Sending the Jobs Back

As I have said before, many people in Europe seem very complacent about this situation. Seeing the problem as one of call centres and the like, they feel vaguely re-assured that linguistic difficulties will mean that they are protected. But let me suggest another possibility. Having this backroom-office at its disposal, UK companies may become slightly more competitive than some of their continental rivals. Then to overcome the UK language difficulty vis-a-vis Europe may recruit young educated French, German, Dutch people into the UK to facilitate export into the EU. It's just a thought.

If you live in a rich nation in the English-speaking world, and most of your work involves a computer or a telephone, don't expect to have a job in five years' time. Almost every large company which relies upon remote transactions is starting to dump its workers and hire a cheaper labour force overseas. All those concerned about economic justice and the distribution of wealth at home should despair. All those concerned about global justice and the distribution of wealth around the world should rejoice. As we are, by and large, the same people, we have a problem.

Britain's industrialisation was secured by destroying the manufacturing capacity of India. In 1699, the British government banned the import of woollen cloth from Ireland, and in 1700 the import of cotton cloth (or calico) from India. Both products were forbidden because they were superior to our own. As the industrial revolution was built on the textiles industry, we could not have achieved our global economic dominance if we had let them in. Throughout the late 18th and 19th centuries, India was forced to supply raw materials to Britain's manufacturers, but forbidden to produce competing finished products. We are rich because the Indians are poor.

Now the jobs we stole 200 years ago are returning to India. Last week the Guardian revealed that the National Rail Enquiries service is likely to move to Bangalore, in south-west India. Two days later, the HSBC bank announced that it was cutting 4,000 customer service jobs in Britain and shifting them to Asia. BT, British Airways, Lloyds TSB, Prudential, Standard Chartered, Norwich Union, Bupa, Reuters, Abbey National and Powergen have already begun to move their call centres to India. The British workers at the end of the line are approaching the end of the line.

There is a profound historical irony here. Indian workers can outcompete British workers today because Britain smashed their ability to compete in the past. Having destroyed India's own industries, the East India Company and the colonial authorities obliged its people to speak our language, adopt our working practices and surrender their labour to multinational corporations. Workers in call centres in Germany and Holland are less vulnerable than ours, as Germany and Holland were less successful colonists, with the result that fewer people in the poor world now speak their languages.

The impact on British workers will be devastating. Service jobs of the kind now being exported were supposed to make up for the loss of employment in the manufacturing industries which disappeared overseas in the 1980s and 1990s. The government handed out grants for cybersweatshops in places whose industrial workforce had been crushed by the closure of mines, shipyards and steelworks. But the companies running the call centres appear to have been testing their systems at government expense before exporting them somewhere cheaper.

It is not hard to see why most of them have chosen India. The wages of workers in the service and technology industries there are roughly one tenth of those of workers in the same sectors over here. Standards of education are high, and almost all educated Indians speak English. While British workers will take call-centre jobs only when they have no choice, Indian workers see them as glamorous. One technical support company in Bangalore recently advertised 800 jobs. It received 87,000 applications. British call centres moving to India can choose the most charming, patient, biddable, intelligent workers the labour market has to offer.

There is nothing new about multinational corporations forcing workers in distant parts of the world to undercut each other. What is new is the extent to which the labour forces of the poor nations are also beginning to threaten the security of our middle classes. In August, the Evening Standard came across some leaked consultancy documents suggesting that at least 30,000 executive positions in Britain's finance and insurance industries are likely to be transferred to India over the next five years. In the same month, the American consultants Forrester Research predicted that the US will lose 3.3 million white-collar jobs between now and 2015. Most of them will go to India.

Just over half of these are menial "back office" jobs, such as taking calls and typing up data. The rest belong to managers, accountants, underwriters, computer programmers, IT consultants, biotechnicians, architects, designers and corporate lawyers. For the first time in history, the professional classes of Britain and America find themselves in direct competition with the professional classes of another nation. Over the next few years, we can expect to encounter a lot less enthusiasm for free trade and globalisation in the parties and the newspapers which represent them. Free trade is fine, as long as it affects someone else's job.

So a historical restitution appears to be taking place, as hundreds of thousands of jobs, many of them good ones, flee to the economy we ruined. Low as the wages for these positions are by comparison to our own, they are generally much higher than those offered by domestic employers. A new middle class is developing in cities previously dominated by caste. Its spending will stimulate the economy, which in turn may lead to higher wages and improved conditions of employment. The corporations, of course, will then flee to a cheaper country, but not before they have left some of their money behind. According to the consultants Nasscom and McKinsey, India - which is always short of foreign exchange - will be earning some $17bn a year from outsourced jobs by 2008.

On the other hand, the most vulnerable communities in Britain are losing the jobs which were supposed to have rescued them. Almost two-thirds of call-centre workers are women, so the disadvantaged sex will slip still further behind. As jobs become less secure, multinational corporations will be able to demand ever harsher conditions of employment in an industry which is already one of the most exploitative in Britain. At the same time, extending the practices of their colonial predecessors, they will oblige their Indian workers to mimic not only our working methods, but also our accents, our tastes and our enthusiasms, in order to persuade customers in Britain that they are talking to someone down the road. The most marketable skill in India today is the ability to abandon your identity and slip into someone else's.

So is the flight to India a good thing or a bad thing? The only reasonable answer is both. The benefits do not cancel out the harm. They exist, and have to exist, side by side. This is the reality of the world order Britain established, and which is sustained by the heirs to the East India Company, the multinational corporations. The corporations operate only in their own interests. Sometimes these interests will coincide with those of a disadvantaged group, but only by disadvantaging another.

For centuries, we have permitted ourselves to ignore the extent to which our welfare is dependent on the denial of other people's. We begin to understand the implications of the system we have created only when it turns against ourselves.
Source: The Guardian
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Leaving Only the Handloom Weavers Behind

I've been following up on the Pele-Ronaldo thing over at fistful. I am surprised how many Europeans don't seem to think that this is their problem. People are still thinking about the dull and stressing Call Centre work, and are thinking of this as any old part of services. But I'm not talking about most of the service industry here, just the high value end. The service industry in labour intensive work like care of the aged, cleaning homes etc will certainly grow in our economies, probably with this being done by (undocumented?) unskilled immigrants coming in. The point is this: Stephen's arguments are not the modern equivalent of the luddite machine breaking: nowadays the machines are moving leaving the handloom weavers behind. The labour market is being outsourced from the head downwards. This is what is different.

The next move seems to be biotechnology, and, of course, don't forget Bollywood. I'm not against, I'm only saying our societies are going to see important structural changes: Europe as much as the US, and that it is reasonable for people to want to talk and ask about this. Turning up the volume, blaming the Bush tax cuts for everything, and saying that anyone trying to take a more critical look is a protectionist just won't wash. At least not in my book.

In the past, the US was thinking of patents and the protection of intellectual property (I guess that some would say that this is also protectionism under another name, but there are arguments either way here). But then you look at Huawei and Cisco, and see that Cisco just settled out of court to what appears to be Huawei's advantage (see yesterday's post about Clay Chtristensen's Innovators Solution and the problem of not respecting 'not-good-enough' competitors sufficiently) . Copy protection doesn't seem too effective nowadays either, so I'm asking: where's the leverage? Meantime in the mailbox two readers, one in California, the other in Argentina seem to confirm my impression.

An interesting fact my girlfriend mentioned to me:

So what has happened to all those Indian engineers kicked out of the US when their H1B's ran out and their companies could no longer retain them? Some, no doubt, have gone back to India. But the rest are apparently moving to Taiwan. She says a number of friends have mentioned to her ways in which this is becoming obvious, not just what
the business people are saying but also anecdotes like how the flights into Taiwan are crowded with Indians. I have no idea how well Taiwanese society would cope with a substantial influx of foreigners, but they don't appear to be as insular as Japanese.

Another interesting factoid. Last night I had dinner with my sister's husband, who owns an ISP in South Africa (and lives there) and was here visiting an ISP trade show. He is here trying to sell software written by his colleagues in South Africa to manage networks --- user management, security, traffic shaping, that sort of thing. This is a market dominated by people like Packeteer (whose headquarters are right opposite the Apple building---I walk past them every day on the way to work). However with South African wages (both for engineers and execs)) being so much lower than the US, my sister's husband is just astonished at how much better a deal their software is than the US competition. (Technically he says they are much the same and I've no reason to doubt him.)

There really do seem to be so many indicators that the US is living in a cloud-cuckoo-land. On the one hand there's willful stupidity (like throwing out good engineers, and making it ever less pleasant for foreigners to want to work here), on the other there's a remarkable ignorance of how competent the rest of the world is. Unfortunately for
the rest of the world, I'm not sure the US is culturally ready to accept this. I foresee an awful lot of blaming everyone else in the world for the coming problems at home; and an awful lot of vindictive and petty military and economic actions to try to keep other countries in "their place".

and from Marcello in Argentina:

Actually, I'm as engrossed by the unfolding stories on China and India as I expect to be with your take in Argentina. Besides the fact that I know much less about China and India (and therefore most information is new and interesting), I expect that, let's say 15 o 20 years from now, what I will be working on, where, how and for how much will be heavily influenced by what happens or doesn't happen there in the future. I currently work on IT, science and education, and they all look like they are fast becoming tradeable services - there are interesting opportunities involved with the expanded markets, of course, but I confess that I find the threat of commoditization somewhat disturbing. I'm not even 25 and I'm already facing possible obsolescence...

