A perceptive book on the need for financial reform
Other People’s Money. By John Kay. PublicAffairs; 352 pages; $27.99. Profile; £16.99.
John Kay, is a visiting professor of economics at the London School of Economics and a fellow of St John’s College, Oxford University. He is a director of several public companies and contributes a weekly column to the Financial Times. Kay is the author of nine previously published books and coauthor of The British Tax System with Mervyn King. John Kay lives in London
WHAT is the finance sector for? This vital question is all too often forgotten in the debate about the debt crisis of 2008 and its aftermath; it certainly seemed to be forgotten by bankers in the build-up to the debacle. But if the world is to avoid future banking collapses, or at least limit their economic impact, people need to think clearly about the issue.
John Kay’s new book, “Other People’s Money”, does the job; it should be read by everyone concerned with preventing the next crisis. The early books after the crash, like Andrew Ross Sorkin’s “Too Big to Fail”, analysed how the collapse unfolded in minute detail; Mr Kay, an academic and columnist for the Financial Times, takes the longer and broader view.
In doing so, he skewers the pretensions of the finance sector and questions whether its high rewards reflect its true economic contribution. Barely a page goes by without an acute observation or pithy aphorism. “A country can be prosperous only if it has a well-functioning financial system, but that does not imply that the larger the financial system a country has, the more prosperous it is likely to be,”he writes. “It is possible to have too much of a good thing.” Den Rest des Beitrags lesen »
Source: The Economist: Schumpeter
The received wisdom that employee ownership is a good thing comes with caveats
IT IS popular to lament the growing gap between capitalists and workers. In one respect, however, the gap is shrinking: the number of workers who own shares in the business that employs them has never been higher.America leads the way: 32m Americans own stock in their companies through pension and profit-sharing plans, and share-ownership and share-option schemes.The idea continues to gain momentum. Hillary Clinton’s recent speeches suggest that she may make it an important plank in her plans to reform capitalism. And worker-capitalists are also on the march in Europe and Asia.
Conservatives like employee ownership because it gives workers a stake in the capitalist system. Left-wingers like it because it gives them a piece of the capitalist pie. And middle-of-the-roaders like it because it helps to close a potentially dangerous gap between capital and labour. David Cameron, Britain’s Conservative prime minister, praises John Lewis, a retailer entirely owned by its staff. Bernie Sanders, America’s only socialist senator and now a candidate for the Democratic nomination (see Lexington), is a champion of employee share-ownership. Den Rest des Beitrags lesen »
A decade of bingeing on raw materials may leave an even longer hangover
IT WAS only a decade or so ago that Scotland was hit by the “Great Drain Robbery”, the disappearance of 50 manhole covers in Fife. It gave an inkling of the emergence of a new era in commodity markets, spurred by insatiable demand from China. Scrap-metal prices—and so scrap-metal thefts—soared. Africa was over-run by Chinese engineers; Australia elected a Mandarin-speaking prime minister; and emerging markets from Argentina to Zambia relished the rising values of their farmland and mines. The boom was fanned by a weak American dollar, the currency in which most stuff that comes out of the ground is priced.
The gears have now gone into reverse. A resurgent dollar has hammered commodity prices: many have recently fallen below their levels of a decade ago.That is a fate not shared by other tradeable assets: not since the late 1990s have commodity prices been so weak compared with shares (see chart 1). The American economy is strengthening, but by no means enough to encourage thieves to filch bronze bells from Chinese temples to send as scrap to the United States. The impact of its recovery is dwarfed by slowing demand in China, which still consumes about half the world’s metals such as iron, aluminium, and zinc. Den Rest des Beitrags lesen »
Source: The Economist: Free exchange
Three new papers examine fears that machines will put humans out of work
AS FAR back as the Industrial Revolution there have been periodic panics about the impact of automation. Handloom weavers’ resistance to new machines earned them a pejorative name—Luddites—that has become a byword for all those who try in vain to stop technological progress. Such anxieties resurfaced in America in the early 1960s, thanks to the rapid automation of agriculture, even though the economy was booming. They are even more prevalent in the rich world now, as advances in information technology (IT) threaten jobs that previously seemed invulnerable to automation. Whether the anxiety is any more justified this time round is the subject of three new papers in the Journal of Economic Perspectives.
Angst about automation typically focuses on the substitution effect, whereby jobs once done by people are taken over by machines—the fate of the Luddites. The current fear is that ever more versatile robots will substitute for labour on a scale never seen before. However, previous experience shows that focusing on substitution shows only part of the picture.Den Rest des Beitrags lesen »
Another step away from the brink for the euro’s perpetual delinquent
JUST one month ago Greece was on the verge of leaving the euro. Germany had raised the prospect of a “time out” lasting at least five years, following a breakdown in trust between euro-zone countries and the Greek government. Even when an acrimonious weekend summit in Brussels ended on July 13th with a tentative plan for a third bail-out, providing up to €86 billion ($96 billion) over three years in return for further austerity and reforms, there was widespread pessimism about whether a more detailed agreement could really be reached. Yet on August 11th the Greek government settled the specific conditions of the rescue with the four institutions representing the interests of creditors: the European Commission, the European Central Bank (ECB), the IMF and the European Stability Mechanism (ESM), a rescue fund for the euro zone.
