International Political Economy Zone

Does the US Still Lead in Science & Technology?

♠ Posted by Emmanuel in Education at 6/13/2008 01:11:00 AM

Just out is the RAND Corporation's monograph entitled US Competitiveness in Science and Technology. The authors of this work find that there is little to suggest that the United States is losing its lead in scientific and technological research based on various indicators of research productivity such as R&D spending, patents, publications, citations, and even Nobel Prize winners in the "hard" sciences. Will this assuage those who fear the US is losing its competitiveness? Read the thing and decide for yourselves. Personally, I think that the indicators used are kind of rough, for the sheer quantity of US research output likely won't guarantee that the Next Big Thing won't come out of China, India, or somewhere else. That is, a thousand incremental innovations may pale in comparison to a radical innovation which may change the world coming outside of the US.

The discussion on pp. 38-39 summarizes the findings neatly:

The United States still leads the world in science and technology. The United States accounts for 40 percent of total world R&D spending, 38 percent of industrialized nations’ (OECD countries) triadic patents, and employs 37 percent of OECD researchers (1.3 million FTE). It produces 35 percent, 49 percent, and 63 percent of world publications, citations, and highly cited publications, employs 70 percent of the world’s Nobel Prize winners, 66 percent of its most cited individuals, and is home to 75 percent of the world’s top 20 and top 40 universities and 58 percent of its top 100.

R&D spending is rapidly increasing in developing nations such as China and Korea. But despite this rapid growth, the U.S. share of world R&D spending (dollars at PPP) fell only by 1.5 percent to 36.1 percent between 1993 and 2003, while the EU-15 and Japan lost significant ground. In absolute terms, the United States increased its R&D spending by $126.3 billion (nominal value at PPP), from $166.1 billion in 1993 to $292.4 billion in 2003. This increase is more than in any other region: Over the same period, the EU-15 added $76.6 billion, Japan added $38.3 billion, and China added $60.8 billion.

S&T employment is not growing more rapidly in other nations/regions than in the United States, though China showed remarkable growth. The United States added a large number of researchers (299,000) between 1995 and 2003, suggesting a vibrant R&D sector. At the same time, China added nearly as many (289,000), the EU-15 added 220,000, and Japan added 95,000. Both the EU-15 and China graduated more scientists and engineers than the United States.

While developing nations (China and India in particular) are starting to account for a significant portion of the world’s S&T inputs and activities (R&D funding in dollars at PPP, research jobs, S&T education, etc.) and are showing rapid growth in outputs and outcomes, they still account for a very small share of triadic patents, S&T publications, and citations. Innovation and scientific discovery are still led by the United States, EU 15, and Japan. The United States did lose 3 percentage points in its world share in publications, citations, and top 1 percent highly cited publications between 1993–1997 and 1997–2001. But on measures such as additions to the S&T workforce and patented innovations, U.S. growth in S&T was in line with or above average world trends. By comparison, Japan grew more slowly in additions to the S&T workforce, and both the EU-15 and Japan had slower growth in patented innovations.

High growth in R&D expenditures, employment of scientists and engineers, and patents suggests that U.S. S&T has remained vigorous. These U.S. developments occur at a time when increases (though at different rates) in each of these measures are also seen in the EU-15, Japan, China, Korea, and many other nations/regions. In other words, strong growth of R&D activity, S&E employment, and innovation in many countries suggests a future of significant innovation activity, and, because of the greater diffusion of technology in a globalized world, the promise of economic growth for those nations that are capable of absorbing (making economic use of) the new technology. Scientifically advanced nations and regions such as the United States, the EU, and Japan are highly capable of implementing new technology and will benefit from it. Developing nations such as China and India have partial capability, but are well ahead of Latin America, the Middle East, and Africa. Though, as we will discuss in more detail later, developing nations can continue to grow their economies rapidly by absorbing existing technology in addition to new technology.

Sachs Versus Easterly Round 1,429: Cato-tonic

♠ Posted by Emmanuel in Development,Environment at 6/13/2008 12:31:00 AM

Ho-hum, here we go again. The development debate between Jeffrey Sachs versus William Easterly is supposedly planning versus searching, official development aid versus generating local business. Easterly's personal site has the tale of the tape so far. Meanwhile, the latest round is being waged on Martin Wolf's blog, site of some of the best economist-versus-economist intellectual jousting. It all began when Martin Wolf wrote a favourable review of Jeffrey Sachs's new book, "Common Wealth." Here is an excerpt from Wolf:

Is it possible for the vast mass of humanity to enjoy the living standards of today’s high-income countries? This is, arguably, the biggest question confronting humanity in the 21st century. It is today’s version of the doubts expressed by Thomas Malthus, two centuries ago, about the possibility of enduring rises in living standards. On the answer depends the destiny of our progeny. It will determine whether this will be a world of hope rather than despair and of peace rather than conflict.

This – not the effectiveness of its particular prescriptions – is the biggest question raised by the report of the growth commission discussed here last week. It is also the focus of a powerful new book by Jeffrey Sachs, director of Columbia University’s Earth Institute.

The challenge is stark. World real incomes per head could rise 4.5 times by 2050 and world population by 40 per cent. This would mean a sixfold increase in global output, concentrated in the developing world. Is such an increase feasible? The answer he gives is: yes and no – yes, because changes in incentives, technology and social and political institutions would make a benign outcome feasible; and no, because the path we are now on is unsustainable. Professor Sachs is an optimistic prophet of doom. He falls in between those environmentalists who see no solution and those free-marketeers who see no problem.

By inclination, I am far closer to the latter than the former. But it has become evident, at least to me, that the human impact on the planet on which we depend has risen to enormous proportions. We have treated the global commons as if they were free. Self-evidently, they are not.

