Microfinance: the smart money

Microfinance: “a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers.”

Today’s International Herald Tribune (specifically, Daniel Altman, writer of the Managing Globalisation column/blog) discusses the insulation of microfinance against the trials of the world of non-microfinance.

Given this integration with the global credit market, you might think that episodes like the credit tightening of the past several months might have a more damaging effect on microfinance. But it still seems fairly insulated from the recent turbulence, and from that fact may spring an opportunity.

…

Several factors have insulated microfinance operations, Otero said. First of all, the amounts they seek from credit markets to fund their operations are relatively small, in the tens of millions of dollars. Second, they are also funded in large part by the savings of the poor, which is not so sensitive to the benchmark interest rates used by global investors. And third, when they do raise money, it’s often locally, in emerging economies that haven’t become completely synchronized with the major markets.

That’s the willingness-to-lend side of the microfinance equation. On the ability-to-repay side, there are also insulating factors, said Premal Shah, president of Kiva, a program that connects individual lenders in wealthy countries with borrowers in the developing world.

“Shocks to an economy, like a global recession, affect the informal sector less than the formal sector,” he said. “For the microfinance institutions, because their clients are in the informal sector, typically the portfolio quality does not decline.”

Waay back last June, microfinance was discussed with specific reference to the differential risk between it and global capital investment – and the fact that, while microfinance had transparency problems, it couldn’t possibly be worse than leveraged buyouts, monolines, CDOs, etc. Turns out that was a good call.

Anyway. I would not have thought that “episodes like the credit tightening of the past several months might have a more damaging effect on microfinance.” I hope that does not make me a weirdo. This gets back to Warren Buffet’s priceless line earlier this week:

The woes in the U.S. financial sector are “poetic justice” for bankers who designed and sold complex investments that have since gone sour, billionaire investor Warren Buffett said on Wednesday.

…

“It’s sort of a little poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end,” he said.

“I wouldn’t quite call it a credit crunch. Funds are available,” Buffett said during a question and answer session at a business event. “Money is available, and it’s really quite cheap because of the lowering of rates that has taken place.”

He added: “What has happened is a repricing of risk and an unavailability of what I might call ‘dumb money,’ of which there was plenty around a year ago.”

You’ll note that Buffet is an educated man. He knows irony from poetic justice. His statement is, of course, entirely true: the issue is not with ‘easy’ money, but dumb money. Now, microfinance really doesn’t have dumb money. As Altman’s article discusses,microfinance is just that: microfinance. The scale of the thing just doesn’t lead to stupid things. The sustainability imperative of microfinance does not lead to that sort of thing and, ultimately, the point of microfinance does not lead to that sort of thing. Microfinance isn’t about the mad pursuit of unsustainable (financial) yields: it is about investing in small-scale core development-friendly infrastructure.

Scale-wise, I don’t know how far microfinance will go as a hedging bet – as more people try it, for example, its ability to perform that function will diminish. We should have expected it to weather the thoroughly non-sensible financial flows of the rest of the world though – sensibleness (I own that word, now) is one of the things that makes microfinance so clever, after all.

Outsourcing clinical trials

If Union Carbide taught us anything, it’s that we don’t, truly, care so much about catastrophic outcomes when they’re in other countries.

During the 20th century, clinical trials – for many years a legal necessity to demonstrate that experimental medicines are safe and effective before their approval – were predominantly conducted on patients in North America and western Europe, close to companies’ scientists, regulators and principal markets. Since 2000, however, the expansion of western pharmaceutical companies around the world and the emergence of local rivals in developing countries have meant that the number of trials taking place in the emerging economies of China, India, eastern Europe and Latin America is catching up.

…

recruitment in western markets is increasingly difficult and costly. Patients are generally willing to participate in Phase 2 and Phase 3 trials, designed to measure efficacy, assess the appropriate dose and identify any side effects. But for rarer diseases, including for many cancers, the number of patients who are not already enrolled in trials for rival new drugs is limited – and the cost of finding them high.

By contrast, a number of the emerging markets offer good and improving medical infrastructure, at least for a significant proportion of their population, supported by well-trained doctors and assistants available at a fraction of western salaries – including many who speak English and were partly educated in the west. That can reduce the direct costs of trials by half or more.

