As climate talks continue to grind along in Doha, food security would seem to be a major concern (especially as the U.N. issues warnings about the increasingly desperate food situation in Syria). However, the question of how farmers will feed the world's booming population while adjusting to changing weather patterns appears to have been sidelined even as this year's crippling drought in the U.S. sent grain prices to record highs.
That doesn't mean, however, that the race for food security hasn't already begun. As the authors of the recently released book The Global Farms Race argue, cash-rich but resource-poor governments have been quietly making controversial bids for the arable fields of foreign lands to shore up their own food security. Since the 2008 global food crisis, these "land grabs" -- considered an economic lifeline by supporters and neocolonialism by critics -- have been booming. The editors of the book note a 2011 Oxfam study that claimed nearly 230 million hectares of land have been sold or leased since 2001, mostly after 2008 (that's about the size of Western Europe). In one of the most publicized deals, the South Korean company Daewoo Logistics leased 3.2 million acres in Madagascar in 2008 to grow corn and palm oil so that the company could "ensure our food security." The deal, which was eventually canceled, was so unpopular domestically that it contributed to an uprising that helped to oust Madagascar's President Marc Ravalomanana.
While that deal fell apart, countless others have gone through, sparking debates over the economic, environmental, and political implications of exporting crops from food-insecure countries. As Michael Kugelman, co-editor of the book with Susan L. Levenstein, said at a book launch event at the Wilson Center on Tuesday, this development marks "a new phase of the global food crisis" -- one that may help countries importing food, but has grave implications for the countries hosting the crops. One of the disaster scenarios of these large-scale investments is that they will recreate scenes straight out of the Irish Potato Famine, during which crops were shipped out of the starving nation to feed wealthy foreigners. But equally urgent are the day-to-day economic, environmental, and political ramifications of the deals, from the effects of clearing forest to make way for new farmland to the implications of replacing food crops with biofuels.
Defenders of this type of direct foreign investment often tout the willingness of investors to share technology -- such as seeds for drought-resistant plants and satellite monitoring for crops -- with the host nation. However, corrupt governments willing to offer deals that don't benefit their own populations compromise these promises of development. (Unlike the land-grabs of yore, host governments solicit many of these deals. According to Kugelman, Pakistan offered a 100,000-strong security detail to protect the property of foreign investors and other countries have offered "fire sales" on land in the form of tax write-offs).
As the book acknowledges, these deals are most likely here to stay, so the focus is on minimizing the potential conflict over the contentious real estate. Many of the policy recommendations provided by the book lean toward community supported agriculture programs: Wealthy nations contracting directly with small-scale farmers to meet food needs while also providing them with the technology and capital to improve their yields. While that's all well and good, the willingness and ability of foreign investors to abide by these recommendations seems doubtful, especially given the difficulty of enforcing even well-established international economic rules.
The inability of the current multilateral climate talks to make meaningful headway on even a single key issue highlights the inherent problem with these arrangements. "You can have all the rules and regulations for land rights," contributor Derek Byerlee, the World Bank's former Rural Strategy advisor, said on Tuesday, "But you have to be able to implement them."
Swedish furniture giant IKEA has begun work on a 26-acre self-contained neighborhood in Stratford, East London - just in time for the 2012 Olympics.
The town will be called Strand East and will contain 1,200 new homes, 480,000 square feet of office space, and a 350 bedroom hotel. The development's canal side location -- nicknamed "mini Venice" -- will feature a water-taxi service and floating cocktail bar. It is the first major development for LandProp, which owns the intellectual assets of the furniture company. The development group already operates in Holland, Lithuania, Poland, and Latvia, according to the Daily Globe and Mail.
The announcement comes shortly after the British government's agreement last month to slim down urban planning laws in order to encourage more sustainable projects, like this one. In what was a bitter dispute with countryside campaigners, the reforms represent a huge step along the way to reviving Britain's struggling rural economy.
Andrew Cobden, a spokesman for the project, also described a 40-meter illuminated tower that will be visible across the East London skyline - meant to emulate the Olympic torch. Like all things IKEA, the tower will be made from relatively "simple" materials, a wooden lattice of 72 diagonal laths, 16 horizontal steel rings, and held together by 32,000 trusty steel bolts.
The development will accommodate residents at a range of income levels. IKEA's first pre-fabricated home debuted last month in Portland, at an all-inclusive price of just $86,000. You might need more than a tiny Allen wrench to build this one.
The government of Georgia is courting MTV in its effots to improve its image in the world and encourage tourism. EurasiaNet.org reports:
In a bid to promote Georgia's profile in world markets and attract tourists and investors, Tbilisi has signed a deal with the global music entertainment network MTV for a high-octane concert to be televised worldwide, a source close to the negotiations has confirmed to EurasiaNet.org.
The concert, tentatively planned for May or June 2011, will be held in the Black Sea resort town of Batumi, according to Georgian Tourism Department Director Maia Sidamonidze. The performance will take place under the auspices of MTV Impact, a division of the network that uses concerts to expand MTV's reach in developing countries, with the pledge to use the MTV brand to encourage economic growth.