Productivity Mismeasurement Problems

Those of you who don't know my surfs down piece on undocumented workers and structural labour reform really should take the opportunity to check it out. So WalMart has been caught in the act. And like WalMart just how many more are there? Of course the WalMart productivity revolution is much more than this scam. But still it is worth asking just how big this is. Between the low Chinese wages, and the undocumented workers in the US (do they exist? Do they show up in the productivity numbers?) no-wonder margins are high. One things is IT enabling a cost revolution, another is squeezing the lemons out in a very time-honoured way. WalMart, which is it?

Wal-Mart probed over illegal staff

US officials have arrested 250 workers at retail giant Wal-Mart, as part of a clampdown on the hiring of illegal immigrants. The US Immigration and Customs Enforcement (ICE) Bureau, part of the new Department of Homeland Security, said the immigants were hired by a contract cleaning firm, and that Wal-Mart executives had turned a blind eye to the practice. The ICE's investigation, known as "Operation Rollback", targeted workers at 61 Wal-Mart stores in 21 states. Investigators are still pursuing at least 50 workers.

According to ICE, some Wal-Mart officials had direct knowledge of the recruitment of illegal immigrants. Federal agents have reportedly conducted searches at Wal-Mart's Arkansas headquarters. And federal grand jury subpoenas have been issued for the Wal-Mart executives to testify. Wal-Mart said it was "committed to cooperating" with federal officials, and stressed that it was not directly responsible for the behaviour of third-party contractors. The probe is another stroke of bad news for Wal-Mart, the world's biggest retailer. The firm already faces a wave of lawsuits alleging sexual discrimination, and has been criticised for its apparently anti-union stance.
Source: BBC News
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The Missile Scientist and the Historian

Many thanks to Rueben for sending me this fascinating link (another version here ). The Indian president in Bulgaria. Well it's pretty common to have some non-obvious interests, but when two of them collide, that's kind of strange. However I'm not surprised, there is a lot of unused human capital knocking around in Bulgaria, and it's extremely cheap, maybe - in some instances - even by Indian standards.

A missile scientist with an artist’s unruly locks met a historian with a movie star’s looks on a rainy, cold day in a cobblestoned street here on Thursday. There couldn’t be a better indicator that the world had changed.

‘‘Many ask why I came to Bulgaria,’’ President A.P.J. Abdul Kalam said after signing agreements with his Bulgarian counterpart Georgi Parvanov in a grand, Gothic building called the Coat of Arms Hall. ‘‘I came because I have been fascinated by your expertise in mathematics and precision manufacturing,’’ he explained as he departed, as is now usual, from the formal statement. More than 30 television stations lapped up everything that Kalam had to say. The centre of Sofia was closed down for three hours and the secret service intensified continuing sweeps against Pakistani, Bangladeshi and Sri Lankan refugees, and closely investigating Muslims without passports.


Between the two Presidents, there was little talk of ideologies or geopolitics, the stentorian waffling so common in the days of old. Though there was the usual reference to terrorism, Kalam, 72, the bachelor, and Parvanov, 46, the father of two, talked mathematics, science and how both countries could do business in their great leap outwards.

Presently there is very little of such business, though there are clear links to be made: Bulgaria is known for its world of shadowy but supremely skilled hackers. That stems from a highly skilled pool of mathematicians and computer scientists. Bulgarians scheduled to join the EU in 2007, also urged Kalam’s delegation to sell Bulgaria to Bollywood. Bulgaria is an old Indian friend, evident from all the young students of Indology from the University of Sofia attached to the Indian delegation.

Indeed, Kalam made a special address to the Department of Indology at the university in the evening. The human flotsam of the transition is everywhere. Old women beg for alms in the streets.

This morning, however, all that was visible was some Soviet-style pomp and glory. In the shadow of the massive walls and gold-plated dome of the 1909 Gothic Alexander Nevski cathedral built to commemorate the ousting of the Turks, Kalam was given his grandest welcome yet of the week.
Source: Indian Express

How to Flaw Yourself With Your Own Arguments: Part VII

It's been a couple of days now that I've wanted to get back to my Gloom and Doom Brigade Post of last Friday. As I've said previously I've had some interesting feedback. First Joerg:

The "Olduvai"-scenario couldn´t possibly come to pass without adding a few more elements to it - like nuclear war and asteroids hitting earth... That is the reason why I didn´t think it worthwhile to pass such an exercise in excessive negativism on to you.

But it is definitely not sensible to ignore or diminish the importance of energy and natural resources: Raw materials prices will go on rising for at least a decade and make deflation go away. That might even be viewed as good news by some, but does have inflationary overshoot potential. However, the bad news is that there really is a scarcity problem. While there are technological solutions available, the selection process is guaranteed not to be a stress-free, calm and peaceful experience.

One of the 20th-century finest physicists was Carl-Friedrich von Weizsäcker. His moral authority - among that of other leading scientists, which were dubbed the "Goettingen Seven" when they articulated their resistance against any attempts at arming Germany with nuclear weapons - contributed significantly to Germany´s emergence as a non-nuclear military power. In the early 80s he moderated the so-called "Gorleben hearings", named after the prospective site for a nuclear reprocessing-plant. Those hearings may well have marked the point of no return for nuclear energy in Germany. Weizsäcker himself, however, basically disagreed with the decision against nuclear energy, considering it impossible to find sufficient substitutes for coal, oil and gas among renewable energy sources. He regarded nuclear energy usage as an inevitability and wrote a book in which he characterised the option to remain non-nuclear as being synonymous with following an ascetic lifestyle and reversing the economic growth Western societies had experienced in the post-WWII era. Meanwhile he is over 90 years old and still tends to be on the non-opportunistic side of important issues: he didn´t think the war in Afghanistan was a good idea. I had a different view at the time, but I would say that he has been vindicated since.

In the not-so-immediate future we may be able to rely on using superconductors and improved solar cells for increased energy output and efficiency. But it would be excessively dumb for economists to conclude that new energy sources will be readily available when they are needed. In the past, whole civilizations have disappeared because their resources became (absolutely or relatively) scarcer. (And, yes, there is no guarantee we won´t be hit by an asteroid before having developed technology that would save us. It´s just not terribly likely. But if the precautionary principle is invoked to defend invading foreign countries that either may have or certifiably have developed a nuclear threat potential (I am not talking about Iraq here - rather about the coming conflicts concerning Iran and North Korea), why is it so frequently belittled by economists in the context of resource preservation and energy production? Shouldn´t these arguments run the other way (especially since it is not even evident how aggression constitutes effective precaution - against suicide attacks, e.g.?)

OK, so if that wasn't enough from Joerg, then came Christopher Anderson

I writing because I am not sure, but I think the following comment is over the line:

“Probably flawed, but why is it that only people with flawed ideas interest themselves in these (interesting and important) problems.”

I say I’m not sure because it’s not clear to me whether you are restricting yourself to the dieoff website and Dr. Duncan’s Olduvai thesis, or if you are including those who study oil and gas depletion as well.

Oil and gas depletion has been a pet interest of mine for several years. I am familiar with the sites you've linked to. If you are interested in the depletion problem, there are many other sites that are more informative and far less sensational. However, the broad message is the same: Hydrocarbon depletion represents a serious, near-term (meaning the next generation or two) challenge for society.

In the interest of not dumping a large number of links on you, below is a brief list of sites that I think are more representative of the depletion community than the dieoff site: ( here and here here and here and Andrew McKillop occasionally contributes to www.petroleumworld.com in their Sunday feature section).

“Flawed probably because it places too much emphasis on resource shortages”

I’m not quite sure where to begin here. Are you arguing that resource shortages won’t happen or that they will not have a significant effect?

A counterexample that comes to mind is the CA energy crisis. I have written about this before on Prof. DeLong’s site under the alias ‘chris_a’. It should be easy to find so I won’t repeat it in full here. In short, the crisis would never have happened if the underlying supply weren’t tight. I worked in research for the power industry in the mid 90’s. This problem was seen *far* in advance based on supply and transmission fundamentals. It was well known in some technical circles. Anti-competitive behavior made it worse but there wouldn’t have been an opportunity if the supplies weren’t tight. I don’t think there’s an argument over whether the effect was significant or not.

As far as depletion is concerned, consider the uproar over the Kyoto protocol and/or the scenarios presented in the IPCC’s TAR. There was no shortage of people/reports/studies talking about the economic damage associated with greenhouse gas (GHG) reduction strategies. If depletion were to force similar reductions in oil/gas consumption, it stands to reason that it would have similar economic effects. The Uppsala Hydrocarbon Depletion Study Group (the last link) has study that relates the IPCC scenarios to their depletion model. All of the scenarios, even those that assume a rapid, large-scale reorganization of society toward low GHG emissions, use substantially greater quantities of oil and gas than the depletion model suggests is available. The implication is clear: depletion would place even greater restrictions upon society’s use of gas and oil. By extension, the resulting disruption would be that much greater.

As I see it, there are three major holes to this argument:

1) The depletion model is wrong about the amount of oil and gas by a large margin. This is an argument over geology and extraction technology. Although I don’t feel qualified to judge, the roster of depletion proponents has a mix of experts from industry and academia. One society, ASPO (second link), is focused on what the total oil and gas endowment is and publishes a newsletter with updates. When I first started looking at depletion, I thought that the burden of proof was on depletion proponents. The underlying science has improved (as well as my understanding of it). I am now of the opinion that the burden of proof has shifted to its skeptics.


2) The consensus of economic damage is completely wrong. Again, I would argue that the burden of proof is on those who say the consensus is wrong.