Just as important, such countries offer large pools of patients willing to be tested, including many who are “treatment naive”, because the relatively low standard of healthcare compared with western countries means they have not had access to the latest and most expensive medicines.

Trouble is – and anyone who read or saw the Constant Gardener will, with all their cynicism intact, not be surprised, just because a cost can be saved, doesn’t mean that it should. Just as it was in Bhopal. The Financial Times provides this handy diagramme:

Transferability and generalisability are also serious issues. There are two key questions to be applied to clinical trial results: 1) Was the trial representative of the population to which the treatment will be offered? Will the effects measured be generalisable in the population? 2) Was the trial structure representative of the treatment delivery structure in the population? Will the effects measured be transferable to patients in the real world?

Odds are that, if the trial for a US-bound pharma product for a rich-man’s-burden kind of disease took place in Bihar, the answers to those questions will be no – in which case the uncertainty surrounded the results, ex poste, are probably unacceptably high for FDA, PBAC, NICE, etc.-level approval.

The FT also offers an impressive ethical dilemma:

Another is that patients may be unduly coerced to take part because a trial offers access to medical care they could not otherwise afford; and because they may lack adequate “informed consent” to understand they are taking risks by using an experimental medicine – or from receiving a placebo rather than the new drug.

A third concern is the lack of post-trial access to medicines. The country where a trial is conducted may not gain access until long after the drug is approved in the west. Often even the patients on whom a medicine is successfully tested are not guaranteed that they will continue to receive it once a trial comes to an end.

Pretty interesting debate, well-handled by the FT.

Sovereign Wealth Funds

My position on Sovereign Wealth Funds (“i” before “e” except after “c” and in “sovereign” – very confusing) has hopefully-consistently been with regard to their potential for destabilisation. I don’t trust them any less – in fact, probably more – than hedge funds. Mostly because I would expect Sovereign Wealth Funds for most nations to (a) take very long and stable positions, and (b) take very solid and far-horizon’d positions specifically when, say, bailing out banks in tanking developed markets.

This was reinforced when I was discussing the matter with a colleague from Saudi Arabia, and who works within their finance ministry, and who worked within the setup for the Gulf Common Market. As far as he was aware, there was little more at work in the gulf funds than taking up cheap exposure in foreign financial markets. I still distrust, say, Chinese Sovereign Wealth Funds (because their government has stated publicly their willingness to do things like push economies around when beneficial).

At Davos, it seems, the issue looms large:

The funds are controversial in countries like the U.S. because they already have a lot of firepower, and it is growing fast thanks to high oil prices and U.S.trade imbalances. Richard Fuld, chairman and chief executive officer of Lehman Brothers (LEH) said the wealth funds, whose present value he pegged at as much as $3 trillion, could command as much as $20 trillion in five years. “The impact will be huge,” he said, though he noted pension funds command some $60 trillion.

While few U.S. and European politicians have raised objections to the large stakes various funds have taken (BusinessWeek.com, 12/7/07) in blue chip U.S. and European banks such as Citigroup (C), Morgan Stanley (MS), Merrill Lynch (MER), and UBS (UBS), greater tensions may well be brewing as the funds grow larger and more ambitious. The notion of foreign entities buying up blue chip assets goes against the grain in the U.S. and other Western countries. Perhaps the greatest danger arising from the huge growth of these funds isn’t that they will buy strategic assets in the U.S. and elsewhere, but rather that they will trigger a wave of protectionism that could gum up the international financial system.

One of the interesting things about them is that, while hedge funds and equity groups were ‘ours’, we have no money for a Sovereign Wealth Fund (or we did, but we blew it in Iraq). So we have at best a small seat in the room – probably not at the table. That frightens us. I like the idea, though, that non-US/EU Sovereign Wealth Funds are bad because of our protectionist reaction to them. Are we seriously suggesting that the Gulf, China and Russia have to save us from ourselves? Sit by while we continue in smugness with our business as usual.

We’ve been trying for a while now to make OPEC bend itself to our macroeconomic convenience. It’s probably time we just stopped trying.

Only briefly seen was this sort of response:

Muhammad al Jasser, the deputy governor of the Saudi Arabian Monetary Agency, the central bank, which manages most of Saudi Arabia’s overseas assets, was more relaxed. But he brushed off Summers’ suggestion that the funds would be wise to adopt a good-conduct code to ease worries, claiming there has been huge resistance in the U.S. to regulating hedge funds and rating agencies—even those “who created turmoil in the world economy.”

He might also have reminded us that the money controlled by Sovereign Wealth Funds currently is still a lot less than the amount that said turmoil is going to cost the world economy (how much, already, in central bank intervention money, has it cost? A few Sovereign Wealth Funds’ worth, certainly).

Should remittances count as foreign aid?

This is no small matter. The US, for example, has consistently (until recently) given the least (per GNI) amongst the OECD:

They recently moved off the bottom (while pipping Japan as the no. 1 in dollar terms). More generally, the fabled promise in the 1970s to double aid as a percentage of GNI has gone walkabout for everyone – it has about halved, as I understand it. The shortfall on this promise is some USD3.1tr, now (with USD2.6tr having been spent – 2005 dollars). Denmark, Norway, Sweden, Luxembourg and the Netherlands the generous exceptions to that rule.

Using the US as an examplar, again, the concept of Foreign Aid is also repeateadly muddied by Military Aid (accounting practices that called military assistance ‘foreign aid’ to make the money numbers look better after the Asian tsunami, an excellent example in international relations) and Food Aid (previously seen here, last Summer).

Across the world, aid aid is declining in proportion to our wealth – illustrated well, I think, by the Davos World Economic Forum consisting almost entirely, this year, of financial murmuring and jumping at the shadows of Sovereign Wealth Funds.

This is context and motive. If we send the army to help dig out a village, is that budgeting expense not Foreign Aid? If we give migrants jobs, and then those migrants send USD300bn of the money they earn back home (and with remittances growing substantially faster than Foreign Aid or Foreign Direct Investment), is that not Foreign Aid?

No way, says Ambassador Munir Akram of Pakistan, until recently chairman of the 130-member Group of 77 developing nations.

“We have to be very careful not to allow these remittances to be portrayed by the North as contributions on their part to development. They are trying to do this,” he told IPS.

Akram said Pakistan receives about 4.5 billion dollars annually as remittances from workers worldwide.

As a general rule, he pointed out, those who are poorest among the migrants send the most money to their families back home.

“These are our people, our workers. We invested in them, they studied in our countries, they got their education, and they are sending a small proportion of their earnings back home,” he said.

Akram said there is a move by Western donors to treat expatriate earnings as part of development assistance to developing nations.

He said these unnamed donors want to count remittances from North to South, but at the same time, they don’t want count repatriation of profits — from South to North.

“They will try and project expatriate remittances as an element of the contribution from the North to the South as a reason for not meeting other aid targets. We need to expose them,” said Akram, the permanent representative of Pakistan to the United Nations.

The answer is “no”, any more than my purchase of Oxfam coffee should be counted as Foreign Aid, for a couple of reasons. First, as above, it’s a scam. We can’t let our international aid accounting consist of shenanigans – that’s what we call a slippery slope (yes, before we know it, Rick Santorum will be given dogs to countries for their people to marry. Or something).

The second is more straight-forward for me, probably less straight-forward for some. Migrant workers are no different from any other worker (besides getting a rawer deal in just about every dimension, of course). They are hired according to the market supply of their labour, and paid according to demand for what they help produce, and the Marginal Revenue Product of Labour in what they produce. Less so, actually (refer to the part about them getting the raw deal).

There is no factor in the labour market for migrants that includes remittances. They do not demand higher wages because of the higher costs they incur as remitting migrants (trademark, I think, for that one), and firms most certainly do not factor in that need when they make a wage-offer. There is nothing deliberate about financing remittancing, from the perspective of the domestic OECD labour market.

The domestic economy involved loses income from remittances, yes – but (a) it allows, freely, the markets that service remittances to form, and make a profit, which means everything is working smoothly (in fact a lot of remittances are still made through unofficial channels, meaning the domestic economy is inefficiently benefitting from the practice, and should improve market-based services for remittances), and (b) the destruction of domestic income/money supply due to remittances pales in comparison to things like military expenditure.

If anything, remittances should be considered a better investment than expenditure by migrants: bullets are destroyed, yet their manufacture means a job. Given their income, a migrant’s spending of that money would be on consumption, which is the slow contributor to economic growth. Well, by sending money home, migrants are boosting the GDP in, and living standards of, underdeveloped countries, strengthening them as markets for exports – and future sources of skilled labour – for the OECD.

