Bond Market Vigilantes: Are They Here or AWOL?

♠ Posted by Emmanuel in at 5/26/2010 12:09:00 AM
I almost forgot to post this op-ed by Alan Blinder on why the bond vigilantes are supposedly coming back with a vengeance. While they have, so far, not really come around to punishing the United States for its unprecedented profligacy, he argues that peripheral European countries are effectively the canary in the coal mine for Western governments to shape up their acts.

In this way Blinder is a lot like Roubini in espousing a sort of financial domino theory: up front are the PIIGS countries that are earlier in the pile to topple. Inevitably, however, despite (temporarily) declining yields on US Treasuries, German bunds, and the like, a lack of action will eventually yield similar results: lack of confidence in sovereign debt issues if fiscal health is not improved markedly in the medium term. From the Wall Street Journal:
From a long-run perspective, the bond market vigilantes have it right. Greece, Europe, the U.S. and other countries must take serious steps to get their budget deficits under better control. And the long-run budget problems of many nations are too large to be solved exclusively on either the tax side or the expenditure side.

The U.S. is a case in point. Under continuation of current policies, our budget deficit and national debt would soar to impossible heights. (Ask the oracle: the Congressional Budget Office.) The amount of deficit reduction needed to stop this incipient explosion is so large that no serious person should believe we can do it without both spending cuts and higher taxes.

But not yet, please. And therein lies the difficult-but-essential subtlety. St. Augustine urged the Lord to make him chaste, but not yet. Now budget and finance ministers around the world, including our own Peter Orszag [of the OMB] and Tim Geithner, must make an analogous plea to the bond market vigilantes—and back up their words with deeds. The problem is that the vigilantes are an impatient lot and Greece has set their clocks ticking faster.

What needs to be done varies enormously by country. Here in the U.S. Social Security reform, once considered the third rail of American politics, is now the low-hanging fruit of deficit reduction. Fixing Social Security's finances is easy, technically. And the timing is perfect because promising deficit reduction now but delivering it later is exactly the right thing to do. After all, no one wants to raise payroll taxes now or reduce retirement benefits without giving people many years of advance notice.

When the Greenspan Commission "fixed" Social Security's finances (for a while) in 1983, it delayed much of the pain for decades. Its proposals not only passed Congress in a flash but have raised barely a whimper of objection since. Pulling off something like that today might be a good way for the U.S. to steer a middle course between the Scylla of the bond market's wrath and the Charybdis of premature belt tightening that damages the recovery. Hey, Odysseus managed it.
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Hillary to China: Buy Jillions More of Treasuries

♠ Posted by Emmanuel in , at 5/25/2010 12:46:00 PM
I almost to forgot to mention proceedings from the US-China Strategic & Economic Dialogue of 24-25 May. The US Treasury site has speeches and more posted. However, I was particularly taken by what US Secretary of State Hillary Clinton had to say. Basically, she encouraged China to pile on jillions more of Treasury bonds as the US continues with its unabated spending jihad:
China has made a "wise" choice by buying United States debt instruments, U.S. Secretary of State Hillary Clinton said on Tuesday in Beijing, where senior officials from both powers are meeting for two days of talks. In an interview with Chinese television, Clinton also said that at some point China would have to invest more at home.

China is the world's largest holder of U.S. Treasuries, with $895.2 billion and added to its stockpile in March for the first time in seven months. Chinese officials, including Premier Wen Jiabao, last year prodded the Obama administration to avoid pursuing fiscal policies that could erode the value of those treasury holdings.
If Hillary represented the (rather odd) carrot, it seems Treasury Secretary Tim Geithner is still wielding the stick. In a not-so-subtle hint, he warns that the delayed report on currency practices of US trading partbners will be released in due course:
U.S. Treasury Secretary Timothy Geithner declined on Tuesday to say when his department would issue its delayed report on the currency practices of China and other major trading partners. That time will come," Geithner said at a press conference at the conclusion of high-level foreign policy and economic talks in Beijing.

In mid-April, Geithner delayed the report, which must declare whether China manipulates its currency. If found to be a manipulator, that would trigger increased pressure on Beijing to let the yuan rise, after having effectively pegged it to the dollar for the past 22 months.
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Introducing UNEP Climate Competitiveness Index

♠ Posted by Emmanuel in , at 5/25/2010 12:04:00 AM
As if we didn't have enough measures of competitiveness already, here comes yet another one for us to consider. Given the rising prominence of environmental issues, it's only natural that they gained status as one of the emerging arenas for developing metrics for competitiveness. Certainly, this idea is not new. Harvard's legendary management guru Michael Porter identified it as far back as 1991 as the next arena for global contestation. Meanwhile, journalist Thomas Friedman basically ripped off Porter's idea in also identifying green technologies as an area where America can renew itself.

Not one to be left out it the environmental competitiveness craze, the United Nations Environmental Programme (UNEP) has teamed up with environmental consultancy AccountAbility to develop a "climate competitiveness index" or CCI. (I suppose it's inevitable that they came up with another measurement of this sort in mimetic fashion.) Here is how UNEP defines ita as well as how it fits in with the grander scheme of things with the Copenhagen climate talks yielding decidedly mixed results. While we await the full report from UNEP, the executive summary has some interesting stuff. Here is the definition of climate competitiveness:
Climate Competitiveness is the ability of an economy to create enduring economic value through low carbon technology, products and services.

