The crisis shows moral capital is in secular decline

And still the revelations come. Leading banks pay yet more record fines for egregious behaviour ranging from sanctions-busting to facilitating tax evasion. Their involvement in rigging markets now extends beyond Libor, the rate at which banks lend to each other, to foreign exchange and the gold market. It appears to be a pervasive rather than occasional phenomenon. Even when they have been shopped, they do not give up. UK banks, we discover, have been underpaying compensation for mis-sold payment protection insurance.

All this corporate wrongdoing is combined with immense personal enrichment and a paucity of prosecutions of people at the top. How are we to make sense of this bizarre concatenation of events, in which the financial system appears to have become an ethics-free zone?

One fruitful way to look at it is to think of the financial system as having, at any given moment, a stock of moral capital. This complements an insight of economist John Kenneth Galbraith. In his book on the 1929 crash he argued that there is always an inventory of undiscovered embezzlement, which he called the “bezzle” – in other words, negative moral capital. When markets ride high the bezzle increases. Come the recession people become more suspicious, audits become more penetrating and the bezzle shrinks.

Galbraith described a cyclical phenomenon. Yet events since the latest financial crisis suggest that there is also a structural component to changes in the moral capital stock. In the corporate sector, and especially in banking, there has been an adverse step change in ethical values. One reason is the ineptly named “shareholder value revolution”, whereby a paternalistic corporate capitalism was replaced by a capital market pressure cooker in which senior executives were required to deliver progressive rises in short-term earnings. A second change was the move to performance-related pay and incentives tied to equity values.

In banking this bred a more transactional culture in which profits and personal rewards came increasingly from gaming the system. The globalisation of capital flows in the absence of an international regulator provided banks with ample opportunity for regulatory arbitrage, whereby questionable business could always be diverted to weaker jurisdictions.

At domestic level banks have shaped their business to minimise regulatory capital requirements. The great boom in securitised mortgages – the focal point of systemic risk and fraud in the crisis – reflected the lower capital requirements on mortgage-backed securities relative to those on conventional mortgage lending. At a personal level bonuses took precedence over virtually everything, including the customer.
As long as incentives are at odds with ethical requirements, common decency will be a minority pursuit. Scandals are inevitable. And as the gap between bankers’ pay and that of executives outside the financial system grows ever wider, business leaders lose moral authority, and the case for enlightened capitalism is devalued. There are honest people in banking. But it has become a less comfortable place for those with a strong moral conscience.


If this notion of a secular depletion in the moral capital stock in finance is right, attempts to instil ethics by refining incentives – however necessary and well meaning – will not be enough. In a mature industry in which the return on assets has been stagnant for years and higher equity returns have been achieved only through leverage and excessive risk-taking, heavy reliance on bonuses and equity-related rewards is an absurdity. Any significant rebuilding of the moral capital stock will have to come largely as the byproduct of structural change to make banking more like a utility.

Equally necessary is a retreat from the obsession with punishing corporations rather than senior executives. The supposed justification is that companies can be made to transform their culture and prevent future crimes. Much window-dressing results. Slapping huge fines on banks is potentially a more dangerous game. If the fines are big enough to do material damage, the resulting hit to bank capital may be a systemic trigger. Many innocent shareholders and employees will be the victims. If the fines are immaterial, they are pointless.

Jed Rakoff, the US district judge, argues that going after the company is technically suspect because you should not indict a company unless you can prove that some managerial agent of the company committed the alleged crime; and if you can prove that, why not indict the manager? He also sees it as morally suspect because punishing innocent employees and shareholders for crimes committed by unprosecuted individuals seems contrary to elementary notions of moral responsibility.

Modestly refining the carrots and using the wrong sticks is a poor formula for rebuilding the moral capital stock. There has to be a more radical way.


John Plender


Fonte: FT

Gavyn Davies: Draghi has done enough to silence the doubters

The European Central Bank’s decision to reduce the interest rate on deposits at the central bank to minus 0.10 per cent went as far as even the most ardent doves could reasonably have expected. Rates can probably fall no further. As Mario Draghi, the ECB president, said: “For all practical purposes, we have reached the lower bound.”

For that reason, the more technical elements of the package announced on Thursday in Frankfurt are in some ways the most significant. There was a €400bn injection of liquidity, in what the ECB called a “targeted longer-term refinancing operation” – a near copy of the Bank of England’s Funding for Lending Scheme. There was a form of quantitative easing, in which the central bank will buy securities backed by private sector loans. And there was the cessation of a “sterilisation” exercise, which had previously damped the monetary effect of the ECB’s purchases of government bonds.

Unlike the interest rate, which is now as low as it can go, all of these measures could be intensified if the eurozone recovery continues to disappoint. “We are not finished here,” Mr Draghi said, hinting at the possibility of further action “if need be under our mandate”. This statement was unanimous, and therefore presumablysupported by the Bundesbank, the arch conservative among the eurozone’s national central banks. It reduces the risk that the ECB will become trapped in a deflationary cycle, as Japan did in the 1990s.

Is this a “big bazooka”? It clearly falls some way short of a broad asset purchase programme of the kind pursued by the Federal Reserve and the Bank of Japan. None of the measures introduced on Thursday will produce a transformation in monetary conditions. After all, Denmark cut the interest rate on deposits at the central bank below zero a couple of years ago, with only moderate effects. True, the ECB carries more sway than the Danish central bank. Nonetheless, its move on interest rates should be seen in the same way as any other small reduction. One should not be too excited by the fact that it happens to have crossed the zero threshold.

A negative interest rate is, in effect, a levy on banks: instead of receiving interest on their deposits at the ECB, they will watch them shrink. But the TLTRO and liquidity injections cut the other way, perpetuating the ECB’s recent efforts to provide extremely easy conditions in the money markets. So far as I can see, the banks should gain more from easy money than they lose through negative interest rates. That may explain why bank shares rose after Mr Draghi’s statement.

The decision no longer to sterilise the central bank’s earlier purchases of government debt is a signal of intent, even if its direct effect is not very large. For the first time, the ECB is financing these purchases by creating money. Many had assumed that Mr Draghi would never embark on a QE programme big enough to make a substantial difference to inflation or the exchange rate, for fear of opposition from the German central bank. But having acquiesced in such a programme – albeit on a small scale – the Bundesbank would now find it harder to object on principle. The course pioneered by Haruhiko Kuroda at the Bank of Japan can no longer be assumed to be entirely out of the ECB president’s reach.

It is impossible to know whether the promise to start buying asset-backed securities will develop into a major initiative. At present, such securities are rare; unless the market starts creating them, there will be little for the ECB to buy. Mr Draghi is clearly minded to offer inducements – although technical obstacles have yet to be surmounted. Still, when the central bank makes itself the buyer of last resort, prospective sellers will take note.



The TLTRO is designed to encourage banks to increase their lending to the private sector, in sectors other than housing. The BoE has had some success with this approach. But in Europe, as in Britain, a lack of demand for loans may limit its effectiveness.

Thursday was an important day. The ECB’s balance sheet has been shrinking recently, as previous LTROs were paid off; now it will probably grow once again. More importantly, the central bank signalled that it was ready to back words with action.

Inflation in the euro area has fallen to about 0.5 per cent – and much lower in some countries. To many outside observers, it already looks extraordinary that the ECB has drifted so far from its inflation target of just below 2 per cent without adopting some form of QE. High unemployment in the eurozone is an indication that inflation is unlikely to return quickly.

Mr Draghi has acknowledged on many occasions that a prolonged period of low inflation is now inevitable. But he promised that any further worsening in the outlook would produce action from the governing council. His promises were beginning to look empty. Yesterday, he took action. For the immediate future, it should be enough.


Gavyn Davies


Fonte: FT

Tiananmen divided the workers of the world

When China’s Communist leaders under Deng Xiaoping launched their assault on the Tiananmen Square protesters in 25 years ago, they were supposedly following the socialist road and Marxist principles of proletarian rule. “Workers of all lands, unite!” declared Karl Marx and Friedrich Engels in the 1848 Communist Manifesto.

But the vast expansion of the world’s workforce unleashed by Deng following the crackdown on the pro-democracy protesters led to the opposite. The opening up of China through economic reform and foreign direct investment has, instead of uniting the proletariat, divided it.

This was not the revolution Marx envisaged but it was the outcome of Deng’s 1992 southern tour, on which the Chinese leader supported reform in cities such as Shenzhen, trying to strengthen party rule by offering the people opportunity. The fact that few Chinese now mark June 4, 1989 is a tribute both to party censorship and to Deng’s gambit.

It encouraged, as the economist Branko Milanovic has written, “the profoundest global reshuffle of people’s economic positions since the Industrial Revolution.” The top 1 per cent earners of the world’s population (especially the 0.1 per cent richest) and millions of new entrants to its industrial workforce have gained in different ways from Deng’s liberalisation.

Meanwhile, the non-bourgeois in advanced economies – manufacturing and service workers with low levels of education and limited skills – have suffered wage stagnation. The ability to bargain for higher wages has been undermined by a huge growth in the global supply of labour – by 1.2bn people between 1980 and 2010.

Deng did not shake up the world alone. When I was an employment correspondent in the late 1980s and early 1990s, the power of organised labour in the UK had already been weakened by Margaret Thatcher’s privatisation of state-owned industries and her defeat of the 1984-85 miners’ strike. Private sector union membership was falling and it continued to decline.