Making remittances not aid.

As the IPS article also details, the emigration of skilled labour – particularly health professionals – is a serious and growing public health and human capital development issue for under-developed nations.

So, a compromise. The OECD should start adding remittances by skilled migrants to our Foreign Aid, but we should subtract the balance of their wage or salary from Foreign Aid, since our having them means their own country is left behind. Seems only fair.

Davos: hypocrisy at day one

Wow. Just… wow. I mentioned, previously, that Davos sounded like it’d be a rich man’s burden kind of event, but this is just mind-blowing.

The chief executives of Coca-Cola Co., Nestlé SA and others will warn the World Economic Forum in Davos this week that the world is running out of water, threatening conflict, higher prices and lost production.

Some will likely then strap on skis to take advantage of the Swiss resort’s glistening slopes. But the pistes of the Alps are also contributing to the world’s water woes.

Europe’s ski resorts have been racing to install snow-making machines to bed the slopes with artificial snow as snowfall becomes less reliable and resorts compete with one another to offer guaranteed good skiing. That is great for skiers and businesses that rely on them, but not so great for local water supplies.

Snow cannons suck up a lot of water. As much as 35% of all water used in Davos now goes to making artificial snow, according to a report released last month by the Swiss Federal Institute for Snow and Avalanche Research to examine the net benefits of snow-making machines. Davos bought 16 additional snow cannons for this season, according to town authorities.

The article is kind enough to include some non-comforting information, too often not seen in such information, concerning water use generally, “moving forward”:

Based on current usage patterns, about 30 countries will be short of water by 2025, according to the Sri Lanka-based International Water Management Institute, a nonprofit supported by 60 governments. That is mainly because most irrigation for agriculture is inefficient, while demand for meat, wheat and other high-protein foods that require a lot of water is growing rapidly as people in China and India become wealthier and more urban.

But the battle against climate change is sucking up water, too, creating what analysts in the field call an accelerator effect. Take biofuels, produced to cut use of fossil fuels such as gasoline that spew the carbon dioxide that causes global warming. Biofuels are mostly made from crops that have to be grown, which puts pressure on land and food prices, as well as on water resources. It takes on average 1,000 liters (260 gallons) of water to make one liter of ethanol-based biofuel, according to the IWMI. For gasoline, it takes 2.5 liters.

The same goes for some of the alternatives to coal-fired power plants that produce less carbon dioxide. Hydroelectric power requires large quantities of water. So do the cooling systems in nuclear-power plants. Clean-coal technologies, too, use more water than regular coal. Overall, industry accounts for around 23% of global fresh water use, compared with around 70% for agriculture and 7% for residential use. Demand is rising in all three areas.

“Some people call water the oil of the 21st century. Whether you like that description or not, one thing is clear, availability of water will be a key driver in the development of the world’s economy and government policies in the next decade,” said Andrew N. Liveris, chairman and chief executive of Dow Chemical, in a statement.

Still, though – blowing water out of snow-cannons during a World Economic Forum meeting is pretty moronic. Particularly compared to, say, not doing so, thereby highlighting exactly one of the world’s most significant problems.

I’m sure the poor countries of the world will be delighted when they hear about how their saviours treat fresh water, while meeting to discuss the needs of the global economy.

Economic uncertainty to dominate Davos

From today’s Financial Times:

The hot ticket at Davos last year was the “dialogue in the dark” event, when delegates at the World Economic Forum were plunged into complete darkness to experience the loss of sight. This seems an apt metaphor for the blindness of the world’s elite to the fragility of the global financial system.

Unlike the Financial Times itself, of course, whose writers all saw this coming from miles away…

To continue.

With the state of the financial world having seen a dramatic turnabout in the past year, WEF organisers have staged a series of high-profile debates on financial stability and banking risk, and there will be a flurry of senior bankers in attendance, ranging from JPMorgan’s Jamie Dimon to Goldman Sachs’ Lloyd Blankfein – as well as some of the newly appointed Wall Street chief executives such as John Thain at Merrill Lynch.

…

They will be joined by a clutch of senior European policymakers – such as Jean Claude Trichet of the European Central Bank and many European finance ministers – allowing a flurry of transatlantic behind-the-scenes debate about global policy responses to the credit crunch before next month’s crucial meeting of the Group of Seven finance ministers and the spring meetings of the International Monetary Fund and World Bank.

