Economics

A World Bank research paper posted today finds that countries with a high proportion of young males with low levels of secondary education are significantly more conflict-prone. The combination of these "youth bulges" and low rates of secondary education is especially likely to lead to conflict in low- and middle-income countries, the authors also report. The findings focus particularly on Sub-Saharan Africa, as "the continent with the largest youth cohorts and the lowest levels of male secondary education, scoring on average nearly 30 percentage points lower than the world average."

Countries outside of the region also call for concern. In Syria, for example, males 14 years old and younger make up nearly 20 percent of the population. Only 39.1 percent of secondary school-aged students are enrolled in school, making it the 101st lowest-ranking country of 135 surveyed. In the long run, Syria is facing declining oil production and rapid population growth - a recipe for violent unrest.

The policy implications are clear. Programs that focus on primary education, like the U.N.'s Education for All and Millennium Development Goals programs are important (after all, students have to read and write before they can pursue secondary schooling), but there must be more support for programs like the World Bank's own Secondary Education in Africa initiative.

The total cost of a secondary education in Kenya is estimated at $6,865. A 2007 Oxfam report found that on average a "war, civil war, or insurgency shrinks an African economy by 15 percent," and conflict causes the continent to lose about $18 billion a year. You do the math.

Photo: SONIA ROLLEY/AFP/Getty Images

Last week, the Hurun Report released the top two on its 2009 China rich list, a ranking of the wealthiest people on the mainland: Wang Chuanfu at $5.1 billion, whose company makes electric cars and batteries, and Zhang Yin at $4.9 billion, whose company produces recycled paper products. The rest of the list comes out this month.

A few things about these two titans and the rich list and its older versions interested me. First, as the United States' billionaires are getting fewer and poorer, China's are getting more plentiful and richer. There are now 131 dollar billionaires in China -- compared with around 350 in the United States.

Second, an exceedingly obvious point but one to marvel at: Rich people in China own companies which make things. The country remains the organ that produces the world's stuff -- batteries, cars, paper, widgets, tires, you name it. And these companies remain relatively undiversified, vertically, not horizontally. One member of the rich list, for instance, owns a company that produces pig feed. 20 years from now, he might own a conglomerate that makes pig feed, feeds it to pigs, slaughters them, and sells the meat. Then, 20 years from then, he might own a holding company which subcontracts out all of those functions to workers and producers in cheaper markets.

In contrast, the 10 richest people in the United States (in descending order: Bill Gates, Warren Buffet, Larry Ellison, assorted Waltons, Michael Bloomberg, and Charles and David Koch) run diversified companies which trade in finance, technology, information, and real estate.

I also took a bit of interest in the producer of the Hurun Report -- one Rupert Hoogewerf. He's a Luxembourgian alumnus of the accounting firm Arthur Andersen who produced Forbes' China rich list between 1999 and 2003. At that point, it seems that Forbes fired him, possibly due to "public doubts and questions of the accuracy and authority of the wealth ranking year after year," according to state paper China Daily. It added: "It is understood that he received no compensation settlement from Forbes."

The official line is that Forbes simply decided to have a Shanghai editor manage the production of the list. But I like the idea of list-maker Hoogewerf going rogue. Does make you wonder about the accuracy of those lists, though...

The Fund’s managing director was addressing students on the campus of Bilgi University when a student took aim with a white trainer, chanting “get out of the university, thief IMF.”

Television footage showed security guards shielding Mr Strauss-Kahn and hustling the bearded student, who wore a white t-shirt and sleeveless jacket, out of the room.

Mr Strauss-Kahn later shrugged off the protest. “It is important for us to have an open debate. I was glad to meet students and hear their views. This is what the IMF needs to do, even if not everyone agrees with us. One thing I learned, Turkish students are polite. They waited until the end to complain,” he told reporters.

With this incident, Strauss-Kahn joins the motley crew of shoe-attack survivors that now includes George W. Bush, Wen Jiabao, Indian Home minister P. Chidambaram, and (possibly) Mahmoud Ahmadinejad.  The shoe-chucking innovator Muntazar al-Zaidi was released from jail in Iraq this month. 

So, readers, who do we think will be next? 

BULENT KILIC/AFP/Getty Images

European leaders are starting to follow suit; Britain's five largest banks have agreed to publish the pay of their key staff members, and will spread bonus payments over three years. French president Sarkozy has announced a set of even tougher and more broadly applied regulations.

Of course, not everyone thinks that bonus reforms are the way to go. Nobel prize-winning conomist Robert F. Engle III says

We shouldn't ban bonuses, but restructure the way they're paid so they're more commensurate with the risk the company is taking....What's important is we give the banking system the right incentives to figure this out. When companies get too big and too complex to fail, they would face a higher tax rate, which would go into a rescue fund. The banks are not excited about it, they would rather go back to business as usual."

