Higher Ed in Existential Crisis: Jobless in US, UK

♠ Posted by Emmanuel in at 5/15/2012 02:30:00 PM
Is is not particularly surprising to me that Anglophone bloggers in academia don't cover the topic much, but make no mistake--higher education is in crisis. Despite a lot of them being especially fond of rational choice theory, I suppose it's slightly discomforting to find themselves being criticized as rent-seekers instead of them criticizing various government personnel as such. The crux of the matter is this: How can you justify relatively cushy academic wages when college graduates can't find remunerative employment? While it's especially true of British higher education where major universities are uniformly funded by the government, it's also true for the American system where a large proportion of distinguished colleges are likewise state institutions.

(1) Karl Marx would positively adore the hapless US economy at the present time as a prime example of the inherent contradictions of capitalism as it lurches from crisis to crisis. What's more, the pace is accelerating with the S&L crisis of the early nineties, dot-com bust of the early noughties, 9/11+Enronitis shortly thereafter and the never-ending subprime debacle. The pace of these occurrences and their associated losses--not only in GDP but also employment terms--are accelerating. To add insult to injury for jobless college graduates, the next shoe to drop may very well be snowballing student debt.

The New York Times ran a fairly lengthy sob story over the weekend replete with jobless American youth and their towering student loans. [To which I say, go East, young Yank.] While it's indeed a sad story, it's not exactly new except maybe in academia where many prefer to ignore such problems. However, the NYT article further notes that the anticipated milestone of US student loans passing the trillion dollar mark has come and gone. As Buzz Lightyear said it best, to infinity and beyond. Although Americans' debt-loving lifestyles are known the world over, what is perhaps galling here is that these youth are handicapped so early in life by the stigma of hopelessness and joblessness. Or, in short, mommy and daddy may be as broke as their nation is, but they at least got to enjoy McMansions and monster SUVs for a while. The key number? 53.6% of all American college graduates are unemployed or underemployed.

The game will soon be up, rent-seekers at American universities. Take steps to fix your broken system, pronto, or you will justly bear the brunt of unhappy, unemployed graduates laden with student debt and their parents complaining about this fraud about college being the ticket to lifelong happiness or whatever Kool-Aid you keep regurgitating.

(2) As for the UK with similarly galling statistics--degree holders are essentially no more likely to find employment than those who went to the job market straight after secondary education--I must sheepishly admit that certain British educators may still be ignoring the problem here. It comes down to that chestnut concerning university being preparation for life instead of merely preparation for the world of work. Which is fine insofar as many students may share similar sentiments. However, where I part company is in denying that a major reason for going to college is economic: It is a perfectly reasonable expectation that an investment that you sink considerable time, effort and money into should help provide you with an acceptable standard of living instead of, say, saddling you with unpayable student debt so early in life.

Recently, the LSE held its Teaching Day 2012. While I usually follow it so I may improve my teaching skills and so forth, this year's event was notable in tacking the joblessness question head-on. The LSE being a rather uppity and left-leaning institution, however, I was dismayed to find few concessions to the idea that tertiary education should at least help find young people work. The keynote address of the Management department's Professor Amos Witztum sums up this approach:

The purpose of this talk is to argue that the answer to the role of education is embedded in the conception of society and the principles of its economic organisation. I will argue that the underlying justification for the current functional approach as if the role of society is limited to preparing people for working life is a-liberal and myopic. We will examine the organisational relevance of the decentralised promise of the economic system in the light of various long terms trends in the world of work and leisure as well as the little-talked of phenomenon of the rising levels of over-qualified workers. We will ask whether in such a context preparing someone for a job is enough to absolve society of its duties.

We will therefore go back to the drawing board to ask the question: what indeed is the purpose of education if, in general, we accept that it is to prepare people for life? The answer will be that it is to prepare people for life outside work. Here, however, a serious problem arises. While preparing people for the labour market seems morally neutral (as technology is, ostensibly, such), preparing them for life entails a judgement about the culture for which individuals should be prepared. This means that liberal views of capabilities and the like can no longer hide from the fact that the ‘good’ life is a social concept.
To me, it's all well and good to tout the fringe benefits of higher education--as long as you first deliver on the primary task of finding young people gainful employment to avoid both the social stigma of unemployment and the wherewithal to pursue the finer things in life such as intellectual pursuits. Find your students work that is rewarding and remunerative first, then consider the rest.

Otherwise, the college rip-off taunt resonates now more now than as fees rise and career opportunities dwindle. And while Anglophone audiences often forget it, there are other systems of higher education that have provided better results which the rest of the world should probably study more closely if they are practically-minded.

Proletarianizing F1: Hugo Chavez's Pilot Wins Race

♠ Posted by Emmanuel in ,, at 5/14/2012 07:58:00 AM
Face it: there are certain sports which have an uppity image. Golf. Equestrian sports alike polo and dressage. Rugby even. And, of course, there's F1 which tries to build an image of glamour with various Eurotrash and wannabe Eurotrash sporting perma-tans, big Rolexes, big yachts and attractive young women in tight-fitting clothing (but not much of it). This marketing ploy has done wonders given the rude health of F1 despite the automobile industry having seen better times.

