Video: Crisis Guide
Fantastic use of media to illustrate the crisis, especially the moving charts on section III. From Council of Foreign Relations, click here. h/t to FJ.
Too much debt
Nassim Taleb on the real evil of the current crisis …. too much debt, the article here deserves to be read in full.
Some quotables “Bubbles and fads are part of cultural life. We need to do the opposite to what Mr Greenspan did: make the economy’s structure more robust to bubbles.” and “the complexity created by globalisation and the internet causes economic and business values (such as company revenues, commodity prices or unemployment) to experience more extreme variations than ever before. Add to that the proliferation of systems that run more smoothly than before, but experience rare, but violent blow-ups.”
The imbalances from Chimerica that led to the current crisis have not really been solved, just papered over with lots of hot money/stimulus. The ‘rise of the rest’ continues as the west is propped up for now, but are they able to withstand the violent blow-ups that are to come? Resilience is an overused word, but it bears repeating that in wounded beast scenario, how does Singapore cream the top of the globalisation wave, while dampening the lows? Specifically, are our social systems strong enough to handle the more extreme ups and downs to come?
Last quote “Asking the economics establishment for guidance (particularly after its failure to see the risk in the economy) is akin to asking to be led by the blind – instead we need to rebuild the world to make it resistant to the economist’s mystifications.”
Unexpected surprise
We appeared on the Singapore Business Times’ Editorial page, total surprise when I came across it in the morning.
Book: China’s new place in a world in crisis
Found this through our horizon scanning colleagues, a book by ANU on China’s new place in a world lurching from crisis to crisis. Makes me think of the unfinished conversations we are having on a China-centered Asia (ChiAsia) and the different flows and how the hell Singapore should be placed on these new flows. Anyway, here’s a brief grab on what the book is about:
The world and China’s place in it have been transformed over the past year. The pressures for change have come from the most severe global financial crisis ever. The crisis has accelerated China’s emergence as a great power. But China and its global partners have yet to think or work through the consequences of its new position for the governance of world affairs. China’s New Place in a World in Crisis discusses and provides in-depth analysis of the following questions. How have China’s growth prospects been affected by the global crisis? How will the crisis and China’s response to it impact China’s major domestic issues, such as industrialisation, urbanisation and the reform of the state-owned sector of the economy? How will the crisis and the international community’s response to it affect the rapidly emerging new international order? What will be China’s, and other major developing countries’, new role? Can China and the world find a way of breaking the nexus between economic growth and environmental sustainability — especially on the issue of climate change?
You can download the entire book here.
Another round of introspection
Singapore’s just setout on it’s next round of introspection on what to do to prepare for ten-twenty years ahead. While we wait with some bated breath on what the Economic Strategy Committee comes up with, here’s what one magazine, PULSES, has to say 
Constraints to Asia’s domestic markets
The real constraints to growth in Asia may not be ”excessive’ domestic savings per se, but the weakness in financial systems and the related legal and regulatory structure, which cannot efficiently transform savings into loans for education, housing, and private investment and pool social risks through financial instruments such as insurance covering medical care, pensions, and unemployment.
The growth of competitive domestic private banks should be the most important and efficient solution for China’s switch to a new growth engine. The rebalancing progress away from the export-model, however, will not likely be fast or smooth. There is persistent resistance from many vested interest groups which benefit from the old growth model, thus pushing to preserve the status quo. This will take longer than we like, but faster than we think. Patience is a virtue.
Elusive Green Economy
James Fallows of Atlantic Monthly at the Aspen Ideas Conference right now, from his blog a snippet on the US not leading at any of the green technology fields.
On energy, a disturbing factlet. (And obviously not the only disturbing observation on the energy-and-climate front.) I heard three people separately observe that when it comes to future sources of “clean” energy, there is not a single field in which U.S. companies are the technical or market leaders. One person gave an informal ranking of the leaders this way:
Solar-powered electricity (ie, photo-voltaic systems): Norway, Japan, China
Solar-thermal systems (for heating water or buildings) Spain the leader in getting systems deployed
Wind power: Holland, Denmark, China
Geothermal power: nobody
Nuclear power (”clean” in the carbon-footprint sense): France, Japan
CCS, “Carbon capture and sequestration” (stripping out CO2 and burying it): Norway, Australia, Canada.
This person said that his list was rough and ready, and that US firms were in a close second place in some fields. But the main point, he said, is that “American firms are acting as if there is not going to be a vital, profitable, globalized clean-tech industry a decade from now, and as if they don’t care about competing in it.” He had some other more hopeful things to say about how sustained investment could help close the gap. But the list itself was news to me.
And from their latest piece here, excellent read on the elusive green economy. Clean energy, like other utilities, will be succeed or fall with consistent government support/inaction. China is now one of the largest players in clean technology because of government support. So is Germany’s solar play. Unlike Internet start-ups with lower funding costs, energy plays require much larger funds to starup that most VCs cannot afford. Government grants are needed, but that would mean choosing winners. Technology, policy and finance will intertwine, who knows when the breakthrough green tech will emerge from this interplay?
Map: 2009 Map of the Decade illustrated
h/t to Barnabas. First posted on Future of Trade.
World Bank: World Development Report notes
h/t to Ruimin. Dr Shahid Yusuf, economic adviser at the World Bank, spoke at the LKYSPP last Friday on his recent publication, “Development Economics through the decades” – which reviewed the World Development Report series. The presentation slides, and the transcript of a similar speech he gave in Thailand, are here and here.
Here’s a summary of his most relevant points.
On productivity
- TFP has hovered around 2-3% in many countries. While many have tried, it’s not clear how to raise TFP.
- Focusing on “domestic demand” for growth is a cry of desperation, and cannot be a long-term strategy. Domestic demand tends to be focused on the non-tradables in the economy, which experience lower rates of productivity increase compared to the tradables. Additionally, one should be cautious about getting countries to spend more – according to Yusuf, no country has raised saving rates after they have dropped. [maybe the current US phenomena presents a counter-point].
- Productivity growth is far lower in the Services than in Manufacturing. The only exception is Financial Services, whose contribution to GDP has doubled in recent years in countries like the US and Singapore. However Yusuf thinks that post-crisis, productivity in the financial services is unlikely to continue growing fast. On the flip side, manufacturing isn’t going to be employing lots of people in future.
On industrial policy
- The World Bank has traditionally not promoted active Industrial Policy. The trade off is between government failure (corruption, lack of business expertise) versus market failure (coordination failure ala Rodrik, discovery failure ala Haussman) . Industrial Policy worked in Singapore because government failure < market failure, but this balance may differ across countries. However guidelines on the practical implementation of industrial policy remain absent.
- Every country is asking the same “what to do next” question, and everyone is attempting to do clean tech, but the reality is that not everyone will be a clean tech champion.
On poverty
- Growth remains the best way to get people out of poverty. Interventions, like micro-finance, education, and health, can only reinforce growth. Without growth, and consequently fiscal resources, these interventions cannot occur.
On entrepreneurship
- Lots of countries have business schools that “teach” entrepreneurship, and even take on the role of VCs to share some of the start-up risks. Yet the entrepreneurship rate remains low. Yusuf said he was “not sure of what to say” about entrepreneurship – theoretically the stigma of failure should disappear as countries develop and mature. He related the example of Shanghai’s Microsoft Research centre, which experiences a sizeable (but not excessive) turnover, in spite of rather good salaries. But surprisingly, few of those who left (conceivably these people were in the best position to establish tech start-ups) went on to be entrepreneurs. Instead they pursued “high security” jobs.
