So, Just How Capitalist is China?

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.

Finance: Can Tokyo be London of the East?

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.''

The Wide World of Piracy: Special 301 for 2008

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.

China to Pump $1B Into Africa

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.

Unknown: Inequality's Extent in Gulf Petrostates

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.”

Russia's Troubles on the Road to WTO Accession

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.

"Insourcing," the Revival of British Manufacturing

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.

HIV/AIDS: World Bank Pays Tanzanians for Safe Sex

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.

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

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.”

Japan's Beggar-Thy-Neighbour Food Policy

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.

Yankees' Chien-Ming Wang & Taiwan's Int'l Pol Econ

The resident ace of the New York Yankees' pitching staff is none other than Chien-Ming Wang from the Republic of China, better know as Taiwan. With Wang's record now 4-0, Taiwanese citizens starved of something to root for are going berserk pulling for the tall, silent hurler for the Yankees. Yes, non-Yankee fans like me will point out that Wang doesn't strike out a whole lot of hitters and gets by with a lot of run support from the megabuck Yankees lineup, but don't tell that to the Taiwanese people. [The AP writeup linked above notes that he is the fastest pitcher to reach 50 wins since Dwight Gooden in 1986, requiring only 85 starts.] This fellow is far more popular than any Taiwanese politician. When he takes to the mound, the country practically stops to watch. Newspaper advertising rates soar as well on days when he pitches. Plus, a study claims that the Taiwanese Stock Exchange performs better when Wang pitches well. Why it's WangMania! Add that virtually every product imaginable bears his likeness in the ROC and you've got Chien-Ming Wang, Inc. For the first time ever, from ESPN:

Some 7,800 miles from New York City, in his native country -- where his famously stoic face gazes from billboards, ATMs, credit cards, cellphones, bags of potato chips, milk cartons; where the people call him, simply, Taiwan zhiguang (the pride and glory of Taiwan) -- Chien-Ming Wang is everywhere and nowhere, a hero and a prisoner. For an intensely private, excruciatingly shy 28-year-old, being a national icon is a heavy burden. "It's crazy," he says in his slow and soft voice. "I think, This is strange. I'm just one man..."

After his rookie season Wang returned home to a hero's welcome, receiving an invitation to meet President Chen Shui-Bian. By the time Wang returned home after the 2006 season, in which he went 19-6 with a 3.63 ERA and finished second in American League Cy Young voting, he was more popular than the president. "There's no question that he has more impact than anyone else in our country," says Shao. "The way we look at it, a president is in office for no more than eight years, then someone else comes along. Wang, he's everlasting."

Now Taiwan's major newspapers charge a higher advertising rate for issues published on a day that Wang pitches, as well as the day after each start. The country's largest circulation daily, Apple Daily, estimates that it sells as many as 300,000 extra papers on days that carry reports of another Wang victory. Endorsements that have come Wang's way include McDonald's, Ford, E Sun Bank (one of the largest in Taiwan) and computer-maker Acer, which claims that Wang's name alone has increased its product sales by 10% and lowered the average age of its consumer by almost four years.

A lagging economy, political scandal (the president's wife, Wu Shu-Chen, and three aides were charged with embezzlement, while former Vice Interior Minister Yen Wan-Ching was recently convicted in a bribery case) and escalating tensions with China have made this a nervous time for the Taiwanese people. "Wang, he's our only consensus," says Shao. Referring to the government's combative legislative branch, which is renowned for in-chamber brawling among lawmakers, Shao says, "When our congressmen are debating, they'll stop their fighting, watch Wang pitch, then go back to fighting when the inning is over."

Last year a study in a Taiwanese business journal, Money Weekly, found a correlation between Wang's pitching performances and the fluctuations of the Taiwan Stock Exchange. The report attributed a 25% index rise last summer to Wang's strong June and July. "We absolutely believe it to be true," Shao says of the relationship between Wang's performance and last summer's bull market. "Psychologically, how [Wang] does has a huge effect on the Taiwanese people. If he does well, people are in a good mood, and they go out and spend money. If he doesn't, you walk around and you can see people depressed. It's a very personal matter to the Taiwanese people." (For the record, the country's stock index was up roughly 6%, through Monday, since Wang's first start this season, on April 1.)

The Dismantling of the "Republic of Samsung"?

Asian markets were rocked by this bombshell announcement that Samsung chairman (and the son of its founder) Lee Kun Hee was to step down after being indicted for tax evasion and breach of trust. Of course, the Samsung conglomerate is one of the largest in Asia; in Korea, its market capitalization constitutes 20% of the big board there. With Lee resigning together with many other top Samsung executives--not to mention the reassignment of his son abroad--does this mean the end of the road for an economic model which has served predominated in the past? To Westerners, it smacks of crony capitalism. To many Asians, however, it speaks to such things as "Asian values" and a host of other imponderables if one cares to discuss arm's-length capitalism. Indeed, there is some research which purports to find developmental benefits from corruption in East Asian examples [1, 2]. It is hard to say whether the Korean economic model is due for a makeover. Yet, it is even harder to say whether the days of the Lee's influence over the Korean political economy are numbered. Old habits die hard. From Bloomberg:

Samsung Group Chairman Lee Kun Hee lauds global business standards, ethical management and accounting transparency in his ``CEO message'' posted on the corporate Web site. ``If we are careless in our execution or complacent with what we have accomplished thus far, we could easily tumble to the bottom in a flash,'' writes Lee, 66, who has overseen South Korea's biggest family-run conglomerate, or chaebol, for two decades.

While Lee's indictment last week on charges of breach of duty and evading about $113 million in taxes blunted his ethics push, the announcement yesterday that he and other top Samsung executives will step down puts more at stake. The chaebol model itself -- criticized by outsiders as a closed network even as it poured investment into the economy -- may be unraveling, according to some analysts.

The announcement signals ``an end to the era of the Masters of the Universe,'' says Tom Coyner, who helps advise foreign investors in Korea as president of Soft Landing Consulting Ltd. in Seoul. ``The resignation by Chairman Lee Kun Hee is unprecedented.''

Samsung's presence in the nation's economy is huge. Its 59 subsidiaries -- led by the flagship Samsung Electronics Co., Asia's largest maker of mobile phones, chips and televisions -- made up about 18 percent of South Korea's 2006 gross domestic product of $888 billion. Now, management of the group that has guided strategy for the chaebol for decades is in doubt.

Group Vice Chairman Lee Hak Soo and President Kim In Joo will quit by the end of June, Samsung said in the statement yesterday that brought news of Lee Kun Hee's departure. The group's strategic planning office, which controls group operations, will be dismantled and Samsung may turn into a holding company, the statement said.

The chairman's son, Lee Jae Yong, will be reassigned overseas. The charge of breach of duty arose because Lee Kun Hee caused losses at Samsung by helping his son gain control of group units, according to prosecutors. The resignations create a vacuum atop a business empire that was started in 1938 by Lee Byung Chull, Lee Kun Hee's father. The current chairman's departure will leave Samsung affiliates under independent management, a Samsung official said.

The tax evasion and breach of duty charges resulted from a probe that began in January after Samsung's former chief lawyer, Kim Yong Chul, issued public allegations of financial irregularities. Other Samsung executives were charged with similar offenses, including Lee Hak Soo, 61, and Kim In Joo, 49.

Prosecutors said that the strategic planning office was involved in managing about 4.5 trillion won ($4.5 billion) in funds and helping the transfer of control to Lee Jae Yong. Prosecutors said they found no evidence of Kim Yong Chul's central allegation -- that the group diverted funds to bribe government officials and journalists. Kim had alleged that the planning office directed the purported bribery operations. ``I'm truly sorry for causing so much concern with the investigation,'' Chairman Lee, who hasn't admitted or denied the charges, said in a televised press briefing yesterday. ``I will assume full legal and moral responsibility.''

Samsung Fire & Marine Insurance Co. President Hwang Tae Seon and Samsung Securities Co. Chief Executive Officer Bae Ho Won will also resign, while Samsung Life Insurance Co. chief, Lee Soo Bin, will represent the group externally, the statement said.

The family-controlled chaebol emerged in Korea after Park Chung Hee, who seized the country's presidency through a military coup in 1961, promoted industrialization through multiyear economic plans. The International Monetary Fund cited the chaebol's debt-driven practices as part of the reason the economy landed in a financial crisis at the end of 1997.

The chaebol have long had close ties to the government, and some politicians who favor greater limits on the industrial groups call Korea the ``Republic of Samsung.'' Many chaebol recruit senior government officials or ex-prosecutors to lobby for them, says Cho Seung Min, a former researcher at the Institute of Public Policy and Administration at Chung-Ang University in Seoul. Lobbying is unregulated, he says.

Lee's family controls group units through a maze of cross shareholdings. For example, the chairman and related parties own 36 percent of Samsung Life, which in turn is the biggest shareholder of Samsung Electronics, according to regulatory filings. The chairman's son is the second-largest owner of Samsung Everland Inc., the group's de facto holding company.

Shares of most Samsung Group subsidiaries listed on the Korea Exchange fell yesterday. Samsung C&T Corp., the building and trading arm, slid 9 percent to close at 70,700 won. Samsung Securities, Samsung Fire, Samsung Engineering Co. and Hotel Shilla Co. all fell by more than 3 percent. Samsung Electronics gained less than 1 percent.

Chairman Lee was convicted in 1996 for bribing ex- Presidents Chun Doo Hwan and Roh Tae Woo, drawing a two-year prison term that was suspended for three years. He was pardoned by President Kim Young Sam a year later. Prosecutors in 2005 had investigated whether Lee and other company executives used corporate funds to pay presidential candidates. He was later cleared. The chairman took the helm in 1987 after the death of his father, who founded Samsung as a four-story wooden store selling groceries in the southern city of Daegu. By 2006, Samsung Group's revenue jumped ninefold over two decades to $159 billion, according to the company's latest consolidated figures. Its 2006 exports totaled $70 billion, or 21 percent of the country's total exports.

Lee's resignation contrasts with Hyundai Motor Co. Chairman Chung Mong Koo, who has kept his position even as he faces a retrial for embezzlement. Chung was convicted last year. Anti-chaebol groups remain unconvinced that the changes announced yesterday will enhance Samsung's transparency. ``We hardly believe there will be any real improvement in the group's corporate governance,'' Solidarity for Economic Reform, a Seoul-based civic group, said in an e-mailed statement.

American Junk Gets Junkier: Euro Above $1.60

The following is an open letter to Henry Paulson:

Henry Paulson
Treasury Secretary
Department of Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220

Dear Secretary Paulson,

Us dollar holders would like to know just what you mean by a "strong dollar" policy. You have continuously reiterated this line of your Bush administration predecessors that the United States backs such a policy. On the day you assumed office on 10 July 2006, the Euro/USD exchange rate stood at $1.28. Today, 22 April 2008, the Euro now trades above $1.60. In whatever terms you prefer--trade-weighed, real effective exchange rate (REER), et cetera--it seems the dollar is on the back foot. Please clarify in what sense a 20% nominal depreciation demonstrates strength.

Although some may consider the "strong dollar" claim disingenuous, we will give you the benefit of the doubt. If you can suggest an alternative definition of "strong" for us--perhaps the dollar is strongly in demand in highly progressive economies which show the way forward for the US economy like Venezuela or Zimbabwe--your input would be much appreciated. I highly suspect that our inferior vocabulary skills are behind this misinterpretation issue as our dollar savings shrink into further oblivion--except in terms of Venezuelan bolivars or Zimbabwean dollars.

Faithfully yours in depreciation,
The IPE Zone

What is the World's Text Messaging Capital?

I am very much interested in the use of information and communications technologies (ICT) in developing countries. A few days ago, I featured a post about the emerging applications of mobile phone banking in a number of LDCs. Today, I will turn my attention to the technology which many mobile phone banking services piggyback on: the short-messaging system (SMS) of cell phones. Text messaging is very popular in developing countries for an understandable reason. It is much more affordable to send text messages than to make phone calls, and this feature thus gains relevance in this context. Although text messaging was originally seen as a secondary application for cell phones, it has gained additional salience given its affordability. Phone cards go a much longer way if you text rather than talk.

Some of the research I have recently performed required me to investigate levels of text messaging in the developing world. In particular, what is the world's text messaging capital? For a long time, the Philippines had this distinction in sending about 200-400 million messages daily. There, the revenues of telecommunications firms from text messaging actually exceed those from phone calls. However, there is now a challenger on the horizon that has upped the stakes: China. In the Philippines, sending a text message costs about $0.02, while it costs $0.01 in China. It turns out that in terms of sheer volume, China has indeed eclipsed the Philippines. According to the government telecoms regulator Ministry for Information Industry (MII), there were 1.6 billion messages sent daily in China during 2007. Meanwhile, a Reuters article of recent vintage notes that the two largest Philippine cell phone providers have recorded text messages averaging around 1 billion sent daily in 2007.

The king is dead, long live the new king? Well, not so fast. There are 50 million cell phone users in the Philippines, while there are 547 million in China. So, the daily average for the Philippines in terms of text messages sent is an astounding 20, while that in China is a more modest 3. Thus, the Philippines retains its title in terms of text messages sent per user even if China outstrips it in terms of total number of messages. Text messaging should be an Olympic sport given the dexterity I've seen some display in going through the SMS menus...M NT KDDNG ;-)

EU's Mandelson Blasts Japanese Protectionism

EU Trade Commissioner Peter Mandelson remains a dedicated free trader in this age of rising protectionist sentiment. Call him an idealist--call him quixotic--but Mandelson is still pushing the free trade agenda like it's 1999. His once and probably future run-ins with Chinese trade authorities are famous, especially with the "bra wars" brouhaha. In a visit to Japan, Mandelson did the most un-Asian thing by taking the issue of Japanese protectionism up with his hosts. From 1997 to 2006, it is claimed that Japan was host to the least amount of FDI among OECD countries. Mandelson went on his current rampage (or at least what passes for it in diplomacy) after Japanese authorities were unwilling to let the activist UK hedge fund The Children's Investment Fund double its stake in Japanese electricity company J-Power to 20%. Given my usual aversion to protectionist measures, I still am uncertain whose side to take here as I am not a big fan of interventionist hedge funds, either. Still, there is definitely room for the Japanese to allow in more FDI to shake up the often hidebound corporate culture of the country. From the Financial Times:

Europe’s trade chief rounded on Japan on Monday for exploiting the openness of other economies while erecting barriers to trade and investment at home.

In a combative speech to the EU-Japan Centre of Industrial Co-operation, Peter Mandelson, the European Union trade commissioner, said Japan was “the most closed investment market in the developed world”. Referring to its commitment to increase inbound foreign direct investment, he said: “This is not being translated into reality.” Mr Mandelson’s stern words came after Tokyo rejected, on national security grounds, a proposal by The Children’s Investment Fund, a UK activist fund, to double its stake in J-Power, an electric power wholesaler, to 20 per cent.

Mr Mandelson said he was not referring specifically to the TCI case, but making a wider point about Japan’s low foreign direct investment levels. However, he added: “The risk for Japan is that overseas it is interpreted negatively as another signal that Japan doesn’t welcome foreign investment.”

The country should recognise that investment brought trade, technology and management skills. “We are not talking about fly-by-night short-term players who are going to earn a quick buck at Japan’s expense and then clear off. And that’s how I think Japan views outside investors too much,” he said.

The speech seems likely to provoke strong reaction from sections of the Japanese government. Mr Mandelson cited figures showing that Japan accounted for only 3 per cent of Europe’s $3,000bn (€1,900bn) in accumulated outbound foreign direct investment. Japan’s FDI penetration rate was the lowest among advanced nations and one-seventh of the Organisation for Economic Co-operation and Development average, he said.

Japan’s trade and finance ministries last week issued a statement to accompany their rejection of TCI’s proposal to increase its stake in J-Power, saying: “It is Japan’s fundamental policy to continue liberalisation of investment and to promote investment aggressively.” They said cumulative FDI had risen by Y2,600bn in 2007, the second-highest recorded jump and noted that, of 760 notifications of investments in the past three years, they had rejected just one.

However, Mr Mandelson, in Japan for an EU-Japan summit, suggested that Japan was taking advantage of other countries’ open economies while keeping its own shut. “For every dollar Japan invested in the UK and the Netherlands alone, European companies were able to invest a net total of only three cents in Japan,” he said.

Quality Gremlins Hinder PRC's Global Auto Assault

I've featured quite a few articles on China's attempts at global auto market domination before [1, 2, 3, 4, 5]. This is none too surprising as the PRC is now the second largest auto market in the world. Today, Reuters has a feature on how the road to global auto markets for Chinese automakers will likely pass through the developing world before reaching US shores with their wares. There is still some way to go before Chinese cars are fully competitive, especially in terms of safety standards and construction quality. Plus, there are forces working against setting prices too low in an appreciating Chinese yuan and rising shipping prices as well:

China's auto makers have set their sights on becoming the next exporting powerhouse on the world's roads and they have made emerging markets, from Latin America to Russia, their proving ground. They have reason to be satisfied so far: China sold 612,700 cars abroad last year, up nearly 80 percent, mostly in the developing world, according to the commerce ministry.

But like the Japanese and Korean car companies that went before them, Chinese firms are finding they have to win customers with cut-price deals before they can establish their names. "People don't know these cars. They just see they're Chinese and think that means they're bad," said Rafael Bader, a commercial director at Cinascar, the biggest importer of Chinese cars in Ecuador, Colombia and Venezuela. "It's a reality we have to confront."

Cinascar has tried to change the popular perception by waging a public relations campaign and offering extended warranties along with prices that are 20-25 percent cheaper than competitors. The firm has been in Ecuador for only ten months and its numbers show that it has already catapulted into 11th place by units sold out of the country's 43 dealers.

Doubts about quality, though, are hard to shake. The Changhe Ideal, the car Cortez was considering, had defects visible to the non-expert eye. The car's logo had seemingly been stuck on in haste and sat at an awkward angle; some paint had come off its body; and gaps between the side panels were clearly uneven. To be fair, the Changhe was one of the cheapest on the lot. It is even hard to find a car that cheap in China as Chinese producers have generally kept their best cars at home, deliberately targeting the low end of foreign markets.

Safety concerns have dogged Chinese cars in their attempts to break into the United States and Europe. The latest in a string of crash test failures came last year with the Brilliance BS6, billed as a premium sedan at a budget price. "An ice cube stands a better chance of survival in the Sahara than the driver of a BS6 does in a severe front or side impact", Car and Driver magazine said on reviewing the test results. Brilliance Auto, BMW's partner in China, went back to the drawing board after the embarrassment and the BS6 notched up three stars out of five in a later test, paving the way for its launch in Europe in the next few months.

Perhaps not surprisingly, Chinese automakers have had an easier time getting their wheels on the ground in developing countries where safety and emission standards tend to be lower. But poorer countries offer more than just the path of least resistance; analysts say they also present a vast untapped market with enticing growth potential.

Sitting in Cinascar's Quito office, the urbane Bader spreads out his arms to show what lies in wait for auto makers who can do things on the cheap. Up to now, cars have been out of reach for the 80 percent of Ecuadoreans who get by on low incomes, he said. "We are bringing opportunities for the maid who has dreamed of having a car but has had to travel on the bus," he said...

But Chinese automakers are loath to get sucked too deeply into the pricing race to the bottom, a senior executive at Great Wall Motor, China's largest SUV maker, said. Cost pressures mean that competing on price alone is not a viable long-term strategy, said the executive, who declined to be named as he is not authorized to speak to the media. Shipping rates have soared over the past few years on a boom in seaborne trade, which in no small part has been driven by China's rise and rise as an economic power. Another price push is the yuan's appreciation of more than 18 percent since mid-2005 when China depegged its currency from the U.S. dollar. "There won't be a sudden spike in Chinese car prices overseas, but an uptrend is inevitable with a stronger yuan and rising shipping rates," he said.

More On Mobile Phone Banking for Development

In much of the developing world, the technology that matters is the cell phone and not the personal computer, One Laptop per Child initiative and its sundry issues notwithstanding. What is notable is that the diffusion of this innovation has been largely self-funded by folks of modest means. Worldwide, it took 20 years for the first billion persons to use cell phones, yet it only took four years for the second billion to adopt this technology and just two years for the third billion. In achieving these adoption rates, there was no Millennium Development Goal, Gleneagles Summit, Live Aid, Bono, Angelina Jolie, Jeffrey Sachs, or any sort of high-profile appeal for more aid. Simply put, those in LDCs found worthwhile benefits in using cell phones through reducing transaction costs and broadening their networks. They paid for the devices, putting their money literally where their mouth is.

