Egypt and the Elusive Interest-Free IMF Loan

♠ Posted by Emmanuel in , at 11/06/2012 07:28:00 AM
Back in the 80s, I loved Aldo Nova's one-hit wonder "Fantasy." Instead of treating it as a catchy tune and nothing more, I'm afraid that leaders of some other nations are truly convinced that life is just a fantasy and have a reality-challenged notion of economic governance. Today we have another instalment in the long-running saga of Egypt and the IMF. Or, in its current Islamic fundamentalist-led stage, what I call "Allah and moolah" [1, 2, 3, 4]. Having rejected the IMF bailout plan proposed by the previous military caretaker government--a whopping 6 out of 365 lawmakers voted for it before the aforementioned government dissolved parliament--some in the international community had higher hopes with the election of the fundamentalist President Morsi. That is, while his fealty remains to those in search of a (mythical) conditionality-free IMF loan, the hope was that the main reason for the hold-up was not longstanding opposition to the IMF (which remains unpopular there) but the presence of the now-gone military caretakers.

However, it seems things aren't going to be smooth even now. While Morsi was mollycoddling IMF Managing Director Christine Lagarde just a few weeks ago in hopes of gaining a bailout, negotiations have been less convivial. In particular, costly but politically popular fuel subsidies remain a bone of contention:
Government officials say the deficit for the last fiscal year that ended this summer reached nearly 11 percent of the GDP, at $22 billion. According to the Finance Ministry, the deficit for the first three months of this fiscal year is already nearly 23 percent higher than the same time last year, indicating that government estimates aimed at reducing the deficit to 7.6 percent of the GDP this year may be unrealistic.

IMF officials said the talks over Egypt's reform program would focus on measures to reduce the budget deficit without negatively impacting growth rates. But officials say such a program must address huge energy subsidies, which account for nearly half of state subsidies and which, in turn, consume over 27 percent of the state budget.
True, Egypt will most likely get a more lenient deal given its geopolitical importance. Then again, Morsi is once again pandering to the Muslim Brotherhood crowd in the meantime. When Lagarde was around, he tried to explain that the IMF's concessional rates did not constitute usury and was that compatible with Islamic beliefs. With her gone, though, he's backtracked somewhat to fantasyland in claiming that Egypt will not accept any deal which involves being charged interest:
Earlier this month, Morsi promised to overhaul the decades-old subsidies program and reiterated his pledge to abide by Islamic banking laws and not agree to pay interest on the loan, telling a cheering crowd that "we'll go hungry before we eat off interest."
Apparently, there is a game going on backstage wherein fundamentalist-linked parties are attempting to style the 1.1% due on the IMF loans not as "interest" but as an administrative fee. To its credit or otherwise, the IMF is not playing along with this gambit to appease the fundamentalists, effectively telling them that it won't play the name game on what it charges:
The Muslim Brotherhood’s Freedom and Justice Party and the more conservative Salafist Al-Nour Party have argued, for different reasons, that the IMF loan is sharia-friendly. It is the loan’s interest rate, at an easy 1.1 percent, that has garnered the most debate because Islamic law prohibits the paying of interest. While the Brotherhood views the loan’s interest rate as merely a “loan processing fee” therefore cancelling the “interest” nature of the loan and replacing it with an “admin fee”, the Salafis have described the loan as “mudtar,” a term used in sharia law to denote the idea of last resort.

But all these technical details have been undermined by the IMF itself, which has distanced itself from claims that its loan is sharia-compliant. In an emailed statement, a spokesperson from the international bank said: “It is not up to the IMF to determine whether its lending is sharia-compliant.” Economists say the IMF loan can only become fully “sharia-compliant” if it is specially restructured into an acceptable form under Islamic law, otherwise what would be the point of Islamic finance if all that is needed is some verbal endorsement from a political party?
Westerners who were hoping that Egypt would ramrod the IMF rescue through the executive since the parliament remains dissolved may yet be disappointed, then. Despite obviously being beggars, the Egyptian leadership holds on to this fantasy that they can still be choosers.
Read More

Bill Gross: QE1-3 Added No Savings or Investment

♠ Posted by Emmanuel in , at 11/04/2012 11:47:00 AM
In case you missed it, bond investing legend Bill Gross has just provided the most damning evidence that various Fed easing efforts have been worse than useless. You'd think all of this helicopter dropping of cash would encourage more investment which in turn would generate more jobs, but capital expenditures Stateside are actually dropping like a rock even if real interest rates are well and truly negative:

