Run-Up to Bali: A Whole Lotta Carbon Emissions

♠ Posted by Emmanuel in ,, at 11/30/2007 10:40:00 AM
In the run-up to the UN Climate Change Conference in Bali from 3-14 December 2007 where a successor to the Kyoto Treaty will be on the drawing board, I've decided to put up some features that place the challenges in establishing a global carbon trading regime into focus. I'm sure you're aware of Kevin Rudd's election as Australian PM and his stated intention of signing on to Kyoto which further isolates the US as the only developed country enviro-renegade. Yet, a few developed countries which have already signed on to Kyoto don't seem to be happy campers right now. Bloomberg points out that Japan, Italy, and Spain have been hit with a combined tab totaling $33B [!] for exceeding their caps. Worse, Italy and Japan are sticking taxpayers with a lion's share of the bill:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Different Views on China in Africa

♠ Posted by Emmanuel in ,, at 11/30/2007 03:05:00 AM
Regular IPE Zone readers are probably aware of my pessimistic views on Chinese involvement in Africa. To sum it up, it's meet the new boss, same as the old boss--the yellow man's burden has replaced the white man's burden. Self-interest, not altruism drove outsiders to Africa then and the same holds true now. Of course, there are many other points of view. Let's view some of them. For the economic angle, I highly suggest this recent IMF paper by Jian-Ye Wang on "What Drives China's Growing Role in Africa?" The author focuses on economic motivations, particularly China's voracious need for raw materials to power its industrial steamroller, especially energy supplies. While it may seem that China is buying up Africa lock, stock, and barrel sometimes, do note that due to colonial legacy and geographical proximity among other things, Africa's largest trade partner remains the EU. All the same, note the large gains made in African exports to China:
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Here is the conclusion from the IMF paper:
This paper intends to provide an assessment, based on fractional information, of China’s economic involvement in Africa and to identify the forces shaping burgeoning China-Africa economic relations. The study is undertaken against the background of a rapidly changing landscape of international trade and finance that has eclipsed traditional aid flows to middle-income countries, making Africa ever more central for development finance.

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

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

Africa will become an increasingly attractive market as incomes rise and progress in regional integration makes its markets even more attractive. It will also become a key destination for FDI, and it will continue to need infrastructure. Together these powerful market forces may put Africa-China economic relations firmly on a commercial footing. Both public and private sectors have a part in ensuring that the expanding trade and investment ties are mutually beneficial and contribute to sustainable growth and development in Africa. The impact of possible changes in Chinese demand on African terms of trade, trade patterns, and the economic prospects of countries in Africa are worthwhile topics for further research.
Meanwhile, Newsweek has an interview with Yang Guan of the state-sponsored Chinese Academy of Social Sciences. To no one's surprise, he strikes an upbeat tone on China's involvement in the region. Below are some excerpts. Reiterating a point made in the IMF report, he says that Chinese investment in the region is not as large as some make it to be. Irksome to me is his legalistic excuse for selling arms to Sudan as in "selling arms is allowed by international conventions, and Darfur isn't the point of arms sales." What's legal isn't moral, but don't get me started on this...

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

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

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

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

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

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

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

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

China Backs Down in Subsidies Case

♠ Posted by Emmanuel in ,, at 11/29/2007 07:08:00 PM
US Trade Representative Susan Schwab has come to an agreement with her Chinese counterparts over the subsidies case filed at the WTO Dispute Settlement Body. Yes, China engaged in all sorts of posturing, but at the end of the day, it backed down. Score one for the USTR [U-S-A! U-S-A!] The National Association of Manufacturers is understandably elated as well. It seems American politicians are keen on capitalizing on these gains by ramming through all sorts of legislation aimed at making China "play fair." Will China also give in on the intellectual property dispute, for instance? You could argue that China is keen on not angering the world with yet more subsidized exports as the US and EU are getting quite angry over mounting trade imbalances. IP is a more difficult issue though as policing the world's most populous nation for pirated software is not exactly an easy task. Anyway, let us begin the beguine with a Bloomberg recap that provides a good overview of things:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Automakers, Retailers Take On Indian Market

♠ Posted by Emmanuel in , at 11/29/2007 03:44:00 PM
Markets in the Western world are near saturation--that is a common theme you get from carmakers Nissan-Renault and retailer Metro AG in the stories that follow. The opportunities lie in fast developing countries, especially India, China, and Russia. It's an oft-heard line, but the challenges are many. The so far unconsolidated Indian auto market practically asks that foreign automakers seek out many partnerships with several local firms since they are unsure which ventures will pan out. Meanwhile, foreign retailers are also not allowed to open up their own stores and must tag up with local entities.