A few months ago I talked about Hugo Chavez's sponsorship of the venerable F1 team Williams. Despite its illustrious history, it's fallen on hard times as of late. Whether their coffers were empty because few want to be associated with a has-been or the other way around because they were not able to build a competitive car for want of cash, Williams' glory days appeared behind it. In this narrative, Williams only gave the Venezuelan Pastor Maldonaldo a race seat since he brought millions in sponsorship money via the state-owned oil firm PDVSA. Not that he's hiding the fact he's a "state-sponsored driver."

Or that's how the story went at least until yesterday. In a made-for-Hollywood script (cue the Rocky theme right about now), Pastor Maldonaldo who before yesterday managed to score championship points only on one occasion by finishing in the top 10 suddenly managed to beat two-time Spanish world champion Fernando Alonso at the Barcelona Grand Prix for a race victory. Hugo Chavez was naturally chuffed, exclaiming "I said so: Our Pastor Maldonado won, making history. Bravo Pastor! Congratulations to you and all your fighting team! We shall overcome!" on Twitter.

It's obvious that Williams remains a struggling outfit. While the other podium finishers Fernando Alonso of Ferrari and Kimi Raikkonen of Lotus sported bespoke race suits, Pastor Maldonaldo sported one that looked homemade with obviously stitched-on sponsorship logos. The other two guys' cars were covered from nose to tail in corporate logos as well while the Williams had many stretches of paint save for lots of PDVSA decals and a few other sponsors.

Given the uppity nature of the sport, consider the implications of the Maldonaldo victory which is, in a larger sense, also a victory for Hugo Chavez and PDVSA:
  1. These Venezuelans take a huge swipe at other energy concerns who Hugo Chavez has tangled with in the past over populist measures. Expropriated ExxonMobil through McLaren-Mercedes was well and truly beaten. Whiny Shell through Ferrari was also put in its (second) place. F1 has traditionally been the preserve of massive global conglomerates like these that Hugo Chavez loves to hate, so I'm sure this fact is not lost on him. (Also consider the plight of that other Williams at Hugo's hands even if it isn't an F1 sponsor.)
  2. It goes a long way towards addressing the "paid driver" image that many including yours truly have of Maldonaldo. On a good day with competitive equipment, he's demonstrated that he can do as well as anyone else.
  3. And speaking of redemption, it validates Sir Frank Williams' decision to hire the controversial Mike Coughlan who was ousted from McLaren over spying on Ferrari. If there's anyone in the F1 paddock they will be looking to spy on this time around, it will be on Williams who've apparently done small miracles with a budget nowhere close to that of the big teams.
  4. Given Hugo Chavez's penchant for conspiracy theories alike blaming incidences of cancer among leftist Latin leaders including himself on the West, I am surprised that he hasn't tweeted about how gringo powers-that-be set the Williams garage on fire to warn against further Pastor Maldonaldo victories.
At any rate it's a huge change for F1 to have so many contenders each race weekend that makes it fun to watch--even if they include faux socialists. In the meantime, racers of the world unite!

Railroaded: Today's Depressing Greece Factoid

♠ Posted by Emmanuel in , at 5/13/2012 09:36:00 AM
Wasteful public projects are a staple of rational choice theory: what better way is there to milk the public purse, profit off contractors and milk the public than a nice, big public project? Although you will find no shortage of metaphors for Greek prodigality nowadays, its railroad system is a particularly egregious example of a highly subsidized sinkhole. Some even argue that travelling by taxi intercity is cheaper than going by train (even if the latter is a heavily subsidized money loser). Although it has been the subject of domestic criticism for the longest time, the crisis has brought renewed attention abroad.

In particular, Michael Lewis of Moneyball fame wrote about it in his most recent book about developed nations that have fallen under hard times. In a recent BBC article, the journalists ask cabdrivers for their fares and calculate that sharing a cab with another is the threshold of making the cab ride the, ah, rational choice:
In 2007, the last year we have figures for, passengers travelled 1.8 billion kilometres (1.1 billion miles) on the Greek railways. Assuming this figure was the same in 2010, when the Greek rail system was making a loss of just over 1bn euros (£804m or $1.3bn) a year, it's costing the Greek railways 0.60 euros (£0.48 or $0.75) per passenger kilometre. Compare that to the UK, where in 2010 it cost 0.30 euros (£0.24 or $0.37).

According to Greg Moisiadis, a cab driver in Thessaloniki, a cab from Thessaloniki to Athens would cost 700 euros (£563 or $900) - that's about 1.20 euros (£0.96 or $1.55) a kilometre, double the amount being paid to send people by train, if there is only one person in the taxi.

If four people were to share a taxi, the cost would be 0.30 euros (£0.24 or $0.37) per person per kilometre. Two taxi passengers would cost the same as the train. Further investigation found that Greg's prices were similar to other cabs on other routes in Greece. So Mr Manos is correct if there are more than two passengers in each taxi.
In any event, the railway system has been subject to massive cash transfers and is debt-ridden besides:
But either way, the Greek railways are in a pretty awful mess, and while train journeys may cost less than cab journeys, they are more expensive than travel on other forms of public transport, including air. "Over $13bn [£8bn or 10bn euros] has been pumped in, in the last 15 or 16 years. In terms of passengers, long-distance rail has 2.7% of the share and in terms of freight it's truly a joke because it's 0.08% of the freight so the costs are staggering..."

