So, Just How Capitalist is China?

♠ Posted by Emmanuel in China,Development at 4/30/2008 01:26:00 AM

I came across this interesting paper by MIT economist Yasheng Huang via Andy Mukherjee over at Bloomberg. In it, Huang tackles the question, "Just How Capitalist is China?" and comes up with a novel explanation about China's path to development. The paper summarizes the key points of his forthcoming book, "Capitalism with Chinese Characteristics." It is a fairly ambitious work that has the potential to upend some current thinking about the rise of China. Let us begin with a peek at the introduction and the main findings from the paper linked to above. Truly, it is beyond debate that the country has grown by leaps and bounds. Yet, the exact mechanisms by which it has done so, especially in terms of economic governance, remains subject to much debate that isn't likely to quiet down anytime soon. Nevertheless, the description of the research methods used by Huang make it sound like he has done fairly extensive historical and archival work towards giving us better clues:

Since 1978, the Chinese economy has grown phenomenally. This is not in dispute. By exactly what mechanisms has China managed to grow so fast? There is more room for debate on this question. The near-consensus view—or the view that has achieved the greatest traction—among economists is that China has grown by relying on unique, context-specific local institutional innovations, such as ownership by the local state of township and village enterprises (TVEs), decentralization, and selective financial controls. The conventional mechanisms of growth, such as private ownership, property rights security, financial liberalization and reforms of political institutions, are not central components of China’s growth story.

Much of the economic research on the Chinese reforms revolves around the following question, “Given the manifest inefficiencies in the Chinese economy, how do we explain its growth?” The answer, often backed up by formal, mathematical models, is that seemingly inefficient policies, practices and institutions—such as public ownership of TVEs and financial controls—perform underlying efficient functions in the specific context of China. The approach is typically inferential—i.e., these efficient functions of observably inefficient forms are inferred from China’s excellent economic performance.

This book takes a different and factual approach. It starts with the following set of questions, “Were TVEs really publicly-owned? Did China implement financial reforms prior to or concurrently with the initial economic takeoff in the early 1980s?” The research is based on detailed archival examinations of policy, bureaucratic and bank documents as well as several waves of household and private-sector firm surveys. The qualitative and quantitative data span the period from 1979 to 2006. As an illustration of the factual density of this book, I have examined thousands of pages of memoranda, directives, operating manuals, rules of personnel evaluations issued by the presidents of China’s central bank, all the major commercial banks, rural credit cooperatives, etc.

These documents are contained in a 22 volume compilation of bank documents, which, while available at Harvard and in Hong Kong, have never been examined by a Western academic. I have also gone to the raw database on TVEs established by the Ministry of Agriculture. Ministry of Agriculture was in charge of collecting data on TVEs and its data have finer ownership breakdowns than the TVE data available in China Statistical Yearbooks. Based on this body of research, here are the main findings:

--Explicitly private entrepreneurship in the non-farm sectors developed vigorously and rapidly in rural China during the 1980s;
--Financial reforms, again in the rural areas, were substantial in the 1980s and the Chinese banking system channeled a surprisingly high level of credits to the private sector in the 1980s;
--Conventional property rights security was—and still is—problematic but the security of the proprietor—the person holding the property—increased substantially at the very onset of the economic reforms;
--The Chinese policy makers in the early 1980s strongly, directly and self-consciously projected policy credibility and predictability;
--The political system, although absent of the normal institutional constraints associated with good governance, became directionally liberal early during the reform era.

Next up are excerpts from what I consider as the highly intriguing part of his explanation: small-scale and mostly private industries in rural areas have more recently been given far less attention than large-scale and mostly state-owned industries in large Chinese cities. Hence, the widening inequality gap between urban and rural areas:

Capitalism with Chinese characteristics is a function of a political balance between two Chinas—the entrepreneurial, market-driven rural China vis-à-vis the state-led and oligarchic urban China. In the 1980s, rural China gained the upper hand but in the 1990s, urban China gained the upper hand. Although China made notable progress in the 1990s in terms of FDI liberalization and reforms of SOEs, this book assigns greater weight to the rural developments in determining the overall character and the pace of China’s transition to capitalism. When and where rural China has the upper hand, Chinese capitalism is entrepreneurial, politically-independent and vibrantly competitive in its conduct and virtuous in its effects. When and where urban China has the upper hand, Chinese capitalism is tending toward oligarchy and political dependency on the state and it is corrupt.

Most economists judge China’s economic performance by its GDP data. While decadal differences in China’s GDP growth are fairly small, the economic and social implications of a more entrepreneurial version of capitalism in the 1980s and the one closer to oligarchic capitalism in the 1990s in fact differed enormously. There are substantial and real welfare consequences:

--Although GDP growth was rapid during both the 1980s and 1990s, household income growth was much faster in the 1980s;
--The share of labor income to GDP was rising in the 1980s but declining in the 1990s;
--Several studies on TFP converged on the finding that TFP growth since the late 1990s has either slowed down from the earlier period or has completely collapsed;
--The majority of the much-touted poverty reduction occurred during the short 8 years of the entrepreneurial era (1980-1988) rather than during the long 13 years of the state-led era (1989-2002);
--Income disparities worsened substantially in the 1990s, while they initially improved in the 1980s;
--Governance problems, such as land grabs and corruption, intensified greatly in the 1990s;
--In the rural areas, heavy taxation was accompanied by the withdrawal and rising costs of basic government services;
--A development that has garnered almost no attention in the West is that between 2000-2005 the number of the adult illiterate Chinese increased by 30 million, reversing decades of trend developments;
--The way the Chinese measure adult illiteracy implies that all of this increase was a product of the rural basic education in the 1990s and this adverse development coincided closely in timing with the intensification of urban bias in the policy model.

Read More

Finance: Can Tokyo be London of the East?

♠ Posted by Emmanuel in Casino Capitalism at 4/30/2008 01:02:00 AM

Bloomberg columnist Bill Pesek has two recent op-eds that should be of interest to many. Despite Japan spending much time and effort promoting Tokyo as an Asian financial hub, the city has largely fallen behind Hong Kong and Singapore as the preferred destination of haute financiers of all stripes. (Like me, you probably may be wondering why exactly Tokyo would want to reinvent itself as London-upon-Orient at this point in time as the subprime crisis wends its way around the globe. Send objections about how London isn't the place to be right now as financial services are currently being rocked by the fallout of the credit crunch to Pesek, not your humble messenger.) In his first piece, Pesek sees the unwillingness of Japan to move to a more freewheeling business culture--bereft of traditional cross-shareholdings and suspicion of foreign investment--as a reason why efforts to promote Tokyo have faltered:

Watching Hong Kong and Singapore soak up the global spotlight isn't going down well in Tokyo. As home to Asia's biggest markets, its highest standard of living and world-class infrastructure, the Japanese capital is the region's natural financial hub. Tell that to international investors increasingly favoring centers elsewhere in Asia.

Takatoshi Ito wants to change that. Fresh from being vetoed as a candidate for deputy governor of the Bank of Japan, the University of Tokyo professor is redoubling efforts to make Japan into another London. ``Tokyo should take lessons from London,'' Ito said in an April 17 speech at the Foreign Correspondents' Club of Japan. Doing so, he said, ``is very important to the future of Japan.''

Ito calls the U.K. a ``role model for the rest of the world'' for its success in opening and regulating financial markets, importing talent, granting work visas and adopting a favorable tax regime. The government adviser is uniquely positioned to help persuade Prime Minister Yasuo Fukuda to apply those principles to the second-biggest economy.

The bad news is that the odds are stacked against Ito's dream of making Tokyo the London of the East. For one thing, Japan may be coming to this effort too late. The ``Big Bang'' of the 1990s didn't have the intended effect of deregulating Japan's rigid financial sector. Tokyo's equity bourses fell behind technologically and failed to become as international as pledged.