The New York Times recently featured an article on how the cell phone can help end poverty. With cell phones, text messages are the equivalent of e-mails. Until the last few years, however, there have been limited opportunities for transacting through cell phones. On the Internet, you can buy and sell things on eBay, check your bank account, and so forth. Cell phones being the technology that matter in LDCs, it was only a matter of time before financial services became available via cell phone. This is the part of the NYT article dealing with the advent of mobile phone banking and its prospects for supercharging the microfinance area:

It’s also the precursor to a potentially widespread formalized system of mobile banking. Already companies like Wizzit, in South Africa, and GCash, in the Philippines, have started programs that allow customers to use their phones to store cash credits transferred from another phone or purchased through a post office, phone-kiosk operator or other licensed operator. With their phones, they can then make purchases and payments or withdraw cash as needed. Hammond of the World Resources Institute predicts that mobile banking will bring huge numbers of previously excluded people into the formal economy quickly, simply because the latent demand for such services is so great, especially among the rural poor. This bodes well for cellphone companies, he says, since owning a phone will suddenly have more value than sharing a village phone. “If you’re in Hanoi after midnight,” Hammond says, “the streets are absolutely clogged with motorbikes piled with produce. They give their produce to the guy who runs a vegetable stall, and they go home. How do they get paid? They get paid the next time they come to town, which could be a month or two later. You have to hope you can find the stall guy again and that he remembers what he sold. But what if you could get paid the next day on your mobile phone? Would you care what that mobile costs? I don’t think so.”

In February of last year, when Vodafone rolled out its M-Pesa mobile-banking program in Kenya, it aimed to add 200,000 new customers in the first year but got them within a month. One year later, M-Pesa has 1.6 million subscribers, and Vodafone is now set to open mobile-banking enterprises in a number of other countries, including Tanzania and India. “Look, microfinance is great; Yunus deserves his sainthood,” Hammond says. “But after 30 years, there are only 90 million microfinance customers. I’m predicting that mobile-phone banking will add a billion banking customers to the system in five years. That’s how big it is.”

I have previously posted about the G-Cash initiative and will have more to say about it and other m-commerce initiatives shortly. The Consultative Group to Assist the Poor (CGAP) also has a write-up about South Africa's WIZZIT mobile phone banking service. For even more information, the world's largest cell phone manufacturer, Nokia, has an overview of the various initiatives around the world which aim to broaden financial access among those at the bottom of the economic pyramid. It makes for a good introduction and certainly suggests worthwhile future directions for poverty reduction. If those of modest means have been willing to purchase cell phones to gain benefits without the Bono-ite fanfare, then the vertiginous rise of cell phone use will continue. Here is part of the Nokia magazine's feature:

Mobile phones provide a means of extending financial services to the unbanked – people without bank accounts. Emerging markets, which have the greatest need for enhanced access to financial services, are currently leading the innovation in the field of mobile banking (m-banking). One key factor in the increasing success of m-banking is the spread of mobile phones across all socioeconomic groups and geographical areas.

A number of promising projects are under way, but for m-banking to gain truly significant impact globally, more cooperation and policy coordination would be necessary between financial and telecommunications regulatory environments. The Philippine Central Bank is showing the way with its active approach including new technology platforms that help making m-banking easier. It is also cooperating closely with the country’s mobile operators and financial institutions on m-banking. Working together, the key stakeholders (telecom and financial regulators, operators, financial institutions, solution providers and mobile handset manufacturers) can help make m-banking a reality and extend access to financial services to those who need it most.

We also focus on the total cost of ownership (TCO) of mobile communications from the perspective of a lower-income consumer, in an article that reviews the affordability situation across 80 countries. For the majority of lower-income consumers in emerging markets, the monthly total cost of ownership is still far beyond their reach. As mobile devices are expected to become the primary means for accessing data and internet services in most emerging markets, their affordability is key. Governments and the mobile industry need to continue their efforts to reduce the TCO in order to provide lower-income citizens with affordable access to information and communications technologies.

Case Closed: Brits are American Wannabes

For better or worse, the Brits are the most American-like of the Europeans. Worse, Brits seem to take up the worst of Americana. You can of course say that I have things the other way around historically speaking, but still: On this side of the pond, we've got lots of tanking subprime loans, debt-addled households, overweight folks, and this monstrosity above. I was enjoying a nice quiet lunch at my place when the "vehicle" pictured here rolled into the Shell gas station across the street. If there is an automotive contraption in poorer taste than a pink stretched Suburban limo, I have yet to come across it. (I was kind of disappointed that the accursed thing didn't have a flamingo hood ornament, actually.) From what I can tell, the wretched thing is even left-hand drive [!] Call it the Britneyfication of Britain, but things are surely getting worse. Now, if you'll excuse me, I have to look up the contact details of that curmudgeonly arbiter of taste, Prince Charles, to spare me from further ghastliness...

Are Economists Prone to Self-Interested Behaviour?

There is a stream of academic research that delves into how economists may be more prone to self-interested behaviour than others. This sort of behaviour follows from the economic maxim of utility-maximizing behaviour: Before engaging in any activity, those thinking "economically" would, theoretically, consider matters in cost-benefit terms. Will the cost to me result in tangible benefits? In his work The Economic Approach to Human Behaviour, Nobel laureate Gary Becker sees economics not so much as a field of study but as an approach to human behaviour centred on utility maximization. Among other things, children are compared to consumer goods [!] Homo economicus, rational economic man, has had a profound influence on the social sciences despite the never-ending debate whether s/he provides an accurate representation of human behaviour. Unsurprisingly, lumping kids with refrigerators and trash compactors has a way of eliciting mixed reactions.

Political science types like myself sometimes resent incursions into the field by those wielding "rational choice" economic approaches to politics which depict those engaging in public service as only being in it for the money. Among countless criticisms of the economic approach is one I'm writing about here: There may be a reflexive tendency inherent in economic pedagogy. If you buy the core idea of economics that we're all but a bunch of self-interested utility maximizers, then you'll behave that way sooner or later. Frank, Gilovich, and Regan (1993) asked the question, "Does Studying Economics Inhibit Cooperation?" and found the answer to be in the affirmative. Among other things, they found economists were more than twice as likely as those working in other disciplines to give nothing to charity:

The article which I link to features similar results from other studies. This pattern suggests that economists may have internalized the conviction that they are but self-interested utility maximizers.

I bring this up for a natural experiment has just been conducted on the topic here at the Univerity of Birmingham. Recently, the British Higher Education Academy (HEA) solicited survey responses from postgraduate research students about the quality of their postgraduate learning experiences. I filled out the form sometime ago as I will soon be eligible to become a member of the HEA and thought nothing more about it until I received an e-mail message about the survey. Apparently, the University was rather unhappy with the response rates from the survey and asked the various departments to improve the tally. (Only 15.9% of all postgraduate research students at Birmingham replied.)

As with the Frank et al. (1993) study, the results are instructive as they demonstrate the same phenomenon of homo economicus at play. Here is a brief rundown of the response rates from some of the departments along with some speculative commentary about why the response rates were such. You can view the entire file as well:

European Research Institute: 13/49 or 26.5% - Europeans are still quite civic-minded.
Electrical Engineering: 28/114 or 24.6% - I haven't the slightest clue what to say about this.
Chemical Engineering: 31/140 or 22.1% - Ditto.
Political Science: 11/61 or 18.0% - We lament declining voter turnout, but we're pretty apathetic ourselves.
Sociology: 4/42 or 9.5% - This survey is a bourgeois plot to further undermine our well-being.
Business School: 8/88 or 9.1% - How the !%^& will filling this survey help us earn money?
American and Canadian Studies: 1/39 or 2.6% - Studying American behaviour requires displaying similar kinds of apathy.
Theology and Religion: 3/287 or 3.0% - Earthly nonsense isn't to be bothered with.

...and dead last is [drum roll, please]...
Economics: 0/62 or 0.00% - There's nothing in it for me, bub.

WTO Predicts Slowdown In Trade Growth for 2008

The chart above depicts annual GDP growth vis-a-vis goods export growth between 1997 and 2007. With the exception of 2001, annual trade growth has been a given. Still, the example of 2001 is illustrative of what may happen in 2008. As the world economy slows--but perhaps not to a similar 2001-style crawl--exports may be hit as well. While I cannot easily provide evidence offhand, I'd think that security concerns in the wake of 9/11 may have affected the free flow of goods that year. Then again, less than four months' worth of exports would have been affected, so it's more than likely that the economic slowdown played the lion's share in making export growth negative in 2001.

Certainly, China joining the WTO on November 11, 2001 also has considerable bearing on the changes wrought in the world economy since. Anyway, the chart above is just one of many you'll find in the WTO's latest press release on the prospects for trade growth in 2008. Perhaps unsurprisingly, the organization predicts trade growth will slow--but not by much to 4.5% in 2008. While developed countries will take it on the chin in terms of trade volumes, LDCs look set to go along their merry way. In any event, it's hardly a scenario for "deglobalization":

World trade growth slid to 5.5% last year from 8.5% in 2006 and may grow even more slowly in 2008 — at about 4.5% — as sharp economic deceleration in key developed countries is only partly offset by continuing strong growth in emerging economies, according to World Trade Organization economists.

WTO economists cautioned that their preliminary assessment of 2007 trade figures and forecasts for this year have been unusually difficult to gauge due to the uncertainty caused by sharp market fluctuations…

Developing economies and the Commonwealth of Independent States (CIS) region ¹, however, maintained or strengthened their expansion of output, contributing more than 40% of world output growth in 2007. Developing countries’ share of world merchandise trade (exports plus imports) reached a new record level of 34% in 2007. These two groups of countries are expected to record faster growth in imports than exports; together they are expected to contribute more than one half of global import growth in 2008.

The sharp rise of commodity prices — particularly fuels and metals — greatly improved the financial situation of most developing regions and boosted imports. But, higher energy and food prices translated into inflationary pressures worldwide…

Lower import growth [in 2007] than in the preceding year was observed in North America, Europe, Japan and the net oil importing developing countries in Asia. This downward trend outweighed the higher import growth observed in Central and South America, the CIS, Africa and the Middle East. It is estimated that the developing countries as a group accounted for more than one half of the increase in world merchandise imports in 2007.

Among the leading traders, China’s (real) merchandise trade expansion remained outstandingly strong in 2007 as lower export growth to the US and Japanese markets was largely offset by higher export growth to Europe and a boom in shipments to the net-oil-exporting regions. Despite a booming domestic economy, weaker demand in some of China’s major export markets and a moderate real effective appreciation of the yuan, import growth continued to lag behind export growth.

Power Shortages Hurt African Commodity Exports

You must be thinking, "African countries exporting oil, metals, precious stones, and other stuff you can dig out of the ground must be doing very well right now with high commodity prices prevailing in global markets." Alas, there is a bugaboo afflicting many of them which hinders their efforts: lack of power. Power is necessary to transport goods, ensure that mines are operational and any number of other economically important activities. However, the lack of investment in Africa over the years has been especially felt in terms of infrastructure--there simply hasn't been that much foreign investment in power generation and the like. Botswana, for instance, has just one coal-fired power plant. There are surely opportunities in Africa for those companies brave enough to invest in power generation, but they're surely laden with "political risk." A lively illustration from below is of a Nigerian power company's bill collectors being chased away by machete-wielding "customers" due to a lack of electricity [!] From the Wall Street Journal:

The global commodities boom is claiming another casualty: Africa's already-shaky power grid. With the continent's power-hungry mining sector booming and the economy along with it, national electricity grids are fraying. Higher prices for coal and oil are only intensifying the strain on electricity companies.

The poor in South Africa's sprawling townships have long been used to power cuts. Now, upscale shoppers here browse darkened malls, while moviegoers are accustomed to outages disrupting shows. In nearby Botswana, plans to bring electricity to rural villages are threatened as the government struggles to maintain power at the nation's diamond mines.

Frequent and disruptive power outages plague about 35 of sub-Saharan Africa's 53 countries, according to the World Bank. The situation is triggering violence and threatening deeper instability across a region already wracked by unrest. Residents of impoverished Port Harcourt, Nigeria, enraged at paying for inconsistent or nonexistent electricity, recently have chased away the power company's bill collectors with machetes.

In South Africa, Eskom, the government-owned power company, is taking drastic actions to prevent its national grid from collapsing altogether. Last month, it petitioned federal regulators to allow it to hike rates by more than 50% -- a stinging increase designed to curb demand. It also reduced power to the country's robust mining industry. The drop in capacity has helped elevate international gold and platinum prices.

"The situation is critical," says Steve Lennon, Eskom's managing director for resources and strategy. The company has had to resort to scheduled outages since January, and recently warned that additional cuts may be necessary.

In a rare mea culpa, South African President Thabo Mbeki apologized for the electricity shortages during his February state-of-the-union address. He declared the situation to be a "national emergency" and vowed to confront the problem.

Unreliable power poses a major constraint on the region's economic development. Much of sub-Saharan Africa still operates largely on the margins of the global financial markets, isolating it from the economic turmoil buffeting the developed world. Booming commodity prices of the past few years, however, have made the region attractive to foreign investors. Now the electricity crisis is damping their enthusiasm. "It's one of the biggest concerns for the business community," says Vivien Foster, the World Bank's lead economist on sustainable development in Africa.

Outages are costing African economies as much as 2% of their gross domestic product, according to World Bank estimates. For big businesses, outages are reducing revenue by as much as 6%, according to the bank's surveys of manufacturing firms in Africa. Sales losses can approach 16% for smaller companies operating in the continent's vast, informal economy. These include unregistered convenience shops and hair salons that serve many African cities and villages.

Power for most Africans is still a luxury. Just under a quarter of sub-Saharan Africa's population has access to electricity in the first place, and that is concentrated in urban areas. Africa has the capacity to generate about 63 gigawatts of power for roughly 770 million people -- about what Spain produces for its population of 40 million. For most African countries, the World Bank estimates that universal access to electricity is at least 50 years away.But these days, even the few who have come to expect electricity are finding it increasingly difficult to come by -- or afford.

New plants -- some powered by coal or oil -- can take years to build, so some countries are resorting to pricey emergency measures: They're using generators powered by diesel or other fuel and attempting to store up extra coal to feed existing plants. All this is happening just as energy prices are rising, which means they can't afford enough coal, or enough oil, to fill the gaps.

"We pay a bill this week, and put off another one," says Ibrahima Coulibaly, an accountant for a construction firm in Dakar, Senegal. Sometimes, he says his children's school fees go unpaid so that he can pay his electricity bill, which has shot up 88% over the past three years due to escalating oil prices. "You have to make a choice between what is indispensable and what is superfluous," he says. "Electricity is indispensable."

Africa's power crisis is halting or reversing modest efforts in recent years aimed at bringing cheap electric power to rural areas. Economists call these residents the "energy poor," because without lights or the ability to power new technologies or appliances, people have difficulty competing or progressing in a modern world.

One of the hardest hit regions so far is South Africa, the continent's largest and most vibrant economy. Since 2000, the country's gross domestic product has more than doubled, from $133 billion in 2000 to $272 billion last year. The country's power grid hasn't kept up. Despite warnings from Eskom in 1998 of an impending crisis, the government didn't order new plants built until 2004.

The country has Africa's most developed infrastructure -- from busy freeways to speedy Internet connections -- lending it a first-world feel. Johannesburg, the commercial hub, is home to a burgeoning stock market and wealthy gated communities. The country also has vast reserves of diamonds, platinum, gold and other metals that it hauls from some of the world's deepest mines.

On the country's southern coastal tip, Cape Town boasts sprawling beach homes. Amid the past few years of sharply rising commodities prices, the mining-heavy economy here has thrived. Investment bankers and private-equity investors are rushing to scout for deals.

The power-intensive mining industry puts additional strain on the grid. Mining companies have had to dig deeper in recent years to get access to dwindling reserves. That requires more electricity. The mining industry, responsible for 7% of the country's economic output, draws 17% of the country's electricity production.

Last year, Eskom found itself unable to meet demand for the first time. Blackouts this January snarled traffic as many stoplights in Johannesburg went on the blink. Retail stores reported a spike in thefts during power outages and some restaurants have invested in costly generators to keep customers coming. South Africa's cuts are roiling neighbors. That's because Eskom exports power to much of the region. In copper-rich Zambia, South Africa's outages forced the country's largest mining company to suspend operations altogether in January. Electricity demand in Botswana, a big diamond producer in southern Africa, is growing at 8% a year. Diamond mines suck up roughly half of the country's overall consumption. South Africa is now cutting back on the electricity it's willing to sell to the country.

Also at risk: government-funded electrification efforts aimed at bringing power to the countryside. Botswana has only one coal-fired power plant. In the past, it has relied on cheap imports from South Africa for 70% of its electricity needs. Eskom has said it will cut Botswana's share of power in half by 2010, leaving the country scrambling to find other solutions or face a crippling shortage.

Energy Minister Ponatshego Kedikilwe acknowledged earlier this year that Botswana had an "emergency" situation. "With the rate of demand and levels of growth one could say that should've been anticipated," he said during a recent news conference. He noted that the government was looking into energy-saving measures -- such as public awareness campaigns -- to reduce demand.

Gordon Brown, Champion of the English Language

I haven't the slightest idea why PM Gordon "British Jobs for British Workers" Brown has taken it upon himself to become the leading proponent of English language instruction. Surely, the benefits from certifying instructors qualified to teach the language will not fill British government coffers. Nor can I see how this would benefit British industry in a direct fashion. Instead of sticking with "English Language for English Workers" or some other similarly hackneyed slogan, however, the PM is aiming to make the English language even more dominant than it already is. To this end, he wants to train more English teachers to send to the PRC. I've taken this blurb from the PM's own website. He aims to give anyone in the world the opportunity to study English:

The English language, like football and other sports, began here and has spread to every corner of the globe. Today more than a billion people speak English. It is becoming the world's language: the language of the internet, of business, of international flight - the pathway of global communication and global access to knowledge. And it has become the vehicle for hundreds of millions of people of all countries to connect with each other, in countless ways. Indeed, English is much more than a language: it is a bridge across borders and cultures, a source of unity in a rapidly changing world.

English does not make us all the same - nor should it, for we honour who we distinctly are. But it makes it possible for us to speak to each other, to better understand each other. And so it is a powerful force not just for economics, business and trade, but for mutual respect and progress. I don't know how many times I've been told by people in every continent I have visited of the power of the English language to break down barriers to understanding.

For Britain, this is not a matter of narrow national pride. It is in part an accident of history - a wave of knowledge and commerce, which gathered even greater global force in the post-war era, that gave the world the English language.

And government after government around the world is recognising the role of English - ensuring it is taught at primary level as a core skill. In total, 2 billion people worldwide will be learning or teaching English by 2020. Today 350 million people speak English in India and another 300 million in China, with more children learning English in Chinese schools than in British schools. And in continents and countries where there are varied languages and dialects, often the people speak with each other in English - their shared language.

But there are millions of people in every continent who are still denied this chance to learn English - prevented from enjoying many of the benefits of the internet, commerce and culture. And I believe that no one - however poor, however distant - should be denied the opportunity that the English language provides. So I want Britain to make a new gift to the world - pledging to help and support anyone, whatever their circumstances, to have access to the tools they need to learn or to teach English. And my plan is that in the next 10 years at least 1 billion more people in the villages, towns and cities of every continent will have access to resources, materials and qualifications from the UK.

This week, during my visit to China and India, we will start to make our new commitment a reality. I want this to be a world wide endeavour of private and public sectors working together - with broadcasters, telecom companies, publishers, universities, colleges and schools playing their part in opening up English language opportunities to millions.

First, we will announce that the British Council, working with partners from both public and private sectors, will set up a new website offering learners and teachers of English around the world ready access to the materials, resources and qualifications they need to develop their skills in English. Having - with the BBC and the Open University - pioneered the use of the internet to reach many more people on-line, the British Council is perfectly placed to lead this path breaking project.

The new site will enable one to one tuition to take place through VOIP (Voice Over Internet Protocol), harnessing new technology to share the power of English. It will provide links to a wide range of sites with a wealth of knowledge and creativity in education, industry, culture, and science. And over the next few years, we hope to see the site being used by people in the schools, cities and even remote places on every continent.

Most critically of all, it will put English teachers and learners in touch with their counterparts in Britain and other countries. With an initial focus on China, our starting ambition is to encourage 1 million hits on the website a month. And this will play an even bigger part in the rapid transformation of English speaking in China, supporting the decision of China's government that English language lessons should be a requirement in Chinese schools from age six with 20 million more children a year starting lessons. In Beijing alone 200,000 adults also take English lessons outside the school system. And I believe that, with the right help, we will have a situation by 2025 where the number of English speakers in China exceeds the number of speakers of English as a first language in all of the rest of the world.