In the past, the Greek government acted as guarantor for the money the railway borrowed so this meant although it only had a turnover in the low hundreds of millions, it was able to borrow billions. In 2010, this debt was 8bn euros (£6.4bn or $10bn) and cost 420m euros (£338m or $540m) in interest payments. Of course, even closing down the railways would still leave the government to pay off these debts.
There are arguably public goods from running a mass transit system, but they are all for naught when the public chooses to largely avoid it. Meanwhile, the government swims in more and more red ink.

Catholic Melinda Gates vs Church on Contraception

♠ Posted by Emmanuel in ,, at 5/10/2012 10:27:00 AM
For reasons you are doubtlessly aware of, the emphasis on population control of most in the development mainstream has long attracted criticism from the Roman Catholic Church. What we have here is a new twist on an old story: as cash-strapped Western nations have become warier about providing development aid, other actors have stepped up--especially wealthy private interests alike the Bill and Melinda Gates Foundation. In theory, these foundations combine the best of both worlds by avoiding electoral politics--witness tied aid--and applying a business-like sophistication to social problems.

But some things never change. It was perhaps inevitable that the Gates Foundation would bump up against the Church when it came to matters dealing with contraception. While there has been a change of emphasis on the rationale for it--instead of allaying fears of large Malthusian population increases in the postwar period, it is now on female empowerment concerning reproductive health decisions--the controversy remains.

An interesting twist on this story is that the main proponent of contraception is Catholic. Melinda Gates' religion invites media scrutiny as well as, I am sure, no small amount of introspection on her part about practicing her faith. As with many controversial issues, her plan to fund contraception research and dissemination adopts the "technocratic pose" which goes something like this--we are applying scientific method here, hence we should leave the politics out of this. Here is a key excerpt from the Newsweek article:
Perhaps more importantly, there’s her Catholic faith, which has always informed her work. “From the very beginning, we said that as a foundation we will not support abortion, because we don’t believe in funding it,” she says. She’s long disagreed with the church’s position on contraception, and the Gates Foundation did some family-planning funding early in its history. Still, she went through a lot of soul-searching before she was ready to champion the issue publicly. “I had to wrestle with which pieces of religion do I use and believe in my life, what would I counsel my daughters to do,” she says. Defying church teachings was difficult, she adds, but also came to seem morally necessary. Otherwise, she says, “we’re not serving the other piece of the Catholic mission, which is social justice.”

Gates believes that by focusing on the lives of women and children, and by making it clear that the agenda is neither coercive population control nor abortion, the controversy over international family-planning programs can be defused. Right now, she points out, 100,000 women annually die in childbirth after unintended pregnancies. Six hundred thousand babies born to women who didn’t want to be pregnant die in the first month of life. “She is somebody who really sees this as a public-health necessity,” says Melanne Verveer, the United States ambassador at large for global women’s issues. “I think she believes, and I hope she is right, that people of different political persuasions can come together on this issue.”
Do a quick search on this article and you can see very strong denunciations from church and family groups [e.g. 1, 2]. (If you think I'm snarky, wait till you read these folks' scribblings.) As a Catholic myself, I would like to expand on points for consideration that the Newsweek article does bring up:

(1) For better or worse depending on your point of view, you have to differentiate between the Roman Catholic Church and Catholics at large regarding contraceptive practices. The former sticks to the doctrine that contraception is unacceptable, but the latter have been more open to if not exactly being forthcoming about the use of contraceptive devices. In Catholic teaching, you often come across idealized analogies of the family as reflections of Christ's own. In the real world, Catholics too must deal with single parenthood, forced marriages, abusive spouses and so forth that are not necessarily conducive to such ideals.

Economists speak of first-best conditions where development theories are more likely to deliver. Similarly, Church teaching is often similar to first-best in the social realm, whereas the likes of the Gates Foundation have to deal with more practical, less ideal, situations. Call it the theory of second best applied to social matters. Out there, Catholics are undoubtedly among those who've decided to not follow Church teaching on contraception. While the Church derides this sort of "cafeteria Catholicism"--so we'll avoid abortions but we're OK with contraception--it wouldn't have coined a term for it if it didn't exist.

(2) This matter is unavoidably "political"--especially for Catholics. While there may be a silent majority that tacitly approves of contraception by using it despite not loudly trumpeting the fact, the important adjective is that they are silent. In any political contest, the ability to organize and mobilize count for a lot, and you certainly don't see large groups alike "Catholics 4 Contraception" and so on. There's also the centuries-old tendency to stamp out those unfaithful to Church doctrine, and in this respect it doesn't matter if you're Martin Luther or Melinda Gates.
-------------------

Personally, I am not so heavily involved in these debates for my (empirically verifiable) belief is that population size is mostly a function of economic growth. That is, births generally fall as societies become wealthier. So, while Mrs Gates and her critics engage in a heated debate over the matter, I would focus more on increasing per-capita income as a relatively uncontroversial objective (except for deep greens, perhaps) in achieving similar goals.

