Ferraris for all

A conference is going on in Oxford, apparently unnoticed by the British media, on how to measure happiness. It is not another dusty academic conference but includes Amartya Sen, a Nobel laureate, and Francois Bourguignon, the World Bank chief economist, as speakers. The event is organised by a new think tank: the Oxford Poverty and Human Development Initiative.

It looks like the conference could lead the way for the adoption of well-being indicators worldwide. According to a report in the Times of India (30 May) the event will delve into questions such as meaning of life, autonomy, competence, desire to feel connected with others, overall life satisfaction, domain-specific life satisfaction and happiness.

Labels: development, economics, happiness

I do not often refer to Spiked articles on this blog, other than my own, as the site includes so many key pieces. I tend to assume that my readers also follow Spiked. But this week’s article by James Woudhuysen on Rachel Carson is particularly worth reading.

Labels: environment, spiked

The Christian Science Monitor has a review of Bill McKibben’s Deep Economy (Times Books). McKibben is a prolific writer, climate change campaigner (see 2 April 2007 post), active Methodist and leading growth sceptic.

Judging by the summary of his book it contains little that is new. Environmental limits, happiness and inequality are all there. However, it is likely to be an articulate synthesis:

“McKibben's main thesis: ‘Growth is no longer making most people wealthier, but instead is generating inequality and insecurity.’

“Growth ‘is bumping up against physical limits" [peak oil and global warming] so that continuing to expand the economy may be impossible and possibly even dangerous.’

“Then there's this wild card: ‘New research from many quarters has started to show that even when growth does make us wealthier, the greater wealth no longer makes us happier.’"

The review also puts McKibben in the tradition of other American writers who advocate greater communal living and reducing the human impact on the environment including: Hazel Henderson, Lester Brown, Herman Daly, Wendell Berry, Jonathan Rowe, Sarah van Gelder, Duane Elgin, and Vicki Robin. Arguably Henry David Thoreau and even EF Schumacher (although he was a Briton of German origin) belong there too.

Labels: America, book, growth, happiness, inequality

I will be speaking on a panel on Western interference in Africa at the Worldwrite centre at 7.30pm on 7 June. It is timed to coincide with the G8 summit of the world’s most powerful leaders in Germany.

Labels: Africa, speeches, Worldwrite

This week’s Fund Strategy included the following comment by me on sovereign wealth funds.

Beijing's recent purchase of a $3bn (£1.5bn) stake in Blackstone, an American private equity group, raises fundamental questions about global finance.

For a start, it signals that China is starting to diversify the holdings in its $1,200bn of foreign exchange reserves. Rather than holding American treasury bonds, it is shifting its portfolio towards other types of assets. Private equity is only one of several asset classes the Chinese are moving into.

More generally, the Blackstone move signals the growing importance of sovereign wealth funds (SWFs). An increasing number of countries are developing substantial SWFs as an endowment for the future.

According to Morgan Stanley estimates quoted in the Financial Times, $2,500bn is invested in SWFs and the amount is growing fast. In comparison, about $1,500bn-$2,000bn in hedge funds and $55,000bn is invested in conventional assets worldwide.

It should be recognised that some amounts overlap. For example, SWFs no doubt invest in both hedge funds and conventional funds. But whatever the exact asset allocation of SWFs, the volume of assets they control is huge and their influence looks set to increase. The average unit trust investor will have their funds affected by the behaviour of SWFs as well, even if they are unaware of their influence.

The secrecy of SWFs means it is hard to work out exactly what effect they are having. It is likely that bond yields are being depressed by SWF purchases, but it is hard to prove. It is also probable that other asset classes, such as shares or private equity, will rise in price as more assets are allocated to them.

The rise of SWFs is another indication of how the rapidly growing developing countries, China in particular, are changing the world. Relatively few people in the West appreciate the scale of this change. But those who work in the financial markets have increasing evidence in front of them.

Labels: china, economics, finance, Fund Strategy, globalisation

The Economist’s Lexington column has a useful discussion of The Age of Abundance, a new book by Brink Lindsey of the Cato Institute:

“His argument goes like this. The industrial revolution in America was driven by a bourgeois Protestant ethic that celebrated work and frowned on self-indulgence. Those who invested their pay earned respect as well as compound interest; those who wasted it on whiskey and cards forwent both. But over the years, thrift combined with technology and capitalism produced such vast returns that thrift went out of fashion. The 1960s saw the coming-of-age of the first generation whose members had never known scarcity, and therefore did not fear it. Spurning their parents' self-restraint, the baby-boomers rebelled against every form of authority and sampled every form of fun.