3) (really 2b) We could rapidly adopt substitute sources of energy; coal, biomass, nuclear, wind, etc… AND alter our transportation infrastructure to use these alternative fuel sources. In this case it is not a matter of if it can be done. It is a question of how quickly it can be done.


I don’t think it is controversial to say that it would require a massive amount of investment, even if one ignored the costs of accelerated depreciation of the existing infrastructure. If transportation didn’t have such a large infrastructure, or if the conversion could take place over several decades, this would not be a problem. However, it is a very large industry and the current consensus within the depletion community puts peak oil production around 2010. Even if the political will to make such a change existed, there is still the issue of where the investment money is going to come from.


Other than mentioning some (easily verified) assertions concerning depletion, I don’t think I’ve said anything too controversial. I would be interested in any critiques, comments or questions you have and am more than happy to continue this discussion if you are so inclined.

In summary, if your ‘flawed’ comment was meant to extend to the warnings emanating from the depletion community as a whole, you’re taking on a large burden of proof.

I think I've already said this in another post, but just to leave things nice and clear: Chris, I accept your point, I was overstating things. I don't have an answer to the problem of possible energy shortfalls. I don't even know enough about the topic to hold a seriously informed opinion. I think the problem could arise: I am listening.

More on the Hollowing-Out Process

A quick comment on a couple of recent posts as I leave for work. Firstly the Pele/Ronaldo piece. To make explicit what is implicit. I am saying that these processes are subject to important non-linearities (due to the positive feedback component) that traditional analyses don't capture very well. I am also saying that the NASDAQ bust may be important historically for a reason that has not really been identified explicitly previously: the rise of Indian IT, and the relative decline of the US industry. This in part has been produced by the excess investment in IT in the late 90's. This process may well now have such momentum that it is to all intent and purpose irreversible. The latest news on wall street about Pharma stocks only serves to underline how far this can go. The last generation of extremely costly pharma R&D has not yielded the expected benefits. The next generation, centering round the genome, is likely to be extremely IT intensive, and therefore India is likely to be a prime beneficiary. Those of you who are familiar with the 'on the shoulders of giants' endogenous growth models will note that it is often assumed (rightly or wrongly) that the production of Mozarts and Einsteins is a stochastic process. So numbers matter, and India has the numbers. The real turning point will come when India realeases a beta1.0 version of a piece of what Maynard calls 'point-of-view-changing' software. In my book this is only a question of time.

So following on from this, briefly to Stephen's piece yesterday. My purpose in posting this piece was not to endorse every last argument to be found there. Rather I was trying to indicate that the questions he is asking seem to me to be perfectly legitimate and reasonable ones. Simply to try and duck them for fear of a 'protectionist backlash' does not seem like an intelligent strategy to me. The US has to address quite a number of problems right now, many of them the legacy of its recent past, and this question - of the hollowing out of the upper end of the labour market - is not least among them. As I said yesterday, if the dollar falls substantially, and the internal US labour market practices the structural reforms it advises for the rest of the world, I don't doubt jobs can be produced in large quantities. The question is: where on the value chain will these jobs be situated?

German Economy Forecasts

The latest round of forecasts on the German economy strike a mildly optimistic note - with the notable exception of the employment front. Of course these are only guess-timates, and they do seem to be regularly subjected to downward revisions. Apart from the detail that the highpoint seems to be the extra days worked from the a-typical distribution of public holidays, the curious thing is how everyone seems to be looking for growth elsewhere to solve their problems:

The German economy, the biggest in the eurozone, looks set to stage a recovery -- albeit a modest one -- next year after stagnating this year, the six leading economic think-tanks in Germany predicted. In their widely watched autumn report, published Tuesday, the institutes forecast that gross domestic product (GDP) in Germany would "stagnate this year and only expand moderately next year. In 2004, real GDP will grow by 1.7 percent."


The six institutes are Berlin-based DIW, Ifo in Munich, HWWA in Hamburg, RWI in Essen, IfW in Kiel and IWH in Halle. And the new forecasts represent a downward revision from the institutes' previous report published in the spring, when the think-tanks had been pencilling in growth of 0.5 percent this year and a pick-up to 1.8 percent next year. Nevertheless, Economy and Labour Minister Wolfgang Clement insisted that the institutes' latest report provided "proof that the German economy has been gathering momentum since the summer". "Already in the second half of the year, we've noted a slight revival in the German economy," Clement said in a statement.


"And next year, recovery will get on a broader footing, thanks to positive global economic developments, an increased number of working days" and the anticipated positive effects of the planned tax cuts, the minister continued. The German government, which takes into account the six institutes' forecasts when drawing up its own prognoses, is scheduled to publish its new updated growth forecasts on Thursday. So far, the government has been predicting growth of 0.75 percent for the current year and 2.0 percent next year, but recent press reports have suggested that those forecasts would now be cut to zero and 1.75 percent, respectively.


Despite the first signs of an upturn, the six institutes remained cautious in their autumn report. While "there have been the first signs of an improvement since the midddle of the year, as the recovery we had predicted back in the spring gradually materialises," there could still be no talk of an "upswing", the institutes insisted. Economic activity next year would benefit from the substantially higher number of working days compared with 2003, with many public holidays in 2004 falling on the weekend, the report said. "In the first six months of 2004, economic developments will be accelerate largely as a result of increased domestic demand," as investment and household consumption receive a boost from the tax cuts scheduled to come into effect at the start of next year. Then, in the latter part of the year, growth would be driven increasingly by foreign demand, the institutes predicted.

Nevertheless, the modest economic recovery would not be sufficient to bring down the high level of unemployment in Germany, the institutes said. They predicted that the total number of people out of work in Germany would average 4.448 million in 2004 compared with an anticipated 4.393 million this year. Such figures would also continue to undermine Germany's public finances. Indeed, the German public deficit, which already amounted to 3.5 percent of GDP and was therefore in breach of the 3.0-percent limit laid down in the European Union (news - web sites)'s Stability and Growth Pact, would rise to around 4.0 percent of GDP this year, the institutes predicted. And despite Berlin's pledge to bring the deficit ratio back below 3.0 percent next year, the planned tax cuts and welfare and pension reforms meant the government would only be able to scale back the public deficit to 3.5 percent of GDP in 2004. Inflation in Germany was likely to remain firmly under control, averaging 1.0 percent in 2003 and 1.3 percent in 2004, the institutes predicted.
Source: AFP, Yahoo News
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Turning the Heat Up on Trade

Meantime on the trade front we may be in for another turn of the screw. Given then intransigence of Beijing on the currency issue, turning the heat up at the WTO may be a more politically viable strategy for the US. The bang per decibell rate could be higher, at least at the ballotbox. Of course, on another time-honoured theory, a good way to head-off problems is to position yourself at the head off the race and then lead the pack well away from main street by turning down the nearest convenient cul-de-sac.

The US is ratcheting up pressure on China to abide by its commitments in the World Trade Organisation in an effort to defuse domestic political demands to begin penalising Chinese exports to the US.


Robert Zoellick, the US trade representative, on Wednesday warned that Chinese access to the US market depended on "fair" two-way trade.

"I believe in open markets [and] I think the United States' market should remain open, but the only way that we can maintain open markets is if American exporters have an opportunity to export here," he said in Beijing.

That followed similar statements in Washington late on Tuesday by Grant Aldonas, undersecretary of Commerce, who arrives in China on Friday with Commerce secretary Don Evans to continue pressing the trade issue.

"We expect action from the Chinese," he told a hearing of members of Congress who were demanding stronger action. "The time has come to measure up," he said, stressing that the US had been patient in waiting for China to meet its WTO commitments. "There's a point at which the bill comes due and that point is now."

The language is the toughest yet from the top two trade officials in the US. Ratcheting up the pressure over WTO compliance would be the easiest way for the administration to show immediate progress with China, given Beijing's reluctance to revalue the renminbi. Several bills currently circulating in Congress would slap tariffs on Chinese imports unless China moves quickly to revalue. Mr Zoellick repeatedly linked US willingness to keep its market open to Beijing's willingness to resolve problems over such issues as intellectual property violations and controls on agricultural imports. "We need to make progress on [these issues] and we need to make progress soon," said Mr Zoellick.

The US has yet to bring any dispute cases against China since it joined the WTO in 2001, which has angered Congress, as the bilateral trade deficit ballooned to $103bn (€87bn) last year and $65bn in the first seven months of this year.

Mr Aldonas said that China could respond by eliminating its rebate of value-added taxes for exports, which Beijing announced last week would be reduced by an average of three percentage points. He also said the Chinese government should use only legally-purchased software as a way of combating piracy. In spite of all the strong words, the administration has been trying to discourage a congressional backlash against trade with China.
Source: Financial Times
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Chinese Government Debt Upgrade

This is a very curious one. According to one widely held theory, the Chinese financial system is supposed to be near to collapse, with bad debt and non-performing loans rife accross the board. This news seems to offer another picture, with rating agencies upgrading, and investors comfortable with Chinese government debt. Undoutedly somewhere in the middle lies the truth.

China made a spectacular return to the international bond markets on Wednesday with a combination $1.5bn dollar and euro-denominated issue at prices very close to those achieved by western government agencies. The strength of the country's foreign currency reserves means that China has no need for the extra funding, but the response to the issue demonstrates investors' appetite for Chinese debt. The issue of a "benchmark" government bond will also make it easier for Chinese companies to tap the global bond markets.

The issue came shortly after Moody's Investors Service, one of the top three rating agencies, boosted China's sovereign rating one notch from A3 to A2.