It is of course expected that Americans just keep spending their brains out since they can't help it. But, to put money aside for productive expenditures? You must be joking. We're talking about modern America here, an instant gratification society that hasn't had much to be grateful for as of late. And, where there's no investment there's no savings. Much has been made of laughably puny increases in consumer savings since the events of 2007, but if you add together government, business and consumer savings, the truth is that US net national savings are scraping all-time lows in negative territory where it's been the last three years:

I'd like to ask the Drezner wannabe USA#1 cheerleaders to explain these charts. Clearly, that has-been nation isn't investing in the future because...they simply have no savings left to invest. What a joke. Obama or Romney, their next leader will certainly reap the misery sowed by essentially non-existent investment. Given a non-existent future, it may be the "rational choice."

I'll leave Bill Gross to deliver the coup de grace:
All of the money being created and freed up is elevating asset prices, but those prices are not causing corporations to invest in future production. Admittedly, the chart shows this downward spiral has been underway for decades, but financial repression and quantitative easing were supposed to be the extraordinary monetary policies that kick-started the real economy in the other direction. They have not.
Is it any surprise that, for more sensible young Americans, the "American Dream" is to leave America? Take your money and go--everyone else already did.
Read More

Spanish Exodus: Back to Latin America

♠ Posted by Emmanuel in ,, at 11/04/2012 11:30:00 AM
[NOTE: This is another of my "Hard Times in Hispania" installations.] In a recent post, I described how many young, jobless Spaniards sought employment in Germany despite the language barriers. It may seem odd but it's true: many Spaniards and those who migrated there when times were better from Latin countries are now going to Latin America--especially since linguistic differences are obviously negligible compared to, say, Germany. The days of Spain's own housing boom and the concomitant requirement for housing construction labour are long over. Whereas the Big Thing not so long ago was to seek greener pastures in Spain, unemployment rates over 25% have done Spain in. Truly, it's a reversal of fortunes:
After joining the euro in 1999, Spain's economic boom made it the land of opportunity for millions of Latin American migrant workers. But since the decade-long boom turned to bust roughly four years ago, many of those immigrants have returned, joined by a growing number of disillusioned Spaniards who hope that Latin America, with its developing economies and low cost of living, has more to offer.

 Spaniards are traditionally reluctant to emigrate and they are among the least likely in Europe to go abroad for work. But with the unemployment rate at 25 percent, more Spaniards are ready to leave behind the comforts of home.
More and more, it's Spaniards themselves and not naturalized citizens who are going elsewhere:
Roughly 370,000 people emigrated from Spain in 2011, 10 times more than before the economy tanked in 2008. Although about 86 percent of them were naturalized immigrants born abroad, there is also a growing number of native Spaniards saying "ya basta" ("enough is enough"). Over 50,000 left last year, up 80 percent since before the crisis hit. More than 9,000 went to Latin America, up from about 3,600 in 2006, said Jesus Fernandez Huertas of Spanish think tank Fedea, citing data from the national statistics office.
I fear it will be a long, long time until they come back 
Read More

Hurricane Sandy & US Climate Change Denial

♠ Posted by Emmanuel in , at 11/02/2012 12:05:00 AM
Americans live large--not only in terms of their outsized figures but also their outsize carbon footprints. Callous disregard for the planet is pretty much par for the course there even if Europeans are generally much more enlightened. For instance, all major parties in the UK acknowledge that climate change is man-made, while in the US one party's platform discounts such a possibility in the face of overwhelming scientific evidence.

My opinion is one of moderation: Some reflexively link all extreme weather events to climate change, while others deny such a link exists altogether. Sensible, reasonably informed people--including the vast majority like myself who are not necessarily climate change experts--will conclude that scientists do not make this stuff up for no reason and will try to act responsibility to mitigate environmental damage given the far greater likelihood that man-made climate change does exist. Insofar as climate change does not respect boundaries, inaction has far-reaching consequences, especially on developing nations as the Intergovernmental Panel of Climate Change identifies.

What we have here is another of these Americanisms others immediately spot the folly behind. In other words, "carbon emissions don't matter" should rightly be regarded with similar contempt as "deficits don't matter." Sandy's aftermath reminds me of drought conditions Stateside wherein blame is placed on practically everything but man-made factors despite the huge economic cost:
Climate scepticism among farmers helps explain why carbon emissions are off the US legislative agenda despite the hottest temperatures on record. Drought has gripped the broadest area of the US corn belt since previous severe dry spells in the 1980s and the 1930s, the National Oceanic and Atmospheric Administration said on Wednesday.