Along with spooking investors, the banking crises of the late 1990s and early 2000s prompted policy makers to turn inward. That allowed Hong Kong and Singapore to make inroads at becoming centers for equity trading and foreign-exchange dealing. Hedge funds and private-equity outfits, in turn, put their headquarters there.

In January, Hiroko Ota, minister of economic and fiscal policy, summed things up in unusually blunt terms: ``Unfortunately, Japan is no longer in a situation in which the nation is a first-class economy.'' For another thing, the political establishment isn't focused on Japan's financial future. It cost Fukuda considerable political capital just to get a new BOJ governor confirmed, never mind shaking up a business culture that may be too grounded in the past to compete in the future.

In his five years as prime minister from 2001 to 2006, Junichiro Koizumi tried to set the stage for the kind of changes Margaret Thatcher brought to the U.K. and Ronald Reagan brought to the U.S. in the 1980s. Since Koizumi, Japan has had two premiers -- neither very focused on economic matters.

The financial pages are filled with reports of cross- shareholding between friendly companies making a big comeback. Takeover defenses and poison pills to avert mergers are back in vogue. Corporate governance remains a concern for many investors.

When it comes to competing with Hong Kong, London, New York and Singapore, Ito, 57, is a key person. He sits on the Council on Economic and Fiscal Policy, the government's brainstorming body that pushed for structural changes during the Koizumi years. Ito didn't get the BOJ job because he favors inflation targeting, something many politicians find too radical. Yet isn't trying something new what Japan needs? The bright side is that Ito can focus on deregulating Japan Inc. Private-sector voices like Ito's are badly needed in Tokyo.

Japan's to-do list includes greater openness to foreign investment, better tax treatment for overseas companies, freer trade, more flexible labor markets and immigration policies, reducing the world's largest public debt, boosting female participation in the workforce and encouraging shareholder activism. Accomplishing any of these goals is difficult in the best of times. The political vacuum in Tokyo makes success even less likely. Slowing global growth isn't helping things. Neither is turmoil in credit markets.

I asked Ito last week whether Japan's becoming-a-global- financial-center effort is too little, too late. ``This is our last chance, but it's not too late,'' he said. ``We have to do this in the next five or 10 years, or it really will be too late.''

While its demographic profile is gloomy -- 21 percent of Japanese are past age 65 -- the nation is home to an unusually wealthy population. Japanese are sitting on household savings that exceed the annual output of the $13.2 trillion U.S. economy. Pension funds have assets roughly equivalent to China's $1.6 trillion of currency reserves. And then there's Japan's $988 billion of reserves. ``Mobilizing that capital would be good for Japan's economy and markets,'' Ito said.

The bigger issue, though, is getting more foreigners interested in investing in Japan and trading in Tokyo. Oversees investors were discouraged to see Children's Investment Fund Management Ltd., the U.K. activist fund, recently fail in efforts to double its 9.9 percent stake in Electric Power Development Co., or J-Power. The government invoked national security; many saw it as a reminder of Japan's reluctance to welcome foreign investment.

Tokyo has the raw materials to emulate London's success in Asia. If it doesn't work much harder and much faster, though, the odds will mount further against it.

In his second op-ed, Pesek then goes into another "transaction cost" that bedevils would-be operators in Tokyo: a reluctance by many Japanese to adopt business English. Or, in a memorable phrase, surmount the "Economics of Engrish" (there is no direct equivalent of the English letter "L" in Japanese):

Tokyo wants to be a global financial center. It's busily upgrading infrastructure and considering a similar zoning approach as London's Canary Wharf to attract hedge funds, banks and other institutions. While that's all well and good, a key ingredient is missing: English.

Call it the ``Economics of Engrish,'' as did C.H. Kwan, senior fellow at Japan's Research Institute of Economy, Trade and Industry, in a May 2002 article. The idea was that Japan needs to improve its English proficiency to stay at the forefront of business in an increasingly globalized world.

Fast forward six years and Japan is still tripping over what many observers call its ``English-language deficit.'' Considering its economic success and the frequency with which Japanese travel abroad, the country's English-fluency rate is surprisingly low.

I feel a bit uncomfortable tackling this issue. Arguing Japanese need to learn English might strike some as an attempt to advance America's cultural hegemony. My own challenge learning Japanese after six years in Tokyo also makes me skittish about judging others' language abilities. We Americans aren't known for our passion for learning other tongues.

Yet English, for better or worse, has become the lingua franca of finance, business, science and the Internet. The longer any nation resists the need to improve its English skills, the more it limits its potential.

This argument would be valid if the global business language were French, German, Mandarin -- or Japanese. Even world leaders known for acrimony toward the West, such as former Malaysian Prime Minister Mahathir Mohamad, grudgingly acknowledge as much.

``A genuine global financial center needs to bring together players of every nationality, and from a variety of disciplines: accountants, lawyers, IT specialists, traders, due-diligence guys, etcetera,'' says Louis Turner, London-based chief executive of the Asia-Pacific Technology Network. ``There has to be one working language to bring all these people together and, like it or not, that language has to be English.''

In Asia, Turner says, Mandarin may eventually establish itself as a working second language for business and science. For now, though, the focus is on English.

Native-Japanese speakers taking the paper-based Test of English as a Foreign Language, or TOEFL, scored lower than students from China, India, Indonesia, Malaysia, Myanmar, Nepal, South Korea and Vietnam in 2007. Even North Koreans scored higher.

Japan is moving in the right direction. The education ministry introduced measures in recent years to improve its language program and encouraged public-school teachers to undergo fresh training. Students will begin learning English in the fifth grade starting in 2011, instead of the seventh grade.

Bolder action is needed, and there's not a moment to waste. In late 2006, Bunmei Ibuki, then minister of education, shifted the focus back to teaching traditional values and patriotism to young Japanese. It was an untimely distraction in tackling what's arguably a curriculum problem. The emphasis has long been on passing written English exams, not verbal communication.

The English issue is becoming a serious liability. It was moot in the 1980s, when foreigners lined up to do business with a Japan very much on the ascendancy. Today, Japanese companies compete more with international executives, often boasting better communication skills, than with domestic rivals.

``It's striking how irrelevant Japan is, not only in many international and Western forums, but also in much of Asia in policy and academic circles,'' says Jean-Pierre Lehmann, a professor of international political economy at IMD, a business school in Lausanne, Switzerland. ``The inability to speak English is not the only cause, but it's an important one.''

All this can lead to heavy costs for corporations. Teaching English to employees is an expensive, productivity-killing process. It also can lead to faulty decisions. Hiring someone primarily for their language skills may mean missing out on a far more skilled candidate.

The language debate has met with some resistance in Japan. It's at the core of concerns about globalization watering down culture and tradition. Japanese is an incredibly complex language with thousands of characters, layers of honorifics to master and a proud literary history. Many worry a greater emphasis on English will devalue Japanese skills in future generations.

A happy medium must be struck here. Embracing English need not come at the expense of tradition or culture. The stark reality is that the rise of China and India is making this debate moot. It's leaving Japan with a choice: either improve English proficiency or get left behind by fast-growing economic upstarts.

English isn't everything; it's not a magic wand that will suddenly rid Japan of its long-term problems. Observers such as Philippa Malmgren, president of Canonbury Group in London, are more focused on Japan's tax regime, which she says hurts Japan's attractiveness as a financial center.

Yet English is an increasingly important ingredient to making Tokyo more competitive in the digital age. ``The language issue is a barrier,'' Malmgren says, ``but it can be overcome.''

