darwinism: survival of fittest??

The recent special issue of the Economist revisits the human evolution in a series of articles.

….It was Spencer… who invented that poisoned phrase, “survival of the fittest�. ..originally applied it to the winnowing of firms in the harsh winds of high-Victorian capitalism, but when Darwin's masterwork, “On the Origin of Species�, was published, he quickly saw the parallel with natural selection and transferred his bon mot to the process of evolution…. became one of the band of philosophers known as social Darwinists. Capitalists all, they took what they thought were the lessons of Darwin's book and applied them to human society. Their hard-hearted conclusion …. was that people got what they deserved—albeit that the criterion of desert was genetic, rather than moral. The fittest not only survived, but prospered. Moreover, the social Darwinists thought that measures to help the poor were wasted, since such people were obviously unfit and thus doomed to sink.

... For 100 years Darwinism was associated with a particularly harsh and unpleasant view of the world and, worse, one that was clearly not true—at least, not the whole truth. People certainly compete, but they collaborate, too. They also have compassion for the fallen and frequently try to help them, rather than treading on them. For this sort of behaviour, “On the Origin of Species� had no explanation. As a result, Darwinism had to tiptoe round the issue of how human society and behaviour evolved….. the disciples of a second 19th-century creed, Marxism, dominated academic sociology departments with their cuddly collectivist ideas—even if the practical application of those ideas has been even more catastrophic than social Darwinism was.

…the real world …penetrates even the ivory tower. The failure of Marxism has prompted an opening of minds, and Darwinism is back with a vengeance—and a twist. Exactly how humanity became human is still a matter of debate. But there are, at least, some well-formed hypotheses... they rely not on Spencer's idea of individual competition, but on social interaction. That interaction is…sometimes confrontational and occasionally bloody. ..it is frequently collaborative, and even when it is not, it is more often manipulative than violent.

Modern Darwinism's big breakthrough was the identification of the central role of trust in human evolution. People who are related collaborate on the basis of nepotism. It takes outrageous profit or provocation for someone to do down a relative with whom they share a lot of genes. Trust….allows the unrelated to collaborate, by keeping score of who does what when, and punishing cheats.

Very few animals can manage this. .. outside the primates, only vampire bats have been shown to trust non-relatives routinely. (Well-fed bats will give some of the blood they have swallowed to hungry neighbours, but expect the favour to be returned when they are hungry and will deny favours to those who have cheated in the past.) The human mind…seems to have evolved the trick of being able to identify a large number of individuals and to keep score of its relations with them, detecting the dishonest or greedy and taking vengeance, even at some cost to itself. This process may even be…the origin of virtue.

The new social Darwinists (those who see society itself, rather than the savannah or the jungle, as the “natural� environment in which humanity is evolving and to which natural selection responds) have not abandoned Spencer altogether... they have put a new spin on him. The ranking by wealth ….is but one example of a wider tendency for people to try to out-do each other. .. competition, whether athletic, artistic or financial, does seem to be about genetic display. Unfakeable demonstrations of a superiority that has at least some underlying genetic component are almost unfailingly attractive to the opposite sex. Thus both of the things needed to make an economy work, collaboration and competition, seem to have evolved under Charles Darwin's penetrating gaze.

This is ..full of ironies…. One is that its reconciliation of competition and collaboration bears a remarkable similarity to the sort of Hegelian synthesis beloved of Marxists. Perhaps a bigger one… is that the Earth's most capitalist country, America, is the only place in the rich world that contains a significant group of dissenters from any sort of evolutionary explanation of human behaviour at all. …. suggests a constant struggle, not for existence itself, but between selfishness and altruism—a struggle that neither can win. Utopia may be impossible, but Dystopia is unstable, too, as the collapse of Marxism showed. Human nature is not, … red in tooth and claw, and societies built around the idea that it is are doomed to early failure.

Of the three great secular faiths born in the 19th century—Darwinism, Marxism and Freudianism—the second died swiftly and painfully and the third is slipping peacefully away. But Darwinism goes from strength to strength. If its ideas are right, the handful of dust that evolution has shaped into humanity will rarely stray too far off course….

simple and classic

This is classic way to fold a T-shirt. Check out the video.

from seattle to hong kong: multi trade negotiations

In a prelude to the rounds of multi trade negotiations under WTO, the Foreign Affairs has come up with a special issue with some of the world's top experts on international trade consider what will be necessary for the Doha Round to succeed — and what might happen if it does not.

remittances: economic lifeline of many developing countries

Migrants from developing countries send home part of their earnings in the form of either cash or goods to support their families, which are known as workers' or migrant remittances. The recent years there have been growing trend, and now represent the largest source of foreign income for many developing countries. A senior economist at the World Bank's Development Prospects Group, Dilip Ratha has examined the issue in the recent issue of Finance and Development of IMF publication.

…. Worldwide, officially recorded international migrant remittances are projected to exceed $232 billion in 2005, with $167 billion flowing to developing countries. These flows are recorded in the balance of payments…Unrecorded flows through informal channels are believed to be at least 50 percent larger than recorded flows. …remittances large…they are also more evenly distributed among developing countries than capital flows, including foreign direct investment, most of which goes to a few big emerging markets…. remittances are especially important for low-income countries.

How is the money transferred?

..typical remittance transaction takes place in three steps.

1. the migrant sender pays the remittance to the sending agent using cash, check, money order, credit card, debit card, or a debit instruction sent by e-mail, phone, or through the Internet.
   
2. the sending agency instructs its agent in the recipient's country to deliver the remittance.
3. the paying agent makes the payment to the beneficiary. For settlement between agents, in most cases, there is no real-time fund transfer; instead, the balance owed by the sending agent to the paying agent is settled periodically according to an agreed schedule, through a commercial bank. Informal remittances are sometimes settled through goods trade.

The costs of a remittance transaction include a fee charged by the sending agent, typically paid by the sender, and a currency-conversion fee for delivery of local currency to the beneficiary in another country. Some smaller money transfer operators (MTOs) require the beneficiary to pay a fee to collect remittances, presumably to account for unexpected exchange-rate movements…. remittance agents (especially banks) may earn an indirect fee in the form of interest (or "float") by investing funds before delivering them to the beneficiary…float can be significant in countries where overnight interest rates are high.

Why are remittances helpful?

Remittances are …transfers from a well-meaning individual or family member to another individual or household….targeted to meet specific needs of the recipients and thus, tend to reduce poverty…..World Bank studies, based on household surveys conducted in the 1990s, suggest that international remittance receipts helped lower poverty (measured by the proportion of the population below the poverty line) by nearly 11 percentage points in Uganda, 6 percentage points in Bangladesh, and 5 percentage points in Ghana.

How are remittances used? In poorer households, they may finance the purchase of basic consumption goods, housing, and children's education and health care. In richer households, they may provide capital for small businesses and entrepreneurial activities. They also help pay for imports and external debt service, and in some countries, banks have been able to raise overseas financing using future remittances as collateral.

