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Friday, December 12, 2003

Memory Overload - or Increasing Capacity?

I think this is about to become 'Topic du Mois':

Information boom causes memory overload

One of the greatest challenges facing delegates attending the World Summit on the Information Society in Geneva - which closes on Friday - is how to preserve the immense "digital heritage". The sheer speed of technological change and the daily flood of data make it virtually impossible to keep track of all this material.Millions of words and images circle the globe every second, using a web of subterranean cables, optical fibres, antennae and satellites.

It’s not only users who are being put to the test with this mass of information – experts are also beginning to despair. Archives, libraries, museums and all the other institutions with the task of preserving this heritage complain that they are no longer able to keep pace.“We’re legally bound to keep a record of everything [relating to Switzerland] that’s printed on paper, every web page, every radio and television broadcast. It is impossible,” says Jean-Frédéric Jauslin, director of the Swiss National Library. “Not even the world’s major libraries, in France, Britain or the United States, are up to the task.”

Mission impossible

Not only is it no longer possible to safeguard all the information; it is becoming impossible even to quantify the mass of data produced each day on our planet. “Since 1996, an American company, Internet Archive, has been attempting to store all the pages published on the web,” Jauslin explains. “In seven years, it has accumulated 300 terabytes of information – a mind-boggling figure, which exceeds all the pages of the books produced in the history of mankind.”

Unesco, the United Nation’s cultural and education agency, has recently sounded alarm over the fact that a lot of information is also being lost every instant. It has set the preservation of our digital heritage as one of its priorities. “People are not very concerned about preserving things,” laments Fontana. “All they want is rapid access to information that will provide short-term benefits. Knowledge has become part of our throw-away society.”

In fact, while there may be no 'solution' in the classical sense to this problem, and while it isn't exactly easy to see where to go, I think there are some pointers. We in the 'livings' initiative are certainly getting into this in a big way. Structuring and facilitating a wide variety of information is both the potential of and challenge to blogging. Reading between the lines on the warehouses of brains piece the point should be more or less clear. We have, in fact, set up a global development team to try to work on the topic of weblogs and information aggregation. Anyone interested in participating should contact me.

Here Comes Another Early Relative

Scientific American is running this story:

Oldest Known Ancestor of Marsupials Discovered in China

A mouse-size, tree-climbing animal that lived with the dinosaurs is the oldest known ancestor of modern marsupial mammals, scientists say. A report published today in the journal Science describes the fossil, dubbed Sinodelphys szalayi, which is 15 million years older than the previous record holder.
Zhe-Xi Luo of the Carnegie Museum of Natural History (CMNH) and Nanjing University and his colleagues discovered the largely-intact skeleton in China's Yixian rock formation, which dates to 125 million years ago. The find included well-preserved impressions of fur and carbonized soft-tissue, which aided the reconstruction of what the animal looked like (see image). "This mammal could be the great grand aunt or uncle, or it could be the great grandparent of all marsupial mammals," Luo says. The creature was about 15 centimeters long and weighed about 30 grams, or one ounce. Its foot structure, in particular, indicates that it was capable of climbing trees.

"Interestingly, the more primitive mammals of the Yixian feathered dinosaur fauna were adapted to terrestrial or ground dwelling living," explains study co-author John R. Wible of CMNH. According to the team, this suggests that adaptations that favor climbing may have been important for the earliest divergence of marsupial lineage (whose living representatives include opossums, kangaroos and koalas) from the placental one. Because similarly-aged fossils of placental mammals have been recovered from the same area, the scientists propose that the two groups originated in Eurasia. Richard L. Cifelli of the University of Oklahoma and Brian M. Davis of the Oklahoma Museum of Natural History, however, classify the issue in a related perspective as "open but ripe for testing through new discoveries."

Thursday, December 11, 2003

When are soybeans like software?

One of the main Argentine trends that I've been following in Southern Exposure is this:

  • 1. China Grows.

  • 2. China Needs More Soy Products.

  • 3. Argentina Sells More Soy Products At A Higher Price To China

  • 4. Profit! (And the Kirchner administration has enough cash to pay the IMF and keep the social picture under some sort of control for the moment).

It's an interesting story because it ties global threads (China's growth and its impact on commodity prices) to local situations (the Argentine government's social and economic policies). This sort of connections make blogging fun, and allows me to write "happy" stories about Argentina, which is not something one often gets to do.

Of course, for every country that gets into a train, there's one or two that misses it. In this particular story, oddly enough, the country that's getting behind is the United States...

Yesterday it was made public a press release about research from the University of Illinois regarding the United States' soybean industry.

The press release indicates that the US share of world soybean production "has declined from about 50 percent to less than 40 percent" since the early '90s, while Brazil and Argentina's have risen to about 25 and 15 percent respectively.

Most interesting is the following paragraph:

"The dominant trend in processing plant location is a shift away from mature markets, such as in the U.S. In those markets, the plants tend to be older and smaller, the technology is more dated, farmer suppliers are smaller, and regional production is flat. By investing in the new growth areas, companies can employ the latest technologies, improve economies of scale, and have access to growing supply base."

The authors of the report also indicate that competing countries often enforce weakly or not at all Intellectual Property rights (granted, that tends to happen in the Third World) and end it by warning of the dire effects that will result if soybean research is slowed down or halted because of its diminishing profitability in the US.

Translation: We're being beaten in economic and organizational terms, and our whole business model now depends on the international enforceability of some patents and government subsidies. But what will the world do without the research paid by our artificially high margins?

Minus the government hand-outs, this sounds very much like every just-about-to-go-broke software company's statements in the last four years. Which is -or should be- very worrying for US farmers (where the heck is their can-do, "Our plan is to get better than them at growing soy!" attitude?), and quite interesting for everybody interested on the effects of global competition in commoditized, networked markets like soybean and software.


Overall, though, I don't see this as necessarily bad for the United States. I think we're far enough into the 21st century to safely say that neither agriculture, nor basic business processes, nor most software development are anymore high-margin activities that can easily support First World standards of living. Leaving those to people in the developing world is -again, in the big picture- advantageous for both sides.

It's sad having to restate it at this point, but Japan didn't raise its living standards by protecting their fishermen's jobs. Roughly speaking, they did it by turning fishermen into small industry manufacturers, and later small industry manufacturers into robot plant managers. India is turning its craftsmen into programmers and call center operators, which is, I think, a very good move. Instead of trying to keep these no longer cutting-edge jobs, the US might be well advised in trying to figure out what to turn its programmers and farmers into.