Climate competitiveness strategies have not been stalled by Copenhagen. Despite uncertainty about the international negotiations, businesses, governments and citizens around the world are getting on with the task of seizing opportunities in the emerging low carbon economy. The report identifies significant activity in the first quarter of 2010. India’s new commitments will create 1,200 energy efficiency projects and open up a market worth US$15 billion. Germany has already created 250,000 green jobs and aims to find 400,000 more, while China and the USA are neck and neck in the race to generate renewable energy.

The Climate Competitiveness Index 2010 identifies good practices in countries around the world. From the investment promotion agency in Finland and the Presidential office in Guyana to consumer watchdogs in New Zealand, key institutions are preparing for climate competitiveness. If such good practices are converted into meaningful national strategies, it will accelerate progress towards the low carbon economy.

The low carbon economy will be competitive. While economic value can eventually become widely shared and collaborative, the market in 2010 is fiercely competitive as people strive to achieve first mover advantages. Climate-related businesses could have revenues in excess of US$2 trillion by 2020. Investors are asking the leading companies in all sectors to show how they are winningmarket share. Smaller businesses, entrepreneurs, urban planners, policymakers, business associations, stock exchanges, investment agencies, labour unions and civil society organisations are all building support for climate competitiveness and prosperous, low carbon societies.

The Climate Competitiveness Index 2010 shows which countries and regions are best placed to thrive in the low-carbon economy. The Climate Competitiveness Index (CCI) is a new metric that analyses low carbon leadership, performance and accountability. The underlying model captures the key trends in a sample of 95 countries covering the vast majority of businesses and 97% of global economic activity, as well as 96% of global carbon emissions.

The CCI is a dynamic model assessing both accountability (the climate strategy is clear, ambitious, and supported by all stakeholders) and performance (the country has the track record and capabilities to deliver the strategy).
And here is a graphic explaining how climate competitiveness was determined based on various stakeholder inputs:

Lastly, the Climate Competitiveness Index 2010 has ten key findings...

1) Countries that have strong climate performance generally have higher levels of climate accountability. Lessstrong performers tend to be less accountable. While there are many exceptions to this pattern, and only anecdotal evidence as yet on causality between the two dimensions, prudent climate strategies will focus on
strengthening both dimensions.

2) There has been an increase in climate accountability since the UNFCCC Copenhagen conference in December 2009. Nearly half (46%) of the countries assessed have improved their climate accountability somewhat or significantly, suggesting the Copenhagen Accord has had a positive impact, with improved climate competitiveness registering in 32 countries. Major climbers include Rwanda, Kenya andGhana, and from the OECD, Republic of Korea and Ireland. These developments demonstrate the importance of debate and citizen action in strategy development.

3) There are examples of good practice to be shared in dozens of countries. In most countries, there is still plenty of room for improvement among many of the competitiveness actors. Specifically, much more can be done by business associations, competitiveness and investment agencies, stock exchanges and consumer groups to promote more business action.

4) Each country will have a distinctive competitiveness strategy, but some broad patterns are discernible in different regions and in different economic clusters. For example, Bolivia, Ghana, Vietnam and Bangladesh all demonstrate strong citizen concern coupled with limited business engagement. Emerging economies like Brazil and the Philippines enjoy strong government leadership. In other cases, leadership is evident in the business community, for example in Scandinavia and Singapore. However, climate leadership will increasingly require engagement from most or all stakeholders.

5) Climate accountability is becoming a vote-winner for governments and parliamentarians. Citizens are demanding visible, coherent and tangible climate leadership fromnational leaders. Many politicians are opening dialogues to gauge opinions. Climate accountability is becoming a key differentiator in elections, for example in Brazil, Japan and the UK. In Republic of Korea, the President’s office has engaged with numerous stakeholders to create the ‘Low Carbon Green Growth Strategy’.

6) Climate competitiveness is not dictated by income level, despite strong performance on the Index by many northern European countries. The Philippines is highly accountable and has made green jobs a political priority. Guyana, China, Chile, Mauritius and South Africa are all building distinctive strategies for low carbon competitiveness. There is no evidence for a climate Kuznets Curve or that resource endowments dictate national performance.

7) Consistency is the key to climate competitiveness. Northern European countries, notably Germany, France, the UK and Nordic countries, have the most consistent performance across the eight domains and between accountability and performance. In North America and Australia, there is a telling mismatch between citizen concerns and price signals, and divergent views within the business community and in politics. The BASIC states outperform the rest of the G20 on accountability. Latin American countries are stronger on performance than accountability. In Asia, the Middle East and in Africa, there is high variability in both performance and account-
ability, as indeed there is in the EU27 states.

8) Climate action in the private sector is crucial for climate competitiveness. Strong performance on the CCI by Japan, Republic of Korea, Germany, the Nordics and the USA is manifested by active engagement by the largest firms in reducing their emissions and offering low carbon products and services. The track record on carbon disclosure and management of the five largest companies headquartered in each country is a robust predictor of broader business action within the country. In some countries, action is still lacking even among the biggest firms, let alone the broader business community.