Remittance flows tend to be more stable than capital flows, and they also tend to be counter-cyclical—increasing during economic downturns or after a natural disaster in the migrants' home countries, when private capital flows tend to decrease. In countries affected by political conflict, they often provide an economic lifeline to the poor. The World Bank estimates that in Haiti they represented about 17 percent of GDP in 2001, while in some areas of Somalia, they accounted for up to 40 percent of GDP in the late 1990s.

Is there a downside?

…a number of potential costs associated with remittances. Countries receiving migrants' remittances incur costs if the emigrating workers are highly skilled, or if their departure creates labor shortages…. if remittances are large.. the recipient country could face an appreciation of the real exchange rate that may make its economy less competitive internationally…remittances can also create dependency, undercutting recipients' incentives to work, and thus slowing economic growth. But …the negative relationship between remittances and growth observed in some empirical studies may simply reflect the counter-cyclical nature of remittances—that is, the influence of growth on remittances rather than vice-versa.

Remittances may …have human costs. Migrants sometimes make significant sacrifices—often including separation from family—and incur risks to find work in another country. …they may have to work extremely hard to save enough to send remittances.

Can high transaction costs be cut?

Transaction costs are not …an issue for large remittances (made for the purpose of trade, investment, or aid), because, as a percentage of the principal amount, they tend to be small, and major international banks are eager to offer competitive services for large-value remittances. But in the case of smaller remittances—under $200, say, which is often typical for poor migrants—remittance fees can be as high as 10–15 percent of the principal (see table).

Transfer costs Remittance fees could be reduced significantly if they were converted to a flat fee instead of a percentage of the principal transferred. Approximate cost of remitting $200 (percent of principal) Belgium–Nigeria Belgium–Senegal Hong Kong–Philippines New Zealand–Tonga ($300) Russia–Ukraine South Africa–Mozambique Saudi Arabia–Pakistan UAE–India2 United Kingdom–India United Kingdon–Philippines United States–Colombia United States–Mexico United States–Philippines Major MTOs1 12 10 4.5 12 4 — 3.6 5.5 11 — — 5 1.2–2.0 Banks 6 — — 3 3 1 0.4 5.2 6 0.4–5.0 17 3 0.4–1.8 Other MTOs 9.8 6.4 — 8.8 2.5 — — 2.3 — — 10 4.7 — Hawala — — — — 1–2 — — 1–2 — — — — — — Data not available. Source: World Bank Global Economic Prospects 2006: Economic Implications of Remittances and Migration. Note: Figures do not include currency-conversion charge. 1MTOs: money transfer operators. 2UAE: United Arab Emirates.

Cutting transaction costs would significantly help recipient families.

How…?

1. the remittance fee should be a low fixed amount, not a percent of the principal, since the cost of remittance services does not really depend on the amount of principal. Indeed, the real cost of a remittance transaction—including labor, technology, networks, and rent—is estimated to be significantly below the current level of fees.
2. greater competition will bring prices down. Entry of new market players can be facilitated by harmonizing and lowering bond and capital requirements, and avoiding overregulation (such as requiring full banking licenses for money transfer operators). The intense scrutiny of money service businesses for money laundering or terrorist financing since the 9/11 attacks has made it difficult for them to operate accounts with their correspondent banks, forcing many in the United States to close. While regulations are necessary for curbing money laundering and terrorist financing, they should not make it difficult for legitimate money service businesses to operate accounts with correspondent banks. An example where competition has spurred reductions in fees is on the U.S.–Mexico corridor, where remittance fees have fallen by 56 percent from over $26 (to send $300) in 1999 to about $11.50 now. In addition, some commercial banks have recently started providing remittance services for free, hoping that would attract customers for their deposit and loan products. And in some countries, new remittance tools—based on cell phones, smart cards, or the Internet—have emerged.
   
3. establishing partnerships between remittance service providers and existing postal and other retail networks would help expand remittance services without requiring large fixed investments to develop payment networks. However, partnerships should be nonexclusive. Exclusive partnerships between post office networks and money transfer operators have often resulted in higher remittance fees.
4. poor migrants need greater access to banking. Banks tend to provide cheaper remittance services than money transfer operators. Both sending and receiving countries can increase banking access for migrants by allowing origin country banks to operate overseas; by providing identification cards (such as the Mexican matricula consular), which are accepted by banks to open accounts; and by facilitating participation of microfinance institutions and credit unions in the remittance market.

Can governments boost flows?

Governments …often offered incentives to increase remittance flows and to channel them to productive uses. But such policies are more problematic than efforts to expand access to financial services or reduce transaction costs. Tax incentives may attract remittances, but they may also encourage tax evasion. Matching-fund programs to attract remittances from migrant associations may divert funds from other local funding priorities, while efforts to channel remittances to investment have met with little success. Fundamentally, remittances are private funds that should be treated like other sources of household income. Efforts to increase savings and improve the allocation of expenditures should be accomplished through improvements in the overall investment climate, rather than targeting remittances. Similarly, because remittances are private funds, they should not be viewed as a substitute for official development aid.

change of guard in Bihar

The change of guard in Bihar interests many, particularly to those rural poor which constitutes almost 50% of the total 83 million population of one of the poorest state of indian democracy. A study done by the World Bank on Bihar in 2003 showed 75 per cent of the rural poor were landless or near landless in 1999-2000. In rural areas, land ownership is closely linked to poverty, not just because land provides main source of income, but because land provides access to economic and social opportunities. Land reform in Bihar started in 1950s with the abolition of intermediaries between landlord and cultivators who worked under feudal lords. While the first Land Ceiling Act was passed in 1961, the progress has been very slow since. Only 1.5 per cent of the cultivable land was aquired and distributed by the ’80s,

In fact the Economist (26th Nov. 2005) in its current issue also highlighted the change of mis(rule) in Bihar.

...... Laloo Prasad Yadav had ruled Bihar since 1990…. it set the standard for bad government. Kidnapping for ransom was the only growth industry. Poverty, illiteracy, corruption and violence thrived. Mr Yadav's belated comeuppance came in an election result announced on November 22nd that left the RJD with just 54 out of 243 seats in Bihar's legislative assembly…..nothing to disguise their glee. “Laloo loses; Bihar wins�….. Even the RJD's ally, the Congress party, may not be too upset by the defeat of the biggest of its coalition partners in the central government.

Mr Yadav, who stood down as Bihar's chief minister in 1997 in favour of his wife after being charged with corruption, is India's railway minister….rise has been built on his skill at the politics of caste (read Yadav) and religion (read muslims)….earthily flaunted his humble origins as proof of his ability to bring dignity to the lower castes; and, allied with powerful gangsters, he presented himself as a protector of the Muslim minority.