A lot of folded U$D 20 bills

According to the latest World Bank figures, around 5 per cent of worldwide GDP is lost due to corruption.

Let's go beyond the natural half-hopeless, half-indignant response to this number. Still using data from the World Bank, global GDP in 2002 was around 32 trillion dollars. Using sophisticated mathematical calculations, that leads me to conclude that about 1.6 trillion dollars were "misplaced" due to corruption. That's more than the GDP of the UK. Almost half of Japan's.

To put it this way: if it were a country's GDP, it would be the fourth richest in the world.

After the BCCI, Enron, Halliburton and just plain living in Argentina for twenty four years, I thought I could no longer be shocked by reports about corruption. But the sheer magnitude of this World Bank report forces me to reconsider my mental model about how the world works.

It's the UK's entire GDP...

Outsourcing and surplus capital

Edward’s recent post “Warehouses of Brains” and a much earlier post China's

Real Manufacturing Revolution
touched on how outsourcing not only results in lower

operating costs due to lower wages but also lower capital costs as well. Most of the time

discussions of globalization fixate on the effects of reduced product prices or wages. The

effects of reduced capital costs were something I hadn’t considered before.

A micro picture:

A firm liquidates a factory in a developed country, freeing up capital, Kf. It moves the factory

to China. This move imposes transaction costs T. The new factory, is built for a capital

commitment, Kc, where Kf > Kc. (This assumes that each factory can produce the same

quantity of goods.)

If Kf > Kc + T then there is surplus capital.

[Even if Kf < Kc + T, the lower operating/wage advantages may still justify a move.]

The earlier post also touched on another aspect – the transaction cost, T, drops as firms

become more adept at outsourcing. Over time, transaction costs shrink and the surplus

capital increases. The reduction in transaction costs makes outsourcing more attractive. This

positive feedback would tend to accelerate outsourcing over time – at least until wages (

operating costs) in the destination country started to rise. That is an interesting conclusion in

its own right – but what happens to the surplus capital?

For the sake of simplicity assume that this surplus is either returned to investors or invested in

increasing the new factory’s capacity. If the firm is a price-taker and that there aren’t

decreasing economies of scale, then economic incentives for further investment don’t

diminish. In this case, it’s hard to see why the firm wouldn’t invest in additional capacity.

A macro picture:

For the reasons outlined above, industries undergoing rapid outsourcing would be susceptible

to excess investment in capacity. This excess capacity would be an additional deflationary

pressure, atop the global wage and price pressures.

Even if the capital isn’t invested in additional capacity, it could be invested elsewhere. If the

flows were large enough, this could fuel speculative bubbles (e.g. real estate).


To be honest, I don’t have numbers to support this hypothesis (too lazy). It happens to jibe

with many of the recent posts so I thought I would throw it out.

Oh, Why Oh Why is Nothing Ever What it Seems to Be?

Oh, I know, I know. I don't go into type M arguments, and I won't. But this is very rich indeed.

A week after dropping one set of tariffs on steel, the Bush administration is considering giving new protection to U.S. steelmakers by changing how other duties are calculated.

The proposal, being reviewed by the Commerce Department, would raise the duties on $1.7 billion in steel imports determined to have been ``dumped'' in the U.S. at prices lower than those in the producer's home market. Revenue from the increased penalties would go to companies such as International Steel Group, U.S. Steel Corp. and Nucor Corp., which asked the department for the changes.

The idea is triggering new tensions between the U.S. and European steelmakers. ``It's a back-door way to keep the tariffs in place,'' said Richard Cunningham, a Washington lawyer who represents steel importers such as Corus Group Ltd., Europe's third-largest steelmaker.
Source: Bloomberg

US Growth 2004 2.5 - 3% Forecast

The material from Leamer that I've seen I've liked. The arguments seem sound. Couldn't have put it better myself. Now lets see if it's accurate!

The U.S. economy will grow modestly next year, keeping the unemployment rate stuck near 6 percent and the Federal Reserve on hold as it watches for any inflationary pressure from a weaker dollar, according to a closely watched forecast released on Thursday. Edward Leamer, the director of the UCLA Anderson Forecast and one of the first economists to flag the most recent recession, said the sustained surge in U.S. growth next year that some Wall Street analysts expect will not emerge.

Instead, the economy will grow at a rate of 2.5 percent to 3 percent in 2004, rather than the 4.5 percent to 5 percent pace typical of normal rebounds from recession, Leamer said. That slower growth, the result in part of the pressure on household balance sheets and local government budgets, will not do much to lower the unemployment rate, he added. "We should get about a 1 million new jobs over the next year. But the unemployment rate sticks around the 6 percent level," Leamer said, adding that will give the Federal Reserve reason to keep interest rates down.

Unless the job market substantially improves or the falling value of the dollar raises inflation, the Fed will hold steady the federal funds target rate, the main short-term rate the Fed uses to influence the economy, Leamer said. The Fed's policy-makers voted unanimously on Tuesday to hold the federal funds rate at 1 percent, its lowest level since 1958. The Fed also vowed to keep borrowing costs down for "a considerable period."

Leamer noted that a number of factors are making the outlook for the U.S. economy hazy and difficult to forecast. Higher productivity made the third quarter "feel like a Twilight Zone episode" as a blistering 8.2 percent rise in the economy was paired with a weak job market, Leamer said. "The data are so unusual with all that economic growth and no employment," Leamer said. "It's some kind of mysterious force out there delivering products to our door." For instance, there is reason to expect a pullback in spending by consumers as well as state and local governments will emerge as drags on the economy, Leamer said. Consumers have bought enough cars and houses to last for some time, and they "need to begin to repair their own troubled balance sheets," Leamer said. Meanwhile, productivity gains of recent years and stimulus from tax cuts may run their course next year, he said.
Source: Forbes

US Jobless Numbers Head North Again

Initial claims in the US rose this again this week to 378,000. Hardly dramatic, but equally hardly indicative that the US labour market has decisively turned the corner.

