Tag Archives: economy

Living in Denial

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No this is not (yet) the title of one of my new pages (although we were looking into living in sin, but unfortunately it’s already taken). No the denial I am referring to is much nearer home for most of us, since it is up there in Brussels. “European Union nations are dragging their heels in their ambitious drive to become the world’s most competitive economy by the end of the decade” or so we are lead to believe from the EU annual survey published by the Commission on Wednesday.

This foolish piece of what the Spanish would call ‘chuleria’ (no easy translation but I suppose you could try vain self-important show-off bragging) – the pledge to overtake the US by 2010 – was adopted at the Lisbon 2000 summit. It was madness in its moment, now it looks just plain ridiculous.
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Methinks We’re On The Slippery Slope

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OK you may be in for a bout of solid over-posting. There seem to be some signs in the air that push may be about to come to shove. Tomorrow I will try and do something on financial architecture and the euro. Meantime this is a ‘light’ warm-up post. The efficient cause is today’s news from Portugal, which suggests that the supposed Harrod-Balassa-Samuelson free-lunch-honeymoon (which has to count as one of the worst pieces of ‘justifying what there is simply because it is’ pieces of quackery where there should have been solid science known to recent history) may be about to come to an end. One of those darned ‘catch up’ economies may have just caught up so hard that’s it’s come to a dead halt. The Bank of Portugal has predicted growth of only 0.75% this year, and even that only if there is the anticipated growth in global demand (which I doubt extremely). Those who have read my Parmalat post will have seen that I am already begining to speculate about whether we are about to see the end of growth in the Italian economy, well just remember Portugal is lined up nicely in the queue to see where lunch is going to be served.
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I just chided the others for making too many non-euro posts but whatever

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I want to make sure Edward doesn’t miss this.

Josh Marshall quotes from a Fortune interview with Peter Drucker:

“FORTUNE: You sound fairly sanguine about the state of the U.S. economy. Do you see any danger signs?
DRUCKER: Oh, yes. The biggest problem I see is our total dependence on foreign money to cover our government debt. Never before has a major debtor country owed its debt in its own currency. It is unprecedented in economic history. Japan, by contrast, owes all its foreign debt in dollars. Now if you devalue the dollar, the Japanese economy benefits, because their imports become much cheaper. And the value of their debt goes down also. The individual Japanese companies that invest in dollars would lose, but the overall Japanese economy gains. But we have no experience about what will happen here when we owe so much debt in our own currency and we’re forced to devalue the dollar. Sooner or later, we’re going to find out.

What’s more, there is an enormous amount of surplus capital in the world for which there is no productive investment. The supply greatly exceeds the demand. So there is a very jittery body of excess money that is desperately in need of returns, and it could become panic-prone. We have no economic theory or model for this.

FORTUNE: Does the U.S. still set the tone for the world economy?

DRUCKER: The dominance of the U.S. is already over. What is emerging is a world economy of blocs represented by NAFTA, the European Union, ASEAN. There’s no one center in this world economy. India is becoming a powerhouse very fast. The medical school in New Delhi is now perhaps the best in the world. And the technical graduates of the Institute of Technology in Bangalore are as good as any in the world. Also, India has 150 million people for whom English is their main language. So India is indeed becoming a knowledge center.

In contrast, the greatest weakness of China is its incredibly small proportion of educated people. China has only 1.5 million college students, out of a total population of over 1.3 billion. If they had the American proportion, they’d have 12 million or more in college. Those who are educated are well trained, but there are so few of them. And then there is the enormous undeveloped hinterland with excess rural population. Yes, that means there is enormous manufacturing potential. In China, however, the likelihood of the absorption of rural workers into the cities without upheaval seems very dubious. You don’t have that problem in India because they have already done an amazing job of absorbing excess rural population into the cities–its rural population has gone from 90% to 54% without any upheaval.

Everybody says China has 8% growth and India only 3%, but that is a total misconception. We don’t really know. I think India’s progress is far more impressive than China’s.”

Drucker makes two very interesting points that I haven’t seen disussed anywhere else

Comments?

Stability Pact

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First of all, let me say I’m flattered to be invited to guest-blog on Fistful of Euros, which I’ve long thought was the coolest name of any blog ever.

I’d hazard a guess at two big reasons nobody has much to say about the security pact unraveling: First, there’s simply not that much to say at this moment beyond the bare facts of the case (although neither The Economist nor US bloggers Daniel Drezdner and Atrios have really captured the outrage that European editorialists have spewed at Paris and Berlin over this). The message from Germany and France is pretty clear: Do as we say, not as we do. End of story.

Second, this is a pretty difficult topic for a layperson (such as myself) to get his head around. Hence the usage of compact but vague phrases like “Europe Rips Up the Rulebook,” the headline given my recent press review on Slate covering this topic. (Feel free to read that if you want a review of the basic facts of the case from a non-economists’ perspective, plus a dose of what the European papers have said about the topic; but naturally I can’t compete with The Economist‘s coverage.)

