Can globalization survive 2013 ??

2013A fateful question for 2013 is: What happens to globalization? For decades, growing volumes of cross-border trade+money flows have fueled strong economic growth. But something remarkable is happening; trade and international money flows are slowing, some cases, declining. David Smick, perceptive editor of International Economy magazine, calls the retreat “deglobalization”. It is unclear whether this heralds prolonged economic stagnation and rising nationalism or, optimistically, makes the world economy more stable, politically acceptable. (Robert J. Samuelson – The Washington Post – 31/12/2012)

To Americans, some aspects of deglobalization will seem delicious. Take manufacturing. The globalization has sucked factory jobs from United States. Now, the tide may be turning. Just recently, Apple announced a $100 million investment to return some Mac computer production home. Though tiny, decision reflects a trend. General Electric’s sprawling Appliance Park in Louisville once symbolized United States’ post-World War II manufacturing prowess, with employment peaking at 23,000 in 1973. Since then, jobs have shifted abroad or succumbed to automation. But now GE is returning production of water heaters, refrigerators and other appliances to Appliance Park from China and Mexico. Year-end employment is reckoned at 3,600, up 90 percent from a year earlier, writes Charles Fishman in an excellent article in December’s Atlantic. Nor is GE alone, Fishman notes. Otis is moving some elevator production from Mexico to South Carolina. Wham-O is shifting Frisbee molding from China to California.

The changes are harbingers, contends The Boston Consulting Group, which predicts a manufacturing revival. China’s labor cost advantage has eroded, it argues. In 2000, Chinese factory wages averaged 52 cents an hour, but annual double-digit percentage increases will bring that to $6 an hour in high-skilled industries by 2015. Although wages of U.S. production workers average $19 an hour, BCG argues that other non-wage factors favor the States. American workers are more productive; automation has reduced labor’s share of expenses; cheap natural gas further reduces costs. Finally, higher oil prices have boosted freight rates for imports. By 2015, China’s overall cost advantage will shrivel to 7 percent, BCG forecasts. As important, it says, United States will maintain significant cost advantages over other developed-country manufacturers: 15 percent over France and Germany; 21 percent over Japan; 8% over Great Britain. The United States will be a more attractive production platform. Imports will weaken; exports will strengthen. BCG predicts between 2.5 million and 5 million new factory jobs by 2020. (For perspective: 5.7 million manufacturing jobs disappeared from 2000 to 2010). Because the United States is the world’s largest importer, this shift would dampen trade. Similarly, the cross-border money flows (“capital flows”) have abated. Banks, especially in Europe, have reduced foreign loans to “deleverage” strengthen balance sheets. From 2011 to 2012, bank loans to 30 “emerging market” countries fell by one-third, says Institute of International Finance (IIF), an industry group. “It’s the most decisive case of ‘home bias’ [in lending] being re-established,” says economist Philip Suttle of IIF. Government regulators encourage the shift, he says, suggesting that “if you’re going to cut lending, cut there and not here”.

Of course, globalization won’t vanish. It’s too big, too entwined with national economies. In 2011, total world exports amounted to nearly $18 trillion. The same is true of capital flows. Despite banks’ pullbacks, those same 30 emerging-market countries in 2012 received estimated $1 trillion worth of investment from multinational companies, private investors, pensions, insurance companies, and other lenders, still-huge total, though down from its peak. But globalization’s character may change. For years, the world economy has been wildly lopsided: China and some other countries ran big trade surpluses; the United States was perennially in massive deficit. Similar imbalances existed in Europe. Now, slumps have dampened the American and European appetite for imports. The upshot is that “China and others are recalibrating their export-led economic strategies” to focus more on domestic demand, argues economist Fred Bergsten of Peterson Institute. That’s good, he says; the world economy will be more balanced. Likewise, erratic capital flows have triggered past financial crises. Slower flows may promote stability. Not everyone is so optimistic. Smick of the International Economy sees globalization as “the proverbial goose that laid the golden eggs.” Search for larger markets and lower costs drove investment, trade, economic growth and job creation around the world. That’s weakened, and there’s “no new model to replace it.” Domestic demand will prove an inadequate substitute. Central banks (Federal Reserve, European Central Bank, Bank of Japan) have tried to fill void with hyper-easy money policies. Smick fears damaging outcomes: the currency wars as countries strive to capture greater shares of stagnant export markets+burst “asset bubbles” caused by easy money. These visions clash. In 2013, we may learn which is right. 