Even with plenty to lose, farmers’ champions in Washington have fought or diverted attention from climate policy to battle regulation and focus on subsidies. Their stance defies evidence that the country’s heartland is already changing because of global warming. Farmers are adapting to these changes, whatever their professed views.
It is, literally, approaching the problem in a way that rules out any number of relevant considerations because of wearing ideological blinders.

In the meantime, there is no real sense of injustice that all these things are happening Stateside since Americans are, historically speaking, the world's worst climate offenders. If it takes even more localized lashings of the magnitude of the 2012 drought and Sandy to eventually pull their heads out of the sand, well... To paraphrase Neil Young:

How many billions must the Yankee skeptics lose
To see man makes climate change

The answer my friend is...like a hurricane.

UPDATE 1: Don't miss New York Mayor Michael Bloomberg arguing for Obama's reelection on the grounds of combating climate change post-Sandy. I'm not sure I agree with the choice he puts forward to deal with the issue, but the issue prioritization is clear at least for the more urbane NYC audience.

UPDATE 2: Businessweek adds that reinsurers are already pricing in higher risk premia associated with accelerated climate change.
Read More

Sony in China: $375M Price Tag of Japan Hatred

♠ Posted by Emmanuel in ,, at 11/01/2012 09:59:00 AM
This is just a brief follow-up on a post I made a few weeks ago on the territorial disputes in our part of the world spilling over into commerce. For instance, insofar as the Chinese leadership could use a convenient scapegoat right now for the PRC's slowing economy, what use is there attempting to soften public ire aimed at Japanese firms? Amidst the factory shutdowns, consumer boycotts and thrashed Japanese-brand products, the plight of one Japanese firm is illustrative of how things are getting pretty bad for its compatriots operating in China:
The company cut its overall full-year sales forecast by 200 billion yen on Thursday. Japan's Sony Corp said Thursday that anti-Japan sentiment in China and weakness in the world's second-largest economy is likely to dent the company's sales by 30 billion yen ($375.3 million) in the year ending next March 31.
It is much easier to destroy than to build trade ties that have taken literally decades and decades to establish, and I think we are being reminded of this almost daily now.
Read More

Unfree Markets & the Hong Kong Property Bubble

♠ Posted by Emmanuel in at 10/31/2012 08:43:00 AM
The late Milton Friedman once lauded Hong Kong as the archetypal success story in laissez-faire economics--especially when compared with its erstwhile colonial master the United Kingdom. With its low taxes, few penalties in opening and closing businesses and so on, it is no surprise that Hong Kong ranks second in the World Bank's Ease of Doing Business league table.

However, there are now clouds over the horizon since Hong Kong may have actually become too attractive a destination for investment--particularly in real-estate. As China slows down and the Weest remains in the doldrums, it's only natural that more parked their money in the place which generally fares well regardless of global economic conditions. It was thus with great surprise on the part of many that the Hong Kong government has effectively put out the "FOREIGNERS NOT WELCOME HERE" (or mainlanders for that matter) sign as far as real estate investment is concerned:
Property developer stocks are under pressure Monday as the market digests surprisingly tough new measures to cool Hong Kong’s property market. By targeting non-resident buyers with a new tax, finally the government is acknowledging the role of offshore demand in its overheated property market. The key measure is the introduction of a transaction tax of 15% on non-permanent residents, as well as all corporates purchasing residential property. 