Read More

The Wide World of Piracy: Special 301 for 2008

♠ Posted by Emmanuel in Trade at 4/30/2008 12:16:00 AM

Intellectual property holds a special place in the hearts of IPE scholars. My more critical (read: Marxist) colleagues basically adopt the line of Pierre-Joseph Proudhon that (intellectual) property is theft. Being decidedly less socialist in outlook, I am still ambivalent over the extent to which IP violations are indeed theft. Certainly, a bit of imitation can be flattering, though I can't expound fully on my idea in this short space. American industry, however, displays none of this ambivalence. It has sought very strong IP protections in trade matters, especially with the incorporation of Trade-Related Aspects of Intellectual Property Rights (TRIPS) into the WTO. Instead of whacking perceived offenders unilaterally through Special 301 as in the past, TRIPS has allowed American producers of IP--especially software, music, and movies--to pursue their anti-piracy concerns with gusto.

Below are some excerpts from the 2008 edition of the US Trade Representative's annual Special 301 report to Congress. There is a press blurb online, and taken from that is the USTR's list of the "Drrrty 46":

This year’s Special 301 Report places forty-six (46) countries on the Priority Watch List, Watch List, or the Section 306 monitoring list.

There are nine (9) countries on this year’s Priority Watch List: China, Russia, Argentina, Chile, India, Israel, Pakistan, Thailand, and Venezuela. Countries on the Priority Watch List do not provide an adequate level of IPR protection or enforcement, or market access for persons relying on intellectual property protection, in absolute terms and/or relative to a range of factors such as their level of development. Priority Watch List countries will be the subject of particularly intense engagement through bilateral discussion during the coming year.

Thirty-six (36) trading partners are on the lower level Watch List, meriting bilateral attention to address IPR problems: Algeria, Belarus, Bolivia, Brazil, Canada, Colombia, Costa Rica, Czech Republic, Dominican Republic, Ecuador, Egypt, Greece, Guatemala, Hungary, Indonesia, Italy, Jamaica, Kuwait, Lebanon, Malaysia, Mexico, Norway, Peru, Philippines, Poland, Republic of Korea, Romania, Saudi Arabia, Spain, Taiwan, Tajikistan, Turkey, Turkmenistan, Ukraine, Uzbekistan, and Vietnam...

Paraguay will continue to be subject to Section 306 monitoring under a bilateral Memorandum of Understanding that establishes objectives and actions for addressing IPR concerns in that country.

Meanwhile, here is executive summary from the report itself:

The “Special 301” Report is an annual review of the global state of intellectual property rights (IPR) protection and enforcement, conducted by the Office of the United States Trade Representative (USTR) pursuant to Special 301 provisions of the Trade Act of 1974 (Trade Act). The 2008 Special 301 review process examined IPR protection and enforcement in 78 countries. Following extensive research and analysis, USTR designates 46 countries in this year’s Special 301 Report in the categories of Priority Watch List, Watch List, and/or Section 306 Monitoring
status. This report reflects the Administration’s resolve to encourage and maintain effective IPR protection and enforcement worldwide.

The Special 301 designations and actions announced in this report are the result of close consultations with affected industry groups and other private sector representatives, foreign governments, Congressional leaders, and interagency coordination within the United States Government. This Administration is committe to using all available methods to resolve IPR related issues and ensure that market access is fair and equitable for U.S. products of IPR intensive industries.

The Administration’s top priorities this year continue to be addressing weak IPR protection and enforcement, particularly in China and Russia. Although this year’s Special 301 Report shows positive progress in many countries, rampant counterfeiting and piracy problems have continued to plague China and Russia, indicating a need for stronger IPR regimes and enforcement in those countries.

In addition to China and Russia, the Special 301 Report sets out significant concerns with respect to such trading partners as Argentina, Chile, India, Israel, Pakistan, Thailand, and Venezuela. In addition, the report notes that the United States will consider all options, including, but not limited to, initiation of dispute settlement consultations in cases where countries do not appear to have implemented fully their obligations under the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement).

In this year’s review, USTR highlights the need for significantly improved enforcement against counterfeiting and piracy, Internet piracy, counterfeit pharmaceuticals, transshipment of pirated and counterfeit goods, requirements for authorized use of legal software by government ministries, proper implementation of the TRIPS Agreement by developed and developing country WTO members, and ful implementation of TRIPS Agreement standards by new WTO members at the time of their accession.

Interestingly, the USTR notes the prevalence of online realms for piracy. Got to keep up with the changing times, y'see:

Allofmp3 (Russia). Industry reports that allofmp3 was formerly the world’s largest server based pirate music website. Although the site’s commercial operations appear to have been disabled in 2007 and a criminal prosecution is pending, other Russian-based websites are reportedly continuing operations with similar infringing content.

Baidu (China). Industry has identified Baidu as the largest China-based “MP3 search engine” offering deep links to copyright-protected music files for unauthorized downloads or streaming. Baidu is the target of ongoing infringement actions.

Business-to-business (B2B) and business-to-consumer (B2C) websites (China). A large number of these Chinese websites, such as Alibaba and Taobao, have been cited by industry as offering infringing products to consumers and businesses. The Internet traders who use these online markets to offer counterfeit goods are difficult to investigate, and contribute to the growth of global counterfeiting.

PirateBay (Sweden). Industry reports that PirateBay is one of the world’s largest BitTorrent tracker sites and a major global conduit for the unauthorized exchange of copyright-protected film and music files. PirateBay was raided by Swedish police in 2006, and the government initiated the prosecution of four Swedes associated with the site in January 2008, but the site has continued to operate, reportedly relying on servers located outside of Sweden.

There's plentiful interesting stuff in the report that should be of interest to those following IP enforcement. Of course, we cannot forget those old-fashioned marketplaces for physically traded counterfeit merchandise:

Silk Street Market (Beijing, China). Industry has cited Beijing’s Silk Street Market as
“perhaps the single biggest symbol of China’s IP enforcement problems.” In 2005, authorities began to pressure the landlords of Silk Street Market and other major retail and wholesale markets in Beijing to improve compliance with IPR laws. In 2006, right holders prevailed in several court actions related to the market, and executed a Memorandum of Understanding with the landlords in June 2006. A January 2007 industry survey of the market reportedly showed that counterfeiting has worsened, with apparent violations in 65 percent of all outlets. More recent industry reports indicate that counterfeiting at Silk Street Market remains at critical levels.

China Small Commodities Market (Yiwu, China). The China Small Commodities Market in Yiwu reportedly sells approximately 410,000 different items, mostly small consumer goods. Industry has cited the market as a center for wholesaling of infringing goods. Officials in Yiwu have met repeatedly with U.S. Government officials and stressed their work to improve IPR enforcement. Industry confirms that enforcement in Yiwu has improved. Continued improvement is needed, particularly in the area of criminal enforcement.

Gorbushka, Rubin Trade Center, and Tsaritsino Markets (Moscow, Russia). Industry representatives report that piracy problems persist in these markets, though the situation has improved at the Gorbushka and Rubin Trade Center.

Tri-Border Region (Paraguay, Argentina, and Brazil). The Tri-Border Region of Paraguay, Argentina, and Brazil has a longstanding reputation as a hotbed of piracy and counterfeiting of many products. The U.S. Government is funding a training project through which U.S. Department of Justice and U.S. Department of Homeland Security officials will train prosecutors, police, and customs officials from the Tri-Border Region to combat intellectual property crime. Although Ciudad del Este remains the hub for pirate activities in Paraguay, industry reports that trade there has declined and that commercial concentrations are shifting to other cities. Through a revised Memorandum of Understanding between the United States and Paraguay on IPR enforcement, the United States will be encouraging Paraguay to increase enforcement action with respect to a number of specifically-identified markets in that country.

Tepito, Plaza Meave, Eje Central, Lomas Verdes, and Pericoapa Bazaar (Mexico City); Simitrio-La Cuchilla (Puebla, Mexico); San Juan de Dios (Guadalajara, Mexico); and Pulgas Mitras and La Ranita (Monterrey). An estimated 50,000 vendors sell IPR products in Mexico’s ubiquitous, unregulated street markets. Past police raids on such markets have sometimes been met with violent resistance, requiring large contingents of security personnel.