“It was quite a party. Mr Lindsey, a vice-president at the libertarian Cato Institute, makes two observations about it. First, it could not have happened without mass prosperity. The search for alternative lifestyles was driven by college students, whose numbers exploded during the 1960s, and who were the only group with the spare time and cash to attend love-ins, be-ins and yogic retreats. Second, the 1960s spawned the two cultural movements that still dominate American politics. There was the counter-cultural left, whose members were eager to explore new freedoms and who pushed for civil rights, feminism and environmentalism as well as sex, drugs and rock 'n' roll. And partly in reaction to the excesses of the counter-culture, there was a revival of socially conservative Protestantism. As flower children were celebrating the “Summer of Love” in San Francisco, Oral Roberts, a fundamentalist preacher, was founding a university in Oklahoma to fight their dissolute ideas.”

Lindsey’s book is in contrast to Benjamin Barber’s(see 7 May post).

Labels: America, book, consumption

The Wall Street Journal has a substantial feature today reviewing the discussion of globalisation and inequality. It argues the standard case that incomes are rising in absolute terms but relative inequalities are growing too. Such widening inequalities are helping populist presidential candidates in Latin America and are worrying Chinese officials. The article cites a piece by Pinelopi Koujianou Goldberg of Yale and Nina Pavcnik of Dartmouth in the March 2007 issue of the Journal of Economic Literature.

Labels: china, globalisation, inequality, Latin America

Spiked has published an article by me on the campaign to oust Paul Wolfowitz as president of the World Bank. It argues that it is the poorest people of the world who suffer most as a result of the campaign against corruption.

Labels: Africa, America, corruption, spiked

This week’s Fund Strategy included the following comment by me on Will Hutton’s views on China.

Given the widespread view that China is emerging as a great power it is important to examine the contrarian case. In Britain the leading "China pessimist" is probably Will Hutton, an Observer columnist and chief executive of the Work Foundation. His book on China, The Writing on the Wall (Little, Brown), was published in January. Although his argument is flawed it is gives some insight into Chinese development.

At a meeting last week at the Institute of Contemporary Art he said: "My story is that China is a bubble". His main evidence was China's rapidly rising stockmarket. Hutton draw parallels with house price bubbles in Britain and the technology bubble.

However, Hutton's argument was not entirely dependent on the stockmarket. He pointed to China's high savings rate while claiming that total economy productivity was lower than in Mao's time. He also argued that China is a "sub-contractor to the West". No Chinese companies are in the top 100 global brands. China also has a low level of patent applications and widening economic inequality.

Although most of Hutton's facts are probably correct they do not demonstrate what he claims. It may well be true that the stockmarket is in the middle of a gigantic bubble but it does not follow that its real economic growth has not been astonishing. The financial bubble is relatively recent while the rapid economic growth goes back almost three decades.

China's lack of global brands and its low level of patents do not indicate that it is not growing rapidly. The fact that many leading Western companies use Chinese components and manufacturers shows that China has already made enormous strides. Over time it will no doubt develop skills in branding and marketing.

Nor does the widening of inequality show what Hutton says it does. China has had tremendous success in reducing absolute poverty even though relative inequalities have widened. In addition, the widening of inequality does not show China is not undergoing a fundamental transformation. On the contrary, growing income disparities are a symptom of that transition.

Perhaps Hutton's strangest claim is that productivity is lower than in Mao's time. If that is the case it is hard to explain how cheap Chinese goods have proved so popular all over the world.

In addition, most academic studies show Chinese productivity rising sharply. How China Grows (Princeton University Press), a new book by James Riedel, Jing Jin and Jian Gao, quotes several authoritative studies showing rising productivity in China.

Hutton's thesis shows China still has a long way to go in its economic development. But it would be a mistake to underestimate what it has already achieved.

Labels: book, china, economics, Fund Strategy, growth

There is some speculation that Tony Blair, Britain’s outgoing prime minister, could take over from the ousted Paul Wolfowitz as head of the World Bank. Although this would go against the tradition that the World Bank is headed by an American in many ways Blair would be the perfect choice. Who better than the smiley autocrat to run such an interfering and undemocratic institution? The British prime minister has a long track record of making pious remarks about “healing” Africa. The problem is who will save Africa from Blair?

Labels: Africa, corruption, development

Spiked has published a review by me of a book on Africa in its new monthly review of books. I argue that Giles Bolton’s Poor Story embodies what has become a typical combination of grandiose pronouncements and low horizons

Labels: Africa, book, review, spiked

This week’s Fund Strategy included the following comment by me on Blair’s economic record.

