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Mind games
Jan 13th 2005
From The Economist print edition


Can studying the human brain revolutionise economics?




ALTHOUGH Plato compared the human soul to a chariot pulled by the two horses of reason and emotion, modern economics has mostly been a one-horse show. It has been obsessed with reason. In decisions from how much to produce to whether to save and invest, humans have been assumed to be coolly rational calculators of their own self-interest. Over the past few years, however, evidence from psychology has persuaded many economists that reason does not always have its way. Now, judging from a series of presentations at the American Economic Association meetings in Philadelphia last weekend, a burgeoning new field dubbed “neuroeconomics” seems poised to provide fresh insights on how the two horses together produce economic behaviour.

The current bout of research is made possible by the arrival of new technologies such as functional magnetic-resonance imaging, which allows second-by-second observation of brain activity. At several American universities, economists and their collaborators in the neurosciences have been placing human subjects in such brain scanners and asking them to perform a variety of economic tasks and games.


For example, the idea that humans compute the “expected value” of future events is central to many economic models. Whether people will invest in shares or buy insurance depends on how they estimate the odds of future events weighted by the gains and losses in each case. Your pension, for example, might have a very low expected value if there is a large probability that bonds and shares will plunge just before you retire.

Brian Knutson, of Stanford University, carried out one recent brain-scan experiment to understand how humans compute such things. Subjects were asked to perform a task, in this case pressing a button during a short interval in which a certain shape was flashed on to a screen. In some trials, the subjects could win up to $5 if successful, while in others they would have to defend against a $5 loss. Before presenting the target, the researchers signalled to subjects which kind of trial they were in.

Brain activity in certain neural systems seemed to reveal a strong correlation with the amount of money at stake. Moreover, the prospects of gains and losses activated different parts of the brain. Traditional economists had long thought—or assumed—that the prospect of a $1,000 gain could compensate you for an equally likely loss of the same size. In subsequent trials, subjects were given another signal: one that provided an estimate of the odds of success. That allowed the researchers to identify the regions of the brain used for recognising an amount of money and for estimating the probability of winning (or losing) it. Having identified these regions, the hope is that future work can measure how the brain performs in situations such as share selection, gambling or deciding to participate in a pension scheme.

David Laibson, an economist at Harvard University, thinks that such experiments underscore the big role that expectations play in a person's well-being. Economists have usually assumed that people's well-being, or “utility”, depends on their level of consumption, but it might be that changes in consumption, especially unexpected downward ones, as in these experiments, can be especially unpleasant.

Mr Laibson's own work tries to solve a different riddle: why people seem to apply vastly different discount rates to immediate and short-term rewards compared with rewards occurring well into the future. People tend much to prefer, say, $100 now to $115 next week, but they are indifferent between $100 a year from now and $115 in a year and a week. In one recent experiment, noted in our science section on October 30th, Mr Laibson and others found that the brain's response to short-term riches (in this case, gift certificates of $15 or $20) occurs largely in the limbic system, a region that governs emotion. By contrast, the prospect of rewards farther into the future triggers the prefrontal cortex, which is often associated with reason and calculation. Thus, choosing immediate economic gratification, by spending excessively on credit cards or not saving enough even though you “know better”, could be a sign that the limbic system is in charge. Government policies, such as forced savings or “cooling off” periods for buying property or cars, may be one remedy.

And then there is trust and deception. Colin Camerer, of the California Institute of Technology, has conducted experiments in which brain-scanned participants play strategic games with anonymous partners. In these, a subject chooses his own actions and also tries to anticipate the choices of the other player. When players are doing the best that they can to “win” the game by anticipating their opponents' moves, their brains tend to show a high degree of co-ordination between the “thinking” and the “feeling” regions. Economic equilibrium, by this measure, is an identifiable “state of mind”.



Don't let it go to your head
Some neuroeconomists claim that such brain-scanning experiments are the start of a revolution in economics. No longer will economists rely on crude statistical models of how people behave in response to a policy change, such as an interest-rate rise or a tax increase. Instead, they will be able to peer directly into the brain to predict behaviour.

One day, perhaps; but much work remains. Identifying the parts of the brain that control economic actions is one thing. Harder tasks include determining how neural systems work together to create behaviour, and how wide is the variation in brain patterns between different people. Then there are age-old questions of free will: is your failure to save for old age simply a lifestyle choice, or is it down to faulty brain circuits? Neuroeconomics is already providing fascinating conclusions. But Plato's chariot will remain an alluring explanation for a while yet.

 

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Đây là bài viết về thảm họa sóng thần ở châu Á vừa qua

Asia's tsunami

Helping the survivors
Jan 6th 2005
From The Economist print edition


Relief is getting through, mostly. Longer-term reconstruction will be more difficult

AP






THE world's response to the horrors wrought by the Indian Ocean tsunami has been extraordinary. As well as offering up their sympathy and prayers, people everywhere have dug deeper than ever into their pockets. The task now will be to make that generosity count, in an enduring way.

Even before George Bush senior and Bill Clinton buried their political differences to launch a presidential fund-raising effort on January 3rd, Americans had donated over $163m to charities involved in the tsunami relief effort; Germany's smaller population had given $200m. Such has been the public's generosity that in many countries—Britain being a notable example—governments have found themselves playing catch up, several times increasing their official aid to keep pace with charitable donations. A sort of contest has broken out among governments, as they pledge ever more aid—Germany's is currently promising $674m, Japan's $500m, Australia's $380m (plus the same again in loans), America's $350m and Norway's $182m—as well as relief-workers, soldiers, aircraft, food, medicines and more. Among the relative misers are Arab governments such as Saudi Arabia's ($30m), which have benefited from huge windfalls thanks to higher oil prices in 2004 and ought to want to help their fellow Muslims in Indonesia.

Politicians are also competing with initiatives to help rebuild the battered region after the initial relief effort. Gordon Brown, Britain's chancellor of the exchequer, has sparked a lively debate about the role that debt relief should play in financing the reconstruction. Other ideas will soon emerge following a summit in Jakarta in January 6th, as well as from various parts of the United Nations (UN).

All of which is entirely welcome: an uplifting start to the new year after the old one ended so badly. Even so, the response to the tsunami prompts some big, difficult questions. Will the money be well spent? Is it at the expense of other deserving causes and political priorities? If so, is that justified? Or, to be optimistic, might so much generosity actually reflect a change in the priorities of rich countries that could benefit all developing countries, not just those hit by the recent disaster?



The case for generosity
What is certain is that the response has already far exceeded that following other humanitarian crises—including some in which the loss of life has exceeded the 150,000 now thought to have been killed, such as Congo's war (perhaps 3m dead), or matched it, such as Bangladesh's cyclone in 1991 (140,000 dead). The aid so far promised to help the 5m or so people who have been directly affected by the tsunami is around $800 a head, well over 20 times the norm in previous international-aid allocations.

Some cynics attribute this unusually generous response from rich countries to the fact that so many tourists from those countries were killed. For some European countries, the tsunami cost more citizens their lives than any natural disaster in decades. But if the money meets genuine needs in the affected countries, who cares what motivates the giving?

A more valid concern is that, as on previous occasions, rich-country governments might fail to honour their promises once the public's attention moves on to other things—or that, if they do pay up, they will do so by diverting money from others in need of aid (see article). Likewise, the private donations may reflect the public changing how it distributes a more-or-less fixed pot of charitable cash, in which case other charities may suffer. Yet, encouragingly, donor governments have so far been at pains to promise that tsunami-related aid will not be at the expense of existing aid budgets. As for private charity, similar worries abounded after the terrorist attacks of September 11th 2001 prompted massive giving to help with the recovery effort; however, on the whole, charities did not suffer the slump in donations that had been feared.

To some extent, the unusually generous response to the tsunami crisis may reflect a widespread, and largely justified, belief in rich countries that their money is more likely to be spent well on relieving natural disasters than on man-made humanitarian crises such as those in Congo and Darfur—or, for that matter, on general development aid to the world's poorest countries. Ever since Live Aid 20 years ago failed to provide a lasting solution to an essentially man-made famine in Ethiopia, there has been a growing “aid fatigue” in many rich countries—except when a strong case can be made that aid will really make a difference in a particular situation. The tsunami relief seems to qualify. Most of the countries hit have governments that, for all their frailties, are functional and even democratic. Unlike the rulers of, say, Sudan, or indeed many of the world's poorest countries, these governments are not a primary cause of the crisis. The internal fighting in Indonesia and Sri Lanka pales beside that in the Congo and Sudan, and seems unlikely to be a significant obstacle to the relief effort.



