tag:blogger.com,1999:blog-84860871391522927282024-03-18T02:48:46.743-07:00The Elegant EconomistUnknownnoreply@blogger.comBlogger11125tag:blogger.com,1999:blog-8486087139152292728.post-54511913938719022882016-05-29T03:00:00.000-07:002016-05-29T03:09:52.685-07:00How an Indonesian volcano created British democracy<h4 style="background: white; line-height: 15.75pt; margin-bottom: 0.0001pt; margin: 0cm;">
<span style="color: #262626; font-family: "times" , serif; font-size: x-small;">Another departure from the usual Elegant Economist style - this post was inspired by <a href="http://www.bbc.co.uk/programmes/b077j4yv">this</a> awesome In Our Time episode. Hope you enjoy! </span></h4>
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A tempestuous subduction zone in the India Ocean, Shelly’s Mask of Anarchy, and The Guardian – what on earth do they have in common?<br />
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This is quick, and hopefully entertaining, story to illustrate just how intricate and interconnected the world can be.<br />
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At a time when politicians are telling us there are 10-word answers to the immense challenges we face, it is useful to reflect just how complicated the world we live in really is. We so rarely understand, or even can understand, the implications of the actions we now take. So we should be wary indeed of politicians offering us ‘simple solutions’. Instead we should demand leaders who understand the nuance and uncertainty of today.<br />
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But this is abstract – let me instead start my story. One that will weave together geology, meteorology, politics, poetry and history. <br />
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It begins 340 kilometres north of the Java Trench, where the Indo-Australian Plate meets the bloc of the Eurasian Plate. Strictly speaking it’s where the Indo-Australian Plate gets subsumed by the Eurasian plate and is pushed beneath the Eurasian plate forming a subduction zone. A LOT of tectonic activity takes place here – think molten lava. 57,000 years ago all this activity formed a volcano called Mount Tambora, which eventually reached a height of 4,000 metres.<br />
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Unfortunately for the people of Tambora, it didn’t stay this high. <br />
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The rich magma building up under its cone was andesitic in composition. This type of magma emits copious quantities of gas but with nowhere to go. Pressure built until eventually it was all too much for poor Mount Tambora. It erupted. Spectacularly.<br />
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The eruption of Mount Tambora in 1815 lasted 3 days and is suspected to be the most destructive blast in 10,000 years. At its peak it is estimated to have been discharging material at rate of 300-500 million kilograms per second. 10,000 people died directly from the blast while a further 80,000 in the region are thought to have later perished from starvation.<br />
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Why starvation? This is where geology meets meteorology. Much of what Tambora shot up was sulphur dioxide, and, it turns out, if you shoot it high enough it can hang around for a pretty long time. (We’re talking years here). Up in the stratosphere it partially obscures the sun rays as well as increasing the solar reflection. Less sun, less heat. This doesn’t affect Indonesia so much as, well everyone.<br />
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Europe had already been going through of a cold snap known as the Little Ice Age. Tambora’s eruption exacerbated this. 1816 became known as the year without a summer, with snow falling in June in Central Europe. Quite apart from being depressing, it played havoc with agriculture. Cool temperatures and heavy rains resulted in failed harvests in Britain, Ireland and much of continental Europe. The price of bread doubled and many farmers abandoned their land, becoming refugees in their own country. It was the worst famine of the 19th century. <br />
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And this is where meteorology meets politics.<br />
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The result was that people were increasingly dissatisfied. But the climate wasn’t the only cause. The import-restricting Corn Laws amplified famine and unemployment in the North of England, as did the dip in textile manufacturing. This backdrop intensified anger at the political system, particularly the so called rotten boroughs. While major urban centres like Manchester with over 1 million citizens were represented by only two MPs, Old Sarum in Wiltshire elected two MPs with just 1 voter. Voting was also restrictive. Only property owners with an annual rental value of 40 shillings, could cast a ballot. <br />
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On August 16th, at St. Peter’s Field 60,000 protestors gathered to protest at their lack of representation. This was considered illegal and warrants were issued for the arrests of the protest organisers. But getting to them wasn’t going to be easy as they were in the very centre of the crowd. Calvary officers, who were later accused of being poorly trained and, perhaps, drunk, charged the crowds in an attempt to get to Hunt and other leaders as well as to disperse the crowd. This they did, but not before killing 15 people and injuring upward of 500.<br />
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The carnage, referred to as the Peterloo Massacre, was widely condemned. And this was more surprising than you might think. It was one of the first events attended by journalists from important papers across the UK. Swiftly after, headlines about the massacre appeared in London, Leeds and Liverpool to the consternation of the government. They instructed the police and the courts to pursue journalists for “sedition”. Whilst in many ways this was a step back for the press, it did lead to the formation of the Manchester Guardian later to become The Guardian. Without this I may never have developed my productivity-killing addiction to its Life and Style section.<br />
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Meanwhile, the poet Percy Shelley, who had written about the strange weather of 1816 while on the shores of Lake Geneva, heard of the massacre only in September while in Italy. His response was the wonderful poem, the Mask of Anarchy, only published after his death. This mesmerising poem is even better listened than read. (I once heard a version read by Dominic West which was incredible but sadly I can no longer find).<br />
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In the poem Shelley calls out the senior government ministers such as the Viscounts Castelreigh and Sidmouth who defended their harsh response to Peterloo. They are represented by a number of characters; Murder, Fraud, Hypocrisy (riding on a crocodile no less), and Anarchy astride a white steed, echoing the four horsemen of the apocalypse. They, with Anarchy in the lead, lay siege to Britain under his banner "I am God, and King, and LAW". In this way Shelley represented the repression felt by an increasingly literate and empowered working class who consistently saw political decisions being made which favoured the elite at their expense. While it begins with their subjugation the poem ends with their eventual triumph over these "destructions". It is an ode to a democracy -"Let a great assembly be, of the fearless and the free" - that would take another 112 years to fully form. <br />
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In the third-to-last stanza of the poem, Shelley describes what he hoped the impact of Peterloo would be; "And that slaughter to the Nation, shall steam up like inspiration, eloquent, oracular; a volcano heard a far". Shelley did not know about Tambora, nobody in Europe did at that time. It would be at least 150 years before scientists began to piece the connections together. But in some respects The Mask of Anarchy, the Guardian and indeed British democracy owe something to "a volcano heard a far". <br />
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I said at the beginning that this was a story about the interconnection of things. Tambora wasn't the sole or even major cause of these changes. Instead it and other preceding events combined to create the chaos of August 16th, 1816. <br />
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And it is this ability to see complexity behind events which is so essential in our understanding of the modern world. Globalisation has only increased the links between people and systems. While this has created huge benefits such as rising life expectancies and falling poverty rates it has also intensified risks. Where sectors are tightly coupled, trouble in one area spreads too rapidly to destabilise other systems. We saw this in the financial crash of 2007-2008 - its fatal speed owed much to a system where many of the institutions were so interdependent that a failure in one inevitably set off a downward spiral that virtually brought down the entire financial sector.<br />
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Yet the point is not to try and stop this increasing interconnectivity, but to understand it. To take a step back from situations and events and reflect on the many different, and at first sight seemingly unrelated, causes. Only by understanding these, can we fully appreciate the scale and complexity of problems and determine smart solutions.<br />
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This is a lesson for us all, and not just for our political and business leaders. We have the global smarts to deal with the next big challenges - an anti-biotic resistant super bug, mass migration caused by climate change or even another overwhelming volcanic eruption. But we can't use these smarts effectively unless we take a deep breath, step back and analyse the multiple and varied causes of the challenges we face. Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8486087139152292728.post-15593478450798777332016-03-19T08:18:00.000-07:002016-04-07T20:46:14.877-07:00Tindernomics; An examination of microeconomic principles through the assortative pairing site, TinderThe Elegant Economist is back!<br />
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And first I must apologise for my long overdue absence. I have spent the last 18 months focusing my efforts on project ‘Get into Grad School’. And now that the exams, essays and bureaucratic insanity is done with I can return to my first love; economics!<br />
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And love is indeed the theme of my welcome-back post. I have not been a total recluse and this post (previously a work-presentation would you believe!) is my back-to-basics economics refresher.<br />
Instead of my usual recipe format, I will be covering some basic microeconomic principles through none other than the dating app Tinder. Welcome to Tindernomics.<br />
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But quickly for those of you who have never used Tinder (trust me, you’re missing out!) a quick three step guide.<br />
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<li>Download the app and sync it with your Facebook profile – this allows you to share your mutual friends and interests as well as a selection of photos.</li>
<li>Look at pictures and swipe right for ‘yes, I like this person’ and left for ‘no, please keep them away from me’</li>
<li>If they swipe right too, you match! And then you can begin messaging </li>
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Now for those of you who had the good fortune never to study economics (or better yet never date an economist…) I’m going to run through a little introduction to demand and supply using a very similar commodity to boys…bananas.</div>
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If you look below you will see my banana demand curve. On its own it means nothing because it takes two to tango (or exchange bananas) so I add a supply curve. Where the two lines meet we have an equilibrium. With this I can find out how many bananas my supplier is prepared to sell me at a certain price. </div>
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If this is sounding all a bit unromantic. Don’t worry it is. So, to a large extent, is online dating.</div>
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Now back to Tinder. <o:p></o:p></div>
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If you look below you can see my dating demand curve and my
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effort (substituted for price here) to meet just a few guys. Pre-tinder I had
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Introducing Tinder! Now I am carrying round half of eligible London in my pocket. So my supply curve shifts way out. </div>
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What does this mean? </div>
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For much less effort I can meet many more guys. This is known in economics as a WIN. (Actually its not, it’s just what I call it)</div>
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The same is true for guys with Tinder but…less so. It’s an unproven observational finding that guys are much less choosy than girls on Tinder. Sadly for guys, as the diagram below demonstrates, this means while Tinder will shift your supply curve out, not as much mine. You’re going to have to work harder for fewer dates. </div>
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Sorry about that.</div>
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So we’ve established that Tinder is great for the increasing quantity of men trying to take me out. But the quality…?</div>
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Not so much. </div>
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This is because of something economists applaud and I despair over; low barriers to entry. </div>
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What do I mean by that?</div>
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Let’s imagine we are trying to enter the airline market. To do this we need to finance and purchase a fleet of planes and comply with a litany of regulation. That’s a lot of effort and money or what economists call High Barriers to Entry. </div>
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Now what about a boy trying to supply me with a date on Tinder. What does he need to enter the market? </div>
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A smartphone and opposable thumbs (I’m not even sure the latter is a deal breaker) or Low Barriers to Entry. </div>
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There’s another economics challenge I face on Tinder, incomplete or imperfect information. </div>
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If we think about my bananas from earlier. Now when I’m looking to buy bananas I have most of the information I need. I can see them, check their ripeness and because they’re from a well-known brand I can safely assume they’re not organic and thus free of organic things like disease. </div>
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Unlike bananas, Tinder profile tells me remarkably little information about the product. </div>
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Let’s use my own profile as an example. </div>
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First, it less is relevant to know how good I look half way through an amazing holiday and more important to know how I look first thing in the morning.</div>
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I’ve included a picture of me scuba diving to make me seem
fun and adventurous.<o:p></o:p></div>
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This in no way indicates that I will likely bore you with
anyone of the following subjects over dinner; the history of cartography,
institutional reform in Southern Italy, third-wave feminism and, of course,
micro-economics.<o:p></o:p></div>
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My profile may tell you I am 26. </div>
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What it won’t tell you is it that I more often behave, and sometimes dress, like a 6 year old.</div>
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Economists have developed a few methods for overcoming this. </div>
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The Nobel-prize-winning economist Michael Spence, proposed ‘signalling’ as a way to overcome imperfect information in markets where it was inevitable. Following this theory, sellers (my future Tinder dates) ‘signal’ their value to me. This is why on Tinder, boys over 6ft always mention their height…and boys under 6ft never do. </div>
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Yet signalling may not be enough to overcome this information gap. George Akerlof, another Nobel-winner, predicted that in markets where there were too many lemons (bad Tinder dates) that couldn’t be detected the market would decay to the point of nonexistence. Perhaps this is why I have not invested in Tinder yet…</div>
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If you do manage to overcome the vast quantity and variable quality of Tinder choices you may get to the messaging stage. </div>
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This is where the romance really can die. </div>
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Messaging on Tinder closely resembles something economists call the prisoners dilemma but which I call EGO-FAIL. It’s briefly this. </div>
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Let’s say I have finally found an acceptable Tinder date; Ryan Gosling. I am excited that I have matched with Ryan and I obviously want to message him all the time.</div>
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But, I play it cool. Why? Because the risk of being friendly is too high! </div>
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For example, it’s possible that I message Ryan a lot and he messages me too. This is the ideal, as we can see in the diagram below. Both I and Ryan’s utility (economist speak for happiness) has shot up by 10 points. This is what we call a Pareto optimal situation and where romance can bloom.</div>
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But there’s a risk. If I’m excited, and Ryan is not, my EGO will take a huge hit. Now instead of being top left box, we’ve sunk to the bottom one. Ryan is enjoying all the attention so he is still up by 10. But my utility has fallen by 20 points. What this translates to in real life is misery. I can no longer concentrate in meetings because I’m wondering why Ryan hasn’t replied. Did I seem to keen? Does Ryan really hate girls who scuba dive? </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Because this situation is relatively worse than the
happiness I get from messaging Ryan (-20 is greater than +10) I will do all I
can to avoid it. I message less. If Ryan follows the same strategy based on ego
we both end up in what economists term a Nash equilibrium or ‘just what we’re
stuck with’. Where no one gains but no one’s ego takes a hit either.</div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-9dFbofBvu7I/Vu1tbcxPRuI/AAAAAAAAAF8/n4Hfh6fVZowZ8SqC1fpHoUuZNXLkWufAQ/s1600/Image%2B10.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="287" src="https://1.bp.blogspot.com/-9dFbofBvu7I/Vu1tbcxPRuI/AAAAAAAAAF8/n4Hfh6fVZowZ8SqC1fpHoUuZNXLkWufAQ/s400/Image%2B10.png" width="400" /></a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Too long here and you can end up in Tinder-nertia. Once you’ve reached there a date will never happen. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
There is only one escape from the dilemma – finding a Tinder match with no shame. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Feeling depressed? I am. After all, they don’t call economics the dismal science for nothing. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
But as its valentine’s day let me offer you a little ray of hope from my own life. I first started using Tinder two years ago. This time last year after about 25 first dates I did indeed find a Tinder date with no shame (aka he’s Italian). Last month we celebrated our 1st anniversary. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
And I have Tinder to thank. Who knew that somewhere out there in London there would be a boy that really has no interest in scuba diving but who did appreciate my first date chat on microeconomics, cartography, institutional reform in Southern Italy, and feminist theory. He thinks I look cute in the mornings (though he is VERY short sighted) and he is remarkably tolerant of my childish behaviour. I guess my point is that even for economists, love is possible folks. </div>
<div class="MsoNormal">
<br /></div>
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Now get swiping! </div>
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</div>
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<br /></div>
Unknownnoreply@blogger.com3tag:blogger.com,1999:blog-8486087139152292728.post-51613947991253893762014-09-15T11:05:00.002-07:002014-09-19T01:25:01.940-07:00Commercial banking in Africa: The melting pot<div style="margin: 0cm 0cm 12pt;">
<div align="center" style="margin-bottom: 1.9pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm; text-align: center;">
<i><span style="color: #444444;"><span style="font-family: Times, Times New Roman, serif;">Changing
the way fortune is managed in Africa, might just change the fortunes of Africa.<o:p></o:p></span></span></i></div>
<div style="margin-bottom: 1.9pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<br /></div>
<div style="margin-bottom: 1.9pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif;">In culinary
terms, Africa is an exciting place. Variety is indeed the spice of life: from
the fiery Ghanaian curries to bunny chow (food served in hollowed out bread) in
South Africa. To a geek like me, financial innovation in the country is as
exciting as the food - both have a rich mix of traditional and outside
influences, of simplicity and complexity and of history and ingenuity. <o:p></o:p></span></div>
<div style="margin-bottom: 1.9pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<br /></div>
<div style="margin-bottom: 1.9pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif;">However,
the most exciting thing about this innovation is that it's a recipe for growth.
