollar Lost Its Bling

[Pardon the language, playa haters; da posse is in full effect.] Word up, homies. I wuz chillin' out on the Bloomberg website when I came across Mack Daddy William Pesek's latest column on even pop culture turning against that Perpetual Dee-valu-a-shun Mucheen^TM otherwise known as the US dollar. Now ah've bitch slappin' that ratty ol' greenback for the longest time, but it takes awhile for John Q. Public to get the message, y'now? Heez more into Jimmy Buffett than Warren Buffett, Jay-Z than Randall Kroszner, and Gisele Bundchen than Indra Noori, awright? Now that Jay-Zs been pimpin' 500 Euro notes in his "Blue Magic" video and Gisele Bundchen's been dissin' fools tryin' ta pay 'er wit stoopid dollars, u got a trend, dig? They ain't down wit' dat fool Benjamin, thatz fo sho...even in Asia!

That Dollar Isn't Funny Anymore.'' That's how economist Stephen Green and his colleagues at Standard Chartered Bank titled a recent report and their observation was as spot on as any.

The dollar's swoon has gone from amusing to sobering in Asia, which is at a crossroads with a currency that has long been a cornerstone of its economies. While angst over the rising euro grabs the headlines, the dollar's about-face may affect Asia more than any region outside the U.S.

You don't have to read the financial pages to see that the dollar's days of ruling the world are numbered. Keen insights can also be gained perusing gossip columns.

Much interest followed rapper Jay-Z flashing a stack of 500-euro notes in his latest video. The New York native seemed to know what many hedge-fund managers were slow to grasp: Europe's single currency is in, the dollar is out. Newspapers from Bangkok to Seoul gave the story prominent placement.

Similar intrigue accompanied reports that Brazilian supermodel Gisele Bundchen was a dollar bear. Somehow, Asians didn't much care that Warren Buffett of Berkshire Hathaway Inc. and Bill Gross of Pacific Investment Management Co. were down on the dollar. Yet reports about the model's preference for euros turned heads and made headlines in Asia.

``Rappers and supermodels are not renowned for their intellectual or financial prowess, but in fact these examples are more important'' than most, says Mark Matthews, Hong Kong- based strategist at Merrill Lynch & Co.

Take the case of Thailand 10 years ago. Matthews was based in Bangkok back then and had a first-hand view of the forces precipitating the Asian crisis. It was private capital flows that decided the fate of the currency, not central bankers or politicians. Once rich Thais lost faith in the baht and took their money out, authorities were at a loss to stop the dynamic.

``As was the case with the Thai baht devaluation, we cannot have a clue as to the specifics of what happens if the dollar loses its status,'' Matthews says. ``Experts say it's impossible, but that's the way regime change goes.''

Again, what a couple of celebrities do with their fortunes doesn't necessarily portend a dollar crash. Yet taken with other signs of the dollar's waning appeal -- including its 14 percent drop against the euro in the last 12 months -- such anecdotes are food for thought.

Thickening the plot is Henry Paulson's benign neglect. The U.S. Treasury secretary is dropping no hints of serious concern about the dollar's slide. Nor has he proposed a way to get to the bottom of the U.S. subprime-loan crisis and keep it from occurring again.

The sense of economic drift in Washington is the talk of Asian markets, and it's partly why the dollar is losing favor. In 1971, one of Paulson's predecessors, John Connally, said: ``It may be our currency, but your problem.'' Few regions of the world may find a dollar plunge more problematic than Asia.

The risks to China alone are daunting. ``If the U.S. dollar were to collapse and remain weak on a sustained basis, Beijing would face an intense dilemma,'' Standard Chartered's Green wrote in a report yesterday.

Maintaining an undervalued currency is the key to creating the millions of jobs China needs to maintain stability. That effort will be complicated by the yuan becoming cheaper against the euro and Asian currencies. The resulting trade surpluses would add even more liquidity to China's economy and increase political tensions globally.

The rest of Asia would have serious adjustment problems, too. The region remains wedded to weak exchange rates and the loss of competitiveness would be felt from Tokyo to Jakarta. The challenges would increase once Asian central banks began moving their vast currency reserves out of dollars to avoid losses.

Looked at another way, a shift away from the dollar could be a plus for Asia in the long run. While destabilizing and disorienting, it's not a given that the dollar's demise would lead to a global recession. That didn't happen in the second half of the 20th century when the dollar unseated the British pound.

All this raises questions. Will rampant globalization since then and the increased complexity of investments lead to a bumpier transition this time? What eventually replaces the dollar? The euro? The yuan? A single Asian currency?

Even so, as more investors realize how vulnerable the dollar is, their money will need to go somewhere.

``Some of it is going to where there are better growth prospects, namely Asia,'' Matthews says. ``This has been one of our major investment theses for some time now -- that Asian stocks have been going up, and will continue to go up, not only because of what's happening here, but also because of what's not happening somewhere else.''

What the dollar's demise means is debatable. What's not is that the currency is losing its luster in a region that has long embraced it. Just ask the world's rappers and models.

ASEAN's China Fear Factor, Again

I've noted that the Association of Southeast Asian Nations (ASEAN) is pursuing bilateral and regional FTAs with anyone and everyone. What's driving this frenzy? Fear of China, naturally. It's a love-hate relationship between ASEAN and the Middle Kingdom. Actually, ASEAN is also keen on a trade deal with China that should come into force in 2010. The political-economic biggie as far as ASEAN is concerned is the creation of an "ASEAN Economic Community" presumably emulating the European Economic Community to some extent. The Economic Community is high on the agenda of next week's 13th ASEAN Summit in Singapore. Columnist S. Pushpanathan makes a four-wheel drive analogy that strikes me as somewhat odd though it's informative on the directions ASEAN wants to take:

Another key document to be concluded at the summit will be the Asean Economic Community Blueprint, a coherent and do-able master plan to establish the economic community by 2015.

The Economic Community can be envisioned as a "four-wheel drive" vehicle, with each tyre representing a crucial foundation moving the community forward at constant and consistent speed on a metal road and sometimes dirt track filled with challenges towards 2015.

The 10 member countries and the Asean secretariat are the passengers in the Asean jeep, with each member country taking its turn to steer the jeep with the support of the secretariat.

The front right tyre represents the Asean single market and production base, where there will be free flow of goods, services, investments and skilled labour, and freer flow of capital, and where focus will be given to vertically integrating the 12 priority economic integration sectors identified by Asean leaders, including electronics, automotive, tourism, and logistics.

Trade facilitation will be emphasised to reduce business-related transaction costs and to support the building of a competitive Asean. It is estimated that with more efficient facilitation measures, transaction costs could be reduced by 20 to 30 per cent.

Trade in services, which contributes about 60 per cent to Asean's gross domestic product, will be boosted with efforts to remove impediments to such trade by 2015 and promote the flow of skilled labour and professional talent through mutual recognition arrangements of qualifications in certain professional and technical fields.

A new comprehensive investment agreement will be concluded possibly by next year, which will provide more incentives and protection to all Asean-based investors.

The front left tyre represents the development of a competitive economic region where competition policy and intellectual property will become important elements so that a level playing field for all businesses and investors can be established. This will attract value-added industries with cutting-edge technologies to the region. E-commerce and infrastructure development will also be promoted to ensure efficient flow of economic activities.

The rear right tyre of the car represents equitable economic development, which will focus on bringing the less-developed Asean countries to speed up with Asean's integration so that they will reap benefits from economic integration.

Another area will be the development of the small and medium-sized enterprises, which account for about 90 per cent of all Asean businesses. They will need to be strengthened if they are to operate in a competitive environment and pursue value-added activities such as research and development and innovation to move up the value chain.

The rear left tyre symbolises the efforts towards full integration of Asean into the global economy and supply chain. This is in recognition of the fact that Asean depends more on external trade and investment, unlike the European Union.

Reuters also reports on ASEAN being set to sign a charter at the upcoming summit putting it on track for an "ASEAN Economic Community":

Southeast Asian countries are pushing ahead with regional free trade as they are scared of being left behind by Asia's economic powerhouses, China and India, government ministers told a conference on Sunday.

The Association of South East Asian Nations (ASEAN), set to sign a charter next week in a step towards economic integration by 2015, face challenges such as opening up strategic sectors to foreign competition, developing consumer-led economies and the regulation of their financial markets.

"This ASEAN blueprint is going to be our wedding certificate -- the cost of not integrating is like signing the death of Cambodia," said Cham Prasidh, Cambodia's commerce minister, at an ASEAN business and investment summit in Singapore.

The 10 ASEAN countries have a combined economy of $1 trillion, slightly bigger than India's, but delegates said production was often driven by multinational firms, many of which were moving manufacturing operations to China.

ASEAN aims to create a single market and production base with free flow of goods, services and investment, and freer movement of labor and capital, starting by eliminating trade barriers within a few years.

"We have a window of opportunity in the next three to five years to do this ... to compete with China and India," said Lim Hng Kiang, Singapore's trade minister.

The biggest worry was how to face up to overseas competition in protected sectors from agriculture to automobiles.

"How prepared are we to open up our economies?" said Mari Elka Pangestu, Indonesia's trade minister. "It all looks good on paper but there will be difficulties in implementation."

Business executives said these difficulties included the need for better governance, reducing corruption and more flexible labor laws.

Piyush Gupta, head of ASEAN markets and banking for Citigroup in Singapore, said leaders needed to start by focusing on the nuts and bolts of financial market integration, such as reducing the complexity of trading across markets, promoting cross-border equity issuance and a transparent rating system.

But a common currency like that in the European Union was unlikely.

"Given divergent economies, it's not on the cards in the 2015 timeframe," Gupta said, adding that other possibilities included currencies pegged to a currency basket or co-ordination between central banks.

Haruhiko Kuroda, president of the Asian Development Bank, said he expected ASEAN's high-tech goods exports and high-value services to increase in five to 10 years, but that developing a free ASEAN market and better higher education was crucial to making the region competitive.

"We are running behind but running fast," said Cambodia's Cham Prasidh.

A Mess: Exporting e-Waste to China

China's environmental woes are the topic of much discussion here and elsewhere. One of the things exacerbating these woes is the export of discarded electronic components from the West to China. Once this so-called e-waste gets to China, unsafe and environmentally unsound practices are being used to recover reusable materials. Worse, there is an element of exploitation in the Marxist sense as cheap labor is being used to do the--you guessed it--dirty deeds done dirt cheap. While there are international agreements supposedly governing the export of e-waste, they are easy to skirt at the right price. It's a straight-up application of environmental arbitrage: developed states have made it costly to dispose of e-waste on their shores, so it's easier to ship it elsewhere. Hopefully, it makes you think twice before chucking that computer in the dumpster. Make no mistake: planned obsolescence has an environmental cost. Here is Greenpeace's take on the export of e-waste...

E-waste is routinely exported by developed countries to developing ones, often in violation of the international law. Inspections of 18 European seaports in 2005 found as much as 47 percent of waste destined for export, including e-waste, was illegal. In the UK alone, at least 23,000 metric tonnes of undeclared or 'grey' market electronic waste was illegally shipped in 2003 to the Far East, India, Africa and China. In the US, it is estimated that 50-80 percent of the waste collected for recycling is being exported in this way. This practice is legal because the US has not ratified the Basel Convention.

