Archive for the ‘Globalization & International Trade’ Category

19
Jul

By Fareed Zakaria

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Does authoritarian capitalism work? For the past few decades, the Chinese economy’s meteoric rise, faster than any large economy in human history, has dazzled the world. It has made many wonder if China’s model of a pro-growth dictatorship is the best path for developing countries. Some have questioned whether Western democracies — with their dysfunctions and paralysis — can compete with China’s long-range planning. Now, as its growth slows to almost half its pace in 2007, the Chinese system faces its most significant test. The outcome will have huge economic consequences for the world and huge political consequences for China and its ruling Communist Party.

Over three decades, China’s growth has averaged 10 percent a year. Beijing managed that because it systematically opened up its economy to trade and investment while investing massively in infrastructure to facilitate manufacturing and exports. Crucially, China had the ability not to pander to its people to gain votes or approval. Unlike most developing nations, China spends little subsidizing current consumption (fuel and food, for example). It spends its money on export-free zones, highways, rail systems and airports. It is investing in education and soon will turn to health care. No developing democracy has been able to ignore short-term political pressures and execute a disciplined growth strategy with such success.

But the model is no longer working that well. Partly, this is the product of success. China has become the world’s second-largest economy; its per capita income is that of a middle-income country. It cannot grow at the pace it did when it was much poorer.

But growth has dropped faster and deeper than many had predicted. This month, the International Monetary Fund forecast China’s annual growth around 7.75 percent for the next two years. But it could slow further because, the truth is, China’s authoritarian system has made significant mistakes in recent years. Read more…

As published in www.washingtonpost.com on July 18, 2013.

18
Jul

By Diego Sánchez de la Cruz, IE Master in International Relations Alumnus

Arg GDP_InflationFrom 1975 to 1988, average inflation in Argentina had a yearly average of more than 200 per cent. The situation worsened in the following years: by 1990, inflation even surpassed the 20.000% mark. This led to the set-up of a currency board which began a monetary experiment based on a one-to-one exchange rate between the peso and the dollar.

Known as the “convertibility plan”, the mechanism lasted one decade. Over the next ten years, such regime did succeed in defeating inflation. Prices were no longer rising like they did before, and achieved near-zero levels by 1996.

The following graph shows annual rates of GDP growth and inflation for the 1970-2000 period.Arg Ingreso per Capita

By abandoning the years of recurrent inflation problems, Argentina enjoyed a much greater level of economic stability, leaving behind the times when every “boom” period was followed by times of diminished growth and monetary instability.

The following graph shows the steady growth of income per capita between 1990 and 1998, an increase of almost 40%:

This progress was by no means guaranteed, though. According to economists Pedro Schwartz, Juan Castañeda and Francisco Cabrillo, if the “convertibility plan” was to survive, three conditions had to be met: the local currency should be fully convertible, government spending should not be monetized and central bank reserves should be able to cover the monetary base as measured by M0.

Although the first and third points were more or less followed throughout the 90s, the central bank did end up printing money to bail out national and provincial government debts. Argentinian politicians should have been tied by a budget stability law when the “convertibility plan” first began. Failure to do so obviously ended up in a catastrophic scenario:  the public sector’s unfunded liabilities went from 2% in 1995 to more than 6% in 1998.

The second part of this article will be published next week.

Diego Sánchez de la Cruz is an analyst at Libertad Digital. His work on international economics has been published in different media outlets.

17
Jul

Mr. Joaquin Almunia, Vice President of the Eurpean Comission and European Comissioner for Competition, is interviewed by Dr. Arantza de Areilza, Dean of IE School of International Relations, on EU’s financial policy, as well as on EU and US negotiations on trade and investment agreement.

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10
Jul

The Chinese economy is marked by its dependence on others

By Martin Wolf

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China frightens the west. Rarely, however, do westerners look at how the world looks to China. Yes, it has made enormous economic strides. But it still sees a world economy dominated by developed economies.

Among the few westerners able to look at the world from the Chinese point of view is Peter Nolan, professor of Chinese development at Cambridge university. In a thought-provoking book published last year, he addressed one of the big fears about China – that it is buying the world. His answer is no: we are inside China but China is not inside us.

To understand what Prof Nolan means by this, one must understand his view of what has happened during three decades of technology-driven global economic integration. The world economy has been transformed, he argues, by the emergence, through mergers, acquisition and foreign direct investment, of a limited number of dominant businesses, almost entirely rooted in advanced countries.

At the heart of the new global economy are what Prof Nolan calls “systems integrator” companies – businesses with dominant brands and superior technologies, which are at the apex of value chains that serve the global middle classes. These global businesses, in turn, exert enormous pressure on their supply chains, creating ever-rising consolidation there, as well.

Using data from 2006-09, Prof Nolan concludes that the number of globally dominant businesses in the manufacture of large commercial aircraft and carbonated drinks was two; of mobile telecommunications infrastructure and smart phones, just three; of beer, elevators, heavy-duty trucks and personal computers, four; of digital cameras, six; and of motor vehicles and pharmaceuticals, 10. In these cases, dominant businesses supplied between half and all of the world market. Similar degrees of concentration have emerged, after consolidation, in many industries.

Much the same concentration can be seen among component suppliers. Look at aircraft. The world has three dominant suppliers of engines, two of brakes, three of tyres, two of seats, one supplier of lavatory systems and one of wiring. In the motor industries, as well as information technology, beverages and many others, the world has just a few dominant suppliers of the essential components. Read more…

As published in www.ft.com on July 9, 2013.

1
Jul

Lucas Papademos, Former Prime Minister of Greece and Vice-President of the European Central Bank, is interviewed by Dr. Arantza de Areilza, Dean of IE School of International Relations, on the role of the European Central Bank, the European banking union, and the future of Greece in the Eurozone.

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