Banking is the cornerstone of a functioning economy. It provides liquidity and
security, supporting both the growth of business as well as the financial
security of citizens. <o:p></o:p></span></div>
<div style="margin-bottom: 1.9pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<br /></div>
<div style="margin-bottom: 1.9pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif;">It is
thus dispiriting to read that Africa is one of the least ‘banked’ places
in the world. The level of banking penetration (the proportion of people with
bank accounts) is only 16.6% in Sub-Saharan Africa, compared with a global
average rate of 63.5%. This is partly because of a lack of infrastructure (there
are only 5.8 branches per 100,000 people in Nigeria). However low levels of
income across sub-Saharan Africa also play a role, as banks have few
incentives to attract savers with the likelihood of only ever saving small
amounts. Indeed at many banks, the minimum required deposit can be as high as a
person’s average annual wage. There is also reluctance by banks to locate in
places where political and economic environments can be volatile. It was only a
court injunction that<a href="http://www.independent.co.uk/news/world/africa/why-barclays-wants-to-cut-somalias-money-transfer-lifeline-8818006.html"> prevented Barclays from cutting all banking services in Somalia </a>recently, due to concerns over exposure to money laundering in the
fragile state. <o:p></o:p></span></div>
<div style="margin-bottom: 1.9pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<br /></div>
<div style="margin-bottom: 1.9pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif;">But
despite economic, political and structural challenges, the bottom billion is
rising and the opportunity to attract first time customers is just too good to
forgo. Thus a variety of actors are stepping into the breach, with new and innovative
ways of providing financial services to poor Sub-Saharan Africa. The
ingredients are a surprising mix, but could, in the right amounts and with good
timing, send African GDP climbing. <o:p></o:p></span></div>
<div style="margin-bottom: 1.9pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<br /></div>
<div style="margin-bottom: 1.9pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif;">The
ingredients for a newly banked Africa: <o:p></o:p></span></div>
<ul type="disc">
<li class="MsoNormal"><span style="color: #444444; font-family: Times, Times New Roman, serif;">Loans and savings: <o:p></o:p></span></li>
<ul type="circle">
<li class="MsoNormal"><span style="color: #444444; font-family: Times, Times New Roman, serif;">Innovative saving schemes <o:p></o:p></span></li>
<li class="MsoNormal"><span style="color: #444444; font-family: Times, Times New Roman, serif;">Micro finance <o:p></o:p></span></li>
</ul>
<li class="MsoNormal"><span style="color: #444444; font-family: Times, Times New Roman, serif;">Transfer of money: <o:p></o:p></span></li>
<ul type="circle">
<li class="MsoNormal"><span style="color: #444444; font-family: Times, Times New Roman, serif;">Cheaper and quicker domestic money
transfer systems <o:p></o:p></span></li>
<li class="MsoNormal"><span style="color: #444444; font-family: Times, Times New Roman, serif;">Cheaper and quicker cross-border
money transfer systems<o:p></o:p></span></li>
</ul>
<li class="MsoNormal"><span style="color: #444444; font-family: Times, Times New Roman, serif;">New types of money not subject to state governments <o:p></o:p></span></li>
<ul type="circle">
<li class="MsoNormal"><span style="color: #444444; font-family: Times, Times New Roman, serif;">Virtual currencies <o:p></o:p></span></li>
</ul>
</ul>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;">So
let's start with those traditional ingredients we take for granted in our own
long established banking sector; the ability to save and take out loans. <o:p></o:p></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;">Providing
innovative ways of saving has the ability to transform the business environment
and home life for many Africans. Without bank accounts many people in
sub-Saharan Africa are left without the opportunity to save for the future - to
even out income streams or save enough capital to start or scale an enterprise.
Instead they are entirely dependent on their daily income.<o:p></o:p></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;">Yet,
innovative schemes are negating the need for a traditional banking infrastructure.
Let's start by looking at the now famous micro-finance movement. The precise
origins of the schemes are unclear but it is most commonly attributed to Muhammad
Yunus who set up the now largest microfinance institution, Grameen Bank, in
Bangladesh. Yunus had discovered that the poor often remain poor
because of lack of access to credit or savings. Lack of access to small amounts
of capital meant that when a crisis occurred such as the ill health of a wage
earner, a family could not tide itself over with a loan. Equally, many micro-businesses,
which operate primarily in the informal sector, often have no access to credit;
either through a lack of financial know-how or because they are sitting on what
Hernando de Soto described as 'dead capital'. This phenomenon occurs when, activities
in the informal sector are denied loans as the capital they have is not legally
securable. Therefore it cannot be used to help guarantee a loan. By making tiny
loans to those living in poverty across the globe, microfinance institutions
can help avoid people falling back into catastrophic poverty and deprivation as
well as giving them opportunity to secure a better livelihood through
entrepreneurship.<o:p></o:p></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;">Innovations
in micro-finance schemes have also lead to micro-saving schemes. These occur at
the community level in the form of a saving and loans association. Similar to a
regular bank, 25 to 30 members pay in small amounts of money which are then
pooled and lent to individual members over a 6 to 12 month period. Interest
payments form the returns to those in the association. These schemes have
proved to be popular across the developing world they have 4.6 million users
across 54 countries.<o:p></o:p></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;">However
banks exist not solely to provide loans and savings. They also provide other
crucial services such as the transfer of money between accounts and providing
hard currency, allowing account holders to securely pay bills or transfer money
to friends and family. Both security and liquidity are the key ingredients
provided by banks here. Traditionally this has required expensive
infrastructure and willingness by financial institutions to invest in a
country. <o:p></o:p></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;">But
African entrepreneurs are finding ways around this by using technology to
leapfrog traditional barriers and in the process often enhancing the technology
they originally absorbed. A classic example, and the next ingredient in this
recipe, is the mobile money transfer system, M-Pesa. Developed in Kenya by
Vodafone's local service provider Safaricom with advice from the UK's
Department for International Development, the system allows Kenyans, Tanzanians
and more recently South Africans to transfer funds through their mobile phones.
They can also use the service to withdraw money for a small fee. This simple
technology has radicalised finance in Africa driving better financial
management by individuals and an increased rate of business activity. The
charitable network <a href="https://www.cgap.org/sites/default/files/CGAP-Brief-Poor-People-Using-Mobile-Financial-Services-Observations-on-Customer-Usage-and-Impact-from-M-PESA-Aug-2009.pdf">CGAP found that M-Pesa</a> increased the incomes of rural
recipients by 5-30%. It has also increased security by negating the need for
users to carry cash. <o:p></o:p></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;">This
tasty ingredient could be further complemented by a superior international
financial transfer system. Let's go back to Barclays attempting to cut off
financial ties with Somalia. This would have been a disaster for the country, which
is dependent on remittances (money being sent to the country by Somalis working
abroad). Fully 40% of Somali families rely on these to meet their most basic
needs, such as food and healthcare, <a href="http://www.bbc.co.uk/news/business-24553148">according to Oxfam</a>. And Somalia is not an
anomaly in Africa, remittances comprise 25% of Liberia and Lesotho's GDP and
38% of Eritrea’s.<o:p></o:p></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;">The
challenge with international transfers is that moving money across borders can
be expensive. Africans sending money home, using transfer services like Western
Union and MoneyGram, lose an average 12.4% in fees. Within Africa it can be
even worse; it costs an average of 22% to transfer money between Tanzania and
Kenya, the homes of M-Pesa. These high fees are largely due to a lack of
competitors and high regulatory hurdles. <o:p></o:p></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;">How
to prevent Africans losing 12.4% of the $60 billion they send home every year?
A company called <a href="http://www.earthport.com/">Earth Port</a> might be the answer. It is not a small start-up or a
charitable endeavour, but since 1998 it has worked to become a global
aggregator of local payment systems. Instead of navigating the numerous
electronic banking systems it moves money on its own platform called universal
payments systems. In this way it provides low cost international transfers to
over 60 countries and its reach continues to expand. Its clients include smaller
online transfer systems like Azimo to the major players such as Barclays and
Bank of America. Earth Port promises to halve the cost of remittances compared to
traditional wire payments. If adopted across Africa, this could have enormous
financial benefits. A 2013 World Bank study found that if, remittances fees
fell in Africa by just over half, to 5%, then this would return $4 billion into
Africans pockets. Earth Port’s innovative technology might just be a way of
achieving this.<o:p></o:p></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;">The
final and most experimental ingredient in this recipe is digital currency,
which has the potential to be the most transformative in Africa's financial
system. I'm going to use the most infamous example of virtual money, Bitcoin,
but it's possible to look to other varieties too. Bitcoin is a
decentralized, software based, digital currency that uses peer-to-peer
technology to facilitate instant payments, mostly to purchase goods and
services. The media has tended to focus on Bitcoin’s more nefarious uses,
particularly its use to launder money and to pay for illegal substances, most
famously on the <a href="http://www.theguardian.com/technology/2014/may/30/life-after-silk-road-how-the-darknet-drugs-market-is-booming">Dark net marketplace, Silk Road</a>. Yet, the features which
make it such a bugbear to governments and central banks could actually bolster
trade and investment in Africa. <o:p></o:p></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;">To
begin with, digital currency might make the transfer of money faster and
cheaper than any remittances service ever could. Bitcoin operates outside the
traditional financial system and by cutting out banks as middlemen, it could
greatly reduce the cost and speed of moving money in Africa. Moving Bitcoin is
virtually free and transfers would be near instant - the current remittances
process can take up to 5 days. E-commerce in Africa would particularly benefit
from the wider use of virtual currency. Merchants currently struggle with
global online payments as credit cards place high transaction fees on payments
to Africa and fraud issues are a constant worry. <o:p></o:p></span></span></div>
<div class="MsoNormal">
<span style="color: #444444; font-family: Times, Times New Roman, serif;"><span style="line-height: 115%;"><br /></span></span></div>
<div class="MsoNormal">
<span style="color: #444444; font-family: Times, Times New Roman, serif;"><span style="line-height: 115%;">However,
the most appealing feature of virtual currency as an ingredient is that its
stability does not rely on the stability of a national government. This might
seem a strange point to some. How could Bitcoin, whose price volatility is 10
times that of the US dollar, and whose value dropped by nearly a third<a href="http://www.theguardian.com/technology/2014/feb/28/bitcoin-mtgox-bankruptcy-japan"> after the crash of the Bitcoin exchange Mt. Gox</a>, be more stable than a national
currency? It's important to remember that Bitcoin is relatively new and the
first of its kind to achieve significant market attention. As Bitcoin and other
virtually currency's expand they should naturally trend towards stability as
confidence in them grows. Consumers were wary of trusting online payments
such as PayPal in their early days. However a growing number of users and a
proven safety record created a virtuous circle of growth and trust and<a href="http://www.businessinsider.com/alipay-overtakes-paypal-as-the-largest-mobile-payments-platform-in-the-world-2014-2"> PayPal was, until February, the largest online payment system</a>. Increased liquidity
will also lend stability to Bitcoin. It stands to reason that with more Bitcoins
and money behind them, a single incident or player, is less able to disrupt the
market. Governments also creating a fixed regulatory policy around virtual
currency would also lessen much recent uncertainty</span><span style="line-height: 115%;">. </span><span style="line-height: 115%;"><o:p></o:p></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;">Thus
an increasingly stable ingredient might be the key for many African countries
where their own local currency is often very unstable. One only needs to think
of the instability experienced by Zimbabwe under Mugabe, where inflation reached
79.6 billion % before the currency was abandoned entirely. Even Ghana, a
bastion of new growth and development in Africa, has seen its <a href="http://www.ft.com/cms/s/0/195ce3ec-1a5f-11e4-8131-00144feabdc0.html">currency slide by around 40% this year.</a> Bitcoin, which doesn't rely on a central bank and is relatively
free from political meddling, could provide Africans with a currency they can
trust. Indeed a company, BitPagos, is focused on trying to create a Bitcoin
ecosystem in Latin America, where individuals in countries with high inflation
such as Argentina and Venezuela, can rely permanently on Bitcoins, instead of
switching into national currencies. <o:p></o:p></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;">Virtual
currencies are not a perfect answer to unstable economies in the emerging
world. There are of course risks that Bitcoin's anonymity will attract money
laundering and finance terrorism in Africa, thriving on, instead of helping
solve, instability. Yet the world’s most stable national financial institutions
often developed over hundred year periods - in a country that is increasingly using
technology to leap frog so many traditional development problems, currency
should be no exception. <o:p></o:p></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span style="line-height: 115%;"><span style="color: #444444; font-family: Times, Times New Roman, serif;">So
there we have it, a rich mix of innovation, coming together to ‘bank’ Africa.
It’s inspiring to see a continent, where 600 million still lack access to enough
electricity to light their homes, at the cutting edge of financial innovation
in so many ways. From local village groups to global online payments systems,
finance is driving development and equality across Africa. That’s what I’d call a
recipe for success! </span><span style="color: #262626; font-size: x-small;"><o:p></o:p></span></span></div>
</div>
<div style="margin: 0cm 0cm 12pt;">
</div>
Unknownnoreply@blogger.com15tag:blogger.com,1999:blog-8486087139152292728.post-32808103655841747202014-05-13T02:40:00.001-07:002014-05-14T11:50:24.035-07:00Advice to the chef-in-chief: How to cook the perfect health care system <div style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><span style="background-color: white; color: #444444;">It's seems ever since President Obama passed
his healthcare bill in March 2010, politicians on the right have been
loudly protesting about the implications for American freedom. Despite health care
costs significantly higher than any other developed nation and nearly 50
million uninsured resulting in 45,000 Americans deaths a year, they have
reacted to the President’s attempt to ensure every American can afford
treatment as an assault on America's founding principles. Perhaps they are
taking Patrick Henry's </span><span style="background-color: white;"><span style="color: #990000;">"give me liberty or give me death" </span></span><span style="background-color: white; color: #444444;">speech a
little too literally...<o:p></o:p></span></span></div>
<div style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><span style="background-color: white; color: #444444;">Perhaps unsurprisingly, the anger surrounding the
Patient Protection and Affordable Care Act appears to be largely due to
misunderstanding of what it contains. Talk of 'death panels' and socialism
have created a fear of the unknown. An excellent piece from the Jimmy
Kimmel show</span><span style="color: #444444;"> (</span><a href="http://www.youtube.com/watch?v=sx2scvIFGjE"><b><span style="color: blue;">you can
watch it here</span></b></a><span style="color: #444444;">) <span style="background: white;">shows Americans
first being asked if they agree with ‘Obama Care’. They all
say no. They are then asked if they support an alternative bill, the
Affordable Health Care bill and describe its principles. They all say yes. They
are then shocked to discover that the latter is in fact the dreaded ‘Obama
Care’. This is not only an interesting study on the depth partisanship in
America, but also highlights how uninformed many Americans are about this issue
and how complex healthcare provision is. And indeed Americans have one of
the most complicated and expensive systems in the world.