Mainland China tried to prevent this trade by banning the import of e-waste in 2000. However, we have discovered that the laws are not working; e-waste is still arriving in Guiya of Guangdong Province, the main centre of e-waste scrapping in China...

And here is the Associated Press on the e-waste problem in China:

The air smells acrid from the squat gas burners that sit outside homes, melting wires to recover copper and cooking computer motherboards to release gold. Migrant workers in filthy clothes smash picture tubes by hand to recover glass and electronic parts, releasing as much as 6.5 pounds of lead dust.

For five years, environmentalists and the media have highlighted the danger to Chinese workers who dismantle much of the world's junked electronics. Yet a visit to this southeastern Chinese town regarded as the heartland of "e-waste" disposal shows little has improved...

This ugly business is driven by pure economics. For the West, where safety rules drive up the cost of disposal, it's as much as 10 times cheaper to export the waste to developing countries. In China, poor migrants from the countryside willingly endure the health risks to earn a few yuan, exploited by profit-hungry entrepreneurs.

International agreements and European regulations have made a dent in the export of old electronics to China, but loopholes - and sometimes bribes - allow many to skirt the requirements. And only a sliver of the electronics sold get returned to manufacturers such as Dell and Hewlett Packard for safe recycling.

Upwards of 90 percent ends up in dumps that observe no environmental standards, where shredders, open fires, acid baths and broilers are used to recover gold, silver, copper and other valuable metals while spewing toxic fumes and runoff into the nation's skies and rivers.

Accurate figures about the shady and unregulated trade are hard to come by. However, experts agree that it is overwhelmingly a problem of the developing world. They estimate about 70 percent of the 20-50 million tons of electronic waste produced globally each year is dumped in China, with most of the rest going to India and poor African nations.

According to the U.S. Environmental Protection Agency, it is ten times cheaper to export e-waste than to dispose of it at home.

Imports slip into China despite a Chinese ban and Beijing's ratification of the Basel Convention, an international agreement that outlaws the trade. Industry monitor Ted Smith said one U.S. exporter told him all that was needed to get shipments past Chinese customs officials was a crisp $100 bill taped to the inside of each container.

"The central government is well aware of the problems but has been unable or unwilling to really address it," said Smith, senior strategist with the California-based Silicon Valley Toxics Coalition, which focuses on the electronics industry.

The European Union bans such exports, but Smith and others say smuggling is rife, largely due to the lack of measures to punish rule breakers. China, meanwhile, allows the import of plastic waste and scrap metal, which many recyclers use as an excuse to send old electronics there.

And though U.S. states increasingly require that electronics be sent to collection and recycling centers, even from those centers, American firms can send the e-waste abroad legally because Congress hasn't ratified the Basel Convention.

The results are visible on the streets of Guiyu, where the e-waste industry employs an estimated 150,000 people. Shipping containers of computer parts, old video games, computer screens, cell phones and electronics of all kinds, from ancient to nearly new, are dumped onto the streets and sorted for dismantling and melting.

Valuable metals such as copper, gold, and silver are removed through melting and acid baths, while steel is torn out for scrap and plastic is ground into pellets for other use.

This is big business for those who control the trade. Luxury sedans are parked in front of elaborate mansions in downtown Guiyu, adorned with fancy names such as "Hall of Southernly Peace."

Many of those who do the dirty work are migrants from poorer parts of China, too desperate or uninformed to care about the health risks.

In the town of Nanyang, a few minutes drive from Guiyu, a middle-aged couple from the inland province of Hunan sorts wiring in a mud-floored shack. Such work, including melting down motherboards, earns them about $100 per month, said the husband, who answered reluctantly and wouldn't give his name.

Many houses double as smelter and home. Gas burners shaped like blacksmith's forges squat beside the front doors, their flues rising several stories to try to dissipate the toxic smoke.

Nonetheless, a visitor soon develops a throbbing headache and metallic taste in the mouth. The groundwater has long been too polluted for human consumption. The amount of lead in the river sediment is double European safety levels, according to the Basel Action Network, an environmental group.

Yet, aside from trucking in drinking water, the health risks seem largely ignored. Fish are still raised in local ponds, and piles of ash and plastic waste sit beside rice paddies and dikes holding in the area's main Lianjiang river.

Chemicals, including mercury, fluorine, barium, chromium, and cobalt, that either leach from the waste or are used in processing, are blamed for skin rashes and respiratory problems. Contamination can take decades to dissipate, experts say, and long-term health effects can include kidney and nervous system damage, weakening of the immune system and cancer.

"Of course, recycling is more environmentally sound," said Wu Song, a former local university student who has studied the area. "But I wouldn't really call what's happening here recycling."

Those who control the business in Guiyu are hostile to outside scrutiny. Reporters visiting the area with a Greenpeace volunteer were trailed by tough-looking youths who notified local police, leading to a six-hour detention for questioning.

Government departments from the provincial to township levels refused to answer questions. The central government's [State] Environmental Protection Agency did not reply to faxed questions.

Guiyu faces growing competition from other cities, notably Taizhou, about 450 miles up the coast in Zhejiang province. Meanwhile, collection yards have sprung up on the fringes of most major cities. The owners sell what they can to recyclers - most of them unregulated - and simply dump the rest.

Efforts to recycle e-waste safely in China have struggled. Few people bring in waste, because the illegal operators pay more.

"We're not even breaking even," said Gao Jian, marketing director of New World Solid Waste in the northeastern city of Qingdao. "These guys pay more because they don't need expensive equipment, but their methods are really dangerous."

The city of Shanghai opened a dedicated e-waste handling center last year, but most residents and companies prefer the "guerrilla" junkers who ride through neighborhoods on flatbed tricycles ringing bells to attract customers, said Yu Jinbiao of the Shanghai Electronic Products Repair Service Association, a government-backed industry federation.

"Those guerrillas are convenient and offer a good price," Yu said, "so there is a big market for them."

China to Expand Yuan Trading Band?

I do not have to spell out why this news matters in great detail. Among other things, the EU and US have already joined forces in China bashing and moves by the US to make the IMF police China's FX policy are all familiar to constant readers of the IPE Zone. Anyway, People's Bank of China (PBoC) Governor Zhou Xiaochuan dangled the carrot of widening the yuan's trading band (read: to allow faster RMB appreciation) at the G-20 meeting in Johannesburg, South Africa. Unlike the statements of Cheng Siwei which ruffled currency markets a few days ago, those of Zhou more clearly bear the mark of Chinese finance officialdom. Does China really intend to widen the band or is it just trying to keep a temporary lid on anti-Chinaism? We'll see. From Xinhua:

Chinese central bank chief said here on Sunday that China would consider widening its currency yuan's trading band if necessary though it is comfortable with current settings.

Zhou Xiaochuan, governor of the People's Bank of China, told a group of journalists in Cape Town shortly after the conclusion of the G20 meeting that "The floating band is okay for now. If necessary, we can consider to expand that. We're going to gradually enlarge the exchange flexibility."

However, he did not give a timeframe.

Shell, Chevron and Nigerian Bribery

The involvement of energy companies such as Shell and Chevron in oil-rich Nigeria has been a very contentious corporate social responsibility matter. Criticisms leveled against them include being complicit in environmental degradation and human rights violations. That the Ogoni people whose lands have created so much oil revenue continue to see little to no benefit from these proceeds has been a cause celebre for the longest time. Meanwhile, the state execution of Ogoni environmentalist Ken Saro-Wiwa in 1995 reinforced perceptions that energy companies were indifferent to environmental and human rights abuses in Nigeria. Have these companies learned to tread more carefully given the bad press they have gotten from Nigeria? Unfortunately, the Financial Times notes that Shell and Chevron have once again been implicated, this time with bribing a powerful Nigerian politician. Same old, same old...

Anti-corruption investigators are probing payments by ChevronTexaco and Royal Dutch Shell to a company owned by a powerful Nigerian politician they suspect has laundered tens of millions of dollars in British banks, property and cars.

James Ibori, who was governor of Delta State until last May, is being investigated by British and Nigerian authorities over sums he is alleged to have accumulated during his years in office.

A UK court affidavit seen by the Financial Times says there is reasonable cause to believe Mr Ibori bled money from his oil-rich state and bought assets including a $20m jet, houses in London and Dorset, and a €406,000 ($595,460) armour-plated Mercedes-Benz from a Mayfair dealership.

The affidavit was drawn up in July by British police investigating corruption by foreign officials in the UK as part of a successful legal effort to restrain Mr Ibori’s assets. On Thursday, the High Court threw out an attempt by Mr Ibori to have the freezing order quashed.

The affidavit highlights a number of British bank accounts, including some at Barclays and one at Abbey National, suspected of being used by Mr Ibori or associates involved in money laundering. Barclays and Abbey declined to comment.

The document says police are examining £2.3m ($4.7m) of payments made over the past three years by ChevronTexaco and the state-owned Nigerian National Petroleum Corporation into a dollar-denominated Barclays account in London held on behalf of MER Engineering, a company owned by Mr Ibori.

The affidavit says the “purportedly legitimate” payments were for the rental of two houseboats for oil workers, although it suspects the transfers were “corrupt payments rather than in exchange for legitimate services”.

Nuhu Ribadu, chairman of Nigeria’s Economic and Financial Crimes Commission, which has worked closely with the British investigators, told the FT he was “investigating huge payments made by Shell and Chevron to MER Engineering” over the hiring of the houseboats.

Chevron confirmed it had hired two houseboats from MER, but declined to give more details. It said it believed it had complied with anti-corruption laws.

Shell said MER was on its register of approved contractors. It declined to elaborate on the amount and type of work done by MER.

NNPC said it never paid bribes. Mr Ibori and his London lawyer could not be reached for ­comment.

Currency shenanigans the world over

A mark, a yen, a buck or a pound
Is all that makes the world go 'round
That clinking clanking sound can make the world go 'round...

Countries fighting over the value of money: what can be better international political economy fodder than that? As Liza Minnelli and Joel Grey sing, money makes the world go 'round. The recently held G-20 in Johannesburg may have served to illustrate the growing clout of non-G-7 players like India and Saudi Arabia. The communique from the get-together speaks of reforms necessary throughout the world, including "greater exchange rate flexibility in a number of surplus countries" (take that, China):

We also agreed that an orderly unwinding of global imbalances, while sustaining global growth, is a shared responsibility involving: steps to boost national saving in the United States, including continued fiscal consolidation; further progress on growth-enhancing reforms in Europe; further structural reforms and fiscal consolidation in Japan; reforms to boost domestic demand in emerging Asia, together with greater exchange rate flexibility in a number of surplus countries; and increased spending consistent with absorptive capacity and macroeconomic stability in oil-producing countries.

Next up, the world's agitator du jour Hugo Chavez is calling for other countries to start pricing their wares in currencies other than declining US dollars, only to be rebuked by Saudi authorities who are nominally US allies:

King Abdullah of Saudi Arabia said OPEC shouldn't make oil a source of conflict, contradicting Venezuelan President Hugo Chavez who wants the oil exporter group to become an active ``political agent.''

``Oil is an energy for building and prosperity, it shouldn't become a means of conflict,'' King Abdullah said at the start of the group's heads of state summit in Riyadh today. ``Those who want OPEC to become an organization of monopoly and exploitation ignore the truth.''

