Fifteen weeks until the opening of the Sixth Ministerial Conference of the World Trade Organization (WTO) in Hong Kong (Dec 13)...
According to the Taipei Times:
A Chinese firm has won a joint contract from the state oil companies of China, the Philippines and Vietnam to search for oil and gas in a disputed area of the South China Sea, state-run media said yesterday... (August 28)
The Chinese are searching around the world for new sources of oil. Most of its current oil imports are coming through the increasingly insecure Straits of Malacca. Canada may be an important future source. However, the best route for Canadian oil is through the U.S. Aleutian Islands. The Chinese can't be thrilled about that.
The New Economist is running a series on Asian economics blogs.
He's posted six entries so far, with links and commentary. From Hong Kong, there's Simon World ; from India, The Indian Economy and Atanu Dey on India's Development ; from D.C. but on China, Survived SARS; from China on China, Sun Bin , and from the Philippines, Go Figure .
A good series.
The New Economist performs a useful service by piecing together the agenda for the Jackson Hole conference on "The Greenspan Era: Lessons for the Future" from various sources: Papers from the August 2005 Jackson Hole symposium.
What happens if the Doha Round fails? It could happen. David Eldon, the Chairman of the Pacific Basin Economic Council, took a look into one possible future in a Financial Times column this week: Perils of a trade round’s collapse.
Letter from President Theodore Roosevelt to his son, Kermit:
Washington, March 5, 1904
.......I am wrestling with two Japanese wrestlers three times a week. I am not the age or the build, one would think, to be whirled lightly over an opponent's head and batted down on a mattress without damage; but they are so skillful that I have not been hurt at all. My throat is a little sore, because once when one of them had a strangle hold I also got hold of his windpipe and thought I could perhaps choke him off before he could choke me. However, he got ahead!
Your loving father
From the Library of America's Theodore Roosevelt. Letters and Speeches. pages 319-320.
Joseph Svinth describes the background to, and history of, Roosevelt's judo training: Professor Yamashita Goes to Washington :
Earlier this week, Richard Lapper reported on the problems posed for a number of former British colonies in the Caribbean, as EU price-support reforms reduce the price they received for their sugar in European markets: A bitter harvest: the Caribbean faces the prospect of a life without sugar (Financial Times, August 15).
In a second story he looked at reasons these countries (Jamaica, Guyana, Belize, Barbados, Trinidad, and Tobago) haven't been able to exert more political pressure on the UK to get some help: British business and political interest wanes (Financial Times, August 15). After all, migrants from the Caribbean form the second largest ethnic minority in the UK:
Former New Zealand Labour Prime Minister David Lange died last weekend. Lange was Prime Minister from 1984 to 1989, and initiated an important liberalization of New Zealand's economy.
Tyler Cowen at Marginal Revolution has a post today on the Labour measures and their future: Will New Zealand reform any further? . Part of the program was an overhaul of New Zealand's approach to commercial fishery management.
James Hamilton, at Econobrowser, wonders:
(1) how could Chinese oil demand have grown 17% in 2004 despite a 35% increase in the price of crude oil; (2) how could this demand growth suddenly be reduced to a 1.4% growth rate in the first half of 2005 despite real output growth continuing at 9.5%; and (3) what do these trends imply is going to happen to Chinese oil demand over the next year?
He points to subsidies built into a system of administered prices set below market clearing levels: More to the story on Chinese oil demand.
Read his short post to learn the implications for sustained 10% growth in real output.
Mark Nelson is spending the summer in Southeast Alaska, working as a tourist guide on the Mendenhall Glacier He's posting some nice photo's on his blog, OutdoorsPro.
In June, Nelson took some great shots of Juneau from one of the mountains behind it: High above Juneau
During the summer tourists from cruise ships pour through Juneau at the rate of something like 10,000 a day. Many of them take a helicopter tour up to the ice field and its glacier.
Once up on the glacier, many tourists can take a ride in a dog sled .