Beyond the next few weeks and months
Yet although the relief effort seems to be going reasonably well given the enormous difficulties to be overcome, and governments and non-governmental organisations are working well together, some legitimate concerns have been raised about whether the global system for responding to humanitarian aid is as efficient as it could be. In particular, the somewhat ponderous initial response has reinforced the case for an emergency rapid-response capability, consisting of soldiers, equipment, medical staff and others in a number of countries all over the world, doing their normal jobs but earmarked for despatch when a disaster occurs. Moreover, the UN's difficulty last week in offering speedy co-ordination showed that that issue too needs attention.

Then there is the even trickier question of what longer-term development assistance to offer tsunami-affected countries. Debt relief, as proposed by Mr Brown, may not be what these countries need or want in the long run, though a holiday from interest payments would be a quick and easy way to improve their cash flow in the next few months. After all, these countries are not among the poorest in the developing world, and their debt levels are not especially onerous. India has actually declined outside help. One, Myanmar, has the sort of nasty, ineffective government that would anyway prevent it from qualifying for debt relief were it located in Africa.

Ironically, before the tsunami struck, aid and development were already scheduled to dominate this year's international policymaking agenda. Momentum was building for significant changes, including more aid, debt write-offs and, crucially, further trade liberalisation (see article). However, these efforts in 2005 were expected to be focused largely on African countries, not Asian ones, which were mostly thought to be moving beyond needing such assistance. Indeed, it is the progress made over the past few decades by Asian countries, both in political and economic performance, that provides the strongest grounds for expecting that the money donated by the outside world will be spent well, and that the region will soon be recovering strongly. The aim must be that this likely success should not divert attention from humanitarian and development needs elsewhere, but instead be used to inspire even greater efforts to tackle them too

 

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Đây là bài viết về thành công của Toyota những năm gần đây.

Toyota

The car company in front
Jan 27th 2005 | NAGOYA
From The Economist print edition



Toyota makes lots of money and is overtaking General Motors to lead the world's car industry. What is the secret of its success?







THERE is the world car industry, and then there is Toyota. Since 2000 the output of the global industry has risen by about 3m vehicles to some 60m: of that increase, half came from Toyota alone. While most attention over the past four years has focused on a spectacular turnaround at Nissan, Toyota has undergone a dramatic growth spurt all round the world. Japan's industry leader will soon be making more cars abroad than at home. It has overtaken Ford in global production terms and is set to pass Chrysler in sales to become one of America's Big Three. In an industry strewn with basket cases, where hardly any volume producer makes a real return on its capital, Toyota is exceptional in that it consistently makes good returns (see chart 1).

Toyota's ebullient chairman Hiroshi Okuda has made little secret that he wants the company to win 15% of the global car market, snatching leadership from General Motors. Having reached Global Ten (10% of the world market) Mr Okuda has his eyes focused on his new goal. “It's just to motivate employees,” says Fujio Cho, Toyota's more downbeat president. “Somehow news of the banners in our factories leaked out,” he says disingenuously, as if you could keep such a secret after it has been blazoned to 264,000 workers around the world.

Market capitalisation says it all. Toyota is worth more than the American Big Three put together, and more than the combination of its successful Japanese rivals, Nissan and Honda. Last year Nissan may have outperformed Toyota in terms of operating margin, but over the long haul it has been the provincial powerhouse from Aichi prefecture near Nagoya that has consistently shown the way.

First, of course, it taught the modern car industry how to make cars properly. Few had heard of the Toyota Production System (TPS) until three academics in the car industry study programme run by Massachusetts Institute of Technology (MIT) wrote a book in 1991 called “The Machine that Changed the World”. It described the principles and practices behind the “just-in-time” manufacturing system developed at Toyota by Taiichi Ohno. He in turn had drawn inspiration from W. Edwards Deming, an influential statistician and quality-control expert who had played a big part in developing the rapid-manufacturing processes used by America during the second world war.

At the core of TPS is elimination of waste and absolute concentration on consistent high quality by a process of continuous improvement (kaizen). The catchy just-in-time aspect of bringing parts together just as they are needed on the line is only the clearest manifestation of the relentless drive to eliminate muda (waste) from the manufacturing process. The world's motor industry, and many other branches of manufacturing, rushed to embrace and adopt the principles of TPS.

In the process American and European cars went from being unreliable, with irritating breakdowns, leaks and bits dropping off in the 1970s, to the sturdy, reliable models consumers take for granted today. In real terms car prices may only have edged down over the past two decades compared with the drastic reductions seen in personal computers and all consumer-electronics goods. But the quality, content and economy of today's cars is incomparable with what was on offer 30 years ago. The main credit goes to the Japanese, led by Toyota. High petrol prices drove American consumers to buy economical Japanese imports; high quality kept them coming back. Europeans, too, were quick to see the attraction of cars that seldom broke down, unlike the native varieties. When trade barriers were erected, the Japanese built their plants inside them. Toyota may have been slower than Honda or Nissan to expand abroad, but its manufacturing method gave it an advantage once it did so.

So Toyota's success starts with its brilliant production engineering, which puts quality control in the hands of the line workers who have the power to stop the line or summon help the moment something goes wrong. Walk into a Toyota factory in Japan or America, Derby in Britain or Valenciennes in France and you will see the same visual displays telling you everything that is going on. You will also hear the same jingles at the various work stations telling you a model is being changed, an operation has been completed or a brief halt called.

Everything is minutely synchronised; the work goes at the same steady cadence of one car a minute rolling off the final assembly line. Each operation along the way takes that time. No one rushes and there are cute slings and swivelling loaders to take the heavy lifting out of the work. But there is much more to the soul of the Toyota machine than a dour, relentless pursuit of perfection in its car factories.

Another triumph is the slick product-development process that can roll out new models in barely two years. As rival Carlos Ghosn, chief executive of Nissan, notes in his book “Shift” (about how he turned around the weakest of Japan's big three), as soon as Toyota bosses spot a gap in the market or a smart new product from a rival, they swiftly move in with their own version. The result is a bewildering array of over 60 models in Japan and loads of different versions in big overseas markets such as Europe and America. Of course, under the skin, these share many common parts. Toyota has long been the champion of putting old wine in new bottles: over two-thirds of a new vehicle will contain the unseen parts of a previous model.



Pleasing Mrs Jones
Spend some time with Toyota people and after a time you realise there is something different about them. The rest of the car industry raves about engines, gearboxes, acceleration, fuel economy, handling, ride quality and sexy design. Toyota's people talk about “The Toyota Way” and about customers. In truth, when it is written down the Toyota creed reads much like any corporate mission statement. But it seems to have been absorbed by Japanese, European and American employees alike.

Mr Cho thinks something of the unique Toyota culture comes from the fact that the company grew up in one place, Toyota City, 30 minutes drive from Nagoya in central Japan, where the company has four assembly plants surrounded by the factories of suppliers. In this provincial, originally rural setting, Toyota workers in the early days would often have small plots of land that they tended after their shift. Mr Cho, who made his career in the company by being a pupil of Mr Ohno and becoming a master of production control, thinks that the fact that Toyota managers and their suppliers see each other every day makes for a sort of hothouse culture—rather like Silicon Valley in its early days.

Jim Press is boss of Toyota's sales in North America. He left Ford in frustration 35 years ago, because he did not think it handled customer relations properly and he suspected that the upstart Japanese company making its way in the American market might do better. He was right. Toyota shares a production plant in California with GM. Identical cars come off the line, some badged as GM, the rest as Toyotas: after five years, according to one study by Boston Consulting Group, the trade-in value of the Toyota was much higher than that of the American model, thanks to the greater confidence people had in the Toyota dealer and service network.

Mr Press talks with a quiet, almost religious, fervour about Toyota, without mentioning cars as such. “The Toyota culture is inside all of us. Toyota is a customer's company,” he says. “Mrs Jones is our customer; she is my boss. Everything is done to make Mrs Jones's life better. We all work for Mrs Jones.”

