Communism isn't what it used to be

We can’t give people so much security with their income that it affects their willingness to work... We can have equality in access to education and health but not in equality of income... We can’t have a situation where it is not work that gives access to goods.

Unexceptional stuff. Except it comes from a top official at Cuba's economics ministry, speaking to the FT .

Is even Cuban communism being watered down?

Five books to enjoy - and one to avoid

I read so many books last year as part of my research for Immigrants: Your Country Needs Them that I have taken it easy this year, and taken more time to enjoy novels such as Salman Rushdie's Shalimar The Clown and  Haruki Murakami's The Wind-up Bird Chronicle.

Among the non-fiction books I read, five of the best were:

Tim Harford, The Undercover Economist
Tim has a knack for making economics -€“ which is basically, he says, about who gets what and why - interesting and relevant, and he uses the so-called dismal science to explain how the world around us really works. UK | US (I don't make a penny from these Amazon links)

Steven D. Levitt & Stephen J. Dubner, Freakonomics
Levitt is a brilliant economist, and Freakonomics is full of original insights. But it is also, unfortunately, full of puff and padding; the article from the New York Times magazine on which it is based is much better. UK | US

Anna Lee Saxenian, The New Argonauts
Forget the brain drain: today's highly skilled migrants -€“ the new Argonauts - circulate between the US and developing countries, creating new technology businesses and spreading prosperity along the way. UK | US

Niall Ferguson, The Cash Nexus
Ferguson explains the importance -€“ and limits - of money in shaping history since 1700. Thought-provoking, although it inevitably fails to achieve its grand ambitions. UK | US

Amartya Sen, Identity and Violence
A Nobel laureate in economics, Sen's interests have always ranged more widely. Here, he explains how reductionist and simplistic concepts of identity can lead to violence -€“ an issue that is at the heart of the debates over multiculturalism, Islamic fundamentalism, the so-called "clash of civilisations" and much else besides. UK | US

The most over-rated book of the year:

Thomas Friedman's The World Is Flat
No, it isn't. "A Brief History of the Twenty-First Century"? Pff. More like "A long-winded ego-trip by a journalist who talks to lots of VIPs but grasps very little." UK | US

A noble cause for a Nobel winner

It might seem odd that the Nobel Peace Prize has been awarded to a banker, but Muhammad Yunus, who set up the Grameen Bank, is no ordinary financier. 

Back in the 1970s, when it was conventional wisdom that the best way to help the poor was through huge loans to developing-country governments, the Grameen Bank pioneered a different approach. It offered the rural poor in Bangladesh small loans at affordable rates without requiring collateral, and thus empowered them to improve their lives. The bank now has 6.5m borrowers, 97% of them women, an average loan size of almost $130 and a 99% loan repayment rate. It has played a vital role in reducing Bangladesh's poverty rate. Such is its success that similar "microfinance" schemes have sprung up around the world.

As Yunus has highlighted, access to financial services is not a luxury for the rich, it is a necessity for the poor too. It can mean the difference between scraping by day by day and investing for the future: setting up a business, keeping one's children in school, buying essential medecines. It can help empower women in particular. The ability to save, borrow and invest reduces poor people's vulnerability to the hazards of life - illness, the theft of a market trader's stock, a farmer's poor harvest - that might otherwise leave them and their family destitute; and it gives them the opportunity to improve their standard of living. For the economy as a whole, a loosening of credit constraints can raise the rate of investment - and hence, if the funds are invested wisely, the pace at which the economy can sustainably grow. 

Yunus said on Friday that eradicating poverty “can give you real peace. There is no self-respect and status when you are burdened with poverty." He richly deserves his Nobel prize.

World Cup fever

An admission and an apology: I have been spending my spare time watching the World Cup instead of writing my blog. After Ghana beat the Czech Republic, who were ranked second in the world by FIFA, I thought about trying to link my two passions by writing about the beneficial impact of globalisation on football: a European sport has become a global one - and now the rest of the world is beating Europe at its own game. But then the African challenge petered out, and as we stand on the brink of the semi-finals, only one - and perhaps none - of the final four will be from outside Europe.

And yet Europe's apparent domination of world football is misleading. Look at the European teams and you will find a smorgasbord of international talent. France's team, world champions in 1998, is notoriously black blanc  beur  - black white Arab - while even Germany's once-all-Teutonic squad now contains Ghanaian-born Gerald Asamoah and half-Ghanaian David Odonkor. So while globalisation is lifting football standards in Africa and Asia - not least because the cream of the continent's talent now ply their trade in European leagues - players of African and even Asian descent, such as France's Vikash Dhorasoo, are boosting the talent pool of European countries.

For what it's worth, my money is on Germany to lift the ultimate prize - and how fitting it would be if David Odonkor scored the winning goal.

PS. So much for my predictions - my money is now on France. LOL

PPS. Wrong again. Thank goodness I'm not a football pundit!

Inefficient markets

It’s up to Lamy

Prospects for the Doha round look grim. Over five years in, and the World Trade Organisation’s 149 members still seem as far apart as they were during the 2003 Cancún debacle. Only the massaging down of expectations by WTO boss Pascal Lamy ahead of the Hong Kong summit last December rescued it from disaster. Now another deadline looms: 30th April, by when an outline deal must be reached if a final agreement is to be struck by the end of the year, ahead of the expiry of Bush’s fast-track authority in 2007. 