…

Another notable swathe of attendees – which marks a contrast with earlier years – comes from the sovereign wealth funds, and other manifestations of the cash that continues to swirl around Asia’s exporters and the oil-rich Gulf. Officials from the China Investment Corporation and Dubai International Capital, for example, will all be in attendance – and a planned debate on their investments could be a highlight of the meeting.

Indeed, sovereign wealth funds could overshadow one topic that was prominent at last year’s event: the role that private equity now plays in the global economy. For while the Harvard professor Josh Lerner is due to release a landmark report on the sector – which was commissioned at last year’s Davos event – the turn in the credit cycle means that buy-out funds are no longer generating so much fear.

It would appear, then, that the days of Davos meeting concerning themselves with what to do about the world’s poor and the world’s problems are over, for now. We have our own problems – the poor are on their own. I should be very surprised if these rooms of wealthy elite are brimming with debate over the Copenhagen Consensus.

This, specifically, was actually worrying (for me):

Another sign of the shift in sentiment is the inclusion of a new set of topics on this year’s agenda: competition for global commodity resources. For the first time Davos is staging a series of debates about food supplies – a topic that could generate lively debate given the recent sharp rise in many agricultural commodity prices, and the political challenges this is generating in emerging economies.

Yes, that’s the OECD core of economic power, getting together to trade notes on securing the world’s stockpiles of commodities. Meaning the developing world is probably about to fall about another century behind.

The Jim Kunstler preparedness check-list

From yesterday’s Clusterfuck Nation (this is an abridged version).

1. Stop all highway-building altogether. Instead, direct public money into repairing railroad rights-of-way. Put together public-private partnerships for running passenger rail between American cities and towns in between. If Amtrak is unacceptable, get rid of it and set up a new management system. At the same time, begin planning comprehensive regional light-rail and streetcar operations.
2. End subsidies to agribusiness and instead direct dollar support to small-scale farmers, using the existing regional networks of organic farming associations to target the aid (this includes ending subsidies for the ethanol program).
3. Begin planning and construction of waterfront and harbor facilities for commerce: piers, warehouses, ship-and-boatyards, and accommodations for sailors.
4. In cities and towns, change regulations that mandate the accommodation of cars. Direct all new development to the finest grain, scaled to walkability.
5. Institute “locational taxation” based on proximity to the center of town and not on the size, character, or putative value of the building itself. Put in effect a ban on buildings in excess of seven stories.
6. … begin a public debate about whether it is feasible or desirable to construct any new nuclear power plants. If there are good reasons to go forward with nuclear, and a consensus about the risks and benefits, we need to establish it quickly.
7. … prepare psychologically to downscale all institutions, including government, schools and colleges, corporations, and hospitals. The centralized high schools all over the nation will prove to be our most frustrating mis-investment. We will probably have to replace them with some form of home-schooling that is allowed to aggregate into neighborhood units. A lot of colleges, public and private, will fail as higher ed ceases to be a “consumer” activity.
8. Corporations scaled to operate globally are not going to make it. This includes probably all national chain “big box” operations. It will have to be replaced by small local and regional business.
9. Take a time-out from legal immigration and get serious about enforcing the laws about illegal immigration.
10. Prepare psychologically for the destruction of a lot of fictitious “wealth” — and allow instruments and institutions based on fictitious wealth to fail, instead of attempting to keep them propped up on credit life-support.
11. Prepare psychologically for a sociopolitical climate of anger, grievance, and resentment. A lot of individual citizens will find themselves short of resources in the years ahead. They will be very ticked off and seek to scapegoat and punish others.

I believe thought-provoking is the usual compliment. Debate-provoking would be a lot more useful, but that stronger criterion depends more heavily on the rest of us.

I, for one, am with him completely on rail, light rail and shipping commerce. Rail here is worse than a joke: it’s plain insulting to a country as wealthy and richly-resourced as this. His arguments concerning civic infrastructure (including hospitals and schools) make for a very interesting wool-gathering spending of time. The immigration issue is equally interesting (not sure I agree, but I believe he is being pragmatic and, ultimately, he is right: the way things will be is the way things will be. There will be little time or space for normative time-wasting, cometh the hour).