….this year did this formula fail him, for a number of reasons. One was the job done by India's independent election commission, which kept the campaign relatively free of violence, and prevented “booth-capturing�—the coercion of voters…..Moreover, others, such as Bihar's new chief minister, Nitish Kumar, of the Janata Dal (United), have learned the art of caste-coalition building. Mr Yadav was deserted by many former supporters. His disdain for development, which has seen Bihar fall further behind on most social indicators, was, eventually, his undoing. Nor do Muslims now feel so worried by the rise of the Bharatiya Janata Party (BJP), the main national opposition and Mr Kumar's partner, with its Hindu-nationalist ideology.

corporate social responsibility: fairy tale???

MNCs represent the most powerful actors on globalization's scene. Social responsibilities should accompany their economic power. Deborah Doane, in a recent article at onPhilanthropy argues that initiatives like the United Nations "Global Compact," based on a "voluntary" approach, are not able to guarantee decent human and labor rights standards. Instead, mandatory rules on companies could address this challenge....

The Corporate Social Responsibility (CSR) Movement has grown…. from a fringe activity by a few earnest companies, like The Body Shop, and Ben & Jerry’s, to a highly visible priority for traditional corporate leaders from Nike to McDonald’s. Reports of good corporate behavior are now commonplace in the media, from GlaxoSmithKline’s donation of antiretroviral medications to Africa, to Hewlett-Packard’s corporate volunteering programs, to Starbucks’ high-volume purchases of Fair Trade coffee. In fact, CSR has gained such prominence that the Economist (22 Jan, 2005) devoted a special issue…. Although some see CSR as simply philanthropy by a different name, it can be defined broadly as the efforts corporations make above and beyond regulation to balance the needs of stakeholders with the need to make a profit. Though traces of modern-day CSR can be found in the social auditing movement of the 1970s, it has only recently acquired enough momentum to merit an Economist riposte.

….key events, such as the sinking of Shell’s Brent Spar oil rig in the North Sea in 1996, and accusations of Nike and others’ use of “sweatshop labor,� triggered the first major response by big business to the uprisings against the corporate institution. Naomi Klein’s famous tome, “No Logo,�(1) gave voice to a generation that felt that big business had taken over the world, to the detriment of people and the environment, even as that generation was successfully mobilizing attacks on corporate power following the Seattle anti-globalization riots in 1999.

…..corporations emerged brandishing CSR as the friendly face of capitalism, helped, in part, by the very movement that highlighted the problem of corporate power in the first place. NGOs, seeing little political will by governments to regulate corporate behavior, as free-market economics has become the dominant political mantra, realized that perhaps more momentum could be achieved by partnering with the enemy. By using market mechanisms via consumer power, they saw an opportunity to bring about more immediate change….organizations that address social standards in supply chains, such as the Fair Label Association in the United States or the United Kingdom’s ethical Trading Initiative, have flourished. The United Nations partnered with business to launch its own Global Compact, which offered nine principles relating to human rights and the environment, and was hailed as the ethical road map for the future.…..eventually the mainstream investment community cottoned onto CSR: In 1999, Dow Jones created the Dow Jones Sustainability Indexes, closely followed by the FTSE4Good. All of these initiatives have been premised on the notion that companies can ‘do well’ and ‘do good’ at the same time – both saving the world and making a decent profit, too. The unprecedented growth of CSR… lead some to feel a sense of optimism about the power of market mechanisms to deliver social and environmental change. But markets often fail, especially when it comes to delivering public goods; therefore, we have to be concerned that CSR activities are subject to the same limitations of markets that prompted the movement in the first place.

Making Markets Work?

At face value, the market has… been a powerful force in bringing forward some measurable changes in corporate behavior. Most large companies now issue a voluntary social and environmental report alongside their regular annual financial report; meanwhile the amount of money being poured into socially responsible investing (SRI) funds has been growing at an exponential rate, year over year….socially linked brands, such as Fair Trade, are growing very quickly. Ethical consumerism in the United Kingdom was worth almost £25 billion in 2004, according to a report from the Co-operative Bank.(2) The Economist article argued that the only socially responsible thing a company should do is to make money – and that adopting CSR programs was misguided, at best. But there are some strong business incentives that have either pushed or pulled companies onto the CSR bandwagon….. companies confronted with boycott threats, as Nike was in the 1990s, or with the threat of high-profile lawsuits, as McDonald’s is over obesity concerns, may see CSR as a strategy for presenting a friendlier face to the public….. CSR initiatives may provoke changes in basic practices inside some companies. Nike is now considered by many to be the global leader when it comes to improving labor standards in developing-country factories. The company now leads the way in transparency, too. When faced with a lawsuit over accusations of sweatshop labor, Nike chose to face its critics head-on and this year published on its Web site a full list of its factories with their audited social reports….. plethora of other brands have developed their own unique strategies to confront the activists, with varying degrees of success. But no one could reasonably argue that these types of changes add up to a wholesale change in capitalism as we know it, nor that they are likely to do so anytime soon.

Market Failure

One problem here is that CSR as a concept simplifies some rather complex arguments and fails to acknowledge that ultimately, trade-offs must be made between the financial health of the company and ethical outcomes. And when they are made, profit undoubtedly wins over principles. CSR strategies may work under certain conditions, but they are highly vulnerable to market failures, including such things as imperfect information, externalities, and free riders. Most importantly, there is often a wide chasm between what’s good for a company and what’s good for society as a whole. The reasons for this can be captured under what I’ll argue are the four key myths of CSR.

Myth #1: The market can deliver both short-term financial returns and long-term social benefits.

One assumption behind CSR is that business outcomes and social objectives can become more or less aligned. The rarely expressed reasoning behind this assumption goes back to the basic assumptions of free-market capitalism: People are rational actors who are motivated to maximize their self-interest. Since wealth, stable societies, and healthy environments are all in individuals’ self-interest, individuals will ultimately invest, consume, and build companies in both profitable and socially responsible ways. In other words, the market will ultimately balance itself. Yet, there is little if any empirical evidence that the market behaves in this way. In fact, it would be difficult to prove that incentives like protecting natural assets, ensuring an educated labor force for the future, or making voluntary contributions to local community groups actually help companies improve their bottom line. While there are pockets of success stories where business drivers can be aligned with social objectives, such as Cisco’s Networking Academies, which are dedicated to developing a labor pool for the future, they only provide a patchwork approach to improving the public good. In any case, such investments are particularly unlikely to pay off in the two- to four-year time horizon that public companies, through demands of the stock market, often seem to require.
As we all know, whenever a company issues a “profits warning,� the markets downgrade its share price. Consequently, investments in things like the environment or social causes become a luxury and are often placed on the sacrificial chopping block when the going gets rough. Meanwhile, we have seen an abject failure of companies to invest in things that may have a longer-term benefit, like health and safety systems. BP was fined a record $1.42 million for health and safety offenses in Alaska in 2004, for example, even as Lord John Browne, chief executive of BP, was establishing himself as a leading advocate for CSR, and the company was winning various awards for its programs. At the same time, class-action lawsuits may be brought against Wal-Mart over accusations of poor labor practices, yet the world’s largest and most successful company is rewarded by investors for driving down its costs and therefore its prices. The market, quite frankly, adores Wal-Mart. Meanwhile, a competitor outlet, Costco, which offers health insurance and other benefits to its employees, is being pressured by its shareholders to cut those benefits to be more competitive with Wal-Mart.(3) CSR can hardly be expected to deliver when the short-term demands of the stock market provide disincentives for doing so. When shareholder interests dominate the corporate machine, outcomes may become even less aligned to the public good. As Marjorie Kelly writes in her book, “The Divine Right of Capital�: “It is inaccurate to speak of stockholders as investors, for more truthfully they are extractors.�(4)

Myth #2: The ethical consumer will drive change.