9) Companies and countries are scrambling to win share in new markets. The clean energy sector, estimated to be worth US$200 billion in 2010, has seen rapidly growing investment in recent years, with a moderate setback due to the 2009 downturn. Low carbon street lighting is a good example of fierce competition. Trials of rival LED technologies, running in Hong Kong, New York, Tianjin and Toronto will dictate success for companies in what is expected to be a US$1 billion market in 2010. Countries such as Turkey, Italy, the USA and China have all increased their investments in clean energy by over 100% in the last five years. It is of concern that significant investments are being made in some countries with only moderate levels of climate accountability.

10) The countries most vulnerable to climate change do not yet have the accountability and capacity they will require to adapt and thrive. Proactive adaptation policies are being developed in countries like Bangladesh, Cambodia and the Maldives, but international support will be needed for many countries to build climate resilient growth strategies. This support includes the current offerings of climate models, mitigation menus and strategy advice, but also needs to encompass capacity building for all the key actors in climate competitiveness, including business associations, trades unions, stock exchanges and civil society and consumer groups.
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Quotas, Dead Fans & 'Italian' Champs Inter Milan

♠ Posted by Emmanuel in ,, at 5/24/2010 12:20:00 AM
Ah, Inter Milan, Campioni d'Europa after beating Bayern Munich in the 2010 UEFA Champions League finals. As followers of European football know, the top finishers in the first divisions of European competitions have the opportunity to participate in the Champions League where, literally, the best sides in Europe vie annually for the greatest prize in club football.

My Milanese flatmate regales me with stories of wild celebrations breaking out at home after Inter Milan won its first Champions League final in over forty years. Dutifully, however, I pointed out that there was much criticism of how Inter Milan 'represented' Italy. Yes, their players had national flags on their jerseys. But no, not a single starter was Italian--the first time that a Champions League team did not feature such a national. It was only with about a minute to go that the (soon gone?) Portugese coach and self-styled 'special one' Jose Mourinho introduced diehard Inter player Marco Materazzi of Zinedine Zidane headbutt fame.

It was a small gesture indicating that, gee, maybe Italians should play for an Italian side. However, it apparently was not enough to pacify some passionate Italian fans. My flatmate told me that in the city of Turin--about an hour to an hour and a half north of Milan--a fan raised the same objection I did about this 'Italian' squad. Unfortunately, however, all he had to show for for his efforts was a fatal stabbing. From Agence France Presse:
A man was stabbed to death in the northern Italian city of Turin in a dispute over Inter Milan after the football team won the Champions League final, the ANSA news agency reported today. The victim, a 63-year-old, was stabbed in the chest and arm and died at one of Turin's hospitals. The man and his assailant began arguing in a bar late yesterday over Inter's fielding of too many foreign players to be truly considered an "Italian" team, according to ANSA's reconstruction of events.
The late football fan (RIP; may there be plentiful Italian footballers among the angels and ariels where you have gone) certainly did not deserve his tragicomic fate. Indeed, there has been much debate in football about the excessive representation of foreign hired guns in European sides contesting Champions League qualification in their national leagues. After all, what is the representativeness of Inter Milan being the champions of Italy with so few Italian regulars? Some years ago, respective FIFA and UEFA presidents Sepp Blatter and Michel Platini took issue with excessive deployment of non-nationals in European leagues. Their proposal was to limit Champions League berths to '6+5' teams or those featuring at least six starters of the team's nationality (or in a milder revision, those brought up in the club system). In principle it sounds good to help preserve national footballing character and encourage player development. In practice, however, it cannot be since it runs afoul of EU laws on labour mobility:
Just before Euro 2008 kicks off tomorrow (7 June), the European Parliament's [former] President Hans-Gert Pöttering met with FIFA and UEFA presidents Sepp Blatter and Michel Platini in a failed attempt to convince the world football governing body not to introduce national quotas on players - a move judged contrary to Community law.

FIFA's congress voted (155 'yes', 5 'no') on 30 May 2008 in favour of a resolution requesting the presidents of FIFA and UEFA to explore all possible means within the limits of European law to ensure that the "6+5" objectives can be carried out accordingly. According to the FIFA 6 + 5 rule at least six players on the field at the beginning of each match would have to come from the country of the club they are playing for. With this rule FIFA aims to restore clubs' national or local identities and encourage them to invest time and money in the education of young players, instead of buying players from around the workd.

According to the Commission, limiting the number of foreign players in club competitions constitutes discrimination based on nationality and is against Community law, which guarantees the freedom of movement of workers (see European Court of Justice Bosman ruling on the freedom of movement of professional footballers).

The EU executive is more in favour of UEFA's 'home-grown' rule, on which it recently commissioned a specific study. According to the UEFA rule, football clubs need to have a minimum number of locally-trained players in the team of core players, but it does not impose nationality quotas.

The clash between FIFA and the Commission originates from the fact that the EU executive considers professional football as it does any other economic activity, which means EU internal market rules apply. Meanwhile, FIFA argues that the mention of the 'specific nature of sport' in the new Lisbon Treaty means that football is not concerned by those rules.

The meeting between Parliament President Hans-Gert Pöttering and FIFA and UEFA presidents Sepp Blatter and Michel Platini took place on 5 June. It follows a Parliament vote against the 6+5 rule in early May and the Commission's warning, last week, that EU member states will face infringement procedures if their national football leagues apply FIFA's nationality-based quota on players.

