The Custom-House

Should unions protect the job or the worker?

The Progressive Policy Institute's column this week talks about what might account for differences in unionization rates between countries (World's Most Unionized Countries: Sweden, Denmark, Norway, Finland, Belgium, Jan 31). 

Unionization rates are high in the Scandinavian countries.  In Sweden, 78% of the workforce (or maybe more) is unionized, in France, just 8%.  Why are Scandinavian (and Belgian unions) so successful?  There could be several explanations.  One possibility:

How to use the WTO

Jonathan Dingel asks: What's the best scope for WTO negotiations?, (Trade Diversion, January 31).

Dani Rodrik Profile

Louis Uchitelle profiles Harvard economist Dani Rodrik, and his views on trade: Economist Wants Business and Social Aims to Be in Sync (New York Times, Jan 30).

He focuses on Rodrik's views on two issues:

Tightening up the CFIUS Process

Foreign direct investment benefits the U.S. economy, but particular investments can raise national security concerns.  Congress and the President have created a mechanism to review proposed investments, to incorporate mitigating measures into particular deals, and to stop deals that are ultimately unacceptable. 

Last winter this system may or may not have adequately addressed the security issues when Dubai Ports World tried to buy the parent company of P&O Ports North America, a firm operating port facilities in the U.S.   It failed spectacularly in heading off a political firestorm.

Since then, even in the absence of new legislation from Congress, the U.S. has ratcheted up its scrutiny of foreign investments.  David Marchick lays out exactly how in Swinging the Pendulum Too Far: An Analysis of the CFIUS Process Post-Dubai Ports World  (National Foundation for American Policy Policy Brief, January 2007).

Remember the way the investment review system works.  The Committee on Foreign Investment in the U.S. (CFIUS) is an interagency committee, chaired by the Treasury Secretary.  CFIUS includes agencies responsible for the economy, as well as those more concerned with security.  CFIUS can review a transaction if one of the parties asks it to, or it can start a review on its own - even after a deal is completed.  Often, companies involved in a transaction that may have security implications consult informally with CFIUS staff before any formal request for review is made.   If companies think there will be security issues, they may request a review and work through mitigation issues to clear the air, and reduce the likelihood of a future CFIUS intervention - which could result in a required divestiture.

Once a transaction is "notified" to CFIUS, the committee has 30 days to complete an initial review.  CFIUS might not see any concerns, it may identify both concerns and adequate mitigation measures, or it might identify insuperable difficulties and the parties may withdraw from the transaction.  If the 30 day period ends, and concerns still exist, CFIUS can begin a secondary review (called an "investigation"), lasting up to 45 days.  The 45 day secondary review is required if an acquiring company triggers two conditions: it is (a) owned by a foreign government, and (b) the deal raises security concerns.    Ultimately, at the end of a secondary review, CFIUS reports to the President, who has 15 days to decide if a transaction can be allowed to go through.

Dubai Ports World went through this process at the end of 2005 and the start of 2006.  A review was completed, but the 45 day investigation wasn't triggered, even though Dubai Ports World was owned by a foreign government.  CFIUS evidently believed, after the review, and in light of any mitigating conditions that were required, that it was not a deal that raised security concerns.  Then everything blew up.  (I reviewed the Dubai Ports World CFIUS process up to the start of the controversy last march in Countdown to controversy: Dubai Ports World, Ben Muse, March 6, 2007).

On the North Pacific Great Circle Route

A week or so ago, The Economist had an article on recent shipwrecks and shipping accidents on the great circle route between the U.S. West Coast and East Asia (The North Pacific great circle route. A cold coming We had of it., Jan 18 - subscription required). 

The accompanying map showed that the shortest distance between East Asia and the Canadian-American Pacific Northwest runs through the Bering Sea:

Vessels traveling between East Asia and the North American West Coast actually pass both north and south of the Aleutians.  My understanding is that most vessels on the route north of the Aleutians pass from the North Pacific into the Bering Sea at Unimak Pass, to the east of Dutch Harbor, rather than to the west as shown.  The Coast Guard has begun monitoring traffic through the pass.  I think vessels are passing through it at the rate of about 3,100 vessels a year. 

The Economist article gives me an excuse to post some striking photos of the M/V Cougar Ace.

Corruption and growth

If you are interested in the economics of corruption, you'll find a lot to pick through at  Jakob Svensson's home page .  Svensson is with the Institute for International Economic Studies at Stockholm University. 

He surveyed what we know about the links between corruption and growth in a 2005 paper, Eight Questions About Corruption (Journal of Economic Perspectives, 19(3):19-42 - one of the papers available on his homepage). 

Theory generally suggests that corruption will slow economic growth.  Corruption increases the costs of behaving in certain ways, and people will alter their behavior to avoid the cost:

Congress and "zeroing"

John Miller reports in Wednesday's Wall Street Journal that efforts to wake up the Doha Round are likely to be a non-starter: Doha Revival Talks Are Set, But Accord Is Unlikely (January 24):

Global trade negotiators hope to restart the Doha round of world trade talks at the World Economic Forum in Davos, Switzerland, this week, but a return to the bargaining table will likely be more symbol than substance.

The key players -- the U.S. and the European Union -- remain unwilling to cut farm subsidies enough to satisfy emerging economies like Brazil and India....

Mr. Mandelson proposes a 54% cut in agriculture import tariffs. France, Europe's largest agriculture producer, wants to cut tariffs by just 39% -- and isn't budging. Without France there is no deal: Mr. Mandelson needs support from all 27 EU members in order to reach a global trade deal.

