Michele Lin – Economy Watch

The Fastest Growing Economies in 2013

Michele Lin — Fri, 11 Jan 2013 09:27:57 +0000

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As the European Union mulls another year of economic stagnation and the United States a year of lacklustre and uncertain economic recovery, will emerging markets take the lead in global economic recovery?

The year 2012 ended on relatively flat note. The United States had the world on its toes as its leaders negotiated a crucial last minute budget deal, narrowly avoiding automatic budget cuts and tax hikes that had the potential to send the world’s largest economy into recession. But even with that out of the way, failure to raise the debt ceiling and, on a large scale, rein in government spending, would keep another generation of Americans trapped in a vicious spiral of unsustainable debt and decline.

From today’s vantage point, we also appreciate the return of credibility in Euromarkets. In 2012, two events helped to secure the region’s and the euro’s stability: The establishment of the European Stability Mechanism, a permanent bailout fund that allows for the direct recapitalisation of banks, thus severing the link between vulnerable sovereigns and weakly capitalised banks; as well as the European Central Bank’s decision to intervene in money markets with its “unlimited” bond purchases.

However, despite the relative calm that markets now enjoy, it is certain that neither global economic growth nor leadership will stem from the West, or any G8 countries for that matter.

In 2011, the eight growth market economies – the BRICs plus MIST, Mexico, Indonesia, South Korea, and Turkey – created close to $3 trillion, more than the United Kingdom in one year. The combined size of these economies is now approximately that of the US economy, with total annual output reaching $16 trillion, about 25 percent of world economic output.

Barring any major contraction, if the “Growth 8” economies expanded by an average of 10 percent, they would add $1.5 trillion to global GDP next year, the equivalent of creating another Greece every 10 weeks, or an economy the size of Spain’s every year.

Are the BRICs Becoming Irrelevant?

But the economic miracle of the BRICs, who collectively hold a large portion of global foreign exchange reserves and make up nearly half of the world’s population, could be coming to an end.

According to the Wall Street Journal, the problem with the BRICs is they tend to promote themselves as an alternative to the G7, often failing to recognise that the economic fates of the BRICs and the G7 are interlocked. “When the U.S. financial crisis spread to Europe, it didn’t stop there. The BRICs nations weakened because they lost big export markets and sources of financing and investment.”

Furthermore, while the BRICs accounted for more than half of global growth in the last four years, “only China has the economic heft to make a major difference internationally on its own, and it is just now starting to come out of a slowdown. The other three nations face a variety of economic challenges, ranging from inflation to inadequate foreign investment to labour unrest,” the Journal said.

Similarly, the hope that the BRIC countries would help one another through increased trade, investment and political support hasn’t quite materialised. Observers say the BRICs act as much as rivals as allies, and their lack of cohesion adds to their economic problems. Fyodor Lukyanov, an analyst who chairs an influential Kremlin foreign-policy advisory board, told the Journal:

[quote] The BRICs is not about the economy. The bloc sees itself as an alternative to the West, but not a confrontational one, like Iran. (The BRICs) have different, sometimes conflicting interests. [/quote]

Perhaps it was this dreadful realisation that inspired the creation of Goldman Sach’s new rhetorical acronym: MIST – Mexico, Indonesia, South Korea, and Turkey – which are the four biggest markets in the bank’s Next-11 (N-11)* equity fund.

In an interview with Bloomberg last August, chairman of Goldman’s asset management arm Jim O’Neill said he came up with the idea for an N-11 fund as a way to help investors benefit from growth beyond the BRIC nations. Opened in 2011, the N-11 fund climbed 12 percent in 2012, compared with a 1.5 percent gain in Goldman’s corresponding BRIC fund.

With populations that for the most part are younger than the U.S. and Europe and have higher birth rates, fuelling economic expansion, the N-11 nations are emerging from the shadow of the BRICs, where growth is slowing and investors are pulling out funds. In 2011, a net $5.4 billion of investor money flowed out of the BRIC offerings tracked by EPFR Global. An additional $1.3 billion leaked out through the end of August last year.

So when compared with the BRICs, the MISTs appears to have a bit more upside potential, said Larry Shover, chief investment officer of Solutions Funds Group, who added that the total GDP of the MIST countries is less than a quarter of the BRICS – $3 trillion compared with $13 trillion.

“People are recognising that there is still a lot of room for improvement in these economies,” Shover added.

The Asian Tiger Cubs

Meanwhile, on the other side of the world, Asia’s Tiger Cubs – Indonesia, the Philippines, Vietnam and Myanmar – are looking to emulate the economic success of Hong Kong, Singapore, South Korea and Taiwan.

In a special report on emerging markets, MarketWatch said of Indonesia and the Philippines:

With rapidly growing economies and rising incomes, the two countries are home to a large and young labour force, an expanding middle class and have stable, elected governments with policies inspiring investor confidence. They also have sturdy banks and enough foreign-exchange reserves – more than a year’s imports in the Philippines’s case – to rebuff a misguided run on their currencies.

In an economically vibrant Southeast Asia, Indonesia and the Philippines stand out as the region’s “New Tigers” with the potential to leave a bigger imprint on global growth for years to come while the developed world struggles with excess debt and traditional regional heavyweights China and India lose momentum.

Each has also received credit rating upgrades since 2011, with Indonesia now rated investment grade by Moody’s and Fitch. Their stock markets are among the world’s best performing since the end of 2008 –Indonesian shares tripled during the period from beaten-down valuations, and are closely followed by Philippine equities.

On the other hand, for a country once ravaged by war, Vietnam has been one of Asia’s lesser-known economic success stories. Since the introduction of Doi Moi, or Renovation Reforms in 1986, Vietnam has expanded faster than any other Asian economy except China’s, posting an average annual per capita GDP growth of 5.3 percent. This growth continued even through the Asian financial crisis in the 1990s and the recent global economic downturn (the economy grew 7 percent per year from 2005 to 2010) – faster than many other Asian economies. Vietnam is expected to grow at a rate of 6 percent this year, according to data from the International Monetary Fund.

But there is no larger growth potential in Southeast Asia other than the opening up of Myanmar. With the upgrading of diplomatic relations, subsequent removal of international sanctions and an influx of foreign aid and investment, foreign businesses are ramping up interest in the long-isolated but potentially lucrative market of Myanmar, whose opportunities abound in raw materials such as gems, timber, rubber and gas, and also in services for a population of 55 million in need of everything from healthcare to telecommunication.

Vinod Chugani, an American-educated Singaporean, said:

[quote] I think this is the last virgin market left in the world, the last untapped market. Twelve years ago, when I was in China, I felt the same rush. [/quote]

Check out the complementary slideslow 12 Fastest Growing Economies for 2013 here: http://bit.ly/XxJEfB

*Besides the MIST nations, the N-11 countries include Bangladesh, Egypt, Nigeria, Pakistan, the Philippines, Vietnam and Iran. However, Goldman Sachs does not invest in Iran because it isn’t an open market for foreign investors.