Prof Sachs emphasises three goals: first, “the end of extreme poverty by 2025 and improved economic security within the rich countries as well”; second, “stabilisation of the world’s population at 8bn or below by 2050 through a voluntary reduction of fertility rates”; and, third, “sustainable systems of energy, land and resources use that avert the most dangerous trends of climate change, species extinction, and destruction of ecosystems”. Finally, to achieve these ends, he recommends “a new approach to global problem-solving based on co-operation among nations and the dynamism and creativity of the non-governmental sector”.

To this Sachs adds his bit of "mainstream economics neglects environmental limits" line of argument:

Martin Wolf is right, in his generous review of my book (“Sustaining Growth is the Century’s Big Challenge,” June 11), that the biggest question in economics is whether there is room enough on the planet for 7 – 10 billion human beings, the tens of millions of other species, and economic convergence, that is the continued, reliable, and fairly rapid narrowing of income gaps between rich and poor due to technological catching up by the poor. The tendencies for convergence are powerful. Rapid economic growth in China and India reflect the powerful capacity of today’s poorer countries to close technology gaps. The results are impressive: income doubling periods of 7 to 10 years. The results are also harrowing: profound threats to the Earth itself, and therefore to continued economic development and even survival of vast numbers of people and vast parts of the biosphere.

Martin calls me both optimistic and pessimistic at the same time. My point is that either the positive trajectory or negative trajectory is possible, indeed both are plausible. I believe that physical resource limits alone will not do us in, or end economic convergence. On the other hand, the market economy by itself will not solve a now world-threatening crisis of sustainable development. The market system fails to solve four fundamental classes of problems: ecosystem functions (the bio-geophysical commons); population; extreme poverty (because of the very real dynamics of poverty traps); and technological pathways needed for sustainability. These are solvable problems. They require collective action, as they are fundamentally in the character of public goods. Yet for the same reason they are not solved. Part of the barrier is the ideology of market economics itself, which often denies these problems and therefore is short on producing practical tools and solutions.

The biosphere does not come packaged according to the assumptions of neoclassical economics. What we call externalities are the norms, not the exception. In ecosystems, the nutrients, carbon, water, nitrogen, energy, and species (including ours) are in flux. There are spatial migrations and temporal flows and interactions which make a lie of the underlying assumptions of “private” property. A farmer that encloses his farm, or drains groundwater, or introduces an invasive species, or puts on chemical pesticides, or replaces high biodiversity with a commercial monoculture, has pervasive effects on a whole ecosystem. These are, by nature, not fenced in his enclosure. None of this mattered in the extreme perhaps when the Earth was still populated by 1 billion of us, or perhaps even 2 or 3 billion. When local systems failed, there were new ecological niches to conquer. Yet in the past 250 years, the population has risen nearly tenfold. There are no more places to flee. And ecosystems everywhere are under profound threat.

Unsurprisingly, Mister Market himself, William Easterly, takes a dim view of Sachs's assorted criticisms of markets. To his loss, Easterly does not seem to address environmental concerns Sachs raises directly. Instead, he dismisses Sachs's concerns as eco-nannyism, more or less. As most of you probably know, Easterly is aligned with the Cato Institute which believes global warming is overblown. (Here's a sample of Cato views on the environment.) Easterly says:

In his new book, Professor Sachs lists other grave global challenges that will not be solved unless we also apply to them the same formula of money, international agreements, and a UN plan. One of these challenges is Sachs’ revival of another old idea, that of The Population Scare - from Paul Ehrlich’s 1968 book The Population Bomb and the Club of Rome’s 1972 Limits to Growth. If the population problem is indeed scary, Sachs’ solutions give a dismal outlook once one considers the track record of aid money, international agreements, and UN plans. John Kay put it well in another column in today’s FT on the recent UN summit responding to the world food crisis:

“So the summit ended as such summits always do. The delegates agreed on the importance of the problem, the urgent requirement to spend more money: they emphasised the need for coordinated action, and resolved to meet again in future to reach the same conclusions.”

Fortunately for the world’s poor and for all the rest of us, there are much more dynamic forces in the world than UN bureaucrats and their academic advocates. Private, political, and social entrepreneurs, creative scientists, technological innovators, and resourceful workers and farmers found a way to escape “poverty traps” - the world poverty rate has declined by half over the last 30 years - and to avoid the famines and growth crash predicted by Ehrlich and the Club of Rome in the 1960s and 1970s. It is never a sure thing to predict that future problems will be solved in a similar way, but this historical record gives one a lot more hope about these challenges than one can derive from yet more toothless international agreements.

There is also a measured response from Paul Collier on Wolf's blog. Indeed, Collier is often posited as occupying the middle ground between Sachs and Easterly on the efficacy of aid. Although I am with Easterly on the point that development won't likely result from more massive aid, I do believe that his nonchalance over environmental matters is too ideologically extreme in the Cato-esque sense. What's wrong with channelling market forces in designing products and services which minimize or reduce environmental damage? Surely, even Easterly can get on that bandwagon--unless he believes global warming doesn't exist in the first place of course.

EU on US Trade Policies: Pot-and-Kettle Syndrome

♠ Posted by Emmanuel in Europe,Trade at 6/12/2008 12:53:00 AM

Just out is the WTO's trade policy review of the United States, the world's top trader in terms of both imports and exports. While most of the report's findings should hold few surprises for those who are generally familiar with US trade policy, I am amused that the EU has used this opportunity to probe the US about rising levels of protectionism [!] when it is hardly guiltless in this and other respects. Here is the introductory blurb on the EU's site:

The European Union used the opportunity of a two-day WTO review of US trade policy to raise concerns about rising levels of protectionism in America. The EU submitted more than 90 detailed technical questions to the United States about its trade policy during the meeting.

In its opening statement to the ninth WTO Trade Policy Review of the United States in Geneva on June 9, the EU expressed its concern at worrying signs of a re-emergence of protectionist sentiment in the United States. The increasingly restrictive import requirements imposed by the US for security purposes – new legislation requiring the 100% scanning of containers destined for the US was an example - and the lack of reform in the 2008 US Farm Bill raised doubts about the compliance and professed intent of some aspects of US trade policy with the WTO.

