quinta-feira, 30 de abril de 2015

The west can look for answers in Japan’s lost decades

Has Japan turned a corner? Three years after Shinzo Abe, prime minister, began deploying his three arrows of monetary easing, fiscal consolidation and structural reforms, he is unashamedly positive about the results. Rightly so. He has overseen a surge in Japanese stocks, property prices have risen in metropolitan areas, a lower yen has given the country a boost in exports and record numbers of tourists are flocking to Japan.

Still, the crisis is not over; the lost decades cast a dark shadow. A battle against deflation continues, provincial areas are depressed, wages need to rise and structural reforms, potentially the most significant arrow, have yet to be fully unleashed. The combination of an ageing population and public debt of more than double annual output threatens an avalanche.

The outcome of Mr Abe’s experiment matters outside Japan, and not only because of the country’s role upholding the principles of the international order. Advanced economies are contending with the same challenges that have beset Japan — rising public debt, low inflation expectations, slow growth, an ageing population and China’s challenge to the global economic system. Western nations, too, fret about lost decades.

Some have fared better than others. The US Federal Reserve quickly slashed interest rates and started buying financial assets using newly minted money. But the eurozone has not learnt the lessons of Japan, taking until March 2015 to launch its own programme of quantitative easing. It may be too little, too late.

The west must not repeat Japan’s mistakes. What then were the roots of Japan’s crisis? First, politicians postponed decisions for fear of opposition. This procrastination and risk aversion coloured the Liberal Democratic party’s refusal to deal with non-performing loans on the balance sheets of Japanese banks during the mid-1990s.

Next, politicians failed to react to the demographic transition. Despite warnings of Japan’s ageing population and increasing dependency ratio during the early 1990s, the government showed no sense of urgency. There were no open discussions or public debates — just as there is no meaningful debate today about introducing a systemic immigration policy to address the problem of the ageing population.

Perhaps the primary cause of the lost decades was the inability of policy makers to overcome parochial interests, and instead form integrated strategies that prioritise the national interest. For example, the rivalry between the Ministry of Finance and the Bank of Japan prevented a well co-ordinated macroeconomic policy from taking shape. Quantitative easing lagged behind fiscal expansionism, triggering a deflationary spiral. Japan’s experience tells us that once you are caught in this cycle it is hard to escape. As the controversy over the rise in the consumption tax shows, a similar risk exists today.

At the heart of these problems was a lack of independent review of government policies. The Fukushima nuclear accident exposed this deficiency. Japan’s “nuclear village” — a cosy collection of pro-nuclear energy politicians, bureaucrats, businessmen and scholars — had been pushing a myth of absolute nuclear safety while neglecting to comply with international standards. Japan fell into a Galápagos syndrome: the view that developments taking place in Japan are unique and should be judged in isolation from the rest of the world. Likewise, we must avoid the Galápagos trap of viewing the lost decades as something that could not happen elsewhere.

Certainly, Japan’s lost decades need not have happened. Or at least, the country’s troubles need not have been so severe and drawn out. Fortunately, other mature economies have the benefit of hindsight. The lessons that can be derived from the lost decades are still being written. It may yet be the outcome of Abenomics that provides the greatest instruction.

Yoichi Funabashi is chairman of the Tokyo-based Rebuild Japan Initiative Foundation and editor of ‘Examining Japan’s Lost Decades’

Fonte: FT

quarta-feira, 29 de abril de 2015

Corporate power without responsibility on the board

This has not been a salutary week for European corporate governance. At Volkswagen in Germany and at Industrivärden in Sweden, a system intended to encourage stability and long-term growth has instead created self-indulgence.

At VW, Ferdinand Piëch was ejected as chairman of the supervisory board by other members, including union representatives and politicians, after he tried to destabilise Martin Winterkorn, the chief executive. Mr Piëch, a member of one of the families that control VW, had done the same to Bernd Pischetsrieder in 2006. This time, he failed.

At Industrivärden, which along with the Wallenberg family controls more than half the value of the Swedish stock exchange, there was spectacular misbehaviour. Anders Nyrén was fired as chief executive on Monday after a scandal over the misuse of corporate jets by executives at SCA, the forestry and paper group, and their families.

Both companies are unusual and rivals have used power more wisely. The Wallenberg family has shown greater self-discipline in running its industrial empire company than Industrivärden, while BMW has combined familial control with allowing managers to exercise greater professional autonomy than at VW. But both illustrate how the European approach can encourage corporate insiders to behave badly.

Short-termism is the risk of the US and UK approach, of diversified shareholders including hedge funds pressuring companies from the outside. Entrenchment is the risk of the European approach, of “active governance” by a few powerful shareholders that influence board directors and sometimes appoint them. Placing too much power in too few hands is dangerous.

The good news is that, at both Industrivärden and VW, public exposure solved the problem. Mr Piëch, the former chief executive credited with rescuing VW in the 1990s, was used to behaving imperiously and causing trouble in private, but pushed his luck by doing so openly in an interview with Der Spiegel. Wrongdoing at Industrivärden could not survive being reported by the Svenska Dagbladet newspaper.

Germany and Sweden differ on specifics. In Sweden, a few shareholder “spheres” exert influence over an array of companies through investment holding companies and two-tier equity that gives them more votes than their economic stakes would imply. They also appoint company directors by holding seats on board nominating committees.

In Germany, families such as the Quandts, who built BMW, control both Mittelstand small and medium-sized enterprises and many large ones. Management boards are overseen by supervisory boards that include worker representatives (and in VW’s case, the premier of Lower Saxony, which holds a 20 per cent voting stake). Private shareholders are kept largely on the outside.

Yet the effect is similar. The Wallenberg family foundations, for example, hold 23 per cent of the capital of Investor, their industrial holding company, but 50 per cent of the voting rights. Investor in turn wields influence over industrial companies such as Electrolux and ABB, and the bank SEB. Not even the largest fund manager has such a loud voice in the US economy.

At VW, the Porsche and Piëch families control 51 per cent of the voting shares. Foreign pension and hedge funds hold 24 per cent of the subscribed capital, and private shareholders another 12.5 per cent, but largely in preference shares with no voting rights. It took Wolfgang Porsche and Stephan Weil, premier of Lower Saxony, to outvote Mr Piëch on the supervisory board.

At its best, active governance by a few shareholders can achieve results. “You only need look at BMW to see how it can be done in a different way — that family ownership can provide long-term stability,” says Hans-Christoph Hirt, a director of Hermes Equity Ownership Services, an adviser to pension fund investors in companies including VW.

Companies that are protected from short-term pressures, such as having to return cash to shareholders or keep their margins high instead of investing in new products, may benefit. It is a competitive advantage not only for
family-owned companies but those controlled by private equity and venture capital funds in prioritising growth.

In particular, it helps long-cycle companies that need to invest heavily in research and development that may not see results for several years, such as those in advanced manufacturing, pharmaceuticals, and car assembly and components. Germany and Sweden do well in such industries.

But it puts a heavy responsibility on a few individuals. “The system requires the controlling owners to be responsible and competent, and have an enlightened attitude to management,” says Rolf Carlsson, founder of Active Owner Partners, an advisory firm.

Industrivärden blatantly failed this test, and seems to have been failing it for a long time. Sverker Martin-Löf, its former chairman who was forced out in January, was chairman of SCA and chief executive before that. Industrivärden protected the interests of a coterie of executive insiders as keenly as it pursued its long-term strategy.

Mr Piëch’s failure was subtler. He is a brilliant engineer but lacked the wisdom to step back from management and accept that his role had changed. The power he once wielded for VW’s benefit ended up blinding him.

John Gapper

Fonte: FT

terça-feira, 28 de abril de 2015

Pacific trade pact sails past a drifting transatlantic deal

When President Barack Obama and his top officials discuss his trade agenda they are at pains to mention two big sets of negotiations. There is the Trans-Pacific Partnership with Japan and 10 other Pacific Rim economies. And then there are the talks with the EU.

What is rarely discussed in public is the diverging paths the two endeavours are taking.

After more than five hard years of negotiation, the Pacific deal looks like it is nearing completion. It is top of the agenda for this week’s visit to Washington by Shinzo Abe, the Japanese prime minister.

Things are looking starkly different for the Transatlantic Trade and Investment Partnership.

The discussions there are crawling along. Many negotiators and close observers now say it will be for the next US president to close a real deal.

One reason is the nature of the transatlantic talks. They are arguably much more complicated because they are focused on freeing up trade by finding a way to “harmonise” regulations. They have also been under way for less than two years, which makes them nascent in trade negotiating terms.

The other reason is politics.

The TTIP is rarely discussed in the US. But in Europe it has become contentious. In Germany and the UK critics contend a trade deal with the US would allow American multinationals to use supranational courts to require governments to withdraw environmental regulations or force the privatisation of public health systems. It would, opponents argue, result in the weakening of food safety standards and ease the way for highly processed American “frankenfoods” to land on European shores.