Czech Border Markets (Czech Republic). Hundreds of open air market stalls are notorious for selling pirated and counterfeit products near the Czech border, including at the notorious Asia Dragon Bazaar in Cheb City. Many of these markets are highly organized, and even advertise on the Internet.

La Salada (Buenos Aires, Argentina). This is the largest of more than 40 large, well established markets in Buenos Aires that have been cited as being heavily involved in the sale of counterfeit goods. An estimated 6,000 vendors sell to 20,000 customers daily. The market is reputed to be a haven for organized criminal gangs that operate from within it, resulting in little to no IPR enforcement.

Neighborhood of Quiapo (Manila, Philippines). Street stalls in this neighborhood are notorious for selling counterfeit and pirated merchandise. Other notorious markets in Manila include Binondo, Greenhills, Makati Cinema Square, and Metrowalk.

Harco Glodok (Jakarta, Indonesia). This is reported to be one of the largest markets for counterfeit and pirated goods in Indonesia, particularly well-known for pirated optical discs. Enforcement officials are reportedly reluctant to conduct regular enforcement actions because of the presence of organized criminal gangs.

Panthip Plaza, Mah Boon Krong (MBK) Center, Klong Thom, Patpong, and Sukhumvit Road (Bangkok, Thailand). These locations are notorious for openly selling pirated and counterfeit goods. They are all designated as “red zones” by Thai authorities, which indicates that they are places where infringing products are most readily available.

Read More

China to Pump $1B Into Africa

♠ Posted by Emmanuel in Africa,China at 4/29/2008 01:24:00 AM

There has been much discussion featured on this blog about China's involvement in Africa [1, 2, 3, 4]. In assumed contrast to meddlesome Westerns, the Chinese have wisely portrayed themselves as a fellow LDC that can share its experience in spurring economic growth. In line with its professed policy of non-intervention in other states’ domestic affairs, China makes for a desirable partner for these African states which are often bent on authoritarianism as well by making no demands for political transparency, economic reform, or human rights; providing markets for their raw materials; and supplying investment, trade, training, and weapons. As usual, China is hearkening back to an earlier time when state sovereignty was the sine qua non of international diplomacy. This latest instalment comes courtesy of Bloomberg and talks about China dangling more money in front of African countries. Is this the new imperialism, or a developmental path? Jeffrey Sachs thinks it is the latter. Read on...

A Chinese fund set up to encourage investment in Africa may commit to spend $1 billion by the end of the year, Liliang Teng, president of the China-Africa Development Fund said today. The fund is in discussions with Chinese companies on projects to improve energy infrastructure in South Africa, Mozambique, Zimbabwe and eastern Africa, Teng said in interview at a business forum in Tanzania's northern city of Arusha. ``Besides energy and power plants we will also focus on infrastructure, like rail, roads and airports as well as other areas, including agriculture and manufacturing,'' he said.

The China-Africa Development Fund, announced by Chinese President Hu Jintao in November 2006, will grow to $5 billion and may become bigger depending on its initial results, said Teng. Financed by the China Development Bank, it approved the first investments with four Chinese companies totaling $90 million on Jan. 15, according to a press release on its Web site.

Sino-Steel Group, the China Building Material Co., Shenzhen Energy Group Co., and the CGC Overseas Construction Ltd. will use the money to develop electricity, construction, and mining projects in Africa, the statement said, without elaborating.

China's trade with African nations will rise to $100 billion by 2010 from $73 billion last year and $2 billion in 1999, Khalid Malik, the United Nations resident coordinator in China, said at the opening of the China Africa Business Forum in Arusha today. The two-day summit is bringing together 300 trade officials and businesspeople.

Critics say China's push into Africa for oil and raw materials to feed its growing economy in some cases disregards environmental laws, labor standards and human rights. Economist Jeffrey Sachs, the UN's special envoy on the Millennium Development Goals, said the positive impact of Chinese investment and skills transfer to Africa far outweigh the negatives. ``What is being promoted is a great increase in business development,'' Sachs said in a taped address.

Read More

Unknown: Inequality's Extent in Gulf Petrostates

♠ Posted by Emmanuel in Middle East at 4/29/2008 12:41:00 AM

One of the neat things about being the leader of one of the world's many authoritarian regimes is that you don't need to compile statistics that make you look bad if you don't want to. Today's case in point are the Gulf states with regard to indicators of equality. You can almost hear them say, "take your Gini coefficient and shove it." None of them disclose anything remotely resembling inequality data, whether based on income or expenditures. For all we know, these may be among the most unequal of states or the least unequal of states, though we cannot really be sure. Much ink has been spilled on the difficulties faced in these countries as inflation mounts in the face of their reluctance to drop pegs to the US dollar. However, it is unknown how the citizens of these countries are faring. The Financial Times provides some anecdotal insights here on inequality in the Middle East. It is admittedly an incomplete picture without large-scale survey data, but it's better than nothing, I guess:

But while the Gulf’s economic hyperactivity marks a remarkable contrast to the gloom in western capitals, where bankers and governments have been reeling from the credit crunch and bracing for recession, the oil boom is proving a challenge to manage, its trickle-down effect to the bulk of the population difficult to engineer.

The Gulf is awash with liquidity as oil money accumulates in government coffers. Nominal gross domestic product has doubled to $900bn (€576bn, £454bn) since 2003, according to the Institute of International Finance, and is set to grow by 14 per cent this year…But the upbeat mood has been marred by soaring inflation, which independent analysts estimate at 15 per cent in the United Arab Emirates and as much as 20 per cent in Qatar. Across the Gulf, both nationals and expatriates are complaining as rents climb and food prices surge. The pressure comes two years after many Gulf nationals were devastated by the collapse of stock markets, as state attempts to distribute oil wealth through initial public offerings turned sour.

Nor is it clear that the boom is creating sufficient employment for Gulf nationals, given the construction sector’s near total reliance on cheap foreign labour and the dire state of the region’s education systems. This may be less pressing a concern in countries with small national populations but it is putting governments in populous states such as Saudi Arabia under political pressure. “The corporate sector is making money but the man in the street does not feel better off; maybe some people feel even worse off,” says Anais Faraj, executive director at Nomura Investment Banking in Bahrain...

“The big beneficiaries of this boom are the companies but most employ non-locals, and at a certain level, the low-paid-level people, like secretaries, are hurting a lot,” argues Khalifa Jassim al-Thani, head of the chamber of commerce in Doha. “Over the past four years, prices of real estate have gone up four to five times.”

Companies also are starting to feel the squeeze, as wage bills and raw material costs are pushed up. An HSBC Gulf business confidence survey published this month found that 65 per cent of respondents remained optimistic about growth in their operations. But the proportion of businesses claiming a negative impact from inflation rose from 36 per cent in February 2007 to 61 per cent in the first quarter of this year.

“The wealth is going into the pockets of individuals,” says Keith Bradley, head of commercial banking for HSBC in Dubai. “But individuals are having to spend a lot more. There are winners and losers…”

Perceptions of the econ­omic surge’s wider impact are harsher than the reality, officials insist. “Did people benefit? Yes, how many have millions in the bank now? Salaries went up by 40 per cent two years ago,” says Yousef Hussein Kamal, Qatar’s finance minister. “But if you have 30 per cent [nominal] growth, you’ll face inflation.”

Omar bin Sulaiman, governor of the Dubai International Financial Centre, says inflation should be kept in perspective. “The growth that has taken place here is unprecedented anywhere – and it’s across all levels of industries,” he says. “So when people talk about inflation, yes it’s there. But when you measure the real inflation and the net of it – let’s take salaries – the increase in salaries is sometimes 40-50 per cent and the inflation you’re talking about is 11 per cent, 12 per cent in certain areas. The net of that is not bad.”

Mr Bradley of HSBC says consumer spending in the region has started growing faster than inflation, evidence that the benefits are being spread around. His bank also estimates that there were 15,000-18,000 businesses created in the UAE last year, in construction-related sectors, services and healthcare.

