Preserving the open economy at times of stress - FT.com

Summary:
Martin Wolf on benefits and perils for the West of rising global prosperity. Major disadvantage is competition for scarce resources. However, it is a trend that is unstoppable, and West needs to embrace it rather than oppose it. The question is: how much openness to trade and movement of capital and labour should there be? Large minority of people in US believe free-trade policies are not in their interest. US needs to shift provision of security from employers to the state: corporate welfare states are unsustainable in a dynamic and open economy. Solution according to Wolf is raise taxation of the rich so as to distribute the spoils of globalisation more evenly. Wolf does not agree with Summers' argument for international action against tax competition and increased international agreement on regulation. Globalisation being used as an excuse for low taxes. (Published: 20/05/08)

Notes:

• Larry Summers recent two columns on globalisation
• international economic policies of the US need to be coupled more closely to the interest of its works
• interests of citizens of high-income countries more important than those of others?
• on the contrary; morally compelling view that increases in incomes of the poor offset equivalent losses for the rich
• however: politics is national
• unless/until a global political community emerges, politics will respond to perceptions of national interest
• But to say deny that the rising prosperity of China, India etc may not be in the interests of today's high-income countries is equally absurd.
• spread of prosperity
  
• big advantages:
• wider distribution of innovation
• bigger opportunities for profitable exchange
• cfr. rise of US and benefits thereof brought to the UK
• greater political stability in previously impoverished countries
  
• big disadvantage:
• greater competition for scarce resources
• e.g. power: if country A has more, country B has less
• if commodity prices rise, the terms of trade (relative prices of exports and imports) of net importers will deteriorate
• countries have to sell more exports to obtain given imports
• US terms of trade have deteriorated by 1/8th as commodity prices have soared and the currency devalued
• has turned an 18% increase in real gross domestic product between Q4 2001 and Q4 2008 into a 16.4% increase in real national income
• Willem Buiter: nothing rational can be done to halt the diffusion of knowledge, skills, technology, management systems, etc.
  
• US launching an unprovoked blockade or even war against China and India?
• to mention such ideas is to reveal their strategic and moral bankruptcy
  
• halting flow of ideas?
• UK tried to halt spread of technology to the US in early 19th century and failed
• Chinese empire once made it a capital crime to export silkworms and failed
• protectionism against the emerging countries?
• might slow their growth but would not halt it
• would guarantee a breakdown in international relations that threatened hopes of a peaceful future
• what cannot be helped must be accepted!
• given the rise of the emerging world, should the developed world limit the globalisation of its own economies?
• so long as high-income countries depend on imports of commodities, trade will be essential
• self-sufficiency is a mirage
• Question is: how much openness to trade and movement of capital and labour should there be?
• well known that
  
• free trade is in the interest in the country adopting the policy, unless it has monopoly power
• the benefits and costs are likely to be unevenly distributed
• particularly likely for trade between rich and poor countries
• free movement of of capital and labour may also harm important interest groups within a country even if it raises aggregate income
• the freer movement becomes, the harder it may also be to impose taxes and regulations on those able to move
• Summers notes that it is hard for a democracy to proceed with policies that a large minority believes are against its interests
• if the fall-back position is not to be protectionism, more creative options must be chosen
• US: need to shift provision of security from employers to the state
• corporate welfare states are unsustainable in a dynamic and open economy
• but: means taxes will have to be raised
• Summers: argues for international action against harmful tax competition and greater international agreement on regulation
• may make sense in area of finance
• otherwise unpersuasive
• if Sweden's taxes can be 56% of GDP, it is not tax competition that keeps the US at just 34%
• mobility of capital and people is an excuse, not a justification for low US tax levels
• desperately need an honest debate about these issues
• debate would reach four conclusions:
1. whether or not citizens of high-income countries welcome it, the global spread of economic development is ineluctable
2. protection against imports is a costly and ineffective way of dealing with the consequences
3. parties of the centre-left should argue for redistributing the spoils of globalisation, not sacrificing them
4. a necessary condition is higher taxation of the winners
• chief obstacle there is political will
• globalisation is not a reason for low taxes, but an excuse; should be discarded
• Opening of the world economy is the West's greatest economic policy achievement
• would be tragedy if it were to turn its back on the world when the rest of humanity is at last turning towards it
  

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Quote of the Day

"It is impossible to defeat an ignorant man in argument." - William G. McAdoo

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The Chinese Brand of Democracy - The Globalist

Summary:
Chinese intellectuals question need for democracy in China. Demythologizing democracy and separating it from rule of law. Prosperity and growth not result of democracy, but of rule of law. West can enjoy both because of level of modernity and material wealth. Developing countries need to chose one. Choosing democracy first leads to chaos (e.g. Rwanda, Yugoslavia). Need to chose rule of law above democracy. (Published: 16/05/2008)

Notes:

• 1980s, 1990s: many scholars argued democracy was necessary prerequisite for wider political and economic progress in China
• seen by many as a precondition for growth
• democracy as a route to prosperity and political stability: instrumental view of democracy
  
• link has been increasingly questioned
• Pan Wei, Beijing University:
  
• elections will not fix any of China's most pressing problems
• eg. rise in protests, gap between rich and poor, near bankruptcy of rural economy, lack of domestic consumption, pervasive corruption of the political elite
• democracy would make things worse: the more electorates politicians want to reach, the more money they need; once elected, public officers to serve electors on one hand and money providers on other
• pressing issue is not who should run the government, but how should the government be run
  
• political reform should flow from social problems rather than universal or Western principles
• democracy conjures up three of the most painful images in the Chinese psyche:
• collapse of the former Soviet Union following Gorbachev's political liberalization
• the so-called "people's democracy" of China's own Cultural Revolution
• the risk of an independent Taiwan
• Westerners misunderstand their own political systems: assume our countries are stable and prosperous because of democracy
• we confuse the benefits we get from democracy with those that we get from the rule of law
• democracy and rule of law don't need to go together; in fact are in constant conflict with one another
• democracy is about giving power to the people, rule of law is about putting limits on that power
• democracy creates governments, rule of law regulates them
• democracy is about making laws, rule of law about enforcing them
• power of democracy lies with elected officials, power of rule of law lies with unelected people (civil servants, judges, auditors)
• democracy is about majority, rule of law about meritocracy
• West can enjoy both democracy and rule of law because of level of material wealth and modernity reached
• Developing countries do not have that luxury: have to choose one or the other
• eg Rwanda, Yugoslavia, Lebanon, Angola, ...: have chosen democracy without rule of law
  
• result: chaos; populist regimes exploited ethnic tensions to get hands on power
  
• premature introduction of democracy undermined rule of law and modernization
• forced leaders to pander to popular sentiment rather than making painful reforms for the long term
• Singapore, H2ong Kong: adopted rule of law without democracy
• result: economies have grown steadily, attracted foreign investment, wiped out corruption, developed strong national identities
• demythologizing of democracy and separating it from the rule of law
  
• vision: neutral civil service system strictly and impartially enforcing laws and proposing legislative bills, held in check by judges who would be guardians of the Chinese constitutions
• "a high-tech consultative dictatorship where there are no elections, but decisions are made by a responsive government, bound by law and in touch with its citizen's aspirations"
  

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A strategy to promote healthy globalisation - FT.com

Summary:
Second part of Larry Summers' on rising anti-free trade sentiment and strategies to avoid it. Increasingly succesful and integrated global economy at the expense of US workers? Difference between open and closed economy (reasoning similar to that of Gomory and Baumont). US must compete not retreat. Current emphasis on priority of global corporations. Need to focus on interests of working people, too. Need global co-operation in international tax arena and prevention of harmful de-regulation eroding labour rights. (Published: 14/05/2008)

Notes:

• Doubts that an increasingly successful, integrated global economy benefits US workers
• appears to be weakening link between success of a nation's workers and the success of both its trading partners and its companies
• success of other countries + greater global integration places more competitive pressure on an individual economy
• workers are likely disproportionally to bear the brunt of this pressure
• opposes the argument that workers and companies benefit due to expanding market for exports
• reasons US/EU/Japan workers enjoy higher wages:
• more highly skilled than most workers in developing world
• more productive because their effort is complemented by 'capital' (ie equipment, managerial expertise, infrastructure and capacity for innovation)
• closed versus open economy
  