Though there is a small market that is proactively rewarding ethical business, for most consumers ethics are a relative thing. In fact, most surveys show that consumers are more concerned about things like price, taste, or sell-by date than ethics.(5) Wal-Mart’s success certainly is a case in point.
In the United Kingdom, ethical consumerism data show that although most consumers are concerned about environmental or social issues, with 83 percent of consumers intending to act ethically on a regular basis, only 18 percent of people act ethically occasionally, while fewer than 5 percent of consumers show consistent ethical and green purchasing behaviors.(6) In the United States, since 1990, Roper ASW has tracked consumer environmental attitudes and propensity to buy environmentally oriented products, and it categorizes consumers into five “shades of green�: True-Blue Greens, Greenback Greens, Sprouts, Grousers, and Basic Browns. True-Blue Greens are the “greenest� consumers, those “most likely to walk their environmental talk,� and represent about 9 percent of the population. The least environmentally involved are the “Basic Browns,� who believe “individual actions (such as buying green products or recycling) can’t make a difference� and represent about 33 percent of the population.(7) Joel Makower, co-author of “The Green Consumer Guide,� has traced data on ethical consumerism since the early 1990s, and says that, in spite of the overhyped claims, there has been little variation in the behavior of ethical consumers over the years, as evidenced by the Roper ASW data. “The truth is, the gap between green consciousness and green consumerism is huge,� he states.(8) Take, for example, the growth of gas-guzzling sport-utility vehicles. Even with the steep rise in fuel prices, consumers are still having a love affair with them, as sales rose by almost 8 percent in 2004. These data show that threats of climate change, which may affect future generations more than our own, are hardly an incentive for consumers to alter their behavior.(9)

Myth #3: There will be a competitive “race to the top� over ethics amongst businesses.

A further myth of CSR is that competitive pressure amongst companies will actually lead to more companies competing over ethics, as highlighted by an increasing number of awards schemes for good companies, like the Business Ethics Awards, or Fortune’s annual “Best Companies to Work For� competitions. Companies are naturally keen to be aligned with CSR schemes because they offer good PR. But in some cases businesses may be able to capitalize on well-intentioned efforts, say by signing the U.N. Global Compact, without necessarily having to actually change their behavior. The U.S.-based Corporate Watch has found several cases of “green washing� by companies, and has noted how various corporations use the United Nations to their public relations advantage, such as posing their CEOs for photographs with Secretary-General Kofi Annan.(10) Meanwhile, companies fight to get a coveted place on the SRI indices such as the Dow Jones Sustainability Indexes. But all such schemes to reward good corporate behavior leave us carrying a new risk that by promoting the “race to the top� idea, we tend to reward the “best of the baddies.� British American Tobacco, for example, won a UNEP/Sustainability reporting award for its annual social report in 2004.(11) Nonetheless, a skeptic might question why a tobacco company, given the massive damage its products inflict, should be rewarded for its otherwise socially responsible behavior.
While companies are vying to be seen as socially responsible to the outside world, they also become more effective at hiding socially irresponsible behavior, such as lobbying activities or tax avoidance measures. Corporate income taxes in the United States fell from 4.1 percent of GDP in 1960 to just 1.5 percent of GDP in 2001.(12) In effect, this limits governments’ ability to provide public services like education. Of course, in the end, this is just the type of PR opportunity a business can capitalize on. Adopting or contributing to schools is now a common CSR initiative by leading companies, such as Cisco Systems or European supermarket chain Tesco.

Myth #4: In the global economy, countries will compete to have the best ethical practices.

CSR has risen in popularity with the increase in reliance on developing economies. It is generally assumed that market liberalization of these economies will lead to better protection of human and environmental rights, through greater integration of oppressive regimes in the global economy, and with the watchful eye of multinational corporations that are actively implementing CSR programs and policies. Nonetheless, companies often fail to uphold voluntary standards of behavior in developing countries, arguing instead that they operate within the law of the countries in which they are working. In fact, competitive pressure for foreign investment among developing countries has actually led to governments limiting their insistence on stringent compliance with human rights or environmental standards, in order to attract investment. In Sri Lanka, for example, as competitive pressure from neighboring China has increased in textile manufacturing, garment manufacturers have been found to lobby their government to increase working hours.
In the end, most companies have limited power over the wider forces in developing countries that keep overall wage rates low. Nevertheless, for many people a job in a multinational factory may still be more desirable than being a doctor or a teacher, because the wages are higher and a worker’s rights seem to be better protected.

What Are the Alternatives to CSR?

CSR advocates spend a considerable amount of effort developing new standards, partnership initiatives, and awards programs in an attempt to align social responsibility with a business case, yet may be failing to alter the overall landscape. Often the unintended consequences of good behavior lead to other secondary negative impacts, too. McDonald’s sale of apples, meant to tackle obesity challenges, has actually led to a loss of biodiversity in apple production, as the corporation insists on uniformity and longevity in the type of apple they may buy – hardly a positive outcome for sustainability.(13)
At some point, we should be asking ourselves whether or not we’ve in fact been spending our efforts promoting a strategy that is more likely to lead to business as usual, rather than tackling the fundamental problems. Other strategies – from direct regulation of corporate behavior, to a more radical overhaul of the corporate institution, may be more likely to deliver the outcomes we seek. Traditional regulatory models would impose mandatory rules on a company to ensure that it behaves in a socially responsible manner. The advantage of regulation is that it brings with it predictability, and, in many cases, innovation. Though fought stridently by business, social improvements may be more readily achieved through direct regulation than via the market alone. Other regulatory-imposed strategies have done more to alter consumer behavior than CSR efforts. Social labeling, for example, has been an extremely effective tool for changing consumer behavior in Europe. All appliances must be labeled with an energy efficiency rating, and the appliances rated as the most energy efficient now capture over 50 percent of the market. And the standards for the ratings are also continuously improving, through a combination of both research and legislation.
Perhaps more profoundly, campaigners and legal scholars in Europe and the United States have started to look at the legal structure of the corporation. Currently, in Western legal systems, companies have a primary duty of care to their shareholders, and, although social actions on the part of companies are not necessarily prohibited, profit-maximizing behavior is the norm. So, companies effectively choose financial benefit over social ones.(15) While a handful of social enterprises, like Fair Trade companies, have forged a different path, they are far from dominating the market. Yet lessons from their successes are being adopted to put forward a new institutional model for larger shareholder-owned companies. In the United Kingdom, a coalition of 130 NGOs under the aegis of the Corporate Responsibility Coalition (CORE), has presented legislation through the Parliament that argues in favor of an approach to U.K. company law that would see company directors having multiple duties of care – both to their shareholders and to other stakeholders, including communities, employees, and the environment. Under their proposals, companies would be required to consider, act, mitigate, and report on any negative impacts on other stakeholders.(16)
Across the pond, Corporation 20/20, an initiative of Business Ethics and the Tellus Institute, has proposed a new set of principles that enshrines social responsibility from the founding of a company, rather than as a nice-to-have disposable add-on. The principles have been the work of a diverse group including legal scholars, activists, business, labor, and journalism, and while still at the discussion phase, such principles could ultimately be enacted into law, stimulating the types of companies that might be better able to respond to things like poverty or climate change or biodiversity. Values such as equity and democracy, mainstays of the social enterprise sector, take precedence over pure profit making, and while the company would continue to be a profit-making entity in the private realm, it would not be able to do so at a cost to society.
Of course, we are a long way from having any of these ideas adopted on a large scale, certainly not when the CSR movement is winning the public relations game with both governments and the public, lulling us into a false sense of security. There is room for markets to bring about some change through CSR, but the market alone is unlikely to bring with it the progressive outcomes its proponents would hope for. While the Economist argument was half correct – that CSR can be little more than a public relations device – it fails to recognize that it is the institution of the corporation itself that may be at the heart of the problem. CSR, in the end, is a placebo, leaving us with immense and mounting challenges in globalization for the foreseeable future.

