Is the end nigh for Indian tech support? A British telecommunications company is moving one of its call centers from Mumbai to Burnley, 21 miles north of Manchester, to cut costs. New Call Telecom chief executive Nigel Eastwood explains the decision:
Salaries in India aren't that cheap any more. Add to that the costs of us flying out there, hotels and software, and the costs are at an absolute parity.
In the UK we will pay workers the minimum wage. Given the current economic environment, we will get good "sticky" employees who will also receive bonuses linked to performance.
With rents as low as £4 per square foot, prices for commercial real estate in Burnley are reportedly on par with those in Mumbai. Residential prices are similarly affordable; data from the property website Mouseprice indicates that four of the five most affordable streets in England and Wales are located in Burnley, a former mill town struggling with high unemployment. Meanwhile, salaries in the IT outsourcing industry in India are set to rise 11.9 percent in the upcoming year, and some business process outsourcing leaders in India have already admitted that, with unemployment high throughout the West, India's competitive advantage in call centers is shrinking.
Eastwood also notes that using British staff should make call handling more efficient as well, because British customers will find compatriots easier to understand. Although the rest of the world may beg to differ on that one.
Christopher Furlong/Getty Images
Tens of thousands of protesters today joined a general strike against the latest proposed austerity measures from Prime Minister George Papandreou's increasingly unpopular government, as the country lurched closer to economic collapse.
The protests turned violent at times, as riot police battled crowds with tear gas and pepper spray. The Wall Street Journal reported that protesters "came from all walks of society, including big swaths of the middle class" and expressed frustration that significant austerity measures already put in place by the government have so far failed to improve the economy.
See photos from the day's protests below.
Getty Images, AFP/ Getty Images
While there will always be those who would rather chuck those chalky candy hearts than eat them with their sweetheart on Valentine's Day, anti-V-Day sentiments usually focus on how big, evil corporations make couples spend unnecessary cash on each other and how single people hate themselves. But how about the global implications of the holiday?
While examples of romantic gifts gone wrong like conflict diamonds are unfortunately already ubiquitous, some groups are spending this Valentine's Day raising awareness about the global impact of the cocoa trade. This year the focus on cocoa is especially relevant thanks to an ongoing political crisis in the world's biggest cocoa supplier: the Ivory Coast, which produced 1.2 million tons of chocolate's main ingredient last year. Avaaz, an activist group, has been pushing Hershey, Nestle, Cargill, and Cadbury, to boycott Ivorian cocoa, the trade in which is helping to prop up President Laurent Gbagbo's pariah regime.
The European Union's sanctions on the Ivory Coast's ports extend to cocoa. Last month, Alassane Ouattara, the internationally recognized winner of the most recent presidential election, embargoed cocoa exports for a month, in an attempt to cut off support to Gbagbo. He's threatened to extend the ban if Gbagbo doesn't leave office.
Another activist group, Green America, is pushing for increased awareness of the use of child labor in cocoa production. According to the U.S. State Department's 2009 Human Rights Report on the Ivory Coast, nearly a quarter of children between the ages of 5 and 17 who lived in cocoa-growing regions had worked on a cocoa farm, often in hazardous conditions. Green America suggests that buying Fair Trade chocolate can help combat child labor, as well as support small farmers and lessen environmental impacts.
Meanwhile, according to Reuters, cocoa futures prices have risen more than 20 percent since Ivory Coast's disputed Nov. 28 election. And the continuing ban in the Ivory Coast means prices are likely to continue to rise.
This year, instead of blood diamonds, chocolate … whatever, try giving your special someone a hug instead. It just might be sweeter.
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Chinese President Hu Jintao's arrival in Washington yesterday was accompanied by the announcement of the imminent signing of a major joint venture between General Electric and China's state owned Avic to produce sophisticated avionics (airplane electronics) in China for sale to Chinese and other airplane producers.
No doubt intended as a way of pouring oil on the troubled waters of U.S.-China trade relations by demonstrating mutually beneficial cooperation between U.S. and Chinese industry, the announcement instead demonstrated precisely why the waters are troubled.
Let's start with GE Chairman and CEO Jeff Immelt. About a year ago, in the course of a dinner he thought was private, Immelt complained that China is a miserable place in which to do business. It was bent on expropriating GE technology and made selling in China very difficult if not impossible unless a company also produced in and transferred technology to China, he opined. A few months later, Immelt spoke of having an epiphany about the dangers of off-shoring too much GE production. In the GE annual report, he wrote of the need for and his intent to put more investment in the United States and to bring some of GE's foreign production back to America.
But the announced deal will take things in the opposite direction. The investment and production will be in China and the technology (much of it initially paid for by U.S. tax payers and the Defense Department) will be transferred from the United States to China, thereby enabling China's aviation industry to move more quickly toward its goal of overtaking the U.S. and Europe in commercial and military jet production.
So what's going on? GE's Vice Chairman John G. Rice put it bluntly in commenting on the fact that China is expected to buy $400 billion of airplanes over the next twenty years: "We can participate in that or sit on the sidelines. We're not about sitting on the sidelines." Rice added that: "This venture is a strategic move that we made after some thought and consideration with a company we know. This isn't something we were forced into by the Chinese government."