By Michele Lin, EconomyWatch.com

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Bearish BRICs: Have the BRIC Nations lived up to the Hype?

Michele Lin — Tue, 04 Sep 2012 08:32:21 +0000

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Over the past decade, very few countries can claim to have matched the economic success of those of the BRICs. Ever since the term ‘BRIC’ was born in 2001, the bloc has grown rapidly – now accounting for almost a quarter of the world’s total economic output. Nevertheless, as the eurozone crisis has shown, the bloc is not immune to a weakening global economy; and the outlook for the BRICs is now uncertain. Have the BRIC nations lost their momentum?

With over $70 billion poured into the BRIC nations in the last ten year, the bloc’s overall growth has now outpaced that of Europe’s; and remarkably is growing four times faster than the United States.

The BRIC nations have also performed nothing short of an economic miracle, particularly China, by coming out of the last financial crisis relatively unscatched; and the bloc now accounts for approximately 40 percent of the world’s total population and about a quarter of the total world output – impressive for a collective that only rose to prominence a decade ago.

Nonetheless most experts believe that the BRIC countries – Brazil, Russia, India and China – are unlikely to repeat the performance of the past decade, over the next; and the latest data suggests that the bloc is already showing early signs of economic dampening.

Rising energy costs and an uncertain economic climate in the US and Europe have undoubtedly affected their growth momentum. Not only is growth slowing, untameable inflation in countries like Brazil and India, for example, mean that their respective central banks have fewer options and flexibility when it comes to reducing interest rates and enacting corresponding stimulus policies.

“Each member of the BRIC has its own specific set of economic problems”

The term “BRIC” was first coined in 2001 by Goldman Sachs economist Jim O’Neill (now head of the Goldman’s international asset management division) who citied the countries’ potential for rapid economic growth.

That premise had been mostly accurate for several years. Since the 2008 financial crisis, it has been the voracious appetite and sheer demand from the BRICs that helped keep the global economy from total collapse.

But all that may be coming to an abrupt end, suggests some analysts. Goldman Sachs commented, contradictorily, last year that “the best is over for the largest emerging markets”.

Brazil, for years, had enjoyed a substantial credit-fuelled consumer boom before policymakers stepped in with cooling measures. The high yields and relatively strong growth were reasons enough to sustain a constant inflow of foreign capital, but that also caused the real to soar to uncompetitive levels. Subsequently, the growth of private debt has outpaced income growth since 2004 and Brazil’s consumer default rate rose to its highest levels this year since 2009. Not surprisingly, analysts have trimmed Brazil’s growth forecast to 1.64 percent in 2012 – a sharp contrast from the 7.5 percent growth registered in 2010.

In Russia, corruption and commodity dependency continues to plague many sectors and may stunt an already weakened economy. The country’s recent accession to the World Trade Organisation may shift the Russian economy towards an open trade and investment model of economic growth, ridding off its old system of inefficient import-substitution and state-subsidised industrialisation, but as the world’s largest energy exporter, Russia depends heavily on global demand. If world markets slow, so will Russia.

India, in particular, is by far the worst performing BRIC nation. According to Raghuram Rajan, former chief economist at the International Monetary Fund, India’s lame duck government bears a large part of the blame, with political uncertainty often the motivation behind populist programmes instead of necessary and meaningful, albeit painful, economic reforms.

On the surface, China appears to be the best performing BRIC nation. Growth in China is expected to reach 7.5 percent this year – the highest amongst the BRICs – while it also boasts the world’s largest stockpile of foreign exchange reserves at $3.2 trillion.

Yet, for export-reliant China, official statistics are often suspect, its property market bubble has popped and its shadow banking system could hardly be more opaque.

China’s critics have long pointed out that the economy is inherently imbalanced, relying too much on state-driven domestic investment rather than private consumption.

For Michael Pettis, finance professor at Peking University, China’s debt “is the most worrying problem”. He explains:

[quote] I have always argued that the biggest worry is the unsustainable increase in debt, which historical precedents suggest is an almost automatic consequence of an aging investment-driven growth miracle … We need to be worried about debt, in Europe and the US of course, but we need also to be worried about debt in China. [/quote]

Are the BRICs overrated?

Just as the BRIC acronym was created by one of the biggest speculative banks in history, perhaps the overhyped BRIC concept should be retired and laid to rest.

The BRIC acronym in one important sense represents pure fabrication. Except that the BRIC countries were big and had one of the fastest growing economies a decade ago, these countries have nothing else in common.

Relations between China and India have long been plagued by tensions over trade and border disputes, as well as friction due to China’s political and military support for India’s rival, Pakistan. As a whole, the group has struggled to appear as a credible voice that can rival the West, as an alternative power on the basis of economic growth – but that has not materialised, at least not yet.

As Forbes wrote:

[quote] In sum, the BRICs was invented as an upside speculative acronym by bankers who like to create concepts to market it to clients, as for the PIIGS acronym for European government bond sell off. However, despite milder growth, the BRICs should keep, amongst other emergers, enough assets, the size of their natural resources and labour force is massive, to justify stronger prospects than the aging West which seems doomed to decline, relatively. [/quote]

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The Student Loan Debt Time Bomb

Michele Lin — Fri, 30 Mar 2012 09:51:10 +0000

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Student debt is growing at an alarming rate. At the end of 2011, total student loan debt crossed the $1 trillion mark, a level that is higher than the sum of all credit card debt in the United States. Already, this category of debt has been likened to the subprime crisis, raising worries that a potential delinquency crisis could find its way into the wider economy.

Unlike other forms of consumer credit products, student debt has been growing at a steady rate. In 2011, American students borrowed $117 billion in federal student loans alone, and student borrowers, including those who have not left school, are unable to keep up with interest payments.

A study by the National Postsecondary Student Aid reveals that two-thirds of college students borrow to pay for college, and the average debt burden is almost $24,000 by the time they graduate. Over 10 percent of students from public schools default on their debt within three years after college, and that number almost doubles for students from private institutions.

In addition, unemployment rate for 20 to 24 year-olds is nearly 14 percent, higher than the national rate of 8.3 percent – compromising the ability of graduates to pay off their growing debts.

Since 1978, the price of tuition at U.S. colleges has increased over 900 percent, 650 points above inflation, while tuition grants have been slashed from 70 percent to 34 percent. Student debt, on the other hand, has increased 511 percent since 1999, a rate that is twice as steep as the growth of housing-related debt.

[quote] In February, an interesting anecdote came out of the Fed Chairman Ben Bernanke’s semi-annual testimony to Congress: His son, who is in medical school in New York, is likely to rack up $400,000 in student loan debt in the process of getting his degree. [/quote]

Warning of the rapid growth in U.S. student loan debt, Bernanke called for ‘careful oversight’ from regulators.

Student Loan Debt Likened To Housing Bubble, But Is It A Bubble Yet?