In the meeting, all parties outlined their positions on the issue. Pöttering namely restated the Commission and Parliament's stance on the illegality of the rule, while UEFA acknowledged its support for its objectives - restoring the competitive balance between national team football and club football and safeguarding the education and training of young players. Nevertheless, UEFA acknowledges that the rule as such is illegal in the EU context.
All parties agreed that "factual discussions" on the issue "would be continued at a later date". Before the meeting, Socialist MEPs called on the Parliament President to clearly pass the message on to FIFA that "football is not above the law or treaties". According to insiders, the 6+5 rule will never be implemented, because for it to come into effect, FIFA would have to enter into legal conflict with the Commission and this is highly unlikely.
And therein lies the rub: under Article 39 of the EC Treaty, various plans to limit places on squads to foreigners--quotas, if you will--represent a form of labour discrimination. This law was most famously tested in the footballing context by the 'Bosman Case' of the eponymous player seeking redress at the European Court of Justice under the aforementioned article. The ECJ ruled in Bosman's favour, effectively striking down all national quotas of the sort Blatter and Platini wish to bring back. Prior to Bosman, European sides could only have 3 foreign players at the most. Here is a quick summary of the intricacies involved in reintroducing player quotas:
Legal Framework

The laws that govern this issue primarily relate to Article 39 of the EC Treaty. This basically means that every European Member State that is a member of the EC (such as Germany, Italy or Spain for example) has to obey European-wide laws on a number of issues. One such law is Article 39 which relates to the free movement of workers, which include football players. Article 39 only relates to players playing inside a European Member State. Therefore an English player in Japan could not use Article 39 to challenge Japanese football rules.

Bosman and the Free Transfer

The ‘Bosman’ case is seen by many football commentators as the most significant European football case of all time. Jean-Marc Bosman was a footballer playing for a Belgium club called Leige. His playing contract expired in 1990 but the club that wished to buy him (Dunkerque) did not offer a large enough transfer fee to Leige. As a result Leige held on to his registration and did not allow him to leave the club. The reason why this story is the most important football decision ever made in the EC is because the European courts in 1995 (five years after his complaint) ruled that:

1. When a European footballer came to the end of his contract he was free to sign for any European club he wished and that it was illegal for the club he had played for to hold on to his playing registration; and
2. As foreigner quotas were in operation in European competitions, such quotas which allowed for a limit of three “foreign” players in a team squad were also illegal. Both issues were ruled unlawful under Article 39.
And from this ruling sprang forth today's footballing monstrosities like 'Italian' champions Inter Milan and endless Real Madrid galacticos squads. As much as I support labour migration, the concept has its contextual limitations. No more is this situation more evident than in football where there is more national symbolism involved than in, say, selling office furniture. If you claim to represent Italy, it's common sense to play some Italian players (or a majority of them as per Blatter and Platini). What is emerging is that while the powers-that-be in Brussels are not enamoured with national quotas, they are more favourably disposed to those requiring teams to have more players who grew up within a club's system of junior and lower division squads.

Though the argument needs sharpening, there is a case that rules of origin are the more applicable trade-related laws in the case of fielding Champions League teams from Italy (or Germany for that matter). What would you prefer? Inter Milan-style misrepresentation or a derogation of EU labour laws to ensure that representative sides actually have players from the nations in whose leagues they compete in and claim to represent? Unequivocally, I would go with the latter choice. It may not be worth dying for, but it's a worthy cause nonetheless.
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The Economic Architect of Singapore Passes Away

♠ Posted by Emmanuel in at 5/22/2010 10:50:00 PM
It is with sadness that I report the passing of one of the great men who built the country that is now the envy of the rest of Southeast Asia and, indeed, much of the developing world. Although many Westerners do not know him, the great man Goh Keng Swee who recently passed away last Friday, 14 May, is widely considered to be the driving force of Singapore's economic rise. While Lee Kuan Yew's name is now synonymous with a brand of "benevolent authoritarianism" that has caught the eye of the Western media, it is the lesser-known Goh Keng Swee who takes just as much if not more credit in engineering the amazing growth story that is this modern city-state.

Here is a brief biography of Goh Keng Swee from the LSE alumni website. What is notable about him is that his expertise did not lie just in economics, he served as a central banker, defence minister, and, underlining the importance of teaching to national development, education minister. It is to his credit that Singapore boasts an education system that is the pride of Asia. (Indeed, it has even been held up as an example for the decrepit American primary and secondary public education system):
The late Goh Keng Swee (Dr) passed away on Friday, 14 May 2010.

Goh Keng Swee (Dr) was born on 6 October 1918 to parents of Chinese ancestry in Malacca, Malaysia. He is the "Economic Architect" of Singapore, contributing greatly in shaping the development of Singapore into a prosperous nation as the first Finance Minister in 1959 and later as the Defence Minister of an independent Singapore. He held several key appointments as the First Deputy Prime Minister, Minister for Education and Chairman of Monetary Authority of Singapore and Chairman of several government-led companies.

Early life
Dr. Goh was educated at the Anglo-Chinese School in Singapore and later at Raffles College. After the Japanese occupation, he joined the Civil Service. His outstanding performance earned him a scholarship to study at the London School of Economics where he obtained a first-class honours in Economics and won the William Farr Prize in 1951. With the help of a University of London scholarship, he graduated with a Doctor of Philosophy in Economics from the University of London in 1956.
During his stay in London, he started the Malayan Forum with a group of fellow students which included Lee Kuan Yew and Dr. Toh Chin Chye. Dr. Goh became its first Chairman.