The fears are largely overdone. They are tinged with anti-Americanism and are the product of prodigious social media mythmaking by opponents.

Viewed from the US, Jean-Claude Juncker, the commission president, and his advisers were playing to the gallery and ignoring the science with that decision.

Negotiators expect this kind of thing. What has riled Washington is the way EU officials, and particularly the European Commission, have responded. While political leaders such as Angela Merkel, François Hollande and David Cameron have spoken out regularly in favour of TTIP the perception in Washington is that Brussels has often chosen to bend to criticism rather than to take it on.

The clearest impact of politics so far on the talks has been on the investment negotiations that the commission suspended more than a year ago in response to a growing campaign by opponents against a provision that would allow investors to take disputes to arbitration panels.

But the latest example that US negotiators point to is last week’s proposal by the commission to allow any member state to opt out of EU decisions approving the already heavily restricted use of genetically-modified organisms.

US officials are convinced that were the commission proposal to become law it would be challenged easily at the World Trade Organisation.

But what really galls the US team is that just as Mr Obama is battling domestic critics over trade — many of them Democrats — Mr Juncker seems instead to be pandering to his.

European officials counter that the continent’s politics are all about finding nuanced compromises and painting in shades of grey rather than the more partisan blacks and whites of US politics.

A faint hope remains that 2015 will be a year when tangible progress can be made on a transatlantic deal and that a sprint to the finish can begin next year.

The current reality looks much less inspiring. Inevitably, the transatlantic negotiations will drag on, quite possibly for years. But at some point, to produce a real transatlantic trade deal, something big will have to change in how the politics is handled. Until that happens closing trade agreements looks likely to remain a Pacific endeavour.

Shawn Donnan

Fonte: FT

segunda-feira, 27 de abril de 2015

A mammoth project that raises hairy ethical qualms

Shaggy of coat and extravagantly curled of tusk, woolly mammoths were the iconic species of the Ice Age. These cousins of the Asian elephant last lumbered across the planet around 6,000 years ago; a dwarf species survived on Wrangel Island, a Russian Arctic wilderness, until 4,000 years ago.

They could lumber once more if scientists have their way. A number of breakthroughs — including the insertion of mammoth DNA into living elephant cells, techniques to “edit” existing genomes and stitch together new ones, and, as announced last week, the decoding of the mammoth genome — has revived enthusiasm for so-called mammoth “de-extinction”.

The concept of resuscitating long-lost species is fashionable: a charity in the UK is consulting on whether wild lynx, which disappeared about 1,300 years ago from the British Isles, should be released to control deer numbers (there is public support but farmers fear the big cats will attack livestock).

On occasion, the idea of reintroducing species may have some environmental merit, as with the lynx. Mammoths once grazed the tundra of Eurasia, and one argument is that restoring these herbivores could help to mitigate climate change by keeping the tundra colder.

But attempts to knit a living woolly mammoth from scratch are misguided, mostly for reasons of animal welfare. Recent findings suggest that mammoths may not have died out, as popularly believed, through overhunting or inbreeding, but due to climate change. The wisdom of welcoming them back to a warming world is questionable.

The mammoth revival project is led by George Church at Harvard University, and supported by the Long Now Foundation. Dr Church has noted that the Asian elephant is a closer genetic relative to the mammoth than to the African elephant. The easiest route to resurrection would be to find a living mammoth cell and clone it, using an Asian elephant as a surrogate. Alas, no living mammoth cells have been discovered.

But scraps of decayed DNA do regularly turn up, lurking in bones rendered visible by melting permafrost. These mammoth DNA fragments indicate which genetic tweaks could be made to an elephant embryo to result in a more mammoth-like creature. Crucial genes conferring resistance to cold could be inserted, resulting in a thick layer of fat, deep fur and smaller ears (to cut heat loss). This genetic “cut and paste” effort works in principle: the Harvard team claimed last month that 14 artificially created mammoth genes were successfully sewn into a living elephant cell.

Gene-editing technology, however, cannot resolve the estimated 70m genetic differences between mammoths and Asian elephants. Scientists would have to settle with a part-elephant, part-mammoth hybrid, to be implanted in a female elephant. As the biologist Beth Shapiro, author of How to Clone a Mammoth, points out, it is uncertain how this chimera would develop, bathed as it is in elephant hormones.

None of this has deterred a South Korean team, which announced last year it would use DNA from blood samples from a well-preserved Siberian specimen to create a mammoth “within our generation”.

If born, any calf is likely to spend its childhood in captivity, learning to be . . . what? Not a mammoth because its elephant mother cannot teach that. The idea of a social, intelligent animal being released into the wild, alone and unversed in the skills required for mammoth survival, is disturbing.

That is not to dismiss all revivalist attempts; the Long Now Foundation also longs to bring back the passenger pigeon, which became extinct in 1914. But in the roll call of extinct genomes, there is something cartoonish about alighting on the biggest of them all for resurrection. Recreating the mammoth would be spectacular — but more as a Disneyesque showpiece of human vanity than an environmental fix.

Anjana Ahuja is a science commentator

sexta-feira, 24 de abril de 2015

quinta-feira, 23 de abril de 2015

US fears a European sequel to Lehman Brothers

Another week, yet another wave of Greek drama. But as investors speculate about a possible Greek default, they should take note of a striking split that has opened up between America and Europe.

On the eastern side of the Atlantic, policy makers are now at pains to suggest that a Greek default, or even a eurozone exit, would not be disastrous; at last week’s International Monetary Fund meetings German officials argued that the chance of a Greek exit had already been priced into the markets, and that shocks could be contained.

But on the western side of the Atlantic, the mood is not sanguine. Earlier this week, Jason Furman, chairman of the US Council of Economic Advisers, publicly warned that a “Greek exit would not just be bad for the Greek economy, it would be taking a very large and unnecessary risk with the global economy just when a lot of things are starting to go right”. In private, US officials are expressing even more concern.

Why the transatlantic difference? In part, incentives. Countries such as Germany have spent the past three months fruitlessly negotiating with the new Greek government, and are now so frustrated they want to find ways to rationalise taking a hardball stance. The Americans, by contrast, are one remove away.

But the other factor is Lehman Brothers. When the broker collapsed seven years ago, US officials learnt a painful lesson about how small shocks can spiral out of control. Their European counterparts experienced that crisis too. But Wall Street traders and Washington bureaucrats saw contagion spread in a particularly immediate way, scarring their psyche. And some American officials suspect there are several key points about that 2008 debacle that could be very pertinent to Greece.

The first is that even if a risk has been well analysed — or even anticipated — this does not prevent unintended, nasty consequences. Think back to 2008. Six months before Lehman Brothers collapsed, there was a full-blown crisis at Bear Stearns that left regulators and bankers braced for another financial shock and scrambling to prepare. On the eve of the Lehman bankruptcy, for example, regulators were obsessively focused on controlling the risks posed by credit derivatives.

But in the event, regulators missed a trick: what sparked market turmoil when Lehman failed was not the credit derivatives contracts, but a legal issue that had previously been ignored, namely that the UK bankruptcy code ringfenced investor assets differently from New York’s.

A second Lehman lesson is that when one issuer fails, this knocks faith in others too. That is not just because investors start to worry about flaws at other entities, but due to wider policy uncertainty: when Lehman failed, the entire paradigm for finance suddenly seemed unpredictable. Hence the panic surrounding money market funds. And that highlights a third point: political turmoil matters. What really sent global markets into a tailspin in 2008 was that a couple of days after Lehman’s failure, the US Congress initially rejected the bank rescue package that Hank Paulson, then US Treasury secretary, had devised, creating policy uncertainty.

Perhaps those three dangers can be avoided with Greece. Regulators and bankers have spent months studying the financial interconnections around Greece and conducting fire drills for a Greek exit. The health of countries such as Spain and Ireland has dramatically improved, which should (in theory) reduce the contagion threat. And if a Greek default or exit does occur, the rest of the eurozone might produce a unified, coherent political response; or so eurozone officials told their American counterparts at the IMF.

But all three arguments — or hopes — could be too optimistic. For one thing, the sheer opacity of financial institutions still creates plenty of scope for nasty logistical and legal surprises. Greece is certainly not the only country saddled with excessive debt. And thirdly, there is no guarantee that political surprises would end with a Greek exit; as in 2008, it might initially create more policy uncertainty.

Or to put it another way, although eurozone officials insist they can handle the first-order risks of a Greek exit, it is the second-order problems that (quite rightly) worry Americans. Not least because there is a fourth lesson from Lehman Brothers: when a crisis hits, the value of afflicted entities tends to shrivel. The hole in Lehman’s balance sheet became much bigger than anyone imagined. And that is a scary thought to contemplate in relation to any Greek exit scenario — not just for Greece but the entire eurozone.