The Organization of Petroleum Exporting Countries, provider of more than 40 percent of the world's oil, is holding its third heads of state summit since it was founded in 1960. The Saudi foreign minister clashed yesterday with a push by Iran and Venezuela to debate pricing oil in currencies other than the U.S. dollar.

``OPEC was born as a geopolitical force and not only as a technical or economic one in the '60s,'' Chavez said, speaking before King Abdullah. ``We should continue to strengthen OPEC, but beyond that, OPEC should set itself up as an active political agent.''

The contrasting view on OPEC's role in the world comes a day after a disagreement between Venezuelan Oil Minister Rafael Ramirez and Saudi Foreign Minister Prince Saud Al-Faisal on whether to move away from the dollar was accidentally broadcast on live television.

Lastly and on a related note, various Middle East states are said to be thinking of whether to revalue their currencies and then re-peg them to the US dollar. (Weird half-baked move compared to moving to a currency basket, but it's only conjecture at this point in time.) Pegging to the falling dollar has meant importing unwanted inflation in Middle East economies:

Gulf states, including Saudi Arabia and the United Arab Emirates, may revalue their currencies while maintaining their pegs to the U.S. dollar, a person familiar with Saudi monetary policy said.

The states may revalue by an unspecified amount in as soon as a month's time, said the person, who declined to be identified because the matter is confidential. No decision has been made on whether to revalue, he said. Evidence has been gathered and will be presented to policy makers, he said, without giving details.

Saudi Arabia, Qatar, Bahrain and Oman have repeatedly said they have no plans to change exchange rate policies. U.A.E. Central Bank Governor Sultan Bin Nasser al-Suwaidi said on Nov. 15 the U.A.E. may drop the dirham's peg in favour of a basket of currencies. Gulf currencies are under pressure as investors bet governments cannot manage inflation and keep their pegs.

Heads of state from the six Gulf Cooperation Council states will hold their annual meeting in Qatar on Dec. 3-4 where they will discuss monetary policy and security. The person did not specify if a decision would be made at the meeting.

The leaders will, though, take a decision on whether to abandon a proposed Gulf single currency at the meeting, Hamad Saud al-Sayari, governor of the Saudi Arabian Monetary Agency, said after a meeting of finance ministers and central bank governors in Riyadh on Oct. 27.

Try Some Political-Economic Poetry

You often get interesting stuff in the comments section. This poem by reader "imsmall" is my choice for the most entertaining comment so far in 2007. To me, it's rather amusing and topical. Read it and see if it accurately reflects heady times in America fueled by Chinese lending. Or, as Paul Krugman once wryly noted, nowadays "Americans make a living selling each other houses, paid for with money borrowed from the Chinese." Now that the housing bubble has burst, well, you end up with...

FAST WEALTH AND BITTER BREAD

The oil prices start to soar
While Real Estate has hit the floor,
The Stock Market is jittery,
The future prospects bitterly
Surveyed on Wall Street and Main Street,
As all alike know they must eat
Their bitter bread, their bitter bread,
Who let fast wealth get to their head.

So China props the dollar up,
But will not fill your beggar´s cup
When she determines not to prop you--
So will not common sense then stop you
From your spendthrift indulgences?
No priest nor prophet comes to bless
Your bitter bread, your bitter bread,
Who let fast wealth go to your head.

It was a fond, elusive dream,
Illusory as it would seem,
But, though superb ambitions went
Before, it was all fraudulent,
This hope, sans rolling up one´s sleeves
To profit--them delusion leaves
But bitter bread, such bitter bread,
Who let fast wealth fill all their head.

West Says "China, Play Fair!" x4

Oh dear, it's all China all the time now as the EU and the US hyperventilate over surging bilateral deficits with the Middle Kingdom. First up is this article on how Chinese regulations which appear to take aim at foreign goods have become a point of contention. While China has used similar industrial policies in the past, its membership in the WTO means that such policies cannot be used as widely as before without risking discrimination against foreign producers:

Few American industries have had more success in selling goods to China than makers of medical devices like X-rays, pacemakers and patient monitors. Which is why a recent Chinese decree was so troubling.

The directive, issued in June, called for burdensome new safety inspections for foreign-made medical devices — but not for those made in China. The Bush administration is crying foul.

Even more worrisome to the administration is that the directive seems part of a recent pattern in which Chinese officials issue new regulations aimed at favoring Chinese industries over foreign competitors, despite efforts by Treasury Secretary Henry M. Paulson Jr. to ease economic tensions...

"I can't tell you how many companies have come up to me — software, chemicals, autos — who say they're concerned about the trend," said a senior administration official, speaking anonymously to avoid antagonizing the Chinese. "We're very troubled about the long-term direction on some of these policies."

The American concerns are shared in Europe, which like the United States, is growing more upset about the trade deficit with China.

"What we're seeing are growing industrial interests lobbying state authorities in China and giving them preferential treatment," Peter Mandelson, the top trade envoy of the European Union, said in an interview. "The result is clear discrimination against foreign companies."

"There is clearly a growing economic nationalism in China that is leading to discrimination against foreign investors in pillar sectors of the economy," said Myron Brilliant, vice president for Asia at the United States Chamber of Commerce. "It's not only a threat to foreign investors but it also undermines China's transition to a market-based economy..."

Beyond the medical device sector were many other examples cited in a report in September by the Chamber of Commerce, drawing on the experience of businesses operating in China.

China, said the report, had become "increasingly sophisticated at developing and wielding industrial policies" in procurement, standards and antimonopoly laws to the disadvantage of foreign investors and importers. Among the examples cited are standards for wireless technology, mobile phones and mobile phone batteries that favor Chinese companies, as well as antimonopoly laws that exempt Chinese government enterprises...

The American medical device industry, according to some China experts, may be a victim of retaliation by some Chinese authorities because of complaints by the United States over unsafe and dangerous exports of Chinese products.

Second comes news that the EU's trade deficit with China through the first eight months of 2007 has gone up by 25% compared to the same period last year, partly due to the euro appreciating by 7% against the yuan:

Europe's trade deficit with China surged 25 percent in the eight months through August, giving European and U.S. officials more reason to pressure China to let its currency trade freely.

The euro-area trade gap with China widened to 70 billion euros ($102 billion) from 55.9 billion euros in the year-earlier period, the European Union's statistics office in Luxembourg said today. China's yuan has dropped 7 percent against the euro in the last year, fueling tension over the growing imbalance...

``There is a point of agreement between the Europeans, the Americans and the Japanese on the Chinese yuan,'' said Dominique Barbet, an economist at BNP Paribas in Paris. ``But even if Chinese authorities do revalue over a period of time, this will not greatly change the competitive position of China.''

China's export growth is dominated by products including electronics, toys and textiles, while euro-area economies such as Germany, the region's largest, are reliant on machinery and heavy equipment, according to Barbet, lessening competition between the economies.

Next, even Bank of England Governor Mervyn King has joined ECB President Jean-Claude Trichet and US Treasury Secretary Hank Paulson in demanding faster RMB appreciation:

Bank of England Governor Mervyn King is joining Jean-Claude Trichet and Henry Paulson to demand that China allow the yuan to strengthen at a faster pace.

King, usually reluctant to address exchange rates, used his quarterly press conference to warn that China is stoking ``great currency tensions.'' He said the issue will be discussed at this weekend's meeting of officials from the Group of 20 nations near Cape Town. Trichet, head of the European Central Bank, insisted last week that China meet its ``global responsibilities,'' and Treasury Secretary Paulson called Beijing ``out of step with the rest of the world.''

King's remarks reinforce a shift in rhetoric from officials of the largest economies as concern mounts that China isn't shouldering enough of the dollar's slide, garnering an unfair advantage for its exporters. While the yuan has risen about 5 percent against the dollar this year, it has dropped by the same amount against the euro.

``It's a pretty hot topic for all of them now,'' said Dominic White, an economist at ABN Amro Holding NV in London. ``Policy makers were hoping that the currency shifts needed for the rebalancing of the global economy would happen more gradually and over a longer period.''

Also coming up is the G-20 meeting in Johannesburg, South Africa where developing countries (including China) and developed countries (including the US and EU members) will discuss international financial matters. In self-interest, developing countries will likely support China's argument that a gradual appreciation is necessary not to rock China's boat and that of other developing countries:

But according to currency and policy analysts, it will be difficult to convince the rest of the G-20, which includes China as well as other rising economies like India, Brazil, South Africa and Russia.

China has a track record of firmly resisting such pressure, and some of its neighbors in Asia, especially, would suffer from a stronger yuan. Yet the weak dollar, which is hovering near an all-time low against the euro, has prompted top officials to search for the right balance of soothing public messages and private persuasion to calm markets and usher in longer-term stability so that global trade is not disrupted by volatile exchange rates...

The United States and Europe will probably make their case privately in South Africa, and virtually no one expects quick agreement there...

Perceived European-American bullying, unpopular in global trade talks and probably less so among financial officials, always strikes a sensitive nerve, said Jen, the Morgan Stanley analyst. And not everyone would necessarily welcome a stronger Chinese currency, others pointed out.

A stronger yuan would probably mean a weaker currencies in Indonesia, South Korea and Malaysia, raising the price of imported goods from China and worsening inflation at a time when prices are on the rise globally.

What's more, the rest of Asia has profited tremendously from China's rise, even as it has eyed its growing power with a touch of nervousness. The rest of the world, in short, may not be as keen as the United States and Europe to fiddle with a system that has generated unprecedented prosperity.

"They are facing a conflict of their own policy of objectives, even if they did want to see the Chinese revalue upwards," said Adam Cole, global head of foreign exchange strategy at RBC Capital Markets in London. "And I'm not sure they want that nearly as much as the G-7."

A Quartet of Globalization Stories

The current issue of TIME has four stories on globalization that should be of much interest. They concern (1) faster African growth; (2) the emergence of Argentina, Brazil, and Chile (ABC) as regional economic heavyweights; (3) Big Pharma seeking its fortunes in China; and (4) Denmark's relaxed, pragmatic attitude towards globalization. It's all good stuff. First, here is a potentially heartening tale about how higher economic growth is at long last happening in the African continent. (The World Bank has also noted the improving growth prospects for Africa with its recently released publication the Africa Development Indicators 2007, though fortunes of various countries there remain somewhat mixed):

Two African entrepreneurs; two very different stories. Together they illustrate the promise and pitfalls of business on the world's second fastest-growing continent. Africa? That's right. In October, the IMF predicted that sub-Saharan Africa's real GDP will grow 6.75% in 2008, versus 7.2% in Asia, 3.2% in Europe and 1.9% in the U.S. Growth rates in several African countries evoke the Asian tigers of two decades ago, prompting keen international interest. In October, London-based New Star Asset Management announced the creation of a $200 million Heart of Africa Fund.

Second, TIME describes how Latin American countries Argentina, Brazil, and Chile have emerged as economic powerhouses in the region by taking disparate paths:

Although Latin America attracts nowhere near the foreign direct investment (FDI) that Asia or even Eastern Europe does, competitiveness is on the rise among South America's ABC countries--Argentina, Brazil and Chile. Like most other Latin countries, the ABCs were pulled on the economic torture rack during the 20th century between socially negligent capitalism and fiscally profligate populism. But today they lead a potent common market, Mercosur. (Chile is an associate member.) And while each has a leftist President--Chile's Michelle Bachelet is also a socialist--the ABCs are spelling a model, "pragmatic socialism," says Jerry Haar, an international-business professor at Florida International University in Miami and a co-author of Can Latin America Compete? "They're managing the precarious balancing act between Milton Friedman and Santa Claus," says Haar, "drawing both to a more globally competitive middle."