Notes:

1. N. Klein, No Logo: Taking Aim at the branding Bullies (UK: Harper-Collins, 2001)
2. Co-operative Bank, 2004
3. A. Zimmerman, “Costco’s Dilemma: Be Kind to Its Workers, or Wall Street?� Wall Street Journal, march 26, 2004
4. M. Kelly, The Divine Right of Capital:Dethroning the Corporate Aristocracy (San Francisco: Berrett Koehler, 2003)
5. 
   
UK Institute of Grocery Distributors, 2003
6. “Who are the Ethical Consumers?� Co-operative 2000
7. Green Gauge Report 2002, Roper ASW, as related by Edwin Stafford
8. http://makower.typepad.com/joel_makower/2005/06/ideal_bite_keep.html
9. http://money.cnn.com/2004/05/17/pf/autos/suvs_gas/
10. “Greenwash + 10: The UN’s Global Compact, Corporate Accountability, and the Johannesburg Earth Summit,� Corporate Watch, January 2002
11. “The Global Reporters 2004 Survey of Corporate Sustainability Reporting.� SustainAbility, UNEP, and Standard & Poor’s
12. J. Miller, “Double Taxation Double Speak: Why Repealing Tax Dividends is Unfair,� Dollars and Sense, March/April2003
13. G. Younge, “McDonald’s Grabs a Piece of the Apple Pie: ‘Healthy’ Menu Changes Threaten the Health of Biodiversity in Apples,� The Guardian, April 7, 2005
14. Ethical Purchasing Index, 2004
15. E. Elhauge, “Sacrificing Corporate Profits in the Public Interest,� New York University Law Review 80, 2005
16. www.corporate-responsibility.org
    

some inspiring thoughts!!!!

Due to some personal pre-occupation and obligation, I am posting this piece after a long hiatus.

Following is the mail forwarded to me by one of my friend, which I found inspiring, and want to share…

"Don't worry about the world coming to an end today. It's already tomorrow in Australia." Charles Schultz
The following is the philosophy of Charles Schultz, the creator of the "Peanuts" comic strip. You don't have to actually answer the questions. Just read, and you'll get the point.

1. Name the five wealthiest people in the world.
2. Name the last five Heisman trophy winners.
3. Name the last five winners of the Miss America.
4. Name ten people who have won the Nobel or Pulitzer Prize.
5. Name the last half dozen Academy Award winner for best actor and actress.
6. Name the last decade's worth of World Series winners.

How did you do? The point is, none of us remember the headliners of yesterday. These are no second-rate achievers. They are the best in their fields. But the applause dies. Awards tarnish. Achievements are forgotten. Accolades and certificates are buried with their owners.

Here's another quiz. See how you do on this one:

1. List a few teachers who aided your journey through school.
2. Name three friends who have helped you through a difficult time.
3. Name five people who have taught you something worthwhile.
4. Think of a few people who have made you feel appreciated and special.
5. Think of five people you enjoy spending time with.

Easier?

The lesson: The people who make a difference in your life are not the ones with the most credentials, the most money, or the most awards. They are the ones that care.

inflation determination

In a recent economic focus, the Economist says that in the present era of globalisation, inflation is increasingly determined by global rather than local economic forces

....average inflation rate in the G7 economies rose to an estimated 3.2% in September, its highest for 13 years....reason...is...oil has become a lot more expensive; “core� inflation rates, which exclude oil and food, remain much lower in all countries....fears are mounting that higher oil prices will feed into other prices throughout the economy, pushing inflation higher still.

This is...worrying for America..... companies' unit labour costs rose by 4.2% in the year to the second quarter, mainly thanks to slower productivity growth. ...With energy and labour becoming conspicuously dearer, any inflation model based on a mark-up of prices over costs should be flashing red. Yet in the past year core inflation has not budged....thanks to globalisation, the inflation process has changed over the past three decades in a way that has significantly weakened the link between domestic cost pressures and inflation.... global forces have become more important relative to domestic factors in determining inflation in individual countries.

....the correlation between core inflation and the growth in unit labour costs in America fell to only 0.3 in 1991-2004, from nearly 0.8 in 1965-79. The link between inflation and labour costs also faded in other developed economies (see chart).... probably reflects two things. First, the integration into the world economy of China and other emerging economies with vast supplies of cheap labour has curbed the bargaining power of workers in developed economies. These workers... find it harder to secure higher wages when inflation picks up. And second, fiercer global competition has made it more difficult for firms to pass increases in wages through to prices. Instead they must absorb them in their profit margins.

....further...firms are less able than they were to hand cost increases on to their customers, .... fluctuations in import prices also have much less impact on core inflation than they once did.....link between movements in exchange rates and import prices has sharply diminished. Standard economic theory has it that a fall in the dollar against the euro should push up the dollar prices of European exports to America, raising America's inflation rate. But the proportion of exchange-rate changes passed through to import prices has fallen everywhere; in America, it has been 60% lower since 1990 than it was in the previous 20 years. Today, exporters set their prices for a local market and then either hedge their currency risk or absorb currency changes in their margins.

Increased global competition has... limited the room for firms to pass on higher costs. This makes a nonsense of traditional economic models of inflation, which virtually ignore globalisation and assume that companies set prices by adding a mark-up over unit costs, with the size of the margin depending largely on the amount of slack in the economy.....when setting prices firms are increasingly likely to be constrained by global competition. Given the price the market will bear, they design and make their products as profitably as they can. As a result, domestic cost pressures, whether in labour or energy, no longer lead automatically to higher inflation, but are more likely to show up as swings in profit margins.