We begin with the latest exploits of a legendary auto magnate, the peripatetic Carlos Ghosn. He recently went on a tour of India signing deals with anyone and everyone to ensure that the future of India's car market has a distinctly Renault-like future. Industry observers are guessing what Ghosn is playing at by signing deals with so many local firms, but I simply see it as portfolio diversification in an uncertain, rapidly evolving market. Ghosn is hedging his bets in the domestic automobile industry. From the Economic Times:
On October 29, Nissan Renault chief Carlos Ghosn made a whistle-stop trip to India to crack two mega deals. He touched down in Chennai to ink the $500-million alliance between Nissan and Ashok Leyland for light trucks and then hopped on to a chopper for a flying visit to Bajaj Auto’s Chakan plant for a chat on the $3,000 car.

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

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

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

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

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

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

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

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

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

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

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

Ghosn may see no fuzziness. But try as he might to make it all appear seamless, some in the auto industry say he is playing a clever game to not rely too much on a single partner and to keep each guessing about his plans with the others. Auto analysts liken this to a giant jig saw puzzle. If the pieces fit, some of Ghosn’s rockstar reputation will rub off on India. His partners are hoping that’s exactly how things turn out.
Meanwhile, the Wall Street Journal has an interesting story on how German retailer
Metro AG has practically had to reinvent the Indian grocery supply chain to ensure that produce arrives fresh and on time. These are no mean challenges given the weight of tradition and India's famously spotty infrastructure. I've already posted about the entrenched and often belligerent retail system of mom-and-pop operators. This article also talks about the seemingly endless chain of middlemen in the current Indian retail system which drives up costs and makes it more likely that produce gets spoiled before reaching consumers.
To open stores in India, German retailer Metro AG first had to teach farmers like N. Madhu to stop piling vegetables on the ground after picking them -- the bacteria from the dirt can slash the shelf life. Today, Mr. Madhu's gourds go directly from the vine to the plastic crates Metro gave him.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Wolfensohn: The End of Development

♠ Posted by Emmanuel in , at 11/29/2007 01:03:00 AM
James Wolfensohn, World Bank president from 1995 to 2005, has remained active after his spell at the controversial international financial institution. In 2005, he set up a strategic consulting firm focused on emerging markets that bears his name, Wolfensohn & Associates. In 2006, he became the chairman of Citigroup's International Advisory Board. Clearly, Wolfensohn still has an affinity for taking a "big picture" view of international matters, particularly development. Though he doesn't say so explicitly, James Wolfensohn appears to be touting--you guessed it--the end of development. According to him, "the North-South divide is now obsolete" and we should "bid farewell to old development divides." Francis Fukuyama proposed The End of History, Kenichi Ohmae The End of the Nation-State, and Jeffrey Sachs The End of Poverty. If I had a dime for every End of... book purporting something which hasn't happened or isn't likely to happen, I'd be a millionaire. You know, I'd like to write The End of Books About the End if it means finishing off endless books with this sort of hanckeyed title.

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

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

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

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

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

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

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

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

This emerging four-tier world presents three key challenges.

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

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

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

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

Marx, Globalization, and EU Labor

♠ Posted by Emmanuel in , at 11/28/2007 02:20:00 AM
Cool Papa Marx strikes again. Just in case you thought the IPE Zone had gone all neoliberal on you, here's news to stir every left-leaning reader and worry even the most rabid pro-globalizer. It's a pattern which repeats itself in other parts of the developed world, especially the US of A: Labor's share of income (GDP) in the European Union has fallen to yet another all-time low. If you apply a classic Marxist critique, the inherent contradictions of capitalism are becoming evident: capitalism is such that there is a tendency for the bourgeoisie or capitalist class to accumulate an ever-greater share of the fruits of production at the expense of the proletariat or working class. (The culprit? Technologically-enabled globalization.) However, this system cannot continue indefinitely for there comes a point when exploitation of the working class is such that all the wonderful fruits of capitalism can no longer be purchased by labor since its share of income has diminished so much. Then you get revolution and the eventual dictatorship of the proletariat. Does that sound convincing? Make up your own minds; I've featured Marxist-types of analysis to some contemporary issues [1, 2], though there are far more sophisticated readings you can find elsewhere on the Web, comrade.