Okay, but why can't GE sell to that big market without a joint venture with a state owned Chinese company? Why can't it just make the avionics in the United States and export them to the Chinese aircraft makers and airlines? After all, China doesn't have this technology right now. So GE is a lower cost and infinitely more sophisticated producer than Avic.
Well, one reason might be that if GE doesn't do this deal, another avionics maker might. But hold it. That has to mean that the Chinese are effectively making access to this big market conditional on producing in and transferring technology to China. So who is Rice trying to kid. Maybe the Chinese government didn't call him up and shout directly over the phone that "Mr. Rice we command you to do a joint venture with Avic and to transfer your technology and production to China." But Rice is not as dumb as he thinks we are. He was afraid that if he didn't produce in China, he wouldn't have a chance at the business.
And Immelt did say that he had cleared all this with the U.S. Departments of Commerce, Defense and State.
But that raises an even more interesting question. Will we be hearing of any joint ventures between U.S. and Chinese companies that will transfer Chinese technology and Chinese based production to the United States? I'm sure your guess was "no." And you're right. But why don't Obama and his Commerce, Defense, and State Departments make it clear to the Chinese that if they want to sell in the U.S. market they need to produce something here and transfer some technology here? China is way ahead of the U.S. in the production of solar panels for example. This is a technology being fostered by the Obama administration. Why not get the Chinese to help us in solar panels just as Immelt and GE (with the apparent approval of the Departments of Commerce, State, and Defense - and the White House) are helping them with avionics?
After all, isn't what's good for the Chinese goose also good for the American gander?
Just in time for Hu Jintao's visit to Washington next week, economist Arvind Subramanian of the Peterson Institute for International Economics is coming out with a new set of GDP estimates showing that the Chinese economy may have actually surpassed the United States some time in 2010.
Subramanian's estimates rely on purchasing power parity (PPP) estimates, which take differing labor costs in rich and poor countries into account. While the IMF also produces PPP estimates, Subramanian believes these are flawed, overstating price increases between 2005 and 2010 to the detriment of China. Therefore:
The latest version of the Penn World Tables (version 7 to be released in early February 2011) have corrected these biases, which result in an upward revision for China’s PPP-based GDP by about 27 percent and for India by about 13 percent for the year 2005. I use the new PWT corrections as the starting point for computing new estimates for PPP-based GDP and GDP per capita.
A second correction relates to developments between 2005 and 2010. For this period, if the IMF data are taken at face value, they suggest an increase in the real cost of living in China relative to that in the United States (which is equivalent to a real appreciation of the Chinese currency) of about 35 percent. This seems implausible because three alternative ways of assessing currency changes point to a much smaller appreciation.[…]
These two adjustments increase China’s GDP from the current estimate of $10.1 trillion to $14.8 trillion (an increase of 47 percent, of which 27 percent is due to the revision in the 2005 estimate, and the rest due to smaller-than-assumed increases in the cost of living between 2005 and 2010). This $14.8 trillion figure exceeds US GDP of $14.6 trillion. It must be emphasized, of course, that the difference is small enough to be within the margin of error.
Applying the same adjustments to GDP per capita increases the estimate for China from $7,518 (the current estimate in the IMF’s World Economic Outlook) to $11,047. The GDP per capita (the average standard of living) is now about 4.3 times greater in the US than in China compared with a multiple of 6.3 without my corrections (and compared with a multiple of 11 if GDP is computed using market exchange rates).
Subramanian argued for FP in June that by discouraging high-skilled immigration from countries like India, the United States was only taxing its own international competitiveness. These new numbers should serve as a stark reinforcement for that point.
According to official government figures, China's economy is still the second largest, having overtaken Japan in the second quarter of last year.
Hat tip: Chris Blattman
PHILIPPE LOPEZ/AFP/Getty Images
Last week, I had the opportunity to moderate a panel titled "The World Economy in the Next Ten Years," sponsored by the Chazen Institute at Columbia Business School. The discussion, a whirlwind tour of the world economic system, was great fun -- and provided useful economic evidence to back up Foreign Policy's own Nov. 30 event, which focused on the political "rise of the rest." The Chazen Institute has posted the videos of each speaker online, but let me give a quick rundown of what caught my attention as the most important and attention-grabbing points of the discussion.
FP contributor Arvind Panagariya reminded the audience that -- despite the debate over whether India or China will be Asia's preeminent economic giant - India is still an extremely poor country. It currently ranks in 165th place in the GDP per capita among countries worldwide, just above Mongolia and below countries such as Iraq and the Republic of Congo. But that's about to change rapidly: India could grow at a 10 percent clip over the next 15 years. This rapid growth means that, by 2025, the combined size of the Chinese and Indian economies could equal the U.S. economy.
Shang-Jin Wei, the director of the Chazen Institute, argued that China's unique demography might hold the key to the country maintaining its torrid growth rates for the next decade. He pointed out that there are now 115 men in China for every 100 women, meaning that approximately one out of every nine Chinese men is unable to find a spouse (excluding the possibility of gay marriage or polygamy, presumably). He proposed that this competition for China's scarce supply of brides encouraged men to accumulating the wealth necessary to attract a mate. That's not just pop sociology: Wei cited data that showed workers in regions with skewed sex ratios were more likely to take dangerous or unpleasant jobs, and more likely to launch privately owned businesses.
But while the future is rosy in South and East Asia, it looks less bright in Europe. Charles Calomiris, a professor of financial institutions at Columbia University, predicted that the current economic crisis would cause "the end of the Eurozone as we know it." He painted a scenario where Europe's weak economies, starting with Greece, were unable to repair their dismal fiscal situation without abandoning the euro.
John Coatsworth, the dean of Columbia's School of International and Public Affairs (SIPA), discussed Latin America, which he suggested was essentially poised to split in two. The South American countries, which have successfully diversified their trading partners by establishing new relationships in Europe and Asia, would witness "the retreat of American leverage and capacity" to the levels that existed in the late 1800s. These countries, he argued, will enjoy rapid growth and exhibit growing independence from the United States on the international stage. Meanwhile, the countries of Central America and the Caribbean would be unable to break from their dependency on the United States -- and consequently experience slower growth rates as the U.S. economy limps along.
Speaking in Winston-Salem, North Carolina on Monday, President Barack Obama lamented America's stubbornly high unemployment and promised to outline for the gathered students a "vision that will keep our economy strong and growing and competitive in the 21st century."
There was applause as the students sat on the edges of their chairs in anticipation. Unfortunately, what followed only proved that the president should have gone to his eye doctor instead of the Winston-Salem. It was at best, a case of partial vision.
It began with a "recognition" that in the past few decades revolutions in technology and communications and the integration into the global economy of two billion new people in India and China had touched off fierce competition among nations for the industries and jobs of the future to replace the auto mechanics and machinists that Forsyth Technical Community College, where he was speaking, had been founded many years ago to produce. It continued with the argument that the winners of the competition would be the countries with the most educated workers, the most serious commitments to research, the best roads, bridges, high speed trains and airports, the fastest Internet connections, and the most innovation.
The president emphasized that the most important competition the United States faces is not the competition between Republicans and Democrats, but the competition between America and its economic competitors around the world. "That's the competition we've got to spend time thinking about," he stressed.
He went on to reassure the audience that America will win this competition because it has the world's best universities, smartest scientists, best research facilities, and most entrepreneurial people. Indeed, entrepreneurialism is "in our DNA" he said.
But then the vision became a bit cloudy. Despite the reassurances of American superiority, the president said the country is in danger of, indeed is, falling behind -- in high school graduation rates, the quality of math and science education, in the proportion of science and engineering degrees we hand out, in attracting research and development facilities compared to India and China, in R&D spending, and in Internet speed and connections.
Are you a little confused by how we could be falling so badly behind if we have the best universities, best research facilities, smartest scientists, and most entrepreneurial people? All I can tell you is that the president says we are facing in "Sputnik Moment", calling to mind the shock America felt in 1957 when the Russians launched the first earth satellite. To respond to this challenge, he emphasized that we must set the goal of "Made in America."
Hey, nothing wrong with that. At this point, I was cheering. He's the first president in my memory who has dared to say that we need to compete by actually making things. So I give the first half of the vision an A.
But then Obama turned to how we're going to come back and regain leadership by increasing education and R&D spending, improving our infrastructure, and doubling our exports by negotiating more free trade agreements like the one just concluded with Korea.
Aside from the Korea deal (which I'll address in a moment),these are all good things to do and we should do them. But doing them will not by itself reverse the decline in our competitiveness. Actually, the Korea deal illustrates both why this is true and why the president's vision is still impaired. South Korea's workforce is not better educated than America's. Nor does it spend more on R&D, nor is its labor inexpensive like that of China, and nor is it nearly as entrepreneurial. Yet the United States a growing trade deficit with South Korea and is far behind it in areas like liquid crystal displays, various kinds of semiconductors, cell phones, and much more.
What the Koreans do is target development of key industries with special financing and regulations and manage their currency to be undervalued versus the dollar as a kind of protection of the domestic market cum subsidy of exports, impede foreign penetration of domestic markets through a wide variety of formal and informal non-tariff barriers, fail to enforce intellectual property rights of foreign enterprises operating in South Korea, and make foreign investment in Korea extremely difficult as a practical matter.
I am not saying these things to attack South Korea. If these policies work, and they obviously do, South Korea has every right to keep them in place. But obviously Korea is engaging in a different kind of globalization than we are. And equally obviously, the president doesn't recognize that. Thus the president expects that this new free trade deal is going to increase U.S. exports to Korea and create 70,000 jobs in the U.S. But any deal that allows currencies to be managed in such a way as to stimulate exports and inhibit imports - to mention just one factor -- is not going to result in surging U.S. exports or in surging U.S. job creation.
The White House eye doctor needs to prescribe glasses that will allow the president to see the other half of the playing field and to recognize that he must play with a full deck of cards. More education and R&D? By all means, bring them on. But he also needs to respond to the industrial targeting, exchange rate, investment, and getting realistic about the globalization policies and practices of our economic competitors.