Such taxes go against Hong Kong’s free-market ethos and are likely to hurt some unintended targets — expatriates for one. But it looks well designed in the sense it should change behavior and immediately choke off some external investment demand for residential property.
There are also international monetary dynamics at work here with Hong Kong trying its best to preserve its longstanding currency board at USD1 = HKD 7.75 that make the place look even (gulp) a bargain of some sort:
Another risk with the latest move is that it again flags to international investors the stresses facing the 29-year-old currency peg as its strains under “hot money” flows. Arguably, it is at the root of local asset inflation by forcing the importation of low interest rates and a weak currency value from the U.S. Over the past 10 days, the Hong Kong Monetary Authority has repeatedly had to intervene to stop the currency from strengthening by selling Hong Kong dollars.
The complaints of Hong Kong resident citizens are similar to those made by those in another bastion of free enterprise, Singapore. That is, by buying up all the good properties, foreigners supposedly make it difficult for them to find residences that do not cost an arm and a leg. While I do understand this sentiment, you have to wonder though if such measures alike those being promulgated by Hong Kong will do more damage to its reputation than actually mitigating the real-estate bubble. Similar measures didn't work in Singapore:
Slapping a punitive tax on non-resident buyers won't change things. If you don't believe that, just look at Singapore, which imposed its own additional stamp duty on foreign and corporate buyers in December last year. Transaction volumes fell initially, but then recovered. Prices have continued to rise. Earlier this month, a bungalow on Sentosa island sold for a record S$3,214 per square foot. That's equivalent to an eye-popping HK$20,398 a square foot.

In the long run, however, the government's new tax will have indeed an effect. By selectively penalising non-residents, it broadcasts the message that Hong Kong is no longer open equally to all comers and so hammers a first nail in the coffin of the city as an international financial centre.
My thoughts exactly. Unlike the American real-estate bubble, though, Hong Kong is actually an economy you can put some faith in--but apparently the HK government now believes that too many have done so.
Read More

NOT Going to America? Japanese Baseball Protectionism

♠ Posted by Emmanuel in , at 10/29/2012 09:25:00 AM
Whoever wants to know the heart and mind of America had better learn baseball - Jacques Barzun [RIP]
Those with even a passing knowledge of baseball know that the Japanese are the best in the world at this sport. Despite extending my congratulations to the 2012 US champions the San Francisco Giants--many of my relatives Stateside live in the Bay Area and are big fans--it is certainly a misnomer to call a sporting event between two US clubs the "World Series." It's another example of American narrow-mindedness in thinking their country represents the world, but the reality is that in truly international competition--the World Baseball Classic--Japanese teams have won both times this event was held Stateside in 2006 and 2009. Just as the British who invented the sport are exceptionally lame at football (soccer to American readers) having won no World Cups in recent memory, so too are the Americans exceptionally lame at baseball since they did not even place in the aforementioned events in their own backyard. As the Yanks prolly would say about their non-world class squads, "You suck, boys." (Draw your own conclusions about evident American hegemonic decline and its performance in baseball.)

It was thus with no small amount of interest that I came across an article concerning American efforts to poach great Japanese talent amid rising homegrown opposition. Actually, the Japanese have already tried to prevent more of their young players from going to America by prohibiting those who do straight from high school from playing in Japanese leagues for three years after they return to Nippon (it's for two years for those representing corporate or university teams). The so-called "Tazawa rule" is now being rethought though after one of the nation's most promising prospects, Shohei Otani--an 18-year-old fireballer throwing 100 MPH fastballs--left:
Japanese baseball officials are considering stricter rules for amateur players who bypass the country’s professional leagues to play in Major League Baseball. Concern with the existing rules arose after high school pitcher Shohei Otani decided to pursue a career in the major leagues instead of playing in Japanese professional baseball.

In 2008, Junichi Tazawa left Japan’s corporate league, signing with the Boston Red Sox as the first top amateur to bypass the Japanese draft. Tazawa’s move led Japanese baseball to rule that if a player decides to play overseas after being drafted by a Japanese team, he cannot play for a Japanese pro club for up to three years after he returns to Japan.

Japan’s 12 pro teams are looking for tougher rules to keep talented young players in Japan. “If there is a better system for the teams and for the players we should consider it,” Hiroshima Carp general manager Kiyoaki Suzuki said.
Instead of North-South brain drain, what we have here is "arm drain"--OECD style. Given that US-Japanese trade history has historically been contentious--over film, cars, and what else have you--it is interesting how the roles are reversed in the realm of migration. Ever heard of the famously mercantilist Japanese wishing they had fewer exports? Still, there is really nothing the Japanese can do if the aforementioned players decide to play for the majority of their careers Stateside.

Already, the team which has rights to him--the Nippon Ham Fighters (please don't ask)--indicates that it would prefer if the rule were abolished so that they can still allow him to play should he return to Japan instead of making him sit out for three seasons:
The meeting [about expatriate players] sought to find a compromise solution for the aggrieved Fighters by discussing whether the Sapporo-based team could retain exclusive negotiating rights to Otani. The issue of lifting the ban on the 1.93m pitcher if he returns to Japan was the key topic of discussion. "Suppose Otani returns after five years," Fighters executive director Toshimasa Shimada told the Sankei Sports newspaper. "Is it right to keep him out of Japanese baseball until he's 26?"
 For all its frailties, it appears American baseball still has more than a smidgen of "market power."

