Charles Leadbeater from The Spectator:
"We should be searching for a new kind of capitalism, and not just according to the far Left.
That is the message from Washington dinner parties and in the pages of the Financial Times.
For most people the next year will not feel like a search for a brave new economic model: it will be more like hand-to-hand combat to keep hold of what you have.
Yet the world is being turned upside down not by wild-eyed revolutionaries but sober central bankers and civil servants. High-octane, free-market financial capitalism has been devoured from within as the financial markets lost faith in the system they created. The City of London, once the jewel in the crown of the free-market empire, is being turned into a toxic debt recycling plant.
Bankers may become a bit like trade union leaders. After the excesses of the 1970s and the reforms of the following decade, the trade unions became just another part of the economy in the 1990s. They are still with us and occasionally make news, but they are not a power in the land. Something similar may happen to bankers.
Capitalism’s strength is its capacity for evolution. In the mid-1970s managed, national Keynesian capitalism gave way — in the US and the UK at least — to a more international, market-driven variety, a shift that gathered pace after the fall of the Berlin Wall in 1989. Will this year mark a further mutation to a new model of capitalism that could be with us for the next three decades?
The answer will depend on the severity of the looming recession, the pain it inflicts on people’s finances and the shock it delivers to conventional wisdom. How we end up striking the balance on three central issues will be crucial to the kind of capitalism that will emerge. The first is the balance between regulation and deregulation, the state and the market. This balance continues to shift daily
A free-market economy needs a state with substantial reserves of power to call on, especially as interconnected, fluid societies are so prone to crisis, from freakish summer floods to terrorist attack and financial contagion. Governments will use more ‘soft power’, incentives and persuasion to nudge people to become fitter, healthier and greener. But the last three weeks have shown that ‘hard power’ — the ability to mobilise massive resources at scale in a crisis — is still a job only government can do. Gordon Brown has relished playing the role of a latter-day FDR, leading the blitzkrieg into the financial equivalent of a failed state.
This is the high-water mark of the deregulated, bonus-driven, free-market triumphalism that blossomed after 1989. For years to come people arguing for a laissez-faire approach to any issue — health, transport, carbon trading — will be met with as much scepticism as advocates of state planning.
The government’s guiding role is unlikely to be temporary even if its stakes in the banks are. As 2009 unfolds, government will come under pressure to revitalise property markets to protect the value of public shareholdings in banks and to soften the blow of recession on businesses and households. People will be prepared to pay the price of a little more regulation if that brings a more dependable and less destructive capitalism.
Yet progressive euphoria over the state’s new-found economic confidence may be short-lived.
The state may be good at saving losers; that does not mean it is any better at picking winners. This year’s crisis of legitimacy in financial markets may become the state’s crisis next year as its resources are stretched to breaking point as borrowing rises to more than twice national income and recession takes its toll on already depleted public finances. Demand for good schools and hospitals will not lessen, but the short-term priority will be to slow the rise in unemployment. Everything else will take a back seat for a while.
National crisis — war and depression — is a crucible for social and public innovation, from FDR’s New Deal in America to the postwar European welfare state. The Labour government has often put off radical public services reform in favour of more investment to modernise services. That recipe will not work over the next two years. The only way to avoid cries of ‘cuts, cuts, cuts’ will be to deliver better public services at much lower cost through radical innovation — the Conservatives call it the post-bureaucratic age — to break down the silos, bureaucracy and duplication that still characterise public services. This will be the first real test of the strength of the social enterprise movement that was in its infancy during the last recession. The state is in for a torrid time. But the idea that societies in the developed world would be made safer, more productive and stable by having a smaller state is dead.
The second big issue is the balance between being networked and feeling safe.
The crisis was brought on by densely connected, tightly coupled, far-flung financial networks: it was like a high-speed motorway pile-up. Nick Leeson was a rogue trader. Enron was a rogue company. Financial markets have become a rogue system.
The complex maze of financial relationships has allowed a shadow banking system of hedge funds to trade financial instruments few understood, generating unfathomable risks in the wings of mainstream banking. This is further proof that the apparently marginal and insignificant — some subprime loans in the US Midwest — can up-end an entire industry, especially if it is densely networked.
As banks stopped lending to one another they retreated from these networks. Repeated across the economy as a whole, this would mean people hoarding resources and countries resorting to protectionism. The economy could yet shudder to a halt.
The crisis may make us turn away from cosmopolitan connections. The most significant banking casualties were formerly solid, proudly provincial institutions — Northern Rock from Newcastle, the Halifax, banks with their roots in respectable Edinburgh — who were seduced by the lure of international expansion through the cosmopolitan City. Many people will want a return to down-to-earth provincialism.
Yet we will not be able to retreat far from the cosmopolitan networks we have come to depend on in the last two decades. Hopes for avoiding deep recession depend on unprecedented levels of co-ordination among economic policy-makers. The cities and regions most likely to prosper will be those with outward-looking, entrepreneurial civic and business leaderships. Companies will learn to innovate and produce more through networks that allow them to share resources and defray risks. Many will be forced to look East for markets.
The eastward shift of capitalism’s dynamic will accelerate and so will its mutation in places with very different cultures and political regimes — Dubai, Shanghai and Kerala. That will create many more alternate forms of capitalism.
Networks will also be critical for individuals. This is the first downturn we have faced with the web woven into our lives. A recession will be a boon for the web’s pro-am, do-it-yourself ethic. Professional social networks such as Linked In may come into their own as out-of-work people look for jobs. There may be more Popbitch and less Heat magazine; more use of free, open-source software than expensive offerings from Microsoft; more recycling of secondhand goods through eBay and freecycling schemes; more sharing of resources like cars through websites like GoLoco and Liftsharing. The collaborative, low-cost organisational models the web allows will come into their own; high-cost industrial-era models will suffer.
Third, a downturn may lead people to a more balanced perspective on money and wealth.
In the next year money will become more important to people: credit will be scarce, getting hold of money will be harder. We will all learn to haggle and bargain. The foundations of future fortunes will be laid, as those with the money buy distressed assets at knockdown prices to set off a new cycle of wealth creation.
Yet the capitalism that emerges will be more modest, thrifty and subdued. Shows of wealth acquired through speculation will attract resentment. Ostentatiously overpaid footballers may fall out of favour. When Lehman Brothers could be worth $15 billion at the start of a week and next to nothing at the end, people may wonder what money really means.
Many people want a simpler, back-to-basics capitalism, one that does what it says on the tin. The crisis may encourage more people to place more value on what cannot be bought and sold, realising that relationships underpin our wellbeing more than money.
Capitalism will emerge more chastened and subdued. After the bubble burst in the early 1990s, Japan became just another productive, well-educated, slow-growth economy. It was no longer a wonder economy. But nor was it a basket case.
Capitalism will be more socialised. More emphasis, at least rhetorically, will be put on social stability, responsibility and shared capacities to take risks. That might give us a capitalism that is more civic, collaborative, creative and sustainable, in which the state’s role is more accepted and firms are less driven by the short-term demands of financiers. There will be greater pragmatism about the mix of public and private.
Yet in some places capitalism could get uglier. A severe recession could provoke an unseemly fight for resources and a generalised breakdown of trust. That would not usher in a new era of co-operation but a brutal struggle in which each protects what is his. Those with money will drive a harder bargain than those without. The state will be beset by demands it may not be able to meet. In white working-class communities that gained very little even during the boom years, things could turn nasty. People already disconnected from mainstream economic activity and public life, even during the boom, will be further disconnected. People may not turn en masse to fascism and communism as they did in the 1930s, but their sense of anger and dispossession will be more difficult to contain.
In all likelihood we will get a mix of subdued capitalism, social capitalism and ugly capitalism, even within the same cities.
All of this is speculation. I am old enough to have lived through several anxiety-inducing downturns but I cannot recall ever before feeling scared, planning to grow vegetables in our garden or escape with my family to Greece to run a B&B. Personally I would settle with relief for a capitalism that was safer, more stable and accountable, less destructive. After what we have already been through, and considering what we are about to go through, a more subdued and accountable capitalism would be a good starting point in our search for something more ambitious.
Thus far this has been framed as a crisis that requires an urgent response. In time the confused and battered population may want a politician who can frame it as a challenge or even an opportunity to remake capitalism. If Gordon Brown can successfully make that pitch, he deserves to be compared to FDR and the New Deal. But he may yet turn out to be more like Churchill. Winning the war may not win him the right to guide economic reconstruction.
This still has a long way to run.
Charles Leadbeater is the author of We-Think and a visiting fellow of the National Endowment of Science, Technology and the Arts. Visit www.nesta.org for more details of Nesta’s analysis and events discussing the impact of the financial crisis.
sábado, 17 de enero de 2009
More battles ahead in Russia's 'gas war'
M.K. Bhadrakumar from AsianTimes:
The cause of any war is difficult to pinpoint. There is always more than one cause. And they could be just causes or ugly causes. There is no objective criterion except that the right cause is constructive while the wrong one is destructive, but then, people define by their standards.
...Unsurprisingly, the ubiquitous Americans promptly put on their trans-Atlantic leadership mantle and appeared on the scene to finger-point at the unreliable, unscrupulous, venal Russian "bullies". Anders Aslund of the Peterson Institute came up with a most ingenious thesis that actually the Russians were conspiring to make Ukraine a corrupt country, destabilize it and make it unsafe for democracy. But it was most certainly a war and the Russians likely won, as Old Europe did not take the cue from Washington. The win remains indeterminate, though. That is because it has been ultimately about geopolitics, where you don't conclusively win and can only avoid losing, and as China's People's Daily newspaper noted, Russia cannot turn a blind eye towards "NATO's [North Atlantic Treaty Organization] greedy expansion" and the dispute between the United States and Russia will only become "more and more intense". War had just causes. The factors leading to the gas war are well known.
... What are Ukraine's motivations in precipitating the crisis? One, Ukraine is in deep economic difficulties and would genuinely want the deep Russian gas subsidies to continue. The point is, the US-sponsored Orange revolution of 2004 has brought an economy with the best growth rate among the former Soviet republics down to its knees. In November, the International Monetary Fund (IMF) extended a $16.4 billion credit line to Ukraine. The chief economist of the European Bank for Reconstruction and Development, Erik Berglof, recently warned that the IMF package might not suffice. He said, "Ukraine is heading toward a twin currency and banking sector crisis that could well bring down most of the economies of Eastern Europe."
Rapid currency devaluation is disrupting the banking system and a few Western banks face the risk of major exposure in Ukraine. The national currency hryvnia has lost over 80% of its value against the dollar in the past three months. Massive debt rollovers to the tune of $41.5 billion (roughly 35% of gross domestic product) are falling due and refinancing will be extremely difficult in the present climate of the world financial crisis. Ukraine's GDP may drop by as much as 10% in 2009. Industrial production contracted by 28.6% in November. A period of pain and high drama lies ahead. And Uncle Sam, engrossed in own ailments and disabilities, is in no position to bail out his progeny. To compound all this, Ukrainian politics, which has always been murky, is in an unprecedented stage of volatility with the two political personalities sponsored by Washington as the flag carriers of the Orange revolution - President Viktor Yushchenko and Prime Minister Yulia Tymoshenko - tearing into each other scandalously in a bitter, irreconcilable rivalry at a very personal level.
According to Moscow, the two Ukrainian leaders are using the gas dispute with Russia to whip up xenophobia and rally the nation and at the same time malign each other. At any rate, there is no one in charge in Kiev who has the final word in the negotiations with Russia. Tymoshenko tried to project herself as the Ukrainian leader better able to negotiate a gas compromise with Russia and pro-US Yushchenko has accused her of mishandling the crisis. There is also a likely shady part to this - typical of most government business in Kiev. Tymoshenko has accused that the joint venture company RosUkrEnergo, which handles the Russian gas sales to Ukraine with which two notorious Ukrainian oligarchs are associated, is a vehicle of corruption for Yushchenko and that this is the real reason why the president scuttled her October memorandum with Putin from implementation, since it provided for doing away with middlemen and incrementally linking Russian-Ukrainian gas transactions to market price.
Nonetheless, it is virtually impossible that Yushchenko, who is so manifestly under the American thumb, would precipitate a first-rate crisis in Europe without some sort of nod from Washington. (Curiously, in mid-December, Washington concluded a "strategic partnership" agreement with Kiev.) Alexander Rahr, the noted Russia expert at the German Council on Foreign Relations in Berlin said, "There are attempts in Ukraine to tarnish the image of Russia as a reliable energy partner. [Ukraine] is forming an image of Russia as a foe and Ukraine as a victim."
To quote the editor-in-chief of Russia in Global Politics, Fedor Lukyanov, "Ukraine chose a tactic of deliberately creating a crisis through its rejection of talks and agreement, with the expectation that ultimately any major disruption of gas deliveries to Europe would hurt Gazprom's reputation as a reliable energy partner, supplier and generally speaking, as a company selling gas to Europeans. Everything that has happened after December 31 seems to me a delaying tactic ... We [Russians] are losing not a mere propaganda war but a real gas war ...
It is not accidental that countries that have excellent relations with Russia such as Greece, Hungary and Bulgaria, which are among our main European partners, are experiencing the worst difficulties." Actually, it is the very first time that European countries are experiencing a real shortage of gas ever since Russia's supplies began three decades ago. Lukyanov underlined, "Now, each single day of the crisis will distort the European perceptions, which would blame the Russians for everything."
All the same, the Russian political leadership has been careful not to join issue with Washington. Any criticism of the US has been muted. The maximum that Moscow was prepared to go was a reference by the senior Russian politician Andrey Kokoshin who said, "This is a consequence of the policy some figures in Washington have been pursuing over the past few years by trying to tear Ukraine away from Russia and make it a counterbalance to Russia forever."
Clearly, Moscow realized that it might simply walk into a trap set by the hardliners in Washington at this juncture of the transition of power to president-elect Barack Obama. The Kremlin has been cautiously optimistic about a fresh start to US-Russia relations under the Obama presidency. Interestingly, the George W Bush administration has utilized the hullabaloo of the gas war in Europe to wrap up the last act in its Russia policy - concluding a security pact with Georgia on January 9, which according to reports might lead to some form of permanent US presence in the Caucasus for the first time ever. This is by now a familiar pattern - under cover of dust in the Western public opinion over Russia's "expansionism", advance the containment strategy towards Russia by yet another notch and draw an unwilling Europe along. The Bush administration utilized the backdrop of the war in the Caucasus last August to formalize the agreement with Poland for its missile defense deployment about which Europe was lukewarm.
In fact, the American criticism of Russia over the gas war has been so highly vitriolic that it looks every bit contrived. Aslund's outlandish thesis was typical.
Stratfor, which is linked to the US security establishment, said, "Russia is once again threatening to cut natural gas supplies to Europe in the dead of winter. This time, however, Moscow's focus is much tighter. Russia is not only looking to smash the Ukrainian government, but it is looking for some specific changes in Kiev."
The Wall Street Journal saw the gas war as the Kremlin's warning to Obama. The daily commented, "Russia's strongman [Putin] is wielding the energy club to undermine the pro-Western government in Kiev and scare the European Union into submission. The strategic stakes are as high as in Georgia last summer ... For the new Obama administration, Mr Putin has offered yet another tutorial in its coming challenges in Eurasia."
The Washington Post exhorted the Europeans to "grasp the real message of this cold week", as "Mr Putin's regime plainly intends to use Europe's dependence on Russian energy to advance an imperialist and anti-Western geopolitical agenda." Evidently, Putin was the main target of criticism. Old Europe cautiously moves But the shrill propaganda failed to click. The hard-boiled Old Europeans had no time for it. The European Union reprimanded Kiev when Jose Manuel Barroso, president of the European Commission, warned that Ukraine's failure to deliver Russian gas might hurt its aspirations for close ties with Brussels. Other European leaders also refrained from criticizing Russia.
It seems the Europeans eventually saw through the Ukrainian game, despite the adverse media publicity that Moscow received in the early stages. They decided to associate with the new monitoring mechanism suggested by Moscow to ensure that Kiev does not any more steal from the Russia gas transiting to the European market. In the medium term, European countries may also seek to create their own strategic gas reserves with Russian help. Gazprom is reportedly planning to build the biggest gas storage facility near the city of Hinrichshagen (Meklenburg-Upper Pomerania Federal Land) with a huge capacity of 10 bcm of natural gas, with some of it earmarked as strategic reserves for Germany.
Another positive fallout for Russia is that the European countries may take a renewed interest in Russian pipeline projects - the Nord Stream under the Baltic Sea and the South Stream under the Black Sea - which aim at bypassing Ukraine for supply of gas to the European market.
...On balance, therefore, Washington will be disappointed to note that Europe's euphoria over the Orange revolution has all but evaporated. The message was loud and clear when Barroso said with uncharacteristic bluntness, "If Ukraine wants to be closer to the EU, it should not create any problems for gas to come to the EU." Washington underestimated that for Europe, a war over energy security is not the stuff of propaganda, but is a flesh-and-blood issue for their economies especially in these troubled times and uncertain future.
...Again, European countries seem to have concluded that Moscow has been driven by commercial considerations. They see the criticality of the income from gas sales to Europe for the Russian economy. The fact of the matter is that Russia faces a grave economic crisis. Oil prices anywhere below $70 create budget deficits for Russia. The rouble is declining, the stock market has crashed, unemployment is soaring, and social unrest and discontent may erupt despite Putin's popular rating soaring over 80%. In such a surcharged environment, Moscow has no reason to continue to subsidize the Ukrainian economy, especially with a government in Kiev which, under US instigation, has been constantly pursuing an unfriendly policy towards Russia. As Dmitry Peskov, Russian spokesman put it, "We are struggling with the consequences of the world economic crisis, but it does not mean that Russian taxpayers have to sacrifice in order to keep Ukrainian production alive." Besides, there is an inherent double standard in the US rhetoric. In a devastating essay in The Guardian newspaper of London, Mark Almond of Oriel College, Oxford wrote: "Keeping Russia hemmed in is why Ukraine matters to America ... Although its EU allies pay around $500 per unit, Washington wants Gazprom to subsidize the anti-Russian coalition government in Kiev by charging the poor Ukrainians only $175." He concluded, "Western triumphalists marked Russia down for inevitable decline. Certainly, so long as [Boris] Yeltsin let his crony capitalists plunder the country and deposit the loot in London and New York, pessimism was justified. Now, however, Russia's capitalist crew are not fly-by-night asset-strippers but ruthless capitalist politician-businessmen of the sort Britain used to produce." Armistice far away So, is the gas war over? To be sure, Russian gas supply to Europe via Ukraine has resumed. But the great game continues.
