Monday, February 15, 2010
Economic frailty not just a Greek concern
This is my comment from this week’s Fund Strategy.
The most amusing event of last week had to be Gordon Brown’s brief appearance on the BBC Newsnight programme. In the space of 30 seconds he found seven different ways of saying that helping to tackle the Greek crisis was not Britain’s responsibility.
Given that Brown constantly evades responsibility for his actions at home it is hardly surprising he wants to distance himself from the Greek crisis. As it happens the financial turmoil in Greece has considerable consequences for Britain whether Brown likes it or not.
It is true that in the most narrow technical sense Britain is not responsible. Since it is not a member of the eurozone it was not party to last week’s negotiations on supporting Greece.
But that is far from the end of the story. For a start there is the so-called contagion effect of Greece on the debt markets. If the markets are really spooked by events in Greece then it is likely to become more expensive for Britain to raise credit too.
This contagion effect itself reflects the fact that Britain’s debt position is not that different from Greece. Although its key debt ratios are not as bad, and its debt has a longer maturity, Britain’s fiscal position is deteriorating fast.
Fundamentally what this reflects is that the economic crisis that hit the world in 2008 was never really resolved. Although the global economy was stabilised its structural problems were not addressed.
Essentially what happened was that the troubled debt of financial institutions was in effect nationalised. Its ownership was simply transferred to the state.
Although this transfer quelled the immediate financial panic it did not resolve the underlying problem of a weak economy. It simply moved the infection somewhere else–to the state sector–and stored up further trouble for the future.
Indeed the financial history of the past two decades can be seen as bubbles inflating as a result of western governments failing to grapple with economic weakness. In the run-up to the Asian crisis of 1997-8 there was a surge to emerging markets. This was followed by the tech bubble which burst in 2000. Then there was the housing bubble for much of this decade followed by the financial crisis of 2008. In each case speculative capital flowed from one area to another rather than being invested in the sluggish real economy.
It is time western governments stopped evading responsibility and started tackling their economic weaknesses at home.
The most amusing event of last week had to be Gordon Brown’s brief appearance on the BBC Newsnight programme. In the space of 30 seconds he found seven different ways of saying that helping to tackle the Greek crisis was not Britain’s responsibility.
Given that Brown constantly evades responsibility for his actions at home it is hardly surprising he wants to distance himself from the Greek crisis. As it happens the financial turmoil in Greece has considerable consequences for Britain whether Brown likes it or not.
It is true that in the most narrow technical sense Britain is not responsible. Since it is not a member of the eurozone it was not party to last week’s negotiations on supporting Greece.
But that is far from the end of the story. For a start there is the so-called contagion effect of Greece on the debt markets. If the markets are really spooked by events in Greece then it is likely to become more expensive for Britain to raise credit too.
This contagion effect itself reflects the fact that Britain’s debt position is not that different from Greece. Although its key debt ratios are not as bad, and its debt has a longer maturity, Britain’s fiscal position is deteriorating fast.
Fundamentally what this reflects is that the economic crisis that hit the world in 2008 was never really resolved. Although the global economy was stabilised its structural problems were not addressed.
Essentially what happened was that the troubled debt of financial institutions was in effect nationalised. Its ownership was simply transferred to the state.
Although this transfer quelled the immediate financial panic it did not resolve the underlying problem of a weak economy. It simply moved the infection somewhere else–to the state sector–and stored up further trouble for the future.
Indeed the financial history of the past two decades can be seen as bubbles inflating as a result of western governments failing to grapple with economic weakness. In the run-up to the Asian crisis of 1997-8 there was a surge to emerging markets. This was followed by the tech bubble which burst in 2000. Then there was the housing bubble for much of this decade followed by the financial crisis of 2008. In each case speculative capital flowed from one area to another rather than being invested in the sluggish real economy.
It is time western governments stopped evading responsibility and started tackling their economic weaknesses at home.
Labels: economics, Europe, finance, Fund Strategy
Monday, February 01, 2010
Rules will not quell economic troubles
This is my comment from this week’s Fund Strategy.
A lesson that should have been learned from the economic crisis is that there are severe limits to the efficacy of rules and regulations.
Although rules have their place they cannot quell problems if the underlying troubles are sufficiently bad. Indeed over-regulation can make matters worse.
Barack Obama’s plan to add additional restrictions to the size and activities of banks shows he is either unaware of the limitations of rules or choosing to ignore them. It is hard to see how his proposed regulations could quell any financial crisis. For example, they do not cover “non-bank” financial institutions–a category which included AIG, Bear Stearns, Lehman Brothers and Merrill Lynch. Nor do they have any impact on the likelihood of bail-outs.
Fixation with regulation is not unique to America. It is easy to forget that until a couple of years ago New Labour was boasting about its two fiscal rules. These were meant to a way of stifling any return to the bad old days of boom and bust.
In the event both rules were busted. The Sustainable Investment Rule stipulated government debt should be set at a “prudent level”. This was taken to mean below 40% of GDP. Yet according to the latest pre-budget report the net debt of the public sector will be 55.6% this year and will exceed 75% for several years in a row.
No doubt the government would claim the rules needed to be breached because of the global recession, just as it explains away the return to bust. But it was the government’s fault that the economy remained so heavily dependent on financial services rather than becoming more diversified. In any case Britain’s performance in the downturn is among the worst of the developed countries.
What the breaking of the rules really shows is that Britain’s fiscal framework, supposedly so clever, had little effect. When economic troubles emerged the rules were swept aside.
A similar failure is apparent in the European Union’s stability and growth pact. Under these rules annual budget deficits were supposed to be no higher than 3% of GDP and national debt was meant to be lower than 60% of GDP. Yet many governments have breached these levels.
Rather than obsess over devising more rules and regulations it is time for governments to pursue a different approach. The sooner they start promoting economic dynamism the better able they will be to cope with any challenges ahead.
A lesson that should have been learned from the economic crisis is that there are severe limits to the efficacy of rules and regulations.
Although rules have their place they cannot quell problems if the underlying troubles are sufficiently bad. Indeed over-regulation can make matters worse.
Barack Obama’s plan to add additional restrictions to the size and activities of banks shows he is either unaware of the limitations of rules or choosing to ignore them. It is hard to see how his proposed regulations could quell any financial crisis. For example, they do not cover “non-bank” financial institutions–a category which included AIG, Bear Stearns, Lehman Brothers and Merrill Lynch. Nor do they have any impact on the likelihood of bail-outs.
Fixation with regulation is not unique to America. It is easy to forget that until a couple of years ago New Labour was boasting about its two fiscal rules. These were meant to a way of stifling any return to the bad old days of boom and bust.
In the event both rules were busted. The Sustainable Investment Rule stipulated government debt should be set at a “prudent level”. This was taken to mean below 40% of GDP. Yet according to the latest pre-budget report the net debt of the public sector will be 55.6% this year and will exceed 75% for several years in a row.
No doubt the government would claim the rules needed to be breached because of the global recession, just as it explains away the return to bust. But it was the government’s fault that the economy remained so heavily dependent on financial services rather than becoming more diversified. In any case Britain’s performance in the downturn is among the worst of the developed countries.
What the breaking of the rules really shows is that Britain’s fiscal framework, supposedly so clever, had little effect. When economic troubles emerged the rules were swept aside.
A similar failure is apparent in the European Union’s stability and growth pact. Under these rules annual budget deficits were supposed to be no higher than 3% of GDP and national debt was meant to be lower than 60% of GDP. Yet many governments have breached these levels.
Rather than obsess over devising more rules and regulations it is time for governments to pursue a different approach. The sooner they start promoting economic dynamism the better able they will be to cope with any challenges ahead.
Labels: America, economics, Europe, finance, Fund Strategy
Wednesday, January 20, 2010
Degrowth-décroissance
Duncan Green of Oxfam describes in his blog a meeting in London organised by CEECEC and the New Economics Foundation to discuss “degrowth”. The idea was inspired by Serge Latouche in France, where it is known as décroissance, and it also has followers in Italy (where it is called decrescità ) and Spain. Green criticises the movement on the grounds that he is against shrinking the global economy but he does argue the orthodox case that there are limits to economic growth (see 30 September 2009 post).
Labels: economics, Europe, growth
Monday, January 11, 2010
Britain lacks growth strategy
This is my comment from this week’s Fund Strategy.
Barring an apocalypse it looks certain there will be a general election in Britain over the next few months.
Yet none of the main parties has convincing policies for the restoration of economic growth. Indeed, they all embrace policies that are likely to damage Britain’s growth prospects.
Although the parties have yet to publish their manifestos they all have statements of economic policy on their websites. It is also possible to discern a party’s trajectory by scrutinising statements by its leaders.
Strangely they all seem to follow a similar pattern. They start with pledges of measures to support particular groups. Whatever the merits of the supposed beneficiaries it is hard to see what bearing they have on reviving the economy. And if the economy cannot be rejuvenated then many of these promises will not be kept.
Then there are the buzzwords which indicate that the party concerned is intent on limiting its aspirations. These include such terms as green, responsible, sustainable and low carbon.
Although these might appear common sense they are essentially a way of indicating support for restraint. For example, why would anyone want economic performance to be sustainable when it would be far better to have a transformation to something better? The notion of sustainability embodies a deeply conservative outlook. It is an updated version of the idea that aristocrats should exercise stewardship of the environment for the sake of other generations.
A similar point could be made about responsible policy. It means keeping demands strictly limited rather than engaging in any bold ambition.
To be sure, all the parties make some of the right noises such as acknowledging the need to invest in infrastructure. Yet they are vague about how it can be achieved.
Typically they make at least two fundamental errors. First, they do not recognise that to build a vibrant new economy they need to let go of the old. Some old companies and sectors should be closed down while new ones should be encouraged to take their place. If this is done in a co-ordinated way it should be possible to minimise any social dislocation that results.
Second, they pay far too little attention to the productive side of the economy. The overwhelming emphasis is on such matters as bolstering the consumer, financial regulation and skills training. However worthy any of these causes they fail to get to the nub of addressing Britain’s economic weakness.
As Britain enters a new year it should be willing to embrace change. Not as a platitude but as a process of genuine economic and social transformation.
Barring an apocalypse it looks certain there will be a general election in Britain over the next few months.
Yet none of the main parties has convincing policies for the restoration of economic growth. Indeed, they all embrace policies that are likely to damage Britain’s growth prospects.
Although the parties have yet to publish their manifestos they all have statements of economic policy on their websites. It is also possible to discern a party’s trajectory by scrutinising statements by its leaders.
Strangely they all seem to follow a similar pattern. They start with pledges of measures to support particular groups. Whatever the merits of the supposed beneficiaries it is hard to see what bearing they have on reviving the economy. And if the economy cannot be rejuvenated then many of these promises will not be kept.
Then there are the buzzwords which indicate that the party concerned is intent on limiting its aspirations. These include such terms as green, responsible, sustainable and low carbon.
Although these might appear common sense they are essentially a way of indicating support for restraint. For example, why would anyone want economic performance to be sustainable when it would be far better to have a transformation to something better? The notion of sustainability embodies a deeply conservative outlook. It is an updated version of the idea that aristocrats should exercise stewardship of the environment for the sake of other generations.
A similar point could be made about responsible policy. It means keeping demands strictly limited rather than engaging in any bold ambition.
To be sure, all the parties make some of the right noises such as acknowledging the need to invest in infrastructure. Yet they are vague about how it can be achieved.
Typically they make at least two fundamental errors. First, they do not recognise that to build a vibrant new economy they need to let go of the old. Some old companies and sectors should be closed down while new ones should be encouraged to take their place. If this is done in a co-ordinated way it should be possible to minimise any social dislocation that results.
Second, they pay far too little attention to the productive side of the economy. The overwhelming emphasis is on such matters as bolstering the consumer, financial regulation and skills training. However worthy any of these causes they fail to get to the nub of addressing Britain’s economic weakness.
As Britain enters a new year it should be willing to embrace change. Not as a platitude but as a process of genuine economic and social transformation.
Labels: economics, Europe, growth
Sunday, December 20, 2009
European Union backing eco-economics
I have discovered that the European Union is backing research in ecological economics as well as related campaigns by non-governmental organisations (NGOs). The Civil Society Engagement with ECological Economics (CEECEC) is coordinated by the Universitat Autònoma de Barcelona (UAB) and involves organisations in Europe and beyond.
CEECEC is clearly intent on promoting green thinking rather than engaging in impartial research. However, its website is a useful resource for anyone wanting to study ecological economics.
For background on the subject a link to my essay on “the dismal quackery of eco-economics” is available in the “my essays” section on the left hand side of the homepage.
CEECEC is clearly intent on promoting green thinking rather than engaging in impartial research. However, its website is a useful resource for anyone wanting to study ecological economics.
For background on the subject a link to my essay on “the dismal quackery of eco-economics” is available in the “my essays” section on the left hand side of the homepage.
Labels: economics, environment, Europe
Tuesday, September 15, 2009
France backs attack on prosperity
The commission of eminent international economists appointed by French President Nicholas Sarkozy to report on measuring economic and social progress (PDF) has published its findings. I have not yet had time to read its 292 pages but, judging from the media coverage, it is broadly in line with what would be expected. Its call for better measures to measure social progress is, in the title of a previous article I have written on the topic, a sneaky attack on prosperity.
To quote the Financial Times’s take on its importance: "It is not the first of its type but it is perhaps the most comprehensive assessment of the limitations of existing data. It also makes clear the scope for improving policy and democratic debate based on good data, well presented, that relate to the issues – such as social cohesion, poverty and the environment – that people find important. It also has some top-level political support."
The commission was chaired by Joseph Stiglitz and included, among others, Amartya Sen, Daniel Kahneman, Andrew Oswald, Robert Putnam, Nicholas Stern and Cass Sunstein.
To coincide with the report Joseph Stiglitz had an article in yesterday’s FT while Richard Layard reiterated his argument on happiness in the Guardian.
Meanwhile, the Organisation for Economic Cooperation and Development has officially welcomed the report and is discussing the subject further at its World Forum in Korea at the end of October.
To quote the Financial Times’s take on its importance: "It is not the first of its type but it is perhaps the most comprehensive assessment of the limitations of existing data. It also makes clear the scope for improving policy and democratic debate based on good data, well presented, that relate to the issues – such as social cohesion, poverty and the environment – that people find important. It also has some top-level political support."
The commission was chaired by Joseph Stiglitz and included, among others, Amartya Sen, Daniel Kahneman, Andrew Oswald, Robert Putnam, Nicholas Stern and Cass Sunstein.
To coincide with the report Joseph Stiglitz had an article in yesterday’s FT while Richard Layard reiterated his argument on happiness in the Guardian.
Meanwhile, the Organisation for Economic Cooperation and Development has officially welcomed the report and is discussing the subject further at its World Forum in Korea at the end of October.
Labels: consumption, economics, Europe, happiness, progress
Saturday, June 20, 2009
Conservatives have always been green
Many commentators, including many greens themselves and free market critics, are under the false impression that environmentalism is in some senses a left wing outlook. But this useful article by Geoffrey Lean in today’s Telegraph shows how mainstream conservatives have often backed environmentalist measures:
• Angela Merkel, Germany’s conservative chancellor, was instrumental in passing the Kyoto protocol on climate change.
• Richard Nixon, a Republican president, founded America’s Environmental Protection Agency.
• George Bush senior ran for presidential election as “the environment president” and endorsed the global declaration on the environment coming out of the 1992 Rio summit.
• Ted Heath, a Conservative prime minister, created Britain’s environment ministry.
• Margaret Thatcher was the first world leader to call for vigorous action on climate change.
Indeed Edmund Burke, the father of conservatism, described society as: "a partnership between those who are living, those who are dead, and those who are yet unborn".
• Angela Merkel, Germany’s conservative chancellor, was instrumental in passing the Kyoto protocol on climate change.
• Richard Nixon, a Republican president, founded America’s Environmental Protection Agency.
• George Bush senior ran for presidential election as “the environment president” and endorsed the global declaration on the environment coming out of the 1992 Rio summit.
• Ted Heath, a Conservative prime minister, created Britain’s environment ministry.
• Margaret Thatcher was the first world leader to call for vigorous action on climate change.
Indeed Edmund Burke, the father of conservatism, described society as: "a partnership between those who are living, those who are dead, and those who are yet unborn".
Labels: America, environment, Europe, Germany, sustainability
Wednesday, January 28, 2009
More flawed attacks on GDP
Today’s Financial Times has a substantial feature on the debate on the weaknesses of GDP as a measure of human welfare. It has some interesting material although ultimately is a weak piece. It does not appreciate that in many respects GDP underestimates the contribution of growth to human welfare. And it sees the discussion as a technical one rather than as part of a broader attack on economic growth.
Some things to note from the piece: “a 24-member commission of prominent economists led by Joseph Stiglitz and Amartya Sen, both Nobel prize winners, is due to report in April on ways of improving our economic bookkeeping. The aim is to render economic data more comprehensive, more intelligible to the public and more relevant for policymakers by taking into account such factors as environmental degradation and quality of life.”
Also: “This ambitious initiative was launched last year by Nicolas Sarkozy, France's president, who had grown concerned about popular distrust of economic statistics.”
The initiative is in line with France’s official drive for a more moral capitalism (see post of 11 January 2009). But such moves also have supporters in America: In testimony last year to the US Senate, Jonathan Rowe, a Californian writer, highlighted some of the absurdities of mechanically measuring the economy by counting how much it produces. Measuring healthcare by inputs rather than outputs - the sale of medical services and drugs rather than the number of (healthy) people - can lead to particularly perverse perspectives. In this view, the economic "hero" of GDP statistics would be a terminally ill cancer patient going through expensive medication and a costly divorce.”
An extract of Rowe’s testimony can be read here
A webcast of the Senate committee meeting can be viewed here.
For a more extensive critique by me of the attacks on GDP see the article on “A sneaky attack on prosperity” on the left hand side of the homepage.
Some things to note from the piece: “a 24-member commission of prominent economists led by Joseph Stiglitz and Amartya Sen, both Nobel prize winners, is due to report in April on ways of improving our economic bookkeeping. The aim is to render economic data more comprehensive, more intelligible to the public and more relevant for policymakers by taking into account such factors as environmental degradation and quality of life.”
Also: “This ambitious initiative was launched last year by Nicolas Sarkozy, France's president, who had grown concerned about popular distrust of economic statistics.”
The initiative is in line with France’s official drive for a more moral capitalism (see post of 11 January 2009). But such moves also have supporters in America: In testimony last year to the US Senate, Jonathan Rowe, a Californian writer, highlighted some of the absurdities of mechanically measuring the economy by counting how much it produces. Measuring healthcare by inputs rather than outputs - the sale of medical services and drugs rather than the number of (healthy) people - can lead to particularly perverse perspectives. In this view, the economic "hero" of GDP statistics would be a terminally ill cancer patient going through expensive medication and a costly divorce.”
An extract of Rowe’s testimony can be read here
A webcast of the Senate committee meeting can be viewed here.
For a more extensive critique by me of the attacks on GDP see the article on “A sneaky attack on prosperity” on the left hand side of the homepage.
Labels: America, economics, Europe, happiness
Sunday, January 11, 2009
France and Germany back moral capitalism
French President Nicolas Sarkozy hosted an economic symposium on "New World, New Capitalism" last week. The only other world leaders who attended were Angela Merkel, the German Chancellor, and Ellen Johnson-Sirleaf, the Liberian president, although Tony Blair, Britain’s former prime minister, was there too. Two Nobel-prize winning economists, Amartya Sen and Joseph Stiglitz, were there too. Evidently the event was downgraded from a summit because few world leaders would attend.
Sarkozy evidently used the event to argue that modern-day capitalism based on speculation had been "perverted" and was "an immoral system". In his view a new capitalism, not solely based on finance, should be created.
I suspect their “moral” capitalism would be even worse than the existing version.
Sarkozy evidently used the event to argue that modern-day capitalism based on speculation had been "perverted" and was "an immoral system". In his view a new capitalism, not solely based on finance, should be created.
I suspect their “moral” capitalism would be even worse than the existing version.
Labels: economics, ethics, Europe, finance, Germany
Sunday, November 16, 2008
Anti-consumerism as terrorism
Rob Killick reminds us in a review of the Beider Meinhoff Complex on spiked that anti-materialism was a significant trend in 1960s radicalism. He portrays the leaders of the 1960s Germany terrorist gang as an extreme part of a broader trend which saw itself: “as part of an international movement of opposition to imperialism, but made no effort to build links with the working class in Germany, which they saw as in thrall to capitalist consumerist ideology”. Killick ends with the correct point that the elitist belief in a stupid consumerist working class is now widespread.
Labels: consumption, Europe, film, Germany, spiked
Sunday, August 31, 2008
Another attack on GDP
Yesterday’s New York Times included a useful review of the assaults on the notion of GDP. It reminded readers that as long ago as 40 years ago it was attacked by Robert F Kennedy who said it: “measures everything, in short, except that which makes life worthwhile.” The article also welcomed the review of GDP as a measure of well-being in France and suggested it might apply to America too:
“We may be in the early stages in the United States of recognizing that the gross domestic product is very misleading and something must be done to get better measures of well-being,” said Amartya Sen, a Nobel laureate in economics at Harvard. Professor Sen and Joseph Stiglitz, a Nobel laureate at Columbia, are co-chairmen of a commission recently appointed by Nicolas Sarkozy, the French president, to come up with a better measure for France. While Mr. Sarkozy’s goal is to showcase a ‘quality of life’ at odds with the country’s weak G.D.P., the high-profile effort might yield dividends here as well as abroad.”
Ultimately, as I have previously argued, there is less to these attacks than meets the eye. It would be hard to find someone who argues that GDP is a perfect indicator of well-being. But it does not follow that there is no relationship between rising prosperity and well-being. If there is a problem with GDP in this respect it is that it underestimates the benefits of prosperity to human welfare.
“We may be in the early stages in the United States of recognizing that the gross domestic product is very misleading and something must be done to get better measures of well-being,” said Amartya Sen, a Nobel laureate in economics at Harvard. Professor Sen and Joseph Stiglitz, a Nobel laureate at Columbia, are co-chairmen of a commission recently appointed by Nicolas Sarkozy, the French president, to come up with a better measure for France. While Mr. Sarkozy’s goal is to showcase a ‘quality of life’ at odds with the country’s weak G.D.P., the high-profile effort might yield dividends here as well as abroad.”
Ultimately, as I have previously argued, there is less to these attacks than meets the eye. It would be hard to find someone who argues that GDP is a perfect indicator of well-being. But it does not follow that there is no relationship between rising prosperity and well-being. If there is a problem with GDP in this respect it is that it underestimates the benefits of prosperity to human welfare.
Labels: America, economics, Europe, happiness, progress
Monday, August 18, 2008
A squeeze not a recession
The following comment by me appeared in this week’s Fund Strategy.
Many will no doubt see the latest gloomy data from the eurozone and Japan as confirmation that the world economy is heading for a deep recession. Such a view is based on a superficial reading of global developments.
GDP figures for the second quarter show output falling by 0.2% in the eurozone and 0.6% in Japan. In addition, global fund managers say that the credit crunch is spreading from America to the rest of the world.
It is certainly possible, although not certain, that many developed countries will see a technical recession in the coming year (defined as two consecutive quarters of falling output). However, given the strength and size of the developing economies it is hard to see the whole global economy suffering such a fate. In July the International Monetary Fund forecast that emerging and developing economies would grow by 6.9% this year and 6.7% in 2009.
What looks likely is a protracted period of slow growth in the developed world punctuated by financial volatility. Developing country growth is likely to slow but to remain positive.
It is also important to remember that numbers only tell part of the story. This downturn is different from most previous ones in that it is a consumption-led slowdown. It is centred on problems on the consumption side of the economy and the financial markets rather than the industrial sector. Instead of the violent shake-out that has characterised many previous cycles, a less intensive but more prolonged squeeze looks likely.
The outlook is far from rosy, but it is not comparable to recessions such as that of the mid-1970s or early 1980s, let alone the Great Depression of the 1930s. Although the contraction will not be as great, it is likely that the recovery will be muted. Previous shake-outs often played the role of restructuring the economy with a new round of expansion after the weakest firms and sectors were shaken out - what one economist famously called "creative destruction". This time around, no such recovery is likely as no fundamental restructuring has occurred.
The other big difference is the relative importance of the developing world. In relation to the global economy, the past provides little guide to the present or the future.
Many will no doubt see the latest gloomy data from the eurozone and Japan as confirmation that the world economy is heading for a deep recession. Such a view is based on a superficial reading of global developments.
GDP figures for the second quarter show output falling by 0.2% in the eurozone and 0.6% in Japan. In addition, global fund managers say that the credit crunch is spreading from America to the rest of the world.
It is certainly possible, although not certain, that many developed countries will see a technical recession in the coming year (defined as two consecutive quarters of falling output). However, given the strength and size of the developing economies it is hard to see the whole global economy suffering such a fate. In July the International Monetary Fund forecast that emerging and developing economies would grow by 6.9% this year and 6.7% in 2009.
What looks likely is a protracted period of slow growth in the developed world punctuated by financial volatility. Developing country growth is likely to slow but to remain positive.
It is also important to remember that numbers only tell part of the story. This downturn is different from most previous ones in that it is a consumption-led slowdown. It is centred on problems on the consumption side of the economy and the financial markets rather than the industrial sector. Instead of the violent shake-out that has characterised many previous cycles, a less intensive but more prolonged squeeze looks likely.
The outlook is far from rosy, but it is not comparable to recessions such as that of the mid-1970s or early 1980s, let alone the Great Depression of the 1930s. Although the contraction will not be as great, it is likely that the recovery will be muted. Previous shake-outs often played the role of restructuring the economy with a new round of expansion after the weakest firms and sectors were shaken out - what one economist famously called "creative destruction". This time around, no such recovery is likely as no fundamental restructuring has occurred.
The other big difference is the relative importance of the developing world. In relation to the global economy, the past provides little guide to the present or the future.
Labels: America, Asia, economics, Europe, Fund Strategy
Sunday, August 10, 2008
Globalisation and overfishing
Spiegel Online has a substantial article arguing that globalisation, by encouraging overfishing, is destroying the world’s oceans. As it happens even Indur Goklany, an articulate and avid defender of economic development, concedes that overfishing is a problem. But the solution is more systematic farming of the world’s oceans rather than the hunter-gatherer approach that prevails at present.
Labels: consumption, environment, Europe, globalisation, progress
Thursday, August 07, 2008
FT on happynomics
Many newspaper articles on happiness economics follow more-or-less the same line (see 27 July 2008 post). A touch of utilitarianism (Jeremy Bentham, John Stuart Mill) followed by some quotes from the usual suspects (including Richard Easterlin, Richard Layard, Nic Marks and Andrew Oswald). Today’s Financial Times piece by Jonathan Guthrie on “happynomics” at least has the virtue of mentioning that Nicholas Sarkozy has toyed with the idea of happiness yardsticks. It also points out that some academics argue there is a link between happiness and income: “Ruut Veenhoven of Erasmus University, Rotterdam, claims happiness increases steadily with wealth, albeit at a declining rate.”
Labels: economics, Europe, happiness
Wednesday, January 09, 2008
Affluenza in France - it’s official
A feature in the January / February issue of Foreign Policy magazine suggests the idea of “affluenza” is pervasive in France rather than confined to America and Britain. Stefan Theil, Newsweek’s European economics editor, bases this claim on a study of official French textbooks:
‘ “Economic growth imposes a hectic form of life, producing overwork, stress, nervous depression, cardiovascular disease and, according to some, even the development of cancer,” asserts the three-volume Histoire du XXe siècle, a set of texts memorized by countless French high school students as they prepare for entrance exams to Sciences Po and other prestigious French universities." ‘
‘ “Economic growth imposes a hectic form of life, producing overwork, stress, nervous depression, cardiovascular disease and, according to some, even the development of cancer,” asserts the three-volume Histoire du XXe siècle, a set of texts memorized by countless French high school students as they prepare for entrance exams to Sciences Po and other prestigious French universities." ‘
Labels: affluenza, Europe, happiness
Sunday, June 03, 2007
Deutsche Bank on happiness
Deutsche Bank has published a substantial report on happiness. Stefan Bergheim, one of the bank’s economists, uses a statistical “cluster analysis” to identify what he says are 10 “indicators for a happy society”:
1)High degree of trust in fellow citizens
2)Low amount of corruption
3)Low unemployment
4)High level of education
5)High income
6)High employment rate of older people
7)Small shadow economy
8)Extensive economic freedom
9)Low employment protection
10)High birth rate
Strangely, America and Britain are classified by Deutsche Bank as happy societies. This is in contrast to much of the internal debate within these countries which sees them as unhappy.
It is also notable that the paper argues that happiness and life satisfaction should be explicit policy objectives. So now we have a bank saying that governments should concern themselves with making us happy – presumably whether we like it or not.
1)High degree of trust in fellow citizens
2)Low amount of corruption
3)Low unemployment
4)High level of education
5)High income
6)High employment rate of older people
7)Small shadow economy
8)Extensive economic freedom
9)Low employment protection
10)High birth rate
Strangely, America and Britain are classified by Deutsche Bank as happy societies. This is in contrast to much of the internal debate within these countries which sees them as unhappy.
It is also notable that the paper argues that happiness and life satisfaction should be explicit policy objectives. So now we have a bank saying that governments should concern themselves with making us happy – presumably whether we like it or not.
Labels: corruption, Europe, happiness
Tuesday, April 03, 2007
Panic attacks “neo-liberal” model
Yesterday’s Financial Times included a comment by Mica Panic, a fellow of Selwyn College, Cambridge, attacking the Anglo-Saxon “neo-liberal” economic model. In his view the European model, and Scandinavia in particular, as offering the highest levels of well-being. He also argues for a separation of well-being from growth. To quote his article:
“The importance of these comparisons is that they consistently show that countries with social democratic or corporatist models of capitalism have markedly higher levels of social well-being than those, such as the US and UK, with a liberal free-market model.
“Equally important, the reason for this is not that they have higher gross domestic product per head but that their social attitudes, objectives and policies are very different. Unlike the US and, since 1979, the UK, these countries attach great importance to social cohesion and, therefore, to equality of opportunity.”
It seems to me what Panic is missing is the need to raise the living standards of the poor in America and Britain still further. The need is for more growth rather than less. It is also striking that much of the discussion of well-being is underpinned by a fear of social breakdown.
“The importance of these comparisons is that they consistently show that countries with social democratic or corporatist models of capitalism have markedly higher levels of social well-being than those, such as the US and UK, with a liberal free-market model.
“Equally important, the reason for this is not that they have higher gross domestic product per head but that their social attitudes, objectives and policies are very different. Unlike the US and, since 1979, the UK, these countries attach great importance to social cohesion and, therefore, to equality of opportunity.”
It seems to me what Panic is missing is the need to raise the living standards of the poor in America and Britain still further. The need is for more growth rather than less. It is also striking that much of the discussion of well-being is underpinned by a fear of social breakdown.
Labels: economics, Europe, happiness, inequality
Tuesday, February 27, 2007
Comment on European and Asian firms
Yesterday Fund Strategy published a cover story by me on the euro-zone and a related comment. They were, strictly speaking, more about economics generally rather than growth scepticism but I thought they might be of interest. The cover story is too long to post here (and there is no direct link) but I have pasted the comment below:
Many large European companies seem to be pinning their hopes for the future on outsourcing production to Asia. While this might work as a short-term financial strategy, it will not alter the shifting power balance between the two continents.
As Daniel Ben-Ami discusses in this week's cover story many European firms are transforming themselves into "platform companies". This means they are retaining control of such functions as marketing and design, while outsourcing the production of their products. Ikea and H&M are prime examples of European platform companies.
The phenomenon has also been noticed by those discussing Asia. Will Hutton, one of Britain's best-known economic commentators, has written a book that makes much of the fact that hardly any leading global brands are Chinese. He argues that China's strength is frequently exaggerated because commentators fail to grasp that it often acts as a sub-contractor for Western firms.
It is true that Western companies can benefit from outsourcing their production to Asia. No doubt they are bolstered by the restructuring involved in shedding their own workforces and relocating elsewhere. It also means they have fewer assets tied up in fixed capital. Lower volatility and higher share prices can be a result of this process.
But if Western companies believe Asian firms will be content to just assemble products for others they are deluding themselves. Once Asian companies have honed their production skills, they are likely to start developing their design and marketing abilities. This may take time but it is hard to see how the process can be thwarted.
The process will in some ways be analogous to Britain's relative decline. In the Victorian era Britain was the world's leading power, but in the 20th century it was supplanted by America. This did not mean Britain disappeared but it is not the power it once was. In absolute terms, Britain is far wealthier than in the 19th century, but relative to other powers it has fallen behind.
In a similar way, the shift today is towards Asia. Firms from the East will no doubt become leaders in technology and marketing rather than assemblers of Western goods. European firms will continue to operate - many may thrive, but fewer of them will be the world leaders they are now. The continent of the future looks set to be Asia rather than Europe.
Many large European companies seem to be pinning their hopes for the future on outsourcing production to Asia. While this might work as a short-term financial strategy, it will not alter the shifting power balance between the two continents.
As Daniel Ben-Ami discusses in this week's cover story many European firms are transforming themselves into "platform companies". This means they are retaining control of such functions as marketing and design, while outsourcing the production of their products. Ikea and H&M are prime examples of European platform companies.
The phenomenon has also been noticed by those discussing Asia. Will Hutton, one of Britain's best-known economic commentators, has written a book that makes much of the fact that hardly any leading global brands are Chinese. He argues that China's strength is frequently exaggerated because commentators fail to grasp that it often acts as a sub-contractor for Western firms.
It is true that Western companies can benefit from outsourcing their production to Asia. No doubt they are bolstered by the restructuring involved in shedding their own workforces and relocating elsewhere. It also means they have fewer assets tied up in fixed capital. Lower volatility and higher share prices can be a result of this process.
But if Western companies believe Asian firms will be content to just assemble products for others they are deluding themselves. Once Asian companies have honed their production skills, they are likely to start developing their design and marketing abilities. This may take time but it is hard to see how the process can be thwarted.
The process will in some ways be analogous to Britain's relative decline. In the Victorian era Britain was the world's leading power, but in the 20th century it was supplanted by America. This did not mean Britain disappeared but it is not the power it once was. In absolute terms, Britain is far wealthier than in the 19th century, but relative to other powers it has fallen behind.
In a similar way, the shift today is towards Asia. Firms from the East will no doubt become leaders in technology and marketing rather than assemblers of Western goods. European firms will continue to operate - many may thrive, but fewer of them will be the world leaders they are now. The continent of the future looks set to be Asia rather than Europe.
Labels: Asia, china, corporations, economics, Europe, Fund Strategy
Monday, January 22, 2007
America closer to Europe on climate change
It seems that America is moving ever closer towards the European consensus on climate change. According to a leader in today’s New York Times:
* Four major bills have recently been offered to the Senate calling for mandatory controls on emissions of carbon dioxide.
* Last week 10 big companies joined an informal coalition to press Congress and the Bush administration for action.
* Nancy Pelosi, the House speaker, established a select committee on global warming last week.
It is a pity that America is following the route of managing energy demand rather than the alternative strategy of bolstering supply.
* Four major bills have recently been offered to the Senate calling for mandatory controls on emissions of carbon dioxide.
* Last week 10 big companies joined an informal coalition to press Congress and the Bush administration for action.
* Nancy Pelosi, the House speaker, established a select committee on global warming last week.
It is a pity that America is following the route of managing energy demand rather than the alternative strategy of bolstering supply.
Labels: America, climate, environment, Europe
Wednesday, November 29, 2006
Smug European attack on China and Africa
A despicable attack on China for providing cheap loans to Africa in today’s Financial Times (and I suspect elsewhere too). The FT article is based on comments by Philippe Maystadt, the president of the European Investment Bank (EIB):
“Philippe Maystadt, the EIB's president, said banks like his were operating in competition with Chinese lenders anxious to extend Beijing's influence across the world.
“ ‘The competition of the Chinese banks is clear,’ said Mr Maystadt, whose European Union-backed bank is the world's biggest multilateral lender. ‘They don't bother about social or human rights conditions.’ “
So not only is China providing cheap capital to Africa but it is not trying to impose its views on African governments. Sounds like China is providing a better deal to Africa all round. The last thing China needs is expensive Western capital with numerous strings attached.
“Philippe Maystadt, the EIB's president, said banks like his were operating in competition with Chinese lenders anxious to extend Beijing's influence across the world.
“ ‘The competition of the Chinese banks is clear,’ said Mr Maystadt, whose European Union-backed bank is the world's biggest multilateral lender. ‘They don't bother about social or human rights conditions.’ “
So not only is China providing cheap capital to Africa but it is not trying to impose its views on African governments. Sounds like China is providing a better deal to Africa all round. The last thing China needs is expensive Western capital with numerous strings attached.
Tuesday, August 15, 2006
Conservatives go green
An interesting article from Newsweek (August 14) on how environmentalism has gone mainstream:
In fact in my view environmentalism went mainstream in the 1970s but now conservative politicians are embracing it more openly than ever. As Newsweek argues:
Crunchy Cons - to use a term coined by Rod Dreher - seem to rule much of the world.
“Something weird is happening in the once marginal world of environmentalism. The green cause is no longer the preserve of woolly-minded liberals and fringe activists. Its tenets are being actively pursued by business leaders, stockholders and investment managers.”
In fact in my view environmentalism went mainstream in the 1970s but now conservative politicians are embracing it more openly than ever. As Newsweek argues:
“Conservative politicians once skeptical of the green movement have been reacting to the pressure. Last week, California's Republican Gov. Arnold Schwarzenegger met with British Labour Prime Minister Tony Blair to promote the idea of a transatlantic carbon-emissions market. He also wants to reduce his state's greenhouse-gas emissions to 80 percent below 1990 levels by 2050. David Cameron, the new leader of Britain's Conservative Party whose revamped slogan is "Vote Blue, Go Green," has visited the Arctic to see firsthand the effects of global warming. He cycles to work, and is redesigning his Edwardian house in London to include a wind turbine and solar panels, which will cut energy use by 30 percent. In Germany, the Greens and the conservatives recently agreed to join forces to run the city government of Frankfurt, the first such coalition in the country's history. President Jacques Chirac of France is promoting a new "solidarity" levy to be paid by all air travelers.”
Crunchy Cons - to use a term coined by Rod Dreher - seem to rule much of the world.
Labels: America, environment, Europe, Germany