Second, to transform English language teaching we will need to dramatically increase the numbers and quality of those teaching and training English. So we will expand the existing framework of qualifications for English teachers to strengthen the development pathway for teachers at every stage of their career. We will encourage the development of new short distance learning courses, building on the success of current qualifications such as Certificate and Diploma in English Language Teaching. And we will work with the BBC, other broadcasters and providers of English language training to raise the number of programmes on the English curriculum accessible via the web - and encourage commercial companies to make available the books, CD's and DVD material that flow from this.

To move things forward immediately I will announce in India later this week a new British Council programme to recruit 'master trainers' who will, in turn, train 750,000 teachers of English in India over the next five years. The trainers will able to work across the country with public authorities and corporate bodies to achieve and raise proficiency in English for millions more Indians.

And we will go even further to make English language available to the wider world - inviting offers from telephone, telecom, internet, broadcast and website companies to make available through their channels the latest and most dynamic English learning, teaching and practice materials.

So with more teachers, with more courses, more websites and now a new deal involving the publishing media and communications industries, we will open up English to new countries and new generations.

English is our heritage, but it is also becoming the common future of human commerce and communication. This is a great opportunity for Britain - and a measure of the greatness that lies not in empire or territory but through a language that has the power to bring this world of over 200 countries and billions of people closer together, with the versatility to evolve and adapt. We will take up with vigour the bold task of making our language the world's common language of choice. The language that helps the world talk, laugh and communicate together.

What follows is his op-ed in the Wall Street Journal on the same theme entitled [gasp!] "Enlarging the Anglosphere." He talks about other things in the article, but here I cut to the part dealing with the promotion of English:

When Winston Churchill met President Franklin Delano Roosevelt on the deck of the H.M.S. Prince of Wales in 1941, he spoke of the common bonds between Britain and America: "The same language . . . the same hymns . . . more or less, the same ideals." As he implied, the special relationship should be forged not merely by formal ties between governments, but by widening and deepening understanding and contact between people.

So, I want to suggest how our Atlantic relationship – which has always been rooted in something far more fundamental and lasting than our common interests or even our common history and common language – can be renewed and extended into new areas for a new generation…

In the last half-century the English language has become not only the language of Shakespeare and Twain, of J.K. Rowling and Cormac McCarthy, but of science, commerce, diplomacy, the Internet and travel.

So, finally, I propose that together Britain and America strive to make the international language that happens to be our own far more freely available across the world. I am today asking the British Council to develop a new initiative with private-sector and NGO partners in America, to offer anyone in any part of the world help to learn English.

America and Britain are separated by the thousands of miles of the Atlantic, and by our differing and always evolving national cultures. Yet there is still far more that unites us than can ever divide us. I believe that the future of our relationship can, if we choose, deliver far more even than it has achieved in its past. Not just for both our nations, but for the world.

Excerpts + Presentation on Cohen's History of IPE

I have two things here that may interest many, ranging from those who are semi-curious about IPE to the hardcore IPE junkies. Professor Benjamin Cohen over at UC-Santa Barbara has just released a new book entitled International Political Economy: An Intellectual History from the Princeton University Press This book traces the roots of the rapidly growing field, including the pioneering work of authors such as Robert Cox, Robert Gilpin, Peter Katzenstein, Robert Keohane, Charles Kindleberger, Stephen Krasner, and Susan Strange. It tracks the development of the IPE field from the foundations set by these renowned authors to the present time. You can read excerpts from the book's introduction online as well. Of course, I highly recommend the What is IPE? introduction that I feature in a tab at the top right corner of the blog if you'd like a general overview of the subject as opposed to a history of the field like what Cohen offers.

Next, there is an upcoming event down the road at the University of Warwick featuring Professor Cohen going mano-a-mano with his British interlocutors. There is a longstanding debate about the differences between American- and British-style IPE that cleaves into objective-subjective, etic-emic, quantitative-qualitative, and nomothetic-ideographic dimensions. Cohen raised the issue of a transatlantic divide in an issue of the Review of International Political Economy that subsequently ruffled some feathers in the British IPE community. Richard Higgott and Matthew Watson at Warwick took umbrage, as did John Ravenhill at Australia National University. To these criticisms Cohen made a rejoinder. Round 2 of this transatlantic showdown get underway on May 12 at Warwick. If this sort of intellectual battle royale is your sort of thing, come along as this is an open event. Details follow:

The Department of Politics and International Studies at the University of Warwick announces a public debate on the future of IPE, involving Professor Benjamin Cohen of the University of California, Santa Barbara, who will be talking about and promoting his new book, International Political Economy: An Intellectual History (Princeton University Press, 2008). The event originates in the publication in the Review of International Political Economy of Professor Cohen's recent article on the Transatlantic Divide in IPE. It will take the form of a roundtable, to be chaired by Mark Blyth of Johns Hopkins University and one of the current editors of RIPE, and in addition to Professor Cohen it will also involve Richard Higgott and Matthew Watson from the University of Warwick, who have published a response in RIPE to Professor Cohen's original piece.

There is no entrance charge for attending the debate, so this message constitutes an open invitation for all to attend. It will take place on Monday 12th May between 4.00 p.m. and 5.30 p.m. in Lecture Theatre MS.03 in the Zeeman (Maths) Building. The location of this building can be found on the University of Warwick campus map - http://www2.warwick.ac.uk/about/visiting/maps/central/ - and it is building number 35 in zone F4. Information about how to get to the University of Warwick is also included in links from that web page. The University Bookshop, in collaboration with Princeton University Press, will create a stall in the lecture theatre in order to sell copies of Professor Cohen's new book throughout the afternoon.

We look forward to seeing as many people as possible at the event.

Chavez Extorts More; Nepal's Maoists Go Neoliberal

Here are two contrasting stories in the fate of socialism. First, anti-globalization hero Hugo Chavez is once again upping the Venezuelan government's take on oil revenues. Apparently, Venezuelans are becoming less enamoured with the "Bolivarian revolution" as galloping inflation puts a dent in Chavez's popularity. In other words, class warfare is not very nifty when people cannot afford to put food on the table and buy other necessities. Given record high oil prices in nominal terms, though, Chavez has now upped his game of "let's extort the energy companies operating in Venezuela." This from the Wall Street Journal:

Venezuela's National Assembly Tuesday passed a new oil windfall tax in the latest blow by President Hugo Chávez to foreign oil companies operating in this oil-rich Andean nation. The tax is expected to net the government about $760 million a month or more than $9 billion a year, Venezuela's Oil Minister Rafael Ramirez said Tuesday shortly before the congressional vote.

The levy kicks in when the price of benchmark Brent crude sits above $70 a barrel. If oil prices are above that threshold for one month, the state will take 50% of the difference between this average and the final sale price of every barrel. When Brent crude exceeds the $100-a-barrel average, the rate will rise to 60%. Passage of the bill reflects how the continuing rise of high oil prices creates temptation for governments of oil-producing nations to capture more of the windfall profits that private companies reap. Global oil prices hit a record above $113 a barrel Tuesday.

The tax will affect companies ranging from state-oil firm Petróleos de Venezuela, or PDVSA, to its foreign partners like France's Total SA, Norway's StatoilHydro ASA, Britain's BP PLC, and U.S.-based Chevron Corp. The tax is expected to become effective this week, as soon as the approval is published in the country's official gazette. Mr. Chávez's moves against big oil have prompted some firms, like Texas-based Exxon Mobil Corp. to pull out of Venezuela. But other companies that have stuck it out are likely to continue, viewing Mr. Chávez's action as the price of having access to Venezuela's rich deposits.

The windfall tax is also a sign of how eager Mr. Chávez is to get more money ahead of municipal and gubernatorial elections later this year. Venezuelan lawmakers passed the bill just two days after Mr. Chávez told them his government urgently needed the money. Despite rampant spending by his government, Mr. Chávez's popularity has slipped in the past year because many ordinary Venezuelans see little improvement in their lives from all the money. Price controls designed to offset inflation from Mr. Chávez's spending have also led to food shortages that have angered his supporters.

The tax is the latest headache for foreign firms under Mr. Chávez. Since he took power in 1999, the president has changed the rules for the oil sector several times, including forcing foreign companies to accept only a minority stake in all of their local ventures.

Will Chavez be able to buy his cronies wins in the next round of elections with his additional revenues? It will be interesting to watch. Meanwhile, there are interesting developments in Asia as well. In Nepal, the newly elected Maoists, while promising a further move away from the country's monarchic roots, are saying that they now welcome foreign investment and industrial capitalism while promising that nothing will be nationalized or socialized. At this rate, they'll be quoting Ayn Rand at press conferences, maybe. With Raul Castro allowing all sorts of capitalist filth to pollute the dignity of the Cuban people, it sure is hard to find an honest-to-goodness Marxist-Leninist regime in this decadent age. Chairman Mao is surely rolling in his grave given the activities of these capitalist roaders. From the Financial Times:

Nepal’s Maoists, poised to win a clear majority in the country’s constituent assembly, will work with other parties to set up a federal democratic republic with a capitalist economy, a party leader told the Financial Times on Wednesday.

“We are fully committed to building a good coalition with other political forces,” said Baburam Bhattarai, who as a member of the central secretariat of the Communist party of Nepal (Maoist) is seen as the group’s number two leader and a likely candidate to be prime minister. “Our understanding is that the [constituent assembly’s] main function is to draft a new constitution,” he said in an interview. “For that, we would need political consensus [and] we will have to work with other political forces.”

As of Wednesday, reported results gave the CPN (M) 119 of 239 directly elected district seats, with results yet to come in from about 20 more. Voting has been put off in one, following the murder of a candidate. The Maoists were also well positioned for a large share of 335 seats to be awarded on a proportional basis. The assembly will have 26 members appointed by the government. Candidates from the current prime minister’s Nepali Congress party had won in 32 districts and the other large Communist party, the UML, had won in 30. A new regional party representing the restive Terai southern plains was in fourth place.

“Our immediate agenda is not to build socialism, but to build a strong economic foundation . . . to develop industrial capitalism, to abolish all remnants of feudalism,” said Mr Bhattarai, who is an architect by training. He said the next government’s main challenge would be to prevent “reactionary forces” from creating instability, and meeting popular expectations for rapid economic development. Almost 30 per cent of Nepal’s 27m people live in absolute poverty or on less than $1 a day. The Maoist leader said his party would welcome both domestic and foreign investors.

“There will be full scope for the private sector and nothing will be nationalised or socialised,” he said. “There is no reason to panic.” Mr Bhattarai said his party was convening a meeting on Wednesday with businessmen and industrialists.

Will Commodity Speculators Warm to the Potato?

Hot potato...cold potato, Dan Quayle and his "potatoe": This article from Reuters discusses the fate of the humble tuber in a world of soaring commodity prices. [Here's a trick question--if Dubya and Quayle duked it out in a spelling bee, who would come out ahead?] While the potato is the third most common food crop (corn is mainly used for animal feed), it is not widely traded on commodity markets for a number of reasons--it is prone to rot during transport, it is bulky, and different national preferences for potato varieties renders it hard to trade a standardized commodity. Still, with rising prices for wheat and rice, many countries and international institutions are now looking at the inexpensive, easy to grow, and nutritious potato as an alternative crop. There is also an accompanying video feature for this story:

As wheat and rice prices surge, the humble potato -- long derided as a boring tuber prone to making you fat -- is being rediscovered as a nutritious crop that could cheaply feed an increasingly hungry world. Potatoes, which are native to Peru, can be grown at almost any elevation or climate: from the barren, frigid slopes of the Andes Mountains to the tropical flatlands of Asia. They require very little water, mature in as little as 50 days, and can yield between two and four times more food per hectare than wheat or rice.

"The shocks to the food supply are very real and that means we could potentially be moving into a reality where there is not enough food to feed the world," said Pamela Anderson, director of the International Potato Center in Lima (CIP), a non-profit scientific group researching the potato family to promote food security.

Like others, she says the potato is part of the solution. The potato has potential as an antidote to hunger caused by higher food prices, a population that is growing by one billion people each decade, climbing costs for fertilizer and diesel, and more cropland being sown for biofuel production.

To focus attention on this, the United Nations named 2008 the International Year of the Potato, calling the vegetable a "hidden treasure". Governments are also turning to the tuber. Peru's leaders, frustrated by a doubling of wheat prices in the past year, have started a program encouraging bakers to use potato flour to make bread. Potato bread is being given to school children, prisoners and the military, in the hope the trend will catch on.

Supporters say it tastes just as good as wheat bread, but not enough mills are set up to make potato flour. "We have to change people's eating habits," said Ismael Benavides, Peru's agriculture minister. "People got addicted to wheat when it was cheap." Even though the potato emerged in Peru 8,000 years ago near Lake Titicaca, Peruvians eat fewer potatoes than people in Europe: Belarus leads the world in potato consumption, with each inhabitant of the eastern European state devouring an average of 376 pounds (171 kg) a year.

India has told food experts it wants to double potato production in the next five to 10 years. China, a huge rice consumer that historically has suffered devastating famines, has become the world's top potato grower. In Sub-Saharan Africa, the potato is expanding more than any other crop right now.

Some consumers are switching to potatoes. In the Baltic country of Latvia, sharp price rises caused bread sales to drop by 10-15 percent in January and February, as consumers bought 20 percent more potatoes, food producers have said.

The developing world is where most new potato crops are being planted, and as consumption rises poor farmers have a chance to earn more money. "The countries themselves are looking at the potato as a good option for both food security and also income generation," Anderson said. The potato is already the world's third most-important food crop after wheat and rice. Corn, which is widely planted, is mainly used for animal feed.

Though most Americans associate potatoes with the bland Idaho variety, they actually come in some 5,000 types. Peru is sending thousands of seeds this year to the Doomsday Vault near the Arctic Circle, contributing to a gene bank for food crops that was set up in case of a global disaster. With colors ranging from alabaster-white to bright yellow and deep purple and countless shapes, textures, and sizes, potatoes offer inventive chefs a chance to create new, eye-catching plates. "They taste great," said Juan Carlos Mescco, 17, a potato farmer in Peru's Andes who says he frequently eats them sliced, boiled, or mashed from breakfast through dinner.

Potatoes are a great source of complex carbohydrates, which release their energy slowly, and -- so long as they are not smothered with butter -- have only five percent of the fat content of wheat. They also have one-fourth of the calories of bread and, when boiled, have more protein than corn and nearly twice the calcium, according to the Potato Center. They contain vitamin C, iron, potassium and zinc.

One factor helping the potato remain affordable is the fact that unlike wheat, it is not a global commodity, so has not attracted speculative professional investment. Each year, farmers around the globe produce about 600 million metric tonnes of wheat, and about 17 percent of that flows into foreign trade. Wheat production is almost double that of potato output. Analysts estimate less than 5 percent of potatoes are traded internationally, and prices are mainly driven by local tastes, instead of international demand.

Raw potatoes are heavy and can rot in transit, so global trade in them has been slow to take off. They are also susceptible to infection with pathogens, hampering export to avoid spreading plant diseases. The downside to that is that prices in some countries aren't attractive enough to persuade farmers to grow them. People in Peruvian markets say the government needs to help lift demand.

"Prices are low. It doesn't pay to work with potatoes," said Juana Villavicencio, who spent 15 years planting potatoes and now sells them for pennies a kilo in a market in Cusco, in Peru's southern Andes. But science is moving fast. Genetically modified potatoes that resist "late blight" are being developed by German chemicals group BASF. The disease led to famine in Ireland during the 19th century and still causes about 20 percent of potato harvest losses in the world, the company says. Scientists say farmers who use clean, virus-free seeds can boost yields by 30 percent and be cleared for export. That would generate more income for farmers and encourage more production as companies could sell specialty potatoes abroad, instead of just as frozen french fries or potato chips.

Which Countries Lose w/ High Commodity Prices?

OK, so I too am guilty of featuring mildly apocalyptic (dontcha love that oxymoron?) stories about a world gone mad over high commodity prices--especially for food. Recently, the Wall Street Journal had a variation on the theme. Among other things, India is reportedly accusing the US of mounting a "crime against humanity"[!] by promoting the use of biofuels:

Finance ministers gathered this weekend to grapple with the global financial crisis also struggled with a problem that has plagued the world periodically since before the time of the Pharaohs: food shortages.

Surging commodity prices have pushed up global food prices 83% in the past three years, according to the World Bank -- putting huge stress on some of the world's poorest nations. Even as the ministers met, Haiti's Prime Minister Jacques Edouard Alexis was resigning after a week in which that tiny country's capital was racked by rioting over higher prices for staples like rice and beans.

Rioting in response to soaring food prices recently has broken out in Egypt, Cameroon, Ivory Coast, Senegal and Ethiopia. In Pakistan and Thailand, army troops have been deployed to deter food theft from fields and warehouses. World Bank President Robert Zoellick warned in a recent speech that 33 countries are at risk of social upheaval because of rising food prices. Those could include Indonesia, Yemen, Ghana, Uzbekistan and the Philippines. In countries where buying food requires half to three-quarters of a poor person's income, "there is no margin for survival," he said.

Many policy makers at the weekend meetings of the International Monetary Fund and World Bank agreed that the problem is severe. Among other targets, they singled out U.S. policies pushing corn-based ethanol and other biofuels as deepening the woes.

"When millions of people are going hungry, it's a crime against humanity that food should be diverted to biofuels," said India's finance minister, Palaniappan Chidambaram, in an interview. Turkey's finance minister, Mehmet Simsek, said the use of food for biofuels is "appalling."

James Connaughton, chairman of the White House's council on environmental quality, said biofuels are only one contributor to rising food prices. Rising prices for energy and electricity also contribute, as does strong demand for food from big developing countries like China.

But beyond taking shots at the U.S., there was little agreement this weekend on what should be done. Mr. Zoellick pushed the ministers to focus on the food issue in a dramatic Thursday news conference at which he held up a 2-kilogram (4.4-pound) bag of rice, which he said would now cost poor families in Bangladesh half their daily income. He kept up the pressure over the weekend. In a Sunday news briefing, he said, "We have to put our money where our mouth is now -- so that we can put food into hungry mouths."

But the weekend's meeting produced few concrete results. Mr. Zoellick recently urged rich nations to contribute another $500 million to the United Nation's World Food Program, but he said that the U.N. has received commitments for only about half the money.

TIME ups the Armageddon factor by suggesting that any number of regimes may be toppled by high food prices:

Haiti is in flames as food riots have turned into a violent challenge to the vulnerable government; Egypt's authoritarian regime faces a mounting political threat over its inability to maintain a steady supply of heavily subsidized bread to its impoverished citizens; Cote D'Ivoire, Cameroon, Mozambique, Uzbekistan, Yemen and Indonesia are among the countries that have recently seen violent food riots or demonstrations. World Bank president Robert Zoellick noted last week that world food prices had risen 80% over the past three years, and warned that at least 33 countries face social unrest as a result.

The sociology of the food riot is pretty straightforward: The usually impoverished majority of citizens may acquiesce to the rule of detested corrupt and repressive regimes when they are preoccupied with the daily struggle to feed their children and themselves, but when circumstances render it impossible to feed their hungry children, normally passive citizens can very quickly become militants with nothing to lose. That's especially true when the source of their hunger is not the absence of food supplies but their inability to afford to buy the available food supplies. And that's precisely what we're seeing in the current wave of global food-price inflation. As Josette Sheeran of the U.N. World Food Program put it last month, "We are seeing food on the shelves but people being unable to afford it."

Recently, the IMF put out two takes on the matter of rising commodity prices in graphical form. First, do read the entire accompanying article by the IMF on the impact of rising food prices if you have the chance:

The countries in red are expected to suffer the biggest trade balance losses from higher food prices, while those in blue will have the biggest gains. Those in pink suffer to a lesser extent, while those in aqua gain to a lesser extent. Unfortunately, many African countries are expected to suffer more from higher food prices. On the other hand--there always is another hand--the IMF also believes that African countries will benefit from higher commodity prices in general. Yes, they lose out in terms of needing more food imports, but that may be offset by gains in terms of commodity exports enhancing economic gains:

It's very interesting and important stuff; do read the brief IMF commentary on rising commodity prices worldwide as well.