To call something a bubble, it must be overpriced and there must be an intense belief in its value. Economic bubbles are formed when its cost grows out of proportion with its real or intrinsic value. When the returns and pay offs inevitably decline, that’s when the bubble bursts.

See Infographic: Is Higher Education the Next Big Bubble?, and Part Two

Some analysts have compared the potential impact of a steep rise in student loan delinquencies to the subprime housing crisis, in which the rise in defaults and toxic mortgages cascaded into the wider economy.

Just like tech stocks in the 90s and recent housing bubble, existing data indicates that a bubble may have already formed, given the rise in tuition fees, unsustainable and growing debt, and persistently high youth unemployment rate.

According to the Financial Times, the criteria for federally guaranteed student loans are not as stringent as for other kinds of debt, and many loans have already been securitised and sold off to investors.

In a 2011 report, credit ratings agency Moody’s said:

[quote] The long-run outlook for student lending and borrowers remains worrisome. Unlike other segments of the consumer credit economy, student loans have not demonstrated much improvement in performance despite some improvement in the broader market. [/quote]

But the student loan debt crisis is not expected to achieve the same level of carnage as the subprime crisis. At $1 trillion, the debt pile is relatively smaller than the estimated $2.6 trillion in risky subprime loans.

Mark Zandi, chief economist at Moody’s Analytics, believes that there would be higher delinquency and loss rates on loans as graduates enter a difficult economic environment, but he also offers some hope: He doesn’t think it’s a subprime crisis.

Jordan Weissmann, calling it a symptom of a malfunctioning education system, agrees:

[quote] The student debt crisis isn’t like other debt crises. It won’t sink a currency, like Europe’s sovereign debt crises. And it won’t suddenly topple the U.S. economy, like the mortgage crisis. But give this crisis enough time, and it might just drag down the middle class. [/quote]

But why is college so expensive? Continue reading…

[break]

The Education Premium

According to estimates from non-profit group The College Board, tuition at public two-year colleges in the United States cost about $3,000 a year on average in the 2011 academic year, compared to $28,500 a year for a four-year private education.

At the same time, federal and state governments are subsidising less in tuition grants, and students end up paying more to make up the difference.

Andrew Gillen and Jon Robe, researchers with the Centre for College Affordability and Productivity offer an explanation for the rising cost of college. At an interview with the Wall Street Journal, they said:

[quote] The fundamental problem is that we reward colleges for spending money, so the more money a college spends, the better professors it has, the better students it can recruit, the better facilities it has, it moves up in the rankings. This is all very good from the college’s perspective. So they want to spend as much money as possible, and one of the ways they get money is by charging their students tuition. [/quote]

Richard Vedder, professor of economics at Ohio University, agrees with their findings. Vedder, who also heads the Centre, adds that the more government aid goes up, the more tuition rises. To fix that, he says incentives need to be changed and innovation be encouraged.

Is education still a worthy investment?

Peter Thiel is a man with an extensive résumé. The 44 year-old German-born American billionaire is a Paypal co-founder, an early investor of Facebook, as well as president of Clarium Capital, a hedge-fund with more than $700 million in assets under management.

In April 2011, Thiel was amongst the first few to highlight the growing problem of student loan debt. In his words, he described higher education as a ‘giant selection mechanism’ and estimates that only 10 percent of the value of a college degree comes from actual learning. Another 50 percent, Thiel reckons, comes from getting through the selection process, while the final 40 percent comes from signalling to employers the face-value of a brand-name college degree.

He could be right. But still, some economists are saying higher education remains a worthy investment, given the widening income gap between a degree and non-degree holder. In the spirit of optimism, economists say the higher income will in time offset the high costs of a college degree.

The most practical compromise, it seems, is to pick colleges based on their relative cost-to-rewards ratio. Rather than insist on attending a brand-name college, students should instead pick schools where the payoffs from higher salaries upon graduation exceed the cost of education by the widest margin, especially when the job market contracts.

For now, it is not entirely clear what the lasting implications of this ballooning debt will be. However, economists have suggested that high student debt combined with a weak job market has already added pressure onto the broader economy, and will have an impact on future growth.

Rohit Chopra of the Consumer Financial Protection Bureau said:

[quote] Young consumers are shouldering much of the punishment in the form of substantial student loan bills for doing exactly what they were told would be the key to a better life. Large levels of debt might also pose immediate problems for the rest of us. Excessive student debt can slow the recovery of the housing market. Student loan borrowers are sending big payments every month to their loan servicers, rather than becoming first-time homebuyers. This debt can also put added stress on the borrowing capacity of the household and government sector. [/quote]

John Rao, an attorney with the National Consumer Law Centre, is working on a restoration of the bankruptcy discharge for student loans, and setting a reasonable statute of limitations for student loans. He said:

[quote] Even in the best of economic times, when jobs are plentiful, young people with considerable debt burdens end up delaying life cycle events such as buying a car, purchasing a home, getting married and having children. [/quote]

A new report IHS Global Insight confirms that young adults are indeed delaying key rites of passage typically associated with adulthood. In 2007, the median age of a first marriage for males was 27.5 years old, and for females, 25.6 years old, according to IHS. But by 2011 it crept up to 28.7 and 26.5, respectively. Fertility rates, defined as births per 1,000 women aged 15-44, decreased significantly from 69.3 in 2007 to just below 65 last year.

And so it seems, that when the time comes, Bernanke Junior might be in a better position compared with the average graduate to pay off his student loans, to get married and have kids, if he so wishes.

But with all the necessary tell-tale signs already on full display, it is only a matter of time before this ticking time bomb goes off.

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Coming Soon to a Bank Near You: The End Of Free Consumer Banking

Michele Lin — Thu, 12 Jan 2012 10:16:13 +0000

Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.

Many of us are familiar with the basic services that banks provide. In simple, straightforward cases, banks keep our money and pay an interest on it, while providing the convenience of cash withdrawals along their network of ATMs. But are consumers benefitting from their banks, or are they really ripped off by hidden bank charges?

The topic of bank charges has received greater media attention in recent months. Last year, major consumer retail banks in the United States had flirt with the idea of charging consumers with current accounts a monthly fee for their money, much to the fury and indignation of many.

Loosely inspired by the then-popular Occupy Movement, Bank Transfer Day and Move Your Money was organised and consumers were encouraged to move their money from the big transnational financial institutions down to the regional-neighbourhood level. Across the United States, small banks and credit unions reported a spike in the number of new account openings, though the rate of attrition was never large enough to pose any credible threat to the banking titans.

Media attention, however, proved to be the real deal breaker, as banks scurried to retract their plans to implement the wildly unpopular fees.

On the other hand, a recent survey by Defaqto, an independent financial research company based in London, found that more than half of UK bank accounts on the market now charge a monthly fee. Sounds surprisingly? Hardly. While consumers do not necessary have to pay an outright flat fee for the right to open and maintain a current account, they can be charged in other ways.