Gillian Tett

Fonte: FT

quarta-feira, 22 de abril de 2015

An unsinkable Pacific alliance

If the Americans and Japanese went in for that kind of thing they might describe themselves as being as close as lips and teeth. In actual fact, that it is how China and North Korea have traditionally categorised their relationship. Washington and Tokyo prefer to talk soberly about their “shared values” as fellow democracies and market economies. Yet, despite the lack of colourful language, theirs has been one of the closest and most enduring of postwar relationships. They stand shoulder to shoulder on most issues from terrorism to intellectual property.

That closeness, forged in the ashes of the second world war, goes beyond the ideological. In tangible ways, the two lean on each other heavily. The US regards Japan as its representative in Asia. It depends on Japan to help fund its debt: Tokyo not Beijing is the biggest holder of US Treasuries, if only just. Japan has supported Washington’s military interventions, with cash and, increasingly, with logistical support. Tokyo relies on the US nuclear umbrella and on the protection afforded by 35,000 US troops stationed on its territory. In a candid description of the relationship, Yasuhiro Nakasone, prime minister in the mid-1980s, referred to Japan as Washington’s “unsinkable aircraft carrier” in the Pacific.

Next week Shinzo Abe, perhaps Japan’s strongest leader since Mr Nakasone, will celebrate 70 years of that relationship with a rare speech to a joint session of Congress. He will stress Japan’s concerted effort to revive its economy. He will urge Congress to give Barack Obama, the US president, the fast-track authority he needs to conclude the Trans Pacific Partnership. He will express some contrition for the war, though perhaps not enough for the taste of some in congress. He will paint a future in which Japan, released from postwar constitutional handcuffs, can play a more active role in helping the US to keep the world a safe and lawful place. He is unlikely to mention China. But everyone will know what he means.

Mr Abe will mostly be warmly received. Washington hopes Abenomics will work and is prepared to tolerate a little “Abenesia” — the downplaying of Japan’s war record — if that is the price of a strong leader. Indeed, many in Washington regard Mr Abe as the best Japanese prime minister in a generation.

In some ways, all this should be taken at face value. The relationship is remarkable, given the bitterness with which the two countries fought 70 years ago. Yet in other ways it is built on flimsier foundations than either side lets on. A recent survey by the Pew Research Center shows attitudes in the two countries are far apart on some issues.

True, both place a great deal of trust in each other, and both distrust China, with 30 per cent of Americans and only 7 per cent of Japanese expressing confidence in Beijing. Yet there are big differences. Only 14 per cent of Japanese think the use of atomic bombs on Japan was justified against 56 per cent of Americans. Hopes that, in this historic year, Mr Abe might visit Pearl Harbor and Mr Obama Hiroshima came to naught, since the two sides cannot fully agree on what either event means.

Despite the memories of war, 47 per cent of Americans say Japan should play a more active military role in regional affairs. In what will be a disappointing result for Mr Abe, who wants to make Japan a “normal” country, only 23 per cent of Japanese are comfortable with the idea of Tokyo beefing up its military diplomacy.

Beyond the Pew poll, there are other frictions. The Japanese right, though a firm supporter of the US alliance, resents a postwar settlement that casts Japan as uniquely villainous and that treats it as a “client state”.

One can exaggerate such differences. For the most part, Tokyo is a loyal friend of the US. Only occasionally, such as with the 15-year haggling over the relocation of the Futenma air base, do they fail to reach agreement. If anything, the rise of China is pushing the two closer together. Mr Abe’s efforts to shore up the military and to join the TPP are a direct response to a perceived Chinese threat.

Still, China’s emergence could also be divisive. If Japan feels that the US is not defending its interests, say over islands disputed with China, resentment could build. In spite of assurances from the US president, some in Tokyo doubt that Washington has Japan’s back. When the time is right, Beijing may well try to drive a wedge between the two. Only then will it become clear whether the US-Japan relationship can last another 70 years.

David Pilling

Fonte: FT

terça-feira, 21 de abril de 2015

Stephen King...

Nunca li Stephen King, mas gosto dos filmes e series adaptadas dos seus livros. Algumas series, me parece, que são idéias originais: sem versão em livro. Cinema é outra linguagem e a maioria das adaptações de bons livros ficam muito a desejar, para ser gentil com uma longa lista de diretores culpados de crimes contra a literatura. Talvez isto explique a boa qualidade dos filmes adaptados de trabalhos do King: ate mesmo livros ruins, nas mãos de um bom diretor, podem se tornar uma obra prima. É o caso do filme  O Iluminado  do Kubrick.

A critica não gosta dos trabalhos do King, mas esta não é a razão pela qual nunca li nada dele: estava ocupado com a literatura policial britanica, revistas e livros de teologia e filosofia moral. Pra não mencionar a minha atividade profissional de professor e economista, que implica em ler livros e artigos da área. Neste depto a minha dieta diaria inclui o Financial Times e o Valor e o Quest means business na CNN. Dia cheio. Verdade, mas confesso, modestia a parte, que sou uma raridade: leitor de livros de poesia e de contos. Mais do primeiro que do segundo. Nunca li muitos romances. Já poesia li os considerados mais importantes em tradução e, sempre que possível, na lingua original. Li tambem, os chamados poetas menores, uma defina cretina da critica literaria.

Enfim, vou encarar o meu primeiro Stephen King: On Writing. Mistura de biografias, com conselhos sobre o oficio de escrever. Gostei da regra, mencionada pelo uol, de um numero de horas diarias de leitura e escrita. Já havia lido conselho semelhante em um artigo sobre como escrever papers academicos com uma imensa carga letiva.

Mudando de assunto. A Universidade em que trabalho está discutindo  a extinção dos deptos e a reação contrária, pelo que li no jornal do sindicato, ainda não conseguiu apresentar bons argumentos, acadêmicos, em defesa da estrutura departamental. Há vários, mas não vou lista-los, porque são de uma obviedade ululante. Adianto, que nenhum deles justificam a manutenção do status quo. É necessario repensa-los...e a destruição criativa Schumpeteriana não é uma má ideia...

segunda-feira, 20 de abril de 2015

Greek default necessary but Grexit is not

O default grego, como já escrevi, em outros posts, é uma questão de quando e ate o momento a Grecia conseguir evita-lo, mas sem ele será dificil sair do buraco em que ela se meteu.Nunca considerei a saida da EU uma proposta realista e esta continua sendo a minha posição. O default desta vez, dificilmente, será evitado, mas em se tratando da Eu tudo é possível, exceto a  saida da Grecia....

Until last week, discussions with Greece did not go well. That changed when the circus of international financial diplomacy moved to Washington for the spring meetings of the International Monetary Fund and the World Bank. Then it became worse.

My hunch is that this show will go on for quite a while. The Greeks want to merge the talks on the extension of the current, second, loan programme with the talks on the new third one. For that to work they will require temporary bridging finance to get through the summer. This sounds like somebody has a plan. But this is not my impression. I have never seen European finance officials so much at a loss.

The big question — whether Greece will leave the eurozone or not — remains unanswerable. But I am now fairly certain it will default.

My understanding is that some eurozone officials are at least contemplating the possibility of a Greek default but without Grexit. The complexity is severe, and they may not have had the time to work it out. But it may be the only way to avert utter disaster.

On whom could, or should, Greece default? It could default on its citizens by not paying public-sector wages or pensions. That would be morally repugnant and politically suicidal for the Syriza-led government. In theory, it could default on the two loans it received from its EU partners, though it is not due to start repaying the first of those until 2020, and the second in 2023. It could also default on the remaining private-sector bondholders but that would not be a good idea. Greece might need private sector investors later.

It could also default on the IMF and the European Central Bank. The IMF is expecting a series of repayments. The ECB wants its money back in the next few months on debt it holds on its books. Defaulting on the IMF and ECB is the only option that would bring genuine financial relief in the short term. Nobody has ever done that. It might trigger Grexit.

Then again, it might not. Default is not synonymous with exit. There is no EU ruling that says you have to leave the eurozone when you default on your debt. The link between default and exit is indirect; if a country defaults, its defaulting securities are no longer eligible as IOUs for the country’s banks to tender at ECB money auctions. The same applies to any other debt guaranteed by Athens. The Greek banks hold quite a bit of the latter category, and might find it hard to obtain liquidity if their government falters.

So to default “inside the eurozone” one only needs to devise another way to keep the banking system afloat. If someone could concoct a brilliant answer, there would be no need for Grexit.

The economic case for a debt default is overwhelming. It is hard to see how Greece can ever service its debts as agreed. Even in the creditor countries few people are under illusions about Athens’ long-term debt-servicing capacity. Full servicing would require huge primary surpluses — that is, surpluses before payment of interest on debt. It would leave Greece trapped in a debt depression for a long time. The scheduled primary surplus for 2016 is 4.5 per cent, which is bordering on the insane. Athens absolutely needs to default.

At the same time, there is a strong case for remaining in the eurozone. Grexit would bring incalculable economic risk to the country itself, and would harm the EU’s geopolitical ambitions and its global reputation.