But the extent to which this is creating new employment for the middle class of nationals and expatriates is difficult to gauge, given the lack of accurate official statistics. There are indications that in Saudi Arabia, where the jobless rate is estimated at about 12 per cent, unemployment may be rising…

“There is trickle-down effect but a good question is whether it is happening at the rate, or in a fashion, that is satisfactory,” says Abdulmohsin bin Abdulaziz al-Akkas, Saudi minister of social affairs.

Whether in Saudi Arabia or elsewhere in the Gulf, the distortions in the job market will take a generation to fix. As governments try to shrink their public sectors, they have yet to reform their education systems to produce graduates suited for the private sector.

“Unemployment has a lot to do with the skills mismatch as well and everyone recognises that,” says Mohsin Khan, head of Middle East at the International Monetary Fund. “The nationals of these countries will never be doing the jobs of the unskilled workers they have to import from South Asia. What you need is to upgrade the skills of the Saudis and Emiratis in order to have them compete with the professional foreign expatriate.”

Hussain al-Nowais, member of the Abu Dhabi Economic Council, says much of the government effort is now geared towards creating employment. While the state is kick-starting big industrial enterprises, a new fund in the UAE capital has been set up to help create small and medium-sized companies, assisting them with free loans and ideas. “We are doing everything with that [trickle-down] in mind,” he says…

Among the main victims of the monetary policy, however, have been Asian construction workers whose home currencies have been appreciating against the dollar. “The cost of living increased here, so people have less savings and, with the decline of the dollar, they have to spend more money to remit money to India. And in India, there is more demand for more money, because of the increase in cost of living there,” says K.V. Shamsudheen, the UAE-based chairman of Pravasi Bandhu Welfare Trust, which looks after Indian expatriates.

In countries beleaguered by social problems, such as Saudi Arabia and Bahrain, a widening of the gap between rich and poor could breed more resentment of the regimes, particularly when perceptions abound that the politically connected are gaining the biggest contracts. “The top 5 per cent of society is gaining more and more and the others are getting nothing at all,” says Mohammad Fahad al-Qahtani, an assistant professor of economics at the Institute of diplomatic studies in Riyadh.

In smaller states with predominantly expatriate populations – the UAE and Qatar, for example – the risk is different. Experts say that unless governments devise a comprehensive econ­omic and monetary policy, inflation could become a real threat to the economic expansion.

“I suggest someone comes up with a well-thought-out monetary and economic policy that is not reactive,” says Mr Makhoul of Morgan Stanley. If inflation keeps rising, he adds, “the accountants, the human resources people, the receptionists, those who work in shops may find it better to go home ... If you start alienating people like that, you can’t have a growing economy.”

Read More

Russia's Troubles on the Road to WTO Accession

♠ Posted by Emmanuel in Europe,Trade at 4/28/2008 11:57:00 PM

Russia is the largest state in terms of both population and economic output not in the WTO. Despite this fact, I am still surprised that, as far as I know, I am the only weirdo who has been following the country's path to WTO accession in the blogosphere [1, 2, 3, 4]. Why the neglect? I think this matter is beyond trivial pursuit considerations, and it also may be the most interesting country to accede to the WTO since China in 2001 in geopolitical terms. Nevertheless, this is the IPE Zone, and I will cover this topic no matter what as it is primo, A-No. 1 international political economy fodder. As noted earlier, the Republic of Georgia was always going to be the roadblock on Russia's path to WTO membership. In particular, Russia has long been cottoning up to Georgia's breakaway republics of South Ossetia and Abkhazia. Moscow has held a dim view of Georgian President Mikhail Saakashvili as a Western stooge, especially after the ouster of President Eduard Shevardnadze in the so-called Rose Revolution of 2003 (he was previously Soviet foreign affairs minister).

The latest row was sparked by Russia's decision to create stronger ties with South Ossetia and Abkhazia on 16 March 2008. While rather short of diplomatic recognition, Georgia was nonetheless extremely displeased by Russia's action. On top of this, Georgia has been pressing Russia to close its checkpoints with the breakaway republics as per an agreement made between the two countries in 2004. South Abkhazia and Ossetia have had historical grievances with their Georgian neighbours, and have appealed for help from Moscow. One of the more interesting appeals was based on Kosovo's declaration of independence on 17 February 2008; the breakaway republics thought this set a precedent for Russia to follow in recognizing them. Fat chance of that lest Moscow risk offending even more WTO members other than Georgia. Remember, Russia needs the assent of all WTO members including Georgia before it gets into the WTO. From ITAR-TASS, our second favourite official news agency (actually, ITAR-TASS's articles are usually better written, more informative and impartial than Xinhua's, but that's another story for another time):

Georgia will resume bilateral talks with Russia on its accession to the World Trade Organisation (WTO) only after the Russian leadership has cancelled its decision of April 16 to establish direct ties with Abkhazia and South Ossetia. Deputy Minister of Economic Development Tamar Kovziridze told Georgian Public Television and Rustavi-2 television on Monday, “The next round of multilateral talks on Russia’s accession to the WTO may be tentatively held in a month.” Kovziridze, who leads the Georgian delegation to the talks on Russia’ s accession to the WTO, is in Geneva on a visit. Speaking of bilateral talks with Russia, she said they would resume “only after the leadership of Russia has cancelled its decision on April 16”.

Russian’s chief negotiator Maxim Medvedkov said earlier that Russian-Georgian consultations on Russia’s accession to the World Trade organisation scheduled for Monday had not taken place because of Georgia’s refusal to negotiate. “We were supposed have consultations on the operation of customs points in the Abkhazian and South Ossetian sections of the Russian-Georgian border, but they did not take place,” he said.

A Georgian official said his country was suspending the process until “Russia stops the operation of the Russian president in respect to Abkhazia and South Ossetia”. The official said, “These instructions contain measures that require ratification by the WTO or are not consistent with certain articles of the WTO Charter”.

“So we made a different announcement for the members of the working group [on Russia’s accession to the WTO], according to which none of the words in these instructions affected the WTO discipline, and we think that our Georgian partners’ statements, let alone their refusal to negotiate, is the wrong step that does not help solve the problems that have piled up in Russian-Georgian relations and in the context of Russia’s accession to the WTO,” Medvedkov said. In his words, the Georgian delegation even tried to block the decision on further operation of the working group, but “the overwhelming majority of the participants in today’s consultations called for continuing the process”.

The Georgian Ministry of Economic Development said earlier in the day that Russia’s decision of April 16 infringed upon Georgia’s sovereignty and a director violation of the fundamental principles of the WTO. “At the bilateral talks with Russia [and] Georgia, as before, will raise the question of Russia’s compliance with the obligations signed in 2004 that provide for trade with Georgia through legal checkpoints and the legalisation of checkpoints ion the Abkhazian and South Ossetian sections of the Georgian-Russian state border”.

In February, Saakashvili said Russian government officials had given their preliminary agreement for the opening of joint border customs points on the border, including on Abkhazian and South Ossetian sections.