The extraordinary efforts by governments and central banks to prevent the global economy from collapsing over the past year seem to have worked. Growth is picking up again, and optimism is in the air. The question now on many people's minds here at the G-20: Is it time for an exit strategy?

Not yet, according to China. Despite a recent bout of optimism, including from U.S. Treasury Secretary Timothy Geithner earlier today, Chinese officials said this evening that the international economy remains "quite fragile" and that Beijing isn't ready to support the unwinding of the various stimulus measures that governments have put in place to counteract the effects of the financial crisis.

As the recovery has gained momentum, some analysts have expressed concerns that governments under budget and political pressures would begin dismantling their costly stimulus programs too early.

"We believe it is still too early to talk about an exit strategy because the world economy is not out of the woods and the U.S. economy is still on a downward trend," said Department of International Cooperation official Ma Xin in a press conference here in Pittsburgh. "If we pull out or wind down the policies completely we may undermine people’s confidence."

John Kirton, a political scientist at the University of Toronto and an expert on the G-8 and the G-20, said in an interview that his biggest worry was that the major economies would unwind their stimulus measures too soon. His hope is that world leaders will issue a "strong, unified message" on staying the course after several countries, notably Japan and Germany, recently indicated they would begin dialing their stimulus measures back.

Chinese officials also responded to questions about one of the hot-button issues hanging over this summit, the ongoing depreciation of the U.S. dollar, which has lost 11 percent in value against a basket of major currencies since January. China, which now holds at least $2 trillion dollars in reserves, has made increasing noises in recent months about its desire to eventually move away from the dollar as a global reserve currency.

Geithner had to reiterate in his press conference today that "a strong dollar is very important in the United States." He added that he expected the dollar to remain the world's main reserve currency for "a very long time."

Xie Duo of the People's Bank of China said that Beijing supported "the stability of major reserve currencies," which he sees as an important condition for the health of the world economy. Nonetheless, he said, "Most experts realize that the composition of the reserve currencies is flawed," and "it is reasonable for politicians to voice their criticisms of the current system."

Earlier today, former Alaska governor and Republican vice-presidential hopeful Sarah Palin gave a speech to a group of investors in Hong Kong, for which the brokerage firm CLSA allegedly paid her $300,000.

Former McCain foreign-policy adviser Randy Scheunemann and a bevy of other veteran Republican aides reportedly prepped Palin for the speech, which Politico and other outlets have suggested implies she's prepping herself for 2012.

No reporters were allowed into the private event, but some investors passed good information on to Bloomberg News (which dryly notes that Palin first got a U.S. passport in 2007). The Wall Street Journal also seems to have some inside sources. Washington Wire offers a number of lengthy quotes.

Let's take a look.

The foreign-policy sections were something of a snooze -- some gentle urging for China to become more responsible on human rights, some criticism of its treatment of ethnic minorities and aiming of arms at Taiwan, some commentary on the trade and currency imbalances, some criticism of the United States for utilizing China as a "lender of first resort."

Regarding economics and the recession, though, Palin got a lot more interesting.

Foremost, she pinned the blame for the financial crisis on the U.S. Federal Reserve. Not the interplay of investment-bank profits, trade imbalances, the rise of securitization, the creation of zero-deposit loans, oil prices, the housing bubble, the credit rating agencies, and other commonly cited factors. Just the Fed.

"How can we discuss reform without addressing the government policies at the root of the problems? The root of the collapse? And how can we think that setting up the Fed as the monitor of systemic risk in the financial sector will result in meaningful reform?," she said. "The words 'fox' and 'henhouse' come to mind. The Fed's decisions helped create the bubble. Look at the root cause of most asset bubbles, and you'll see the Fed somewhere in the background."

She added, "The government forced lending institutions to give loans to people who, as I say, couldn't afford them." (Emphasis mine. These assertions reportedly caused two observers to walk out, saying "It's awful." Notably, the Chinese government actually does force banks to lend.)

Finally: "[Alaskans] have much in common with Hong Kong. We're both young and transient, independent and libertarian. Places that continue to show the world, the power and the resilience of the free-market system at a time when too many are questioning it." (Emphasis mine.)

It seems Palin -- whose prior public pronouncements have been somewhat ideologically incoherent -- has finally picked her strand of conservatism: libertarianism. It's a choice that makes sense. If the economy recovers well by 2012, conservatives of all stripes will have, well, several trillion reasons to talk about government spending and U.S. deficits.