Third, I have been following for quite a while now Big Pharma's efforts to reinvent its business model and perhaps rely less on blockbuster drugs sold in the West for revenues. Unsurprisingly, Big Pharma is now setting its sights on China where there are plentiful medical researchers and patients to test new formulations with. Importantly, drug trials can be done in China more cheaply, though there are once again CSR issues here. China should also become a large market in itself:

Asia has become the next frontier for pharmaceutical firms desperate to find their next blockbuster drug while keeping research costs low. In 2006, big drug companies doubled R&D investment in China and India over the previous year, to $2.2 billion. Nearly all of that went into China, thanks to generous government support and strong infrastructure. Beijing wants to attract more than 2% of the world's R&D budget, or about $10 billion, by 2010...

China isn't just a huge laboratory; it is the world's seventh largest Rx market and rising. Last year's sales of $13.6 billion are expected to double by 2010. With an aging Chinese population increasingly plagued by cancer, diabetes and heart disease, "we're incredibly bullish on the marketplace possibilities," says Liam Condon, president of Bayer Healthcare China, which recently doubled the capacity of its Beijing factory. "We are going to launch over 20 new products in the next five years," he says.

Fourth and perhaps most interesting for European and American readers is the cool "don't sweat it" attitude our Danish friends have taken to globalization. Instead of fighting the forces of globalization tooth and nail, the Danes have chosen a more pragmatic attitude in ensuring that the benefits of globalization accrue to the country. Of course, this is a highly specific example that will be hard to replicate elsewhere--small, homogeneous population and all that--but it's worth reading about nonetheless for clues:

Last year Danish toymaker Lego announced plans to outsource most of its manufacturing to Eastern Europe and Mexico. Of 1,200 blue collar jobs at Lego's headquarters in the town of Billund, only about 300 would remain.

You might think this would make union leaders at Lego hopping mad. You'd be wrong. "We thought it was the best way to keep as many workers' places in Denmark as possible," maintenance man and union shop steward Poul Erik Pedersen tells me. "We aren't against the management. We want to make sure that they make money and we make money." Then, unprompted, he takes the argument a step further: "There are some good things about outsourcing. Where the jobs go, the standard of living is growing, and then they can afford to buy more Legos or other things from the West."

In most of the developed world, globalization is a deeply fraught topic. Not in Denmark. There, 76% of respondents in a recent poll said globalization was a good thing. And why shouldn't they? Living standards in Denmark are among the highest in the world. Per capita income trails that of the U.S. but is distributed far more equally. Unemployment is just 3.1%. The country exports more goods and services than it imports. And while only two Danish corporations (shipper A.P. Moller-Maersk and the Danske Bank) are big enough to make the FORTUNE Global 500 list, Denmark has more than its share of smallish, nimble, outward-looking firms well positioned in growth areas ranging from alternative energy to health care to high-end furniture.

Merrill Lynch Toots Its Own Horn

I was kind of surprised to see the Merrill Lynch ad to the left while visiting the Financial Times website. You are probably familiar with the trials and tribulations at the Wall Street giant, from massive write-downs to the resignation of CEO Stan O'Neal. The ad was probably intended to shore up investor confidence in M-L, though some things strike me as odd. First, the funereal colors of the ad do not seem to jibe with the presumably upbeat mood M-L wants to convey. Second, it is unclear to me why M-L would have to make such an ad if things were so hunky-dory. Is the firm readying folks for another round of write-downs? I suspect this may be the case. Below is the message which this ad links to, and you can also view another message aimed at shoring up the confidence of retail investors. The line of reasoning here goes like this: everyone else on Wall Street is losing money, so why single us out even if we're the ones who've declared the most write-downs to date?

These have been a challenging few months, not just for Merrill Lynch but for many companies around the financial industry. But our strength as a company suggests any setbacks will be overcome.

Our financial position and liquidity remain strong. And everywhere we look, the people of Merrill Lynch are bringing extraordinary value to our clients, and producing the strong growth that goes along with it. Even with adverse mortgage-related results in the third quarter, the company's net earnings totaled $2 billion and net revenue totaled $20 billion for the first nine months of the year. Our global private client, investment banking, and equity markets businesses all had record revenues for the same period. And we continue to drive some of the most significant, innovative and leading financial transactions in the industry.

Time and again in our 93-year history, we have survived tumultuous times and tough markets and emerged the stronger for it. It's worth remembering that less than a decade ago the economy and financial industry suffered an unprecedented series of shocks - the Asian currency crisis of 1997/1998, followed by the bursting of the dot-com bubble in 2000, followed by 9/11. Then, as now, the people of Merrill Lynch rallied together, and in the years following 2001 the company produced five straight years of exceptional growth.

What the people of Merrill Lynch do in challenging times is precisely what we do in less challenging times: focus on identifying opportunities to create wealth and make a meaningful difference in the lives of our clients. We try to remember that investing is not a sprint, but a marathon, that over the long term patience is invariably rewarded. The symbol on this page is not just a corporate logo. It represents the philosophy of Merrill Lynch, an embodiment of the pride, strength, integrity and optimism that have driven the company for nearly a century, and will continue to do so far a long time to come.

PBoC: China Still (Hearts) US Dollars

The People's Bank of China (PBoC) reaffirmed yesterday that the US dollar will "remain the anchor currency" of their country's massive forex reserves to counteract earlier suggestions by Cheng Siwei, vice chairman of the Standing Committee of the National People's Congress, that China should diversify out of the falling dollar. Cheng's statement caused a stir last week in currency markets as traders bid up the euro and sold the dollar in response. This pattern is becoming something of a regularity that I'm wondering if it's planned. First, some official who is not necessarily charged with China's financial affairs bemoans the accumulation of rapidly declining dollars. Then, forex traders make a knee-jerk reaction of selling greenbacks. After a while, the PBoC steps in and says that such statements are mere "opinion." Are the Chinese testing the waters for a large USD sell-off? You never know. From China Daily:

The US dollar will remain the anchor currency of China's massive foreign reserves despite suggestions that the country is too heavily skewed toward the weakening greenback, a senior Chinese central bank official said Wednesday.

Yi Gang, the assistant governor of the People's Bank of China, said the dollar had to continue as key component of the country's 1.4 trillion dollar reserves because it was "the largest currency that we use" in terms of trade and foreign direct investment as well as financial clearances and settlements.

"It is also a very firm policy for China that the US dollar is the main currency in our reserves and that policy is very firm," he said to a question at a forum in Washington.

Yi said recent suggestions that Beijing shift its largely dollar-based reserves toward presently stronger currencies, like the euro, were mere "opinion."

"There is some discussion or comment from maybe scholars, maybe other persons in China in terms of 'there is huge amount of adjustment of reserves.'

"I think that probably is opinion ... if they want to express their opinion, that will be fine, we consider it, we listen (to) it but that does not change our policy," Yi said at a monetary conference organized by Washington-based CATO Institute.

Amid weakening of the dollar, Cheng Siwei, vice chairman of the Standing Committee of the National People's Congress of China, the parliament, said earlier that strong currencies ought to be given more weight in the Chinese reserves to offset the losses in weak ones...

Yi said while the Chinese central bank diversified the major currencies making up its reserves, "the point is the principle for our diversification and the principle that guides us for these reserves is that it should be proportional to our real economic transactions -- meaning trade, FDI (foreign direct investment) and clearance and settlement."

China's forex reserves, which overtook Japan's for the world's top spot in early 2006 and topped US$1.43 trillion in late September, have been boosted especially by the nation's trade surplus.

About 70 percent of its foreign reserves is generally believed to be held in US dollar-denominated paper, principally US government bonds.

This has proven a less-than-ideal investment, not just due to the low yields on government debt, but also the weakening of the US currency.

Will Unions Break Sarko's Balls Too?

There comes a time in every person's life when he or she must dig deep, buckle down, and hold fast to principle. French PM Nicolas Sarkozy is now facing the challenge of standing up to militant public sector unions whose members have been accorded privileges that strike us in the rest of the world as distinctly bourgeois, like being able to retire with a full pension upon reaching the advanced age of, er, fifty. Hence, it's hard to portray this as your typical "class struggle" when labor gets such cushy privileges. Still, militant unions are a longstanding feature of the French political economy. Several other politicians have tried to reform generous pensions but have fallen by the wayside as unions displayed their might. Now it's Sarkozy's turn as he reckons with the questions of reform: If not now, when? If not us, who? Widespread strikes have been called, causing the French transportation system to come to a grinding halt:

France has suffered travel chaos after transport and energy workers broadened a strike in protest against President Nicolas Sarkozy's pension reform.

Rail services were severely disrupted and energy production reduced in the open-ended action over cuts affecting some 500,000 public sector workers. Unions have vowed to extend the strike into Thursday...

Nationwide, fewer than a quarter of trains ran normally and only 90 of the country's 700 high-speed TGV trains were operating.

Just one in five subway trains on the Paris metro were in service and only 15% of bus services were running.

Transport managers promised marginal improvements on Thursday but warned of more severe disruption.

Still, the French public appears sympathetic to Sarkozy on the matter and not the unions which have inconvenienced them:

Mr Sarkozy's contention that he, unlike the protesters, has a popular mandate does not sound incongruous to many of his countrymen.

This leads to the second point in Mr Sarkozy's favour - most voters regard the special pension regimes as privileges that should be scrapped.

An opinion poll published on Wednesday suggests that 58% of French people feel the government should stand firm. Only 34% want it to back down.

Mr Sarkozy himself remains popular, with 55% of those surveyed voicing support - more than his score in May's presidential election.

I previously put up a post on the CGT leader Bernard Thibault. Union membership is down in France, though it is still quite strong in the public sector as you can see. The battle lines are drawn as they have been time and time again. Will Sarkozy be successful when all his predecessors have failed? Burdening the state with onerous pension costs is not a viable long-term strategy. France's notoriously bad labor relations are juxtaposed with the French public's desire to see reforms through:

But although he can claim a mandate for change after his victory in May, his plans to shake up the public sector pension system have provoked an all-out response from transport unions.

This level of militancy comes as little surprise to long-time observers of the French industrial scene.

But even they may be shocked at the full extent of the country's simmering workplace tensions.

In the run-up to this year's voting, analysts at the World Economic Forum (WEF) gave France the worst possible rating in the category of "co-operation in labour-employer relations" - that is, how workers get on with their bosses.

Last year's WEF Global Competitiveness Report found that in this respect, France was bottom of the league out of 125 countries surveyed, giving it the most confrontational workplace environment in the world.

In recent weeks, the new 2007-2008 edition of the report has been published. So have French labour relations become any more harmonious?

In a word, no. The latest WEF survey covers 131 nations, not 125. But France is still languishing on the lowest rung, in 131st place...

This time, Mr Sarkozy points out that he campaigned on precisely these issues - and he sees his victory as strong backing for these changes.

"The French people approved these reforms," he says. "I told them all about it before the elections, so that I would be able to do what was necessary afterwards."