Georgia already enjoys a "crushing soft-power advantage" over its neighbors, as James Traub put it in an article for FP over the summer. The country has scant resources and a small population, but delicious food, friendly people and a beautiful landscape might be able to make up for that. And if Katy Perry gets a beach house near Batumi? Maybe the U.S. will be willing to join in the next fight against Russia.
In seriousness, though, it makes sense for the government in Tbilisi to push tourism and foreign investment to their tiny country and MTV, with a global audience in the hundreds of millions, is probably a good way to bring the kind of exposure that they want. The government is simultaneously trying to make English (instead of Russian), the national second language.
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Due to a combination of high unemployment levels that have decreased U.S. wages and increased salaries in India's outsourcing sector, the head of India's largest business process outsourcing company told the Financial Times that American call center workers are becoming just as cheap their Indian counterparts:
Pramod Bhasin, the chief executive of Genpact, said his company expected to treble its workforce in the US over the next two years, from about 1,500 employees now.
"We need to be very aware [of what's available] as people [in the US] are open to working at home and working at lower salaries than they were used to," said Mr Bhasin. "We can hire some seasoned executives with experience in the US for less money."
So does that mean that when I talk to "Jason" about my broken hard-drive, his name will actually be Jason? Not necessarily. FT goes on to say that another Indian IT outsourcing company has begun recruiting workers in Europe, the Middle East, and Africa and has plans to make half of their 110,000 workers non-Indians.
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Over the weekend, the New York Times ran a great story on the "My Way" murders in the karaoke-obsessed Philippines. The Times story noted that over the past decade, at least half a dozen people have died just after (or while!) performing the Sinatra tune, ginning up a local legend and landing the story on the NYT's most-read box, a rarity for an international affairs piece.
I looked back at some English-language Filipino news sources, where stories about the "My Way" murders and Filipino karaoke culture abound. A 2002 Philippine Daily Inquirer piece entitled "Rage Against the Machine," for instance, reads: "'My Way' still holds the record for sending the most number of local singers on their way to their Maker. I just read from our Metro pages last week that another fellow got knifed to death that way....Maybe the suspect objected violently to the way his [duet] partner carried his part? Maybe he felt being drunk was not an excuse?...Extreme aesthetics."
Here at FP, we wondered how karaoke became so popular in the Philippines in the first place. The sing-along machine is apparently a fixture in bars, clubs, and private homes, and popular even at funerals. It turns out, that is in part because Filipinos consider karaoke to be a local invention -- though its provenance is a long-standing international dispute.
It all comes down to Daisuke Inoue of Japan and Roberto "Bert" del Rosario of the Philippines. Inoue argues that he built the first karaoke machine and rented it to various bars and clubs in Kobe, Japan, starting around 1971. He coined the phrase "karaoke," which means "empty orchestra" in Japanese -- and never filed for a patent for the invention.
Del Rosario says he never heard of or saw Inoue's invention. The music-school head says that he created his "Sing Along System" around 1972 and patented the first prototype, under the name "The One Man Combo," in 1975. He alleges that a group of Japanese businesspeople visited his offices, saw his machine, and replicated it in Japan.
"I can rightly claim to be the inventor of the SAS or karaoke because of the international patent ruling that the first person to patent his product is the inventor," del Rosario told the Philippine Daily Inquirer in 2002, after years of disputing the karaoke machine's origins. "The main reason why I developed the SAS is the fact that Filipinos love to sing."
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Businesses just can't win this holiday season. In the US, if part of your sales pitch doesn't include mention of the birth of Jesus, onto Bill O'Reilly's blacklist you will go. This never made a lot of sense to me, as I struggle to see the logical link between a purported virgin birth and throwing down 35 big ones for a Screature. However with or without logic, the "War on Christmas" is going international.
One group in Israel is getting in on the action, where simply making mention of the Christian holiday could get you boycotted. The group behind the Israeli movement "Lobby for Jewish Values" sent out several fliers that say:
The people of Israel have given their soul over the years in order to maintain the values of the Torah of Israel and the Jewish identity.
You should also continue to follow this path of the Jewish people's tradition and not give in to the clownish atmosphere of the end of the civil year. And certainly not help those businesses that sell or put up the foolish symbols of Christianity.
Looks like someone's getting coal, or worse a visit from Krampus.
Either way, this could potentially be confusing to multinational corporations trying to rake in whatever money is still left in the global economy, so for those retailers taking notes: when in the country of Jesus' birth, make no mention of said birth. When on the other side of the Atlantic Ocean, gush about frankincense and myrrh.
(Hat tip: Matthew Yglesias)
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On Sunday, the New York Times published an article exposing problems with the wildly popular microfinance organization Kiva, a person-to-person lending site whose virtues Oprah Winfrey and Nicholas Kristof have extolled.
Most people thought Kiva works like this: Entrepreneurs in poor countries explain their need for a small loan on the site. Then, donors select a project they support, give an amount of their choosing, and watch the donations tally up on the page. Kiva trumpeted that "the people you see on Kiva's site are real individuals."
That was true. But it really works much differently, David Roodman of the Center for Global Development figured out. Kiva doesn't take dollars from one person and send them directly to another. All of the recipients are vetted, approved, and given loans by another organization -- then put on the site after the fact. Roodman wrote a meticulous (and ultimately complimentary) blog post debunking Kiva's story of itself and touched a nerve, ginning up thousands of comments and spurring the start-up to respond.
The problem wasn't just that Kiva misrepresented itself as a person-to-person microlender -- but that Kiva misrepresented itself as a hypertransparent organization. The information about the financial pathways was on the site, sure, but you had to dig around to find it.
Kiva has responded by changing the language on its site and clarifying the loan process. I'm happy to see it becoming more accountable and transparent, particularly as it becomes a larger organization. (Just this month, it lent its one-hundred-millionth dollar.)
But, at the end of the day, a $10 donation backstopping a pre-existing loan to a Colombian farmer doesn't seem so different to me than a $10 donation helping create a loan for that Colombian farmer. And if pooling the donated funds helps keep overhead costs down (high overhead being the main argument against person-to-person direct microlending), I'm all for that.
At the opening session of the U.S.-China Strategic and Economic Dialogue yesterday, President Obama made a point of referring to one of China's most impressive exports:
In addition to assembling the ballerest cabinet in American history, Obama also seems to really like dropping the names of a country's prominent U.S.-based athletes as an icebraker with possibly suspicious crowds. Here he is in Ankara on April 6:
“President Hu [Jintao] and I both felt that it was important to get our relationship off to a good start,” Obama said. “Of course, as a new president and also as a basketball fan, I have learned from the words of Yao Ming, who said, ‘No matter whether you are new or an old team member, you need time to adjust to one another.’”
Maybe it's just a rhetorical pleasantry, but what if this indicates a new foreign policy doctrine for the Obama era, namely: No matter a country's regime type, economic system, or foreign policy goals, as long as they are represented (well) in U.S. professional sports leagues, there is at least the basis of a productive bilateral relationship with the United States.
This augurs well for a rapproachement with Hugo Chavez's Venezuela, which has made substantial contributions to Major League Baseball -- including the manager of Obama's White Sox. Cuba could be a bit problematic, since Cuban baseball players tend to be defectors, but the country's potential baseball contribution is vast, so diplomatic progress will likely be slow but deliberate.
The U.S.-China relationship will remain at least as strong as Yao's knee, but Taiwan can at least count on Chien-Ming Wang in their bid for U.S. support.
Zaza Pachulia's new contract with the Atlanta Hawks should reassure Georgians worried about being abandoned in the Obama administration's Russian reset. Israelis worried about Obama's hard line on settlements should take heart in the recent signing of Omri Casspi by the Sacramento Kings. They may want to keep an eye on the Iranian Hamed Haddadi of the Memphis Grizzlies though, not to mention the NFL's half-Iranian T.J. Houshmanzadeh.
Kim Jong Il as well as his son and probably successor Kim Jong Un are both known to be big basketball fans. If they really want to get the U.S. to the negotiating table, perhaps what they need is not their own nuke, but their own Yao Ming.
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Obama will respond to questions submitted this week by text message (SMS) in a recording made sometime before his speech at the Ghanaian parliament. The tape will be released to African radio stations and other media after his speech, and the speech will also be broadcast simultaneously on African radio stations and on the internet.
The White House page with all the details is here, including the numbers Africans can use to submit their questions. Ghana, Nigeria, Kenya and South Africa have dedicated local shortcodes with longcodes available for other Africans. According to Kenya's Daily Nation, local SMS rates will be charged, and mobile users can choose to receive excerpts from the speech via SMS in French or English.
Erik Hersman, a new media guru who blogs at White African, worked with the White House on the platform and has a great post on logistics and some of the reasoning behind the various outreach platforms. Hersman says that U.S. citizens cannot participate in the SMS platform because of cold-war era legislation on public diplomacy, but other efforts including a live chat on Facebook and a dedicated Twitter tag (#obamaghana) will try and encourage global discussion. News site allAfrica is also collecting questions for Obama.
With no glitches, this demonstration of interest in the views of Africans will probably boost Obama's global approval ratings, which already are almost double those of the United States. At Accra's tourist market, Obama t-shirts and paintings are flying off the shelves and Ghanaians are hoping for a boost in tourism after the visit.
More on Obama's decision to visit Ghana can be found in a recent post by FP editor Elizabeth Dickinson.
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New U.S. employment numbers out this morning indicate things are getting worse at a less-breakneck pace. A mere 345,000 Americans lost their jobs in the month of May.
The New York Times sunnily reports that the numbers are "a welcome sign that the decline in the job market would not continue forever."
People will say this means the recession is bottoming out. They will call it a green shoot. They will glass-half-full it. Pollyannaism is Pollyannaism.
But the report is dismal: that graph on the front web page of the New York Times shows change, not the absolute unemployment. The employment-to-population ratio is under 60 percent, the underemployment number is 16.4 percent, and unemployment is worse than the provisional numbers used the stress tests.
Plus, a Deutsche Bank report notes, "the length of the workweek declined by 0.1 hour to 33.1 hours, which is the aggregate hour equivalent of an additional loss of about 350k jobs" -- making May look much more like April.
Still, there are signs that even if the employment numbers in the U.S. are really bad, things worse elsewhere. Here's a fascinating graph from Stratfor:
The chart is missing a few key countries, most notably China. (Stratfor says it did not include China because its economy is too different to compare. Fair point.) Stratfor argues the recession is hitting the U.S. much more softly because "the American system is far more stable, durable and flexible than most of the other global economies, in large part thanks to the country’s geography."
It makes some sense: each country's economy grows to take advantage of its geography. Russia, with its massive oil and gas reserves, benefited from the massive surge in commodity prices through 2008; it has been hit hard since because the economy is highly dependent on that one industry. The U.S. economy is much more resource- and industry-diverse.
I wonder what Robert D. Kaplan would have to say about all of this...which countries' have advantageous geographies for downturns? Is this why Australia seems to be doing relatively well?
The Guardian tells the story of how Florida-resident Steve Herzfield turned to globalization in order to care for his aging parents:
[O]nce staff had been found, he could give his parents a much higher standard of care than would have been possible in the US for his father's income of $2,000 (£1,200) a month. In India that paid for their rent, a team of carers - a cook, a valet for his father, nurses to be with his mother 12 hours a day, six days a week, a physiotherapist and a masseuse - and drugs (costing a fifth of US prices), and also allowed them to put some money away.
Last year, I wrote a short piece for Net Effect's previous print incarnation on a company taking a "Priceline" approach to connect U.S. patients with hospitals in Asia and Latin America for surgery.
The whole idea of "medical tourism" is a bit disturbing in what it says about the United States' inability to provide its citizens with affordable medical care, but the future growth of this field seems inevitable so it may be time for both the U.S. healthcare industry and government to take steps to enforce a measure of safety and accountability to this sector.
Hat tip: Marginal Revolution
Want to get a sense of just how bad things are? Take a spin on Google Earth.
The above image, pulled today from Vesseltracker.com's Google Earth file, shows container ships languishing off the Singapore coast. Welcome to the largest parking lot on Earth. International Economy explains:
The world's busiest port for container traffic, Singapore saw its year-over-year volume drop by 19.6 percent in January 2009, followed by a 19.8 percent drop in February. As of mid-March 2009, 11.3 percent of the world's shipping capacity, sat idle, a record.
It's a rough time to be an Asian tiger, or to be in the shipping business. The IMF projects that Singapore's economy will shrink significantly in 2009. Globally, bulk shipping rates have dropped more than 80 percent in the past year on weak demand, and orders for new shipping vessels are cratering. In Busan, South Korea, the fifth-largest port in the world, empty shipping containers are piling up faster than officials can manage.
"Things have really started to get bad -- laborers spend their entire day waiting for a call from the docks that they have a job," Kim Sang Cheul, a dockworker at Busan, told Bloomberg. "People spend all day staring at their phone as if staring at it can make it ring. You’re lucky if you get a call."
Green shoots? Not so much.
(For another view of Singapore's port, you can check out Vesseltracker's Microsoft Virtual Earth mashup map.)
Lots of big, depressing, IMF-related news this morning:
Liberia, with the aid of the World Bank, has been negotiating with vulture funds holding $1.2 billion of its debt. You know what vulture funds are, right? They’re evil hedge-fund types who buy up debt at pennies on the dollar, and then sue for repayment in full, with interest and penalties and everything.
Just look at the deal they drove in this case! Liberia, one of the poorest countries in the world, is going to have to pay them, er, nothing at all. The World Bank is kicking in $19 million, a few rich countries are matching that sum, and the vultures are walking away with a not-very-princely-at-all $38 million, or just 3 cents on the dollar. Which probably barely covers their legal fees, let alone the amount they paid for the debt in the first place.
Let's read that again: the World Bank and Liberian government negotiated a deal so that vulture funds holding $1.2 billion in debt ended up with a check for $38 million -- three percent!
It's distressing that Liberia got in such a bad fix. It needed to raise funds and banked on future growth to make the payments -- but a bloody civil war meant it couldn't. The original lenders decided to sell the loans off to vulture and hedge funds who drove a hard bargain. Which meant that at one point, Liberia owed seven times its national income to creditors.
So, the balance sheet -- in redux:
Ultimately, though, Liberia isn't the story here. Emerging market and developing economies, like Liberia, will be among the hardest-hit in the Great Recession. Unlike OECD countries, they won't be able to issue debt or raise funds easily. They'll need the help of the international community -- and especially international organizations -- to ensure that their loans come with advisement and affordable repayment options.
The hero here's the World Bank. Suddenly, it and the IMF -- especially the IMF, perhaps -- have become the world's most important international organizations.
Dan Kitwood/Getty Images
Two out of four chapters of the IMF's major World Economic Outlook are available -- the other two are expected on April 22.
The short of it? Bad news.
Chapter three includes a long comparison of the current Great Recession with the Great Depression of the 1920s. Ours is now a global down-turn, a "synchronized downturn," the paper argues -- that makes it worse. The only available counterballast lies in coordinated, synchronized governmental spending. Nevertheless, there are worrisome parallels.
There is continued pressure on asset prices, lending remains constrained by financial sector deleveraging and widespread lack of confidence in financial intermediaries, financial shocks have affected real activity on a global scale, and inflation is decelerating rapidly and is likely to approach values close to zero in a number of countries. Moreover, declining activity is beginning to create feedback effects...