Dan Ikenson of Cato's Center for Trade Policy Studies won't be too worried if the Doha princess sleeps for years to come.  Trade is Much Bigger Than the Doha Round (CATO at Liberty, January 22)

The downside of Botswana's diamonds

Botswana has been able to build a remarkable growth record on its diamond endowment, without falling victim to the resource curse (How did Botswana avoid the "resource curse"?, Ben Muse Oct 17, 2006).

But yet, as John Holm posts at the Center for Strategic and International Studies (CSIS) Africa Forum, everything's not hunky-dory (Diamonds and Distorted Development in Botswana, Jan 8, 2007):

Yet there is another, more pessimistic side to the story of Botswana’s development.   To put the matter simply, diamonds have produced distorted development.  Most obvious has been the limited economic spin-off in terms of employment. Debswana, the diamond mining corporation owned jointly by the government and DeBeers, employs about 6,500 people, or just 2 percent of the workforce.  To be sure, there is significant secondary employment generated by the company’s contractors and consumption by Debswana employees.  The bottom line, however, is that after decades of rapid GDP growth, about 40 percent of the working age population is unemployed.  Apart from the diamond industry, no other economic sector has experienced much growth.  In the meantime, the educational system, well funded by diamond income, annually churns out large numbers of students who cannot find jobs, even when they have a university education.  Top planners in the education have concluded that government must restructure the system to prepare  youth for export to the global economy, since few jobs will be available inside the country in the foreseeable future!

Another distortion has to do with the size of government.  Diamond sales have fueled rapid expansion of government employment.  The result is that the public sector now employs almost 45 percent of the workforce (295,000), if parastatal corporations are included.  The national government alone employs one-third of the total workforce.  The result is the emergence of a bureaucratic behemoth with a capacity to penetrate and regulate many aspects of society...

Still another distortion is that the government is inclined to use its massive income to subsidize major sectors of economy and society.  Other African states have privatized sizeable sections of their governments over the last several decades.  In contrast, the Botswana government has been moving at a snail’s pace.  Regular money losers like Air Botswana and the copper mines continue to limp along with subsidies from the government.... 

A looming political danger to government is the power of the diamond trade unions.  If the unions should launch a sustained strike (Debswana holds a considerable diamond reserve, so government could survive a short strike), the government could be brought to its knees.  As a result labor laws serve to restrict union activity severely, particularly in the diamond sector....

I learned about Holm's post from a Lars Smith's post at Conservation Finance: Diamonds and the resource curse (Jan 12, 2007)

re "hunky-dory" see also : World Wide Words. Michael Quinion writes on international English from a British viewpoint and Answers.com.

Waking the Sleeping Doha Beauty

The Financial Times reports that it just may happen:  US and EU near agriculture trade deal (Eoin Callan and Alan Beattie, Jan 21).  Lots of parties need to be brought on board:

The EU:

The deal that has been taking shape behind closed doors includes a proposal by Brussels to cut barriers to foreign agricultural products by an average of at least 54 per cent...

The US:

...a conditional offer by the US to lower the ceiling on its domestic farm subsidies to close to $17bn (€13.1bn, £8.6bn).

The previous U.S. offer, a cap at $22.5 billion (about a 50% cap decrease) was larger than the $19.7 billion actually spent in 2005.  So this new proposal would actually limit U.S. subsidies.

The French:

Both sides are also aware that the provisional EU offer on tariff cuts could lapse under the strain of opposition from Paris, which has demanded that the farm talks in Doha be put on the agenda of the meeting of EU agriculture ministers next Monday.

The U.S. Congress (who will have to give the Bush Administration an extension of its Trade Promotion Authority):

The Bush administration has also met key figures on Capitol Hill who will shape policy on agriculture and trade under the new Democratic leadership of Congress. But it is likely to take weeks to establish whether Congress would consider renewing President George W. Bush’s trade promotion authority – which expires in six months and is needed to complete a deal.

These approaches included an appeal to Collin Peterson, the influential chairman of the agriculture committee in the House of Representatives, to tone down his opposition to the renewal of trade promotion authority.

The congressman said after the meeting that he remained deeply critical of US trade policy but was not determined to wreck a Doha deal that included meaningful benefits for US farmers.

Brazil and India:

Any agreement is also contingent on reciprocal concessions by Brazil and India on lowering barriers to trade in industrial goods and services – which are still under negotiation... Brazil has been negotiating separately with the US and EU and dispatched a senior diplomat to Delhi over the weekend to try to broker a common position

For quick background, take a look at Sandra Polaski's paper, Breaking the Doha Deadlock. Congress Could Play a Pivotal Role. (Carnegie Institute, January 2007).  Polaski is Director of the Trade, Equity, and Development Project at the Carnegie Endowment for International Peace.  She argues that a U.S. "maximalist" negotiating position in the early summer of 2006 was the key reason for the suspension of negotiations.  The U.S. needs to accept lower limits on its agricultural subsidies, and give developing nations more scope for protecting weak agricultural sectors.  This she says, and I agree, would be good domestic, foreign, agricultural, and trade, policy for the U.S. 

For more background, I'd also suggest a post by Iana Dreyer on the new globalisation blog, Global Conditions: Doha Round - Just Do It (Jan 18).  I learned about the Polaski paper from Dreyer.  Dreyer also draws on stories from recent articles in the International Centre for Trade and Sustainable Development (ICTSD) newsletter, Bridges. 

Where's corruption worst?

Transparency International (TI) published the 2006 update of its Corruption Perceptions Index (CPI), back in early November: Corruption Perceptions Index 2006 (November 6, 2006) :

The 2006 Corruption Perceptions Index is a composite index that draws on multiple expert opinion surveys that poll perceptions of public sector corruption in 163 countries around the world, the greatest scope of any CPI to date. It scores countries on a scale from zero to ten, with zero indicating high levels of perceived corruption and ten indicating low levels of perceived corruption.

Here's a summary of the results, but there's much more detail at the web site: