Economic Interdependence Knits Europe Together (Perhaps)

Well, sort of. I somehow doubt Jean Monnet would have been thinking of this when he came up with the idea of a Europe so closely bound together by trade war would be forever impossible. Rogue Planet reports that the biggest buyer of Bosnian armaments is…Serbia. Bosnia is also the biggest supplier to Serbia. Yes, that’s right; the people who were the targets of the JNA’s artillery in 1993 are selling its current owners the shells to go with it, and the people whose kinsmen were driven out of eastern Slavonia in 1995 by the Bosnian and Croat armies are relying on them for their ammunition.

I’m not sure whether this is a heartening sign of increasing inter-dependence in the Balkans, a merely pragmatic way of bringing in some foreign exchange and taking advantage of the fact both parties have the same knockoff Soviet equipment, or insanity.

As they say, when life gives you lemons, make lemonade. Given that one of Bosnia’s few assets is a collection of Yugoslav arsenals and a big pile of left-over ammunition, you can hardly blame them for trying to turn them into cash. But Serbia? Right now on the eve of Kosovar independence? Isn’t that a tad risky?

In fact, the weapons may well be safer in Serbia than any of the alternatives. An under-reported story of the times has been the export of large amounts of weaponry from Bosnia-Herzegovina to a wide range of wars around the world. Not only is the Bosnian government keen to sell, it’s also spectacularly corrupt, and its officials are known to have connived at smuggling arms past the EU checkpoints at the ports and airports. One of the biggest arms-smuggling networks, that around Jet Line International and Tomislav Damjanovic, actually got started in the Bosnian war, and they were involved in the notorious incident of the 99 tonnes of armaments bought by US agents in Bosnia for use by the Iraqi army, and flown out by the even more notorious smuggler Viktor Bout, that never arrived in Iraq and remain untraced to this day.

Given that there is not currently a war in the Balkans, and that Serbia is more like a functioning state than, say, Iraq or Somalia – both places that have imported (and possibly re-exported) guns from Bosnia – it’s quite possibly better that the weapons go to Serbia than anywhere they are more likely to be used or to vanish into the black market. This, of course, assumes that the Serbs are not planning to re-sell them, which is quite a large assumption.

Review: The Wages of Destruction, Adam Tooze

Adam Tooze, who (it says here) is a senior lecturer at Jesus College, Cambridge, has a book out; The Wages of Destruction: The Making and Breaking of the Nazi Economy. It is getting some very good reviews, and this one will be no different. Tooze’s thesis is that the Nazi German economy was a more powerful factor in many decisions taken by the leadership than hitherto assumed, that its structural weaknesses were determining in the failure of Nazism, and that Nazism itself can be understood as an effort to escape them by a combination of will and technology. The first is fairly original, and certainly controversial, the second is hardly controversial (although it is surprising that it still needs restating; the image of impregnable fascist might dies hard), and the third is both new and highly controversial.

Tooze begins with a discussion of Germany’s economic problems and relative place in the world whilst passing through the Depression. He provides an excellent account of Stresemann’s policy in terms of a special relationship with the United States, importing US capital to develop German industry and help cover the reparations bills to France and Britain. At the same time, he argues, closer economic ties to the US were also a means of forcing the US government to press the European Allies over the reparations issue; France and the UK were insisting on the cash in order to cover their war debts to the US, so being as close as possible to the US meant that Germany could count on US support in a crisis, on the principle of being too big to fail.

America in German eyes is a main theme of the book, and a little-remembered sub-theme of Nazi discourse more generally. Not only were leading Nazis concerned about the potential power of the US, they both idealised what they took to be the unique efficiency of 1920s US industry, and demonised what they took to be the decadence and miscegenation of US society. It was the era of Josephine Baker, Al Capone, and Henry Ford, and all three icons were lapped up by Weimar culture, just as US bankers (Jew York, verdammtnochmal!) lapped up Weimar industry’s short-term paper. Stresemann and his fellow liberals, and the Social Democrats, thought the answer to America was to preserve the international political and trading structure; perhaps with a European community in the far future.

The Nazi response was to shake the structure until it fell down; the economic history of the 30s in Germany is one of continuous foreign exchange crises, mitigated by a succession of increasingly inconsistent expedients. Hjalmar Schacht, as Reichsbank president, is the figure most associated with this – it is perhaps worth noting that he was himself half-American, but didn’t use his other two Christian names (Horace Greeley) very often. A telling detail is that, as each crisis passed, the Bank and the ministries of finance and economics convinced themselves that this time, things would get back to normal. Memos for a return to multilateral trading, a relaxation of administrative controls, and a slowdown in armaments spending would be drawn up, and immediately ignored as Hitler, and the various groups either working towards the Führer or trying to take advantage for their interests, concluded that their survival of the crisis confirmed the rightness of their course.

According to Tooze, who provides a considerable quantity of statistical evidence for this claim, the work-creation programme created little work; after all, actual spending on the autobahns and public works projects was not all that great, and the total demand for construction workers was limited. Fritz Todt’s new reinforced concrete building methods were capital-intensive and required specific skills, rather than hordes of labourers. What got Germany back to work was rearmament, and Tooze argues that much of what is thought of as civilian investment was actually more like disguised military investment, or investment in war-supplying industry. It is well worth pointing out here that Tooze is excellent on the corporate world of Nazi Germany, and especially the fast-growing influence and power of the top technical executives of big industry (especially chemicals and aeronautical engineering), who made up something like an independent technocratic lobby in their own right. J.K. Galbraith’s technostructure comes to mind; this may have been the most malevolent and evil manifestation of it ever. Even the big coal and steel men, who generally went along, were frequently horrified by Nazi policy; not so Junkers, BASF, Bosch or IG-Farben, who were not only profiting from arms sales but benefiting from massive state capital investment into the latest technologies in their research divisions.

As a rule, steel and forex were the limiting factors, and hence swung conservative; chemistry and engineering were convinced that all could be achieved with enough budget, will, and steel. But it wasn’t their job to find the steel or the sterling, so their ambitions ballooned to deranged proportions. By the Munich crisis in 1938, Germany was nearly bankrupt – after a summer of currency crisis, the Reichsbank was able to get away a succession of huge bond issues in the relief afterglow, but ran into a wall when the market refused the fourth loan. Only by paying suppliers 40 per cent of their contract prices in tax credits could the Reich roll over its short-term loans; at the same time, the vast consumption of steel by the war industries meant that the State Railways were struggling to keep going. The forex question even put a crimp in anti-Semitism; right up to the war, the Reichsbank was required by its charter to convert anyone emigrating from Germany’s marks into foreign exchange. And even though the total wealth that could be seized from the Jews was risibly tiny, it far exceeded the available cash. Tooze argues that one of the motivations of Kristallnacht was to scare them into leaving without their money; even that was a problem, as so much plate glass could only come from Belgium, which meant it had to be paid for in hard currency and cash on the nail.

By 1939, the Reichsbank was reduced to commissioning secret studies to estimate the mark’s exchange rate; the economists who carried them out concluded that the concept was now meaningless in the light of dozens of mutually incompatible side-deals with Germany’s trading partners. Germany paid 72 per cent over the world price for Peruvian cotton, and 10 per cent over market for petrol from the same source; 63 per cent over market for Dutch butter, but Danish butter was paid for at the world market price (there must have been plenty of butter moving from Denmark to Holland…).

The upshot was that the decision for war, and then the decision to take the offensive in the West, and finally the decision to take the offensive into Russia, were at each step driven by a logic of economic bootstrapping. War, and the consequent loss of world trade, had a serious initial impact on the German economy; inflation threatened to burst out of control, there was a constant struggle between interests over short-supply assets, and a key feature of the German economy caused deep discontent. This was uneven development; Tooze argues strongly that Germany’s apparent economic might concealed a long tail of poverty, not just in the hard-arse Mietskasernen of the working class but also among the peasantry.

Peasants were a key Nazi constituency, as well as occupying an important place in ideology; unfortunately this image of virtue didn’t translate into grain all that well. Agricultural productivity was poor, with a toxic cocktail of absentee landlord estates and tiny plots that barely supported their tenants. Most of the Nazi solutions to this started off with the idea of a class of farmers with secure tenure of farms big enough to make a good living, but wanted the excess peasants to stay on the land for reasons of mythology. Ominously, the answer was to put them on someone else’s land. Here, the appalling figure of Herbert Backe, State Secretary and later Minister of Agriculture, stands out; Backe wrote a PhD thesis years before entering office on the Russian grain business, in which he explained that the superior people without space must get rid of the Russians in order to secure the Ukraine’s surplus and settle enough of their urban working class to overcome the unrooted, degenerate tendencies created by the modern nomads, that is to say the Jews.

Hilariously, the examiners threw this manifesto for genocide back in his face; terrifyingly, he had it reprinted and issued as part of Wehrmacht formation commanders’ briefing material for the invasion of Russia. Tooze makes a good case that Backe’s elevation to the Ministry in early 1942 was an important catalyst in the decision to launch Operation REINHARD, the extermination of the European Jews; it is well-known that one force encouraging ghettoisation the year before had been other Nazi proconsuls’ tendency to herd their own race enemies into the Government-General of Poland, which was slated to be reduced in population. However, one hitherto underestimated fact is that Backe’s revised grain allocations at the same time foresaw a dramatic change; rather than being a net importer of food, Hans Frank’s fief was to become a major exporter.

The reason why this was so important is simple; although the conquest of western Europe turned a very bad economic position into a tolerable one with considerable potential, Europe was far more globalised than the Nazi economists assumed. Oil is the canonical example, but Europe also imported a lot of animal feed, and also British coal. Problems with transport, and the planners’ inability to come up with a settlement of coal supply between the mighty interest groups concerned, exacerbated the feed problem. As agricultural productivity fell, so did productivity down the mines; it probably would have done anyway, French communists not being likely to bend their backs any harder for German fascists, but hunger is enough to explain the droop in coal output per hour. The Foreign Ministry put forward schemes for a European community, but in the prevailing climate of hubris this never stood a chance; the government far preferred a more exploitative option, the centralised clearing system under which exporters to Germany were paid by their own central bank, which then charged an account with the Reichsbank. German exports in the other direction were meant to be set off against this; however, the Germans simply ran a permanent overdraft.

This permitted a substantial theft of goods, services and assets; it also created a powerful incentive not to produce. The upshot was a European economy operating massively below capacity and a German economy running red hot, with a continent-wide shortage of key inputs. Soviet trade, under the Molotov-Ribbentrop pact, matched part of the difference, but the Soviet government demanded its price, especially in terms of technology transfer. Trade with allies and neutrals, meanwhile, had the serious disadvantage from a Nazi viewpoint that it was actually trade; it required matching exports, which for political reasons were a priority claim on resources.

Hence, the crisis; with the occupied territories only a marginal benefit, and much capital investment not yet producing, Germany was faced with the rapid spin-up of US production. Where to go for the next bootstrap, before US industrial power took effect? Russia, clearly. Tooze’s book may be a final slam-dunk demonstration for the “functionalist” view of Nazism, dominant since the 1980s, which argues that the regime’s internal politics, shared assumptions, and the incremental radicalisation caused by a succession of crises drove Germany into war and genocide, rather than a clear rationalist design. Independent decisions, taken for different reasons, mutually reinforced each other.

This is no longer controversial, but there is much in the book that is. For example, Tooze vigorously criticises the common idea that Germany never attained the same level of civilian mobilisation as the UK, that the Nazi government “protected” civilian living standards at the expense of the war effort and the occupied up to the declaration of “Total War” in 1943. In fact, he argues, there was very little slack in the economy; if anything was being held back from war production, it was because the early war years were years of massive capital investment. This investment, he claims, explains the surge in armaments production from 1942 onwards that is usually ascribed to Albert Speer. It was the pre-war dynamic between the Luftwaffe, the Führer, and the industrial technocrats writ stupefyingly large, combined with a new emphasis on the entrepreneur as leader. (Of course they were not entrepreneurs, but technocrats managing huge state-funded projects; they thought of themselves as Unternehmer, though, and Nazi propaganda lionised them as such.)