The number of Americans filing first-time claims for jobless benefits rose unexpectedly last week but remained at a level suggesting layoffs were easing, a government report showed on Thursday. Initial claims for state unemployment aid, a rough guide to the pace of layoffs, rose 13,000 to 378,000 in the week ended Dec. 6, their highest level in six weeks, the Labor Department said. Wall Street economists had expected claims to slip slightly to 360,000 from the 365,000 claims filed in the Nov. 29 week. A closely watched four-week average of claims, which smooths weekly volatility, rose 2,250 to 364,750. A Labor Department spokesman said while it can be hard to adjust the data to account for seasonal variations around the holidays, there did not appear to be any problem with adjusting last week's data. While claims have risen for two straight weeks, they have been below the 400,000 level that economists see as the divide between improving and deteriorating labor markets for 10 straight weeks - the longest stretch since a run that ended in April 2001. The department said the number of unemployed workers who continued to draw benefits after an initial week of aid rose 11,000 to 3.35 million in the week ended Nov. 29, although a four-week measure of that barometer fell to its lowest level since February.
Source: Yahoo News

The ECB Seems Set to Hold Rates

There is little sign that the ECB has any appetite to start raising rates. The situation with the Euro must be one of the first things on their mind. In addition inflation seems remarkably tame, and there is little sign of a dramatic growth spurt. Next years number is hardly startling, and I think we should wait a bit before we start anticipating 2005: there are still plenty of unknowns that could come in and cloud that picture.

The European Central Bank on Thursday raised its forecast for eurozone inflation in 2004 but signalled that interest rates were likely to remain on hold for some time amid caution over the outlook for growth.

The bank's twice-yearly projections, published in its monthly bulletin, forecast inflation next year of 1.8 per cent, up from 1.3 per cent in June and an unpublished estimate of 1.6 per cent in September. The ECB maintained its forecast for inflation this year of 2.1 per cent, but lowered its projection for inflation in 2005 to 1.6 per cent. The projections, widely leaked to the press last week, highlight the bank's concern over the "stickiness" of inflation which has proved far more stubborn than predicted earlier this year. But the bank acknowledged that the root cause of the stickiness has been big increases in indirect taxes and administered prices as eurozone governments battle to curb rising budget deficits........

The ECB's growth outlook for next year remained unchanged at 1.6 per cent before accelerating to 2.4 per cent, the eurozone's long term potential growth rate, in 2005. The bank said eurozone expansion would be fuelled by demand for exports from a faster growing global economy, offsetting to a large degree the impact of the strong euro. Growth would also be driven, it said, by a pick up in still weak domestic demand as business investment and private consumption recovered. The bank said an improving labour market should reduce the need for precautionary savings by households worried about unemployment and the prospect health care and pension reforms.
Source: Financial Times

The trouble with a weakening US dollar

You know there are lots of nervous people around when the grapevine is filled with talk of capital controls.

The capital controls in this case would be unusual - stopping the euro from appreciating, presumably by preventing the purchase of European assets such as euro deposits.

The European Commission (EC), of course, has denied allegations that they are examining the legal basis for imposing such controls. Analysts also scoffed at the idea. Mr Jonathan Hoffman, chief European economist at the Royal Bank of Scotland told AFP: 'Exchange controls in Europe are even less likely than a re-incarnation of Elvis.'

But the currency market went into a tizzy following the rumours, and the euro remains at the all-time high of US$1.216 (about S$2.10) against the United States dollar, hit last Thursday.

How the tables have turned. The euro was launched at a rate of US$1.17 in 1999, but it slumped to 83 US cents the following year. In the past two years, however, it has gained more than 40 per cent against the dollar.

There is no fundamental basis for this spectacular rise. Yes, the Eurozone economy has improved in the past few months, but it doesn't come anywhere close to matching US economic growth, which surged 8.2 per cent in the third quarter, compared to the Eurozone's 0.3 per cent.

Most observers believe the US economy will continue to outperform. The Organisation for Economic Cooperation and Development (OECD), for example, expects the US economy will grow a robust 4.2 per cent next year. In contrast, the Eurozone economy is expected to expand by just 1.9 per cent.

But the euro continues to gather strength. And that's despite a mounting political crisis over the collapse of the European Union's (EU) pact on fiscal stability and growth.

According to Economic and Monetary Affairs Commissioner Pedro Solbes, the EC is preparing a more stringent discipline mechanism to deal with countries that repeatedly exceed budget deficits. His announcement followed remarks from Mr Juergen Stark, Bundesbank vice-president, who said the decision by EU finance ministers to suspend the rules would create a 'real institutional crisis', lowering the European Central Bank's authority. Germany, which engineered the suspension of the pact two weeks ago, insists that strict adherence to the pact is hurting its economy.

The euro, however, grows stronger only because the dollar is expected to weaken. There is a vicious circle at work in the currency markets when analysts claim that while there is no chance of capital controls being imposed, such talk 'actually (makes) the news more positive for the euro' because it reveals how concerned EU officials are over a weak dollar.

In fact, the only reason the dollar hasn't fallen even faster than it has is due to frantic support by Asian central banks, concerned about a weak dollar undermining their nascent economic recoveries. Japan, for example, has spent a record US$164.5 billion this year to keep the yen from appreciating. As a result, Japan's foreign reserves hit a record US$644.57 billion at the end of last month.

The Bank of Japan (BoJ) and other Asian central banks that have been accumulating dollars mostly invest their greenbacks in US assets. They have been doing so to such an extent that holdings of US bonds by foreign central banks have now passed the US$1 trillion mark. That's more than the US Federal Reserve's own bond portfolio, which is worth less than US$660 billion. Reuters reported that foreign central banks took up as much as a third of US Treasuries auctioned last month.

The dollar's unique role as the world's reserve currency means there is no risk of a default. The Federal Reserve can always print more dollars to pay the country's debt. But by doing so, and in the massive amounts required, a sharp devaluation of the greenback's worth is inevitable. Hence the growing concerns over a weak dollar.

If the dollar's fall is inevitable, some have argued that perhaps Asia should simply stop trying to prevent it. Currency manipulation, after all, only distracts Asia from fixing real problems, like reinventing their economies.

In fact, a somewhat similar situation unfolded in the latter half of the 1980s, and the world managed to survive that episode of financial turmoil. Fear of a weak dollar led the BoJ to sell US Treasuries, resulting in a sharp rise in US interest rates. It was an important factor triggering the 1987 stock market crash.

The global economy, nonetheless, bounced back swiftly as the Federal Reserve acted decisively to lower interest rates. East Asia eventually benefited from the surge in the yen as it sparked an inflow of Japanese investments.

But don't bet on a similar fortuitous outcome this time. The Japanese economy is far weaker than it was in the 1980s. When the yen last strengthened below 100 yen against the dollar in 1995, and as it nearly did again in 1999, both periods failed to spark any surge in investments into East Asia (apart from China), and they left the Japanese economy in a vulnerable position.

So East Asia continues to intervene in the forex market, accepting more dollar assets in the process. The talk of capital controls, however, shows the accumulation of such a large amount of dollar assets has the currency market on the edge. The pressure for a large devaluation of the dollar could come sooner rather than later.