But not even the combination of its world-leading manufacturing, rapid product development and obsessional devotion to customer satisfaction is enough to explain Toyota's enduring success. There is one more ingredient that adds zest to all these. Tetsuo Agata doubles as general manager of Toyota's Honsha plant in Toyota City and as the company's overall manufacturing guru. The magic of Toyota's winning culture was summed up for him by an American friend who observed that Toyota people always put themselves “outside the comfort zone”: whenever they hit one target, they set another, more demanding one. That relentless pursuit of excellence certainly explains much of what has been happening to the company in recent years, at home and abroad.



The strain of going global
Life started changing for Toyota when the economic bubble burst in Japan at the start of the 1990s. First it had to work hard to improve its competitiveness as the yen strengthened. Mr Okuda, president in the mid-1990s, launched a programme of cost-cutting to make the company's exports competitive even at a yen level of only 95 to the dollar. When costs fell and the yen subsequently weakened, Toyota reaped a double reward.

But the company also had to face up to a car market at home that slumped from nearly 6m sales a year to just over 4m. And Toyota has had to respond to renewed competition in its domestic market, after an aggressive push by Honda and the revival of Nissan. One reaction by Mr Cho to tough competition at home has been a further round of cost cuts that have helped Toyota re-build market share in Japan from 38% in the mid-1990s to 44.6% last year, helped partly by windfall sales after the implosion of Mitsubishi Motors.

But European imports of Volkswagens, BMWs and Mercedes cars have mopped up 7% of the Japanese market, mostly for premium models, and forced Toyota to introduce its luxury Lexus brand into Japan. Until now, cars that Americans and Europeans have known as Lexuses have been sold as plain old Toyotas in Japan. Now Mr Cho has decided, as part of a wider reorganisation of Toyota's distribution network, to sell these vehicles separately with the Lexus badge and support from their own up-market retail outlets.

One of Toyota's strengths has been its army of privately owned car dealers, long organised into five competing channels, each one more or less specialising in different parts of the range. The multiplicity of distribution channels arose simply because of the rapid growth of the Japanese market and Toyota sales from the 1970s onwards. But in February 2003 Toyota administered what was called the Valentine's Day shock. It streamlined the number of channels down to four, including a new one aimed at the young people turned off by mainstream Toyota's staid image. (It is having to go even further in America with a separate sub-brand called Scion to appeal to young consumers.)

Like all car companies Toyota in Japan has had to get used to a fragmentation of the market, which means there are no longer huge runs of a few bestselling models. The boss of the Tsutsumi plant, where the firm's trendy Prius hybrid cars are made, recalls the good old days when all they had to do was churn out half a million Camrys and Coronas. Today's lines have been adapted and made flexible so that no fewer than eight different models can be manufactured simultaneously. The Prius—despite its revolutionary engine—still has to share an assembly line in the Tsutsumi plant with several conventional models.



Seeds of success
Making all these changes at home is relatively easy compared with Toyota's biggest challenge, now that it has set itself the goal of making more cars outside Japan than at home. Apart from seeking to switch production to exports, Toyota also chased growth outside Japan by building three more plants in North America and two in Europe, starting with Derby in Britain, followed by Valenciennes in the north of France. Between 1993 and 2003, overseas production more than doubled to 2m units, while in Japan it declined from 3.5m to 3m before recovering in the later years to its old level, boosted by exports; about half of domestic production is exported.

This globalisation process has transformed the size and shape of Toyota. In 1980 Toyota had 11 factories in nine countries; in 1990 it had 20 in 14 countries; today it has 46 plants in 26 countries. In addition, it has design centres in California and in France on the Côte d'Azur, and engineering centres in the Detroit area and in Belgium and Thailand.

Although Japan remains its biggest single market, sales topped 2m in North America for the first time last year, and in Europe Toyota is passing through the 1m mark, with 5% of the market, after a long period of slow growth. The opening of plants in Turkey and France and the introduction of the European-designed Yaris small car have done much to make Toyotas more appealing to Europeans, while in America its entry (not without a few hitches) into the enormous market for pick-up trucks and sport-utility vehicles has been responsible for its steady march to beyond 10% of the market. It is now breathing right down the neck of Chrysler.


Mr Cho acknowledges that such international growth and globalisation is the biggest change happening to the company. He sees his greatest challenge as maintaining Toyota's high standards in such areas as quality while it grows so fast across the globe. For Toyota has only recently started to transform the way it is run to make itself a truly global company rather than a big exporter with a string of overseas plants. Its top-heavy all-Japanese board has been drastically slimmed and five non-Japanese executives, including Mr Press, have been made managing officers, which means that they sit on the executive committee in Tokyo, but are also left free to run their overseas operations on a day-to-day basis without deferring to head office. For Toyota, that is a big step away from centralised rule by Toyota City.

Another leap has been the creation of a Toyota Institute, not just for training Japanese managers, but also for developing groups of executives from all over the world. The centre is expressly modelled on the Crotonville Centre that has played such a big part in the success of General Electric. By having squads of managers moving through development courses, head office can keep tabs on the potential of its people, whilst ensuring that they are thoroughly steeped in Toyota's way of doing things, whether it be in manufacturing, retailing, purchasing and so on.

But globalisation and the rapid growth of production now in places such as China is also straining the learning process further down the hierarchy. Toyota has a flying squad of line workers who move around the world to train locals at new factories or move in to help out when there is a model change going on. These line supervisors train local workers. Toyota has also made astute use of joint-ventures to ease the strain of manning overseas operations: apart from its original one with GM in California, Toyota now has another with a local company in Turkey, with PSA Peugeot Citroën in the Czech Republic and in China, which is the fastest-expanding part of Toyota, in line with the country's rapid motorisation. Toyota reckons that it will learn much about purchasing more effectively in Europe from its French partner in the new joint-venture, which is preparing to unveil a budget car for the European market at the beginning of March at the Geneva Motor Show.

But the company is finding there are limits to the number of Japanese managers and foremen who are prepared to work as expatriates, either on a temporary or permanent basis. So it has opened a Global Production Centre in a former production area in Toyota City. Here, on a given day you can see Filipino and Chinese workers being taught how to assemble Toyota cars. To get round obvious language barriers the instruction makes heavy use of video recordings and inter-active DVDs, a sort of automated, virtual version of watching how Nelly does it.



The best gets better
Perhaps the best single example of Toyota managers' aversion to taking it easy in the comfort zone is back where it started—in the mysteries of the TPS. Mr Agata, one of the firm's manufacturing experts, regards his job as inculcating the virtues of the TPS in a younger generation. But he has concluded that the company has to raise its game. “We have always proceeded by steady improvement,” he says. “But now we need to make step changes as well to keep ahead.” That means finding radically different ways of manufacturing things like bumpers or doors, reducing the number of parts, and developing new machines to form parts more economically.

As GM's bonds sink towards junk status, and as Japanese carmakers steadily overhaul America's Big Three, it must be a chilling thought that Detroit's nemesis is working on ways to improve its performance. No wonder one GM planner mused privately that the only way to stop Toyota would be the business equivalent of germ warfare, finding a “poison pill” or “social virus” that could be infiltrated into the company to destroy its culture.

What else could stop Toyota? Soon it will have the scale to outgun GM. A technological revolution will not threaten it, since Toyota is leading the way with hybrid electrics en route to full-scale fuel-cell electric cars. Consumer preference for exciting designs? Toyota has shown that it can play that game: there is a stylish edginess in recent models such as the Prius, Yaris, the new Avensis and even its venerable LandCruiser SUV. At least the man from GM put his finger on the key to Toyota's success. Provided its culture can be sustained as it goes from being an international Japanese company to a global one, then Toyota's future seems secure.

 

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Bài viết này nói về lợi nhuận tăng vọt của các tập đoàn gần đây

Corporate profits
Breaking records

Feb 10th 2005
From The Economist print edition


Capitalists are grabbing a rising share of national income at the expense of workers




WOODY ALLEN once quipped “If my films don't show a profit, I know I'm doing something right.” For most other people, in most other circumstances, profit is a mark of success, and in most countries corporate profits are currently booming. Last year, America's after-tax profits rose to their highest as a proportion of GDP for 75 years; the shares of profit in the euro area and Japan are also close to their highest for at least 25 years. UBS, a Swiss bank, estimates that in the G7 economies as a whole, the share of profits in national income has never been higher. The flip side is that labour's share of the cake has never been lower. So are current profit margins (and hence equity values) sustainable? Are they fair?