Some of this was wasted, of course. There was the fabulous Flugmotorenwerke Ostmark, a scheme to build a gigantic aero-engine plant in Austria to match the output of Ford’s new plant next to River Rouge (it could as well have been to match Rolls-Royce’s at Barnoldswick, but it had to be American); it never produced more than 198 engines a month compared with a target of 1,000. But in the same industry, Daimler-Benz was able to upgrade one of its own facilities from 300 DB605 engines a month to 1,200, at a fraction of the cost. (The UK war economy had a similar experience with the state-financed shadow factories; Rover and Vauxhall never really got the hand of aero-engines, especially not the jet program, but things improved immensely when the whole thing was slung to the real experts at Rolls-Royce.) And who knew that the Buna synthetic-rubber plant next to Auschwitz still produces about 5 per cent of the world’s synthetic rubber? The installation, never completed during the war, was first robbed of the fancier chemical engineering bits by the Russians and then rehabilitated by the Poles; even if there is no Hitler in uns selbst, there may be some Hitler in your tyres.

So there should be no surprise, then, that the German war economy pulled out of the Moscow crisis in the winter of 1941; it was the capital formation whatdunnit. Tooze has ample statistical data to underpin this, but I am less sure of his conclusions regarding another of the classic controversies. In nearly all British accounts of the second world war, the author takes sides regarding one or more of the morality, effectiveness, and wisdom of the RAF’s strategic bomber offensive against Germany; it’s an identity-creating decision for any British historian. AJP Taylor is the leader for the opposition; he argued, on the basis of J.K. Galbraith and George Ball’s US Strategic Bombing Survey results, that not only was it wrong, but it was also incredibly wasteful, sucking up almost one-quarter of UK industrial production and failing to seriously interrupt the German war effort. Still less did it deliver the crushing blows to morale the airpower theorists promised. And no branch of service offered its members a shorter life expectancy.

Tooze argues, against Galbraith, that the bombing was indeed effective. Specifically, he cites the “Battle of the Ruhr” in the spring of 1943 as essentially being enough to stop the growth of German armaments production in its tracks; and he has a graph to support this, with a little explosion at the inflection point (presumably there isn’t a carbonised ironworker’s corpse in MS Excel’s clipart file). He also quotes various people’s reactions to the destruction of Hamburg with a slightly distasteful enjoyment, hence the rather harsh finish to my last sentence. In fact, he goes as far as to conflate the Ruhr and Hamburg, although Hamburg can’t have been the key point because it’s not a steelworks town and it never has been. And anyway, the bombers didn’t win the war in 1943, nor 1944 or 1945 for that matter. What went wrong? Tooze argues that the mistake was Bomber Command’s – although he doesn’t say so. But it was Bomber, and particularly “Bomber” Harris, who shifted the target from the Ruhr to Hamburg, and then on to Berlin. Harris and his staff didn’t want to disrupt industry, after all; they wanted to “dehouse the German working class”, which they believed would lead to revolution or at least chaos. So this counterfactual would have required a different Bomber Command; one that didn’t believe in airpower theory, and therefore probably wouldn’t have existed. This is not mentioned, even though Tooze repeatedly and approvingly quotes the phrase “dehousing”.