For starters, interest rates offered by banks are typically lower than most central bank recommendations, and are hardly enough to cover the costs of inflation. Several banks have fees for depositing a cheque, for making an internet-banking transaction, or even ‘convenience fees’ for withdrawing cash at ATMs.

According to RBS retail banking chief Brian Hartzer, the notion of free-banking is really nothing but a myth. In a BBC Radio 4 interview, Hartzer said:

[quote] Well, banking has never been free. Banks are expensive to run. For us, we have over 20,000 branches, 27,000 people, online banking, mobile phone banking, ATMs – these things are expensive. The computer system is expensive. So it’s actually a myth, and in fact, that myth about free-banking is part of why we’ve had all these issues we’ve had over the last decade. [/quote]

Explaining his experience with Australian banks where consumers were charged AUD5 ($5.15) per month for a range of banking services, Hartzer added:

[quote] My observation coming from overseas is that it creates this perverse incentive, where you have to create cross subsidies because you have to get the revenue from somewhere. And that, I think, leads to a lack of transparency and also, of course, leads to a real challenge around competition – which people complain about. But if you’ve created a business system where a new bank can’t come in and make any money, especially when interest rates are effectively zero, banks can’t get any value from the deposits. [/quote]

Returning to the Defaqto research, the implications of the findings are strong. According to Defaqto, more than half of all current accounts in the United Kingdom carry a version of account fee, with 17 percent of all active current accounts paid for. Yet, only 3.8 percent of British consumers made the decision to change bank accounts in 2010.

Might this suggest that consumers are grudgingly accepting the extra charges imposed by banks?

Mike O’Connor, chief executive of Consumer Focus, says that the “perception” of free banking is not good for competition.

“It is great not to have to pay for a bank account, but is not necessarily good for the consumer in the bigger scheme of things. Bank accounts are paid for by people who make mistakes and go overdrawn – they are often the least well-off and the least well-informed,” he told the BBC.

Which begs the question: Why do banks have to resort to petty fees?

As Hartzer argued, services that banks provide have their due costs involved – that can hardly be disputed. But it can also be pointed out that counterpart Asian banks have not resorted to such fees as an alternative source of revenue. One true reason could be the lack of true competition within the big-bank banking system.

According to a report on retail banking by the UK Treasury, big banks are simply too dominant in retail and business banking. The committee chairman, Andrew Tyrie said:

[quote] The CEOs of the large incumbents told the committee UK retail banking was enormously competitive, but a far larger range of witnesses described the industry as close to an oligopoly. [/quote]

In other words, while consumers are adept at shopping around for the best deals on mobile plans, for example, consumers do not seem to be doing the same for their current accounts, possibly because of the vast complexity and opacity of bank charges.

“As current accounts are the gateway to other daily financial transactions, it is hard not to see the retail banking sector operating in a cozy, protected world,” says Robert Peston, business editor for the BBC.

A plausible solution? Ring-fencing. That is, to make a clear separation between retail and investment banking operations. Through that, it would significantly reduce the chance of repeating the problems face in the 2008/9 financial crisis, and prevent investment arms from using cheap money from retail operation and/or bailout money for their operations.

But of course, the bankers would fight this to the end to keep their bonuses.

The post Coming Soon to a Bank Near You: The End Of Free Consumer Banking appeared first on Economy Watch.

China’s New Wave of Economic Immigration

Michele Lin — Fri, 02 Dec 2011 11:01:06 +0000

Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.

Since China opened up its doors to the world a few decades ago, we’ve witnessed what has been a remarkable Chinese growth spurt. Today, China has the second largest economy in the world, the largest bank by market capitalization, and also the largest population of 1.34 billion in the world. As its economy continues to run full steam ahead, it is unsurprising that China is grappling to contain a massive influx of foreigners, both skilled and unskilled, who want a slice of its growing economic pie.

China’s political, economic and social landscape has evolved dramatically in the past few decades, changes that have no doubt had an impact on its demographics and altered the realities of both outward and inward migration to the country. The Chinese Diaspora is one of the largest in the world, with the World Bank ranking it the fourth largest country of emigration in the world, andan estimated 8.3 million China-born people living outside of the Mainland in 2010.

While the economic downturn has marked a decline in temporary labour migration flows by about 36 percent, the OECD believes that “with the first signs of economic recovery, however, there is little doubt that migration for employment purposes will be picking up again.” According to the OECD, the emerging economies of China and India now occupy the first and third places on the list of origin countries of immigrants to the OECD area.

Chinese students have also contributed much to the outward migration phenomenon. In 2009, China was the principal source of foreign-born students to the two main destinations for international students, namely the United States and the United Kingdom. Not surprising, perhaps, given the country’s 1.3 billion population and the new generation of wealthy elites.

However, a new trend of inward migration into the fast-developing country is emerging.

According to the report, China: An Emerging Destination for Economic Migration, “the driving force behind the recent trend of immigration into China has been the country’s rapid economic growth, compounded by its passage through a demographic transition.”

While China’s outward migration pattern can be attributed to its massive population and growing pool of wealthy elites, the author, Ronald Skeldon of the University of Sussex, points out that “China is presently going through one of the most sustain phases of economic development in its history; one that is associated with slow population growth and low-fertility.”

According to China’s 2010 preliminary census results, the average annual population growth between 2000 and 2010 was a mere 0.57 percent, while the country’s population is ageing at a much faster pace: In 2010, the proportion of people over the age of 60 was 13.3 percent, compared to 10.4 percent in 2000. At the same time, the growth of the working-age population (age 15 to 64) in China is projected to decline, from 0.95 percent per annum between 2005 and 2010 to 0.19 percent per year from 2010 to 2020, and to -0.23 percent annually between 2020 and 2030.

What this implies is what Skeldon refers to as the end of “the era of surplus labour in China.” Skeldon, in particular, believes it is the cause of a structural labour deficit, evidenced by the two million job vacancies that were reported in southern China in 2004, the rise in number of illegal imports of cheap labour from neighbouring countries, and the 2.9 million foreigners registered with the Ministry of Public Security as working legally in China in 2007.

Once a huge source of economic migrants to other countries, the rise in the number of foreigners coming to work in China is a reflection of how quickly the country is moving up the global economic chain.

[quote]Judging from the history of western developed countries, inward migration flows often reveal the appeal of a nation, said Zhang Jijiao, a migration expert with the Chinese Academy of Social Sciences. [/quote]

Although the latest figures have not been released, the Bureau of Exit and Entry Administration said that more than 10 percent of the 26.11 million foreigners that entered China in 2007 came for employment purposes, of which more than half a million were workers in joint-ventures or wholly foreign-owned firms. In 2008, Shanghai recorded 152,100 resident foreign workers – a 14.1 percent increase from the previous year.

As the Chinese labour force shrinks and ages, China’s role as an emerging destination for economic migration provides the necessary conditions for the country’s sustained development, growth and globalisation. However, Frank Pieke of the University of Leiden warns that China desperately needs more stringent controls and restrictions to its immigration flows.