Americans spend $8,602 per person annually on health care. Meanwhile,
Britain spends only $3,609 per person and the Germans spend $4,495
per person. Even the “socialist” French spend less at
only $4,118 per person a year. <o:p></o:p></span></span></span></div>
<div style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><span style="background-color: white; color: #444444;">How to unpick this mess? In homage to the Guardian’s ‘</span><a href="http://www.theguardian.com/lifeandstyle/series/how-to-cook-the-perfect"><b><span style="background-color: white;">How
to cook the perfect…</span></b></a><span style="background-color: white; color: #444444;">’ column by
Felicity Cloake, I’ve decided the trick to finding the perfect healthcare
recipe is to look at many different versions and see what works best. I’ll
be looking at recipes from the Germans, the British, and the Singaporeans, determining
what works best and from whom America could borrow.<o:p></o:p></span></span></div>
<div style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<i><span style="background-color: white; color: #444444; font-family: Times, Times New Roman, serif;">NB. To stay
true to Felicity’s style I’ve dispensed with my usual ingredient list. Please
find them scattered through the content of this post. <o:p></o:p></span></i></div>
<div style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="background-color: white; color: #444444; font-family: Times, Times New Roman, serif;">I'll begin with Germany and their Bismarck model, named after the
Prussian Chancellor who implemented their system in the 1880's. It is very
similar to what President Obama would like to see in the US. It is
mandatory to have health insurance and no one can be excluded based on any
pre-existing conditions. Employers and payroll deductions form the
basis of funding. However, one of the key differences between
the systems is the insurers themselves. <o:p></o:p></span></div>
<div style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="background-color: white; color: #444444; font-family: Times, Times New Roman, serif;">If the US was working from scratch, this model might not be
too difficult to implement. Unfortunately, the President is using some ready-made
ingredients. In Germany, compulsory health insurance is provided to 92% of
the population through "sickness funds", private non-profit
organisations none of which are allowed to deny coverage for a pre-existing
condition. In the US, health insurance has traditionally
been provided by for-profit behemoths. These companies are very reluctant
to accept clients with pre-existing conditions that will hurt their bottom line.
They lobbied heavily against the Affordable Care Act. <o:p></o:p></span></div>
<div style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="background-color: white; color: #444444; font-family: Times, Times New Roman, serif;">The implementation of this system is hindered by an
economic condition that plagues the insurance industry; adverse selection, where
the propensity to buy insurance is highly correlated with an individual’s level
of risk. Simply put, those with a higher risk of requiring medical attention
are more likely to buy insurance. If, as the Affordable Care Act ensures,
insurers are bound to serve all patients regardless of pre-existing conditions
they will suddenly find themselves with a greater number of already sick and
injured patients relative to healthy ones, pushing up their costs. To protect
profits they will have to raise prices. Of course, if coverage was truly
universal, as in Germany's recipe, this would not be an issue. The healthy low
risk citizens would bolster the expensive unwell. This is what Obama is hoping
to achieve - an influx of the young and fit by penalising those without
health insurance. However, achieving this kind of universality will
take time. Meanwhile, insurance costs will rise, further putting off the
healthy and uncovered. <o:p></o:p></span></div>
<div style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="background-color: white; color: #444444; font-family: Times, Times New Roman, serif;">If the Bismark model, so effective in Germany, works
best when made from scratch are their other recipes which could perhaps guide
the United States? Should they perhaps use a different set of
ingredients? <o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="background-color: white; color: #444444; font-family: Times, Times New Roman, serif;">Perhaps if you
can't get Americans to buy, you can get them to save? In Singapore
healthcare costs are primarily covered by Medisave, a compulsory saving scheme,
where Singaporeans and their employers contribute a part of their monthly wages
into regulated account to save up for their future medical needs. Singaporeans
are expected to use these savings, and, in dire circumstances, Medishield -
a low cost catastrophic medical insurance scheme - to foot their medical bills.
While healthcare costs are heavily subsidized, they are never free. This helps
avoid over utilisation while still providing high quality health care.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="background-color: white; color: #444444; font-family: Times, Times New Roman, serif;">And this
recipe certainly has succeeded. Singaporeans have one of the most
highly ranked healthcare systems in world - Bloomberg puts them 2nd, just behind neighbouring Hong
Kong. It also has the world’s lowest infant mortality rate.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="background-color: white; color: #444444; font-family: Times, Times New Roman, serif;">Perhaps this
is because the Singaporean recipe avoids another pitfall of the traditional
insurance systems: moral hazard. Simply put, if an individual feels certain
that they will be protected regardless, either by insurance or by the state, they
will be encouraged to take greater risks with their health. The rationale is
that between using primarily savings and always paying for care, even if the
fee is only nominal, Singaporeans will be discouraged from overly relying in
the healthcare system and encourages them to focus on prevention. At its
crudest the logic runs something like this, if I eat healthily and exercise I
am less likely to need expensive healthcare treatments and am more likely to be
able to afford braces for my kids. One can only imagine how appealing this
recipe would be to American policy makers, where citizens suffer so much from
lifestyle diseases such as diabetes or cardiovascular problems. <o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="background-color: white; color: #444444; font-family: Times, Times New Roman, serif;">But, given
conditions in the US kitchen, is this recipe transferable?<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="background-color: white; color: #444444; font-family: Times, Times New Roman, serif;">Unlike the
Singaporeans, Americans do not have a tradition of saving. US citizens have on
average $15,191 in credit card debt alone. Contrast this with
Medisave which emerged against the backdrop of high savings in Singapore. This
meant that enabling a behavioural change in Singapore was not difficult.
Encouraging U.S citizens to save the Medisave minimum sum of $40,500 would
perhaps be a cultural shock. <o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="background-color: white; color: #444444; font-family: Times, Times New Roman, serif;">It should also
be noted that the American recipe needs to feed a lot more people. Singapore is
really a city state with 5.3 million people. The US population is well over 50
times that size. Dishes that work well at a small dinner party are often unfit
for serving large numbers of people. <o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="background-color: white; color: #444444; font-family: Times, Times New Roman, serif;">Who then might
the US turn to for culinary inspiration? Why not look at a neighbour
closer in size and in heritage? With 63 million people the UK, though still a
relatively small island, is more similar in size and complexity to the US.
However, their approach to healthcare has been radically different. <o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><span style="background-color: white; color: #444444;">Instead of
entrusting healthcare to private providers, the government runs the healthcare
system from start to finish. UK citizens pay taxes, a portion of which are allocated
to fund the</span> <span style="background-color: white; color: #444444;">National Health Service (NHS). The state also
runs the healthcare infrastructure for the most part, (although there are
exceptions) and pays for the doctors and nurses. In this way British citizens
using the NHS never see a medical bill and most offerings are free at the point
of service. Exceptions include a nominal fee for things such as dentist visits
and a standard prescription fee. <o:p></o:p></span></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="background-color: white; color: #444444; font-family: Times, Times New Roman, serif;">The
government, as the sole large employer of healthcare workers in the UK, is something
of a monopsonist. That is, it is the only major purchaser of a particular good
or service, in this case doctors and nurses, allowing it substantial control in
the marketplace. This allows the UK low healthcare costs, especially when
compared against the United States. The British government spends only $3,609
per capita or 9.4% of its GDP. The US government spends $8,602 per head or
17.2% of its GDP. <o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="background-color: white; color: #444444; font-family: Times, Times New Roman, serif;">However, the
amount collected from taxes, forms the limit of what can be spent on healthcare
by the NHS. As such healthcare in this form must be rationed to some extent.
The body charged with this responsibility is, perhaps ironically, entitled NICE
(or on more formal occasions the National Institute for Health and
Clinical Excellence). They are entrusted with deciding what treatments the NHS
will and will not pay for, assessed in terms of QALYs (Quality-adjusted Life
Years). Simply put, new treatments are evaluated in terms of how many quality years
of life they will provide per pound spent.<br />
<!--[if !supportLineBreakNewLine]--><br />
<!--[endif]--><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="background-color: white; color: #444444; font-family: Times, Times New Roman, serif;">As you may
imagine, this is not the most PR-friendly of policies - cancer sufferers frequent
news channels, explaining why the government won't pay for their treatment.
This is the kind of media minefield the US government would certainly want to
avoid, especially when talk of "death panels" already abounds on Fox
News. Furthermore, it is hard to imagine an America, still so fearful of
federal government intervention, willing to experiment in the kitchen with an
entirely government run healthcare system. And while it certainly outperforms US's
position, of 46th in Bloomberg’s healthcare efficiency ranking, the UK still
comes only 14th.<br />
<!--[if !supportLineBreakNewLine]--><br />
<!--[endif]--><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="background-color: white; color: #444444; font-family: Times, Times New Roman, serif;">Which recipe
should the US borrow from then? I have only shown you three of the world's 40
state run healthcare systems, passing over many excellent recipes. However, what
is clear, from a very brief attempt to discern the perfect recipe is that, of
course no such thing exists. Each healthcare system is designed to suit
the context in which it exists. And the context in which President Obama is
working is particularly complicated. <br />
<!--[if !supportLineBreakNewLine]--><br />
<!--[endif]--><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="background-color: white; color: #444444; font-family: Times, Times New Roman, serif;">Healthcare
reform in America is famously difficult to implement. Nixon planned to
introduce healthcare reform, far more radical than anything Obama has
implemented, but this was vetoed by 70's Democrats for not being far-reaching
enough. Twenty year later Hillary Clinton's attempts at healthcare reforms were
also dashed. So the fact that Obama has even managed to implement his
Bismarkian reforms is in itself a small miracle. That fact that the scheme has
now signed up 8 million mostly poor Americans is further cause for celebration.
<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="background-color: white; color: #444444; font-family: Times, Times New Roman, serif;">Is it a
perfect recipe? No. So far the scheme has enrolled only a quarter of those
eligible. This is partly </span><span style="background-color: white; color: #444444; font-family: Times, 'Times New Roman', serif;">due to</span><span style="background-color: white; color: #444444; font-family: Times, 'Times New Roman', serif;"> the </span><span style="background-color: white; color: #444444; font-family: Times, 'Times New Roman', serif;">chaotic</span><span style="background-color: white; color: #444444; font-family: Times, 'Times New Roman', serif;"> nature of its</span><span style="background-color: white;"><span style="color: #444444; font-family: Times, Times New Roman, serif;"> roll-out. A multitude of technical glitches affecting healthcare insurance exchanges in their first weeks prevented many frustrated American signing up. Outside of federal mismanagement, America's day-to-day government is largely run at a state
level, leaving state administrators with a large say in the extent to which they
implement President Obama’s healthcare reforms. Democratic Vermont for example
has enrolled 85% of those eligible. Republican South Dakota just 11%.</span></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<span style="background-color: white; color: #444444; font-family: Times, Times New Roman, serif; line-height: 115%;">Yet in a country as large and complex as America shooting for perfection
is not the best way to get things done. To quote a Republican favourite, Ayn
Rand, Republicans dissatisfied with healthcare can continue to “evade reality” but
they “cannot evade the consequences of evading reality”. In the world
wealthiest country, the deaths of 45,000 uninsured Americans is a travesty.
Politicians should stop complaining, roll their sleeves up and focus on giving
Americans the healthcare system they deserve.</span>Unknownnoreply@blogger.com134tag:blogger.com,1999:blog-8486087139152292728.post-20566699448383071592013-09-23T05:52:00.001-07:002013-09-23T05:52:43.793-07:00A fish supper: How to make a Somali pirate<div style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="color: #444444;"><span style="font-family: Times, Times New Roman, serif;"><i>"</i><i>For if you suffer your people to be
ill-educated, and their manners to be corrupted from their infancy, and then
punish them for those crimes to which their first education disposed them, what
else is to be concluded from this, but that you first make thieves and then
punish them." </i></span><o:p></o:p></span></div>
<div style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="color: #444444;"><span style="font-family: Times, Times New Roman, serif;">― <a href="http://www.goodreads.com/author/show/3063220.Thomas_More"><b><u>Thomas More</u></b></a>, <a href="http://www.goodreads.com/work/quotes/2798280"><b><i><u>Utopia</u></i></b></a></span><span style="font-family: Times, serif;"><o:p></o:p></span></span></div>
<div style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif;">Remembering this quote the
other day, it vividly brought to mind what I had been reading about Somali
piracy - an intractable problem which costs the global economy $18
billion annually according the World Bank. In 2011, a piracy attack
occurred every 31 hours and currently 120 sailors are being held hostage. A
reduction in piracy attacks has occurred recently, falling by
two-thirds, due in part to the increased weaponisation and defence
surrounding ships. However, this is merely the stemming of an interminable
symptom as opposed to addressing the root cause. In the words of
John Clancey, chairman of Maersk shipping; <i>"Arming merchant
sailors may result in the acquiring of even more lethal weapons and tactics by
the pirates, a race the merchant sailors cannot win". </i>And they are not only the only losers in
this battle. It’s hurting Somalia and its neighbours too. Pirates often attack ships bringing goods to the
region and the cost of these strikes is being passed on to African consumers in
the form of increased prices for staple items like rice and flour. What to
do? Perhaps the recipe for Somali pirates also holds the solution.<o:p></o:p></span></div>
<div style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif;"><u>Ingredients </u></span></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
</div>
<ul>
<li><span style="color: #444444; font-family: Times, 'Times New Roman', serif; text-indent: -18pt;"> Somali government breakdown</span></li>
<li><span style="color: #444444; font-family: Times, 'Times New Roman', serif; text-indent: -18pt;"> </span><span style="color: #444444; font-family: Times, 'Times New Roman', serif; text-indent: -18pt;">Illegal international activity on the Somali
coast </span></li>
<ul>
<li><span style="color: #444444; font-family: Times, 'Times New Roman', serif; text-indent: -18pt;"> I</span><span style="color: #444444; font-family: Times, 'Times New Roman', serif; text-indent: -18pt;">llegal dumping of toxic waste</span></li>
<li><span style="color: #444444; font-family: Times, 'Times New Roman', serif; text-indent: -18pt;"> I</span><span style="color: #444444; font-family: Times, 'Times New Roman', serif; text-indent: -18pt;">llegal trawling </span></li>
</ul>
<li><span style="color: #444444; font-family: Times, 'Times New Roman', serif; text-indent: -18pt;"> </span><span style="color: #444444; font-family: Times, 'Times New Roman', serif; text-indent: -18pt;">Willingness of shipping lines to pay
ransom </span></li>
</ul>
<br />
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif;">Our first and most fundamental ingredient in this recipe
will be the breakdown of the Somali government. This
ingredient has been maturing for a while, at least since the fall
of General Muhammad Siad Barre in 1991. Since his
departure Somali has had but a semblance of a central authority and various
states in the North have taken this opportunity to attempt to breakaway, most
notably Puntland in the North East where the majority of
pirates have made their base.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif;">However even before the fall of Barre, Somalia was a difficult
nation to govern owing to its strong clan system. When Barre left, Somali
became effectively controlled by the twelve strongest clans in the region,
all battling for supremacy or independence. Twenty-two years later, the clan
system still dominates Somali political culture, making top down government and
authority very difficult to impose. Yet, the greatest opposition to
the formation of the government has not come from one particular clan
but from the extreme Islamist group Al Shabaab. This group was
so powerful that by 2012, they controlled much of the South of Somalia.