It is hard to separate Tony Blair's economic legacy from that of Gordon Brown. Both have played a key role in developing a narrow-minded approach to economic policy making over the past decade. And both have enjoyed considerable luck in being in the right place at the right time.

A paper by Professor John Van Reenen, director of the Centre for Economic Performance at the London School of Economics, is a useful starting point to examine New Labour's record. His most astute argument is that the public seems to take relative prosperity for granted. Even though the economy has grown for 15 years continuously the public is likely to attribute this record to other factors. These include Margaret Thatcher's legacy, the independence of the Bank of England and cheap Chinese imports.

Van Reenen does not fully appreciate the irony of attributing economic success to the Bank. One of New Labour's first acts in government was to give it independence. Its goal was an elitist and anti-democratic one: to insulate the Bank from politics. Yet it has also meant that the public seems keener to give credit for economic success to the Bank rather than the government.

The public is also right to attribute economic stability to broader factors. New Labour is lucky to have been in government in the years following the end of the Cold War. The defeat of the left has given governments world-wide more room for manoeuvre in dealing with economic problems. That is why the "Great Moderation" is a global rather than a peculiarly British experience.

Labour's pursuit of "tax and spend" is another important development. Blair's government has increased taxation as a share of national income while raising spending on public services.

But, contrary to Van Reenen's argument, such spending does not conform to the traditional left wing model. For example, much of Labour's increased spending on the National Health Service has gone to "health promotion" rather than treating the sick. What this means is trying to promote what it regards as "responsible" personal behaviour. This involves, among other things, hectoring people about what they drink and eat, on whether they smoke and on safe sex. New Labour's economic policy has helped turn the NHS into a new priesthood, which enforces a particularly puritanical morality.

Labels: economics, Fund Strategy

Martin Wolf has reviewed an important book in today’s Financial Times. The Bottom Billion (Oxford University Press) argues in effect that a return to empire is needed to solve the problem of African poverty. Given that the author is Paul Collier, the director of the Study of African Economies at Oxford university, it should be taken seriously. Wolf also describes it as “splendid”. Although such arguments are fundamentally wrong they need to be challenged rather than sneered at.

Labels: Africa, book, development, inequality

Two prominent American economists have written a justification for income inequality. Gary Becker, a Nobel laureate, and Kevin Murphy, winner of the John Bates Clark Medal of the American Economic Association, argue that widening inequality can be “beneficial and desirable”. In an article on American.com they point out that in China the rise in income inequality has accompanied a sharp decline in absolute poverty. In America it represents an increasing pay-off for education and other skills. Both African Americans and women have benefited from the latter trend.

The two authors are partly right. It is true that absolute rises in incomes and living standards should be welcomed. However, it would be preferable if those at the bottom of the income distribution gained even more than they do.

Labels: America, china, inequality

The debate I took part in on the “Battle for Affluence” at the Battle of Ideas conference on 28 October 2006 can now be viewed on video. It fears me along with Avner Offer of Oxford University, Mark Easton on the BBC, Nicholas Crafts of Warwick University and Jenny Davey of the Sunday Times. More details can be seen at my post of 5 November 2006.

Labels: affluenza, growth, happiness, speeches

This week’s Fund Strategy included the following comment by me on sustainability. There is also a related cover story but it is too long to put on this blog. It can be reached through fundstrategy.co.uk - you need to register but it is free.

The fund management industry seems to have taken on sustainability as a self-evident good. It is seen as being worthwhile almost by definition. The fundamental problems with the concept are ignored.

Yet as Daniel Ben-Ami shows in this week's cover story the idea of sustainability has a specific meaning.

In its basic form it embodies two fundamental assumptions. First, the idea that humanity should accept environmental limits on its actions. Second, development needs to focus on basic needs if humanity is to survive into the future.

Both of these premises are contestable. There is a long tradition that sees human progress as consisting of overcoming environmental limits. From such a perspective such limits can be overcome by the power of science and reason. As a result the world becomes more prosperous and human well-being can flourish.

The idea of focusing on basic needs can also be seen as suffering from a chronic lack of ambition. Societies have typically done best when they have striven to achieve difficult objectives rather than reconciling themselves to mere survival.

The best thing we can do for future generations is to try to make society as prosperous as possible in the present.

None of this means that sustainable funds, or ethical funds more generally, need not be lucrative. It is quite possible for them to provide good returns. But it does not follow that the shift to "green capitalism" is a positive one overall.

There is always the possibility of niche investments in sustainable themes proving profitable. Huge government subsidies and extensive regulations are also likely to benefit some companies over others. Many ethical fund managers probably play as much attention to these as to corporate fundamentals.

