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A new dawn in world economy?

Review by Thomas Lee tomlee48@gmail.com

A new dawn in world economy?
Title: Uprising
Will Emerging Markets Shape or Shake the World Economy?
Author: George Magnus
Publisher: John Wiley & Sons Ltd

At first glance, the title Uprising gives one the impression that the book is concerned about rebellion or revolt, or matters related to violent political conflicts involving armed resistance.

However, after reading its small-print sub-title Will Emerging Markets Shape or Shake the World Economy? and a quick browsing through its content, one realises that the book is actually an in-depth analysis of the contemporary global economy, in particular the influence and impact of the new emerging markets with the focus on the shift of economic power from the West to the Orient, especially China.

Its author George Magnus is a prominent investment banker and global economist, who has been acknowledged as the key analyst who had predicted the recent world financial crisis in early 2007. He is a senior economic adviser at the UBS Investment Bank in London, and had held similar posts at the Union Bank of Switzerland and SG Warnurg.

Magnus is also a popular and respected public commentator on world financial matters, contributing frequently to the Financial Times of London, the BBC, Bloomberg, the CNBC and several other prominent economic, business or financial publications. He is also author of the 2008 definitive international economic analytical book The Age of Aging: How Demographics are Changing the Global Economy and Our World. 

Hence, Uprising is not simply any ordinary run-of-the-mill book, but a major authoritative book which anyone concerned with the contemporary global economy and the direction it is moving should read and reflect deeply on. What Magnus said in his book should not be treated lightly as he is no false prophet when it comes to matters of international economic wheeling and dealing.



Magnus begins his book with an incisive narration and analysis of the world events building up from the first year of the new 21st century to the current global economic scenario. He gives a sharp observation, and penetrating and critical analysis of events in China, including the implications of a world sporting event like the August 2008 China Olympic Games, which took place sandwiched between the May 2008 Great Sichuan Earthquake which claimed nearly 70,000 lives, and the October 2008 world financial earthquake following the collapse of the US investment bank Lehman Brothers, which, as Magnus puts it, “brought the world economy to the brink of an economic Armageddon, unrivalled since the Great Depression of the 1930s”.

In his 358-page book, Magnus sets out to explain the impact and effect that the 2008 financial crisis has on the major emerging markets, and why the rich developed Western nations is going all out to challenge and curb their increasing threats, especially of China and India, in the global economic order.

A major theme of the book as Magnus puts it, is that “the West’s financial crisis sparked a major change in the structure of the world economy, and that China’s capacity to also embark on structural change voluntarily is weak, unless it is specially geared to the long-run interests of the Communist Party’s grip on power”.

This authoritative definitive book examines the two major economic powers and leading emerging markets in Asia – China and India – and several minor but significant markets in Eastern Europe, and also Turkey.
Currently, the emerging markets are headline news. And the question uppermost in the minds of political and business leaders in all these emerging markets of the world is what will happen following the 2008 world financial crisis and what does the future mean and hold for global finance, trade and commerce.

Magnus provides significant suggestions and pragmatic guidelines to resolve this global economic dilemma.

He presents a persuasive and cogent perspective on China and the other emerging markets from a post-financial crisis situation, urging those with economic potency to seriously reconsider their attitude and approach to the emerging new world economic order. A fundamental matter to critically and analytically examine is the question of what economic reforms are needed to meet the new global goals.

Magnus should most be appreciated for offering a convincing critical analysis of what the future global economy may look like – not merely for the emerging markets, but for policy-makers, businesses, financiers, investors, economists, and even ordinary citizens concerned with the economic well-being of their nation and the world.

Magnus deals with matters such as climate change, commodity prices, and world demographic trends, and gives valuable insights into the implications of these issues for the world economy.

One significant question Magnus deals with is whether the 21st century belongs to China. The Communist nation operating on enterprise capitalism for the last 30 years is now all set to regain what Magnus has pointed out in his book as its premier economic power it held from ancient times till the early part of the 19th century.

For all intent and purpose, China is set for an economic renaissance. It will soon regain its ancient mantle as a world economic power it lost when its reticent conservative bureaucracy forced it into international relation isolation while Europe moved economically forward with an industrial revolution in the 19th century.

The Uprising by the plucky economic seer Magnus is certainly essential reading for anyone who wants to understand and care about the future of the global economy.

Understanding the context, content and challenges of the world economic scenario during the first decade of this century is certainly vital for those responsible for making policies, plans and programmes to chart the direction, set the trend, and strive for vigorous economic success in their nations.

Thanks to Magnus, his book has provided the seeds for the planting, growing and harvesting of serious objective thinking, critical pragmatic evaluation, constructive practical ideas, and effective and efficient creative implementation of economic policies, plans and programmes.

Understanding The Rise Of China [VIDEO]

http://www.dump.com/2011/01/25/understanding-the-rise-of-china-video/

IMF - Lagarde’s Challenges

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Raghuram Rajan

CHICAGO – Now that the dust has settled over the selection of the International Monetary Fund’s managing director, the IMF can return to its core business of managing crises. Christine Lagarde, a competent and well-regarded technocrat, will have her hands full with three important challenges.