He wrote:

[quote]China’s wealth and stability have made it an attractive destination not only for skilled professionals and businesspeople from developed countries, but also for people without immediately marketable skills, many (but by no means all) of whom come from countries poorer than China itself. This has already sparked large inflows that in many cases have led to the growth of residentially concentrated ethnic communities. As a result, China is beginning to be confronted with issues that other destination countries have grappled for much longer, yet it still lacks a clear legal and administrative framework and apparatus to deal with the entry, residences, and employment of foreigners.

(cont.)China, moreover, expects to play a leading role in the world. It accepts that this quite naturally attracts foreign immigrants to its shores; even more, China acknowledges that its further development and globalization requires the presence of foreigners both as temporary visitors and more permanent residents. On the other hand, the growth of a “foreign floating population” is considered a burden on Chinese society, while immigration is also associated with terrorism, subversive activities and international organized crime. As a result, an increasing emphasis on control and national security in addition to service and equal treatment is to be expected. [/quote]

While everyone wants a slice of China’s growing economic pie, Pieke’s comments offer an alternative insight to China’s immigration reality – China has to tighten its migration management policies, reconsider the legitimacy of excess economic migration or risk the harsh implications on its social and cultural fabric.

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How Did Canada Turn Its Debt Crisis Around In 6 Years, 20 Years Ago?

Michele Lin — Fri, 25 Nov 2011 10:24:52 +0000

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Back in 1992, Standard and Poor’s downgraded Canada’s triple A credit rating to AA+ amid concerns over its fiscal health. But in just six years, the budget was balanced and Canada won its prized AAA rating back within a decade. How did they do it, and what can the United States, Italy, Greece, Portugal, Spain, Hungary and many other indebted nations learn from Canada?

Up till 1975, Canada’s public debt was growing at a rate of 5 percent to 10 percent per annum before it began to explode. In the following 12 years, Canada’s debt grew at more than 20 percent each year.

In 1981, debt broke the $100 billion threshold and the $200 billion threshold in 1985. While debt growth slowed in 1988, debt continued to climb, breaking $300 billion in 1988, $400 billion in 1992 and $500 billion in 1994. By 1995, Canada’s net government debt hit 71 percent of GDP, surpassed only by Italy in the G7 group of nations. In 1997, it peaked at $563 billion.

Related Statistics: Canada GDP

As Canada ran fiscal deficits nearly every year since the 1960s, Canada was breaking under the weight of high and unsustainable debt. After the Mexican peso crisis in 1994, Canada was seen as the next scoundrel of the global economy. To add insult to injury, the Wall Street Journal in 1994 called Canada an “honorary member of the Third World” as subsequent downgrades and politics threatened to tear the country apart.

But in November 1993, a new Liberal government had been elected with Prime Minister Jean Chretien at the helm. Under his leadership, heavy spending and transfer cuts were accompanied by relatively small increases in corporate and bank capital taxes, as part of the country’s deficit reduction programme.

Most of the fiscal adjustment came on the spending side, with cuts to civil service, wage freezes, transfers of some responsibilities to provinces, and other program reductions. Aided by the slide of Canadian dollar against the U.S. dollar – which boosted Canadian exports – and the general economic boom in the mid to late 90s, the measures worked, returning surpluses to the Canadian budget in the late 90s and returning Canada to AAA status in 2002.

In a recent report, Reuters commented:

[quote]Canada’s shift from pariah to fiscal darling provides lessons for Washington as lawmakers find few easy answers to the huge U.S. deficit and debt burden, and for European countries staggering under their own massive budget problems.[/quote]

“There would have been a day when we would have been the Greece of today,” Chretien told Reuters. “I knew we were in a bind and we had to do something.”

As we know, the Greece of today is embarrassingly bankrupt. This year, the United States hit its debt ceiling of $14.3 trillion while several other eurozone members are facing similar credit downgrades amid concern over their massive debt obligations.

Canada’s fiscal turnaround is nothing short of commendable. Though the economic climate then is very much unlike today’s turmoil, Canada’s history nevertheless provides crucial lessons, not answers, for the current debt crisis.

According to Michael Mendelson of the Caldeon Institute of Social Policy, Canada’s experience stands as one of the few examples of a fiscal consolidation that has made a significant and lasting difference. Given its rarity, Canada’s successful experience has been eagerly studied by other countries undertaking or contemplating fiscal consolidation.

[quote]

In the run-up to the May 2010 election and the UK’s coalition government’s first Budget, Canada’s effort was often raised in discussion on the mechanics of how to go about reversing the growth in UK’s public debt, and more importantly, as an example of how to succeed, said Mendelson.[/quote]

Rather than just limiting the pace of spending growth, Canada drastically shrank the size of its government – A move that helped shrink the Canadian debt to 29 percent of its GDP in 2008-09, from a peak of 68 percent in 1995-96, and the budget was in the black for 11 consecutive years until the 2008-09 recession.

Canadian ministers were told how much they had to cut and then told to come back with a plan on how to do it. Cuts ranged from five percent to 65 percent of departmental budgets and included controversial cuts in transfers that help provinces pay for health and education, decisions that lengthened medical waiting lists for years to come.

“Everyone knew they had to face the music, and they did it,” said Chretien, who had by then earned himself the nickname of Dr. No. “There was no great debate. I had made my view very clear.”

In contrast with the United States’ deep political divisions about how to respond to its deficits, Canada’s Liberal government had won broad political support for its tough austerity plan.

[quote]

The entire political class decided to stop treating this as a matter of political contention and started treating it as a matter of national interest, said political economist Brian Lee Crowley about Canada. [/quote]

Craig Alexander, chief economist at Toronto-Dominion Bank, Canada’s second largest bank, agrees:

[quote]

I think it’s interesting that in terms of the Canadian experience, the fiscal rebalancing was done by a Liberal government, so it shows you don’t have to be on the far right of the political spectrum to get government cuts and fiscal rebalancing.

Even though it didn’t fit with the government’s ideology, it actually embarked on very serious fiscal tightening. They put together a long-term plan as to how they were going to rebalance the finances of the country and then they delivered and executed on that plan, and I think that’s the message for the United States. [/quote]

Political cooperation aside, there are also economic reasons why the Canadian model would not work now.

For a large part of it, none of Canada’s economic conditions in 1995 apply today. Unemployment across many economies is high and rising, not falling as it was in Canada in 1995. World trade volumes are falling. Interest rates are already at all time lows, or close to zero. As it is, fiscal and monetary tools have become mere weapons without barrels or bullets.

As Mendelson aptly commented, the lesson from Canada is “not about how to cut the deficit but when to cut the deficit. Nor was it the cuts that created economic growth: rather economic growth was a precondition of fiscal consolidation.”

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The post How Did Canada Turn Its Debt Crisis Around In 6 Years, 20 Years Ago? appeared first on Economy Watch.