Washington can draw satisfaction that only a temporary solution has been found but the final armistice depends on a Russian-Ukrainian gas deal with three interlocking elements: pricing, debts and the volume of gas to be sent across Ukraine. Europe will not find it an easy job to mediate between Russia and Ukraine. At the root of the impasse lies the unresolved question of Ukraine's admission to NATO, which Washington insists on despite European reservations. Washington is determined to have its way and hardliners are hoping Obama will endorse the line, while Moscow has made it clear to the Western world that it is the "red line". And Washington commentators are peeved that Old Europeans do not want to annoy Russia. Increasingly, they run down Germany for expanding its ties with Russia.
Indeed, there are any number of issues over which Washington can instigate Yushchenko to exacerbate tensions in Ukraine's relations with Russia, such as NATO membership, Crimea and the Black Sea fleet, the Russian language, the World Trade Organization membership, territorial disputes, etc - and attempt to draw the EU into them.
On the other hand, it suits Yushchenko politically to distract public opinion as his personal popularity is abysmally low in single digits. According to a recent poll conducted by the Swedish International Development Cooperation Agency, 83.7% of Ukrainians feel gloomy that things are going seriously wrong in their country, with 49% calling it "critical and explosive". An Agence-France Presse dispatch from Kiev recently reported that analysts do not rule out Ukraine sliding toward authoritarian rule. If nothing else, Yushchenko could always turn the pages of history and pick up a lively quarrel with Moscow.
In November, he decided to have an anniversary bash over Holodomor, the tragic Ukrainian famine that Joseph Stalin's collectivization drive caused in 1932-33. Yushchenko sent out invitations for a summit of world leaders and included the Kremlin in his mailing list. President Dmitry Medvedev naturally declined the invitation. Moscow had a different take on that painful slice of Soviet history. What Yushchenko called "genocide", Russian historians interpreted as "sociocide" - a murderous plot against a whole social group instead of a specific ethnic community.
Ambassador M K Bhadrakumar was a career diplomat in the Indian Foreign Service. His assignments included the Soviet Union, South Korea, Sri Lanka, Germany, Afghanistan, Pakistan, Uzbekistan, Kuwait and Turkey.
The cause of any war is difficult to pinpoint. There is always more than one cause. And they could be just causes or ugly causes. There is no objective criterion except that the right cause is constructive while the wrong one is destructive, but then, people define by their standards.
...Unsurprisingly, the ubiquitous Americans promptly put on their trans-Atlantic leadership mantle and appeared on the scene to finger-point at the unreliable, unscrupulous, venal Russian "bullies". Anders Aslund of the Peterson Institute came up with a most ingenious thesis that actually the Russians were conspiring to make Ukraine a corrupt country, destabilize it and make it unsafe for democracy. But it was most certainly a war and the Russians likely won, as Old Europe did not take the cue from Washington. The win remains indeterminate, though. That is because it has been ultimately about geopolitics, where you don't conclusively win and can only avoid losing, and as China's People's Daily newspaper noted, Russia cannot turn a blind eye towards "NATO's [North Atlantic Treaty Organization] greedy expansion" and the dispute between the United States and Russia will only become "more and more intense". War had just causes. The factors leading to the gas war are well known.
... What are Ukraine's motivations in precipitating the crisis? One, Ukraine is in deep economic difficulties and would genuinely want the deep Russian gas subsidies to continue. The point is, the US-sponsored Orange revolution of 2004 has brought an economy with the best growth rate among the former Soviet republics down to its knees. In November, the International Monetary Fund (IMF) extended a $16.4 billion credit line to Ukraine. The chief economist of the European Bank for Reconstruction and Development, Erik Berglof, recently warned that the IMF package might not suffice. He said, "Ukraine is heading toward a twin currency and banking sector crisis that could well bring down most of the economies of Eastern Europe."
Rapid currency devaluation is disrupting the banking system and a few Western banks face the risk of major exposure in Ukraine. The national currency hryvnia has lost over 80% of its value against the dollar in the past three months. Massive debt rollovers to the tune of $41.5 billion (roughly 35% of gross domestic product) are falling due and refinancing will be extremely difficult in the present climate of the world financial crisis. Ukraine's GDP may drop by as much as 10% in 2009. Industrial production contracted by 28.6% in November. A period of pain and high drama lies ahead. And Uncle Sam, engrossed in own ailments and disabilities, is in no position to bail out his progeny. To compound all this, Ukrainian politics, which has always been murky, is in an unprecedented stage of volatility with the two political personalities sponsored by Washington as the flag carriers of the Orange revolution - President Viktor Yushchenko and Prime Minister Yulia Tymoshenko - tearing into each other scandalously in a bitter, irreconcilable rivalry at a very personal level.
According to Moscow, the two Ukrainian leaders are using the gas dispute with Russia to whip up xenophobia and rally the nation and at the same time malign each other. At any rate, there is no one in charge in Kiev who has the final word in the negotiations with Russia. Tymoshenko tried to project herself as the Ukrainian leader better able to negotiate a gas compromise with Russia and pro-US Yushchenko has accused her of mishandling the crisis. There is also a likely shady part to this - typical of most government business in Kiev. Tymoshenko has accused that the joint venture company RosUkrEnergo, which handles the Russian gas sales to Ukraine with which two notorious Ukrainian oligarchs are associated, is a vehicle of corruption for Yushchenko and that this is the real reason why the president scuttled her October memorandum with Putin from implementation, since it provided for doing away with middlemen and incrementally linking Russian-Ukrainian gas transactions to market price.
Nonetheless, it is virtually impossible that Yushchenko, who is so manifestly under the American thumb, would precipitate a first-rate crisis in Europe without some sort of nod from Washington. (Curiously, in mid-December, Washington concluded a "strategic partnership" agreement with Kiev.) Alexander Rahr, the noted Russia expert at the German Council on Foreign Relations in Berlin said, "There are attempts in Ukraine to tarnish the image of Russia as a reliable energy partner. [Ukraine] is forming an image of Russia as a foe and Ukraine as a victim."
To quote the editor-in-chief of Russia in Global Politics, Fedor Lukyanov, "Ukraine chose a tactic of deliberately creating a crisis through its rejection of talks and agreement, with the expectation that ultimately any major disruption of gas deliveries to Europe would hurt Gazprom's reputation as a reliable energy partner, supplier and generally speaking, as a company selling gas to Europeans. Everything that has happened after December 31 seems to me a delaying tactic ... We [Russians] are losing not a mere propaganda war but a real gas war ...
It is not accidental that countries that have excellent relations with Russia such as Greece, Hungary and Bulgaria, which are among our main European partners, are experiencing the worst difficulties." Actually, it is the very first time that European countries are experiencing a real shortage of gas ever since Russia's supplies began three decades ago. Lukyanov underlined, "Now, each single day of the crisis will distort the European perceptions, which would blame the Russians for everything."
All the same, the Russian political leadership has been careful not to join issue with Washington. Any criticism of the US has been muted. The maximum that Moscow was prepared to go was a reference by the senior Russian politician Andrey Kokoshin who said, "This is a consequence of the policy some figures in Washington have been pursuing over the past few years by trying to tear Ukraine away from Russia and make it a counterbalance to Russia forever."
Clearly, Moscow realized that it might simply walk into a trap set by the hardliners in Washington at this juncture of the transition of power to president-elect Barack Obama. The Kremlin has been cautiously optimistic about a fresh start to US-Russia relations under the Obama presidency. Interestingly, the George W Bush administration has utilized the hullabaloo of the gas war in Europe to wrap up the last act in its Russia policy - concluding a security pact with Georgia on January 9, which according to reports might lead to some form of permanent US presence in the Caucasus for the first time ever. This is by now a familiar pattern - under cover of dust in the Western public opinion over Russia's "expansionism", advance the containment strategy towards Russia by yet another notch and draw an unwilling Europe along. The Bush administration utilized the backdrop of the war in the Caucasus last August to formalize the agreement with Poland for its missile defense deployment about which Europe was lukewarm.
In fact, the American criticism of Russia over the gas war has been so highly vitriolic that it looks every bit contrived. Aslund's outlandish thesis was typical.
Stratfor, which is linked to the US security establishment, said, "Russia is once again threatening to cut natural gas supplies to Europe in the dead of winter. This time, however, Moscow's focus is much tighter. Russia is not only looking to smash the Ukrainian government, but it is looking for some specific changes in Kiev."
The Wall Street Journal saw the gas war as the Kremlin's warning to Obama. The daily commented, "Russia's strongman [Putin] is wielding the energy club to undermine the pro-Western government in Kiev and scare the European Union into submission. The strategic stakes are as high as in Georgia last summer ... For the new Obama administration, Mr Putin has offered yet another tutorial in its coming challenges in Eurasia."
The Washington Post exhorted the Europeans to "grasp the real message of this cold week", as "Mr Putin's regime plainly intends to use Europe's dependence on Russian energy to advance an imperialist and anti-Western geopolitical agenda." Evidently, Putin was the main target of criticism. Old Europe cautiously moves But the shrill propaganda failed to click. The hard-boiled Old Europeans had no time for it. The European Union reprimanded Kiev when Jose Manuel Barroso, president of the European Commission, warned that Ukraine's failure to deliver Russian gas might hurt its aspirations for close ties with Brussels. Other European leaders also refrained from criticizing Russia.
It seems the Europeans eventually saw through the Ukrainian game, despite the adverse media publicity that Moscow received in the early stages. They decided to associate with the new monitoring mechanism suggested by Moscow to ensure that Kiev does not any more steal from the Russia gas transiting to the European market. In the medium term, European countries may also seek to create their own strategic gas reserves with Russian help. Gazprom is reportedly planning to build the biggest gas storage facility near the city of Hinrichshagen (Meklenburg-Upper Pomerania Federal Land) with a huge capacity of 10 bcm of natural gas, with some of it earmarked as strategic reserves for Germany.
Another positive fallout for Russia is that the European countries may take a renewed interest in Russian pipeline projects - the Nord Stream under the Baltic Sea and the South Stream under the Black Sea - which aim at bypassing Ukraine for supply of gas to the European market.
...On balance, therefore, Washington will be disappointed to note that Europe's euphoria over the Orange revolution has all but evaporated. The message was loud and clear when Barroso said with uncharacteristic bluntness, "If Ukraine wants to be closer to the EU, it should not create any problems for gas to come to the EU." Washington underestimated that for Europe, a war over energy security is not the stuff of propaganda, but is a flesh-and-blood issue for their economies especially in these troubled times and uncertain future.
...Again, European countries seem to have concluded that Moscow has been driven by commercial considerations. They see the criticality of the income from gas sales to Europe for the Russian economy. The fact of the matter is that Russia faces a grave economic crisis. Oil prices anywhere below $70 create budget deficits for Russia. The rouble is declining, the stock market has crashed, unemployment is soaring, and social unrest and discontent may erupt despite Putin's popular rating soaring over 80%. In such a surcharged environment, Moscow has no reason to continue to subsidize the Ukrainian economy, especially with a government in Kiev which, under US instigation, has been constantly pursuing an unfriendly policy towards Russia. As Dmitry Peskov, Russian spokesman put it, "We are struggling with the consequences of the world economic crisis, but it does not mean that Russian taxpayers have to sacrifice in order to keep Ukrainian production alive." Besides, there is an inherent double standard in the US rhetoric. In a devastating essay in The Guardian newspaper of London, Mark Almond of Oriel College, Oxford wrote: "Keeping Russia hemmed in is why Ukraine matters to America ... Although its EU allies pay around $500 per unit, Washington wants Gazprom to subsidize the anti-Russian coalition government in Kiev by charging the poor Ukrainians only $175." He concluded, "Western triumphalists marked Russia down for inevitable decline. Certainly, so long as [Boris] Yeltsin let his crony capitalists plunder the country and deposit the loot in London and New York, pessimism was justified. Now, however, Russia's capitalist crew are not fly-by-night asset-strippers but ruthless capitalist politician-businessmen of the sort Britain used to produce." Armistice far away So, is the gas war over? To be sure, Russian gas supply to Europe via Ukraine has resumed. But the great game continues.
Washington can draw satisfaction that only a temporary solution has been found but the final armistice depends on a Russian-Ukrainian gas deal with three interlocking elements: pricing, debts and the volume of gas to be sent across Ukraine. Europe will not find it an easy job to mediate between Russia and Ukraine. At the root of the impasse lies the unresolved question of Ukraine's admission to NATO, which Washington insists on despite European reservations. Washington is determined to have its way and hardliners are hoping Obama will endorse the line, while Moscow has made it clear to the Western world that it is the "red line". And Washington commentators are peeved that Old Europeans do not want to annoy Russia. Increasingly, they run down Germany for expanding its ties with Russia.
Indeed, there are any number of issues over which Washington can instigate Yushchenko to exacerbate tensions in Ukraine's relations with Russia, such as NATO membership, Crimea and the Black Sea fleet, the Russian language, the World Trade Organization membership, territorial disputes, etc - and attempt to draw the EU into them.
On the other hand, it suits Yushchenko politically to distract public opinion as his personal popularity is abysmally low in single digits. According to a recent poll conducted by the Swedish International Development Cooperation Agency, 83.7% of Ukrainians feel gloomy that things are going seriously wrong in their country, with 49% calling it "critical and explosive". An Agence-France Presse dispatch from Kiev recently reported that analysts do not rule out Ukraine sliding toward authoritarian rule. If nothing else, Yushchenko could always turn the pages of history and pick up a lively quarrel with Moscow.
In November, he decided to have an anniversary bash over Holodomor, the tragic Ukrainian famine that Joseph Stalin's collectivization drive caused in 1932-33. Yushchenko sent out invitations for a summit of world leaders and included the Kremlin in his mailing list. President Dmitry Medvedev naturally declined the invitation. Moscow had a different take on that painful slice of Soviet history. What Yushchenko called "genocide", Russian historians interpreted as "sociocide" - a murderous plot against a whole social group instead of a specific ethnic community.
Ambassador M K Bhadrakumar was a career diplomat in the Indian Foreign Service. His assignments included the Soviet Union, South Korea, Sri Lanka, Germany, Afghanistan, Pakistan, Uzbekistan, Kuwait and Turkey.
Can Economists Be Trusted?
Uwe E. Reinhardt from NYT Economix(via Mark Thoma):
"In last week’s post I argued that the analytic structure through which economists behold the world is based on certain quasi-religious beliefs on the rationality of human beings and the efficiency of markets. These beliefs can blind economists to the foibles of the real world.
Matters are worse when, wittingly or unwittingly, economists infuse their analysis with their own (or a political client’s) preferred ideology.
Consider, for example, President Bill Clinton’s 1993-94 health-reform plan. In this plan, President Clinton proposed a mandate on employers to provide their employees with health insurance.
Politically conservative economists predicted that the mandate on employers to provide employees with health insurance would lead to vast unemployment. Economists supporting the Clinton health plan predicted that the negative employment effect of the mandate would be small, and that the effect might even be to increase employment.
It can be shown with a simple mathematical model that an economist’s prediction in this regard is powerfully driven by two assumptions about the behavioral responses to mandated employer-paid health insurance.
The first is the responsiveness of the supply of labor — that is, how many workers are willing to work — to changes in take-home pay. Economists generally believe that employers reduce take-home pay to recoup their contributions to any sort of fringe benefit, including employer-paid health insurance. If workers are very sensitive to changes in take-home pay, one would predict a highly negative employment effect in response to government-mandated, employer-paid health insurance, other things being equal — i.e., the number of people with jobs should go down.
On the other hand, if the supply of labor is relatively unresponsive to declines in take-home pay, one would predict only a small decline in overall employment in response to the mandate. Unfortunately, the empirical literature on this responsiveness offers economists a wide range of estimates from which they can choose judiciously to make their (or their political client’s) preferred case.
The second effect bearing on this issue is the value workers place on having health insurance on the job. If that value is high, then the employment effect of the mandate might even be positive, other things being equal, as people choose to enter the work force just to get health insurance. Some economists in the Clinton era who supported the Clinton health plan appear to have used this hypothesized effect to predict a net increase in employment in response to the employer mandate.
This example starkly illustrates how easy it is for economists to infuse their own ideology – or that of their clients – into what may appear to outsiders as objective, scientific analysis.
We are now seeing a replay of this tendency in the debate on the relative merits of added government spending versus added tax cuts as measures to stimulate the economy.
Writing in The New York Times, for example, the Harvard professor N. Gregory Mankiw, former chief of President Bush’s Council of Economic Advisers, makes a case for stimulating the economy through tax cuts rather than added government spending.
First, he suggests that government usually spends money on things people do not want or need – like bridges to nowhere, or digging ditches and then filling them in again. To buttress his case further, he then cites an empirical study by Valerie A. Ramey, according to which the $1 of added government spending will ultimately increase gross domestic product by only $1.40, while according to another recent study by Christina and David Romer, $1 of tax cuts over time increases G.D.P. by $3.