The first, and probably easiest, challenge is to restore the IMF’s public image. While the criminal case against Dominique Strauss-Kahn on sexual-assault charges now seems highly uncertain, the ensuing press focus on the IMF suggests an uncontrolled international bureaucracy with unlimited expense accounts, dominated by men with little sense of restraint.

Fortunately, the truth is more prosaic. Top IMF staff face strict limits on their allowable business expenses (no $3,000 per night hotel rooms, despite reports in the press), and are generally underpaid relative to private-sector executives with similar skills and experience.

The IMF, like many organizations where workers spend long trips together, has its share of intra-office romances. But the environment is professional, and not hostile to women. A previous incident in which Strauss-Kahn was let off lightly for an improper relationship with a subordinate clearly suggests that the Fund needs brighter lines for acceptable behavior and tougher punishment for transgressions. But other organizations have dealt with similar issues; the IMF needs to make the necessary changes, and, equally important, get the message out that the DSK incident was an aberration, not the tip of the proverbial iceberg.

Mess in Europe

The second, and perhaps most difficult, challenge facing Lagarde, is the mess in Europe, where the IMF has become overly entangled in eurozone politics. Typically, the IMF assesses whether a country, after undertaking reasonable belt-tightening measures, can service its debt – and lends only when it is satisfied that it can. The entire objective of IMF lending is to help finance the country while it makes adjustments and regains access to private borrowing. This also means that a country with too much debt should renegotiate it down before getting help from the IMF, thereby avoiding an unsustainable repayment burden.

Perhaps swayed by promises of eurozone financial support (and Europe’s desire to prevent default-fueled financial contagion from spreading to countries like Spain and possibly Italy), the IMF took a rosier view of debt sustainability in countries like Greece than it has in emerging markets. But this has not “helped” such countries, for the availability of soft credit from the eurozone or the Fund only enables a greater accumulation of debt.



Ultimately, debt can be repaid only if a country produces more than it spends. And the higher the debt, the less likely it is that the country will be able to achieve the mix of belt-tightening and growth that would enable it to generate the necessary surpluses. Delayed restructuring eventually means more painful restructuring – after many years of lost growth.

If troubled eurozone countries, especially Spain, start growing rapidly again, there is still a “muddle-through” outcome that might work. With too-big-to-save countries like Spain in the clear, the debt of highly-indebted peripheral countries like Greece could be written down through interest waivers, maturity extensions, and debt exchanges. The eurozone – and the European Union – could survive its fiscal crisis intact.

Significant haircut

But having failed to insist on an up-front restructuring, the IMF will face problems. With private investors reluctant to lend more or even to roll over existing debt, the bulk of Greek debt at the time of any restructuring (or whatever it is euphemistically called) will be from the official sector. How the resulting losses imposed on debt holders will be divided between the various eurozone institutions and the IMF is anyone’s guess. For the first time in its history, the Fund might have to take a significant “haircut” on its loans, and it will have to prepare its non-European shareholders for it.

 Being independent

A greater dilemma will emerge if the muddle-through strategy does not seem to be working. At some point, the IMF’s strategy, which should be focused on the distressed country’s citizens and its creditors, should depart from that of the eurozone, which is more willing to sacrifice individual countries’ interests for the larger interest of the monetary union. Lagarde’s challenge will be to chart a strategy for the IMF that is independent of the eurozone’s strategy, even though she has been intimately involved in formulating the latter.

The third challenge for Lagarde concerns the circumstances of her election. It is not inconceivable that a number of emerging-market countries will get into trouble in the next few years. Will the Fund require the tough policy changes it has demanded of countries in the past, or will Lagarde’s need to show that she is not biased towards Europe mean that future IMF interventions will become more expansive and less demanding? A kinder, gentler Fund is in no one’s interest, least of all the distressed countries and the world’s taxpayers.

Finally, there is a challenge that seems to be pressing, but is not. In her campaign for the position, Lagarde emphasized the need for diversity among the IMF’s top management. But what is really needed is the selection and promotion of the best people, regardless of national origin, sex, or race.

Clearly, the IMF’s existing culture and history will bias its selection and promotion of staff towards a certain type of person (for example, holders of PhDs from US universities). That commonality in backgrounds among IMF personnel allows the Fund to move fast in country rescues, not wasting time in endless debate. In the long run, more diversity is needed. But if it is attempted too quickly, in order to paper over the fact that a European is in charge once again, the Fund risks jeopardizing its key strength.

The IMF is perhaps the central global multilateral economic institution at a time when such institutions are needed more than ever. Lagarde arrives to lead it at a difficult time. We all have a stake in her success.

Raghuram Rajan, a former IMF chief economist, is a professor at the University of Chicago’s Booth School of Business.

China's competitive advantage

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Research from Jack McCann of Lincoln Memorial University, in Tennessee, suggests that China could become the dominant economic power within a few years if it exploits the competitive advantages it is creating politically, culturally, legally and economically.