The 10-year $1bn dollar portion was offered at 53 basis points over US treasuries and the five-year E400m euro tranche at seven basis points above Euribor, the rate at which European banks lend to each other. The market had expected yields to be two and three basis points higher respectively. The spread is the lowest-ever for an Asian issuer apart from Japan, with the dollar tranche priced roughly at the same level as that of US agencies, which have an implicit government guarantee. Fannie Mae and Freddie Mac, the two federal agencies that fund US mortgages, were trading yesterday at 48 basis points and 53.25 basis points over US Treasuries.
Source: Financial Times
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What Happens When the Talent Goes Home and Takes the Ball With Them?

Feedback in the mailbox to the Pele-Ronaldo piece from Stephen at Una Bandiera Seza Segni. With more than a sniff of irony (he says), Stephen is in Brazil:

You have approached in this discussion a lot of the concerns that I have about the outsourcing revolution. You've made it easier for me, as a non-specialist, to ask some further questions about my doubts that refuse to go away.

One of my concerns was with those left behind. My comment was that a $120k MIT education goes wanting. And I acknowledged that, actually, it probably doesn't, but the effect probably ripples through the economy so that some guy somewhere with a $60k State Uni engineering degree can't find a job. The marginal US engineer whose position just went to India for $15k - he's out there, doubtless.

The number of jobs that the US economy will be short...are these jobs not just being outsourced to others? Those 'good jobs', as I think of them, aren't being replaced with new economy good jobs. Maybe as the boomers retire, they just aren't replaced, or are replaced by others offshore, at a fraction of the cost. Maybe they represented an overhang on unraveling the "productivity paradox"?

Did you see last week how the UK Network Rail was planning to outsource National Rail Enquiries? At what point does the cost savings just not justify the hollowing out of a nation's workforce any further? These are 'just' call centre jobs, but I reckon every one of them would be missed. Rotating these people into other responsibilities just masks the idea that there is less work within the economy - and less work that actually serves the UK economy - for UK people to do. But I digress.

Sure, there are places for some in the hierarchy. But I suppose not all. And not for the kind of money they were earning before, most likely. We all just become 'resource managers' (if you have occasion to use the Amazon help system, you'll notice replies from the likes of "Kapil Sehgal", "Pankaj Sharma", "Nitin Jain", when you have a "cut and paste" answer, but when it comes to something complicated, "Karen Richardson" steps in. All real names from my correspondence with Amazon customer service, so anecdotal, of course - could just be three nice guys from Birmingham).

Next, the idea of profits coming home. Are those profits really recycling through the US economy, or only into the coffers of the "US" corporations that are benefitting from them. Then what? They aren't employing US employees, so to what extent should they rightly be seen as US corporations from the workers' perspective? What exactly happens to that $143 that comes back?

- dividends, to the owners? are these, generally, spent, or do they accrue sidelined in the hands of the wealthy, relatively lightly taxed by new (thankfully 'sunset') tax legislation. I suppose that a goodly tranche of dividends paid actually winds up in American pension system, so at least they might be captured for the present, presuming the
shares they are used to buy can maintain their growth momentum to justify the share prices. But that's another story. And what of offshore owners? Probably a small percentage of the US equity market.

- taxes? I would suppose that this could at least ensure that they recycle into the economy, but the current US government seems not to be interested in "tax and spend" to generate economic activity.

- growth? Where? Not domestic, I would argue. Hearing Intel's Andrew Grove speak out about the threat to the economy posed by outsourcing is a little ironic, don't you think? I don't know, but I don't suspect Intel is investing much in the US these days. Probably most of their mfg for years has been built in Asia. "We did it, but you should wake up before everyone else does it!"

The coming wave of boomer retirements interests me enormously. As a person in my mid-30s, I am wondering about opportunities this demographic might create. My father suggests becoming an estate lawyer, which is a pretty good idea, actually. What about a surge in purchase of retirement property? What will the US, or Japan, or W. Europe look like when this comes to pass? "Neutron" cities, where these enormous prices can no longer be sustained? I reckon my own neighbourhood in London is starting to turn over in earnest, judging from some of the places I looked at when we moved there.

I am all for competition and creative destruction. I just argue that the US isn't thinking very strategically here, and that the government is almost intentionally letting this happen as a backdoor way of cutting costs and globalising the workforce - avoiding paying their share of the costs. The idea of the jobless recovery rings true, but it has to come from somewhere, no? I hate to indulge in conspiracy thinking, but a part of me can be persuaded that the Bush administration really does have at heart the idea of letting their cronies and financiers rake in as much as they can now, then letting the whole mess crater while they live on within their gated communities. Then "hoi polloi" can vote Democrat and let them put up the taxes so everyone feels the pain all the more. The suggestion that the Bush Administration tax cuts are actually good for the economy only helps to fuel these speculations in my mind.

What happens to the Social Security deficit when the "good jobs" migrate and there aren't enough other jobs left in the economy to prop it up? How many "bad jobs" will it take to fund one "good" retirement? How many "bad jobs" will just slip off-radar into the informal economy?

My other question: what happens to the structure of American education when those who pay for it find themselves unemployed at the other end? Some kind of expectations compression? Those of us on the other side, who have no debt, can treat education like a sunk cost. I can work for peanuts if I want to, or if I have to, or if I can find a job. Those coming up to prop up the system - will they have such a luxury? Will the system itself survive in anything like its present form?

I never had a problem with the influx of talent, if the market will bear it. The likes of Ronaldo are actually good for Brazilian football the way any overseas worker is good for the folks at home in the low-wage country. All the better that he is not being exploited, and brings up Brazil's street cred in the world. Where the Ronaldo analogy breaks down to me is in what happens when the talent goes home and takes the ball with them. In the analogy this
doesn't happen, exactly. Pele just came home and became an advertising icon. Maybe a better analogy here is relegation - what happens to a Premiership League team when they fall from the League? My own "home team", Wimbledon, may serve as an example. Revenues fall. Gate receipts fall. Salaries *must* fall. In the case of Wimbledon, oh, where are they now?

I think of the US workforce as relatively inflexible in their expectations; the American university system that raises them relatively unable to "retool" to produce less-costly, lower-trained, more specialised workers. Isn't that what this argument of a structural effect comes down to: the whole economy must react to the loss of this sector of employment?

I would argue that this is where Americans should be most concerned. Do (we) want to surrender our standard of living, our education system, our state benefits (however meagre they may be by European standards)? Does this kind of growth improve our economy? Is it, in fact "domestic" product at all?

I think the visa programme is a red herring and that the two phenomena are only tangentially related. White collar job flight - it's the opposite of brain drain. The brains are still here, earning less, standing around wondering what they're s'posed to do now. Milton Keynes, anyone?

From Brazil, where as a Yank working for a UK company under contract to a Brazilian one, I no doubt occupy a very hypocritical desk of my own.

Now before anyone writes to point it out to me, I am familiar with the lump of labour argument. But this isn't what is in question here. The US labour market problem is structural in my opinion. It is capable of creating more, many more, jobs than it is now. But what if these jobs involve a move down the value chain? That is the question the coming 'boomer retirement' and the 'high-end outsourcing' is posing, and it is the one Stephen is asking. It needs answering.

The 'Jobs' that Blogging Serves For

NYT's John Markoff argues that blogging may well be the modern equivalent of CB radio:

The other possibility right now -- it sometimes seems we have a world full of bloggers and that blogging is the future of journalism, or at least that's what the bloggers argue, and to my mind, it's not clear yet whether blogging is anything more than CB radio. And, you know, give it five or 10 years and see if any institutions emerge out of it. It's possible that in the end there may be some small subset of people who find a livelihood out of it and that the rest of the people will find that, you know, keeping their diaries online is not the most useful thing to with their time."

But as Dan Bricklin argues, what was meant as a put-down may well turn out to have been a complement, if we see the trajectory of CB radio as leading ultimately to the mobile phone. In order to elaborate this point Bricklin takes us through an argument which is to be found in Clay Christensen's new book 'The Innovator's Solution', and which involves the disruptive consequences of 'not good enough inventions':

I found that its theories help explain many successful ventures and spectacular (and not so spectacular) failures as you apply them to companies and products you know from the near and distant past............The theories, backed with many interesting footnotes and references, should be taken to heart by people who put down simple, "not-good-enough" innovations. "Because new-market disruptions compete against nonconsumption, the incumbent leaders feel no pain and little threat until the disruption is in its final stages. In fact, when the disruptors begin pulling customers out of the low end of the original value network, it actually feels good to the leading firms, because they move up-market in their own world, for a time they are replacing low-margin revenues that disruptors steal, with higher-margin revenues from sustaining innovations...Some people have concluded on occasion that when the incumbent leader doesn't instantly get killed by a disruption, the forces of disruption somehow have ceased to operate, and that the attackers are being held at bay... These conclusions reflect a shallow understanding of the phenomenon, because disruption is a process and not an event."

Another theory: "...customers -- people and companies -- have 'jobs' that arise regularly and need to get done. When customers become aware of a job that they need to get done in their lives, they look around for a product or service that they can 'hire' to get the job done............."

Equating blogging to CB radio was meant as a put-down. Using some of the book's thinking, you could ask: "What were the 'jobs' people 'hired' CB radio to do?" It may have been to talk with their "buddies" when they had some free time, such as when driving, and for "safety" like calling for help, or organizing among each other, such as when avoiding speed traps or deciding where to eat. The "job" wasn't to become a mini-FM or AM radio personality. Personal radio technology grew up from "not-good-enough" for the mass market to "good enough" and we got to talk to our real buddies wherever they were with cell phones, a huge success by almost any measure.