More importantly, he argues that RAF Bomber Command could simply have kept bombing the Ruhr at the rate of May 1943 indefinitely; but there was a reason why the Battle of Berlin was called off at the end of February 1944. Quite simply, the Nachtjäger had won and the RAF’s loss rate was running permanently well above the rates its infrastructure was scaled to support. Even the Ruhr battle had an aggregate loss rate of 4.71 per cent; the Oberhausen raid on June 14th hit 8.37 per cent, and nowhere could be more of a Ruhr target than Oberhausen. The RAF Air Historical Branch thought that “Bomber Command was approaching perilously close to the unbearable, or at any rate the insupportable, sustained casualty rate during the Battle of the Ruhr”; it’s worth remembering that each cohort of crews faced that average rate every time they went out, for a tour of thirty missions. It wasn’t a question of finding enough aircraft, but enough people. The figure of 30 was meant to represent the point at which the individual reached a 50/50 risk of death, and once the loss rate went past a critical figure this datum line, as it was known, moved closer and closer. And the rate went progressively higher over time; the Berlin battle had an average of 6.44 per cent, the last Berlin raid 8.88 per cent, the raid on Nürnberg six days later a knockout 11.94 per cent.

Something changed, and it wasn’t just targeting; the Luftwaffe completely redesigned its tactics, command and control, and equipment between the spring of 1943 and the autumn. The tightly-controlled “Zahme Sau” system was replaced by the free-rein “Wilde Sau”; new airborne radar meant that the night fighters began coming out halfway across the North Sea to meet the bomber stream. Of course, this could just be the sort of operational history that economic historians don’t bother with; but you would think that costs are a pretty important concept in economic history. Further, Bomber Command competed for resources primarily with the U-boat war, with RAF Coastal Command; but there’s nothing here about this.

Tooze returns to the bombers, later on, as the bombers returned later on; apparently, in the autumn of 1944 “the war-winning airfleet was now ready”. It seems rather late; and, we read, “the correlation between the area bombing of Germany’s cities and the collapse of its war production was loose at best…the wanton destruction of German cities could disrupt production but it could not bring it to a complete standstill.” In between these sentences we learn that far from submitting to the “operational stranglehold” claimed for the Ruhr in 1943, the Krupp Gußstahlfabrik in Essen kept going through the bombs until its electricity supply was wrecked in October, 1944; war-winning, indeed. Further, he argues that it was actually the massive attacks on the railways in this period that did it; which isn’t the same thing as bombing steelworks two years earlier.

But despite this, there is no doubt whatsoever that this is a major contribution. (It’s notable that the sections that deal with bombing are the least well-referenced in the book.) In conclusion, what stands out is that the Third Reich was fascinated by the United States, perhaps even more than the Soviet Union; Hitler spoke of the Volga as Germany’s Mississippi, and various SS Schreibtischtäter of treating its inhabitants as “Red Indians”. The size of the proposed empire was frequently compared to Canada or Australia. It is clear that a major motivating factor for many leading Nazis was a wish to escape from an increasingly integrated world economy, and a matching desire to have a Grossraumwirtschaft to match the people seen as controlling the world economy; Tooze’s book leaves the disturbing sensation that this is us.

Italy’s Economic Problems Under The Spotlight

As Manuel points out in the accompanying post, Romano Prodi’s resignation as Italy’s Prime Minister is a rather sudden and dramatic, but scarcely unexpected, development. The immediate political crisis may be resolved as rapidly as it appeared, but again as Manuel indicates it may only serve as a prelude for further things to come, and the fragility of any government coalition which may be put together only underlines the difficulties Italy will almost certainly have in addressing what are important ongoing economic problems. The present post will simply attempt to outline some of the main economic problems Italy faces, in order to contextualize the political problem a little.
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The Economics of the German VAT Hike

I am very happy to be back here at AFOE, if not only, for a brief one-stop guest post about the economics of the German VAT hike and more specifically how market commentators and analists might just be reading the German economy somewhat falsely at the moment in the sense that they are not taking into account the implications of the sustained and evolving process of ageing in the German society. Indeed as Edward noted just a few days ago here at AFOE we might actually be talking about a clash of paradigms or at least a clash between two ways of looking at and interpreting the economic data coming out of Germany and indeed of the entire Eurozone. There are consequently many venues on which this diagreement is fielded and an important one of these is the German economy and more specifically the significance of the VAT hike and below the fold I will give my view on this topic.
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Eurozone Economy: When Paradigms Collide