• in closed economy, anything that promotes investment in productive capital necessarily raises workers wages
• corporations have huge stake in quality of national workforce and infrastructure
• in open economy, investments in innovation, brands, strong corporate culture, equipment, ... can be combined with labour from anywhere in the world
• workers no longer have stake in in productive investment by companies as it becomes easier for companies to combine their capital with lower priced labour overseas
• companies have less stake in quality of the workforce and infrastructure in their home country when they can produce anywhere
• business can use threat of relocating as lever to extract concessions regarding tax policy, regulations and specific subsidies
• cost of these concessions ultimately borne by labour
• public policy response of withdrawing from global economy or reducing pace of integration is untenable
• would generate resentment abroad on dangerous scale
• would hurt economy as other countries retaliate
• would make US less competitive as companies in rival countries continue to integrate their production lines with developing countries
• Bill Clinton: "the United States must compete not retreat"
• strategy to promote 'healthy globalisation'
  
• domestic component: must rely on strengthening efforts to reduce inequality and insecurity
• international component: must focus on interests of working people in all countries
• in addition to the current emphasis on the priority of global corporations
• US should take lead in promoting global co-operation in the international tax arena
• has been race to the bottom in taxation of corporate income as nations lower their rates to entice business to issue more debt and invest in their jurisdications
• problem of tax havens
• "might be inevitable that globalisation leads to increases in inequality, but shouldn't compromise the possibility of progressive taxation"
• international economic diplomacy should focus on prevention of harmful regulatory competition
• also currently race to the bottom, using mantra of needing to be "internationally competitive"
• eg cutting down on financial regulation
• reason why progressive in early part of 20th century sought to have the federal government take over many kinds of regulatory responsibility
• need something like that on a global scale, or global co-operation to raise standards
• labour standards argument has at times been invoked as a cover for protectionism; must be avoided
• but is appropriate that US policymakers seek to ensure that greater global integration does not become an excuse for eroding labour rights
• "To benefit the interest of US citizens and command broad political support, US international economic policy will need to focus on the issues in which the largest number of Americans have the greatest stake; although a decoupling of the interests of businesses and nations may be inevitable, a decoupling of international economic policies and the interests is not"
  

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Quote of the Day

"Some things have to be believed to be seen." - Ralph Hodgson

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Getting the right picture - Pittsburgh Tribune-Review

Summary:

Don Boudreaux on how some may see more imports from abroad and domestic job losses as a sign of trouble, and others see them as a boon, depending on one's perspective. Same facts, different interpretation. Compare with drawing of old woman/beautiful girl. One and the same picture, but depending ond your perspective, you see either the former or the latter. (Published: 14/05/2008)

Notes:

• Drawings that looks like two very different things depending upon how the viewer looks at it
• e.g. craggy face of an old woman suddenly looks like a beautiful woman standing in a sexy pose
• same picture. Same objective reality. Two wholly different sightings.
• Similar with economics:
• same set of facts, same objective reality, two (or more) very different stories depending upon the attitude and knowledge of the observer examining these facts
• more imports from abroad and the losses of specific domestic jobs
• sign of trouble for domestic economy to some
• boon to others: opportunity to get valuable goods and services at lower costs; scarce domestic labor released to produce outputs that would otherwise be too costly to obtain
• overwhelming objection to imports is that the domestic workers whom they displace are unlikely ever again to find employment at wages close to those that they once earned in their now-defunct jobs
• this objection rests on the presumption that these workers were overpaid in their former jobs
• every employer prefers to hire workers at wages as low as possible
• but due to competition between employers, wages are in reality close to the amount that a worker contributes to the employers' bottom line
• every employer willling to pay employee up to that amount
  
• no one to decline an opportunity to get $20 for e.g. $19.50
• as a result, wages in a competitive market economy generally reflect the hourly value of workers to their employers
• employers need workers no less than workers need employers
• skeptics of free trade complain about workers losing their jobs to imports
• craggy-old-lady version of the reality
• free-trade proponents believe that workers who lose jobs today generally have comparable opportunities in other industries
• beautiful-woman version of the same reality
• unlike with any of those static drawings where one perspective is as correct as the other, for the economy there is usually one perspective that is objectively most accurate
• this correct perspective is the one that encompasses not only what's happening today but what will likely happen in the future
• when freer trade eliminates some jobs, it releases labor and capital to produce things that previously were too costly to produce
• consumers eventually get not only the imports, but also the additional domestic production made possible by those imports
• domestic resources become more productively employed because competition shifts them from less-productive to more-productive enterprises and industries

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The oily truth about America’s foreign policy - FT.com

Summary:
Gideon Rachman editorial in the FT. American presidents and candidates have been pledging energy independence from Middle-Eastern oil since Nixon (first oil crisis). In reality dependence has increased. Competition for oil increasing. Biggest challenged posed by globalisation not outsourcing of jobs or influx of cheap goods, but globalisation of Western consumption patterns. If Chinese and Indians eventually drive and eat as Europeans and Americans, current oil and food crisis is just the beginning. New technology and change in lifestyle will be required. (published: 13/05/2008)


Notes:

• Iraq: largely war over oil, despite opposite claims
• has backfired; price of oil gone up, per barrel:
• 2003: $26; 2008: $126; 2008-end: $200 ?
  
• Calls for energy independence in US
• universal: McCain, Obama, Clinton, Bush, Nixon
• US foreign oil imports increasing, rather than decreasing
  
• 1973: 33%; 2008: 60%; 2020: 70%?
• money poored into production of biofuels
• has pushed up food prices
• no leading politician yet prepared to call for change in lifestyle to adapt to world of permanently higher energy prices
• Americans little power over OPEC
• plenty of customers for oil
• over 50% of oil exported to Asia
  
• Competition for oil supplies intensifying
• Chinese oil consumption doubled between 1994 and 2003
  
• will have doubled again by 2010.
• China's foray into Africa largely driven by its search for energy security
• IEA: China world's largest consumer of energy by 2010
• IEA: world will need 50% more energy than today by 2030
  
• At present about 10 cars in China for every 1,000 people;
  
• compare: 480 cars per 1,000 people in the US
• by 2015, China could be the world’s largest market for new cars
• Globalisation of Western consumption patterns is the challenge
• greater challenge than outsourcing of jobs or influx of cheap goods
• current inflation in oil and food prices just the start: Indians and Chinese will eventually drive and eat like Europeans and Americans
  
• Energy security now central to American and European foreign policy
• but also to that of main Asian powers
• no real foreign policy fix for problem
• Only solution is new technologies and change in lifestyle
  

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Why oil is so expensive - De Standaard (in Dutch)

Summary:
Three years ago, when oil reached $50, economist's were already saying that price was too high. Today, oil costs two-and-a-half times as much. An analysis of what has happened. Factors considered are: inflation, dollar exchange rate, institutional investors, supply and demand, OPEC, refining capacity, alternatives. (published: 10/05/2008)


Notes:

• inflation
• after correction for inflation, the price of oil only recently exceeded that of April 1980
• dollar
• oil is paid in dollars
• dollar has dropped 14% against the euro in last 12 months
• price of oil for non-American buyers not as high as for Americans
• institutional investors
• eg pension and insurance funds
• hedging themselves against inflation, declining US interest rates and falling US dollar by investing in commodities, including oil
• a strategy that has been successful in the last couple of decades
• drives up price of oil
• demand side
  
• industry has become far more energy efficient since oil crisis in the seventies
• has slowed down increase in price of oil for a long time
• no longer possible to reduce consumption at the same rate (already near maximum efficiency)
  
• new growth markets: eg China; huge increase in demand for oil
• against expectations, Americans still not changing oil consumption patterns
• political promises to lower tax on oil contributing to this
• supply side
  
• difference between supply and demand too small
  
• supply still greater than demand, but difference is becoming smaller
• difference now so small that least disruption is driving prices up rapidly
• most known oil reserves depleted or past maximum capacity
  
• no significant new discoveries
  
• despite oil firms trying hard to discover new reserves in order to keep total oil production constan
• new wells increasingly difficult to exploit
• eg. oil from desert: $10/barrel; oil from North Sea: $25/barrel (up from $15, 3 years ago)
• increased demand for oil platform and personnel also driving prices up
• OPEC
• Secretary-general of OPEC (Abdalla Salem El-Badri) thinks current level of production is high enough
• Iraq: trying to pump up production again, but plagued by attacks
• Iran: not a reliable producer in eyes of West; oil as political weapon
• Nigeria: 8th largest producer; supply has dropped by 564,000 barrels a day since February due to attacks on installations
  