In questions to the US, the European Union also raised the use of fisheries subsidies, intellectual property rights enforcement, sanitary measures for food products, RTA [Regional Trade Agreements] policy and constraints on investment in services sectors.

The EU believes that the "trade policy review" mechanism plays an important role by ensuring that WTO members review each others' openness to trade and raise concerns about market barriers and compliance with WTO rules and procedures.

Aside from concerns that "security"-related measures may be protectionism in disguise, the 2008 Farm Bill which has been much derided here [1, 2] and elsewhere also serves as fodder for EU criticism. Nevermind that the EU maintains pretty hefty subsidies itself, but maybe it's the spirit of the legislation that counts:

The expiration of the 2002 Farm Bill presented a significant opportunity for the United States, and for the wider WTO membership, to secure a more reformed-oriented US agricultural policy. Unfortunately, this opportunity has been missed, and the recently enacted 2008 Farm Bill has followed the same trade-distorting direction as its predecessor.
Some preliminary analysis reveal that the new provisions have even aggravated the trade-distorting character of the former Farm Bill, in particular, in a number of sectors such as cereals, cotton, sugar and dairy products.

Today, we would like to learn further on the intended objectives and foreseen consequences on world trade of the enactment of the 2008 Farm Bill, and the grounds on which the US justifies it. We wonder what signal the US is giving to us all with such retrograde Farm Bill [their language--not mine!].

Green Revolution Meets Expensive Fertilizer

♠ Posted by Emmanuel in Agriculture at 6/11/2008 02:15:00 AM

As if there weren't enough worrying things to trouble global food supplies, add the rising cost of fertilizer to the list. The Green Revolution which increased agricultural yields in many parts of the globe is in part attributable to the widespread adoption of inorganic fertilizers. However, these kinds of fertilizer have become increasingly expensive. The Reuters story below suggests it is more of a "demand pull" sort of inflation instead of the "cost push" variety. Whatever is causing it, there are bound to be major adjustments in the use of fertilizer to the detriment of production:

It powered the Green Revolution and helped save millions from starvation, but now one of the most important tools on the farm is being priced out of reach for many of the world's growers. With food prices soaring and stocks thinning, the world is in need of bumper harvests but once one of most bountiful of commodities, fertilizer, is becoming scarce and expensive. It's estimated that one third of the protein consumed by humans is a result of fertilizer. So high prices and spot shortages are yet another stress on the world's ailing food system.

"You can't really expect a bigger harvest if you will not use fertilizer, but the cost is killing us," rice farmer Jaime Tadeo in the Philippines told Reuters, adding that a bag of fertilizer now sells for nearly 1,800 pesos, or $43, up from less than 1,000 pesos a year ago. "It's totally out of our control because if prices of oil continue to shoot up, the prices of fertilizers will also increase. I am afraid, many of us would not be able to afford it."

Fertilizers are like vitamins for soil and consists of three main types, nitrogen, potash and phosphate. Because some fertilizers such as nitrogen require energy to produce they track energy prices. But other kinds are just in high demand, even though experts say the shortages are not due to a lack of supply.

Last month China agreed to pay more than triple what they did a year ago to get hold of tight supplies of potash, sending the shares of global fertilizer makers to record levels. China, the world's biggest import market for the nutrient, will pay $650 to $670 a metric ton for the product, analysts estimated.

"With the intense pressure on global food production and continued growth in potash demand, this is the reality for our industry for the foreseeable future," said Bill Doyle, chief executive of Canada's Potash Corp, the world's top producer.

The rising price is a burden on rich and poor farmers alike as they represent a big investment upfront, despite high world prices for crops. If all goes well, a farmer can earn $3 for every $1 invested in fertilizer.

"We're all hoping Mother Nature cooperates and we can fill the bins, because ...we've got a lot on the line," said Robert McLean, a farmer in Canada's grain belt as he hauled a tractor-trailer load of canola harvested last fall.

Phosphate prices are up 50 percent over last year at C$570 per metric ton when McLean, who grows wheat, barley and canola in south-central Manitoba, booked supplies in January. Farmers who waited to buy until spring have had to cough up as much as C$1,230 per metric ton, McLean said. "We were hearing reports it was going to go up quite a bit. Nobody envisioned that it would go up 100 percent. It's just god-awful ugly, I think is a good way to express it," With enough rain and heat, fertilizer will help farmers reap historically high grain prices. But poor yields would leave them struggling to pay for next year's supplies.

Fertilizers were seen crucial in the Green Revolution of the past few decades where farmers, especially in poor countries, were able to dramatically increase crop yields. The Green Revolution took root in the 1940s and newly developed inorganic fertilizers -- leaving rudimentary additives such as manure in the dust -- helped spark an explosion in food production, and saved countries such a India from famine.

World fertilizer use grew more than 11 times from a mere 14.5 million metric ton in 1950 to 169.4 million in 2007, while population ballooned from 2.5 billion to 6.6 billion. But now with high fertilizer and fuel prices, some worry many of the gains could unravel, putting strain on all farmers but especially in the developing world.

"This has been a significant problem for the low income farmer," said Rajiv Shah, who manages the agriculture development program at the Bill and Melinda Gates Foundation, which has extensive aid programs in Africa. He said fertilizer use has long been a challenge in Africa, where farmers use about one tenth of what is applied by American farmers.

But now the problems are worsening with farmers forced to use fertilizers even more sparingly. They are also facing shortages and dealing with unscrupulous dealers selling poor quality products. All in all they have a lot on the line this season.

"If it doesn't rain that year, you can lose your entire crop and your family will struggle to get enough to eat," Shah said in a telephone interview.

In the sultry, sprawling palm oil plantations of Malaysia, which produces one of the developing world's most important cooking oils, shortages of fertilizers are already being felt. "The fertilizer shortage is a huge problem," said Martin Bek-Nielsen of United Plantations, who sees it as inevitable that some farmers will have to cut back. "Most plantations will not cut back, but small holders who have limited sources will reduce input. The impact on yields will not be immediate, it will be felt in a year or so."