So they tore up the rulebook. Seems a little back-to-basics is in order here: What was the rulebook for anyway? And what does this mean for the future of the euro?
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Interesting Take on Yukos

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A very interesting take on the Yukos situation from the Moscow Times. And one which relates directly to some of the privatisation issues we were debating recently. Boris Kagarlitsky, director of the Institute of Globalization Studies, argues basically that given that the Russian economy is dominated by an oligarchic structure of raw materials quasi-monopolies, and given that a majority of the population seem to want these monopolies returning to state ownership, the only ‘democratic’ solution is an authoritarian one. Khodorkovsky had another idea, and hence off he went to prison. Any comparisons with or lessons for Iraq here? Can democracy be introduced like this? Off you go.
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Anyone Want to Play Ball With Me?

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Even though it may appear that this post runs along much the same lines as my last two or three, I should warn you: appearances are sometimes deceptive. The origins of what I want to say here stretch back in time two or three days to some comments I made on an earlier post and a subsequent piece which I have entitled the ‘Pele-Ronaldo’ effect. Surprising as it may seem, the topic here is only tangentially football. The real topic is the so-called brain drain, and how our initial intuitions may mislead us. The aforementioned effect is associated with the apparent detail that all those Brazilians ‘heading the ball’ here in Europe have not notedly had a detrimental effect on the rate at which Brazilian football produces outstanding new stars. In fact quite the contrary.

Now here’s the rub: just think of all those Indian IT ‘stars’ working at NASA, Microsoft and the like, and try to imagine the consequences back home in India. Well then try to imagine the consequences of the secondary effect in India on the employment situation in the US and now increasingly in Europe, and we get to the point of all this. We are experiencing a phenomenon which some are calling ‘hollowing out’. This has been noticed in the first place in the US, but with the EU structural reforms, and the relatively high euro, this tendency is going to make itself felt more and more over here. So this is the purpose of the post. To find out what people think.
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German Is Getting Sexy Again. Again.

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The controverse reaction to Edward’s use of a French block quote in a blog that claims to be the place for intelligent English language coverage of European affairs, made me remember my first blogging conversation. It was a discussion about Germans not publishing in English and the stipulation by the Norwegian blogger Bj?rn St?rk that ??nothing beautiful or sensible should ever be written in Norwegian, if it could be written in English.? So after speaking French all evening, and in light of the above mentioned comments as well as my imminent visit to the Frankfurt International Book Fair (link in English) I felt compelled to recycle my defence of linguistic diversity as a virtue of its own right, which was first published in a slightly different version in almost a diary on February 2nd, 2003.

Bj?rn St?rk had a look around the web and was astonished by the fact that he could find relatively few European, particularly German and French, (particularly political) blogs published in English. Contemplating the deeper issue at hand – the relation of national cultures and supra-national languages – in this case English – in an age of global interaction – Bj?rn made an interesting argument concerning cultural imperialism, linguistic protectionism, linguistic economies of scale and scope as well as the advantages of publishing in English instead of one?s native language.

No doubt about it – English has become some sort lingua franca in many respects.

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Shoes, Other Feet, Fits

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EU unilaterally blocking Russia’s entry into the very very multilateral WTO.

How many poles is this multipolar thing going to have, anyway?

+++

Putin Doesn’t Like EU Terms for Entry
October 9, 2003
By Natalya Shurmina

YEKATERINBURG, Russia (Reuters) – President Vladimir Putin sharply
criticized European Union “bureaucrats” on Thursday for pressing the
country to raise domestic energy prices as a condition for joining the
World Trade Organization.

“We cannot move to world energy prices in a single day. It will ruin the
country’s economy. Eurobureaucrats either do not understand this or are
trying to impose conditions which are unacceptable for Russia’s entry to
WTO,” Putin told a Russian-German summit meeting in the Urals.

“Such a tough position toward Russia is unjustified and dishonest. We view
this as an attempt at arm-twisting.”
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Europe as an economic irrelevancy

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By 2050 Western Europe could be an economic irrelevancy, with its four leading economies, the UK, Germany, France and Italy (note the order?) enjoying a combined output of less than half India?s and a third of China?s. Both Brazil and Russia will be twice as large as any single Western European economy.
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The UK as number one

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Since the 1960s Germany has had the largest economy in the EU but Nigel Griffiths, the UK trade minister, thinks all that might change :

“I think that construction and manufacturing alone as sectors could ensure that within 10 years we [the UK] overtake the German economy. We’ve got to see whether we cannot become the third biggest economy in the world* in terms of gross domestic product. I think that is feasible.”

Now before our British readers start singing ‘Land of Hope and Glory’ and waving their Union flags, an important point. He’s talking rubbish.
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