Clyde Prestowitz is president of the Economic Strategy Institute and author of The Betrayal of American Prosperity.
Foreign Policy's Top 100 Global Thinkers of 2010 represent some of the brightest minds in the world today. Reuters' Chrystia Freeland, in partnership with FP, sat down with a number of them to hear the ideas that put them on the list. Nouriel Roubini, who came in at No. 12 on our list, told Freeland that, contrary to conventional wisdom, financial crises in modern-day capitalism are not rare events -- and that they're becoming more frequent, more violent, and more damaging.
The FT's Martin Wolf managed to find some encouragement in the final communiqué from the Seoul G-20 meeting. In a column earlier this week, he said that language describing the use of various measures of global imbalances and suggesting the need for action to rebalance chronic current account surpluses and deficits suggested that, under the radar, the U.S. and China are moving toward consensus on a way out of the apparent impasse reached in Seoul.
I told him that I marvel at his optimism. But let's say, for the sake of argument, that he's right and that the U.S. will move toward trying to produce more of what it consumes and exporting more of what it produces while China does the opposite. I think there remains the major question of whether either side can actually, physically do what is necessary to achieve rebalancing.
This question occurred to me last night after a chat with a friend from FedEx who mentioned that while his planes fly fully loaded from Asia to America, they return to Asia almost empty. Well, of course, that makes a lot of sense because we don't make much here in the United States that FedEx can take back. Of course, we do export to China, but in recent years our biggest or second biggest China bound export items have been waste paper and scrap metal, and those items go by ship. In the high-value, low-volume, high-tech category of goods that fly well, the United States, despite its self-image as the world's high tech leader, has a trade deficit that will likely exceed $150 billion this year.
Let's take a few major products to see how things might work. Steel, for example, is a key product for any industrial economy. The United States imports about 30 percent of the steel it uses while China has more steel making capacity than the rest of the world combined. So, in a rebalancing scenario, Washington would try to find ways to encourage U.S. companies to buy more of their steel from American producers. But the government would run into the problem that there may not be enough actual production capacity left in the United States to allow a substantial reduction in imports.
Of course, more production capacity can be built, but not in any short period of time. Construction of a new steel mill, even if anyone would have the courage to build one in the United States knowing that China's producers could at any moment unleash a flood of cheap exports into the market, would take one to two years.
At the same time, China already produces virtually all of the steel it uses and has enough production capacity to fulfill domestic demand many times over for a long time to come, even without increasing production capacity. So China's steel industry really can't rebalance. It can't sell a lot more than it already does at home, and if for some reason it stopped its overseas shipments it would be left with massive excess production capacity that could easily bankrupt its companies.
As another example, take the Apple iPad. Apple is an American based company to be sure, but virtually nothing in the iPad is made in America. Of course, the product is conceived, designed, marketed, and sold in the United States, but the components are mostly made in Japan, South Korea, Taiwan, and Singapore, and the assembly takes place in China. So rebalancing implies that maybe some iPad production would be switched to America.
In principle, there is no reason why the semiconductor chips, displays, and other key components of the iPad couldn't be made competitively in the United States and inexpensive assembly could, perhaps, be done in Mexico or elsewhere in Latin America. But that would mean that the major factories and investments that have been made in iPad production in Asia would have to be at least partly abandoned. That would result huge financial and job losses to which Asian governments would object.
I sometimes wonder if economists consider these structural, nuts and bolts issues when they talk blithely of rebalancing. These are not things that can be turned on and off like a spigot. It takes a couple of years to build a new semiconductor plant and costs $5-8 billion. Once that investment is made, it is not quickly abandoned unless there is some major change in circumstances.
In his column, Wolf insisted that the U.S. and China must achieve rebalancing fairly quickly in order to avoid protectionism. But is it possible that the action actually runs in the opposite direction -- that some degree of protection might be necessary in order to create the change in circumstances necessary to achieve big shifts in the location of production and thereby also achieve the holy grail of rebalancing?
Clyde Prestowitz is president of the Economic Strategy Institute and author of The Betrayal of American Prosperity.
MIKE CLARKE/AFP/Getty Images
Last week we listed some items that are growing in popularity among China's increasingly wealthy middle class, along with some of the impacts of these recent obsessions, including jade. One major consequence not included in the list is the fact that China's passion for jade has been criticized by both human rights groups and the U.S. government for financing Burma's military dictatorship.
Brian Leber, a Chicago-based jeweler involved in efforts for an industry-wide boycott of jewels from Burma, wrote in to remind us that the Southeast Asian country is not only home to one of the world's most repressive regimes, it also has millions of kilograms of jadeite -- the most expensive and most sought after jade in China.
U.S. trade sanctions on Myanmar that specifically targeted the military junta's trade of jadeite have apparently done little to quell the Chinese appetite for the fine gem: According to the U.S. Government Accountability Office, jadeite from Myanmar has, unlike other gems, continued to be "primarily purchased, processed, and consumed by China."
Those are the three unfortunate major economies projected to see negative GDP growth in 2010-2011, according to the IMF's new World Economic Outlook. (The small Carribean nations of Antigua & Barbuda and St. Kitts & Nevis are also in the red.) Greece, at -3.3 percent, has by far the most dramatic contraction of the bunch.