Career
Upon his return to Singapore, Dr. Goh worked at the Social Welfare Department and attained the position of Director. During his colonial civil service, together with K. M. Byrne, he formed the Council for Joint Action to seek for equal pay for Asian civil servants.

In 1959, he resigned from the civil service and joined the People's Action Party as its Vice-Chairman and represented the Kreta Ayer constituency as its Member of Parliament until his retirement from politics in 1984. He led various Ministries especially at critical period in Singapore's history introducing bold measures.

Accomplishments
As Minister of Finance in 1959, he introduced an industrialisation programme with the aim of creating jobs for Singaporeans. Jurong, then a swampy wasteland, was transformed into Singapore's first industrial estate. He offered incentives and invited foreign investments in the areas. He initiated the setting up of the Economic Development Board which was established on August 1961 with the purpose of overseeing the economic development of Singapore. When Singapore attained independence on 9 August 1965, he became the first Minister of Defence. With the withdrawal of the British troops from Singapore, he saw an urgent need for a strong defence force. He established the setting up of the Singapore Armed Forces (SAF) with the implementation of conscript national service for all male Singaporeans above eighteen years old.

As Minister of Education, the importance of curriculum development in the education system prompted him to set up the Curriculum Development Institute. He introduced streaming in 1980 to allow students to learn at their own pace within their own capabilities. He also introduced religious education, which was however later dropped from school curriculum.

In 1980, he was appointed Chairman of the Monetary Authority of Singapore (MAS) and the Board of Commissioner of Currency (BCC). He took measures to promote Singapore as an international financial centre. To this end, in 1984, amendments were made to three major financial regulations, namely the Banking Act, the Monetary Authority of Singapore Act, and Finance Companies Act. During the 1985 recession, he acted to stop the downward slide of the Singapore dollar. That same year, he was awarded the prestigious Order of Temasek (First Class) for his contributions in the development of Singapore.
I was utterly bemused as to why The Economist chose entertainer Lena Horne to appear in its obituary instead of Goh Keng Swee. Needless to say, it's an absolute disgrace. Unfortunately, much mainstream media and broad swathes of the blogosphere besides are so blatantly Western-centric as to ignore the achievements of one of the contemporary age's greatest practitioners of economics.

However, Singaporeans--people who know better--do remember and are extremely grateful. Tomorrow is a day of national mourning there and a state funeral will be held in his honour. Us Southeast Asians will also pay tribute to Goh Keng Swee--someone who has made an immense difference in his lifetime for the greater good and set the highest standard for public service.
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Monday Night May Be the Greatest in LSE History

♠ Posted by Emmanuel in ,,, at 5/22/2010 10:09:00 PM
Coming from a well-respected but comparably modest institution in the University of Birmingham, I really had no idea about how vast the difference was between its like and the LSE. Sure, Birmingham hosted the last televised debate among the prime ministerial contenders, but the LSE name is recognized as perhaps the last word in the social sciences. Not only do the world's prominent social scientists and politicians inevitably make a pit stop at our patch in what I still regard as the world's capital, but they come in droves. Tina Turner sang once about it, and I will leave with fond memories of my time here.

But before that time comes, Monday, 24 May, will leave a great impression on me as we will host, during virtually the same time slot, not one but three presentations I would like to go to. The good part, of course, is that they are all open to the general public. So, if you are in London and have any interest in social science (as evidenced by reading the IPE Zone), there is no real excuse not to pay us a visit. First up will be the famous development economist Paul Collier, whose recent book The Bottom Billion has received much favourable notice. On this night, however, we will focus on environmental matters:
The Plundered Planet

Date: Monday 24 May 2010
Time: 6.30-8pm
Venue: Sheikh Zayed Theatre, New Academic Building
Speaker: Professor Paul Collier

There is a battle for the future of our planet between profiteers who threaten to destroy natural resources for gain and backward-looking environmental romantics who thwart constructive development. Paul Collier uses his ground-breaking research to offer realistic and sustainable solutions that reconcile the immediate needs of the world's growing population without despoiling the planet for future generations.

Paul Collier is a professor of economics and Director of the Centre for the Study of African Economies at Oxford University. He also serves as co-director of the International Growth Centre. The author of The Bottom Billion, which won the 2008 Lionel Gelber Prize for the world's best book on international affairs, he has lectured widely on the subjects of economics and international relations. He was the senior advisor to Tony Blair's Commission on Africa, and was Director of the Development Research group at the World Bank for five years.

This event celebrates the publication of his latest book The Plundered Planet: How to Reconcile Prosperity with Nature.
That would have been a great event to go to if it were not this one from Adam Posen speaking about how Japan's "lost decade" wasn't inevitable. There are many lessons for our current situation, methinks:
The Realities and Relevance of Japan's Great Recession

Date: Monday 24 May 2010
Time: 6.30-8pm
Venue: Old Theatre, Old Building
Speaker: Dr Adam S Posen

Japan's lost decade was not inevitable, and recovery came when policies changed. In some ways, Japan was better positioned to overcome its crisis than we are today.