But while progress has been painfully slow so far, all hope is not lost. Negotiators have a much clearer idea of each other’s true bottom lines. So if the political will is there on all sides, a framework deal could rapidly fall into place. The grand bargain involves the EU and the US opening their agriculture markets—the EU cutting its farm tariffs, the US its subsidies—in return for greater access to industrial and services markets in developing countries, notably India and Brazil. The poorest countries also need to be bought off with duty-free access to EU and US markets; in particular, the US has to hack down its cotton subsidies, while the EU has to compensate its ex-colonies for eroding the margin of their preferential access to EU markets. 

 The key to success does not lie solely in Brussels and Washington. New Delhi and Brasilia must also step up to the mark. They showed in Cancún that they were a force to be reckoned with; now they need to use their power responsibly by making the concessions that will unlock further moves from the EU and the US. India and Brazil have a new-found confidence; if they can overcome their lingering doubts about liberalisation, they have much to gain from a successful Doha round.

Lamy too is vital—not just as an honest broker, but also as a deal-maker. If the talks remain logjammed, he should break the deadlock by publishing his own draft agreement. That will take guts, for sure, but Lamy has plenty of those—and the alternative is failure. 

Gas connections

That unglamorous gas pipeline known as the “interconnector”, which runs between Bacton in Norfolk and Zeebrugge in Belgium, has suddenly become the centre of political attention. Britain has little spare gas capacity, especially since a fire damaged the country’s main gas storage facility, and imports from continental Europe should have flowed down the interconnector in the recent cold snap when British demand surged. But this did not happen because Europe’s monopolistic energy producers had little incentive to compete for British business since their protected home markets are so profitable. The result was that prices soared and Britain paid perhaps £1 billion more for gas than it might have done.

Higher gas prices are not just painful for consumers. They push up inflation, dampening consumers’ spending power and delaying a potential cut in interest rates. And they are also prompting power companies to switch back to dirtier coal—one reason, according to the government, why it will miss its climate-change target of cutting carbon-dioxide emissions by a fifth by 2010. A reminder that competition matters—and that EU governments’ energy protectionism cannot be ignored.

Britain’s productivity puzzle

Despite Gordon Brown’s budget boasts about Britain’s economic performance under his watch, productivity growth has ground to a halt. It was a mere 0.6 per cent in 2005, according to new ONS figures. That did not stop Brown asserting in his budget speech that matters had improved—a statistical sleight of hand achieved by ignoring events since 2001. “After decades behind, Britain has caught up with Germany in productivity… and has halved the gap with France,” the chancellor said. In fact, whereas Britain narrowed the gap with the other G7 rich economies from 19 per cent in 1992 to 6 per cent in 2002, it has since risen to 8 per cent in 2004. The gap with the US and Germany, although lower than in 1992, is 16 per cent, and that with France a whopping 29 per cent. And whereas productivity growth averaged 2.5 per cent a year in the first four years of Brown’s stewardship, it has slumped to just 1.6 per cent a year since then. 

One reason for the recent fall in productivity growth is cyclical: the economy has slowed since the dotcom bubble burst in 2001. But another is the huge expansion of the public sector. It is harder to boost productivity in labour-intensive services like health and education than in manufacturing—and harder still to measure it: does reducing class sizes cut productivity (because more teachers are needed to educate a given number of pupils) or potentially raise it (because skills are increasingly valuable and children learn much more with more personal attention)? The ONS recently had a stab at estimating productivity growth in the NHS since 1999—and came up with six answers ranging from a fall of 1.5 per cent a year to a rise of 1.6 per cent a year.

The failure to reform sufficiently in the public services has not helped: the NHS has improved, but not as much as the extra money warranted. Ironically, this may now be changing. All the noise about job cuts caused by local NHS deficits is politically awkward, but if the government does not bail out underperforming NHS trusts, the cuts will boost productivity since most trusts plan to provide the same service with lower spending.

 

© Prospect

 

Come live in Switzerland: the banks are great

Every year PR consultancy Mercer Human Resource Consulting scores an easy hit in the world's newspapers with its fanciful ranking of the quality of life in cities around the world. While the Guardian focuses on the fact that Glasgow and Birmingham are ranked as highly as Los Angeles and Tsukuba (hands up, honestly, if you had heard of it), the FT notes that top-placed Zurich is only fractionally ahead of Geneva.

Geneva, a great place to live? You could have fooled me. I had the misfortune of spending a year as an expat there. When I first arrived, a colleague tried to cheer me up by saying "the best thing about Geneva is that it only takes 15 minutes to get to the airport." True enough: Geneva is easy to escape from - which is precisely what most of the people working in that miserable place did every weekend.

So why on earth does Mercer rank Switzerland so highly? The FT explains that "Zurich scored heavily on the quality of its banking services, internal stability, international relationships, low crime rate and good health facilities." Certainly, low crime and good hospitals are great, and I guess good banks may be vital to your quality of life if you are salting away a vast expat salary. But "internal stability" sounds suspiciously like "dull as ditchwater", while "international relationships" is code for "easy to get away". Give me 39th placed London any day.