The 12 Fastest Growing Economies For 2012

Michele Lin — Fri, 18 Nov 2011 11:06:26 +0000

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The year 2011 has been a roller coaster ride of sorts.

It began with the Tunisians toppling their authoritarian regime, which we soon realized was a catalyst for what many have labelled the “Arab Spring.” What we then saw was unprecedented – the power of collective action inspiring a suppressed generation across the Arab nations.

Egypt disposed of their dictator Hosni Mubarak. Libya experienced a hostile armed struggle for months, before Muammar el-Qaddafi was eventually captured by rebels.

The year 2011 has been a roller coaster ride of sorts.

Egypt disposed of their dictator Hosni Mubarak. Libya experienced a hostile armed struggle for months, before Muammar el-Qaddafi was eventually captured by rebels.

Japan was struck by successive disasters, namely the devastating Tsunami, followed by the equally devastating Fukushima nuclear disaster.

Financial markets didn’t fare too well either in 2011. Across major world indices, the numbers are mostly at a lower level than what they were at the start of 2011.

The United States recovered slightly from its 2008/09 subprime mortgage crisis which eventually morphed into a global credit crunch. Though the economic vital stats for the world’s largest economy are mostly showing signs of recovery, persistently high unemployment rates continue to plague the country.

Over in Europe, the governmental debt crisis saw the PIIGS crumble, with political leaders in Italy and Greece ousted from office for failing to adequately manage their nation’s finances. German Chancellor Angela Merkel recently called the crisis “Europe’s worst crisis since the Second World War.”

If you ask Dr. Doom, aka Nouriel Roubini, what to expect for 2012, this is what he has to say:

“The endgame for the eurozone has begun”

“Marx was right – Capitalism has is on a self-destructive path”

“Eurozone divorce imminent”

Roubini, who is famed for accurately predicting the U.S. housing market crash and global recession in 2008, is not alone in his warning calls. The Federal Reserve Bank is predicting a 50% chance of a U.S. recession in 2012, while institutions like the OECD and UBS have cut growth forecasts for the United Kingdom and eurozone.

But the outlook for 2012 is not all that pessimistic. Looking at the numbers pulled from our EconStats Database, the top 3 economies poised for growth next year (Niger, Iraq and Angola) are set to clock in double digit growth.

A further investigation reveals the growing strength of Asian and African economies.

Many doubts have been raised about the future of the Chinese economy. Some say the Chinese housing market is a bubble waiting to burst, while others point out that China’s inflation and overdependence on exports would eventually spell doom for its economy.

But as many other analysts have argued, China is most likely to experience a soft landing. As Stephen Roach, non-executive Chairman of Morgan Stanley Asia, writes:

[quote] China’s economy is slowing. This is no surprise for an export-led economy dependent on faltering global demand. But China’s looming slowdown is likely to be both manageable and welcome. Fears of a hard landing are overblown.

(cont.) An increasingly unbalanced Chinese economy cannot afford persistent 10% GDP growth. Provided that there is no recurrence of the severe external demand shock of 2008 – a likely outcome unless Europe implodes – there is good reason to hope for a soft landing to around 8% GDP growth. A downshift to this more sustainable pace would provide welcome relief for an economy long plagued by excess resource consumption, labour-market bottlenecks, excess liquidity, a large buildup of foreign-exchange reserves, and mounting inflationary pressures.

For China, there is a deeper meaning to recent global developments. A second major warning shot in three years has been fired at this export-led economy. First, the United States, and now Europe – China’s two largest export markets are in serious trouble and can no longer be counted on as reliable, sustainable sources of external demand. As a result, there are now major questions about the sustenance of China’s long powerful export-led growth model.

Accordingly, China has no choice but to move quickly to implement the pro-consumption initiatives of its recently enacted 12th Five-Year Plan. Strategic transition is what modern China is all about. That’s what happened 30 years ago, when economic reform began. And it needs to happen again today. For China, a soft landing will provide a window of opportunity to press ahead with the formidable task of increasingly urgent economic rebalancing. [/quote]

In terms of growth forecasts, China’s GDP is expected to reach $7.209 trillion in 2012 with a growth rate of 9.52 percent. In contrast, major advanced economies in the G7 are looking at a collective growth average of just 2.45 percent.

India too, is looking forward to a good year in 2012. GDP is forecasted at $1.858 trillion, a 7.82 percent increase from 2011. Home to the second largest population in the world, Goldman Sachs predicts that India would become the third largest economy in the world by 2035, just behind the United States and China.

Globally, companies have their eyes set on India as a rapidly growing nation that is full of opportunities. The sheer scale of development needed could drive growth for many years.

[quote]India has the advantage of size. The scope of growth and excess capacity present in terms of resources would drive growth in the future, said Madan Sabnavis, chief economist at Care. [/quote]

But in what would come as a surprise for many – It is indeed time for Africa.

In the article, Africa Rising: Can “The Dark Continent” Outshine Its Former Colonial Masters?, Economy Watch journalist Raymond Tham argues that “there has been a paradigm shift where African nations are now leading the world in economic growth and can more hold their own against their ex-colonial masters.”

And the numbers speak for themselves. Niger, Angola, Liberia, Ethiopia, Mozambique, Zambia feature in the 12 fastest growing economies for 2012.

According to Raymond, “While their former colonial masters were bickering over possible solutions for a debt crisis that is slowly eating away at the heart of Europe, some African states were quietly presenting their own structural reforms that have helped them to manage national debt and public finances.”

[quote](cont.) Not long ago, Angolans were the ones who were flocking to Portugal in order to flee a civil war and start a new life. Yet today, a complete role reversal has happened. In 2007-2008, Portugal’s foreign ministry registered 45,000 Portuguese citizens living and working in Angola. Barely a year later, the figure jumped to 92,000. Today, there are over 3,000 Portuguese companies in Angola, with Portuguese immigrants said to have grown exponentially over the past five years.

Things are different in Angola. Blessed with an abundant supply of crude oil, and now backed by Chinese money, Angola was forecasted to be the 7th fastest growing economy in the world for 2011 by the IMF, and looks ready to accept more and more Portuguese immigrants to their country.[/quote]

It is not easy to be optimistic in the outlook for 2012, given all the gloom and doom we’ve witnessed this year. But as Raymond states, emerging economies led by Asia and Africa are assuming more active roles in determining the global economic path.

Could the Asian and African decade extend into 2012?

Looking at our real-time global consumer confidence index, both Asian and African regions are indicating optimistic outlooks for the next year. The same, however, cannot be said for Europe.

What is your outlook for 2012?

You can see our predictions in the slideshow, The 12 Fastest Growing Economies in 2012.

P.S. Well, with Christmas just around the corner, it wouldn’t be a surprise if many of us (adults) find ourselves asking Santa for more jobs, a stronger economy, and less socio-political turmoil around the world. But if Santa doesn’t grant you your wish come Christmas, it’s not because you’ve been bad this year – Santa’s probably lost his job too.

