Category Archives: Business/Economics

Public protest in Myanmar

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I’ve been engrossed in an article I’m writing about Iran for International Analyst, hence the lack of posts this past week. Sometimes I wonder where my mind is going; I nearly posted the piece before realising I hadn’t finished a fairly significant paragraph. It’s 4am. Sue me.

Meanwhile on Planet Screwball, hundreds of people marched in Myanmar’s largest city, Yangon, to protest steep increases in fuel costs. This rare public protest dispersed when members of a militant government youth organisation confronted the demonstrators.

It’s not all good news though. Thirteen people who protested the price increases are now facing 20 years in prison.

The end of the world is NOT nigh

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Although you’d be hard pressed to believe me given that, as of the time of writing, the FTSE 100 in London is down 3.4%. It has fallen below 6,000 and is at a low for the year.

Markets all over the world are still suffering from jitters caused by a shaky housing market in the US. There tends to be a domino effect — a dip in the US markets causes falls in the European bourses, which in turn hits Asian stocks; and so the cycle continues. The decline has actually been more marked in the smaller Asian markets: the Philippine benchmark is down 6% and the Indonesian 7.7%.

The consistent 200-point falls on the Dow Jones over the last two days are worrying — and demoralising — but as is always the case with stocks we will have to wait and see if this is an abhorration/correction or the beginning of something more serious.

True, billions have been wiped off the value of the markets, but they are still up (a little) on 2006 and (a lot) on 2005. That may be a whole year’s progress gone down the tubes but it just requires us to take a longer-term view of the situation.

While a rally is unlikely for at least another week, it will come, slowly at first and then building as investors take advantage of weaker stock prices.

It’s not the end of the world, just a very bad few days at the office.

Fuel to eradicate poverty

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Jacques Diof, director general of the UN Food and Agriculture Organisation, feels the bioenergy sector has the potential to drastically reduce hunger and poverty.

If we get it right, bioenergy provides us with a historic chance to fast-forward growth in many of the world’s poorest countries, to bring about an agricultural renaissance and to supply modern energy to a third of the world’s population.

It’s a bold claim, but he’s got the background for us to take him seriously. In the article he sets out three things which need to be addressed for bioenergy to have the desired effect: lowering of trade barriers against ethanol imports, ensuring smallhold farmers can organise themselves to produce the biofuels on a large scale, and certification to ensure bioenergy products meet environmental standards.

I like the last point. One of the arguments against biofuels — particularly ethanol — is that it will result in more forestry clearance etc to allow more crops such as corn to be grown. As the soil in the Amazon rainforest is generally poor and quickly washed away once the trees are removed, ensuring the products meet environmental standards will have a beneficial effect on ecosystems.

I have also come across articles and news reports claiming ethanol isn’t as clean a fuel as commonly thought, largely because it takes more energy to produce a litre of ethanol than it does to produce a litre of oil. However, I would argue that this is because companies have had more time to refine oil production.

Diof says his three measures

would allow developing countries – which generally have ecosystems and climates more suited to biomass production than industrialised nations, and often have ample reserves of land and labour – to use their comparative advantage.

A fair and sound point in terms of economics, and the core of his argument that bioenergy can reduce poverty and hunger. Creating a valuable trade resource for less developed countries would not only foster economic self-sufficiency but generate wealth for better public and private services that a wider population base can afford.

Diof continues:

To focus debate exclusively on bio­fuels for transport is therefore to miss much of the point about bioenergy’s potential for poverty reduction. This lies more in helping 2bn people to produce their own electricity and other energy needs than in keeping 800m cars and trucks on the road… Helping 2bn people living on less than two dollars a day switch to affordable, homegrown, environmentally sustainable bio-power would represent a quantum leap in their development.

He’s thinking on a grand scale, and for that I applaud him. However, I am not convinced his dream will become a reality. Diof has urged the formation of an international bioenergy market and unless this happens in a balanced and fair way it will be dominated by existing major trade powers.

If that happens the potential benefits for less developed countries will be hindered, though not necessarily eliminated. We may face into a situation similar to that regarding chocolate and coffee production, where small sums are paid to farmers in poorer countries and the refined goods sold on for significant profits.

I’m not advocating some sort of global socialist approach to bioenergy. What I would urge, though, is that the governments of developing countries ensure they have a major role to play in the formation of an international market. This could go a long way toward using bioenergy wealth for the good of people who need it rather than corporate enrichment — although I’m not naive enough to suggest such enrichment won’t happen.

While we’re on the subject of alternative fuels, take a look at these pictures from CNet. They show a system of wave-power buoys that’s being installed off the coast of Oregon, USA.

Meanwhile, Spiegel Online is reporting that the rise of biofuels is threatening the humble gummy bear because a rise in crop prices threatens to jack up the price. I kid you not.

What I'm reading

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Some of the articles that caught my eye on my day off:

Scholars and Rogues: No relief from heat on Iran in sight. Russ Wellen says that although there are hopeful signs for a diplomatic solution to conflict between the US and Iran, there is no excuse for relaxing one’s vigilance.

(London) Times: Why I put my money on the elephant over the dragon. Maria Misra says India may beat China in the economic stakes.

Project Syndicate: Better red than dead? Former IMF chief economist Kenneth Rogoff argues that support for capitalism will be severely tested in the near future as would-be egalitarian health systems face ever-rising costs.

Christian Science Monitor: How to make peace using the principles of war. P Surdas Mohit cites Sun Tzu while arguing the UN/AU force for Darfur can succeed if lessons are learned from peacekeeping failures in the past.

Alertnet: Africans warm to Sudan mission, but forget Somalia. Six countries have quickly promised troops for Darfur but Somalia is still waiting for the 8,000 AU peacekeepers who were supposed to arrive this year.

Newsweek: Facebook grows up. A look at how Mark Zuckerburg (provided he survives the lawsuit) is trying to build the business while keeping it cool.

BBC: Red Army virus to combat MRSA. A bacteria-eating virus used by the Soviet military could kick the superbug’s candy ass.

Craig Stoltz: Proposed: An end to bylines. Oh I know a lot of reporters who won’t be happy with that…

Mybloghasnoname: Beautiful people earn 12% more than Ugly Bettys. According to the Journal of Economic Psychology this is mainly because good-looking people are considered more helpful and co-operative. Hmm.

China takes things seriously

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The head of a Chinese toy manufacturing company at the centre of a huge US recall has committed suicide, according to CNN via the Southern Metropolis Daily newspaper.

The recall, if you missed it, involved about 1m toys suspected of having lead in their paint. The products were aimed at pre-schoolers and featured characters such as Dora the Explorer and Elmo. If I remember correctly, about 95,000 of these toys were recalled from Ireland and Britain.

Zhang Shuhong hanged himself. His firm, Lee Der Industrial, had been sold the paint by his best friend. The Chinese government, which is taking a very firm line on contaminated products, had suspended the company’s export licence in the wake of the scandal (the second toy-related recall in a short space of time).

I don’t know if suicide is common among disgraced Chinese officials, as it is in Japan. Zhang’s action may well have saved him from a public trial and swift execution shortly afterward. At the very least, it is a sign of the new China.

The country is cleaning up its act in a big, big way. The government has realised that defective exports — such as contaminated pet food and tooth paste which killed dozens of animals and people — reflect badly on the nation as a whole and its taking steps to address the issue.

Part of this is stamping out corruption, which has been endemic among officials across the country. One only has to look back at the execution of Zheng Xiayou, former head of the food and drug safety agency. He took some €630,000 in bribes to clear fake medicines, one of which killed 10 people. Zheng was shot in June for his crime, a sentence which raised eyebrows even in China, which has a rather liberal attitude toward administering the death penalty — but he was symptomatic of the situation and so was made an example.

Local goverments have also got in on the act. Authorities in Zhejiang province have produced a computer game called Incorruptibe Fighter, in which the aim is to torture and kill corrupt officials. It was downloaded more than 100,000 times within a week of its release.

In Beijing, students are being given anti-graft textbooks detailing cases of corruption and execution as the government tries to scare the next generation of leaders into being honest.

China’s roaring growth means it is only a matter of time before it seriously challenges the United States’s economic might — though one could argue that, given the huge imbalance of trade between the two, this is already happening. That’s not to say China will be the global superpower of the 21st century (go to Bloomberg for a look at things which could scupper the economy), but we have to recognise its potential.

The country is exercising its influence on the global stage; the deal regarding UN-African Union peacekeepers for Darfur would not have passed were it not for China’s support. It is also engaged in massive mineral exploration projects in Africa as its builds economic and political alliances with nations hitherto overlooked.

While pollution is taking a serious toll on the natural environment, the World Bank says China’s economic boom has dragged 400m people out of poverty in 20 years. Inequality is still rampant but lessons can be learned.

In 2001, the historian JJ Lee noted that:

China is striving to change its social system while simultaneously striving toward superpower status. This challenge is unprecedented. Soviet Russia and Japan tried something similar at different times. But they did not face the challenge of doing so in the white hot glare of the internet.

He also felt the outcome

will depend not only on political skill and economic performance. It will also depend heavily on how effectively China can respond to the other sources of American dominance today — intellectual, cultural and social power… A key determinant of how world society develops in the new century is likely to be the nature of social thought emanating from the Chinese intelligentsia.

This type of challenge to American cultural dominance has not happened. I can’t see it happening in China’s current political state — certainly not while it and much of the world operate different political systems.

Nevertheless, we should all keep a close eye on China over the next 10 years. And let’s not forget about India…

Market madness

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As much of the world’s media freaks out over how the stock markets plummeted on Thursday and Friday, I’d like to draw attention to these two paragraphs buried in this Reuters report:

Despite the market’s slide on Thursday and Friday, all three major U.S. stock indexes ended this volatile week higher: The Dow Jones industrial average gained 0.4 percent, the Standard & Poor’s 500 index advanced 1.4 percent and the Nasdaq composite index rose 1.3 percent.

For the year so far, stocks are still in positive territory. The Dow is up 6.2 percent, while the S&P 500 is up 2.5 percent and the Nasdaq is up 5.4 percent.

So, despite some markets suffering their worst one-day fall in four years, it seems all may not be as bleak as it appears. That said we’ll only know on Monday if the drop looks to be bottoming out or if there’s more bad news to come.