Believe it or not, I am irked that this news has been buried in the media as it is of undoubted importance. Have people become so sheep-like as to expect this trend to continue without complaint? It's a shame in particular that American academics do not apply Marxist styles of analysis to political-economic questions. As this blog's manifesto [!] notes, there are three main IPE perspectives--liberalism, realism, and Marxism. Their loss, I guess; those of us here in Europe have the bases covered with more leftist academics than you can shake a stick at (excluding yours truly who's more of a centrist). Yes, mainstream economists, you can also say that this phenomenon may be Hecksher-Ohlin at work, but Marx is so much more...evocative (and hirsute):
European workers' income as a percentage of the economy has fallen to a 40-year low as globalization increased labor supply and technology improved manufacturing processes.

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

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

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

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

A Sino-Japanese Enviro-Economic Jellyfish Quarrel

♠ Posted by Emmanuel in , at 11/28/2007 01:58:00 AM

As a SpongeBob SquarePants fan, I find jellyfish rather charming. Japanese fishermen, however, do not. Regions which have traditionally been fishing grounds in Japan have been inundated by jellyfish which are making it difficult to catch fish. They destroy fishing nets, poison fish, and generally make life hard for anglers. Who's to blame? Why, of course, that universal bogeyman for what ails the world, China. From a 2005 Economist article:
The jellyfish spawn along the coasts of the East China Sea and the Yellow Sea and some drift towards Japan. It usually takes two months or more for the first to reach the Japanese island of Tsushima, in the middle of the strait between South Korea and Kyushu. This year, however, the jellyfish arrived a month earlier than usual, in August, and in big numbers. In May and June, heavy rains in the basin of the Yangtze river had created an enormous flow of fresh water, and this jet had sluiced the jellyfish towards Japan...

No one knows the exact reason for the rise in the jellyfish population, but there are suspicions. One is the development of ports and harbours along the Chinese coast, which has created many more structures to which echizen larvae can attach themselves. Another is that the seas off China are choked with nutrient-rich run-off from farms and industry. A third is Chinese overfishing in local waters: with fewer fish, there are more of the kinds of plankton on which the jellyfish feed.
[UPDATE: You must see these photos to appreciate the size of these jellyfish.] See? Even Japanese fishermen are going China bashing; it's the global sport of choice. Unfortunately, things have not gotten any better since 2005. Here is more from the accompanying Wall Street Journal article to the clip above. Interestingly, the mega-disastrous Three Gorges Dam even figures its way into the story:

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

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

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

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

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

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

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

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

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

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

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

WPP's DC Lobbying "Monopoly"

♠ Posted by Emmanuel in , at 11/28/2007 01:08:00 AM whatever your avowed political predisposition, there's likely someone at one of WPP's lobbying firms who's willing to fight for your cause in the hallowed halls of Congress, at a price. The UK-based WPP is one of the world's largest marketing services companies, offering public relations, advertising, and most importantly for this post, political lobbying. The Financial Times has an interesting story on how various lobbying firms under the WPP umbrella feature several influential Beltway figures including Hillary Clinton's point man Mark Penn, Michael Whouley, Dan Bartlett, Norman Mineta, and Anne Wexler (see this cast of characters). If you still have any remaining notions that politics involved principles, read this story and be disillusioned. These lobbying firms are effectively political mercenaries; name your rent-seeking activity of choice and pay up.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

On Women as Sex Tourists in Kenya

♠ Posted by Emmanuel in ,, at 11/27/2007 01:16:00 PM
Sex tourism is definitely within the subject realm of international political economy, incorporating IPE topics such as gender relations, tourism, and, yes, trade. One of our IPE instructors here at the University of Birmingham does research work on the topic, so this recent Reuters article on older English women becoming sex tourists in Kenya caught my attention. Much of the coverage in the past has focused on this phenomenon in the Caribbean [1, 2, 3, 4]. Now, attention seems to be shifting to Kenya. The questions raised, however, remain the same:
Is sex tourism by women any better or worse than sex tourism by men?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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