The outlook is most grim for Western Europe, much of which will see between 0 and 2 percent growth. Politically unstable Kyrgyzstan seems to be the only Asian country with less than 2 percent growth while similarly unstable Madagascar is Africa's outlier.
In yet another scandal for the Catholic Church, Italian authorities are investigating the Vatican Bank on suspicion of money laundering:
The Bank of Italy investigation was prompted by two wire transfers which the Vatican Bank asked Credito Artigiano to carry out, the Bank of Italy said.
The Vatican Bank did not provide enough information about the transfers -- one for 20 million euros (about $26 million), and one for 3 million euros (about $4 million) -- to comply with the law, prompting the Bank of Italy to suspend them automatically, it said.
The Vatican Bank is subject to particularly stringent anti-money laundering regulations because Italian law does not consider it to operate within the European Union.
This is not the first time the bank, formally known as the Institute for Works of Religion, has been under suspicion. The bank has been accused in the past of laundering money for the Sicilian mafia and the Gambino crime family as well as helping Croatia's pro-Nazi wartime government steal the assets of Holocaust victims.
The current investigation could add more fuel to the current debate over Vatican sovereignty, which was prompted by the pope's recent visit to Britain. Anti-pope campaigners like the British LGBT activist Peter Tatchell argue that the Holy See's officially recognized sovereignty and observer status at the United Nations give it unwarranted authority in international debates over subjects like birth control, abortion and homosexuality while protecting priests and Vatican officials from prosecution.
As I wrote in a recent explainer piece, the Holy See has worked hard to cement its sovereign status since it was first recognized under a treaty with Benito Mussolini's Italy in 1929. It currently enjoys diplomatic relations with 176 countries in spite of the fact that has no fixed population and controls virtually no territory, usually prerequisites for statehood.
But in light of the fact that Vatican sovereignty can be used as a tool to protect both accused pedophiles and money launderers, it might be time to consider whether the Catholic Church deserves a special recognition under international law not granted to any other religion.
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Iraq is still paying the world back for Saddam's actions -- literally. The Christian Science Monitor reports that the Iraqi government has agreed to pay $400 million to American citizens who claimed to have been tortured or traumatized by the Iraqi regime following Saddam's 1990 invasion of Kuwait. With a 15-30 percent unemployment rate, ubiquitous violence, and a still lacking infrastructure, why is the new Iraqi regime paying so much money to American citizens when it was all Saddam's fault? Because the payment may help Iraq's case to end U.N. sanctions that have lasted since Saddam Hussein's rule:
Settling the claims, which were brought by American citizens, has been seen as a key requirement for Washington to be willing to push for an end to the UN sanctions.
"There was a lot of pressure on the Iraqi government to do something that gets Congress off their back," says one senior Iraqi official, adding that the settlement cleared the way for US efforts to bring Iraq out from under the UN sanctions.
That's right, Saddam is long gone but sanctions on the still rebuilding country aren't. In fact, Iraq has already paid Kuwait $27.6 billion in reparations and continues to devote five percent of its oil revenues in accordance with the U.N. sanctions resulting from Saddam's invasion. While many countries have cancelled a lot or all of Iraq's debt to them, Kuwait continues to support Iraqi reparations -- regardless of the $22 billion Kuwaiti budget surplus for the last fiscal year.
So if U.S. citizens get paid by the Iraqi government for Saddam's "traumatizing" from 20 years ago, what will the United States pay the families of Iraqi citizens that are actually killed by U.S. forces? Well, the U.S. government is trying to find ways for Iraq to pay for that too.
RAMZI HAIDAR/AFP/Getty Images
Due to a combination of high unemployment levels that have decreased U.S. wages and increased salaries in India's outsourcing sector, the head of India's largest business process outsourcing company told the Financial Times that American call center workers are becoming just as cheap their Indian counterparts:
Pramod Bhasin, the chief executive of Genpact, said his company expected to treble its workforce in the US over the next two years, from about 1,500 employees now.
"We need to be very aware [of what's available] as people [in the US] are open to working at home and working at lower salaries than they were used to," said Mr Bhasin. "We can hire some seasoned executives with experience in the US for less money."
So does that mean that when I talk to "Jason" about my broken hard-drive, his name will actually be Jason? Not necessarily. FT goes on to say that another Indian IT outsourcing company has begun recruiting workers in Europe, the Middle East, and Africa and has plans to make half of their 110,000 workers non-Indians.
FINDLAY KEMBER/AFP/Getty Images
This week's quiz question:
The volume of global trade decreased how much in 2009?
a) 3 percent b) 12 percent c) 23 percent
Answer after the jump …
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Last night, Greece's parliament approved a controversial pension reform plan which would raise the retirement age to 65 -- many Greeks currently retire around 50 -- reduce payouts, and make it easier for companies to fire workers. Just how upset are Greek workers about this?
“Nobody expected this — this is worse than the occupation under the Germans,” said Nikos Stathas, 60, a plumber who is just retiring now. He says he has just got his pension, but he is worried about his children and grandchildren. “This will demolish their retirement,” he added.