The fourth chapter takes a look at how the crisis originated in advanced economies, and spread like wildfire to emerging economies.
As the crises in advanced economies continue to deepen, and trade and capital flows decline further, exchange rates and financial systems in emerging economies could come under more severe pressure. In turn, a broad-based economic and financial collapse in emerging economies would have a significant negative impact on the portfolios of advanced economies....
In light of such cross-country spillovers, there is a strong case for a coordinated approach to a range of policies...
So, some predictions for chapters one and two, and for the IMF in general.
My question yesterday about which countries might be next to come forward for IMF loans has been amply answered!
Today, the IMF announced Poland would seek a $20.5 billion flexible credit line, to insure against any future problems and help it meet its financial commitments.
Now, the New York Times has a story up about how Britain may require IMF assistance. It faces a deficit likely to reach 11 percent of its gross domestic product and rising unemployment. Worryingly, it failed to sell its full offering of government bonds at an auction last month. The NYT article reads:
...Britain’s deteriorating public finances might require the government to seek aid from the International Monetary Fund, just as it did back in 1976 when the country’s economy was on its knees.
As remote as that possibility might be, it underscores the financial bind Britain is in and represents another humbling comedown for a country that once had ambitions to overtake New York as the world’s financial capital.
The IMF has tried to alleviate the stigma attached with seeking a loan, usually provided to truly failed economies. And Poland's received plaudits for seeking aid from the IMF; the finance minister said, "This is the reflection of our cautious and responsible economic policy."
Thus, the question becomes: if the IMF offered a loan that cost less than borrowing in other ways, would once-strong and still-responsible governments still turn them down? That is, would politics stand in the way of economics?
Yesterday, given a spate of bad economic data, I wondered which country would be the next to tap the IMF's new flexible credit line.
Today, the answer: Poland.
The country has sought a precautionary $20.5 billion dollar loan, to help it meet large short-term financing needs.
Poland hopes to adopt the euro currency in 2012; if taking the precautionary IMF loan demonstrates financial responsibility and helps keep the country's fundamentals sound, it should not disrupt that process.
Update: The head of the IMF indicates the organization will meet the request. "Its economic fundamentals and policy framework are strong, and the Polish authorities have demonstrated a commitment to maintaining this solid record," Dominique Strauss-Kahn said.
The current Great Recession is a global one, with even the most buoyant economies struggling. Reports today suggest that Japan may follow Georgia, Ireland, Switzerland, and Spain in suffering from deflation. Economic woes caused the collapse of the government of the Czech Republic. And dozens of other countries face similar specters.
All of which means the IMF, the international lender of last resort, has become very, very, very important. In the past, the IMF provided loans to countries out of ways to solve their own economic problems. In return for the loan, the IMF imposed strict conditionalities, requiring governments to clean up their act, sell assets, change tax policies, etc.
But the realities of the global recession mean that even countries with responsible policies may need IMF loans -- and may not want to accept them, for fear of the conditionalities and the optics. (See: Brown, Gordon.)
And the IMF, with its new $1 trillion budget, figured that out quickly. So, they changed the rules:
The IMF’s intention is to do away with procedures that have hampered dialogue with some countries, and prevented other countries from seeking financial assistance because of the perceived stigma in some regions of the world of being involved with the Fund.
To this end, the IMF announced the creation of a "flexible credit line" policy.
[It is an] insurance policy for strong performers, mainly emerging market countries. Access to the FCL is restricted to countries that meet strict qualification criteria. But once a credit line has been approved, a country can draw on it without having to meet specified policy goals, as is normally the case for IMF loans.
Mexico has already applied for the FCL loan, a $47 billion "precautionary credit line," last month. Question is, with new scary data emerging, which countries will be next to approach the IMF?
If you only think of genocide when you hear the name "Rwanda," it's time to think again.
Today, Rwanda is moving forward, fervently set on rebranding itself into one of Africa's most investment-friendly havens. And it appears to have some of America's most recognizable names in business in its corner. A just-published article in Fast Company counts the CEOs of Starbucks and Costco as two of the Rwanda's most influential supporters, along with the likes of Google CEO Eric Schmidt, former British PM Tony Blair, and Pastor Rick Warren of "Purpose-Driven" fame. All seem to praise the Rwandan government -- and especially President Paul Kagame -- for being serious about making the country's business climate as streamlined and free of bureaucratic hassles as possible, which is certainly an anomaly in much of the developing world. (Registering a business in Rwanda apparently takes less than 48 hours.)
An article in Fortune called "Why CEOs love Rwanda" offers this money quote from Chicago financier Dan Cooper (who is credited with introducing Kagame to Costco CEO Jim Sinegal):
We came away saying, this is the most undervalued ‘stock' on the continent and maybe in the world. Here's an African nation that's reaching out, not to governments so much, but to corporate America. They want to work. They want U.S. business to bring innovation to their country."
But is this too good to be true? The country's new model of economic development is an interesting one; it's almost as if Kagame has torn a page out of Beijing's handbook. While Kagame can be credited with cracking down hard on government corruption and creating a competent administration in the country's capital of Kigali, there's always the problem of restricted political rights and civil liberties, which critics of the regime never fail to point out. The issue is certainly important, especially given Rwanda's long history of political violence.