The so-called "carbon markets" are a good example of the direction in which things are heading. They are not really markets at all but indirect forms of state regulation. The number of permits issued and the forms these exchanges take are the result of government action rather than organic development.

No doubt money can be made from such trading, in some cases bonanzas, but whether they are the best mechanism to deal with climate change is another matter.

More generally the shift to green capitalism is likely to hinder rather than promote genuine development. Although the economy will still grow its expansion is likely to take the most conservative forms. Renovating the old will take preference over developing the new.

The tried and tested will be favoured over the innovative. We will be trapped in a mundane world in which the ambitious is viewed with anxiety while the familiar is exalted.

Labels: environment, Fund Strategy, sustainability

Professor TN Srinivasan of Yale has written a sharp rebuttal to Robert Wade on the world economy (see 1 May post) in a letter to the Financial Times. Srinivasan challenges Wade’s contention that only China has enjoyed a sharp reduction in poverty. India too has experienced substantial poverty reduction:

“India's average annual rate of growth of per capita real gross domestic product was around 1.5 per cent in the period 1950-80. In the 1980s, the rate more than doubled to around 3.7 per cent, and then accelerated to 4.1 per cent during the 1990s. It has grown further to 5.3 per cent since then.

“Poverty, estimated as the proportion of the population having consumption below a modest national poverty line (rather than World Bank's poverty lines, which have very weak analytical underpinnings), fluctuated at around 50 per cent during 1950-1978. It declined to 39 per cent in 1987-88, 36 per cent in 1993-94, and to 27.5 per cent in 2004-05. Had the poverty ratio in India remained unchanged at 50 per cent after 1977-78, the number of poor in 2004-05 would have been 547m, more than twice what it was: namely, 238m.”

Labels: Asia, development, economics, growth, india, inequality

Professor Lord Richard Layard, British government adviser and chief happiness guru, has argued that the central purpose of schools should be to teach “the secrets of happiness”. He says he supports a new generation of teachers who specialise in “emotional intelligence” - inculcating values to pupils.

The response of the National Union of Teachers is worrying. It says it supports the happiness agenda in principle but it would be difficult to implement because teachers are so concerned with exams nowadays.

Frank Furedi argued on spiked against teaching happiness in schools back in July 2006. However, at that time the proposal was only to pilot “happiness lessons” in state schools. Layard’s suggestion goes a lot further.

Labels: happiness, spiked

Russell Jacoby, a professor of history at UCLA, has written an astute review article in the Nation on the redefinition of capitalism in terms of consumption. Although the idea is not new in itself a new book on consumer culture by Benjamin Barber, a political theorist, takes it further by arguing that the latest stage of capitalism is driven by an “infantilist ethos”. However, Jacoby argues that this idea is not really developed. Instead Barber takes readers on a familiar discussion of “hyper-consumerism” driven by privatisation, branding and total marketing.

Jacoby is also sceptical about the solutions that Barber offers:

“In the last section of the book Barber sketches out "a moderate and democratic way" to resist consumer capitalism. He wants to restore capitalism to "its primary role" as an efficient producer and to uphold the "democratic public" as the regulator of "our plural life worlds." But the weakness of his ideas shows through his PowerPoint presentations. He locates three types of consumer resistance and subversion: "I will discuss them under the rubrics cultural creolization, cultural carnivalization and cultural jamming." By creolization, he means the effort to turn market brands against the market, where commodification serves heretical groups or movements, like Hasidic rock, in which ultra-orthodox Gad Elbaz sets pious lyrics to throbbing rhythms. By "jamming" Barber means tactics derived mainly from Kalle Lasn, founder of Adbusters magazine. In Lasn's words, the jammers paint their "own bike lanes, reclaim streets, 'skull' Calvin Klein ads, and paste GREASE stickers on tables and trays at McDonald's restaurants." “

Jacoby also criticises other ideas by Barber on muting the impact of the market:

“In addition to his three forms of cultural resistance Barber comes up with other, more disparate, perhaps desperate, efforts to rein in the market--such as consumer activism (dolphin-safe tuna), creative video games (SimCity) and especially George Clooney movies (Good Night, and Good Luck and Syriana). Barber is only the latest progressive to go gaga over Hollywood. He dreams its milquetoast offerings are revolutionary provocations. Movies like Bulworth, with Warren Beatty, and American Dreamz, with Hugh Grant, demonstrate Hollywood's "own dialectical capacity to generate rebellion and subversion." It is more likely that they demonstrate Barber's capacity for wishful thinking. The ravages of the market in the impoverished Third World also catch Barber's attention--at least for ten pages. Here too he finds counter-movements or partial remedies like Doctors Without Borders's 500-calorie Plumpy Nut bar, which is "a miracle cure for the starving," and Nobel Prize-winning economist Muhammad Yunus's idea of microcredits for the very poor.”