Corporate profits may be inflated in various ways. If firms made full provision for the future cost of pensions, their earnings would be smaller. And especially in America, the share of profits in national income has been bolstered by the surging profits of the financial sector which have benefited hugely from falling interest rates. Even so, the impressive efforts of American firms to boost productivity and cut costs are genuine (see article). Firms elsewhere, notably in Japan and Germany, are also restructuring aggressively. The share of profit in GDP always rises sharply after a downturn, but in the United States a bigger slice of the increase in national income this time has gone to profits than in any previous post-war recovery. Over the past three years American corporate profits have risen by 60%, wage income by only 10%.


If the share of wages in GDP continues to slide, there could be a backlash from workers who feel short-changed. Yet the chances of this are lower than before. The old divide between “them” and “us” is becoming blurred: many workers also own shares directly or through pension funds, which sooner or later will give them a slice of profits. In any case, there are good reasons to believe that profits growth will soon slow sharply and that workers will make up some of their lost ground.



An economic fallacy
The usual explanation for why profits are booming is that productivity growth has increased thanks to the computer revolution and tougher management. Thus, goes the argument, increased productivity and hence lower production costs mean fatter profit margins. History suggests otherwise. It is normal for the share of profits in national income to rise during the early stages of a technological revolution, but then those extra profits tend to be competed away. Higher profits tempt firms to cut prices to steal market share; they also increase the incentive for new firms to enter the market. The benefits of the productivity gains from railways, electricity or the car eventually went not to producers but to consumers and workers, as competition forced firms to pass cost savings on as lower prices and higher real wages. There is even greater reason for thinking that the benefits of computing technology will flow the same way, for it also increases competition in many industries by lowering barriers to entry and making it easier for consumers to compare prices on the internet.

However, there is another factor that might have raised the return on capital relative to labour in a lasting way, namely the integration of China and India into the world economy, along with their vast supply of cheap labour. To the extent that this increases the global ratio of labour to capital, it will lift the relative return to capital. Outsourcing may not have destroyed many jobs in developed economies, but the threat that firms could produce offshore helps to keep a lid on wages. As a result, the share of profits in national income could stay relatively high for a period. Labour's share would remain low, though workers may still be better off if the cake itself is growing faster. But this is not a reason to expect profits to continue to grow faster than GDP; indeed, in a competitive market profit margins will eventually narrow. Even if outsourcing reduces costs, competition will eventually force firms to reduce prices, distributing the benefits back to consumers and workers.

Stockmarket investors seem to think otherwise: current share valuations appear to assume that profits will continue to outpace GDP growth. Most analysts still expect American profits to grow by an annual 10% over the next couple of years. With nominal GDP growth of around 5%, that implies the proportion of GDP going to profits growing still larger. But this looks unlikely, and if so, share prices are overvalued. Both economic theory and historical experience argue that, in the long run, profits grow at the same pace as GDP. Such long-standing rules deserve more respect.

 

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Mối quan hệ của Nhật Bản, Trung Quốc và Mỹ

China, Japan and America
Keeping their balance
Feb 24th 2005
From The Economist print edition






China takes umbrage as America and Japan close ranks

SOME layers of frost from the cold-war years have still to be chipped away in East Asia, but these days it is not the Russians who are prolonging the chill. Take China's bad-tempered reaction this week to a joint statement by America and Japan that they want to “encourage the peaceful resolution of issues concerning the Taiwan Strait through dialogue.” Both have said as much before. Even China, which claims Taiwan as its own, says it wants a peaceful solution to the stand-off, though it insists that reunification with the mainland is the only solution and refuses to rule out using force should Taiwan make a dash for independence. So why the hostility?

This was the first time that Japan and America had actually named Taiwan, in a formal statement, as a matter of joint concern. In the past they have preferred to waffle on about the possibility of their co-operating to deal with problems “in areas surrounding Japan”. This was the preferred euphemism for, among others, a potential China-Taiwan crisis that would not only pit the region's second-largest economy against its fourth-largest, but would also be bound to draw in America, which has pledged to help Taiwan defend itself against attack, and by extension America's chief ally in the region, Japan.

Tensions over Taiwan have indeed risen in recent years, as Taiwan's president, Chen Shui-bian, has made a point of affirming the island's de facto independence from China, even as trade and other ties have flourished across the strait. But China also has other worries.

One is Japan's increasingly unapologetic flexing of its diplomatic muscle and its greater readiness to see its armed forces co-operate more closely with America's both around the region (it has taken a regional lead in efforts to intercept illicit cargoes, particularly to and from North Korea, under the American-led proliferation security initiative) and further afield (it lent logistical support for America's war in Afghanistan, and has a contingent of troops helping the reconstruction in Iraq).

Another of China's worries is that America and Japan are particularly seeking to constrain China's growing influence in Asia and beyond. Yet the same joint statement that included the controversial reference to Taiwan also included a joint pledge to welcome a “constructive” role for China, both regionally and globally.

Indeed, far from attempting to constrain China, some in the region have worried that America has recently allowed it too much room for manoeuvre. A planned reduction of American troop numbers in Asia initially generated some nervousness that America's distraction over Iraq would lead it to neglect the region, where even countries mesmerised by the prospect of the growing Chinese market are keen for America to continue playing a balancing role to keep old rivalries between China, Japan, Russia and others in check.

In fact, the troop reductions (including basing fewer soldiers permanently in South Korea) were long overdue. To counter new threats requires a more flexible force. American officials insist they will not leave Asia to its own devices.

Is there room for so many big powers in Asia? Japan and China are natural rivals for regional leadership, but until lately China seemed to be winning. Its growing market gives it clout. For two years, egged on by America, Japan, South Korea and Russia, it has also played a key role in the six-party talks on North Korea's nuclear challenge. As a result, China and South Korea had seemed particularly close.

But China is learning that the appearance of influence is not the same as the real thing. Earlier this month North Korea pulled out of the six-party talks and in effect declared itself to be a nuclear power. This embarrassed China, which knows that a rampant North Korea will only encourage Japan, South Korea and others to cuddle up more closely to America.

Meanwhile, what China has sometimes called its “peaceful rise”—an attempt to make its influence felt without alarming the neighbours—has been causing concern. Will a stronger China throw its weight about, the neighbours ask? America's secretary of state, Condoleezza Rice, has celebrated America's ability to have good relations with almost all of Asia's powers. But such rhetoric aside, America and others are keen to keep China's influence in proportion, if not in check.

In the process America has improved relations with India. Japan is developing military-to-military ties with Russia, and is deepening economic relations too, last year clinching an oil pipeline deal at China's expense. Meanwhile, America has upgraded security ties with Mongolia, Thailand, Singapore and the Philippines. When the Indian Ocean tsunami struck in December, America formed a temporary coalition with India, Japan and Australia—all countries able to mobilise ships and aircraft quickly—to bring aid to stricken areas. A less capable China was left out.

But the country China most worries about is Japan. Roused from its old cold-war pacifism by the prospect of a rising China and an increasingly hostile, nuclear-armed North Korea, Japan has been moving rapidly to upgrade its security alliance with America, including by working on missile defences that China deplores. It has also set aside guilt-ridden policies of the past. China recently overtook America as Japan's largest trading partner, but that has not stopped Japan from demanding (and receiving) an apology when a Chinese submarine was caught lurking in its waters last November. Japan has also started to cut back assistance to China, and has lobbied hard for the European Union not to lift its arms embargo on the country.

All this for the sake of keeping a balance, Japan would argue. Yes, but it is an uneasy one.

 

[Nguyễn Thục Anh (sunshine17)]

Sorry, do you guys have any example essays about, plx share it

" What policies would you recomment for improving the balance of payments of a country of your choice ? Explain the reasons for your recommendation "

 

[Lê Huy Hoàng (hoanglh)]

Mấy bài của đồng chí Dũng hay lắm, good job

 

[Lê Việt Dũng (funnydog)]

Về cải cách nguồn nhân lực ở các nước châu Âu.

Old before their time
Mar 3rd 2005
From The Economist print edition


Labour-market reform remains the key to higher living standards
IN MANY European countries, calls for economic reform are heard more often than they are heeded. However, a new report by the OECD, “Economic Policy Reforms in OECD Countries: Going for Growth”, deserves attention. It may aid reform by providing more detailed advice and better measures of relative economic performance.