Still hope for avoiding the fiscal cliff

Washington, D.C.The United States is only three days away from going over the “fiscal cliff”, with all damage could do to confidence in the country’s capacity to manage its basic affairs, and the Washington’s leaders “still have not agreed” on even a stopgap measure to avoid the worst consequences of not reaching agreement. But there is a clear way to avert them. Congressional leaders and President Obama conferred at the White House on Friday afternoon, first such meeting in 6 weeks. Instead of offering something new, however, Mr. Obama reportedly reiterated his position that Bush tax cuts on household income above $250,000 should lapse on Jan. 1. Republicans wanted more from the president. But after meeting, Senate Majority Leader Harry Reid (D-Nev.) and his GOP counterpart, Sen. Mitch McConnell (Ky.), said they had agreed to attempt to hash out a deal over the weekend enough Republicans can accept. The task these leaders face is no longer crafting a big restructuring of federal taxing and spending. There isn’t enough time for that between now and end of the year. The goal now, then, is the “bare minimum,” as Obama said Friday evening, merely to stave off a self-inflicted economic shock. It’s clear what such a stopgap must include. The first element is a rise in income tax rates for wealthy Americans. The sting to Republicans might be lessened by an agreement on the estate tax, which is also scheduled to jump Tuesday. But all the focus on tax rates leaves out much else Congress must address. Lawmakers have essential housekeeping that they must see to before end of the year, such as preventing huge cut in Medicare payments to doctors + extending unemployment insurance. The alternative minimum tax (AMT), a scheme intended to ensure that the rich pay income tax, must also be patched. Unless Congress acts to stop it, AMT will dig deep into the middle class. Delaying a patch until after Jan. 1 could wreak havoc on federal tax collection, affecting perhaps 100 million 2012 tax returns, according to the Internal Revenue Service. Congress must also deal with “sequester,” about $100 bill. in ill-targeted and unwise spending cuts, including to the Pentagon, that will phase in beginning in January. Though destructive measures such as furloughs and layoffs could be put off for a time, if the cuts were allowed to kick in, they would still have immediate bite. Republicans might resist canceling or delaying the sequester without offsetting spending cuts elsewhere. But preventing the across-the-board reductions is nevertheless critical. It is pathetic political leaders have not already agreed to avoid worst effects of the fiscal cliff. But, with McConnell and Reid talking, with the House returning this weekend and with House Speaker Boehner (R-Ohio) promising his chamber will consider any bill Senate sends it, there is still time. Mr. Obama said that if there is no agreement, he would demand an up-or-down vote on his own proposal by both houses. That should be a last resort; and better for Democrats to seek a bipartisan deal. (source: Editorial Board – The Washington Post – 29/12/2012) 

Is Growth Over?

RoboticsThe great bulk of the economic commentary you read in the papers is focused on the short run: effects of the “fiscal cliff” on U.S. recovery, stresses on the euro, Japan’s latest attempt to break out of deflation. This focus is understandable, since one global depression can ruin whole day. But our current travails will eventually end. What do we know about prospects for the long-run prosperity? The answer is: less than we think. (source: Paul Krugman – NYTimes – 28/12/2012)

The long-term projections produced by official agencies, like the Congressional Budget Office, generally make 2 big assumptions. One is that economic growth over next few decades will resemble growth over the past few decades. In particular, productivity, key driver of growth, is projected to rise at a rate not too different from its average growth since the 1970s. On the other side, however, these projections generally assume income inequality, which soared over past 3 decades, will increase only modestly looking forward. It’s not hard to understand why agencies make these assumptions. Given how little we know about long-run growth, simply assuming the future will resemble the past is a natural guess. On the other hand, if income inequality continues to soar, we’re looking at a dystopian, class-warfare future, not kind of thing government agencies want to contemplate. This conventional wisdom is likely to be wrong on one or both dimensions.

Recently, Robert Gordon of Northwestern University created a stir by arguing the economic growth is likely to slow sharply, indeed, that the age of growth that began in 18th century may well be drawing to an end. Gordon points out long-term economic growth hasn’t been a steady process; it has been driven by several discrete “industrial revolutions,” each based on a particular set of technologies. The first industrial revolution, based largely on the steam engine, drove growth in late-18th and early-19th centuries. The second, made possible, in large part, by application of science to technologies such as electrification, internal combustion, chemical engineering, began circa 1870 and drove growth into the 1960s. Third, centered around information technology, defines our current era. And, as Mr. Gordon correctly notes, the payoffs so far to the third industrial revolution, while real, have been far smaller than those to the second. Electrification, for example, was a much bigger deal than the Internet. It’s an interesting thesis, and a useful counterweight to all the gee-whiz glorification of the latest tech. And while I don’t think he’s right, the way in which he’s probably wrong has implications equally destructive of conventional wisdom. For the case against Mr. Gordon’s techno-pessimism rests largely on the assertion that the big payoff to information technology, which is just getting started, will come from rise of smart machines. If you follow these things, you know that the field of artificial intelligence has for decades been a frustrating underachiever, as it proved incredibly hard for computers to do things every human being finds easy, like understanding ordinary speech or recognizing different objects in a picture.