Noneconomists may ask, of course, exactly how a $1 cut in taxes would translate itself into a $3 increase in G.D.P. at a time when traumatized households, whose wealth has been eroded, might use any new tax savings merely to pay down debt or rebuild their wealth through added savings, rather than spend it, and when businesses unable to sell their output even from existing capacity might hesitate to invest such tax savings in more capacity.
But never mind this fine point.
More interesting is that Christina Romer is to be the head of President-elect Barack Obama’s Council of Economic Advisers. In that capacity, last Saturday she released an analysis of fiscal stimulus alternatives, with a co-author, Jared Bernstein. Curiously — or perhaps not — for that analysis, the two authors assume a much larger four-year multiplier effect for added government spending (1.55) than for tax cuts (0.98), although they do confess to a high degree of uncertainty on the actual sizes of these multipliers.
So there you have the flexibility, shall we say, that economists enjoy when they apply their professional skills to affairs of state in what may seem, to outsiders, like purely scientific analyses.
In the first lecture of my freshman economics course at Princeton titled “The Art of Siffing Among Seasoned Adults,” I demonstrate how seasoned adults routinely structure information felicitously (i.e., “sif”) to further their own agenda, and I point out that economists can be among the most skillful practitioners of this art.
“If at the end of this course you still trust me,” I warn them, “I have failed in my mission. When economists advise on public policy, the operative mantra is Caveat Emptor!”
I am sad to teach it, but consider it fair and full disclosure.
"In last week’s post I argued that the analytic structure through which economists behold the world is based on certain quasi-religious beliefs on the rationality of human beings and the efficiency of markets. These beliefs can blind economists to the foibles of the real world.
Matters are worse when, wittingly or unwittingly, economists infuse their analysis with their own (or a political client’s) preferred ideology.
Consider, for example, President Bill Clinton’s 1993-94 health-reform plan. In this plan, President Clinton proposed a mandate on employers to provide their employees with health insurance.
Politically conservative economists predicted that the mandate on employers to provide employees with health insurance would lead to vast unemployment. Economists supporting the Clinton health plan predicted that the negative employment effect of the mandate would be small, and that the effect might even be to increase employment.
It can be shown with a simple mathematical model that an economist’s prediction in this regard is powerfully driven by two assumptions about the behavioral responses to mandated employer-paid health insurance.
The first is the responsiveness of the supply of labor — that is, how many workers are willing to work — to changes in take-home pay. Economists generally believe that employers reduce take-home pay to recoup their contributions to any sort of fringe benefit, including employer-paid health insurance. If workers are very sensitive to changes in take-home pay, one would predict a highly negative employment effect in response to government-mandated, employer-paid health insurance, other things being equal — i.e., the number of people with jobs should go down.
On the other hand, if the supply of labor is relatively unresponsive to declines in take-home pay, one would predict only a small decline in overall employment in response to the mandate. Unfortunately, the empirical literature on this responsiveness offers economists a wide range of estimates from which they can choose judiciously to make their (or their political client’s) preferred case.
The second effect bearing on this issue is the value workers place on having health insurance on the job. If that value is high, then the employment effect of the mandate might even be positive, other things being equal, as people choose to enter the work force just to get health insurance. Some economists in the Clinton era who supported the Clinton health plan appear to have used this hypothesized effect to predict a net increase in employment in response to the employer mandate.
This example starkly illustrates how easy it is for economists to infuse their own ideology – or that of their clients – into what may appear to outsiders as objective, scientific analysis.
We are now seeing a replay of this tendency in the debate on the relative merits of added government spending versus added tax cuts as measures to stimulate the economy.
Writing in The New York Times, for example, the Harvard professor N. Gregory Mankiw, former chief of President Bush’s Council of Economic Advisers, makes a case for stimulating the economy through tax cuts rather than added government spending.
First, he suggests that government usually spends money on things people do not want or need – like bridges to nowhere, or digging ditches and then filling them in again. To buttress his case further, he then cites an empirical study by Valerie A. Ramey, according to which the $1 of added government spending will ultimately increase gross domestic product by only $1.40, while according to another recent study by Christina and David Romer, $1 of tax cuts over time increases G.D.P. by $3.
Noneconomists may ask, of course, exactly how a $1 cut in taxes would translate itself into a $3 increase in G.D.P. at a time when traumatized households, whose wealth has been eroded, might use any new tax savings merely to pay down debt or rebuild their wealth through added savings, rather than spend it, and when businesses unable to sell their output even from existing capacity might hesitate to invest such tax savings in more capacity.
But never mind this fine point.
More interesting is that Christina Romer is to be the head of President-elect Barack Obama’s Council of Economic Advisers. In that capacity, last Saturday she released an analysis of fiscal stimulus alternatives, with a co-author, Jared Bernstein. Curiously — or perhaps not — for that analysis, the two authors assume a much larger four-year multiplier effect for added government spending (1.55) than for tax cuts (0.98), although they do confess to a high degree of uncertainty on the actual sizes of these multipliers.
So there you have the flexibility, shall we say, that economists enjoy when they apply their professional skills to affairs of state in what may seem, to outsiders, like purely scientific analyses.
In the first lecture of my freshman economics course at Princeton titled “The Art of Siffing Among Seasoned Adults,” I demonstrate how seasoned adults routinely structure information felicitously (i.e., “sif”) to further their own agenda, and I point out that economists can be among the most skillful practitioners of this art.
“If at the end of this course you still trust me,” I warn them, “I have failed in my mission. When economists advise on public policy, the operative mantra is Caveat Emptor!”
I am sad to teach it, but consider it fair and full disclosure.
Going the extra mile: staff-owned firms can improve public services
Charles Leadbeater from Guardian:
"The public sector needs more organisations in which employees have a stake in delivering better outcomes for people.
This approach flies in the face of the reforms of the past decade, which shifted power away from frontline producers to consumers, managers and target setters in the central government. The last people who could be trusted with a service were those delivering it.
Yet detailed case studies of leading co-owned public services - Eaga, the energy agency based in the north-east, Sunderland Home Care Associates, community health provider Central Surrey Health, and Greenwich Leisure, which provides services to boroughs across London - tell a different story.
Organisations owned by their staff are less risk averse and more committed to innovation than pure public sector organisations. Staff in the former have a stronger shared interest, which promotes the collaboration often lacking in the silos of public services.
Co-owned organisations are more mission driven than private sector providers, which run contracted-out services with little incentive for innovation. The social mission of co-owned organisations drives their search for innovation, even if there is not much money to be made. Co-owned businesses also have advantages over the pure voluntary sector: they have an entrepreneurial outlook and can raise capital to match their ambitions.
The most important strength of co-owned organisations is their open, egalitarian culture, which encourages the lateral communication that allows people to combine their ideas easily, seek partnership with customers, and mobilises the "can-do" commitment needed to turn ideas into action. Staff in these organisations, because they are co-owners of the business and so have more freedom to respond, often speak of "going the extra mile" for consumers.
The opportunities to create more co-owned public service organisations are huge. In social care, Sunderland Home Care Associates provides a model for motivating low-paid and low-skilled public service staff that many other authorities could usefully follow as they seek more effective ways to meet the needs of an ageing population.
Indeed, co-owned organisations may make sense in some of the most troubled public services: social work with children, and families at risk and in care.
Imagine that, instead of local authority social work departments, the authority contracted out services to a set of competing, employee-owned social work practices, run rather like general practices, with perhaps eight to 10 social workers in each. Social work needs to retain and motivate skilled and committed staff. The co-owned culture of collaboration, peer-to-peer accountability and responsibility to clients is often lacking inside the public sector.
One response to the case of Baby P should be to pilot the creation of co-owned social practices that are owned by the staff but accountable to the public through local authorities that commission their services.
As politicians cast about for new recipes for less bureaucratic, more localised, personalised approaches, co-owned public service organisations should be part of that mix because they do something really potent: they motivate frontline staff to want to deliver a better service.
• Innovation Included: Why Co-Owned Businesses are Good for Public Services, by Charles Leadbeater, is published by the Employee Ownership Association (employeeownership.co.uk)
"The public sector needs more organisations in which employees have a stake in delivering better outcomes for people.
This approach flies in the face of the reforms of the past decade, which shifted power away from frontline producers to consumers, managers and target setters in the central government. The last people who could be trusted with a service were those delivering it.
Yet detailed case studies of leading co-owned public services - Eaga, the energy agency based in the north-east, Sunderland Home Care Associates, community health provider Central Surrey Health, and Greenwich Leisure, which provides services to boroughs across London - tell a different story.
Organisations owned by their staff are less risk averse and more committed to innovation than pure public sector organisations. Staff in the former have a stronger shared interest, which promotes the collaboration often lacking in the silos of public services.
Co-owned organisations are more mission driven than private sector providers, which run contracted-out services with little incentive for innovation. The social mission of co-owned organisations drives their search for innovation, even if there is not much money to be made. Co-owned businesses also have advantages over the pure voluntary sector: they have an entrepreneurial outlook and can raise capital to match their ambitions.
The most important strength of co-owned organisations is their open, egalitarian culture, which encourages the lateral communication that allows people to combine their ideas easily, seek partnership with customers, and mobilises the "can-do" commitment needed to turn ideas into action. Staff in these organisations, because they are co-owners of the business and so have more freedom to respond, often speak of "going the extra mile" for consumers.
The opportunities to create more co-owned public service organisations are huge. In social care, Sunderland Home Care Associates provides a model for motivating low-paid and low-skilled public service staff that many other authorities could usefully follow as they seek more effective ways to meet the needs of an ageing population.
Indeed, co-owned organisations may make sense in some of the most troubled public services: social work with children, and families at risk and in care.
Imagine that, instead of local authority social work departments, the authority contracted out services to a set of competing, employee-owned social work practices, run rather like general practices, with perhaps eight to 10 social workers in each. Social work needs to retain and motivate skilled and committed staff. The co-owned culture of collaboration, peer-to-peer accountability and responsibility to clients is often lacking inside the public sector.
One response to the case of Baby P should be to pilot the creation of co-owned social practices that are owned by the staff but accountable to the public through local authorities that commission their services.
As politicians cast about for new recipes for less bureaucratic, more localised, personalised approaches, co-owned public service organisations should be part of that mix because they do something really potent: they motivate frontline staff to want to deliver a better service.
• Innovation Included: Why Co-Owned Businesses are Good for Public Services, by Charles Leadbeater, is published by the Employee Ownership Association (employeeownership.co.uk)
viernes, 16 de enero de 2009
France, Germany and fissures in the eurozone
David Marsh from FT:
"International challenges spell good and bad news for the European Central Bank. On the positive side, the credit crisis has given the independent ECB and Jean-Claude Trichet, its president, unexpected authority on the world stage. Most observers agree the 10-year-old economic and monetary union has so far moderated the direct fall-out of the financial crisis for eurozone members. On the negative side, Europe this year faces probably the worst recession since the second world war. Depending on how Emu members react, latent nationalism within the single currency area may emerge as a disruptive force.
Battle lines are being drawn between the “stability first” principles of Europe’s strongest economy, Germany, and the more activist growth policies favoured by France. Mr Trichet, a veteran of fierce battles with the Bundesbank as head of the French Treasury in the early 1990s, has emerged as heir to the German central bank’s anti-inflation throne. The ECB’s president and decision-making council have come under sporadic pressure from European politicians to soften their monetary stance. After the mid-September collapse of Lehman Brothers, the US bank, the ECB cut interest rates three times between October and December – the first reductions since Mr Trichet took office in 2003. But despite recent signs of further economic weakening, there are strong indications that Mr Trichet will continue to garb himself in a mantle of Bundesbank-like firmness.
Emu has required improbable compromises – notably, that it would work without substantial fiscal transfers between countries of markedly different economic performance. Using a single currency to lash together 16 disparate nations has had effects similar to those among occupants of a life raft on a storm-tossed sea. The euro has provided members with an aura of robustness but also made them more prone to fissures caused by disturbances in their internal balance of forces.
A warning signal has come from the sharp rise in the gap or “spread” between yields on bonds issued by heavily indebted Emu countries and those on German government bonds. The crisis has driven up these spreads not only because investors take a less forgiving view of the risks on weaker countries’ debt, but also because of the blockages along what Mr Trichet formerly called the “financial channel” for ironing out discrepancies among member states. The yield spreads – now 2.3 percentage points for Greece, 1.3 points for Italy and 1.7 points for Ireland – are much less than the differences of up to 6 points before the euro was set up. Weaker southern and western states still derive considerable benefit from membership, but – should spreads widen further – that may fast diminish.
A prime reason for the widening spreads is that fixing exchange rates among countries with disparate patterns of prices and productivity has led to changes in relative competitiveness. Since 1999, Germany has gained an overall competitive advantage of more than 10 per cent, while Italy has suffered a loss of nearly 40 per cent, according to Organisation for Economic Co-operation and Development figures based on unit labour costs. During much of the euro’s first decade, the positive impact of generally low, stable Emu interest rates largely outweighed the negative influence of disrupted competitiveness. However, as economies contract, papering over the cracks will become more difficult.
That is exemplified by economic policy differences between France’s President Nicolas Sarkozy and Chancellor Angela Merkel of Germany. Continuing a French tradition shown by predecessors François Mitterrand and Jacques Chirac, Mr Sarkozy has irritated the Germans with his suspicion of central banking independence and has been still more outspoken than Mr Chirac in publicly criticising ECB interest rate decisions. Mr Sarkozy has clashed with Peer Steinbrück, Germany’s no-nonsense finance minister, telling him on one occasion Germany’s strictures spelled “the end of Franco-German friendship”.
At the root of France’s carping is the widespread French belief that Germany has gleaned unfair economic advantage from Emu. Germany has swung from a pre-Emu current account deficit of 0.8 per cent of gross domestic product in 1998 to a surplus of 6.4 per cent in 2008, according to the OECD. France, Italy, and Ireland, with surpluses of 2.6, 1.9 and 0.8 per cent of GDP respectively in 1998, registered deficits of 1.6, 2.6 and 6.2 per cent in 2008. Last year Greece, Spain and Portugal ran deficits of 10 per cent of GDP and more.
There has been no sign so far of any overt move to modify Emu’s “no-bail-out” clause, which prevents less well off states from demanding help from stronger members. However, if other Emu countries find borrowing progressively harder, non-German politicians may ask Germany to use its comfortable financial position to alleviate pressures on weaker Emu brethren.
The German government, which has rejected forming more demand to help out less competitive euro members, would certainly say no to changing the no-bail-out clause. If bond spreads rise towards pre-1999 levels, speculation may rise that one or more weaker states could suspend their membership. Mr Trichet dismisses such thoughts as “fantasies”. Yet leading European monetary officials stated months ago that precisely such an option – although unlikely – could not be ruled out. If 2008 has been tough for Emu, 2009 could bring still greater tests.
The writer is chairman of London & Oxford Capital Markets. His book, The Euro: The Politics of the New Global Currency, is published by Yale University Press in January/February
"International challenges spell good and bad news for the European Central Bank. On the positive side, the credit crisis has given the independent ECB and Jean-Claude Trichet, its president, unexpected authority on the world stage. Most observers agree the 10-year-old economic and monetary union has so far moderated the direct fall-out of the financial crisis for eurozone members. On the negative side, Europe this year faces probably the worst recession since the second world war. Depending on how Emu members react, latent nationalism within the single currency area may emerge as a disruptive force.
Battle lines are being drawn between the “stability first” principles of Europe’s strongest economy, Germany, and the more activist growth policies favoured by France. Mr Trichet, a veteran of fierce battles with the Bundesbank as head of the French Treasury in the early 1990s, has emerged as heir to the German central bank’s anti-inflation throne. The ECB’s president and decision-making council have come under sporadic pressure from European politicians to soften their monetary stance. After the mid-September collapse of Lehman Brothers, the US bank, the ECB cut interest rates three times between October and December – the first reductions since Mr Trichet took office in 2003. But despite recent signs of further economic weakening, there are strong indications that Mr Trichet will continue to garb himself in a mantle of Bundesbank-like firmness.
Emu has required improbable compromises – notably, that it would work without substantial fiscal transfers between countries of markedly different economic performance. Using a single currency to lash together 16 disparate nations has had effects similar to those among occupants of a life raft on a storm-tossed sea. The euro has provided members with an aura of robustness but also made them more prone to fissures caused by disturbances in their internal balance of forces.
A warning signal has come from the sharp rise in the gap or “spread” between yields on bonds issued by heavily indebted Emu countries and those on German government bonds. The crisis has driven up these spreads not only because investors take a less forgiving view of the risks on weaker countries’ debt, but also because of the blockages along what Mr Trichet formerly called the “financial channel” for ironing out discrepancies among member states. The yield spreads – now 2.3 percentage points for Greece, 1.3 points for Italy and 1.7 points for Ireland – are much less than the differences of up to 6 points before the euro was set up. Weaker southern and western states still derive considerable benefit from membership, but – should spreads widen further – that may fast diminish.
A prime reason for the widening spreads is that fixing exchange rates among countries with disparate patterns of prices and productivity has led to changes in relative competitiveness. Since 1999, Germany has gained an overall competitive advantage of more than 10 per cent, while Italy has suffered a loss of nearly 40 per cent, according to Organisation for Economic Co-operation and Development figures based on unit labour costs. During much of the euro’s first decade, the positive impact of generally low, stable Emu interest rates largely outweighed the negative influence of disrupted competitiveness. However, as economies contract, papering over the cracks will become more difficult.
That is exemplified by economic policy differences between France’s President Nicolas Sarkozy and Chancellor Angela Merkel of Germany. Continuing a French tradition shown by predecessors François Mitterrand and Jacques Chirac, Mr Sarkozy has irritated the Germans with his suspicion of central banking independence and has been still more outspoken than Mr Chirac in publicly criticising ECB interest rate decisions. Mr Sarkozy has clashed with Peer Steinbrück, Germany’s no-nonsense finance minister, telling him on one occasion Germany’s strictures spelled “the end of Franco-German friendship”.