What is worrying is that the talks are not going anywhere. This is why speculation about an agreement in the summer or the autumn is ultimately not reassuring. Particularly puzzling is the Greek negotiating strategy. On the substance, I tend to agree with finance minister Yanis Varoufakis: the eurozone’s economic crisis management has been catastrophic. Under present parameters, it is fundamentally unsustainable. But I do not understand why he spends so much time preaching to those who tend to agree with him at prestigious conferences in pleasant surroundings. Should he not be working on the hard negotiations with his European creditors, and on the two plan B scenarios?

Both Grexit and the option of a default inside the eurozone would stretch the resources of even the most organised government. It would require military-style preparation: exchange controls, temporary closure of land borders and airports, overnight bank recapitalisation, and logistical planning to convey money from A to B on D-Day. Is the Greek government really so smart it can just wait until the fateful moment arrives, and then manage this whole process in real time with no script?

I think I know the answer to that, and wonder whether one or more people on both sides of these discussions may simply be miscalculating. We may be on the verge of one of those sleepwalking moments in European history.

Wolfgang Münchau


domingo, 19 de abril de 2015


Oito horas, meu relogio me acorda com a sua pontualidade habitual, com passos e miados que não deixam dúvidas quanto a mensagem: acorda, estou com fome,  hora do meu cafe da manha; acorda, acorda. Ele altera o seu caminhar que ganha a cadência dos bumbos da fanfarra da escola do bairro. O  miado ganha um  inconfundivel tom de irritação e protesto.  Curioso. Eu que devia estar  irritado, apenas observo o Gunot, este é o nome do meu gato preto com barriga e pescoço branco. O contorno branco ao redor do nariz preto, da um ar de nobreza ao gato que, segundo a minha veterinaria, não tem raça definida. Já personalidade, ai já é outro papo: a dele é forte. Não é o único: os outros gatos da casa, tambem, não ficam nada a dever ao Gunot. Valentino, por ex,  que tem o belo branco, com manchas e é seu companheiro inseparável, não abre mão de fazer as refeições no mesmo horário todos os dias e aprendeu ate mesmo a reproduzir o som da palavra não de tanto ouvi-la.

Gunot é mais manhoso e acorda cedo e por isto é o meu relogio. Ciumento, protesta ao ver que estou calçando o sapato. Ao olhar de quem comeu e não gostou, segue-se um miado que traduzo como: vai sair de novo. Com cuidado amarro os cadarços novos, mas já  em estado de arruina, resultado das mordida dele: não esconder os sapatos, tenis, é um erro que implica em encontra-los mordidos e com pelos por toda parte. A vida útil dos chinelos havaino é bastante reduzido: adoram morde-los, depois de roçar para deixar o cheiro...

sexta-feira, 17 de abril de 2015

Raúl Castro, Cuba’s president

Cuba é uma ditadura, mas precisamente a ditadura da familia Castro que criou uma variante do modelo norte-coreano: a ditadura de uma familia. Não apoio ditaduras de esquerda ou direita. Confesso que nunca entendi o fascinio de tantos intelectuais pela Ilha. Estou na torcida pelo seu fim que espero seja pacifico. Alias, não fosse pelo bloqueio americano, teria sido dificil para a familia Castro esconder o fracasso da sua ditadura. Um inimigo externo sempre ajuda a encobrir a incompetencia de todo governo. Em Cuba, não é diferente. Há quem diga que é um sucesso na área educacional. Dúvido. Educação requer liberdade de pensamento, e isto sabemos que não existe em Cuba.

The more things change, the more they can stay the same. Last week, Raúl Castro launched into a long speech against the US. Ad­dressing a regional summit in Panama, the Cuban president listed a century of complaints, from US usurpation of the 19th century wars of independence up to the embargo of the current day. Then the revolutionary leader abruptly changed tack — and apologised.

Barack Obama, who was listening, is an “honest man”, Mr Castro said. The 83-year-old former general, wearing a dark suit and tie rather than military fatigues, had even read “parts” of the US president’s biography. Mr Castro added that he had “meditated deeply” about these words, repeatedly removing them from his speech and putting them back in. “I am satisfied with that,” he said.

The compliment, and Mr Castro’s subsequent formal meeting with Mr Obama — the first between the two country’s presidents in more than 50 years — are the latest steps in the delicate process of rapprochement that began in December that aim to end the 53-year-old US embargo, and turn a last page on the cold war. It also contains a potent symmetry. What began as an ideological confrontation between an ageing US general, President Dwight Eisenhower, and a young and charismatic lawyer, Fidel Castro, has evolved into a respectful conversation between a charismatic black lawyer from Washington and an ageing white general from Havana.

The rapprochement began as back-channel talks two years ago, shortly after Hugo Chávez died of cancer. Venezuela’s socialist president had provided Cuba with billions of dollars of subsidised oil and the Castro brothers recognised that Chávez’s death presaged chaos in Caracas, ultimately threatening Havana. Fidel, the elder brother, had stepped down as president in 2008, suffering from ill health. Mr Castro replaced the cabinet and started liberalising Cuba’s Soviet-style economy. In the past four years, he has slimmed the state sector, allowed self-employment and a free market in homes, and courted foreign investment. By turning to capitalism, it seems, he aims to save Cuba’s socialist revolution from itself.

The prospect has unleashed a carnival of US business expectations. Although only a market of 11m people, similar in size to the neighbouring Dominican Republic, Cuba enjoys the mystique of forbidden fruit. Netflix and Airbnb are opening; big banks say they are interested. Tourist agents have capitalised on the giddy mood, urging people to visit before the Yankee floodgates open; visits reportedly rose 16 per cent in January.

Like Fidel, Mr Castro was born on the family farm in eastern Cuba. Their father, Angel, a Spanish immigrant, was a wealthy landowner; their mother, Lina Ruz González, a maid who became Angel’s second wife. Both went to Jesuit schools. For many years Mr Castro literally lived in his elder brother’s shadow — he is eight inches shorter. Yet he is also an accomplished man. In more than five decades as defence minister, he built the army into a formidable force that won multiple African military campaigns in the proxy conflicts of the cold war and now controls the heights of the economy.

At times ruthless — he was prominent in the campaign against General Orlando Ochoa, a popular soldier and possible rival, executed on corruption charges in 1989 — Mr Castro shares the same ideology as Fidel. Yet their styles could not be more different. Mr Castro is more pragmatic, known to be a family man and less austere than Fidel, who reportedly drained his swimming pool during the dark days of mass rationing that followed the Soviet Union’s collapse. He has four children with Vilma Espín, the daughter of a lawyer of the wealthy Bacardí family, who died in 2007, and lives in a compound on the outskirts of Havana, screened by vegetation and metal fencing. Jovial in private, his favourite pastime is said to be playing dominoes over a bottle of rum with friends, and in public he is known for his wry wit. When Hugh Thomas, the British historian, asked during the charismatic early days of the revolution if he had a message for England, Mr Castro replied: “For whom in England?”

Mr Castro’s allies and family have followed him into government. Nine of the Politburo’s 14 members are uniformed military, as are five of the seven Council of Ministers. His only son, Alejandro, an interior ministry official, was at the meeting with Mr Obama in Panama. Luis Alberto Fernández, who was once married to Mr Castro’s daughter Deborah (they are rumoured to have divorced), is a colonel and manages military business interests. Deborah’s son, Raúl, is often at his grandfather’s side in public, apparently as bodyguard.

The US popular mood has swung behind Mr Obama’s move. In the latest step, Washington on Tuesday moved to drop Cuba from its list of state sponsors of terror, opening Havana’s access to sources of international finance. Yet removal of the embargo, which requires an act of Congress, is still a long way off.

Washington’s bet is that the gradual opening will foster change. Mr Castro’s is that Havana can control it, “perfecting” socialism. He is set to step down in 2018 and be replaced by Miguel Díaz-Canel, the civilian vice-president. But dissidents warn Alejandro will re­main the power behind the throne for time to come. “No one should have any illusions,” Mr Castro said in Panama. The US and Cuba “have many differences . . . we need to be patient, very patient”.

Fonte: FT

quinta-feira, 16 de abril de 2015

America and China are rivals with a common cause

When China’s economic output eventually surpasses America’s some time in the next decade, it will be the first time since the reign of George III that the world’s largest economy belongs to a country that is not western, not English-speaking and not a liberal democratic state. Yet, in the asymmetric world that is emerging, the US will remain the dominant military force. The fulcrums of economic and military power are separating. Can these changes in the distribution of power occur peacefully?

It will be difficult. In Beijing’s eyes, the US is deeply opposed to China’s rise. A document circulated among the Communist party leadership last year summed up the consensus view. American strategy towards China, it said, had five objectives: to isolate the country, contain it, diminish it, divide it and sabotage its political leadership.

These conclusions sound strange to a western audience. They reflect the conviction of Communist party leaders that the US has not, and never will, accept the political legitimacy of the administration in Beijing because it is not a liberal democracy. They also reflect the Chinese view that the US will never willingly cede its status as the pre-eminent power in Asia and the world.