....suggests....in forecasting inflation central banks now need to pay less attention to domestic shifts in unemployment and capacity utilisation and much more to the global balance between supply and demand.....since 1990 the core rate of inflation has become less responsive than it used to be to changes in the output gap (a measure of economic slack) in all the main developed economies except Britain. The ups and downs of inflation increasingly reflect the global balance between supply and demand.

The nature of inflation has... changed. But it has not died, although the forces of globalisation have helped to combat it. Policy blunders by central bankers could still allow it to break out again. Indeed .... the impact of China and other newly industrialising economies on inflation is often exaggerated. ...Fed study...concluded that the direct impact of cheaper Chinese imports on American inflation was modest. However, this...ignored the indirect effects of China on wages and the fact that cheaper Chinese goods do not just reduce the price of imports from China but, through competition, the price of all goods sold worldwide.

....more important for policymakers today is its future effect. ...the emergence of new industrial giants has increased not only global supply but also demand, particularly for oil and other raw materials. By running large current-account surpluses these economies are currently adding more to supply than to demand, so their net effect is disinflationary. But this could change. If their exchange rates rose and their domestic demand increased....downward pressure on prices would ease, and might one day be reversed.

Even though globalisation has helped to hold down inflation so far, capacity constraints will eventually appear in the global economy, just as they always have at the national level. Globalisation does not relieve central bankers of their responsibility for maintaining price stability....it may require them to steer policy by a different compass: one that takes much more account of developments abroad.

productivity measurement

Diewart and Nakamura said, “Productivity is like love. Volumes of literature have been poured in to talk about the benefits of having more of it, but disagreement reigns on how best to achieve this. One reason for this is a lack of consensus on what “it� really is.� Ever since Solow (1957) decomposed output growth into the contribution of input growth and a residual productivity term, the concept has increased in popularity. Productivity growth forms the basis for improvements in real incomes and welfare, and has generated lot of interest in its own right and is used as a benchmark to rank firms or countries. This has spurred great interest in trying to obtain better and more accurate productivity growth estimates.

A three day OECD workshop on productivity measurement is taking place in Madrid, Spain.

fixing up China's banking system

China began the structural reform of its banking system in 1978 with the creation of state owned specially banks (SOSB) from the monobanking structure. Over time, these SOBS grew to be among the largest 50 banks in the world. However, as owner, the government dictated the terms of lending, so that these large four SOSB, together having 80% of market share, were financing the state owned enterprises (SOEs) More than two and half decades of policy lending has left the SOSBs burdened with bad debt on loan portfolios. The government has recognized the need to restructure these insolvent banks by setting up bad debt agencies with a narrow purpose to work out or sell bad debts. China's newly appointed governor of the central bank, Zhou Xiaochuan, recently told that China would take a "gradualist" approach to reforming its banking system, which means one step at a time, although the pace of change is anything but slow.

In a recent McKinsey Quarterly report Matthias M. Bekier et al. suggested the way to fix the China’s banking system. See also The Economist's View.

I think, China's window of opportunity for bank reform is closing rapidly. Recapitalizing the banks, identifying the bad loans, and spinning them off to the AMCs is the easy part of reform. But these moves are not sufficient to cure the banking sector's ills. As an exit strategy for recapitalizing the banks, Beijing must also act decisively to create an environment in which AMCs can sell off bad loans to recoup their losses. All this will involve fundamental reforms to the legal system, institutional framework, and corporate culture. Again at the same time, China needs to reform the capital market both to fuel the growth of the private sector and resolve the political ownership of the banking sector. With less political intervention and more credible financial data, banks will have a better chance to run loan books on a commercial basis. Such market discipline is a prerequisite for the ultimate success of banking reform.

who cares about human rights?

Behind a dilapidated store in a dusty field at Athi River, an export processing zone (EPZ) on the outskirts of Kenya's capital, Nairobi, a group of textile factory workers has gathered for a mid-afternoon break. The heat is searing, and the hastily purchased cool drinks quench thirsts.

Read a piece by Darren Taylor for the complete story

some moral lessons of life

One of my friend has forwarded this moral lesson to me, which I find worthy to post on this blog.
...There was a man who had four sons. He wanted his sons to learn not to judge things too quickly. So he sent them each on a quest, in turn, to go and look at a pear tree that was a great distance away.
The first son went in the winter, the second in the spring, the third in summer, and the youngest son in the fall. When they had all gone and come back, he called them together to describe what they had seen.

The first son said that the tree was ugly, bent, and twisted. The second son said no it was covered with green buds and full of promise.

The third son disagreed; he said it was laden with blossoms that smelled so sweet and looked so beautiful, it was the most graceful thing he had ever seen.

The last son disagreed with all of them; he said it was ripe and drooping with fruit, full of life and fulfillment. The man then explained to his sons that they were all right, because they had each seen but only one season in the tree's life. He told them that you cannot judge a tree, or a person, by only one season, and that the essence of who they are and the pleasure, joy, and love that come from that life can only be measured at the end, when all the seasons are up. If you give up when it's winter, you will miss the promise of your spring, the beauty of your summer, fulfillment of your fall.

Moral of the story:

• Don't let the pain of one season destroy the joy of all the rest. Don't judge life by one difficult season.

• Persevere through the difficult patches and better times are sure to come some time or later.

viability of export-driven economy????

The recent issue of The Economist discusses the feasibility of the export driven South east Asian economy.

…South-East Asia's economic performance tend to revolve around trade. A double-digit surge in exports helped to lift the region's growth to 6.3% last year. This year, a slowdown in exports, along with a bigger bill for oil imports, will cut growth to 5% or so. Economists hope that growing demand for electronic components and other exports will put growth on a rising path once more next year. But one thing is clear: “The region remains export-driven.�

It was not supposed to be this way….the Asian crisis of 1997, when plunging currencies, free-falling asset prices and bankrupt banks had brought regional economies to a standstill, various national leaders—most notably Thaksin Shinawatra of Thailand—declared that South-East Asia should not look solely to exports to resuscitate its economic fortunes. Instead, Mr Thaksin argued, governments should try to revive domestic consumption, which would help insulate the region from the vagaries of the world economy….attempted to put this theory into practice by suspending farmers' debts, instituting cheap universal health care and handing out loans to villagers, small businesses and home-buyers….began subsidising all manner of goods, from computers to cows, to increase Thais' spending power…“the grassroots economy�…

…Jesus Felipe of the Asian Development Bank…recently published a study showing that the economies of various Asian countries performed best, naturally enough, when both exports and domestic demand were buoyant. Last year, for example, domestic consumption and investment grew in tandem with exports in much of South-East Asia, propelling the region to its fastest growth since the crisis…he argues that domestic demand tends to grow incrementally, in line with the economy as a whole. His study found that from 1993 to 2003, exports grew more than three times faster than consumption in Thailand, and accounted for over 70% of economic growth. This trend continued after Mr Thaksin came to power in 2001 and began implementing his policies designed to boost domestic demand.