Lately, however, barriers seem to have fallen, not because we’ve learned to replicate human understanding, because computers can now yield seemingly intelligent results by searching for patterns in huge databases. True, speech recognition is still imperfect; according to the software, one irate caller informed me that I was “fall issue yet.” But it’s vastly better than it was a few years ago, has already become a seriously useful tool. Object recognition is a bit further behind: it’s still a source of excitement that a computer network fed images from YouTube spontaneously learned to identify cats. But it’s not large step from there to a host of economically important applications. So machines may soon be ready to perform tasks currently require large amounts of human labor. This will mean rapid productivity growth, therefore, high overall economic growth. But, this is crucial question, who will benefit from that growth? Unfortunately, it’s all too easy to make the case most Americans will be left behind, because smart machines will end up devaluing contribution of workers, including highly skilled workers whose skills suddenly become redundant. The point is that there’s good reason to believe conventional wisdom embodied in long-run budget projections, projections that shape almost every aspect of the current policy discussion, is all wrong. What, then, are the implications of this alternative vision for policy? Well, I’ll have to address that topic in a future column. 

EU Summit Reveals a Paralyzed Continent

Holly S...T, Marge !!! Is Any Window In The Sky For Europe !!!What really happens behind closed doors at an EU summit, when European leaders are among themselves. SPIEGEL has reconstructed negotiations at the most recent meeting in Brussels in December based on documents and accounts given by numerous sources. It was a summit of hopelessness (…..) A Growing Emphasis on the National Interests. His BMW is speeding through a Europe that has gotten stuck in the mud. The summit has made that abundantly clear. The main problem is a growing emphasis on national interests. Almost all of the Europeans are focusing exclusively on their own interests, from the Poles to Germans to French. Some are determined not to lose their connection to Europe, others want to pay as little as possible and there are those who want to get as much as possible. Together, represent three Europes: the East, the North and the South. The bridges among the three are narrow and weak. Reports on the summit provide a sense of the torpor and ritualization. The South makes proposals, as it has always done, and the North dismisses those proposals, as it has always done, and vice-versa. No one offers any surprises, no one goes the extra mile and no one fights for bold reforms. They all go through routine motions of unwinding their national programs, as if there were no euro crisis bellowing at their doors. There is a huge difference between public rhetoric and behavior during negotiations, especially with German chancellor. In public, she stresses common interests, but none of it remains once she is behind closed doors. She seems pedantic and mercantile. This doesn’t mean that the Germans should always be the ones footing the bill. But a policy of trying to avoid payment at all costs isn’t enough. The summit also shows Chancellor Merkel isn’t leading, even though she ought to be. All of participants look to her, make reference to her and wait for her. But Angela Merkel does not make use of this position. She doesn’t speak as harshly as her Swedish counterpart Reinfeldt or her Dutch colleague Rutte, yet she is one of them. She is not someone who promotes the common cause, even though she ought to be, as chancellor of Europe’s largest and richest country. Instead, she both accepts and is responsible for the fact Europe currently has no vision. December summit was historic, in the sense that it stifled Barroso’s and Van Rompuy’s attempt to build a political union. Both returned home without having achieved their goals. Monday, Dec.17. Berlin, the headquarters of Merkel’s Christian Democratic Union party, a meeting of CDU steering committee, 10 a.m. “Angie” Merkel reports on the summit in Brussels. She is under the impression, she says, that Hollande is trying to obstruct everything she proposes between now and German parliamentary election. Hollande currently has more allies than she does, which is why cooperation isn’t quite working yet. But she’s doing her best to gather more allies for Germany, she adds. It sounds a little like the days when there were still wars in Europe.