About 300,000 people died of starvation in Athens alone, during the German occupation, but that was nothing compared to forcing future generations of Greek workers to retire at the same age as the rest of the developed world.
Hyperbole aside, cuts like these are always painful for any government to make, and it's a particular irony that they're being made by Socialist Prime Minister George Papandreou. It was his father Andreas Papandreou, who, as prime minister during the 1980s, largely established the Greek benefits system that his son is now dismantling.
In the current print issue of FP, I write about some new research suggesting that in post-Communist Eastern Europe, Socialist government have been more likely to enact spending cuts and privatize assets than their right-wing rivals. In the response to the financial crisis, we've seen Socialist governments in both Eastern European countries like Hungary and Western European countries like Spain pushing through dramatic spending cuts and labor reforms to avert crisis.
I suspect this has less to do with an ideological switch -- the conservative French and British governments are pushing austerity as well -- than with mainstream European parties largely reaching a concensus on the best way to respond to the crisis. The old joke about the U.S. foreign policy debate is that it's a (American) football game played between the 40-yard lines. European economic policy is starting to look more like halfcourt basketball -- both teams trying to get more points by doing the same thing.
LOUISA GOULIAMAKI/AFP/Getty Images
Quiz question for the week:
Which country had the lowest rate of economic growth in 2009?
a) Latvia b) Lithuania c) Iceland
(For those of you who don't subscribe to the bimonthly print edition of Foreign Policy, you're missing a great feature: the FP Quiz. It has eight intriguing questions about how the world works.)
Answer after the jump …
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Single and ready to mingle in Taiwan? Then meet your new matchmaker: your government.
With a 2009 birth rate falling below half the replacement rate, the island's conspicuous lack of baby-making threatens to devastate the economy -- and officials have recently gotten creative about the problem-solving. They have previously launched an advertising campaign to entice "unattached" peoples to have children and subsidized fertility treatments for couples struggling to conceive. The health ministry, meanwhile, has begun occasionally closing their doors early to urge civil servants to go home and focus on populating that shrinking workforce of theirs.
Now, the Ministry of Interior (IOM) is taking direct action to make their citizenry be fruitful and multiply, subjecting its own dateless employees to mandatory fraternization. For starters, they will attempt to match up the female workers at the ministry with the high number of single male bachelors in the National Police Administration. They will also require each of its agencies to have an annual date night, featuring activities about which I can only speculate -- government-sponsored speed-dating, coed Taipei dance workshops, romantic comedy screenings in Taijiang national park?
What remains to be seen is if any of these devised aphrodisiac-inducing
affairs can precipitate the 1.5-million baby boost needed to rejuvenate a populace that seems increasingly inclined to opt for celibacy -- or if the Taiwanese are merely too attached to their current personal preferences, too weary of concieving in the Year of the Tiger, or too terrified of that Hello Kitty-themed hospital to remedy the population decline.
PATRICK LIN/AFP/Getty Images
Quiz question for the week:
Quiz: How much did new-car registrations change last year globally?
a) 14 percent decrease b) no change c) 7 percent increase
(For those of you who don't subscribe to the bimonthly print edition of Foreign Policy, you're missing a great feature: the FP Quiz. It has eight intriguing questions about how the world works.)
Answer after the jump …
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The French government announced today that it will raise the country's retirement age from 60 to 62, a move likely to be fiercely resisted by French labor unions. The retirement age was already one of the lowest in Europe and economists have long pushed for it to be raised. They aren't the only ones. As part of its ongoing austerity measures, Greece's government is pushing to raise its retirement age from 61-63.
Of course, the legal pension age is only part of the problem. As this chart from the OECD shows, if you look at when the average worker actually retires, the French are calling it quits earlier than any other developed country:
Moves like France's and Greece's are simply inevitable given how long people are living today. By some estimates, bore than half the babies born in France and other developed countries since 2000 will live to the age of 100, and having them out of the work force for half of that time simply won't work economically.
So are we simply doomed to a long, dull life of endless drudgery? Perhaps not. In a recent article published in the Lancet, a group of demographers suggested some ways that our ideas about work could be transformed to better fit modern lifespans. I wrote about some of them in the most recent print issue of FP:
Raising the retirement age will be a necessary first step, the researchers suggest. This carries some risks, not least of which is what the report's lead author, Kaare Christensen of the Danish Aging Research Center, calls the "Prince Charles problem." Just as Charles has spent a lifetime as king-in-waiting behind his now-octogenarian mother, Christensen foresees a bottleneck of older workers preventing younger employees from advancing until their own golden years. One solution is to change the way careers are structured over time, by creating part-time, semiretired positions for seniors and perhaps even allowing workers to put in fewer hours during the years when they're raising children. "Most people have an enormous amount of work between age 20 and 40," Christensen says. "Why not postpone it until you're older and the kids don't want to see you anyway?"
Perhaps something for Nicolas Sarkozy's government to consider as it faces down the inevitable crippling strikes.