That's just me, though. Some folks apparently prefer giving themselves an especially difficult time. Rest assured that Melinda Gates' allusions to promoting contraception being in line with Church teachings on social justice will not go down well with the orthodoxy and its followers. The technocratic pose simply does not work when you are addressing an especially evocative issue.

Though I do not side with Melinda Gates here, I do acknowledge that the Church could explain its case better in terms of "second-best" situations Catholics in poor countries do find themselves in. Moreover, the widespread phenomenon of cafeteria Catholicism when it comes to contraception is a wake-up call to those who believe that fire-and-brimstone rhetoric discourages those with more immediately pressing concerns.

It isn't like that anymore, if it ever was.

Maybe the Renminbi Won't Rule the World After All

♠ Posted by Emmanuel in , at 5/09/2012 12:24:00 PM
Here's a neat riposte from Eswar Prasad and Lei Ye to the idea that the RMB will surpass the dollar as the world's most important currency over the next decade or two. That point of view has been famously espoused by Arvind Subramanian of the Peterson Institute of International Economics and, for you trivia buffs out there, occasional co-author of Dr. Prasad. Anyway, I found the Prasad/Ye commentary in the current issue of IMF Finance & Development which we receive copies of here at the office. It's often an interesting, easy to read publication that keeps you up to date  on things that are on the minds of IMF staffers.

First, let's begin with their recounting of the standard criteria (store of value, medium of exchange, unit of account) by which the functions of money are evaluated to see whether the RMB is indeed catching up with the US dollar:
The answer to that question depends on three related but distinct concepts about the currency: •Internationalization: its use in denominating and settling cross-border trade and financial transactions—that is, as an international medium of exchange;

•Capital account convertibility: how much a country restricts inflows and outflows of financial capital—a fully open capital account has no restrictions; and

•Reserve currency: whether it is held by foreign central banks as protection against balance of payments crises.
The rest of their short contribution is well worth reading, but here's the concluding portion where they give the store away:
Is the renminbi on a trajectory to usurp the U.S. dollar’s role as the dominant global reserve currency? Perhaps, but the day is a long way off. It is more likely that, over the next decade, the renminbi will evolve into a reserve currency that erodes but doesn’t end the dollar’s dominance. About two-thirds of global foreign exchange reserves are now held in U.S. dollar–denominated financial instruments. Other indicators, such as the dollar’s shares of foreign exchange market turnover and cross-border foreign currency liabilities of non-U.S. banks, confirm the currency’s dominance in global finance...

Moreover, a gulf remains between China and the United States when it comes to the availability of safe and liquid assets such as government bonds. The depth, breadth, and liquidity of U.S. financial markets are unmatched. Rather than catching up to the United States by building up debt, the challenge for China is to develop its other financial markets and increase the availability of high-quality renminbi-denominated assets. The renminbi is attaining more prominence in international trade and finance. While this importance is sure to grow, the renminbi is unlikely to become a prominent reserve currency—let alone challenge the dollar’s dominance—unless it can be freely converted and China adopts an open capital account.

The challenge for the Chinese government is to back up its modest international policy actions with substantial domestic reforms. The renminbi’s prospects as a global currency will be shaped by a broader range of policies, especially those related to financial market development, exchange rate flexibility, and capital account liberalization. The path of China’s growth and the renminbi’s role in the global economy will depend on those policy choices.­
Actually, I do not trivialize what China needs to do to attain such a status. Nevertheless, I remain convinced that the RMB will inevitably become an important reserve currency in its own right--particularly in the Asia-Pacific as trade becomes more Sinocentric. However, surpassing the dollar outright will take more time, and even then I'm not entirely sure whether that's a pressing objective of Chinese leaders anyway. As I said, we're moving to a more multipolar world, and in such a world, there is no corresponding need to have an "alpha currency." There is no dollar-gold standard out there anymore, and there's little point in speculating that there will emerge an SDR-RMB standard or any suchlike.

Pricing Luxury: LVMH in 'Old' Europe, 'New' China

♠ Posted by Emmanuel in ,, at 5/08/2012 10:32:00 AM
Having several friends and relatives working in the industry--female and male, mind you--I've taken a keen interest in luxury goods as an exemplar of globalization's dynamics. Not only do leading luxury firms have global reach and name recognition, but they also have to deal with variations in culture, custom and differences in various nations' economic performance (among other things). Thus I found Dana Thomas' book-long rant about the commodification of luxury products fascinating even if it was more a lament concerning how most luxury goods were no longer handcrafted in traditional fashion hotbeds alike France and Italy but mass-produced in plebeian places such as China. While I normally couldn't care less about where something is made provided the quality is the same, these considerations do matter when snob appeal forms part of your product's unique selling proposition.

Anyway, the geographical concern we have today is not where these luxury products are made but where they are sold. Specifically, we are talking about the world's biggest luxury goods group Louis Vuitton Moet Hennessy (LVMH) whose name derives from the combination of legendary leather goods maker Louis Vuitton, champagne house Moet & Chandon and cognac house Hennessy.