Political and economic upheaval coincided with the advance of the internet and rapid development of information technology in the mid-1990s. That led to the automation of jobs and more cross-border trade – it became easier for supply chains to stretch around the world.


But China’s rise toppled creaking barriers to trade and employment, forging a global labour market and rapid industrialisation. About 620m people globally were lifted from poverty by moving from farm to factory, and China’s gross domestic product per head rose from 3 per cent of the level in advanced economies in 1980 to 20 per cent by 2010, according to the McKinsey Global Institute.

In economic terms, this was good for the Chinese people – although it increased inequality, the gains were broadly spread. For many workers in advanced economies, however, it was like a whole new workforce turning up, eager to put in longer hours for lower pay. Their bargaining power has never recovered from the shock.

“For the individual as a consumer, it has been wonderful – there are many more products and services, much more choice, and it has all become cheaper,” says James Manyika, an MGI director. “For workers with limited skills, it is pretty awful. They were once protected, but now they compete with others who are cheaper and may be more skilled.”



The strongest effect has been felt in Europe and the US, where the share of income going to labour has decreased from 64 per cent in the postwar decades up to the 1980s to 58 per cent today. One Federal Reserve Bank of San Francisco study found that the sharpest drop occurred in industries such as textile manufacture that were most exposed to import competition.

By shifting labour-intensive parts of production to countries such as China and keeping the higher-value aspects at home, companies lowered their costs and raised their returns on capital. For the workers of the world as a whole, that amounted to a wage cut.

After a quarter of a century, this arbitrage is easing. Wages in China’s coastal cities have risen, making it more cost-effective to retain production in the US. But that does not guarantee a return to mass employment in manufacturing and primary industries – advances in technology mean factories now employ fewer workers.

According to a study for the Organisation for Economic Co-operation and Development, 80 per cent of the fall in labour’s share of global income has been caused by technological change and the shift toward capital-intensive production. Software and information technology have permitted “unprecedented advances in innovation”.

People in managerial and high-skilled jobs have gained – the average US college graduate earned 1.7 times the wages of a high-school dropout in 1980 but 2.7 times by 2008 – and will continue to have superior employment chances. McKinsey estimates that 95m people could be out of work in developing economies by 2020 because they have low skills.

Through the lens of history, the best time to be a member of the proletariat in an advanced economy was probably the postwar period up to the oil shock of the mid-1970s – when most of the Chinese and Indian population was poor and agrarian and there was little competition. The era was already ending when China implemented Deng’s plan.

“Today, hundreds of millions of Chinese are living far more comfortable lives than they were living in 1989,” writes Ezra Vogel in his Deng biography. Meanwhile, millions of employees in advanced economies are less secure. It is a workers’ revolution, but not a unifying one.


John Gapper


Fonte: FT

Eurozone deflation fears add to pressure on Draghi

Eurozone inflation fell unexpectedly to 0.5 per cent last month, intensifying pressure on Mario Draghi, president of the European Central Bank, to act against the rising threat of deflation.

The inflation reading is well below the ECB’s target of just under 2 per cent and on a par with March, when it hit its lowest level since autumn 2009.


The likelihood of looser monetary policy, including a radical move to cut one of the central bank’s key rates below zero, has significantly increased ahead of Thursday’s ECB vote. Mr Draghi is also expected to announce proposals to help credit-starved small businesses.

Hervé Amourda, economist at Société Générale, said the inflation reading “strengthens our call for bolder action from the ECB”.

The mood in Frankfurt contrasts with the debate in the UK, where the Bank of England has started to discuss raising rates after signs the British recovery has gained traction.


The eurozone economy barely grew in the first quarter and the latest disappointment on inflation will stoke concerns, expressed last week by Mr Draghi, of a negative spiral of subdued price pressures and tight credit conditions.

Such a sequence of events could derail the region’s fledgling recovery by destroying demand and raising debt burdens in the bloc’s periphery.

Much lower-than-forecast German inflation in May has already toughened the challenge faced by weaker member states, which are attempting to match the levels of competitiveness seen in the bloc’s economic powerhouse in part through divergences in inflation rates.

Large-scale asset purchases, known as quantitative easing, are not expected this month. But with the ECB set to exhaust all of its conventional tools to fight deflation, analysts are asking whether Mr Draghi will signal that the central bank is prepared to go further.

Ken Wattret, economist at BNP Paribas, said there was a high chance of Mr Draghi strengthening his rhetoric on Thursday afternoon: “Even if the ECB is reluctant to deliver QE at this point, persistent downward surprises on inflation make a strong case for its communication to take a clear step towards it.”


Fonte: FT

Timothy Garton Ash: One day, two revolutions and uncertain destinies

Twenty-five years ago the world changed course. On June 4 1989 semi-free elections in Poland kick-started the end of communism across the whole Soviet bloc – and the Tiananmen Square massacre launched China on an entirely different trajectory. The consequences are still being played out, from Ukraine to the South China Sea.

I will never forget coming back to a newspaper office in Warsaw that afternoon, with elated Polish friends, and noticing on a television screen the first grainy footage of the bodies of Chinese protesters being carried on makeshift stretchers down the streets of Beijing.


From that day forward the ghost of Tiananmen stalked eastern Europe. “Remember Tiananmen!” people whispered, from East Berlin to Sofia. “If we go too far, that might happen here.” In this sense, China’s tragedy was Europe’s boon. The negative example of Tiananmen helped Europeans cleave to the path of non-violence, negotiation and compromise.

Subsequently, influence flowed the other way. China’s communist leaders learnt from the fall of communism in Europe. As one of them put it in 2004: “We can gain profound enlightenment from the painful lesson of the loss of power by the communist parties of the Soviet Union and eastern Europe.”

So: deliver economic growth; do not lose touch with what the masses are thinking; introduce a regular rotation of the top leadership; recruit to your party the brightest students, irrespective of class background. And crack down on any efforts at social self-organisation and collective action – for that is what brought the European comrades down. President Xi Jinping has publicly recalled the Soviet collapse.

Both paths have produced successes over the past quarter-century. China has experienced stellar economic growth and a significant increase in individual freedoms. State television there likes to contrast this with images of bloodshed and chaos in Ukraine. It less often shows pictures of a free, prosperous, democratic Poland.

What Poland did on June 4 1989 was stunningly original: it pioneered a new model of peaceful regime change. What it has done since 1989 has been remarkable, but not original. The political, economic and legal system of today’s Poland is a kind of mix-and-match of well-tried west European models.

China’s June 4 1989 was deeply unoriginal. Deng Xiaoping just did what communist leaders always used to do when faced with men and women rising up spontaneously for freedom: shoot them. By contrast, what China has done since 1989 has been extremely original, combining the dynamism of a market economy with continued one-party rule. Leninist capitalism! That is why China today is, for a student of comparative politics, the most interesting place on earth. For here is something very rare in politics: a genuinely new experiment, its future wholly uncertain.

I am fairly confident that Poland in 10 years will be a western, European liberal democracy, in the same boat as France and Germany – despite the efforts of President Vladimir Putin of Russia.

But China? Will it muddle through on its journey without maps, “crossing the river by feeling the stones”, as Deng put it? Or will the contradictions between its political and economic system, and the growing tensions afflicting its society, lead to another crisis?

If so, will that crisis catalyse political reform or diversionary nationalism – manifested, for example, through military adventurism in the South China Sea? Or the latter leading to the former? Or to something much nastier?

It is still possible that, as the poet James Fenton rhymed in anger, “They’ll come again/To Tiananmen”. The victims would then be celebrated as martyrs on that same square of Heavenly Peace. If you had suggested in 1979 that 10 years later the leaders of the 1956 Hungarian revolution would be ceremonially reburied, with a grand-operatic ceremony on Heroes Square in Budapest, no one would have believed you. Yet that is what happened, days after Poland’s historic election.

History is full of surprises, and a Chinese equivalent cannot be ruled out. But at the moment China seems more likely to develop along its very different post-1989 path.

Here we come to a last contrast. In Warsaw this week the Poles are proudly celebrating their June 4, in the company of President Barack Obama. In Beijing, everything about China’s June 4 – the basic facts, the photographs, the names, even the mourning rituals of bereaved mothers – will be suppressed. Somebody still fears Banquo’s ghost.

I pray that China will find its own peaceful way forward, building on its great achievements and repairing the equally obvious failings. But one thing I know: we will only be able to say with confidence that China has developed a stable system, along a quite different trajectory from post-communist Europe, when it can publicly face up to its difficult past.


Timothy Garton Ash is the author of ‘The Magic Lantern’, a personal  account of the velvet revolutions of 1989

Fonte: FT

Mariembad não é aqui?