The new proposals were due to be passed into law by the Greek parliament on August 13th, after The Economist had gone to press. The hope among Greek officials was that euro-zone finance ministers would endorse the deal the following day. That could in turn pave the way for a release of funds from the ESM in time for the Greek government to redeem bonds held by the ECB worth €3.2 billion when they mature on August 20th. Den Rest des Beitrags lesen »
Source: The Economist
Subject: What’s the alternative?
Capitalism: Money, Morals and Markets. By John Plender.Biteback; 334 pages; £20.
CAPITALISM lacks defenders these days, while protests against it have fresh vigour. A vocal coalition of critics, from Occupy Wall Street to Pope Francis, castigate global trade as being exploitative and people’s fixation on money as the “dung of the devil”.
Worries about the impact of economic inequality on social cohesion lend new urgency to moral questions about markets. But, as John Plender points out in his new book, “Capitalism”, discontents about its effects are as old as the world’s most powerful -ism itself. The pursuit of profit has been “unloved” since Socrates declared that “The more [men] think of making a fortune, the less they think of virtue.” Anti-business sentiment characterises the lampooning of Trimalchio’s feast in Petronius’s “Satyricon”, and persists through Molière’s miserly 17th-century lucre-seekers to the portrayals by Charles Dickens and Emile Zola of dreadful 19th-century bosses and the modern incarnation of greed on the screen, Gordon Gekko in “Wall Street”. Den Rest des Beitrags lesen »
LITTLE over a year ago, New Zealanders were still talking about a “white-gold rush”. Strong prices for milk were prompting sheep and cattle farmers to convert to dairy, and Chinese firms were coming in to buy up agricultural land and milk processors. Inevitably, influx has led to glut. Prices have fallen to their lowest in more than ten years (see chart). Farmers in France, Britain and Belgium have recently been staging protests against low milk prices, but few places are as badly affected as New Zealand, whose dairy industry produces a quarter of its export earnings.
On August 7th Fonterra, a co-operative owned by New Zealand farmers which is the world’s largest dairy-export firm, said it expected to pay its members NZ$3.85 ($2.55) per kilogram of milk solids in the current season, ending in May 2016. That is less than half the record price of NZ$8.40 it was paying two years ago, and well below breakeven for many farmers.
There are three main reasons why the milk trade has turned sour. One is the economic slowdown in China, a giant market where demand for dairy produce had hitherto been growing strongly. Another is the abolition of the European Union’s dairy-production quotas earlier this year, which is encouraging big producers in Germany, the Netherlands and elsewhere to boost their output and exports. A third is Russia’s ban on EU produce,in retaliation for European sanctions, which is forcing those European farmers that had been selling to Russia to seek other markets. Den Rest des Beitrags lesen »
China baut die eigene Währung als ernstzunehmende Alternative zum Dollar auf. Das weltweite Yuan-Handelsnetzwerk entsteht unter Ausschluss der USA. Aktuell hat die chinesische Zentralbank den Yuan jedoch abgewertet.
Vor sechs Jahren begann Chinas Regierung mit der Internationalisierung des Yuan. Seitdem vollzog die chinesische Währung einen steilen Aufstieg. Der weltweite grenzüberschreitende Handel in Yuan stieg von 0 Prozent im Jahr 2009 auf 22 Prozent im Jahr 2014. Inzwischen gehört der Yuan zu den Top-5-Währungen der Welt, hinter Dollar, Euro, Pfund und Yen. Zentralbanken aus 50 Staaten haben bereits in den Yuan investiert und der Internationale Währungsfonds (IWF) erwägt die Vergabe des Reservestatus an die chinesische Währung. Dennoch hat der Yuan noch einen weiten Weg vor sich, wenn er die Dollar-Hegemonie brechen will. Während ausländische Investoren nur rund 200 Milliarden Dollar in chinesische Aktien investiert haben, halten sie etwa 16 Billionen Dollar an US-Wertpapieren.
Source: The Economist: Schumpeter
Subject: Stuck on the runway
INDIA is not the place most people would expect to find precision engineering. Yet Guillaume Capato is on the shop floor of the Mahindra Aerospace factory, an hour’s drive from Bangalore, explaining the complexity of an aluminium halter, used to reinforce the fuselage on a jet aircraft. Formed from a single piece of metal into a U-shape using a press, each side is of a different size and shape and drilled with holes of varying dimensions so that the part will precisely match all the other bolt holes around it. The halter is accurate to an exacting degree: it only makes sense to add weight to an aircraft’s structure if it also adds strength. That principle is lost in India, where the weight of regulation has sapped the strength of manufacturing.
Mahindra Aerospace is the sort of modern, jobs-rich enterprise that Narendra Modi, India’s prime minister, probably had in mind when he launched his “Make in India” drive a year ago.Components produced here must meet the strict standards of the global aircraft industry. In June the firm, an offshoot of a family business better known for rugged SUVs, won a landmark order from Airbus. Mr Capato, who worked at the European planemaker for 14 years, helped set up the factory two years ago. It is full of spiffy kit—from giant ovens for heat-treating metals to fluorescent light chambers to help check for scratches (a tiny nick means a part is junked). Each bit of equipment requires a matching skill. Mr Modi wants more of this and has criss-crossed the world pitching the idea of manufacturing in India. It is a tough sell. The share of manufacturing in the economy peaked in the mid-1990s. It will take more than the glad-handing of world leaders to revive it. Den Rest des Beitrags lesen »