Read More

"Insourcing," the Revival of British Manufacturing

♠ Posted by Emmanuel in China,Outsourcing,Supply Chain at 4/28/2008 01:43:00 AM

Listen up as you're likely to read more about this practice in the near future. Among the latest buzzwords to hit little ol' me is insourcing. In contrast to the phenomena of outsourcing where firms located in industrialised countries move their activities to LDCs to take advantage of lower costs abroad, insourcing concerns the opposite. Insourcing happens when firms that sought greener pastures elsewhere discover that, gee, the grass isn't really greener on the other side. The Guardian has an interesting story about this trend happening in Blighty. Yes, it's anecdotal evidence and all that, but it makes for an interesting read nonetheless. With the finance sector in dire straits in Britain--those who handle circulating capital for you Marxists out there--the manufacturing industry (Marx's industrial capital) is making something of a comeback. Here are the Cliff's Notes for you readers with short attention spans:

(1) Britain has supposedly neglected its industrial sector for a long time, taking a hands-off approach to industrial policy while its European neighbours have exhibited greater protectionism;
(2) In contrast, most of the policy breaks have gone to the finance sector as its share of economic activity has steadily increased over the years;
(3) With Britons feeling the effect of a credit crunch--let them eat subprime--manufacturing is becoming the unlikely sector where the country is pinning its hopes;

What follows are the reasons for a putative revival of fortunes for UK manufacturing:

(4) Labour in China isn't as inexpensive as it was just a few years ago;
(5) Quality concerns over tainted toys and whatnot have increased customer preference for goods made in the UK;
(6) With commodity prices being as high as they are, it matters less where goods are made, especially in cases where raw materials cost is the major contributor to costs;
(7) With the British pound relatively weak against the Euro (see above chart), making stuff at home to sell to the EU--the destination of over 60% of the UK's exports and its largest export market--becomes comparatively attractive than having stuff made elsewhere;

Bring it on home, indeed. There is also stuff about the government pursuing the promotion of green industries, but given the chequered history of British involvement in industrial policy, that may require a leap of faith. Fear of outsourcing is so 2004, dahling. From the Guardian:

It may be a struggle to imagine a Britain in which the main topic of conversation over the table at dinner parties is no longer house prices, a comfortable berth in a top City firm is no longer an object of desire for every bright young graduate, and a few hours at Bluewater or Ikea is no longer considered a great family day out. But when the credit crunch, with its day-to-day drama of bank bail-outs and mortgage rationing, fades away, it may leave behind a very different country.

Mervyn King, the governor of the Bank of England, has repeatedly said he would like to see a 'rebalancing' of the economy. For too long, consumers have been borrowing to prop up their spending, saving next to nothing, and banking on rising house prices to make the sums add up. And banks have been devising ever more sophisticated funding models to raise the money to lend to them.

But with the days of cheap borrowing over for the foreseeable future, and the housing boom at an end, it will take families a very long time to rebuild their finances. King and his colleagues at the Bank would like to see a band of doughty exporters up and down the country step forward, helping a new, more stable, less spendthrift economy rise, phoenix-like, from the ashes of the debt-fuelled boom of the past five years.

One such export hero could be Danny Bamping, managing director of Bedlam Puzzles, who has benefited from the fact that consumers have begun to shun toys made very cheaply in countries in the Far East. Mattel, maker of the Barbie doll, had to recall millions of toys - all made in China - because of lead in the paint, and because children were swallowing bits of them. 'The Mattel issue worked in our favour,' admits Bamping, who has appeared on the BBC's Dragon's Den

But until 2007, like many Western toy manufacturers, Bedlam Puzzles made all its games in China. It decided to move production to the UK last year, partly because of soaring costs in China. In just one year, its costs there had increased by about 20 per cent. A stronger yuan, increased shipping costs and the time lag in getting products to the UK market were also factors.

China's loss is the UK's gain. Indeed, this trend of 'insourcing' production back to the UK is one factor contributing to a mini-revival of the manufacturing sector, according to trade body the EEF. The pound's weakness against the euro is also helping to make UK goods cheaper in the eurozone. Last year, says the EEF, saw the best conditions for a decade. Figures published last Thursday from the CBI tempered this optimism, however: output has fallen slightly and manufacturers reported their biggest increase in costs since 1990. Nevertheless, as the credit crunch continues to hog the headlines, manufacturing is holding up relatively well.

Tomorrow, David Frost, director-general of the British Chambers of Commerce, which represents many of the UK's small firms, will underline this in a speech to members: 'If you lived your life in London you would often be left with the impression that the economy was about to fall off a cliff,' he will say. 'From my visits around the country I can assure you it is not. When I speak to our members, be it in Aberdeen, Birmingham, St Helens or Rotherham, they not only inspire me with their success, but they tell me that while business is challenging, they are doing well. They are succeeding in tough export markets.'

Economists agree. In this post-credit-crunch world, they say, hitherto-neglected manufacturing could play a larger role. Andrew Sentance, one of the independent members of the Bank's Monetary Policy Committee, said in a speech last week that 'strong domestic demand and a strong pound need to give way to a period of weaker growth of domestic demand, accompanied by a more competitive currency'. He added: 'This process of rebalancing is likely to benefit sectors more heavily dependent on overseas demand, such as manufacturing industry.'

So now that the City and consumer spending are running out of steam, could resurgent manufacturers help the UK stave off recession - and work that rebalancing trick? The City has long contributed more wealth to the UK economy than the manufacturing sector has, but its growth has accelerated massively over the past decade. In 1992, finance and business services accounted for 24 per cent of Britain's GDP, compared with 21 per cent for manufacturing. By 2004 - the latest available figures - the gap had widened to 32 per cent and 14 per cent. The Office for National Statistics estimates that in 2002, 10 million workers in the UK were employed in 'financial and business services', compared with one in 10 in 1981. Only about 3 million workers are now employed in manufacturing, down from almost 4.5 million in 1994.

But official statistics ignore newer, growth areas of manufacturing - those that focus on providing services or design and innovation, according to Steve Radley, chief economist at the EEF. 'Manufacturers don't just produce goods any more. They also offer services, and are focusing more on innovation and design. The lines are becoming blurred between companies manufacturing and companies that offer services.'

For example, a huge growth area for defence manufacturers - one of the few large 'old-style' heavy industries left in the UK - is providing repair and maintenance services for the hardware they sell to the Ministry of Defence. Shipbuilding and services group VT makes just as much money from providing this type of 'lifetime care' as it does from selling the ships in the first place. According to the EEF, more than half of the 3 million people employed in manufacturing now work in areas other than production, such as research and development, sales and support services.

Radley says companies are increasingly trying to focus on niche, hi-tech sectors such as clean energy, or research and development in the pharmaceuticals or biotech industries. The EEF is resolutely upbeat. Radley says manufacturing represents a bigger slice of the economy than official statistics suggest because a lot of the services the manufacturers provide are not recognised. It points out that, in 2007, manufacturers were planning to invest more in expanding their business than they have since 1995. Last year over a quarter more firms reported plans to increase output compared with those which were cutting back.

While the weakness of the pound is one factor helping Britain's manufacturers, particularly in the eurozone, the soaring cost of raw materials such as oil and metals is also encouraging the trend of bringing production back to the UK. China's main advantage as a manufacturing base is low costs, but higher commodity prices are eroding it. John Parker, chief executive of the Cast Metals Federation, says that in the past six months members have started reporting that customers who had switched their orders to Chinese foundries are now placing orders in the UK.

'The difference now is the cost. A few years ago, the price of, say, a manhole cover might be 50 per cent lower in China than in the UK. But because of the huge increase in international metals prices - which everyone has to pay - the benefit of low labour costs is much less pronounced. Add to this concerns over quality and delivery, and castings produced in the UK become much more attractive.' [Parker's] members - who make items ranging from manhole covers to components for water pipes - are also benefiting from the boom in construction in the developing world.

But little of the credit for these successes goes to the government. According to the EEF, between 2000 and 2005 the British government spent far less on research and development in industry than Canada, France, Germany, Italy, Japan or the US. In 2005, it spent just 0.006 per cent of GDP on R&D, a third of what Germany and Italy spent and less than a tenth of Japanese spending.

Industry executives complain that while the government has given the City special treatment - such as the preferential tax status of 'non-doms' - manufacturing has been left to sink or swim.

One managing director of a steel fabricating firm, who did not want to be named, says: 'The government abandoned manufacturing and its contribution to the country a long time ago. I feel we're on our own.' He says rivals in Germany, Japan and France get bigger tax breaks on investment in new plants.