UPDATE: And speaking of the World Series, don't get me started on how many players on both teams were actually imports from countries like Venezuela which have done rather better than the US in international competition.
Read More

No Surprise: Asia is World's Wealthiest Region

♠ Posted by Emmanuel in at 10/28/2012 02:39:00 PM
Although Swiss bankers have lost some of their cachet in recent years as reputations for both banking secrecy and sound money management have taken a hit, all is not lost. Even the seemingly hapless UBS has been dinged mostly on their investment banking side and not their private banking side. For many years, UBS was the top dog in private banking, but it has since surrendered that distinction to its compatriot, Credit Suisse. And speaking of Credit Suisse, it has just come out with its new "Global Wealth 2012" report which indicates that, for the first time since it's been compiling this report, Asia is the world's wealthiest region (add China and India to the tally for the Asia-Pacific for a total of $74.107 trillion):

     Note though that global wealth has shrunk over the past year--even in Asia. However, the decline there has been rather smaller than that in Europe and North America. While overtaking during a slide may not represent the most auspicious of circumstances, it is something which has happened nonetheless:
Europe was responsible for 10.9 trillion US dollars of the total global loss of 12.3 trillion US dollars. Even with constant exchange rates, total household wealth in Europe fell by about 1 trillion US dollars. Asia-Pacific (excluding China and India) was the other big regional loser, shedding 1.3 trillion US dollars on the back of the dollar appreciation.
Credit Suisse also sets its sights on the future being shaped in Asia. It's shaping to be Asia gaining at the expense of Europe going forward in the global wealth league tables:
Eurozone countries, in particular, have tended to move downwards in the wealth league tables, and residents in these countries have tended to be replaced in the higher wealth groups. History suggests that equity price falls and the currency depreciation for Europe over the last year are unlikely to be repeated to the same extent this year; but the overall wealth outlook remains neutral at best, rather than positive. From a global viewpoint, it is the emerging market giants – most especially China – which will continue to hold the key to household wealth creation in the immediate future. 
Read More

Without You: Contemplating the UK-Free EU

♠ Posted by Emmanuel in at 10/25/2012 05:46:00 AM
Rest assured that it's not only the Chinese who have a habit of disowning Nobel laureates. For the longest time, the British have shown disdain for the European Union project over both their supposed loss of sovereignty and the waste of money going to Brussels (or was that Strasbourg?). To be sure, there are legitimate bases for complaint over these matters. However, there also comes a point when non-participation becomes so extreme as to question why the UK is in the EU at all. British Eurosceptics were thus among the loudest whingers when it was announced that the EU had won the Nobel Peace Prize for 2012. Which, if you come to think of it fairly enough, is entirely justifiable in the broader sense of preventing conflicts emanating from the continent that then spread worldwide--economic woes notwithstanding.

Consider the institutions of the EU which the UK is not a part of. It does not use the EU currency. Not does it participate in the Schengen visa scheme. It also avails of a budget rebate on the Common Agricultural Policy. More recently, of course, the UK has said that it wants little part in upcoming financial regulations, while also suggesting that it wants out of police and judicial cooperation. It has come to a point where, if the UK wants to opt out or water down nearly all aspects of EU cooperation, the question is asked: Why remain in the EU at all? British Eurosceptics have long wanted out of course, but now even the other ("real") continental Europeans are beginning to welcome the idea of the UK leaving them be:
Others confess they are tired of British lectures about how they should order their affairs...Mr Cameron’s administration has run out of what political scientists call “soft power”. The reservoir of goodwill is dry. When Britain demands assurances that the new banking union will not undercut its own influence over financial regulation, others ask why London should remain the continent’s pre-eminent financial centre.