Todo ano aguardo ansiosamente pelo encontro. Será este ano, penso com meus botões.  Imagino toda a mise en scène e ansiedade da midia a espera da declaração bombastica.  As contradições, ah! as contradições, palavra magica responsável pelo trabalho de parto da nova ordem,  que causa tantas dores e  ano, após, ano insiste em manter-se no mesmo nível do ano anterior e postergar o anuncio do dia  do derrumbre, da queda do malefico sistema capitalista.  Alguns, no entanto, discordam da leitura e anunciam  a queda inevitável,  não sem antes, fazer uma longa exposição com palavreado estranho que cria um clima de medo  e ambiente sufocante de um bom filme de horror dos tempos d'antanho: menores de idade e aqueles com fragil compleição, imagino,  deixam rapidamente o local em busca de um copo de agua com açucar. Meus nervos, ah! meus nervos.  Mas divago. Enquanto  o publico  mal respira, tamanha  é a ansiedade. Será este ano. O que ele disse, cutuca alguem do lado. O que ele disse?  Será mesmo este ano?  Sim, é isto mesmo. Quando, sim, Quando.  Depois do verão no hemisferio norte? Quem sabe durante o inverno?  Seus olhos contemplam o auditorio lotado, os pontos escuros no canto esquerdo, os cartazes ao lado com os herois do passado:  Marx, Lenin e um outro que lembra Althusser ou seria outro?  Nenhuma palavra a mais, apenas o silêncio,  troca de olhares   seguida do som inconfundível de dobradiças envelhecidas quebrando a mágica. Ano que vem tem mais ou quem sabe, ela vem antes. Quem sabe, quem sabe...

A diminished France could spell the end for Europe

The real earthquake was the fall of the Berlin Wall. A quarter of a century later Europe is still buffeted by the aftershocks. Vladimir Putin wants to revive the Soviet empire. France is floundering in a Europe dominated by a reunited Germany. The Russian president is doomed ultimately to fail but can wreak havoc along the way. France tortures itself rather than admit that Europe now belongs to someone else.

European leaders imagined life after communism would carry on much as before. The EU would take in the new democracies of the east. A single currency would dilute the dominance of the D-Mark and anchor Germany in the existing European order. That was then.

The elections to the European Parliament last week were not quite the populist rout of some excited headlines. Yet the anti-elite, anti-immigrant and, in some cases, anti-EU protest was plain enough. In France, Britain and Denmark the xenophobic right made significant headway. Elsewhere, the angry vote fragmented between left and right. Populists and eurosceptics now hold 30 per cent of the seats in the EU assembly. Mr Putin has been cheering his fellow, equally nasty nationalist travellers.

The surprise is that anyone should have been surprised by the outcome. The continent has suffered five grim years of falling living standards, rising unemployment and government-induced austerity. Germany’s Angela Merkel aside, it has not been blessed with leaders who inspire popular confidence. Welfare systems designed for another age are buckling under the pressures of globalisation. That a fair slice of voters should see these elections as a cost-free chance to kick mainstream politicians can scarcely be described as startling.

The EU’s leaders should not be complacent. The union must be attentive to the everyday concerns of ordinary citizens and resist interference in the nooks and crannies of national life. It would be a great pity if the politicians now negated this message by choosing an old-school federalist such as Luxembourg’s Jean-Claude Juncker to head the European Commission.

For all that, the nuts and bolts of European integration are a sideshow. The insecurities and inequalities that flow from globalisation are not the fault of the EU. If there is a serious criticism to be made it is that the union has failed to find an economic and political strategy that demonstrates that member states would fare a lot worse on their own.

These were national more than European elections. The big shocks were delivered in France and Britain: Marine Le Pen’s National Front (FN) driving the centre-right UMP and President François Hollande’s Socialists into second and third place respectively, and Nigel Farage’s UK Independence party topping the poll in Britain. The opinion polls in France showed FN voters were much more intent on slapping the elite, and concerned with immigration and jobs than with the highways and byways of Brussels. Ukip supporters similarly ranked immigration and the economy as their top concerns.

The results in France are infinitely the more important – and not just because Ms Le Pen’s smile does not disguise the FN’s fascist and anti-semitic roots. Britain has been detaching itself from its own continent for some time. Were it to depart, the rest of the EU would suffer a hefty, but not fatal, blow. France, by contrast, is an essential pillar. Without France, the euro and the entire European project would collapse in on themselves.

The prolonged sulk of successive French governments has begun to make the unthinkable thinkable. Talk to German politicians about the future of Europe and they are not unduly exercised by Spanish debt or Italian lassitude. The country they really worry about is France. Germany knows better than most the dangers of an overmighty Berlin.

The founding bargain of the EU balanced German economic strength with French political leadership. The fabled locomotive of integration had two drivers. Even after German unification, President François Mitterrand felt sufficiently emboldened to say that more Europe meant more France. Even during the 1990s the sentiment owed more to hope than expectation. Two decades of economic underperformance has made it sound plain silly.

The temptation is to blame Mr Hollande. It is fair to say that he wasted the first two years of his presidency in the pretence there was a painless way of jump-starting France’s long-faltering economy. This year he promised an about-turn, but doubts linger as to whether he has the grit to live up to the reforms and restore the national competitiveness.

Mr Hollande is one in a long line. His predecessor, Nicolas Sarkozy, promised a “rupture” with statist economic policies. In the event, Mr Sarkozy produced barely a ripple. It is more than 30 years since France balanced its budget and it seems almost as long since unemployment was much below 10 per cent. Sad to say, the National Front – a party as devoid of answers as it is deeply nasty – was the beneficiary of a vote against economic failure.

The strange thing is that France is not the economic basket case many anglophones pretend. It has high productivity, world-class companies, skilled workers and, as far as Europe goes, a better-than-most demographic profile. The problem is the state is too big, and social and welfare systems are too inflexible. Above all, France has lacked a leader with the political strength and candour to put things right. The vote for Ms Le Pen was a powerful warning of the perils of inaction. The populists will not bring down the EU. But an enfeebled France could.


Philip Stephens


Fonte: FT

Mais uma para o febeapá heterodoxo...

Guido Mantega, em mais uma grande contribuição a macroeconomia dos tristes trópicos,  optou pela  manutenção da desoneração  da folha.  Leia-se: renuncia fiscal de 21,6 bilhões no corrente ano. Empresários, naturalmente, estão felizes. Trabalhadores, ainda mais felizes, segundo o nosso jenio, com  os empregos criados que serão mantidos e, quiça, até poderá ocorrer aumento na sua oferta.  Motivo pra soltar rojões e sair por ai sambando de felicidade.

Em dia de festa,   alerta um velho amigo, não se discute a conta. Mas não sou chegado a samba. Meu negocio é rock e música caipira de raizes e não resisto a colocar o dedo na ferida: quem pagara a conta?  Pergunta chata. Eu sei. Mas ela deverá ser paga e sabemos como:  com divida pública  remunerada pela taxa de juros que causa tantos pesadelos e noites mal dormidas no campo heterodoxo.  Pelo jeito, não mais.

Ano de eleições. Expressão mágica que tudo explica, mas nem por isto justifica colocar mais lenha na fogueira que deverá arder no pós eleicões, o fatídico 2015.  Políticos não cometem suicídio político e por isto a medida  era esperada, já que a aposta feita na tal nova política econômica - nep em homenagem ao velho ditador russo, Lenin -  tem se mostrado um fracasso retumbante que coloca - diria um delirante oposicionista - em risco a reeleição dela.

Não é nenhum segredo a discordância deste pobre econômista da linha adotada pela atual gestão que tem apresentado um bom trabalho na área de politicas sociais.  Politicas estas que são perfeitamente compativeis com uma política econômica sem os balangandãs e adereços heterodoxos. O foco deveria ser na construção de um país socialmente mais justo. Pra isto não é preciso reinventar a roda.

Continuo no mesmo lugar: o canto de sereia da oposição não me atrai nem um pouco, mas ninguem merece o mambo jambo do simpático membro do Country Club da Rua Itapeva.

James Galbraith: Policy, not capitalism, is to blame for the income divide

In his feted book Capital in the Twenty-First Century , Thomas Piketty contends that wealth inequality rises inexorably under capitalism. The Financial Times has reported that, once various apparent errors are corrected, the European numbers show no tendency to rising wealth inequality after 1970. A judgment on this issue must, of course, await Prof Piketty’s response. Whatever the outcome, we are reminded that economic knowledge, especially in this area, is forged in long hours of work with sketchy and ambiguous statistical sources.

For the past two decades, the University of Texas Inequality Project has been contributing to this work. We did not set out to make, prove or disprove any grand theoretical claim.

Our main goal was to provide information, to clarify a factual record that was sparse, inconsistent and noisy. Our data on pay inequality, with estimates of income inequality, now cover most of the world from the early 1960s until (in some cases) as recently as 2012. We also find that inequality, measured within countries, rose in recent decades. But we do not find anything inexorable about this. We think that global circumstances and national policies were largely at fault. When policies and circumstances change, the rise of inequality can be stopped. Our data show that rich countries are more equal than poor countries. No surprise: to be rich is to have a large middle class. Communism defied this rule for a while, but not any more.

In rich countries “market income”, which reflects the income people receive from paid work, is very unequal, but this is because strong welfare states permit many households to exist without market income. Once taxes and transfer payments are factored in, disposable incomes are much more level. In poor countries the distinction is less clear. In some countries with weak welfare states and light taxation, measures of market and disposable income inequality do not appear to differ very much.

Finance has driven income inequality, because credit booms accelerate economic growth and because bankers tend to be rich. In the US income inequalities sharpened in the information-technology boom in 2000, again in the housing-finance bubble in 2007, and yet again as the banks and the stock market recovered after 2010.