In the past, LVMH has priced similar goods significantly higher in Asia than in Europe. Aside from encouraging luxury buyers in the Asia-Pacific to come and visit France to buy their luxury goods, doing so also acknowledged that European buyers were--how should I put it--less able to buy costly trinkets and baublets. Especially now that Europe is under strain due to the existential crisis of the EU, buyers in France have been few and far between even after accounting for tourists from abroad. (As an aside, when I visited these shops in the 90s, they had a lot of Nihonggo-fluent salespersons to attend to Japanese buyers. On more recent visits though there seem to be more Mandarin-speaking salespersons.)

The conundrum here is a variation on the paradox of thrift. While raising prices elsewhere may boost LVMH revenues, they may depress the French economy as a whole given that shopping is one of the primary reasons Asian tourists come to France. That is, LVMH pricing not only has effects on the firm's bottom line but on tourism to France in general. From Bloomberg:
Chinese tourists traveling to Europe to take advantage of savings as much as 50 percent on designer clothes and accessories are finding fewer bargains. LVMH Moet Hennessy Louis Vuitton and its peers are raising prices to make up for lost business in China and lower profitability outside the country, even if it puts items like 2,270-euro ($3,000) Lockit handbags further out of reach for Europeans whose disposable incomes are shrinking amid austerity.

“You cannot continue to sustain the existing price gaps that have been a mainstay of the luxury goods industry for the past 20 or 25 years,” said Luca Solca, global head of European equities at CA Cheuvreux, in an interview. “What we expect luxury-goods companies to have to do is progressively close the pricing gap and, more likely than not, this is going to come from stepping up prices outside of Asia.”

With China expected to account for a third of luxury sector expansion this year, weakening revenue growth there is a risk to earnings even as the value of sales in yuan rises with currency moves. Earnings before interest and tax as a percentage of luxury sales is 40 percent in China compared to 25 percent in Europe, largely because of lower rents, Solca estimates.

Tourists, mainly from Asia, account for between 35 percent and 60 percent of luxury sales in Europe, according to HSBC analyst Antoine Belge. At Paris-based Louis Vuitton, currency shifts widened the price differential between mainland China and France to as much as 47 percent in the first quarter [via a strengthening yuan and a weakening euro], spurring more Chinese to shop abroad, according to LVMH Finance Director Jean-Jacques Guiony.

While the premium propped up flagging local demand in Europe, it came at the expense of sales in the world’s second-largest economy, he said on a conference call last month. “This will continue to be a feature of the industry this year unless the group rebalances pricing to discourage parallel imports,” said Barclays Capital analyst Julian Easthope... 
Given that other luxury brands are following LVMH's lead by jacking up prices elsewhere, PRC buyers who used to go abroad to take advantage of "arbitrage" opportunities may find it becoming less and less attractive to do so:
Lower prices are the main reason wealthy repeat Chinese travelers buy abroad, Sfez said. That doesn’t mean they scrimp. Chinese visitors reported spending an average of 11,000 euros on shopping per trip to Europe, Hong Kong or Singapore, according to a recent Global Blue survey. “Shopping is their preferred activity at destination,” Sfez said in response to e-mailed questions.

Sales to Asian tourists will rise by a mid-teens percentage this year in the region compared to a mid-single digit decline for local customers [penny-pinched Europeans, mon ami], Belge estimates. Sales of high-end goods may climb 10 percent in 2012, half last year’s rate, and 9 percent in 2013, he said. Vuitton, which raised prices 2.5 percent to 3 percent in Europe in the first quarter, hasn’t decided how it will adjust its pricing structure further, Guiony said. He doesn’t expect the shift in business from China to Europe to be permanent.

Luxury companies risk hurting local European demand or damping other tourist spending in the region if they raise prices too much, said Armando Branchini, founder of Milan-based luxury consultant Intercorporate. Still, a progressive increase is needed and austerity measures are likely to be main obstacle to consumption in the region, Solca said. 
In case you're wondering, while luxury brands do milk the Chinese market or what it' worth, you also need to account as well for relatively high duties on such products: 
Lowering prices in China isn’t an alternative and won’t be until Chinese authorities cut import duties, PPR SA (PP) Deputy CEO Jean-Francois Palus told analysts last month. As China cuts taxes on consumer goods this year, Branchini said he expects the duty on luxury goods eventually to reach between 10 percent and 12 percent compared with 17 percent currently. 
Very interesting stuff, and I should have more to say about luxury in general and LVMH in particular in the very near future.

Hopeless, Jobless America? Go East, Young Yank

♠ Posted by Emmanuel in , at 5/07/2012 09:21:00 AM
There are two interesting features in TIME on dealing with the generally jobless state of modern America. The first is a Job-like (biblical) lament about how unpaid internships are common Stateside when they should not be. As you'd expect, the article is accompanied by sob stories about young Americans enduring a string of unpaid internships. Fed up, a generation that is growing up during the Occupy movement is supposedly petitioning the US Department of Labor to stop these abusive practices. Among other things, laws forbidding unpaid internships are being proposed. However, you have to wonder whether excessively strict regulation of what many companies have regarded as drudge work may discourage the practice altogether. The unfortunate end result may be discontinuing a traditional route into paid employment that, unsavory as it may be at times, is par for the course in a country on a clear downward trend in the global league tables.