However, since then they have been driven back by a concerted military
push from Somali and African Union forces. <o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif;">The government in Mogadishu now controls 80% of Somalia but the
central government is still very weak and has little mandate in much of the
country. With historical fragility and without an effective central authority to
impose the rule of law, Somalia's stability has crumbled. This weakness has
allowed piracy to flourish along Somalia's coast. The lack of any effective
police force or coast guard has meant that they have an almost free reign over
Somalia's 2,000 miles of coastline. With no coast guard to check
their behaviour they have become de facto rulers of the waves. Indeed there is
evidence that authorities, far from checking piracy are actually profiting. The
breakdown of Somalia's institutions has meant that corruption is rampant
(Somalia comes at the very bottom of Transparency International's Corruption
Perception Index, in174<sup>th</sup> place) and there is plenty of evidence of
pirates paying off public officials. We can see an almost direct correlation
between the strength of the state and piracy; levels of piracy fell significantly
in the South after Al Shabbab lost power there.<u><o:p></o:p></u></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif;">Yet weak government does not only provide the opportunity for
piracy to occur. It also provides incentives. Without a central authority
and functioning institutions, the private sector has not been able to flourish
in Somalia. As a result many Somali’s work in agriculture, often
operating on a subsistence basis. With the absence of business or a
strong public sector there are few other employment opportunities in Somalia.
This has kept the majority in Somalia underemployed and living on less than $2
a day. With few jobs available and no state safety net, it is unsurprising
that many young men have turned to piracy. The annual income in Somalia is
$650 a year whereas a single act of piracy can yield $10,000 for an
individual. This gives pirate captains a ready crew of desperate young
men. Poverty and unemployment, the result of Somalia’s fragility, is one of the
driving forces behind piracy. In fact,
piracy really began to flourish, in 2005, when attempts to
more firmly establish the government in Somalia collapsed, leading to a rise in
extreme poverty.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif;">Yet
the lack of employment does not stem solely from government breakdown, it
requires two further ingredients. Many on Somalia’s coasts, where the majority
of pirate crews hail from, could earn a basic living as fishermen. Yet this is
no longer the case. What needs to be added to explain this phenomenon
is an equal pinch of both the illegal dumping of toxic material and
illegal trawling for fish. One of the knock on effects of the collapse in the
rule of law in Somalia has been the country's inability to protect its
coastline from international predators. Since the 1991 down fall, Somalia’s
waters have fallen prey to the illegal dumping of toxic waste and illegal
fishing, in a situation the UN described in 2006 as a "free for all".
The result has been the destruction of livelihoods and a ready incentive to
turn to piracy. <o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif;">It
can cost up to $1000 a tonne to dump toxic waste in Europe, where it is
suspected much of the material comes from, but costs only $2.50 a tonne to
dispose of toxic materials in Somali waters. There is therefore an incentive
for less reputable firms to look for cheaper ways to get rid of toxic materials
and the defenceless Somali coastline has suffered as a result. These materials
have devastating environmental consequences particularly on fish stocks which
has in turn harmed the local fishing industry. To add physical injury to
this assault on livelihoods, the UN reported in 2005 that the illegal dumping
of radioactive uranium and other hazardous material was causing respiratory diseases,
haemorrhages and skin ailments in Somali villages on the coast, diseases
consistent with radiation sickness.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif;">However,
it isn't only illegal dumping which is harming Somali fishermen. Illegal
fishing trawlers, primarily from Spain, South Korea and Japan, have preyed on
Somalia's fragile coast line, often under the flags of friendly governments
such as Belize or Bahrain, snapping up tuna, red snapper and barracuda. The
low-tech Somali fishing boats are no match for the high tech trawlers.
The trawlers use banned fishing equipment such as nets with very small
mesh sizes and sophisticated underwater lighting systems. As a result Somali fishermen
have lost $300 million a year in sea food. In a country where most live on less
than $650 a year, this is a loss to many families. On top of this, Somali
fisherman report shots being fired at them from illegal trawlers or being
sprayed with boiling water from on-board water cannons. <o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif;">All
of this has rendered fish stocks too low for Somali fisherman to remain
commercially viable. Deprived of financial security but with their boats
remaining, it is easy to imagine why many would turn to piracy, especially when
their original prey was those depriving them of their living. Yet the shift
into piracy may have been an even more direct response to illegal trawling. In
the words of Peter Lehr, lecturer in terrorism studies at the University of St.
Andrews "the first pirate gangs emerged in the '90s to protect
against foreign trawlers". International disregard for Somalia's maritime
sovereignty caused the creation of vigilante groups formed to drive off
trawlers and many of these gangs became the pirates which plague international
waters today. The names of existing pirate fleets, the National Coast
Guard of Somalia or Somali Marines, indicate these groups initial motivations.
In fact, illegal
trawling and dumping gave pirate fleets a nationalist rhetoric which they
claimed with some success, justified their activities. The trawlers, who
were anxious to avoid attracting attention to their activities, almost always,
paid the pirates ransom. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="color: #444444; font-family: Times, Times New Roman, serif;">This
neatly brings me to the final ingredient needed to fully explain Somali piracy;
to the current recipe one must add in a hefty dose of willingness by ship
owners to pay the ransoms demanded. On the ship owners part this is
an entirely logical calculation. Quite apart from illegal trawlers, merchant ships
and their cargo are often worth upward of $20 million. Paying even a tenth of
that sum to a pirate crew makes good business sense. And yet, what is rational
for one individual is not rational for the group, an example of what economists
call the tragedy of the commons. By continually agreeing to pay ransoms at the
individual level, shipping firms are incentivising pirates to continue to take
their ships hostage and are also giving them the capital to do so, inadvertently
financing better pirate vessels and weaponry.<br />
<!--[if !supportLineBreakNewLine]--><br />
<!--[endif]--><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="color: #444444; font-family: Times, Times New Roman, serif;">So
there you have a very simple recipe. Just combine a broken state, illegal
fishing and dumping and a willingness to pay huge ransoms and you've got your
very own Somali pirate. I hope you will, as I did, get a very different image of
the Somali pirates from this recipe. An image quite different to their
portrayal on the news and in the media. They become less the perpetrators of
heinous crimes and more the victim of desperate circumstances. When the
international community allows Somali's to live in a broken state, damages coastal
livelihoods by illegally fishing and throwing toxic waste into their water and
then incentivising crime through almost guaranteed ransom payment "<i>what
else is to be concluded from this, but that you first make thieves and then
punish them." </i>? <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif;">I'm not saying
that Somali’s are entirely blameless.<i> </i>Many ordinary Somali’s eke out a
living on coastal towns, not committing crime, and are horrified by the
activities of their compatriots. Yet
with the different perspective this recipe grants us, we can perhaps see a more
human and indeed rational side to their actions. Indeed Somali pirates are not
famed for their cruelty. They tend to treat hostages well and behave in
a business-like manner, at least according to a Colin Freeman, a
journalist at the Telegraph who was taken hostage by pirates in 2008.<o:p></o:p></span></div>
<div style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif;">The fact is that until the international
community steps up to the plate, piracy will continue. In the word of Roger
Middleton, from Chatham House ; "<i>There
are ways that navies from around the world can patch over the problems of
Somalia but as long as a state with grinding poverty, hunger, no law
enforcement and no effective government sits beside a rich trading route,
piracy will continue".</i> The international community is therefore
compelled to act, not just for moral or humanitarian reasons, but also in
simple self-interest. Guilt and hand wringing over the situation we’ve helped
create will get us nowhere. <o:p></o:p></span></div>
<div style="margin-bottom: 12.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif;">The international community are already
taking some steps. It was widely reported in May that David Cameron
attended a major conference on the rebuilding of Somalia, speaking of the
importance of supporting Somalia’s new but fragile government. At the same
conference, £50m ($77m) was committed in aid to the new government from
countries including China, the US and South Africa. But more must be done.
The international community must focus on state-building in Somalia. Without a
strong central state, any other solutions will be merely “patches”. And patches
belong on the clothes of children dressing up as pirates at Halloween this
year, not international policy. <o:p></o:p></span></div>
<br />
<div class="MsoNormal">
<br /></div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8486087139152292728.post-35817414514298402272013-07-18T06:28:00.000-07:002013-08-27T05:46:20.199-07:00The Arab Spring: The Devil’s-food-cake-you-know vs. the Devil’s-food-cake-you-don’t <div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Times, Times New Roman, serif;"><span style="color: #444444; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">It's
been over 2 years since the Arab Spring first kicked off and you would be
forgiven for asking<span class="msoIns"><ins cite="mailto:carl%20cramer" datetime="2013-07-16T17:13">: </ins></span>'What
for?' Over 100,000 Syrians have been killed in the attempt to unseat
Bashar al-<span style="background-color: white;">Assad in Syria, Egypt’s democracy has
been rudely interrupted by a coup d'état and American diplomats in Libya, who
had supported the deposing of Muammar Qaddafi, were murdered in September 2012.
To many, the revolutionary Arab Spring now seems like a damp squib. Has it been
worth it? Would the region have been better off without it? Through two cakes
I'm going to untangle which is better; the devil's-food-cake-you-know? Or the
devil's-food-cake-you-don't. </span></span><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><o:p></o:p></span></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="background-color: white; background-position: initial initial; background-repeat: initial initial; margin-bottom: 0.0001pt;">
<span style="font-family: Times, Times New Roman, serif;"><i><span style="color: #444444;"><span style="font-size: 11.5pt; line-height: 15.75pt;">Both of
these cakes start with the same base and it’s only to the second recipe that
I'll add some </span><span style="font-size: 15px; line-height: 21px;">catalysing</span><span style="font-size: 11.5pt; line-height: 15.75pt;"> ingredients, to give it a bit of a revolutionary
kick.</span></span></i><span style="color: #444444; font-size: 11.5pt; line-height: 15.75pt;"><o:p></o:p></span></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><i><u><span style="color: #444444; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">Ingredients
- Base</span></u></i></span><br />
<br />
<ul>
<li><span style="font-family: Times, Times New Roman, serif;"><i>High Unemployment </i></span></li>
<li><span style="font-family: Times, Times New Roman, serif;"><i>De-legitimisation </i></span></li>
<li><span style="font-family: Times, Times New Roman, serif;"><i>Inflation </i></span></li>
<li><span style="font-family: Times, Times New Roman, serif;"><i>Social Media </i></span></li>
</ul>
</div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">You need
to begin with an autocratic regime, the fundamental ingredient. Without this,
the recipe with simply will not work. It
could be in the form of a royal family, or perhaps a dictator who came to power
in a coup. Basically they need to be the sole source of power and to have
little legitimacy with their own people. For an example you need only think of
Egypt's Hosni Mubarak, who had been in power since 1981 or Ben Ali who had run
Tunisia since 1987. However it is Colonel Muammar Qaddafi who takes (or should
I say took?) the cake,with 42 years in control of Libya. Each of these exerted
their own version of autocracy. Mubarak deployed pretend legitimacy, winning
office four times but in three of elections no other candidate was allowed to
stand. Qaddafi on the other hand, came to
power in a revolutionary coup, overthrowing the ruling monarchy. While he
allowed a form of symbolic direct-democracy to take place, the General People's
Committees, these were largely a sham and he came to rule by decree. <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">To
autocracy you now must pour in a healthy dose of oppression. This ingredient is
another key element of the recipe and is indeed often found in recipes where an
autocracy is the base ingredient; they are natural bedfellows. Oppression is
how an autocrat keeps his regime stable, suppressing any tendency in the batter
to rise or revolt. On one end of the scale there is repression like Ben Ali's,
of Tunisia. His government tightly restricted free expression and attempted to
stifle online dissent through hacking and hijacking Facebook and email
accounts. On the other end, we had Qaddafi who, in the name of a
'permanent revolution', banned all private ownership and retail trade,
eradicated the free press and subverted the civil service and military service.
Quite apart from the crippling lack of expression the populace suffered, this oppression could have
some quite nasty side-effects. In Syria, anyone who expressed dissent or an
opinion differing from that of Assad, would often find themselves in the hands
of the Mukharabat, the regime's secret police. This most often meant torture
for the dissident and sometimes death. <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">Into
this mix we add a hearty glug of kleptocracy and a sprinkling of corruption,
other complementary ingredients. In
an autocracy, with no civil society to contain the actions of the ruling class,
those in power are free to plunder a country's wealth and resources. Back to
Colonel Qaddafi, while his people starved he quite literally sat on a golden
sofa in the shape of a mermaid. (I'm not even kidding. The wealth of
nation does not buy taste apparently.) He and his family used Libya's
huge oil resources to fund a life of luxury and as a result of Libya's
corruption (and the ban on private enterprise) the economy stagnated. Similar,
less extreme, situations existed in Egypt and Tunisia. Both created a type of
crony capitalism which benefited only the ruling class and their friends, and
not the majority of the population. In Egypt, this created a privileged elite,
while the majority of the rest of the population lived on less than $2 a day.
To compound this financial hardship, supposedly cheap public services, such as
education or even obtaining a driving licence, became increasingly expensive
due to corrupt off-the book-payments. The situation was similar in Tunisia
where no investment deal could happen without a kick-back to the ruling family.
Ben Ali's network of relations garnered the rather Mafioso title of 'the
Family' while he was in power and with good reason - over half of Tunisia's
business elite were personally related to Ben Ali. <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">Our
final ingredient will be a demographic boom. The population of Arab nations
doubled between 1975 and 2005, creating a large number of young people in the
Middle East. Indeed, two-thirds of the population in Egypt is under 30. In
other, more liberal nations this might prove to provide a boost to growth, but
in a corrupt economy it results in rising rates of unemployment <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">The
resulting mixture creates a weak and stagnant economy, no matter how much of a
demographic boom you add. Where autocracy allows corruption and kleptocracy,
the private sector cannot flourish and subsidies handed out by autocratic
regimes weaken industry still further. National "champions" owned by
friends of the ruling family are mismanaged and not subject to the competition
which could have strengthened them and allowed them to expand globally. The Devil’s-food-cake-you
know results in a predictable tragedy; squandered natural resources, high
unemployment, the wasted potential of a population, instead oppressed and
silenced by an elite unwilling to sacrifice their luxurious lifestyle. For many
this recipe bore much worse; poverty, starvation and torture. Could it really
be that's this Devil’s-food-cake-you-know is better than a
Devil's-food-cake-you-don't?<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">To see
if this is true I'm now going to describe how to you turn this uninspiring but
predictable recipe into something very different...<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;">
<span style="font-family: Times, Times New Roman, serif;"><i><u><span style="color: #444444; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">Ingredients - Catalysts for the Devil's-food-cake-you-don't</span></u></i><span style="color: #444444; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;"><o:p></o:p></span></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 2.25pt; margin-left: 12.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l0 level1 lfo2; tab-stops: list 36.0pt; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: Times, Times New Roman, serif;"><span style="color: #444444; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 11.5pt; mso-fareast-font-family: Symbol; mso-fareast-language: EN-GB;">·<span style="font-size: 7pt; line-height: normal;">
</span></span><!--[endif]--><span style="color: #444444; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">High unemployment <o:p></o:p></span></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 2.25pt; margin-left: 12.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l0 level1 lfo2; tab-stops: list 36.0pt; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: Times, Times New Roman, serif;"><span style="color: #444444; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 11.5pt; mso-fareast-font-family: Symbol; mso-fareast-language: EN-GB;">·<span style="font-size: 7pt; line-height: normal;">
</span></span><!--[endif]--><span style="color: #444444; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">De-legitimisation <o:p></o:p></span></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 2.25pt; margin-left: 12.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l0 level1 lfo2; tab-stops: list 36.0pt; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: Times, Times New Roman, serif;"><span style="color: #444444; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 11.5pt; mso-fareast-font-family: Symbol; mso-fareast-language: EN-GB;">·<span style="font-size: 7pt; line-height: normal;">
</span></span><!--[endif]--><span style="color: #444444; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">Inflation <o:p></o:p></span></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 2.25pt; margin-left: 12.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l0 level1 lfo2; tab-stops: list 36.0pt; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: Times, Times New Roman, serif;"><span style="color: #444444; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 11.5pt; mso-fareast-font-family: Symbol; mso-fareast-language: EN-GB;">·<span style="font-size: 7pt; line-height: normal;">
</span></span><!--[endif]--><span style="color: #444444; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">Social
media<o:p></o:p></span></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: 2.25pt; margin-left: 12.0pt; margin-right: 0cm; margin-top: 0cm; text-align: justify;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">We are
now going to focus on the last ingredient we added to the mix; demography. Over
time, this creates unemployment, particularly youth unemployment, and it
becomes a highly reactive ingredient. Prior to the Arab Spring, the youth
unemployment rate was 25% across the Middle East, the highest in
regional unemployment rate in the world. Thousands of young people, angry
about the uncertainty of their economic future and with the large amounts of
time on their hands, became the basis for the first protests. It was also the
spark. Mohammed Bouazizi, a 26 year old Tunisian, had failed to find paid
employment despite applying for military draft as well as for many other
private and public sector roles. There were just too many other job-seekers.