There are "jobs" that blogging serves for both the blogger and blog reader. Those jobs are real, and are probably not served well enough by today's journalism system (nor today's blogging, yet). Blogging will evolve to eventually "fill" those "jobs" well (though the name we use for personal publishing may change).
(Thanks to Rajesh at Emergic for pointing me to this.)
LINK

Eurozone Companies Will 'Have to Learn to Cope'

ECB board member Matti Vanhala comments on the rising euro. Euroland companies will have to learn to live with it he says. It seems attempts at structural reform may be pursued more vigourously by the central bank here than it has been in Japan. If that is the case then we could be in for a real 'battle of the titans' between the bank, the Commission and the National Governments.

European Central Bank board member Matti Vanhala said companies ``will have to cope with'' the euro's appreciation against the dollar and that exchange rates aren't the ``main risk'' to an economic recovery. Nokia Oyj, the world's largest handset maker, said last week sales may drop this quarter following the euro's 20 percent appreciation against the dollar in the past year. PSA Peugeot Citroen, Europe's No. 2 automaker, on Monday cut its full-year profit forecast, partly because of the stronger currency. "The euro's appreciation is perceived by the corporate sector as a burden,'' Vanhala, 57, said in an interview in Helsinki. ``But on the other hand, the kind of movements we have seen from the euro should be regarded as perfectly normal in a global set-up where the exchange rate is a safety valve with an element of flexibility.'' The comments from Vanhala, who is the head of Finland's central bank, suggest the ECB is less concerned about the euro's increase than executives and politicians. German Chancellor Gerhard Schroeder said last month the euro is one of the ``dangers'' to growth. "I don't think the euro is the main risk'' to growth, Vanhala said. ``Much more important is whether confidence in economic policies can return.''

The euro climbed after Vanhala's comments and bought $1.1702 at 8:56 a.m. in Frankfurt, 2 percent below its May record, from $1.1667 late yesterday. The euro's ascent contributed to a contraction in the $8 trillion economy of the 12 nations sharing the euro in the second quarter by choking exports.

Vanhala's comments chime with recent remarks from ECB colleagues. ECB President Wim Duisenberg, who retires this month, said Oct. 13 that the stronger euro won't change the bank's growth forecasts and Bank of Portugal Vitor Constancio said late yesterday the shift in currency values doesn't ``fundamentally'' alter the outlook for euro region exports. Vanhala and other ECB council members are instead putting pressure on governments to adhere to budget deficit rules designed to protect the euro and pass laws making their economies more attractive to investors and employers. Duisenberg in July said that governments can ``no longer hide'' behind the ECB ``cover up their failure to enact the structural reforms that are so urgently required.''

Interest rates across the euro region are ``appropriate,'' Vanhala said, echoing comments by other ECB policy makers such as Duisenberg and Chief Economist Otmar Issing. Focus Money today reported Issing as saying that rates are low enough to help spur ``much stronger growth.'' The ECB confirmed the comments. Europe's growth prospects may be curtailed in coming years if governments don't seek to meet challenges posed by countries in Eastern Europe or Asia where labor and production costs are cheaper, Vanhala said. "It may be that our assumptions about growth potential are too optimistic,'' said Vanhala, whose office is adorned by oversized brandy and wine glasses from the Czech Republic. The ECB defines ``potential growth'' as between 2 percent and 2.5 percent. Labor laws in some European countries help ``create a rather rigidly moving economy'' that's less attractive to investors than economies such as China, said Vanhala. Euro region unemployment touched a 3 1/2 year high of 8.8 percent in July and may rise further this year, the European Union forecasts. Vanhala also cited the need to link together financial markets and tackle price differentials across the region.

German proposals to cut jobless benefits, approved last week by the country's parliament, won't be enough to revive growth prospects for Europe's largest economy, said Vanhala. "It won't change the nature and workings of the economy,'' he said. ``I'm sure no one in the political arena in Germany would claim that it goes anywhere near far enough.'' Vanhala is still forecasting a recovery across the euro region, though evidence from recent economic reports isn't enough to ``fire the imagination,'' he said. While German business confidence climbed last month to the highest in 2 1/2 years, executives' assessment of current conditions slipped. "There will be a sort of wobbly turn for the better'' next year that will be helped by a recovery in the U.S., said Vanhala, who expects growth in the euro region of about 1.5 percent in 2004. ``The likelihood is that we will get a modest, gradual rise in the GDP growth rate.'' Inflation will slow below the bank's 2 percent limit next year, even though higher oil prices represent a ``risk,'' said Vanhala. Crude yesterday traded at $28.63 per barrel.
Source: Bloomberg
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This is Just the Begining

Following on from the last post and the topic of the increasing returns properties of ideas, Francisco has sent me this link from Wired. Open the code, open the code!

Open Source Everywhere

Software is just the beginning … open source is doing for mass innovation what the assembly line did for mass production. Get ready for the era when collaboration replaces the corporation.

By Thomas Goetz

Cholera is one of those 19th-century ills that, like consumption or gout, at first seems almost quaint, a malady from an age when people suffered from maladies. But in the developing world, the disease is still widespread and can be gruesomely lethal. When cholera strikes an unprepared community, people get violently sick immediately. On day two, severe dehydration sets in. By day seven, half of a village might be dead.

Since cholera kills by driving fluids from the body, the treatment is to pump liquid back in, as fast as possible. The one proven technology, an intravenous saline drip, has a few drawbacks. An easy-to-use, computer-regulated IV can cost $2,000 - far too expensive to deploy against a large outbreak. Other systems cost as little as 35 cents, but they're too complicated for unskilled caregivers. The result: People die unnecessarily.

"It's a health problem, but it's also a design problem," says Timothy Prestero, a onetime Peace Corps volunteer who cofounded a group called Design That Matters. Leading a team of MIT engineering students, Prestero, who has master's degrees in mechanical and oceanographic engineering, focused on the drip chamber and pinch valve controlling the saline flow rate.

But the team needed more medical expertise. So Prestero turned to ThinkCycle, a Web-based industrial-design project that brings together engineers, designers, academics, and professionals from a variety of disciplines. Soon, some physicians and engineers were pitching in - vetting designs and recommending new paths. Within a few months, Prestero's team had turned the suggestions into an ingenious solution. Taking inspiration from a tool called a rotameter used in chemical engineering, the group crafted a new IV system that's intuitive to use, even for untrained workers. Remarkably, it costs about $1.25 to manufacture, making it ideal for mass deployment. Prestero is now in talks with a medical devices company; the new IV could be in the field a year from now.

ThinkCycle's collaborative approach is modeled on a method that for more than a decade has been closely associated with software development: open source. It's called that because the collaboration is open to all and the source code is freely shared. Open source harnesses the distributive powers of the Internet, parcels the work out to thousands, and uses their piecework to build a better whole - putting informal networks of volunteer coders in direct competition with big corporations. It works like an ant colony, where the collective intelligence of the network supersedes any single contributor.

Open source, of course, is the magic behind Linux, the operating system that is transforming the software industry. Linux commands a growing share of the server market worldwide and even has Microsoft CEO Steve Ballmer warning of its "competitive challenge for us and for our entire industry." And open source software transcends Linux. Altogether, more than 65,000 collaborative software projects click along at Sourceforge.net, a clearinghouse for the open source community. The success of Linux alone has stunned the business world.

But software is just the beginning. Open source has spread to other disciplines, from the hard sciences to the liberal arts. Biologists have embraced open source methods in genomics and informatics, building massive databases to genetically sequence E. coli, yeast, and other workhorses of lab research. NASA has adopted open source principles as part of its Mars mission, calling on volunteer "clickworkers" to identify millions of craters and help draw a map of the Red Planet. There is open source publishing: With Bruce Perens, who helped define open source software in the '90s, Prentice Hall is publishing a series of computer books open to any use, modification, or redistribution, with readers' improvements considered for succeeding editions. There are library efforts like Project Gutenberg, which has already digitized more than 6,000 books, with hundreds of volunteers typing in, page by page, classics from Shakespeare to Stendhal; at the same time, a related project, Distributed Proofreading, deploys legions of copy editors to make sure the Gutenberg texts are correct. There are open source projects in law and religion. There's even an open source cookbook.

In 2003, the method is proving to be as broadly effective - and, yes, as revolutionary - a means of production as the assembly line was a century ago.
LINK

The Power of Ideas

I think 'coming out of the closet time' is getting near for some of us trained in the 'neo-classical tradition'. My last post on how we all tend imitate and emulate each other, and how this factor is central to understanding our choices and preferences would just be one more nail in the coffin for me. Of course the hard bit is what to replace it with. My new colleague over at India Economy Watch - Atanu Dey - has found another loose floorboard: the increasing returns property of ideas. My latest take: I find many of the theorems of this tradition absolutely useless in trying to understand what is happening in the global economy, but I have neither the time, nor the ability to do too much about it, so I leave what I really think as a kind of 'flexible grey area' while I'm waiting for something better to show up.

As an economist trained in the neo-classical tradition, I am constantly on the lookout for market failures. Externalities are a reliable source of market failures and when I come across a positive externality, I get a warm and fuzzy feeling. Consider a story that exhibits the benefits of positive externalities.

The story is about a farmer who consistently won the first prize for his fine crop of corn every year at the county contest. Peculiarly, after the contest he would give away the seeds of this prize-winning corn to the neighboring farmers. This puzzled some and someone finally asked why he shared his good fortune. He answered, "Well, growing corn in my field requires pollen from the neighboring fields. If they don't have good corn in their fields, I will never be able to grow good corn myself. So I distribute the good corn seeds."