Big topic of conversation in Juneau this summer - this yacht, which has been anchored in our Auke Bay for many weeks: New Feature! Yacht of the Week! .
The recent Defense Department report on China's military power suggests that China's oil lifeline is a little tenuous. A hostile India, or problems in the Straits of Malacca, would be a big concern.
The legend notes that over 80% of Chinese crude oil imports pass through the Straits of Malacca. The Defense Department notes:
...For the foreseeable future, China will rely on overseas sources for oil and other strategic resources, meaning China will remain reliant upon maritime transportation to meet its energy demands.
This dependence on overseas resources and energy supplies, especially oil and natural gas, is playing a role in shaping China’s strategy and policy. Such concerns factor heavily in Beijing’s relations with Angola, Central Asia, Indonesia, the Middle East (including Iran), Russia, Sudan, and Venezuela –to pursue long-term supply agreements –as well as its relations with countries that sit astride key geostrategic chokepoints – to secure passage. Beijing’s belief that it requires such special relationships in order to assure its energy access could shape its defense strategy and force planning in the future. Indicators of such a shift would include increased investment in a blue-water capable fleet and, potentially, a more activist military presence abroad.
The next map, showing the shipping lanes from the U.S. West Coast to East Asia, comes from a report prepared by the consultants Nuka Research & Planning Group and Cape International Inc. for Alaska's Department of Environmental Conservation.
I'm still surprised that the traffic between Portland, Tacoma and Seattle goes to East Asia through the Bering Sea, and that much of the traffic from California passes just south of the Aleutians:
This report may be found at: Vessel Traffic in the Aleutians Subarea (look towards the bottom of the page for the pdf file)
The President of the Dallas Fed, whose experience with China goes back to 1979, talks about the implications of Chinese growth: China's Economic Growth - Speech by Richard W. Fisher - News & Events - FRB Dallas.
Let's start with the bottom line:
Here is the bottom line: We’re better off if China is rich than if it’s poor. China’s ascension is our opportunity. We have much to sell the Chinese, and they, us. Trade with China is helping raise our productivity and lower our prices. Competition with China keeps us on our toes and sharpens our wits, forcing us to move up the value-added ladder to new and better jobs with higher pay. And as they become more like us, their incentives become more in line with ours every day. This is cause for celebration, not condemnation. And to that, I’ll raise a glass of Chinese beer and say “Good on ’ya.”
They need what we have to sell:
What can we sell them? Well, let’s remember that U.S. exports to China have nearly tripled since we struck our WTO agreement with China, far exceeding our internal expectation when we negotiated the deal. America’s exports to China are lower than we want, but they have risen at about 10 times as fast as our exports to the rest of the world. We start with food, raw materials and transportation. Soybeans are our No. 2 export to China, totaling $2.3 billion. In 2004, we also sold them $1.6 billion in aircraft.
From there, we must move up the value-added ladder to medical services, financial services, legal services, entertainment and recreation, education, consulting, technology—these are areas of expertise in which the U.S. has a big lead on the rest of the world. They constitute our new comparative advantage.
Our medical industry, for example, is the best in the world. As China gets richer, surely its citizens will behave just like others and demand more medical attention. Currently, health expenditures per capita in China are just $63, which aggregates to one-half of 1 percent of GDP. Health is what economists call a “superior good”—something folks spend proportionately more on as income grows, as is abundantly clear in our own economy and in Europe’s.
The same is true of financial services. There’s not much need for financial advice when you have no money. But as income grows, demand for these services grows more than proportionately, and that will happen in China, too. Again, it plays to our advantage—if we take it. Because the U.S. got rich before the rest of the world, we had to learn how to efficiently finance an economy. We have created all kinds of financial products to satisfy this need, from basic banking services to underwriting and distribution mechanisms for financing industry and service providers, to mortgages and other means to finance housing, credit mechanisms to facilitate consumption and mutual funds to channel savings—there are about 2,000 different financial products in the United States today.