When government officials confiscated the vegetable kiosk he was using to feed
his family and pay his sisters university fees, it was the final straw. He set
himself on fire in the middle of the street. The angry, young and educated in
Tunisia seized on this tragedy, starting demonstrations against the Tunisian
government which would spread across the Middle East. <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">Now to
add another highly reactive ingredient; De-legitimisation. This ingredient is,
in part, the result of a reaction between the oppression and corruption
experienced by people living under autocratic governments. However, the real
driver of de-legitimisation is a lack of economic growth and development. For
example, people living in China similarly live without democracy and under an
oppressive and to some extents corrupt regime. However, the Chinese government
works hard to drive growth and development and has therefore gained
legitimacy among the majority if its citizens. The same cannot be said of
governments in the Middle East. Ageing leaders, corruption, ineffectual
government and failure to provide not just growth but even basic services had
de-legitimised them in the eyes of their citizens. <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">These
ingredients alone give the batter enough of an impetus but to speed up the
reaction further we'll add a dose of food price inflation. This was prevalent
in the period leading up to the Arab Spring and by its peak food price inflation
had become a problem all across the Middle East, rising to 18.9% in Egypt just
before Mubarak fell. In a place where poverty is so prevalent it is no surprise
that the rising price of bread drove people on to the street. <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">Our
final catalyst, the one that is guaranteed to push the batter over the edge, is
a couple of spoonfuls of social media. This is the ingredient which allowed the
anger, caused by youth unemployment and de-legitimisation, to find a voice and
to organise. The first mass protest in Egypt was organised on Facebook and
it helped thousands of protesters outwit the police. It also spread revolution
across national borders creating copycat protest movements across the region.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">And
there you have it; the Devil's-food-cake-you-don't. The risk with this recipe
is you're never quite sure how it will turn out, no matter how many times you
bake it. On the one, oven-gloved hand, you could get a fairly stable
result. I'm thinking about Tunisia where Ben Ali left relatively quietly
and the Tunisians are working to create a democratic system, albeit still with
unimpressive economic data and the odd protest. Far from perfect but a
functioning state on (hopefully) the eventual road to development. On the other,
you could get, for example, something as traumatic what has happened in Syria.
This includes; death, violence, mass migration, the increasing destabilisation
of the region, and a total breakdown in the rule of law. Over 100,000 people
have been killed in the Syrian conflict and 45.2 million people have
been displaced, according to UN estimates, spreading instability across
national border.<o:p></o:p></span></div>
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<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">This
brings us back to the question I asked at the beginning of this piece; <i>Has
it been worth it? Would the region have been better off without it? </i>It
is easy to look at the results above and declare a resounding no. The results
seems largely to have been loss of life, economic damage (if not collapse) and
political turmoil. None of the countries has transitioned to a fully formed
democracy. Tunisia is closest but in Libya functioning democracy seems far
away as militants have banning anyone who ever worked with Qadaffi from taking
part in government. Thus the most capable reformers and incidentally passionate
anti-Qadaffi fighters have been dismissed from government. Egypt recently
ousted their democratically elected (but wannabe autocrat) leader, Mohammed
Morsi. And in Syria, not just democracy, but any form of functioning government
seems years away.<o:p></o:p></span></div>
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<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">Against
this background it almost seems callous to suggest that this suffering and instability
were in anyway worth it - that the Devil's-food-cake-you-don't was the wise
choice. And yet that is precisely what I am going to argue. I'm going to
propose that however hard the transition is, it is, in fact, worth it.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Times, Times New Roman, serif; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;"><br />
Many are suffering as result of the instability, a fact that is hard to ignore
when it makes the nightly news. Yet, even before the Arab Spring people were
suffering. Repression's tools are often imprisonment and torture. The number of
prisoners suspected to be held by Assad in Syria varies between 10,000 to as
many as 120,000. However, the true cost of the Devil's-food-cake-you-know
cannot just be measured by present suffering but by the lost potential of
generations who had few opportunities to improve their lives under these
regimes. The perfect example of this is Libya - a country with minimal
education, limited free speech and a stagnating economy left the population in
extreme poverty with little opportunity to improve their own lives. <o:p></o:p></span></div>
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<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">While
some economist still rely on narrow and solely economic data to judge a
countries development economists like Amartya Sen and Martha Nussbaum have
expanded the approach with less traditional measures such as their capability
theory. In this they define development in terms of the opportunities available
for the population to flourish instead of by GDP-per-head. If we adopt this
view, even in countries with healthy levels of growth, development may still
not be achieved and populations can still suffer what they term
“capability-deprivation” under repressive regimes. If these regimes are not removed,
then it is not only the present generation that suffers but future ones
too. <o:p></o:p></span></div>
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<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">The path
to democracy is rough but instability now needn't mean instability later. And
just because a process is prolonged and painful it does not mean it isn’t worth
is, as many developed countries have proven. For example, the 1848 Spring of
Nations which involved death and the exile of many Europeans. And yet in the
long run it was in fact the catalyst for all the changes which led to the
European monarchies falling over the next hundred years. Similarly England's
glorious revolution in 1688 put it on a very long road to democracy, one which led
finally to universal suffrage in 1928. The fact is that, quite frankly, it often
can take a long time to make a democracy and it is not without disorder and
chaos.<o:p></o:p></span></div>
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<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">While
this sounds demoralising it shouldn't be. The prolonged instability in Tunisia,
which some have been predicted as harbinger of doom, is actually a good thing.
It shows that Tunisians are unwilling to allow one party rule - they want real
democracy and for this constant pressure needs to be applied to those in charge
to avoid a hijacking of power. Tunisia’s street protests now will hopefully
result in a stable democracy in the future. Of course, one could holdup
Egypt as an example where street protest just lead to further instability under
a coup d’état. It’s true that the results with the Devil's-food-cake-you-don't
are never guaranteed. Since the end of World War II, there have been
roughly 50 major revolutions that have either toppled autocratic regimes or led
to significant political reform in “flawed” democracies. For those revolutions
that have occurred under dictatorships, only about a third have resulted in
transitions to democracy. Yet when the alternative is years of stagnation,
suffering and missed opportunity the fight is still worth it. <o:p></o:p></span></div>
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<span style="font-family: Times, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="background: white; line-height: 15.75pt; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: #444444; font-family: Times, Times New Roman, serif; font-size: 11.5pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB; mso-hansi-font-family: Calibri;">The
devil's-food-cake-you-don't is a risk. Though I've given you the ingredients,
I've also given you the odds. Democracies don't spring up over night and to
have believed that the overthrow of autocratic regimes in the Middle East would
bring about stability and democracy in a couple of years would have been naive.
Yet I hope I've shown, through my two recipes, that when the certain results
are poverty and the loss of so much potential that the Devil’s-food-cake-you-know
is the right, if risky, choice. It's a gamble, but one definitely worth taking. <o:p></o:p></span></div>
<span style="font-family: Times, Times New Roman, serif;"><br /></span>
<br />
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<br /></div>
Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-8486087139152292728.post-82331596616051117922013-03-04T06:05:00.001-08:002013-03-04T11:47:29.143-08:00Argentina: The country that failed to rise<div class="MsoNormal" style="margin: 0cm 0cm 10pt;"><i style="mso-bidi-font-style: normal;"><span style="font-family: 'Times New Roman','serif';"><span style="color: #444444;">Having just come back from a 2-week holiday in Argentina, I wanted to do a recipe which demonstrated Argentina’s unique economic situation. </span></span></i></div><span style="font-family: 'Times New Roman','serif';"><span style="color: #444444;"><o:p><div class="MsoNormal" style="margin: 0cm 0cm 10pt;"><span style="font-family: 'Times New Roman','serif';"><span style="color: #444444;"> Its early days but it’s already been a tough 2013 for Argentina. The year had barely started when Argentina heard it had made the top ten ‘miserable nations’, according to the Global Misery Index (a ranking based on a country’s inflation and unemployment rate).<span style="mso-spacerun: yes;"> </span>The Argentinean president, Cristina Fernández de Kirchner, has struggled to negotiate price freezes with major supermarkets in an attempt to combat the country’s intense inflation. These are just the latest in a range of failed measures and the inflation rate now stands at 25% according to economists. Yet the government stubbornly insist that the rate is no higher than 10.8%. This refusal to engage with reality has, after many threats, earned Argentina a declaration of censure from the IMF, as well as causing its black market dollar rate to hit an all time high. Not a great start to the year.<o:p></o:p></span></span></div><div class="MsoNormal" style="margin: 0cm 0cm 10pt;"><span style="font-family: 'Times New Roman','serif';"><span style="color: #444444;"><span style="mso-tab-count: 1;"> </span>Hopefully this will provide some context to the recipe I picked up in Argentina this January*. Travelling around, the more people I spoke to, the sadder I felt for those living in this beautiful country.<span style="mso-spacerun: yes;"> </span>There was very little optimism and widespread dissatisfaction with the de Kirchner government. I wanted to understand how a country which showed so much promise at the turn of the 20<sup>th</sup> Century, with all the ingredients for success, could fall so flat. To better understand Argentina’s failure to rise, I’m going to compare it to a very successful country with a very similar set of ingredients; the United States. Argentina is traditionally compared to Australia and Canada but I wanted to... (please forgive the cooking pun) mix it up. Let’s take a look at their shared ingredients: <o:p></o:p></span></span></div><div class="MsoNormal" style="margin: 0cm 0cm 10pt;"><u><span style="font-family: 'Times New Roman','serif';"><span style="color: #444444;">Ingredients <o:p></o:p></span></span></u></div><div class="MsoListParagraphCxSpFirst" style="margin: 0cm 0cm 0pt 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><span style="color: #444444;"><span style="font-family: 'Courier New'; mso-fareast-font-family: 'Courier New';"><span style="mso-list: Ignore;">o<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: 'Times New Roman','serif';">An abundance of fertile land<o:p></o:p></span></span></div><div class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><span style="color: #444444;"><span style="font-family: 'Courier New'; mso-fareast-font-family: 'Courier New';"><span style="mso-list: Ignore;">o<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: 'Times New Roman','serif';">High rate of European immigration<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></span></div><div class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><span style="color: #444444;"><span style="font-family: 'Courier New'; mso-fareast-font-family: 'Courier New';"><span style="mso-list: Ignore;">o<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: 'Times New Roman','serif';">A constitutional presidential system<o:p></o:p></span></span></div><div class="MsoListParagraphCxSpLast" style="margin: 0cm 0cm 10pt 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><span style="color: #444444;"><span style="font-family: 'Courier New'; mso-fareast-font-family: 'Courier New';"><span style="mso-list: Ignore;">o<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: 'Times New Roman','serif';">Civil War <span style="mso-spacerun: yes;"> </span></span></span></div><div class="MsoListParagraphCxSpLast" style="margin: 0cm 0cm 10pt 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><br />
</div><div class="MsoListParagraphCxSpFirst" style="margin: 0cm 0cm 0pt; mso-add-space: auto;"><span style="font-family: 'Times New Roman','serif';"><span style="color: #444444;"> The first shared ingredient is an abundance of fertile land which gives the country a comparative advantage in agriculture. While vast tracts of land were a common enough feature in the America’s, the quality of Argentina’s land was a differentiator. Argentina’s vast <i style="mso-bidi-font-style: normal;">pampas </i>covers more than 295,000 square miles and with a mild climate and evenly distributed rainfall, it is ideal for agriculture. So much so that by the 1920’s 99% of Argentina’s exports were agricultural and totalled more than $1billion.The United States had a similar comparative advantage. Indeed they had such a profusion of land that the government issued 160-acre tracts for agriculture virtually free to about 400,000 families under the Homestead Act of 1862. The abundance of land and the temperate climate meant that by the 1920’s the US was exporting agricultural good worth $1.94 billion (although this accounted of only 42% of total exports). <u><o:p></o:p></u></span></span></div><div class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt; mso-add-space: auto;"><br />
</div><div class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt; mso-add-space: auto;"><span style="font-family: 'Times New Roman','serif';"><span style="color: #444444;"><span style="mso-tab-count: 1;"> </span>The abundance of arable land, together with the addition of the second ingredient, labour, was enough to provide a platform for growth. In their initial stages both the United States and Argentina were scarcely populated, relative to their size, and thus relied on immigration to fill and work their productive farmland. Argentina was particularly successful at this; Argentina’s population rose from 4 million in 1895 to 7.9 million in 1914, and to 15.8 million in 1947. This rapid supply of labour created a significant boost to growth when combined with capital and fertile land. The Unites States experienced a similar phenomenon (although immigration had been taking place for a considerably longer period in its case).<span style="mso-spacerun: yes;"> </span>It acquired 25 million new citizens over the period 1850 to 1930, again mostly from Europe. The US, like Argentina, relied on immigration to provide the changing demography necessary to take full advantage of its natural resources. <o:p></o:p></span></span></div><div class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt; mso-add-space: auto;"><br />
</div><div class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt; mso-add-space: auto;"><span style="font-family: 'Times New Roman','serif';"><span style="color: #444444;"><span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span><span style="mso-tab-count: 1;"> </span>These two ingredients created a catalyst for growth in both countries’ economies’, although the effects were more striking in Argentina.<span style="mso-spacerun: yes;"> </span>Argentina’s growth between the 1860 to 1930 period was so impressive that it was expected to eventually become the Untied States of South America. GDP per capita rose from 35% of the United States in 1880 to 80% in1905. By 1913 Argentina’s income per head was on par with France or Germany's and far ahead of Spain’s or Italy’s. So where and why do these similar recipes diverge? Why did the promise of Argentina fail? The trouble lies with the final ingredients. Although Argentina managed growth for seven decades, we shall see that the seeds of disaster were already sown and would manifest themselves in the Great Depression of the 1930’s.<o:p></o:p></span></span></div><div class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt; mso-add-space: auto;"><br />
</div><div class="MsoListParagraphCxSpLast" style="margin: 0cm 0cm 10pt; mso-add-space: auto;"><span style="color: #444444;"><span style="font-family: 'Times New Roman','serif';"><span style="mso-tab-count: 1;"> </span>Let’s start with the presidential system, one in which a president is both head of state and head of government. This particular ingredient can be notoriously difficult to work with. While the US’s presidential system has created one of the world’s most stable democracies, the same cannot be said of other countries who have adopted it.<span style="mso-spacerun: yes;"> </span>Indeed the presidential system has been referred to as; ‘America’s most dangerous export’. This is because it gives broad powers to the executive branch the power to veto bills, appoint cabinets, and crucially to assume emergency powers. While, this has the advantages in terms of speed and decisiveness it can lend itself to authoritarian government. The US’s well developed system of checks and balances at both federal and state level have helped it avoid these problems. However, Argentina did not have strong legislative and judicial branches or even local government to act as a check on its executive branch. Indeed,</span><span style="font-family: Calibri;"> </span><span style="font-family: 'Times New Roman','serif';">Peron, following the first coup in 1930, impeached the Supreme Court, entirely eliminating the judicial branch as a check. The 1949 constitution then destroyed the separation of powers. This sealed the fate of Argentina’s presidential system. Without a history of stability the system could not develop the checks and balances it needed to prevent the political instability Argentina has suffered since the 1930s.