At the root of France’s carping is the widespread French belief that Germany has gleaned unfair economic advantage from Emu. Germany has swung from a pre-Emu current account deficit of 0.8 per cent of gross domestic product in 1998 to a surplus of 6.4 per cent in 2008, according to the OECD. France, Italy, and Ireland, with surpluses of 2.6, 1.9 and 0.8 per cent of GDP respectively in 1998, registered deficits of 1.6, 2.6 and 6.2 per cent in 2008. Last year Greece, Spain and Portugal ran deficits of 10 per cent of GDP and more.
There has been no sign so far of any overt move to modify Emu’s “no-bail-out” clause, which prevents less well off states from demanding help from stronger members. However, if other Emu countries find borrowing progressively harder, non-German politicians may ask Germany to use its comfortable financial position to alleviate pressures on weaker Emu brethren.
The German government, which has rejected forming more demand to help out less competitive euro members, would certainly say no to changing the no-bail-out clause. If bond spreads rise towards pre-1999 levels, speculation may rise that one or more weaker states could suspend their membership. Mr Trichet dismisses such thoughts as “fantasies”. Yet leading European monetary officials stated months ago that precisely such an option – although unlikely – could not be ruled out. If 2008 has been tough for Emu, 2009 could bring still greater tests.
The writer is chairman of London & Oxford Capital Markets. His book, The Euro: The Politics of the New Global Currency, is published by Yale University Press in January/February
jueves, 15 de enero de 2009
Social Cohesion, Institutions, and Growth
Abstract from a William Easterly paper:
In seeking to unpack the notion of social cohesion, we concede from the outset that some infamous historical figures with a narrow—even sectarian—agenda have invoked social cohesion-type arguments as the basis for their actions.
The desire to cultivate a sense of national unity and “purity” brought us the Holocaust and ethnic cleansing, so we are most surely not arguing that social cohesion equals cultural homogeneity or intolerance of diversity; quite the opposite. On the other hand, nor are we invoking some naïve suggestion that socially cohesive societies are always harmonious, devoid of political conflict or dissent.
Rather, we use the concept of social cohesion to make the general point that the extent to which people work together when crisis strikes or opportunity knocks is a key factor shaping economic performance.
Graphic scenes on CNN during the 1997 financial crisis in South Korea neatly illustrates social cohesion in action: everyday citizens were shown tearfully selling their modest family treasures in the belief that their humble contribution was somehow making a difference to the financial health of their country.
Where this sense of cohesion is lacking—as it was in, say, Indonesia— the response to the crisis was far more sluggish and uneven, heightening a number of other latent and manifest political tensions. Managing these tensions during crises, and ensuring that they do not descend into outright or violent conflict, is a key political task.
One of the primary reasons why even good politicians in countries all over the world, but especially in low-income countries, often enact bad policies is that they experience significant social constraints on their efforts to bring about reform. These constraints are shaped by the degree of ‘social cohesion’ within their country. We show that social cohesion determines the quality of institutions, which in turn has important impacts on whether and how pro-growth policies are devised and implemented.
A country’s social cohesion is essential for generating the confidence and patience needed to implement reforms: citizens have to trust the government that the short-term losses inevitably arising from reform will be more than offset by long-term gains.
The inclusiveness of a country’s communities and institutions (e.g., laws and norms against discrimination) can greatly help to build cohesion.
On the other hand, countries strongly divided along class and ethnic lines will place severe constraints on the attempts of even the boldest, civic-minded, and well-informed politician (or interest group) seeking to bring about policy reform.
We argue that the strength of institutions itself may be, in part, determined by social cohesion.
If this is so, we propose that key development outcomes (the most widely available being “economic growth”) should be more likely to be associated with countries governed by effective public institutions, and that those institutions, in turn, should be more likely to be found in socially cohesive societies.
If social cohesion is so important, how can it be nurtured? While social cohesion is partly shaped by national leaders, social cohesion also depends on some exogenous historical accidents.
A nation-state that has developed a common language among its citizens is more cohesive than one that is linguistically fragmented. This is not to say that linguistic homogeneity is bad or good; most nations started out as very diverse linguistically. Linguistic homogeneity may simply be an indicator of how much a group of nationals have developed a common identity over the decades or centuries that national identity forms.
Where such a common identity is lacking, opportunistic politicians can and do exploit ethnic differences to build up a power base.
It only takes one such opportunistic politician to exacerbate division, because once one ethnic group is politically mobilized along ethnic lines, other groups will.
This should not be interpreted in a pessimistic light – that nations where there are large cleavages of class and language are condemned to poor institutions and low growth.
Of course, nations should not embark on forcible redistribution and mandatory linguistic assimilation. These results only say that on average lack of “exogenous” social cohesion has been exploited by politicians to undermine institutions, which in turn has resulted in low growth. But politicians can choose to build good institutions, unify fractionalized peoples, and defeat the average tendency to divide and rule.
In fact where institutions are sufficiently well developed, there is no adverse effect of ethnolinguistic diversity on growth. The corollary is that good institutions are most necessary and beneficial where there are ethnolinguistic divisions. Formal institutions substitute for the “social glue” that is in shorter supply when there are ethnolinguistic divisions.
The other determinant of social cohesion is whether the historical legacy is one of relative equality or of a vast chasm between elites and masses. Engerman and Sokoloff describe how inequality in Latin America arose out of factor endowments and historical accidents.
The tropical land in Latin America was well-suited for large scale enterprises like silver mines and sugar plantations, worked by slaves or peons. The benefits of these operations largely accrued to the small criollo class. The elite was kept small by restrictions on immigration
from Iberia or elsewhere to the Iberian colonies. The labor force had to be forcibly recruited through the import of African-American slaves and the encomienda system that tied the indigenous people to the elite’s land.
In Canada and in the North of the US, by contrast, the factor endowments were conducive to small-scale production of food grains. A middle class of family farmers developed.
Practically unrestricted immigration and abundant available land (once the tragic process of despoiling the native inhabitants was completed) swelled the size of the middle class. Immigrants voluntarily assimilated into (and actively contributed to) the dominant middle class culture. The American South was a kind of intermediate case between North and South America, with a mixture of free family farmers, elite slaveowners, and African-American slaves.
One potentially important policy lever for enhancing social cohesion is education.
Heyneman identifies three ways in which education contributes to social cohesion.
First, it helps provide public knowledge about the very idea of social contracts among individuals and between individuals and the state.
Second, schools help provide the context within which students learn the appropriate behavior for upholding social contracts, by providing students with a range of experiences in which they learn how to negotiate with people, problems, and opportunities they might not otherwise encounter. As Heyneman puts it, “the principle rationale, and the reasons nations invest
in public education, have traditionally been the social purpose of schooling... The principle task of public schooling, properly organized and delivered, has traditionally been to create harmony within a nation of divergent peoples.”
Third, education helps provide an understanding of the expected consequences of breaking social contracts; indeed, it helps citizens understand and appreciate the very idea of a social contract.
Given the vital role the state has in shaping the context and climate within which civil society is organized, it can, in some cases, also actively help to create social cohesion by ensuring that public services are provided fairly and efficiently (i.e. treating all citizens equally), and by actively redressing overt forms of discrimination and other social barriers.
These happy outcomes are most likely to come about through the empowerment of domestic constituencies rather than via “conditionalities” imposed by external donors and development agencies. This is one of the conclusions of two recent World Development Reports.
We have pointed to the importance of a research agenda that looks into the cohesiveness of societies and the quality of public institutions, and their relationship to sustained growth.
We need to know a lot more about how equitable and fairly to manage the costs and benefits associated with the transformation of society (Bates 2000), especially how to foster a greater sense of cooperation and inclusion in environments where there is (actual and potential) division, exclusion, and disaffection.
In seeking to unpack the notion of social cohesion, we concede from the outset that some infamous historical figures with a narrow—even sectarian—agenda have invoked social cohesion-type arguments as the basis for their actions.
The desire to cultivate a sense of national unity and “purity” brought us the Holocaust and ethnic cleansing, so we are most surely not arguing that social cohesion equals cultural homogeneity or intolerance of diversity; quite the opposite. On the other hand, nor are we invoking some naïve suggestion that socially cohesive societies are always harmonious, devoid of political conflict or dissent.
Rather, we use the concept of social cohesion to make the general point that the extent to which people work together when crisis strikes or opportunity knocks is a key factor shaping economic performance.
Graphic scenes on CNN during the 1997 financial crisis in South Korea neatly illustrates social cohesion in action: everyday citizens were shown tearfully selling their modest family treasures in the belief that their humble contribution was somehow making a difference to the financial health of their country.
Where this sense of cohesion is lacking—as it was in, say, Indonesia— the response to the crisis was far more sluggish and uneven, heightening a number of other latent and manifest political tensions. Managing these tensions during crises, and ensuring that they do not descend into outright or violent conflict, is a key political task.
One of the primary reasons why even good politicians in countries all over the world, but especially in low-income countries, often enact bad policies is that they experience significant social constraints on their efforts to bring about reform. These constraints are shaped by the degree of ‘social cohesion’ within their country. We show that social cohesion determines the quality of institutions, which in turn has important impacts on whether and how pro-growth policies are devised and implemented.
A country’s social cohesion is essential for generating the confidence and patience needed to implement reforms: citizens have to trust the government that the short-term losses inevitably arising from reform will be more than offset by long-term gains.
The inclusiveness of a country’s communities and institutions (e.g., laws and norms against discrimination) can greatly help to build cohesion.
On the other hand, countries strongly divided along class and ethnic lines will place severe constraints on the attempts of even the boldest, civic-minded, and well-informed politician (or interest group) seeking to bring about policy reform.
We argue that the strength of institutions itself may be, in part, determined by social cohesion.
If this is so, we propose that key development outcomes (the most widely available being “economic growth”) should be more likely to be associated with countries governed by effective public institutions, and that those institutions, in turn, should be more likely to be found in socially cohesive societies.
If social cohesion is so important, how can it be nurtured? While social cohesion is partly shaped by national leaders, social cohesion also depends on some exogenous historical accidents.
A nation-state that has developed a common language among its citizens is more cohesive than one that is linguistically fragmented. This is not to say that linguistic homogeneity is bad or good; most nations started out as very diverse linguistically. Linguistic homogeneity may simply be an indicator of how much a group of nationals have developed a common identity over the decades or centuries that national identity forms.
Where such a common identity is lacking, opportunistic politicians can and do exploit ethnic differences to build up a power base.
It only takes one such opportunistic politician to exacerbate division, because once one ethnic group is politically mobilized along ethnic lines, other groups will.
This should not be interpreted in a pessimistic light – that nations where there are large cleavages of class and language are condemned to poor institutions and low growth.
Of course, nations should not embark on forcible redistribution and mandatory linguistic assimilation. These results only say that on average lack of “exogenous” social cohesion has been exploited by politicians to undermine institutions, which in turn has resulted in low growth. But politicians can choose to build good institutions, unify fractionalized peoples, and defeat the average tendency to divide and rule.
In fact where institutions are sufficiently well developed, there is no adverse effect of ethnolinguistic diversity on growth. The corollary is that good institutions are most necessary and beneficial where there are ethnolinguistic divisions. Formal institutions substitute for the “social glue” that is in shorter supply when there are ethnolinguistic divisions.
The other determinant of social cohesion is whether the historical legacy is one of relative equality or of a vast chasm between elites and masses. Engerman and Sokoloff describe how inequality in Latin America arose out of factor endowments and historical accidents.
The tropical land in Latin America was well-suited for large scale enterprises like silver mines and sugar plantations, worked by slaves or peons. The benefits of these operations largely accrued to the small criollo class. The elite was kept small by restrictions on immigration
from Iberia or elsewhere to the Iberian colonies. The labor force had to be forcibly recruited through the import of African-American slaves and the encomienda system that tied the indigenous people to the elite’s land.
In Canada and in the North of the US, by contrast, the factor endowments were conducive to small-scale production of food grains. A middle class of family farmers developed.
Practically unrestricted immigration and abundant available land (once the tragic process of despoiling the native inhabitants was completed) swelled the size of the middle class. Immigrants voluntarily assimilated into (and actively contributed to) the dominant middle class culture. The American South was a kind of intermediate case between North and South America, with a mixture of free family farmers, elite slaveowners, and African-American slaves.
One potentially important policy lever for enhancing social cohesion is education.
Heyneman identifies three ways in which education contributes to social cohesion.
First, it helps provide public knowledge about the very idea of social contracts among individuals and between individuals and the state.
Second, schools help provide the context within which students learn the appropriate behavior for upholding social contracts, by providing students with a range of experiences in which they learn how to negotiate with people, problems, and opportunities they might not otherwise encounter. As Heyneman puts it, “the principle rationale, and the reasons nations invest
in public education, have traditionally been the social purpose of schooling... The principle task of public schooling, properly organized and delivered, has traditionally been to create harmony within a nation of divergent peoples.”
Third, education helps provide an understanding of the expected consequences of breaking social contracts; indeed, it helps citizens understand and appreciate the very idea of a social contract.
Given the vital role the state has in shaping the context and climate within which civil society is organized, it can, in some cases, also actively help to create social cohesion by ensuring that public services are provided fairly and efficiently (i.e. treating all citizens equally), and by actively redressing overt forms of discrimination and other social barriers.
These happy outcomes are most likely to come about through the empowerment of domestic constituencies rather than via “conditionalities” imposed by external donors and development agencies. This is one of the conclusions of two recent World Development Reports.
We have pointed to the importance of a research agenda that looks into the cohesiveness of societies and the quality of public institutions, and their relationship to sustained growth.
We need to know a lot more about how equitable and fairly to manage the costs and benefits associated with the transformation of society (Bates 2000), especially how to foster a greater sense of cooperation and inclusion in environments where there is (actual and potential) division, exclusion, and disaffection.
Abstract from Artificial States
William Easterly and Alberto Alesina paper (2006)
Introduction
Artificial states are those for which political borders do not coincide with a division of nationalities desired by the people on the ground. Former colonizers or post-war agreements amongst victors regarding borders have often created monstrosities in which ethnic or religious or linguistic groups were thrown together or separated without any respect for peoples. aspirations. Eighty percent of African borders follow latitudinal and longitudinal lines and many scholars believe that such artificial (unnatural) borders, which create ethnically fragmented countries or, conversely, separate into bordering countries the same people, are at the roots of Africa's economic tragedy.
Not only in Africa but everywhere around the globe from Iraq to the Middle East failed states, conflict and economic misery often are very visible around borders left over by former colonizers, borders that had little resemblance to natural division of peoples.
There are three ways in which those who drew borders created problems.
First they gave territories to one group ignoring the fact that another group had already claimed the same territory.
Second, they drew boundaries lines splitting ethnic (or religious or linguistic) groups into different countries, frustrating national ambitions of various groups and creating unrest in the countries formed.
Third they combined into a single country groups that wanted independence.
The results can be disastrous. Arti.cial borders increase the motivation to safeguard or advance nationalist agendas at the expense of economic and political development.
As George Bernard Shaw eloquently put it "A healthy nation is as unconscious of its nationality as a healthy man is unconscious of his health. But if you break a nation's nationality it will think of nothing else but getting is set again."
While the nature of borders has been mentioned in the poltical science (especially) and economic literature, we are not aware of systematic work relating the nature of country borders to the economic success of countries. Our goal is to provide measures that proxy for the "naturalness" or "arti.ciality" of borders and relate them to economic and political development. We provide two measures never before used in econometric analysis of comparative development.
One measure is relatively simple and captures whether or not an ethnic group is "cut" by a political border. That is, we measure situations in which the same ethnic group is present in two bordering countries. This measure accounts fairly precisely for one of the ways in which borders may be "wrong", namely when borders cut through groups' land leave them in separate countries. But it does not capture other ways in which borders may be "artificial"; for instance situations in which two ethnic groups are forced into the same country. We then provide a second measure, based upon the assumption that if a land border is close to a straight line it is more likely to be drawn arti.cially; if it is relatively squiggly it is more likely to represent either geographic features (rivers, mountains etc.) and/or divisions carved out in time to separate different people.
Needless to say, the measure is not perfect, but much of our paper is about precisely discussing this measure and alternatives. It turns out that our two new measures are in fact not highly correlated, implying that they capture different aspects of the arti.cial nature of states.
After we have constructed our measures we explore how they are correlated with various standard measures of economic development such as per capita GDP, measures of institutional success such as freedom or corruption, and measures of quality of life and public services, such as infant mortality and education.
Both measures of artificiality are correlated with several variables that measure politico-economic development. Artifcial states measured by the two proxies described above, function much less well than non-artificial states. The correlation of our measures with measures of politico-economic success of various countries are fairly robust to controlling for climate, colonial past and the other traditional measures of ethnolinguistic fractionalization.
We also checked our measures.relationship to the occurrence of wars, domestic or international. Our results are just a .rst step towards further research. A measure of political instability and violence is indeed correlated with our measure of arti.cial states; however we do not .nd evidence of correlations between the number and intensity for wars fought by one country with our measures of artificial borders.
Future research needs to address these questions using data on bilateral conflicts around various types of borders. Because borders can be changed, as Alesina and Spolaore (1997) emphasized,
citizens can rearrange the borders of artificial states. Indeed this happens; once can consider the breakdown of the Soviet Union. In fact it is quite possible that as time goes by many currently straight borders will become squiggly as they are rearranged. Relatively newly independent countries have had "less time" than countries which have been never colonized to carve their borders as a result of an equilibrium reflecting how different people want to organize
themselves. With specific reference to Africa, Englebert, Trango and Carter (2002) document several instances of border instability in Africa due to the artificial original borders. Even amongst never-colonized countries, tensions remain, for example the Basque independentist movement in Spain.
We are not aware of other papers that have attempted to consider formally (as opposed to narratively) the relationship of the shape of countries to economic development, however our paper is related to three strands of the literature.