The benefits of positive externalities (or the harm from negative externalities) lead to social benefits (or social costs) that eventually benefit (or cost) all. What goes around, comes around, as the saying goes. In Indian terms, it is all karma, neh?

Rajesh Jain recognized the positive externality of his Emergic Blog intuitively. He therefore puts his best ideas there. Each day that blog has around a thousand visitors. They all gain from his fine presentation. But eventually, in ways completely unforeseen, he reaps an even richer harvest of new ideas that develop through his interactions with other minds on the web.

Ideas matter. Ideas are primary. Ideas are the ultimate public good in that they are totally non-rival: my use of an idea does not diminish your capacity to use it as well. Ideas can pass from one human mind to another and set up a chain reaction that has the power to transform the world. Everything that you see around you -- the good, the bad, the ugly -- everything was just an idea in some mind. (Some Hindus claim that this universe is just an idea in the mind of God.)

How to harness the power of ideas for the social good is the challenge that we have to undertake.
Source: Deesha
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The Information Revolution and the Pele/Ronaldo Effect

My Money Files Column


The Information Revolution and the Pele/Ronaldo Effect

One of histories deeper mysteries might revolve around what these two topics have in common, short of the fact that they are flying round my head at the time of writing. Let's see if I can find a connection.

To start at the begining: one of the information revolution's least commented details can be found in the number of US H1B vouchers issued to workers in the technology industry in 2002: this went down, in comparison with 2001, and by a whopping 75% according to a recent department of homeland security (DHS) report. The H1B visa programme, which allows foreigners to work in the US for up to six years, has enabled thousands of Indians to take up well-paying jobs in the US high-tech sector, especially in Silicon Valley. The number of H1B visas for initial employment fell from 105,692 in 2001 to 27,199 in 2002, according to the San Jose Mercury News. The percentage of H1B visas issued to technical workers also declined from 52.5 per cent in 2001 to 26.3 per cent in 2002, the paper said. The news came as the annual limit on the number of visas was about to be lowered from October 1.

Of late, the visa programme has attracted much criticism inside the United States in view of the relatively high unemployment rates currently being experienced there, with opponents of the visas arguing that US workers are losing jobs because companies are hiring less-expensive foreign workers. Now if this is how the situation is seen from within the US, it may be just worth asking, and what about India, what is the impact there? And this is where the situation gets interesting. But in order to appreciate this fully, perhaps we should go back to an older debate, that of the migration of persons from the less developed parts of the world (when I was a kid this used to include Europe) to the more developed part, and in particular to the United States.

This movement had an old name: the 'brain drain'. Now the brain drain is a topic which has produced a larger literature than I care to contemplate reading, but some stylised observations can be extracted. Perhaps one starting point for this would be a Foreign Affairs essay by Indian Economist Jagdish Bhagwati. As Bhagwati suggests:

"The reality is that borders are beyond control and little can be done to really cut down on immigration. At the same time the societies of developed countries will simply not allow it. The less developed countries also seem overwhelmed by forces propelling emigration. Thus, there must be a seismic shift in the way migration is addressed: governments must reorient their policies from attempting to curtail migration to coping and working with it to seek benefits for all."

As Bhagawati indicates:

"emigration occurs after study abroad. The number of foreign students at U.S. universities, for example, has grown dramatically; so has the number who stay on. In 1990, 62 percent of engineering doctorates in the United States were given to foreign-born students, mainly Asians. The figures are almost as high in mathematics, computer science, and the physical sciences. In economics, which at the graduate level is a fairly math-intensive subject, 54 percent of the Ph.D.'s awarded went to foreign students, according to a 1990 report of the American Economic Association.

Of these, about 2,000 come from the Indian Institutes of Technology (IITS), which are modeled on MIT and the California Institute of Technology. Graduates of IITS accounted for 78 percent of U.S. engineering Ph.D.'s granted to Indians in 1990. And almost half of all Taiwanese awarded similar Ph.D.'s had previously attended two prestigious institutions: the National Taiwan University and the National Cheng Kung University. Even more telling, 65 percent of the Korean students who received science and engineering Ph.D.'s in the United States were graduates of Seoul National University. The numbers were almost as high for Beijing University and Tsinghua University, elite schools of the People's Republic of China.He adds -- "A realistic response requires abandoning the "brain drain" approach of trying to keep the highly skilled at home. More likely to succeed is a "diaspora" model, which integrates present and past citizens into a web of rights and obligations in the extended community defined with the home country as the center. The diaspora approach is superior from a human rights viewpoint because it builds on the right to emigrate, rather than trying to restrict it."

Now, as Reuben Abraham points out , Bhagawiti's numbers may well seriously understate the numbers. Reuben points out that the state of Karnataka alone produces something like 15,000 engineers per year. His guess is that India graduates about 150,000 engineers every year of which around 50,000 or so are from IT-related courses.

But what is the real impact of the Brain Drain? Most commentators have assumed that the loss of qualified people is a pure liability for the society which produces them: I think this view is over simplified, and this is where our footballers - Pele and Ronaldo - enter the picture . Well-known footballers have long been leaving Brazil to earn their living with the more lucrative European clubs. Has this had a detrimental effect on Brazilian football? Not that I have noticed. You only have to look at all those young Brazilian children kicking the ball around in the Favellas and on the beaches to realise that there is something wrong with this view. The football exodus is producing more good footballers not less. So: is the 'brain drain' good for you? Well yes and no.Obviously you lose talent. So this is bad. But the success of this talent encourages others. So this is good. To cut a long story short, from very small beginings (isn't this the whole complexity/chaos idea?) you can generate a very big process where everyone copies everyone else.

This seems to have happened in India, with even people from relatively small villages saving money to send their children to college to learn about IT. An enormous education and training industry developed.Then comes the crunch. The Nasdaq crashes. No more H1B's. But there is a river of people as big as the Ganges training-up ready to go. So what happens? The water in the river 'backs up', and gets diverted into tributaries locally. Then the 'boys on the bench' start to arrive home with nothing to do and plenty of experience. So some intelligent entrepreneurs (Schumpeter had it sooooo right) step-in and start the ball rolling. The next thing you know, Silicon valley is dying. Incredible thing globalisation, isn't it?

Now for the other half of the equation: if the 'brain drain' isn't necessarily cerebrally damaging for the sending country, what about 'brain switchback', the mass-bagpack flight in reverse of those trained IT engineers. Is this really so damaging for the former host. Well again, not necessarily. According to a recently released report from India's National Association of Software and Service Companies outsourcing will plug the hole in the US labour market produced by the retiring of the baby boomers.

"The report outlines the cost-savings and increased flexibility that global sourcing will provide to US companies, thereby keeping them competitive in the global marketplace. Forecasts for the US indicate an annual GDP growth of 3.20%, which will lead to an increased demand for labor. However, the US will face a domestic labor shortfall of 5.6 million by 2010 due to an aging population, which can potentially cost the US economy $ 2 trillion if appropriate measures are not taken well in time............ The report also found that offshoring keeps US businesses competitive, creates new markets for US goods and services, and fills the shortfall in services labor that the US is expected to face in the next seven years." Over the next decade, the US economy will mirror the growth of the 1990s leading to an increased demand for labor. There will be a domestic labor shortfall of approx. 5.6 million workers by 2010 due to slow population growth and an aging population. If the labor shortfall is not met, the US economy will lose out on growth opportunities resulting in an estimated cumulative loss of $2 trillion by 2010. Global sourcing in the form of immigration, temporary workers and offshoring can overcome this shortfall. For every $100 of call-center work offshored by US firms, $143 is invested back into the US economy in the form of repatriated profits, increased sales of telecom equipment and cost-savings. Similarly, the amount invested back into the US economy (for every $100 of work) is $133 for IT services, and $142 for high-end knowledge services like equity research, underwriting, tax preparation and risk management."

The figures for $143 dollar return for every $100 dollar spent may seem exaggerated until you take into account the positive feedback effects of growth in India. This activity leads naturally to increased internal demand in India itself, and hence to increased markets. Of course, what proportion of this market goes to the US is another question, there are remember new competitors arriving, like, for example, Huawei. To be able to take advantage of the new Indian market US companies need to become cost competitive. This, of course they can do, by outsourcing manufacturing to China, but then, with their own ageing workforce might they not succumb to the 'Japanese illness'? Bottom Line there is no guarantee here. But that the new found growth boom in India and China potentially offer an opportunity as well as a challenge for the US, I think that this is beyond doubt. The US is reputedly a society that likes risk, and likes the challenge. Well, now's your opportunity.

India's Use of 'Soft Power'

More material unashamedly culled from Reuben's excellent zoo station . This time it's the growing impact of what he calls 'soft power' from India: Bollywood:

Run?? Maybe not. There is a sea change in the sort of movies that are being made, and a lot of the movies are increasingly made with a worldwide audiences in mind. Taking cognizance of the fact, Time Asia is carrying the "new" Bollywood as its cover story.

The film world has heard rumors of an Indian invasion for years. In London in particular, the success of cross-cultural writers like Vikram Seth, Hari Kunzru and Monica Ali, Andrew Lloyd Webber's Bombay Dreams, department store Selfridges' decision to adopt a Bollywood theme, and a host of wildly successful Indian TV comedies has long convinced the British public that it was set for a Bollywood bonanza. Often, the sheer size of the Indian film industry—releasing an average 1,000 films a year, compared with Hollywood's 740; and attracting an annual world audience, from Kuala Lumpur to Cape Town, of 3.6 billion, compared with Hollywood's 2.6 billion—made it seem as though the West was the last to catch on.