But which of the world's major currencies is capable of rising to the challenge?

Eddie Lee is senior economics writer on the Straits Times

Who To Endorse?

In the US presidential elections the big news of the week must be the endorsement of Howard Dean by Al Gore. A somewhat smaller, but still interesting, development - although this isn't exactly new, but simply new to my attention - is the fact that someone has created an Economists for Dean weblog. Finally, if you are really short on 'breaking news' and if you really want to go down to the fine print of the week, you might just notice that I seem to be included in the sidebar, in amongst a variety of other economists who undoubtedly have rather more public appeal than I do. I would like to say that as a European I consider it an honour to figure in such company: this does however present us with a number of questions worth thinking about, and it is to those that I would now like to turn.............

The rest of this article is over at Fistful of Euros: here.

Update: While I'm on topics of a transatlantic nature, Eamonn has a flattering post over at Rainy Day. Thanks Eamonn.

Breaking the News: Argentina

Marcelo has a thing that we bloggers will one day be able to 'front run' the traditional press. I think he may be right. If you want a bit of evidence why don't you float over to his post yesterday at Southern Exposure and read what he had to say before this FT article passed from being a mere brainchild in the editors head:

Jobless show Kirchner the danger of doing nothing By Adam Thomson
Published: December 11 2003 4:00 | Last Updated: December 11 2003 4:00

From a makeshift warehouse in a poverty-strickenneighbourhood of southernBuenos Aires, Raúl Castells is orchestrating a plan to overthrow Argentina's six-month-old government.

His office - a bench and an old wooden table - is surrounded by boxes of rice, sugar, cooking oil and medicine, supplies for some of the 60,000-strong Independent Movement of Pensioners and Unemployed, which he leads. For security, a man sits close by with a nickel-plated pistol in his jeans pocket.

Few of Argentina's 38m inhabitants believe Mr Castells' Trotsky-inspired plans will topple Néstor Kirchner, the centre-left president. But as leader of one of the country's growing numbers of militant unemployed groups, Mr Castells is becoming a big problem for the government.

With demonstrations planned to mark the December 2001 collapse of Fernándo de la Rúa's administration, the disruptive tactics of his group's members pose awkward questions about Mr Kirchner's ability to maintain law and order.

The piquetero ("picketers") movement - as the groups of unemployed are collectively known - has been around for years. Its leaders have aims as diverse as revolution to simply petitioning for jobs and handouts. But they all have one thing in common: the capacity to mobilise tens of thousands of people and cause havoc in urban areas.

Residents of the capital have grown used to the masked men and women who brandish wooden batons and block roads for hours at a time.

But the disturbances are becoming increasingly violent and intense - there were 120 blockades in the country last month com pared with just half that number in October. As a result, voters - particularly the urban middle classes who helped ensure Mr Kirchner's victory in April - are demanding tough action.

Rosendo Fraga, a political analyst in Buenos Aires, says limiting the piqueteros is a clear test of governability, which he sees as the biggest challenge Latin American governments face.

"The 1980s were about the return to democracy, the 90s about economic reform and this decade is about governability," he says. "When you consider that only three South American countries in the last 15 years have seen all their presidents complete terms in office, you realise the scale of the problem."

So far, however, Mr Kirchner has kept his distance, and Aníbal Fernández, his interior minister, recently reasserted the government's approach. "We are not going to repress the piqueteros," he wrote in Clarín, a daily newspaper.

The danger is that appearing to do nothing could erode the high popularity ratings the government has worked so hard to achieve.

Sergio Berensztein, a professor at the Di Tella university in Buenos Aires, says one reason for the presi dent's reluctance to get involved stems from personal conviction. "Kirchner belongs to a generation that was persecuted by the country's military authorities, and he strongly opposes the use of force."

Another is that the experience of previous governments shows that sending in security forces to clear streets usually leads to bloodshed.

Mr Kirchner has instead tried to co-opt the more moderate piquetero leaders with handouts for their members. Since Argentina's economy collapsed in December 2001, the government has been doling out 150 pesos a month to the most vulnerable families. About 2m households now survive on the relief. Last week, the government announced it would give them a Christmas bonus of 50 pesos each.

The strategy has worked - to a point. Leaders such as Luis D'Elia of the Land and Housing Federation, the largest group, with 120,000 members, now support the president and see him as a figure who can offer political and financial benefits.

Mr D'Elia says: "We want to ensure that the Kirchner government succeeds because the alternative is to return to the neo-liberal policies of the 90s."

But there are risks. One is that the piqueteros' demands will simply escalate. Mr D'Elia, for example, has begun a long-term campaign to get the 150 pesos increased to 380 pesos, with an additional 60 pesos for children under working age.

A second problem is that while the strategy has revealed divisions within the piquetero movement - Mr Castells called several fellow leaders "prostitutes" for having co-operated with the government - it has failed to woo all the radical groups.

Mr Fraga is in no doubt that sooner or later things will come to a head. "The government has two possibilities: do nothing and risk more blockades, or intervene and risk killing people. Either way, confrontation seems inevitable."

Wednesday, December 10, 2003

China: The auditing impasse

There's a multi-million dollar business that most people haven't heard about. It's called auditing, and in China alone it keeps more firms cashed up than I care to think about. I don't mean financial auditing by accountants, or auditing for product quality by the QC folk. And I don't mean the kind of auditing that tests pressure gauges on industrial boilers (which used to be the backbone of this industry). The kind of auditing I'm talking about is social auditing, which didn't exist ten years ago but is now a kind of frontier industry into which anyone with connections, a few language skills and an eye on industry trends has jumped. The history of it goes something like this.

Company X - a large multinational retailer - sources products from hundreds or thousands of factories across Asia (and Latin America, Eastern Europe and the Pacific too). It's cheaper doing it this way, and increasingly easy as supply chain management techniques and technology have evolved and the cost of transportation has plummeted. But on the home front, not all customers see it quite the same way. Some of them boycott Company X, accusing them of exploiting workers by turning a blind eye to sub-contractors who work them long hours, pay them less than a survival – or minimum – wage, and care little about freedom of association or occupational health and safety.

At first, Company X denies any moral responsibility. After all, they don’t own the factories. In fact, they hardly know where these places are. Their only contact with the Chinese work force is via merchandisers in Hong Kong, and as long as products meet specific standards, price, and are delivered on time, who really cares where they’re sourced? But consumer groups persist, and after a while Company X is forced kicking and screaming to the negotiation table over workplace conditions. What to do?