The post The 12 Fastest Growing Economies For 2012 appeared first on Economy Watch.

Development, But At What Price? Lessons from the Happiest Place in Asia

Michele Lin — Tue, 25 Oct 2011 07:45:14 +0000

Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.

At last month’s UN General Assembly, Bhutan’s Prime Minister denounced what he called a “monster of a consumerist market economy” that “enslaves humanity and thrives on the insatiable nature of our greed,” urging instead for an alternative form of economic governance that shies away from the indulgent emphasis on GDP. EconomyWatch spoke to Bhutan’s Chief Planning Officer, Mr. Karma Galay, and found out exactly what the nation sees as a viable and sustainable form of alternative development.

Nestled at the edge of the Himalayas and landlocked between two of the world’s most populous nations India and China, one can be quite quickly forgiven for not having heard of the little kingdom of Bhutan.

Long romanticized as a secluded paradise, or the “last Shangri-la”, Bhutan’s idea of personal fulfillment is not just a spiritual pursuit, but a government policy. In fact, while the rest of the world clamors relentlessly in the pursuit of economic growth, the Bhutan state has taken upon itself the responsibility of creating the enabling conditions for what it deems a conscious pursuit of “Gross National Happiness.”

The notion of Gross National Happiness was first coined by Bhutan’s former king, Jigme Singye Wangchuck, in the 1970s as an alternative to Gross National Product. Today, the Bhutanese are refining the country’s guiding philosophy into what they see as a new school of economic, political and social science.

“The concept of GNH has evolved from something philosophical to scientific approach. More appropriate measures have been set up and constructed to get a better measure of happiness. It is a serious project in Bhutan,” said Mr. Karma Galay, Chief Planning Officer of Bhutan.

“There is a lot of beauty and respect for the idea (of GNH),” said Galay. Conceding that there may be several skeptics, Galay argues that the idea is nonetheless applicable and relevant to the Bhutanese economy. “The power of sharing in Bhutan is real and strong, it is part of the culture of the people. Some may say that the concept is too idealistic, too vague for application, or even that it is a Buddhist value. But likewise, the idea of sharing and happiness is a universal value upheld by all people and religions,” he said.

But Bhutan knows that for its novel idea to be taken seriously, it has to work out a set of definitions and standards that can be quantified and scientifically measured. Under the comprehensive GNH framework, Bhutan’s development program now includes four broad themes:

sustainable and equitable socio-economic development (not growth);
environmental conservation and protection;
promotion and preservation of culture;
good governance.

Given that the international community is facing a host of serious challenges – from natural disasters to food and financing crises – Bhutan is keen to avoid the pitfalls of greed and rapid development.

Referring to the global financial crises, Galay points out that “greed is the root of the crises, and that it is important to moderate our wants.” His comment echoes the sentiments of the Bhutan prime minister, Jigme Thinley, at this year’s UN General Assembly.

[quote] Lacking political will and indeed, clarity of vision, we deny with clever arguments what we know to be the cause of our predicaments. So we go on – doing what is irrational.

We continue acquiring arms to prevent war; answering climate change with more harmful emissions; racing to extract, produce and consume more in the face of depleting resources; fuelling faltering economies with debt and greed; enabling the wealthy to deepen crevasses that separate the rich from the poor; idealizing individualism as family and community crumble amid rising social dislocation, crime, mental illness, loneliness and suicide.

For too long, we have ignored the truth that the causes of all these problems are interrelated and that durable remedies must be found through a rational and holistic approach. For too long, we have refused to accept that GDP-focused economic models have served their useful purpose and that we need to switch tracks. Guided by the belief that life satisfaction is about material pursuit and accumulation, and that good economics is about limitless growth, our economic development processes have created the monster of a consumerist market economy. [/quote]

In a sense, the overarching guiding philosophy behind Bhutan’s principled development is the commitment towards intergenerational equity.

“What is done today shouldn’t be done at the expense of cost on the future generations,” said Galay. His country, he said, was concerned that other countries had become rich but the “happiness of the people did not increase in a commensurate way.”

Adhering to the Gross National Happiness guidelines has thus far seen Bhutan’s forest cover expand from 64 percent to 81 percent in the past four decades. Bhutan is also the only country that has pledged to forever remain carbon neutral. As Galay emphasized, “it was the will of the King to move towards a constitutional monarchy,” as the country smoothly transitioned from an absolute monarchy to a fully-fledged democracy.

Naysayers have questioned if Bhutan is doing away with economic growth and GDP-markers, or even if Bhutan is pursuing this line of Gross National Happiness policy because it does not have material growth.

To this question, Galay answered: “Economic growth is a simply a means to be happy. The goal of economic development is to make people happy, not to make more money.”

Special Thanks to , for arranging the talk on GNH while Mr Karma Galay was in Singapore for Bhutan: Happiness is a Place.

Visit the Bhutan Photo Exhibition, at Millennia Walk Great Hall from now til 26^th October.

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Antidote To Afghanistan’s Opium Addiction: Red Gold

Michele Lin — Wed, 28 Sep 2011 10:20:14 +0000

Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.

Despite being contrarian to Islamic beliefs, opium production is one of the biggest industries for the war-torn country. Afghanistan alone is responsible for supplying more than 90 percent of the world’s opium, the raw material for manufacturing heroin to drug addicts all across the globe. Myanmar, trails in second place.

Approximately 12 percent of the land in Afghanistan is arable, and almost 6 percent is used for growing poppy. Not only does this trade exacerbate a global drug crisis, is also one of the biggest reasons for the Taliban and other insurgent groups’ resilience in Afghanistan.

It has been estimated that the Taliban reaps between $100 million and $400 million annually in illicit opium income, money that has fuelled their ability to purchase weapons, supplies, militants, and other instruments that aid their war cause. Research has also suggested that as many as 80 percent of personnel from the Ministry of Interior have benefitted from the drug trade, whether it be from transportation fees, bribes or profits.

Last year, Afghan President Hamid Karzai said that the country needed 400,000 Afghan soldiers and police to defend itself, and that works out to about US$10 billion annually. Afghanistan has a current budget of US$1.1 billion, of which US$400 million comes from foreign donors.

Though the opium trade amounts to nearly 30 percent of the Afghan gross domestic product (US$15 billion for 2010), it is unlikely to ever be legalized and therefore providing much valued tax revenue.

Find more Afghanistan related economic statistics from EconomyWatch’s Econ Stats database.

Coming up with alternative livelihoods for Afghanistan’s impoverished opium farmers is a huge challenge and until now, no one has been able to offer a viable and sustainable alternative. After all, opium farming is almost ideal: It does not require much irrigation, opium paste is non-perishable, there is certainly not need to scour for buyers, and it pays well.

Agriculture has been called the oil of Afghanistan. With at least 80 percent of Afghanistan’s workforce involved in agriculture, policymakers have labored hard to rehabilitate the farming sector. Saffron, the world’s dearest spice also known as Afghanistan’s “red gold” could become an antidote to Afghanistan’s opium addiction.