• refining capacity
• one thing to dig up oil, another to refine it to petrol, heating oil, diesel, kerosine, etc.
• underinvestment in refining capacity in the US
• solution: oil refined in Europe, then shipped to US
• very expensive solution for Americans
• labour more expensive than in US
  
• exacerbated by very weak dollar
  
• alternatives
• no alternatives in the near future
  

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Battling Bad Bugs - Drug Discovery & Development

Summary:
Microbes are evolving resistance faster than the pharmaceutical industry can bring new products to market. Microbes have been persistently clever in evolving resistance to antibiotics soon after introduction. Emergence of "Bad Bugs, No Drugs" situation; high economic burden and will gradually worsen. Call to action from the infectious disease community (IDSA). A new type of product specialization is required (relying on rapid molecular diagnostic tests), but this runs counter to the blockbuster model of large pharmaceutical companies. Opportunity for smaller companies. US government under pressure to create incentives for the large pharmaceutical companies to remain in antibiotic discovery. Some incentives in the FDAAA act, but disincentives remain. (Published: 08/05/08)

Notes:

• early 1940s: streptomycin and penicillin
• treatment of staphylococcus, streptococcus and Mybacterium tuberculosis infections
• today: more thatn 130 antibiotic products available
• problem: despite/because of number of antibiotic products, microbes are getting upper hand
• evolving resistance faster than the pharmaceutical industry can bring new products to market
• number of patients infected with resistant microbes small
  
• but economic burden high
• number of resistant bugs expected to increase
  
• Infectious Disease Society of America (IDSA)
• documented the microbial infections that are especially troublesome in a "Bad Bugs, No Drugs" policy statement
• provided a call to action from the infectious disease community
• MRSA among the "Bad Bugs" that has received appropriate notoriety
• S. aureus
• normal skin flora
• becomes a problem when the skin is broken
• from abrasions, traumas, surgeries and placements of in-dwelling devices
• staphylococcal infections can quickly become deadly
• those infected rely on antibiotics to eliminate the infection
  
• MRSA infection has been health problem in hospitals for more than a decade
• more than 60% of US hospital-acquired S. aureus infections are now MRSA
• new MRSA strain has become prevalent in community-acquired infections
• total number of infections due to MRSA increased 119% between '99 and '05
• large economic cost
• estimated in the billions in the US
• due to longer hospital stays and increased expenses of treatment
• until very recently, antibiotic treatment for hospital-acquired MRSA limited to vancomycin
• first developed in US in 1958
• new antibiotic therapies approved for treatment of hospital-acquired MRSA include Zyvox (Pfizer), Cubicin (Cubist) and Synercid (King Pharamceuticals)
• resistance to these products already posing challenges
• microbes have been persistently clever in evolving resistance to antibiotics soon after introduction
• even vancomycin proved vulnerable
• initially purported to be "resistance-proof" because its target is a necessary component of th ebacterial cell wall, not an evolvable protein
• wide range of molecular mechanisms of resistance have emerged
  
• e.g. broad spectrum efflux pumps
• eliminate most antibiotics from the bacterial cell possessing these pumps
• e.g. expanded spectrum beta-lactamases (EBSLs)
• inactivate the newest generation of beta-lactam products
• these resistance mechanisms make the discovery of effective new antibiotics even more difficult
• create market opportunities for new products
• emergence of "specific spectrum" agents
• aimed at specific species and resistance targets
  
• e.g. Affinium Pharmaceuticals antibiotic in Phase 1: targets Stahpylococcus, including MRSA, but is relatively inactive against other bacterial species
  
• utiliy will rely on the recent emergence of new FDA approved molecular diagnostics for MRSA
  
• can assess the infectious agents in hours, rather than days
• e.g. BD GeneOhm StaphSR Assay
• this type of product specialization runs counter to the blockbuster model of large pharmaceutical companies
• maturation of the antibiotics market over the past decade has resulted in a large number of marketed antibiotics products
• each with relatively low annual sales revenues
• 2001: six antibiotics products had blockbuster status
• today: only Augmentin and the Levaquin/Floxin franchise have billion-dollar annual revenues
• recent introductions have failed to reach blockbuster status
  
• patents expirations, generic competition, and the withdrawal due to safety challenges or limited use have fragmented the market
• loss of profitability of antibiotics has caused the departure of many pharmaceutical companies from investing in the discovery of new antibiotic products
  
• smaller companies have seen opportunity and some generic companies have expanded into proprietary products
  
• Forest Laboratories invested significantly in new antibiotic products
• several large pharmaceutical companies spun out their antibiotic and development efforts into new companies, or licensed their later-stage products to biotechnology companies
• new entrants into antibiotic development face cash constraints that often limit the size and complexity of clinical trials
• US government
• has been under pressure to create incentives for the large pharmaceutical companies to remain in antibiotic discovery
• has largely been resisted
• however: Food and Drug Administration Amendment Act (FDAAA) of 2007
• includes creative incentives for the development of new treatments for tropical diseases, including tuberculosis, malaria and other specifically named diseases
  
• as well as "any other infectious disease for which there is no significant market in developed nations, and that disproportionally affects poor and marginalized populations, designated by the Secretary."
• priority review vouchers are awarded for the succesful approval of new products to treat these "tropical diseases"
• can be transferred or sold to the sponsor of any new drug application
• falls short of pharmaceutical industry's desire for patent extension
• but may have sufficient value to influence the discovery and development of new agents for treatment of these diseases
• additionally, FDAAA provides a mechanism in which new drugs for the treatment of antibiotic-resistant infections may qualify for Orphan Drug status
• incentives associated with Orphan Drugs, e.g. access to government funding of clinical trials
• disincentives remain
• IDSA: documented the uncertainty of antibiotic clinical trial designs and the lack of guidance documents for antibiotic development

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Going Green: A Wealth of Job Openings - FT.com

Summary:
Environment has become a strategic issue for oil and gas companies in recent years, not just PR. Looking for sustainability experts. Fast growth of the alternative energy sector (investment in 2007 up 60% over 2006) means shortages, not just components and equipment, but also human capital. Strain on the availability of senior managers with sector experience (CTOs, CEOs and senior project managers). Need technical skills, commercial awareness and understanding of business, and communications skills. For senior managers with positions reporting to the board, the rewards can be high. (Published: 06/05/08)

Notes:

• Anita Hoffmann (Heidrick & Struggles, headhunters)
• oil and gas companies looking for chief sustainability officers
• people who will drive the corporate strategic agenda
• oil and gas companies coming under increasing pressure to improve their environmental performance
• in Europe, sector covered by EU's emissions trading scheme
• means limits are placed on the amount of CO2 such companies can produce
• companies can trade their quota with one another if they need to produce more
• constraints of this system have opened up new roles in emissions trading and jobs for engineers skilled in monitoring emissions, as well as opportunities for companies to cut their costs by employing energy efficiency experts to help reduce their emissions
• environmental roles at the top of companies
• changed markedly in recent years
• Hoffmann: "It was very different a few years ago, when these positions were all about public affairs."
• environment was seen as an aspect of CSR, falling within the PR department's function
• today: "It's clearly a strategic issue"
• has been taken into the company's core operations
• alternative energy sector growing fast
• leading to a shortage of staff
• investment in clean energy worldwide in 2007: $148.4bn
• up 60% on previous year
• leading to wealth of job openings
• in survey of 75 business leaders in the sector, the companies found 37% of respondents viewed the chanllenge of recruiting qualified staff as "very serious"
• further 59% describing it as "moderately serious"
• hardest posts to fill: chief technical officer, chief executive and senior project managers
• Michael Liebreich (New Energy Finance):
• "Very rapid growth in investment in clean energy is putting a strain on the availability of senior managers with sector experience. There is a strong momentum behind the growth of clean energy worldwide, with new investment up nearly fivefold between 2004 and 2007, but this is creating shortages not just of components such as silicon and transport infrastructure such as crane ships for offshore wind turbines, but also of human capital."
• Hoffmann:
• "scale of shortage threatens to hamper the growth of this important industry"
• but: skills shortage only half the story
• also many recruits trying to break into the alternative energy sector, and into green jobs in the oil and gas sectors
• Claire Skinner (Ruston WHEB, exec search agency specializing in clean technology):
• "huge amount of interest in environmental jobs"
• "for senior managers with positions reporting to the board, the rewards can be high"
• salaries > $300,000 basic
• London: £120,000 - £150,000
• candidates for such posts need three sets of skills
• technical skills: engineer or other hands-on experience of operating assets
• commercial awarenes and ability to understand the whole business
• communications skills, in being able to explain green issues and why they matter to the rest of the business and the outside world