That seems to be backed up by opinion polls - but the trade unions know that in this battle, their prestige is on the line just as much as Mr Sarkozy's.

PM Brown, Xenophobia & Football

Like many others here in Great Britain, I was honestly appalled when Gordon Brown made a statement on creating "British jobs for British workers." Rest assured that xenophobia didn't need a boost before this latest quip from Brown. For instance, current Conservative leader David Cameron came up with the Tories' 2005 campaign motto of "Are you thinking what we're thinking?" helpfully subtitled "it's not racist to impose limits on immigration" (see vandalized billboard). There's also the ultra-nationalist British National Party (BNP) to contend with. What more can I add? It's a classic political ploy of "blame the other" at work. As much as Brown spins "British jobs for British workers," it's pretty hard to get away from the underlying message which varies little from that of "Dave the Chameleon" and the BNP. Brown now says:

"I am persuading British companies - our retailers, our manufacturing companies - to offer jobs to those people on the unemployment register who are inactive at the moment.

"If you have got 600,000 vacancies and you have got British people who are on the register as unemployed, the challenge for us is to match the jobs that are available to the workers without jobs. That must be a priority for any government.

"I think what is going to happen over the next few years is that increasingly our retailers are going to turn to the inactive register and say "Look, here are single parents, here are people on incapacity benefit, here are people who are unemployed, and we want to give them the chance of a job. Nobody is discriminating against anybody in doing so."

As if Brown had not gotten himself in enough hot water over "British jobs for British workers" even in his own party, the Guardian now points out that Brown wants "British players for British [football] clubs." As you probably know, wealthy club owners have splurged on hired guns from elsewhere to play in the English Premier League. While you may not see a fault with providing fans with the best players from around the globe to watch, many now claim that the English national squad does not fare well in international competition because English sides are filled with furriners and not local boys. Hence, the latter do not stand up to the rigors of top-flight competition. If England doesn't qualify for Euro 2008, expect even more rumblings of discontent. Another big humbug from me, but you can make up your own minds...

The Premier League is in discussions with Downing Street over ways in which it can increase the number of home-grown players appearing regularly for England's leading clubs.

Discussions have begun with senior advisers to the prime minister and James Purnell, the culture secretary, to try to develop a consensual "British solution" to the apparent decline in the number of British and Irish players in the nation's top sides. The Premier League is acutely aware of the criticism that will flow its way over the issue if England fail to qualify for Euro 2008. In the past 10 days Michel Platini, Uefa's president, has criticised the large overseas presence in the English game, singling out Arsène Wenger for failing to select English players at Arsenal.

The Fifa president, Sepp Blatter, meanwhile, has proposed a quota system that would limit the number of foreign players in club sides, a plan that has the support of the Manchester United manager, Sir Alex Ferguson.

Downing Street has been hugely supportive of the Premier League in recent months, and while advisers to Gordon Brown share some of the concerns at the overseas presence in the English game, they are keen that any measures reflect the realities of the Premier League, which has based its success on its international flavour. They are also determined to tread carefully, and are mindful of the sports minister Gerry Sutcliffe's recent interventions on the issue of player wages, and the Chelsea captain John Terry's in particular, which went down almost as badly in Downing Street as at Stamford Bridge.

The Premier League opposes the various quota proposals that have been floated by Uefa and Fifa. From next season Uefa will require all Champions League and Uefa Cup entrants to include eight home-produced players in their squads of 25 players, but there is no compulsion for any of them to play or appear on the bench.

Blatter's proposal, meanwhile, is that six of any starting XI be eligible to represent the country in whose national association their club plays. This is considered unworkable by the Premier League under European law, and there are anomalies between the systems. Owen Hargreaves, for example, would not count as home-grown under Platini's plan as he learnt his football in Germany, but he would qualify under Blatter's.

The alternatives under discussion at Downing Street are unlikely to be as prescriptive. The Premier League will resist attempts to limit its clubs' competitive edge in the European game, and No10 is wary of applying conditions to sport that step outside European and national law.

The Premier League is willing, however, to examine the issue of coaching, which it feels has a major role to play in the relative skills of English and overseas players. There is a view that an emphasis on teams and results at the expense of individual skills may play a part in the relative attributes of players from the UK and the continent, and the league will look to address this in consultation with the FA and the Football League, to whom it now contributes significant money.

They will also examine measures that would help English players being usurped by overseas talent in the 14 to 16 age groups in club academies. The league is treading with great care as it is reluctant to open the door to unwelcome regulation of the game, but will concede some ground to ensure that it retains the invaluable support of government going forward.

Some Site Enhancements

Dear readers, in my relentless quest to improve your site viewing experience [dramatic flourish], I have added some site enhancements [yay!?] First, I have changed the search engine from the default Blogger search to a Google custom search engine. The new, improved search feature is on the right hand column and is entitled "Search IPE Zone." Try it out. I've even managed to incorporate the IPE Zone logo of a stylized "Z" that took me, oh, about five minutes to make on an icon creator site somewhere. Fun stuff.

Second, I've neglected to mention this for the longest time, but I've added the [pretty, color-coordinated] Snap tool which pops up whenever you hover over a link to somewhere outside of the IPE Zone. It helps you get a sense of where I'm linking to before you go there. Whenever I link elsewhere and especially to large PDF files, I think it's good to let users know what on earth I'm linking to. Also, it comes in handy whenever I link to podcasts (like this summary from the Economist) or video clips (like this one from WEF) which can be played in the Snap bubble without leaving the site. If you'd rather do without the Snap tool, click on the gear icon in the upper right hand corner when the bubble pops up and select "Disable."

Last, I'm still looking for a three-column layout to replace my current two-column layout. I've noticed that most visitors run at better than my 1024x768 resolution, leaving a lot of empty space on the margins for those with higher resolutions. If you have suggestions on where to find a good 3-column Blogger Beta layout, do drop me a note. Thanks!

PRC on US Arms Sales to Taiwan

China's "internal" and "splittist" foes are well-known: that depraved Tibetan agitator the Dalai Lama and Taiwanese President Chen Shui-Bian. Recently, there have been talks about Taiwan purchasing nearly a billion dollars' worth of Patriot II anti-missile systems from the US after an earlier deal for Orion P-3 anti-submarine aircraft. Like night follows day, the PRC is once again bellyaching about how these armaments may embolden Taiwan to declare independence. That Chen Shui-Bian is keen on the political gimmick of offering a referendum on whether to join the United Nations as "Taiwan" doesn't help things, either. Chinese news agency Xinhua has the official (and rather hysterical, if I may add) take on the matter:

China on Tuesday urged the United States to immediately cancel arms sale programs, stop arms sales and military links with Taiwan.

Spokesman Liu Jianchao made the remarks when asked to comment on US Department of Defense's recent announcement of planning to sell 3 sets of Patriot II anti-missile equipment upgrade systems and affiliated equipments worth of $939 million to Taiwan.

China firmly opposes to arms sales by the US government to Taiwan, and had already raised strong objection and solemn representations to the United States, said Liu, noting that this has been a consistent and clear stance of China.

China urged the United States to take actual actions to carry out the three China-US joint communiques, honor its commitment made to China on the issue of Taiwan, and stop sending any misleading signals to the separatist forces seeking for Taiwan Independence, Liu said, affirming that China reserved rights for taking further measures.

Regardless of China's solemn stance and firm opposition, the United States took wrong actions in a row to sell the the P-3C anti submarine warfare aircraft, the Patriot II antimissile equipment upgrade systems and other advanced weapons, Liu said.

Such wrongdoing severely violated the US government's commitments made to China in the joint communique signed between the two countries on August 17, 1982, rudely interfered in China's internal affairs, endangered Chinese national security and peaceful unification, also disturbed the improvement and development of China-US relations, Liu stressed.

Noting that the Taiwan situation is highly complicated and sensitive, Liu said Chen Shui-bian's obstinate promotion of a "referendum" on Taiwan's bid to enter the United Nations, seeking membership in the UN under the name of Taiwan as well as other separatist activities attempting for Taiwan independence seriously threatened the peace and stability across the Taiwan Straits.

Let's parse the Chinese statement more closely. What exactly does the US-China communique from 1982 say? Here are the pertinent points:

(2) The question of United States arms sales to Taiwan was not settled in the course of negotiations between the two countries on establishing diplomatic relations. The two sides held differing positions, and the Chinese side stated that it would raise the issue again following normalization. Recognizing that this issue would seriously hamper the development of United States - China relations, they have held further discussions on it, during and since the meetings between President Ronald Reagan and Premier Zhao Ziyang and between Secretary of State Alexander M. Haig, Jr. and Vice Premier and Foreign Minister Huang Hua in October 1981.

(5)...Having in mind the foregoing statements of both sides, the United States Government states that it does not seek to carry out a long-term policy of arms sales to Taiwan, that its arms sales to Taiwan will not exceed, either in qualitative or in quantitative terms, the level of those supplied in recent years since the establishment of diplomatic relations between the United States and China, and that it intends gradually to reduce its sale of arms to Taiwan, leading, over a period of time, to a final resolution. In so stating, the United States acknowledges China's consistent position regarding the thorough settlement of this issue.

(6) In order to bring about, over a period of time, a final settlement of the question of United States arms sales to Taiwan, which is an issue rooted in history, the two Governments will make every effort to adopt measures and create conditions conducive to the thorough settlement of this issue.

While (2) is noncommittal, (5) seems to suggest that the US would gradually lessen its arms sales to Taiwan while at the same time implying that the US would continue to supply Taiwan with armaments on the "level of those supplied in recent years" in reference to the post-1979 reestablishment of diplomatic ties with China. You can read it both ways. US Secretary of Defense Robert Gates recently reassured Chinese President Hu Jintao that the US would not endorse moves towards Taiwanese independence. It's a tricky matter that the US probably would rather not get caught in the middle of. After all, the Taiwan Relations Act of 1979 which is actually a law and not a mere communique indicates a broader role for the US in the defense of Taiwan should hostilities break, say, across the Taiwan Strait. Actually, the relevant provisions of this act are consistent with the ROC's purchase of anti-missile and anti-submarine systems in being of a "defensive" nature:

(5) to provide Taiwan with arms of a defensive character; and

(6) to maintain the capacity of the United States to resist any resort to force or other forms of coercion that would jeopardize the security, or the social or economic system, of the people on Taiwan.

Coming in 2008: An Urbanized World

Welcome, fellow earthlings, to the age of the city dweller. According to this article in the IMF publication Finance & Development, 2008 should mark the first time in history that more folks will live in urban than in rural areas. Yes, there are issues as to how various nations differentiate urban from rural, but the urbanization trend is clear especially in the world's biggest nations--China and India. Is this trend something to celebrate or something to be wary about? That's a big question. Let's try and separate the issues here so we can individually come up with more nuanced judgments. To start, how does urbanization occur?

Even so, there is much that we can say about the process of urbanization and its effects. To begin with, we know that urbanization occurs via three distinct routes. The most visible growth is generated by migration from rural to urban areas—witness China's recent urbanization, which has been driven largely by such migration. Second, urban populations may grow through "natural increase"—that is, the growth of the existing urban population—and the UN estimates that this accounts for 60 percent of urban growth. Third, urbanization can occur with the reclassification of rural areas as urban as a result of population growth.

Next, what are the benefits from urbanization according to recorded data?