Lack of government support for British manufacturing is a long-running complaint. In the 1980s, for example, the Conservative government questioned whether the UK needed its own car manufacturing industry. Radley says: 'Some politicians have argued that we could do away with manufacturing altogether. That is very naive and ignorant. The credit crunch shows the risks of being overdependent on one part of the economy.'

Lack of government support for the UK manufacturing sector has been an ongoing theme. Unlike the French, the Italians or the Germans, British politicians have always fought shy of propping up loss-making industries. Continental governments also stand accused of flouting competition rules at home - not allowing their national energy companies to be taken over by foreigners, for example. Yet, the complaint runs, these same firms, whose markets are protected at home, are quick to take advantage of the UK's open-market philosophy. This means that most of the UK's energy industry is owned by French, German, Spanish or US companies. As a result, the UK increasingly has to rely on foreign companies to supply new power plants. John Garside, principal fellow at the Warwick Manufacturing Group, says that because of this free market approach, 'we are approaching the position of having to rely on overseas companies for technical expertise'.

The car industry is a good example of the strengths and weaknesses of this approach to manufacturing. The indigenous British-owned car-manufacturing industry - MG Rover, TVR - has disappeared. Some of the world's most efficient foreign car makers - Japan's Nissan, for example - have replaced them.

But however efficient the UK has become at making things, however good British firms become at carving lucrative niches, if foreign-owned companies decide to move production overseas, they will move the rest of their activities - including R&D and design - away too.

As Radley says: 'There is a worry that if production goes overseas, innovation will follow. Foreign ownership has been very good for UK manufacturing. New ideas have come in. But the danger is that foreign-owned companies have a bias to locate higher-value activities like R&D in their home countries.' Garside agrees: 'These foreign-owned companies are not here for our benefit. They hold the intellectual property and choose where to locate their development centres.' The EEF says the government needs to make it attractive for foreign-owned companies to locate activities such as research and development here.

Last November the government announced a review of manufacturing, which will report this summer. It will concentrate on how British industry can put the UK at the 'forefront of developing and manufacturing new green technologies'. Focusing on 'green technologies' such as renewable energy makes sense: the UK is one of the windiest places in Europe, with hundreds of miles of coastline that can be exploited to generate renewable energy. Yet a lack of government support - and an obsession with the free market - means the UK lags behind most of Europe on renewables. Even if the government's review does represent a genuine attempt to do more for manufacturing in this area, it could come too late. Garside says: 'The government is big on promoting sustainability. But how can we influence the design of these products if there's no one capable of doing it left in the UK?'

Manufacturing is bearing up well - for the moment - in the face of the credit crunch. Economists certainly expect this sector to grow more quickly than financial services in the short term. But because much of British manufacturing is in foreign hands, the cultural ties to this country are not as strong. If they are to stay, the government needs to do more to make it worth their while.

Read More

HIV/AIDS: World Bank Pays Tanzanians for Safe Sex

♠ Posted by Emmanuel in Africa,Bretton Woods Twins,Health at 4/28/2008 12:57:00 AM

The fight against HIV/AIDS takes a novel turn in this latest effort by the World Bank in Tanzania: The Bank is performing a pilot study on whether economic incentives contingent upon not testing positive for various STDs can be a way to help prevent the spread of HIV/AIDS. I am unsure of whether this sort of thing can become a commonly used technique for preventing the spread of HIV/AIDS for a number of reasons:

First, there is a vast academic literature which demonstrates the harmful effects of using economic incentives on intrinsic motivation. Intrinsic motivation is the notion that persons do an activity for its own sake and not for any other reward. In this case, that would be observing safe sex practices without being paid to do so. When these economic incentives are removed in the future, what will be the effect if intrinsic motivation has been eroded by the use of incentives? Instead of simply comparing before and after, it is important to see what happens when these economic incentives are removed if this example is to be followed elsewhere.

Second, there are about 22.5M infected with HIV/AIDS in Africa. To run a programme involving a similar number of persons would cost $13.5B over 3 years if you extrapolate from the figures given in the article about the programme's costs. Prevention-through-payment is not an inexpensive option. Overall, this is a well-meaning effort and I wish it well, but there are just two of the things to think about. Those with expertise on the matter of disease prevention and health care in developing countries should have more to say. The age range of the participants is also something that requires further explanation. From the Financial Times:

Thousands of people in Africa will be paid to avoid unsafe sex, under a groundbreaking World Bank-backed experiment aimed at halting the spread of Aids.

The $1.8m trial – to be launched this year – will counsel 3,000 men and women aged 15-30 in southern rural Tanzania over three years, paying them on condition that periodic laboratory test results prove they have not contracted sexually transmitted infections. The proposed payments of $45 equate to a quarter of annual income for some participants.

The programme, jointly funded by the World Bank, the William and Flora Hewlett Foundation, the Population Reference Bureau and the Spanish Impact Evaluation Fund, marks an important step in the fight to tackle Aids, which claims 2m lives a year. In spite of billions of dollars spent annually on treatment and prevention worldwide, there were about 2.5m new HIV infections in 2007, predominantly in Africa.

Carol Medlin from the University of California, San Francisco, one of the researchers, said: “We hope this ‘reverse prostitution’ will make people think hard about the long-term consequences of their short-term behaviour.” The Tanzanian experiment is a big advance in efforts to test public health ideas more rigorously, with some participants placed in a control arm not offered payment in order to track the effects of the programme precisely.

“Conditional cash transfers” have already been used in Latin America to motivate poor parents to attend health clinics, and have their children vaccinated and schooled. Michael Bloomberg, the mayor of New York, last year unveiled a project to boost school attendance.

The designers of the Tanzanian programme believe that payments of $45 when combined with careful counselling could play an important role in reducing HIV infection, especially for vulnerable young women. The study will be conducted by the Ifakara Health Research and Development Centre in Tanzania, in conjunction with researchers from the University of California, Berkeley, the University of California, San Francisco and the World Bank.

The Tanzanian trial programme, which is still subject to fine-tuning and ethical approval, will not specifically test for HIV, which is costly and already widely conducted in the country. It will use proxies including gonorrhoea, and guarantees any participant found to be infected receives state treatment.

Read More

Crass Warfare: "Happy List" Takes on "Rich List"

♠ Posted by Emmanuel in Marketing at 4/28/2008 12:11:00 AM

British newspapers are engaged in mortal kombat over declining circulation. I, like many others, have gone digital in reading news online. Who needs newspapers when you've got the Internet? There are five (count 'em!) quality dailies here in the UK. If you want me to try arranging them on the left-right political spectrum, they are The Independent, The Guardian, The Times (of London), The Financial Times, and The Daily Telegraph. So much good stuff to read, yet they are all chasing a dwindling newspaper audience--and I haven't thrown in the topnotch online content of the BBC yet. Among the five respectable dailies, only the Financial Times increased its circulation in 2007--with nary a half-naked woman in sight in this age of lowest common denominator journalism.

Anyway, I've taken a shine to the Sunday editions of two of these famous papers, the Sunday Times and the Independent on Sunday. The Times has just published another special issue dedicated to the "Rich List" of those who have accumulated vast fortunes in Britain and abroad as well as their Robin Leach-worthy lifestyles. Topping Britain's richest are steel magnate Lakshmi Mital (£27.7B) and Russian oligarch Roman Abramovich (£11.7B). The City of London may be in the dumps with the credit crunch, but these two and a boatload of others seem to be cruising along. In the newspaper sweepstakes, the "Rich List" issue usually does well as the chattering classes will always be interested in the holders of the greatest filthy lucre.

In anticipation of the Rich List issue, the Independent has come up with its own gimmick to move newspapers: The "Happy List" comprised of those who do their bit for charity, philanthropy, the environment, and so on. The "Happy List" is positioned as the antithesis of the infamous "Rich List." Here is the introduction to the Independent's list:

The Wealth List, Power List, Influence List, Celebrity List... almost every week some publication or other is worshipping at the shrine of the wealthy and famous. Today, 'The Sunday Times' produces its famous Rich List, an entire magazine devoted to the moneyed. About time, then, we thought, that someone produced an antidote. So here it is: the Happy List, celebrating those Britons who have given back, enhanced the lives of others and realised that in an acquisitive society there's a crying need for values other than mere materialism.