For America, rising China is no longer business as usual. Instead, the US sees a rival that is growing in strength and competing for political, diplomatic and security policy space in Asia. On this view, Beijing’s long-term policy is aimed at pushing the US out of Asia altogether and establishing a Chinese sphere of influence spanning the region.

Both China and the US have strategic narratives about each other. What they lack is a shared view of how the two powers should coexist. They need one to prevent the relationship deteriorating into a long and mutually costly period of rancour, crisis, or even conflict.

Such a common framework should have three elements. First, be realistic about the areas of the relationship which cannot be resolved within the foreseeable future, while managing them within a protocol which does not allow the entire relationship to be derailed or destroyed.

These points of contention include territorial matters such as the East China Sea, the South China Sea and the status of Taiwan, the self-governing island that Beijing claims as an inalienable part of the People’s Republic. They also include human rights, which Beijing sees as a purely internal affair but westerners see as a core element of the international normative order.

Second, be constructive about those difficult areas that could be resolved with high-level political effort. Bilaterally, this could take the form of an investment treaty between China and the US. Regionally, this could include the US and China working together to develop institutions such as the existing East Asia Summit into a more expansive Asia Pacific Community. Globally, expand existing co-operation on climate change, possibly including India.

Third, an agreed “common purpose”, to build trust, step by step, over time. Declaratory statements are no substitute for practical action in resolving shared problems.

The future of the US-China relationship is not predetermined. It is for the two countries’ leaders to shape. They have more common interests than may meet the eye. The world faces a growing list of challenges that are too big for even the strongest countries to solve alone. International institutions are often not up to the task, either. This is an opportunity to make common cause.

A common strategic framework is not the same as an agreement on matters of substance. It will not itself be enough to resolve all tensions in the US-China relationship. What it offers is the prospect of reducing them to a more manageable level, as we seek to negotiate this challenging period of China’s rise.

Kevin Rudd, a former prime minister of Australia, is president of the Asia Society Policy Institute and author of ‘US-China 21: The Future of US-China Relations Under Xi Jinping

quarta-feira, 15 de abril de 2015

In California a lack of water encroaches on castles in the air

Water has shaped the state of California and its biggest city, Los Angeles. Cities usually take time to grow but Los Angeles became the world’s largest overnight. A century ago, it annexed the San Fernando Valley, part of a ruse to gain access to the Owens Valley Aqueduct. The desert settlement suddenly became a city rich in water, with both its own supplies and the run-off from Sierra Nevada mountain snow. Today, after three years of drought, California is in the midst of a full-blown political and environmental crisis, with restrictions imposed across the state. So, in a verdant city bordered by desert where dreams of abundance have always been a global attraction, what went wrong?

When Los Angeles went through its own explosive growth, the movie industry was just settling in, attracted by the bright light, good weather and cheap land. The pictures portrayed California as a land of promise and palm trees, sunshine and space — the antidote to the dark tenements of Europe and the east coast. The glamour of the stars, the size of the homes, pools and cars created a global dream of escape

Up to 1915, Los Angeles was growing like any other city, with a bustling, dense downtown connected to industry on its edges by streetcars and trains. But after that northward expansion into the San Fernando Valley, it had space to fill. Cheap oil and cheap water ensured distance from the centre was no obstacle to settling there.

The government funded new roads, the suburbs metastasised. Water made the suburbs possible, it made them green and it made the things people wanted — the gardens and the pools — accessible. Through the movies set there, the image of this paradise spread. The global model was southern California. From Dubai to Jeddah, from São Paulo to the British new town of Milton Keynes, the individual home on the suburban street became the single most influential and desirable model.

But despite the image of abundance, Los Angeles has teetered on the verge of environmental catastrophe for its whole history. Urban theorist Mike Davis calls California’s struggle with the elements — earthquakes, droughts, wildfires, tornadoes — the “ecology of fear”.

He even suggests that the destruction of Los Angeles, which has become such a cliché of movie blockbusters, from War of the Worlds to Independence Day, is seen globally as a kind of victory for civilisation — the end of a city which should never have been, a place too good to be true, a doomed dream.

California’s paradox is precisely that this paradise is so fragile. This huge state, with an economy bigger than that of Russia, on the edge of the vast Pacific Ocean is running dry — not just of water but of ideas. The drought should have come as no surprise; the profligacy with water was shocking.

Photos of lush golf courses holding back desert on the other side of the freeway, and of endless cookie-cutter houses each with sprinklered green gardens all around while the dust bowl encroaches on the edges, seem an affront not just to nature but also to urbanism. Los Angeles has cracked down on usage but at a late stage; and the state’s recent restrictions exclude farmers — vital to California’s economy but also the biggest water users.

Angelinos and Californians could retort that the first great global city, Rome, struggled with water, and that its success was based on the aqueduct. But water was at the centre of Roman culture: fountains and temples were dedicated to its gods and worshippers were awestruck by its healing powers. In California water has been treated as a commodity and a right, on golf courses, in gardens and in water-intensive agriculture. Authorities have failed to treat it with respect.

All topography is shaped by water but, in California, the cities were made by water too. The question is how different they might need to look when it runs out. The desert might be coming back to haunt the suburbs.

Edwin Heathcote is the FT’s architecture critic

terça-feira, 14 de abril de 2015

Pragmatism works best in the reform of economics

Last week to Paris, for the annual conference of the Institute for New Economic Thinking, a think-tank focused on encouraging fresh theory and practice in the field. There was much discussion of curriculum reform in university economics teaching. The debate centred on a revised introductory economics syllabus devised by Wendy Carlin of University College London and a group of academic collaborators. The new curriculum is being tested now.

There was agreement among participants that reform is needed (although people who attend a conference on new economic thinking are likely to think that). Macroeconomic theory, our understanding of how economists experience booms, busts, inflation and growth, was found wanting in the global financial crisis. But professional orthodoxy remained largely unchanged. Robert Lucas, doyen of modern macroeconomic theory, decried critics for their ignorance, and ex­plain­ed that the economic consequences of unpredicted events were unpredictable. But this is no response at all. Finance theory was also shown to be deficient.

Student dissatisfaction is evidently and understandably widespread. A group from the University of Manchester has taken the lead in Britain, but the protest movement has extended around the world. These young people assert that their professors fail to engage with the topics — economic development, financial instability, inequality — that attracted them to the subject, and that too much of their time is spent on trivial exercises in elementary mathematics.

There was wide agreement that economics should be more pluralist. But I found myself under attack for the mildness of my pluralism, denounced for my Menshevik desire to reform from inside rather than join the gang who plan to attack the Winter Palace. Many students demanded to be taught non-mainstream or heterodox economics, and a group of self-described heterodox economists were there to give encouragement. Pluralism, they asserted, required exposure to many competing paradigms.

But what exactly is heterodox economics? Robert Skidelsky, the John Maynard Keynes biographer, reminded the audience of the master’s aspiration that his profession might attain one day the status of dentists, “humble competent people”. There are, though, no heterodox dentists. And no one would cross a bridge built by a heterodox engineer.

There is alternative medicine, but most alternative medicine remains so because there is no evidence that it works. The medical profession is often resistant to innovation, especially innovation that challenges accepted wisdom — in the 19th century the Hungarian doctor Ignaz Semmelweis struggled for decades to persuade his colleagues that the best thing they could do for patients was wash their own hands.

More recently, much effort was required to gain acceptance of the discovery that many ulcers were caused by the Helicobacter pylori bacterium. But good doctors are, in the end, persuaded by what works for their patients, as they were in these cases. Good alternative medicine becomes orthodox.

And so it should be in economics. It is not like philosophy or literary criticism, where the value for both students and researchers lies mainly in the debate itself, rather than the acquisition of a body of specific practical knowledge. That is why the 2014 Nobel Prize winner Jean Tirole was right when he persuaded the French Ministry of Education not to establish a distinct chapter of heterodox economists in the National Council of Universities, which determines who is qualified to teach at universities. “It is inconceivable for me”, he wrote, “that France would recognise two communities within the same discipline.” Scientific pluralism is about openness of mind not relativism of knowledge.

John Kay

Fonte: FT    

segunda-feira, 13 de abril de 2015

China will react with displeasure if America tries to weaponise trade

Selling a free-trade agreement at home is hard work, given public scepticism about their effect on American jobs. So as supporters of the Trans-Pacific Partnership try to round up backers, they increasingly emphasise the geopolitical case for concluding a deal.

They are correct that a good trade and investment agreement would be geopolitically beneficial, and that a collapse in the talks would be deeply damaging. But too often they overstate the case — and, in doing so, generate real geopolitical risks of their own, while also jeopardising the agreement they seek.

The geopolitical case for TPP is straightforward. It could help US allies in Asia, most notably Japan, reform and thus strengthen their economies, making them more capable geopolitical partners. Asian participants could diversify their economic relationships, becoming less dependent on an unpredictable China. A deal that genuinely offers China the option of eventually joining could also help draw Beijing in a more liberal direction.