Adam S Posen is an external member of the Bank of England Monetary Policy Committee, a senior fellow at the Peterson Institute for International Economics and author of Restoring Japan's Economic Growth.
That event sounds fantastic too...but it's still not the one I am ultimately planning to attend. Sometime ago, I discussed Bob Jessop's notion of "cultural political economy." Though Professor Jessop is well to the left of me, I still think his work is very insightful in describing how sociocultural factors underpin economic interactions. Also, the area of interest is in my part of the world, so I will be off to...
A cultural political economy of a Global City Region: the Competitiveness-Integration Order in the Pearl River Delta

Date: Monday 24 May 2010
Time: 6-8pm
Venue: Graham Wallas Room, A550, 5th floor, Old Building
Speaker: Dr Ngai-Ling Sum
Discussant: Dr Nancy Holman
Chair: Dr Hyun Shin

Adopting a cultural political economy (CPE) approach, the talk examines the role of knowledge brands (e.g., Porter's competitive advantage diamond; Lundvall's national innovation system approach) in mediating regional planning and economic restructuring. The case of the Pearl River Delta (PRD) in China and the region's response to the current crisis since mid-2007 is at the focus of this talk.

Ngai-Ling Sum is Senior Lecturer in Politics and International Relations and Co-Director (with Bob Jessop). Dr Nancy Holman and Dr Hyun Shin are at the Department of Geography and Environment, LSE.
Unfortunately, I cannot be at three places at the same time. So, I will just have to listen to the podcasts of the first two events. (Fortunately, we do take care to record these events for those who can't come.) And what about the night after that, you ask? We have Nobel Peace Prize award winner Muhammad Yunus. If social science is your thing--or are keen on making pseudo intellectual affectations like yours truly [!]--then I cannot help but say the LSE is without peer.
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Next WTO Battleground: PRC Resource 'Hoarding'

♠ Posted by Emmanuel in ,, at 5/20/2010 11:30:00 PM
Boy, these certainly are interesting days. A recurring complaint of China regarding bellyaching over trade imbalances is that many Western high-technology goods the Chinese would like to buy are off limits to it. That is, many are hands-off to the PRC over "dual use" concerns [1, 2]. True, the West often fans these fears of growing Chinese military power. However, if the West were to act more consistently in both security and trade domains, then it would at least consider lifting restrictions on more of these technologies in the interest of alleviating global economic imbalances. As Tesco's slogan says, every little helps.

Or does it? Call it tit-for-tat of a sort, but China has long been an important source of materials necessary in the production of these "dual use" technologies the West has wanted to keep from China and other goods. Given increasing resource scarcity--they call many of them "non-renewable" for excellent reasons--China has begun applying stricter controls of the export of these key materials. As a matter of historic precedent, the World Trade Organization has primarily been concerned with import restrictions, not export restrictions. However, there is already agitation that limits on the export of these key materials will be the next trade battleground. Indeed, many developed countries are mulling a case against China at the WTO. James Bacchus, former chairman of the WTO's Appellate Body, explains why in the Wall Street Journal:
The international trading system is about to encounter an entirely new challenge. The global hunger for natural resources is inspiring a surge in restrictions on exports of crucial raw materials. As with so much else in trade nowadays, the focus of this emerging conflict is on China. The Chinese stand accused by some trading partners of hoarding rare elements and other raw materials that are essential to many globally traded products.

But China is hardly the only country considering export restrictions as the race for natural resources heats up in the wake of the recession. The sharp increase in restraints is happening world-wide, and raises fundamental questions about the rules and the resiliency of the World Trade Organization...

Historically, however, conflicts over trade have almost always been about import barriers. It remains to be seen whether the current rules of the WTO-based trading system are strong enough to resolve the growing number of disputes over restrictions on exports.

The first test will likely come from a pending lawsuit in the WTO by the United States, the European Union and Mexico, challenging alleged Chinese export restrictions on nine key raw materials such as coke, bauxite, fluorspar and magnesium. These are vital to the production of steel, aluminum and certain chemicals. China produces 60% of the world's coke, and is a major producer of the other raw materials.

A second, and much tougher test, will come if the U.S., the EU, Japan and other affected countries follow up by filing a WTO complaint challenging increasing Chinese restrictions on the export of "rare earth elements." These are basic and so far irreplaceable parts of electronics that are bought and sold throughout the global economy.

China mines 93% of the total world production of 17 rare earth elements in the middle of the periodic table. Global demand for them is rising. They are used, often in small amounts, to make magnets, lasers, computer monitors, fiber-optic cables, cell phones, ceramics, stainless steel and much more. Importantly, rare earth elements are critical to new green technologies. Their magnetic properties are important to low-energy light bulbs and wind turbines, and essential to producing batteries for hybrid and electric cars. And, ominously, these elements have extensive military uses. Missiles, radar, navigation, jet engines, "smart" weapons and other cutting-edge military hardware all require rare earth elements [my emphasis obviously].

The General Agreement on Tariffs and Trade prohibits all measures that restrict the quantity of exports of a product unless they are applied as export duties, taxes or other charges ["made quantifiable"]. Thus, WTO member states are free under the current rules to impose export taxes instead of bans, quotas or other quantitative export restrictions.