That is timely, because the need for economic reform is pressing. In the post-war years to the 1980s, the world's richest economies were mostly converging towards similar levels of income per person. During the 1990s, however, that convergence came to a halt. Nowadays, income per person in the euro area is around 30% less than in America (see chart). And average growth rates in the euro area lagged behind America's in the ten years to 2003. If that continues, as it did last year, the gap in living standards will continue to widen.








To understand how European countries might close the gap, the report examines two contributing factors. The first is productivity, defined as output per hour of labour. The second is how much labour is employed.

Some European economies score well on the first measure. The average French worker is more productive than his American counterpart; the average German worker, slightly less. Partly, however, good productivity figures are a reflection of the greater proportion of Europeans, especially those with few skills, who are either unemployed or not seeking work. Worse still, most of Europe has lower productivity than America.

Fortunately, the news is cautiously optimistic on the first front: productivity gains are being made thanks to product market reforms which, by fostering competition, have been shown to boost labour productivity. Measuring the progress in these reforms is tricky, however, since they involve thousands of regulations. For example, how is it best to compare a reduction in start-up costs with, say, a lowering of state control? The OECD has created a summary indicator of product-market regulation, assigning thousands of weights to different reforms, so that no single type of measure is favoured. On these measures, regulations have eased in all European Union countries since 1998. Happily, countries that regulated the most seven years ago have been the most active in deregulating.

Can further product-market reforms alone close the gap between America and Europe? Almost certainly not. Increasing the supply of labour matters just as much. Germany has recently made a welcome start by cutting jobless benefits and encouraging the long-term unemployed to seek work, but in Germany, as in other countries, there is still far to go.

The OECD pays particular attention to the low participation rates of women and old people in the labour market. In America, 70% of women are in work or looking for it; in the 15 members of the EU before last year's enlargement, only 61% were. Only one in ten EU couples with small children said that they prefer to rely on a male breadwinner for their income, yet four in ten lived that way. One explanation is that the incomes of second earners, who are usually women, are taxed at a much higher rate than the main earner. In Germany, spouses of people on the average production worker's wage must pay 53 cents in tax out of the first euro they earn.



An army in slippers
But the withdrawal of old people—or even those in late middle age—from the labour market is perhaps the biggest single cause of the participation gap. In America, 62% of those aged 55-64 have a job or are looking for one; in the EU the figure is only 45% (and sinks to 32% in Italy and 29% in Belgium, although Nordic countries score better). Some may chalk this up to a cultural preference for early retirement. If Europeans want to retire in middle age to a bungalow by the sea, the argument goes, why force them to work instead?

But government rules matter as much as tastes. Generous European pension and early-retirement schemes, along with disability and unemployment programmes, can make work especially unattractive for old people. Low minimum retirement ages have the same effect. Other benefit schemes, with complex rules, can also encourage people to stay out of paid employment. Indeed, past policies were partially intended to encourage people to retire early, to create “room” for younger workers.

The OECD has attempted to measure the implicit “tax” on working for someone nearing retirement age. This tax measures the pension and other benefits that old people forgo when they continue to work, expressed as a proportion of their wage. A common problem is that pension benefits cannot be deferred in their entirety in many countries. If you keep working, some benefits are lost altogether and cannot be collected later.

For 55-year-olds in Germany or France, this implicit tax amounts to 50% of the average wage for people in that group. For 60-year-old Dutch people, the loss of benefits is 90% of the wage; Belgians face an effective tax rate of 80%. Faced with such arithmetic, why should older people bother to work?

The OECD estimated what would happen if pensions no longer encouraged early retirement—suppose, say, that pensions guaranteed a fixed pot of money: less each year if you retire early, but more if you stay at work. It found that many Belgians, for instance, would work as late in life as people in Scandinavia and America. This supports the idea that old people today are responding more to incentives and less to a preference for leisure.

But who can say for sure? If the EU does reduce the obstacles to work, many Europeans might still choose to toil less than Americans. But that would be an entirely different matter—a choice made freely, rather than in response to powerful government-supported incentives.

 

[Lê Việt Dũng (funnydog)]

Central European currencies

Too strong for comfort
Mar 3rd 2005 | WARSAW
From The Economist print edition


A headache for a region's central bankers






THESE are heady days for central Europe's currencies, and awkward ones for their central banks. Lately, the monetary authorities in Slovakia, which has become an unlikely exemplar of democracy (see article) and economic reform, have been the region's busiest. The koruna has risen by 9% against the euro since the start of 2004, causing the central bank to intervene furiously in a bid to hold the currency down. So far, it has failed, despite a cut of a percentage point in interest rates on February 28th.

Other central European currencies have been sprightly too (see chart). The Polish zloty gained 15% against the euro (and 25% against the dollar) last year, and has kept rising this year, prompting the central bank to shift its policy stance to “easing” last week. The Hungarian forint, which moves in a band either side of a central rate against the euro, is trading within a whisker of its upper limit, even after a cut of three-quarters of a point on February 21st. In the Czech Republic, a surging koruna has forced the central bank to reverse its policy of tightening: rates were trimmed by a quarter-point in January, to 2.25%, a shade higher than the euro area's.

The main reason for the currencies' strength is a flood of short-term capital inflows, attracted partly by the promise of convergence with the euro zone, but also pushed by low interest rates there: David Lubin, an economist at HSBC, points out that for the first time in 20 years, real euro-area interest rates have been negative. In Hungary, despite recent cuts totalling four and a quarter percentage points, short-term rates are still 8.25%; government bond yields are fat enough to pull in money borrowed cheaply elsewhere. Poland is more attractive still, lacking Hungary's wide current-account deficit.

None of this is much fun, however, for the region's central banks. On the one hand, strong currencies have helped curb inflation, allowing (or even necessitating) easier monetary policy. On the other, they threaten to choke off exports to the euro area, central Europe's main market. And central bankers are wary of cutting rates when governments are doing too little to rein in budget deficits, which are at least a point or two above the 3% of GDP supposedly needed to qualify for the euro, and economic growth is buoyant.

For the time being, central banks seem more worried about the adverse effects of strong currencies than about the risks of lower interest rates. Just possibly, they may soon have the opposite problem. Some members of the Polish central bank's rate-setting council fear the zloty may be heading for a fall, with two national elections and a referendum on the European Union's constitution due this year. The forint could be even more vulnerable, because its main prop is Hungary's still-high interest rates, investors' reward for disregarding the country's chronic fiscal problems. If rates fall much further, investors could head out of the forint as fast as they rushed in.

 

[Lê Việt Dũng (funnydog)]

Moore's Law at 40
Happy birthday

Mar 23rd 2005 | SAN FRANCISCO
From The Economist print edition


The tale of a frivolous rule of thumb



IN APRIL 1965, the worldwide semiconductor industry had annual revenues of about $2 billion. It would be three more years before Gordon Moore, an electronics boffin, co-founded a company called Intel. Electronics Magazine, a publication that Mr Moore remembers as “one of the throw-away journals”, asked him to opine on a trend or two. So he did. In prose that was passable for a numbers guy, Mr Moore imagined the possibility of “home computers” and “electronic watches”. Oh, and he “blindly extrapolated” from progress he had noticed in the preceding years that the number of “components” (by which he meant transistors and resistors) on a silicon chip would probably keep doubling every year or so.

“It turned out to be much more accurate than it had any reason to be,” snickers Mr Moore today, 40 years on, savouring the understatement. His off-the-cuff guess held true and, in the 1970s, was dubbed “Moore's Law” by his friend Carver Mead. Mr Moore could not bring himself to utter the phrase for about 20 years, he says. Yet as his “law” became famous he found himself compelled to update it. In 1975, he projected a doubling only every two years. He is adamant that he himself never said “every 18 months”, but that is how it has been quoted, and proven correct, ever since.


All this is somewhat beside the point. Mr Moore's message has always been simpler: that the cost of computation, and all electronics, appeared certain to plummet, and still does today, thus allowing all sorts of other progress. And, indeed, for four decades, Moore's Law has served as shorthand for the rise of Silicon Valley, the boom in PCs (which even surprised Mr Moore, who had forgotten that he had predicted home computers), the dotcom boom, the information super-highway, and other exciting things.