China’s banking system and securities markets are woefully handicapped by the old, stereotypical disincentives of communist government. American financial services can help the Chinese transition from central planning to market-based efficiency.
The same is true of legal services. As part of their WTO accession obligations, restrictions on foreign law firms have been gradually lifted. As of the latest count in December 2003, there were 116 foreign law firms from 16 countries operating in China—40 from America. Many more operate there now. Some of the firms represented here today have offices in China—Haynes and Boone, Vinson & Elkins, King & Wood and Jones Day, to name just a few.
HierosGamos legal directories lists 167 areas of law in which U.S. firms offer services in 19 Chinese cities. Obvious areas of practice are maritime, antitrust and unfair competition (defending U.S. antidumping claims!), bankruptcy, business appraisals, consumer law, copyright, customs, dispute resolution, employment and labor, estate and financial planning, ethics, franchising, foreign investment, human rights, immigration, import/export, intellectual property, joint ventures, mergers and acquisitions, offshore trusts, patents, project financing, trademarks and workers’ compensation.
Law leads me naturally to the entertainment industry. The world already loves our movies. Indeed, they love them so much, they steal and copy them—the sincerest form of flattery I suppose, but not one we can tolerate. Just getting China to abide by intellectual property rights would ultimately help pay both a lot of U.S. attorneys and screenwriters. We have much to sell them in this area.
Next there’s education. Educating the world—not just China—is an opportunity for America. It’s a comparative advantage and one upon which we should build. The U.S. has seven of the top 10 universities in the world; China has just one in the top 40—Beijing University, ranked roughly 20th. Of course, you can also outsource higher education. America’s colleges and universities enrolled 586,000 foreign students in 2003—more than second place Britain and third place Germany combined.
It is important to grasp that educating the world also benefits us. Why? Because many of the foreign students we train wind up staying here, building a base for our higher value-added production. Estimates from the 2000 census indicate that at the doctorate level, 51 percent of U.S. engineers and 45 percent of workers in life sciences, physical sciences, mathematical sciences and computer sciences were foreign-born. This helps us on the sell side; it stocks our technology base. Semiconductor parts were our No. 1 export good in 2004; we sold $43 billion worth, $2.6 billion of them going to China. Then, there’s our technology services—such as those in oil field and drilling technology. China needs our 3-D seismic technology to help locate oil for a booming market.
There are many such opportunities for us to sell to China.
A good speech, worth reading in full. I learned about this from Simon World: "Daily linklets 11th August".
But not anymore. At times in the 19th Century, over 90% of U.S. federal revenues came from tariffs; now they account for about 1% of its income. The Progressive Policy Institute (PPI) explains what happened: Tariffs Are 1 Percent Of Total Tax Revenues.
Many developing countries still raise a large part of their revenues from tariffs. For example, Mauritius raises about 29% of its revenues from tariffs.
This can create fiscal challenges for these countries if they commit to reducing import tariffs as part of a Doha Round agreement. This short South Centre analytical note available at this link looks at the issue from the point of view of these countries: "Revenue Implications of WTO NAMA Tariff Reduction ".
Who will be the next Secretary-General of the Organization for Economic Cooperation and Development? The Japanese, the Korean, the Australian, the Mexican, the Pole, or the Frenchman?
Sarah McGregor reports on the race in: "Globetrotting OECD candidates".
...The ideal candidate is a strong manager with a capable hand at macroeconomics and able to communicate clearly, says Helen Fisher, media relations manager of the OECD. Lining up votes will be no small feat given the selection process is based on consensus from the OECD's ultimate decision-making body, the council of ministers...
...All six candidates will present their ideas to the member council in Paris in early October, and a successor is expected to be named by December 1, 2005...
The McGregor article is focused on the Japanese candidate, Sawako Takeuchi. This article, by Katherine Murphy of The Australian, focuses on Allan Fels of Australia: " Fels up against fantastic five". Murphy has something to say about each of the candidates.