Crisis sistémica y cambio de ciclo vital

EspañaHace poco tiempo asistí a una mesa redonda en un congreso de sociología donde se debatía crisis sistémica. Allí pude argumentar que nuestra profesión no ha sabido proponer relato propio sobre la crisis, pues se ha limitado a criticar sus efectos en materia de recorte de derechos y ascenso del desclasamiento y desigualdad. Por tanto, el único relato maestro con que contamos sobre la crisis es el propuesto por pensamiento económico dominante. Según su paradigma, la crisis fue causada por irrupción de una contingencia imprevista, por generación espontánea de la mano invisible del mercado, que rompió “el equilibrio general del sistema”. Y desde entonces los mercados han quedado colapsados por un desequilibrio sistémico autosostenido, como si se hubieran “colgado” entrando en un bucle sinfín. De ahí la necesidad “resetear” el sistema mediante choque ajustes estructurales de cualquier signo capaces de reequilibrarlo, sean estímulos expansivos a lo Bernanke-Obama o devaluaciones internas Merkel-Schauble. ¿Podría oponerse a este modelo de equilibrio neoclásico algún otro relato más dinámico, capaz de explicar mejor el desequilibrio general? Una posible pista es recurrir al modelo de crisis por cambio ciclo vital. Esta figura proviene de la historia natural, como ciclos de ascenso y caída de los imperios o cualquier otro fenómeno cuyo curso de vida se despliegue a lo largo del tiempo. El lapso vital humano presenta cuatro crisis: el nacimiento (crisis de inicio), la juventud (crisis de ascenso), la madurez (crisis de inflexión hacia declive) y la muerte (crisis de desenlace). Pues bien, aplicando por analogía estos términos, podría postularse que nos enfrentamos a una crisis madurez sistémica. Es el tipo de inflexión biográfica que antes se llamaba crisis de los 40 (ahora retrasada por el aplazamiento emancipación juvenil), cuando el ascenso adulto se detiene y comienza a declinar. Recurriendo al mismo esquema cabe pensar que el ciclo de acumulación financiera iniciado en los años setenta, cuando quebró por inflación el anterior ciclo productivo de industrialización fordista, está atravesando hoy su crisis de los 40. Aquel naciente ciclo post-industrial centrado en mercado financiero generó una mercantilización globalizada que desarticuló estructura social, emergiendo la posmoderna sociedad low cost. El consiguiente crecimiento financiarización alcanzó su saturación con cambio de siglo, entrando a partir de entonces en las crisis recurrentes tras cruzar el umbral de madurez: es la crisis crónica como la llamé en otro lugar. En suma, actual regresión no es más que efecto retardado del progreso anterior, cuando el ciclo de acumulación financiera ascendía hacia lo alto desde las ruinas de la quiebra industrial de los 70. Y este modelo de final de ciclo por la crisis de madurez es aplicable a toda Europa occidental. La crisis actual del euro es un efecto retardado de la irresponsable arquitectura de la unión monetaria decidida en Maastricht, a su vez improvisada para salir de la crisis de la serpiente monetaria creada en los 70 con el ingreso del Reino Unido en la CE. Y en el caso español, la crisis de deuda derivada del estallido de la burbuja inmobiliaria procede también de los 70, pues el boom especulativo no se inició con la Ley del Suelo de Aznar sino bastante más atrás, con la beautiful people de González, Boyer y Solana y antes con los Pactos de la Moncloa de Fuentes Quintana y Abril Martorell. Pero este ciclo de acumulación financiera no atraviesa su crisis de madurez a solas, pues los demás ciclos institucionales que iniciaron entonces su andadura también atraviesan sus respectivas crisis de los 40 (…..)