Reflecting on it today, as chairman emeritus of Intel, the largest firm in a global industry 100 times bigger than it was in 1965, is clearly fun. Software “frustrates” Mr Moore, who spends half his time in Hawaii, playing online games and such. But his law seems safe for at least another decade—or two to three chip generations—which is as far as he has ever dared to look into the future. As things are made at scales approaching individual atoms, he says, there will surely be limitations. Then again, the law has often met obstacles that appeared insurmountable, before soon surmounting them. In that sense, Mr Moore says, he now sees his law as more beautiful than he had realised. “Moore's Law is a violation of Murphy's Law. Everything gets better and better.”

 

[Lê Việt Dũng (funnydog)]

Bài viết này nói về tình hình kinh tế thế giới thời gian gần đây

You need us and we need you
Apr 6th 2005
From The Economist Global Agenda


America and foreign central banks are locked in a codependent relationship: America is addicted to spending, and the banks can’t stop throwing money at it in order to keep their currencies down. This is unhealthy for both parties, say the IMF and the World Bank. But is there any political will to change it?







AMERICA has been warned many times in recent years that its profligate spending is dangerous, for itself and for the world economy. So far, however, Americans have ignored such doom-mongering, gleefully driving their current-account and budget deficits to record levels. Now the World Bank and the International Monetary Fund (IMF) seem to be trying to stage an intervention. This week, both have come out with reports on the global financial situation—and both reports give warning that America’s fiscal irresponsibility poses serious risks to the world economy.

Neither organisation issues the kind of scathing indictment that might offend its most powerful constituent. Nonetheless, both make it pointedly clear that America’s copious spending is a real, and growing, problem for the rest of the world. America’s 12-month current-account deficit now stands at $665.9 billion, or 5.7% of GDP. Since a negative balance in the current account must be complemented by a positive balance in the capital account, this means that foreign funds are streaming in. America is mortgaging its future to pay for current spending.

Part of the reason this spending is so hard to get a grip on is that it is happening on multiple levels. With interest rates low, consumers have been tapping into their home equity and taking on credit-card debt—the latest figures from America’s Bureau of Economic Analysis show individuals’ savings were just 0.6% of their income in February. Meanwhile, even after massive tax cuts, the Bush administration has forged ahead with ambitious spending programmes. Thus, in 2004 the federal government’s budget deficit hit $412 billion, a worrying 3.6% of GDP. It is projected to fall only to $365 billion, or 3% of GDP, in 2005.

The gap between income and spending has been financed by foreigners, especially central banks; more than half of all publicly available Treasury bonds are now held abroad (see chart). But the central banks that are buying up all this paper, particularly Asian ones, are trapped in something of a vicious circle.

The natural adjustment mechanism for America’s rapidly growing foreign liabilities would be a declining dollar, which would lower demand for imports and make America’s exports more attractive on foreign markets. But the Asian central banks are stalling this process because they want to keep their currencies from appreciating against the dollar and thus becoming less competitive—and buying sackloads of dollars and then dumping them into US Treasuries achieves just that. This simply enables America to borrow more, making the inevitable adjustment sharper when it comes. That risk, of course, makes dollar-denominated assets less attractive, meaning that the Asian central banks have to go to ever-greater lengths to keep their currencies from appreciating.



We can’t go on like this
The World Bank estimates that roughly 70% of global foreign reserves are now in dollars. That growing portfolio of dollar assets is vulnerable to currency correction. This is not such a problem if the dollar declines gently, but an abrupt change in its value could spell trouble, as central banks find themselves with gaping holes in their portfolios.

Central banks have another problem: many are reaching the limits of their ability to “sterilise” their currency transactions. In order to keep their exchange-rate operations from causing inflation at home (the natural result of keeping one’s currency undervalued), central banks sell bonds on the domestic market in order to mop up excess money supply. However, this is expensive, since in many cases the interest rates on domestic bonds are significantly higher than on the Treasuries the central banks are buying. The World Bank estimates that this differential costs emerging-market central banks $250m a year for every $10 billion they hold in reserves.

There are further, institutional, limitations. The Reserve Bank of India, which is forbidden to issue debt or sell rupee assets on international markets, is running down its inventory of securities to sell. Last autumn, South Korea’s central bank bumped up against the annual limits on the sale of government debt. And China, a huge consumer of American debt, has been stuffing securities into its state-owned banks at below-market rates. This has made its already-fragile financial sector even weaker, and cannot go on indefinitely.

But as the IMF notes (and the World Bank agrees), dollar depreciation cannot be the only mechanism of adjustment for current global imbalances. They want developing countries with artificially cheap currencies to make their exchange rates more flexible. Europe and Japan are urged to stimulate domestic demand, taking the pressure off America to be the world’s customer—though this seems a little unfair to Japan, which has been energetic, if ineffective, in pursuit of consumer stimulus. And America, the Bank and Fund make clear, must get its fiscal house in order, cutting its budget deficit and encouraging consumers to save.



I can quit any time
Unfortunately, like much good advice, these recommendations seem to have little hope of being implemented any time soon. The political pressure in Asia to subsidise exports with low exchange rates is intense. Interest rates in Japan have been near zero for four years, giving the central bank little room for additional action; meanwhile, the European Central Bank seems to be preparing for a rise in interest rates this autumn, to keep inflation near its target of just below 2%, which will hardly do much for demand. And in America, the political will to reduce deficits seems to be all but extinct.

Given all these reasons to worry, it might seem surprising that both the IMF and the World Bank are broadly optimistic about the world economy. But as they point out, growth in 2004 was robust, and the world is currently enjoying high levels of macroeconomic stability. Alan Greenspan is expected to deliver steady increases in interest rates, slowing American demand, and forcing its consumers to rebuild shaky savings; it is hoped that this will help bring about an orderly adjustment in the dollar’s value. This will not be pain-free for the rest of the world—developing countries that have got sweet debt deals from investors fleeing low American interest rates will find their borrowing less easy to finance. But the resulting decline in imports should allow central banks to cut back on the breakneck pace of growth in reserves. And who knows? Perhaps once ordinary Americans are forced to live within their means, they will start demanding the same from their government.

 

[Trần Thiên Phước (liveforadream)]

@Dũng: ur posts are very interesting^__^..., i would love to hear ur comment on these articles....and everone's too...let's discuss about them. im really looking foward to this.

 

[Lê Việt Dũng (funnydog)]

Environmental economics

Rescuing environmentalism

Apr 21st 2005
From The Economist print edition


Market forces could prove the environment's best friend—if only greens could learn to love them







“THE environmental movement's foundational concepts, its method for framing legislative proposals, and its very institutions are outmoded. Today environmentalism is just another special interest.” Those damning words come not from any industry lobby or right-wing think-tank. They are drawn from “The Death of Environmentalism”, an influential essay published recently by two greens with impeccable credentials. They claim that environmental groups are politically adrift and dreadfully out of touch.

They are right. In America, greens have suffered a string of defeats on high-profile issues. They are losing the battle to prevent oil drilling in Alaska's wild lands, and have failed to spark the public's imagination over global warming. Even the stridently ungreen George Bush has failed to galvanise the environmental movement. The solution, argue many elders of the sect, is to step back from day-to-day politics and policies and “energise” ordinary punters with talk of global-warming calamities and a radical “vision of the future commensurate with the magnitude of the crisis”.


Europe's green groups, while politically stronger, are also starting to lose their way intellectually. Consider, for example, their invocation of the woolly “precautionary principle” to demonise any complex technology (next-generation nuclear plants, say, or genetically modified crops) that they do not like the look of. A more sensible green analysis of nuclear power would weigh its (very high) economic costs and (fairly low) safety risks against the important benefit of generating electricity with no greenhouse-gas emissions.



Small victories and bigger defeats
The coming into force of the UN's Kyoto protocol on climate change might seem a victory for Europe's greens, but it actually masks a larger failure. The most promising aspect of the treaty—its innovative use of market-based instruments such as carbon-emissions trading—was resisted tooth and nail by Europe's greens. With courageous exceptions, American green groups also remain deeply suspicious of market forces.