Across the world, income inequality became more marked in the two decades from 1980. The trend started with the global debt crisis in Latin America and Africa, swept through central and eastern Europe, and moved on to Asia. Only countries that were outside the global financial system (notably China and India) were largely unaffected in the 1980s – though in the 1990s inequality rose with market reforms in both places. Worldwide, as a very broad generalisation, it seems that inequality peaked in 2000.

Political structures matter: social democracies are more egalitarian. Institutional changes matter: military coups (Chile in 1973, Argentina in 1976) precipitated rising inequality. Revolution (Iran in 1979) brought a sharp fall. The rise in the 1980s and 1990s was stronger in countries with weak institutions and weaker in countries with strong ones. In a few sturdy places, such as Denmark, inequality barely rose at all.

Since 2000, inequality has declined in the post-neoliberal countries of South America, and we believe it has been falling since 2008 in China. There, ever more comprehensive urbanisation plays a major role. In Europe and the US, inequality fell after the financial crisis, but rose again as stock markets recovered.

Rising inequality is not necessarily a sign of bad times. The boom creates jobs, reduces poverty and expands wellbeing. But high inequality tends to prefigure a crisis. After a crisis inequality falls – like blood pressure after a heart attack. But that is a bit late.

Inequality, like blood pressure, can be controlled. We do not find an unstoppable trend – not even in the past 40 years. Much depends on global forces, bearing against the strength and determination of national policies and institutions.

Data work is difficult. We made many tweaks in order to arrive at reasonable measures. We have tried to document them, and we think they are consistent and justified. As with everything in this field: use with caution.




James Galbraith is a recipient of the 2014 Leontief Prize for advancing the frontiers of economic thought


Fonte: FT

Big questions hang over Piketty’s work

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Capital in the Twenty-First Century by the economist Thomas Piketty has been acclaimed as one of the most influential books of this decade. Its thesis, that wealth inequality in the rich world is going back to levels last reached 100 years ago, has prompted a fierce debate among academics and policy makers. While commentators have disagreed over the implications of the findings, even critics have hailed the data work underpinning the book’s conclusions.

A Financial Times investigation, however, has found data problems and errors in Prof Piketty’s work. These include unexplained entries in his spreadsheets, cherry picking data sources and transcription errors. Taken together, these problems seem to undermine his conclusion that wealth inequality is rising in the US and in Europe.

The FT’s replication of Prof Piketty’s results was only possible because he published all his sources and spreadsheets online. Open data are a welcome fashion in economics and Prof Piketty should be lauded for embracing it. Capital in the Twenty-First Century calls for important policy changes, including an international wealth tax. It is essential that the data on which he draws his conclusion are subject to public scrutiny.

The FT’s discovery of problems with Prof Piketty’s data undermine his thesis that capitalism has a natural tendency for wealth to become ever more concentrated in the hands of the rich.

Data on the distribution of wealth are notoriously unreliable, so any comparisons with more than 100 years ago must also be looked at with scepticism. Even if Prof Piketty’s figures were flawless – something which he too accepts is impossible – wealth inequalities would still be much lower in the early 20th century. Modern America and Europe are nothing like Downton Abbey.

Other conclusions from the best-seller are also unconvincing. The FT has found grounds to question the finding that the holding of wealth by the rich in Europe has increased since 1980. Without that result, there cannot be an iron law of capitalism that leads to ever rising inequality.

The theoretical argument that wealth inequalities are likely to rise if growth rates are weak is also dubious. As Prof Lawrence Summers has argued, there are deep questions regarding the likely return to capital in coming decades and whether it will be reinvested to provide a rentier income.

Even if wealth inequalities were to rise, it is important to understand the reasons for this increase. There is a gulf of difference between wealth derived from entrepreneurial skills and inheritance. There will also be a natural tendency for wealth concentrations to rise in an ageing society, as people need to stash more in private pensions to prepare for a long retirement. This is not to say that, in the modern world, there are no cases in which wealth for the few is inhibiting opportunities for the many. But rather than simply assuming there is a central contradiction in capitalism, one should seek the specific causes.

In London, climbing property prices are creating disparities between those who own a house and those who do not. Attacking planning restrictions to build more homes should be the answer well before politicians reach for the policy marked tax. In the UK and elsewhere, extraordinary wealth may derive from monopoly profits. Enlightened governments should encourage competition and remove barriers to entry so that unfair rents disappear. That still leaves open the possibility that policy makers will need to address extreme wealth disparities in coming years. But before you use blunt tools, proper information on the distribution of wealth is required. Prof Piketty’s book is a remarkable collection of statistics, but does not provide the definitive answer.


Editorial


Fonte: FT

China cannot follow America’s route to world leadership

The US is, by some measures, about to cede to China its place as the largest economy. Some say that an era of Chinese world leadership cannot be far behind. But cast an eye over the history of America’s own rise, and one thing is clear: power did not come from economic might alone.

America’s trajectory was unprecedented. It took the first world war – an earth-shattering convulsion in global politics – not just to hoist the US into the role of global leader but even to create that role.


In this centenary year everyone is talking about the Great War. But what is it that we are talking about? It is mainly the hoary questions of war guilt and the diplomatic crisis of July 1914 that have exercised the historians. Amid arguments over whether Germany’s Kaiser Wilhelm was guilty or whether Europeans were sleepwalkers stumbling into war, the question that is too easily lost is: why should we care? Why should a dynastic clash, triggered by an assassination in the Balkans 100 years ago, matter in today’s interconnected world?

The conflict that began in 1914 was not a world war but a parochial struggle between the ancient dynasties of central and eastern Europe. It matters all the same – not so much for its causes as its effects.

Across Eurasia, the war wreaked change. In two years from 1917 the countries of eastern Europe were carved out of the territory of the defeated tsarist empire. Modern Ukraine first gained international recognition not from the Allies at Versailles but from imperial Germany and Habsburg Austria-Hungary at the peace conference of Brest-Litovsk in January 1918.

Russian resentment of Ukrainian independence dates not from the second world war but from the first. It was the resurgence of Russian power after 1920 and the defeat of a joint Ukrainian-Polish invasion that welded Kiev into the Soviet Union. It was then, too, that the struggle between Japan and the modern Chinese republic first came to the world’s attention. The Treaty of Versailles that ended the war with Germany was criticised from all sides but only China refused to sign it. Huge nationalist protests made it impossible for Beijing to accept the allocation to Japan of Germany’s imperialist rights to Chinese sovereign territory in the Shandong peninsula.

At the heart of this rearrangement of world affairs stood one fact: the rise of the US as the first superpower. Victorian Britain had commanded far-reaching influence. London was the acknowledged leader of the coalition against Germany. But it owed this to its empire; the UK itself was a modest-sized power. When the US supplanted it, it did so as a nation state.

US influence was undoubtedly anchored on its affluence. It became the world’s largest economy in the early 1870s. But economic capacity alone is not a source of power; it must be harnessed. And in the late 19th century, America lacked even the most basic institutions of a national economy. It was a peripheral member of the world economy, with prohibitively high tariffs and doubtful commitment to the international gold standard. The Federal Reserve board did not come into existence until 1913. It was the suicide of European power – the vast financial cost of the first world war, and the crisis of political legitimacy that followed the horrendous bloodbath – that opened the door to the assertion of American leadership.


Therein lies the difference between China’s ascent and America’s before it. The US rose against the backdrop of a total war that exhausted Europe’s military power and created the perfect canvas for America to assert its industrial and financial strength. Two-thirds of the shells fired on the Somme in 1916 were made and paid for by the US and Canada. The US made its claim to democratic leadership when the war had called into question all traditional standards of legitimacy. How else to account for the fact that President Woodrow Wilson, a conservative southerner and fervent advocate of Jim Crow laws, came to be regarded as the great saviour of global progressivism?

No such opportunity presents itself to China. Its relative financial and economic power is far less than America’s was in the early 20th century. Principal regional powers are not desperate to form alliances with it. Is Beijing about to proclaim a new crusade for modernity with Chinese characteristics? Surely not.

In any case, the search for this kind of simple historical analogy misstates the cognitive challenge of our own era. When we ominously announce that history is “restarting” and that “geopolitics is back”, let us not confuse those undeniable truths with the proposition that “history is repeating itself”.

There is no doubt that China’s resurgence will be the defining story at least of the early 21st century. Still, America’s path to power suggests that there is a complicated relationship between economic, political and strategic heft. Furthermore, the unique circumstances of America’s ascent – two world wars that convulsed Eurasia – are hardly likely to be repeated in the present era.

A thread of economic history may run from Britain in the 19th century to the US in the 20th and China in the 21st, but the twine of geopolitics is made of rougher hemp. A century ago, the first world war created for Washington a new position at the summit of world power, a position reinforced by US leadership in the second world war and the cold war.

The tangle of contemporary international relations is not nearly so diabolical. To imagine China’s ascent as fitting into this same historical pattern is a recipe not for comprehension but for unnecessary antagonism and conflict.


Adam Tooze teaches history at Yale and is the author of ‘The Deluge: The Great War and the Remaking of Global Order’

Fonte: FT

The macroprudential model back on the financial catwalk

Sartorial fashion is cyclical. Every few years, certain trends that had dropped out of style become hot on the catwalk again – meaning that ideas are constantly recycled.