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Tough times call for tough sacrifices. Economies everywhere, desperate to continue their uphill climb out of the global recession, have imbibed this sound logic, however grudgingly. The French, however, don't seem agree with the conventional wisdom: strikes erupted this morning across the country in response to President Nicolas Sarkozy's proposal to bump the retirement age from 60 to-gasp!-61 or 62.
Sarkozy has defended the new measure as a reasonable adjustment given increasing life expectancy. Indeed, he might be excused for merely following in the footsteps of his European colleagues-Germany recently raised the retirement age from 65 to 67. (Then again, these days any comparison to Angela Merkel may do more harm than help.)
So far, the French aren't buying the President's explanations, bringing the country to a near stand-still. 14 percent of teachers and 8 percent of hospital workers left work today to participate in protests, airport travel was disrupted, and even news agencies took a hit. NPR reported that "because there aren't enough journalists available to deliver news bulletins, the main public radio news channel in Paris is playing pop music intermittently."
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For those of you who don't subscribe to the bimonthly print edition of Foreign Policy, you're missing a great feature: the FP Quiz. It has eight intriguing questions about how the world works.
The question I'd like to highlight this week is:
Which country had the highest rate of economic growth in 2009?
a) Afghanistan b) China c) Qatar
Answer after the jump ...
PHILIPPE LOPEZ/AFP/Getty Images
It seems like just yesterday that we were asking ourselves if the United States was Rome. In light of the financial collapse in the other great cradle of Mediterranean civilization, the New York Times' David Leonhardt poses the inevitable follow-up question:
It’s easy to look at the protesters and the politicians in Greece -- and at the other European countries with huge debts -- and wonder why they don’t get it. They have been enjoying more generous government benefits than they can afford. No mass rally and no bailout fund will change that. Only benefit cuts or tax increases can.
Yet in the back of your mind comes a nagging question: how different, really, is the United States?
The U.S.'s national debt, Leonhardt notes, is projected to rise to 140 percent of GDP within the next twenty years -- Greece's is 115 percent today.
Elsewhere at the Times, Paul Krugman questions the credibility of that long-range projection and argues that the U.S. shouldn't worry:
Basically, the United States can expect economic recovery to bring the deficit down substantially; Greece, which has a larger structural deficit and also faces a grinding adjustment to overvaluation with the eurozone, can’t.
About that eurozone: in a phenomenally awkward bit of timing, Estonia happened to be trying to join it today, and succeeded. Other countries like Poland and Bulgaria, however, are having second thoughts. Greece's current predicament, and the looming crises in Spain, Portugal, and elsewhere, have offered a cautionary tale. The Associated Press looks at the divergent experiences of Hungary and Romania, which are members of the European Union but not the eurozone, and Greece, which is in both: When the IMF bailed out Hungary and Romania in 2009, the countries were able to make the necessary adjustments quickly, if painfully, by letting their currencies fall. Greece, however, can't, and is now looking at far harsher, more drawn-out austerity measures attached to its 110 billion euro bailout.
Greece's new austerity measures, which will include cuts in public sector salaries, pensions, as well as tax increases, have provoked widespread, and occasionally violent, protests. But the country's military is taking a big hit as well:
Defense Minister Evangelos Venizelos Greece is aiming to slash operating costs by up to 25 percent in 2010 from 2009, instead of the planned reduction of 12.6 percent listed in this year's budget.
"That is a colossal amount, reaching the margin of our operating needs," Venizelos said, insisting that the cuts were not a direct result of the Greek debt crisis, nor would affect the strategic balance with historic rival Turkey. Turkish Prime Minister Recep Tayyip Erdogan is to visit Athens next month.
Strangely, Venizelos says the cuts are not a response to the financial crisis, but are "mandated by the modern views of military planning." Not really sure what school of military planning mandates a 25 percent lower budget, but okay.
Greece currently has 15 troops stationed in Afghanistan.
Raul Castro has made some modest reforms since taking over in July 2006. A few token changes, including the introduction of cell phones, DVD players, microwaves and computers, have been made - but access to these amenities has been prohibitively expensive. New salary incentives were also introduced in 2008, although such moves are not completely new.
All in all, the expected moves towards a market-oriented economy have been lacking. But now there are some small signs that the leadership is planning to liberalize some sectors of its economy. Where will they start, you ask? It might not be where you would expect: barber shops and beauty salons.
According to the measure -- which state run media has not yet announced -- all barbers and hairdressers in small shops will be allowed to charge market prices and pay taxes (15 percent of average revenue) instead of getting a set monthly wage:
Daisy, a hairdresser in an eastern Guantanamo province, told the Reuters news agency that under the old system the government took in 4,920 pesos per month per hairdresser.
Now she will pay the government 738 pesos per month and keep any earnings above that.
‘We have to pay water, electricity and for supplies but it seems like a good idea,' Daisy said.
She said that while the plan did not turn the shops into co-operatives, employees would have to join forces to decorate and maintain the establishments."
Joe Raedle/Getty Images
As mentioned in the brief, Tanzania and Zambia were rebuffed today in their attempts to relax the international ban on ivory sales at the Convention on International Trade in Endangered Species in Doha. The decision is being hailed as a victory for conservationists after some setbacks earlier in the week:
The rulings were a rare victory for environmentalists at the two-week meeting where they have endured defeats of proposals ranging from an export ban on Atlantic bluefin tuna to a shark conservation plan to a measure to regulate trade of red and pink corals.