One strand is the recent work on the size of countries and its relationship with economic growth, as in Alesina and Spolaore (2003), Alesina Spolaore and Wacziarg (2000), and Alcala and Ciccone (2004), amongst others.
Second,our work builds on the literature concerning the relationship between ethno-linguistic fractionalization and economic growth, as in Easterly and Levine(1997) , Alesina et. al. (2003), and several others. Our paper discusses one historical phenomenon that may have led to excess ethnic fractionalization.
Third, the role of former colonizers has also been widely studied (see Acemoglu,Johnson and Robinson (2001) Glaeser et al(2004)) but not speci.cally with regards to the importance of borders. Our paper speci.es a new mechanism by which colonizers a¤ected subsequent development. In many ways we bridge these three strands because we focus on how colonizers have created fragmented societies by drawing artificial borders.
Conclusions
The idea of "failed states" is a recurrent theme both in newspapers and within academia. The borders of many countries have been the result of processes that have little to do with the desire of people to be together or not. In some cases groups who wanted to be separate have been thrown into the same political unit; others have been divided by artificial borders. Former colonizers have been mainly responsible for such mistakes, but the botched agreements after
the two major wars of the last century have also played a role.
The main contribution of this paper is to provide two new measures meant to capture how "artificial" political borders are. One measure considers how straight land borders are, under the assumption that straight borders are more like to be artificial and less likely to follow geographic features or the evolution of hundreds of years of border design.
The second measure focuses on ethnic or linguistic groups separated by borders. We have then investigated whether these variables are correlated with the politico-economic success of various countries, and we found that indeed they are.
The general patterns of correlations that we presented in a battery of tables suggest that these two new measures do quite well in cross-country regressions in which other exogenous measures of geography, ethnic fragmentation and colonial status are controlled for.
We have also explored the correlation of our measures of artificial borders with the occurrence of civil and international wars and our results are inconclusive. While we find correlations of our variables with measure of political instability and lack of democracy, we do not find a clear pattern of correlations with wars. Further research is needed on this point looking at bilateral data on wars, namely which country engaged in war with whom.
Probably the single most important issue that we have not addressed is that of migrations. One consequences of artificial borders is that people may want to move, if they can. Often movement of peoples is not permitted by various government but migration certainly occur. In some cases migrations that respond to artificial borders may be partly responsible for economic costs, wars,
dislocation of people, refugee crises and a hots of undesirable circumstances.
Thus, the need to migrate, created by the wrong borders may be one reason why artificial borders are inefficient. But sometimes the movement of people may correct for the artificial nature of borders. This dynamic aspects of movement of people and migrations, and changes of borders for that matter is not considered in this paper in which we consider a static picture of the world.
The bottom line in this paper is that the artificial borders bequeathed by
colonizers were a significant hindrance to the political and economic development of the independent states that followed the colonies.
Introduction
Artificial states are those for which political borders do not coincide with a division of nationalities desired by the people on the ground. Former colonizers or post-war agreements amongst victors regarding borders have often created monstrosities in which ethnic or religious or linguistic groups were thrown together or separated without any respect for peoples. aspirations. Eighty percent of African borders follow latitudinal and longitudinal lines and many scholars believe that such artificial (unnatural) borders, which create ethnically fragmented countries or, conversely, separate into bordering countries the same people, are at the roots of Africa's economic tragedy.
Not only in Africa but everywhere around the globe from Iraq to the Middle East failed states, conflict and economic misery often are very visible around borders left over by former colonizers, borders that had little resemblance to natural division of peoples.
There are three ways in which those who drew borders created problems.
First they gave territories to one group ignoring the fact that another group had already claimed the same territory.
Second, they drew boundaries lines splitting ethnic (or religious or linguistic) groups into different countries, frustrating national ambitions of various groups and creating unrest in the countries formed.
Third they combined into a single country groups that wanted independence.
The results can be disastrous. Arti.cial borders increase the motivation to safeguard or advance nationalist agendas at the expense of economic and political development.
As George Bernard Shaw eloquently put it "A healthy nation is as unconscious of its nationality as a healthy man is unconscious of his health. But if you break a nation's nationality it will think of nothing else but getting is set again."
While the nature of borders has been mentioned in the poltical science (especially) and economic literature, we are not aware of systematic work relating the nature of country borders to the economic success of countries. Our goal is to provide measures that proxy for the "naturalness" or "arti.ciality" of borders and relate them to economic and political development. We provide two measures never before used in econometric analysis of comparative development.
One measure is relatively simple and captures whether or not an ethnic group is "cut" by a political border. That is, we measure situations in which the same ethnic group is present in two bordering countries. This measure accounts fairly precisely for one of the ways in which borders may be "wrong", namely when borders cut through groups' land leave them in separate countries. But it does not capture other ways in which borders may be "artificial"; for instance situations in which two ethnic groups are forced into the same country. We then provide a second measure, based upon the assumption that if a land border is close to a straight line it is more likely to be drawn arti.cially; if it is relatively squiggly it is more likely to represent either geographic features (rivers, mountains etc.) and/or divisions carved out in time to separate different people.
Needless to say, the measure is not perfect, but much of our paper is about precisely discussing this measure and alternatives. It turns out that our two new measures are in fact not highly correlated, implying that they capture different aspects of the arti.cial nature of states.
After we have constructed our measures we explore how they are correlated with various standard measures of economic development such as per capita GDP, measures of institutional success such as freedom or corruption, and measures of quality of life and public services, such as infant mortality and education.
Both measures of artificiality are correlated with several variables that measure politico-economic development. Artifcial states measured by the two proxies described above, function much less well than non-artificial states. The correlation of our measures with measures of politico-economic success of various countries are fairly robust to controlling for climate, colonial past and the other traditional measures of ethnolinguistic fractionalization.
We also checked our measures.relationship to the occurrence of wars, domestic or international. Our results are just a .rst step towards further research. A measure of political instability and violence is indeed correlated with our measure of arti.cial states; however we do not .nd evidence of correlations between the number and intensity for wars fought by one country with our measures of artificial borders.
Future research needs to address these questions using data on bilateral conflicts around various types of borders. Because borders can be changed, as Alesina and Spolaore (1997) emphasized,
citizens can rearrange the borders of artificial states. Indeed this happens; once can consider the breakdown of the Soviet Union. In fact it is quite possible that as time goes by many currently straight borders will become squiggly as they are rearranged. Relatively newly independent countries have had "less time" than countries which have been never colonized to carve their borders as a result of an equilibrium reflecting how different people want to organize
themselves. With specific reference to Africa, Englebert, Trango and Carter (2002) document several instances of border instability in Africa due to the artificial original borders. Even amongst never-colonized countries, tensions remain, for example the Basque independentist movement in Spain.
We are not aware of other papers that have attempted to consider formally (as opposed to narratively) the relationship of the shape of countries to economic development, however our paper is related to three strands of the literature.
One strand is the recent work on the size of countries and its relationship with economic growth, as in Alesina and Spolaore (2003), Alesina Spolaore and Wacziarg (2000), and Alcala and Ciccone (2004), amongst others.
Second,our work builds on the literature concerning the relationship between ethno-linguistic fractionalization and economic growth, as in Easterly and Levine(1997) , Alesina et. al. (2003), and several others. Our paper discusses one historical phenomenon that may have led to excess ethnic fractionalization.
Third, the role of former colonizers has also been widely studied (see Acemoglu,Johnson and Robinson (2001) Glaeser et al(2004)) but not speci.cally with regards to the importance of borders. Our paper speci.es a new mechanism by which colonizers a¤ected subsequent development. In many ways we bridge these three strands because we focus on how colonizers have created fragmented societies by drawing artificial borders.
Conclusions
The idea of "failed states" is a recurrent theme both in newspapers and within academia. The borders of many countries have been the result of processes that have little to do with the desire of people to be together or not. In some cases groups who wanted to be separate have been thrown into the same political unit; others have been divided by artificial borders. Former colonizers have been mainly responsible for such mistakes, but the botched agreements after
the two major wars of the last century have also played a role.
The main contribution of this paper is to provide two new measures meant to capture how "artificial" political borders are. One measure considers how straight land borders are, under the assumption that straight borders are more like to be artificial and less likely to follow geographic features or the evolution of hundreds of years of border design.
The second measure focuses on ethnic or linguistic groups separated by borders. We have then investigated whether these variables are correlated with the politico-economic success of various countries, and we found that indeed they are.
The general patterns of correlations that we presented in a battery of tables suggest that these two new measures do quite well in cross-country regressions in which other exogenous measures of geography, ethnic fragmentation and colonial status are controlled for.
We have also explored the correlation of our measures of artificial borders with the occurrence of civil and international wars and our results are inconclusive. While we find correlations of our variables with measure of political instability and lack of democracy, we do not find a clear pattern of correlations with wars. Further research is needed on this point looking at bilateral data on wars, namely which country engaged in war with whom.
Probably the single most important issue that we have not addressed is that of migrations. One consequences of artificial borders is that people may want to move, if they can. Often movement of peoples is not permitted by various government but migration certainly occur. In some cases migrations that respond to artificial borders may be partly responsible for economic costs, wars,
dislocation of people, refugee crises and a hots of undesirable circumstances.
Thus, the need to migrate, created by the wrong borders may be one reason why artificial borders are inefficient. But sometimes the movement of people may correct for the artificial nature of borders. This dynamic aspects of movement of people and migrations, and changes of borders for that matter is not considered in this paper in which we consider a static picture of the world.
The bottom line in this paper is that the artificial borders bequeathed by
colonizers were a significant hindrance to the political and economic development of the independent states that followed the colonies.
Tropics, Germs, and Crops - How Endowments Influence Economic Development
Abstract from William Easterly and Ross Levine paper:
Introduction:
Burundi today(in 2002) has a per capita income of $200, which is one-third lower than 4 decades ago. Burundi is poor despite a lush agricultural endowment that has three growing seasons, abundant rainfall, fertile volcanic soils, and suitability for cash crops such as coffee, tea, cotton, bananas, palm oil, and rice.
Burundi has other geographic endowments that place it at a disadvantage, however, according to some stories of economic development summarized below.
It is virtually on the equator, is landlocked, is far from rich trading partners, and has a disease environment that has left life expectancy today at only 47 years.
During the colonial period, mortality among the European settlers was a frightful 280 per 1000 per year.
The Belgian colonialists thus did not settle but exploited the colony through forced labor on coffee and other cash crop plantations and compulsory food crop quotas. The Belgians ruled indirectly through Tutsi chiefs, to whom they spuriously attributed “racial superiority” over the Hutu. Even the cash crops that could generate high export revenue are thought to be adverse for political economy and institutional development according to some studies.
Three Tutsi military dictators from the same commune in Bururi province have ruled Burundi for 32 out of the 38 years since independence, which has been marred by massacres of civilians, recurrent civil war, and as noted, economic decline.
Institutions have disastrously failed to protect the citizens’ lives or to establish any resemblance of the rule of law. Ndikumana (1998) describes how the elite “privatized” the state and enforced their control through violence. Nkurunziza and Ngaruko (2002) show how the rulers have systematically looted the economy, using mechanisms such as state subsidies to public enterprises controlled by the rulers, severe taxation of cash crops, lucrative civil service positions for the ruling clan (the mean government wage puts the civil servant in the richest 6% of the economy), acquiring consumer goods at controlled prices and reselling them on the black market, and acquiring foreign exchange at the official rate and reselling it at the much higher black market rate.
Canada today has a per capita income 107 times higher than Burundi’s. Canada is rich today despite being marginal for much of the colonial period. In the peace negotiations between Britain and France following the Seven Years War in the 18th century (which Voltaire described as “fighting over a few acres of snow”), the British seriously debated taking the island of Guadeloupe instead of Canada as reparations for the war.
Yet Canada has geographic endowments that some stories of economic development argue give it advantages. It is far from the tropics, has a long border with a rich trading partner, has access to the sea, and has a disease environment that gives it a life expectancy of 79 years. During the colonial period, mortality among European settlers was only one-seventeenth of Burundi’s. While Canada lacks lucrative cash crops like coffee, cotton, and tea, it is one of the world’s premier grain producers – and some studies suggest grain endowments are better for political economy and institutional development than tropical cash crops.
Canada has long been a democracy with the rule of law, has never had a civil war, and has one of the world’s best ratings on freedom from corruption.6 Canada’s boring rulers have perpetrated few of the egregious interventions in the economy seen in Burundi.
How much of Canadians’ 107-fold income advantage over Burundians is due to more favorable geographic endowments? How much is due to better institutions? How much is due to better policies? Do the alleged geographic advantages of Canada over Burundi directly affect income, or do they work through institutions or policies?
The purpose of this research is to assess empirically different theories of how geography, institutions, and policy influence economic development.
A. Geography/Endowment hypothesis
Argue for direct effects of tropics, germs, and crops on development and suggest that tropical location, landlocked location, and commodity dependence directly inhibit development or growth.
B. Institutions hypothesis
Suggest institutional quality as one component of their “social infrastructure and a fundamental determinant of economic development.
C. Policy hypothesis
The policy hypothesis is an amalgam of views that stress the importance of major national policies and de-emphasize the importance of endowments in determining economic development. The policy view holds that sound macroeconomic policies, openness to international trade, and the absence of capital account controls will tend to foster long-run economic success. This perspective is clearly imbedded in the policy recommendations adopted by major multilateral institutions. Indeed, a motivating factor for creating international financial institutions is to facilitate the adoption of sound national policies that foster economic development. According to the policy hypothesis, while tropics, germs, and crops may influence production technologies and institutions, the adoption of policies that foster low inflation, openness to international trade, and unchecked international financial flows will promote economic development.
Conclusions:
No strong support for the idea that tropical location and lack of access to the sea inhibit development through channels other than through their effect on human disease and on natural resource endowments.
Endowments exert an economically big impact on economic development.
For instance, Tanzania had very high rates of settler mortality and has a very low level of per capita GDP .... if Tanzania had a disease environment that produced settler mortality rates closer to that experienced in India, then Tanzania would enjoy income levels of more than double its current level and even greater than that enjoyed in India now...
Settler mortality and natural resources (germs and crops) are again more significant than tropical latitude or lack of coastal access (although only crops remain independently significant when other exogenous variables are included). Note that when settler mortality and latitude are included together, they jointly explain 45 percent of the cross-country variation in the institutions index (when not controlling for legal origin, religious composition, and ethnic diversity)....
The impact is economically substantial. For instance, Chile’s settler mortality rate is 4.23 while Singapore’s is 2.87.
If Chile had the disease endowments of Singapore, the results suggest that this would substantially close the gap between Chile’s level of institutional development (0.87) and Singapore’s (1.44).
Consistent with Acemoglu, Johnson, and Robinson(2001) and Engerman and Sokoloff (1997), endowments importantly shape institutional development....
Endowments explain institutions, which in turn explain economic development.
The data fail to reject the hypothesis that endowments only explain cross-country differences in the level of economic development through the ability of endowments to explain institutional development.
In sum, measures of tropics, germs, and crops explain cross-country differences in economic development through their impact on institutions. To answer some of the questions in the introduction, if Burundi’s endowments had been like those of Canada, it would have increased Burundi’s income per capita through institutions by a factor of 38.
Recalling the 107-fold difference between Canada and Burundi’s income, we can say that a variation of 38 times is explained by our story, while variation by a factor of 2.8 (107/38) is unexplained. (In log terms, 78 percent of the log income difference between Canada and Burundi is explained.)
Consistent with AJR (2001) and ES (1997), tropics, germs, and crops do not explain economic development beyond their impact on institutions. These findings are consistent with the institutions hypothesis and inconsistent with the geography hypothesis. Furthermore,
policies do not explain cross-country differences in GDP per capita once one controls for the impact of endowments on institutions and on to economic development. Thus, the results are inconsistent with the policy hypothesis but consistent with a view that stresses the role of endowments in shaping long-lasting and defining institutions.
There is a large literature that relates cross-country differences in per capita growth rates to economic policies. How do we relate our present findings on income levels to this literature?
It could be that episodes of bad policies are associated with a temporary decrease in income, which shows up in the growth rate over a limited period, but leave no long run impact on the income level (Bruno and Easterly, 1998, made this argument for inflation and output).
It could also be that bad policies are proxying for poor institutions, in those cases where they are not included in the growth regression. The policy implication of this latter explanation is that bad policies are only symptoms of longer-run institutional factors, and correcting the policies without correcting the institutions will bring little long-run benefit. Bad policies would be kind of like a high fever from a bacterial infection. Packing the patient in ice would bring down the fever but does not cure the infection. This kind of story could help explain the disappointing results in developing countries to the wave of macroeconomic policy reforms in the 1990s (Hausmann and Rodrik, 2002; Easterly, 2001).
We acknowledge the caveats that one should not put all one’s weight on a failure to reject a zero coefficient or an exclusion restriction. Nor does the kind of general indicator of institutional quality we use, while representing a valuable contribution by Kaufmann et al (1999), provide much actual guidance to officials making real laws and regulations.
This kind of result should be tested and illumined further with detailed historical case studies of institutional development like those conducted by Engerman and Sokoloff (1997) and coauthors, studies of the links between colonial experiences and later developments (Mamdani, 1996), and contemporary case studies like those in Rodrik (2002).
These kind of cross-country results are only a beginning to telling the story of colonial experiences, political conflict and consensus, institution-building, and economic development for each unique case. Still, we are struck by the way that endowments and policies have no independent effect once we control for institutions, contrary to a number of stories, and that institutional quality seems to be a sufficient statistic for accounting for economic development.
Introduction:
Burundi today(in 2002) has a per capita income of $200, which is one-third lower than 4 decades ago. Burundi is poor despite a lush agricultural endowment that has three growing seasons, abundant rainfall, fertile volcanic soils, and suitability for cash crops such as coffee, tea, cotton, bananas, palm oil, and rice.