If environmental groups continue to reject pragmatic solutions and instead drift toward Utopian (or dystopian) visions of the future, they will lose the battle of ideas. And that would be a pity, for the world would benefit from having a thoughtful green movement. It would also be ironic, because far-reaching advances are already under way in the management of the world's natural resources—changes that add up to a different kind of green revolution. This could yet save the greens (as well as doing the planet a world of good).

“Mandate, regulate, litigate.” That has been the green mantra. And it explains the world's top-down, command-and-control approach to environmental policymaking. Slowly, this is changing. Yesterday's failed hopes, today's heavy costs and tomorrow's demanding ambitions have been driving public policy quietly towards market-based approaches. One example lies in the assignment of property rights over “commons”, such as fisheries, that are abused because they belong at once to everyone and no one. Where tradable fishing quotas have been issued, the result has been a drop in over-fishing. Emissions trading is also taking off. America led the way with its sulphur-dioxide trading scheme, and today the EU is pioneering carbon-dioxide trading with the (albeit still controversial) goal of slowing down climate change.

These, however, are obvious targets. What is really intriguing are efforts to value previously ignored “ecological services”, both basic ones such as water filtration and flood prevention, and luxuries such as preserving wildlife. At the same time, advances in environmental science are making those valuation studies more accurate. Market mechanisms can then be employed to achieve these goals at the lowest cost. Today, countries from Panama to Papua New Guinea are investigating ways to price nature in this way (see article).



Rachel Carson meets Adam Smith
If this new green revolution is to succeed, however, three things must happen. The most important is that prices must be set correctly. The best way to do this is through liquid markets, as in the case of emissions trading. Here, politics merely sets the goal. How that goal is achieved is up to the traders.

A proper price, however, requires proper information. So the second goal must be to provide it. The tendency to regard the environment as a “free good” must be tempered with an understanding of what it does for humanity and how. Thanks to the recent Millennium Ecosystem Assessment and the World Bank's annual “Little Green Data Book” (released this week), that is happening. More work is needed, but thanks to technologies such as satellite observation, computing and the internet, green accounting is getting cheaper and easier.

Which leads naturally to the third goal, the embrace of cost-benefit analysis. At this, greens roll their eyes, complaining that it reduces nature to dollars and cents. In one sense, they are right. Some things in nature are irreplaceable—literally priceless. Even so, it is essential to consider trade-offs when analysing almost all green problems. The marginal cost of removing the last 5% of a given pollutant is often far higher than removing the first 5% or even 50%: for public policy to ignore such facts would be inexcusable.

If governments invest seriously in green data acquisition and co-ordination, they will no longer be flying blind. And by advocating data-based, analytically rigorous policies rather than pious appeals to “save the planet”, the green movement could overcome the scepticism of the ordinary voter. It might even move from the fringes of politics to the middle ground where most voters reside.

Whether the big environmental groups join or not, the next green revolution is already under way. Rachel Carson, the crusading journalist who inspired greens in the 1950s and 60s, is joining hands with Adam Smith, the hero of free-marketeers. The world may yet leapfrog from the dark ages of clumsy, costly, command-and-control regulations to an enlightened age of informed, innovative, incentive-based greenery.

 

[Lê Việt Dũng (funnydog)]

@ Phước: Cám ơn cậu vì đã quan tâm đến những bài báo kinh tế mà mình sưu tầm. Cậu thích thảo luận về những bài báo đó mình rất hoan nghênh, mong cậu sẽ có những comment hay để mọi người cùng tham khảo.

 

[Lê Việt Dũng (funnydog)]

China's currency
Time to let go
May 19th 2005
From The Economist print edition


China should loosen its currency peg—and quickly

TEMPERS about China's currency are fraying on both sides of the Pacific. In America, the Bush administration this week branded China's currency policies as “highly distortionary” and made clear that it wanted to see a “substantial alteration” within six months. Coming amidst the reimposition of quotas on imports of some Chinese textiles and with rising anti-Chinese fervour on Capitol Hill, the American message to China is clear: do something about the yuan fast, or risk a protectionist backlash.

In Beijing, Wen Jiabao, China's prime minister, has been equally blunt. China's currency, he argued this week, was an issue of “China's own sovereignty”. “Any pressure or effort to politicise an economic matter,” he warned, “will not help solve problems.” In other words, shut up and leave us alone.

Mr Wen's irritation is understandable. Most congressmen use few facts and even less logic in their anti-Chinese rants. A stronger yuan would not, as many of them appear to believe, magically erase America's trade deficit (see article). And Mr Wen is right that China's currency policy should be determined by what is best for China. Where he errs is in his apparent conclusions. Economic and political considerations point the same way: China should loosen the yuan's peg, and soon.



Past its prime
The yuan has been pegged at 8.28 to the dollar since 1995. For much of that time the policy served China well. A stable currency underpinned the country's booming economic growth—and earned Beijing international plaudits when other Asian currencies plunged during the late 1990s. In recent years, however, it has become a liability, creating ever greater distortions within China's economy. Most important, the currency peg prevents China from running an appropriate monetary policy. In effect, Beijing has been forced to import America's easy-money posture, whereas China's overheating economy called for tightening. The result has been some enormous financial imbalances. Although consumer prices are rising only modestly, there are signs of faster increases in the prices of industrial goods and assets. The booming coastal property market signals an economy awash in cash.

Beyond these distortions, evidence is mounting that the yuan is becoming increasingly undervalued, which itself has a cost: too many resources are allocated towards exports and too few to domestic demand. China's current-account surplus is rising sharply: from 1.5% of GDP in 2001 to 4.2% of GDP in 2004. Some forecasts for 2005 are much higher still.

The demands of macroeconomic management and the need for balanced growth both suggest the currency regime needs to change. The question is how. China needs a currency system that will not just ease today's distortions but will allow it to cope with a turbulent few years ahead, as America's huge deficits eventually send the dollar down farther.

The boldest move would be for Beijing to simply let the yuan float, albeit in a managed kind of way. That is much less radical than it sounds. A more flexible currency would not force China to abandon its capital controls. Although many people—including American and Chinese government officials—tend to talk about a floating currency and free capital flows as though they were the same, there is no reason to lump the two together. Currency flexibility can, and probably should, come first. With a managed float, the Chinese could focus on domestic monetary policy, while intervening enough to stop disruptive swings in the yuan.



Weighing the dangers
The difficulty is that after a decade of a tight peg, China's banks, firms and politicians are terrified of the uncertainty of a float. Given this timidity, China could replicate much of the flexibility of a managed float by shifting the yuan's peg from the dollar to a basket of currencies, at the same time widening the band within which the yuan can fluctuate, say to 10% above or below the peg. Beijing must also decide how big an appreciation, if any, should accompany the shift. Here, too, Chinese caution suggests a modest revaluation is most likely. Again, such timidity is misplaced. A small appreciation would probably worsen China's monetary predicament by increasing the size of capital inflows, as investors bet on more appreciation down the road. Better to squelch the speculators by choosing a substantially stronger yuan early on.

The economic risks in abandoning the peg are smaller than many in Beijing believe. China's financial sector is fragile—but that simply suggests it would be foolish to rush towards full capital mobility. The government would lose money on its huge stash of foreign-exchange reserves—but that loss will occur whenever the yuan appreciates and will be bigger the longer today's system continues. It is true that an appreciation might modestly and temporarily slow China's growth as the economy changes gear—but, since China's exports contain lots of imported inputs, it is hard to see even a double-digit yuan appreciation sending exports into a tail-spin.

Today's economic risks may be modest, but they will grow if China's government continues to delay. The political risks will mount as well. Washington's protectionist rhetoric is no idle threat: America's behaviour towards Japan in the mid-1980s shows that tub-thumping in Congress can quickly lead on to real protectionist action. Delay also adds to the dangers for the global economy. By showing bold leadership now, China could start the much-needed adjustment of global economic imbalances.

A stronger yuan would allow Asia's other emerging economies to let their currencies rise. A slower pace of Chinese reserve accumulation might nudge America's long-term interest rates higher—exactly what is needed to curb American consumption. Only if financial markets panicked would interest rates soar enough to cause a serious crash. And that kind of panic becomes more likely as the imbalances grow and the political temperature rises. To avoid all this, help its own economy and, once again, win plaudits for economic statesmanship, China should loosen the yuan peg, and do it now.

