BRICs Guy on the EU's Road to Smurfdom

Jim O'Neill is known to most as the Goldman Sachs guy who termed the terms "BRICs" to represent the bloc of large developing countries Brazil, Russia, India, and China and to football fans as the would-be savior of Manchester United from the dastardly, debt-loving Glazer Ameriscum. (See anyone else buy a football team via LBO?) He also coined "MINTs" for Mexico, Indonesia, Nigeria and Turkey, albeit their subsequent performance is even spottier than the BRICs'.

Now, BeyondBRICs points us to a new report from him published by Bruegel that suggests the developed countries will lose a larger share of the world economy faster than he had thought. In other words, it's not just the BRICs but the entire developing country caboodle that's going to be growing especially in trade terms like gangbusters relative to their industrialized counterparts. Most vulnerable are the Europeans who are set for a kicking, especially after O'Neill and his bean counters totted up the figures post-European crisis:

We highlight the dramatic degree of the shifts taking place in world GDP and trade and include fresh projections of what world trade patterns might look like in 2020, should the trends observed over the past decade to continue. We also show the resulting shift in trade relationships for many key countries. European member states tend to have quite different trading partners’ profiles, and this heterogeneity is quite likely to become more pronounced with time. This, in turn, suggests a significant challenge for the effective functioning of the euro area and weakens the original rationale of its creation.

This figure shows precipitous declines in Europe's share of world trade in the next few years leading to 2020:

Individual EU nations are obviously not expected to fare well, with even Germany becoming less important:

Even as a proponent of developing countries, I think he's a tad optimistic and weighs post-European crisis data too much in extrapolating their future performance. We'll see. O'Neill also writes about things a lot of IPE commentators have commented on in that institutions of global economic governance do not fully reflect changes in the world's changing distribution of wealth. Remember, the US still selects the World Bank head, while the EU does the same for the IMF. The Eurocentric G-7 isn't exactly diverse and has become less so since they downsized from the G-8 after kicking out Russia. These ideas should not be new to IPE Zone readers, but it's good to hear an influential economist say the same things.

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New Template is Now Fully Operational

Dear readers, in case you haven't noticed--in which case I suggest laser eye treatment, pronto--the blog's template has changed. Over the weekend I have been tinkering with a new template to give the blog a contemporary look and feel. Since messing around with blog templates got me into this line of "business" in the first place, I have a keen interest on presentation. Ever come across blogs that had pretty good content but you didn't visit that much since they looked, well, blah? To better serve my beloved readers, I have always striven to deliver the best in form and function.

I suppose I am not doing too shabbily in either department since the blog still ranks third among Google search results for the term "international political economy." First is the (Humpty Dumpty-esque) Wikipedia entry, second is the excellent description of IPE by Michael Veseth that even I use. Fourth is the Warwick University IPE site--as a graduate of arch-rival Birmingham University I am glad to put them behind (just kidding, Warwick friends)! Fifth is the Review of International Political Economy, a fine journal edited by Greg Chin who I met a while ago.

Some notes in case you are interested:

1. The blogroll has been moved to the footer area. One of the major innovations in web design has been moving a lot of content to this area, so I'm just keeping up. (From three columns we now move back to two columns, too.) Again, I do not necessarily agree with these blogs and sites, but I think they provides a fair representation of interesting material for the wide-ranging discipline that is IPE. Inactive links have been removed.
2. All Foreign Policy blogs have been removed. What sort of jerks put blogs behind a paywall? It's totally against blogging ethos--even the Financial Times and Wall Street Journal which are the finest subscription-based sites do nothing of that sort of shameless money-grubbing. FP hucksters are thus banished. I will not register, let alone pay, for readily available content. A sucker is born every minute, but I hope you are not one of them.
3. The blog title and description are now hard-coded into the header.
4. The Archives and Tags sections have been combined in this neat template I found. For continuity's sake, familiar elements such as the textured background, the LibraryThing widget and the followers list carry over unchanged.
5. The column width is now 1250 pixels. Most visitors to the blog have widths of 1280 or more, so it makes sense to make this move to maximize screen real estate. Ever visit sites that use only half the screen and have teeny-weeny text when viewed at 1920x1080 or higher? I certainly have, and they waste today's higher resolution screens. Previous templates dating from 2007 and 2008 were optimized for 1024x768 and 1280x800 screens that I was operating then, but time moves on. 
6. All blog posts now have folds after a couple of lines on the main screen. For my next blog template, I will probably move to a title + picture template especially if readership keeps moving to mobile devices.
7. The body font is now Open Sans. 
8. There are still some things I am tinkering with such as the drop-down menus. I am also trying to shave off bits of HTML code here and there to speed up page loading by a few milliseconds. Pingdom suggests it loads reasonably fast already...