There have been many crises in Britain’s relationship with the EU. This one feels very different. The arrangements for banking regulation may provide a template for a new institutional architecture that effectively excludes Britain from decision-making across the single market. The consequence would be to leave Britain in a position not dissimilar to that of EU outsiders such as Norway and Switzerland – bound by the rules and to pay their dues but unable to shape anything.
Some media commentators are already looking forward to "goodbye and good riddance." Is the constant British nyet actually behind the inability of the EU to deal with its current issues meaningfully? It is not a readily ignorable factor:
There is in fact a body of opinion according to which Britain's departure would be a boon to a European Union which is being held back by London's constant objections. "Does the United Kingdom have to leave the European Union?", asks Charles Nonne in a French-language article promoted on bloggingportal.eu. The author laments the current paralysis of European integration and squarely puts the blame on the UK. "By withdrawing from the institutions of the European Union, the United Kingdom would offer the EU an opportunity to launch a real process of federalisation," he says.

In a German-language post on blogactiv.eu entitled "Without you then!", Andreas Sowa says a "less formal link between Britain and the EU seems to be a necessary evil on the way to an institutionally and conceptually functioning Europe" and concludes: "If you are not willing, then we shall proceed without you. For the next few steps, Europe does not need Britain."
It's really pointless for the EU to remain nominally inside the EU as a "satellite" member. In the same way that a woman is either pregnant or not--there is no such thing as being a "half-member" of the EU just as one cannot be "half pregnant." 
Read More

China's Growth Slowdown is Utterly Unsurprising

♠ Posted by Emmanuel in ,, at 10/23/2012 12:28:00 PM
Nobody is immune to economic slowdowns, and it was perhaps only a matter of China encountered such an episode. To paraphrase my erstwhile LSE IDEAS colleague Martin Jacques, when China rules the world may be set back a few years. Even the Associated Press via Yahoo! News has noticed that, gee, maybe the advice offered to China in recent times about transitioning to a sustainable form of growth not fuelled by mercantilist policy and presumptions of steadily expanding global economic growth was sound:
The cost of inaction could be high. The World Bank says without change, annual growth could sink to 5 percent by 2015 — dangerously low by Chinese standards. Some private sector analysts give even gloomier warnings. The government's own advisers say it needs to promote service industries and consumer spending, shifting away from reliance on exports and investment. That will require opening more industries to entrepreneurs and forcing cosseted state companies to compete. State banks would have to lend more to private business that is starved for credit.
An overemphasis on manufacturing and an underemphasis on services not only relies more on external demand but is also more damaging to the environment. In turn, export markets tend to get fed up running persistent deficits with China. Credit going mostly to traditionally favoured SOEs instead of entrepreneurs and SMEs is another thing to consider. Misallocation of credit on an epic scale, to be sure. If it sounds familiar, it's because these prescriptions have constantly been offered to the Chinese policymakers who thought that the old export-led model could continue forever, but no. They were drunk on success, but it's now time to sober up.

Actually, Dani Rodrik has long offered the wisdom that igniting economic growth is a separate task from sustaining it. And, of course, China's current model is visibly straining against the limits of ecological and economic unsustainability. But, here is Rodrik from 2004:
The second argument is that igniting economic growth and sustaining it are somewhat different enterprises. The former generally requires a limited range of (often unconventional) reforms that need not overly tax the institutional capacity of the economy. The latter challenge is in many ways harder, as it requires constructing a sound institutional underpinning to maintain productive dynamism and endow the economy with resilience to shocks over the longer term. Ignoring the distinction between these two tasks leaves reformers saddled with impossibly ambitious, undifferentiated, and impractical policy agendas.      
The institutions Rodrik speaks about generally concern property rights and rule of law--not necessarily always in evidence in the Wild, Wild East. More recently, Rodrik offered an opinion that there are "no more growth miracles" that revolves around similar ideas:
Manufacturing enables rapid catch-up because it is relatively easy to copy and implement foreign production technologies, even in poor countries that suffer from multiple disadvantages. Remarkably, my research shows that manufacturing industries tend to close the gap with the technology frontier at the rate of about 3% per year regardless of policies, institutions, or geography. Consequently, countries that are able to transform farmers into factory workers reap a huge growth bonus.

To be sure, some modern service activities are capable of productivity convergence as well. But most high-productivity services require a wide array of skills and institutional capabilities that developing economies accumulate only gradually. A poor country can easily compete with Sweden in a wide range of manufactures; but it takes many decades, if not centuries, to catch up with Sweden’s institutions.
Too dependent on demand from enervated Western economies in North America and Europe instead of from home, this outcome was actually rather predictable. I will soon offer more thoughts on this topic, especially China's inability to move up the value-added chain in terms of branding and marketing. I have covered this topic in some depth, and I do believe that it helps that my masters degree was in marketing, not political science! At any rate, more soon.
Read More