Deciding to do this – because it was needed and because we believe it reflects our readers' values – was the easy part. Choosing who to include, and the criteria they would have to satisfy, was a great deal harder. We'll spare you the pseudo-philosophical debates that ambushed the early days of this project and cut to the conclusions we reached: that the people on our list should be those who make the lives of strangers happier, that this is their prime motive in doing what they do (as opposed to a side-effect of it), and that their example deserves celebrating. And, after considering the conditions under which community happiness tends to flourish, we elected to look for candidates in 10 categories: philanthropy, charity, mental well-being, physical health, pleasure (ie those in the media and culture who make us feel better), environment, innovation, volunteers and time-givers, community activity, and entertainment...

You get the idea. Like many, I am conflicted over which list I'd rather be on. Or, perhaps, there is no real conflict between the two. Perhaps in anticipation of the Independent's dig at the Times, the latter has done a counterstrike with an article featuring the philanthropic contributions of those on the "Rich List." It all makes for interesting reading, certainly, and I'm sure it provides a momentary bit of a boost in copies sold. The news business ain't easy here, that's for sure:

A new age of philanthropy is revealed by this year’s Sunday Times Giving List. Our barometer of charitable activity shows that the super-rich are engaged in unprecedented levels of giving. They are more directly engaged in the distribution of that money than ever before. Many of the predominantly self-made men and women who top this year’s Giving List are demanding the same level of control over their giving as has served them so well in their wealth-creation activities.

The leading 30 philanthropists among Britain’s richest 1,000 people have pledged or given away almost £2.38 billion in the past year, nearly double last year’s figure of £1.21 billion, and more than five times the amount in 2006. To make the top 30, an individual had to give to charity at least 3% of their residual worth, up from last year’s record figure of 1.36%. Indeed, in our expanded table of the top 50 givers, right, all are donating at levels greater than last year’s top 30.

Their entrepreneurial confidence is fuelling a giving spree of a scale never seen before. “Sea-change is not too strong a word for what we are seeing,” says John Low, chief executive of the Charities Aid Foundation. "There are two distinct trends: one is a move towards being more open about giving, the other is a move towards planned giving and wanting to take greater ownership of it. This has been going on for a while but it is gaining momentum.”

Read More

Japan's Beggar-Thy-Neighbour Food Policy

♠ Posted by Emmanuel in Agriculture at 4/25/2008 02:13:00 PM

Japan's approach to agriculture is schizophrenic, to say the least. While it would like to maintain some of the world's highest subsidies and tariffs to protect locally produced food, it is also keen on maintaining a steady supply of food imports from abroad as it is the world's biggest net food importer. It is beggar-thy-neighbour at its most undiluted: try and maintain as much domestic protectionism while making everyone else shoulder the burden of high subsidies and tariffs. With a lot of developing countries now restricting food to ensure that local supplies are kept at adequate levels--and, more importantly, to avoid food riots--Japan is set to lobby the WTO on disallowing restrictions on others' exports of important grains. The asymmetry is striking, and it would get even more striking if Japan got its way. From Bloomberg:

Japan, the world's biggest net food importer, will ask the World Trade Organization as early as next week to introduce rules to prevent countries from restricting exports of wheat, rice and other grains. Countries such as Thailand, Vietnam and China have imposed export curbs on rice as shortages caused prices to double in the past year. Shortfalls in other staples are starting to bite in Japan, where a reliance on imports of cattle-feed led to a butter shortage and a gain in wheat costs pushed up bread prices 8 percent in December, the first increase in 17 years.

``Japan wants balanced rules for food exporters and importers,'' Hiroaki Kojima, deputy director for international economic affairs at Japan's Agriculture Ministry, said in a phone interview. ``Food exporters can freely export or not, but importers are told to remove restrictions and lower tariffs.''

Securing WTO intervention may be difficult for Japan, which is also delaying seeking imports of rice it's committed to under the trade body's rules. Developing nations are pressing Japan to reduce subsidies and import tariffs as high as 700 percent on farm products and open its market in the Doha Round of WTO talks.

Raj Patel, author of the book ``Stuffed and Starved'' about global food disparity, said developing countries will likely get more protectionist, following recent shortages that caused protests and riots in Haiti, Egypt and the Ivory Coast. ``The places facing the worst crisis are the ones where safety buffers like import tariffs and reserves have been removed,'' he said by phone last week. ``The nasty end of the whip has cracked down on the poorest communities in the world.''

Japan will delay tendering for imports of rice required under a WTO agreement until international prices stabilize, a senior government official said late yesterday. He declined to be identified as a decision hasn't been formalized. Japan imported 630,550 tons of rice in the year ended March 31, falling short of the 770,000 tons a year it agreed to. Rice prices in Chicago rose to higher than $25 per 100 pounds for the first time today because of speculation more countries may curb their exports. ``There's a profound irony that countries like Japan that have wriggled most successfully out of WTO rules on agriculture are doing the best,'' Patel said. Japan is the world's largest net food importer, buying 7.9 trillion yen ($76.4 billion) a year compared with 434 billion yen in exports, the government says.

The country imports 86 percent of its wheat and the government was forced to raise prices 30 percent this month. Consumer prices probably rose 1.2 percent in March, the fastest pace in a decade, because of increases in energy and grain costs, a Bloomberg survey of economists shows. The statistics bureau will release the figures tomorrow. Yamazaki Baking Co., Japan's largest bread and pastry maker, said it will raise prices of bread, cakes and sweet buns by around 8 percent next month after increasing them for the first time in 17 years in December.

``Until now Japan could rely on purchasing food from anywhere in the world because consumers can afford to pay,'' Yasuhiko Nakamura, head of the government's food education council, said last week. ``In the future, it may be impossible to import even if we have money.'' Nakamura says Japanese should eat more rice, the only major agricultural product where it's 100 percent self-sufficient. Consumption has fallen to 8.5 million tons a year from a peak of 12.99 million tons in 1965 and production will exceed demand this year by 210,000 tons.

Rice consumption is central to government efforts to boost food self-sufficiency to 45 percent from 39 percent by 2015. Japan's rice farmers are among the most cosseted in the world, receiving 53 percent of their income in government support, according to the OECD.

Import tariffs of 341 yen ($3.19) per kilogram, inefficiency and lack of competition, has rice in Tokyo selling at almost five times the price in Chicago. Domestic Japonica rice sold for 257 yen ($2.48) a kilogram this month, compared with 55 U.S. cents a kilogram for rough rice on the Chicago Board of Trade yesterday. Producing 60 kilograms of rice costs a Japanese farmer around ten times more than a farmer in the U.S., according to Japan's Agriculture Ministry.

``Economically it makes more sense for Japan to import California rice, which is not distinguishable from domestic rice,'' Emiko Ohnuki-Tierney, a professor of anthropology at the University of Wisconsin and author of the book ``Rice as Self,'' said in a phone interview.

Further WTO liberalization has Japan's farmers worried at a time when their numbers are declining. The number of farmers shrank to 3.4 million in 2005 from 14.5 million in 1960 as people aged over 60 rose to 69.1 percent of the population from 17.5 percent.

A report last year by Japan's Agriculture Ministry showed removing all import tariffs would reduce Japan's agricultural production by 42 percent, or 3.6 trillion yen. Around 90 percent of domestic rice production would be replaced by foreign imports, while Japan's self-sufficiency rate would fall to 12 percent from 40 percent, the report said. The Agriculture Ministry's Kojima acknowledged seeking the removal of export restrictions may anger food exporters. Japan will seek support from other food importers including Norway, Switzerland and South Korea, he said.

Read More