<span style="mso-spacerun: yes;"> </span><u><o:p></o:p></u></span></span></div><div class="MsoNormal" style="margin: 0cm 0cm 10pt;"><span style="font-family: 'Times New Roman','serif';"><span style="color: #444444;"><span style="mso-tab-count: 1;"> </span>This historical instability is the result of a final ingredient; civil war. While both countries endured civil wars during the 19<sup>th</sup> Century, Argentina’s was considerably more damaging. While the US’s civil war lasted only four years, its resolution ended uncertainty and provided a platform for stability. In Argentina however, the Civil war lasted more than sixty years and seeded political and economic instability which would resurface in the 20<sup>th</sup> Century. Gross devaluations in currency, over dependence on only British capital and corruption at the heart of the financial system (in the Banco de la Nacion Argentina) were just some economic manifestations of this lack of stability. <o:p></o:p></span></span></div><div class="MsoListParagraph" style="margin: 0cm 0cm 10pt; mso-add-space: auto;"><span style="font-family: 'Times New Roman','serif';"><span style="color: #444444;"><span style="mso-tab-count: 1;"> </span>These two final ingredients, a presidential system and instability resulting from years of civil war, come together to create an underlying political instability and institutional weakness. This then became manifest during the Great Depression of the 1930’s when a military junta pushed aside Argentina’s fragile democracy, ending seven decades of constitutional government. Since then Argentina has suffered numerous coups and dictatorships and has fallen into long term decline. Peron, who took power following the coup, cut Argentina off from international trade and adopted a strict policy of import substitution. While many countries became increasingly protectionist during the downturn, for example the US introduction of the Smoot-Hawley tariffs, few cut themselves off to the extent Argentina did. The resultant push towards an industrial economy, created a misallocation of resources and without investment Argentina lost its comparative advantage in agriculture; sales of beef and grain stagnated. Successive governments, trying to placate Argentina’s population intervened to keep prices low while keeping public spending high. This created the conditions for the spiralling inflation which has plagued Argentina for decades. It also led to a huge amount of foreign debt which, by the 1980’s, was the equivalent of 75%of Argentina’s GNP. New, often unelected governments would frequently change and add to Argentina’s legislation and this complex mix served to further dampen economic activity. As a result, by 1969, GDP had fallen to half that of the United States. <u><o:p></o:p></u></span></span></div><div class="MsoNormal" style="margin: 0cm 0cm 10pt;"><span style="font-family: 'Times New Roman','serif';"><span style="color: #444444;"><span style="mso-tab-count: 1;"> </span>There were attempts to pull Argentina back. It even briefly returned to democracy in 1983. However, Argentina continued to suffer and per capita income continued to decline; by 20% between 1975 and 1990. Corruption and civil unrest during the 1990’s led to a financial crisis in 2001 resulting in massive capital flight and deposit runs. While Argentina has returned to growth due to booming demand for commodities, it is still not growing as fast as its Latin American neighbours and citizens are not benefitting. High import and export tariffs, renationalisation of companies (such as YPF) and government intervention have all worked to discourage investment and fuel inflation.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></span></div><div class="MsoNormal" style="margin: 0cm 0cm 10pt;"><span style="font-family: 'Times New Roman','serif';"><span style="color: #444444;"><span style="mso-tab-count: 1;"> </span>It is strange to think that recipes with such similar ingredients could create such starkly different results. Argentina had a promising start but underlying instability doomed it to fall even before it had risen. <span style="mso-spacerun: yes;"> </span>Argentina’s democracy was not strong enough to withstand the pressures of an increasingly competitive global economy. It then entered a downward spiral of institutional weakness, a trap from which it was difficult to escape. The United States, with its background of stability, avoided this. Is there a recipe for Argentina’s rescue? If anyone has any ideas for an Argentina raising agent, I would love to know! <o:p></o:p></span></span></div><div class="MsoNormal" style="margin: 0cm 0cm 10pt;"><span style="font-family: 'Times New Roman','serif';"><span style="color: #444444;">*An economist’s travel tip: If you are planning to travel to Argentine, convert you travel money to dollars first. They are widely accepted and it could save you a lot in terms of the conversion rate! <o:p></o:p></span></span></div><div class="MsoNormal" style="margin: 0cm 0cm 10pt;"></div></o:p></span></span>Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-8486087139152292728.post-76012318482678542122012-10-21T02:05:00.000-07:002012-10-21T02:06:39.607-07:00A bad moon rising: Chinese growth and baking<i style="mso-bidi-font-style: normal;"><span style="font-family: 'Calibri','sans-serif';">This blog post is posted in celebration of the Chinese Mid-Autumn festival (I am a couple of weeks late, I know). Below I put my own take on the now predominant view that China’s growth story will continue unabated. </span></i><br />
<br />
<i style="mso-bidi-font-style: normal;"><span style="font-family: 'Calibri','sans-serif';">Nb. This post and its comments were removed for a while so I have posted the comments at the bottom of the blog </span></i><br />
<br />
<u><span style="font-family: 'Calibri','sans-serif';">Ingredients</span></u><br />
<br />
<i style="mso-bidi-font-style: normal;"><span style="font-family: 'Calibri','sans-serif';">For the skin (exclusive institutions): </span></i><br />
<ul>
<li><div style="text-indent: -18pt;">
<span style="font-size: 7pt; mso-fareast-font-family: Symbol;"> </span><span style="font-family: 'Calibri','sans-serif';">An authoritarian government </span></div>
</li>
<li><div style="text-indent: -18pt;">
<span style="font-family: 'Calibri','sans-serif';"></span><span style="font-size: 7pt; mso-fareast-font-family: Symbol;"> </span><span style="font-family: 'Calibri','sans-serif';">State controlled enterprise </span></div>
</li>
<li><div style="text-indent: -18pt;">
<span style="font-size: 7pt; mso-fareast-font-family: Symbol;"> </span><span style="font-family: 'Calibri','sans-serif';">A weak judicial system </span></div>
</li>
<li><div style="text-indent: -18pt;">
<span style="font-family: 'Calibri','sans-serif';">A good sprinkling of corruption </span></div>
</li>
</ul>
<i style="mso-bidi-font-style: normal;"><span style="font-family: 'Calibri','sans-serif';">For the filling (demography):</span></i><br />
<ul>
<li><i style="mso-bidi-font-style: normal;"><span style="font-family: 'Calibri','sans-serif';"></span></i><span style="font-family: 'Calibri','sans-serif';">A one child policy </span></li>
</ul>
<i style="mso-bidi-font-style: normal;"><span style="font-family: 'Calibri','sans-serif';">For the glaze (rote education): </span></i><br />
<br />
<ul>
<li><div style="text-indent: -18pt;">
<span style="font-family: 'Calibri','sans-serif';">An overarching centralised education system </span></div>
</li>
<li><div style="text-indent: -18pt;">
<span style="font-family: 'Calibri','sans-serif';">A history of standardized tests and rote learning </span></div>
</li>
<li><div style="text-indent: -18pt;">
<span style="font-family: 'Calibri','sans-serif';">Plenty of rising demand for university places </span></div>
</li>
</ul>
<i style="mso-bidi-font-style: normal;"><span style="font-family: 'Calibri','sans-serif';"> </span></i><span style="font-family: 'Calibri','sans-serif';">The Chinese moon cake is a specialty given to friends and relatives at the time of the Mid-Autumn festival. This celebration commemorates Chang’e and Houyi who were forced by fate to inhabit the Moon and the Earth respectively. On the night of the mid-Autumn festival however, Houyi is able to visit his wife, and it is for that reason that the moon looks so very beautiful that evening. A glowing orb that rises from the East might be a perfect analogy for the predictions about China’s long run growth. From the Economist maintaining that China might overtake the US economy by 2020 to the Leftist academic Martin Jacques predicting that China’s economy would be double that of the US’s by 2050, there has been an endless stream of projections based on China’s unbridled growth. However, for me there are at least three factors, much like the three parts of moon cake recipe, which when combined have the potential to spell economic malaise. </span><br />
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<span style="font-family: 'Calibri','sans-serif';"> To begin with there is the skin, exclusive institutions, which hinder Chinese growth. This requires the mixing together of an authoritarian regime with state controlled enterprise. Together these factors work to deter potential entrepreneurs without state backing; if you have no assurance that the state won’t punish your success at the expense of a state backed company, you will have little incentive to start or grow a successful enterprise. To this you add in a weak judicial system, one which fails to protect property rights. This further acts as deterrent to growth as businesses and individuals are reluctant to invest where their investment may be confiscated by the government. </span><br />
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<span style="font-family: 'Calibri','sans-serif';"> To all this, I would whack in a healthy dose of corruption which misallocates resources and undermines the competitive market place. A report released last year by the Chinese government found that between 16,000 and 18,000 government officials and employees of state-owned enterprises had smuggled more than $120bn overseas between the mid-1990s and 2008.However, it is not just the cost to government coffers; corrupt behaviour in government changes a citizen’s incentives such that engaging in hitherto profitable economic activity is no longer worthwhile. Simply put corruption raises the price of business and puts a brake on the growth of the private sector. </span><br />
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<span style="font-family: 'Calibri','sans-serif';"> At this stage you might find that the mixture reacts. As inequality rises in China, as a result of an uneven playing field, citizens are becoming less tolerant of their economic situation and the government. According to a 2012 poll by the Pew research centre, nearly half (48%) of Chinese respondents reported that wealthy inequality was “a very big problem”. In a country used to the Communist ideals of total equality this will not sit well. Indeed, China’s gini index, now at 0.46, has surpassed the 0.4 level which is a predictor of social disturbance. By exerting pressure on the batter (through the arrests of political dissidents, censorship of the press etc) you can limit the reaction somewhat, but in a country with a growing and increasingly vocal middle class this can only ever be a stop gap measure. </span><br />
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<span style="font-family: 'Calibri','sans-serif';"> The second stage in this recipe, preparing the filling, is amazingly easy as it requires only one ingredient; a one-child policy. However, it is important you let this component rest, as its effects manifest themselves slowly over time. Most developed countries are in some way suffering from their ageing demography. The UK, Italy, Japan and many other developed nations are suffering as their elderly, retired populations grow and are supported by a diminishing labour force. Not only does this shrinking labour force directly impact growth it also leads to a decrease in household savings, reducing capital available for investment. However, China won’t face a diminished demography as much as a demographic drop off. The one-child policy has exacerbated the slump in China’s labour force in the coming years. While China’s current median age is 34.5, similar to America’s 37, this is expected to rise to 49 by 2050, far ahead of the expected US median age (40). Its over 65’s will account for 26% of the 2050 population, also ahead of America’s. China’s growth has been in part due to a very large and youthful labour force. When the labour force contracts (by 11% between 2010 and 2050) and this dividend disappears China will be hard pressed to find a comparable economic stimulant. To quote The Economist; <i style="mso-bidi-font-style: normal;">“unlike the rest of the developed world, China will grow old before it gets rich”. </i></span><br />
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<i style="mso-bidi-font-style: normal;"><span style="font-family: 'Calibri','sans-serif';"> </span></i><span style="font-family: 'Calibri','sans-serif';">To top it all off you need the glaze, which puts a less optimistic shine on Chinese growth. Despite China’s success in recent PISA tests, education has not been generally celebrated as victory in China. Many in the education sector felt that high verbal and mathematical test results have come at the cost of originality and inventiveness. To quote Xiong Bingqi, an education expert at Shanghai's Jiao Tong University, Chinese students <i style="mso-bidi-font-style: normal;">“have huge vocabularies and they do math well. However, the level of their creativity and imagination is low”. </i>This concoction comes together when you pour in an overarching centralised education system and a history of standardized tests and rote learning. The education system is focused on high test results and its rigidity means that teachers have little scope to take students outside the ‘teach-to-test’ model. This is in part maintained by a culture standardized testing and rote learning which dates back to the Emperor Wu (141 -87 BC.) and what became known as the Mandarin examination system. The emphasis of these examinations was on discipline ad rote memorization of classical texts. Not a harbinger of Steve Jobs-esque flare. To this you apply pressure from school students themselves, who are often desperate to obtain a place at oversubscribed universities. </span><br />
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<span style="font-family: 'Calibri','sans-serif';"> The by-product of these three ingredients can be damning. China’s growth has up till now been based on the adoption of existing technologies and rapid investment, not Schumpeterian creative destruction. Yet as China completes its catch up and the labour force shrinks, they will have to come to rely on innovation for sustainable growth. If the education system remains unreformed, and young Chinese aren’t taught to think creatively or originally, this will be incredibly difficult</span><br />
<span style="font-family: 'Calibri','sans-serif';"> Thus, this recipe produces a far less buoyant bake than others have proposed yet I feel it is more realistic given the interplay of the current factors. Nonetheless, the economy is not doomed to sink. While the Chinese can do nothing about their demography they could take steps to change their education system and improve the rule of law and accountability across China. </span><br />
<span style="font-family: 'Calibri','sans-serif';">Then you would be baking with a whole different set of ingredients... </span><br />
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<span style="color: #333333; font-family: 'Arial','sans-serif'; font-size: 12pt; mso-fareast-font-family: Arial; mso-fareast-language: EN-GB;"><span style="mso-list: Ignore;">1.<span style="font: 7pt 'Times New Roman';"> </span></span></span><a href="https://openid.aol.com/opaque/87ca19d6-1894-11e2-af23-000bcdcb471e"><b><span style="color: #cc3300; font-family: 'Arial','sans-serif'; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-language: EN-GB; text-decoration: none; text-underline: none;">87ca19d6-1894-11e2-af23-000bcdcb471e</span></b></a><a href="http://eleganteconomist.blogspot.com/2012/10/a-bad-moon-rising-chinese-growth-and.html?showComment=1350503820413#c8098469939497734714"><span style="color: #cc3300; font-family: 'Arial','sans-serif'; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-language: EN-GB; text-decoration: none; text-underline: none;">17 October 2012 12:57</span></a><span style="color: #333333; font-family: 'Arial','sans-serif'; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-language: EN-GB;"><o:p></o:p></span></div>
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<span style="color: #333333; font-family: 'Arial','sans-serif'; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-language: EN-GB;">Some semi-valid points. Most of them are however just purely wrong:
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1) Generally speaking, I haven't come across ONE prediction suggesting that China's GDP would not exceed USA's GDP in a few decades – or stop growing exponentially any time soon. USA's growth, in turn, is showing substantial signs of saturating behaviour. </div>
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2) Relative difference between the salaries of entrepreneurs and non-entrepreneurs in China have been continuously increasing for three decades: Now entrepreneurs make nearly 50% more than non-entrepreneurs. See page 17 for numbers from -95: http://cep.lse.ac.uk/pubs/download/cp253.pdf. Overall, according to various sources, China's transforming industrial policy setting has been increasingly supporting towards entrepreneurs over the past few decades. Here's more on that: http://www.economist.com/node/18330120 </div>
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3) Why wouldn't state-owned companies facilitate growth? Large domestic monopolies, undervalued currency and increasing export sector combined is a pretty much the best driver of growth you can hope for. This is basic economic/trade theory. </div>
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4) The question of property rights is two-sided. Better property rights facilitate incentive for tech development for individual companies, loose control, in turn, facilitates nation-wide implementation of different technologies. Technology diffusion vs. private incentive to develop? Even if there were some welfare losses due to loose iPR, it's hard too see that affecting long-run growth: as said, in addition to the fact that they don't actually account for much of the growth, entrepreneurs are thriving.</div>
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5) It's easy to say that authoritarian governments are bad. Communists are always bad, stupid and evil – we know that. It's another think to claim that there was a causal relationship between having an authoritarian government and slowing economic growth.</div>
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6) USA's gini index has been more than that of China for 30 years: http://upload.wikimedia.org/wikipedia/commons/thumb/0/01/Gini_since_WWII.svg/720px-Gini_since_WWII.svg.png. Now they're even.</div>
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7) Culture-wise, China is one of the last countries where social disturbance would actually contribute negatively to economic growth. Look at UK a few years back or Greece now.</div>
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7) $120bn of corruption over 17 years is $7bn per year, which is about 0.1% of China's nominal GDP in 2011. Yeah, how the public sector can take that? Yeah, why should I work anymore since there is corruption? Simply put the welfare losses from corruption are marginal if you look at the big picture.</div>
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8) Smart comparing China's age distribution to America's numbers. Try any European country. Furthermore, it is fairly clear that lack of workforce has never been a slightest issue for China. I am really getting frustrated...</div>
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9) Education...yawn. Sure the Chinese system lags its Western equivalents. Sure there is an undersupply of study places. What does this has to do with growth prospects? China has a hundred million students. The schools are packed with talent. Every fourth international student is Chinese. Come on now.</div>
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It smells as if the writer had just taken Econ101 and heard that Chinese are communists.</div>
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Please think again.<o:p></o:p></div>
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<span style="color: #333333; font-family: 'Arial','sans-serif'; mso-fareast-font-family: Arial;"><span style="mso-list: Ignore;">1.<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="color: #333333; font-family: 'Arial','sans-serif';">Hi,
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Thanks for your comment. </div>
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I thought I might respond to some your points. As you expressed concerned over my credentials I’ve tried to give examples outside my blog to support my responses. </div>
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1)I thought like you might to see the views of two economists, Darron Acemoglu (a professor at MIT and one of the worlds 10 most cited economists) and James Robinson ( a professor at Harvard) , who have predicted that China’s growth will be substantially limited in the long term. http://www.huffingtonpost.com/daron-acemoglu/china-superpower_b_1369424.html</div>
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2)Thanks for the stats! I do agree that China has been doing more to support entrepreneurs in recent years and that their policies have been largely successful. However, in my opinion, they can never be completely successful while the rule of law (and by that I mean a strong sense of law outside of party politics) is still weak. When law courts are in some sense still guided by the political will of those in power entrepreneurs can never be completely secure in their activities. See the questionable case of Dai Guofang; http://www.washingtonpost.com/wp-dyn/articles/A55000-2004Aug10.html</div>
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3)Theoretically, monopolies in general suffer from a lack of competition, which can allow them to keep prices high, restrict choice and result in productive and allocative inefficiency (Econ 101) . In practice, for China at least, studies have found that if many of China’s SOE’s lost their government grants and subsidies they would actually be losing money. This in turn starves money from small and medium sized businesses trying to operate in China; the Chinese entrepreneurs you championed above. For more information http://www.economist.com/node/21564235</div>