Burundi has other geographic endowments that place it at a disadvantage, however, according to some stories of economic development summarized below.
It is virtually on the equator, is landlocked, is far from rich trading partners, and has a disease environment that has left life expectancy today at only 47 years.
During the colonial period, mortality among the European settlers was a frightful 280 per 1000 per year.
The Belgian colonialists thus did not settle but exploited the colony through forced labor on coffee and other cash crop plantations and compulsory food crop quotas. The Belgians ruled indirectly through Tutsi chiefs, to whom they spuriously attributed “racial superiority” over the Hutu. Even the cash crops that could generate high export revenue are thought to be adverse for political economy and institutional development according to some studies.
Three Tutsi military dictators from the same commune in Bururi province have ruled Burundi for 32 out of the 38 years since independence, which has been marred by massacres of civilians, recurrent civil war, and as noted, economic decline.
Institutions have disastrously failed to protect the citizens’ lives or to establish any resemblance of the rule of law. Ndikumana (1998) describes how the elite “privatized” the state and enforced their control through violence. Nkurunziza and Ngaruko (2002) show how the rulers have systematically looted the economy, using mechanisms such as state subsidies to public enterprises controlled by the rulers, severe taxation of cash crops, lucrative civil service positions for the ruling clan (the mean government wage puts the civil servant in the richest 6% of the economy), acquiring consumer goods at controlled prices and reselling them on the black market, and acquiring foreign exchange at the official rate and reselling it at the much higher black market rate.
Canada today has a per capita income 107 times higher than Burundi’s. Canada is rich today despite being marginal for much of the colonial period. In the peace negotiations between Britain and France following the Seven Years War in the 18th century (which Voltaire described as “fighting over a few acres of snow”), the British seriously debated taking the island of Guadeloupe instead of Canada as reparations for the war.
Yet Canada has geographic endowments that some stories of economic development argue give it advantages. It is far from the tropics, has a long border with a rich trading partner, has access to the sea, and has a disease environment that gives it a life expectancy of 79 years. During the colonial period, mortality among European settlers was only one-seventeenth of Burundi’s. While Canada lacks lucrative cash crops like coffee, cotton, and tea, it is one of the world’s premier grain producers – and some studies suggest grain endowments are better for political economy and institutional development than tropical cash crops.
Canada has long been a democracy with the rule of law, has never had a civil war, and has one of the world’s best ratings on freedom from corruption.6 Canada’s boring rulers have perpetrated few of the egregious interventions in the economy seen in Burundi.
How much of Canadians’ 107-fold income advantage over Burundians is due to more favorable geographic endowments? How much is due to better institutions? How much is due to better policies? Do the alleged geographic advantages of Canada over Burundi directly affect income, or do they work through institutions or policies?
The purpose of this research is to assess empirically different theories of how geography, institutions, and policy influence economic development.
A. Geography/Endowment hypothesis
Argue for direct effects of tropics, germs, and crops on development and suggest that tropical location, landlocked location, and commodity dependence directly inhibit development or growth.
B. Institutions hypothesis
Suggest institutional quality as one component of their “social infrastructure and a fundamental determinant of economic development.
C. Policy hypothesis
The policy hypothesis is an amalgam of views that stress the importance of major national policies and de-emphasize the importance of endowments in determining economic development. The policy view holds that sound macroeconomic policies, openness to international trade, and the absence of capital account controls will tend to foster long-run economic success. This perspective is clearly imbedded in the policy recommendations adopted by major multilateral institutions. Indeed, a motivating factor for creating international financial institutions is to facilitate the adoption of sound national policies that foster economic development. According to the policy hypothesis, while tropics, germs, and crops may influence production technologies and institutions, the adoption of policies that foster low inflation, openness to international trade, and unchecked international financial flows will promote economic development.
Conclusions:
No strong support for the idea that tropical location and lack of access to the sea inhibit development through channels other than through their effect on human disease and on natural resource endowments.
Endowments exert an economically big impact on economic development.
For instance, Tanzania had very high rates of settler mortality and has a very low level of per capita GDP .... if Tanzania had a disease environment that produced settler mortality rates closer to that experienced in India, then Tanzania would enjoy income levels of more than double its current level and even greater than that enjoyed in India now...
Settler mortality and natural resources (germs and crops) are again more significant than tropical latitude or lack of coastal access (although only crops remain independently significant when other exogenous variables are included). Note that when settler mortality and latitude are included together, they jointly explain 45 percent of the cross-country variation in the institutions index (when not controlling for legal origin, religious composition, and ethnic diversity)....
The impact is economically substantial. For instance, Chile’s settler mortality rate is 4.23 while Singapore’s is 2.87.
If Chile had the disease endowments of Singapore, the results suggest that this would substantially close the gap between Chile’s level of institutional development (0.87) and Singapore’s (1.44).
Consistent with Acemoglu, Johnson, and Robinson(2001) and Engerman and Sokoloff (1997), endowments importantly shape institutional development....
Endowments explain institutions, which in turn explain economic development.
The data fail to reject the hypothesis that endowments only explain cross-country differences in the level of economic development through the ability of endowments to explain institutional development.
In sum, measures of tropics, germs, and crops explain cross-country differences in economic development through their impact on institutions. To answer some of the questions in the introduction, if Burundi’s endowments had been like those of Canada, it would have increased Burundi’s income per capita through institutions by a factor of 38.
Recalling the 107-fold difference between Canada and Burundi’s income, we can say that a variation of 38 times is explained by our story, while variation by a factor of 2.8 (107/38) is unexplained. (In log terms, 78 percent of the log income difference between Canada and Burundi is explained.)
Consistent with AJR (2001) and ES (1997), tropics, germs, and crops do not explain economic development beyond their impact on institutions. These findings are consistent with the institutions hypothesis and inconsistent with the geography hypothesis. Furthermore,
policies do not explain cross-country differences in GDP per capita once one controls for the impact of endowments on institutions and on to economic development. Thus, the results are inconsistent with the policy hypothesis but consistent with a view that stresses the role of endowments in shaping long-lasting and defining institutions.
There is a large literature that relates cross-country differences in per capita growth rates to economic policies. How do we relate our present findings on income levels to this literature?
It could be that episodes of bad policies are associated with a temporary decrease in income, which shows up in the growth rate over a limited period, but leave no long run impact on the income level (Bruno and Easterly, 1998, made this argument for inflation and output).
It could also be that bad policies are proxying for poor institutions, in those cases where they are not included in the growth regression. The policy implication of this latter explanation is that bad policies are only symptoms of longer-run institutional factors, and correcting the policies without correcting the institutions will bring little long-run benefit. Bad policies would be kind of like a high fever from a bacterial infection. Packing the patient in ice would bring down the fever but does not cure the infection. This kind of story could help explain the disappointing results in developing countries to the wave of macroeconomic policy reforms in the 1990s (Hausmann and Rodrik, 2002; Easterly, 2001).
We acknowledge the caveats that one should not put all one’s weight on a failure to reject a zero coefficient or an exclusion restriction. Nor does the kind of general indicator of institutional quality we use, while representing a valuable contribution by Kaufmann et al (1999), provide much actual guidance to officials making real laws and regulations.
This kind of result should be tested and illumined further with detailed historical case studies of institutional development like those conducted by Engerman and Sokoloff (1997) and coauthors, studies of the links between colonial experiences and later developments (Mamdani, 1996), and contemporary case studies like those in Rodrik (2002).
These kind of cross-country results are only a beginning to telling the story of colonial experiences, political conflict and consensus, institution-building, and economic development for each unique case. Still, we are struck by the way that endowments and policies have no independent effect once we control for institutions, contrary to a number of stories, and that institutional quality seems to be a sufficient statistic for accounting for economic development.
miércoles, 14 de enero de 2009
Chavez Unveils Gold Mining Venture
From MoscowTimes:
"Venrus, a joint venture of Rusoro Mining and the Venezuelan government, was formed to mine Las Cristinas, a deposit containing an estimated 35.2 million ounces of gold, Venezuelan President Hugo Chavez said.
Venezuela wants to develop the mine this year "under the control of socialism," Chavez said Tuesday. The mine covers five concessions, he said, naming four where Crystallex International of Toronto has been awaiting permits to begin mining and one concession belonging to Gold Reserve, which is also awaiting a mining permit.
"The Venezuelan state is getting ready this year for the exploitation and control of the gold deposit Las Cristinas," Chavez said. Venrus was formed last year, he said.
Las Cristinas has been the subject of decades of changing corporate control. After Placer Dome was permitted to begin mining some of the concessions in 2001, it sold out to Vannessa Ventures. Chavez expropriated the site and awarded it to Crystallex. Gold Reserve has held its concession throughout the saga.
A fly-by of the site this week sponsored by Rusoro showed miners living in shacks and using high-pressure hoses to separate gold from the surface of the deposit, creating several square kilometers of swampy, deforested land amid a vast forest.
Rusoro is a Russian-funded company that is buying gold deposits in Venezuela and is in the midst of a hostile takeover bid for Gold Reserve.
Venrus is a joint venture between Rusoro and Venezolana de Guayana, a state holding company. Venrus currently operates the Isidora mine, which Rusoro bought from Hecla Mining last year.
Chavez wants gold mining and other commodity exports to compensate for falling oil prices, he said on Dec. 27. Oil made up 93 percent of Venezuela's export earnings in 2008.
Gold Reserve president Doug Belanger declined to make an immediate comment. Richard Marshall, a spokesman for Crystallex, did not immediately return a call for comment after business hours. Rusoro chief executive Andre Agapov did not immediately return a call to his mobile phone.
The concessions Chavez mentioned were Cristinas 4, 5, 6 and 7 and Brisas del Cuyuni.
Venezuela also plans to boost diamond mining, Chavez said. The country will rejoin the Kimberley Process, an international treaty meant to exclude from international trade those gems mined without permits in conflict areas.
"We are coordinated with international organizations to establish the technical assistance mechanisms so that Venezuela can reincorporate itself into the international certification process," Chavez said.
Venezuela left the Kimberley Process last year as nongovernmental organizations that lobby on diamond issues pressed other members to expel the South American nation.
"Venrus, a joint venture of Rusoro Mining and the Venezuelan government, was formed to mine Las Cristinas, a deposit containing an estimated 35.2 million ounces of gold, Venezuelan President Hugo Chavez said.
Venezuela wants to develop the mine this year "under the control of socialism," Chavez said Tuesday. The mine covers five concessions, he said, naming four where Crystallex International of Toronto has been awaiting permits to begin mining and one concession belonging to Gold Reserve, which is also awaiting a mining permit.
"The Venezuelan state is getting ready this year for the exploitation and control of the gold deposit Las Cristinas," Chavez said. Venrus was formed last year, he said.
Las Cristinas has been the subject of decades of changing corporate control. After Placer Dome was permitted to begin mining some of the concessions in 2001, it sold out to Vannessa Ventures. Chavez expropriated the site and awarded it to Crystallex. Gold Reserve has held its concession throughout the saga.
A fly-by of the site this week sponsored by Rusoro showed miners living in shacks and using high-pressure hoses to separate gold from the surface of the deposit, creating several square kilometers of swampy, deforested land amid a vast forest.
Rusoro is a Russian-funded company that is buying gold deposits in Venezuela and is in the midst of a hostile takeover bid for Gold Reserve.
Venrus is a joint venture between Rusoro and Venezolana de Guayana, a state holding company. Venrus currently operates the Isidora mine, which Rusoro bought from Hecla Mining last year.
Chavez wants gold mining and other commodity exports to compensate for falling oil prices, he said on Dec. 27. Oil made up 93 percent of Venezuela's export earnings in 2008.
Gold Reserve president Doug Belanger declined to make an immediate comment. Richard Marshall, a spokesman for Crystallex, did not immediately return a call for comment after business hours. Rusoro chief executive Andre Agapov did not immediately return a call to his mobile phone.
The concessions Chavez mentioned were Cristinas 4, 5, 6 and 7 and Brisas del Cuyuni.
Venezuela also plans to boost diamond mining, Chavez said. The country will rejoin the Kimberley Process, an international treaty meant to exclude from international trade those gems mined without permits in conflict areas.
"We are coordinated with international organizations to establish the technical assistance mechanisms so that Venezuela can reincorporate itself into the international certification process," Chavez said.
Venezuela left the Kimberley Process last year as nongovernmental organizations that lobby on diamond issues pressed other members to expel the South American nation.
martes, 13 de enero de 2009
Quote of the day: Karl Kraus
"The secret of the demagogue is to make himself as stupid as his audience so that they believe they are as clever as he".
Gulf States R&D Investment in Green Energy
From NYTimes:
"Abu Dhabi is an oil-exporting country, and we want to become an energy-exporting country, and to do that we need to excel at the newer forms of energy,” said Khaled Awad, a director of Masdar, a futuristic zero-carbon city and a research park that has an affiliation with the Massachusetts Institute of Technology, that is rising from the desert on the outskirts of Abu Dhabi.
...The leadership in these breakthrough technologies is a title the U.S. can lose easily,” said Peter Barker-Homek, chief executive of Taqa, Abu Dhabi’s national energy company.
“Here we have low taxes, a young population, accessibility to the world, abundant natural resources and willingness to invest in the seed capital.”
The vision of a renewable future in the gulf is rooted not so much in a fuzzy green sentiment — though that is starting to take hold — as in analysis of the region’s economic future and the high-end lifestyles of its citizens.
...The world is now consuming 80 million barrels of oil a day, and that could continue to rise steeply over the coming decades if population and consumption trends continue. That could mean having to add six Saudi Arabias worth of oil output just to keep up, according to Mr. Barker-Homek, at a time when scientists are warning that carbon levels need to be cut significantly to avoid potentially disastrous global warming.
To hedge their positions, then, an increasingly sophisticated generation of largely Western-educated leaders in the Middle East are seizing on green business opportunities, by seeding research in faraway nations.
The crown prince of Abu Dhabi, the wealthiest of the seven emirates that make up the United Arab Emirates, announced last January that he would invest $15 billion in renewable energy. That is the same amount that President-elect Obama has proposed investing — in the entire United States — “to catalyze private sector efforts to build a clean energy future.
”Masdar, the model city that will generate no carbon emissions, is tied to the crown prince’s ambitions. Designed by Norman Foster, the British architect, it will include a satellite campus of the Massachusetts Institute of Technology, as well as a research park with laboratories affiliated with Imperial College London and other institutions.
In Saudi Arabia, the new state-owned King Abdullah University of Science and Technology, or Kaust, gave a Stanford scientist $25 million last year to start a research center on how to make the cost of solar power competitive with that of coal. Kaust, now in its first grant cycle, also gave $8 million to a Berkeley researcher developing green concrete.
And it has other agreements as well, with Caltech, Cambridge, Cornell, Imperial, La Sapienza, Oxford and Utrecht, to name just a few.
In November, the Qatari government signed an agreement with Britain’s visiting prime minister, Gordon Brown, to invest £150 million, or more than $220 million, in a British low-carbon technology fund, dwarfing the fund’s investments from home...
“The impact has been enormous,” said Michael McGehee, the associate professor at Stanford who received the $25 million Saudi grant. “It has greatly accelerated the development process.”
"Abu Dhabi is an oil-exporting country, and we want to become an energy-exporting country, and to do that we need to excel at the newer forms of energy,” said Khaled Awad, a director of Masdar, a futuristic zero-carbon city and a research park that has an affiliation with the Massachusetts Institute of Technology, that is rising from the desert on the outskirts of Abu Dhabi.
...The leadership in these breakthrough technologies is a title the U.S. can lose easily,” said Peter Barker-Homek, chief executive of Taqa, Abu Dhabi’s national energy company.
“Here we have low taxes, a young population, accessibility to the world, abundant natural resources and willingness to invest in the seed capital.”
The vision of a renewable future in the gulf is rooted not so much in a fuzzy green sentiment — though that is starting to take hold — as in analysis of the region’s economic future and the high-end lifestyles of its citizens.
...The world is now consuming 80 million barrels of oil a day, and that could continue to rise steeply over the coming decades if population and consumption trends continue. That could mean having to add six Saudi Arabias worth of oil output just to keep up, according to Mr. Barker-Homek, at a time when scientists are warning that carbon levels need to be cut significantly to avoid potentially disastrous global warming.
To hedge their positions, then, an increasingly sophisticated generation of largely Western-educated leaders in the Middle East are seizing on green business opportunities, by seeding research in faraway nations.
The crown prince of Abu Dhabi, the wealthiest of the seven emirates that make up the United Arab Emirates, announced last January that he would invest $15 billion in renewable energy. That is the same amount that President-elect Obama has proposed investing — in the entire United States — “to catalyze private sector efforts to build a clean energy future.
”Masdar, the model city that will generate no carbon emissions, is tied to the crown prince’s ambitions. Designed by Norman Foster, the British architect, it will include a satellite campus of the Massachusetts Institute of Technology, as well as a research park with laboratories affiliated with Imperial College London and other institutions.
In Saudi Arabia, the new state-owned King Abdullah University of Science and Technology, or Kaust, gave a Stanford scientist $25 million last year to start a research center on how to make the cost of solar power competitive with that of coal. Kaust, now in its first grant cycle, also gave $8 million to a Berkeley researcher developing green concrete.
And it has other agreements as well, with Caltech, Cambridge, Cornell, Imperial, La Sapienza, Oxford and Utrecht, to name just a few.
In November, the Qatari government signed an agreement with Britain’s visiting prime minister, Gordon Brown, to invest £150 million, or more than $220 million, in a British low-carbon technology fund, dwarfing the fund’s investments from home...
“The impact has been enormous,” said Michael McGehee, the associate professor at Stanford who received the $25 million Saudi grant. “It has greatly accelerated the development process.”
Russia: Boosting Population a Vague Science
From MoscowTimes:
The fact that Russia's population is shrinking should come as a surprise to no one. According to the State Statistics Service, 12 million more Russians died than were born from 1992 to 2007, with the arrival of 5.5 million immigrants only partially compensating for the loss.