However, as a condition of membership in the WTO, China agreed to eliminate taxes and other charges on all exports except those on a list of 84 products included in its WTO accession agreement. Neither the nine raw materials in the current WTO case nor the 17 rare earth elements are among the products that China listed.

The GATT permits measures that would otherwise violate WTO rules if they are "relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption," and if they are not applied as a means of "arbitrary or unjustifiable discrimination." This is likely to be China's defense in the raw materials case, and, should there be one, a rare earth elements case as well.
Ooh, the irony of it--Western countries claiming that China isn't exporting enough! Well here's my latest modest suggestion for setting matters right and it's pretty simple if you follow: if these developed countries want guaranteed access to these materials, isn't it only fair that the high-technology goods they are used in be made available to China?

"Dual use" = "protectionism." Nuff said.
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How I Almost Stumped William Easterly (Really)

♠ Posted by Emmanuel in ,, at 5/20/2010 12:13:00 AM
It's been a particularly hectic week here at the LSE lecture circuit. On Tuesday, Nouriel Roubini came along, presented, and signed copies of his new book (you can listen to a podcast of his presentation here). On Wednesday, William Easterly then paid a visit and talked about the intriguingly titled "We Don't Know How to Solve Global Poverty and That's a Good Thing." While his presentation hearkened back a lot to his 2006 book The White Man's Burden, he added a few wrinkles--some perhaps unexpectedly for those of us who've grown somewhat tired of his lines of argument. First, contrary to the title of his presentation, he clearly advocated democracy as the ideal complement to market economics. This, of course, was somewhat expected given his Hayekian sympathies and his admission that there is no conclusive empirical evidence linking democracy with development.

However, the second thing I noticed was his still-unexamined criticism of "planning." In my own way, I've inadvertently gauged the success of this blog by me Googling terms and previous posts of the IPE Zone coming up. For instance, I typed "easterly gosplan" and voila, the top result is mine. However, let me bring your attention to my intended search result--which isn't as tedious as me quoting myself! In the wake of the Haitian disaster, Easterly repeated a criticism of planning we've heard time and again from him and which he mentioned yet again on Wednesday night:
You announce a plan. The characteristic feature of the top-down approach is a plan, a grand plan to solve everything all at once. Of course, these plans work about as well as the five-year plans did in the Soviet Union. You have a bunch of bureaucrats trying to run a whole complex society and economy without any knowledge of what is going on at the bottom, and it doesn’t work, and that’s why the Soviet Union collapsed. In aid that model is still being followed. They are still following the Gosplan model, the top-down model [my emphasis].
From listening to Easterly, you would get the impression that five-year plans are a Soviet-era laughingstock. The truth, however, is more complicated. China and India are often held as exemplars of today's developmental successes. There is not much debate about this observation unless you're a raving left-wing extremist. However, a simple inspection of these countries' policies reveals, yes, continuing adherence to publishing five-year plans long after the Cold War ended. But don't take my word for it; take a look for yourselves. China has had eleven of these plans, with the last coming in 2006-10 (we are due for a newer one). India has had eleven of them as well, the most recent being in 2007-12.

Unfortunately, I was unable to ask Easterly about what he makes of these Chinese and Indian policy documents. In my conversations with Chinese and Indian colleagues, they still tell me to read five-year plans carefully to glean the finer points of government policy. So, if Easterly is justified in mocking five-year plans, he would need to demonstrate at least one of the following:
  • Chinese and Indian five-year plans are meaningless documents with little or no policy implications; or
  • China and India have been able to succeed despite government efforts to implement five-year plans
Somehow, I think these five-year plans are not just cosmetic.
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Record US Foreclosures? Excellent News!

♠ Posted by Emmanuel in , at 5/20/2010 12:01:00 AM
Call it schadenfreude, but I cannot but help applaud news that the United States is suffering record delinquencies and foreclosures (also see the MBA press release). Remember, these are the same folks who tried to impose upon the world "Washington Consensus"-style strictures of liberalization, privatization, and deregulation on the road to some sort of economistic paradise. Yet, when faced with troubles have happened at home, they've undertaken unprecedented deliberalization, nationalization, and reregulation. While this sort of double talk is to be expected from Americans (as other who've aspired to similar hegemonic entitlements in history), the only real question for me is why the rest of the world allows the United States to get away with this boorish behaviour.

What rising delinquencies and foreclosures demonstrate are obvious things folks in the blogosphere aside from me have reiterated over and over:
  • You can't fix a problem caused by excessive borrowing by borrowing trillions more;
  • Helping wipe out private finance for housing isn't a characteristic of a market economy;
  • Massive losses by Fannie Mae and Freddie Mac indicate the rot of continuing patterns of government involvement in the US housing market;
Alike with the subprime crisis, the whole point is to reveal that massive state supports to housing are fiscally wrongheaded and, ultimately, senseless. The American Dream is a farce. Ditto for pretending that the fiscal consequences of extending a limitless lifeline to Fannie Mae and Freddie Mac do not exist. When you lie so much to others that you believe your own lies--Fannie Mae and Freddie Mac's deficits don't matter--don't expect sympathy from anyone else. Such is modern America; the "ownership society" is, in reality, the tent ownership society [1, 2]. This emperor has no clothes.