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4)I have to disagree with you here. While I do think China an intellectual property rights is a fascinating topic I was thinking more of property rights in the most traditional sense, property rights which protect individuals and business against expropriation by the government. There is very little evidence to support the notion that the government being able to expropriate your property without legal recourse is a positive step for growth, quite apart from being inhumane. The Olympics was only one example; http://www.bbc.co.uk/blogs/thereporters/jamesreynolds/2008/07/olympic_evictions.html</div>
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5) I never claimed the Communists were “always, bad stupid and evil”. I would never do so in part because I have friends who are communist. I would also not insinuate that communism and authoritarian government are synonymous. I wasn’t sure what your point was but work by economic historians and institutional economists has shown that authoritarian regimes have never sustained long run growth in part for reasons I have mentioned in the first section of my blog post. That is not to say that authoritarian regimes don’t have some of their own advantages .In fact, as a transitional government I think Chinese government could be very successful if manages to shift from an authoritarian to increasingly democratic government. <o:p></o:p></div>
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<span style="color: #333333; font-family: 'Arial','sans-serif';">6) Yes the Gini coefficient in both China and the US is above what is deemed. Indeed it is even higher in Latin America (see http://data.worldbank.org/indicator/SI.POV.GINI). However, in the US and in Latin American democracies there is a public means of airing grievances around rising wealth inequality. One simply need see the Occupy Wall Street movement. In China there is no such resource as the state does not traditionally take too kindly to those criticising its policies.
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7) a) I wasn’t sure I understood your point either. Social disturbance, if it pushed China farther down the road of reform could be a good thing. However, social disturbance by creating uncertainty and discouraging foreign investment could at least in the short term negatively impact on growth. This, I understand, is why the Chinese government worries so much about dissent. </div>
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7) b) The £120 billion was only the amount grafted by a group of 16,000 – 18,000 government officials. In 2005 alone, the national audit office reported £35 billion of fraud by government officials (please see http://www.nytimes.com/2009/12/30/world/asia/30fraud.html?_r=0). That’s 1.5% of China’s nominal GDP, a far bigger consideration. And that is only government corruption that has been audited at a the supra-regional level. Corruption exists on a far wider scale on a more local level. Furthermore, local corruption, quite apart from disadvantaging the poorest who are hard pressed to pay bribes, exists has been proven to be damaging to the business environment; http://lnweb90.worldbank.org/eca/eca.nsf/1f3aa35cab9dea4f85256a77004e4ef4/e9ac26bae82d37d685256a940073f4e9?OpenDocument. These are not my views but the World Bank's. </div>
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8) Thanks for the compliment but the comparison wasn’t mine it was the Economists (http://www.economist.com/node/21553056).Furthermore I wasn’t saying that China’s labour force was an issue now but that it would be in the future. </div>
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9) I’m sorry you got so tired by this point. Might I suggest an injectuon of caffeine? My point wasn’t that the education system lags the Wests entirely, just that it had little focus on creativity or imagination in the workplace which would limit the future work forces ability to innovate. Innovation, as I am sure you will agree, is indeed crucial to growth. This was in no way a slight on Chinese students or teachers who I am certain are super talented. In fact, they are the ones who are being disadvantaged here by rigid Chinese education policy.</div>
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Furthermore I have heard there is a Communist regime in China though I didn’t learn that in Econ 101. </div>
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Thanks for your feed back :)</div>
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Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-8486087139152292728.post-62224501622758025542012-06-28T08:34:00.000-07:002012-06-28T08:34:31.642-07:00A sweet success? Sanctions in Myanmar<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<i style="mso-bidi-font-style: normal;"><span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: Times, "Times New Roman", serif;"><span style="color: #444444;">One of the most surprising things about this recipe is how quickly it seemed to come together. Be warned it takes a while to really ‘set’ and won’t necessarily work as well with different ingredients</span>. </span></span></i></div>
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<span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><strong><u><span style="color: #444444;">Ingrediants </span></u></strong></span></div>
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<span style="color: #444444;"><span style="font-family: Symbol; font-size: 12pt; line-height: 115%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;"><span style="font: 7pt "Times New Roman";"> </span></span></span><span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: Times, "Times New Roman", serif;">Base:</span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="color: #444444;">A government desperate for financial resources<i style="mso-bidi-font-style: normal;"></i></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="color: #444444;">An authority group that’s lost political legitimacy <i style="mso-bidi-font-style: normal;"></i></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="color: #444444;">A reliance on ‘ally’ countries with extractive agendas<i style="mso-bidi-font-style: normal;"></i></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="color: #444444;"><span style="font-family: Symbol; font-size: 12pt; line-height: 115%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">‘Carrot’: <i style="mso-bidi-font-style: normal;"></i></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="color: #444444;">High profile visits and diplomatic relations <i style="mso-bidi-font-style: normal;"></i></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="color: #444444;">Debt forgiveness <i style="mso-bidi-font-style: normal;"></i></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="color: #444444;">Support and aid from the World Bank and IMF <i style="mso-bidi-font-style: normal;"></i></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="color: #444444;">Interest and<span style="mso-spacerun: yes;"> </span>investment from foreign companies <i style="mso-bidi-font-style: normal;"></i></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="color: #444444;">No involvement of the International Court of Justice at the Hague <i style="mso-bidi-font-style: normal;"></i></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="color: #444444;"><span style="font-family: Symbol; font-size: 12pt; line-height: 115%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">‘Stick’ – strict EU, US, Norwegian, Japanese, and Australian sanctions including: <i style="mso-bidi-font-style: normal;"></i></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="color: #444444;">Arms embargo,<i style="mso-bidi-font-style: normal;"></i></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="color: #444444;">Ban on Burmese goods including timber, mining and gems industry<i style="mso-bidi-font-style: normal;"></i></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="color: #444444;">Ban on companies investing and working in the country<span style="mso-spacerun: yes;"> </span></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="color: #444444;"><span style="mso-spacerun: yes;">No humanitarian aid </span><i style="mso-bidi-font-style: normal;"></i></span></span></span></div>
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<span style="color: #444444; font-family: Times, "Times New Roman", serif;"><span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">No visas for army members and junta.</span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: Times, "Times New Roman", serif;"><span style="color: #444444;"> Anyone who has spent the last six months watching the political developments in Myanmar unfold could be excused for experiencing some degree of vertigo. The progress of reforms appears to be so rapid the even South East Asian experts failed to predict the military junta’s political u-turn. However, a closer look at Myanmar’s situation reveals a rather interesting recipe; perhaps one which offers for hope for the much disparaged sanctions. These economic restrictions are often derided, especially by those who disapprove of the ‘soft power’ approach. Yet Myanmar’s recent reforms have shown how successful sanctions can be, if done properly and made with the right ingredients.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span></span></span></span></div>
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<span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: Times, "Times New Roman", serif;"><span style="color: #444444;"><span style="mso-tab-count: 1;"> </span>For an effective recipe made with sanctions, it is crucial that you have the right base for reform. This shouldn’t be too tricky as sanctions are usually applied to countries with deeply corrupt and extractive institutions that profit a self-serving elite. Over time, the nature of these institutions typically leads to the type of base required; an authority or government that is desperately short of both resources and political legitimacy. Such was the case for Myanmar. The base was improved further by its alienation from other countries, leaving it hopelessly dependent on one country; China. China, like Myanmar’s own military junta had an extractive agenda in the country, and the government eventually found that Chinese business investment was often little more than a snatch and grab, with companies mistreating employees and damaging the local environment. These factors, when combined, make an ideal base for the next step.<span style="mso-spacerun: yes;"> </span></span></span></span></div>
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<span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: Times, "Times New Roman", serif;"><span style="color: #444444;"><span style="mso-tab-count: 1;"> </span>However, this part of this recipe is probably the trickiest, as it requires a careful culinary balancing act; offsetting the right amount of ‘carrot’ against the right amount of ‘stick’. This balance must be exactly right for reforms and development in a country to ‘set’. In the case of Myanmar it began with the ‘stick’; the harsh sanctions imposed on it by countries as diverse as the US, Norway, Japan and Australia. These took the form of a prohibition on companies investing and working in Myanmar, a ban on exports such as teak and gems, no visa’s for any members of the army or junta and eventually a suspension of humanitarian aid. Over time these sanctions began to bite, and in turn help prepare the base. Once this is ready, you gradually, and I stress <i style="mso-bidi-font-style: normal;">gradually</i>, add your ‘carrot’ while slowly taking away the ‘stick’. In the case of Myanmar it began with President Obama promising a visit by Secretary of State Hilary Clinton following the release of Aung San Suu Kyi. Myanmar then freed 650 political prisoners and in turn the US re-established diplomatic ties. This careful removal of ‘stick’ and addition of ‘carrot’ encouraged Myanmar’s reform and on the 1<sup>st</sup> of April Myanmar held the first free and fair elections since 1990. As a result, the EU is suspending all sanctions (apart from the arms embargo) for one year and multinational companies are clamouring to invest in Myanmar. </span></span></span></div>
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<span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: Times, "Times New Roman", serif;"><span style="color: #444444;"><span style="mso-tab-count: 1;"> </span>As successful as these reforms have been so far, their speed risks upsetting the careful balance that is required in this recipe. It is essential that other countries give only enough ‘carrot’ to encourage the current reform while still reserving some rewards for future reform. While Myanmar has made impressive progress there are still some fundamental changes which need to be made. Primarily the army’s power needs to be greatly reduced. While Aung San Suu Kyi’s National League picked up 43 out of the 45 seats in the recent election, this comprises only 6% of the 650 seat parliament. In addition to this, the constitution of Myanmar still leaves the army with a significant power. If Myanmar is to become a fully functioning democracy it still has plenty of improvement to make and for the sake of preserving the fragile balance, countries should be careful not to make too many concessions to the regime too quickly. Aung San Suu Kyi put it best when she said “the world loves a happy ending...but there is still a long way to go”. Myanmar’s reforms haven’t quite ‘set’ yet.</span></span></span></div>
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<span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: Times, "Times New Roman", serif;"><span style="color: #444444;"><span style="mso-spacerun: yes;"> </span><span style="mso-tab-count: 1;"> </span>Nevertheless, if this does prove to be a successful recipe using sanctions, could this be applied elsewhere in the world? One obvious thought might be Iran. Another ‘rogue nation’, to use the famous American phrase, is facing its toughest round of sanctions yet. From the 1<sup>st</sup> of July the EU will halted all imports of Iranian oil and earlier in the year the US government announced that it would penalise any financial institution found to be doing business with Iran’s central bank. Yet, despite the severity of these sanctions, the method of applying them cannot be the same in Iran as in Myanmar. With Iran one is working with an entirely different set of ingredients.</span></span></span></div>
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<span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: Times, "Times New Roman", serif;"><span style="color: #444444;"><span style="mso-tab-count: 1;"> </span>On the surface the situations appear similar; a hard-line regime, with extractive institutions and mired in corruption. However, their ingredients that comprise the base of the two are subtly different.<span style="mso-spacerun: yes;"> </span>To begin with, the Iranians base is not nearly strong enough (i.e. the government is not yet desperate enough) to support a fragile ‘carrot and stick’ manoeuvre. While the government does not enjoy much support (as shown by the Green Revolution in 2009), the theocracy still maintains a powerful ideology and one that many Iranians still support. Secondly, while sanctions are beginning to sink in, Iran is in a financially stronger position than Myanmar. It is more developed than its Asian peer and still has some semblance of a strong middle class remaining. Iran also has enough resources saved up to weather EU sanctions, at least according to the government. Ahmadinejad announced recently that Iran has an oil fund worth some $35 million to tide the country over to 2015, even if they didn’t sell any oil during that period. This is crucial, because in an extractive economy like Iran’s, the government very much relies on handouts for support and their control of citizenry. Iran is also not dependent on one ally, as Myanmar was. Due to its vast resources of oil, it still maintains relationships with countries that have no qualms about its nuclear activities. </span></span></span></div>
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<span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: Times, "Times New Roman", serif;"><span style="color: #444444;"><span style="mso-tab-count: 1;"> </span>With an entirely different set of ingredients for the base, sanctions will not come together as quickly or as sweetly as they did in Myanmar. Nonetheless, a longer preparation time shouldn’t lead us to write recipe off straight away. Iran’s base may not be ready now there is a chance that sanctions will push it there for the future. As they at last begin to bite, Iran’s economy is stuttering and ordinary Iranians are suffering. Food inflation is running at above 50% and food shortages have been reported. Unemployment is a problem too; 22% of Iranian families have no breadwinner. As this continues the regime will begin to lose whatever remains of its political legitimacy. Despite deeper coffers, the Iranian government are also deeply concerned about their oil flow. Harsh new EU sanctions will cut Iran’s oil exports by at least 25% and this for a government which is dependent on oil for 50% to 70% of their revenues.<span style="mso-spacerun: yes;"> </span>The EU and U.S. have also put banking penalties on financial transactions with Iran which have effectively, in the words of Ahmadinejad, shut Iran out of international banking. This lack of finance is aggravated by the fact local investment in Iranian business has slumped. Iranian investors are now investing spare resources in ‘havens’ such a property, gold and even carpets. Finally, as Iran increasingly becomes a pariah state, it will be forced into greater reliance on allies such a China and India. These are countries that are already prepared to push Iran for discounts on oil following the latest t round of sanctions.<span style="mso-spacerun: yes;"> </span></span></span></span></div>
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<span style="font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: Times, "Times New Roman", serif;"><span style="color: #444444;">So there it is; a sweet, simple and hopefully successful recipe for reform through sanctions in Myanmar. Whether the long-time frame and varied ingredients prove too much for this recipe in Iran remains to be seen. </span></span></span></div>
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</span></span>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8486087139152292728.post-10317661363259931572012-03-27T08:24:00.001-07:002012-03-27T09:04:06.129-07:00Game-changing recipe: A quick and easy city?<em></em><br />
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: small;"><span style="color: #444444;"><span class="TextRun SCX135126044" style="font-size: 11pt; font-style: italic;" xml:lang="EN-GB">Paul Romer, the father of endogenous growth theory, thinks that he can whip up a city in a foreign country in a matter of years, </span><span class="TextRun SCX135126044" style="font-size: 11pt; font-style: italic;" xml:lang="EN-GB">with all the established institutions and rule of law that took most countries hundreds of years to develop.</span><span class="TextRun SCX135126044" style="font-size: 11pt; font-style: italic;" xml:lang="EN-GB"> </span><span class="TextRun SCX135126044" style="font-size: 11pt; font-style: italic;" xml:lang="EN-GB">An ambitious recipe, no?</span><span class="TextRun SCX135126044" style="font-size: 11pt; font-style: italic;" xml:lang="EN-GB"> </span></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: small;"><span style="color: #444444;"><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">A charter – good </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">rules, a legal system </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">w</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">ith</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">; </span></span></span></span></div>
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<span class="TextRun SCX135126044" style="color: #444444; font-family: Times, "Times New Roman", serif; font-size: small;" xml:lang="EN-GB">Choice’s for people </span></div>
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<span class="TextRun SCX135126044" style="color: #444444; font-family: Times, "Times New Roman", serif; font-size: small;" xml:lang="EN-GB">Choice’s for leaders </span></div>