But that said, the country's clearly moving forward. And apparently, the business world isn't the only one taking notice. Last year, the United States signed a bilateral investment treaty with Rwanda -- the first such treaty signed between the U.S. and any Sub-Saharan African country in almost a decade.
Fifteen years after genocide, this is Rwanda rising.
Hat tip: Africamusings
GIANLUIGI GUERCIA/AFP/Getty Images
The Private Sector Development blog at the World Bank has a cool post on the effect of labor laws on computer use. Social scientists have theorized that the stricter the regulations on hiring and firing workers, the more companies turn to computers and technology.
Turns out that conventional wisdom is correct, a World Bank study shows:
Amin (2009) tests this hypothesis on 1,948 retail stores in India using data from Enterprise Surveys, a regular World Bank survey on firm performance, firm characteristics and the business climate....The study finds that the percentage of retail stores that use computers rises by 6.2 percentage points as we move from the state with the least to the median level of rigid labor laws. This is a large effect given than only 19% of the stores in the sample use computers.
The PSD blog cautions against reading too much into the results, though:
That is, to properly understand the computers/productivity relationship one needs to distinguish between the motive of saving labor because of labor regulations and the motive of enhancing efficiency through computer usage. To what extent these effects hold remains to be empirically ascertained - an important task given that the use of computers and other modern devices is fast spreading across the globe.
But there's a nice synergy there. And I wonder whether the same scientists have studied the corollary between India as an outsourcing hub and an IT giant.
At the Boston Globe, economist Laurence Kotlikoff joins Jeffrey Sachs in indicting the Geithner bank bail-out plan on the grounds that investment banks and the like will simply game the system -- allowing a government-sanctioned and epically unfair socialization of losses and privatization of gains. Kotlikoff writes:
It's one thing for the U.S. Treasury Department to overpay banks for their toxic assets on the prayer that bank shareholders will do something besides pocket it -- something that will help the economy. It's another thing to set up a complex leveraged auction scheme to surreptitiously make the transfer. And it's yet a third thing to set up a scheme that will lead the banks to overbid for their own toxics to garner even larger windfalls and end up with the toxics still in their hands.
He outlines one way for banks to game the Geithner plan, which lets banks auction off their bad (but not totally toxic) assets to investors who earn most of the possible upside if the asset makes money, while the Treasury accepts the loss if it doesn't.
Kotlikoff notes that it's a pretty easy move for banks: they set up and fund subsidiaries to buy the mortgage-backed securities -- effectively insuring against any losses that asset might accrue. The Treasury has promised that investors won't be able to buy their own assets in this way -- officials won't let them. But there still plenty of ways to get around it.
But there's a big problem -- not with the details of Sachs' and Kotlikoff's arguments, but with their very premise.
First, there's no incentive for a bank to buy its own bad debts as opposed swapping with someone else's. Say Goldman Sachs' hedge fund, GSAM, buys J.P. Morgan's assets, and a J.P. Morgan subsidiary buys Goldman's. There's nothing wrong with that, and it's effectively the same as the banks buying their own. A recent report shows that i-banks are still major global hedge fund players -- the government needs those funds to play.
Second, the gaming proposal presumes that the banks have cash to buy up the assets at auction at all. But most of the banks who will sell bad assets really don't have a lot of cash floating around -- anywhere. Many are in debt, and nobody will lend to them, so theorizing that they'll fund a bunch of subsidiaries to nick taxpayer money seems far-fetched. Even if they do it, the scale would be limited by their available capital.
Finally, in a macro sense, the Geithner plan is set up precisely to recapitalize the banks, create a market for the bad assets, and to get the assets off the banks' books. Gaming the system does recapitalize the banks. It does bolster the market for the bad assets. And it does sequester the assets in spin-off companies -- a kind of good-bank/bad-bank scenario.
In short: the Geithner plan might not be fair. It, in some sense, props up and rewards companies that took massive risks and now need taxpayers and the government to bail them out. But, taking the Geithner plan as it is, gaming doesn't seem so bad.
On his New York Times blog, Nobel-prize winning economist Paul Krugman has reponded to a VoxEU post showing that the current Great Recession might be accelerating deeper and faster than the Great Depression. Krugman writes:
What hasn’t happened — at least not yet — is any counterpart to the catastrophes of 1931: the wave of bank runs in the US, the failure of Credit Anstalt in Austria, and the great perverse response of central banks that was triggered by the death spasms of the gold standard.
What Eichengreen-O’Rourke show, it seems to me, is that knowledge is the only thing standing between us and Great Depression 2.0. It’s only to the extent that we understand these things a bit better than our grandfathers — and that we act on that knowledge — that we have any real reason to think this time will be better.
Eichengreen and O'Rourke convincingly argue that two indicators, trade volume and stock values (they don't take on other indicators, like global GDP or unemployment), are plummeting. But they also show the alacrity and force of governmental responses -- the only option for staunching the bleeding and returning the world economy to health.