So what's changed? Everything. Rai's [ed: Aishwarya] unchallenged position in the industry is partly due to her determined pursuit of "different, against the grain" roles, such as her 1997 part in Tamil director Mani Rathnam's little-seen but acclaimed art-house movie Iruvar. But Rai is not some solitary crusader, rather the most successful disciple of a new mantra of innovation that has swept Indian film in the past year. Because in 2002 Bollywood truly bombed. All but 12 of the year's 132 mainstream Hindi releases flopped, and the $1.3 billion-a-year industry, used to comfortable annual growth of 15%, groaned under unaccustomed losses of some $60 million. The formulas suddenly weren't commercial anymore. And although some moviemakers groped around for new blueprints—horror, skin flicks, anything—a band of urban and Westernized writers, directors, producers and actors, loosely grouped under the banner "New Bollywood," overran the industry.

The issue also has interviews with Aishwarya Rai (who also graces the cover), Amitabh Bachchan, Rahul Bose, Ram Gopal Varma, Aamir Khan and also an essay written by long-time Bollywood junkie (and one of my favourite movie reviewers), Richard Corliss.

Bollywood is the world's largest movie machine. Big Bollywood stars like Amitabh Bachchan and Aishwarya Rai arguably command a larger fan base than most Hollwood stars. In fact, Bachchan was voted Star of the Millennium in a BBC poll, leaving names like Sir Lawrence Olivier, Robert De Niro and Homer Simpson behind. Bollywood and India are the only sources of competition to Hollywood and the U.S. in the domain of pop culture. I have always maintained that India does not make any use of the "soft-power" potential inherent in this cultural dominance. Clearly, that's a lesson India (and Bollywood) need to learn from the U.S. -- it's not just nuclear explosions that gain you influence in the world. It's also "Friends," "Simpsons" and Rock n' Roll.
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Thailand's Second Track Gambit

Bloomberg's William Pesek on Thailand's 'quiet revolution' in Thaksinomics:

John Maynard Keynes. Milton Friedman. Karl Marx. Adam Smith. Thaksin Shinawatra. The last name, that of Thailand's prime minister, rarely gets grouped with modern history's best-known economic theorists. But Thaksin, a self-made billionaire, is vying for a role as economic visionary in Asia, if not the entire developing world. Thailand is using this year's meeting of 21 Asia-Pacific Economic Cooperation nations as a coming-out party for ``Thaksinomics.'' Here in Bangkok, a DVD touting its merits is being passed out. It carries Thaksin's smiling face on the cover and boasts that his plan makes nations less reliant on exports and ``offers a new role for Thailand in the global economy.''

Some local commentators say Thaksin should be on the shortlist for a Nobel prize in economics. And with Thai stocks up 80 percent this year, his reputation as an economic guru is growing. The buzz has the Philippines scrambling to adopt Thaksin's plan for economic revival. Malaysia and Indonesia also are giving it a look. Yet Thaksinomics could have a dark side that leaders should consider before jumping to adopt it: debt. The thrust of the ``dual track'' plan is to keep on exporting, while stimulating the domestic side of the economy. It's all about getting Asia out of the trap of export dependence and, here, Thailand has had remarkable success. The economy is growing about 6 percent this year, the second fastest in Southeast Asia after Vietnam.


Thaksin has been especially aggressive with what's called ``managed asset reflation,'' which aims to boost demand among households and businesses without creating another bubble. This $136 billion economy was, after all, at the epicenter of the 1997 Asian financial crisis. Bangkok's move to devalue the baht set the meltdown in motion. Yet Thaksinomics may be little more than old-fashioned pump priming dressed as something new and revolutionary. At its root is cheap money: official interest rates are at a record-low 1.25 percent, meaning credit has never been so affordable or accessible. Household spending sprees on cars, motorbikes, homes and cellular phones are driving the nation's post-crisis recovery.

So are Thaksin's efforts to force banks to lend to farmers and other rural Thais. The state-run Government Savings Bank and the Bank for Agriculture and Agriculture Cooperatives were ordered to lend about $2 billion to tens of thousands of villages for households to invest in small businesses and farm produce. Thailand's debt-driven boom looks great today, but what happens when the economy slows? Considering Thailand's unimpressive progress in ridding banks of bad loans, this is no small risk. In July, Standard & Poor's estimated bad loans in the financial system accounted for about 30 percent of assets.

Thaksin shrugs off such criticism. He argues that nations need to take risks to reinvent their economies. While that's true, it's not clear Thaksin is reinventing the economic wheel here, or just repackaging it. It was a credit bubble that caused Thailand's 1997 meltdown; is another one afoot, albeit on a smaller scale? The focus on poverty reduction is heartening. Overt signs of prosperity strike foreigners visiting Bangkok these days. There's an abundance of late model cars and motorbikes, flashy cellular phones and Louis Vuitton boutiques.

Of Thailand's 63 million people, however, 55 million live outside Bangkok, and life for them can be markedly different. Rural Thais were slammed hard by the Asian crisis, but have benefited little from the boom since. Here, efforts to boost living standards at the grassroots levels make perfect sense. Less clear, though, is whether Thaksinomics is little more than quick-cash populism. The Thai prime minister is certainly offering poor Thais a few tidbits now -- a chance to buy a mobile phone, a television or maybe even to board an airplane for the first time. He's also offering a bit of nationalist sentiment to encourage Thais to be proud. But is Thaksinomics offering this nation a new future? It'll take time before we know if lending to rural Thais results in ground-up prosperity or lifelong indebtedness.
Source: Bloomberg
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China's Growing Telecom Clout

The nascent China Teelecom industry is making its presence felt in Geneva:

China's leading telecommunications equipment makers are taking to the global stage in every sense. The ambition of Huawei and ZTE to expand internationally on the back of their success in a growing domestic market was displayed in the sizes of their stands at last week's ITU Telecom World 2003 in Geneva, the quadrennial showcase for the big telecoms companies. Measured by floor space, Huawei and ZTE could argue they were bigger global equipment players than Cisco Systems and Alcatel. Both stands beat Cisco's in size and scope, while France's Alcatel, which spent E14m ($16.3m) on its booth last time at Telecom World 1999, was nowhere to be seen, saying it could no longer justify the expense.

The dominance of Asian displays - including a three-storey tower block that took Samsung five weeks to erect - was seen as a clear message from the region that it had arrived as a telecoms powerhouse. In spite of a recession that has seen many European and American equipment makers and carriers go to the wall over the past four years, their Asian counterparts have survived and thrived. "We have the largest stand in the whole China booth at 526 square metres," said Richard Lee, Huawei's international advertising and promotions manager. "The Geneva show really helps us to build up our brand, not only in Europe but globally."

Until now, Huawei has been known outside Asia more for a patent row with Cisco than for its network equipment. "Cisco [litigation] did not slow us down. We withdrew our products in the US and now both sides have decided to stay litigation," said Mr Lee. With 2002 revenues of $2.7bn, Huawei figures in 16th place in Gartner's global top 20 of equipment makers - well behind number one Nokia on $28.3bn, Cisco at $19.2bn and Alcatel at $13.2bn. But expected 2003 revenues of $3.5bn should lift it above companies such as Panasonic and a restructured Marconi - another no-show in Geneva following its huge display four years ago. Much of Huawei's growth has been fuelled by its home market where a nation of 1.3bn people is quickly taking to mobile telephony and the internet, while fixed-line phone access is being extended in rural areas.

China is already the world's largest telecommunications market by subscribers, yet teledensity - the number of telephones in use for every 100 people - is still fewer than 40, compared with 50-70 in Europe. Spending on networks is expected to increase in China in 2004, according to International Data Corp, the research firm. China's telecoms companies are spending on their networks in the high 20s as a percentage of revenues, compared with an industry average of 10 per cent.

IDC predicted last week that China would account for 48 per cent - or $15.8bn - of the region's spending on network equipment compared with an estimated 44 per cent share in 2003. The figures excluded Japan. ZTE has enjoyed success selling to developing countries such as Nigeria, India and Zambia, as well as in its home market. Shi Lirong, vice-president, told a news conference in Geneva the company was earning 25 per cent of its revenues overseas and aimed to double this to 50 per cent by 2008, when it expected annual sales of $10bn. It is just behind Huawei in Gartner's league table with $1.4bn in revenues last year.

Both Huawei and ZTE insist their success is built on the quality of their products and research and development as much as the lower costs of labour and manufacturing in China. Huawei has research centres in Silicon Valley, Stockholm, Dallas and Moscow, as well as in China, where it is developing a 3G standard - TD-SCDMA - in partnership with Siemens. It was also number two behind Alcatel in the last quarter in the world market for DSL broadband equipment, while ZTE was promoting its "end-to-end solutions" for mobile networks at the show. "Huawei and ZTE are now spending a lot on R&D and are punching above their weight there," says Dean Eyers, worldwide director of telecoms at the Gartner research firm. "A lot of their focus has been on price and they are not ahead of the innovation curve at this phase. But [Geneva] has put them on the radar screen and they absolutely could have an impact on a global scale."
Source: Financial Times
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Global Iron Ore Prices Rocket-Up on the Back of China's Growth

I've had a Couple of interesting pieces of feedback about my 'Gloom and Doom Brigade' post last Friday. I will get back to the substance of the feedback when I have more time to do it justice, but for now, to clarify one point. I said that ideas like the Olduvai theory were flawed, and 'flawed probably because it places too much emphasis on resource shortages'. This was to glib and too easy. Indeed I even went so far as to ask: "why is it that only people with flawed ideas interest themselves in these (interesting and important) problems", and in saying this I obviously went too far, too far, because it might be construed by implication that it was my opinion that all who are interested in this are flawed. This is not the case. I was letting rhetoric get the better of me, and expressing frustration that I had not found something better. Don't worry, in the post box people have been busy trying to put me straight. Meantime, since I do thing scarcity of resources can become a problem for all of us, just look at what is about to happen to iron ore prices consequent on China's rapid economic growth:

Cia. Vale do Rio Doce, Rio Tinto Group and other iron ore exporters may win a 9 percent price increase next year as demand soars because of surging Chinese steel production, AME Mineral Economics said.