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<li><span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: small;"><span style="color: #444444;"><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">Uninhabited land, </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">1,000 km</span><span class="TextRun SCX135126044" style="font-size: 8.5pt; vertical-align: super;" xml:lang="EN-GB">2</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> at least </span></span></span></span></li>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: small;"><span style="color: #444444;"><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">This recipe is based on the </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">perhaps unsurprising </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">statistic that </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">right now </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">700 million people</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> around the globe</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> say they</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">’d like to l</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">ive somewhere else. Why don’t they have this option? </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">Paul Romer is hoping to teach government, business and academics how to conc</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">oct cities for them to live in</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">.</span></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: small;"><span style="color: #444444;"><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">The basis for this recipe is ‘choice’ but being a rather t</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">oo abstract notion for a recipe</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> it</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> can be boiled</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> down to a charter</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">,</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> which allows for the operation of </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">quasi-independent city-states</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">. This charter effectively opens up two types of choice; </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">a </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">choice for people and </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">a </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">choice for leaders. The choice for people comes</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">,</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> of course</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">,</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> from the option to live and work in the city, voting with their feet on the institutions and rules put in place by an independent legislative body. The choice for leaders is less obvious. Effectively it is the choice to set up a governing system free from the special interest</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> groups and</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> elites which so often dominate</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> the</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> politics</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> of a</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> developing country. By appointing outside experts to oversee the rules and rights of the charter city, it can distance </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">itself from the predatory practices of the home government, attracting new citizens and foreign investment. </span></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: small;"><span style="color: #444444;"><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">To this </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">document</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> you must add </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">some of those traditional factors of production economists are so fond of. Let’s start with natural resources in the form of land</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">;</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> Mr. Romer estimates that nothing </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">less than</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> 1,000</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> km</span><span class="TextRun SCX135126044" style="font-size: 8.5pt; vertical-align: super;" xml:lang="EN-GB">2</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> will do. </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">To this, we add labour, specifically the mangers and </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">designe</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">r who will </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">design and </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">run the city. </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">These</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> parties</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> will consist of both residents and leaders of the country as well as foreign experts and governments. This latter group is there to ensure that independent and effective institutions are constructed and maintained in the new city, acting as </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">referee </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">if necessary. </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">T</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">hen for good measure </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">we need to </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">add some physical capital in the form of international financing. </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">If the previous ingredients come together successfully, the addition of international financing should not be too tricky as investors will be tempted there by </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">light-touch regulation and an </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">effective </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">rule of law</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">. </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">Finally, </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">add</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> a liberal sprinkling of citizens, keen to live and work under the foreign institutions they were previously willing </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">to migrate so far for. They </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">will finish off the dish nicely. </span></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: small;"><span style="color: #444444;"><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">As shocking as this recipe might seem, it’s</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> is</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> actually not all that crazy as</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> in some sense charter cities have existed before. You </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">only have to look at Hong Kong; a</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> Chinese city but effectively run with rules adopted from the British.</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> Indeed Romer credits Hong Kong’s success to the British; “</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">The British did more to reduce world poverty in Hong Kong than all its aid programmes put together”. </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">Deng Xiaoping</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">, for one, recognised</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> this and created four special economic zones in China. Following their success 14 coastal cities were given this privilege. In this way he did not force a market economy on the Chinese people but effectively gave people the choice to move to these </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">“charter cities”</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">.</span></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: small;"><span style="color: #444444;"><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">Indeed when Romer says</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> “our new goal should be that when ev</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">ery family thinks about where they want to live and work they should be able to chose between at least a dozen different cities </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">who</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> are all competing to att</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">ract new residents” he makes no mention of its historical precedence. </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">In medieval Europe something like this actually existed. Power was so fragmented </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">across the continent</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">, that there was little centralization </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">and instead free cities </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">and principalities competed against each other for citizens. </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> </span></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: small;"><span style="color: #444444;"><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">Despite this seeming precedence however, political chefs need to tread carefully. While it is indeed true that at one time Europe was dominated by something like charter cities, these cities were a natural evolution; the result of </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">European geography and culture failing to leave one group strong enough to dominate the rest. For Europe this development took hundreds of years and did not last nearly as long, as</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> the</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> power of centralizing monarch</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">ie</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">s</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> grew. What Paul Romer is describing, is an attempt to short cut the evolution responsible for complex and independent societies in the hope that academics and foreign governments can override natural </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">socio-economic development.</span></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: small;"><span style="color: #444444;"><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">While I think that the above is the greatest caveat, Romer is far more likely to face criticism from those who will deem his charter cities a new form of colonialism. Romer acknowledges this and is </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">eager to demonstrate</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> that by giving citizens and leaders choices about their city, he is overcoming the condescension and coercion which came to </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">epitomize</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> colonialism. Unlike colonialism, citizens </span><span class="TextRun SCX135126044" style="font-size: 11pt; font-style: italic;" xml:lang="EN-GB">choose</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> to submit to a different way of living. </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">Indeed in the very place you’d expect people to be suspicious, Africa, many of the leaders are keen on this new idea, seeing it as a way round the institutional sclerosis that too often occurs. They see it as a place to encourage investments, when many investors are wary of investing in Africa precisely because of the weakness of institutions, like property rights.</span></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: small;"><span style="color: #444444;"><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">However it is Latin America which will be the first continent to see a charter city</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">,</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> rendering</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> this recipe</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> is no longer</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> merely theoretical. Romer and the government of Honduras are working together to </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">rustle up </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">a skyline, in 1,000 km of uninhabited land in </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">Trujillo</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">, Honduras. The Honduran government agreed to it partly because they are fed up of watching 75,000 of their citizens, often the best and the brightest, leave Honduras annually to seek a better life in the US. They Hondurans have already started adding to their uninhabited land by mixing in the city building expertise of Singapore and South Korea, both of whom are interested in the charter city idea. </span></span></span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="font-size: small;"><span style="color: #444444;"><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">In fact, despite my aforementioned criticism I am impressed by Mr. </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">Romer’s</span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> vision and ambition. After all, with his recipe for a city, is he not trying to do what all development economist dream of; overcoming the trials and tribulations of an underdeveloped state to bring wealth and prosperity to its people? Even if he fails, he has highlighted the role of <span style="color: #444444;">institutions and </span></span></span><span style="color: #444444;"><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">government in </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB">economic development, which should be applauded. Please feel free to comment if anyone disagrees! </span><span class="TextRun SCX135126044" style="font-size: 11pt;" xml:lang="EN-GB"> </span></span></span></span></div>
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Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8486087139152292728.post-32805369170970826322012-03-07T07:11:00.002-08:002012-03-07T07:18:34.446-08:00Italian slow-cooking: A tale of two tyrannies<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: Times, "Times New Roman", serif;">Italian recipes are always popular so I thought it was be a great way to start my new economic/political cookbook. Buon appetito!</span></i></div>
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<b style="mso-bidi-font-weight: normal;"><u><span style="font-family: Times, "Times New Roman", serif;">Ingredients </span></u></b></div>
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<i style="mso-bidi-font-style: normal;"><span style="font-family: Times, "Times New Roman", serif;">For your base, the ‘tyranny of the majority’: </span></i></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">· </span></span>An ageing demographic <b style="mso-bidi-font-weight: normal;"><u></u></b></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">· </span></span>Article 45 of the Treaty of the Functioning of the European Union (which allows for the free movement of people)<b style="mso-bidi-font-weight: normal;"><u></u></b></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><i style="mso-bidi-font-style: normal;">For the ‘tyranny of the minorities’:</i><b style="mso-bidi-font-weight: normal;"><u></u></b></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">· </span></span>Ineffective government <b style="mso-bidi-font-weight: normal;"><u></u></b></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">· </span></span>A culture of guilds and cartels <b style="mso-bidi-font-weight: normal;"><u></u></b></span></div>
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<span style="font-family: Times, "Times New Roman", serif;"><span style="mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">· </span></span>A widespread dislike competition (witness the platforms of the People of Freedom and the Northern League). <b style="mso-bidi-font-weight: normal;"><u></u></b></span></div>
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<span style="font-family: Times, "Times New Roman", serif;">As Alexis De Tocqueville toured America, he remarked on the dangerous ‘tyranny of the majority’ that he believed would “render the law unstable”. However, the recent Euro debt crisis has shown us that it is not just the tyranny of the majority that is dangerous; it is when this majority combined with a ‘tyranny of the <i style="mso-bidi-font-style: normal;">minorities</i>‘. This set-up renders not only governments unstable (ciao Berlusconi!) but the country’s economy too. </span></div>
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<span style="font-family: Times, "Times New Roman", serif;">The way the debt crisis has recently been reported in the media would leave one believing that the recipe behind the disaster has been a quick pan-to-plate job with a befuddling variety of ingredients; a global recession, a single currency, high sovereign debt, lax consideration of the growth and stability pact, etc. However, I believe an authentic Italian crisis requires a much longer cooking time and yet a simpler set of ingredients. Indeed, while the rapidity may surprise some, others have wondered how Italy has lasted so long without meeting financial difficulty. Its growth rate between 2000 and 2010 has averaged at 0.25% a year; a figure so low it was only surpassed by Haiti and Zimbabwe. Not ideal neighbours for the country of Caesar and Garibaldi. Furthermore, productivity only grew by 0.1% between 2001 and 2005 and actually shrank by 0.8% between 2006 and 2009. <span style="mso-spacerun: yes;"> </span></span></div>
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<span style="font-family: Times, "Times New Roman", serif;">What do you need to create this kind of economic sclerosis? I would say the base of this recipe requires an ageing demographic. In Italy, the birth rate has fallen much faster than in other European countries, to 1.3 children per family. Thus while the number of those over the age of 65 has markedly increased, by 10.4%, the number of those up to the age of 14 has only grown by 1.9% (2001-2006) . With age often comes seniority and as in most countries, Italy’s businesses, large and small, are owned and run by the boomer generation. However, their hold has become entrenched and to the detriment of meritocracy in Italy. Often the younger generation find they are too young to be promoted or that their superiors will take the lion’s share of their success, financial or otherwise. As a result, large numbers of ambitious young Italians leave the country every year in search of greater opportunities. In fact, Italy is the only rich European country to be a net exporter of graduates. <span style="mso-spacerun: yes;"> </span>The old rule the roost, and the potentially productive youth flee to other European countries to advance their careers. However, well-entrenched this age bias is in business, it is further fortified by the government. Italy spends 14% of its GDP on pensioners, more than any other European country. In 1994 Berlusconi came to power in Italy promising pension reform; 17 years on they have never happened. </span></div>
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<span style="font-family: Times, "Times New Roman", serif;">To this base you need to mix in a variety of what I have termed ‘tyranny of the minorities’. This is really just a sprinkling of different cartels and entrenched business interests which stop Italy’s economy from working in a productive manner. In fact, almost every industry in Italy has their own lobby group and set of protections. An example of this, (highlighted in the <i style="mso-bidi-font-style: normal;">Economist</i>’s special report on Italy last summer) is taxi drivers. In Milan, it is near impossible to find a taxi. This is odd given that Milan is probably Italy’s most dynamic and wealthy city; surely demand is high enough? The reason is a classic constriction of supply; taxi drivers in Milan must pay a large amount of money for a taxi licence (€200,000 in 2003) which thus limits the number of cabs driving around. </span></div>
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<span style="font-family: Times, "Times New Roman", serif;">In this way privileges are confined to the lucky few, at the expense of a taxed majority. However, it particularly hurts Italy’s youthful minority who suffer disproportionately high levels of unemployment. In November of 2011, Italian youth unemployment was at 30.1%, well above the 22% Euro zone average. The protectionist measures adopted by government which enshrine these hard-to-get/hard-to-lose jobs in guilds and cartels ensure that the young are kept out of various professions. Indeed almost the only way to get a job in Italy these days it through <i style="mso-bidi-font-style: normal;">raccomandazioni,</i> a series of family connections within the labour market. </span></div>
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<span style="font-family: Times, "Times New Roman", serif;">There you have it, hopefully a rich but simple entrée; an Italian crisis. I’d be interest to hear if anyone has a recipe for the solution! </span></div>Unknownnoreply@blogger.com1