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Quote of the Day

"The crossroads of trade are the meeting place of ideas, the attrition ground of rival customs and beliefs; diversities beget conflict, comparison, thought; superstitions cancel one another, and reason begins." - Will Durant

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Super Drugs for Super Bugs - Drug Discovery & Development

Summary:
Antimicrobial resistance is a monumental health problem, affecting everyone from infected patients and physicians to researchers and drug developers. E.g. evolution from S. aureus to MRSA, hospital acquired versus community acquired. Dangers of SCCmec. Many antimicrobials coming out for resistant Gram-positive bacteria like MRSA, but there is nothing for Gram-negative bacteria. Increased research effort toward understanding mechanisms of resistance, as well as identifying new antimicrobial targets, is greatly needed. Large drug companies are well aware of the problem, but have been fighting an uphill battle to develop antibiotics that exist long enough on the market to profit. Smaller drug companies and academic institutions have taken it upon themselves to develop new antimicrobials. These drug developers require large drug companies to put their discoveries on the market. (Published: 01/05/08)

Notes:

• Alexander Fleming: discovery of penicillin
  
• mold grown on bacterial culture plate
• closer inspection showed that mold has inhibited the growth of bacteria in area around it
• penicillin, produced by Penicillium species of mold
• penicillin was viewed as panacea by microbiologists and clinicians alike
  
• though no more microbiological research needed to be done
• but: due to its widespread use in WWII, bacteria quickly became resistant to penicillin
• rendered the antibiotic useless
• bacteria were producing enzymes that could destroy the structure of penicillin
• drug developers produced semi-synthetic versions of penicillin in 1960
• bacteria became resistant year later
• Staphylococcus aureus
• became penicillin resistant
• due to beta-lactamase (penicillinase) production
• methicillin (derivative of penicillin) introduced in 1959 to overcome problem
  
• S. aureus became resistant in 1961
• methicillin-resistant Staphylococcus aureus (MRSA)
• source of resistance: methicillin-resistant gene (mecA)
  
• carried on a mobile genetic element, staphylococcal cassette chromosome (SCCmec)
• danger of SCCmec
• not only does it carry the methicillin-resistant gene
• also, carries resistance genes for other microbials
• cassette can be transferred to susceptible bacteria found in the same environment as resistant bacteria
• community-acquired MRSA
  
• Kunyan Zhang (prof., MD, Calgary):
  
• "It used to be that MRSA was limited only to the hospital and confined to vulnerable hospital patients. But starting early 1990, MRSA started to be found in the community. This newly emerging, community-associated MRSA is now causing serious community-acquired infections/outbreaks in otherwise healthy children, athletes, and other individuals lacking typical risk factors for nosocomial MRSA acquisition."
• community-associated MRSA appears to be more virulent
• has now gone back to the hospital in a multi-drug resistant form
• Bala Bota (prof., MD, Chicago):
  
• looked at hospital-acquired MRSA
• found that hospital strain was being replaced by a community-acquired strain, called USA300
• has occurred in half of all US hospitals
• another study showed a seven-fold increase in the incidence of community-acquired MRSA over a seven year period
• those who had served jail time or had lived in public housing were the greates sources of community-acquired MRSA
• efforts to reduce the incidence of MRSA are occurring nationwide
• e.g. hospitals in state of Illinois require that, prior to admission, all patients be screened for MRSA colonization
• Hota: "The common site that S. aureus colonizes individuals is in the nose. What hospitals are doing is taking a cotton swab, rubbing it in the nose and then setting that up for culture. That will either show MRSA or not."
  
• Hota interested in better characterizing community-acquired strains of MRSA
• for all of the clinical isolates, first the strain type is identified using pulsed-field electrophoresis; determine by PCR whether or not the strain contains the SCCmec4; and, determine by PCR whether or not the strain carries specific toxins such as Panton-Valentine leukocidin (PVL), which is associated with boils produced by MRSA
• "We are finding that SCCmec4 and PVL are very strongly associated with community-associated MRSA strains"
• the results of these tests are then compared to strains from national outbreaks
• Hota's strains are identical to those found in the national outbreaks
  
• issue of antimicrobial resistance has caused a significant decrease in the number of available antibiotics for treatment
• Margaret Hammerschlag (prof., MD, New York):
  
• "I think, especially in children, we are running out of therapeutic options."
• "There are many antimicrobials coming out for resistant Gram-positive bacteria like MRSA, but there is nothing for Gram-negative bacteria like Klebsiella sp. and Acinetobacter sp."
• facing bugs that are resistant to every antibiotic and for which there is no forseeable antibiotic development
• "We have got a real crisis. We'll be looking down a hole to the pre-antibiotic era and antibiotics might end up as orphan drugs."
• designing novel antimicrobials to combat resistance requires a higher degree of understanding of the biology of superbugs
• Vanessa Sperandio (Texas), Vincent Tam (PharmD): designing antibiotics to combat the resistance problems in Gram-negative bacteria
• Sperandio: studying signalling system between that allows for communication between bacterial cells and between the bacterial cell and the host (human)
• bacteria can sense that it's inside the colon, the right site for infection
• developed a antimicrobial agent that does not inhibit bacterial growth and does not kill the bacteria
• would cause bacteria to release potent toxin that can cause immediate kidney failure, in some cases leading to death
• "The line of thought is that if you're going to try to develop something that is going to prevent pathenogenesis, but is not at the same time going to kill the bacteria, you're engendering less evolutionary pressure for development of resistance."
• "Basically what the inhibitor does is compete with the signals to bind the kinase. So the signal cannot activate in the animal. And if the kinase does not activate, the virulence genes do not activate. And in this way the bacteria just passes through."
• 
  

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Food crisis is a chance to reform global agriculture - FT.com

Summary:
Martin Wolf on why the price of food has risen and what can be done. Weak growth of supply and strong increases in demand has caused stocks of cereals to drop to lowest levels since 80s. Price hikes not due to speculation. Supply is biggest problem. Prices will remain high until energy prices tumble. Poor most affected. Humanitarian intervention needed. Farming overly regulated. Needs to be market oriented. Move towards genetically modified food in developing countries is inevitable in order to increase productivity.(Published: 29/04/08)

Notes:

• Of the two crises disturbing the world economy - financial disarray and soaring food prices - the latter is the more disturbing
• high food prices threaten unrest at best and mass starvation at worst
• jumps in food prices are part of a wider range of commodity price rises
  
• forces that link prices of energy, industrial raw materials and foodstuffs
• rapid economic growth in the emerging world
• strains on world energy supplies
• the weakness of the US dollar
• global inflationary pressures
• but: food now hotter issue that normal
• questions: why have prices of food risen so strongly? Will these higher prices last? What action should be taken in response?
• demand side:
  
• demand for food raised due to strong rises in incomes per head in China, India and other emerging countries
• notably meat and the related animal feeds
• shifts in land use reduce the supply of cereals available for human consumption
• rising production of subsidised biofuels
• stimulated by soaring oil prices
• boosts demand for maize, rapeseed oil and the other grains and edible oils that are an alternative to food crops
• IMF: "although biofuels still account for only 11/2 per cent of the global liquid fuels supply, they accounted for almost half of the increase in consumption of major food crops in 2006-07, mostly because of corn-based ethanol produced in the US"
• supply side:
• aggregate production of maize, rice and soyabeans stagnated in 2006 and 2007
• partly the result of drought
• partly due to higher prices of oil, since modern farming is so energy-intensive
• cereal stocks have fallen to their lowest levels since the early 1980s
• due to weak growth of supply and strong increases in demand
• undermines belief that speculation has driven the rising prices
• if if prices were above market-clearing levels due to speculation, stocks would be rising, not falling
• biggest problem is is weak medium-term growth of supply
• rapid increases in yields of the 1970s and 1980s (the "green revolution") have slowed
• given the stresses on water supplies, longer-term supply prospects would look poor even if diversion of land for production of biofuels were not adding to the pressure
• Are prices going to remain high?
  
