Trade papers worth reading

Trade policy wonks have their hands full.

On Monday, the Obama administration released their 2009 Trade Policy Agenda, outlining their general strategy on trade for the next year. (Never mind that they don't have a USTR yet.) Unless you want to torture yourself, skip the 100+ page report on trade policy in 2008. Trust me, I'm speaking from experience. That said, it's definitely worth reading the five page summary on trade policy going forward at the beginning.

VoxEU has a phenomenal new e-book on the new "murky protectionism". It is absolutely fascinating reading all the way through, but at least have a look at the introduction. I'd write a much longer post on this if I could. Suffice to say that things have gotten worse since the G20 summit in November, and they could get much, much worse if things don't change.

Go check them out. I want a report on my desk by Monday morning at 8am.

Should I stay or should I go?

It's a testament to how bad things have gotten when people are already thinking about whether Treasury Secretary Tim Geithner should step down.

Kind of like Martin Wolf wondering out loud whether Obama's presidency has already failed. And that was a month ago! Think of everything that's happened since then.

Er, actually, maybe it's best not to think about...

Quantifying culture

As a student with formal training in a variety of fields, most notably anthropology and economics, I often find myself flummoxed at how drastically the two fields seem to speak past each other. This sentence gives me hope. 

One interesting bit of research suggests that "group values" cultures will export products that don't require as much impersonal contract enforcement, and thus values is part of what makes you specialize.

Besides the verb disagreement, that's one of the most intriguing ideas I've heard in recent development theory. Easterly, at his new blog AidWatch, vastly oversimplifies the research (as he openly admits) but boils the ideas down nicely. Read the whole thing.

Afghanistan: the weak link in a stronger global chain?

The war in Afghanistan may not end well for the US; history has not been kind to foreign forces. But there are signs that it will become the key linkage in the Obama administration's attempts at redefining US foreign relations.

NATO announced today that it was restoring high-level contacts with Russia. US Secretary of State Hillary Clinton said that, amongst others, Afghanistan was an issue of "mutual concern." She also expressed her support for a conference on Afghanistan that would bring together all of the key stakeholders in the region, including Iran. From the BBC:

"If we move forward with such a meeting, it is expected that Iran would be invited as a neighbour of Afghanistan," she said.

The challenges posed by Afghanistan are shared by each country in the region (whether there by geography, choice or military alliance). Beyond the obvious interest of each stakeholder in the country's success, Afghanistan may provide the conduit for a diplomatic thaw in US-Russia (a "reset"), US-Iran relations (a handshake, maybe?). Stay tuned...

Marketplace of Ideas

Following Kevin's post on the declining newspaper industry, I'd like to draw a somewhat unusual comparison: unlike the newspaper industry, "soft power" is highly compatible with the internet and stands to benefit greatly if leveraged correctly.

As Kevin stressed: "advertising dollars will continue to migrate to the internet where technology provides highly targeted advertising with measurable statistics."

That's the key. Advertising and newspaper debate aside, the internet provides users with MEASURABLE STATISTICS.

Beyond the typical business/marketing use of viral marketing and social media- the internet is a perfect way to to gauge the reception of all sorts of campaigns: health/environmental/social campaigns, development projects, community initiatives, etc... all over the world. Taking a message, including that of the US government, to the internet gives us an unprecedented look into the "success" of the message as well as the demographics of those receiving it.

Just a thought.

*photo from Dru Bloomfield's photostream

Ecuador and new protectionism

Dan's comments on new protectionism:

The Washington Times sees the case of Ecuador - what it calls the "the world's most protectionist response to the global economic crisis," with restrictions on "everything from Peruvian shampoo to Chilean grapes and U.S.-made running shoes" - as a bellwether heralding the possible spread of protectionism around the globe.

The combination of falling remittances, its debt default, and plummeting oil prices have put the country in a very difficult spot, but autarky and import substituting industrialization are not the way out.

New protectionism

This Vox EU piece on post-G20 summit protectionism sheds a lot of light on the current state of international trade. Two World Bank economists have tracked the implementation of 47 new protectionist measures since November. Most of these have had negligible effects on trade, but they're part of a worrying trend of domestic economic retrenchment, which spans agriculture, industry and finance. Also of particular note is a sharp increase in the number of anti-dumping cases.

How green is your stimulus?

The FT has a neat interactive graphic comparing "green spending" in the major national stimulus packages. I must admit, I was a little surprised by which country has the greenest stimulus by volume.