Read My Lips: There is No Global Savings Glut

It is truly perplexing why the most influential economic commentator in the 21st century is, er, Dick Cheney. In a well-quoted passage from former US Treasury Secretary Paul O'Neill's book The Price of Loyalty, Dick Cheney reportedly told O'Neill "Reagan proved that deficits don't matter." If you are unfamiliar with the cottage industry which repeats this idea that "deficits don't matter, read Barry Eichengreen's easy-to-read summary about them.

Anyway, I am unsure why Brad Setser (in whom we trust) has resurrected an old warhorse from the graveyard of "deficits don't matter"-style intellectual bankruptcy care of Fed Chairman Ben Bernanke. After reading the latest data on world savings, he made a new post entitled "Case closed: A savings glut, not an investment drought." You can read his take on the matter. I, however, beg to differ. Let us begin with the terminology: if there were indeed a global savings glut, by implication there would be a marked rise in global savings levels. What does the data indicate? Let us turn to table A16 from the April 2008 World Economic Outlook:

Yes, the world savings rate has gone up to 23.7% of world GDP in 2007 from an average of 22.7% for the period of 1986 to 1993. To be frank, a 1% increase in savings does not seem to represent a glut to me. If it were considered a glut, then why shouldn't it have been a glut back then? Using this data to demonstrate a "global savings glut" is iffy. Now, let me bring you to the clincher: global savings averaged 25.2% in the period of 1976 to 1980. Then, as now, Middle East oil exporters were like the little old lady who lived in a shoe petrol station: they had so many dollars that they didn't know what to do.

So, if we follow the Cheneynomic argument made by Bernanke, the period between 1976 to 1980 must have been a period of a mega-global savings glut. However, we get no sense of that in his speech. Instead, we get the rather Amerocentric explanation that the US is somehow being "forced" to absorb the rest of the world's savings because the sum of all current account balances must balance out. This, of course, is riddled with problems regarding causality. In the end, it's simply a case of some folks spending too much on housing and consumer goods (America) and other folks gaining a windfall from energy (Middle East) and goods (China) exports. From a logical standpoint, I tend to think that the actions of the former are driving those of the latter and not vice-versa as Bernanke would suggest.

Thus, the "global savings glut" is laid to rest. If you want a better explanation of why this theory got out into the open, consider that Bernanke made the speech on 10 March 2005. Back then, he was not Fed chairman but merely one of those vying to be Fed chairman. Being in the position of wanting to be Greenspan's replacement, Bernanke had to cotton up to the Bush administration and its unprecedented deficit running ways. One of the first rules of employment, of course, is "don't make the boss look bad." Imagine what would have happened instead if Bernanke made a speech about the profligacy of the Bush administration. Of course, he would not have gotten the job as Fed chairman. That counterfactual didn't pan out as we got "deficits don't matter...because there's a global savings glut." How convenient; on 24 October 2005, he was appointed as the new Fed chairman. It was smart politics on Bernanke's part, not good economics. Well, isn't that special?

As for me, I will have none of this Cheneynomics. Even bigwigs like the Fed chairman and Joseph Stiglitz will try to pull whoppers like this every now and again. Do your homework, though, and you can easily spot them. Repeat after me: There is no such thing as a free lunch--or a global savings glut, dark matter, new economy, Sasquatch, or Bigfoot for that matter.

I'd Like Some of What Pascal Lamy is Smoking

WTO Director-General Pascal Lamy has one of the more difficult jobs around. His most immediate hurdle--one that has occupied his attention ever since he became the organization's head--is how to move the Doha Development Round forward. Much ink has already been spilled on why Doha is not progressing: Industrialized countries are not willing to offer deep enough cuts in agricultural subsidies to please LDCs; LDCs are not willing to offer enough concessions in terms of market access to manufacturing goods imports from industrialized countries; and my favourite of them all--applied tariffs are already quite low. In an indirect manner, I have already alluded to the relatively small gains to be had from further trade liberalization in terms of global GDP compared to allowing further migration. Those who are looking for big gains from further trade liberalization will likely be disappointed. In other words, Doha is being treated as inconsequential because it is inconsequential.

But, don't try that last line on Pascal Lamy. I am honestly befuddled by his latest idea: successful completion of Doha will comfort a world being rocked by a subprime crisis. According to Lamy, the WTO played a stabilizing force when the Asian financial crisis was underway [!] I may not be Einstein, but it seems to me that the current round of global instability was brought about by mounting economic imbalances related to further trade liberalization: the US has been importing boatloads of stuff from the rest of the world without the requisite savings. In turn, those exporting their wares to the US--especially Middle East oilers and Asian export-oriented economies--have engaged in an act of "vendor finance" to fund US profligacy. Cheap money from abroad has resulted in a housing bubble which is now popping Stateside to dramatic effect, while borrowing against rising property prices to spend on consumption has faded. If you follow this turn of events, it seems to me that greater trade openness has, if anything, helped facilitate the current crisis--especially as China's accession to the WTO in 2001 allowed it greater market access elsewhere. Lamy's line of argument is truly baffling.

For an alternative take, here is the WTO Director-General. This is your brain [I show the audience an egg]. This is your brain on whatever Pascal Lamy is smoking. Any questions?

In this period of increased financial uncertainty around the world, the rules-based trading system of the WTO provides a hugely important source of economic stability for governments, for business and for consumers. It played that role very well ten years ago during the Asian financial crisis, acting as a shock absorber between the financial and the real sectors of the world economy. By keeping international trade in goods and services flowing, at the time the WTO system contributing to ensuring that the financial shock would not deteriorate into a far worse economic recession worldwide.

In the current circumstances, counting on the WTO and on concluding the Doha Round is the nearest available message of reassurance for world financial markets.

Last year I told you about the risks of a failure in the Doha Round. A sort of half empty glass. This year I am completely convinced that we have it within our means, politically and technically, to finish the Doha Round this year. To do so, the first step we need is for WTO Member governments to agree at Ministerial level by the end of May on the framework for cutting agricultural tariffs, agricultural subsidies and industrial tariffs.

This is a task that has eluded us now for far too long. The differences between negotiating positions is not great. Technically, there is no doubt in my mind that it can be bridged. What we need, urgently, is political input from all of the key players to allow the bridges to be built.

The next few weeks will be crucial at the WTO. So please help us to push for the conclusion of the Doha Round now.

Can the G-7 Prop Up the Dollar by Words Alone?

The G-7 meeting has come and gone. On Friday, 11 April, the finance ministers of the US, UK, Germany, France, Italy, Japan, and Canada had this to say on the matter of currencies:

We reaffirm our shared interest in a strong and stable international financial system. Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability. We continue to monitor exchange markets closely, and cooperate as appropriate. We welcome China's decision to increase the flexibility of its currency, but in view of its rising current account surplus and domestic inflation, we encourage accelerated appreciation of its effective exchange rate.

While pressure has been applied to China for some time now, what is new is the mention of "sharp fluctuations in major currencies." This, of course, refers to the weakening dollar and the strengthening of other major currencies, most notably the Euro. What is notable to me at least is that there is no hint of possible coordinated action to stem further dollar weakness, i.e. intervention. Daily FX mentions that some currency traders were caught by surprise for they expected no reference in the G-7 statement to further dollar weakness. After considering fundamental factors such as expected rate cuts from the Fed and bad economic data in the US as opposed to reluctance to cut rates in the face of inflation in the Eurozone and relatively better economic data, the dollar is still on the back foot.

In early Tokyo trading, the dollar has gained sharply against the Euro. The Euro commanded around $1.5835 when markets closed last Friday. As I write, though, it is at $1.5688. Some traders believe it will be nearer to $1.5600 when New York trading concludes. Nevertheless, I think the dollar's boost is temporary unless some real coordinated intervention is mounted. That is, the G-7 will need to put its money where its mouth is at or else things will likely return to the status quo in the face of further helicopter drops and an endless torrent of bad US economic data. Reuters quotes a forex trader who makes some relevant points:

The reaction to the G7 in the market has been measured so far," said John Kyriakopoulos, a forex strategist at NAB. He noted the euro had been quoted around $0.15650 early and had already bounced from there. The dollar had also only made modest gains on the yen to 101.30 , from 100.73 late in New York on Friday.

"The G7 have put some two-way risk into the market but really the chance of concerted intervention still looks distant," he added. "On the intervention alert scale, we're probably around 5 or 6 now, up from 3 or 4 previously."

He thought the new wording on currencies sounded like a compromise between the Europeans, who likely wanted a stronger warning about the dollar, and the U.S. side which welcomed the boost to exports that a weaker currency gave.

So, of course, my answer is no.

Aging Japan? No Problem, Let Robots Do the Work

To put it mildly, Japan's demographic profile does not bode well for the future. The replacement rate for a country to maintain its current population is usually defined at the level of 2.1 children per woman. Like many industrialized countries, however, Japan is far from reaching that level. In 2007, the CIA World Factbook estimates that the fertility rate in Japan was a mere 1.23. This poses challenges for Japan in that its rapidly aging population is also one of the longest-living: According to the CIA World Factbook again, Japan has the third-longest life expectancy at birth at 82.02 years. Compounding matters, Japan remains very reluctant about allowing more migrants to perform necessary work in the country. Japan's situation goes like this:

Long life expectancy + low birth rate + reluctance to accept migrants = demographic disaster.

Now, this article from Reuters has been receiving a lot of attention from the techno-geek sites, but it is IPE to the core. To avoid having to allow gaijin (foreigners) in to take care of Japan's rapidly aging population, a Japanese thinktank proposes that robots ought to do more of the work in the future. I often see technological solutions to problems as necessary, but in this case, I think Japan would go overboard if this route were adopted. There are many migrants who would gladly perform the work if only Japan would let them. Try multiculturalism instead of techno-geekism for a change. In the meantime, we are ze robots...

Robots could fill the jobs of 3.5 million people in graying Japan by 2025, a thinktank says, helping to avert worker shortages as the country's population shrinks. Japan faces a 16 percent slide in the size of its workforce by 2030 while the number of elderly will mushroom, the government estimates, raising worries about who will do the work in a country unused to, and unwilling to contemplate, large-scale immigration.

The thinktank, the Machine Industry Memorial Foundation, says robots could help fill the gaps, ranging from microsized capsules that detect lesions to high-tech vacuum cleaners. Rather than each robot replacing one person, the foundation said in a report that robots could make time for people to focus on more important things. Japan could save 2.1 trillion yen ($21 billion) of elderly insurance payments in 2025 by using robots that monitor the health of older people, so they don't have to rely on human nursing care, the foundation said in its report. Caregivers would save more than an hour a day if robots helped look after children, older people and did some housework, it added. Robotic duties could include reading books out loud or helping bathe the elderly.

"Seniors are pushing back their retirement until they are 65 years old, day care centers are being built so that more women can work during the day, and there is a move to increase the quota of foreign laborers. But none of these can beat the shrinking workforce," said Takao Kobayashi, who worked on the study. "Robots are important because they could help in some ways to alleviate such shortage of the labor force."

The current fertility rate is 1.3 babies per woman, far below the level needed to maintain the population, while the government estimates that 40 percent of the population will be over 65 by 2055, raising concerns about who will look after the graying population.

Kobayashi said changes was still needed for robots to make a big impact on the workforce. "There's the expensive price tag, the functions of the robots still need to improve, and then there are the mindsets of people," he said. "People need to have the will to use the robots."

Ol' Devil Protectionism, Canadian Aerospace Style

Boys and girls, I am a true aficionado of all sorts of protectionism, appreciating the full range and infinite verisimilitude of human folly. In the same way that some savour fine wine, I savour vile protectionism. Yoghurt protectionism, telecommunications protectionism, airport protectionism...whatever silliness this world has to offer, I'm all for exposing them for the shams that they often are in the name of "national security." Now, it's the turn of the Canadians. Canadians are often regarded as Americans of a timid and inoffensive sort, so this story took me by a bit of surprise: The US firm Alliant Technosystem's bid for the Canadian company MacDonald Dettwiler & Associates was blocked by Canada's industry minister over, you guessed it, national security grounds. Why so, you ask? Is the US harbouring terrorist organizations who may imperil Canadian security or something? Well, no.

The Canadian firm in question is apparently one of the leaders in satellite imaging. As the ice melts further from the North Pole due to global warming, energy-loving ho-ho-hos have been making a land grab for potentially oil-rich Arctic regions, including Canada and the US. MacDonald Dettwiler holds some of the more detailed imaging data that gives clues as to where potential oil bounties are located. Given this fact, the Canadian government has turned back the American suitor while risking a US backlash. Given how protectionist the US often is, I think it's just deserts. In this age of energy scarcity, Canada has decided it's every country for itself, more or less. From the Toronto Star:

After blocking a foreign takeover of the country's largest satellite and space robotics firm, Industry Minister Jim Prentice is refusing to commit federal funds to offset the effect of nixing the sale. Prentice defended the decision to halt the $1.3 billion sale of MacDonald, Dettwiler and Associates (MDA), saying Canada has no choice but to hang on to its technological know-how if it wishes to have a vibrant aerospace sector and pursue vital policies like the protection of Arctic sovereignty.

"My bottom line is this: Canada must retain jurisdiction and control of technologies that are vital to the future of our industry and the pursuit of our public policy objectives," he said. ``We will not accept the loss of jurisdictional control to another party or another country."

On Thursday, Prentice served notice that Ottawa was denying preliminary approval for the sale of Vancouver-based MDA, which produces the Canadarm, Dextre robot and Radarsat-2 mapping satellite, to U.S. defence contractor Alliant Techsystems Inc. of Edina, Minn. [ATK].

Prentice was at the Canadian Space Agency, south of Montreal, yesterday to give a speech marking the 50th anniversary of Canada's space program. But during his address to a group of agency employees, he also shed more light on his decision to block the MDA purchase. Prentice said the ownership of technology and the development of the space industry are "inextricably linked, you cannot have one without the other."

He also spoke in greater detail about the proposed deal's impact on Canada's plans for northern development and climate change policies, among others. “We use earth observation to keep track of our vast land mass ... We can help in search and rescue operations and protect our sovereignty by monitoring those who enter our waters. ... We will vigorously protect our Arctic sovereignty," he said.

The federal government has invested heavily in MDA projects like Radarsat-2, which was decades in the making and has cost between $445 million and $800 million, depending on who does the accounting. Indeed, the company has received roughly 50 per cent of the space agency's funding budget through its various contracts.

Critics of the sale have also raised concerns about who would control the imaging data gathered from the satellite, which could find itself subject to strict U.S. security regulations and be kept out of Canadian hands. Alliant has 30 days to contest Prentice's ruling, made under a little-used provision of the Investment Canada Act.

Both ATK and MDA maintained Thursday that the review process is ongoing and that no final decisions have been made. But from Prentice's words yesterday it's difficult to see how he could be swayed. Ottawa's decision also scotches MDA's restructuring plans. During a news conference, Prentice ducked questions on whether the federal government would be willing to step in with a financial assistance package as the opposition parties demand.

"I'm not here to announce specific investment decisions today," he said, adding the federal government will continue to seek technology partnerships through the space agency. Prentice also shrugged off the suggestion that his decision could create a chill for other foreign firms contemplating buying Canadian assets.

al-Yamamah: Bandar Bush / BAE Chronicles Go On

This is the latest instalment of the never-ending saga involving a deal by British arms maker BAE's to sell Eurofighters and other military hardware to the House of Saud. An investigation by the Serious Fraud Office into alleged kickbacks to Saudi royal family member Prince Bandar bin-Sultan, better known as "Bandar Bush" to Americans due to his close ties to the Bush family, was discontinued in 2006. However, arms trade campaigners did not let this matter drop. Recently, a ruling was made that was highly critical of this halting of the investigation. It seems that the investigation was halted over, you guessed it, national security concerns. Apparently, the Saudi government intimated that Saudi Arabia would not cooperate with the UK over security matters if the investigation went on. From the BBC:

The High Court has ruled that the Serious Fraud Office (SFO) acted unlawfully by dropping a corruption inquiry into a £43bn Saudi arms deal. In a hard-hitting ruling, two High Court judges described the SFO's decision as an "outrage". Defence firm BAE was accused of making illegal payments to Saudi officials to secure contracts, but the firm maintains that it acted lawfully. The SFO said national security would have been undermined by the inquiry. The legal challenge had been made by Corner House and the Campaign Against Arms Trade (CAAT).

In handing down the decision on Thursday, one of the judges, Lord Justice Moses, told the High Court that the SFO and the government had given into "blatant threats" that Saudi co-operation in the fight against terror would end unless the probe into corruption was halted. He added that the SFO had failed to assure them that everything had been done to meet the rule of law. "No one, whether within this country or outside, is entitled to interfere with the course of our justice," he said. "It is the failure of government and the defendant to bear that essential principle in mind that justifies the intervention of this court."

CAAT had argued that the SFO's decision to drop the probe was illegal under the Organisation for Economic Co-operation and Development's (OECD's) Anti-Bribery Convention. "We are delighted," said CAAT's Symon Hill after the decision. "It has been clear from the start that the dropping of the investigation was about neither national security nor jobs. It was due to the influence of BAE and Saudi princes over the UK government."

Susan Hawley of Corner House said: "This is a great day for British justice. The judges have stood up for the right of independent prosecutors not to be subjected to political pressure."

Following the judgement, BAE said: "The case was between two campaign groups and the director of the SFO. It concerned the legality of a decision made by the director of the SFO. "BAE Systems played no part in that decision."

For its part, the Serious Fraud Office said it had no further comment, but was "carefully" considering the implications of the judgement. It could appeal to the House of Lords. Downing Street refused to comment.

The Conservatives said the High Court's ruling was "extremely troubling". A party spokesman said: "We were told, and Parliament was told, that national security was the reason for dropping this prosecution. The government has failed to persuade the court that this was the true reason. Gordon Brown must now decide whether to appeal - or, if not, to make a statement to Parliament on the matter."

Liberal Democrat leader Nick Clegg told BBC Two's Newsnight programme that national security had been used as a "magic wand" solution by Tony Blair and the government to absolve itself. He said: "I find that absolutely astonishing, that we should simply accept that due process should be suspended, that a fraud investigation into allegations of massive bribery and corruption should be suspended, because the Saudi individuals want their privacy protected." Mr Clegg said there was a "pressing need" for a full inquiry into the SFO's decision.

However, Conservative former foreign secretary Sir Malcolm Rifkind told the programme: "There have to be circumstances where the national security of this country becomes the priority for the government and which leads to a prosecution being suspended."

The SFO's inquiry was into the al-Yamamah deal with Saudi Arabia, which was first signed in 1985 but ran into the 1990s. Under the agreement, BAE sold Saudi Arabia Tornado and Hawk jets and other assorted weapons. The deal also included long-running maintenance and training contracts. In December 2006, the then Attorney General, Lord Goldsmith, announced that the SFO was suspending its inquiry.

Lord Goldsmith said its continuation would have caused "serious damage" to UK-Saudi relations and, in turn, threatened national security. Saudi Arabia is also reported to have threatened to cancel last year's deal to buy 72 Eurofighter Typhoon jets from BAE Systems. Worth an initial £4.4bn, contracts for maintenance and training are expected to take the final bill to £20bn. BAE argued that the SFO probe could "jeopardise" both this deal and "seriously affect" relations with the Saudi kingdom.

Details of the alleged bribes to Saudi officials were revealed in June of last year in an investigation by the BBC's Panorama programme. It said that up to £120m a year was sent by BAE Systems from the UK into two Saudi embassy accounts in Washington. Panorama established that these accounts were actually a conduit to Saudi Prince Bandar for his role in securing the al-Yamamah deal, something he has strongly denied.

The OECD said last month that it was launching its own investigation into the decision to drop the SFO inquiry.

Unsurprisingly, the Tories are all for helping Gordon Brown block further criminal investigation of BAE over accusations of corruption. From the Guardian:

Gordon Brown yesterday won Conservative backing for a move that would allow the government to block future criminal investigations such as the corruption case against the arms company BAE Systems. Despite scathing criticism in the high court on Thursday, the Tories have chosen to support Downing Street in facing down critics who are keen for the BAE investigation to be reopened.

Brown is said by Downing Street to have been totally behind Tony Blair in pressing Robert Wardle, the director of the Serious Fraud Office, to drop the investigation into secret payments by the arms company to Saudi Arabia. In Thursday's judgment, the high court rejected claims that the inquiry had had to be closed down for security reasons because "lives were at risk" if Britain no longer received intelligence on national security from Saudi Arabia.

Officially Downing Street said the initial response to the court judgment would be a matter for the Serious Fraud Office. But a No 10 spokesman said yesterday that it would still be a "hands-on" operation, implying that the prime minister might well block any move for a further investigation.

Such a decision would reignite criticism from some Labour backbenchers and the Liberal Democrats who have been keen for the full investigation. And it would fly in the face of the stinging rebuke from Lord Justice Moses, who with Lord Justice Sullivan attacked the government's interference as unlawful.

In their ruling, the judges said: "We fear for the reputation of the administration of justice if it can be perverted by a threat ... No one, whether within this country or outside, is entitled to interfere with the course of our justice. The rule of law is nothing if it fails to constrain overweening power."

Yesterday the shadow attorney general, Dominic Gieve, said: "We believe the existing system, by which the attorney is responsible for the public interest in deciding whether or not a prosecution should be discontinued because of national security issues, should continue. The attorney is accountable to parliament for her actions and her decision can be challenged in the courts if made unreasonably or capriciously."

This means he will be backing in principle the constitutional renewal bill which gives Lady Scotland, the attorney general, the right to block inquiries that threaten the national interest, thereby ensuring the government can get the measure through the Commons this year.

Any row between ministers and the Conservatives is likely to focus on whether the new provision is too inflexible. The Tories might force the government to amend this provision.

Nick Clegg, the Liberal Democrat leader, wrote to Brown yesterday challenging him to drop the new powers. "On taking office last year ... You recognised that the position of the attorney general had become so sullied by the BAE issue, questions over the legality of the Iraq war and the cash-for-honours inquiry, that it had to be reformed. Indeed, your Governance of Britain white paper pledged to 'renew the role of the attorney general to ensure that the office retains the public's confidence'. This sentiment is flatly contradicted by your recent proposals in the draft constitutional renewal bill. These proposals will give the attorney general effective carte blanche in future to block or quash any investigations or prosecutions under the pretext of 'national security'. Given that under these draft rules there would be no recourse to judicial review of such decisions, do you not see that this will be seen by the public as a step backward, not forward?"

Leona Helmsley once said paying taxes was for little people. In Britain, it appears justice is for little people. Money changes everything, and don't you forget it. The Guardian has an entire section on this story if you're further interested.

Zoellick's Bright Idea: Make SWFs Invest in Africa

Apologies for not posting on this earlier. On 2 April, World Bank President Robert Zoellick made a presentation at the Centre for Global Development where he ruminated about a host of development-related matters. If you will recall, the World Bank's sister institution the IMF is in the process of drawing up guidelines to supposedly enhance the transparency of sovereign wealth funds (SWFs). In a flash of inspiration or delusion depending on your point of view, Bank head honcho Zoellick has seen it fit to try and kill two birds with one stone: To maximize their transparency, he says, SWFs should invest in investment-hungry sub-Saharan Africa. I must admit, this is a creative proposition.

However, I am unsure of whether countries with SWFs would be willing to take part in Zoellick's scheme. After all, aren't SWFs manifestations of various LDCs' efforts to wean themselves off the Bretton Woods institutions? It would seem odd that they would suddenly entrust their funds to the World Bank, to say the least, given their desire for much-vaunted "policy space" or sovereignty in managing their own financial affairs. Then again, you may not find Zoellick's idea too far-fetched:

The rising economies of China, India, Brazil, and others have strengthened and rebalanced the international economy, providing new poles of growth. They are new “stakeholders” in globalization. The Bank Group will also be alert to ways we can assist these clients if the credit storm and liquidity drought sweeps their way.

We also have a larger strategic goal: We should make it possible for the growth economies of Africa to become a complementary pole of growth over the next 10 to 15 years.

We are devising a “One Percent Solution” for Equity Investment in Africa to be a step towards the goal. Where some see sovereign funds as a source of concern, we see opportunity. Today, sovereign wealth funds hold an estimated $3 trillion in assets. If the World Bank Group can create the equity investment platforms and benchmarks to attract these investors, the allocation of even one percent of their assets would draw $30 billion to African growth, development, and opportunity. This one percent could be the start of something much bigger, across more types of funds and countries, because the investment of wealth into equity for development offers opportunity, not something to fear.

Doubters may shake their heads. [head-shaking, head-shaking]. But consider the uncertainties of China’s and India’s prospects in 1993. Five years later, the world looked to China only to maintain currency stability amidst East Asia’s turmoil. Today, China and India are engines, still facing complex and difficult problems, but driving motors of growth. Goals that one day seem impossible, the next day can seem inevitable.

What of Africa? Between 1995 and 2005, 17 countries of sub-Saharan Africa, representing 36 percent of the population, grew on average 5.5 percent without the impulse of great natural resources; eight oil producing nations, representing another 29 percent of the people, grew on average 7.4 percent over that decade.

These countries want to build on the social development foundation of the MDGs. They want to grow. They need low-cost, reliable energy; infrastructure; regional integration with access to global markets; and stronger private sectors.

They offer investment opportunities.

A lesson of the recycling of petrodollars in the 1970s is that equity investments are more sustainable than debt. Several emerging market funds have already started to invest long-term in Africa.

One of the ironies of today’s global economy is that although short-term liquidity has dried up, long-term liquidity remains ample. Witness the sovereign wealth funds, another prominent feature of the new globalization and the growing influence of developing economies.

Some sovereign funds are built on demand for oil and other commodities. Others, especially in East Asia, arose out of the trauma of 1997-98: to “self-insure” against calamities in capital markets, governments built reserve cushions based on exchange rate policies, trade surpluses, and prudent fiscal management.

Sovereign funds are already serving as a brace for the recapitalization of financial institutions; I expect in coming months that they will continue to sustain globalization – and broaden its inclusiveness – through further equity investments as the deleveraging of the financial system runs its course and better information clarifies the best buys.

Yes, the sovereign funds need transparency and should be guided by best practices to avoid politicization. But I believe we should celebrate a possibility that government-sponsored funds will invest equity in development.

The World Bank Group, especially through the IFC, can help connect long-term global liquidity with the African investment opportunity. IFC has invested some $8 billion in sub-Saharan Africa since inception, about $160 million in equity last year alone. IFC is setting up two new $100 million funds for infrastructure and microequity. We believe the equity prospects are expanding fast. IFC is now working on an open architecture platform for funds, drawing on IFC’s access, knowledge, and capital, but also welcoming joint ventures with governments and their funds.

We can help other investors over the initial hurdles of investing in new equity opportunities in Africa. We can help countries resolve legal impediments and improve the regulatory and pricing regimes for infrastructure investments. MIGA can offer political risk insurance.

Then sovereign wealth funds can join us, even invest with us, not as another source of development assistance, but rather as long-term investors. Our position makes us a “preferred partner.”

Just as the Bank’s Group’s GEMLOC project is helping accelerate development of domestic, local-currency debt markets in developing countries as a separate asset class, measured against a new index of performance, so we can encourage investors’ allocations to African equity as a viable “frontier” asset class. These assets will add benefits in portfolio performance and diversification, both geographically and by type of investment.

By helping construct new indices for African investments, the Bank Group will also attract investors that need benchmarks for performance.

Then we or others can develop index funds for Africa. Over time, these vehicles can draw in a broader range of investors, including pension funds.

This “One Percent Solution” is a pathway to include Africa in the full gains of globalization. It is a strategy to strengthen the globalized system, add sources of growth, and promote the sustainability of globalization.

Chart of the Day: Why Migation Matters So Much

Regular readers will have by now noticed the frequency of postings on migration matters. Why is this so? Aren't trade and finance more of the bread and butter of IPE, you may ask? While it is true that they have been the main topic areas of IPE, that emphasis is now changing somewhat to include migration. The chart above from page 33 of Lant Pritchett's book Let Their People Come says all you need to know about the economic benefits which are to be derived from trade and migration, respectively. In their general equilibrium model, Winters et al. (2003) estimate that if all trade barriers were removed, global GDP gains would amount to $104B annually. OTOH, if there is just a 3% increase in the workforces of industrialized countries from LDCs, there would be a $156B gain in global GDP.

What if labour markets were fully liberalized? Hamilton and Whalley (1984) estimate that global GDP would double. Given that opposition to migration is even more entrenched and pervasive than that to trade, you can be sure efforts to expand migration will be hard fought. Public opinion against migration is very strong. However, the sheer magnitude of even incremental gains has persuaded me that, yes, migration is now a more important matter for development than trade. Of course, dealing with goods rather than people has vastly more challenges on the human side. Still, the future of IPE research may very well be in migration, not trade given the far greater gains to be had in the former area. So, read up on multiculturalism and social capital if you're interested in migration. I may be 0% original, but migration is certainly going to be a hot topic for decades to come.

Olympics: How To Lose Friends and Alienate People

Dale Carnegie's classic book "How To Win Friends and Influence People" appears to be a must read for the Communist Party of China given the ham-fisted way it has handled the run-up the Olympics. The book has some ideas which may help the Party as it confronts protesters at every step of the Olympic torch relay, deploys a goon squad to protect the Olympic torch, and hurls endless diatribes at the Dalai Lama. From the Amazon blurb, these include the "ability to express ideas, to assume leadership, and to arouse enthusiasm among people." Also, it is important to "talk about your own mistakes before criticizing the other person." Further dousing the Olympic spirit, though, China has decided to bite the hand that feeds in criticizing the International Olympic Committee President Jacques Rogge's readily observable claim that the torch relay has put the Games into "crisis."

In this latest volley, the Chinese leadership is using its customary catch-all term to put down Rogge by calling the IOC's statements "political." It's always the fault of politics, eh? From Agence France-Presse comes this latest tale of China making potshots at the IOC head:

China on Thursday urged the International Olympic Committee to keep "irrelevant political factors" away from the Beijing Games, after IOC president Jacques Rogge called on it to improve human rights. "I believe IOC officials support the Beijing Olympics and adherence to the Olympic charter of not bringing in any irrelevant political factors," foreign ministry spokeswoman Jiang Yu told reporters. "I hope IOC officials continue to adhere to principles of the Olympic charter."

Jiang was responding to comments by Rogge earlier in the day here in which he urged China to respect its commitment to improve human rights ahead of the Beijing Games. Rogge emphasised that Chinese officials had promised when they made their bid to host the 2008 Summer Olympics that being awarded the Games would "advance the social agenda of China, including human rights. This is what I would call a moral engagement rather than a juridical (legal) one," he told a press conference. We definitely ask China to respect this moral engagement." In a separate address, Rogge also said a week of protests targeting the Olympic torch relay by groups critical of China's human rights record had thrown the Beijing Games into "crisis".

Rogge told heads of 205 National Olympic Committees at the end of their three-day general assembly here to return to their own countries to reassure athletes that the Beijing Games would be a success. "Tell them that whatever they have seen and heard, the Games will be very well-organised," he said. "Tell them that we will rebound from this current crisis." Jiang gave a non-committal response to Rogge's crisis comment. "Maybe he said some remarks that were... exaggerated or distorted by certain people," she said.

Structurally Adjusting the IMF, Part III

This is a sequel to my previous commentaries on the worsening plight of the International Monetary Fund [1, 2]. Like multinational corporations, the IMF is often regarded by the anti-globalization crowd as one of the Master Organizations for Global Takeover by Capitalist Imperialists (see not-so-subtle protesters to the right). I will concede this much: many past IMF policies were not designed with the best interests of borrowing states in mind. Still, notice the emphasis on borrowing states. This emphasis is important in that nowadays, the IMF has very few borrowers: many countries have become wary of its strict lending conditionalities. Windfalls from high commodity prices have also bolstered the efforts of many LDCs to avoid the IMF. After all, why resort to an institution that bosses your country around if you don't have to? As a result, the IMF is rather lame nowadays if you look at the cold, hard numbers instead of mindlessly recycling anti-globalization rhetoric.

Hence, the IMF itself is being forced to perform structural adjustment. In the absence of many countries encountering balance-of-payments difficulties, the IMF's income which mostly comes from lending has shrunken several times over. As with the structural adjustment policies it imposed on borrowing countries facing budget constraints, it is now being forced to live within its means. Among other things, it is firing staff, selling gold to finance its operations, and rethinking its future role as more of a "consultancy." The Financial Times has a pretty cogent summary:

The board of the International Monetary Fund voted yesterday to cut 15 per cent of its staff and sell about $11bn (€7bn, £5.5bn) in gold reserves in one of the biggest shake-ups of its funding since it was founded. The IMF plan to cut 380 jobs and sell 403.3 tonnes of gold, about an eighth of its reserves, still has to be approved by other authorities. The reforms have the support of the US Treasury, but the gold sales must be approved by the US Congress, which is unlikely to happen until after the presidential elections this year. Other changes in the IMF's funding structure would require legislation in some member countries. An IMF spokesman said the gold sales would be done in a way that would avoid disrupting the market. A spokesman for the World Gold Council, an industry body, said that "no one I've spoken to is worried" by the sales.

The IMF is seeking to stabilise its finances amid a sharp fall-off in lending to nations in financial crisis, which was its main source of income, after a period of greater global financial stability. The drying up of loans had set the organisation up for a $400m funding shortfall by 2010. Dominique Strauss-Kahn, IMF managing director, said it was "a landmark agreement that would put the institution on solid financial footing".

The rejig comes amid a broader reassessment of the organisation's aims. Established towards the end of the second world war, in part as a lender of last resort to struggling nations, the fund is edging towards a role more as an economic policy adviser and monitor. "We think it is time to retool and move away from pure lending towards a business model that offers a group of experts to help countries adopt the right policies," the IMF said.

The IMF has also sought to reduce its dominance by the transatlantic powers, in recognition of the growing importance of economies in other parts of the world. "The gold sale is . . . a very encouraging move if you think the problem is that it is a 20th century institution that is not adequate for dealing with 21st century problems," said Colin Bradford, a fellow at the Brookings Institution, a think-tank.

However, some nongovernmental organisations think cash from the gold should be directed to development rather than paying off administrative expenses. The IMF said money from the sale of 13m ounces of gold, at an estimated $850 an ounce, would be split between extending cash available for borrowing nations and a ramped-up endowment for investing. About $6.6bn would be added to $10bn held in a trust-fund-like vehicle to buy bonds and possibly stocks, with the income paying for costs such as staff and travel. Senior finance officials did not rule out creating a sovereign wealth fund.

The last point on the possibility of an IMF SWF is quite funky in that, er, the IMF is not a sovereign. That aside, the IMF site offers more on the planned restructuring. Note that some proposals are still in the cards and require approval from IMF member countries:

The Executive Board endorsed a new package of measures to set the IMF's finances on a sound long-term footing, in a move designed to end the institution's overreliance on income from lending operations to finance its work. Managing Director Dominique Strauss-Kahn applauded the decisions by the Executive Board to propose a new and sustainable income and expenditure framework for the Fund, calling it "a landmark agreement that will put the institution on solid financial footing and modernize the IMF's structure and operations. We have made difficult, but necessary choices to close the projected income shortfall and put the Fund's finances on a sustainable basis, but in the end, it will make the Fund more focused, efficient, and cost-effective in serving the needs of our members," Strauss-Kahn said.

In a discussion on the IMF's income and expenditure, the Executive Board agreed to revamp the Fund's income model from one that primarily relies on lending to one that generates funds from various sources. At the same time, the Board considered the institution's medium-term budget for the financial years 2009-11, which includes deep spending cuts, and approved the administrative budget for FY2009 (May 1, 2008-April 30, 2009). With these measures the IMF expects to close the projected income-expenditure gap of $400 million within a few years…

"The Fund's membership again proved its commitment to enhancing the institution's credibility and strengthening its efficiency," he added. "We agreed to replace an obsolete and unviable income model with a modern and more predictable model in line with other international financial institutions. We also agreed on a medium-term budget proposal with sharp spending cuts of $100 million over the next three years."

Key elements of the income proposal—in particular a proposed amendment of the IMF's Articles of Agreement to expand the Fund's investment authority—will require legislative action in most member countries. In addition, approval by the U.S. Congress is needed before the U.S. Executive Director can vote in favor of gold sales. Strauss-Kahn commended "Executive Directors for their commitment to seek expeditious approval by their legislatures to enable these important components of the new income model to come into effect."

• The IMF's unsustainable income model will be replaced with a model that is based on more robust and diverse sources of revenue in line with the Fund's multiple functions. If approved, the new model could generate an additional $300 million in income within a few years.

• An endowment would be created with the profits from the limited sale of 403.3 metric tons of the IMF's gold holdings. If approved, gold sales would be conducted in a transparent manner with strong safeguards to ensure that they do not add to official sales and avoid any risk of market disruption.

• The IMF's investment authority would be broadened to enhance the average expected return on the Fund's investments and enable the IMF to adapt its investment strategy over time. The investment policies would reflect the public nature of the funds to be invested and include safeguards to ensure that the broadened investment authority does not give rise even to perceived conflicts of interest.

• The long-standing practice of reimbursing the IMF's budget for the cost of administering the trust fund for concessional lending to low-income countries—the PRGF-ESF Trust, will be resumed in the financial year in which the IMF adopts a decision authorizing the gold sales. This cost recovery will not affect the Fund's ability to provide concessional lending to low-income countries.

• The strategic plan that forms the backbone of the budget is focused on five goals: strengthening multilateral surveillance, sharpening bilateral surveillance, refocusing work on low-income countries, streamlining capacity building, and modernizing the Fund. The budgetary strategy is centered on reshaping the institution so it delivers more focused and cost-effective outputs.

• The administrative budget proposal includes expenditure cuts of $100 million in FY2009-11. Including savings of $27 million already allotted in the budget plan for FY2008-10, real net administrative expenditures will decrease about 14 percent to $796 million in FY2011 from $922 million in FY2008.

• Even with sharp expenditure cuts, the budget allows for an increase in the level of resources allocated to multilateral and regional surveillance by shifting resources from non-core to core business of the institution.

The Board decision on April 7 marks the culmination of a two-year effort to reform the IMF's income model that began in May 2006 with the appointment of a committee of eminent persons to review the IMF's income base for financing its running costs. That committee, headed by Andrew Crockett, President of JP Morgan Chase International and former General Manager of the Bank for International Settlements, concluded in early 2007 that continuing to rely on income from lending was not a sustainable model.

The committee recommended that the IMF adopt a package of income-generating measures, including creating an endowment with profits generated from selling a limited portion of the institution's gold holdings.

Stiglitz Repeats Anti-Globalization Canard on MNCs

It's only now that I've gotten around to borrowing Joseph Stiglitz's recent book, Making Globalization Work. Make that relatively recent as it came out in 2006. After going through it, my opinion is decidedly mixed. Like Stiglitz, I too believe that globalization can be made to work. As it is, globalization in its current form leaves much to be desired--I think most reasonable folks would not have qualms with that statement. However, as a political science instructor and not an economics one, my main concern with the policy proposals he makes is that they may not be feasible in the sense of being able to achieve buy-in from various constituencies. As ever, politics is the art of the possible. Perhaps reflecting his background as an economist, Stiglitz makes many proposals that I would consider extremely hard to implement.

Something that really wound me up, though, was his restatement of a classic canard raised by those in the anti-globalization crowd. Anderson and Cavanagh of the Institute of Policy Studies famously noted in 2000 that of the world's 100 largest economic entities, 51 are now corporations and 49 are countries. Stiglitz recycles this idea in ch. 7 of his book on multinational corporations:

For many people, multinational corporations have come to symbolize what is wrong with globalization; many would say they are a primary cause of its problems. These companies are richer than most countries in the developing world. In 2004, the revenues of US car company General Motors were $191.4 billion, greater than the GDP of more than 148 countries. In its fiscal year ending 2005, US retailer Wal-Mart's revenues were $285.2 billion, larger than the combined GDP of sub-Saharan Africa.

Sounds scary, eh? It makes you want to buy Naomi Klein's novel or an "Ernesto Che Guevara Classic Thong," right? Before you do, I feel obligated as an educator to tell you that this argument comparing national output with corporate revenues is technically incorrect and fallacious. It is irksome that Stiglitz did not consult two books on globalization that came out earlier in 2004 that pointed out the flaws in this countries-companies comparison. First, let us begin with Martin Wolf in Why Globalization Works:

The two researchers (Sarah Anderson and John Cavanagh of the left-center Institute for Policy Studies) committed what economists would regard as an elementary howler: they confused gross sales with GDP. As Paul de Grauwe of the University of Leuven and Filip Camerman of the Belgian Senate pointed out in a powerful riposte, if their method were applied to GDP one would end up with a vastly bigger number than the correct one. But one would also be double-, triple- or quadruple-counting. Take the example of cars. Bethlehem Steel sells steel wire to Bridgestone tires; Bridgestone sells tires to Ford; and Ford sells cars to consumers. If national income statisticians added the sales of Bethlehem Steel, Bridgestone and Ford, the steel would appear three times; it would be triple-counted. What statisticians do, instead, is sum the value added of each company, which is the difference between the value of its sales and the costs of inputs bought from outside the company (and so equals the value attributable to the people and the capital employed by each company). The sale of steel adds to Bethlehem Steel’s value added, because making steel is what it does. But the cost of steel is subtracted from Bridgestone’s sales, because it is a cost of business, which is making tires.