• Two opposing forces are at work
• First force is the market
• will tend to bring prices back down as supplies expand and demand shrinks
• latter is also what we want to avoid, at least in the case of the poor, since reducing their consumption is not so much a solution as a failure
• Second force is the current intense pressure on the world's food system
• true of both demand and costs of supply
• Prices are likely to remain relatively elevated, by historical standards, unless (or until) energy prices tumble
• what is to be done? answers fall into three broad categories:
  
• humanitarian
• important point: higher food prices have powerful distributional effects: they hurt the poorest the most
• Increases in aid to the vulnerable, either as food or as cash, are vital
• Equally important, however, is ensuring that the additional supplies reach those in greatest difficulty.
  
• trade and other policy interventions
  
• Protection, subsidies and other such follies distort agriculture more than any other sector
• rich countries are encouraging, or even forcing, their farmers to grow fuel instead of food
• present crisis is a golden opportunity to eliminate this plethora of damaging interventions
• focus should be on shifting the farm sector towards the market, while cushioning the impact of high prices on the poor
  
• longer-term productivity and production
• far greater resources need to be devoted to expanding long-run supply
• increased spending on research, especially into farming in dry-land conditions
• the move towards genetically modified food in developing countries is as inevitable as that of the high-income countries towards nuclear power
• more efficient use of water, via pricing and additional investment.
  
• "People will oppose some of these policies. But mass starvation is not a tolerable option."

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America needs a new case for trade - FT.com

Summary:
Larry Summers on rise of anti-free trade sentiment in US. Despite economic benefits, free trade does appear to be hurting American workers. Vigorous effort needed to help those left behind. Global prosperity at expense of workers and middle classes in rich countries. This may lead to loss of support for internationalist economic policy. In order to prevent this, better alignment is needed between the interests of this group and the success of the global economy, to be discussed in part 2. (Published 28/04/2008)

Notes:

• America's commitment to internationalist economic policy in doubt
• significant rise in unemployment likely in months ahead due to financial crisis
• presidential candidates attacking NAFTA
• increasing attacks on foreign investment in US
• growing support for restrictive immigration policies
• typical 4-part response by conventional wisdom:
1. trade benefits not just producers but also consumers, and economy in general
2. free trade also represents good mercantilism: US already has low trade barriers, don't need to be reduced as much as those of trading partner; note: US in competition with other major economic powers, and will therefor be at a disadvantage if developing country has free trade agreement with them and not with us
3. most of the increase in observed income inequality due to new technology rather than increase trade; moreover most of the increase in trade not attributable to trade agreements
4. acknowledged that although trade is good for the economy overall, not everybody wins
• needs complementing with ambitious effort to reduce insecurity and income inequality; eg universal healthcare?
• All correct economic arguments
• compelling case that US is better of than without free trade agreements, that world will be a richer and safer place with more economic integration
• if combined with vigorous efforts to help those left behind, support for economic internationalism may be maintained
• But policy debate will need to confront suspicion held by many that growing prosperity of global economy may not be in their interest
• Paul Samuelson, years ago: the valid proposition that trade barriers hurt an economy does not imply the corollary that it necessarily benefits from the economic success of its trading partners
• When other countries develop American producers benefit from larger export market but are faced with more competition; which effect dominates?
• reasonable to think that economic success abroad hurts American workers; 3 reasons:
1. increased export by developing countries of goods that the US slso produces such as computers and software puts pressure on wages; at the same time, global prosperity increases rewards for the already highly paid producers of intellectual property goods such as films and music
2. increased global competition for energy and natural resources raising prices for Americans
3. most fundamental: growth of global economy encourages development of 'stateless elites'; allegiance to global economic success and own interest rather than nation where headquartered
• even as globalization increases inequality and insecurity, it is usually invoked as argument against progressive taxation, support for labour unions, strong regulation, and substantial production of public goods that mitigate its adverse impact
• Focus must shift from supporting internationalism as traditionally defined, to designing an internationalism that more succesfully aligns the interests working people and the middle class in rich countries with the success of the global economy
  

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Quote of the Day

"The power of accurate observation is commonly called cynicism by those who have not got it." - G.B. Shaw

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OLEDs could soon wave lifetime woes goodbye - R&D Magazine

Summary:
Sealing of OLEDs using ion-assisted deposited passivation layer (SiON) as opposed to glue has been found to greatly increase the longevity of the displays. SiON has a lower water permeability than conventional glues, the main cause of reduced life-times of OLEDs. Note: these OLEDs are compared against unencapsulated OLEDs, not commercial benchmarks, and the results are far less impressive when this is borne in mind. Overhyped IMAO. (published: 23/04/2008)

Notes:

• OLEDs promising for next generation of displays and solid state lighting
  
• use less power
  
• can be more efficiently manufactured
• better color
• capability of larger displays
• lacking is an inexpensive encapsulation method to mass produce organic electronics that doesn't let moisture in
• currently displays sealed in inert atmosphere or in vacuum
• glass lid glued on top of display substrate
• moisture absorbing powder inside
• expensive and labor-intensive to assemble
• Georgia Tech Research Institute (GTRI)
• Wusheng Tong, senior research scientist
  
• Hisham Menkara, senior research scientist
• Brent Wagner, principle research scientist
  
• thin film barrier, pinhole free SiON (silicon oxynitride)
  
• ion assisted deposition
• relatively inexpensive
• performed at room temperature, thus keep organics material intact
• 50-200nm
• thinner increases risk of pinholes
• no sign of degradation after 7 months using SiON barrier
• as opposed to 2 weeks unencapsulated, same conditions
• note: this is to be expected without encapsulation
  
• accelerated degradation tests at 50°C and 50% relative humidity
• little degradation after 2 weeks
• note: 2 weeks at 50°C and 50% RH not very impressive
  
• unencapsulated OLEDs degraded immediately
• note: again, this is to be expected without encapsulation
• Note: these devices should be compared against an industry standard (e.g. a Kodak OLED) rather unencapsulated displays
  

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Tracing China's Ascent - The Globalist

Summary:
Giovanni Arrighi argues that China's economic boom is not the result of direct investment by the West or Japan, but by direct investment by Chinese overseas, mainly in Hong Kong and Taiwan. Western and Japanese corporations faced burdened with regulations, not faced by Chinese ex-pats. This dictation by the Chinese government of the terms of access to Chinese labor etc., was an essential ingredient of the success of Chinese economic reforms.(Published: 23/04/2008)

Notes:

• China's attraction for foreign capital: not quantity of low-priced labour, but quality of it
• health, education and capacity for self-management
• foreign capital intervened late in process of development of China
• mainly facilitated by Chinese diaspora capital
• matchmaker between foreign capital and Chinese labour, entrepreneurs and government officials
• China under Deng sought assistance of the overseas Chinese in opening China to foreign trade and investment
• more fruitful alliance for Chinese government than open-door policy towards Western coroporations
• kept their investments to bare minimum needed to keep foothold in China
• bothered by regulations that restricted their freedom to hire and fire labour, buy and sell commodities, remit profits out of China
• overseas Chinese could bypass most regulations
• familiarity with local customs, habits and language; manipulation of kinship and community ties; preferential treatment received from CCP officials
• investment by overseas Chinese (mainly Hong Kong and Taiwan) far exceeded that of Western and Japanese corporations
• 1990: Hong Kong/Taiwan: 75% of all foreign investment; Japan: 5%
• investment by Japan grew rapidly after that (24% in 1993), but this followed rather than led the boom of foreign investment in China
• as Chinese ascent gained momentum under its own steam in 1990s, Japanese, US and European capital flocked ever more massively to China
• total foreign direct investment:
• 1990: $20b
• 2000: $200b
• 2003: $450b
• "But if foreigners were investing, it was only because the Chinese were investing more"
• foreign capital jumped on the bandwagon of an economic expansion which it neither started nor led
• foreign capital needed/needs China far more than China needs foreign capital
• US companies face simple imperative: invest in China to take advantage of country's cheap labour and its fast-growing economy, or lose out to rivals
• before: China just manufacturing center; now: China place to develop and sell high-tech goods
• capacity of Chinese government to dictate to (rather than being dictated by) foreign capital the terms of access to Chinese labour, entrepreneurship and markets has been essential ingredient of success of Chinese economic reforms
  

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Quote of the Day

"When there were some new finds, I told them, 'no, leave it in the ground, with grace from god, our children need it'" King Abdullah of Saudi Arabia (21/04/08)

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Quote of the Day

"Careful. We don't want to learn from this." - Bill Watterson (Calvin & Hobbes)

