Philippe Legrain

Who says Asians don't spend?

Private consumption is 7% up on pre-crisis levels in the 10 largest Asian economies (excluding stagnant Japan) http://bit.ly/9hxgPW

Don't want our money? Don't worry, we don't want to give it to you

In recent years, Western governments have voiced concerns about Asian governments' vast sovereign wealth funds (SWFs) investing in Western companies. Some called this "investment protectionism"

But as Western banks faced collapse, they were delighted to receive capital injections from Asian SWFs - and Western governments didn't object. In a crisis, needs must.

Now, though, Asia's SWFs are having second thoughts.

China Investment Corp, the country’s sovereign wealth fund, will no longer risk investing in western financial institutions because of concerns about their viability and a lack of consistency in their governments’ policies, according to its chairman.

“Right now we don’t have the courage to invest in financial institutions because we don’t know what problems we will put ourselves into,” Lou Jiwei said.

Perhaps Western governments will realise that the only thing worse than receiving investment from Asia's sovereign-wealth funds is being denied it.

Who's lecturing who?

For years, the US has lectured China on how it should run its economy. Now, the tables are turned.

US Treasury Secretary Hank Paulson went to Beijing to urge the Chinese government not to let its currency weaken.

The Chinese hit back in style. Zhou Xiaochuan, governor of the Chinese central bank, urged the US to rebalance its economy.

“Over-consumption and a high reliance on credit is the cause of the US financial crisis,” he said. “As the largest and most important economy in the world, the US should take the initiative to adjust its policies, raise its savings ratio appropriately and reduce its trade and fiscal deficits.”

The balance of power in the world economy is shifting faster than most people realise.

Why we need a fiscal stimulus

Willem Buiter sums it up perfectly:

The private financial sector has to deleverage massively, but would (with credit markets and wholesale financial markets closed for business) do so in an unnecessarily destructive way if left to its own devices. The household sectors in the US, the UK and a number of other European countries have to deleverage (start saving seriously) on a significant scale. Left to its own devices, the short-run Keynesian aggregate demand fall-out from a necessary reconstruction of household financial wealth could be disastrous. So the public sector has to leverage up (borrow) at the same time the household sector is forced to deleverage.

Why the Doha breakdown matters

Philip Stephens has written an excellent article in the FT about why the Doha breakdown matters. He concludes:

The collapse of Doha, however, speaks to the failure of both sides to own up to the world as it is. On the side of the rich countries, particularly the US but no less many European nations, there is a refusal to acknowledge that globalisation no longer belongs to the west. In previous trade rounds, the rich nations set the rules and the rest could take it or leave it. No longer.

Equally, the new powers now give the impression – and you see this as much in India as China – that they want to be free riders. They are happy to profit from the rules, but unwilling to support the architecture of the system. Doha, in this respect, saw both sides in blindfolds.

The implications reach well beyond trade. The parallel with the need to strike a global bargain on climate change is the obvious one. But there are a host of other areas – think of nuclear non-proliferation, energy security, state failure, terrorism – where the habit of multilateralism offers the only sensible answers. A trade deal in Geneva would have offered a glimmer of hope that world leaders understand this.

Four vignettes of an evolving world economy

From the Commission on Growth and Development's recent report, courtesy of Martin Wolf's column in the FT:

 

1) The global economy is growing fast, and with it average living standards.

2) East Asia's performance has been spectacular - living standards rose 10-fold between 1960 and 2004 - and even in Africa living standards doubled.

3) The poverty rate has plummetted in East Asia. Despite India's recent success, its poverty rate is higher than in Sub-Saharan Africa.

4) Nearly all of the extra 2 billion people who are expected to add to the world's population over the next 30 years will be in urban areas in poorer countries.

One can draw all sorts of interesting conclusions from this. From a migration perspective, it seems clear that people are inexorably moving from the countryside to the cities - and that this is an essential part of development.

Doha Round Failure: What Next?

The Center for International Relations has organised an International Affairs Forum on the future of world trade. They ask:

In the wake of the failure of the Doha round, what does the future hold for world trade? What can, and should be done to get negotiations back on track?

My reply follows. To read the other contributors' answers, click here.

Inefficient markets

Peas in a Pod™
Fears that Apple aims to become the Microsoft of the music download business by using proprietary technology to lock in the dominance of iTunes have already attracted the scrutiny of Nordic competition watchdogs. So it is a worrying indication of Apple's monopolistic intentions that it is laying legal claim to the word "Pod," threatening to sue companies that use the word as part of their product names for infringing its iPod trademark. It is already taking action against the small start-up that makes the Profit Pod, an infrared scanner used to record activity on video-arcade machines.

But lest Steve Jobs forget, Apple did not invent the word "pod." By trying to appropriate it, he risks alienating millions of people who were once attracted to Apple's apparently upstart brand, as well as fanning the fears of European trustbusters. After all, even Microsoft has not dared to lay claim to the word "Word."

Inefficient markets

Doha derailed — who to blame?
So much for the lofty rhetoric about freeing trade and aiding development; when it came to the crunch, governments instead bowed to corporate protectionism. Thus the Doha round — launched after 9/11 as WTO members rallied around America in a show of unity — has collapsed in acrimony, with most blaming the US for its demise. This is not fair. America was guilty mainly of being too ambitious: it offered to prune its agricultural subsidies if others sheared their farm tariffs, but India and the EU refused.

Inefficient markets

Fantasyland for the Fund

As I explained in a recent post, the notion that the IMF can act as a global economic policeman is pure fantasy. But that won't stop the Fund from trying. It is sending crack teams to the US, the eurozone, Japan, China and Saudi Arabia to examine how their economies contribute to the worrying global trade and currency imbalances. The IMF will then suggest how governments should change their policies to reduce the imbalances while supporting economic growth. And then?

Keep Gazprom's grip off our gas

I don't usually have a problem with foreign companies taking over British ones, or with sourcing supplies abroad. But the British government should block any move by Gazprom, Russia's state-owned monopoly gas exporter, to buy Centrica, which owns British Gas and is the UK's biggest gas distributor.

Inefficient markets

The IMF lacks the teeth to be an effective watchdog

If you believe the hype in today's Guardian and FT, leading governments achieved "a breakthrough in the governance of the global economy" over the weekend, transforming the International Monetary Fund into a "world economic watchdog". Larry Elliott's ebullience can be explained by his closeness to the UK Chancellor, Gordon Brown, who happens to chair the IMF's key policy making committee, while the FT is adopting an increasingly tabloid style to sex up its financial coverage. But in fact, what was decided at the weekend was pretty modest.

Europe's no basket case

“Shock! Horror! Cato Institute declares American capitalism superior to European social democracy.” That was my cynical initial reaction to Cowboy Capitalism: European Myths, American Reality, a new book published by the free-market Washington, DC-based think-tank that comes recommended by the usual right-wing suspects: Milton Friedman, James Buchanan and Henry Paulson, the boss of Goldman Sachs.

The bubble is dead: Long live the bubble

For years, they denied it was a bubble. Sceptics just didn’t get it. Then, they swore that it wasn’t as bad as it seemed. The worst would soon be over. Now, they prematurely herald a recovery. Fear not: America’s economy is back on track; the world can breathe a sigh of relief.