Jagdish Bhagwati makes a similar point in In Defense of Globalization:

This fear [of corporations] is often justified by noting that if major corporations and the world’s economies are ranked together, the corporations by their sales volumes and the countries by their GDPs (a measure of their national incomes), then the corporations are half of the top one hundred performers! This dramatic statistic is misleading, however, as the two sets of data are not comparable. To see this, consider a shirt that costs $100. Its sales value (which economists would call gross value) includes the value of cloth at $70 and wages and profits (i.e., incomes earned by the productive factors in the garments industry) of $30. Economists call this $30 value added in the garment industry. Now, GDP is simply the entire factor income or value added in all activities, including garments. So when we compare sales volumes, which are gross values, with GDP, which is value added, we are comparing oranges with apples. The comparison, while conceptually flawed, also exaggerates the role of corporations because sales figures across the entire economy will add up to numbers that will vastly exceed the GDPs of the countries where these sales occur.

The De Grauwe and Camerman paper Wolf mentions is still available online, BTW. It is unfortunate that the error made by Anderson and Cavanagh is repeated without fact-checking by Stiglitz. Yes, even a Nobel laureate can make what Martin Wolf has described as a "schoolboy howler." Again, I am much more in the camp of Stiglitz in believing that globalization can be made to work instead of in the other camp suggesting that it already works (for the most part), but my concern is with creating policy proposals which are more feasible. I will have more to say about this matter in the future, but suffice to say that the corporate-bashing bandwagon is flat wrong here. As I have previously discussed, the anti-globalization crowd often pumps up factual errors to taboid-ish proportions to make their points. If they are to be taken seriously, then they should start to make sensible arguments instead of bloopers and practical jokes like this one. It is unfortunate that those who should know better sometimes buy into this balderdash.

I would attribute it as an oversight if one of my undergraduate students made this sort of error, but it should absolutely not pass muster with a Nobel laureate in economics. Stiglitz's quant skills may be without peer, but his fact-checking leaves something to be desired here.

The World as One Big Food Fight

The world is awash in trouble over rising food prices. Blame biofuels. Blame rising fuel costs. Blame surging food demand from China and India. Blame it on the rain [heh]. Whatever the cause, serious disturbances are occurring all around the world over food. NY Times columnist Paul Krugman calls it "grains gone wild." In the meantime, Asia is wracked with turmoil. Agence France-Presse offers the not-so-Pacific vision of the food apocalypse throughout the region. Particularly intriguing will be the responses of authoritarian regimes in Burma, China, and Vietnam as protests become more widespread. The potential magnitude of these disturbances is not to be discounted; if you will recall, Suharto was ousted at the height of the Asian financial crisis as the IMF told Indonesia to get rid of price controls. As food prices spiralled upwards, well, you remember what came...

Asia's governments face strikes, protests and hoarding in response to the spiralling cost of food and other essentials that threatens to damage them at the polls, observers say. Asia's political leaders are on guard, wary of the potential for social unrest as people across the region struggle to cope with steeper prices for staple goods -- particularly rice.

"There will be unrest and the poorer countries will experience that much more than rich countries like Malaysia and Singapore," said Ooi Kee Beng, a fellow at the Institute of Southeast Asian Studies in Singapore.

Poverty-stricken Bangladesh and the Philippines have been particularly hard hit by higher food prices. "Soaring food prices have become a serious threat for the survival of the present caretaker government," said Bangladeshi political scientist Ataur Rahman. There could now be serious discontent, violence and food riots due to the soaring food price spikes," said Rahman.

Bangladeshis and poor Indonesians are estimated to spend close to 70 percent or more of their income on food. In the Philippines, one of the world's biggest importers of rice, the government deployed troops last week to deliver grain to poor areas of the capital Manila amid worries about shortages. It also ordered police to arrest rice hoarders as part of efforts to pre-empt the "impact on peace and order" of rises in basic commodity prices, the police said.

Analysts have said economic misery in crushingly-poor Myanmar was a force behind protests which drew up to 100,000 people into the streets of the military-ruled country last year. The unrest became the biggest challenge to the regime in almost 20 years, until the junta in late September unleashed deadly force to end it. Demonstrations initially began on a small scale in August after a sharp fuel price hike. The junta said 15 people died in the crackdown but rights groups have given a far higher toll.

Experts say soaring global crude oil prices are among the factors to blame for Asia's food inflation. Higher fuel prices directly translate into an added burden for the region's poor through, for example, higher fares on public buses which are often people's only mode of transport. In Indonesia, higher fuel costs mean a rise in the price of kerosene which is widely used by the poor for cooking.

Indonesia's late dictator Suharto was forced to step down a decade ago during massive civil unrest after he raised fuel prices during a crippling economic crisis. Facing an election next year, President Susilo Bambang Yudhoyono has sworn off further cuts to fuel subsidies but analysts say most Indonesians are being squeezed anyway by escalating costs of essentials.

The government has responded by distributing subsidised cooking oil and promising rice handouts but the rice distribution would not reach enough needy people, said Hendri Saparini, an economist with the Tim Indonesia Bangkit think-tank. "If in three months there is no action from the government, I really worry there is going to be social unrest," she said.

In China, inflation is of particular concern because it threatens to lead to social unrest and fuel anger at the government, as it did ahead of 1989 democracy protests that the military crushed. The price of China's staple meat, pork, has risen by more than 60 percent year-on-year. "There is a lot of resentment (because of) the rise of prices," said Jean-Pierre Cabestan, of Hong Kong Baptist University.

That resentment could become "a possible source of tension in the future," he said, adding however that the risk of unrest from inflation is less now than in the 1980s, partly because the country's much larger middle class has a stake in the stability of the system.

But for China's low-paid working class the situation is different. "I think there clearly is potential for worker unrest resulting from inflation," said Geoffrey Crothall, a Hong Kong-based spokesman for the non-governmental China Labour Bulletin, an organisation promoting labour rights in China.

In communist Vietnam, where consumer prices rose more than 16 percent year-on-year in the first quarter of 2008, strikes are becoming more frequent. Last week more than 15,000 workers at a Vietnamese shoe factory went on a two-day strike "because of the increase in prices which has hit people hard recently," said union official Nguyen Thi Dung.

Even in Singapore, one of Asia's wealthiest countries which maintains tight restrictions on public assembly, people have raised their voices. Ten people were detained by police last month after they held a rally, without a permit, to protest rising living costs, witnesses said.

The World Bank warned last week of possible "heightening political tensions" in Asia if rising inflation stalls poverty reduction measures. Rising prices have already emerged as a key issue in Asian elections.Malaysia's ruling coalition in elections last month ceded five states and a third of parliamentary seats to the opposition, which campaigned heavily on high inflation. Rising costs had triggered rare public protests and, after his stunning electoral blow, Prime Minister Abdullah Ahmad Badawi backed down on looming fuel price hikes.

Pakistan went to the polls in February overshadowed by suicide bombings but also by a shortage of wheat for the country's staple flat bread, the price of which had doubled. Voters dealt a severe defeat to parliamentary allies of President Pervez Musharraf.

India's ruling coalition is under pressure to curb rising prices ahead of elections in nearly a dozen states this year and general elections due by May next year. Both the communists, who prop up the minority government in parliament, and the opposition Bharatiya Janata Party have threatened national anti-inflation protests.

Ooi, of the Institute of Southeast Asian Studies, said the political danger from rising prices depends on several factors including the extent of income disparities in a country. "I think what is decisive is whether or not the population feels that the government is competent and uncorrupted," Ooi said.

Let us now turn our attention to another part of the world where the same price controls, export taxes, and what else have you have also failed to control soaring food prices: Latin America. In particular, violent episodes are erupting in Haiti as they are in the rest of the world according to Reuters:

A man was killed by gunfire as demonstrators took to the streets in the southern Haitian city of Les Cayes on Monday, raising the death toll to five in protests against rising food prices, officials and radio reports said. Rock-throwing student protesters also clashed with police outside the state-run national university in Port-au-Prince, capital of the impoverished Caribbean nation of nearly 9 million people, expressing anger at the higher cost of food. Four people were killed and 20 others were hurt in a riot in Les Cayes last week. U.N. vehicles were burned, peacekeepers were attacked and a food warehouse was looted by angry mobs on Thursday and Friday. In response to the unrest, Prime Minister Jacques Edouard Alexis announced a multimillion-dollar investment program aimed at lowering the cost of living.

Prices of rice and other essentials have doubled and in some cases tripled, sparking protests since Wednesday in Gonaives, Petit-Goave and other cities against the government of President Rene Preval, whose 2006 election brought relative calm after decades of violence and political upheaval.

The head of the United Nations World Food Program warned on Monday that a global surge in food prices could lead to further tensions. Unrest related to food and fuel costs has recently hit Burkina Faso, Cameroon, Egypt, Indonesia, Ivory Coast, Mauritania, Mozambique and Senegal, it said. "A new face of hunger is emerging; even where food is available on the shelves, there are now more and more people who simply cannot afford it," WFP director Josette Sheeran said in a statement.

Tensions remained high in Les Cayes, one of Haiti's largest cities. Gunfire erupted on Monday when protesters stormed the home of a senator, Gabriel Fortune, and two men were wounded, according to a city official. He said one of the men died later at a hospital. A student also suffered a gunshot wound during Monday's clashes near the university in Port-au-Prince, where demonstrators gathered outside the National Palace as well, local radio reports and witnesses said.

"The government is solely responsible for what is happening today because it has failed to properly address the problems," Les Cayes resident Maxon Benoit said on Sunday. "Why don't they eliminate taxes on food products and give the population a break?"

Les Cayes Mayor Pierre Yvon Chery was attacked on Sunday by angry protesters when he went to the seaside neighborhood of La Savane to explain measures enacted by the government to help calm the unrest. Residents said the violence was the worst Les Cayes had seen in years. "This is a shame for us, inhabitants of this city known for its calm, its hospitality and its civility," said 45-year-old Marie Jeanne Occeant. "It is true the situation is unbearable. I have not seen such hardships my whole life, but the violence can only make it worse…"

Consequently, NGO Friends of the Earth is petitioning the Inter-America Development Bank to stop funding projects based on biofuels. The suggestion here, of course, is that diversion of agricultural production away from food supplies and into energy supplies is responsible for rising food prices in the region. From Reuters again:

Environmental groups urged the Inter-American Development Bank on Saturday to stop lending money to big companies piling into the booming ethanol business that some critics say is partly to blame for soaring food prices.

As riots over the cost of living broke out in impoverished Haiti, the IADB prepared to announce increased funding of ports, sugarcane mills and other biofuel ventures throughout Latin America, citing plant-based fuels as a crucial counterweight to climate change and rising energy prices.

"The bank's aggressive promotion of biofuels may be good for corporations, but it's a bad deal for farmers, indigenous people and the environment in Latin America," Kate Horner of Friends of the Earth-U.S., said at the bank's annual meeting in Miami.

World food prices have jumped due to what the U.N.'s World Food Program says is a mixture of high energy prices, which are boosting transportation costs, increased demand for food by developing countries, erratic weather and competition between biofuels and food for land and investment…

IADB President Luis Alberto Moreno said he believes Latin America has a bright future in "green energy," or biofuels. The bank has around $3 billion in private-sector loan projects under consideration. Critics say the vast majority do not promote rural development in Latin America but are aimed at supporting large exporters satisfying U.S. demands for energy.

In Haiti, the poorest country in the Americas, organizations like the IADB are eager to promote projects that cultivate jatropha, a plant capable of surviving in the country's denuded wastelands and also of producing an oil in its nuts that can be used as fuel. The projects would involve some irrigation. "Why don't they use it to produce more food?" said Aldrin Calixte of the activist group Haiti Survie.

China's Dalai Fixation, Olympic "Goon Squad," Etc.

From Merriam-Webster, hyperbole is defined as "extravagant exaggeration." When it comes to name-calling the Dalai Lama, the burghers of Beijing have left no turn of phrase unturned. A few days ago, he was described by the Chinese overseer of Tibet as "a wolf in monk's robes, a devil with a human face but the heart of a beast." If you thought it was impossible to top that hyperbole, think again as it appears Chinese officials are once again on a verbal assault. PRC spokeswoman Jiang Yu states the Dalai Lama wants to put Tibet on the road to the serfdom [!] From our favourite official publication, the China Daily:

China on Tuesday criticized that the Dalai Lama has proved with his own acts that his brag for "peace" and "non-violence" is nothing but lie. Chinese Foreign Ministry Spokeswoman Jiang Yu made the remarks at a regular press conference on Tuesday afternoon when asked to comment on the Dalai Lama's claim in his recent statement that he sticks to his "middle way" approach and does not seek for "Tibet independence". Jiang said the Dalai Lama is the head representative of the serf system which integrates religion with politics in old Tibet.

Such serf system, which harbors no democracy, freedom and human rights in any form, is the darkest slavery system in human history, Jiang said, adding that only the serf owners could enjoy special privileges under such a system. The "middle way" approach that the Dalai Lama is pursuing for is aimed at restoring his own "paradise in the past", which will throw millions of liberated serf back into a dark cage, Jiang said. "Such a 'middle way', who can accept it?" said Jiang.

On the Dalai Lama's claim that he is unconnected with the riots in Lhasa, Jiang said "Dalai has always been dependent on telling lies", noting that it does not matter much about what he said, only what he did. One thing that the Dalai Lama has done recently is to instigate and orchestrate the violence in Lhasa, Jiang said. The Dalai Lama's own acts have proved "peace" and "non-violence" are all lies to cheat people, Jiang said.

Jiang also added that the central government's policy toward the Dalai Lama is consistent and the central government has been patiently keeping contact with the Dalai Lama side. "Our door to conduct dialogue with the Dalai Lama was open in the past and is still open now", Jiang said. Only if the Dalai Lama changed his mind, stopped separatist activities, violence and sabotaging the Beijing Olympic Games, "we are still willing to contact and consult with him", Jiang said.

[UPDATE: The Times of London has more on the men in blue.] Also, you may be wondering who those Chinese guys who run alongside the torchbearers are. Remember the case of someone getting hold of the torch as Konnie Huq paraded it through the (mean) streets of London and subsequently getting pummelled by these guys? There is a back story that I found incredulous at first but makes perfect sense after you factor in the paranoia of Chinese officialdom about the Olympics: These guys are members of the "Beijing Olympic Games Sacred Flame Protection Unit" (I am not making this up; see below), a detachment from the People's Armed Police. What's their brief? That's easy: Get too close and they'll beat the stuffing out of you. If that description doesn't fit a "goon squad" to a T, then I don't know what would. From the Wall Street Journal:

Just who are those guys in the blue-and-white tracksuits and baseball caps? As the Beijing Olympic torch procession has fought its way through crowds of protesters in London and Paris on its way to Wednesday's leg in San Francisco, a squad of blue-clad Chinese men has guarded the flame -- and at times shoved people away who tried to get too close.

International Olympic Committee President Jacques Rogge said in an interview Tuesday that he didn't know who the men in blue are. British police would say only that they are "torch attendants whose role was to protect the torch." Lord Sebastian Coe, a two-time Olympic gold medalist and chairman of London's Olympic organizing committee, called them "thugs."

The security men appear to be members of the Beijing Olympic Games Sacred Flame Protection unit, a detachment of personnel from China's People's Armed Police. The paramilitary People's Armed Police force has wide-ranging duties, from protecting diplomatic missions to maintaining internal security. Units of the People's Armed Police were deployed to forcibly quell violent unrest last month in Tibet.

Last August, Olympic officials along with police and Beijing city officials held a well-publicized swearing-in ceremony for men recruited from the People's Armed Police special-forces training academy. Their mission: Guard the torch and the lamp containing the flame from Mount Olympus in Greece.

The unit includes 30 people for overseas missions and 40 to escort the torch on its journey through China. Chinese media reported that they had special physical-fitness preparation as well as "etiquette" and language training and practice in driving cars and motorcycles.

Despite the flurry of attention last year, the Chinese government and the Beijing Olympic organizing committee are more reticent now. The spokesman for the Beijing Games, Sun Weide, declined to confirm or deny that the men now running with the torch are from the paramilitary police. "What I can tell you is they are trained to protect the Olympic torch," he said.

A representative for the torch relay, Liu Yiyang, however, confirmed that the torch escorts had been students at the special police academy. The Public Security Ministry and the Ministry of Defense, both of which oversee the People's Armed Police, didn't respond to requests for comment.

China's government often guards information closely, and many aspects of China's Olympic preparations have been kept out of the public domain -- from information about parts of the torch relay route in Tibet to plans to shut down factories and restrict traffic to improve air quality.

The unrest in Tibet, and the role of People's Armed Police, the main force used to put down demonstrations and restore order, has likely reinforced this tendency to secrecy. A person familiar with security arrangements in London said, "We received 12 guys, and we were told these guys would be the inner circle." The person said that British police weren't made aware that the Chinese men were members of the People's Armed Police. A spokesman for the Chinese Embassy in London also said he was "unaware" of who made up the security team.

The mystery around the identities of the Chinese guards has received a lot of attention in the British media. Tuesday's political cartoon in The Times of London depicts one track-suited Chinese guard outside No. 10 Downing Street, with Prime Minister Gordon Brown looking at his usual police guard in a beaten-up heap.

As a protester tried to wrestle the torch from TV presenter Konnie Huq, the Chinese guards leapt into action and pushed the protester to the ground, forcing the British police to intervene and snatch him back. In interviews afterward, Ms. Huq described the guards as "aggressive" and "robotic," barking commands at her throughout the run.

The People's Armed Police, a force of 660,000, performs a wide variety of functions in China. The bulk of its members are engaged in internal security work. Large numbers have moved into the Tibet Autonomous Region and parts of neighboring provinces with large Tibetan populations to put down antigovernment protests by Tibetans.

But the People's Armed Police also mans fire brigades across China, and special units are trained for crowd control, diplomatic security, counterterrorism and antihijacking missions. The force is designed to reinforce the country's military during wartime. China has been concerned about security for the torch relay, especially when it became clear that Tibet activists, human-rights campaigners and others had planned large protest rallies to coincide with the torch's visits to cities around the world.

As a last bit of Olympic fun (or whatever is left of it), the WSJ further notes that multiple entry visas into China appear to be in the process of being curtailed to prevent more incursions by troublesome foreigners like sympathizers of the "Dalai clique." This is apparently causing much inconvenience to Western businessmen who must go to the Middle Kingdom on a regular basis:

Recent reports that China has stopped issuing multiple-entry visas for foreigners ahead of the Olympic Games in August could mean complications for business travelers, though the situation was further confused by a Chinese government statement Tuesday.

Several visa agents in Hong Kong, a popular entry point into mainland China, said they received direct word from the China visa office here last week that effective immediately, issuance of the popular multiple-entry visas for foreigners was barred until after the Beijing Olympics. Single- and double-entry visas would be issued instead, they said.

The Web site of Forever Bright Trading, an agency in Hong Kong that helps arrange visas, says the ban will last until Oct. 17. One of its agents said she didn't know if the ban would be extended beyond then. Uncertainty about whether China's immigration rules have changed significantly seems to pertain only to new applications for multiple-entry visas. There have been no reports so far of people holding valid multiple-entry visas having any problems using them.

At Compass Travel, an agent said the ban on applications applied to F-visas, for business, and L-visas, for tourism, and to all foreigners, regardless of nationality. Before, business travelers could obtain visas valid for multiple entries over a three-year period. However, comments Tuesday at a Beijing news conference by Jiang Yu, a spokeswoman for the Ministry of Foreign Affairs, indicated no policy change. Asked about Hong Kong tour agents who said a ban has been put on multiple-entry visas, Ms. Jiang replied that China "has not stopped issuing multiple-entry visas for foreign tourists…"

Andrew Work, executive director in Hong Kong for the Canadian Chamber of Commerce, said he has issued a notice to business travelers warning them that they would have trouble getting multiple-entry visas. "If you work at a big company and you have a professional travel service or secretary, you probably won't notice it that much," he said. "But for the small-businessperson, it's going to be a big hassle…"

The unyieldingly confrontational approach of the PRC is certainly doing it no favours in the world court of public opinion.