China's building and construction expansion will catapult Asian steel output to almost equal the rest of the world's production by 2008, the Sydney-based consultancy said.

Surging demand could raise prices to 33.5 U.S. cents a dry long ton unit for ore known as high-grade fines next year, when suppliers, such as BHP Billiton agree on contracts with Japanese and European steelmakers. Prices reached 30.83 U.S. cents for the year beginning April 1 -- up 9 percent from the previous year. "Our expectations are that there would be a substantial increase next year, mainly driven by China,'' Barry Eldridge, managing director of Australian iron ore exporter Portman Ltd., whose shares have gained 53 percent this year, said in an interview. ``On an average day, we'd knock back between eight and 11 inquiries we can't meet. We don't see any slackening in demand for at least two or three years.'' Shares of London-based Rio Tinto have gained 6.5 percent on the Australian Stock Exchange this year and rose 1 cent to A$36.16 today. BHP's shares ended trading down 28 cents, or 2.3 percent, to A$11.82 on the exchange, paring their gain since Jan. 1 to 16 percent. Portman shares were unchanged at A$1.50.

Australia is the world's largest iron ore exporter and the increase in prices is forecast to help boost the nation's earnings from the commodity to a record A$5.97 billion ($4.1 billion) in the year ending June 30, 2004, according to the government's commodity forecaster.

Surging iron ore demand is also benefiting South Korea, where Posco, the country's biggest steelmaker, reported a 32 percent jump in third-quarter profit this month. No. 2-ranked INI Steel Co. said today third-quarter operating profit leaped 47 percent because of higher prices. "Given the tight market conditions expected to prevail through next year, contract prices for premium Australian fines will return to levels not seen since 1991,'' AME said in a faxed statement. Further increases are expected in 2005, it said. In China, the world's largest producer and consumer of steel, investment in fixed assets rose 32 percent in the first eight months of this year as companies such as China United Telecommunications Corp. installed equipment and the government built roads, bridges and dams, the Beijing-based National Bureau of Statistics said last month.

"The sheer scale of the infrastructure development that is taking place in China should see demand for steel products remain strong at least until the Beijing Olympic Games in 2008 and the Shanghai Expo in 2010,'' Brian Kruger, chief financial officer of BHP Steel Ltd., Australia's largest steelmaker, told the American Chamber of Commerce in Australia on Friday in Melbourne. Rising prices are spurring expansion plans for Brazil's Vale, the world's biggest iron ore exporter, Rio Tinto, the second- biggest, and No. 3 ranked BHP, AME said. "Producers are scrambling to expand capacity, consumers are racing to secure supply and the industry is attracting new players like moths to a candle,'' AME said. Rio Tinto said last month Chinese iron ore imports may surge to more than 250 million tons a year by the end of the decade, after importing more than 100 million tons last year. Chinese steel demand may rise to between 275 million and 300 million tons a year, also by the end of the decade, Rio Tinto said.

To meet rising Chinese iron ore demand, Rio is expanding the capacity of its Hamersley Iron mine in Western Australia state. Iron ore accounted for 33 percent of the Anglo-Australian miner's net profit in the first half. Rio, BHP Hamersley will have capacity to export 85 million tons of iron ore in 2004, from 74 million in 2003, Rio has said. Rio's Robe River venture may also expand the capacity of its West Angelas mine to 25 million tons a year, the company said. Melbourne-based BHP is spending $65.5 million accelerating expansion of its iron ore business. Its 85 percent-owned Mining Area C iron ore project in Western Australia will be officially opened Oct. 30. "China's ravenous appetite for iron and steel is powering a global iron ore boom,'' AME said. Global iron ore demand will increase by more than 6 percent this year to 1.1 billion metric tons and reach an annual pace of more than 1.35 billion tons by 2008, the consultancy said.
Source: Bloomberg
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India's economy Becomes Fashionable

Begged borrowed and stolen from my new India Economy Watch colleague in arms Rueben at Zoo Station:

Well, it looks like the 7% GDP growth number has finally caught the attention of the media. Tomorrow's New York Times is carrying a lead story on India's sizzling economy. Clearly, the Indian economy is poised on the verge of explosive growth, much like China a few years ago.

After growing just 4.3 percent last year, India's economy, the second fastest growing in the world, after China, is widely expected to grow close to 7 percent this year. The growth of the past decade has put more money in the pockets of an expanding middle class, 250 to 300 million strong, and more choices in front of them. Their appetites are helping to fuel demand-led growth for the first time in decades.

India is now the world's fastest growing telecom market, with more than one million new mobile phone subscriptions sold each month. Indians are buying about 10,000 motorcycles a day. Banks are now making $15 billion a year in home loans, with the lowest interest rates in decades helping to spur the spending, building and borrowing. Credit and debit cards are slowly gaining. The potential for even more market growth is enormous, a fact recognized by multinationals and Indian companies alike. In 2001, according to census figures, only 31.6 percent of India's 192 million households had a television, and only 2.5 percent a car, jeep or van.

Foreign institutional investors have poured nearly $5 billion into the Indian market this year, already more than six times last year's total. The Bombay Stock Exchange's benchmark Sensitive Index has risen by more than 50 percent since April, hitting a three-year high. Foreign exchange reserves are at a record $90 billion.

After huffing and puffing in place for eight or nine years, "the train has left the station," C. K. Prahalad, a professor at the University of Michigan Business School, said of the Indian economy.

IS the US Importing Productivity?

Stephen Roach raises some time honoured measurement problems about the current US productivity 'spurt'. The statistics in question are labour productivity statistics. The growth of oursourcing may be having the consequence of distorting the labour productivity statistics upwards. By how much we do not know. The labour component of the outsourced work may not be being adequately accounted for in the total labour hours part of the denominator. If this is happening systematically this may bias the numbers upwards. Even if this is the case, it is unlikely to be the whole picture, since Robert Gordon's argument about ongoing gains from the IT-internet symbiosis (which is of course what makes possible the outsourcing in the first place ) also is part of the explanation. As I indicated last week, the relatively advanced pace of this process in the US may also provide some explanation for the US-Europe differential, but this is a gap which may well close as Europe itself begins to extract the same benefits. I buy the "US unemployment is in-part structural" argument, and am convinced that a return to strong employment growth hinges on the question of the emergence of new employment sectors, sectors which lie further up the value chain, and which can guarantee the US 'lifestyle differential'. Absent this, a question mark has to hang - Stephen Roach style - over the sustainability of the recovery.

America’s fabled productivity miracle continues to be a key underpinning for much that is special about the US economy. With productivity in the nonfarm business sector up an astonishing 6.8% sequentially (annual rate) in 2Q03 and 4.1% on a year-over-year basis, it’s hard to deny that something quite extraordinary is going on. As I see it, what’s special is an increasingly powerful global labor arbitrage between domestic and foreign labor input that has given rise to a surge in offshore outsourcing. The result is a jobless recovery built on an increasingly tenuous foundation of “imported productivity.” The real issue is whether this new strain of productivity enhancement is sustainable. I have my doubts.

as much as a third of the so-called productivity bonanza of this recovery can be attributed to a shortfall in domestic hiring. Absent that windfall, productivity growth over the first six quarters of this expansion actually would have fallen well short of its typical recovery profile. Obviously, that has not been the case in this jobless recovery. But that doesn’t mean aggregate demand is necessarily being sourced by more efficient modes of global production that require reduced labor content. Instead, courtesy of a cross-border labor arbitrage, it may simply mean that there has been a substitution of foreign labor input for domestic labor input. For America, that has the effect of biasing domestic productivity growth to the upside. That’s because conventional measures undercount the total labor input -- foreign as well as domestic -- required to generate a given product flow. Conversely, for foreign outsourcers, productivity growth may well be biased to the downside, as low-wage employment encourages more labor-intensive production schemes.

Sourcing demand through low-cost, offshore labor input has become an increasingly important tactic to enhance the operating efficiency of US businesses. The IT-enabled global labor arbitrage has become central to this process, giving rise to the imported-productivity paradigm. While this has resulted in a significant improvement in corporate earnings, the American workforce is not sharing the benefits. The resulting clash between the owners of capital and the providers of labor has resulted in profound tensions in the US body politic. Imported productivity, together with the jobless recovery and income leakage it implies, is the stuff of heightened trade frictions, mounting protectionist risks, and a populist assault on Corporate America (see my September 29 dispatch, “Rebalancing Backlash”). The US Congress has already thrown down the gauntlet in this regard, unleashing a bipartisan barrage of China bashing. Absent a political counterweight, there is no telling how treacherous the endgame becomes -- especially as America now enters its presidential election season.

Which takes us to the bottom line: In my view, the income leakages of imported productivity raise serious questions about the sustainability of this recovery from an economic point of view. At the same time, the political reaction to the resulting jobless recovery raises equally profound questions about sustainability from a political standpoint.
Source: Morgan Stanley Global Economic Forum
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