Dry climate makes Afghanistan one of the best saffron growing regions, with 300 hectares of land devoted to the prized flower in the Herat province alone. According to the United States Department of Agriculture, saffron is one of the three most important crops for the province of Herat.

Saffron is also a high-value crop. A kilogram of saffron stigma can fetch in US$2,000 to US$3,000, compared to US$90 for a kilogram of poppy. According to independent saffron producer M. Hashim Astami, saffron has the potential to generate an annual income of US$100 million for Herat alone, provided 5,000 to 7,000 hectares of land is devoted to its farming.

Also significant is the fact that one particular district in Herat now employs 480 female saffron producers. In just three years, membership in the Ghoryan Women Safffron Association leaped from 72 to 480 women.

However, the Institute for War & Peace Reporting reported late last year that insurgents are allegedly pressuring Herat farmers to switch to opium poppy in order to levy illicit revenues.

Mr. Bashir Ahmad Ahmadi of Herat’s agriculture department described what happened to the IWPR:

[quote] “The Italian Provincial Reconstruction Team had promised to provide farmers in Kushk-e Kohna and Rabat-e Sangi districts with seven tons of saffron bulb. When the bulbs were transported out of the district, the armed opposition set fire to the trucks and killed the drivers. The farmers had complained in the past that the armed opposition was threatening them over poppy cultivation, but no one ever expected anything like this to happen. The information we’ve received indicates that farmers don’t dare cultivate saffron in the province’s more remote and unstable districts because of Taliban influence.” [/quote]

In the same report, the IWPR reveals that the Taliban had claimed responsibility for the attacks:

[quote] “We will burn everything the infidels bring into the district. As long as my men and I live, I will not allow any resident to receive donations from foreigners, whether it be saffron or anything else.” [/quote]

Some analysts have suggested that the U.S. increase their efforts in buying back Afghan poppy fields, but senior Obama administration officials have bluntly said that U.S. efforts to eradicate Afghanistan’s poppy fields have failed.

Unfortunately, the economic behavior of the black market is counter-intuitive. If the supply of poppy fields in Afghanistan is artificially driven down, opium will become scarce and lead to a hyperinflation of its price in the black market. Given the irresistible profits involved, neighbouring countries would not hesitate to cash in from this illicit trade.

For the long-suffering Afghans, their prized “red gold” could most certainly be the antidote for their addiction to opium farming. But until the militant coercion is eradicated, it is unlikely to effect permanent sobriety.

As farmer Mohammad Musa aptly puts it, “If the government can’t protect farmers, it can’t tell us what to grow and what not to grow.”

Related: Drug Capitals of the World

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Women At Work: Moving Towards Parity

Michele Lin — Thu, 22 Sep 2011 10:02:53 +0000

Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.

Earlier this month, the former CEO of Yahoo! was unceremoniously removed by the company board, via a telephone call. Many have questioned and wondered if it had anything to do with the fact that Carol Bartz is a woman; if the termination could have been better handled if Bartz were a male.

Of course, there are no straightforward answers.

Women have come a long way in terms of social and economic mobility. Several decades ago, women were identified primarily in their traditional sphere of work (i.e., caregiving, within the domains of a home). Education opportunities for females were scarce, much less employment opportunities.

Today, women are showing up in large numbers in universities. Across Ivy League colleges in the United States, the number of female students enrolled are largely equalized. In 2010, 58 percent of all undergraduate degrees in the United States were awarded to women. As a result, women accounted for 53 percent of the total college-educated labour population in the U.S.

The visibility of women in politics, traditionally regarded as a male-dominated sphere, is also increasing. German Chancellor Angela Merkel, former Prime Minister of the United Kingdom Margaret Thatcher, the late Benazir Bhutto of Pakistan and Christine Lagarde from the International Monetary Fund are women who have (or had) taken top roles in governments and esteemed international organizations.

Women have also been a growing factor in the success of the U.S. economy since the 1970s. Indeed, the additional economic contribution of women entering the workforce since the 1970 accounts for about 25 percent of the current U.S. GDP.

Find more economic data from our very own Econ Stats Database.

Yet, despite the advances made in reducing gender discrimination, women still find themselves shortchanged at the workplace. The employment conditions of women are nowhere close to ideal. For years, women have been paid only a fraction of what men earn.

On a more constructive macro level, there is a significant need to raise the labour participation rates of women across global economies. At a corporate organization level, there needs to be more opportunities for women to advance into leadership positions where they can make greater contributions.

The need for female labour inclusion and increased participation goes beyond the issue of gender equality or women’s rights. In fact, to get women in the labour productive force was a calculated economic decision.

Historically, the industrial revolution that transformed Western Europe and the United States had its origins in the introduction of power-driven machinery. During the course of the revolution, non-industrial wage-labour increased, urban centers grew and rural labour markets commercialized.

More importantly, these economic advances coincided with dramatic changes in family life, including a greater role for women in the labour force. Based on a simple resource maximization theory, females accounted for half of the untapped labour reserve pool. Women were increasingly recruited and given independent wages, thereby joining the formal workforce.

Between 1970 and 2009, American women went from holding 37 percent of all jobs to nearly 48 percent. That amounts to almost 38 million more women, without which, the size of the economy would have been 25 percent smaller today.

The point is, GDP growth, the objective of all governments and economic planners, cannot be achieved without two key factors – an expanding workforce and rising productivity.

Achieving a more equitable work environment for women is not an idealized outcome, but an ongoing process. And legislation has been increasingly called in to aid this process.

Structural mechanisms such as extended paid maternity leave, legal protection for women at work and even paternity leave have been introduced to develop women in the workforce.

In Norway, a novel approach has been implemented to break the glass ceiling for women: It is now mandatory that women fill 40 percent of seats on company boardrooms, in a bid to move towards greater gender equality in the workplace.

In a recent McKinsey report about women in the workplace, the findings revealed that “Women don’t opt out of the workforce; most cannot afford to.”

The report goes on to say that “specific barriers that women cite as factors that convince them the odds of getting ahead in their current organizations are too daunting … include: lack of role models, exclusion from the informal networks, and not having a sponsor in upper management to create opportunities.”

Whether positive discrimination is used to take down “artificial” growth barriers for women (in the case of Norway), the key takeaway is more has to be done to address this issue of gender workplace inequality.

While a mandatory policy deciding the ratio of women employed in organizations may be perceived as draconian and difficult to enforce, not to mention going against the principle and cause of equality, more ground level work can be done.

For a start, McKinsey makes a good suggestion here: “Companies can take the lead in refining organizational processes and other formal mechanisms that can encourage compliance to change – in particular the metrics and reporting used to track performance and reinforce accountability.”

Looking forward, it is difficult to discount the contributions made by women in the economy. To increase the contribution of women, more needs to be done about gender relations and functions at the workplace.

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