On a more optimistic note, I am keener on another piece describing what I've recommended before: Why stick around in the jobless West when you can move to where the action is in the much faster-growing Pacific Rim? While Americans are unfortunate to be Americans in these sweepstakes since they are taxed by the IRS worldwide, being employed in an "exotic" location should be a better prospect than being stuck unemployed. Who sends and receives migrants? The tables are turning for economic reasons:
Raised in the relative affluence of the 1990s, the so-called millennial generation graduated in one of the worst recessions since World War II. As these young people from some of the world’s richest countries struggle to find jobs, Asian nations are filling some of the gap. “The shifting balance of global growth is making emerging economies more attractive,” explains Madeleine Sumption, a policy analyst at the Migration Policy Institute. “It is turning them into receiving countries, when traditionally they’ve been sending countries.”

Fueling the eastward migration is a generation-defining shortage of jobs. The 2008–09 financial crisis, coupled with the euro debt crisis, has hit people in Europe and North America hard. Recent college graduates and young people entering the workforce for the first time are particularly at risk. According to the International Labor Organization (ILO), there are 75 million people between the ages of 15 and 24 struggling to find work, particularly in developed economies and Europe. The European Union youth unemployment rates span from 22% in the U.K. to more than half of 15-to-24-year-olds in Spain and Greece. Last year, more than half of Americans under 25 who hold a bachelor’s degree were jobless or underemployed — the highest in more than a decade, according to an analysis of U.S. data by the Associated Press. And while governments struggle to curb the jobs crisis amid budget deficits and austerity measures, East Asia is booming.

Though some East Asian nations still struggle with youth unemployment, the region is doing relatively well. According to the ILO, East Asia’s jobless-youth rate hovered at about 8.3% in 2010 and is projected to hold steady over the next few years. This has led to an influx of young people [from the West]. In Hong Kong...the government reported an average increase of 26% in issuing temporary work visas to residents of the U.S., U.K., Germany, Spain, Italy and France from 2007 to ’11. 
Harping on a theme I've highlighted before, it is truly unconscionable that 53.6% of college graduates in the US are unemployed or underemployed (flipping burgers at Mickey D's, selling Blu-Ray players at Best Buy, etc.) I don't know about you, but I would feel so ashamed about blithely carrying on offering "college is the key to prosperity" snake oil while graduates take on mountains of debt with little hope of finding remunerative employment. Despite certain academic rent-seekers denying that the US university system is in dire need of repair to address employability issues--why attend increasingly costly college to earn increasingly less (if you can find work at all)--more practical sorts who aren't stuck in ivory towers should know better.

Meanwhile, as we wait for the global tertiary system of education to become more alike the German apprenticeship system instead of the Anglo-Saxon uni-jobless system, there are stopgap measures. Flee America, the land of no opportunity, and head east young Yank, head east.

Shariah Banking: Islamic Financial Services Board

♠ Posted by Emmanuel in ,, at 5/04/2012 09:39:00 AM
The Commonwealth news outlet Global Briefing has an interesting interview with Jaseem Ahmed, secretary-general of the Islamic Financial Services Board (IFSB). Although its history is not very long, there has been a veritable explosion of interest in shariah banking, especially given the renewed resurgence of Middle East oil exporters and dissatisfaction among a number Muslims about the state of conventional banking services. You also have fast-growing, mostly Islamic states elsewhere alike Indonesia and Malaysia which have significant demand for such services.

To be sure, many like myself think that shariah banking is not quite a novel practice. While charging riba (interest) is technically not permitted alongside other conventional practices, instruments offered by shariah banking concerns are often merely interest and so forth by other names. That is, the concepts remain the same even in practice even if they fall under different rubrics [1, 2]. 

But again, who am I to disagree when shariah banking obviously floats the boat of so many others? As the interviewee notes, shariah banking is now a mainstream activity with IFSB members including the BIS, IMF and the World Bank (which perhaps begs the question of just how different it is, but I digress):
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How does Islamic finance differ from its conventional counterpart?

I would start with what it shares with conventional finance. The underlying values of Islamic finance are universal and common to Judeo-Christian beliefs, and are derived from the body of Islamic law – known as shariah. Islamic financial transactions must comply with shariah, and thus must be both lawful and ethical. One way in which Islamic finance differs is that there is a ‘nega­tive list’ of what is prohibited by shariah, and this includes contracts that involve selling things that are not owned by the counterparties (hence no short selling), gambling, hoarding and dealing with un­lawful goods and services, which would include alcohol and pornog­raphy. A central difference is the prohibition on interest or usury, and this is linked to the idea that money cannot generate money – that there must be an underlying productive activity or real investment that generates a return. Amongst the most significant differences in the two systems is the attitude towards debt and the burden it places on individuals and societies. Islamic finance does not prohibit debt, but it con­strains debt and requires that it be encompassed by ethical con­siderations that impose obligations on both borrower and lender. Loans must be without interest; there is an obligation to return loans, but there is also an obligation on the part of the creditor to take the borrower’s circumstances into account. This is relevant for today’s post-crisis world in which the global economic recovery is weighed down by the huge burden of consumer debt.

What is the role of the IFSB? Where does its authority come from and which institutions are subject to it?