So, may the fates deliver those participating in these housing shenanigans to a very, very well-deserved fate. Our only regret should be that the US isn't being slammed even harder. Thankfully, we're getting there. Quit this nonsense or suffer the consequences. Throw them out. Throw them all out.
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Schumer: PRC Must Disclose IMF Verdict on RMB

♠ Posted by Emmanuel in , at 5/19/2010 12:07:00 AM
Yikes! Just when you thought things had quieted down on the China front, our dear senator from New York, one Charles Schumer, is back on the China-bashing warpath together with some of his senatorial colleagues. (Yes, China-bashing is a bipartisan pastime paradise.) With the US-China Strategic Economic Dialogue scheduled for 24-45 May in Beijing, congressional pressure is back on the rise to embarrass the hosts. What is interesting from an IPE angle is that these senators are calling for the Chinese to disclose an IMF report billed as the "smoking gun" pointing to their currency manipulation. Like Bigfoot, the Loch Ness Monster, and Sasquatch, international economics also has its unique legends and folklore.

According to the senators, China muzzled disclosure of IMF views of its currency practices during the annual IMF Article IV surveillance of member countries, last performed on China in 2009. Briefly, here is what the IMF had to say on the matter of Chinese currency in the 2009 Article IV report:
Directors welcomed the important progress made in the past few years in increasing the market’s role in determining the exchange rate, as well as the consequent substantial real appreciation that has been achieved since the exchange rate reform in 2005. Some Directors nevertheless supported the view that the renminbi remains substantially undervalued. Looking ahead, many Directors considered that a further strengthening of the renminbi would be part of a comprehensive strategy to rebalance the economy by increasing the purchasing power of households and the labor share of income, and reorienting investment toward non-tradable sectors. Exchange rate flexibility would also allow monetary policy to focus more clearly on price stability. A number of other Directors pointed to the methodological difficulties of making exchange rate assessments. These Directors generally considered that exchange rate appreciation would only play a supplementary role in supporting reforms to reorient the Chinese economy and should be pursued in a gradual manner, as and when conditions permit.
What the senators claim is that certain sensitive portions on the PRC's currency practices have been omitted from the above:
They said China had suppressed the IMF staff report from the fund's annual Article IV consultation with China last summer. Such staff reports contain assessments of a country's currency policies, but IMF member states can decide whether or not to release them.

"This report could be the smoking gun that confirms that China has been intentionally manipulating its currency to gain an unfair trade advantage," Schumer said in a statement. "The fact that China insists on keeping the report under wraps is reason to believe they have something to hide. The administration should press for the report's release at next week's summit," Schumer said in a statement.
And what follows is the now-infamous "smoking gun" letter from Schumer and Co. calling for the unexpurgated text of the IMF surveillance report to be released for the world to see. Going by Tim Geithner's timid past record on China, i'd say they're agitating for something that isn't forthcoming...
----------------------------------

May 18, 2010

The Honorable Timothy F. Geithner
Secretary of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220

Dear Secretary Geithner,

As a member of the International Monetary Fund, China has agreed to subject its economic and financial policies to the scrutiny of the international community. We believe China is failing to live up to this commitment and urge you to convey to the Chinese government the importance of taking a substantive step to demonstrate its willingness to participate in candid, public dialogue about its exchange rate policies and other economic matters. To that end, we propose that at the upcoming S&ED and G-20 meetings you request the Chinese government to make public the Staff Report and other accompanying analysis from the IMF’s 2009 Article IV consultations with China.

The IMF’s annual comprehensive Article IV consultations provide a frank appraisal of a country’s economic and financial policies, including an assessment of its exchange rate policies. IMF member countries have the option to make public the Fund’s assessment. The overwhelming majority – 90 percent of the 186 member countries – opt for transparency, making the extensive information in the IMF’s Staff Reports publicly available on the IMF’s website. China’s failure to do so in 2009, despite regularly opting for transparency in previous years, is troubling, suggesting that China seeks to suppress any findings critical of China’s manipulation of the value of its currency.

Mr. Secretary, in April you decided to delay publication of the Treasury’s exchange rate policy report, apparently in the hope that China might be willing to address concerns about its exchange rate policies in the context of upcoming high-level, multilateral discussions on policies that can help create a stronger, more sustainable, and more balanced global economy. Given China’s past intransigence on exchange rate reform, we are not similarly optimistic that these high-level meetings will generate any significant breakthrough on this issue. As you know, this is one reason why we are moving forward with legislation (the Schumer-Stabenow-Graham Currency Exchange Rate Oversight Act of 2010 (S.3134)) to provide specific consequences for countries that fail to adopt appropriate policies to eliminate currency misalignment.

Nevertheless, the upcoming S&ED and G-20 meetings do present a unique opportunity for the Chinese government to demonstrate a commitment to productive talks on global rebalancing, which necessarily includes a discussion of exchange rate policies. An agreement by the Chinese government to make public the Staff Report from its 2009 Article IV consultations would be a constructive contribution to those discussions. We urge you to convey to the Chinese government the importance of taking this visible step.

Sincerely,

Charles Schumer (D-NY), Lindsey Graham (R-SC), Debbie Stabenow (D-MI), Sam Brownback (R-KS), Sherrod Brown (D-OH), Susan Collins (R-ME), Russ Feingold (D-WI), Carl Levin (D-MI), Jim Webb (D-VA) and Robert Casey (D-PA)
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