Those who view urbanization in developing countries as beneficial point to several factors. First, they note that many benefits of urbanization accrue to individuals. Among the most important is the income differential, in which urban incomes tend to be higher than those in rural areas. In China, for example, average household income in cities is almost three times greater than in rural households.

Other factors that improve quality of life may also be more prevalent in cities than in the country. For example, government programs can be applied more efficiently in urban areas by realizing economies of scale in delivering transportation, communication, water supply, sanitation, and waste management services.

Education systems may be more effective in cities insofar as educated people who can teach in schools and universities are in greater supply. In developing countries, educational enrollment is generally higher in cities than in rural areas, with even urban slums outperforming rural regions. Similarly, female literacy rates are on average 35 percent higher among urban populations than among rural populations. Larger pools of urban health care workers and greater specialization in medical activities—which can lead to higher returns on health care investment—all result in urban residents enjoying generally better health than their rural cousins.

In most urban areas, both desired and actual fertility are relatively low because caring for children when parents work outside the home is more costly, urban housing is more expensive, children have less value in urban household production, and family planning and reproductive health services are more accessible in cities. Individual families with fewer children are in a better position to concentrate their resources on providing each child with a better upbringing, strengthening the child's economic prospects later in life.

Second, the optimists say that urbanization has positive outcomes at the national level. Urbanization is a natural part of the transition from low-productivity agriculture to higher-productivity industry and services. Cities attract businesses and jobs, and the concentration of industries and services in turn encourages productivity growth. And there are other routes to enhanced productivity. For example, with increased opportunities for division of labor (because of higher population density and the variety of jobs provided by industry), intraindustry specialization in specific activities becomes more likely. Urban firms can learn from others working in the same industry and from their suppliers, and are also closer to their markets and thus better able to respond to changing demand. Relatively cheaper transport combines with this proximity to customers and suppliers to reduce trade costs. And, by aggregating many educated and creative people in one place, cities incubate the new ideas and technologies that accelerate economic progress. In addition, the fact that urban living encourages reduced fertility could support enjoyment of a society-wide "demographic dividend"—as the generation born before fertility declines can do more paid work and save more, thanks to fewer child dependents to support during its prime productive years.

Third, the optimists contend that urbanization contributes to rural development. People who migrate to cities often send remittances to their families based in rural areas. Their migration reduces the size of the labor pool available to work in rural areas, so wages there may increase. There is some evidence that urbanization is associated more strongly with poverty reduction in rural than in urban areas, but this is partly because poor rural migrants moving to urban areas increase the proportion of poor people living in cities.

It is uncertain, however, whether all of these apparent benefits actually serve to elevate real GDP per capita. We do find a positive cross-country association between income and urbanization...which juxtaposes country-level data on real GDP per capita and the share of the population living in urban areas during 1960 and 2004. But the upward rotation of the association over time indicates that higher incomes were associated with each level of urbanization in 2004 than in 1960. Also, the fact that the curves are initially very flat is consistent with the view that the links between urbanization and income are relatively weak at low levels of development.

Last, what are the downsides associated with urbanization?

Those who view urbanization in developing countries as harmful often point to several factors, including its impact on the environment and quality of life. Because of the effects of traffic congestion, concentration of industry, and inadequate waste disposal systems, environmental contamination is generally higher in cities than in the countryside and often well in excess of the local environment's inherent capacity to assimilate waste—which undercuts human health. Cities also make demands on land, water, and natural resources that are disproportionately high in relation to their land area and, because of high income and consumption, their population size as well.

Even though urbanization may increase incomes, it is also linked to increases in urban poverty, with the rate of growth of the world's urban poor exceeding the rate of growth of the world's urban population. And inequality within developing world cities is stark. Because quality urban housing is so costly, the urban poor often resort to living in slums, where water and sanitation facilities are inadequate and living conditions are crowded and often unhealthy. The UN estimates that the number of people living in slums passed 1 billion in 2007 and could reach 1.39 billion in 2020, although there are large variations among regions (see Chart 5). Asia has by far the highest number of city dwellers living in slums—the problem is worst in South Asia, where half of the urban population is composed of slum dwellers. But in percentage terms, sub-Saharan Africa leads the pack: about 72 percent of city dwellers in that region live in slums.

In many of these slum communities, [untreated sewage] is severely detrimental to health and aesthetics. Malnutrition in slum areas is much higher than in nonslum urban areas. In Ethiopia, for example, UN-HABITAT reports that slums have child malnutrition rates of 47 percent, while other urban areas have rates of 27 percent. Child mortality is higher and primary education enrollment lower in slums than in nonslum urban districts, and slum dwellers are more vulnerable to environmental disasters and pollution.

These inequalities often lead to other, sometimes greater, social problems, such as crime and violent conflict. The growth in urban populations in developing countries is in large part a growth in the number of young people. The UN Population Fund predicts that, by 2030, 60 percent of those living in urban areas will be under the age of 18. The proportion of young people is particularly high in slum areas, where employment opportunities are limited. This combination of youth and poverty can make for high crime rates. Some demographers have forecast that the increasing concentration of humanity in big cities will lead to major conflicts affecting both urban areas and entire countries.

Euro in a Messed Up World Economy

After having their big guns engage in a joint EU-US China bashing exercise, EU finance ministers are once again pressing their case before an EU delegation visits Beijing in a fortnight. I actually feel for the EU: the euro is the only major "escape valve" for the currency shenanigans of other players in the global economy. The US keeps reiterating a (non-existent) strong dollar policy. Even if euro/yen is still quite overpriced, Japanese PM Fukuda is already warning about yen strength as the carry trade winds down, suggesting possible Bank of Japan intervention. Meanwhile, China is still socking away billions of dollars each month in reserves to moderate the pace of yuan revaluation. Hence, the Eurozone has borne the brunt of others' actions. Especially worrying for these ministers is the fast rising bilateral trade deficit the EU is running with China. Here is Bloomberg with the story:

European finance ministers pressed China to let its currency strengthen so their economy no longer bears the brunt of the drop in the U.S. dollar.

With the dollar plumbing record lows against the euro this month, the officials meeting in Brussels complained Europe's economy is shouldering more than its share of the impact. The ministers are stepping up complaints two weeks before a European delegation goes to Beijing to make the case for a stronger yuan.

The visit to China is ``an important element of a dialogue with a very important player in the world economy,'' German Deputy Finance Minister Thomas Mirow told reporters in Brussels today. Still, ``expectations shouldn't be too high'' that European demands will be accepted overnight, Mirow said.

The European delegation will be led by Luxembourg Finance Minister Jean-Claude Juncker, EU Commissioner Joaquin Almunia and European Central Bank President Jean-Claude Trichet. The topic is also high on the agenda of this week's meeting of the Group of 20 near Cape Town.

While China's currency has gained 5.1 percent against the dollar this year, it has dropped 4.7 percent against the euro, hurting Europe's exporters.

``We'll try to make clear to our Chinese friends and counterparts that China has a growing responsibility as far as international monetary policy is concerned,'' Juncker said. He added it will take more than one trip for the ``whole world to change.''

``China has accelerated the yuan's gain in the past few weeks and will appreciate the yuan at its own pace,'' said Chris Leung, senior economist at DBS Bank Ltd. in Hong Kong. ``International pressures won't have much impact on China's currency rate.''

The dollar's slump is making international policy makers worried it will hurt their exports at a time when U.S. demand for them is already slowing. Japanese Prime Minister Yasuo Fukuda told today's Financial Times that the yen is appreciating ``too fast'' after its 7.5 percent jump in three months.

Canada will tell the G-20 it's bearing a disproportionate share of the drop in the U.S. dollar, an official told reporters in Ottawa today on condition of anonymity. Canada and Europe are each absorbing about a third of the decline, crimping growth in their economies, and Canada has a much smaller population to shoulder it, the official said.

In Brussels, Juncker told reporters yesterday that ``Recent sharp moves in exchange rates are unwelcome.''

Other than repeating that a ``strong'' dollar is in the U.S. interest and defending its status as the world's principal currency, U.S. Treasury Secretary Henry Paulson has not sought to reverse the dollar's drop. Paulson said Nov. 8 that China is ``out of step'' with the rest of the world's call to let the yuan appreciate faster.

The U.S. hasn't intervened to buy dollars since August 1995, while Japan hasn't acted in markets since March 2004. The Group of Seven nations last intervened together in September 2000, to buoy the euro.

China's trade surplus rose to a record $27.05 billion in October, an increase of 13.5 percent from a year earlier, the country's customs bureau said yesterday. The euro-area trade gap with China widened 25 percent to a record 59.9 billion euros ($87.1 billion) in the seven months through July, according to data released Oct. 18 by the European Union's statistics office.

``It remains an arduous task to balance international payments,'' Hu Xiaolian, head of China's State Administration of Foreign Exchange, said in a statement yesterday. She reiterated a pledge to improve the yuan's exchange-rate mechanism and to make the currency convertible.

Dutch Finance Minister Wouter Bos in an interview described the European trip to China as a ``very important move, a very important symbol showing that the Chinese are slowly becoming a partner that is seriously playing its part on the world stage.

This ``also puts some obligations on them and that I guess is what the discussion is going to be about,'' Bos said.

Trichet said Nov. 8 that it is ``essential'' that China step up to its ``global responsibilities'' after the ECB chief complained that recent currency-rate shifts have been ``brutal.''

Businesses are making similar complaints, with Ernest-Antoine Seilliere, president of BusinessEurope, the European employers' federation, telling the ministers in a speech that an undervalued yuan is ``damaging for the global economy and in particular for Europe...''

Almunia and Juncker both predicted the turbulence in financial markets that began in August will continue to pose a threat to Europe's expansion, although how much remained in doubt.

``The financial-market turmoil is not over,'' Almunia said. ``The longer the trend, the higher the risks are that the economy will be affected negatively.''

Bolivarian Revolution Ain't Working

Comrades, it seems that Hugo Chavez's homegrown "Bolivarian Revolution" isn't working out too well for Venezuelan proletariats. Sure, gas is cheap at, oh, 7 cents a gallon. However, other goods which Venezuela doesn't possess an abundance of yet are also being subject to price controls like milk have become rather scarce. There's no big mystery to this state of affairs: price controls that force sellers to sell goods at a loss will depress supply. Also, black markets tend to appear in order to evade unworkable controls. And so both have come to pass in Venezuela as Chavez seeks to assert greater control over all aspects of the economy. It would be great if the kids could drink petrol instead of milk, but this is present-day Venezuela, not the Road Warrior. From Reuters:

Venezuelan construction worker Gustavo Arteaga has no trouble finding jobs in this OPEC nation's booming economy, but on a recent Monday morning he skipped work as part of a more complicated search -- for milk.

The 37-year-old father-of-two has for months scrambled to find basic products like cooking oil, beef and milk, despite leftist President Hugo Chavez's social program that promises to provide low-cost groceries to the majority poor.

"It takes a miracle to find milk," said Arteaga, who spent two hours in line outside a store in the poor Caracas neighborhood of Eucaliptus. "Don't you see I'm here slaving away to see if I can get even one or two of those (containers)?"

Venezuelan consumers are increasingly facing periodic shortages of basic food products as the economy shows signs of overheating amid record revenues from an oil boom.