Abu Dhabi's Blueprint for an Innovative Eco-City

The clip above is a promo for the emirate of Abu Dhabi's $22B foray into creating an innovative city called Masdar. It is supposed to set new standards in green living by featuring, among other things, a hydrogen power plant (to demonstrate clean power from Abu Dhabi's still-abundant fossil fuels), acres of solar panels, a desalinization plant running on solar power, magnetic trains for transportation (cars are not welcome), and 100% waste recycling. In other words, it's everything Abu Dhabi isn't right now in terms of green credentials--the World Wildlife Fund claims Abu Dhabi's citizens have the largest carbon footprint in the world.

So, what will it be? A folly of a showpiece, or the future in the design of green cities in an increasingly urbanized world? I sure do hope it is the latter, though I could be wrong. After all, $22B is chump change to Abu Dhabi, whose sovereign wealth fund is rumoured to have $875B in store. If this project falls flat on its face, it's just a drop in the bucket for these folks. Nevertheless, it is an ambitious project with the famous architect Norman Foster overlooking the proceedings. If the emir builds it, will they come? Here is a snippet from the TIME article:

What's happening in Abu Dhabi could be very exciting for the rest of us, too — and very surprising. The emirate is the world's fifth largest exporter of oil and sixth largest producer of natural gas, making it immensely rich, with per-capita gdp of $63,000, compared with $45,000 in the U.S. and U.K. With oil at around $93 per barrel, business is better than ever. So the notion of this fossil-fuel colossus supporting alternative energy might seem a bit like a heroin dealer trying to sell aspirin. But the Masdar Initiative is much more than a fig leaf to cover Abu Dhabi's contributions to climate change. Through investments in clean-technology companies, a sustainability research center, major green power developments, and Foster's city, Masdar represents a dramatically new direction for Middle Eastern energy. Fossil fuels won't last forever, and the need to cut greenhouse-gas emissions could force a quicker transition away from petroleum. Middle Eastern nations that want to remain viable in the next century can't rely entirely on hydrocarbons. With Masdar, Abu Dhabi may be pointing the way to the long-term prosperity of the Middle East.

"People are excited about this," says Maria Carvalho, an analyst at the London-based environmental research firm New Carbon Finance. "Nowhere else in the Middle East has there been such a commitment toward clean energy." Sultan Ahmed Al Jaber, Masdar's intense, 35-year-old CEO, has even bolder ambitions, telling TIME: "We will position Abu Dhabi as the hub of future energy."

It's easy to dismiss these grandiose visions as mere rhetoric. After all, the U.A.E. currently gets none of its energy from renewable sources, and the World Wildlife Fund has sized up its citizens with the biggest carbon footprint in the world. (The government disputes that calculation.) But Masdar has something that green dreams elsewhere in the world tend to lack — vast amounts of money, and a far-sighted government willing to invest it in projects that may take decades to pay off. Launched in early 2006, Masdar was quickly able to take advantage of hundreds of millions in government funding. But that was just seed money. Last month, at the emirate's inaugural World Future Energy Summit — a sustainability conference that attracted some 4,000 officials, energy experts and businesspeople from around the world — Abu Dhabi's Crown Prince Sheikh Mohammed Bin Zayed Al Nahyan announced that the government would pour an additional $15 billion into Masdar. That sheer financial tonnage puts Abu Dhabi far above its Persian Gulf neighbors on any green ranking, and positions it as a global player. "They are putting real money on the table to get this done," says Nicholas Parker, chairman of the Cleantech Network, which tracks sustainability investments. "This is how you can tell they're serious."

Masdar won't say exactly how the crown prince's check will be spent, but the program doesn't lack for range. The company has already invested $250 million in clean-tech companies from around the world, and expects to launch a second and third fund in the near future. Another arm of the company will play the growing carbon market, brokering investments to reduce greenhouse-gas emissions under the U.N.'s Clean Development Mechanism. Larger projects are in the works at home as well. At the Future Energy Summit, Masdar officials announced a deal with British Petroleum and Rio Tinto for the emirate to build one of the world's first commercial hydrogen power plants, a 500-MW operation slated to cost at least $2 billion. The plant will tap Abu Dhabi's abundant natural gas, transforming it into hydrogen and carbon dioxide, with the hydrogen used for electricity and the CO2 captured, keeping it out of the atmosphere. The result is clean power from fossil fuels — a Masdar priority — and shows that Abu Dhabi's half-century of experience with hydrocarbons could also lend it powerful expertise when it comes to renewables. "Abu Dhabi is ideally suited to develop this project because of the experience it has with fossil fuels," says Ron Heyselaar, who runs the hydrogen program for Masdar. "It's a match made in heaven."

One of the best hopes for alternative power in Abu Dhabi — and throughout much of the sun-baked Middle East — is large-scale solar energy, and here too, Masdar is preparing investments. Masdar City will be mostly solar-powered using traditional rooftop photovoltaic panels, but the company also plans to build a 100-MW concentrated solar power (CSP) plant in the nearby town of Madinat Zayed. CSP is solar with a difference: instead of transforming sunlight directly into electricity, CSP uses vast arrays of parabolic mirrors to collect and focus the sun's heat, which is then converted to power. It's ideal for hot, sunny desert conditions, and it's scalable — meaning that given enough space, CSP plants could potentially supply significant chunks of a country's electricity supply, not the negligible quantities that renewables mostly contribute today. Algeria already has a 150-MW CSP plant planned for 2012, with grand plans of exporting up to 6 gigawatts (GW) of solar power to southern Europe by 2020. Abu Dhabi's CSP plans are initially more modest than those of its larger North African competitor, with its first plant set for 2010, but Masdar's greater funding and international support make it the better long-term bet. "The region is rich in fossil fuels for the time being," says Klaus Toepfer, the former head of the United Nations Environment Programme. "But this region will be rich in sun for all time — and there could be a new boom here if these technologies are developed."

The Last of Debtlodocus Americanus: $5000 Off SUVs

Many years in the future, anthropologists will study the demise of the wasteful and ultimately self-destructive species known as debtlodocus americanus. Its debilitating love of debt fuelled purchases of ever-larger, environmentally destructive, and needless McMansions and SUVs. The latter were akin to dinosaurs roaming the Earth at a time of wrenching climate change that ultimately imperilled the existence of debtlodocus americanus. As the price of fuel went above $100 a barrel due to, among other things, US misadventures in Mesopotamia to procure more oil, the countdown to extinction was set into motion. Yet Dick Cheney, one of the species' leaders, continued to propound the widespread belief that taking on more debt was no problem whatsoever since "deficits don't matter."Along the same lines, Cheney's voting record suggested the Earth didn't matter, either. (There is another related species, lomborgus hilarius, whose mad existence we must discuss at another time.)

The last few days of this ignoble species were presaged by deep discounting of the aforementioned automotive abominations in the town that is the ecological equivalent of Bjorn Lomborg waging eco-jihad, Los Angeles. Unbelievably, the slow-witted deblodocus americanus began to realize the error of its ways as filling the tank of one of these enviro-wretches cost more than $120 in LA.. Yet not even Jah the Maker could save the doomed species now...

Big cash rebates on for vehicles with poor gas mileage seems to be a theme in April for Southern California, with 11 vehicles sporting over $5,000 in rebates. The list is dominated by Chrysler, which offers hefty cash-back incentives on some of the biggest guzzlers in its fleet. Also of note is the fact that these rebates are on many 2007 models that can still be found on Chrysler dealers' lots across the Southland.

Lincoln Mercury and Toyota also reveal their big-car-blues in L.A. with big-time incentives of $5,000 on the Tundra and $5,500 on Navigator and Grand Marquis. Check out the attached photo gallery for details on the top 11 incentives in So. California over $5,000.

April cash-back incentives (greater Los Angeles region) over $5,000*:
2007 Chrysler Aspen
2007 Chrysler Pacifica
2007 Dodge Dakota
2007 Toyota Tundra
2008 Lincoln Navigator
2007 Chrysler 300
2007 Mercury Grand Marquis
2007 Dodge Durango
2007 Jeep Grand Cherokee
2007 Jeep commander
2007 Dodge Ram Pickup 1500

China Allows Retail Investment in US Equities

This bit of news is significant not so much for its immediate effects--I hardly think Chinese domestic investors will begin piling into American stocks rights now--but for what it may mean in the future. Will more significant Chinese investment in the US eventually result in additional protectionist rhetoric if and when American stock markets recover? We'll see. Before reaching the US, China's Qualified Domestic Institutional Investor (QDII) scheme allowed relatively well-heeled and adventurous Chinese investors to place their funds in Singapore, Hong Kong, Japan, and the UK. What remains to be seen is whether investing in the States will become an attractive option for the Chinese as the subprime debacle works its way out. Here is the story from MarketWatch, although there's more that I have to add after this:

China banking and securities regulators signed an agreement with their U.S. counterparts Monday that will help to lay the groundwork to enable Chinese investors to buy and sell U.S. stocks and mutual funds.

The agreement signed between the Securities and Exchange Commission and the China Banking Regulatory Commission marks a further expansion of QDII -- the qualified domestic institutional investor program -- and brings the U.S. in line with similar agreements signed between Beijing and regulators in Singapore, Hong Kong, Japan and the U.K.

China banking and securities regulators signed an agreement with their U.S. counterparts Monday that will help to lay the groundwork to enable Chinese investors to buy and sell U.S. stocks and mutual funds. According to data from the U.S. Treasury Department from last June, China held $922 billion in U.S. securities -- but only $29 billion of that in U.S. stocks. Most of the rest is held in U.S. government bonds.

"What we've seen over the last six to 12 months, China has a lot of capital and is looking for ways to make that capital work harder and more efficiently," said Charlie Awdry, a fund manager for Gartmore's China Opportunities Fund. "This is illustrative of the broader engagement between China and the rest of the world."

Analysts said Chinese banks may not be in much of a rush to invest in the U.S., however. "It's significant in the sense that, in the long run, Chinese money will invest in the U.S., but this is just part of the ongoing process," said Lan Xue, Citigroup's head of China research in Hong Kong. "The actual implementation will be long and slow," said Gartmore's Awdry.

Glenn Maguire, head of Asian economic research for Societe Generale in Hong Kong, pointed out that investors bid up Hong Kong-listed stocks on a similar announcement, but the money from the mainland largely didn't materialize. "Any type of change to capital outflows is evolutionary rather than revolutionary," he said. Because of the appreciation in the yuan, stress in the U.S. financial sector and the upcoming U.S. presidential election, Chinese banks might not exhibit such a great appetite for U.S. equities, he said.

So far, China's institutions and sovereign wealth funds have suffered from investing in financial-services stocks like Blackstone Group, Merrill Lynch & Co. and the U.K.'s Barclays. Still, Shanghai-listed stocks have done ever worse than their U.S. counterparts this year. The Shanghai Composite is down over 30%, compared to the 6.7% fall for the S&P 500.

The natural thing you will want to ask is how well the QDII has done before entering this extended pact with the SEC to allow Chinese retail investors in American markets. Our favourite official publication, the China Daily, says not well at all since virtually all the existing QDII funds had negative returns (dontcha just love that oxymoron) in 2007. Worse, one of the QDII schemes went kaput. Interestingly, though, the article suggests there is no shortage of FIs wanting to set up their own QDII schemes in the meantime:

China's four stock-oriented qualified domestic institutional investor (QDII) funds have all reported big losses last year, and fund management companies blamed the failing performance on the US subprime crisis that caused volatility in the world market, Monday's China Securities Journal reported.

Net value of the four QDII products - JP Morgan Fund QDII, Harvest Overseas Fund, Huaxia Global Selected Stock Fund and Southern Global Enhanced Balanced Fund - shrank by 6.3 percent to 12.1 percent of its initial value by the end of last year, according to their 2007 annual reports.

Southern Global made the smallest loss in net value while Harvest Overseas suffered most. Reports in December said Southern Global suffered slightest slump in net value as it positioned more in funds than in stocks.

In the meantime, the four products also posted negative growth over the earlier-fixed benchmark growth rate, which serves as a major reference for investors to judge the performance of a fund, the biggest negative growth rate, at 10.91 percent, was Harvest Overseas Fund.

By March 22, all four stock-oriented QDII funds saw their net value fall below one yuan (14.3 US cents), the value set for fund subscriptions, with Southern Global at 0.765 yuan, Huaxia Global at 0.713 yuan, Harvest Overseas at 0.613 yuan and JP Morgan at 0.632 yuan.

The US subprime crisis should be blamed, the four fund management companies said in their annual reports. Huaxia Global said the world stock market, emerging markets segment in particular, was badly hit by a slowdown in the US economy as well as the world economy after the subprime crises surfaced in the second half of last year in the United States. Southern Global said the negative earnings were due to the adjustment of the world market under the influence of the subprime risks. However, Harvest Overseas cited as well the appreciation of the Chinese currency against the dollar during the period for its huge losses.

These four QDII funds, Southern Global being the first approved in September last year to invest 100 percent of its assets in global stock markets instead of low-risk, low-return bond and currency markets only, currently invested heavily in the Hong Kong market, which was vulnerable to difficult conditions of the US market.

However, the pace of growth of QDII funds in China was not hampered. Apart from the fifth QDII fund already launched in January, namely ICBC Credit Suisse China Chance Global Allocation Fund, several other fund management companies have recently gained QDII status and are preparing to launch their QDII products.

They include Huabao Industrial Fund Management Ltd, Fortis Haitong Investment Management Co Ltd, China Universal Asset Management Co Ltd and E-fund Management Co Ltd…

Many of China's QDII funds and products, including bank-backed funds, were pushed into a loss as the US credit crisis began to unfold and spread. China Minsheng Banking Corp said on March 19 that it would liquidate a QDII fund and repay investors, as required if the fund's assets fell below 50 percent of their initial value. This had raised concern about a wider failure of QDII products. China's banking supervisor on Friday had asked banks to fully evaluate investors' risk tolerance shortly after the liquidation announcement from Minsheng.

Will the City of London Survive Subprime?

Not to put too fine point on it, but nobody should be surprised that the United Kingdom is being buffeted by the subprime scourge emanating from the States and the resulting fallout in yonder lands. Although Americans are famous for their free-spending ways, Britons are in the same league in terms of sheer profligacy, if not worse. Last year, personal debt exceeded GDP in the UK. Mo' mortgages, mo' stuff, mo' debt--how very American. Now that credit standards are becoming tighter in the UK and around the world, will there be much of an effect on the financial services industry? First, let's take the sanguine view espoused by Michael Snyder, the chairman of policy and resources for the City of London corporation. Unsurprisingly, this chap is optimistic on the City of London's future prospects. You can almost hear the Gloria Gaynor playing in the background...

The financial roller coaster of recent months has allowed many to lose perspective and forget that, while times are undoubtedly tough – and may for some get tougher, the medium and long-term prospects for the UK-based financial services industry are still good.

Bank and other shares have been bouncing around like escaped Easter rabbits so it is worth reminding ourselves that the health of a financial centre depends on underlying factors rather than short-term market events, however adrenalin-inducing.

In spite of the worldwide credit crunch and the anxieties it brings, London’s foundations as a global financial hub remain strong and the City will remain an important provider of jobs and revenue for the UK.

This does not mean that rose-coloured spectacles are now the latest spring fashion in the Square Mile. Indeed, a very high price is being paid by UK-based financial services to learn the lessons of the past few months. For example, the supervision of Northern Rock – and the response to its difficulties – has damaged our global reputation, at least for a while. But as other jurisdictions with much thicker rulebooks have also been found wanting, London is probably no longer seen as an egregious offender and the Financial Services Authority seems determined to upgrade its specialist monitoring and assessment resources.

The shortage of confidence in the credit markets is serious for the wider economy and good news is needed from, for example, the US mortgage market, if those with money are going to start feeling more confident about lending to those who want to borrow.

In the financial industry jobs are being cut and teams laid off as firms react to the market conditions and race to show themselves agile enough to find a route through to profits. Politicians around the world are rightly asking tough questions of highly paid chief executives, centred around the link between results and rewards.

Yet anyone watching shares in perfectly good businesses crash overnight or witnessing outright panic surge across trading floors might go further and conclude that the current arrangement of relatively open, globally integrated financial markets is, not to put too fine a point on it, the worst system possible. Like democracy, the current financial system appears dire – but in practice it is still rather less dire than all the other systems so far thought of. The current pain is a necessary part.

Markets have got us into a global crisis at a speed few imagined. As the distrust caused by shaky US mortgages unwinds there will be a need for serious adjustments to supervision, systems and guidelines – but only after careful thought and, we hope, proper consultation with the industry.

At the heart of the necessary transfer of capital and risk will remain the global centres such as London and New York. The heady predictions of 150,000 new jobs in UK-based financial services over the next 10 years may need some downward revision – and some jobs will go in the short term. But in the end the only people able to operate the levers of the global financial machine are those already working in the specialised business cluster whose heart is the Square Mile but whose centres also include London’s Canary Wharf and West End, Edinburgh and Leeds.

The 6,000 firms that employ, for example, 340,000 well paid knowledge workers in the City of London business zone alone between Fleet Street and the Tower of London need these “walking assets” during the current turmoil precisely because they are the expert financial engineers in what is now the UK’s major industry – finance.

The ability to develop new products and operate them 24/7 across the world – in English – from a business cluster that has become Europe’s financial capital and is located in a time zone between Hong Kong and New York is needed more than ever. Only centres such as London have the world-spanning skills needed to work through the changes and adjustments necessary.

New technology and techniques have brought benefits in enabling risks and assets to be rapidly redeployed around the world. We are learning, painfully, some of the downsides of this globalised marketplace but there is no turning back to the era of isolated development. The City of London is at the heart of this new world. The lessons of the turmoil are being carefully absorbed by people in the powerful cluster of financial and business skills that will remain based here and continue to provide a key element in London and the UK’s modern economy.

It's so very Thatcherite. You've got TINA going on (There Is No Alternative to neoliberalism) and all that. For a contrasting view, the man who broke the Bank of England, George Soros, offers this rejoinder to the attaboy above. In other words, he too is seeing the end of the Thatcherite / Reaganite brand of neoliberalism:

The City of London faces a severe recession and the UK economy is set to follow the US into a sharp downturn, according to a gloomy prognosis from the billionaire financier George Soros.

Faced with over-valued houses, mountains of personal debt and a rise in unemployment, the UK is especially vulnerable to the effects of the credit crisis sweeping through financial markets, Mr Soros said, and he warned not to expect a rebound at any point in the near future.

Indeed, the crisis is so serious that it will up-end 25 years of free-market thinking and bring to an end an era of cheaper and easier borrowing, he predicted. "It is not going to be like the 1930s – we are not going to allow financial institutions to fail – but this is a historic event like the Great Depression was."

In the UK, as in the US and the rest of the developed world, "ever looser lending standards and more aggressive supply of mortgages" have contributed to a house price bubble but, said Mr Soros, "I think we have come to the end of the road".

"To say that it won't affect the real economy is untenable, because it affected it on the upside, so it will affect it on the downside. Recession in the US is inevitable. There will be implications for the globalised economy and the UK happens to be as vulnerable as the US, but in different ways. The finance industry is much more important to the UK because London is a financial centre and the industry is going through a painful process of deleveraging. The housing market in the UK has at least not seen the building boom that we have seen in the US and the supply of new homes has not gone up, but on the other hand, the indebtedness of UK households is actually even greater relative to income than in the US..."

Echoing the themes of The New Paradigm, Mr Soros said: "Regulators have abandoned their duty by letting markets regulate themselves. It's because a market fundamentalist ideology has come to dominate the behaviour of market participants and market regulators over the past 25 years ... and the idea that markets are best left to their own devices became policy."

The Greening of Wal-Mart, China Edition

Regardless of what you think of Wal-Mart's practices, especially those in the social and environmental domains (I'm not too fond of it myself), this latest news that it is gathering its Chinese suppliers to figure out ways of minimizing the ecological footprint of its vast supply chain is certainly welcome. Let's just hope that it's more than cosmetic "greenswashing"; there are few CSR bogeymen of the same size as the elephantine Wal-Mart. The numbers offered in this Financial Times article suggest the potential for Wal-Mart greening:

Wal-Mart, the world’s largest retailer, is to convene a meeting of hundreds of its Chinese suppliers to set out goals for significant reductions in the environmental impact of its vast supply chain. Wal-Mart accounts for about 30 per cent of all foreign buying in China and just under 10 per cent of total US imports from the country, which were worth $321bn last year.

About 1,000 Chinese companies are expected to attend the Wal-Mart event in October, marking a push by the retailer to globalise a drive on environmental sustainability that has hitherto largely been focused on its US operations.