Some bright spark with a sense of history hits on the idea of a set of standards for sub-contractors or vendors, and the code of conduct is born (well, reborn might be a better way to put it, but let’s not get sidetracked). Some guys at HQ – let’s say Chicago, just for the hell of it – bang out two A4 pages comprising a list for Chinese factory owners to follow. Chicago doesn’t want child labour on the factory floor. It doesn’t want to buy products made by prison labour. It would like workers to receive minimum wages and work hours pursuant with the country’s labour laws. It’s repelled by the idea of discrimination, so they insert a clause stating Chinese managers shouldn’t fire or refuse to hire people on the basis of sex, religion, kinky predispositions, and whatnot. And because the ILO makes such a big fuss about it, they stipulate the right of workers to bargain collectively and freely associate (join free and independent trade unions).

It’s a great idea. It must be, because pretty soon everyone has a code of conduct. And they all pretty much say the same thing. But on the home front, consumers and other trouble makers aren’t pacified. To their utter shock and dismay, people don’t believe just because Company X says these things occur that they actually happen; quite the opposite. People want to see some proof. CEOs waving pieces of paper don’t cut it anymore.

Back at HQ, the idea of verification is hatched. This solves everything. Social auditors with checklists start wandering around Chinese factories, ask workers questions, and ensure that the code is followed. What better way to prove to pesky consumers that Company X’s code of conduct is rigorously implemented? It’s a short lived victory. Back home, people wonder out loud about just how effective PricewaterhouseCoopers or any other auditing company is at this kind of thing. After all, these people are doing thousands of social audits but apart from a handfull of documents falling off the backs of trucks, noone besides a few people at Company X and the Chinese factory gets to see these reports. This is confidential stuff.

A few industry leaders toy around with open audits, post them on their Web sites, and paradoxically attract even greater criticism than if they’d closed ranks and said nothing. Company X is more touchy-feely. It engages with stakeholders, a prissy title for people involved in the enterprise other than HQ in Chicago and factory owners in China. Stakeholders are meant to be workers on site, their families, the communities in which enterprises are located, local governments, and others. What it means in reality is a handful of non-government organisations that have leveraged international prestige into the right to speak on behalf of people they sometimes hardly know. Pretty soon, NGO wallahs are on the global lecture circuit talking to anyone who will listen about codes, monitoring and working conditions.

It’s all a bit pointless by this stage. All of the big certification and testing companies are doing thousands of social audits every year on top of their ISO and boiler gauge testing. Hundreds of smaller companies have popped up, and NGOs have manoeuvred themselves into the market too. Company X has its own compliance team on the ground in Hong Kong and China, pays for external auditors, and tries to work with local NGOs. It’s costing a fortune, but they still can’t shake the tag of Big Fat Exploitative Multinational. And what’s more, no one’s actually sure that conditions for Chinese workers have improved.

By this stage, counter-auditing has evolved into a finer art than auditing itself. For every worker interview, desk audit, and factory walkthrough, Chinese managers have countered with interview training of their own, false sets of books, and clean factories on visiting day. Workers are taught how to respond to questions from social auditors. Do you work on Saturday afternoon? Nope! Do you work to midnight during peak season? Uh-uh. Ever get paid lower than [insert county minimum wage]? What, you kidding me? Books and swipe card records show a perfect 7:00am to 6:00pm work day, five days per week (in compliance with Chinese Labour Law’s 44 hours per week and 36 hours overtime per month). Payroll records show wages above the minimum. Auditors dodge and weave, checking production records against hours worked: can 1,900 employees working 8 hours per day produce this many widgets? Management counters every request, stonewalls on the ones they can’t really fudge, and after two days both sides call a truce, smile and shake hands, and thank heaven that’s all over for another six months or a year.

Auditing has had its day. Two tired boxers, clapped out and overweight, land soft punches on even softer flab. Neither will go down for the count. And all the while workers continue working as required in conditions that may have improved marginally. For all the money spent – and it must be billions by now – there are few signs that things have improved across the board. Company X keeps most criticism at bay. Consumers are kept in the dark. Auditors take their cut and insist on better ventilation, effective guards on machines, new personal protective equipment, payment of wages on time, and fewer beds in dormitories. Some remedial action occurs. Other recommendations are ignored until next time and the grand game starts all over again.

As the closing paragraph in Joseph Kahn’s story in the New York Times this week puts it: “I thank the inspectors for one thing," said a Kin Ki worker from rural Sichuan. She was crouching over a bucket of cold water in the warm afternoon sun, washing her hair. "I needed a rest," she said.

It's time to move on.

Source: Joseph Kahn, “Ruse in toyland: Chinese workers' hidden woe,” New York Times, 07 December 2003.

Stephen Frost is editor of Asian Labour News

Trapped Between Too Much and Too Little

Things ain't easy right now for the Fed. Presentation is definitely a problem. They aren't talking about raising rates, and everyone wants to know why. The reason is the deflation risk, which if it has subsided has only done so very marginally - we don't have enough information yet to start making projections about first quarter 2004 growth with any reasonable degree of confidence. nor does anyone have a clue what's going to happen to productivity which is, after all, at the heart of the output gap problem. So it's deflation watch, but not too loudly. Otherwise we'll have the markets drawing concusions we wouldn't want them to draw, now would we? Still the debate over what the Fed 'really' meant continues:

But in a shift from the Fed's October 28 statement, the central bank suggested that deflation is less of a threat than previously stated. "The probability of an unwelcome fall in inflation has diminished in recent months and now appears almost equal to that of a rise in inflation," the Fed statement said. In October, the Fed said the threat from weak prices "exceeds" that of inflation. Dick Rippe at Prudential Securities called this shift a "slight nuance that deviated from expectations." The shift in what analysts call the Fed's "bias" or tendency for its next move, was shifted away from leaning toward a rate cut, but not quite enough to signal a rate hike, Rippe said. "This seems as though they have half of a bias," Rippe said. "The Fed didn't really remove it but it certainly isn't as strongly biased towards ease over inflation as they appeared in the past." Ian Shepherdson, chief US economist with High Frequency Economics, said the shift in language may be laying the groundwork for a rate hike in the early 2004. "This is a significant change -- it is the first time since January that the inflation risk has been balanced. In each of the previous five meetings the Fed has expressed concern over disinflation risk," Shepherdson said. Others analysts contended the Fed signaled it would be on hold for a longer period, probably through most of 2004.