Some believe one possible solution will be for higher government subsidies for poor farmers. Pedro Sanchez of the Earth Institute at Columbia University said he thinks heavy subsidies for fertilizers is the best way for the farmer to cope with the "worrying" prices.

"The way they are coping is they are getting subsidized fertilizers and improved seeds," he said. "And they are basically tripling their yields of their basic food crops, like corn. And they are having surpluses.

Will South Korea's Gov't Collapse Over US Beef?

♠ Posted by Emmanuel in Neoliberalism,Trade at 6/11/2008 01:00:00 AM

The headlines coming out of South Korea may give one the mistaken impression that President Lee Myung-Bak's administration is teetering on the edge of collapse because of a controversy over beef imports from the USA. Lee's entire cabinet has already offered to resign. It is indeed true that the protesters who seem intent on slowing South Korea to a standstill are voicing their displeasure over South Korea allowing imports once again of US beef that is over 30 months of age and more prone to incidences of bovine spongiform encephalopathy (BSE), better known as mad cow disease. In 2003, the country banned US beef imports over mad cow fears. More recently, South Korea has started to import US beef, provided that it was under 30 months of age. In April of this year, though, it reached an agreement with the US on importing beef above that age ceiling in exchange for trade concessions from the US. Remember the putative US-South Korea trade deal? It is stalled partly because congresspersons from farm states want the Korean market to drop restrictions to American beef imports before a vote on it will be allowed in Congress. In response to local protests, the South Korean government requested that the US not send aged beef a few days ago, but that hasn't assuaged the protesters.

I have doubts whether this brouhaha has much to do with the safety of US beef. Given that Americans are hardly being affected by cases of this disease, there is little reason to believe exports of aged beef will cause South Koreans to keel over. Instead, the real beef is over South Korea adopting a wider package of neoliberal reforms to revitalize supposedly moribund Korean industry. My interest is not about beef imports per se. Rather, it is that cottoning up to Sammy at this point in time is both politically malodorous and unlikely to bring much in terms of economic benefits like Lee promises anyway. With the US economy stuck in neutral-cum-reverse, there are plenty of other countries out there to cotton up to that won't get you stuck with the "American lackey" designation and may generate more trade in the process.

Koreans have honed their protest culture to a fine art. As neoliberal reforms have stalled, the country is also faced with mounting inflation at home due to rising prices of, among other things, fuel. Like in many other parts of the world, those reliant on gas have decided to go on strike. It seems the world is becoming increasingly united by three things: inflation, fuel protests, and anti-American sentiment:

Truck drivers, following the lead of unions in a number of countries across Asia and Europe, voted on Monday to go on strike over rising fuel prices. They ignored the government's $10.2 billion financial aid package announced a day before and designed in part to cushion the impact of mounting energy costs. Other unions also voted on whether to strike and slow down production at auto plants and other factories.

The growing political storm has all but blocked the government's plans for major economic reform, including tax cuts, mass privatisation of major state-run firms and banks and efforts to make the country more accessible to foreign investment. The new conservative-dominated parliament has been unable to sit because the opposition has boycotted its opening.

"The current crisis signifies a deeper public malaise in Korea, risking to dampen economic growth over the coming year," said Hong Kong-based HSBC Asia economist Frederic Neumann. "The second big worry is that consumer and business sentiment takes another hit, thus depressing domestic demand at a time when exports could show signs of buckling."

In Case You Missed It: Big Three Overtaken @ Home

♠ Posted by Emmanuel in Japan,Marketing,Trade at 6/10/2008 12:17:00 AM

The Vapours famously sang about "Turning Japanese" in the eighties. Apparently, the throwaway single was catchy enough that it more recently featured in the popular "Guitar Hero" video game series. In the 80s, Japanese industry was the big fear for American manufacturing just as Chinese industry is now, with similar complaints about state involvement, currency manipulation, and what else have you. Of course, the big controversy back then was over Japanese automobiles. While the abovementioned factors were at play to various extents, I still think that, overall, Detroit was simply outsmarted, outmanoeuvred, and outclassed by Japanese manufacturers. Even if there was a "more level playing field," Detroit was bound for a whupping somewhere down the road.

Nowadays, of course, we have "China-bashing" instead of "Japan-bashing" as the American protectionist's sport du jour. Fear and loathing of Japanese products was more literal (and visceral) back then as neo-Luddites took sledgehammers to perfectly good Datsuns and Toyotas. Unfortunately, the inability of the Chinese to come up with notable brand names has meant that today's China bashers do not have such symbolic scapegoats at hand. What's a 21st century Luddite to do? Dismember Barbie? Molest Bratz? While we wait for such vivid jingoist displays--and they will surely come, as night follows day--let us contemplate today's feature article.

It is odd that very few (including myself) seem to have noticed that last week, automobile sales by Detroit's Big Three--a misnomer for various reasons--were surpassed at home by the combined sales of various Asian makes from Japan and South Korea. The reasons for this turn of events is familiar to all: few except determined masochists want to drive SUVs and other Jurassic contraptions with gas Stateside averaging over $4 a gallon. It's like 1973 or 1979 all over again, although Detroit has never been so badly out of shape. Does anyone really doubt that the uncompetitiveness of the Big Three at home is more the result of a failure to design products Americans actually want to buy instead of Japanese connivance at "unfair" trade? All the "employee discounts" in the world won't sell vehicles people neither want nor need. Japan-bashing, China-bashing...maybe even Vietnam-bashing somewhere down the line. Oftentimes, there is no one to blame but ourselves. Detroit crumbles--not rumbles--on. From Bloomberg:

Asian automakers outsold Detroit's Big Three in the U.S. for the first time last month as buyers left General Motors Corp. and Ford Motor Co. trucks on dealer lots in favor of fuel-efficient Honda Civics and Toyota Corollas. Japanese and South Korean carmakers raised sales 3.7 percent in May to win a record 48.2 percent market share, led by Honda Motor Co.'s 16 percent gain. GM, Ford and Chrysler LLC fell a combined 23.5 percent because consumers shunned pickups and sport-utility vehicles as gasoline neared $4 a gallon.