The shortages have increased skepticism of Chavez's economic policies and provided a political backdrop to campaigning this month for a referendum on a new constitution that he says is needed to make Venezuela a socialist state.

Businesses say price controls on staple foods are so low they discourage investment and force stores to sell at a loss.

The government says the problem is caused by growing demand by poor citizens who benefit from social programs, exaggerated media hype and food hoarding by unscrupulous businesses.

Supermarket shelves remain stocked with aged whiskey and imported wine, but for up to 25 percent of staple food products this year supplies have been irregular, according to public opinion and economic research group Datanalisis.

The group says Venezuelans waste several hours a week trawling for food. Retailers ration their supplies, and some even stamp customers' hands so they do not line up twice.

Friendships are won with a text message tip that a store has just put milk on the shelves.

Opposition comparisons to bare shelves in Chavez's ally Cuba are still greatly exaggerated, but even poor Venezuelans who back the anti-U.S. president complain of being stuck in long lines or having to visit several stores to get groceries.

"We've warned about this from the beginning -- all of these price controls in the long run end up producing shortages," said Ismael Perez of the industry group Conindustria.

Perez said businesses fear holding sufficient inventories due to an anti-hoarding law -- a problem highlighted by a seizure this month of 125 tonnes of powdered milk from Switzerland's Nestle, the world's largest food company.

Chavez remains widely popular after winning a landslide re-election last year and pollsters say he will win approval in a December referendum for a constitutional overhaul that will let him run for re-election indefinitely.

The former soldier this year nationalized swaths of the economy and stepped up enforcement of price controls the state decreed in 2003 but that businesses had largely ignored.

Now the combination of the controls and unprecedented consumer spending has left businesses like Cueva de Iria, a typical bakery that sells coffee, pastries and fresh-baked bread, struggling to find ingredients it needs.

"Everything relating to flour and sugar is a problem. We call our providers and they say they don't have any," manager Lino Alves said. "We only have enough milk to put in coffee."

A black market has sprung up where informal vendors illegally peddle bags of sugar, beans and precious powdered milk -- for as much as double the regulated price.

The state's consumer protection agency, backed by military reserves, often shutters supermarkets for selling above the fixed price, but vendors offer their goods from makeshift stands in downtown Caracas in plain view of authorities.

"This is an insult, but I can't find it anywhere," said Jose Ferrer, paying nearly $12 for a can of powdered milk regulated at $6. "I have to buy it for my kids, there is no other way."

The economy grew by a record 10 percent in 2006, and millions of Venezuelans receive government stipends to participate in education and community development programs.

One of Chavez's most popular programs is a chain of subsidized supermarkets scattered across rural areas and in hillside slums that sells food at fixed prices unaffected by rampant inflation -- though it too has been hit by shortages.

"I like everything the president is doing, he's helping poor people," said Maria Pena, 48, a homemaker waiting in line for milk. "The only thing I do not like is waiting in line."

Islamic Cars? Bah! Try Islamic Bonds

Honestly, I'm a bit at a loss to explain why Proton Malaysia's bid to create an "Islamic car" has received so much press attention. I've already talked about Proton before, speaking of it as a prime example of an infant industry that never grew. It is not only losing market share back home, but it also never really developed a viable export market. This "Islamic car" marketing gimmick may be yet another dubious justification for the existence of a very marginal car producer. To me, there is nothing especially difficult about putting in a compartment for the Qu'ran and prayer scarves or putting in a compass that points to Mecca. Should these features prove popular, I'm sure Toyota and the rest will have similar features in short order that outdo anything Proton could come up with. And the cars themselves will be much better, of course.

For news of real consequence, try the phenomenon of Islamic bonds. Dubai, Abu Dhabi, Qatar, and others in the Middle East are trying to establish themselves as financial centers for the region by, among other things, offering Islamic bonds. As you are not allowed to charge interest under shar'ia law, this poses a special challenge to issuing debt instruments. Never let it be said that the British government is always a slouch when promoting the nation's commercial interests. To keep the City of London as a favored destination for Middle East finance, it has decided to improve investor access to sukuk bonds as it seems London's share of Islamic funds is falling as business heads to the Middle East. From the Financial Times:

The government will step up preparations this week for the launch of sharia-compliant bonds, known as sukuk, as it seeks to turn London into the world centre of Islamic finance.

Kitty Ussher, the Treasury minister, will tell City leaders she is launching a three-month consultation process and could use next spring’s Budget to put in place any legal changes that might be needed to launch the first western government sukuk.

Ms Ussher believes that the scheme will entrench London as “a global gateway to Islamic finance” and help Britain’s Muslims, who sometimes struggle to find sharia-compliant retail products such as mortgages.

The bonds could be used as vehicles to allow Muslims in Britain to invest in National Savings products through banks and post offices.

Islamic bonds are structured to pay profits or rent from an underlying asset or business, rather than interest, which is outlawed under sharia religious law.

Unlike conventional bonds, sukuk are akin to Islamic “investment certificates” representing ownership in the underlying asset. Returns are paid to investors in line with their proportional ownership.

The sukuk market has grown dramatically in the past five years. Nearly $40bn (£19.1bn) of these bonds have been issued this year, from virtually nothing in 2001.

On Wednesday, Ms Ussher will tell a high-level group of City executives – assembled by the Treasury to develop London’s financial services sector – that there is no question of her going cold on the project.

There had been speculation that the government was backing away from the scheme after the departure of its architect, Ed Balls, the former City minister, from the Treasury in June.

One member of the Treasury’s committee of experts on Islamic finance, which is advising the government on structuring and pricing the bonds, said: “The project did lose momentum after Ed Balls left, and it’s still in the early stages. It’s not a done deal.

“Doubts have been expressed over whether it would attract investors and the complexities of the legislation needed.”

However, Ms Ussher told the FT: “There is no question of delay at all. If anything, there is greater demand. We have been doing an enormous amount of work.”

Despite this, details remain to be solved, including the structure of the sukuk. Ms Ussher’s consultation paper refers to “risks relating to price and demand”.

British sharia-compliant bonds could act as a catalyst for big UK and western companies to launch similar securities in London, boosting the capital as a centre for Islamic finance.

The competition for business is fierce, however, with the Middle East increasingly seen as an attractive location to set up operations because of its oil wealth.

London’s share of Islamic funds, which invest in only sharia-compliant products, has dropped by almost a third in the past five years as more of them move to the Middle East, where they see big potential for business.

Trouble Down on America's Farms

Agricultural subsidies in the US are once again attracting the ire of rest of the world. Just last month, the WTO ruled that the US was not doing enough to roll back cotton subsidies previously ruled illegal, paving the way for others to ask the US for compensation. (This pertains to DS 267, in which Brazil was the complainant.) Yet, as cotton farmers in Burkina Faso and elsewhere were celebrating the ruling, perhaps the US Congress did not got the message as the farm bill before it is still laden with WTO-illegal provisions. Unsurprisingly, the main proponents of the farm bill as it stands are politicians from states which have historically received healthy cotton subsidies like Iowa, Georgia, and North Dakota. The American maps out the upcoming political economy battle. You have a strange coalition of the White House, environmentalists, and NGOs like Oxfam opposing the bill, among others:

This week, the 2007 farm bill hit the Senate floor—and already, everyone from fiscal conservatives and free traders to environmentalists and celebrities has found something to hate about it.

What’s wrong with the legislation? For one thing, it increases government price supports and continues to make federal subsidies available to wealthy farmers. While the Bush administration sought to deny subsidies to farmers earning more than $200,000 per year, farm-state lawmakers had other ideas. Indeed, according to the fiscal watchdog Citizens Against Government Waste (CAGW), the 2007 farm bill would take just 7,000 farmers off the dole, compared to some 38,000 who would be removed under the Bush proposal.

There are other problems. The bill contains provisions that violate international trade agreements; and its high subsidies pose a threat to the ongoing Doha Round of global trade talks. Administration officials are advising President Bush, who signed the bloated 2002 farm bill, to veto the legislation—and it’s attracting sharp criticism in other quarters, as well.

Senators Charles Grassley, an Iowa Republican, and Byron Dorgan, a North Dakota Democrat, want to cap annual subsidies at $250,000 for a two-person farming household, which for some farmers would represent a significant cut. Green outfits, such as Grist magazine and the nonprofit group Environmental Defense, are unhappy with the lack of attention given to land conservation and sustainability efforts. Earlier this week, a former Environmental Defense lobbyist dismissed the farm bill in a comment to the LA Times as “horse manure [rolled] in powdered sugar...”

Senators such Iowa Democrat Tom Harkin, chairman of the Agriculture Committee, and Georgia Republican Saxby Chambliss have a lot riding on passing the farm bill in its current form. Both are up for reelection next year, and both represent states where farmers (and the farm lobby) are an important constituency. Harkin has never won a Senate race with more than 56 percent of the vote; and a recent poll showed Chambliss winning just 36 percent support (with 40 percent undecided).

In a broader sense, the Democratic Party has a lot riding on the bill’s passage, too. Last year, the Democrats won previously Republican House seats in agriculture-heavy districts such as Kansas’s 2nd district, now represented by Nancy Boyda, and Ohio’s 18th district, now represented by Zack Space. Failing to deliver a sufficiently “healthy” farm bill could put those seats in jeopardy. That may have been one reason why the avowedly “reform-minded” Democratic House majority balked at introducing farm savings accounts, a bold free-market concept pushed by Representatives Ron Kind, a Wisconsin Democrat, and Jeff Flake, an Arizona Republican.

Between political calculations and the undoubted strength of the farm lobby, the chances of achieving real reforms in the Senate bill look slim. True, crop prices and household incomes have hit record levels; it therefore seems like a good time to revamp U.S. farm policy. But a similar argument could have been made in 2002, when Bush signed the largest farm bill in history. This year’s legislation is no less bloated with wasteful spending. As always, agriculture reform is proving an uphill battle.

In a related story, Brazil and Canada are joining up to take on the US at the WTO over (zzzzzz...) agricultural subsidies--this time with respect to corn, wheat, soybeans, sugar, lentils, and peas. From Bloomberg:

Canada and Brazil, countries that have fought trade disputes with each other, said they're asking the World Trade Organization to rule on whether the U.S. is exceeding international limits on farm subsidies.

Canada re-filed a June request in order to work with Brazil and dropped an earlier complaint about export credits, Trade Minister David Emerson said today in a statement. A statement on the Web site of Brazil's foreign affairs ministry confirmed the country is filing a request similar to Canada's.

Both countries said U.S. subsidies surpassed a cap every year from 1999-2005 except 2003, with the ceiling worth around $19 billion annually during that period. The U.S. Trade Representative said last month that its most trade-distorting farm subsides never topped $13 billion, from 2002 to 2005.

``The United States has provided domestic support for agriculture within our WTO commitments,'' Gretchen Hamel, a spokeswoman for the U.S. Trade Representative, said today. ``Given the opportunity before us in the Doha negotiations to make real progress in reducing trade distortion in agriculture, we think that a formal WTO panel procedure would be an unfortunate diversion of resources at a critical moment.''

The so-called Doha round of trade negotiations began in late 2001 and has moved in fits and starts during the past six years. The negotiations have foundered over U.S. and European Union aid to farmers that limits exports from developing countries such as Brazil and India. The U.S. and EU have called on Brazil and other developing nations to slash customs duties on industrial goods.