Why I love Warren Buffett

Who else can not only get away with this, but for such wisdom be revered by his audience, most of whom paid somewhere near $148k a pop to hear such gems. Warren Buffett on credit derivatives, which create dependence and entanglement across financial markets:

Participants seeking to dodge troubles face the same problem as someone seeking to avoid venereal disease. It's not just whom you sleep with, but also whom they are sleeping with.

Truer words have never been spoken.

Unsettling news of the day

The Dow Jones closes below 6800, its lowest level since April 1997. Lost decade, indeed.

Can e-readers save newspapers?

An interesting article caught my eye this week concerning the sagging newspaper industry: the Hearst corporation plans to use e-readers to electronically distribute newspapers and magazines. An industry suffering from stale ideas desperately needs this type of innovative thinking. E-readers promise to increase subscriber numbers (and thereby subscription revenue) while simultaneously reducing margin-killing distribution and printing costs.

The CNN article states that media ownership is "increasingly looking to devices like e-readers to lower costs while preserving the business model that has sustained newspapers and magazines."

Hmm. "Preserving the business model" is not a viable path forward for the print industry. Newspapers currently survive on advertising dollars, and an e-reader can't change the fact that a newspaper is a blunt and inefficient advertising tool. In the long term, advertising dollars will continue to migrate to the internet where technology provides highly targeted advertising with measurable statistics. Newspapers need to find new revenue streams outside of advertising dollars to survive and I doubt that increased subscription revenue combined with lower costs can save the industry.

I'm also skeptical that print subsribers will embrace e-reader technology. E-readers offer a superior reading experience that eases eye strain, better portability when compared with laptops or even print newspapers, and instantaneous access to content via wireless network connectivity. However, the Hearst product will launch 12-18 months late to market after strong Kindle sales. Will customers want a specialized 8.5 by 11 inch e-reader just for periodicals when they may have already bought one for books?

Anyways, if Steve Jobs is right, newspapers are facing far more serious problems than declining revenue ...

Hello G20, goodbye G7

In a new piece on Vox EU, the legendary Barry Eichengreen considers some of the repercussions of the G20's rise as the new forum for addressing global economic issues. My two cents: the G20, while more unwieldy than the G7 and yet not as representative as one would like, is still the most logical place to tackle global economic problems right now. Hey, path dependence can be a real pain.

The party's over

When the economy is crashing and the FBI begins to arrest bankers, it really makes the air tingle. Such are circumstances that now surround the Chief Investment Officer for Stanford Financial, Laura Pendergest-Holt, who was arrested Thursday on federal obstruction charges. (Unfortunately, she is not the mad scientist in the photo). Ms. Pendergest-Holt misrepresented herself to the Securities and Exchange Commission and forgot to mention something about a billion dollar loan the bank made to a certain top-executive. There is and will continue to be an extraordinary lack of sympathy for these folks at Stanford. Robert Standford is apparently still without a lawyer after the FBI froze all of his assets. Good luck.

Photo from MatthewBradley's Photostream

The Crisis of Credit Visualized

If you're looking for a fun and easy-to-understand explanation of the causes of the credit crisis, check out this cool video produced by Jonathan Jarvis:

How not to build foreign investor confidence

Bolivian president Evo Morales won a January 25 referendum on a new constitution that significantly increases the central government's control over strategic sectors, including mining and natural gas. The new constitution is but the most recent victory in the Movement to Socialism's drive to nationalize the Bolivian economy and consolidate political power (amongst other objectives, of course).

Obviously, the risks posed to foreign investors have increased substantially since Morales gained power in 2005. This uncertainty has resulted in a 75% decline in foreign investment since 2006. But amidst the commodity price and credit collapse of 2008, Morales seemingly realized that the Bolivian government could not fund, explore, extract and manage its natural resource wealth without foreign involvement. State-owned and private Bolivian firms simply lacked the expertise and capital to maximize the country's production/export potential. A number of public assurances and overtures last fall led some to adopt a more optimistic outlook on the role of foreign investors in the Bolivian economy.

Well, if the referendum itself didn't temper this optimism, February 10 sure did. One day after saying that the government would encourage foreign investment in the natural gas sector, the energy minister announced the central government's intentions to nationalize 4 of the power sector's largest companies, including Empressa Electricia Guarachi SA, majority owned by British firm Rurelec Pc.

February 9: Open for business!

February 10: No soup for you!

At this rate, Bolivia better hope General Motors' restructuring includes a whole lot of electric cars, because their mining, natural gas and power production is in a bit of trouble.

(photo: germeister's photostream)

Russia and China: a Power House or Broken Home?