But, I really think if Palin wants to establish her economic conservative credentials she should head back to the statehouse and encourage the state to go Galt -- turning Alaska into the United States' Hong Kong, a relatively tax-free, regulation-free, federal government-free zone. It would be rough. Alaska receives more federal subsidies per capita than any other state. But managing the Last Frontier without this Washington cash would demonstrate her executive prowess -- and would show that no entity should need interventionist government life-support to thrive.

But, sigh, I guess she'll probably just continue to brush-up on foreign policy and beef up her conservative credentials in more conventional ways.

Photo of Palin's resignation speech by Eric Engman/Getty Images

Nicolas Sarkozy's government is rolling out a "revolutionary" new economic indicator:

France plans to include happiness and well-being in its measurements of economic progress, French President Nicolas Sarkozy said Monday, beckoning other countries to join in a "revolution" in the way growth is tracked after the global economic crisis. [...]

France — whose growth has lagged its peers in recent decades according to standard measures — will also try to convince other governments to change their economic tracking, Sarkozy said

"A great revolution is waiting for us," he said. "For years, people said that finance was a formidable creator of wealth, only to discover one day that it accumulated so many risks that the world almost plunged into chaos."

"The crisis doesn't only make us free to imagine other models, another future, another world. It obliges us to do so," he said.

One minor quibble: Sarkozy should really give some credit to King Jigme Khesar Namgyel Wangchuck of Bhutan, the true pioneer of gross national happiness.

Skeptics can (and will) look at this new innovation as a ploy for France to "juke the stats," since its short workweek and social benefits look a lot more impressive than its GDP growth.

That aside, the transformation of Sarkozy's economic message has been pretty astounding. The president came to power promising privitization and economic modernization and was lambasted by French left-wingers for his attachment to "Anglo-Saxon" economic models. But since the economic crisis (and his own popularity crisis) he's made a habit of attacking the Anglo-Saxons for their free-market orthodoxy and consulting with market-skeptics Amartya Sen and Joseph Stiglitz on new economic indicators.

Where have you gone, Sarko l'Américain?

MICHEL EULER/AFP/Getty Images

Last week, Peter Bergen wrote an optimistic post titled "The Afghan Phoenix" over on the AfPak Channel, giving some counterfactuals to the doom and gloom over the plight of Afghanistan and the U.S. mission there. Five million refugees have returned to Afghanistan. One in six Afghans owns a cell phone. And, he notes, "You were more likely to be murdered in the United States in 1991 than an Afghan civilian is to be killed in the war today." This statistic struck me most, though: "In 2008, Afghanistan's real GDP growth was 7.5 percent. Under the Taliban the economy was in free fall."

I won't argue that Afghanistan's economy was anything other than terrible, and worsening, under the Taliban. It was and remains an impoverished country with a host of profound basic infrastructure and business development challenges -- from the lack of roads to the surfeit of bombs to the high illiteracy rate. It has a massive black-market economy. 80 percent of working-age men are involved in subsistence farming. A woefully high proportion of its population relies on the drug trade.

But I still don't find the 2008 GDP growth figure too much of a reason for optimism. Why? Afghanistan's GDP isn't growing because of booming Afghan production and consumption, or rising wages. Afghanistan's GDP is growing because of all the Americans and other foreigners -- around 65,000 troops and 200,000 nongovernmental workers -- building and buying things there (with dollars, no less), and because of the $57 billion pledged by international donors since 2002.

For an illustration of the phenomenon, see this chart of Afghan GDP in inflation-adjusted dollars, which I made with UN data. The Taliban took over in 1996, and Afghanistan's economy dwindled. The U.S. invaded in 2001, and it boomed. Afghanistan's GDP depends entirely on the armed force in charge. This isn't to say the local commerce supplying the 265,000 relatively flush foreigners in Afghanistan isn't real. But were the United States to drawdown, aid workers and military contractors and commerce would follow. My guess is that much of the GDP growth comes from service-sector jobs, not from new production. 

That's the real issue. Foreign spending in Afghanistan is a good thing for GDP. It's less clear whether it has fostered economically meaningful development. Dollars are all well and good -- but won't do much unless they help create businesses, employment, infrastructure development, and longer-term growth. (This is why Jonathan Zasloff's plan to hand out cash to Afghans wouldn't do much more than stoke inflation.) Whether they can remains the question.

Plus, many worry the U.S. troop presence cannot foster the foreign direct investment, local economic growth, agricultural development, and security and economic paradigm the country so desperately needs. But the U.S. military is hoping so. The civil-military plan by U.S. Ambassador Karl Eikenberry and Gen. Stanley McChrystal Laura Rozen posted today mentions the Afghan economy, licit agriculture, cross-border commerce, and reconstruction dozens of times.