Honda's Civic small car dethroned Ford's F-Series pickup to become the best-selling vehicle in the U.S. Three other Japanese cars also overtook Ford's perennial sales champion, underscoring a shift that prompted GM to announce the closing of four truck plants in North America yesterday. GM will expand production of cars in response to what it called a permanent change in consumer behavior.

``I've never known the market to change this much this quickly in my lifetime,'' said Jim Hossack, a market analyst for AutoPacific Inc. in Tustin, California, a 38-year industry veteran who previously developed vehicles for Ford, Chrysler, Mazda Motor Corp. and Hyundai Motor Co. ``It's fueled by gasoline prices, obviously, but there's more to it than that.''

Honda rose 8 percent to 3,770 yen, the highest level this year as of 12:54 p.m. on the Tokyo Stock Exchange. Toyota rose 2.4 percent to 5,530 yen and shares of Nissan Motor Co. gained 4.9 percent to 970 yen.

Overall U.S. sales fell 11 percent, their seventh-straight monthly decline, extending the industry's longest streak since 2000-2001. Vehicles sold at an annual rate of 14.3 million, the lowest in a decade. Car sales accounted for 57 percent of new purchases, up from 50 percent a year earlier.

Honda's Accord and Toyota Motor Corp.'s Camry and Corolla also beat the F-Series. The last time the pickup was topped by a car was in December 1992, according to Dearborn, Michigan-based Ford. Among large automakers, the two Japanese companies are rated the most fuel-efficient by the U.S. Environmental Protection Agency.

Honda's Civic travels 36 miles (57.9 kilometers) per gallon of gasoline in highway driving, compared with 17 mpg for Ford's F-150 pickup with a V-8 engine, according to the EPA. Toyota's conventionally powered Camry gets 31 mpg…

Honda outsold Chrysler to rank No. 4 in U.S. sales, behind GM, Toyota and Ford. Chrysler, the automaker most dependent on light trucks, tried to boost demand by guaranteeing buyers that they'd pay no more than $2.99 for a gallon of fuel. Its sales fell 25 percent, for their biggest drop this year.

GM's U.S. sales dropped 28 percent and Ford reported a 16 percent decline. The two companies rely on pickups and SUVS for more than 60 percent of their combined U.S. sales. By contrast, Honda offers no V-8 engine models or full-sized SUVS and pickups.

Today's big pickups and SUVs remind investor Jeffrey Scharf of ``the big land yachts'' of the 1970s. ``When the first oil crisis hit, you couldn't give those things away,'' said Scharf, president of Santa Cruz, California-based Scharf Investments, which manages about $660 million in equities, including Honda and Toyota shares.

Toyota's sales dropped 4.3 percent, hurt by weaker demand for Tundra full-size pickups. Bob Carter, a vice president and head of U.S. Toyota brand sales, said the Toyota City, Japan- based company might report a decline in 2008. Toyota, trailing only GM in U.S. sales, is scrambling to boost supplies of Prius hybrids, Yaris subcompacts and other fuel-efficient models in high demand, Carter said.

Sales of the Prius, rated the most fuel-efficient auto in the U.S., dropped 38 percent last month as the company failed to meet demand, Carter said. ``Prius inventory is now best measured in hours, not days,'' he said. Still, the company expects sales of the model to see a ``mild'' increase from the 2007 volume.

Nissan, the third-largest Japanese automaker, raised sales 8.4 percent. The gain came from a jump in sales of Altima mid- size cars and Sentra and Versa compacts, Al Castignetti, U.S. general manager of Nissan brand sales, said in an interview yesterday.

South Korea's Hyundai Motor Co. had a 5.8 percent sales increase, while Kia Motors Corp., an affiliate of Seoul-based Hyundai, said its sales rose 9 percent. Japan's Mazda, one-third owned by Ford, sold 4.2 percent more vehicles. Fuji Heavy Industries Ltd.'s Subaru brand reported a 13 percent sales gain, while Mitsubishi Motors Corp.'s sales fell 24 percent.

All told, Asia's 10 automakers sold 671,398 cars in the U.S. last month, 32,290 more than Detroit's Big Three. Market share for U.S.-based automakers fell to a low of 44.5 percent.

Japanese Real Estate Bargains: Go East, Gaijin

♠ Posted by Emmanuel in Japan at 6/10/2008 12:11:00 AM

The height of the real-estate bubble in Japan culminated with the observation that the land underneath the Imperial Palace in Tokyo, all 3.4 sq km of it, was worth more than all of the real-estate in California. During those now-faraway times, it seemed that the Japanese were out to buy the world. We all know how that story ended--the Japanese banking sector was saddled with bad debts for the longest time after lending to fund real estate speculation. Today, Japan remains mired in a deflationary trap which can be traced to those crazy days. Fortunately for foreign real-estate investors, the popping of the Japanese real-estate bubble means that (gasp!) some prime real-estate there is now attractive to foreigners, even in key urban centres thanks to a prolonged real-estate slump. Better yet, those in the know can avail of extraordinarily low Japanese interest rates. Whereas Japanese banks were more reluctant to lend to gaijin (foreign devils) in the past, the lack of local interest has made them somewhat less wary of lending to outsiders. As usual, commerce has a way of overcoming prejudice. Interesting stuff from the International Herald Tribune:

For growing numbers of foreigners living in Japan, their international perspective on the real estate market is prompting them to buy homes or make property investments or both. "We cannot afford to buy in England," said Tony McNicol, a British writer and photographer who has lived in Japan for eight years and is looking for a house in Tokyo, where he is living. "In England, the average price of a house is over £200,000 and average income in Britain is less than £25,000. And people won't lend you money unless you have big deposits or you buy somewhere really small."

This sense that credit is tightening and real estate values are falling around the world just as Japanese property values appear to be headed upward is spurring small but growing numbers of foreigners to buy here.

The Ministry of Justice, which runs the country's real estate registry, does not separate out the homes purchased by foreign residents. But in a country where the number of such residents - and their length of residence - has grown conspicuously in recent years, there is substantial anecdotal proof of the trend.

In the most recent figures available, the ministry said the number of registered foreign residents had grown to 2 million - a 50 percent increase in 10 years - by the end of 2006. And in other tallies, it found that of the foreigners who left Japan in 1996, 377 had lived there longer than 10 years; by 2006, that number had grown to 1,517. While the counts recorded people leaving the country, the totals do show that increasing numbers of foreigners are living there for longer periods.

For Steve Miller, a Tokyo resident for 14 years, the thought of buying in his native California faded over the years as prices there climbed. Now, "the real estate market has turned down in California but the houses are still very, very expensive," said Miller, who recently bought a home in the ancient capital of Kyoto. "To think that I can buy a house in the center of one of the world's great cities is something you just can't do in California.

"If you want to buy houses in San Francisco or L.A., prices start at $1 million, $2 million," he said. "Kyoto is affordable and close to an international airport, has got a modern industry, has universities, is close to Osaka, has beautiful nature and tourism. It has got all the things going for it."

In Tokyo, a property listed on nomu.com, the Web site of Nomura Real Estate Urban Net, a leading real estate agency, is offered at ¥73.8 million, or about $700,000. The 95-square-meter, or 1,020-square-foot, apartment in the Tsurumaki section of the Setagaya ward has a spacious living room, three bedrooms and two balconies.

Takashi Ishizawa, senior real estate analyst at Mizuho Securities in Tokyo, said that, very broadly speaking, residential real estate prices in Japan's major cities had fallen by about half since the peak of the bubble economy in the late 1980s.

However, "the value of residential properties in big Japanese cities has been quite stable" in recent years, Ishizawa said. That assessment seems to affirm Miller's hunches. "The fact that the house prices have fallen for a long time leads me to think that they are already close to the bottom, so there is not a lot of fall room for the houses," he said. "You are starting from a very distressed market."

Miller is renting out his recently renovated wooden house, located near Shijo a tourist hot spot in Kyoto. "If the worst comes to worst and the land didn't appreciate and the yen didn't appreciate, I still have a nice house to live in and to retire into," he said. "On a number of levels it was an interesting purchase."

One leading characteristic of urban properties in Japan is that the market is vast and diverse, Ishizawa said. In the 23 wards, or inner-city area, of Tokyo alone, there is a night-time population of 8.67 million; through development, real estate companies are adding about 30,000 new apartment units a year to the city's stock. By contrast, "the livable area in San Francisco is quite limited, for example," Ishizawa said. "Especially if you are talking about the safe and good neighborhoods."

In Tokyo, known worldwide for its impressive safety statistics, worry about crime is not a factor in choosing housing, something that "broadens the scope of those looking for properties in a good environment," he said. Also, home sales to foreign residents are increasing partly because the one missing piece in the home-buying puzzle has now been supplied: home loans. In the past, Japanese banks, driven in part by a traditional xenophobia, rarely extended mortgages to foreign nationals unless they had become citizens. Big Japanese banks are lending to foreigners now, although the threshold is slightly higher than for citizens.

Japanese loan providers used to take the one-size-fits-all approach, lending to a set standard at set interest rates. But in recent years, lifestyles of the Japanese began to vary, with more people working as independent contractors or becoming self-employed. In the past, "if you did not fit the prescribed standards, you did not qualify for a loan," said Takashi Yamamoto, director of mortgage services at GE Consumer Finance, in Tokyo. "We don't take that approach. We do risk-based pricing, so we lend at 2 percent if we can't lend at 1 percent, or 3 percent if 2 percent isn't enough and so on," Yamamoto said.

Yamamoto acknowledged, however, that big Japanese banks were breaking into this onetime niche of lending to foreigners and independent professionals at various interest rates. "The competition is intensifying recently," he said.

And to the home-buying foreigner, the lending rates are a boon, reflecting still very low interest rates in Japan. Fixed interest rates for terms of more than 10 years can be as low as 2 percent at leading Japanese banks, with average rates standing around 3 percent. At GE Consumer Finance, interest rates vary depending on customers' credit profiles, but the top rate now is 4.6 percent.

Most foreign home buyers are long-term residents and often are familiar with the local culture and language, a condition that reinforces their decision to go through a rather complex transaction.

"You should be able to read the documents in Japanese," said a recent German buyer who preferred to remain anonymous. "Or you should have a spouse who understands Japanese. Or else you don't have a handle on what's going on with all the papers being shuffled around."

Robert Mundell Ponders Global Currency Situation

♠ Posted by Emmanuel in China,Europe at 6/09/2008 02:21:00 AM

In many ways, the relationship between the US and China has become the most important one in the global political economy at the turn of the millennium. For how long will a nation of savers accumulate the IOUs of a nation of wastrels? The answer to this question is endlessly debated by many, but few have the same clout as Robert Mundell. The so-called "father of the Euro" has long counselled the Chinese on how to handle their foreign exchange policy, and he is now [yawn] predicting a dollar crisis. Although that eventuality may seem self-evident, he also suggests that China may be contemplating a return to a Bretton Woods system of pegged exchange rates--not the so-called "Bretton Woods II," mind you. While I do not need to be convinced that the dollar is going to tank some more, I am very guarded about his suggestion that China will take the lead in re-establishing a global fixed currency regime. China's international monetary policy clout is slim to non-existent, and this situation would have to change drastically for Mundell's prediction to come true.

Nonetheless, his allusion to Chinese officialdom becoming increasingly concerned about its dollar stash with its built-in depreciation feature may be a hopeful sign that China will no longer play the dollar patsy. From Reuters:

A major dollar crisis could come within five years and China is discussing reforms to the global monetary system to protect its $1.6 trillion reserves pile, says Nobel Prize-winning economist Robert Mundell. Mundell, who has regular contacts with Beijing officials, said they are considering proposing ways to fix major currencies including the dollar and the euro, in a system similar to the one which operated under the Bretton Woods agreement from the end of World War Two until the 1970s.

"There's no doubt about it that inside the Chinese government there's a lot of discussion going on. I'm not sure how they're doing it but I know they're going to get an input from me," Mundell told Reuters in an interview. Without reform, the global monetary system is headed for a dollar crisis within years, Mundell believes.

However, he thinks the United States will avoid a technical recession during the current downturn and that the weak dollar will help it to make a recovery around autumn of this year. But its growing liabilities accumulated by its current account deficit means that it will eventually pay a high price if the current monetary set-up continues, he said. "I see the problem coming maybe in the next recession," he said. "There could be a real dollar crisis in five years."

China is worried about its pile of about $1.6 trillion in foreign reserves, built up during years of U.S. trade deficits, which loses value as the greenback depreciates.

"What you need to have is an International Monetary Fund that's going to take some of these excess dollars, put them into a substitution account inside the IMF or some other institution and then use that and create what is a new international currency," said Mundell. "This kind of proposal would be very acceptable inside China. The Chinese are thinking in terms of this," he said.

Mundell, awarded the Nobel Prize for Economics in 1999 for his work on exchange rates and optimum currency areas, travels regularly to China, where he has advised senior government officials. For years, China has come under pressure from U.S. and European authorities to allow its currency, the yuan, to appreciate, in order to make Western goods more competitive. But Beijing has resisted.

"They don't have many pre-conceptions. They don't have a belief obviously that floating is a good idea, whereas the European Central Bank and the Americans think that floating is the best of all possible worlds," Mundell said.

Fixing exchange rates would favor the euro zone, which is now battling with a euro at around record highs against the dollar, said Mundell, who has often been referred to as one of the intellectual fathers of the single European currency.

"I think the risk now is that the high euro is going to build in pressure which is going to involve deflationary pressure in the asset markets, housing and so on, and that's going to cause a problem, a nagging problem, that's going to go on for a long time as long as the euro is as high as this," he said.

"The swings in the dollar-euro exchange rate are big problems, and the problem is exacerbated by the fact that the Americans get the benefit of these swings and Europe gets the wrong end of the stick."

But Western policy makers, particularly in the United States which receives an economic stimulus from a weak dollar, would be reluctant to accept monetary change, Mundell said. "The U.S. Bush administration isn't much interested in it, they're quite happy with the dollar the way it's working, and the Europeans are really behind the zone on this. Nobody in Europe is thinking about international monetary reform and Europe would be a major beneficiary of it."

"Bernanke and Trichet are very much behind the curve on this," he said, referring to Federal Reserve chief Ben Bernanke and ECB head Jean-Claude Trichet.

Asian Crisis Redux? Hot Money Leaving Philippines

♠ Posted by Emmanuel in Southeast Asia at 6/09/2008 02:03:00 AM

A few days ago, I cited the interesting parallels between 1997 when Asian economies defended their currencies against speculation and 2008 when they did so to help control domestic inflation. In another sign that the flashbacks to 1997 may not be over yet, the Philippine Star is reporting that the Philippines is experiencing hot money outflows of some magnitude. Whereas foreign portfolio investment in the country was quite healthy (at least by Philippine standards) in 2007, this trend seems to be reversing itself in 2008. Even if the country is rather removed from the housing contagion, the knock-on effects of domestic inflation may be making foreign investors think twice and head for safer shores. It may be a cautious sign of things to come in the region:

Portfolio investments continued to flow out of the financial market this month as foreign investors withdrew into the US and other developed markets where they consider their funds to be safer. Although officials expected investors to differentiate among emerging markets, monetary authorities said the Philippine market was not deep enough for this rule of thumb to work.

The Bangko Sentral ng Pilipinas (BSP) reported over the weekend that portfolio investments, also known as hot money, showed a net outflow of $189.9 million as of the third week of May, marking a steady departure of foreign funds from the capital market.

In contrast, data from 2007 covering the same period showed a whopping $1.587 billion inflow, with investors getting increasingly optimistic about their prospects in the market. Hot money refers to investments in the stock market and the money market that are relatively easier to take in or out of a country.

According to BSP Governor Amando Tetangco, foreign portfolio investors were not differentiating the Philippines from other emerging markets despite its steady and positive economic fundamentals. “Our stock market is just not that deep,” Tetangco said. “A deeper market attracts more investors.”

“If you have a bigger market with more liquidity, then investors will prefer that over a market that is relatively small and does not really have the kind of liquidity that investors are looking for,” Tetangco added. He said portfolio investors prefer to be able to go in and out of a market on any given day. This kind of flexibility, he said, could not be found in a market the size of the Philippine stock market.

“If your market is small, a single fund manager can drop $20 million in and prices would go haywire. If they take that much out, prices would go haywire too,” he explained. “What’s $20 million to fund managers? That’s a drop in the bucket.”

According to Tetangco, foreign portfolio investors end up paying for such fluctuations that they could cause merely by doing normal market play. “If they want to buy in, the very act sends prices up so it ends up being more expensive for them. When they want to get out, their sheer size sends prices down and they lose.”

Tetangco said the market would have to be sufficiently deep for transactions that foreign fund managers would consider normal and non-disruptive. When choosing which emerging market to invest in, this meant that the size of the Philippine market becomes a disincentive and often trumps macro-economic fundamentals such as economic growth, debt ratios and even the performance of specific corporations.

Foreign portfolio investments continued to flow out of the country in April, leading to a $113.7 million net outflow for the first four months of the year as investors shed their holdings in emerging markets. Data from the BSP indicated that registered portfolio investments resulted in a net outflow of $49.9 million in April, way below $197.7-million net outflow in March but still a reversal from the $261.9-million net inflow in April 2007.