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Nano switch hints at future chips - BBC NEWS

Summary:

Molecule sized transistors made using graphene. Graphene geat conductor, works at room temperature. Challenge is to make large wafers. Other applications: displays and solar panels. (17/04/2008)

Notes:

• graphene
• single layer of graphite, thickness of one atom
• stable and robust
• transparent
• Dr Kostya Novoselov and Professor Andre Geim from The School of Physics and Astronomy at The University of Manchester
• first to separate sheet of graphene from graphite, 2004
• leading research into potential applications of graphene in electronics
• Manchester team shown that graphene can be carved into electronic circuits with individual transistors
• transistors not much larger than one molecule
• graphene can conduct electricity better than silicon
• great conductor
• graphene transistors will work at room temperature
• current silicon roadmap expected to end in 2020
• race to find alternative materials
• biggest challenge: producing graphene sheets big enough to be used as wafers for chip production
• biggest wafer produced so far: 100um
• yield of working devices: ~50%
• same process used as in making silicon transistors
• use in display technology?
• because it is transparent
• transparent conductor
• using small interconnecting graphene sheets together
• other applications: solar panels, transparent window coatings, sensing technologies

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I and My Brother Against My Cousin - The Weekly Standard

Summary:

Stanley Kurtz reviewing Philip Carl Salzman's "Culture and Conflict in the Middle East". Dominant theme of cultural life in Arab Middle East is the template of tribal life: collective responsibility, feuding, balanced power and honor shaping every action and thought; Islam and state merely superficial layers. Controlled anarchy. Tribal societies egalitarian and democratic. Islam: uniting all Arab tribes in ultimate feud against infidel outsiders. Western strategy for change should focus on tribal aspect not Islam; Islam sacred, tribal aspects not so and open for criticsim (14/04/2008)

 

Notes:

• Middle Eastern tribes: think of themselves as giant lineages, traced through the male line, from some eponymous ancestor
• each giant lineage divides into tribal segments, subdivide into clans, divide into sub-clans, etc down to families
• traditionally Middle Eastern tribes have existed outside of the police powers of the state
• keep order through a complex balance of power between these fusing and segmenting ancestral groups
• central institution of segmentary tribes is the feud
• security depends on willingness of every adult male in given tribal segment to take up arms in its defence; universal male militarization
• attack on lineage-mate must be avenged by entire group; vice versa, any lineage member is liable to be attacked in revenge for offense committed by relative
• results in system of collective responsibility: action of any one person directly affect reputation and safety of entire group; collective guilt
• Muslim tribal society is both fundamentally collectivist and profoundly individualist
• no man of the tribe can, by right, command another
• all males equal, free to dispose of their persons and property and to speak in councils that determine fate of the group
• fundamentally democratic
• Arab saying: "I against my brother; I and my brother against my cousin; I and my brother and my cousin against the world"
• liberal Westerners: why risk battle without first making a reasonable effort to talk problem out?
• sort of question liable to be posed by someone living where a state monopolizes the legitimate use of force and police and courts can be relied upon to keep the peace
• in non-state setting, where anarchy is kept under control only by the threat or use of force, it makes sense to send a war party first and ask questions later
• conveying impression of weakness
• preventing future abuse in lawless desert environment by publicly making capacity known to swiftly unify to preserve interests
• Arab tribesmen preoccupied with maintaining deterrence and are prepared to use force preemptively
• much like neocons: hawkish conservatives ("rightly") believe global anarchy underlies reality of international system; much like de facto stateless anarchy in which Bedouin Arabs live
• swift and seemingly disproportionate resort to retaliatory force against apparently trivial offenses is an effective technique for surpressing future challenges
• eg careful use of targeted force against Western critics of Islamism; overtly religious action actually shaped by a hidden tribal template
• eg fatwa against Salman Rushdie, rage against Muhammed cartoons, killing of Theo van Gogh, ...
• all examples of pro-active deterrence
• doves: use of force serves to unite foe; creating impression of an infidel war against Muslims, thus recruiting every Muslim lineage into bin Laden's civilisational war party
• true, but on the other hand, failure to strike back creates impression of weakness that invites further attacks
• Islamists view cooing of the doves as sign that their feud against the West has successfully weakened and split our own coalition
• disturbing lesson: in the absence of fundamental cultural change, the feud between the Muslim world and the West is unlikely ever to come to an end
• tribal feuds simmer on and off for generations, with negotiated settlements effecting only temporary respites
• Western liberal template takes an experience of peace under the lawful authority of a state as the normal human condition
• in this view, when peaceful equilibrium is disturbed, reasonable men reason together to restore normalcy
• in tribal template, low-level endemic feuding in conditions of controlled anarchy is the norm
• liberal "come let us reason together" model has little currency in Arab tribal culture
• Salzman: Tribal template is dominant pattern of Arab culture, not religion
• religion is overlay in partial tension with, and deeply stamped by, the dynamics of tribal life
• To think of Middle East as consisting of a number of states is mistake.
• Rather, collection of tribes.
• Governing party essentially tribe or tribal coalition with most power (e.g. Saddam Hussein)
• Statelessness increases as one moves towards periphery of nation.
• Statelessness seen by tribes as essential condition of dignity, equality, and freedom.
• State = predation under official guise
• Importance of avoiding dishonourable submission; avoiding life of peasant humiliation and exploitation
• Salzman: tribal template dominant pattern of Arab culture
• not details of tribal kinship matter, but underlying principles of "balanced opposition," in which collective responsibility, honor and feuding shape every action and thought;
• quick shifts in loyalty often called for
• unite with erstwhile enemies in opposition to a more distant foe
• all members of an enemy group are potential targets
• demand honourable behaviour from members of own group
• maintain own and group's honour by a clear willingness to sacrifice for the collective good
• Islam's founding triumph was to raise stakes of balanced opposition by uniting all the Arab tribes in an ultimate feud against infidel outsiders
• Muslim's treating tribal era of Muhammed and his early successors as golden age of Islam
• cultural influence of tribal template thus remains pervasive
• Gaza's feuding clans: revelation of bedrock of Middle Eastern social organisation
• ever-present and ever-influential beneath superficial layers of Islam and state
• political paradox posed by Salzman's tribal interpretation of Arab culture
• on one hand, pervasive tribal principles of balanced opposition are "precluding democracy" in Middle East
• to democratise Middle East, the particularist loyalties at the core of balanced opposition (kin, tribe, sect) need to be replaced by greater "individualisation"
• only then could an authentic liberal democracy based on constitionalism and the rule of law take root in the Arab world
• on other hand, tribal culture is largely egalitarian, individualist and democratic in character
• balanced opposition is democratic because decision making is collective and everyone has a say
• absence of government authority, combined with system of shifting coalitions of willing individuals, means that freedom, equality and personal responsibility - along with bellicosity and courage - are fundamental tribal values
• confusion about meaning of words "freedom," "equality," and "democracy"
• in liberal state, freedom is rights-based and universal
• in tribal society, freedom is freedom of freestanding warrior and his tribe to dominate and deprive others of their liberty
• equality refers to equal combat, as opposed to submission
• democracy is closer to a conclave of family heads in the Godfather, never far from potential violence, than to debate in a modern representative assembly
• not equality before the law, but equality outside of the law
• democracy requires something more fundamental than open consultation between descriptively free and equal parties
• Arabs know all about freely expressing their opinions in open council, yet have fundamental reservations about entering into the sort of social contract required to create a modern liberal state
• largely justified: state offers only thin alternative to "the war against all"
• most Middle Eastern states are just reincarnations of the predatory winner-take-all tribal coalitions of old
• why exchange protection of your family, tribe or sect for submission to a weak or predatory state?
• "tribal society contains just enough order to make a bit of violent anarchy bearable, and just enough grasping anarchy to make a liberal social contract unreliable"
• won't be easy to weaken cycle of particularism, ie the self-reinforcing loyalties of extended family, tribe and sect that dominate Arab countries at both state and local levels
• West needs to learn to understand and critique the Islamic Near East through a tribal lens
• Islam is only half the cultural battle
• tribal practices, however, are less swathed in sacredness than explicitly Koranic symbols and commandments
• therefore more susceptible to criticism and debate
• new and smarter strategy for change