No Sign of China Cooling Off

Well according to these numbers the forecasted 'cooling off' in China has yet to show its face. Of course, and in fairness to Andy Xie, this is supposed to happen around the second quarter of 2004. I think the jury is still out on this. I am also non-commital on the 'overheating. Clearly the laws of gravity still apply, but nothing this big has ever happened before, and certainly not so quickly, so I think caution is the word. In a way the possible slowdown all depends of the capacity of Beijing to reign-in credit expansion, and that has to be an unknown quantity. The China role-out has a much bigger 'bottom up' element than anyone seems to recognise, and there is no guarantee that they can control things. Capitalism is like that.

China's industrial production in November surged a higher-than-expected 17.9 per cent year on year, adding to evidence that demand for steel and raw materials in the world's fastest growing major econony continued unabated.

Value-added industrial output, China's key measure of factory production, increased in November to Rmb396.6bn mainly on demand for cars and mobile phones, the State Statistical Bureau said on Wednesday. Analysts had expected a rise of 17 per cent year on year.

November's figure was the highest since February, when China's manufacturing sector recorded 19.8 per cent year-on-year growth, and also exceeded the 17.2 per cent growth rate in October.

For the first 11 months of the year, industrial output expanded 16.8 per cent year on year to Rmb3,669bn.

Production of cars and mobile phones - retail items heavily sought by China's growing middle class - surged 71.6 per cent and 24.5 per cent, respectively, reflecting both the strength of the country's exports and demand driven by consumer spending.

The latest data is certain to heighten concerns that China's economy, which is projected to grow more than 8 per cent this year, is overheating. In November, China reported a 40 per cent year-on-year rise in imports to $35.2bn, setting the country on course to eclipse Japan as the world's third largest importer behind Germany and the US.
Source: Financial Times

The Wal-Martisation of Brazil?

Yesterday it was announced that here in Brazil, two large supermarket chains, Pão de Açúcar (currently Brazil's largest) and Sendas, the largest in Rio de Janeiro state, where Pão is not very well-established yet, are planning a merger. The details were fuzzy, but it looks like some kind of a share swap and joint operation will be taking place.

Pão de Açúcar (which is the trading name of its parent, Companhia Brasileira de Distribuição, a public company traded in New York [quote]) currently has 446 stores in Brazil; family-held Sendas has 79. Combined operations will give the new company 525 stores, more than twice as many as their nearest competitor (French Carrefour, which, however, has about similar turnover to Pão at present).

Enter Wal-mart. At present, Wal-Mart has a toe in the door here, with 22 shops and R$1.75bn in turnover (Pão R$10.8bn, Sendas R$2.52bn). But Wal-Mart is considered front-runner in acquiring No. 3 retailer Bompreço from troubled Dutch group Ahold. CBD would like to have Bompreço, but the market considers it too much of a debt burden on CBD for them to buy the chain outright from Ahold, who need the cash. Wal-Mart presumably doesn't have the same liquidity issues. Buying Bompreço would give Wal-Mart 138 stores and over R$5bn in turnover.

There's a very interesting piece on BBC Brasil today about "little Pão, little Sendas and big Wal-Mart". The author, Lucas Mendes, points out some facts about Wal-Mart in Mexico:

The American giant entered the American market 12 years ago. Today there are more than 600 points-of-sale employing 101,000 people, more than any other business in the country. Their turnover is more than the entire tourism industry.

Their sales represent 2% of Mexican GDP, 30% of all supermarket sales and 6% of all retails sales. They are not only smothering the competition in Mexico. In the US, the numbers are similar.

He then asks the key question:
Will it be that what's good for Mexico will be good for Brazil, or, in Rio, will little Pao and little Sendas beat the Big Wal-Mart.
Lucas points out that the Mexicans and Americans are happy with Wal-Mart, but to me it rather begs the question as to exactly how good this is for Mexico. For now, it looks like Pão/Sendas may be one move ahead of Wal-Mart. Myself, I am surprised that Wal-Mart is moving so slowly (it may be that they are just having trouble growing themselves quickly in Brazil, but that hasn't stopped Wal-Mart before).

[Full disclosure: I am a CBD shareholder]
Where credit is due: the sales / stores figures came from O Globo 8 December 2003

Tuesday, December 09, 2003

Welcome to Living In India

One of the reasons I've been complaing about having too much work recently is because I've been tied up working to get this up and running. Those with an attention to datail will note that all of this bears a remarkable resemblance to Living in China, and this is certainly not a coincidence: many thanks from everyone at Living in India to all at Living in China for the help we have had in getting started. Please remember this is just the Beta Release practice version. From here on in it can only get better.

Yesterday Marcelo cheekily suggested that Southern Exposure was the up-and-coming group blog in Latin America, we let me follow him and express the hope that this also applies to LII in India.

Gone To China

It does occur to me that the old notice you used to find on the shop door with 'gone to lunch' written on it might now be replaced with a 'gone to China' one. But this joke is really to miss the point. As more people than I care to count have already written: jobs have always been going somewhere or other. Gone from the UK now are most of the jobs in the mining industry: and good riddance most of us might well say. Goodbye, is what we are now saying to the UK call centre jobs: and again ditto. Most of this work is neither pleasant nor attractive, and we should perhaps rather commiserate with the third world that they are attracting many of the less pleasant and less well remunerated work.

However job loss is only one part of the picture: it is job creation which really should be concerning us, that and moving all of us steadily up the value and living standards chain. Of course here things are not so simple. Especially, as I have been pointing out, when it comes to a world where improved use of ICT is making for an ever more globalised labour market, and an ever more accessible knowledge base.

So, back to the topic: the Chinese premier is in the US, jobs will be high on the agenda, and the New York Times starts the ball rolling with this:

When the Chinese premier, Wen Jiabao, visits the White House on Tuesday, a pressing issue on the American side of the table will be jobs, and the impression, fair or not, that the United States is losing them directly to China.

But as American leaders in both parties complain about lost manufacturing jobs and push for China to revalue its currency, China has its own serious jobs problem. In recent years, the shock therapy of China's economic restructuring has caused huge layoffs at old, unprofitable state-owned factories, while a crowded countryside has too little usable land and too many farmers.

"Unemployment is a severe problem," said Zhong Dajun, who runs an economic research center in Beijing. "It's a problem that is affecting not just ordinary farmers and workers, but even university graduates, who are finding it very difficult to find any work. I don't know if it's going to worsen, but it's bad enough already."

Factory unemployment is highest in the northeastern Rust Belt, where state-owned enterprises have either closed or downsized. Experts estimate that as many as 200 million farmers and rural workers are either unemployed or underemployed in a country of 1.3 billion people. And one report in the state news media found that only half of college graduates got jobs this year, compared with 95 percent in 1997.