“Principally accounting for this development were investors’ continuing risk aversion and concerns on the impact of elevated energy and commodity prices on domestic interest rates and corporate earnings,” the BSP said in its report. On a gross basis, registered foreign portfolio investments in April amounted to $885.9 million, not far from total inflows in April last year of $931 million. According to the BSP, 62 percent ($547.6 million) of total inflows went to shares listed in the Philippine Stock Exchange (PSE). Investments in peso-denominated government securities, primarily Fixed Rate Treasury Bonds or FXTBs, and placements in peso time deposits accounted for 14 percent and 24 percent, respectively, of registered investments.

However, the BSP said investment outflows were larger, totaling $935.8 million. The BSP said this consisted of divestments from PSE-listed shares (38 percent), government securities (13 percent); and withdrawals of peso bank deposits (49 percent).

Over the four-month period, the BSP said foreign portfolio investment transactions posted a net outflow of $113.7 million, down about 90 percent from $1.1 billion net inflow for the comparable period in 2007.

Political Economy of South African Tourist Stats

♠ Posted by Emmanuel in Africa,Travel at 6/09/2008 01:38:00 AM

Tourism is big business in many parts of the world, and this certainly holds true in South Africa. While searching for something entirely different, I came across this article by the Independent Online of South Africa concerning a curious phenomenon: While South African tourism officials brag about record tourist numbers year after year into the country, it turns out that the interpretation of what "tourists" are is excessively generous. An academic critic says the figures given are grossly inflated since well over half of all visitors come from neighbouring Zimbabwe, Mozambique, Lesotho, and Swaziland. Unfortunately, visitors to South Africa from these impoverished nations hardly resemble the sort of tourists that typically spring to mind: camera-toting, souvenir-buying, and lodge-renting Westerners with cash to burn at various tourist traps.

Instead, what we have are folks from these countries visiting South Africa in what may be better called "survivalism": many of these erstwhile "tourists" have been deported or are fleeing from the countries mentioned above. While government officials defensively say that their definition of a "tourist" is in keeping with the WTO's, it certainly strains belief. The political economy of statistics can be contentious:

The statistics used by the government to boast about South Africa's ability to attract tourism are, at best, "a sleight of hand" because the numbers are not a reflection of real tourism. This was the response of Professor Loren Landau, the head of the University of the Witwatersrand's forced migration studies programme, to an analysis (by country of origin) of the statistics used by the government to claim the fastest growing tourism in the world.

In 2007, a total of 9,07-million foreigners visited South Africa - an 8,3 percent increase over 2006 - as the country broke its record for annual tourist arrivals for the third year running. But 2-million (just over 22 percent) of the 9 million official, annual visitors come from Zimbabwe and Mozambique, while another 3-million tourists come from Lesotho and Swaziland. This means that 5,2-million of South Africa's visitors emanate from four of the poorest countries in the world. The whole of Europe and North America supply only 1,7-million of the country's tourists.

"Yes, I think one does have to question whether it is honest to use figures from countries like Zimbabwe, Mozambique, and Lesotho as proof of the growth of our tourism. It's pretty much sleight of hand, it's actually a cheek, to claim that a regional migration system equals a growth in tourism," said Landau. "Look, a lot of the people from those countries spend money here. Obviously, they don't spend as much as the camera-toting tourist from Europe who goes to a game lodge, but they spend."

"But the majority of them are visiting to shop for basics or for survival reasons - and linking these figures to the tourism, saying how well these figures bode for the 2010 world cup, using these figures to boost tourism, is a bit of a stretch." Landau noted also that Zimbabweans and Mozambicans, two of the largest contingents of "tourists" to South Africa, recently have been deported or have fled the country. It is also not known how many of those people from neighbouring states, who come into the country on tourist visas, ever go home.

According to South African Tourism (SAT), a tourist is defined as "any visitor travelling to a place other than that of his/her usual environment for more than one night but less than 12 months, and whose main purpose of the trip is other than the exercise of an activity remunerated from within the place visited".

Last month, Rejoice Mabudafhasi, the deputy minister of environmental affairs and tourism, said at the Tourism Indaba in Durban: "there has been a significant growth in the tourism over the past few years. In 1994 fewer than 600 000 tourists visited South Africa per year. In 2007 we received just over nine million foreign arrivals. What an incredible feat."

Also last month, Marthinus van Schalkwyk, the minister of environmental affairs, used the same statistics in parliament when he said that the 9 million arrivals represented growth of 8,3 percent over the previous year, outstripping the average global tourism growth rate of 6 percent.

To back its claims that South African tourism has one of the highest growth rates in the world SAT said that 2,17-million visitors arrived from Lesotho, just over 1 million apiece from Mozambique and Swaziland, and 964 027 from Zimbabwe. These four countries contribute some 5,2-million of the 9-million tourists to South Africa.

African countries are the single largest source of foreign visitors to South Africa with more than 6,8-million people visiting. This is followed by Europe with 1,4-million, North America 329 000, Australasia 115 000, central and South America 57 000, the Middle East 41 000 and the Indian Ocean Islands 17 000. The vast majority of visitors from Africa arrive by land. On average, a visitor arriving by land spends two nights in South Africa while an average arrival by air spends six nights in the country.

Didi Moyle, the chief operating officer of SAT, said: "According to globally accepted definitions, all foreigners who leave their country of origin for more than 24 hours are tourists unless they are in transit, working on contract or staying in the host country for more than 365 days. The World Trade Organisation (WTO) has put massive resources into establishing these global definitions for tourism so that we can compare statistics across the world."

Moyle said that "the outcry from sections of the tourism industry is based on the belief that the term 'tourist' should refer only to people on holiday, with a camera round their neck and preferably from Europe. In WTO terminology, that person is a leisure tourist - to be counted alongside all other people travelling for whatever reason.

"If leisure tourism is the only category that interests some members of the industry, so be it. But others are interested in the bigger picture," said Moyle. "Hotels, for example, want to understand guests who might be wholesale or retail shoppers from the region. They are high spenders who visit often. "They play a critical role in the economies of Mpumalanga, Limpopo, Free State and Gauteng."