The principal role of the IFSB is to contribute to the soundness and stability of the Islamic financial services industry through the issu­ance of standards and guiding principles for prudential supervision and regulation of the industry. In this sense, our role is essentially similar to the roles played by the three global standard-setters for conventional finance: the Basel Committee for Bank Supervision, the International Organization of Securities Commissions and the International Association of Insur­ance Supervisors. The difference is that we combine the roles of the three bodies into one organisation. At the same time, we have a mandate to promote cooperation in our member jurisdictions. We also have a major work programme to assist in the implementation of the standards we issue. When the IFSB was established in 2002, it had nine founding members. Today, we have 189 members across 43 jurisdictions. One third of our members are regulators or supervisors, while two thirds are private sector institutions, so we capture the broad base of the global Islamic finance industry and help to provide a com­mon frame of reference. However, we do not have formal authority over our members – implementation of our standards is voluntary. The IFSB is headed by a council that comprises 21 members, of whom 20 are governors of central banks. This is similar to the structure of the Basel Committee and underscores the intent to put Islamic finance on a comparable footing in terms of its global fi­nancial architecture to conventional finance. I should add that the Bank for International Settlements is a member of the IFSB, as are the IMF, the World Bank and the Islamic Development Bank.
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So in Western-speak, I suppose the emphasis on the "real economy" and productive activities would equate to avoidance of rentier capitalism or casino capitalism. Hmm...I too may be warming up to shariah banking if it really does deliver on those fronts. Given how "co-opted" Islamic banking has been by mainstream finance in a Gramscian sense, you have to wonder if it's all that different, though.

Strange Tales of Delta Air Buying an Oil Refinery

♠ Posted by Emmanuel in ,, at 5/02/2012 02:32:00 PM

With airlines being almost universally unprofitable these days--even Thai Airways is reportedly going to have an unprofitable 2012 or only its second unprofitable year in 51 years of operation--saying that costly aviation fuel is having negative effects on the airline industry is an understatement. From the Land of Smiles' flag carrier, let's turn our attention to the Land of Fats' largest carrier, Delta. A few weeks ago, I noticed an interesting feature about this perennial money loser considering the purchase of a refinery to deal with sky-high fuel costs. Now it's almost a fact: Delta nears completion of a deal to buy a refinery that ConocoPhillips is offloading:
 Delta Air Lines Inc. (DAL) is bringing some jet-fuel production in house, breaking with U.S. carriers’ reliance on outside providers, by acquiring a refinery that Phillips 66 had targeted for shutdown. The world’s second-biggest airline will pay $180 million for the complex in suburban Philadelphia, according to a statement yesterday. Pennsylvania’s state government is putting up $30 million in assistance to defray the expense.

An airline-owned refinery is an experiment in the U.S. industry, said Ray Neidl, an airline analyst at Maxim Group LLC in New York. Atlanta-based Delta estimated the accord will save $300 million on its annual fuel bill, which was $11.8 billion last year, or about $32 million a day. “Nothing ventured, nothing gained,” said Neidl, who has a buy rating on Delta shares. “Delta likes to try new things and I’m sure they studied this for months and ran the calculations. Nobody has done something quite like this before.”
Well that's one optimistic take on the Delta purchase. However, more analysts are skeptical about the costs savings available here, instead focusing on Delta's expansion of non-core functions and its implications for its flight operations. It goes back to time-tested debates about supply chain management and when the vertical integration or "make" decision outweighs the "buy" decision. To be sure, what we have here is a supremely commodified product, so there's no novelty factor involved which usually points in the direction of a "make" decision. Delta's counterargument though would be that these are extraordinary times during which it's better to make certain things in-house. At Bloomberg, Virginia Postrel outlines the sensible case against Delta's plan:
“If markets work well, you’re always better off using the market. Let somebody specialize in what they do and trade with them,” says Richard N. Langlois, an economist at the University of Connecticut whose work on what he calls the “vanishing hand” looks at why corporations have become less vertically integrated in recent decades. “If there are markets that are well functioning for your inputs and there aren’t high transaction costs or other problems, you’re generally better off buying things in markets than owning them yourself.” The vertical integration that Alfred Chandler chronicled in his influential 1977 book “The Visible Hand,” Langlois argues, was “an adaptation to particular historical circumstances” -- specifically, underdeveloped input markets...

In Delta’s case, that means flying airplanes, not refining oil. Delta doesn’t need its own refinery to obtain jet fuel, which is traded in a thick worldwide market, any more than it needs to own a peanut farm to supply in-air snacks. And it seems unlikely that Delta would be noticeably better at running a refinery than any other potential buyer--or, for that matter, ConocoPhillips, which plans to close down the refinery if it can’t make a deal.

The proposed purchase “doesn’t make a huge amount of economic sense -- in fact quite the opposite,” says Craig Pirrong, a finance professor and director of the Global Energy Management Institute at the University of Houston’s Bauer College of Business. You might think that owning a refinery would at least protect the airline from price fluctuations. But, Pirrong notes, crude oil prices affect the profits of airlines and oil refineries exactly the same way. When oil prices go up, their profits go down. Owning a refinery would simply magnify the effect. “If anything,” he says, “it increases the risk exposure that has bedeviled the airline industry for years.” 
I believe these arguments make sense: it's the price of crude oil, not refining it, that is primarily behind costly aviation fuel. Moreover, if a dedicated energy concern alike ConocoPhillips couldn't make ends meet, what better chance does an energy industry neophyte like Delta? Still, you can't deny Delta's chutzpah. For its next act, I'd like to see it buy an inflatable woman doll maker to produce floatation devices. Delta may be losing lots of money, but it might as well have fun doing so.