Something similar may be under way in central banking too. Five decades ago, central bankers assumed that it was sometimes sensible to use targeted regulatory controls to create a healthy economy and financial system.

But then, from the 1980s, it became fashionable to presume that macroeconomic management sat in a different silo from financial regulation: the former was dominated by debates about inflation targets and interest rates; the latter focused on bank supervision.

Now the pendulum is swinging again. This week, Mark Carney, governor of the Bank of England, warned that the rapid pace of UK house price rises could threaten the British recovery, prompting speculation that the BoE will begin to tighten policy before long.

But if so, it is unlikely to rely exclusively on the tools it has used in the past decade – namely its power to set interest rates or to influence the rate at which money is created. Instead, the bank’s Financial Policy Committee might well turn to so-called macroprudential measures, which are intended to prevent financial excess. For example, it could impose loan-to-value caps for mortgage lending, or require banks to hold bigger capital buffers against certain types of loan.

Such regulatory meddling fell out of favour in the late 20th century. But since the 2008 financial crisis policy makers have discovered what they once knew but seemed to have forgotten: that macroeconomics cannot be divorced from finance and that it is sometimes difficult to steer the economy through interest rates alone.

Thus, when emerging market countries such as South Korea introduced measures to prevent excessive “hot money” investment inflows a couple of years ago, they labelled these “macroprudential” measures, where previously they might have called them “capital controls”.

Then, last year, countries such as New Zealand, Norway and Switzerland borrowed the label, too, to describe moves they were taking to combat domestic credit bubbles. Now big western countries are catching the wave and linking financial regulation to macroeconomic management: aside from the BoE, the European Central Bank is promoting macroprudential measures, too, and the idea is being debated at the US Federal Reserve.

What should investors make of this? One obvious lesson is that progress in policy making tends to follow the pattern of a Hegelian dialectic; ideas that seem terribly old-fashioned to one generation have a habit of being reborn with subtly fresh twists.

Another lesson is that these paradigm shifts do not always start with economists – or big central banks.

Think, for example, about how the last great shift occurred in relation to inflation targeting. Back in the late 1980s, the central banks of New Zealand and Sweden started experimenting with this out of frustration with the shortcomings of the previous central bank paradigm of targeting money supply. It was only later that the concept spread to countries such as the UK, at which point academic economists created an intellectual framework to justify this new mantra.

As Paul Tucker, former deputy governor of the BoE, recently observed, this pattern is playing out again: ideas that started in places such as New Zealand are spreading, and academics are scrambling to catch up. For what is striking about the new macroprudential fashion is that there is still relatively little intellectual scaffolding surrounding it, although groups such as the International Monetary Fund are now trying to put one together.

A third point to note is that central banks (and economists) would do well to be a little humble about their ideas. It is clear that policies such as inflation targeting, money targeting or macroprudential management can all be useful. But they all have potential shortcomings. Setting policy purely to target consumer price inflation does not work well if the biggest danger is an asset price bubble; but meddling in financial markets is not always as effective as raising interest rates to curb bubbles either. What limited evidence there is suggests that earlier experiments with macroprudential policy have produced mixed results

The one thing that is clear is that, whenever there is blind faith in any single paradigm, that paradigm will eventually fail. The fact that the BoE and others are relearning that finance and macroeconomics need to be analysed together is welcome, if long overdue.

But do not expect this new macroprudential paradigm to be a magic wand. Just remember the history of inflation targeting; or think of flares.


Gillian Tett


Fonte: FT

John Kay: Angry economics students are naive – and mostly right

Students of economics are in revolt – again. A few years ago, even before the crisis, they established an “autistic economics” network. After the crisis, in 2011, a Harvard class staged a walkout from Gregory Mankiw’s introductory course. That course forms the basis of textbooks prescribed in universities around the world. This year, 65 groups of students from 30 countries established an International Student Initiative for Pluralism in Economics. In no other subject do students express such organised dissatisfaction with their teaching.

It seems, however, to little lasting effect. Impermanence is inherent in student life: they don suits, collect their first salary and leave their complaints behind until the same gripes are rediscovered by a new group of 19-year-olds with similar naive hopes of changing the world. Still, recurrent dissatisfaction among both students and employers suggests they have a point.

One cause of the problem is not specific to economics. Modern universities prize research above teaching, to a degree that would astonish people outside the system, who imagine its primary purpose is to educate the young. In reality, teaching ability plays a negligible role in university hiring, tenure and promotion decisions. Many academic staff regard teaching as a nuisance that gets in the way of their “own” work. If most students were not having such a good time outside the classroom, they would be angrier than they are. They should be.

A problem specific to economics is that students suspect the material they are taught is designed to offer intellectual cover for rightwing ideology. This belief was plainly the motivation for the Harvard walkout – and there is some truth in the critique. Professor Mankiw was for a time chairman of George W Bush’s Council of Economic Advisers. Economics teaching encourages students to think of a world of self-interested individuals and profit-oriented company but Prof Mankiw’s conservatism puts him in a minority: in common with academics generally, most economics professors are probably mildly to the left of the political spectrum.



As are their students. The real burden of their complaint is not a political protest. As I did, they chose to study economics in the hope of solving, or at least understanding, real world problems: poverty, inequality, inflation and financial crises. But their classroom experience is narrower and less satisfying than mine was. They find themselves engaged in rote learning of models based on rational choice. They are fobbed off with assurances that acquisition of these skills is a necessary foundation for understanding of the great issues of the day; but somehow these great issues never make it into the curriculum. They suspect, rightly, that many of their teachers are not much interested. This is the burden of a powerful and detailed critique of their course prepared by students at the University of Manchester.

Their demand for more pluralism in the economics curriculum is well made. Yet much of the “heterodox economics” the Manchester students suggest including is flaky, the creation of people with their own political agenda, whether Marxist or neoliberal; or of those who cannot do the mathematics the dominant rational choice paradigm requires. Their professors reject the introduction of these alternative schemes for the same good reasons their science colleagues would reject phlogiston theory or creationism.

Yet teachers are mistaken in their conformity to a single methodological approach – encapsulated in the claim that has taken hold in the past four decades that approaches not based on rational choice foundations are unscientific or “not economics”. The need is not so much to teach alternative paradigms of economics as to teach that pragmatism, not paradigm, is the key to economic understanding.

This eclecticism is reflected in the curriculum proposals being developed by the Institute for New Economic Thinking, led by Professor Wendy Carlin of University College London, on whose advisory board I sit. The subject of economics is not a method of analysis but a set of problems – the problems that drew students to the subject in the first place. The proper scope of economics is any and all ideas that bear usefully on these topics: just as the proper scope of medicine is any and all therapies that help the patient.


John Kay


Fonte: FT

Martin Wolf: India’s election remakes our world

Surjit Bhalla, an Indian economist, has written to me that India’s is “the most momentous election in world history”. I disagree: the elections of Abraham Lincoln and Franklin Delano Roosevelt were more significant. But the idea is not absurd. India’s population is 1.27bn. Soon it will overtake China as the most populous country. If the election of Narendra Modi were to transform India, it would transform the world.

It is already possible to identify at least three ways in which the election is remarkable.

First, India has shown yet again the signal virtue of democracy: the peaceful transfer of legitimate power. That this is possible in such a vast, diverse and poor country is an inspiring political achievement.

Second, Indians have rejected the dynastic politics of the Congress party, which, alas, brought to a sad end the distinguished public service of Manmohan Singh, a man I have known and admired for four decades. The most important Congress-led government since the days of Jawaharlal Nehru was that of Narasimha Rao in the early 1990s, under whom Mr Singh served as reforming finance minister. If Mr Modi succeeds, it will be because he builds on that foundation. Congress still has the best chance of being the strong secular party India needs, but only if it liberates itself from its dependence on the Gandhi family.

Third, Mr Modi truly is a self-made man. Even though his party won just 31 per cent of the vote, he has gained an overwhelming majority in the lower house. He has done so by promising to spread the perceived successes of Gujarat to the rest of the country. There is debate in India over whether Gujarat is the model it is alleged to be. Yet that is not the main point. What matters more is that Indians have chosen a man who promises to improve their lives. He is not chosen for his origins. That is testimony to India’s transformation over the past quarter of a century.

The outgoing government is condemned as a failure. Yet, as Shankar Acharya, former chief economic adviser to the Indian government in the 1990s, points out, “economic growth has averaged 7.5 per cent a year, the fastest in any decade in Indian history. This rapid growth in gross domestic product has raised average income . . . by nearly 75 per cent in real, inflation-adjusted rupees.” This sounds good. But, he adds, it also hides the truth.

Growth slowed sharply over the past three years “because of the cumulation of bad economic policies”, while consumer price inflation has risen to between 9 and 11 per cent over the past five years. At the same time, Mr Acharya says, the government’s policies became steadily worse. He points to exorbitant spending on subsidies for oil, food and fertilisers, wasteful entitlement programmes, exorbitant pay settlements and huge fiscal deficits. Other failures include the refusal to lift disincentives to employment, crony capitalism, capricious regulation, retrospective taxation, excessive jumps in food procurement prices and corruption.