Japan Revises Downwards Third Quarter Growth

Clearly there is a large cyclical component behind what is happening in Japan: That being said, what does cyclical mean here? What is Japan's sustainable growth path? Unfortunately this may be a question which it is only possible to answer with the benefit of hindsight. The important details are that growth has really been coming from an expansion in capacity, that a continuing fall in the dollar would put exports in difficulty, that the big, big unknown - the China slowdown factor - will be important (if in fact there is a slowdown), and that, at the end of the day, everything hangs on the sustainability of the US recovery.

Japan grew by just 0.3 per cent in the September quarter, half the previous estimate, though the economy still appears to be on track for a sustained recovery.

Revised figures from the finance ministry put annualised growth in the quarter at 1.4 per cent, compared with the 2.2 per cent originally estimated, largely because the jump in capital spending was not as high as previously thought. The revised data showed that capital expenditure grew at 0.4 per cent, compared with 6.4 per cent in the quarter to June. Capital expenditure is considered the classic mechanism by which demand for Japanese exports is transmitted to the domestic economy, as businesses stimulate domestic demand through increased investment. Consumer demand, which accounts for 60 per cent of gross domestic product, has held up better than many economists expected, but has long ceased to be a driver of Japanese growth. Mikihiro Matsuoka, economist at Deutsche Bank, said the new figures, which are based on supply as well as demand-side data, painted a more realistic picture of growth.............

Mr Matsuoka said the only risks to the recovery were a sharp slowdown in China or the US, a rapid appreciation of the yen past Y100 to the dollar, or a too-rapid tightening by the conservative Bank of Japan. The yen has appreciated by nearly 10 per cent this year to reach Y107.4 to the dollar on Tuesday in spite of record intervention, though most business leaders consider present levels manageable.
Source: Financial Times

Monday, December 08, 2003

More on The Economist's article

I've just posted some notes and comments on the good The Economist's article that Edward posted below down at Southern Exposure, the -if you'll allow me a small lapse of modesty- up-and-coming group blog for all things Latin American...

Argentina: Stable to Positive

The Economist has a long and useful piece on Argentina. Things seem much better than they might have been, although the creditors are still not getting paid. A lot of the positive push seems to come from Agricultural sales to China. Maybe Marcelo will have something for us later.

AS THE southern summer begins, Argentina's economy is showing signs of life after the battering it received in 2001-02. Shops are looking forward to their best Christmas in three years and tourism is booming. Even in the less glamorous neighbourhoods of Buenos Aires long-shuttered businesses are starting to re-open. Out in the pampas, farmers are buying new tractors and trucks, and market towns are buzzing with life.

For Roberto Lavagna, the economy minister, this is vindication. When he took the job, in April 2002, the economy was floundering, apparently at risk of hyperinflation, after a disorderly devaluation in a dollarised society, the largest debt default in history, and a deep depression. A year ago, the consensus on Wall Street was that the economy would grow a mere 2% this year while inflation would run at 20-25%. In fact, inflation is likely to end the year at 3% and GDP to expand by 7% (see chart). Next year's outlook is similar. The problems may come later.

Three things have helped the appearance of recovery along. One is simply the depth of the hole into which the economy fell. Even if growth continues at its current brisk rate, GDP will not return to its 1998 level until 2005. Unemployment is down from its peak of 21.5% last year, but is still at 15.6%. One Argentine in two now lives in poverty. Every week, militant groups of unemployed stage street protests.

Second, macroeconomic policy has been more effective than critics admit. Booming tax revenues have enabled the government to hit fiscal targets agreed with the IMF in September, though these do not allow Argentina to resume servicing most of its debts. Monetary policy has provided enough liquidity while keeping inflation at bay. Devaluation, plus the adoption of a floating exchange rate, combined with strong world demand, have stimulated exports.

Third, the government has focused on boosting domestic consumption at the expense of the demands of foreign creditors, banks, and privatised utilities. This is controversial, but has arguably made economic sense.

How High is Too High?

This news is begining to preoccuppy me just a little. Going back to what Lloyd and then Joerg were saying last week, is history about to extract a heavy price for our indigence of vision here? I can see no clear and easy way out. Neither the euro nor the yen can live with this. Yet the dollar slide is slated to continue, Greenspan is in no position to raise US rates any time soon, and the ECB either doesn't want - or isn't able (euro bind) - to lower them here. It's hard to see what will happen next - but something, logically, has to give somewhere.

European markets were trading lower in the mid-morning trade after the euro hit yet another record high against the dollar. The weakness of dollar prompted investors to sell exporters such as Germany's automaker DaimlerChrysler. The technology stocks were also sliding.

The pan-European FTSE Eurotop 300 was down 0.8 per cent at 930.8. In Frankfurt, the Xetra Dax 30 was down 1.4 per cent at 3,790 and in Paris, the Cac 40 lost 1.1 per cent to 3,420. In London, the FTSE 100 index fell 0.6 per cent to 4,340.

In New York on Friday, the Dow Jones Industrial Average finished down 0.7 per cent at 9,862.7, as weaker than expected US jobs data unnerved investors. The Nasdaq Composite was off 1.6 per cent at 1,937.8, hit by a disappointing outlook from Intel, the world largest chip maker. Chip stocks in Europe may suffer in early trade as peers play catch-up.

Exporters felt the heat as the dollar sank to a new record low against the euro. The greenback was last trading at 1.2191. Autostocks were affected, with Volkswagen down 1.4 per cent at €42.4, DaimlerChrysler down 1.6 per cent at €33.4 and BMW off 1 per cent at €36.
Source: Financial Times

Warehouses of Brains

Marcelo and I are quietly celebrating today. It is our first time in print in the Ol' Media. In the Straits Times in Singapore. (regular readers will spot the connection). It is also a bit self-referential: one guy in Argentina, another in Barcelona, publishing in Singapore about how a few guys leveraging the right networks can leave them standing on the starting blocks. Let a hundred flowers bloom!

Brain Power is Getting Cheaper all the Time

OUR shared understanding of today's economy is based on the twin master currents of the 1990s: Moore's Law (computer power gets exponentially cheaper over time), and its implied corollary (brain power gets exponentially more critical, and hence expensive, over time).

As much as the former, the latter assumption still underlies most of our business structure, from the economics of spam to the location and nature of high-wage jobs.