Otherwise, you are now witness to the firepower of this fully (re)armed and operational battle station. I target all forms of globaloney and hypocrisy. As it has for seven years now, the IPE Zone maintains its integrity by taking no prisoners. You may certainly not favor ideas and opinions expressed here, but rest assured they are mine alone. I do not entertain ads, paid placements, paywalls or other forms of commercial debasement. If you want people trying to sucker you into buying doodads at every turn, head elsewhere.

There will never be enough fish to fry even if I had all the time in the world.

PS: The new "Z" favicon is made to match the new color scheme. I am still deciding which of of the two above I should use.

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Poland's Rise and the "Catholic Work Ethic"

Makeup your mind on the reasons for Poland's export success.

Given the woes of Ukraine, many folks there are wondering, "Why are we not like Poland?" And for good reason: Poland's economic resurgence is remarkable set against the backdrop of a stagnant EU. Already, it is aiming to translate its economic clout into political clout. The contrast between Ukraine and Poland cannot be starker. What did the latter do to set the stage for today's success?

There are various reasons Poland, a country of 38.5 million with more than 200 years of tragic history, suddenly finds itself in a position of envy. It has a large internal economy, a business-friendly political class, and the hypercharged potential of a developing country catching up with its western peers. It is playing an increasingly influential role in EU negotiations, often providing a voice of restraint during discussions on how to rebalance an off-kilter euro zone...

Since the fall of the Iron Curtain, Poland has refashioned itself as a model of free-market economics. From 1989 to 2007 its economy grew 177 percent, outpacing its Central and Eastern European neighbors as it nearly tripled in size—the result of a series of aggressive measures taken by the government after the collapse of communism. Price controls were lifted, government wages were capped, trade was liberalized, and the Polish currency, the zloty, was made convertible. The policies left millions out of work but freed Poland to begin to recover from decades of mismanagement. The economy got a further boost with the country’s entry into the EU in 2004.

This, of course, is in stark contrast to Ukraine's staunch anti-reformist post-Soviet history. Now, one of the largest export phenomena to emerge out of Poland is Inglot Cosmetics (male readers should ask the ladies about this brand). In contrast to most male bloggers who consider the subject matter "girly" and avoid them altogether, I keep close tabs on fashion and luxury industries since they are often at the forefront of globalization in terms of leading-edge marketing and distribution. Having to appeal to the most cosmopolitan of consumers means riding trends as soon as they emerge anywhere in the world, and those who claim to write about globalization without covering these industries are quite risible.

Inglot has caught the eye of no less than the Financial Times for its astute business practices. As Inglot branches multiply across the globe, it eventually reached Manila. Coming from the Philippines, I have always been fascinated with hardworking Poles who are now leading the way in the EU. Similar to the Philippines, Poland remains devoutly Catholic. Yet, like Poland, the Philippines is progressing relatively quickly nowadays and is among those leading Asia in growth.

It's quite a turnaround, and this phenomenon has led me to carefully read a wonderful journal article by Martyna Sliwa on how a "Catholic Work Ethic" has emerged to counter the established notion of a "Protestant Work Ethic" whose main idea is that Protestants are less fatalistic than Catholics and thus work harder since their fates are not predetermined:

This article engages the question of whether contemporary Poland is a country in which Catholic Work Values prevail. First, it discusses the meaning of work in Catholic Social Teachings. Then, it provides an overview of the historical experience of Poland and the Polish nation's trajectory of forming its relationship with the Catholic Church. Furthermore, based on a number of empirical studies, it explores the current role of the Catholic religion in the lives of the Poles, with an emphasis on the principles and virtues related to work. It argues that as a consequence of a long period under the occupation of foreign powers between 1795 and 1918, of involvement in the two world wars, and of the post-WWII era of the Communist regime from 1945 to 1989, the model of Catholicism which has developed in Poland is characterised by a strong identification of a large proportion of the society with the Church, but, at the same time, by signs of selectivity towards religion, which transpire also in the way in which the Poles feel about and approach work-related matters.