Mr Acharya argues that all this has contributed to a daunting legacy: a failure to create jobs for the 10m young people entering the job market each year; stagnation in manufacturing; inadequate infrastructure; huge overhangs of incomplete projects; vulnerability of agriculture due to water stress; badly run entitlement programmes; the weakening of the country’s external finances; and further deterioration in the quality of governance itself.

Mr Acharya is a sober analyst of Indian economic realities, who worked closely with Mr Singh in the 1990s. His damning assessment is persuasive. Yet India can surely do better. The latest estimates suggest that GDP per head is just a tenth that of the US, and half that of China. It must be possible for this country to catch up even faster.

Mr Modi has above all been elected to accelerate development. But if one recalls the failure of his Bharatiya Janata party’s “India shining” campaign of a decade ago, he must do so in ways seen to benefit the vast majority of the population, not just its elites.

It is not clear whether Mr Modi can rise to such big challenges in this vast and complex country. His motto – “less government and more governance” – has caught the public mood. Yet it is not clear what this will mean in practice.

An analysis by JPMorgan suggests that in fact “there is a remarkable convergence of broad economic thinking” between the two main parties. The difference, if so, might be more in implementation, an area Mr Modi’s supporters also stress. This suggests that the goods and services tax (a national value added tax) might be put into effect, investment projects might be accelerated, energy prices might be liberalised, shares in public enterprises might be sold – albeit without full privatisation – and fiscal consolidation might be accelerated.

This would be to the good, but probably not enough to bring about the needed acceleration of growth and jobs generation. Vital further reforms would be in employment regulation, education and infrastructure, with a view to making India a base for labour-intensive manufacturing. With Chinese wages rising, this is a plausible ambition. Improvement in the administration of law is crucial. Agriculture needs big advances, including a more modern supply chain. The states need to be forced to compete with one another for people, capital and technology.

This election might prove to be a big step towards the economic modernisation of India that was relaunched in 1991. But this round of reforms will also be far harder than those were. It is not now just a matter of pulling the state out of the way. It is more about making the government an effective and honest servant of the Indian people. This challenge is possibly an order of magnitude more daunting than those Mr Modi once overcame in Gujarat.

Mr Modi remains an enigma. He is a man of action, a nationalist and a committed member of the Hindutva movement. It is hard to believe he would match Mr Singh’s emollient reaction to Pakistan’s promotion of terrorism. It is impossible to know what he might mean for India’s communal relations. Nobody knows either how far he feels obliged to the business people who funded his campaign. But one thing is sure: India has a new game. Pay attention.



Martin Wolf


Fonte: FT

Europe has lost the ability to shape its neighbours

In America, they have Super Tuesday. Europe is about to have a Super Sunday, with elections for the European Parliament taking place across the 28-member EU, ending on May 25. That same Sunday, Ukraine will be holding a presidential election. The next day, Egypt will hold its own presidential vote. And then, towards the end of that week, on May 29, President Vladimir Putin’s pet project – the formation of a Eurasian Union – will receive the formal go-ahead with a signing ceremony between Russia, Belarus and Kazakhstan.

Is there any connection between this frenzy of democratic and diplomatic action? Yes – because, by the end of May, we should know a lot more about the EU’s ability to act as a beacon of prosperity and stability to the unstable and poorer regions that surround it.


The EU aspires to play a crucial role in spreading peace, prosperity and good government to its wider neighbourhood. Its biggest success in performing that role came with the “big-bang” enlargement of 2004, when the union went from 15 to 25 members – and swallowed most of the countries of the former Soviet bloc. These nations had accepted a rigorous programme of economic and political reforms to ready themselves for entry through the pearly gates of Brussels. It was a triumphant demonstration of the power of the European ideal.

At the time, it seemed entirely possible that enlargement could continue to be a powerful force for the future, as the EU spread to the Balkans, to Turkey, to Ukraine – and perhaps eventually even to north Africa and Russia. Even if actual membership of the EU remained a distant prospect for some of these places, the Europeans hoped to shape their neighbourhood by granting market access, aid and technical assistance in return for political and economic reforms. It sounded like a plausible trade.

Unfortunately, Europe’s Super Sunday is likely to demonstrate how very far it is now falling short of this idealistic vision.

In the European elections, parties of the far right and the far left are likely to win up to 30 per cent of the seats. They will not be able to control the EU’s political agenda. But their gains will panic national governments and send a very negative message to the outside world.

Many of the extremist parties in Europe – most notably Marine Le Pen’s National Front in France and Die Linke, Germany’s far left – openly admire Mr Putin. The far right likes the Russian president because he is a nationalist and a social conservative who despises the EU – as it does. Europe’s far left likes Mr Putin because he sticks it to the Americans. A strong presence of the political extremes in the European parliament will be very welcome to the Kremlin – and confusing to liberal political forces on the fringes of the EU, which look to Brussels and Strasbourg for support.

The political extremes in Europe have gained strength partly by capitalising on popular hostility to the enlargement of the EU. Abstract arguments about the need to stabilise the wider neighbourhood do not seem to impress voters in the west of the continent, who have been hit hard by recession and the euro crisis. Instead they fear mass migration by cheap workers from the new member states. If politicians, seeking to help out the EU’s neighbours, send large-sounding aid packages to north Africa, or ease visa regimes for countries such as Ukraine, they risk further enraging voters already flocking to the political fringes in Europe.


It is no coincidence that Ukraine has chosen to hold its own presidential election on the same day as elections to the EU parliament. What better way of demonstrating that the country looks to Brussels not Moscow? But the symbolism is looking rather forlorn. For one of the ironies of the whole Ukrainian situation is that, while Russia has moved ruthlessly to block Ukraine’s road to the EU, the EU itself was hardly laying out the welcome mat.

Aware of the hostility of western European voters to further enlargement to the east, the EU had deliberately made the path to Brussels a long and intimidating obstacle course. Ukraine’s desperate plight and its struggle with Russia might suggest that it is time to clear some of those obstacles away. But the European parliamentary elections are likely to send a very different message. Meanwhile, Mr Putin will attempt to keep his Eurasian idea alive, with his signing ceremony in distant and dismal Astana, the capital of Kazakhstan.

The Egyptian presidential vote, the day after the European elections, will add to the gloomy atmosphere. The victory of General Abdel Fattah al-Sisi, following a coup and the crushing of the democratically elected Muslim Brotherhood, will be greeted with embarrassed near-silence in Brussels. The heady days of 2011, when European idealists greeted the revolutions in the Arab world as signs that north Africa might soon join Europe as part of the community of democracies and market economies, are long gone. These days Europe will offer a shamefaced welcome to an Arab strongman such as General Sisi, who promises to keep his country at peace, to clamp down on terrorism and prevent mass migration. If he can somehow be packaged as a “reformer”, so much the better.

It is a gloomy and grubby vision. But the era when the EU could confidently proclaim itself as a model for its neighbourhood – and indeed, the world – is receding. These days the EU has too many problems of its own.




Gideon Rachman




Fonte: FT

Christopher Caldwell: Google has to be censored – free speech can scar

Of all the human traits, none has been so greatly magnified by the internet as the capacity to be humiliated. People have always written letters when drunk, tripped over carpets and confided their secrets to gossips. It is only in recent years that they have had the experience of being followed online for an entire lifetime by a crime report or a sex tape. For more than a decade, googling the name of Mario Costeja González has brought up links to a 1998 official notice in Catalan from the big Barcelona paper La Vanguardia, announcing the auction of his home for debts. It was a big deal for Mr Costeja and this week the European Court of Justice brought him a measure of relief. It ruled that Google could be made to remove the links in the name of a “right to be forgotten”.

This right has a sinister ring in English – it seems to entitle the bearer to control or suppress the thoughts of others. In Spanish, “derecho al olvido” means only that one has a right to turn over a new leaf, to consider one’s debt to society paid. Nothing is actually forgotten. La Vanguardia retains the notice on its website, where it can still be called up. The case has been cast as a victory for privacy bought at the cost of risk to free speech. But the risks have been exaggerated.

Thanks to the efficiency of search engines, time no longer heals all wounds. This is due to the intersection of two fundamental truths. First, nobody’s perfect. Second, very few people come to the attention of newspapers, law enforcement agencies and other bodies that post information on the Internet by being, say, a good mother, a loyal husband or a model employee. This dynamic has its worst effects on modest people – those who have only ever come to the attention of newspapers once. There are many perfectly decent people in Mr Costeja’s position who carry around the worst thing they have ever done like a nickname or a scar.

When stigmatisation for even minor misdeeds becomes permanent, the case grows weaker that doing something about it violates free speech. A problem arises that resembles the plight of former inmates of America’s vast prison system. The internet has spawned a “background check industry” that would make millions of young men unhirable if their records began floating around online. But 12 states now have “ban the box” laws that forbid asking job applicants if they have served prison time. This is a limitation on employers’ free speech, but the alternative is a return to pre-modern social relations – based on status instead of contract.

Google responded icily to the European verdict. But it is reasonable to make Google exercise some of the responsibility for protecting people from being stalked by their own data. With a reported 90 per cent of the European search business, its position resembles that of a utility. Google profits from the data it amasses, curates and conveys but it has not traditionally been regulated as a media organ. The European court has classified it instead as a “data controller”, which leaves it subject to data protection laws.