Bizarre Agropolitics Triangle: US, PRC & Philippines

♠ Posted by Emmanuel in ,,, at 5/01/2012 11:46:00 AM
Political science types--yours truly included--tend to think of nations as unitary actors when it's seldom the case: "What is China thinking?" or "What is American policy on this matter?" are but two examples. But, it is often the case that "reifying" nation-states or thinking of them as all but "personhoods" is misleading. Today, I offer you a case in point.

Those following US-China relations realize that the upcoming Strategic and Economic Dialogue in Beijing on Thursday and Friday should be more exciting than most. First, there's the matter of the blind Chinese dissident who is rumoured to be under US protection in China. Second, there's the old favourite Sino-American irritant of selling more arms to Taiwan popping up again. Third, there's the Philippines asking for American support over its dispute with China over dominion over energy-rich islands in the South China Sea causing PRC discomfort over the US returning Douglas "I Shall Return" McArthur-style to its former colony. All these ongoing tussles have prompted some to believe that Treasury Secretary Tim Geithner and Secretary of State Hillary Clinton would forego a trip to Beijing, but they probably won't.

Focusing on the third matter, you'd think it's a slam-dunk thing that the US charm offensive in the Pacific is gaining strength with Manila having little choice but to renew strong ties with Washington. But, that's not necessarily the case. While the Philippines is clearly at loggerheads with China concerning territorial disputes, it's more of the PLA that's especially belligerent about the matter. Meanwhile, Chinese trade authorities still seek to use commerce to improve relations-especially with its neighbours.

The agricultural matter in question concerns the Philippines attempting to renew exemptions granted by the WTO on liberalizing the importation of rice. Alike with China, the Philippines' food staple is rice. However, a good indicator of its developmental laggard status is its inability to achieve self-sufficiency in rice production. Embarrasingly, many of its Southeast Asian neighbours alike Thailand and Vietnam have become rice exporters from using advances in agricultural techniques developed in the Philippines such as those by the well-known International Rice Research Institute (IRRI). So, to achieve self-sufficiency, an agricultural policy has been to keep out (more price-competitive) imports.

The Philippines is now seeking a rice import quota extension from the WTO for another five years (albeit with gradually relaxed provisions) as the current one is set to expire in June :
A five-year waiver for rice import quotas due to expire in June has been requested from the World Trade Organization (WTO) by the Philippines, which in exchange will reduce the applicable tariff...The country wants quantitative restrictions (QR) on rice, due to expire on June 30, 2012, extended to 2017, claiming "exceptional circumstances" such as food security and continuing efforts to make rice production more market-oriented. The current 40% in-quota tariff will be reduced to a still-unspecified level, and Manila will agree to annual reviews that could lead to modification or termination of the waiver.
It again shows you how there are different political actors at play in the US when agricultural producers and trade authorities there want this quota struck down pronto, indicating discontinuities in US policy towards a minor power:
The Philippines’ appeal at the World Trade Organization (WTO) to stop the influx of imported rice is facing opposition from the United States government, which recently protested the country’s stricter regulations on meat handling, Agriculture Secretary Proceso Alcala said. Alcala, in an interview with the media on Thursday, said the US government has decided to block the Philippines’ bid to limit the entry of foreign rice in the local market, a regulation meant to protect Filipino farmers from competing with cheap and subsidized foreign rice...
To the surprise of some Philippine officials, though, Chinese authorities are relaxed about granting an extension of these import quotas for rice:
China has expressed willingness to support the Philippine request before the World Trade Organization (WTO) to extend its special treatment through quantitative restrictions on rice imports. In a high-level meeting with National Food Authority (NFA) administrator Angelito Banayo in Beijing on April 26, Deputy Minister for International Trade Yu Jianhua said his country will support the Philippine request, citing the importance of economic cooperation between the two countries. This came as a pleasant surprise to the Philippine delegation led by Banayo and Agriculture Assistant Secretary Romeo Reside, along with NFA lawyer Gilbert Lauengco, who came to the Chinese capital to start formal bilateral negotiations seeking to extend quantitative restrictions on rice imports, which are otherwise due to expire on June 30, 2012.
It indicates how security and economic policy are not as closely linked as many believe. The persons involved are different, as well as the interests at play. While the US seeks to pry open more foreign markets for (likely subsidized) rice, China has no real interest in exporting rice to the Philippines and sees a way to establish goodwill in trade over an issue it's not directly involved in but can influence given its increasing presence in Geneva.

All in all, it's an interesting case study which throws caution to blanket statements about the Philippines being "in the pocket" of the US or "moving away" from China. Again, the issues and context matters. I believe that the contest for Asia-Pacific hegemony between the US and China will be conducted in this fashion--small power by small power, minor issue by minor issue. Attention to detail will be key in winning over the Philippines and the rest.