In 2002 Andrew Rose of Berkeley took at look at the data on trade between nations to see if members of the WTO (formerly the GATT) traded more with each other than with countries that were non-members.
To his surprise, he didn't find much evidence that they did. The web page with his results is here: Rose trade research papers . This page also contains links to critiques of his work, and to his responses to those critiques. Jonathan Dingel, at Trade Diversion reports on Rose's results: "Does the WTO liberalize trade?".
It's easy for an economist to sympathize with fisheries scientists who argue, as Carl Walters and Steven Martell do in their new textbook, Fisheries Ecology and Management, that fisheries science is about choice and trade-offs:
Texts on fisheries and ecosystem management typically begin with discussions about the objectives of management. It is easy to say that the objectives of modern fisheries management should be to ensure sustainable harvests, viable fishing communities, and healthy ecosystems, i.e., to sustain a mix of production, economic, and ecological values. Unfortunately, such platitudes are of little value in guiding either management or science, because there can be conflicts among the component objectives.
A more useful statement of objectives for scientists and managers would be to say that the central objective of modern fisheries science should be to clearly expose trade-offs among conflicting objectives, and the central objective of modern fisheries management should be to develop effective ways to decide where to operate along the trade-offs, and how to operate successfully..."
They elaborate on four trade-offs: harvest now versus harvest later, ecosystem diversity versus ecosystem productivity, efficiency versus jobs, and the allocation of fishery management resources among different activities.
Their discussion of the ecosystem tradeoff is especially interesting:
...It is foolish to pretend that there is some ecosystem principle stating that ecosystems are most productive of harvestable surpluses when they are maintained in the most natural and diverse possible state. An aquatic ecosystem in its natural state, in fact, exhibits no net production at all; the various organisms that prosper in this state have already appropriated all surplus production, otherwise they would be growing in abundance and/or would likely have already been subject to invasions by other species that could use them as resources. Further, long-term data sets on places such as the North Sea do not even support the reasonable proposition that the simplification of ecosystems through fishing might cause increased variability, vulnerability to invasion by exotic species, or even "dynamic instability" among the abundances of interacting species...
...If we set up multiple fisheries in ecosystem models, then search for an "optimum" mix of fishing efforts to maximize some simple economic objective like total profit from the ecosystem...we find that this optimum mix often involves an ecosystem-scale "farming" strategy...That is, the optimization tells us to use some of the fisheries to deliberately overexploit (control/cull) the competitors/predators of a few most valued species, so as to direct as much ecosystem production as possible through these species. This is, of course, exactly what people do in modern farming, through cultivation and pest-control practices. Almost every fisheries scientist who has seen such results has reacted with disgust and has turned to alternative objective functions that represent both broader values (existence as well as catch values) and also the "risk-spreading" value of maintaining a diversified "portfolio" of productive populations. But the simple fact is that we do not have strong, objective evidence from past fisheries experience to demonstrate that it would ultimately be destructive to engage in ecosystem-scale farming, i.e., to move a long ways along a trade-off relationship between natural diversity and the total economic value of fish production.
Terry Anderson and Peter Hill (in their new book on property rights in the 19th Century American West, The Not So Wild, Wild West: Property Rights on the Frontier ) suggest that this is what happened in the American West, when cattle replaced buffalo.
Buffalo were treated as a common property resource in the Old West, and hunted almost to extinction. They remained common property - unlike cattle - because the transactions costs of creating property rights were too high:
The fourth and perhaps most important reason that property rights to buffalo did not evolve was that bison were difficult to control and manage. Ownership and control required either that an owner control a sufficiently large amount of land over which bison could freely range or that he be able to fence them. U.S. land policy was directed toward settled agriculture with small-scale farms, and this made it difficult to establish ownership and control of large land areas...Homestead policy during the hunting era established 160 acres as the maximum size that a settler could claim. Some settlers were able to control more access through multiple claims and fraud, but rarely were property rights secure enough to establish claims to the several thousand acres needed for a viable buffalo herd. To fence buffalo in a smaller area was improbable because barbed wire was not patented and produced in commercial quantities until 1873 and because federal land laws prohibited fencing of the open range. In other words, artificially high transactions costs made it almost impossible for anyone think of establishing ownership of a buffalo herd...