At VoxEU, economists Barry Eichengreen and Kevin O'Rourke compare the current global recession and the Great Depression -- or, more accurately, parse the comparisons. They note that many commentators, like Paul Krugman, include only U.S. stock and economic indicators, in which case, some evidence suggests this downturn may be shorter and milder.
But, they argue, the Great Depression was a global phenomenon; it originated with the U.S. stock crash and soon engulfed the world economy. The current recession, likewise, is one of a globalized world. The U.S. led the fall, but didn't fall alone.
So, they write: "the global picture provides a very different and, indeed, more disturbing perspective than the U.S. case...which as noted earlier shows a smaller decline in manufacturing production now than then." And they demonstrate the effect, with a series of compelling and frightening graphs.
Here's the global stock market, the blue line representing its value during the Depression and red during the current recession:
And here is global trade volume, another indicator. They write, "This is highly alarming given the prominence attached in the historical literature to trade destruction as a factor compounding the Great Depression."
The one bright spot, they note: the policy responses have been far, far better this time around. Central banks have slashed interest rates earlier and lower, and increased the money supply more and faster. And, globally, there is heightened government deficit spending, intended to arrest decline.
Still, Eichengreen and O'Rourke's analysis demonstrates that the global recession may be worse than people think, even if the U.S. manages a recovery.
Amid the financial crisis, U.S. media outlets have paid extra attention to the two nations worst-hit in western Europe: Iceland and Ireland. Publications from The New Yorker to the A.P., and everything in between, have parsed the deflationary risks, excess housing, and fiscal problems. They've talked about the strains on social welfare safety-nets and rising unemployment.
And they've done so with lots of bloated and condescending scrim on how Ireland and Iceland are the magically quaint fairy-lands of leprechauns, vikings, alcohol, and the in-bred!
For instance, in Vanity Fair, top financial reporter Michael Lewis came out with these brilliant insights into the denizens of Reykjavik: those "mousy-haired and lumpy" people, one of whom he calls a "bearded troll," love to "drink themselves into oblivion and wander the streets until what should be sunrise." He describes "orc shrieks" emanating from a hotel room. Zany laws mean citizens have to "write to the government and quit" to "stop being Lutherans." And Icelanders, "sincerely" believing in elves, made an industrial conglomerate "pay hard cash to declare the site" of a smelter "elf-free."
Today, in the New York Times, veteran reporter Timothy Egan makes an equally enlightened assessment of Irish culture in his article about, erm, housing stock.
"Every village that had seen nary a rock wall or a cottage window unchanged suddenly had a cul de sac of insta-homes and a half-dozen O’Mansions," he writes. "Anyone with a mortgage could get rich in little more time than it took for a head of Guinness to settle."
Needless to say, the Irish and the Icelandic are, well, unhappy.
A online commenter on the NYT piece writes:
Yet more condescending, starry-eyed tosh from the New York Times regarding Ireland...Oh and, is it mandated by the New York Times editorial board, that every article about Ireland contain boilerplate about flowing pints of guinness and gap toothed peasantry? Perhaps the Irish media will take to writing colourpieces about New York in which the sky is compared to a swirling tankard of Budweiser.
New York magazine ran a take-down of Lewis' reportage from a more bemused resident of Iceland:
"His is a wild account of a backwards Nordic island populated by 'lumpy' and 'inbred' people who might force you to shower in scalding water or, worse, blow up a Range Rover. If you didn’t know any better, you’d think we were a sitcom waiting to happen. Unfortunately, none of this is exactly true."
At CounterPunch, Gregory Burris likewise takes Lewis down a notch:
"As I masochistically forced myself to continue reading Lewis’ article, I could not help but wonder: how did such a dimwitted diatribe ever make it through Vanity Fair’s editorial process? Did the editors really find it fit to print? Yes, unfortunately for us, they really did."
In today's G-20 communiqué (just a fact sheet, really) world leaders pledged an additional $1.1 trillion in loans and debt guarantees to aid trade and help shore up the worst-ailing economies.
The fact sheet (let's call it a fact sheet) notably included toothy regulatory measures and a lack of fiscal stimulus -- which Britain, the United States, and China have undertaken, to the cold shoulder of most of continental Europe.
It also dramatically increased the budget of the IMF. The New York Times summarizes:
The most concrete measures relate to support for the International Monetary Fund, which has emerged as a “first responder” in this global crisis, making emergency loans to dozens of countries.
The Group of 20 pledged to triple the resources of the Fund to $750 billion — through a mix of $500 billion in loans from countries, and a one-time issuance of $250 billion in Special Drawing Rights, the synthetic currency of the Fund, which will be parceled out to all its 185 members.
So what on earth is a Special Drawing Right (SDR) anyway?
Basically: it's a currency.
Back in 1969, the world economy was still suffering from the effects of the Great Depression and the world wars. At the Bretton Woods conference at the end of World War II, the heads of state attending decided against creating a global reserve currency, instead instituting a fixed-rate exchange system.
Twenty-five years later, there weren't enough key exchange assets -- units of gold bullion and dollars -- to keep up with the growing global economy. So, the IMF's member states decided to create the SDR system.
A basket of stable major currencies -- like the dollar, pound, and yen -- determined its value. Some countries, like Latvia, pegged their currencies to the value of the SDR. But most just used their allocated portion in various international transactions.