Critics will of course complain that Italy, Portugal and Spain are prime examples of Catholic failures in Europe, but consider that they are increasingly becoming like the French who are only nominally Catholic as out-of-wedlock births rise and church attendance falls in those countries. The Sliwa article points out that the path taken by Poland in relation to religion and its current rise is idiosyncratic. However, there are certainly points of reference to draw upon for other predominantly Catholic countries. Indeed, if Weber were still around today, he may have to reconceptualize his ideas given the geographically dispersed emergence of fast-growing Catholic economies including Poland (Eastern Europe), the Philippines (Southeast Asia) and Mexico (North America). At the very least, Catholicism may no longer be a brake on growth but even a modest accelerant when combined with certain pro-growth policies.

From marketing their own software to their own makeup, the Poles simply "get" the global marketplace in a way others really haven't by building their own export brands--go ask the Chinese, for instance. Let the "Catholic Work Ethic" show us the way.

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(Labor) Terminator: (Coming) Rise of Drone Ships

Where's the 'bridge'? Getouttahere!

The shipping industry's importance to global trade cannot be overstated. Depending on your source, 80-90% of all traded goods are exchanged via shipborne transportation. Hence the only slightly inaccurate title of Rose George's recent book on shipping being an "invisible industry," Ninety Percent of Everything. (Obviously, not all goods are traded.) In the quest to bring us ever lower-priced goods, shipping lines have done a lot to circumvent developed world regulations. The advent of flags of convenience or registering vessels not in the countries of the ships' ownership is a case in point. Flying a Panamanian or Liberian flag skirts all sorts of developed world regulations concerning environmental and labor standards. To illustrate the latter, somewhere between a quarter to a third of all seafarers come from the Philippines. They earn rather less than their Greek or Cypriot counterparts.

That said, labor still constitutes the largest expense for shipping firms. I suppose, then, that it would only be a matter of time before drone cargo ships enter service. Heck, if murderous Yanquis rain death from the skies the world over without any regret, what's the particular difficulty in manning ships remotely? Rolls-Royce--the engine maker, not the car brand which has been sold to BMW--has the latest in this line of innovation:

Rolls-Royce’s Blue Ocean development team has set up a virtual-reality prototype at its office in Alesund, Norway, that simulates 360-degree views from a vessel’s bridge. Eventually, the London-based manufacturer of engines and turbines says, captains on dry land will use similar control centers to command hundreds of crewless ships. Drone ships would be safer, cheaper and less polluting for the $375 billion shipping industry that carries 90 percent of world trade, Rolls-Royce says.

They might be deployed in regions such as the Baltic Sea within a decade, while regulatory hurdles and industry and union skepticism about cost and safety will slow global adoption, said Oskar Levander, the company’s vice president of innovation in marine engineering and technology. “Now the technology is at the level where we can make this happen, and society is moving in this direction,” Levander said by phone last month. “If we want marine to do this, now is the time to move.” 

Big money is behind this project as cost considerations come into play:

The European Union is funding a 3.5 million-euro ($4.8 million) study called the Maritime Unmanned Navigation through Intelligence in Networks project. The researchers are preparing the prototype for simulated sea trials to assess the costs and benefits, which will finish next year, said Hans-Christoph Burmeister at the Fraunhofer Center for Maritime Logistics and Services CML in Hamburg... 

Crew costs of $3,299 a day account for about 44 percent of total operating expenses for a large container ship, according to Moore Stephens LLP, an industry accountant and consultant. 

The article goes on to discuss the safety concerns--hacking, terrorism and so on--but I do not believe them to be insurmountable. In time, our grandchildren will probably not be pondering about what to do with drunken sailors in song but rather hacked drone cargo ships!

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US Bastardizes APEC, PRC Bastardizes Boao Forum

There's interesting commentary over at The Diplomat concerning the ongoing Boao Forum, formerly China's World Economic Forum wannabe/knock-off featuring the movers and shakers in politics and business in Asia. Supposedly a non-government organization to discuss economic issues in Asia, its role is evolving to become a mouthpiece for its largest backers. Namely, the Communist Party.

There's a lot of interesting stuff in the article, but I am particularly struck by it dropping its veneer of being a pan-Asian initiative and nakedly pursuing topics and discussion points favored by the PRC leadership:

One of the perks of being the forum’s perpetual host is setting the agenda: on the docket for discussion were several hot topics of great interest to Beijing, including sessions on “Reviving the Silk Road” and “Urbanization of People.”