With buffalo being undomesticated, they were not suitable for any sort of settled agriculture. The buffalo were difficult to handle, particularly in stressful situations, and could not be herded or driven to market like cattle...
...Basically, buffalo and cattle consumed grass of the Great Plains and converted it to products in demand in the East and Europe. Hence the entrepreneur had to ask what was th most profitable way to convert the grass into marketable products. The fact that cattle could easily be trailed to a rail head or even to market meant that cattle were valuable for their meat and hides, while the intractable buffalo were valuable only for their hides. In the 1880s, a buffalo hide was worth $3.00, while a cow was worth $20 to $25...
All in all, perhaps the history of the American bison was close to economically optimal. They were magnificent animals that populated much of the Great Plains, and they formed an economic resource that supported Indians and early settlers. They were exploited rapidly by both the robe trade and the hide (leather) trade, perhaps more rapidly than private rights would have allowed. Nevertheless, it is likely that, given the low economic value of buffalo and the fact that they were primarily valuable as an amenity resource, the appropriate degree of preservation occurred.
The buffalo resource collapsed in the early 1880s. As a sidenote - the collapse was very sudden. Anderson and Hill quote John Hanner:
The extirpation of the buffalo was so rapid that it even caught the hunters by surprise. Curiously enough, not even the buffalo hunters themselves were at the time aware of the fact that the end of the hunting season of 1882-83 was also the end of the buffalo, at least as an inhabitant of the plains and as a source of revenue. In the autumn of 1883, they nearly all outfitted as usual, often at the expense of many hundreds of dollars, and blithely sought "the range" that up to that time had been so prolific in robes. The end was in nearly every case the same - total failure and bankruptcy. it was indeed hard to believe that not only the millions, but also the thousands, had actually gone, and forever.
I wonder why the collapse was so unexpected? Walters and Martell point out that with many species of fish, catch per unit of effort can remain high, while the overall population is declining. The remaining fish group together within ever smaller geographical areas, and the fishermen target on these, rather than continuing to search empty water. As a result, catch-per-unit-of-effort may stay high until close to the end, and be a poor indicator of a declining stock. Did something like this happen to the buffalo?
Andres, over at Simon World thinks the easy part of China's modernization is over: "Made in Zimbabwe".
For these twenty and more years what Beijing has had was the legitimacy that economic affluence can buy. Only once has it dropped the ball, allowing inflation to careen out of control at the end of the 1980s, one of the reasons why Beijing's citizens decided to support the university students at Tiananmen rather than stay indoors. Since then Beijing has managed the economy relatively well.
This success fosters admiration, which is always nice to have, and emulation, which is always dangerous to have. Vietnam has begun to open its economy and is attempting to enter the WTO. India in the last fifteen years has finally turned away from its failed socialistic economic experiments and found the better friend of the poor is capitalism. And Japan has long moved many of its factories to Southeast Asia, to countries such as Malaysia and Thailand that have similar economic characteristics as China.
None of these countries would have been competitors for China's manufacturers twenty years ago, but they are now. And I don't think this is fully appreciated by many within China. The sun is setting on the "easy" part of China's modernization
China's current social stability is a precarious thing, not least because unrest has no formal and legitimate channels to go through. Protest sheets sent to Beijing or riots in Zhejiang are not effective ways for a society to regulate itself. Democratic elections are: they provide a way for citizens to take responsibility for themselves. Quite simply, no other method of choosing a government is now considered more morally legitimate by most people in the world.
The post is a lot longer and worth reading.