Food vs. Fuel in 2013

EPAIn coming days, the Environmental Protection Agency’s to-do list will include setting a standard for the amount of the advanced biofuels that refiners will be required to blend into gasoline and diesel supplies in 2013. Question is tricky because production in one category, cellulosic fuel from nonfood sources like corn cobs, stalks, wood chips, garbage, has not met target set by Congress. E.P.A. has the authority to adjust the quotas as needed, but the issue is complicated. The quotas were laid out in 2007 when Congress established a renewable fuel standard. Under its targets, the production of cellulosic fuel was supposed to hit one billion gallons next year, up from 500 million in 2012, 250 million in 2011 and 100 million in 2010. But so far output is near zero because no one seems to have hit on a commercially successful recipe. So far the E.P.A. has had little choice but to repeatedly waive nearly all of cellulosic requirement, but this has led to bitter complaints from refiners, who say they are still required to use small quantities of a fuel that does not exist or face fines. Even as the agency waived most of cellulosic requirement, it kept intact a larger 2.75 billion-gallon quota for “advanced” biofuels in general, which includes cellulosic, ethanol made from Brazilian sugar cane and biodiesel made mostly from soybeans. The production of biodiesel or sugar-cane ethanol is favored because each process emits relatively little carbon dioxide, predominant greenhouse gas, meaning it has an advantage on the global warming front. Keeping the quota for advanced fuels intact was more or less O.K. when the agency waived smaller cellulosic mandates, said Jeremy I. Martin, a senior scientist in Union of Concerned Scientists’ clean vehicles program. But it’s going to be a problem if the agency waives a one billion gallon requirement for 2013, he warned. If the overall 2.75 billion quota for advanced fuels is not reduced, biodiesel and the sugar-cane ethanol will have to make up the difference. And if that happens, Mr. Martin argues, the quota will start putting more pressure on food supplies. Various other industrial users of food, especially companies that raise chickens, turkeys, hogs and beef, have meanwhile been trying to get the mandate for corn ethanol reduced, but E.P.A. has declined to do so. Biofuel industry has been pushing hard to maintain quotas, with waivers for cellulosic fuels as needed, year by year. A new industry report catalogs a growing number of efforts to produce cellulosic biofuels, albeit commercially unsuccessful ones. “All in all, the post-election environment in Washington seems to promise continuation of stable policy support for the advanced biofuels commercialization and robust growth of the industry,” Brent Erickson, executive vice president of Biotechnology industry Organization said in a letter to supporters this month. Martin’s theory is that E.P.A. should stay the course. “We’re going to have to accept that the cellulosic fuels are late’’, but it would be better to delay the quotas than to eliminate them. “Going in the right direction a little more slowly is better than going in wrong direction’’. (NYTimes – 25/12/2012)

Elogio de la política

EspañaSi algo cabe destacar del mensaje navideño del Rey a los españoles es su clara y vigorosa reivindicación de la política como instrumento para unir fuerzas, afrontar la crisis económica y hacer frente a los retos de diverso orden que hay por delante. En momentos en los que la política está bajo sospecha, por los motivos que no siempre tienen que ver con casos corrupción, tiene alto valor institucional que el Jefe del Estado la defienda como único instrumento democrático, además del mejor, para resolver los problemas de los españoles, tanto en el ámbito individual como colectivo, frente a la tentación otras vías que busquen soluciones bajo el pretexto de la eficacia. El mensaje del Rey toma nota de que el pesimismo y los efectos de la crisis en el clima social están generando un preocupante desapego hacia la función política, a las instituciones. De ese desapego no se libra tampoco la institución monárquica, que ha vivido otro año difícil, no solo por efecto del caso Urdangarin, sino por la incidencia del malhadado episodio de la caza real de elefantes en Botsuana, que causó un gran impacto en las amplias capas de una población fuertemente sacudida por crisis económica a la que no se le ve fin. El escueto pero sentido mensaje posterior, “Me he equivocado. Lo siento. No volverá a ocurrir”, con el que don Juan Carlos intentó enmendar su yerro ha quedado, en todo caso, como ejemplo a seguir en el ámbito institucional y de la representación pública. No se queda el Rey en una mera reivindicación de la política, sino que se atreve a fijar notas capaces de definirla como “política con mayúsculas”: que fija su atención en el interés general, que integra lo común para aunar fuerzas, la que sabe renunciar a un porción de lo suyo, busca el entendimiento y el acuerdo, que se acomoda a los principios de la ética personal y social y que es capaz de sacrificar el efímero corto plazo a objetivos más amplios. Y ofrece un ejemplo de esa “política con mayúsculas”: la que en los difíciles años de transición de la dictadura franquista a la democracia promovió los valores de respeto mutuo y lealtad recíproca, capaces de “poner en pie un nuevo marco de convivencia, el reconocimiento de nuestra pluralidad y el amparo de las diferentes lenguas, culturas, instituciones de España”. Obvio resulta decir que tan buenos consejos deberían ser atendidos por el Gobierno y la oposición y que todos pongan en práctica esa política, tanto más necesaria cuanto que, como señala don Juan Carlos, “vivimos uno de los momentos más difíciles de la reciente historia de España”. La experiencia no ayuda al optimismo. El Rey espera que las renuncias de hoy garanticen pronto el bienestar de mañana. E incluso tiene la esperanza de que quienes se van fuera a buscar trabajo regresen y dinamicen con su experiencia y preparación nuestra economía. (Fuente: Editorial – El – 26/12/2012)