Over-fishing = migration problems (no, not of fish)

Here’s an interesting string of negative externalities:

1. Fish prices in Europe do not reflect the depletion of fishing stocks (in, say, the North Sea)
2. Fishing stocks are depleted (this is the tragedy of the commons)
3. European countries move their fishing enterprises farther afield, striking bargains with African coastal countries to (over-)fish their waters
4. Fishing stocks in African waters become depleted also
5. Illegal immigration from Africa to Europe increases

Eh? We came upon the first few of these points way back in an earlier post:

… why are we doing this? Because we like fish (genereally speaking – I like them enough to wish we didn’t eat them) and we either don’t know or don’t care about declining biodiversity. Both of the latter are true. We don’t know. Do you know what it is you’re eating at the local chippy? Or which ocean the thing actually came from?

I fancy the chances that you don’t. You don’t know whether you’re eating Cod that was accidentally scooped up by a trawler looking for Haddock (or that you have Cod because the standard fishes of the day have disappeared). You don’t know whether you’re eating fish from the territorial waters of a poor country in Africa, because your country’s waters are ‘dry’ (so to speak) and you got these fishing rights on the cheap. Too cheap for them, and too cheap for you. Why?

I say ‘too cheap’ for you (the consumer) because of the not-caring crack made above. You might care, you might not. But when you enter the supermarket, odds are you buy a fish based on the price. That’s the information given to you. None of this other stuff is provided. There’s no pseudo-Surgeon-General’s warning that Eating This Fish Might Cause Critical Loss of Biodiversity And Shorten Humanity. As consumers we typically aren’t this well informed, and we purchase according to a price that does not include the loss of biomass, the loss of biodiversity, the loss of future wellbeing and income in Angola, etc.

I’ll just use Europe as an exemplar, here – it does the most over-fishing, and is attracting the immigration, so it works well enough.

So that’s the fish – how did they grow into chickens that are now coming home to roost in the form of illegal immigrants (this is a generic term – I’m prepared to argue that there are no such thing)?

A vast flotilla of industrial trawlers from the European Union, China, Russia and elsewhere, together with an abundance of local boats, have so thoroughly scoured northwest Africa’s ocean floor that major fish populations are collapsing.

That has crippled coastal economies and added to the surge of illegal migrants who brave the high seas in wooden pirogues hoping to reach Europe. While reasons for immigration are as varied as fish species, Europe’s lure has clearly intensified as northwest Africa’s fish population has dwindled.

Last year roughly 31,000 Africans tried to reach the Canary Islands, a prime transit point to Europe, in more than 900 boats. About 6,000 died or disappeared, according to one estimate cited by the United Nations.

The region’s governments bear much of the blame for their fisheries’ decline. Many have allowed a desire for money from foreign fleets to override concern about the long-term health of their fisheries. Illegal fishermen are notoriously common; efforts to control fishing, rare.

How do we fix this? Several options. Europe is blaming Africa:

European Union officials insist that their bloc, which has negotiated fishing deals with Africa since 1979, is a scapegoat for Africa’s management failures and the misdeeds of other foreign fleets. They argue that African officials oversell fishing rights, inflate potential catches and allow pirate vessels and local boats free rein in breeding grounds.

…

harbor, for instance, remains littered with 107 wrecked fishing trawlers eight years after the European Union promised to clear them to help develop the port.

In their defense, European officials say they moved to reform their fishing agreements in 2003 to address criticism that ship operators were overfishing and were undercutting local fishermen. Fabrizio Donatella, who heads the European Union unit that negotiates fishing deals, says the new agreements are models of responsible fishing and transparency.

“One cannot say we are not fishing the surplus or that we have not respected scientific recommendations,” he said. Ultimately, African governments must protect and manage their own resources, he said.

If Europe is so enlightened, then, it would behove it (speaking planetarily) to withdraw its fleets. “Europe” can hardly call for personal responsibility by African nations when the imbalance of economic might is so great – it just doesn’t work that way. If nothing else, it – and the rest of the world: be it the EU, WTO, WHO, UN hell, NATO would be fine – should just take over the task of survey and science with regards to African coastal waters and fishing stocks. It is, after all, in our interest to start conserving this resource at some point: I don’t know of fish anywhere else nearby, apart from this small planet.