It is unclear how those laws, and the principles of “net neutrality” more generally, apply to Google. The company has argued on both sides of certain enforcement issues. It has seen itself as protected by free speech rights but not vulnerable to libel laws. It dominates a borderless market – but parts of the Costeja decision addressed whether it was subject to Spanish laws at all. Regulation at the user level could well be a boon to Google, serving as a barrier to entry against upstart search engines. The company has been quite capable of dealing with requests to remove videos from its YouTube site. Making the company susceptible to regulation, though, would alter its special position in Europe. Until now it has been almost a sovereign power.

Last year California passed an “eraser bill” permitting minors to request certain things be scrubbed from their online record. By applying it to children, the state established a moral condition for a right to internet privacy – it was for victims, not citizens. The European decision is more modest. It does not require removing any web pages from the internet. But it goes further towards establishing internet privacy as a right. Children may not even be the ones who most need a right to forget. They have had instilled in them an Internet Age circumspection about sharing too much online. People over 40 lived a pre-internet youth. Their brushes with humiliation have been mostly forgotten. But adults in their 30s occupy an awkward intermediate generation, one that sinned according to the old rules and now must atone according to the new.

It is they who need an internet regime that remembers indulgently – or not at all.


Christopher Caldwell is a senior editor at The Weekly Standard


Fonte: FT

Venezuela is Latin America’s trust-fund kid

For many outsiders, and many insiders too, Venezuela is maddeningly hard to understand. For some, it has been a socialist utopia; for others, a dictatorship. Neither fully or usefully explains how a country with the world’s largest oil reserves also suffers toilet paper shortages. So here is another point of view.

Strip away the ideology, and Venezuela is an out-of-control trust-fund kid: gauche, confused, spending more money than it has, addicted to oil revenues and in denial about that addiction too. Absurd? If you had $3tn-worth of oil reserves in your private account, you might end up the same.

Venezuela, like many dysfunctional “Trustafarians”, suffers from unreality. It always has. During the 1970s oil-price shock, miraculously inflated petro-revenues briefly created the crass consumerism and pharaonic dream of a “Gran Venezuela”. The late Hugo Chávez’s vision of a pan-American “Bolivarian revolution” is only the latest heady delusion. (It is named after Chávez’s 19th-century hero, Simón Bolívar, for whom he reportedly left an empty chair at cabinet meetings so Simon Bolívar’s ghost could sit in.)

However, Venezuela, like all stoner trust-fund kids, also has periodic sober awakenings, especially when its trustees – the International Monetary Fund, say – insist that it is time to straighten the accounts, sell the sports car and get real.

These are painful moments for addicts everywhere who, if they are to kick the habit, require unflinching self-reflection at gruelling 12-step meetings (in the jargon, “structural adjustment plans”). Venezuela has had two such episodes, in 1989 and 1996. But their harsh realities can push the addict off the wagon into another binge. The next day typically brings affliction, a sense of hopelessness and loss of status, ideal conditions for religious transcendence.

For Venezuela that born-again moment came after Chávez’s election in 1998, when he formulated his creed of “21st-century socialism”, an idiosyncratic blend of anachronistic ideology, regional solidarity and social programmes. It also allowed Venezuela to continue its stoner ways, only with renewed self-justification. Rising oil prices only meant the trust fund rose in value.

Chávez splashed the cash. At home he redirected oil revenues to the poor – not for the first time in Venezuela’s largely social democratic history but on a far larger scale than before. He also bought friends abroad.

There were opportunistic Cubans, liggers extraordinaire, who receive subsidised oil in return for medical and intelligence services that Venezuela cannot provide itself (in Havana, it is striking the contempt many Cubans have for their Venezuelan counterparts – for their incompetence, their inefficiency, for simply being fat).

There were also Russian arms dealers; energy-hungry Chinese, happy to lend against future oil deliveries ($50bn so far); and some of the truly needy, such as the region’s poorest nations.

This patronage rebuilt Venezuelan self-esteem and, crucially, the welfare of its poor (as well as being an invaluable propaganda tool). It was also a return to the ways of old – only even more mismanaged, wasteful and corrupt than before. Weakened institutions may well prove Chávez’s most unfortunate legacy.

The high is wearing off. The economy is on the ropes. Inflation, at more than 57 per cent, is eroding social gains. Sapped by under-investment, the oil industry no longer pumps the revenues Venezuela needs.

Political life is violently polarised: street riots have left more than 40 dead and hundreds wounded. It is time to get sober. Yet, like many addicts, Venezuela seems in denial. Even gentle critics, such as the salsa singer Rubén Blades, are dismissed as imperialist stooges.

When this happens, it is time for a “family intervention” – a tense moment when concerned relatives reluctantly confront the addict with the error of his ways. Hence the Vatican and Latin America-mediated peace talks that have taken place between the government and the opposition.

Some fear the government is simply using them to gain time, and in the end will only dig in and repress. Certainly, there is suspicion and hurt feelings on both sides. Politically, the central question is: will Venezuela’s democratic traditions hold?

Economically, though, sobriety is the only option. The situation appears unsustainable. Corrupt insiders will not surrender easily their privileges, such as access to subsidised hard currency. But at some point the political cost of doing nothing rises above the cost of reform. Then we might see a quasi-socialist government execute a tough adjustment plan. Perhaps it has already begun.

Whether Venezuela can see it through is another question, because after 15 years of chavismo and lavish spending, Venezuela – the wayward trust-fund kid – has only become more Venezuelan. The comedown will be trying indeed.


John Paul Rathbone


Fonte: FT

Narendra Modi should stick to his pledge of toilets before temples

Narendra Modi, the man most likely to become India’s next prime minister, has a wicked turn of phrase. In one of his most memorable remarks, he subverted his strong association with Hindu asceticism by declaring his support for “toilets before temples”. The same phrase, spoken by a Congress party cabinet minister, had provoked outrage from the Bharatiya Janata party of which Mr Modi is head. The BJP said the remark threatened to “destroy the fine fabric of religion and faith”. But the party hierarchy, knowing that its fate depends on the so-called “Modi wave”, barely demurred when its candidate adopted the slogan as his own.

The BJP leader is quite right to declare that India should spend less money on devotion and more on sanitation. According to 2011 census data, nearly half of households have no access to a toilet, forcing inhabitants to defecate in the open. More Indians own a mobile phone than a lavatory of their own. Poor hygiene, not lack of food, is the main reason that 40 per cent of children are malnourished. Much of Mr Modi’s appeal, which has swept through India like a brush fire, lies in his promise to conjure the growth that will eradicate such dire conditions and set his supporters on the road to a middle-class life.

Therein lies one of the conundrums of a likely Modi premiership, which will become certain only if the BJP proves to have secured enough votes when results are declared on Friday. Is he a leader who will prioritise development, providing jobs and bulldozing bureaucracy? Or will he revert to his Hindu nationalist rootsand impose a sectarian agenda on a state largely moulded by the Congress party’s secular principles?

The question is not unlike that posed of Shinzo Abe, the Japanese nationalist who in 2012 stormed to the premiership on a Modi-like platform of halting the economic rot. In practice, Mr Abe has managed to be both a reactionary and a reformer. He spent his initial months putting in place an economic revival plan whose outcome remains uncertain. But he soon went on to indulge his rightwing predilections, passing a draconian secrecy bill and inflaming already volatile relations with China by visiting a nationalist shrine. Mr Modi, too, has his potential problems with neighbours, particularly Pakistan. The primary concern, though, is domestic; that he will stir up Hindu chauvinism and create the conditions for intolerance towards India’s 175m Muslims.Fears about Mr Modi, a celibate who abandoned his wife to pursue religious devotion, are based not only on revenge killings in Gujarat in 2002 when, as the state’s chief minister, he was accused of standing by while more than 1,000 people, mostly Muslims, died. More fundamentally, many liberal Indians worry about his links with the Rashtriya Swayamsevak Sangh, an organisation with its roots in a paramilitary group dedicated to the cause of Hindu nationalism. The BJP manifesto contains a pledge to protect the cow, considered holy by Hindus but eaten by some Muslims. It also seeks to rebuild the temple to the Hindu god Ram on the site of the Babri Masjid mosque in Uttar Pradesh. The mosque was torn down in 1992 amid much bloodshed by Hindus who believed it was erected on the site of Ram’s birthplace by Mughal invaders in the 16th century.





The hope, shared by most of the pro-Modi business elite, is that Mr Modi will listen to his better angels. A common refrain is that he has matured. Gujarat has been peaceful, and increasingly prosperous, since 2002. Another is that India, with its independent institutions and federalist system, can never fall under the sway of one man. Mr Modi may be, in the words of one of his admirers, “a one-man army”; it is his decisiveness that some find so compelling. But there is faith that, as one pundit puts it, “you cannot run a dictatorship in this country”.

The comparison with Mr Abe takes us only so far. A second aspect of Mr Modi’s electoral appeal more closely resembles that of Thaksin Shinawatra, another firebrand who rode to power on a wave of political and economic frustration. Mr Thaksin, now in self-exile after being ousted in a coup, was elected Thai prime minister in 2001. His main support base was in the poorer, rural, northeast where people felt ignored by the Bangkok elite.