The WTO will probably use one panel to decide on the Canadian and Brazilian complaints at the same time, Emerson said in the statement.

The dispute covers farm products such as corn, wheat, soybeans, sugar, and lentils and peas known as pulses, the Canadian government said.

Much Ado About National Oil Cos.

Mention national oil companies (NOCs) in the Middle East, Russia, Latin America, and elsewhere and you're bound to get different reactions from economists and political scientists like myself. By training, economists will rail against the inefficiencies in the energy market caused by widespread state ownership of these companies at a time of rising oil prices. OTOH, political science types will probably elaborate on how it's interesting that NOCs are being used by states as political tools to retake the "commanding heights" of the world economy at--you guessed it--a time of rising oil prices. The chart to the right from the Economist graphically illustrates the command of these NOCs over vast reserves that commercial entities simply don't have. The "allocation of scarce resources" angle and the "tools for political strategery" angle illustrate the primary interests of economists and political scientists, respectively. [UPDATE: The EIA estimates OPEC oil revenues this year will be $658B and an even higher $762B in 2008. That's a lot of money to fund geopolitical interests I'm sure you'll agree.]

I bring this up because I recently got reacquainted with a series of papers presented on the matter that will be of interest to both economists and political scientists. The Baker Institute at Rice University held a symposium on "The Changing Role of National Oil Companies in International Energy Markets" last March. Definitely, go through the individual presentations if you are interested in knowing more about the likes of Venezuela's PDVSA and Saudi Arabia's Aramco. You can also read the executive summary of the proceedings that offers tantalizing tidbits to what can be found in the individual papers [see below]. Enjoy!

(1) NOCs have noncommercial objectives that differ greatly from those of the private international oil companies. These objectives, which go beyond maximization of return on capital to shareholders, include (a) oil wealth redistribution to society at large, (b) foreign and strategic policy and alliance building, (c) energy security, including assurance of domestic fuel supply and security of demand for producing countries, (d) wealth creation for the nation, (e) participation in national- level politics, and (f) industrialization and economic development.

(2) NOCs’ noncommercial objectives, while highly important to national goals, tend to interfere with the firms’ ability to produce at a technically efficient level and to maximize the overall value that could theoretically be obtained from their oil resources. In particular, a principal finding of the case studies, which is corroborated by theoretical and empirical evidence, is that the extent to which these noncommercial objectives govern the behavior of a NOC has a huge impact on its ability to replace its reserves and expand its oil and gas production.

(3) Certain institutional structures for NOC organization and regulation help to clearly define the roles and responsibilities of management and can thereby minimize the commercial impact of noncommercial objectives on an NOC’s ability to focus efficiently on its core businesses. These institutional structures can greatly reduce the prevalence of corruption and wasteful spending. In addition, the existence of multiple NOCs within a country and/or offering of publicly traded shares of the NOC in Western markets tends to improve the efficiency of the NOC.

(4) An increasing number of NOCs are financing activities through international capital markets and this is helping improve the NOCs’ compliance with international standards of corporate responsibility. The pressures of trading in public shares will increasingly bring these international institutional and accounting standards to bear on NOCs.

(5) While certain NOCs are currently enjoying strong control of the upstream sector in international energy markets, downstream refining and marketing assets in key premium consuming markets are still largely disassociated from upstream NOC operations. Thus, NOCs continue to look for opportunities to enhance vertical integration, thereby creating opportunities for IOC/NOC strategic alliances. When a primarily upstream NOC holds an asset position in the downstream market, it is able to capture the value added from the production and sale of finished products. In addition, a downstream position is a strategic advantage in that it provides security of demand, or access to market.

(6) The growing role of the NOCs in global oil markets has important policy implications for oil importing nations. To begin, if a larger share of global investment in oil production capability will be influenced in the future by noncommercial factors, then importing nations may need to adjust their national energy strategies to reduce vulnerability to changes or instability in NOC reinvestment rates. In addition, consuming nations also will have to debate the benefits and challenges of having NOCs seek security of demand and other benefits of vertical integration by positioning themselves in downstream markets through the purchase of assets in major consuming markets like the United States, Europe, and China. For consuming countries, a desirable policy will be to promote free trade and utilize multilateral frameworks such as the World Trade Organization and Energy Charter to press NOCs to adopt institutional structures that will enhance their efficiency, promote market competition and curb interference in commercial investment decisions by their national governments.

EU, US Join Forces in China Bashing

A few months ago at the US-EU Transatlantic Summit, George Bush, Angela Merkel, and EC President Manuel Barroso agreed to convene a Transatlantic Economic Council to discuss issues of joint interest. Last Friday, this council convened and its main focus was (surprise!) that dastardly, unfair trading partner known as the People's Republic of China. Here is part of an interview that involved EC Vice-President Gunter Verheugen on why a meeting that was supposed to be about bilateral relations focused on China:

QUESTION: You spoke about -- apparently during the lunch, we had -- you had a conversation about China. What -- can you elaborate on that? Is it -- what is the -- I don't understand; you are supposed to speak about your bilateral relations and --

MR. VERHEUGEN: Yeah, but I think the bilateral relations include challenges which we have -- that you have on both sides and, I mean, the whole exercise that we have started was not possible if both sides would not understand that we are sitting in the same boat, that we are facing the same challenges, and none of them is -- well, more or less, all the manufacturing is moving, is moving to China and later, perhaps, it might be India as another competitor. But it's a consequence of that; how shall we deal with it? How does it affect our economies and how does it affect our consumers? How do we react if and when we recognize that China does not fully respect the rules, to put it very -- to put it very mildly?

With a joint effort to convince China that it is in China's interest to fully respect -- to be more useful than the individual approaches which we have used, whatever the kind of impression that we have discussed. And of course, we want to discuss it against the background of growing uneasiness and uncertainty in our societies, how to deal with China. And I think everybody around the table today was a strong defender of open markets and free trade, but we made it very clear, has to be based on fair and equal rules and it has to be a level playing field and that has to be achieved in cooperation with China.

So that was -- there were more, but I cannot tell because it was supposed to be a little bit confidential, but I found it -- as an instrument, I found it very important; that is, not discussed as it normally is discussed during the summits, five minutes each side, but in some depth, with contributions from different sides, with a contribution from our side, from Peter Mandelson, the Trade Commissioner, or Charlie McCreevy, the Commissioner for Financial Services, for me, responsible for enterprises and industry, on the American side --

If anyone knows more about this talismanic confidential instrument that's supposed to whip China's trade practices into shape, I'm all ears. Meanwhile, what follows is Deutsche Welle with more coverage of the China-bashing session attended by various bigwigs:

The United States and the European Union joined forces this week in a bid to "convince" China that it would be in its best interest to abide by the rules of international trade.

The China "challenge" was the main focus of the first meeting Friday of the Transatlantic Economic Council created at the US-EU summit in April, said European Commission Vice President Gunter Verheugen, who co-chaired the meeting with US President George W. Bush's economic advisor Allan Hubbard.

The debate, Verheugen told reporters, focused on "how does it affect our economies, how does it affect our consumers. How do we react if and when we recognize that China does not fully respect the rules, to put it very mildly?"

"Would a joint effort to convince China that it is in China's interest to fully respect the rules be more useful than individual approaches which we have used? That is the kind of question that we have discussed," the EU official added.

Hubbard said how China deals with international trade has wide-ranging effects.

"When China does not follow intellectual property rules and regulations, that affects not only the US; it affects Europe. When China is an export-oriented economy, an economy that encourages local consumption, domestic consumption, that affects both our economies. When they peg their currency, that affects both economies," he said.

Also attending the breakfast meeting were US Treasury Secretary Henry Paulson, US Commerce Secretary Carlos Gutierrez, US Trade Representative Susan Schwab, EU Commissioner for Trade Peter Mandelson, and EU Commissioner in charge of the Internal Market and Services Charlie McCreevy.

Philippine Gov't in Bind over Migration

The Philippines is well-known as a human capital exporter par excellence. Last year, it deployed over a million workers overseas to work in practically all ends of the earth. The astonishing scale of Philippine economic migration invites controversy from all sides. The government is happy as it helps meet balance-of-payments obligations in a country where aid, FDI and portfolio investment flows are not that large. On the other hand, NGOs have long been concerned about overseas workers being subject to abuse since the Philippines has very limited political-economic clout to demand justice when such incidences occur. NGOs also charge that dependence on overseas worker remittances prevents the country from finding ways to promote local industrial development like its neighbors have. Still, many believe that, given its limited resources, the Philippine government has done a reasonable job of balancing the desire of many nationals to earn a better livelihood abroad while providing adequate social protection for overseas workers. (The Migration Policy Insitute has a pretty good overview of Philippine migration if you're interested.)

The story at hand concerns the Philippine Overseas Employment Agency (POEA). It oversees the licensing of recruitment agencies that offer placements for Filipinos seeking work abroad. What has happened is that, recently, recruitment agencies have taken umbrage to the POEA taking on the role of recruiting workers for overseas placements. Traditionally, the POEA has taken a largely regulatory and not a participatory role in recruitment. International Labor Organization (ILO) best practices include a stipulation that recruitment fees should not be charged by recruitment agencies, though they are widely charged in the Philippines depending on the attractiveness of the placement destination. The POEA is not only trying to recruit nowadays for jobs in the booming Middle East and elsewhere, but it is also undercutting the fees charged by recruiters. Hence, the industry group Philippine Association of Service Exporters, Incorporated (PASEI) is complaining that the government is unfairly muscling in on its business. Alfredo Rosario of the Manila Times offers his take on the matter, saying that with overseas labor demand so high, there is really no need to quarrel:

The Philippine Overseas Employment Administration (POEA) drew flak the other day from a powerful group of fee charging private recruitment agencies for its continuing job marketing missions. The Philippine Association of Service Exporters, Inc. (Pasei), which is composed of 700 placement firms, excoriated the POEA for invading its “domain.”

“It’s predatory and totally unfair,” cried Pasei president Victor Fernandez, accusing the POEA of being the administrator of the government’s overseas employment program and at the same time a competitor of an estimated 1,500 recruitment agencies in the country.

The latest POEA initiative, which was protested by Pasei, is its ongoing talks with the government of the United Arab Emirates to fill its labor requirements, particularly in Abu Dhabi and Dubai, with Filipino workers under a government-to-government arrangement.

Unless stopped, Fernandez said, the POEA’s “incursions” will continue into other countries experiencing a construction and business boom, such as Qatar, Bahrain, Oman and Yemen.

The POEA has a government-to-government arrangement with South Korea through the Employment Permits System (EPS) under which POEA supplies Filipino workers for its labor needs. The POEA has a similar pending arrangement with Japan under the Japan-Philippine Economic Partnership Agreement (Jpepa), which is under scrutiny by the Senate.

Is the Pasei right in stopping the POEA from its marketing missions? Does the government agency intrude in the business of private recruitment agencies?

To its credit, the POEA, chaired by Labor Secretary Arturo Brion, has done South Korea-bound Filipino workers a lot of good by saving them from paying excessive placement fees to private recruiters.

Heretofore, a Filipino worker was charged by private recruiters as high as P120,000 for a factory job in South Korea. But under the EPS, he is charged by POEA only about P20,000, representing administrative fees and the cost of a plane ticket to Korea.

If for this a