Russia and China seem pretty chummy of late. Both countries essentially head the Shanghai Cooperation Organization – an organization which frightens the West because it promotes cultural, security, and economic cooperation among China, Russia, and Central Asia. In the cultural arena, China has dubbed 2009 the year of the Russian language, and Russia will make 2010 the year of the Chinese language. To promote security, the two countries established a hotline between their heads of state.

Most recently, the countries displayed extraordinary economic cooperation. Russia secured $25bn in loans from China in return for supplying oil for the next 20 years. This deal is the largest trade financing agreement between the two countries to date: Russia desperately needs money and China desperately needs oil. Everyone’s happy, right?

Not exactly. Days after the historic agreement, a Russian warship opened fire on a Chinese cargo ship and sunk it. The two countries' foreign ministries blame each other. But Clifford Levy of the New York Times actually blames deteriorating bilateral relations. Why?

While both countries enjoy honoring agreements that are mutually beneficial (economic cooperation) or mutually benign (language exchange), Russia and China have a tendency to disregard cooperation when it affects domestic politics. Levy likens the sinking of the Chinese cargo ship to last year’s Russian-Georgian conflict. China didn’t support Russia because Russia recognized the autonomy of South Ossetia, and China didn’t want to encourage Tibet’s or Xinjiang’s calls for autonomy.

What's clear is that Russian-Chinese relations are only as simple as each country’s domestic politics, which is to say they're not all that simple. Notably, Russia and China don’t have an alliance or even an established method to resolve disputes and disagreements. They just have a mechanism for cooperation, which can be honored or ignored at either country’s whim. Hopefully, ignoring the cooperation won't lead to any more drowned sailors.

Trade wars as a proxy for great power struggles?

The WTO can’t get no love. People criticize it for being slow, ineffectual, not comprehensive enough, too comprehensive, irrelevant, etc. Most of these arguments are as old as the GATT. If you have 3 hours, I’m happy to sit down over a few beers and hash them out again.

But every once and a while, you read something completely new. Enter Daniel Abebe. The University of Chicago Law School Faculty Blog is hosting a roundtable discussion on the future of the WTO this week, and Mr. Abebe contributes this fascinating thought experiment:

What does international relations theory tell us about these questions? ...With the end of the Cold War, the relative importance of realist concepts of security, survival and military power began to decline; the great powers all had nuclear arsenals, democracy was increasingly the preferred from of governance and globalization brought states together. Around the same time, the WTO came into existence and international trade, not naked security competition, became the prominent issue for some states in international politics... we should see great power competition to be increasingly focused on trade issues and, given the tentative claims here, we should see increasing gridlock in the WTO... the implication is that the WTO will be a venue for great power competition and struggle to generate compromises on trade issues and that changing the institutional rules is unlikely to address the underlying structural problem or variation in internal characteristics among the great powers.

I have a lot of problems with this analysis. Above all, it’s very hard to take a realist power framework and try to apply it to trade relations. Unlike traditional power struggles, trade is a positive sum game that’s underpinned by a robust international legal framework. Further, all of the major powers are still firmly committed to an open trading system and understand that constant sniping at each other will produce a worse outcome than cooperation.

I’m not suggesting that there’s no tension in global trade relationships. There’s a lot, and there have been some contentious, economically significant cases so far. But such tension is rooted much less in state-state power struggles than domestic political considerations. (Trade is a political economy issue, remember?) Countries generally bring cases in the WTO because they get complaints from domestic constituents.

Further, a brief look at the WTO’s dispute settlement understanding would suggest that the multilateral trading system makes for a pretty lousy venue for great power struggles. The Appellate Body can take years to deliver a ruling, which can then be appealed, thereby further dragging out the process. And if you’re economically powerful enough, you can ignore the AB’s rulings anyways: this has happened a number of times in post-Uruguay Round dispute settlement, and it would very likely be the case if the number of contentious cases increased. However, if all the major countries started ignoring most of the AB’s decisions, it would probably lose its credibility quickly. In short, concerted great power struggles would destroy the WTO.

Indeed, if the current crisis has shown us anything, it’s that the WTO is still remarkably fragile. The progressive rounds of trade liberalization over the past 60 years have been hard-won. The international community would do well to preserve and expand them. There's a lot of work to be done: tellingly, most of the new (post G-20 summit) protectionist measures don’t even violate obligations as they currently stand.

I think we’re a long way from trade wars supplanting real wars.

(photo from nomad photography’s photostream)

Tin miners and tourists?

Gabon, a small previously oil-rich country in Central Africa, needs some income. Having flittered away it's oil money on bureaucratic diners, the country is attempting to revamp itself as a holiday spot.