Writing in the current issue of the International Journal of Sustainable Strategic Management, Jack McCann suggests that China's business and political leaders have long worked to build strong relationships with developing countries. However, it is strengthening of its global political presence that is closely aligned with economic expansion, which could lead to a sustainable dominant position in the world.

The Chinese Communist Party has governed China for the past 55 years and remains secure in its position as the sole political party in China. Despite its seeming inability to respond with ease to changes in Chinese society, the Party has nevertheless witnessed an average annual growth of about 10% for nearly two decades and unique stability during the current world economic crises. Indeed, China's merchandise trade has been growing at about 14%, three times faster than world trade, making China the third largest economy as of 2008.



"On paper, globalization poses the long-term potential to raise living standards and reduce the costs of goods and services for people everywhere," says McCann. However, globalization does not mean equitability. China currently produces almost three-quarters of the world's today, nearly two-thirds of its bicycles, a third of its television sets and air conditioners, and half of the world's microwave ovens. "China's pool of cheap labor may dominate world labor markets for decades, giving it a monopoly on cheaply manufactured goods," McCann explains.

There is an intriguing undercurrent to China's development and trade practices that concerns those in the West. "Competitive strategies, currency manipulation, and piracy of intellectual property are causing concern in the global economy and creating protectionist reactions in many countries," adds McCann. It is interesting to note that as China utilizes its various competitive advantages, not least those ethical considerations, it has in recent years become the world's second-largest oil consumer after the US while the US trade deficit with China increases year after year into the hundreds of billions of dollars. Globalization has wrought new opportunities for many nations. China is no different than any other in attempting to make the most of this emerging world order.

More information: "The Chinese competitive advantage" in Int. J. Sustainable Strategic Management, 2011, 3, 1-12
Provided by Inderscience Publishers (news : web)
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Debt-consolidation plans vital

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MAKING A POINT By JAGDEV SINGH SIDHU

IT'S easy to picture the worst when the news around us is not savoury at all.

The platter for such troubles will include the second-quarter slowdown induced by the earthquake and tsunami in Japan. Output around the world has been shaken by the ramifications of the supply shock from Japan.

Then there is the report card on the US Federal Reserve's second round of quantitative easing (QE2). For many, QE2 really did not help the foundation of the economy. Unemployment is still sticky and there is still weakness in the housing sector but the stock market and commodities boomed with cheap liquidity flooding the market.

Inflation jumped as raw material prices surged and that, in effect, robbed a lot of people of purchasing power.

Looking at Greece, one has to assume a default is a certainty and is just a question of time. In fact, the CEO of Pimco, the world's largest bond fund, expects that to happen and many, too, agree looking at the economic structure of Greece.

Despite the gloom, the prognosis for the global economy really has not changed much.

The International Monetary Fund (IMF) expects the world economy to grow by 4.3% for 2011, which is 0.1% lower than previously estimated.

It has cut its growth forecast for the United States to 2.5% in 2011 from an earlier estimate of 2.8% in April.

IMF's Olivier Blanchard, who is its economic counsellor and the director of the research department, said predicting the economic direction for the US was too early but felt the slowdown of the US economy was more of a bump on the road than something worse.



“But assuming that oil prices are going to stay roughly stable, which is what the markets seem to predict at this point, we think that spending by consumers and firms should remain steady in what is, however, very clearly a very weak recovery. This has been a longstanding forecast of ours. The recovery in the US is a very weak one,” said Blanchard last week.

The outlook for Japan saw the biggest change as the earthquake and tsunami are expected to see that economy contracting by 0.7% this year from an earlier forecast of a 1.4% growth made in April.

The IMF has stuck to its projections for the two most populous countries, estimating growth for China and India to register 9.6% and 8.2% respectively this year. Those estimates were unchanged from April.

With troubles in Greece hogging international financial news and people wondering about the repercussions of a default by Greece on financial institutions in Europe and the US, the IMF said the risk of contagion was real and could derail European recovery and even that of the world but thought advanced economies, in which Europe features prominently, was forecast to grow at 2.2% for 2011, down 0.2 percentage points from earlier thought.

Its forecast for emerging and developing economies is 6.6% for 2011, which is up 0.1 percentage points since April.
While forecasts are relatively flat, the IMF did say risks were visible and highlighted the debt issue not only in Europe to be one of the hazard points for the global economy.

It feels debt-consolidation plans, even in the US, needs to be in place for the medium term to avoid higher borrowing costs and slower economic growth in the future.

In Asia, asset and price inflation are seen as the key risks and it feels countries with large current account surpluses should allow their currencies to appreciate.

“All countries must choose the right combination of instruments at their disposal fiscal, monetary, macro prudential to slow their economies in time and avoid costly boom-bust cycles,” said Blanchard.

Whether the bad news translates to most people's economic nightmare is something most businesses and investors are keeping an eye out for. It would appear that, for now at least, prospects and risks are balanced.

Deputy news editor Jagdev Singh Sidhu has filled nearly every large container at home with water to prepare for a dry couple of days but water is still flowing strongly from the main pipe.