African countries, in turn, can tell everyone to piss off – but many are in such a state of under-development that this just isn’t likely. Dysfunctionally-managed, often corrupt but, at best, just trying to fight their way out of a poverty trap when every tide flows against them, they’ll take the money, however unfairly distributed the returns on African fish are.

Within Europe, the negative externalities, as per the string at the top, have reached back into our economy – not into the market causing the harm, but back into the economy causing the harm, and this is a positive thing. By being made to bear some of the burden, Europe now faces a direct incentive to stop making such a bloody mess of things out of its own gluttony.

More likely? Merely nominal changes to development aid/behaviour in Africa, and harsh anti-immigration law enforcement/detention to deal with the human consequence. That’s just the way we do things.

Key Economic Developments and Prospects in the Asia-Pacific Region 2008

By now the report by the United Nations’ Economic and Social Commission for Asia and the Pacific (UNESCAP) has made the news, mostly through its pessimism regarding the US economy – but it has far more within! You can read the entire report here.

Specifically, and as per the IHT link above, it mentions the growth rates of Asian economies (the “AP” in ESCAP):

Eco 1 students! This returns us to the principle of Catch-Up:

Short version: emerging/developing economies, assuming that they have adequate policies in place, will exhibit higher rates of economic growth than developed countries, eventually “catching up”. Compare, in Table 1 of the UN ESCAP report above, the developing/developed economies numbers. That is catch-up. It is also why the bourses of emerging markets will usually out-perform those of developed exchanges.

Another section of interest in the report is Sovereign Wealth Funds, to wit:

Buoyant reserve accumulation by countries in the region is adding to the stock of capital for existing wealth funds. Reserves are increasingly being accumulated not for prudence in times of crisis but as a result of managing currency appreciation. Therefore, there is no limit to the level of reserve accumulation.

It has become increasingly important for Governments to consider setting up sovereign funds as a strategy to obtain a reasonable level of return on their burgeoning capital. In addition, such funds serve to reduce risk by diversifying the assets in which foreign reserves are invested. Existing sovereign funds are also allocating more of their capital to riskier assets. For instance, the Russian Federation uses its stabilization fund partly to meet emergency budget shortfalls and partly for investment purposes.

Sovereign wealth funds have a major potential impact on movements in international financial markets. The volume of capital under their management is at least twice as much as that of hedge funds. Estimates put the current size of the world’s 25 sovereign funds at about $2.5 trillion, with a rise of $450 billion in 2007. It has been forecast that the resources at the disposal of sovereign funds could rise to $12 trillion by 2015. The region’s major established funds are the Government Investment Corporation of Singapore, with holdings of $330 billion; the stabilization fund of the Russian Federation, with assets of about $100 billion; and the Investment Agency of Brunei Darussalam with $30 billion. The Republic of Korea also began its own fund, the Korea Investment Corporation, in 2006 with capital of $20 billion.

The desire to obtain healthy returns on their bulging reserves is also leading other countries in the region to consider setting up their own wealth funds. The year 2007 saw the formation by China of a sovereign wealth fund to invest $200 billion of its foreign reserves in other investments. Investments by the country’s new State Foreign Exchange Investment Corporation will be in financial and strategic assets around the world.

Sovereign wealth funds present a number of challenges for their owners. One is that they are prone to protectionist sentiment from investment-receiving countries because the funds are government entities. In this context, the extent to which investment in a company by a sovereign wealth fund results in voting rights or management control is important. A reasonable amount of information on the investment strategy and portfolio holdings of sovereign wealth funds would also help to reduce concerns from investment-receiving countries.

Currently, most funds are opaque about internal checks and balances, investment strategy and commercial goals.

Surprisingly (for me) was the extent to which the Russian Federation had expanded its holdings of foreign reserves, in 2007:

Although that could just mean I’ve been here too long (I’m forever trying to argue with colleagues here in the US about the latent strength of Russia. The mindset here is that they were soundly defeated and will never be a problem – very English thinking on the issue, frankly).

The report’s discussion of inflation (pinning no small amount of the same on the Money Supplies in Asian and Pacific economies) is very good also. The report is well worth the time of students of economics to read.

Meat vs. food

That’s my mathematics, of course. Opinions differ.