Lee Scott, Wal-Mart’s chief executive, said in an interview with the Financial Times that “we are really ambitious” about what can be achieved in China, given increased evidence of government concern over the environmental damage done by rapid industrialisation. “I’m very confident that we are going to see in China more progress than any of us has imagined,” he said. “Part of it is . . . because the Chinese government has just now really got on the sustainability process as far as understanding what it is going to mean for them in the long term. And they’re being really aggressive.”

Blu Skye, an environmental consultancy that started advising the retailer in 2004 , is working in China to assess strategies. Wal-Mart launched a drive in 2005 to improve its much-criticised record on environmental and social issues. Environmental Defense, a non-profit group that has also worked closely with Wal-Mart, recently signed an agreement with the China Association of Small and Medium Enterprises to offer technical support on environmental issues. CASME’s more than 5,000 members include many Wal-Mart suppliers.

In January, Mr Scott told an annual meeting of Wal-Mart managers that the company would work with the Chinese government and other groups “to make sure suppliers comply with Chinese environmental laws and regulations” and would set up a “mechanism” to monitor performance. Mr Scott has said he hopes to see significant results in China in three to five years. While he said Wal-Mart would hope to be part of an industry-wide effort, the retailer would move on its own if necessary.

Since factories supplying Wal-Mart supply other leading international customers as well, Wal-Mart officials argue that its efforts could potentially have a big impact on the energy efficiency and environmental impact of China’s manufacturing base.

Olympic Torch Relay in London Disrupted Over Tibet

There really isn't much need for me to comment here. The 2008 Games are an absolute PR fiasco. Expect more of this sort of vehement protest against the PRC as the Olympic torch wends its way through other parts of the world. Taken from the Telegraph is a blow-by-blow account of the kerfuffles along the torch route. (Your eyes do not deceive you for it is snowing in Britain in April. CNN offers additional footage.)

The Olympic torch has arrived at the O2 Arena after chaotic scenes during its tour of London as more than 35 protesters were arrested. Former Blue Peter presenter Konnie Huq was caught in the middle of an ugly scuffle as a man attempted to wrestle the torch from her hands.

The parade was brought to a temporary halt five times in its first few miles as anti-China protesters made repeated attempts to breach security, including one man who tried to extinguish the flame with a fire extinguisher.

However Prime Minister Gordon Brown welcomed the torch at Downing Street, where at 1pm he posed for photographed alongside the torch - by which time 25 protesters had been taken into custody.

Vast crowds of peaceful pro-Tibet protesters – calling for independence from China – also lined the streets, chanting "Free Tibet" and booing the torch bearers. Britain's greatest Olympian, Sir Steve Redgrave, started the route at Wembley stadium in north London.

But within five minutes – after he had passed it to the second torch carrier - a protestor tried to steal the flame as it was carried on to a bus. The woman was bundled to the ground and arrested along with two others. She screamed at television cameras: "I urge you Gordon Brown listen. Free Tibet".

After a brief, quiet period, there were three incidents in 10 minutes in west London. Miss Huq, who had expressed her doubts about taking part in the event, ran with it for several minutes but as she stopped to pass the flame over, a man in a brown jacket grabbed it from her hands and six police officers and attendants were forced to wrestle it from him.

One onlooker said: "It was a very nasty scuffle and Konnie looked shocked by it all". Human rights campaigner Peter Tatchell stopped the procession as it moved in a bus along Oxford Street, jumping out of the crowd and into the road in front of it holding a sign saying "Free Tibet, Free Hu Jia", referring to a Chinese dissident jailed earlier this month for "inciting subversion of state power".

Later another man ran out of the crowd and was stopped by police just before he reached the inner cordon. At 11.30am, a man disguised in a yellow day-glo jacket ran out from the side of a crowd and let off a fire extinguisher. He was forced to the ground as the air filed with white smoke.

Police then beefed up security, bringing in van loads of officers to flank the convoy running alongside it along with motorcycles and a dozen officers on bicycles closely guarding the torch. Around 15 Chinese attendants, dressed in blue and white, also huddled around it. Four minutes later the torch was passed to British tennis champion Tim Henman. He wore an uneasy smile as he watched the crowd closely, jogging down the road.

In Bloomsbury Square the ceremony came to a complete halt in a stand-off between large crowds of pro-China and pro-Tibet supporters. Sir Clive Woodward, the World Cup winning rugby coach, was confronted by three protesters immediately as he was handed the flame. They were all arrested.

In Trafalgar Square, as Sir Trevor Macdonald held the torch aloft, large groups of protesters clashed with police in the most violent scenes and six people were detained. Police say they have made around 35 arrests along the 31 mile route.

UPDATE 4/7/2008: Some suggested that things would calm down when the torch reached Paris. Guess again. The torch had to be put out twice as protests erupted there. The torch took the bus as well. It just goes on and on. The BBC has collated various wire reports below and has footage of the Paris imbroglio:

Protests against the torch relay ahead of the Beijing Olympics have spread to France's capital, Paris. Four people were arrested, including two who were taking part in demonstrations critical of Chinese rule in Tibet, AFP news agency said.

Officials twice extinguished the torch and put it on a bus for safety reasons. Earlier, the president of the International Olympic Committee (IOC), Jacques Rogge, expressed concern over unrest in Tibet and the torch protests…

About 500 protesters were reported to be involved in the demonstrations, mainly near the Eiffel Tower. Several hundred demonstrators waving banners gathered on the Trocadero esplanade where the relay got started at 1235 local time (1135 BST).

A member of the French Green party was restrained by police after attempting to grab the torch from the first of Paris's 80 torch bearers, former world 400 metres hurdles champion Stephane Diagana, Reuters news agency said. Police twice carried the torch onto a bus amid the demonstrations.

On the second occasion, the flame was being relayed out of a Paris traffic tunnel by an athlete in a wheelchair when it was taken onto a bus because protesters booed and began chanting "Tibet", the Associated Press reported.

Colombia, Clinton Get Rid of Mark Penn Over Trade

This has to be the most abysmal story in the race to the White House: Mark Penn, Hillary Clinton's campaign strategist and author of Microtrends, has rightly been singled out for his glaring inconsistency over the Colombia - US bilateral trade deal. You see, Missus Clinton has said that she will not be signing on to such a deal. (Ditto for Obama.) At the same time, however, Penn has been working as CEO of the lobbying firm Burson-Marsteller to help get the deal passed. Recently, Penn made an apology for meeting Colombian officials over the trade deal. Let us start with the apology then follow it up with the unsurprising conclusion:

Mark Penn, the chief campaign strategist for Hillary Clinton, apologized for meeting with Colombian officials to discuss a bilateral free-trade agreement opposed by Clinton. ``The meeting was an error in judgment that will not be repeated and I am sorry for it,'' Penn said in a written statement about his March 31 talk with the Colombian ambassador. ``The senator's well-known opposition to this trade deal is clear and was not discussed,'' he said in the statement released by Clinton's campaign.

The Wall Street Journal reported today that Penn attended the meeting as chief executive of Burson-Marsteller Worldwide, a communications and lobbying firm, not as a Clinton adviser. Burson-Marsteller has a contract with Colombia to promote U.S. approval of the deal, according to documents the company filed with the Department of Justice last year.

``Mark was not there representing the campaign,'' Clinton spokesman Mo Elleithee said. ``Senator Clinton is crystal clear in her opposition to the Colombia trade deal.'' Paul Cordasco, a spokesman for Burson-Marsteller, declined to comment, as did Sandra Ocampo, a spokeswoman for the Colombian Embassy in Washington.

Since that time, though, the Colombians have responded to Penn's apology. Apparently, they were none too pleased with the insinuation that their pursuit of a bilateral trade deal was something that needed a mea culpa. As a consequence, they have now fired the rather two-faced Penn. Colombian officials said "the Colombian government considers that declaration a lack of respect towards Colombians, which is unacceptable":

The communications and lobbying firm run by Mark Penn, the chief campaign strategist for Hillary Clinton, was fired by the Colombian government after Penn called a meeting with his clients an ``error in judgment.''

Colombia ended its contract with Burson-Marsteller because Penn's comments showed ``a lack of respect to Colombians,'' according to a statement on the government's Web site. Penn apologized yesterday for meeting with Colombian officials to discuss a free-trade agreement that Clinton opposes.

Burson-Marsteller's contract to promote a free-trade deal with Colombia threatens to undercut Clinton's support among blue collar workers, a key constituency in the April 22 Pennsylvania primary that she must win to keep her campaign alive. Clinton and Democratic rival Barack Obama have both made trade agreements a top issue, saying they cost American manufacturing jobs.

The controversy also recalls Clinton's accusation last month that Obama, a Senator from Illinois, misled voters about his views on trade because his economic adviser held a private meeting with Canadians that included a discussion of the North American Free Trade Agreement. Clinton and Obama have both said they favor renegotiating that pact...

Burson-Marsteller's contract with Colombia was to promote U.S. approval of a trade deal, according to documents the company filed with the Department of Justice last year.

I guess Penn didn't see the rather self-obvious "macrotrend" of voters generally frowning on such obvious hypocrisy. It further illustrates the adage that "you can't serve two masters at the same time." How will this latest flap affect the Clinton campaign? The left-leaning Independent sees curtains for Missus Clinton:

The wheels may be about to come off Hillary Clinton's campaign for the presidential nomination following a series of damaging news reports less than three weeks before a potentially decisive primary contest with Barack Obama in Pennsylvania.

Mrs Clinton's chief strategist, Mark Penn, has been forced to apologise after he was discovered lobbying for a free-trade agreement her campaign opposes. The proposed Colombia trade agreement is bitterly opposed by trade unions and human rights groups, and there are growing calls on Mrs Clinton to axe him.

Mr Penn has kept his $3m (£1.5m) a year job as head of the British-owned lobbying firm Burson-Marsteller while guiding Mrs Clinton's campaign. The man who helped Bill Clinton get into the White House has produced some of Mrs Clinton's most effective ads, including the recent "3am in the morning" ad, which stressed her round-the-clock capacity for handling crises.

Mr Penn described his lobbying meeting with Colombia's ambassador as "an error of judgment". Mrs Clinton's appeal among working-class voters has taken a further knock from revelations that she and her husband earned a combined $109m over the past eight years. This puts them in the top one-hundredth of 1 per cent of all US taxpayers.

And here is the coup de grace, ladies and gentlemen: Penn has not only been fired by the Colombian government, but he has also been asked to resign by the Clinton campaign. Below is the statement from Maggie Williams, Clinton's campaign manager. Apparently, Missus Clinton was not very amused with the double dealings of Penn. Due to his lack of discretion, Penn has lost the support of both his paymasters:

"After the events of the last few days, Mark Penn has asked to give up his role as Chief Strategist of the Clinton Campaign; Mark, and Penn, Schoen and Berland Associates, Inc. will continue to provide polling and advice to the campaign. Geoff Garin and Howard Wolfson will coordinate the campaign's strategic message team going forward."

Pink Underwear Sheriff Tackes Illegal Immigrants

The sheriff for Arizona's Maricopa Country which encompasses most of the Phoenix metro area, Joe Arpaio, is infamous for issuing inmates pink underwear to deter theft of prison-issue boxers. He too is infamous for innovating the use of female chain gangs. Arpaio has also enlisted a volunteer "posse" in a crackdown on illegal immigrants that has many taking offence for perceived racial profiling. If you are a longtime reader of the IPE Zone, you know of my basic attitude towards Mexican migration: while there are indeed a few bad hombres like drug smugglers and coyotes, most of these folks just want to earn an honest living doing stuff the gringos (Americans) don't want to. Anecdotal evidence in the article below suggests illegal immigrants are seeking their fortunes in other nearby states or are heading back to Mexico. The LA Times describes how many of the businesses catering to the Latin population are falling under hard times as a result, possibly exacerbating the slowing economic activity in Maricopa as housing construction activity slows. Of course, undocumented workers are plentiful in the construction sector. Love him or loathe him, Sheriff Arpaio is an act that's hard to follow in the art of law enforcement...

As it has become the favorite entry point for undocumented migrants trying to sneak into the United States, Arizona has become a laboratory for whether a state can single-handedly combat illegal immigration.

In recent years it has barred illegal immigrants from receiving government services, from winning punitive damages in lawsuits and from posting bail for serious crimes. A new state law shuts down businesses that hire illegal workers. And the sheriff of Maricopa County, which includes Phoenix and three-fifths of the state's population, dispatches his deputies and volunteer "posses" to search for illegal street vendors or immigrants being smuggled through the county.

"What I love about what Arizona is doing is we don't have to rely on the federal government," said state Rep. Russell Pearce, a Mesa Republican who has authored most of the toughest measures. "It has truly woken up the rest of America that states can fix that problem." The campaign has had an effect: Illegal immigrants complain it's impossible to find good work and are leaving the state. It has also taken a toll on some U.S. citizens…Pauline Muñoz, a 39-year-old mother of six who was born in Phoenix, has been afraid to leave her apartment since being held by sheriff's deputies for 15 hours for a driving infraction -- an example of what she believes is racial profiling.

And businesses that cater to immigrants both legal and illegal report a huge drop in sales, increasing the drag on the state's already troubled economy. "There used to be so many people they would fight for parking out there," said Omar Flores, 31, manager of La Mexicana market in western Phoenix. Now the grocery store is mostly empty.

Economist Dawn McLaren of Arizona State University said that part of what's pushing immigrants out is the collapse of the state's housing-based economy. In the construction sector, which employs many immigrants, 10% of jobs have vanished over the last year as home prices have plunged. The economic woes are magnified by the employer sanctions law, which has led some businesses to say they won't expand in Arizona, McLaren said. "It exacerbates the downturn," she said.

No one knows how many immigrants have left the state, and the most recent government figures show Arizona growing robustly -- as of July, Maricopa was the fastest-growing county in the nation. But enough immigrants have left that the government of Sonora, the Mexican state bordering Arizona, has complained about how many people have arrived on its doorstep.

Pearce says the overall effect has been undeniably positive for Arizona. "Smaller class sizes, shorter emergency room waits," he said. "Even if [illegal immigrants] are paying taxes -- and most of them aren't -- the cost to taxpayers is huge."

The biggest effect has come from the new employer sanctions law, which took effect in January. The law is fairly straightforward. Any business caught hiring illegal immigrants is put on probation. If it is caught doing the same thing again, the state revokes its business license. The only defense for an employer is if it used E-Verify, a federal pilot project to allow businesses to confirm the legality of their laborers.

The law did what it was supposed to with Jorge Hernandez, a 32-year-old illegal immigrant from Mexico. He had been working in a Phoenix tire shop for years when in December his bosses told him they'd have to let him go because of the new law. Now he struggles to support his family by working as a day laborer and is thinking of leaving."I've been in Arizona for 11 years," he said. "This is the worst one. For those years I worked every day. I had money, I had a car." Hernandez dreams of moving to New Mexico, where friends have told him the economy is stronger and sentiment against illegal immigrants weaker. "They don't have E-Verify there," he said in Spanish…

Local law enforcement efforts, meanwhile, have drawn complaints about racial profiling. For the last two years, Maricopa County Sheriff Joe Arpaio has been testing how far a local law enforcement agency can go in combating illegal immigration. His deputies and trained volunteers have detained more than 1,000 illegal immigrants, many of whom were stopped for minor infractions and then asked about their immigration status. State legislators this month moved toward passing a law requiring all local police departments to start fighting illegal immigration. "I believe that if you get tough," Arpaio said, illegal immigrants "will disappear."

Immigrant-rights groups and attorneys have complained that Arpaio's attack on illegal immigrants leads to Latinos constantly being asked about their citizenship status. Some cite Muñoz's case as an example of perils to Arpaio's approach…

Muñoz was held for 15 hours after being stopped on a speeding violation in Phoenix in December. Deputies discovered she did not have a driver's license. She was placed in a van with several arrested illegal immigrants, taken to jail and held for several hours of processing before a judge released her. "It's only because of the way you look," Muñoz said. "Even though I'm from here, I don't feel safe to go out and do anything."

Sheriff's Capt. Paul Chagolla, a department spokesman, said Muñoz was detained for driving without a license. She was kept with the illegal immigrants because "when we run an operation we don't always have transport" for individual suspects, he said.

Arpaio said that there have been few specific complaints of profiling and that his deputies ask suspects about immigration status only when they see a possible crime committed. He has no apologies for his tactics or their contribution to a flight of illegal immigrants from Arizona. "The more who leave, the better," he said. "They shouldn't be here in the first place."

A Third of Housing Deals Bite the Dust...in the UK

Ho-hum, where have we heard this story before? Those who have lined up to purchase houses are backing out because they are unable to obtain financing as contract terms become less lenient. Just like the US economy, the UK one is powered in large part by finance, spawning excess consumer debt and inflated property values. Both seem to be headed south, bigtime. From the Financial Times:

As many as one in three housing deals are falling through because buyers cannot get the mortgage they need as more lenders retreat from the market. Buyers are discovering that money is not available in spite of agreeing on a purchase, according to estate agents, or that the bank valuation of their house fails to match the price agreed.

The number of mortgages on offer has fallen sharply this week. By Friday, 22 per cent of deals available a week earlier had been withdrawn, according to Moneyfacts.co.uk. HBOS, the UK’s biggest mortgage lender, on Friday increased its minimum deposit to 5 per cent from 3 per cent, and said it would penalise those borrowers putting up less than a 25 per cent deposit on the property.

The effect of the lending freeze, and falling house prices, has been severe, with transactions down between 30 and 35 per cent, according to leading sales portal Rightmove. The number of estate agency office closures has more than doubled to about 10 per cent as a result, according to Ed Williams, managing director of Rightmove.

Deals are becoming difficult to secure, say agents. “The fall-through rate has gone up dramatically in recent weeks to around 35 per cent,” said Marc Goldberg, head of residential sales at Hamptons International. Normally the figure would be between 10 and 20 per cent.

Paul Jarman, head of residential agency at Savills, estimated that 20-25 per cent of its sales were falling through, mainly because funding was being withdrawn. Valuers for banks were finding that some houses were worth 10 or 15 per cent less than the agreed price, Mr Jarman said. “People regularly agree to buy without finances lined up,” added David Livesey, chief executive of Connells, which operates 500 branches.

Estate agents Knight Frank and Chesterton report a similar trend, particularly at the cheaper end of the market. Transaction times had also doubled, according to some agents, as banks become more nervous about due diligence. There are now just 4,270 different mortgage deals in the market, compared with 15,599 last July. More lenders are expected to increase rates next week.

How Globalization Hurts Bollywood Extras

Readers new to the IPE Zone may wonder what this story has to do with international political economy as the story's subject matter is not as clearly "IPE" as the two previous stories on trade and aid, respectively. However, this story of changes in the Indian film industry is very much an IPE one: as India has opened up to the world, it has become more receptive to "Western" lifestyles, especially as more folks flock to urban centres. Responding to increased urbanization, Bollywood producers have set more of their films in India's major cities as opposed to the countryside as with previous Bollywood epics. The problem with extras is that many of them are folks of modest means who do not look like the Indian equivalents of (gulp!) yuppies. In previous times, extras would play farmhands and assorted, well, bourgeoisie. However, the urbane settings of many newer Bollywood productions requires the casting of metrosexuals and other social climbers.

The heart of the matter is that the union of Bollywood extras (call it a remnant of India's Marxist past that still isn't fully erased) cannot really furnish folks who look the part of yuppies. Hence, labour strife has arisen because the movie extra unionists don't look "upscale" enough to hang with the likes of Shahrukh "Dard-E-Disco" Khan. As Bollywood seeks to market its films in foreign markets likes the US and UK, production values have to be raised, so inauthentic looking extras won't be seeing as many job opportunities. So make no mistake: this story--while entertaining if saddening as well--is 100% IPE. Unions having trouble coping with globalization is as pure IPE fodder as you can get. From the Wall Street Journal:

As India rapidly modernizes, the country's filmmakers are struggling to find movie extras who look the part. The problem is that the unions that supply background actors to movie-makers haven't kept up with the times. They have fiercely restricted admission: Becoming a "junior artist," as extras are known, is often hereditary. As a result, the labor pool has remained homogenous and small at around 2,000 unionized extras in total.

Most of these actors are relatively poor. Directors have generally used them to play roles like rickshaw drivers, shopkeepers with bushy moustaches and passersby in a village bazaar. But now, movies are increasingly shot in Western-style shopping malls and modern office towers, and directors need extras who fit the scene. "If I'm shooting in a nightclub, I wouldn't want someone who could pass for a vegetable vendor," says Bharat Rawail, an assistant director at Yash Raj Films, one of India's biggest production houses.