 

[Lê Việt Dũng (funnydog)]

International economics

How China runs the world economy

Jul 28th 2005
From The Economist print edition


Global wages, profits, prices and interest rates are increasingly being influenced by events in China






“IF YOU want one year of prosperity, grow grain. If you want ten years of prosperity, grow trees. If you want 100 years of prosperity, grow people.” This old Chinese proverb crudely sums up how the entry of China's massive labour force into the global economy may prove to be the most profound change for 50, and perhaps even for 100, years.

China, along with the other emerging giants, India, Brazil and the former Soviet Union, has effectively doubled the global labour force, hugely boosting the world's potential output and hence its future prosperity. China's growth rate is not exceptional compared with previous or current emerging economies in Asia, but China is having a more dramatic effect on the world economy because of two factors: not only does it have a huge, cheap workforce, but its economy is also unusually open to trade. As a result, China's development is not just a powerful driver of global growth; its impact on other economies is also far more pervasive (see article).

Beijing's new influence was clear from the shockwaves in global currency, bond and commodity markets last week after it announced that the yuan will no longer be pegged to the dollar. Until a couple of years ago nobody cared much that the Chinese yuan was pegged to the dollar. Recently, though, this link has become one of the hottest issues in international politics, widely blamed in America for its huge trade deficit.

Last week's 2.1% revaluation of the yuan is trivial and unlikely to dent America's trade deficit. More important is the breaking of the yuan's formal link to the dollar and the shift to a so-called “managed float” against a basket of currencies. In theory, this allows considerable scope for a further rise in the yuan against the dollar, though it is unclear by how much the Chinese authorities will allow the yuan to climb.

Even if last week's adjustment was timid, it could mark an important turning point. It is certainly a step in the right direction for China itself, as greater currency flexibility will give it more room to use monetary policy to steer the economy. More interesting are the implications for the world economy. This might be the beginning of the end of what has been dubbed a revived Bretton Woods system of fixed exchange rates between China (and other Asian economies) and America.



The dragon's breath
Under this arrangement, China has provided cheap finance to America's consumers and its government by buying Treasury bonds. If the switch to a currency basket causes China to reduce its new purchases of dollar assets, then American bond yields could rise. America's China bashers, who demand a further revaluation of 25% or more, should therefore be careful. Such a large-scale revaluation would surely push bond yields higher and badly hurt America's economy. Indeed, if the yuan's adjustment has any real impact on America's trade deficit, it will not be through the revaluation itself, but because higher bond yields squeeze domestic demand.

America's trade deficit is due mainly to excessive spending and inadequate saving, not to unfair Chinese competition. If China has contributed to America's deficit it is not through its undervalued exchange rate, but by holding down bond yields and so fuelling excessive household borrowing and spending. From this point of view, global monetary policy is now made in Beijing, not Washington.



Puzzle key
The popular focus on the yuan, America's trade deficit and jobs as China's main impact on the rest of the world misses the point. China's growing influence stretches much deeper than its exports of cheap goods: it is revolutionising the relative prices of labour, capital, goods and assets in a way that has never happened so quickly before. A recognition of China's profound and widespread impact on the world economy explains various current economic puzzles.

Take, for instance, the oil price. Since the beginning of last year, oil prices have doubled, yet in contrast to previous oil shocks, inflation rates remain low and global growth robust. The answer to this riddle is China. To the extent that oil prices are driven up by strong Chinese demand rather than, as in the past, an interruption of supply, they are less likely to hurt global growth. And the impact of higher oil prices on inflation has been offset by falling prices of all sorts of goods from cameras and computers to microwaves and bicycles—thanks to China. In addition, competition from China and the threat that firms in developed countries might shift offshore also helps to keep a lid on wages and hence inflation.

Another oddity is that, while the prices of most goods are falling, house prices are soaring in many countries. Again, enter the dragon. Cheaper goods from China have made it easier for central banks to achieve their inflation goals without needing to push real interest rates sharply higher. This has encouraged a borrowing binge. The resulting excess liquidity has flowed into the prices of assets, such as homes, rather than into traditional inflation. And, last but not least, there is the conundrum which has puzzled Alan Greenspan, head of America's central bank: why are American bond yields so low despite robust growth and hefty government borrowing? Part of the answer lies, once again, with China, which has bought large quantities of Treasury bonds to hold down its currency.

Over the coming years, developed countries' inflation and interest rates, wages, profits, oil and even house prices could increasingly be “made in China”. How should the world's policymakers respond to China's growing economic clout? Trying to halt China's growth through protectionist measures, as many American congressmen would like to do, would be a disaster, for it would close off a powerful source of future global prosperity.

A better way to deal with China's growing power would be to give the country a bigger stake in global economic stability. China should be a full member of international economic policy forums, such as the G7 and the OECD. Western policymakers would be wise to remember another Chinese proverb: “What you cannot avoid, welcome.”

 

[Lê Việt Dũng (funnydog)]

Vietnam's maiden international bond

Hanoi calling
Nov 3rd 2005 | HONG KONG
From The Economist print edition


The capital markets welcome another communist refugee
FOR a socialist ingénue, Vietnam is navigating the global financial markets with considerable poise. The country's first overseas government-bond issue, on October 27th, met such strong demand that its size was increased from $500m to $750m and the yield tightened from 7.25% to 7.125%—a mere 2.5 percentage points above that on ten-year American Treasuries and a tighter spread than on comparable bonds from Indonesia and the Philippines.

Novelty and fund managers' desire to diversify their emerging-markets exposure away from large countries like Argentina and Brazil played a part. But Vietnam's attraction goes deeper. Many investors see it as a second China: a communist nation undergoing a steady, state-led transformation to capitalism. The economy is diversified, resource-rich and increasingly open, and is growing fast. GDP per head has risen at an annual rate of 5%-plus for the past five years, much faster than in countries with similar credit ratings

Similarities to China do not end there. Secretly, foreign investors like the country's mix of liberal economics and social and political stability (in other words, lack of freedom). The regime in Hanoi has been more cautious than China's in pushing economic development, but its commitment to reform is clear. Vietnam's vibrant private sector has 60% of the economy, at least as big a share as China's. Foreign direct investment is rolling in, at over $2 billion a year. Vietnam hopes to join the World Trade Organisation next summer; WTO membership spurred reform in its vast northern neighbour.

Vietnam does not really need the money. Its public-sector debt is relatively modest at 54% of GDP, calculates Standard & Poor's (S&P), a rating agency, which is why the fresh funds are being spent on new ships for the state shipbuilding company and aircraft for the national airline, rather than anything more urgent. The bond's real significance is that it diversifies Vietnam's sources of financing and establishes a benchmark for future capital raisings, says Le Thi Bang Tam, the vice-finance minister.

The hope is that the country's big corporations, such as PetroVietnam, an oil-and-gas group, Vietnam Airlines and EVN, the state electricity company, will follow the government and raise funds on international markets. Eventually, private companies could too. There is a great need for this given the shallowness of the country's domestic capital markets, says Agost Benard, of S&P. Although Vietnam has two stockmarkets and a domestic bond market, its companies are still too reliant on a ramshackle state banking sector—another parallel with China.

There is a risk that, if allowed to borrow from abroad, Vietnamese companies might borrow too much and investors might lend too willingly. As recently as 1998, $850m of distressed commercial loans from Vietnam were repackaged into so-called Brady bonds because it could not repay them. This time, Hanoi is likely to keep a firmer rein on its charges.

 

[Trần Tuấn Dũng (williamhill)]

ôi giời tưởng thảo luận nghiên cứu gì chứ cái kiểu copy paste từ báo ra thế này thì post làm gì cho mệt )

 

[Dương Quốc Bình (beckham)]

ôi giời tưởng thảo luận nghiên cứu gì chứ cái kiểu copy paste từ báo ra thế này thì post làm gì cho mệt )

Tôn trọng người khác 1 tí đi ông ơi. Ông đọc rồi nhưng tôi chưa được đọc

Cám ơn Việt Dũng nhiều. Có điều mình có 1 chút thắc mắc về cái bài Hanoi regime. Foreign investment into vietnam is about 2 billion dollar a year. Vậy ai là nhà đầu tư lớn nhất? vấn đề xuất nhập khẩu thì ra sao? VN chủ yếu nhập mặt hàng gì và tổng sản lượng là bao nhiêu?
Các private sectors hay national corporate sẽ ảnh hưởng nhiều tới các vấn đề nêu trên?