Following on from the oil post, a food commodities post! There is a decent editorial in (I believe) the Christian Science Monitor, found by way of Yahoo:

Food prices worldwide hit record highs in 2006, and all the signs are that they will go on rising this year, and for the foreseeable future. The era of cheap food, the experts say, is over and we are going to have to get used to it.

I disagree with the staff writer’s exonerating of crop yields, as a factor – his reference to Australian production is off, and it is the only one he uses, in a world with declining yields across the board. However he covers things like bio-fuels and shifting palates (“increasingly prosperous consumers in India and China are not only eating more food but eating more meat”) reasonably well: I’d have liked to see more on just how great a waste of grain a cow is, but that’s also my vegan’s prejudice. One aspect that is well-covered is the distributional effects of our new Malthusian utopia:

… it is the poorest people in the world who suffer most, because food takes up a bigger share of their daily shopping bill than it does for richer people. A family in Bangladesh, for example, living on $5 a day, typically spends $3 of that on food. The 50 percent rise in food prices the world has seen in recent years takes a $1.50 chunk – nearly 30 percent – out of the family budget.

Even farmers are not immune. On the whole, small-scale farmers in developing countries buy more food than they sell, so they, too, are net losers. Relatively few peasants have holdings large enough to benefit from price increases.

Big farmers in the rich countries, however, are doing well: US corn farmers have seen the price their crop fetches jump by 50 percent since 2000. Other net food exporters, such as India, Australia, and South Africa, will also do well out of rising prices. Major dairy producers, such as New Zealand, have done well as consumption of milk, yogurt, and cheese rises in Asia. As a result, while property values in New Zealand are generally expected to soften, flat rural land, where cows can graze, is expected to continue to rise in price, according to a survey by Massey University in New Zealand.

Speaking of cows, and how rapidly farmers can change crops – or how willing they are to do so, given the uncertainty over yields, rainfall and prices – Argentina is, apparently, also beginning to suffer. Kind of:

… while Argentines are some of the world’s top meat-eaters, consuming nearly 70 kilos, or 154 pounds, per capita each year, soaring grain prices and export caps are driving many cattle ranchers to sell their herds and instead farm more lucrative crops. Ranchers have switched from grazing to grain on about three million hectares, or 7.4 million acres, since 2005 – a 10 percent decline in ranch land, said Pablo Adreani, an economic analyst with AgriPAC Consultores, an agricultural consultancy in Buenos Aires.

Export caps, imposed by then-President Nestor Kirchner as an anti-inflation measure, have flooded the local market with meat, keeping beef prices low while soybean, corn and wheat prices soar.

…

Some agricultural analysts say that Argentine soybean farming is now three times more profitable than cattle ranching. Others say that reliable figures are lacking. Nonetheless, the trend against ranching is powerful, the commodities expert Ricardo Baccarin said.

“The business of soybean farming is brilliant in Argentine today,” Baccarin, chief analyst at the grain brokerage Paniagricola, said.

Half of all cultivated farmland in Argentina is dedicated to soybeans – an explosion aided by the fact that soybeans need just eight months to reach harvest, far less than the two to three years needed to raise a beef herd, he said.

Soybeans also require less fertilizer, a major expense, than corn or wheat, and almost 90 percent of soybeans are exported for high prices thanks to a solid futures market and constant international demand, he said.

Funnily enough, I don’t know that I’m that big a fan of such a move, either: monocultural agriculture never strikes me as a good idea – even if it’s for the commodity I consume as a staple (I’m still looking forward to the day of realisation that soy kills us and has destroyed all our top-soil. Every skinny person with decent skin will die at the hands of mob violence). It just isn’t good to punish land without a break, like that.

At least, like all agricultural suffering, the government can be blamed.

“If the government would allow a free, unrestricted market, Argentina could be the second largest world exporter of beef,” Adreani said. Instead, it is now the fourth, behind Brazil, Australia and India in the USDA ranking.

The remaining ranchers in Argentina are particularly frustrated to be missing out on rising global beef prices driven by the same swelling cost of grains that cattle are increasingly fed. At his white-tiled slaughterhouse at the Yaguane meat processing plant, the quality-control supervisor, Carlos Alberto Kuida, blames the government.

“We’ve got our hands tied behind our backs with these export taxes,” Kuida said. “We’re in the worst situation we’ve been in for years.”