Conversely, if the talks collapse because of domestic squabbling, it will compound the narrative of US dysfunction, making it far harder for the US to lead. It would also make it easier for China to push its own trade arrangements in ways that exclude the US.

But selling the TPP by screaming “geopolitics” comes with serious risks. Unless the US is careful, China may come to see the deal as an attempt at economic containment. It is one thing to have a pact that reinforces America’s economic relations with friends and allies; one that encourages China to join after making a set of plausible economic reforms, much as it joined the World Trade Organisation. It is another to present the deal in a confrontational manner as a counterweight to China — the economic counterpart to a military strategy that would seek to keep the country pinned in.

Beijing, faced with such a prospect, may well conclude that their stake in sustaining an open, peaceful and rules-based international economic order — something from which they have benefited greatly — is considerably less than they previously believed. Historically, leading powers faced with such a realisation have often sought economic security through special diplomatic or military arrangements instead, with disastrous consequences for international security. (Japanese aggression in the 1930s, while driven by a host of forces, was doubtless influenced by fears of being cut out of the global economic system.)

Nor are US allies in Asia (not to mention Canada and Latin America) eager to be part of a bluntly confrontational approach to China. If America’s partners chafe at the unwelcome association, that will undermine Washington’s alliances in the region and the US geopolitical position. On top of that, the more the US tells its Asian partners that the TPP is about geopolitics, the greater the geopolitical damage will be if the deal fails.

Talking up geopolitics too much also incurs risks at home. TPP advocates have turned to this tactic in part because of the difficulty of selling an agreement on its economic merits alone.

But emphasising geopolitics could make some fence-sitters more suspicious. During the cold war, the US often entered into lopsided trade agreements, deciding that helping allies’ economies was more important than strengthening its own. Today Americans feel more vulnerable and less trusting of economic integration. Crafting a TPP that is justified on its own economic merits, with any geopolitical dividend a welcome bonus, is imperative.

America’s public rhetoric, or at least its private diplomacy, needs to make clear that the TPP is not designed to cleave Asia. That will help ensure any agreement is a geopolitical success, and an economic one.

Michael Levi is director of the Maurice R Greenberg Center for Geoeconomic Studies at the Council on Foreign Relations

sexta-feira, 10 de abril de 2015

An agonising way to abolish boom and bust

Secular stagnation might once have sounded like a dose of anguish for agnostics, perhaps following unemployment for unbelievers and hard times for heathens. But the thesis that the world is approaching a lasting period of low growth has decisively moved into the mainstream conversation about economics.

Last week saw a heavyweight clash on the subject between Ben Bernanke, former Federal Reserve chairman, and Lawrence Summers, veteran policy maker and serial holder of strong opinions. This week, the International Monetary Fund added to the gloom, with estimates of weak potential growth.

As often happens when a technical discussion turns general, different uses of the term “secular stagnation” mean that it confuses as much as elucidates. In some ways, though, the policy implications should command more consensus than the theories that underlie them.

Mr Summers uses secular stagnation to mean the difficulty of getting the economy to run at full capacity when factors such as weak investment demand have pushed down the equilibrium real interest rate — that needed to keep output at full steam. The response should be to reduce the actual real rate of interest by loosening monetary policy further or, better, to boost demand by increasing public investment.

By contrast, a variety of technology pessimists use the term to mean that the supply capacity of the economy is growing more slowly because, after inventing the internet (or maybe just before) the human race ran out of good ideas. (Slower technological progress can play a walk-on role in Mr Summers’ thesis, but his analysis is mainly about demand, not supply.) As for Mr Bernanke, he doubts secular stagnation is a big issue at all, arguing the slow recovery of the US economy can be explained by temporary headwinds including a battered financial system and weakness in the housing market. The implication is that America is recovering, aided by the Fed’s monetary stimulus, and that normal service will soon be resumed.

This debate has also underlined an unfortunate truth: economics has always struggled to analyse the causes of long-term expansion. The great economist Robert Solow won the economics Nobel partly for working out that increases in employment and the capital stock explained only just over a tenth of long-term growth. The rest was technological innovation, generally presumed to arrive in the same way that the Israelites were provisioned with manna and quail. A branch of a subject where you can reach the apogee of professional recognition by saying “dunno” with arithmetical precision is not one overburdened with definitive explanations.

Even when economics addressed the question of trend growth, and whether it was exogenous (appearing from nowhere) or endogenous (affected by government policy), it failed to produce consensus or to spark intelligent public discourse. In 1994 Gordon Brown, three years before becoming UK chancellor of the exchequer, was widely ridiculed for referring to “endogenous growth theory” in a speech to an audience of academic economists who would have known precisely what he was on about.

Judging competing explanations for the current growth funk is not easy, and there is a danger of overinterpreting short-term problems. Arguments about cyclicality tend to have a cyclicality of their own. The first few years after a recession ends are traditionally accompanied by hand-wringing about a “jobless recovery” in which changing technology or the loss of skills has supposedly permanently altered the labour market. Then jobs start appearing, everyone remembers employment tends to lag output, hands are unwrung and the structural stories go back in the cupboard till next time.

In advanced economies, at least the US and UK, supportive monetary and (sometimes) fiscal policy has created enough growth at least to be consistent with Mr Bernanke’s thesis that this is a short-term problem. However, since both economies could also do with upgrading infrastructure — as Mr Summers points out, no one enjoys going through JFK airport, and the UK is crying out for a major housebuilding programme — it would be useful to ramp up public investment as well.

The IMF, transformed from an agent of neoliberalism to a Gosplan-style advocate of public works, also supports a government investment push. If such an expansion in demand creates inflation, policy makers will know they have come up against a capacity constraint and can adjust policy accordingly.

In the face of uncertainty about the true state of the world, policy makers need to design a response to minimise harm. A substantial programme of public investment would seem appropriate. That means adding to already high sovereign debt burdens. But with long-term interest rates so low, the balance of risk and reward strongly favours more infrastructure. If secular stagnation is a false alarm, not much harm will have been done. If not, public investment may help save the world economy from a persistent and damaging blight.

Alan Beattie

Fonte: FT

quinta-feira, 9 de abril de 2015

Europe faces more than a Greek tragedy

The pilgrimage of Greek prime minister Alexis Tsipras to Moscow told a tale of two tragedies. One, perilously close to the denouement, is about Greece’s uncertain place in the family of European nations; the other, still unfolding but with a storyline that foretells a calamitous final act, is about the future not just of the euro but of European integration.

Predictably enough, the Greek prime minister was feted by Vladimir Putin. The Russian president’s revanchist aggression in Ukraine has left his regime more vulnerable than anyone in the Kremlin would dare admit. Mr Putin badly needs to weaken the EU sanctions regime. Shared Orthodox Christianity, an air of leftist nostalgia in Athens and, above all, Greece’s desperate isolation make it an ideal target for Moscow’s strategy of divide and rule.

It is harder to see what Mr Tsipras gains beyond a few warm words to cheer his supporters at home. 
The promise of a gas pipeline years hence? Any aid on offer from Moscow would be minuscule relative to funds from the EU and the International Monetary Fund. There is nothing Mr Putin could do that would make leaving the euro any less painful.

The other day I heard Yanis Varoufakis explain how Greece had ended up here. The finance minister’s is a story fluently told — of US backing for the colonels, of the havoc wreaked on industry by the free trade rules of the EU, of the Brussels funding that bankrolled clientelist politics in Athens and of how cheap euros created a ruinous bubble.

There are elements of truth in this; and Mr Varoufakis is right when he says the present debt burden is unsustain­able. Missing from the narrative, though, is any sense that Greece must make its own choices. That, whatever the sins of others, only Athens can decide whether Greece prospers as a modern democracy or whether it slips back into the shadows of the Balkans.

The omission, and the implicit rebuke to outsiders who do not feel bound by ballots cast by Greeks, is at the heart of what so frustrates Athens’ partners. This is not just about the Germans, even if Wolfgang Schäuble, Berlin’s finance minister, foolishly lends credibility to the idea. Mr Tsipras is isolated among fellow debtors as much as creditors. What unites them is a demand that Athens produce a plausible plan to reform the Greek state — to modernise its administration and politics as much as its economy. Such a plan would transform the mood of negotiations.

Mr Putin’s preference is otherwise. A collapse in Greek living standards would leave it ripe for the coercion and subversion that are Russia’s trademarks in an effort to expand its influence and control in southeastern Europe. The Russian president already has Hungary’s prime minister Viktor Orban in his breast pocket. His agents are working hard — exploiting Russia’s energy monopoly, buying politicians, bribing officials and taking stakes in financial institutions — to promote instability across the Balkans.