It is, of course, wrong. Businesses - at least those which will survive the next few years - actually know that things have changed. But for most of them, this awareness takes the form of tacit knowledge that nevertheless still leaves them free to moan and complain about India and China's 'unfair competition'.

All the success stories of the present, in fact, have strategies that build upon the fact that brain power - human insight or whatever you might want to call it - has become suddenly cheaper overnight.

Consider the mighty Google, which became the planet's preferred interface to the Internet simply because it worked much better than any other search engine available at the time.

Some of its competitors, perhaps the most advanced of the breed, used sophisticated computer programs to analyse and try to 'understand' as much content and context as possible. This made lots of sense: Indexing things, after all, seemed like one of the multitude of repetitive, boring tasks computers were bound to take away from humans.


GOOGLE'S stroke of genius was to give up on most of that and instead let the humans do the indexing. Humans love to index things on the Internet. It's called linking, and we are actually quite good at doing it. So instead of trying to index pages from scratch, Google takes into account all that human indexing and shows it back to us, looking mighty smart in the process.

A more modern example would be the host of new 'social software' programs like Friendster, which are based on the simple idea that it's much cheaper to convince humans to map social relationships than to teach computers to do it. Indeed, there are the ubiquitous weblogs themselves, the 21st century version of the earlier dream of content agents - only powered by willing, enthusiastic humans.

But the most contemporary example is to be found in the massive and systematic bypassing of the tests designed to discriminate between humans and 'spiders' or automated surfing programs.

These tests are often used in an attempt to prevent the automated creation of free mail accounts or robotic access to e-commerce sites. They work by asking the surfer to type in a word presented as a somewhat distorted image. As it turns out, doing it is very difficult for programs, while fairly trivial for humans.


AN 'OLD new economy' approach would have been to try and write a sophisticated computer program, running on a very powerful computer, to 'crack' the problem.

But the 'new new economy' way - one that recognises that well-educated human minds are as much of a commodity as any standards-compatible central processing unit - involves software written by bright maverick programmers (maybe tucked away in an East European 'transitional economy'), the incredibly cheap communication infrastructure of the Internet, and literal warehouses of Indian mechanical-mental workers typing away for what to us may appear as bargain basement wages (but which are still more than they could otherwise earn).

This is how individual ingenuity, cheap technology and cheap intellectual labour defeat corporate R&D and expensive technology. Any American company that insists on playing by the old new rules, using a top cadre of shut-in experts, geographically centralised operations and sub-planetary mindsets, will find itself outflanked, outsmarted and eventually outstripped by a few guys with the right network.

Politicians and losing businessmen call it 'unfair competition', while the businessmen that are making money out of it prefer the expression 'emerging outsourcing platforms'.

We see it simply as an extension of Moore's Law to human beings, which can be put simply like this: The knowledge, expertise and ingenuity that you can rent for US$10,000 (S$17,300), or US$1,000, a year is rising exponentially.


OF COURSE, this is somewhat of a misuse of words, as human insight can't be quantified. But let's put it this way: The cost of hiring a certified public accountant, MBA or PhD holder, programmer or technical support technician is falling faster with each passing year.

If your human resource department isn't taking this into account, if your management is planning to compete five years from now with a 'corporate IQ' of the same order of magnitude as the one it currently boasts, then they aren't simply failing to prepare for the future, they are grotesquely blind to the realities of the lived present. It's a reality that won't go away any time soon, or just because you file a couple of anti-dumping claims.

In the end, everything here boils down to the laws of supply and demand. The current, ongoing impact of the Internet seems to reside in the fact that it has spawned a global mental labour force of hundreds of millions, with high and rapidly rising educational standards (in everything from English language skills to advanced research) and lower wages than in the developed countries.

Remember when American-made computer chips and electronic devices were replaced en masse by cheaper, equally good Asian versions? Now the time has come for lots of jobs, potentially each and every one of them that can be done using a computer over the Internet. In a knowledge economy, that's a lot of them.

It's easy to see how politicians will play this out for personal advantage, and it's also easy to sympathise with those who lose their jobs. But, leaving aside the huge social and geopolitical changes that these trends are bringing about, let's not forget that this has happened before to the United States, and every time it has answered back by creating new, better-paid jobs in revolutionarily profitable industries, starting the cycle anew while each time raising the living standards of the entire country.

They say there's nothing Americans like so much as taking risks in the face of a real challenge. This being the case, there is no reason to doubt America can do it again. After all, that's exactly what happened once before, and not that long ago, with a curious thing called the 'personal computer'.

Sunday, December 07, 2003

A smaller digital divide

The Digital Divide between rich and poor countries is narrowing, according to a new report from the International Telecommunications Union. Telephone networks are developing rapidly. Total teledensity (fixed and mobile networks) in developing countries has grown more during the last decade then in the entire period before 1990. "A standout is East Asia (which includes China), where total teledensity levels in 2002 were more than 24 times higher than ten years prior."

In fact, there are sometimes bigger digital divides within developing countries then between them and the rich countries:

"In Chile, 93 per cent of large businesses have Internet access, higher than the European Union average. But the corresponding figure in small Chilean firms is only 37 per cent. While Mexico’s top secondary schools provide one computer for every 12 students—better than Germany, where the figure is one to 14—the corresponding ratio for Mexico’s bottom quartile of schools is 59 students for every computer. Government access to ICTs—the sector where indicators are least standardized and available—shows similar disparities. In Peru, 81 per cent of central government agencies have access to the Internet while only 21 per cent of local government offices have such access."

The report is going to be widely read at the World Summit on the Information Society of witch phase one will take place this week in Geneva. Some developing countries are asking for financial aid for telecommunications intrastructure, a kind of solidarity fund. But this fund is probably unnecessary, according to one of the lead author of the report. Not only is the digital divide narrowing, it is probably smaller then it was thought to be.

Indeed, many poor countries are digitally developing on their own. Not because they are getting money, but because they are reforming. Privatising state telecom companies, introducing competition (so that alternatives are available) and fighting corruption. And introducing open financial systemsso that the poor can get access to much needed financial means. Consider Bangladesh:

"Bangladesh, with a per capita GDP of $1,570, has had annual cellular growth of nearly 150%, in part because of programs like the Grameen Bank’s Village Phone, which loans a phone, collateral free, to women in Bangladeshi villages, who in turn resell the service to their neighbors. This is double leverage, as it not only increases the number of phones in use, but also increases the number of users per phone."

So do indeed give aid. But not by throwing money away. Help the poor countries develop financial markets instead. In any case, after all the bad news about a globalization process in crisis, this ITU-report is surely a more cheerfull event.