Mr Modi, too, claims to speak for the marginalised against a corrupt and self-serving urban elite. He trades on his lower-middle-class status as the son of a tea-stall owner. Unlike previous BJP leaders, he is not from the upper Brahmin caste. He mocks Rahul Gandhi, Congress party leader, as a shahzada , or princeling. For many, a Modi victory would be a torpedoing of the Nehru-Gandhi dynasty, whose patrician grip on post-independence India the author William Dalrymple calls “sexually transmitted democracy”.

Mr Modi has stirred the pent-up yearnings of millions who have glimpsed India’s economic awakening from afar. He has also encouraged those who long for the birth of an identity politics based on a narrow definition of Hinduism. The former is to be welcomed. The latter decidedly not. Mr Modi should stick to toilets – and leave temples to the priests.

David Pilling

Fonte: FT

Martin Wolf:Time for Draghi to open the sluice

Mario Draghi, president of the European Central Bank, gave a clear indication last week that monetary easing would arrive in June. That would be welcome. It would also be vastly too late and, in all probability, too little. Mr Draghi saved the day in July 2012 when he announced that “within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And, believe me, it will be enough.” He needs to promise to do whatever it takes yet again, to eliminate excess capacity and raise inflation to 2 per cent. If he does not, crisis might yet return.

I had doubted whether the ECB’s programme for Outright Monetary Transactions would work. But in the end, this conditional promise by the central bank to purchase government bonds in the secondary markets proved so effective at stopping the panic that it never had to be carried out. Together with the commitment of vulnerable countries to austerity and reform, this has unblocked sovereign debt markets. Complacent policy makers and investors imagine the crisis is over.


One indication is the decline in yields on 10-year bonds. On May 8, Irish bonds were yielding 2.7 per cent; Spanish, 2.9 per cent; Italian, 3.0 per cent; and Portuguese, 3.5 per cent. Even Greek bonds yielded only 6.2 per cent. These countries all ran current account surpluses last year, partly because domestic demand had collapsed and partly because competitiveness had improved. They no longer require net inflows of capital. Combined with the renewal of market confidence, this is reversing financing imbalances, which had left some of the eurozone’s national central banks deeply indebted to others. The OECD’s new Economic Outlookforecasts economic growth of 1.9 per cent in Ireland; 1.1 per cent in Portugal; 1.0 per cent in Spain; and 0.5 per cent in Italy in 2014. This is a welcome turnround.

Yet at the end of last year these economies were between 6 per cent and 9 per cent smaller than before the crisis. Unemployment is very high, especially in Spain. Greece is in still worse shape. Furthermore, credit markets are yet to recover as the Economic Outlook also shows.

Above all, according to the OECD, by 2015 Spanish gross public debt will be 109 per cent of gross domestic product; Irish, 133 per cent; Portuguese, 141 per cent; Italian, 147 per cent; and Greek, 189 per cent. Even if bond yields remain at low levels and these countries run balanced primary budgets (before interest payments) indefinitely, nominal GDP must grow at close to 3 per cent a year (in the case of Greece, far more) merely to keep the public debt ratio stable. If they want to lower it, as they should under the new fiscal compact, the budget must be tighter, growth higher, or both.

Growth of nominal GDP depends on real rates of growth and rates of inflation. But although higher inflation would ease the burden of public debt, vulnerable countries also need to improve competitiveness with core countries, either through higher productivity growth or lower inflation. In the year to March, core consumer price inflation in Greece, Portugal and Spain was negative, while it was 0.6 per cent in Ireland and 0.9 per cent in Italy. Yet overall eurozone core inflation was only 0.7 per cent and Germany’s 0.9 per cent. This makes adjustment hard.

Suppose vulnerable countries continue with zero inflation. Then their economies need to grow at a real rate of 3 per cent to stabilise public debt ratios, unless they run primary fiscal surpluses. The OECD says Greece will run a structural primary fiscal surplus of 7.5 per cent of GDP, Italy one of 4.7 per cent and Portugal one of 3.5 per cent this year. Markets are betting such austerity will continue indefinitely. If – as is easy to imagine – it does not, crisis could quickly return.

How might the ECB help? At the end of last year the eurozone’s real GDP was 3 per cent lower than in the first quarter of 2008. This is a sign of excess capacity. Moreover, M3 – a broad measure of money supply – grew cumulatively by only 7 per cent between September 2008 and March 2014, while nominal GDP expanded a mere 4 per cent between first quarter 2008 and fourth quarter 2013. Amazingly, the balance sheet of the central bank is now shrinking. The ECB is clearly failing to do its job. A more expansionary monetary policy should raise output sharply and inflation slowly.

Now suppose core inflation were 2 per cent and the eurozone economy cyclically stronger. This might not raise yields on bonds of vulnerable countries by the same amount, since it should reinforce confidence in their ability to grow out of their difficulties. Furthermore, an expansionary policy should raise inflation by more in core countries than in the periphery, where spare capacity is concentrated. That would accelerate adjustments in competitiveness too.

The ECB is right to argue it cannot solve the problems of the eurozone on its own. Yet it should do far more to generate growth in demand in line with potential. It could also help to strengthen credit in the weaker countries. In brief, it needs again to show the imagination it demonstrated with OMT.

A move to negative interest rates is part of the answer. So is an asset-purchase programme that would expand the ECB’s balance sheet by buying collateralised private sector assets and government debt. This could also reduce the persistent fragmentation of credit markets across the eurozone.

Furthermore, the creation of markets for securitised assets, initially with an ECB backstop, must be a part of the escape from crisis. Banks play too big a role. Should the ECB’s asset quality review find big holes in banks’ capital, the eurozone will need a plan to fill them. If all this is done with real force, the eurozone might stop stumbling and regain its ability to run.

In brief, the recovery in confidence is encouraging and the revival of growth welcome. But the former is too fragile and the latter too feeble. The eurozone’s authorities – and above all the ECB, its only effective actor – can and must do far more.

Avoiding catastrophe is still not guaranteed. That is anyway a grossly insufficient goal. The aim must be to secure a healthy recovery. It is the ECB’s job to hit its inflation target and strengthen credit markets. It must do whatever it takes. It has not yet done enough.

Martin Wolf

Fonte: FT

This time China’s property bubble really could burst

Chinese property is the most important sector in the global economy. It has been pivotal in the country’s economic development, provided lucrative business for industrial commodity producers from Perth to Peru, and been the backbone of the surge in world exports to China. In the past few years, predictions that the sector was about to implode at any moment have not been borne out – but now is the time for the world to pay attention. Property activity indicators have been trending lower since mid-2013, and the downturn in the sector now threatens to turn into a bust. At best, China is entering a deflationary phase at a time of global fragility.


The default risks in the weakly regulated shadow banking sector – and the rapid rise in local government debt – are real, and property-related. Yet the government and the central bank have tools to limit the short-term consequences; they have already deployed debt rollovers, bank bailouts and recapitalisations

The greater risk to China lies in the pervasive consequences of any property bust. Property investment has grown to account for about 13 per cent of gross domestic product, roughly double the US share at the height of the bubble in 2007. Add related sectors, such as steel, cement and other construction materials, and the figure is closer to 16 per cent. The broadly defined property sector accounts for about a third of fixed-asset investment, which Beijing is supposed to be subordinating to the target of economic rebalancing in favour of household consumption. It accounts for about a fifth of commercial bank loans but is used as collateral in at least two-fifths of total lending. The booming property market, moreover, has produced bounteous revenues from land sales, which fuel much local and provincial government infrastructure spending.


The reason things look different today is the realisation of chronic oversupply. As the property slowdown has kicked in, housing starts, completions and sales have turned markedly lower, especially outside the principal cities. Inventories of unsold homes in Beijing are reported to have risen from seven to 12 months’ supply in the year to April. But when it comes to homes under construction and total sales, the bulk is in “tier two” cities, where the overhang of unsold homes has risen to about 15 months; and in tier three and four cities, where it is about 24 months.


The anti-corruption crackdown, often targeting individuals who have built up ostentatious property wealth, has poured cold water over the market, in which, according to a recent investment bank report, the richest 1 per cent of households is estimated to own about a third of residential property. Elsewhere, the tightening of credit terms, including funding costs for property developers, especially in the shadow banking sector, is taking its toll. Rates of return on commercial property and infrastructure, and cash flows for developers and local government, have been deteriorating.


The crunch in the property market, and for the economy, will come when land and property prices fall more broadly across the country. Official data still show that property prices in 70 cities were 8 per cent higher in March than a year ago – but prices have actually fallen since the end of 2013.


If activity levels and prices weaken further, Beijing’s resolve not to respond with traditional stimulus programmes is unlikely to hold. We should expect a potpourri that might include: extra spending on infrastructure and environment programmes; faster urbanisation in inland and western provinces; some relaxation on restraints on homebuying, such as mortgage deposits; and, ultimately, new monetary easing.


Such steps may provide financial markets and the economy with some short-term relief. But if Beijing goes too far it will undermine the essential strategy of rebalancing the economy, in which case the negative economic impact would be larger and last longer. China is different from the west in many ways but the real economic effects of a burst property bubble are the same the world over. Beijing will have to cope with them in the next two years but the rest of us should be prepared for the deflationary consequences in a still fractious global recovery phase.



George Magnus

Fonte: FT