Yet talk to finance ministers and central bankers across the rest of Europe and the mood is one of fatalism. They will tell you that the eurozone would withstand Greece’s departure. This is not 2008, or even 2012, they say. Governments have put in place the mechanisms to deal with crises. Some sound as if they believe that, freed from the vicissitudes of Greek politics, the euro would be stronger in the long run.

In a narrow sense they may be right, though I would not bet on it. But Greece is a distorting prism. Its sequential crises have bred complacency by distracting from the profound structural flaws and political challenges that still imperil the euro. Making monetary union work demands more than proficient crisis management.

Spring has seen a burst of sunshine in the European economy. The European Central Bank’s quantitative easing is having an effect. Growth has picked up a little. Yet it is a delusion to think that the euro is in safe harbour. Fiscal and financial union are at best half-completed, and the political threat to the euro continues to grow.

National politicians refuse to admit the supranational imperatives of the project they are pledged to safeguard. And a return to growth rates of 1 or even 2 per cent will not be enough to restore the euro’s legitimacy among the angry voters who are turning to populist movements of right and left.

In 2012, European leaders defied the markets by summoning up the political resolve needed to save the single currency. They have since lost the will to sustain it. Greece may not bring down the euro; the existential threat lies in the more generalised failure of nerve and leadership.

So it is, too, in the relationship with Moscow. The biggest danger to Europe comes not from the forays of Mr Putin’s rusting aircraft carrier, or his cold war-vintage nuclear bombers, or from Soviet-style subversion in some of the darker corners of the continent.

No, the real weakness lies in a European mindset that prefers to temporise and equivocate than to confront Mr Putin head on. Mr Tsipras’s visit may have held up a mirror to Greece’s troubles. But it also offered a reflection of diffidence and division across Europe. If Greece does fall out of the euro it will also fall out of Europe. And the failure of the euro would mark the failure of Europe. What unites these twin tragedies is the stubborn reluctance of the authors to rewrite the endings.

Philip Stephens

Fonfe: FT

quarta-feira, 8 de abril de 2015

Japan needs a working hours overhaul

We will send our products to the people of the world
Our hard work and toil like the sound of water
Gushing from the spring
Industrial progress, industrial progress
Number one for harmony, Matsushita Electric

That song, performed by workers dressed in identical jump suits, was fairly typical of Japanese corporate culture in the now distant go-go decades of the 1960s and 1970s when the economy was going like gangbusters. Much of that extraordinary postwar success was built around a set of corporate practices very different from those that prevailed in the west. At large corporations there were several elements to this system, from seniority pay and lifetime employment to worker-led initiatives in productivity improvement.

At its heart was a social contract between employer and employee that some have compared to the relationship between daimyo feudal lord and samurai retainer. In return for absolute loyalty, the employee would be paid more each year regardless of performance. The system applied only to those who worked for big companies. Many workers — almost all male — would show more devotion to their company than to their spouse, putting in hours of unnecessary overtime and carousing late into the night with colleagues and corporate clients.

Such a system is easy to mock. Yet it had a certain rationale in the catch-up era. In today’s Japan it makes no sense at all. It now needs fewer companies that can make a better widget (like Sony) and more that can dream up software that renders the widget redundant (like Apple). It needs a multidisciplinary workforce capable of switching mid-career, not only between different companies but also between entirely different fields. It needs to bring more women into the workforce, not to make up the numbers but to usher in new thinking. The corporate culture Japan is stuck with is unsuited to these challenges.

The good news is that Japanese companies are changing. Itochu, a general trading house, and Ricoh, a printer maker, are among those promoting flexible working hours aimed at putting an end to masochistic overtime. According to data from the Organisation for Economic Co-operation and Development, the average employee worked 1,728 hours a year in 2011, down from 1,809 in 2001. That almost certainly under­estimates the amount of unpaid overtime. The decrease also reflects a weak economy. Even so, that was 100 hours more than the UK, and 300 more than the Netherlands; though a tad fewer than the US and far fewer than South Korea, whose employees clocked in a mind-numbing 2,193 hours.

Cutting the workload should raise productivity, still low by OECD standards. Low productivity is actually a Japanese ace in the hole. As the workforce shrinks, which it is doing by 250,000 a year, productivity will rise, especially in the service sector. Think of all those elevator attendants or men ushering cars energetically into parking lots.

Reducing hours would also entice more women into good jobs. Many, especially mothers, find the long working hours impossible to juggle with home life. That, the cynic might say, is precisely the point. Japanese men have deliberately constructed practices inimical to working women — and will be slow to change them as a result.

Still, in other areas of corporate culture, there are signs of change. One is seniority pay. Hitachi is now rewarding its 11,000 top managers based on job performance. (Why it sees the need for 11,000 top managers is a question for another day.) From this month, Sony says it will promote some employees in their twenties to management positions and demote some older employees with a commensurate cut in pay. Toyota is bringing in performance-based pay for many of its workers. So is Panasonic, as Matsushita is now called.

The fact that many big companies have stuck to seniority pay, in which wages rise with years served, has had unintended consequences. One is that, in tough years, many stopped hiring new recruits, pushing a generation of young people into casual work. Since the early 1990s, the proportion of temporary workers has doubled to nearly 40 per cent. That has harmed wages, skills, productivity and aggregate demand. Another unintended consequence is that older workers become too expensive to retain, making it unnecessarily difficult for them to work past the official retirement age — something the government wants in order to increase worker participation and contain the social security bill.

Most changes need to take place at corporate level. The government can do only so much. Still, it should press ahead with legislation to bring the conditions of those in temporary work closer to those in full-time employment. The International Monetary Fund estimates that well-executed reform could push the share of non-regular workers back down below 30 per cent.

On balance, corporate Japan is probably adapting faster than outsiders realise, but slower than is necessary. Japan urgently needs to create a working environment that is more flexible, imaginative and, ultimately, more productive. Today, the employees of Panasonic still sing a company song. The lyrics now contain a nod to “a celebration of being free”. For corporate Japan as a whole, being free from pointless overtime would be an excellent start.

David Pilling

Fonte: FT

segunda-feira, 6 de abril de 2015

Time US leadership woke up to new economic era

This past month may be remembered as the moment the United States lost its role as the underwriter of the global economic system. True, there have been any number of periods of frustration for the US before, and times when American behaviour was hardly multilateralist, such as the 1971 Nixon shock, ending the convertibility of the dollar into gold. But I can think of no event since Bretton Woods comparable to the combination of China’s effort to establish a major new institution and the failure of the US to persuade dozens of its traditional allies, starting with Britain, to stay out of it.

This failure of strategy and tactics was a long time coming, and it should lead to a comprehensive review of the US approach to global economics. With China’s economic size rivalling America’s and emerging markets accounting for at least half of world output, the global economic architecture needs substantial adjustment. Political pressures from all sides in the US have rendered it increasingly dysfunctional.

Largely because of resistance from the right, the US stands alone in the world in failing to approve the International Monetary Fund governance reforms that Washington itself pushed for in 2009. By supplementing IMF resources, this change would have bolstered confidence in the global economy. More important, it would come closer to giving countries such as China and India a share of IMF votes commensurate with their new economic heft.

Meanwhile, pressures from the left have led to pervasive restrictions on infrastructure projects financed through existing development banks, which consequently have receded as funders, even as many developing countries now see infrastructure finance as their principal external funding need.

With US commitments unhonoured and US-backed policies blocking the kinds of finance other countries want to provide or receive through the existing institutions, the way was clear for China to establish the Asian Infrastructure Investment Bank. There is room for argument about the tactical approach that should have been taken once the initiative was put forward. But the larger question now is one of strategy. Here are three precepts that US leaders should keep in mind.

First, American leadership must have a bipartisan foundation at home, be free from gross hypocrisy and be restrained in the pursuit of self-interest. As long as one of our major parties is opposed to essentially all trade agreements, and the other is resistant to funding international organisations, the US will not be in a position to shape the global economic system.

Other countries are legitimately frustrated when US officials ask them to adjust their policies — then insist that American state regulators, independent agencies and far-reaching judicial actions are beyond their control. This is especially true when many foreign businesses assert that US actions raise real rule of law problems.

The legitimacy of US leadership depends on our resisting the temptation to abuse it in pursuit of parochial interest, even when that interest appears compelling. We cannot expect to maintain the dollar’s primary role in the international system if we are too aggressive about limiting its use in pursuit of particular security objectives.

Second, in global as well as domestic politics, the middle class counts the most. It sometimes seems that the prevailing global agenda combines elite concerns about matters such as intellectual property, investment protection and regulatory harmonisation with moral concerns about global poverty and posterity, while offering little to those in the middle. Approaches that do not serve the working class in industrial countries (and rising urban populations in developing ones) are unlikely to work out well in the long run.

Third, we may be headed into a world where capital is abundant and deflationary pressures are substantial. Demand could be in short supply for some time. In no big industrialised country do markets expect real interest rates to be much above zero in 2020 or inflation targets to be achieved. In the future, the priority must be promoting investment, not imposing austerity. The present system places the onus of adjustment on “borrowing” countries. The world now requires a symmetric system, with pressure also placed on “surplus” countries.