It is clear from statements by political leaders that the government is aware of the problem and the serious threat that it poses to future economic growth and security as the country's work force shrinks.
What is also clear, according to demographers and public health experts, is that the government hasn't made enough effort to get to the root of the problem or to measure whether the policies it has put in place to deal with the demographic crisis are really helping. Although some financial incentives have been created to help couples have more children, experts say a much more comprehensive approach is necessary.
Given existing trends, demographers say the population will shrink from the current level of 142 million to something between 125 million and 135 million by 2025, and could fall to as low as 100 million by 2050.
This demographic decline has serious economic consequences -- there will be as many as 8 million fewer people in the work force by 2015 and possibly 19 million less by 2025, according to study by a group of Russian demographers sponsored by the United Nations and released in late April.
Population change is dependent on three main factors: the birthrate, the death rate and immigration rates. Last October, then-President Vladimir Putin approved a government demographic strategy through 2025 that sets targets in each of these three categories. But while this strategy shows that the government is concerned about the current situation, the program's goals suggest that it has little interest in understanding the roots of the problem, preferring to throw money at it instead.
Demographers have calculated that, in Russia, the replacement fertility rate -- the number of births per woman necessary to maintain the current population -- is 2.15. In 2006, the fertility rate was 1.3 children for every woman. The number of babies born last year jumped to about 2 million -- up 8.3 percent from the year before and a post-Soviet record. Still, the fertility rate rose only to 1.4 children per woman. State officials wasted no time in claiming that government policy was to thank for a new baby boom, with Health and Social Development Minister Tatyana Golikova only the most recent example. "It is a true demographic explosion that no other developed country has generated," Golikova said in a speech on April 26.
"We are proud that ... Russians have had the right reaction to the measures to encourage births."
The measures introduced by the government included an increase in monthly social payments to mothers, making it easier for young families to get mortgages, and "mother's capital" -- a one-time payment of around $10,000 for those women giving birth to a second child. Access to the money comes only three years after the child is born, and it must be used for the child's benefit, such as improving the family's living conditions or paying for education.
Demographers doubt, however, that government perks were the sole or even the main cause of the rise in births.
Vladimir Arkhangelsky, of the Research Center for Population Problems at Moscow State University, said the latest spike in births is the result of an increase in the number of women reaching their peak childbearing years. These women were themselves products of an early 1980s baby boom, which followed increases in Soviet-era social payments and an anti-alcohol campaign.
Arkhangelsky and other demographers say the number of children being born will likely fall off again in about five years as the women of the 1980s baby boom move out of their most fertile years and are replaced by the much smaller generation born in the 1990s.
According to the State Statistics Service, in 2007 there were 24.1 percent fewer females from the age of 10 to 19 than in the 20 to 29 age group. There were 44.1 percent fewer females under the age of nine than in the 20 to 29 group.
An added concern is that, even if the new benefits are partially responsible for the increase in births, they may still have a negative effect on the country's wealth disparity in the future. Women living below the poverty rate experienced a more significant rise in birthrate than any other segment of the female population, said Valery Yelizarov, head of the Research Center for Population Problems.
According to the Social Insurance Fund, the government body that issues birth certificates, about half of the women who gave birth last year reported a monthly income below the poverty line for Russia -- 3,500 rubles ($150). About 70 percent of the mothers reported a monthly income of less than 7,000 rubles ($300).
"The government needs to think of how to stimulate [births among] those who are more successful in life," Yelizarov said.
According to the government demographic strategy, incentives designed to get families to have more than one child should boost the birthrate by 50 percent by 2025. But the global trend, and particularly in developed countries, has been away from larger families, leading some experts to express doubts that the target can be met.
Karl Kulessa, the UN's population agency chief in Russia, said there were many social and economic factors that work against bigger families.
Benefits for larger families introduced by the French government have played at least some part in a jump in the birthrate from 1.7 babies per woman in 1994 to almost 2.0 in 2006. But to achieve similar results in Russia, the government needs not only to provide families with the financial resources to provide for more children but also to influence attitudes in a country where one-child families are the norm, Arkhangelsky said.
"This means increasing in the prestige of having bigger families," he said. "The state needs to change perceptions about mothers who take care of their children. There should be the understanding that these mothers work at home, not just stay at home."
Medvedev himself has only one child, a son, while Putin has two daughters.
Other demographers agree that the government has done little, if anything, to influence public opinion about larger families.
Another issue is whether the facilities exist for a baby boom of the magnitude the government would like to see.
The infant mortality rate in the country jumped from .88 percent for children born in January 2007 to almost 1 percent for those born in January of this year, a fact Yelizarov suggested may be a sign that maternity hospitals and their staff were unable to deal with the increased workload.
To meet the challenge of the growing number of births, the government plans to spend 20 billion rubles ($850 million) from 2008 to 2010 to build 23 new perinatal centers in Russia, said Olga Sharapova, head of the Health and Social Development Ministry's department for medical and social problems related to pregnant women and children. "This will help save the lives of hundreds of mothers and children every year," she said.
"The birthrate is a very difficult thing to increase quickly, so the state and the people can achieve much more by addressing deaths," said Natalya Rimashevskaya, a demographer with the Russian Academy of Sciences.
One out of three Russians dies before reaching retirement age -- 55 for women and 60 for men -- and 80 percent of those dying early are men, according to data from the Health and Social Development Ministry.
Russia is one of the few countries in the world where life expectancy has declined since the 1960s. In 2006, the life expectancy for Russian men was 60.6 years, about 15 years less than that in most developed countries.
The number for women is higher, at 73.1, but still almost 10 years below that in most developed countries.
Experts agree that a large share of early deaths in Russia, particularly among men, are preventable. Cardiovascular diseases account for 55 percent of all deaths, four times the rate in Western Europe. The government has made cutting the death rate among the working-age population by 38 percent by 2025 one of its targets, with the ultimate goal of raising average life expectancy to 75 years -- the current figure for Mexico. "The biggest reason the mortality rate is so high rate is the very low value placed on life by the state and people themselves," said Alla Ivanova, chief statistician at the Health and Social Development Ministry's Central Scientific Research Institute for Health Care Information.
Over the past two decades, state spending on health care has remained meager and people have failed to develop healthier lifestyles, she said.
When asked what the state's focus should be under Medvedev to raise life expectancy, most experts named poverty and heavy drinking.
Most demographers agree that the government needs to find ways to lower alcohol consumption and especially the abuse of cheap, low-quality alcohol that kills thousands every year.
Battling low-quality alcohol will be a challenge, however, as the state surrendered its monopoly on alcohol production in 1992 and corrupt law enforcement bodies have failed to crack down on illegal producers of alcohol in the years since. Additionally, ubiquitous and aggressive television advertising has made beer an integral part of Russian teen culture.
Alexander Nemtsov, a senior researcher at the Scientific Research Institute of Psychiatry, has calculated that annual alcohol-related deaths averaged about 426,000 over the past 20 years, or almost 30 percent of deaths among men and 17 percent for women.
Studies show that mortality rates have risen or fallen in tandem with alcohol consumption rates in the country, and both rose in the 1990s.
Long-term poverty often produces a vicious cycle, in which a lack of economic prospects leads to alcoholism and drug abuse, which in turn keep people impoverished, Ivanova said. Fortunately, income levels among Russians have risen in recent years, and this may have been the main factor behind a 1.3-year jump in male life expectancy and 0.8-year rise for women from 2006 to 2008. Interestingly, the death rate among people under 40 remained basically unchanged from that in the turbulent 1990s.
In addition to fighting alcohol abuse and providing better opportunities for those marginalized in the course of the drastic economic reforms of the 1990s, Ivanova said the government needed to improve medical care and make it more accessible.
"This can prevent another 200,000 deaths every year that occur because of the poor organization of preventative medicine services and because, for various reasons, people just don't turn to doctors in time," she said.
Meanwhile, Health and Social Development Minister Golikova has named heart disease and traffic accidents as the two major preventable causes of death in Russia.
Senior ministry official Sharapova said the government was set to spend an additional 10 billion rubles ($420 million) from 2008 to 2010 to improve care at regional health facilities for people being treated for heart disease and injuries sustained in car accidents. She said the ministry was also working to develop a program to decrease alcohol-related deaths.
After the collapse of the Soviet Union, immigration became the only immediate solution to Russia's demographic catastrophe. From 1992 to 2007, 5.5 million people immigrated to the country, with 4.5 million of those gaining Russian citizenship.
It is impossible to say how many people move to Russia annually because of the difficulties of tracking illegal migrants and the complex registration system for those entering the country legally.
In 2007, the Federal Migration Service issued more than 2.1 million work permits for foreigners but only 194,000 temporary residence permits. These numbers indicate that only a fraction of those who come to work are able to gain, or are even interested in, citizenship. The service plans to issue 350,000 residency permits in 2008.
There is only one state program aimed at attracting Russian-speaking people from former Soviet republics into the country, but in order to be eligible for Russian citizenship and financial benefits, potential immigrants have to settle in remote and sparsely populated areas, like the Far East.
This program focusing on these "fellow countrymen" was established by then-President Vladimir Putin in June 2006 and was to kick into action in 2007. Viktor Ivanov, the Putin aide appointed to oversee the program, said in an interview with German newspaper Die Welt in 2006 that the country was ready to welcome the 25 million ethnic Russians living in other former Soviet republics.
So far, however, the results have been very modest. In 2007, only 2,100 immigrants were resettled in Russia as part of this program, said a source in the Federal Migration Service who spoke on condition of anonymity because he was not authorized to talk to the media. The service is currently reviewing 8,500 applications, covering 23,000 potential immigrants.
The challenges are even more severe for potential immigrants who are not ethnic Russians. Isolation, the lack of social infrastructure, xenophobia and salary discrimination all make life for immigrants difficult.
Olga Chudinovskaya, an immigration expert at Moscow State University, said migrant workers are paid on average half of what Russian citizens receive for the same job.
She added that the public perception of immigrants as criminals is an extreme exaggeration. In 2007, migrants accounted for only 1.5 percent of the crimes registered by the Interior Ministry.
Chudinovskaya said the program of resettling "fellow countrymen" in Russia is based on "false priorities," since the government would face a struggle keeping immigrants in far-flung and economically depressed regions.
It will be far more logical for the government to grant citizenship to immigrants who already have jobs in Russia, have come with a strong motivation to stay and who would not ask the government for help, she said.
One of the biggest problems in the policy area is that no one has any real idea of how programs will work, as demographers have not been given much of a consultative role in their formation.
"When officials speak of billions of rubles spent on demographic projects, I only shrug, because there was no serious scientific examination of them," said Anatoly Vishnevsky, a leading expert in the field and head of the Center for Demography and Human Ecology at the Russian Academy of Sciences.
For example, it is impossible to determine whether the recent spike in births is because Russians are developing a preference for bigger families, as the government says, or because the baby boomers of the 1980s have reached childbearing age. There are no statistics being collected on whether new babies are second -- or even third -- children; they are just being counted, Yelizarov said.
The government is not only failing to collect the necessary information on the problem, but it has also not invested in any real analysis of the results.
"We need to understand what factors influence birthrates and death rates and how, as well as what money needs to be spent to achieve the desired results," Yelizarov said.
In another telling example of how government priorities are mismatched, the Health and Social Development Ministry's own figures show that there were far fewer deaths from traffic accidents last year than from poisoning, even though Golikova called traffic accidents one of Russia's two leading causes of preventable deaths.
Increased social payments notwithstanding, very little is being done to alleviate the most pressing problems facing young families. Svetlana Misikhina, a demography researcher at the Institute of Urban Economy, pointed to the government's mortgage policy as an example.
Citing a lack of adequate housing as a major obstacle for younger families wanting to have more children, the government created a program to provide greater access to mortgages.
The problem is that few effective measures have been put in place to increase the rate of new home construction. The result has been a further increase in real estate prices, putting new or bigger apartments out of reach for the majority of young families. The government has also done nothing to develop programs that would allow nursing mothers to work from home or work part time.
"The biggest problem of all is that our presidents -- Putin and Medvedev -- are misinformed about the demographic situation, and this is the first thing that needs to be dealt with," Vishnevsky said.
The fact that Russia's population is shrinking should come as a surprise to no one. According to the State Statistics Service, 12 million more Russians died than were born from 1992 to 2007, with the arrival of 5.5 million immigrants only partially compensating for the loss.
It is clear from statements by political leaders that the government is aware of the problem and the serious threat that it poses to future economic growth and security as the country's work force shrinks.
What is also clear, according to demographers and public health experts, is that the government hasn't made enough effort to get to the root of the problem or to measure whether the policies it has put in place to deal with the demographic crisis are really helping. Although some financial incentives have been created to help couples have more children, experts say a much more comprehensive approach is necessary.
Given existing trends, demographers say the population will shrink from the current level of 142 million to something between 125 million and 135 million by 2025, and could fall to as low as 100 million by 2050.
This demographic decline has serious economic consequences -- there will be as many as 8 million fewer people in the work force by 2015 and possibly 19 million less by 2025, according to study by a group of Russian demographers sponsored by the United Nations and released in late April.
Population change is dependent on three main factors: the birthrate, the death rate and immigration rates. Last October, then-President Vladimir Putin approved a government demographic strategy through 2025 that sets targets in each of these three categories. But while this strategy shows that the government is concerned about the current situation, the program's goals suggest that it has little interest in understanding the roots of the problem, preferring to throw money at it instead.
Demographers have calculated that, in Russia, the replacement fertility rate -- the number of births per woman necessary to maintain the current population -- is 2.15. In 2006, the fertility rate was 1.3 children for every woman. The number of babies born last year jumped to about 2 million -- up 8.3 percent from the year before and a post-Soviet record. Still, the fertility rate rose only to 1.4 children per woman. State officials wasted no time in claiming that government policy was to thank for a new baby boom, with Health and Social Development Minister Tatyana Golikova only the most recent example. "It is a true demographic explosion that no other developed country has generated," Golikova said in a speech on April 26.
"We are proud that ... Russians have had the right reaction to the measures to encourage births."
The measures introduced by the government included an increase in monthly social payments to mothers, making it easier for young families to get mortgages, and "mother's capital" -- a one-time payment of around $10,000 for those women giving birth to a second child. Access to the money comes only three years after the child is born, and it must be used for the child's benefit, such as improving the family's living conditions or paying for education.
Demographers doubt, however, that government perks were the sole or even the main cause of the rise in births.
Vladimir Arkhangelsky, of the Research Center for Population Problems at Moscow State University, said the latest spike in births is the result of an increase in the number of women reaching their peak childbearing years. These women were themselves products of an early 1980s baby boom, which followed increases in Soviet-era social payments and an anti-alcohol campaign.
Arkhangelsky and other demographers say the number of children being born will likely fall off again in about five years as the women of the 1980s baby boom move out of their most fertile years and are replaced by the much smaller generation born in the 1990s.
According to the State Statistics Service, in 2007 there were 24.1 percent fewer females from the age of 10 to 19 than in the 20 to 29 age group. There were 44.1 percent fewer females under the age of nine than in the 20 to 29 group.
An added concern is that, even if the new benefits are partially responsible for the increase in births, they may still have a negative effect on the country's wealth disparity in the future. Women living below the poverty rate experienced a more significant rise in birthrate than any other segment of the female population, said Valery Yelizarov, head of the Research Center for Population Problems.
According to the Social Insurance Fund, the government body that issues birth certificates, about half of the women who gave birth last year reported a monthly income below the poverty line for Russia -- 3,500 rubles ($150). About 70 percent of the mothers reported a monthly income of less than 7,000 rubles ($300).
"The government needs to think of how to stimulate [births among] those who are more successful in life," Yelizarov said.
According to the government demographic strategy, incentives designed to get families to have more than one child should boost the birthrate by 50 percent by 2025. But the global trend, and particularly in developed countries, has been away from larger families, leading some experts to express doubts that the target can be met.
Karl Kulessa, the UN's population agency chief in Russia, said there were many social and economic factors that work against bigger families.
Benefits for larger families introduced by the French government have played at least some part in a jump in the birthrate from 1.7 babies per woman in 1994 to almost 2.0 in 2006. But to achieve similar results in Russia, the government needs not only to provide families with the financial resources to provide for more children but also to influence attitudes in a country where one-child families are the norm, Arkhangelsky said.
"This means increasing in the prestige of having bigger families," he said. "The state needs to change perceptions about mothers who take care of their children. There should be the understanding that these mothers work at home, not just stay at home."
Medvedev himself has only one child, a son, while Putin has two daughters.
Other demographers agree that the government has done little, if anything, to influence public opinion about larger families.
Another issue is whether the facilities exist for a baby boom of the magnitude the government would like to see.
The infant mortality rate in the country jumped from .88 percent for children born in January 2007 to almost 1 percent for those born in January of this year, a fact Yelizarov suggested may be a sign that maternity hospitals and their staff were unable to deal with the increased workload.
To meet the challenge of the growing number of births, the government plans to spend 20 billion rubles ($850 million) from 2008 to 2010 to build 23 new perinatal centers in Russia, said Olga Sharapova, head of the Health and Social Development Ministry's department for medical and social problems related to pregnant women and children. "This will help save the lives of hundreds of mothers and children every year," she said.
"The birthrate is a very difficult thing to increase quickly, so the state and the people can achieve much more by addressing deaths," said Natalya Rimashevskaya, a demographer with the Russian Academy of Sciences.
One out of three Russians dies before reaching retirement age -- 55 for women and 60 for men -- and 80 percent of those dying early are men, according to data from the Health and Social Development Ministry.
Russia is one of the few countries in the world where life expectancy has declined since the 1960s. In 2006, the life expectancy for Russian men was 60.6 years, about 15 years less than that in most developed countries.