When scientific paradigms collide everyone should duck, at least that is the best advice I can offer at the present moment. The provisional German retail sales for January are now in, and they don’t make especially pleasant reading:

European retail sales dropped for the first time in 10 months in January as spending in Germany slumped, adding to signs economic growth is slowing, the Bloomberg purchasing managers index showed…..German retail sales had the biggest drop in two-and-a-half years, with its index declining to 43.9 from 55.2 in December

Now for those who have been following the German economy in recent months none of this should be particularly surprising, since as is reasonably well known Angela Merkel’s government has just upped VAT from 16% to 19% in an attempt to address the ongoing federal deficit problems. And of course, one months data never offer a complete picture. But this decline in retail consumption in Germany forms part of a much longer ongoing weakness in domestic consumption (and here), one which many were arguing had finally come to an end in 2006. Some of us, however, seriously doubted that this was the case, and hence the initial significance of today’s reading. In particular what we may be faced with are changing structural characteristics of economies as median population ages rise. In particular – and following the well-known life cycle pattern of saving and consumption – more elderly economies may have a higher rate of saving and a lower rate of consumption increase than their younger counterparts.

Some more evidence to back this point of view comes from Japan, where today we learn that household spending in December declined for a 12th straight month, dropping 1.9 percent from a year ago. Yet the Japanese economy is not in recession, and output is actually rising. As Bloomberg say:

Japan’s factory production rose to a record and household spending fell, underscoring the central bank’s concern that growth has bypassed consumers and left the economy dependent on exports.

So please note: growth appears to have by-passed consumers, and the economy is ever more dependent on exports. The same goes for Germany, and this is why I talk about paradigm collision, since the neo-classical theory of economic growth – with its core conception of ‘steady state’ growth – was never built to handle median age related changes in economic performance and structural characteristics. Something new is clearly needed.

Over the coming weeks I will undoubtedly have more to say about all this, as we get to see more of the 2007 Eurozone data, but for now let me point you in the direction of Claus Vistesen, who has been patiently toiling away trying to work through a hypothesis which, in terms of the data we are now seeing, certainly seems more in keeping with current economic realities than the view we currently see emanating from the ECB. His arguments on Japan can be found in depth here, and his latest piece on the eurozone is reproduced below the fold.
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Serbia: That Incredible Shrinking Country

This weekend’s election results in Serbia, and in particular the gridlock state of the political process and the resilience of the vote for the nationalist Serbian Radical Party (as ably explained by Doug in the previous post), pose new, and arguably reasonably urgent questions for all those who are concerned about the future of those European countries who currently find themselves locked outside the frontiers of the European Union. What follows below the fold is a cross-post of an entry I put up earlier this afternoon on the new global economy blog: Global Economy Matters. I don’t normally like cross-posting, since I would prefer to put up original Afoe content, but my time is a bit pressed at the moment, and I feel the issues raised are important enough to merit a separate airing on this site.
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La Febbre

A couple of weeks back I had the pleasure of seeing Alessandro D’Alatri’s recent film La Febbre (Fever). As the reviewer says (Italian link), this is a ‘normal’ (everyday) film, not a great one, even if it does include one or two memorable moments, like the scenes shot along the river bank, which were (and I imagine this is not entirely unintentional) rather reminiscent of some which are to be found in the unforgettable L’Albero Degli Zoccoli from that giant of Italian cinema Ermanno Olmi.

La Febbre è il classico film italiano, che vuol raccontare una storia normale, di tutti i giorni, e che per farlo non trascende dai canoni della buona creanza del plot, e da quel pizzico di amara critica sociale che lo rende molto politically correct.”

(La Febbre (the fever) is a typical Italian film, the kind of film which tries to tell a simple, ‘normal’ story – an everyday one – and which in order to do this stays well within the bounds of what is normally thought to be an acceptable plot structure, and then, following the recipe, there is added just enough social criticism to make the film a highly politically correct one.)