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Quote of the Day

"I know that most men, including those at ease with problems of the greatest complexity, can seldom accept the simplest and most obvious truth if it be such as would oblige them to admit the falsity of conclusions which they have proudly taught to others, and which they have woven, thread by thread, into the fabrics of their life". - Tolstoy

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The financial system: What went wrong - Economist.com

Summary:

Economist special briefing looking at Wall Street near-collapse and future changes in financial system; financial services industry racing ahead when economy slowed down; causes and consequences; incentives and regulation (19/03/2008)

Facts and Figures

• American financial services industry
• share of total corporate profits
  
• 1980: 10% ; 2007: 40%
• share of stockmarket value
  
• 1980: 6%; 2007: 19%
• accounts for 15% of America's gross value added
• accounts for 5% of private-sector jobs
• value of outstanding credit default swaps: $45tr (2008)
  
• financial sector debt vs. non-financial debt
• 1980: 1:10; 2008: 1:2
• Leverage of banks
  
• Goldman Sachs: $1.1tr assets on $40bn equity
  
• Merrill Lynch: $1tr assets on $30bn equity
  

Notes:

• American financial services industry from early 1980s to 2007
• share of total corporate profits from 10% to 40%
• share of stockmarket value from 6% to 19%
• account for only 15% of America's gross value added
• account for only 5% of private-sector jobs
• 1982 to 2000, unparalleled bull market for shares and bonds
• something changed in 2001, after bursting of dotcom bubble
• America's GDP growth since then been weaker than in any cycle since 1950s
• growth in consumer spending, total investments and export been correspondingly feeble
• but financial services industry did not slow down; raced ahead of real economy ("as ground beneath it fell away")
• industry been able to boost income and profits by using debt, securitisation and proprietary trading
• investors (hungry for yield) went along
• industry has further combined computing power and leverage to create burst of innovation
• value of outstanding credit default swaps at $45tr
• financial sector debt vs. non-financial debt
• 1980: 1:10; 2008: 1:2
• investment banks trading heavily on own debt accounts
• Goldman Sachs: $40bn equity as foundation for $1.1tr assets
• Merrill Lynch: $30bn equity for $1tr assets
• "In rising markets, gearing like that creates stellar returns on equity. When markets are in peril, a small fall in asset values can wipe shareholders out."
• Banks' course made possible by cheap money, in turn facilitated by low consumer-price inflation
• central banks have conspired with banks' urge to earn fees and use leverage
• previously, credit controls or gold standard restricted creation of credit
• as result of liquidity and "financial firms' thirst for yield," boom in American subprime mortgates
• tendency for financial services to go over cliff is accentuated by financial assets' habit of growing during booms
• by lodging their extra assets as collateral, intermediaries can put them to work and borrow more
• since 1970s, debts have grown faster than assets during booms
• banks using borrowed money to buy more of the securities they lodged as collateral; raises prices of the those securities; enables banks to raise more debt and buy more securities
• "pro-cyclical leverage" feeding on itself
• banks get punished by shareholders if they sit out next round
• "bank trapped in a dance it cannot quit; but sooner or later music stops"
• mechanisms that create abundant credit will eventually also destroy it
• "most things attract buyers when price falls, but not necessarily securities"
• financial intermediaries need to limit their leverage in falling market; sell assets; lowers price of securities; puts further strain on balance sheets leading to further sales; continues until those without leverage will buy
• cycles not necessarily result of poor monitoring or huge incentives; human nature; competing with star trader next door
• but pay and lack of regulation probably made this crisis worse; proper incentives needed
• prediction that in future senior executives will face prospect of some of their bonuses being contingent on bank's performance over several years
• but is already the case: many senior bankers paid in shares they cannot immediately sell
• e.g. Bear Stearns' employees owned third of company; already looking to longer term
• more regulation?
• regulation does not just offer protection, but also clever ways to make money by getting around it
• capital reserve requirements set up incentive to create structures free of capital burden (e.g. 364 days credit, "not permanent")
• hundreds of billions of dollars in SIVs and conduits to get round the rules
• reformed capital adequacy rules needed, monitor this shadow banking rigorously
• gaming on boundary between AAA and other bonds, passing off poor credit as AAA, making a lot of money, for a while
• financial industry likely to stagnate or shrink in next few years
• partly because last phase of its growth was founded on unsustainable leverage
• partly because value of underlying equities and bonds unlikely to grow as in 1980s and 1990s
• foolish regulation may make it worse

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Quote of the Day

"Eagles may soar, but weasels don't get sucked into jet engines." - John Benfield

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China 'now top carbon polluter' - BBC NEWS

Summary:

Report in Journal of Environment Economics and Management suggest China overtook the US in 2006-2007 as top greenhouse gas emitter. Warns that unchecked future growth will dwarf any emission cuts made by rich countries under Kyoto. (14/04/2008)

Notes:

• Univ of California researchers reporting in Journal of Environment Economics and Management
• China surpassed US greenhouse gas emissions in 2006-2007
• report warns that "unless China radically changes its energy policies, its increases in greenhouse gases will be several times larger than the cuts in emissions being made by rich nations under the Kyoto protocol"
• current computer models substantially underestimate future emissions growth in China
• "all those concerned about climate change agree that China's emissions are a problem - including China itself"
• China and UN insist that rich countries with higher per capita levels of pollution must cut emissions first and help poorer countries to invest in clean technology
• America's per capita emissions five to six times higher than China's
• Auffhammer: "There is no sense pointing a finger at the Chinese. They are trying to pull people out of poverty and they clearly need help. The only solution is a massive transfer of technology and wealth from the West."
• "an eventuality which is unlikely"

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Horrors of a 'Crisis' - Washington Post

Summary:

George Will calling talks of "crisis" exaggerated and typical for presidential elections (need dragons to slay). Early retirement should not be considered a given; Q1 2008 drop of 9.9% in S&P500 not alarming; drop in house prices allows first-time buyers onto ladder (13/04/2008)

Facts and Figures:

• S&P500 contractions:
  • 2008 Q1 : 9.9%
  • 1998 Q3: 10.3%
  • 1990 Q3: 14.5%
  • 1987 Q4: 23.2%
  • 1932 Q2: 39.4%

Notes:

• percentage people working aged 55 to 64 rose 1.5% from April 2007
• Wall Street Journal: "prospect of millions of grandparents toiling away in their golden years doesn't square with the American dream."
• Will: "idea that protracted golden years of idleness are a universal right is a delusion of recent vintage."
• Congress, 1935, enacted Social Security; retirement age set at 65, then life expectancy of average male
  • compare life expectancy today: 75 years
• standard definition of recession: two consecutive quarters of contraction
  • 9.9% first quarter decline of S&P 500 not remarkable
  • Q3 1998: 10.3%, Q3 1990: 14.5%, Q4 1987: 23.2%; all without long-term trauma

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Quote of the Day

"Even if you're on the right track, you'll get run over if you just sit there." - Will Rogers

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China raises GDP growth to 11.9 percent - Boston Globe

Summary:
National Statistic Bureau report; China's GDP ($3.61tr) and growth (11.9%) in 2007; price inflation at 8.7% (10/04/2008)


Facts and Figures:

• China
  
• GDP in 2007: 24.95tr yuan, $3.61tr
• GDP growth
  
• 2007: 11.9%
• 2006: 11.6%
• 2008: 9% (forecast)
• Price inflation Feb 2008: 8.7%
• Highest in 12 years
• Germany's
  
• GDP (2007): $3.8tr
• GDP growth (2007): 2.5%

Notes:

• China's GDP growth in 2007 revised upwards to 11.9% (11.6% in 2006)
• China (GDP $3.61tr) close to overtaking Germany (GDP $3.8tr) as world's third largest economy
• China remains much poorer per person
• China's growth been greater than 10% for last 5 years
• 2008 forecast: 9% due to global slowdown and falling export growth
• Beijing concerned with slowing down growth
• Central bank raising interest rates to cool price pressure (February inflation 8.7%, highest level in 12y)

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The political threats to globalisation - FT.com

Summary:
Gideon Rachman on risks to globalisation; globalisation was made possible by political changes at first; now political changes are threatening globalisation; modern timeline of globalisation, 1978-1991. (07/04/2008)


Notes:

• Most people, globalisation ~ economics, technology and business
• Globalisation was made possible by political changes first; underpinned by political consensus; now political changes are threatening globalisation
• political elites struggling to convince citizens that globalisation doesn't just benefit the rich; losing this argument in any of the major world economies may jeopardise political consensus
• political consensus recent creation; took place in very short period of time: 1978 to 1991, i.e. less than 15 years
• 1978: Deng Xiaoping's reforms; China turns from Maoism to market; most important development
• 1979: Thatcher takes power; abolition of foreign exchange controls; London's rise as global financial centre
• 1980: Reagan takes power; deregulation and tax cuts; huge boost to market ideology around the world
• mid 1980s: creation of single market in EU
• 1980s: discrediting of protectionist populists in Latin America
• 1989: collapse of Berlin wall; Eastern Europe and Russia join globalisation game
• 1991: India moves away from regulation and protectionism
• As a result, now feels as natural doing business in Beijing, Moscow and Delhi as in London and New York
• Could this period of globalisation end, like it did in 1914 and 1930s?
• Most obvious threat: crisis in most important political and economic relationship in the world, between US and China
• Risk in Chinese-American relations is of miscalculation, clash that escalates into something that does real damage; combination of looming recession in US, presidential election and Beijing Olympics are formula for potential trouble
• Other threats (long-term): terrorism and climate change; globalisation depends on ease of travel!
• Biggest risk: politicians losing argument for globalisation; 10 years ago, narrow majority in US in favour of globalisation, now majority against; politicians reacting to this shifts, eg. Democrats taking sceptical line on free trade, Republicans against illegal immigration, Sarkozy arguing for protectionism on EU level
• Indian government lost general election largely because poor, rural voters felt left out by boom; in China, authorities anxious about rural unemployment, environmental protests and wealth gap between rich coasts and poorer inland regions
• rising world food prices, sense that poor have lost out as a result of globalisation

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Glued together by their lies - Literary Review

Summary:
Gillian Tindall's review of "A dangerous liaison" by Carole Seymour-Jones. Describes Sartre and Beauvoir's union as fake. Sartre sexually exploiting young women that Beauvoir provided so as to keep up the appearance of a union. One of these women later committed suicide, two became drug addicts and another permanently traumatised. Beauvoir had affair herself. Labile sexuality. Sartre and Beauvoir are also alleged to have exaggerated their role in the resistance during WWII. (04/2008)

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An American in Beijing - The Globalist

Summary:
Lauren Konopacz on the benefits of studying abroad and in China in particular. (04/04/2008)


Notes:

• "Self" is simply "set of beliefs and assumptions about life that are the products of such as social group, economic class, family background and national culture. Foreign experience allows students to recognize these assumptions in both their host culture and their own." Re-examining assumptions of own lives and assumptions of society belonging to.
• "Globalization has rendered today's world absolutely in need of people with cultural experience other than their own."
• "Just as an art history student must forgo their textbook to go to the museum in order to best experience a work of art, a student of culture or language must forgo their text book to go abroad in order to best experience that culture or language."

Facts and Figures:

• US Senate Resolution 308, 11 Nov 2005: lists several reasons why international experience is important for both the students and the US as a whole;
• eg. "federal agencies, educational institutions and corporations in the United States are suffering from a shortage of professionals with international knowledge and foreign skills";
• eg. study abroad programs "empower students to better understand themselves and others through a comparison of cultural values and ways of life."
• China receiving 5.3% of US exports; 21% of its exports go to US, equal to 15.9% of total US imports; US is China's top export partner
• China's average yearly GDP growth: relatively steady 10-11%

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Why Every Employee Needs a Global Mindset - The Globalist

Summary:
Second excerpt from "The Quest for Global Dominance," by Anil Gupta, Vijay Govindarajan and Haiyan Wang. Companies that want to be market leaders need to cultivate global mindset in all its employees. Importance of selection, demographic makeup, promotion decisions. (03/04/2008)


Notes:

• Global mindset obviously needed for employees managing activties that span borders (e.g. global product manager, employees facing foreign customers/suppliers/colleagues) Greatest value added by/highest return from global mindset at senior levels.
• However, even employees with purely local responsibilities need global mindset. Even assembly workers should develop own "global learning communities"
• Global mindset in every employee needed for creation of global learning organization. Does not need to equally strong across entire spectrum of employees.
• If company's goal is to capture and sustain global market leadership in its industry, necessary to regard development of global mindset as a goal encompassing all units and all employees.
• Global mindset needs to be cultivated, ceaseless journey. Cultivating curiosity and openness about the world.
• Company's greatest degree of freedom lies at the point of selection, managing its demographic makeup and promotion decisions.
• "Promotion decisions to senior executive levels that place high value on global experience and global mindsets also have a corollary effect in terms of sending strong signals regarding the increasing criticality of openness to and curiosity about diverse cultures and markets."
• Market opportunities, critical resources, cutting-edge ideas and competitors not just lurking around corner in home market, but increasingly in distant and often little-understood regions of the world. Cultivating global mindset essential for company to exploit these opportunities and tackle accompanying challenges.

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Cultivating a Global Mindset - The Globalist

Summary:
Excerpt from "The Quest for Global Dominance," by Anil Gupta, Vijay Govindarajan and Haiyan Wang. Not sure what the global dominance is about, but discusses some interesting concepts. Cultivating a global mindset (vs. parochial and diffuse mindsets). Update: global dominance refers to companies wanting to become global market leaders (02/04/2008)


Facts and figures:

• Mobile subscribers in China (2007): ~500m
• Internet users in China (2007): >200m

Notes:

• Global mindset: "combines an openness to and awareness of diversity across cultures and markets with a propensity and ability to synthesize across this diversity.
• Global manager: open-minded; respect how different countries do thing and understand why they do them that way; however, don't passively accept it, push the limits of culture; finding opportunities to innovate through "the debris of cultural excuses"
• Diffuse mindset: some people in firm may have global mindset, but is not philosophy of the whole firm; behaves parochial.
• Microsoft in Chinese market: example of global mindset
• China promises huge market but is accompanied by perils (e.g. software piracy, unpredictable public policy, local enterprises favoured)
• Sophistication level Chinese market in many respects lagging behind, but leading in some (e.g. 2007: mobile subscribers, 500m, and internet users, 200m)
• Global mindset enables company to outpace rivals in assessing market opportunities, establishing market presence necessary to pursue worthwhile opportunities, converting presence across multiple markets into global competitive advantage
• central value of global mindset: enabling the company to combine speed with accurate response; having an insight into the needs of the local market + being able to build cognitive bridges across these needs and between these needs and the company's own global experience and capabilities
• prisoner of diversity: intimidated by enormous differences across markets and staying back
• companies that stay local (eg. nursing homes, hospitals, radio stations, cleaning services, ...) may benefit from global mindset, too: 1) benchmarking and learning from product and process innovations outside domestic borders; 2) alertness to entry of foreign competitors in local market (eg. a global consolidator acquiring a local competitor and changing the rules of the game)
  

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Quote of the Day

"Most men are within a finger's breadth of being mad." - Diogenes the Cynic

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Carbon Dioxide Removed From Smockstacks Could Be Useful In DVD And CD-ROM Manufacture - ScienceDaily

Summary:
Carbon dioxide removed from smokestack emissions in order to slow global warming in the future could become a valuable raw material for the production of DVDs, beverage bottles and other products made from polycarbonate plastics. Two presentations at the ACS 2008 meeting were dedicated to the topic. Polycarbonates have great potential for use in removing carbon dioxide from the environment. Estimates are that it's a matter of a few years before CO₂-derived polymers are available to the public. (Published: 09/04/08)

Notes:

• ACS meeting, April 8, 2008
• two presentations on trapping CO₂ into carbonates and urethanes to avoid release of many million tons into the environment
  
• Thomas Mueller, RWTH Aachen:
  
• "Carbon dioxide is so readily available, especially from the smokestack of industries that burn coal and other fossil fuels. And it's a very cheap starting material. If we can replace more expensive starting materials with CO₂, then you'll have an economic driving force."
• "Millions of tons of polycarbonates already are sold each year with the volume rising. Perhaps no other consumer product has such a great potential for use in removing carbon dioxide from the environment."
• are the mainstay for producing eyeglass lenses, automotive headlamp lenses, DVDs and CDs, beverage bottles, and a spectrum of other consumer products
• "Using CO₂ to create polycarbonates might not solve the total carbon dioxide problem, but it could be a significant contribution."
• "I would say it's a matter of a few years before CO₂-derived polymers are available to the public."
• Toshiyasu Sakakura, Institute of Advanced Industrial Science and Technology in Tsukuba, Japan

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