The only country in Mr Felipe's study where exports did not make a significant contribution to growth was the Philippines, where almost all growth was attributable to domestic demand. But this is a sign of the Philippines' economic weakness, rather than strength. Consumer spending in the Philippines is particularly robust thanks to the billions of dollars of remittances that Filipinos working overseas send home to their families. But those workers are overseas in the first place only because the Philippine economy does not grow fast enough to provide jobs for them.

…in South-East Asia, the richer the country, the higher the share of exports in the economy….. exports as a share of output are still rising steadily throughout the region (see chart), despite all the rhetoric about boosting the domestic sector. In the region's richest country, Singapore, they reached 168% of GDP last year. (Exports can be more than 100% of GDP because most of the components used to produce them are imported.) Net exports doubled their share of output in East Asia's richest countries between 1993 and 2003, from 5% to 10%.

….Thailand sells both manufactured goods (cars) and agricultural ones (rice) to both rich countries (America and Japan) and poor ones (the other members of the Association of South-East Asian Nations). Much the same applies in the rest of the region. Malaysia exports palm oil as well as electronic components; the Philippines computer chips and fruit, and so on. Booming China is the region's fastest-growing export market.

Consumption, meanwhile, has faltered throughout South-East Asia in the face of rising fuel prices, which have fed inflation and prompted higher interest rates. Drought and bird flu have taken a toll on farming. Last year's tsunami and the recent terrorist attack in Bali have dented tourism. Governments have cut back spending, trying to balance their budgets. Consumer confidence in Thailand, for one, fell to its lowest level in three years in August. If oil prices started falling, and inflation and interest rates with them, consumption would doubtless improve. But that would also give the world economy a shot in the arm, and boost exports even more.

The question that emanates from the discussion is whether Asian countries can, today, generate enough domestic demand-led growth so as to shift from export growth. And, does this demand process require an active role of the government?

poverty in america

The World Bank defines, “poverty is powerlessness, lack of representation and freedom�. Thus poverty is an important and emotional issue. The ubiquitous presence of poverty in the developing world is nothing unique. What is unprecedented is the incidence of poverty in USA; the recent paper by Hoynes et al. examines the issue.

They scrutinize the trends of poverty rates in the last three decades in America. Relative to the large decline that was experienced during the 1960’s, poverty rates have changed very little over the past three decades. They find a weak relationship between poverty and the macro-economy over time. However, in spite of this, changes in labor market opportunities predict changes in the poverty rate rather well. Holding all else equal, they found, changes in female labor supply should have reduced poverty further, but an increase in the rate of female headship may have worked in the opposite direction.

They raise some further research questions, what are the relationships between women’s labor force participation, female headship, and labor market opportunities for women, and poverty rates? Many analyses have linked two or three of these factors, but there may be important interactions between all of these that help determine the evolution of poverty rates. A related question is why rising women’s labor force participation prior to 1980 does not push down poverty rates. Finally, what explains the change in the responsiveness of poverty to macroeconomic indicators starting in the 1980s?

nobel prize for game theorists

An octagenarian political economist, Thomas C. Schelling, 84, an emeritus professor at University of Maryland and Harvard University, and a septugenarian mathematician Robert J Aumann, 75, an emeritus professor at Hebrew University Jerusalem, were awarded the Nobel Memorial prize in Economics for fostering the understanding of conflict and co-operation- in matters such as nuclear arms race, trade battles and price wars. Working separately, they used 'game theory' as a way to explain social, political and business interactions.
More on this please see Marginal Revolution.

G B Shaw once said, "Nobel Prize money is a life belt thrown to a swimmer who has already reached the shore in safety".

labour scourge

Continue with the previous post (missing link in globalisation:labour), policy makers and economists supporting neoliberal globalization have always argued that low wages of poor countries represent an excellent opportunity for these countries to compete in the global market. However, competition has also brought down wages in rich countries, accelerating the race against the bottom on a global level and making it harder for all workers to afford a decent life. Focusing on the US workers' situation, Thomas Palley, the chief economist of the US - China Economic and Security Review Commission, calls for the establishment of "fair and just rules that make the economy work for all."

If the United States were to add two billion low-wage workers, you'd expect that wages would fall across the board, right?…. famous theorem in international economics - the Stolper-Samuelson theorem - …says when a rich capital-abundant country (such as the United States) trades with a poor labor-abundant country (such as China), wages in the rich country fall and profits go up…. economic logic is simple. Free trade is tantamount to a massive increase in the rich country's labor supply, since the products made by poor country workers can now be imported. Additionally, demand for workers in the rich country falls as rich country firms abandon labor-intensive production to the poor country. The net result is an effective increase in labor supply and a decrease in labor demand in the rich country, and wages fall.

The relevance of the Stolper-Samuelson theorem is clear. For the last two decades, US policy makers….. have worked assiduously to create a global market place in which goods and capital are free to move. Over the same period, two and a half billion people in China, India, Eastern Europe and the former Soviet Union have discarded economic isolationism and joined the global economy. Now, these two tectonic shifts are coming together in the form of a "super-sized" Stolper-Samuelson effect, and they stand to have depressing consequences for American workers.

Much attention has been devoted to the adverse impacts of the US trade deficit, …. no one in Washington is talking about the deeper question of what happens to wages when two billion people from low-wage countries join the global labor market.… In the past, countries joined the international economy through a slow evolutionary process. Initially, they would export a few goods in which they specialized and had natural competitive advantage. Thereafter, countries would gradually deepen their involvement in international trade. The process was one of gradual integration, and production was largely immobile across countries.

Globalization has changed this by accelerating the process of international integration…..made capital, technology and methods of production mobile, marking a watershed with the past. The new order…exemplified by China's recent experiences….through massive foreign direct investment and technology transfer. The impact of this transformation on the US economy is seen in the trade deficit, the loss of manufacturing jobs and downward pressure on wages. Whereas classical free trade connected goods markets across countries, globalization creates a global labor market and moves jobs. Previously trade arbitraged goods prices, now it also arbitrages wages through job shifting.

….the emergence of China, India and Eastern Europe, the dam of Socialism that held back two billion workers has been removed. If two swimming pools are joined, the water level will eventually equalize. That is what is happening with globalization. Manufacturing has….been placed in competition across countries, with dire consequences for manufacturing workers. The internet promises to do the same for previously un-tradable services, and higher-paid knowledge workers will start feeling similar effects. Not since the industrial revolution has there been a transformation of this magnitude, and that revolution took one hundred and fifty years to complete. ….the new revolution is a mere 25 years old. These developments have a significance that goes far beyond the currency manipulation and WTO rules violations that have been the focus of trade deficit policy discussions. There is no reason to think the end is in sight, and American workers can look forward to the international economy exerting downward pressure on wages and work conditions for the next several decades.