The number for women is higher, at 73.1, but still almost 10 years below that in most developed countries.
Experts agree that a large share of early deaths in Russia, particularly among men, are preventable. Cardiovascular diseases account for 55 percent of all deaths, four times the rate in Western Europe. The government has made cutting the death rate among the working-age population by 38 percent by 2025 one of its targets, with the ultimate goal of raising average life expectancy to 75 years -- the current figure for Mexico. "The biggest reason the mortality rate is so high rate is the very low value placed on life by the state and people themselves," said Alla Ivanova, chief statistician at the Health and Social Development Ministry's Central Scientific Research Institute for Health Care Information.
Over the past two decades, state spending on health care has remained meager and people have failed to develop healthier lifestyles, she said.
When asked what the state's focus should be under Medvedev to raise life expectancy, most experts named poverty and heavy drinking.
Most demographers agree that the government needs to find ways to lower alcohol consumption and especially the abuse of cheap, low-quality alcohol that kills thousands every year.
Battling low-quality alcohol will be a challenge, however, as the state surrendered its monopoly on alcohol production in 1992 and corrupt law enforcement bodies have failed to crack down on illegal producers of alcohol in the years since. Additionally, ubiquitous and aggressive television advertising has made beer an integral part of Russian teen culture.
Alexander Nemtsov, a senior researcher at the Scientific Research Institute of Psychiatry, has calculated that annual alcohol-related deaths averaged about 426,000 over the past 20 years, or almost 30 percent of deaths among men and 17 percent for women.
Studies show that mortality rates have risen or fallen in tandem with alcohol consumption rates in the country, and both rose in the 1990s.
Long-term poverty often produces a vicious cycle, in which a lack of economic prospects leads to alcoholism and drug abuse, which in turn keep people impoverished, Ivanova said. Fortunately, income levels among Russians have risen in recent years, and this may have been the main factor behind a 1.3-year jump in male life expectancy and 0.8-year rise for women from 2006 to 2008. Interestingly, the death rate among people under 40 remained basically unchanged from that in the turbulent 1990s.
In addition to fighting alcohol abuse and providing better opportunities for those marginalized in the course of the drastic economic reforms of the 1990s, Ivanova said the government needed to improve medical care and make it more accessible.
"This can prevent another 200,000 deaths every year that occur because of the poor organization of preventative medicine services and because, for various reasons, people just don't turn to doctors in time," she said.
Meanwhile, Health and Social Development Minister Golikova has named heart disease and traffic accidents as the two major preventable causes of death in Russia.
Senior ministry official Sharapova said the government was set to spend an additional 10 billion rubles ($420 million) from 2008 to 2010 to improve care at regional health facilities for people being treated for heart disease and injuries sustained in car accidents. She said the ministry was also working to develop a program to decrease alcohol-related deaths.
After the collapse of the Soviet Union, immigration became the only immediate solution to Russia's demographic catastrophe. From 1992 to 2007, 5.5 million people immigrated to the country, with 4.5 million of those gaining Russian citizenship.
It is impossible to say how many people move to Russia annually because of the difficulties of tracking illegal migrants and the complex registration system for those entering the country legally.
In 2007, the Federal Migration Service issued more than 2.1 million work permits for foreigners but only 194,000 temporary residence permits. These numbers indicate that only a fraction of those who come to work are able to gain, or are even interested in, citizenship. The service plans to issue 350,000 residency permits in 2008.
There is only one state program aimed at attracting Russian-speaking people from former Soviet republics into the country, but in order to be eligible for Russian citizenship and financial benefits, potential immigrants have to settle in remote and sparsely populated areas, like the Far East.
This program focusing on these "fellow countrymen" was established by then-President Vladimir Putin in June 2006 and was to kick into action in 2007. Viktor Ivanov, the Putin aide appointed to oversee the program, said in an interview with German newspaper Die Welt in 2006 that the country was ready to welcome the 25 million ethnic Russians living in other former Soviet republics.
So far, however, the results have been very modest. In 2007, only 2,100 immigrants were resettled in Russia as part of this program, said a source in the Federal Migration Service who spoke on condition of anonymity because he was not authorized to talk to the media. The service is currently reviewing 8,500 applications, covering 23,000 potential immigrants.
The challenges are even more severe for potential immigrants who are not ethnic Russians. Isolation, the lack of social infrastructure, xenophobia and salary discrimination all make life for immigrants difficult.
Olga Chudinovskaya, an immigration expert at Moscow State University, said migrant workers are paid on average half of what Russian citizens receive for the same job.
She added that the public perception of immigrants as criminals is an extreme exaggeration. In 2007, migrants accounted for only 1.5 percent of the crimes registered by the Interior Ministry.
Chudinovskaya said the program of resettling "fellow countrymen" in Russia is based on "false priorities," since the government would face a struggle keeping immigrants in far-flung and economically depressed regions.
It will be far more logical for the government to grant citizenship to immigrants who already have jobs in Russia, have come with a strong motivation to stay and who would not ask the government for help, she said.
One of the biggest problems in the policy area is that no one has any real idea of how programs will work, as demographers have not been given much of a consultative role in their formation.
"When officials speak of billions of rubles spent on demographic projects, I only shrug, because there was no serious scientific examination of them," said Anatoly Vishnevsky, a leading expert in the field and head of the Center for Demography and Human Ecology at the Russian Academy of Sciences.
For example, it is impossible to determine whether the recent spike in births is because Russians are developing a preference for bigger families, as the government says, or because the baby boomers of the 1980s have reached childbearing age. There are no statistics being collected on whether new babies are second -- or even third -- children; they are just being counted, Yelizarov said.
The government is not only failing to collect the necessary information on the problem, but it has also not invested in any real analysis of the results.
"We need to understand what factors influence birthrates and death rates and how, as well as what money needs to be spent to achieve the desired results," Yelizarov said.
In another telling example of how government priorities are mismatched, the Health and Social Development Ministry's own figures show that there were far fewer deaths from traffic accidents last year than from poisoning, even though Golikova called traffic accidents one of Russia's two leading causes of preventable deaths.
Increased social payments notwithstanding, very little is being done to alleviate the most pressing problems facing young families. Svetlana Misikhina, a demography researcher at the Institute of Urban Economy, pointed to the government's mortgage policy as an example.
Citing a lack of adequate housing as a major obstacle for younger families wanting to have more children, the government created a program to provide greater access to mortgages.
The problem is that few effective measures have been put in place to increase the rate of new home construction. The result has been a further increase in real estate prices, putting new or bigger apartments out of reach for the majority of young families. The government has also done nothing to develop programs that would allow nursing mothers to work from home or work part time.
"The biggest problem of all is that our presidents -- Putin and Medvedev -- are misinformed about the demographic situation, and this is the first thing that needs to be dealt with," Vishnevsky said.
ECB weakening the Euro?
From tradeandtaxes (via FT Alphaville):
Although it is not yet clear that the rising dollar vs. the euro and yen is due to central bank interventions, the following graph appears to show that the European central bank has been intervening heavily to weaken the euro by buying currency reserves.
Dynamic Scoring
Dynamic Scoring, by Andy Harless(via Mark Thoma):
"Suppose that, at the beginning of the fiscal year, Congress appropriates $100 billion extra for infrastructure projects. At the end of the fiscal year, how much higher will the deficit turn out to be, compared to what it otherwise would have been?
The obvious answer, and the one that usually seems to be implicitly assumed by the media and the pundits, is $100 billion. But if you think about it carefully, it should become obvious that the obvious answer is the wrong answer.
The government is going to use most of that money to hire people and to buy things. Many of the people it will hire are people who were previously unemployed. Many are leaving other jobs which will subsequently be filled by people who were unemployed. These previously unemployed people, who may have been collecting benefits, will now be paying taxes. Those taxes will reduce the deficit, as will the reduced benefit payments. Moreover, for the businesses from which the government purchases, their profits will rise, and they will pay additional taxes on those additional profits. And they may expand and hire new people, or retain people that would otherwise have been laid off. And (if you believe in a multiplier effect), all the newly employed people, as well as the owners of the businesses, will spend more money, thus providing more profits and more employment for others, who will also pay taxes and stop collecting benefits. And so on. The ultimate effect of the original expenditure on the budget deficit will be considerably smaller than $100 billion.
This is called dynamic scoring. ... In the past, dynamic scoring has met with a lot of skepticism – and with good reason. Under normal economic conditions (by which I mean those that prevailed from 1953 through 2007), it's not clear that budget changes have any significant indirect effects on revenues and expenditures. Supply-siders claimed that the incentive effect of tax cuts would increase incentives for economic activity and thereby result in increased revenues. (I mean, "increased" relative to the static estimate of the revenue loss, not increased relative to what would happen without the tax cut. The latter idea had a lot of play in the popular press, but it was seldom taken very seriously by economists.) Keynesians (the old-fashioned kind) claimed that tax cuts and expenditure increases would increase demand and thereby result in increased revenues (again, relative to the static estimate). But...
Mainstream economic analysis said they were both wrong. Many economists think there are major supply-side benefits to more efficient taxation, but most such economists think those are primarily long-run benefits (faster growth over a span of time) rather than benefits that would significantly affect revenues in the short run. The Keynesian argument would make sense if monetary policy were passive, but in fact, the Fed has its own goals, and its goals don't necessarily change in response to fiscal policy. And of course the Fed takes fiscal policy into account when deciding how to accomplish those goals. So if a tax cut or an expenditure increase were expected to create, say, a million extra jobs, then, under normal economic conditions, the Fed would simply raise interest rates enough (according to its best estimate) to destroy a million jobs. (If the Fed didn't think the demand for those million jobs would be potentially inflationary, then it would already have tried to create them.)
But today's economic conditions are not normal. The Fed, like most everyone else, is expecting the recession to be a severe one, a potentially deflationary one, but the Fed is running out of options for how to deal with it. Contrary to what happens under normal conditions, the Fed will make no attempt to offset the effects of fiscal policy; indeed, it will enthusiastically welcome the help. The old-fashioned Keynesians, whose advice about dynamic scoring was (properly, in my opinion) considered wrong or irrelevant for so long, can now dust off their computers and start giving meaningful dynamic estimates of the effects of budget changes. ...
But there has never been a consensus beforehand about how dynamic scoring should be done, or even about the direction of the effects. In the past, the only conservative approach was to use static scoring – to ignore any indirect effects that budget changes might have on the ultimate deficit.
There is still no consensus about the details. But today one can hardly doubt that the indirect effects of stimulus policies on the budget will partly (if not entirely) offset their direct effects, or that the indirect effects will be large enough to be important. In today’s environment, static scoring is not just conservative, it's fundamentally unreasonable.
The details have to be negotiated... But next time you think that an $800 billion stimulus plan will add $800 billion to the national debt, think again.
I was thinking more along the lines of the traditional supply-side argument, i.e. the dynamic effects from the higher growth rate we'd have with improved infrastructure, but as noted above, these "are primarily long-run benefits."
Here's Paul Krugman subsequent Bang for the buck (wonkish):
"Mark Thoma says he was thinking about thinking about this; I was actually thinking about it. Anyway, it’s true: the cost of an effective fiscal stimulus, in terms of adding to the government’s debt, can (and should) be much less than the headline cost.
Consider an increase in government spending; assume that the interest rate is fixed (a good assumption right now, because interest rates are up against the zero lower bound). Then textbook analysis says that if the stimulus is dG, the increase in GDP is 1/(1 - c(1-t)) where c is the marginal propensity to consume out of income and t is the marginal tax rate. Suppose c is 0.5 and t is 1/3; then the multiplier is 1.5, which is more or less the conventional wisdom right now.
But if $100 billion in spending raises GDP by $150 billion, and the marginal tax rate is 1/3, $50 billion of the spending comes back in additional revenue. So bang for the buck — increase in GDP per dollar of added debt — is 3, not 1.5. Since the main concern about stimulus is that it will add to government debt, it’s this bang for the buck measure, rather than the multiplier, that’s relevant. And 3 sounds a lot better than 1.5.
Take this a bit further: $150 billion is about 1 percent of GDP, which Romer and Bernstein say means a million jobs; so this says $50,000 per job, which is a much better number than the critics have been throwing around (plus many more workers with full-time rather than part-time jobs).
Bang for the buck also heightens the contrast between effective and ineffective stimulus policies. Stay with c = 0.5, t = 1/3, and look at the effects of a tax cut; the multiplier is 0.75, half that for public investment, but bang for the buck is 1, only 1/3 that for investment.
So thinking about how stimulus comes back via revenues is important.
"Suppose that, at the beginning of the fiscal year, Congress appropriates $100 billion extra for infrastructure projects. At the end of the fiscal year, how much higher will the deficit turn out to be, compared to what it otherwise would have been?
The obvious answer, and the one that usually seems to be implicitly assumed by the media and the pundits, is $100 billion. But if you think about it carefully, it should become obvious that the obvious answer is the wrong answer.
The government is going to use most of that money to hire people and to buy things. Many of the people it will hire are people who were previously unemployed. Many are leaving other jobs which will subsequently be filled by people who were unemployed. These previously unemployed people, who may have been collecting benefits, will now be paying taxes. Those taxes will reduce the deficit, as will the reduced benefit payments. Moreover, for the businesses from which the government purchases, their profits will rise, and they will pay additional taxes on those additional profits. And they may expand and hire new people, or retain people that would otherwise have been laid off. And (if you believe in a multiplier effect), all the newly employed people, as well as the owners of the businesses, will spend more money, thus providing more profits and more employment for others, who will also pay taxes and stop collecting benefits. And so on. The ultimate effect of the original expenditure on the budget deficit will be considerably smaller than $100 billion.
This is called dynamic scoring. ... In the past, dynamic scoring has met with a lot of skepticism – and with good reason. Under normal economic conditions (by which I mean those that prevailed from 1953 through 2007), it's not clear that budget changes have any significant indirect effects on revenues and expenditures. Supply-siders claimed that the incentive effect of tax cuts would increase incentives for economic activity and thereby result in increased revenues. (I mean, "increased" relative to the static estimate of the revenue loss, not increased relative to what would happen without the tax cut. The latter idea had a lot of play in the popular press, but it was seldom taken very seriously by economists.) Keynesians (the old-fashioned kind) claimed that tax cuts and expenditure increases would increase demand and thereby result in increased revenues (again, relative to the static estimate). But...
Mainstream economic analysis said they were both wrong. Many economists think there are major supply-side benefits to more efficient taxation, but most such economists think those are primarily long-run benefits (faster growth over a span of time) rather than benefits that would significantly affect revenues in the short run. The Keynesian argument would make sense if monetary policy were passive, but in fact, the Fed has its own goals, and its goals don't necessarily change in response to fiscal policy. And of course the Fed takes fiscal policy into account when deciding how to accomplish those goals. So if a tax cut or an expenditure increase were expected to create, say, a million extra jobs, then, under normal economic conditions, the Fed would simply raise interest rates enough (according to its best estimate) to destroy a million jobs. (If the Fed didn't think the demand for those million jobs would be potentially inflationary, then it would already have tried to create them.)
But today's economic conditions are not normal. The Fed, like most everyone else, is expecting the recession to be a severe one, a potentially deflationary one, but the Fed is running out of options for how to deal with it. Contrary to what happens under normal conditions, the Fed will make no attempt to offset the effects of fiscal policy; indeed, it will enthusiastically welcome the help. The old-fashioned Keynesians, whose advice about dynamic scoring was (properly, in my opinion) considered wrong or irrelevant for so long, can now dust off their computers and start giving meaningful dynamic estimates of the effects of budget changes. ...
But there has never been a consensus beforehand about how dynamic scoring should be done, or even about the direction of the effects. In the past, the only conservative approach was to use static scoring – to ignore any indirect effects that budget changes might have on the ultimate deficit.
There is still no consensus about the details. But today one can hardly doubt that the indirect effects of stimulus policies on the budget will partly (if not entirely) offset their direct effects, or that the indirect effects will be large enough to be important. In today’s environment, static scoring is not just conservative, it's fundamentally unreasonable.
The details have to be negotiated... But next time you think that an $800 billion stimulus plan will add $800 billion to the national debt, think again.
I was thinking more along the lines of the traditional supply-side argument, i.e. the dynamic effects from the higher growth rate we'd have with improved infrastructure, but as noted above, these "are primarily long-run benefits."
Here's Paul Krugman subsequent Bang for the buck (wonkish):
"Mark Thoma says he was thinking about thinking about this; I was actually thinking about it. Anyway, it’s true: the cost of an effective fiscal stimulus, in terms of adding to the government’s debt, can (and should) be much less than the headline cost.
Consider an increase in government spending; assume that the interest rate is fixed (a good assumption right now, because interest rates are up against the zero lower bound). Then textbook analysis says that if the stimulus is dG, the increase in GDP is 1/(1 - c(1-t)) where c is the marginal propensity to consume out of income and t is the marginal tax rate. Suppose c is 0.5 and t is 1/3; then the multiplier is 1.5, which is more or less the conventional wisdom right now.
But if $100 billion in spending raises GDP by $150 billion, and the marginal tax rate is 1/3, $50 billion of the spending comes back in additional revenue. So bang for the buck — increase in GDP per dollar of added debt — is 3, not 1.5. Since the main concern about stimulus is that it will add to government debt, it’s this bang for the buck measure, rather than the multiplier, that’s relevant. And 3 sounds a lot better than 1.5.
Take this a bit further: $150 billion is about 1 percent of GDP, which Romer and Bernstein say means a million jobs; so this says $50,000 per job, which is a much better number than the critics have been throwing around (plus many more workers with full-time rather than part-time jobs).
Bang for the buck also heightens the contrast between effective and ineffective stimulus policies. Stay with c = 0.5, t = 1/3, and look at the effects of a tax cut; the multiplier is 0.75, half that for public investment, but bang for the buck is 1, only 1/3 that for investment.
So thinking about how stimulus comes back via revenues is important.
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