Not that I approve of killing elephants for their ivory, but the economic double-standard at work here seems troubling. The tuna ban, for instance, was strongly opposed by Japan, which imports 80 percent of the world's bluefin and led a concerted lobbying effort to have the current rules overturned.
Japan has, for years, employed a similar strategy in its campaign to loosen restrictions on whaling, exchanging foreign aid to disinterested countries like Togo and St. Kitts who join the International Whaling Comission and vote with the pro-whaling bloc. Economist Christian Dippel has studied this phenomenon and wrote about it in a recent piece for FP.
Aid-receiving countries like Tanzania and Zambia presumably don't have the resources to mount such a campaign, which is a large part of the reason they want the ban lifted in the first place. As Zambia's Minister of Tourism, Environment and Natural Resources Catherine Namugala put it, "We can't justify failure to take a child to school because we are using resources to conserve elephants. I appeal to allow Zambia to utilize the natural resources given to us by God."
Again, I tend to side with the conservationists on this, but I certainly understand the frustration of poor-country governments who are expected to make economic sacrifices for the sake of endangered species while the world's second-largest economy continues to hunt species on the brink of extinction.
Update: New protections for hammerhead and white-tip sharks have also been shot down. Guess who led the opposition to them.
ROBERTO SCHMIDT/AFP/Getty Images
At his State of the Union address, President Barack Obama swore to double U.S. exports in five years. At the time, some pundits (including one here) scoffed at the idea. Doubling exports, of course, means convincing the world to buy twice as much of the stuff the U.S. produces. That will be no easy feat, particularly given that just about every high-income economy is looking for an export-led recovery.
But it is a feat that has been accomplished before. I used Commerce Department trade data to make the above graph. It turns out, the last time the United States had a year that doubled its trade level from five years before was 1981; the average five-year increase is around 140 percent.
Still, Obama's plan to double the number by 2015 does not seem so far-fetched. For one, trade has fallen due to the recession, meaning the United States needs to double a lower-than average number.
Obama started to detail how he plans to double exports at the annual conference of the Export-Import Bank today. First: panels. He is creating an "export promotion cabinet" including representatives from state, treasury, agriculture, commerce, and other agencies, and creating an "export council" with adivsers from the private sector. Second: trade regulation reform, to make it easier for businesses to put products and offer services on the global market. Third: better governmental promotion of small- and medium-sized businesses.
FP Editor in Chief Moisés Naím and the Carnegie Endowment's Uri Dadush have an op-ed in today's Financial Times arguing that Europe's excessive fear of inflation is preventing it from taking the action necessary to prevent a potentially catastrophic crash of the Greek economy:
There are ways to mitigate the pain. For example, Germany and other countries could adopt more expansionary fiscal policies for a while. Or, more powerfully, the wider euro area could adopt more expansionary monetary policies for several years. Today, this second option is anathema as the “inflation fundamentalists” will have none of it. This elite of central bankers, top economic officials, politicians, academics and journalists maintains the risks of allowing inflation to climb above 2 per cent are unacceptable.
Their view is informed by the disastrous experience with hyperinflation in Germany in the 1930s and stagflation in industrial countries in the 1970s and 1980s. Undoubtedly, moderate inflation can creep up to become high inflation. But, like many good ideas that take on the mantle of a cult, inflation fundamentalism can hurt. There is little if any empirical evidence that moderate inflation that stays moderate hurts growth. In most countries, cutting actual wages is politically difficult if not altogether impossible. But, to regain competitiveness and balance the books, real wage adjustments are sometimes inevitable. A slightly higher level of inflation allows for this painful adjustment with a lower level of political conflict.
Read the whole thing here.
Yesterday, the Greek government announced a spate of emergency austerity measures, designed to help the country close its yawning budget gap. Half are new taxes, and half are spending cuts, including:
Other measures include: an additional 1 percent tax on income over 100,000 euros, reducing government overtime hours by 30 percent, cutting public-sector benefits 10 percent, and taxing the commercial activities of churches. And it's still not quite enough -- Greece needs an additional bailout to help it pay off debt due this spring.
LOUISA GOULIAMAKI/AFP/Getty Image
An extraordinary paper on poverty reduction across Africa by Columbia's Xavier Sala-i-Martin and Maxim Pinkovskiy shows:
My first thought was that the study might be so broad as to be misleading. Countries like the Democratic Republic of the Congo have suffered from violent conflict and declines in GDP in the past decade; countries like South Africa haven't. It's a billion-person continent. It's hard, and in some ways useless, to generalize.
Thus, perhaps the most remarkable finding is that "poverty reduction... cannot be explained by a large country or even by a single set of countries." The authors note: "[P]overty fell for both landlocked as well as coastal countries; for mineral-rich as well as mineral-poor countries; for countries with favorable or with unfavorable agriculture; for countries regardless of colonial origin; and for countries with below- or above-median slave exports per capita during the African slave trade."
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