But, just a few years after the IMF bothered to make the SDRs, the Bretton Woods fixed-rate system collapsed and the modern world currency market, where exchange rates float freely, emerged. This rendered the SDRs pretty much useless.
Indeed, the current market for SDRs, until the I.M.F. injection, was just $32 billion. The value of current oustanding U.S. currency? Just over $1 trillion.
The G-20 just released its final communique, summarizing the agreements made during the one-day conference. And, it's a doozy.
The agreements we have reached today, to treble resources available to the IMF to $750 billion, to support a new SDR allocation of $250 billion, to support at least $100 billion of additional lending by the MDBs, to ensure $250 billion of support for trade finance, and to use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries, constitute an additional $1.1 trillion programme of support to restore credit, growth and jobs in the world economy. Together with the measures we have each taken nationally, this constitutes a global plan for recovery on an unprecedented scale.
It's certainly on an "unprecedented scale." Plus, it's the first global action plan to really emerge from a G-20 conference -- note the sale of gold to shore up developing economies. See more detailed analysis from FP bloggers throughout the day.
At previous international summits, the unruly protesters tended to be widely referred to as "anti-globalization." This time around, however, the media seems to have settled on "anticapitalist" as an umbrella term for the marchers currently bringing London to a standstill and forcing bankers to wear sneakers to work.
This is, it must be said, probably a more accurate term. Groups that use the Internet bring together marchers from all over the world to rally for interests of the global poor or global environmental issues can hardly be described "anti-globalization."
(Of course, one could point out that they'd never have access to these tools without capitalism, but that's another debate.)
So why, for the most part, do people not talk about an anti-globalization movement anymore? A few possibilities:
1. It never was an anti-globalization movement and the media's just figured that out.
2. After the Bush-era wars and the economic crash, trade is no longer a top priority for activists and the media needed a broader term.
3. The activists have gotten more radical, moving from a critique of trade and lending practices, to an objection to capitalism itself.
4. Globalization won. (See the gentleman to the right.)
SHAUN CURRY/AFP/Getty Images
In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.
But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.
Johnson shows how financial firms became more and more profitable, and a bigger and bigger part of the U.S. economy. More capital meant more political capital, he argues, which eventually meant nobody prevented the melt-down. The same political entrenchment makes fixing the banks difficult.
The obvious solution to the financial crisis, Johnson says -- informed by his time at the I.M.F. -- is simple. The United States should determine which banks can't survive and temporarily nationalize them, instead of simply recapitalizing them, he says. But the relationship between top financiers and the government means this won't happen -- at least not unless things get much worse.
Still, his article includes a list of the policies (or lack thereof) which most contributed to the bubble and burst. It's a great crib sheet of what Capitol Hill and the G-20 Summit will tackle, piece by piece, to reform the system.
• insistence on free movement of capital across borders;
• the repeal of Depression-era regulations separating commercial and investment banking;
• a congressional ban on the regulation of credit-default swaps;
• major increases in the amount of leverage allowed to investment banks;
• a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement;
• an international agreement to allow banks to measure their own riskiness;
• and an intentional failure to update regulations so as to keep up with the tremendous pace of financial innovation.
It's fascinating, scary reading.
The New York Times reports that embattled Czech Prime Minister and E.U. President Mirek Topolanek, addressing the European Parliament, described Obama's fiscal package as the "road to hell," saying the bailout would "undermine the stability of the global financial market."
Yesterday, Topolanek was defeated in a no-confidence vote by the Czech parliament -- largely due to criticism of his handling of the financial crisis.
Photo: Dominique Faget/AFP/Getty Images
In an ironic twist that was bound to happen sooner or later, the job of watching the U.S.-Mexican border to keep illegal immigrants from coming to take American jobs...has been outsourced. Thanks to live streaming videos, anyone with an Internet connection can now log on and keep an eye on the Texas border and report illegal immigrants or drug smugglers to the authorities. (I watched a section of the Rio Grande for about three minutes yesterday but then I got bored. Sorry America.)
Interestingly, foreigners seem particularly taken with the project:
Anyone with an internet connection can now help to patrol the 1,254-mile frontier through a network of webcams set up to allow the public to monitor suspicious activity. Once logged in, the volunteers spend hours studying the landscape and are encouraged to email authorities when they see anyone on foot, in vehicles or aboard boats heading towards US territory from Mexico.
So far, more than 100,000 web users have signed up online to become virtual border patrol deputies, according to Don Reay, executive director of the Texas Border Sheriffs' Coalition, which represents 20 counties where illegal crossings and drugs and weapons smuggling are rife.
"We had folks send an email saying, in good Australian fashion, 'Hey mate, we've been watching your border for you from the pub in Australia'," he said.
Since the first 15 of a planned network of 200 cameras went live in November, officials claim that emailed tips have led to the seizure of more than 2,000lb (907kg) of marijuana and 30 incidents in which "significant numbers" of would-be illegal immigrants were spotted and turned back. Some tips came from Europe, Asia and beyond, but most online watchers are based in Texas, New Mexico and Arizona, three of the four US states that share a border with Mexico.
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