So, at least judging by Jacoby’s review, Barber has an insight into the contemporary market he does not properly pursue. As a result Barber comes up with mundane solutions to what he sees as the problem.

Labels: America, book, consumption, film, finance

American Prospect, a US magazine, has teamed up with Demos (an American think tank rather than the British one of the same name) to produce a special report on “Ending poverty in America”. It is striking how it defines poverty in terms of ethics rather than having anything to do with political struggle or power. The report seems to focus on personal behaviour and providing incentives for people to work:

“In assigning and editing these articles, we were struck by a paradox. There is now growing ideological convergence on what it takes to end poverty. Liberals and conservatives agree that ending poverty is about both personal behaviors and rewards to work; about both values and economics. Ending poverty requires opportunities for wealth creation as well as income support, empowerment as well as transfer payments. It requires all children to be school-ready, which takes both stronger families and more effective public programs.”

Labels: America, ethics, inequality

The Economist has a survey on cities by John Grimond in the new issue (5 May). Non-subscribers can get free access to the first article which puts the rise of cities into historical context. He also has a piece today on the Guardian’s comment is free site.

Labels: cities, development, progress

Sports are getting into sustainability according to the latest issue of Marketing Week (3 May). It quotes the organisers of the London 2012 Olympics as saying they will deliver a “sustainable games”. Apparently this involves, among other things, ensuring that 60% of the venues are existing structures. Given the poverty of the infrastructure in East London this limitation is disappointing.

Even Formula One racing is going green. The article quotes Alistair Watkins, Honda Formula 1 marketing director, as saying “Being green is our primary marketing concept for 2007.” Its cars will have an image of the earth rather than sponsorship logos. There is more on this at myearthdream.com.

Evidently the football World Cup in Germany last year was carbon neutral and more big sports events are likely to follow in the future.

Labels: corporations, environment, sustainability

There follows my attempt to grapple with the complex subject of carbon markets in Monday’s Fund Strategy.

Last week's Financial Times investigation into carbon markets raised fundamental questions in an area where the City hopes to become world leader. They go beyond whether manipulation is taking place.

The FT says there are many examples of "carbon credit" projects yielding few if any environmental benefits. Credits are often worthless and do not lead to reductions in carbon emissions. Many companies profit from doing little. And companies as well as individuals are often charged excessively for European Union (EU) carbon credits.

Two factors seem to be behind such alleged malpractices. First, governments have made available a gross oversupply of permits in the official EU market. Wholesale prices for permits have plunged as a result. Second, many of the companies involved in the carbon offset market have minimal expertise and their activity is often unverified.

Such malpractices should not come as a surprise. In the climate of extreme moral righteousness over global warming many people are so desperate to demonstrate environmental credentials they are ripe for manipulation. In addition, the "markets" for carbon trading are not really markets at all. They are the artificial creations of governments that control how many permits are issued.

The problem at the heart of so-called carbon markets is their acceptance of the polluter pays principle. Although this principle has a superficial appeal - individuals or companies should pay for their pollution - it is divisive and damages innovation.

While it is true that industry, for example, can create environmental costs it also generates huge social benefits. Carbon markets create a way of levying a charge on companies for such costs. Yet there is no equivalent mechanism for paying them for the non-commercial benefits that result from their business.

As a result companies have an incentive to be cautious about innovation. New products or production processes will incur environmental costs. Therefore companies hold back on innovations that could have enormous social benefits.

The costs of pollution should be borne by society as a whole rather than individual firms. Since we all benefit from economic activity the costs of dealing with pollution should be managed collectively.

Carbon trading embodies a principle that is divisive and damages innovation. In addition, it is open to manipulation and involves creating "markets" that are entirely artificial.

Labels: climate, economics, energy, environment, Fund Strategy

A bleak view of the world economy by Robert Wade, a professor of political economy at the London School of Economics, in today’s Financial Times. He does not seem to be able to decide whether economic growth is not happening for the mass of the world’s population or whether it is simply undesirable:

• China accounts for the entire fall in the number of extreme poor since the early 1980s.
• In the affluent West people are suffering from over-eating, family breakdown and addiction.
• In developing countries people are becoming disillusioned with economic openness.
• The rise of important new economic states, such as China, brings a risk of war.
• Global oversupply capacity also creates a risk of conflict.

No doubt there are problems and potential problems with the world economy but Wade underestimates the extent to which ordinary people are benefiting from global growth.

Labels: development, economics, globalisation, india