These precepts are just a beginning, and many questions remain. There are questions about global public goods, about acting with the speed and clarity that the current era requires, about co-operation between governmental and non-governmental actors, and much more. What is crucial is that the events of the past month will be seen by future historians not as the end of an era, but as a salutary wake up call.

Lawrence Summers is Charles W Eliot university professor at Harvard and a former US Treasury secretary

quinta-feira, 2 de abril de 2015

Doubts that threaten a deal with Iran

A reasonable question to be asked of the great power talks to restrain Iran’s nuclear ambitions is whether a deal would provide absolute assurance that Tehran will not build a bomb. The reasonable answer is No. This is not to say the endeavour should be abandoned. A cursory glance at the tumultuous geopolitical upheavals of the past decade tells us that we live in an era of vanishing certainties.

Marathon negotiations have delivered what is being called a political framework for an agreement between world powers and Iran,There is no guarantee it will be translated into a final accord. The process has as many enemies in Washington as Tehran. The argument these past few days in Lausanne has been about the technical dimensions of a bargain: how many centrifuges should Iran be allowed to operate, what will happen to its existing uranium stockpile, how strict will be the inspections regime, what safeguards should be applied to the underground enrichment facilities at Fordow and plutonium production at Arak? And, on the other side, how soon will sanctions be lifted: will the EU move first, what are the benchmarks for the dismantling of the UN sanctions regime, can the US administration lift the financial embargo without the support of the US Congress?

There is plenty of gamesmanship here, and the Iranians have a deserved reputation as skilful and unforgiving negotiators. But the details matter. The international community has to be
persuaded that Iran is intent on narrowing its nuclear operations and that,
were the regime to change its mind, the world would be given due warning (in practice, a year) of any attempt to produce a weapon. It should be as expensive as possible for Tehran to renege on the deal.

Iran has its own politics, ugly as they often are. They rotate around what its own diplomats call sovereignty and respect, and what outsiders sometimes identify as the paranoia born of isolation. US president George W Bush’s axis of evil speech did not help. A regime that can still refer to the US as the Great Satan feels it must demonstrate to its constituency that it has not buckled under American pressure. After 35 years of not talking to each other, the level of mutual trust between Washington and Tehran unsurprisingly is close to zero.

Important as they are, the best that can be hoped of the specific obligations imposed by such an accord is that they shift the political calculus in Tehran. For the great powers sitting opposite Iran at the talks — and for anyone who believes that nuclear non-proliferation remains a vital pillar of international order — the nagging question will remain: “Do the Iranians really mean it?” The answer this time is that it is impossible to tell. The odds are that Ayatollah Ali Khamenei has to make up his mind whether to turn a breakout capability into a bomb.

A few years ago there was talk of a grand bargain that could see Iran’s return to the community of nations and the west renounce any idea of regime change. American officials floated such ideas in clandestine contacts with Tehran via Swiss intermediaries. The moment came and went. The American order in the Middle East has now all but collapsed. Iran has decided to project itself more aggressively as a regional power. Sanctions may have crippled it economically, but the hand of Tehran is in evidence wherever you see a trouble spot — in Lebanon and Syria, Iraq and Yemen.

The collision between Iranian assertiveness and a Saudi-led coalition of Sunni Arab states mirrors reduced US engagement. The fires burning in the region will not be easily extinguished. To the contrary, the closer Iran moves towards normalisation of its relationship with the rest of the world, the harder Saudi Arabia and its regional allies may fight to reduce its influence elsewhere. The Arab military coalition assembled against the Iranian-backed Houthi rebels in Yemen, including Egypt as well as the Gulf states, may well be a harbinger. In the short term, the price of a nuclear deal may be escalation in the Sunni-Shia confrontation.

So why, given the unavoidable doubts about Tehran’s intentions, the anger of Washington’s Arab allies and the threats of Israel’s bellicose prime minister Benjamin Netanyahu, has US President Barack Obama been right to press ahead with negotiations? Simple. There is not a better alternative. Bombing Iran could delay but not destroy the nuclear programme and, in the process, would unite the vast majority of Iranians around the effort to build a bomb. Sanctions make life difficult for the regime, but they do not erase the knowledge of its nuclear scientists. And, all the while, the centrifuges keep spinning.

The only solid guarantee against an Iranian nuclear weapon is a decision by the regime in Tehran that its own interests and that of the country are better served by not crossing the line. This does not mean the west should acquiesce in any attempts to cheat the non-proliferation system or its efforts to expand its military reach. The US retains a balancing role in the Middle East. The great powers have a chance — no more than that — to rein back Tehran’s nuclear programme. They should take it. There are no foolproof answers in today’s disordered world

Philip Stephens

Fonte: FT

quarta-feira, 1 de abril de 2015

Companies are preaching to a new audience

By stepping into the furore over Indiana’s religious freedom law, in defence of gay rights, Tim Cook is boldly taking Apple where companies have been wary about going before. But he is not the only US business leader advocating for a deeply-held personal belief — so have Marc Benioff of Salesforce.com on the same issue, and Howard Schultz of Starbucks on racial discrimination and violence.

In addition to chief executives speaking out about social matters on which they might have remained silent a few years ago, they are adopting liberal stances that often clash with political and religious conservatives. On gay marriage in particular, companies are ignoring the traditional advice that they should stick to maximising profits within what Milton Friedman, the economist, called “the rules of the game”.

“Discrimination, in all its forms, is bad for business,” Mr Cook declared in an article in the Washington Post this week. Having nodded to the shareholder value caucus, he then made very clear where his heart lies. “It isn’t a religious issue. This is about how we treat each other as human beings,” wrote Mr Cook, who is himself gay, in his effort to change the rules in Indiana and conservative states such as Arkansas.

On a narrow view of corporate self-interest, Mr Cook is misguided to criticise Mike Pence, Indiana’s Republican governor. If employers with conservative religious views do not employ gay people, or refuse to serve them, that merely weakens the competition for Apple and others. Prejudice drives up his rivals’ wage costs and reduces the size of their addressable market.

On a broader view, including how Apple and Starbucks project their brands, these leaders are talking sense. There would be a far bigger tension between shareholder value and the chief executive’s beliefs had Mr Schultz argued for racial discrimination rather than launching Starbucks’ “Race Together” campaign, which started awkwardly with baristas trying to engage customers in conversation on the topic.

Friedman was essentially right in his book Capitalism and Freedom that the discrimination tends to be curbed by the market because it is irrational — it introduces unnecessary costs, giving a company that is colour or gender-blind an edge. “Those of us who regard colour of skin as irrelevant can buy some things more cheaply,” Friedman wrote, with his customary detachment.

He drew on The Economics of Discrimination, the 1957 book by the Nobel-winning economist Gary Becker. As Catherine Rampell noted in the Washington Post, Becker found that prejudice imposes costs on discriminators as well as those discriminated against. Prejudice tends to linger in closed institutions such as churches, while being driven out by competition.

ll things being equal, companies take a liberal view of, for example, immigration because they want to gain access to skilled labour. That is evident in US companies’ support for immigrant visas and UK companies’ backing for free labour movement within the EU. Employers do not mind where a worker was born if he or she is productive, adaptable and hard-working.

It does not always work as it should, of course. Whatever their theoretical self-interest, employers are often prejudiced. One study, for example, found that young people applying for internships at German companies were 14 per cent more likely to be called back if they had German, rather than Turkish, names. Smaller companies discriminated most — the national name premium was 24 per cent.

Plenty also depends on customer attitudes. Wage discrimination has fallen over time in US professional basketball, where most players are black — white players were heavily overpaid in the 1980s, adjusted for skill, but they now tend not to be. This may be because fans have become less prejudiced and will no longer pay more to see white players, another study suggests.

This is the key. Employers can argue narrowly that prejudice is an administrative problem. Some 379 companies including Apple, Amazon, eBay, PepsiCo and Starbucks, have signed a brief to the Supreme Court on a forthcoming gay marriage case. They claim that having different state laws “breeds unnecessary confusion, tension and diminished morale” internally and raises employers’ costs by $1bn a year.

But these chief executives are not taking a public stand because of a fine operational calculation. They are doing it because they believe in what they say, and they think that their customers do too. Younger consumers with liberal social attitudes are a bigger target market than religious conservatives, and companies are quickly reorienting themselves to millennials.

Aaron Chatterji, associate professor at Duke University, argues that such companies want to “reach younger, more diverse, more progressive customers and potential employees”. Mr Cook’s pledge that “Apple is open. Open to everyone, regardless of where they come from, what they look like, how they worship or who they love,” could equally serve as a marketing slogan.

The US is not the only country where religion and anti-discrimination laws clash. Churches in Germany have historically resisted equal rights for employees who are gay or divorced. The Catholic church is now thinking of reforming its ecclesiastical labour rules. It clearly feels in a minority.

Fonte: FT