Thursday, August 21, 2008

Links of Interest

The selfish hegemon must offer a New Deal on trade (by Jagdish Bhagwati)

...First, as with Japan in the 1930s, when one-dollar blouses flooded the world, India and China today are growing and exporting rapidly. They are like Gullivers in a Lilliputian world economy. They create tsunamis for specific industries where their exports concentrate.

Second, competition has intensified. As exemplified by the Boeing-Airbus saga, the margins of competitive advantage have shrunk. No chief executive or any of his workers in tradable industries leads a happy life any more as there is always someone, from somewhere, breathing down his neck. I call this new phenomenon “kaleidoscopic comparative advantage”. It leads to volatility of jobs, as you have an advantage today and can lose it tomorrow.

Third, labour-saving technical change continuously threatens assembly-line jobs for the unskilled. The assembly lines continue but increasingly do not have workers on them; they are managed from a glass cage by skilled operators whose jobs increase instead.

The agenda for institutional change has to address this fragility of jobs, enabling unskilled and skilled workers to face the new uncertainties. To illustrate: higher education will have to be recast to reduce the proportion of time spent on specialisation: this would enable an easier response to shifting skill requirements as the kaleidoscope turns. Unskilled workers will have to be helped and encouraged to acquire skills and therefore increase their ability to shift to other jobs, even as they continue to work.

Emerging markets must shift their focus in wards (by Raghuram Rajan)

...Yet years of strong growth and cutbacks in public investment, which have restored economic health to emerging markets, have also eaten up excess capacity. Any increase in domestic demand, if it is not to result in bottlenecks and even higher inflation, will have to be accompanied by a shift in production from an external focus to an internal focus. This means that emerging market currencies will have to appreciate, and the weight of output will shift from traded goods such as T-shirts and electronics to non-traded goods such as real estate and health services over the next few years.

...Labour markets will have to be more flexible, while product markets will have to be deregulated far more if profitable productive growth is sought in the non-traded goods sector. With more expenditure flowing to assets such as housing, the financial sector will have to be careful not to precipitate booms and busts, and this will mean more reform as well as better supervision. Finally, governments will have to meet the greater demand for public investment without eroding fiscal discipline, maintaining greater caution as the cushion of large foreign exchange reserves diminishes and increases their vulnerability.

Africa's food crisis the handiwork of IMF, World Bank (virtually everything under the sun that goes wrong in Africa now is being traced back to IFIs!...a very cheap shot!)

At the time of decolonisation in the 1960s, Africa was not just self-sufficient in food but was actually a net food exporter. Its exports averaged 1.3 million tonnes a year between 1966-70. But today, the continent imports 25 per cent of its food, with almost every country being a net food importer. Hunger and famine have become recurrent phenomena, with the last three years alone seeing food emergencies break out in the Horn of Africa, the Sahel, Southern Africa, and Central Africa.

...Instead of triggering a virtuous spiral of growth and prosperity, structural adjustment saddled Africa with low investment, increased unemployment, reduced social spending, reduced consumption, and low output, all combining to create a vicious cycle of stagnation and decline.

Lifting price controls on fertilizers while simultaneously cutting back on loans to farmers simply led to reduced applications, lower yields, and lower investment. One would have expected anyone to see this.
Moreover, the expected results of the withdrawal of the state in the hope that private sector would develop agriculture did not materialise. Instead, the private sector believed that reducing state expenditures created more risk and failed to step into the breach.

Zimbabwe inflation tops 11 mln pct as talks drag (the Zimbabwean economy has seen prices going out of bound...very unruly price whose cause can be traced back to Mugabe's dirty rule!)

...The Central Statistical Office said year-on-year inflation in June jumped to 11.27 million percent -- the highest current inflation rate in the world -- from 2.2 million in May. That would mean prices double about every three weeks. Many economists believe the real figure is higher still.

The central bank re-denominated the Zimbabwean dollar currency on July 30 by slashing off 10 zeros but this has had no effect on stemming the devaluation of the currency. It trades at Z$100 to the greenback, or Z$1 trillion in the old currency.