The Great Debate UK

Superstar economics: It’s all showbiz now

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By Laurence Copeland. The opinions expressed are his own.

It seems barely a week goes by without another shock report about the ever-widening gap between those at the top of the earnings distribution and the rest of us. The facts are by now well-established. Throughout the Western world, but most noticeably in Britain and America, the earnings of the top one or two percent are accelerating into the stratosphere, leaving the middle class a long way behind, and the working class completely out of sight. How can one explain this global phenomenon?

Academic economics seems to be taking a surprisingly long time to reach a definitive answer, but I suspect there will turn out to be two long term trends at work here.

First, globalisation has doubled or tripled the supply of unskilled and semi-skilled labour. As long as China remained locked in Maoist isolation and the Indian economy had to carry the full burden of the Licence Raj, their respective workforces were shut off from the global labour market. The fact that products could theoretically be manufactured far cheaper in those countries was unimportant, because in practice Western firms could never take advantage of their rock-bottom labour costs.

Now that they have opened up and it is possible to outsource manufacturing to China and the paperwork to India, there is less and less left for our workers and middle-managers to do – unless, of course, they are willing to work for more competitive (i.e. lower) wages.

Aid: In favour of zero-tolerance

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By Laurance Copeland

After one year, the progress report on the Coalition reads “Moving in the right direction, but with a lot more to do”.

Nonetheless, it is a prisoner of its commitment at the outset to leave two departmental budgets untouched: the NHS and international aid. It is not simply the amounts of money involved (colossal in the case of the NHS, relatively small for aid). It is also the signal it sends that there is such a status as sacrosanct, which immediately begs the question from policemen, firemen, teachers, the legal system, the armed forces: why isn’t our budget sacrosanct too?

from The Great Debate:

What are China’s next steps?

By Michael Spence

China has weathered the present financial crisis better than most countries, for a number of reasons. It reacted very quickly to the collapse of external demand with a domestic stimulus package of 9 percent of GDP in both 2008 and 2009. The stimulus package in China was heavily weighted toward investment, especially in infrastructure, which is something they know how to do. To some extent, the Chinese relied on past experience in the ’97–’98 currency crisis in Asia, a storm they weathered without depreciating the currency but instead with what was then a large domestic stimulus pro-gram. China also eased credit quickly, and used their massive reserves to stabilize the currency.

The result is a rapid transition to high growth, with projections for 2010 in the 9 percent and above range. On the other hand, as with other countries, the stimulus and other dimensions of the emergency response are not a permanent solution. There is a growing concern among knowledgeable Chinese policy makers and academics with regard to two things. One is a return to the old ways, meaning the strategies and policies of the past thirty years that focused on investment and labor-intensive exports, policies that worked well but have outlived their usefulness. The influence of those in government and in the labor-intensive sectors that are set to decline is still substantial. Their hand has been at least temporarily strengthened by the crisis.

China – accidental imperialist

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-Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own.-

OLYMPICS-CANOE/China is an emerging imperial power. We can be sure of that fact, even though the Chinese Government may well have been absolutely genuine in repeating that it feels no urge for empire-building or for intervention in the affairs of other countries. It is simply the case that, if trade follows the flag, the opposite is also often true.

from Reuters Investigates:

The Macau Connection

We teamed up with Matt Isaacs and the Investigative Reporting Program at U.C. Berkeley for a special report last week on the murky world of Macau casinos.

"The Macau Connection" focused on Las Vegas Sands, which is being sued by the former CEO of its China division.

from Breakingviews:

China’s budget should calm investors in three ways

By Wei Gu
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

HONG KONG -- Chinese premier Wen Jiabao's weekend "state of the union" speech should calm investors in three ways. Wen pledged that growth would become more sustainable thanks to a focus on social welfare.

from Chrystia Freeland:

The revolutionary significance of job growth

It was striking to hear how encouraged both Klaus Kleinfeld and Dominic Barton sounded when Chrystia asked them about the effects of the recent turmoil in the Middle East on the business environment there. Barton believed the regime changes in Tunisia and Egypt were "the dawn of a new good thing that's occurring" and noted that it is likely that new capital will come into these countries as a new leadership emerges. Kleinfeld, whose company is in the process of building the world's largest integrated aluminum system in Saudi Arabia, said that Alcoa is still very comfortable in the region and that the only surprises with their Saudi partners have been positive surprises. For Kleinfeld, the most assured way to bring about stability in a region plagued by unrest is to have businesses come in and create jobs:

If there's one thing that the Middle East needs particularly for the young -- as well as well-educated people -- it's jobs. And it does it in a region which typically has not had much of an economic growth around Ras Azzour. So that's all very, very good. And not just for us as a company but also for the region. And it's gonna have a stabilizing as well as a kind of uplifting, positive element

Two very different inflation problems

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-Kathleen Brooks is research director at forex.com. The opinions expressed are her own.-

There was more evidence in February that the world economy is re-flating; both China and the UK released inflation data that showed prices running above 4 percent. Authorities in these economies have a difficult few months ahead, if prices continue to rise at this clip then they may have an economic crisis on their hands.

from Global News Journal:

UNsensational? Five more years of Ban Ki-moon

U.S. Senators Joseph Lieberman and John Kerry look on as U.N. chief Ban Ki-moon addresses reporters in Washington. REUTERS/Molley Riley

U.S. Senators Joe Lieberman and John Kerry look on as U.N. chief Ban Ki-moon addresses reporters in Washington. REUTERS/Molley Riley

It's hard to find a delegate to the United Nations who despises U.N. Secretary-General Ban Ki-moon. But it's even harder to find someone who thinks he has the gravitas and charisma of his Nobel Peace Prize-winning predecessor Kofi Annan, who invoked the wrath of the previous U.S. administration when he called the 2003 invasion of Iraq "illegal." As one senior Western official, who declined to be identified, said about Ban: "It's not as if he's lightning in a bottle, but we can live with him."

China will not stop at becoming world’s ‘number two’

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– Dirk Jan van den Berg is president of Delft University of Technology, former president of the IDEA League of European Universities, and former Dutch ambassador to China and the UN. The opinions expressed are his own. —

This week’s official confirmation that China is now the second largest economy in the world, as measured by GDP in dollars, symbolises the Middle Kingdom’s rise to global economic power in the past several decades.

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