However, recently the Boao Forum has been moving beyond purely economic topics to discuss other regional issues. Given China’s leading role in the Boao Forum, the expansion of the forum’s agenda reflects China’s regional leadership ambitions. In 2013, the forum introduced non-economic topics to its agenda for the first time, including food safety and America-Asia relations (not coincidentally, those two topics are of major interest to Beijing). This year, the forum has expanded its scope yet again, with plans to include discussions on potential cooperation in South China Sea, a code of conduct for cyberspace [re: NSA spying], and China-U.S. relations in the Asia-Pacific region.

So yes, China is using the Boao Forum to fry its favorite fishes. Then again, the same has been going on in the Asia-Pacific Economic Cooperation (APEC)--the United States' favored venue for (mis?)characterizing itself as an "Asia-Pacific" economy and politicizing an "economic" gathering:

Chinese officials have raised similar complaints about the U.S. reshaping APEC to take on regional security issues rather than remaining a purely economic forum. Apparently, China has decided that “if you can’t beat ‘em, join ‘em” — and Beijing is now slowly turning the China-led economic forum into a platform for discussion on major regional issues. The U.S. has had success framing conversations on sensitive issues like conduct in cyber-space and how to handle the South China Sea disputes. By raising these same issues in its own forum, Beijing can set the agenda for a change.

I guess sometimes it's not the economy (stupid).

UPDATE: ECNS has a summary of the talks given at the event. 

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Up Next: Mass Delisting of Russian Stocks From US Bourses

I've got the Norilsk Blooze...

State of Palestine deniers the United States looking for ways to "punish" Russia over taking back territory it gifted to Ukraine leads us to all sorts of interesting places. The lack of trade ties between the US and Russia makes it difficult to apply sanctions, but that isn't to say Americans haven't tried using the WTO to get back at Russia.

Now we're coming to another way the Yanquis are trying to bash Russia. Instead of trade, how about the investment front? As it turns out, there are quite a few publicly-listed Russian companies being traded via American depositary receipts or ADRs. Being mostly state-affiliated enterprises, these would certainly do as bait for publicity-seeking US politicians by using their American presence as a backdoor for imposing sanctions.

And, by halting trading on Russian stocks in the possession of American nationals, massive downward pressure can be placed on these stocks:

When Russia’s first deputy prime minister urged companies to delist from overseas stock markets two days ago, he made a reference to concerns about the country’s “economic security.” While Igor Shuvalov didn’t specify what the security issues are, there may be reasons for the Kremlin to be concerned about stock trading as the U.S. and Europe threaten to step up sanctions against Russia, according to Gibson, Dunn & Crutcher LLP. The New York-listed equities of any company that the Treasury Department adds to the sanctions list would become off limits to U.S. investors, said Judith A. Lee, a sanctions lawyer at Gibson Dunn in Washington.

“If a company is designated, then any shares of that company in the control or possession of a U.S. person are blocked,” Lee said by e-mail on April 8. “Those shares could not be sold. That would really put downward pressure on the stock price.” The Bloomberg index of the biggest Russian companies traded in New York rose 0.2 percent yesterday, capping a decline of 19 percent this year. The measure has plunged almost twice as much as the benchmark Micex gauge of Moscow-traded equities, which has fallen 10 percent. 

Political risk analysts see Russia's move as an attempt to cut off vulnerabilities as the US seeks to expand sanctions past government officials to state-affilicated enterprises:

Chris Hamilton, a spokesman for the U.K. Financial Conduct Authority declined to comment on how deeper sanctions against Russia could affect holders of Russian stocks listed in London. Hagar Chemali, a Treasury spokeswoman, also declined to comment.

“So far sanctions have been imposed on individuals and their assets,” Charles Hecker, the global research director at Control Risks Group in London, said by phone yesterday. “What we could move to next are companies and those companies’ assets.” State-owned Russian companies or “Russian companies that have a great deal of political exposure” could be on a new sanctions list, Hecker said.

Nuff said. Let's party like its 1949.

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All You Wanted to Know About Bitcoin But Were Afraid to Ask

MarketWatch--formerly a CBS property, now a Dow Jones one--has an interesting special report on the Bitcoin phenomenon. I personally think it's much ado about nothing, but your opinion may differ. I have previously blogged about how m-banking will be the likely catalyst for the emergence of a widely-used virtual currency. Alas, Bitcoin is neither a play on mobile nor backed by major sponsors (i.e., telecoms in conjunction with financial services industries).

Bottom line: Bitcoin's 'failure' has little to do with the potential advantages of virtual currencies but rather Bitcoin's particular deficiencies in conception and implementation--many of which have to do with governance (or, better yet, the lack thereof).

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