My point of interest in this post, however, is not really the film itself, but rather the film as a reflection of something else: the disenchantment and frustration that many young Italians seem to feel with contemporary Italian society, and the impact that the evident failure of Italian civil society to adjust to Italy’s contemporary social and demographic reality may have on the future evolution of Italian economy and society.
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North Sea neuroses

Matthias Matussek, once London correspondent of Der Spiegel and now its culture editor, not to mention brother of top diplomat Thomas Matussek, has a book out. Wir Deutschen: warum die anderen uns gern haben können is meant to be a call for a renewed German patriotism and pride in culture. This would usually suggest a very dull book, but I enjoyed it immensely. Not for the right reasons, though.

Matussek’s approach is idiosyncratic, not that there is anything wrong with that, and the book is really a collection of essays, on topics ranging from Heinrich Heine and Angela Merkel to Britain, Britain, the German economy, Vergangenheitsbewältigung, the World Cup, Britain, Danish cartoonists, the East after reunification, and Britain. In fact, an obsession with Britain runs through this book like letters through a stick of rock-hardly a page passes without comparing some German institution, writer, company, statesman or building to one in Britain, and no chapter is complete with a volley of snark directed roughly westward.

Now, it is a truism that Britain and Germany share a mutual obsession. But this would be less interesting if it wasn’t for the sheer wordcount devoted to complaining about the British obsession with Germany. There is a complete chapter on Anglo-German relations, which I looked forward to-the possibilities are immense. Would he dig into the pre-1914 closeness that gave Bradford a Little Germany (and its own Nazi, Ernst-Wilhelm Bohle, born there in 1903 and later Rudolf Hess’s right hand) and Leeds a Dortmund Square, Robert Graves a relative on the Oberste Heeresleitung?

Nah. Instead, most of the chapter is dedicated to the results of a trip to Germany for some schoolteachers his brother’s embassy organised, and a pleasant but uninformative weekend in the country with John Le Carré.
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Andy Xie, India and China

Andy Xie is a rare beast, he’s a talented, creative economist. His recent departure from Morgan Stanley, and by implication from the Global Economic Forum, is now being widely commented on in the press (and here).

Andy was really one of the first global economists to start drawing attention to the important impact the rise of the Chinese economy was going to have (you can find a selection of some of his posts on my page here, and my early China Economy Watch blog – now defunct – was full of citations from Andy, basically he was getting it right when almost everyone else was getting it wrong).

There are two memorable arguments that Xie has advanced over the years that still bear thinking about.

1) Throw away the text books. This wasn’t meant, I don’t think, to be taken literally, what he was getting at was that we are facing new phenomena, and we need to think on our feet. Intuitive economics. Two recent posts of mine (and comments) on the Indian Economy Blog reflect this legacy (and here).

2). It’s time to start conceptualising the global economy as *one* single developing economy (with a lot of market imperfections) rather than as the sum total of a lot of discrete individual economies. I still think that this idea hasn’t attracted the attention it deserves as a methodological proposal.

Ostensibly Andy left as a result of remarks he made about Singapore (if you believe the rumour mill):
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Hungary: Well That Didn’t Take Long!

It was only just over two weeks ago (two weeks, which following the logic of a historical time which seems far from uniform, now seem like half a lifetime) that guest poster P. O’Neill, said this:

For understandable reasons — the addition of 10, and soon to be 12, new member countries, and the constitutional crisis, the European Union has been preoccupied with foundational questions in recent years. But an older concern is working its way back onto the agenda: how to handle an economic crisis in a member country……However, the risk of the latter type of crisis in a member country is now quite high.

The warning lights are flashing again – this time in eastern Europe, and especially in the recent or imminent member countries of Hungary, Romania, and Bulgaria. Poland is also a source of concern. Some combination of profligate governments, political uncertainty, EU spending booms, and capital inflows have created precarious economic positions for these countries.

Well, well, well, scarcely three weeks later, and here it is, all on the table. Sometimes, in the field of interest of what is sometimes erroneously termed the dismal science, things do indeed move quickly.
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