….workers have understood the new reality long before economists and policymakers. …realize that trade is no longer a matter of exchanging exotic commodities for manufactured products, and that the new system involves trading their jobs and arbitraging wages. Especially bitter is the fact that the process of globalization is being driven by large American multinational corporations that American workers helped build. US policymakers have also abandoned American workers by promoting free trade agreements that have de facto created a global labor market that threatens workers' livelihoods and economic security.

Globalization demands ….the task of establishing fair and just rules that make the economy work for all. This challenge is the same as that faced by American workers at the beginning of the 20th century. Unions, minimum wages, and fair labor practices were essential to meeting that challenge, and they are essential again. But such tools are no longer sufficient when applied nationally. They must be applied globally. That means China, India and other industrializing developing countries must agree to, and enforce, core labor standards and worker rights. Trade cannot be free without worker freedom and the right to share in the wealth created….

missing link in globalisation: labour

Contrary to the earlier form of globalisation,where labour mobility was the driving force, the present one is governed by mainly capital mobility. The recent issue of the Economist (Oct6th 2005) acknowledges this missing link of globalisation.

....The flow of workers across borders is heavily impeded, leaving the global market for labour far more distorted than those for capital and commodities. The world price of capital may be set in America, and that of oil set in Saudi Arabia....there is no such thing as a world price of labour. Wages can differ by a factor of ten or more depending only on the passport of the wage-earner.

Relaxing the movement of labour even a little would thus generate large efficiency gains.... letting poor workers into rich countries, in modest numbers (equivalent to 3% of the hosts' labour force) for a limited period, could reap benefits to the developing world worth $200 billion a year. With numbers like that...(one) wonder why so much energy is spent freeing trade and capital, and so little expended freeing labour.

....Kofi Annan, the secretary-general of the United Nations, set up the Global Commission on International Migration almost two years ago. The commission, 19 members of the great and good from around the world plus a secretariat in Geneva, was charged with inspiring debate and reflection on all aspects of international migration and policy....Of its 33 recommendations, the most consequential is indeed a call for more temporary migration from poor countries to rich ones. Guest-worker programmes would realise some of the efficiency gains...Opening up new avenues of legal migration might also help reduce the flow of illegal migrants, the report hopes.

...history lends little support to their optimism. The Gastarbeiter programme in Germany—which invited Turks, Yugoslavs and others needed at the time to fill the factory jobs created by the country's post-war economic miracle—failed, at least on its own terms. Many of Germany's “guests� never left, and their families soon arrived. The bracero programme in America—which, from 1942 to 1964, recruited Mexican field hands to pick cotton and sugar beets in Texas and California—fared no better. The entry of hundreds of thousands of farm workers provided camouflage for a substantial flow of undocumented labour.

....the logic of temporary migration appears irresistible. Rich countries want migrants' labour, but do not want to look after these newcomers when they grow old. Ideally, rich countries would like a constant rotation of workers, arriving while they are young and active, leaving before they grow old and dependent.... “temporary and circular migration� is also better for poor countries. One reason is remittances: the longer an immigrant stays away from home, the smaller the share of his wages he sends back.

If temporary worker programmes make a comeback, how should they be designed? ...Some countries set a simple quota, filled on a first-come, first-served basis. The British government is more calculating, allocating visas to specific sectors, such as food processing, that express a need for cheap labour. Singapore is the most ambitious....“foreign worker levies� that employers must pay to hire an immigrant. The levies differ by industry and by skill. To hire a skilled foreigner in construction, for example, an employer must pay S$80 ($47) a month. To hire an unskilled migrant, the employer must pay S$470. With these levies, the ministry can fine-tune the demand for immigrant labour.

In Germany, ...the availability of cheap guest-workers in German factories slowed the adoption of new labour-saving technology. As the saying went at the time: Japan is getting robots while Germany gets Turks.

Some economists argue that governments should simply set a quota of visas and auction them..... they could set a price for the permits designed to achieve more or less the same number of sales. The principal virtue of both schemes is that they allocate visas according to private perceptions of their worth, not government guesses about need.

How can governments ensure that guest workers do not overstay their welcome? In South Korea, temporary workers contribute to a special account that is refunded to them if they leave on time and forfeited if they linger. The British government is thinking of asking some migrants to post a bond, like a defendant on bail, which they will lose if they choose not to return.

...the market forces and demographic pressures that make temporary migration worth considering anew.

The following chart gives an idea of destination of immigrants.

Net Migration Flow per Region 1995 – 2000, Source: UN Population Division

rising fuel price

One of my friend has forwarded the following images, interesting one!!

FDI in china

Foreign direct investment (FDI), which refers to the inflow of foreign capital into a country, also entail investments through cross-border mergers, and "greenfield investments" – such as the setting up of a completely new factory by a foreign company. There are some problems with the FDI data that have to be kept in mind when interpreting them, as noted by UNCTAD in its latest World Investment Report. FDI is an investment involving a lasting interest by a home-economy entity in an enterprise in a host economy. For data collection purposes, FDI has been defined as involving an equity stake of 10% or more in a foreign enterprise. FDI has three components: equity capital, intra-company loans and reinvested earnings. Different countries have different recording practices relating to these three components. Some countries deviate from the suggested 10% threshold value for foreign equity ownership. Most countries report long-term intra-company loans, but not all countries record short-term loans and trade credits. Some countries are still not able to report reinvested earnings, as the data are not easily available from company reports or balance-of payments surveys; those that report often do so with a considerable time lag. UNCTAD stressed that FDI figures are very volatile, and they can easily give a distorted picture by the impact of single transactions or by statistical effects. Differences in how countries measure and report FDI complicate the interpretation of FDI trends for the following reasons:

• Bilateral discrepancies between FDI flows as reported by home and host countries can be quite large. The following table on FDI flows to China as reported by China (the host) and by a number of the investing (home) countries highlights this problem and thus claimed by the country are far in excess of those reported by investors (see table). Thus global FDI inflows and outflows differ. In 2004 for example, global FDI outflows were 13% higher than global FDI inflows. This imbalance is due to various factors such as: different methods of data collection by host and home countries, different data coverage of FDI (i.e. all three components of FDI may not be included), different time periods used for recording FDI transactions, and different treatment of round-trip investments and of FDI in special-purpose entities.

• As recording practices change over time, time series data on FDI flows have structural breaks. For example, Japanese data on FDI flows started to include reinvested earnings (in addition to the other components) only in 1996, the same year German FDI flows began to cover short-term, intra-company loans. Furthermore, to facilitate a comparative analysis of worldwide FDI, data on flows in various currencies are converted into a single currency, the United States dollar, and growth rates of dollar denominated FDI flows may diverge from growth rates of FDI flows in national currencies. In 2004 for instance, the United States dollar depreciated against most currencies of the developed countries. Therefore the 9% decline in the dollar value of FDI inflows into developed countries using constant exchange rates was smaller than the decline in FDI inflows calculated with current exchange rates. Similarly, as FDI flows are expressed in nominal or current prices of a country, the conversion of these flows into constant prices yields different results.

The recent paper by Benoît Mercereau is also important in this regard.