But with lacking infrastructure and inhospitable neighbors, Gabon is not a prime tourist destination and finds itself needing some quick cash to buoy the economy. 

Instead it's finding its forests overrun with Chinese prospectors instead of tourists. Chinese strategic interest in African resources is nothing new, but Gabon was once a reason for hope in Africa's dismal resource management record. 

History repeats itself.

(Photo via bear_in_va)

The paradox that is South Africa

The past week has laid bare the stark contrasts between South Africa's ambition and reality, progress and failures.

On February 21, tickets went on sale for the 2010 World Cup. ZA is the first African country to host the tournament. Its winning bid came to symbolize not just the country's post-apartheid progress, but a sense that the entire continent's development was turning a corner as well. While ZA is still racing to complete the massive infrastructure projects associated with the event, the dream many doubted would ever be realized seems all but assured. The importance of this event to a football-mad continent should not be underestimated.

If only the country's economic outlook was so hopeful. South Africa's post-apartheid economic progress is evident. But it's only part of the story. While the emergence of a growing black middle class has been one of its greatest measures of progress, it thinly veils a broader failure to bring economic empowerment to the millions of residents of townships from Soweto to Langa. The percentage of South Africans living with HIV has been estimated at 20%; in fact, life expectancy has fallen by 10 years since the end of apartheid. Crime is truly epidemic. Oh yeah, and there are the tricky issues of Jacob Zuma, the ANC civil war and rising political violence.

One would expect these persistent problems to only worsen now that the economy appears to be falling of a cliff. The government reported today that the economy contracted in Q4 2008, ending the country's longest economic expansion on record. Thousands of jobs are being shed by foreign mining firms. Manufacturing output has slumped to a 40-year low. Even gold production, in which South Africa was the world's leader until 2007, plummeted to its lowest level in 86 years. This is troubling for a sector that accounts for 2.5% of GDP.

I know- quite the pessimistic outlook for a country that has been hailed as a model for post-conflict reconciliation and economic development. But South Africa faces a difficult year, all the while preparing for a remarkable one in 2010. Like other emerging market stars, South Africa represents a bright future. But there are dark days ahead.

Stanford's Cardinal Sin

The ongoing collapse of the Stanford financial services empire is global news, but just the latest in a series of high-profile fiascoes in the Latin American banking sector. The Caribbean island of Antigua hosted the headquarters of Stanford, which had operations across Latin America: in Colombia (suspended), Peru (suspended) Ecuador (seized), Panama (taken over), Mexico (investigated), Venezuela (seized), and Miami (raided). Venezuela was hardest hit, with an estimated $2.5 billion invested in Stanford banks and investments, because the company spread aggressively across a country neglected by most international firms given the poor investment climate.

Many have noted the similarities between the Stanford and Madoff frauds, but few have noted the Latin America connection. This writer even calls Stanford "the Madoff scandal done Latin American style," ignoring the impact of the Madoff case in the region, where thousands of investors lost several billion dollars, largely through Banco Santander and the Fairfield Greenwich Group. This is largely because wealthy investors in Brazil, Colombia, and Mexico largely stayed quiet about their losses in the Madoff collapse, out of embarrassment and a fear of exposure to extortion and other financial crimes.

Of course, the Madoff scandal was the high-end version of the related "pirámides" and DMG frauds Colombia, which lured in millions of small-scale, often peasant, clients. Several classic Ponzi schemes collapsed simultaneously as the Colombian government cracked down, wiping out the life savings of millions. DMG was the most prominent of the scams, promising and delivering exorbitant interest rates by laundering billions in cocaine profits from the country's biggest cartels.

So, are Latin Americans just gullible? Financial literacy is a problem in the region, but Madoff and Stanford pulled the wool over the eyes of savvy investors around the world. The real problem is a combination of lack of regulation and poor domestic banking sectors. The SEC obviously dropped the ball on Madoff and Stanford, and the Colombian sat on their hands while the pyramids were constructed across Colombia. Without accessible and secure banking options at home, the poor are pushed into fly-by-night operations like DMG and the rich send their money to murky overseas funds.

While the losses are tragic, if the recent scams inspire an effort towards basic financial education, expanding access to banking, and economic transparency, they won't have been a total loss. While it may be warranted in this case, the news of Ecuador and Venezuela seizing Stanford banks indicates that in the short term, however, these frauds are more likely to be used as justification to nationalize banks and erect barriers to international finance.


(Photo from Whirling Phoenix's photostream)