Tag Archives: globalisation

Adventures in international finance

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[amazon_link id=”1408704927″ target=”_blank” ]The Summit: The biggest battle of the Second World War [/amazon_link]by Ed Conway is a rattling good read. It is of course about the Bretton Woods conference in 1944, which laid the foundations for the post-war international economic arrangements, and the part they played in the stability and growth of that remarkable 30 years.

[amazon_image id=”1408704927″ link=”true” target=”_blank” size=”medium” ]The Summit: The Biggest Battle of the Second World War – fought behind closed doors[/amazon_image]

I picked it up expecting a book going over familiar territory. Only last year I read Benn Steil’s excellent  [amazon_link id=”0691162379″ target=”_blank” ]The Battle of Bretton Woods[/amazon_link]. However, The Summit is well worth a read even by Bretton Woods afficionados. It combines terrific storytelling with new archival material.

And what a story! You get a real sense of the physical location – the book starts and ends with the hotel – and the bustle of a huge international conference, meeting everywhere, people huddled in corners. Keynes called it a “monstrous monkeyhouse.” The hotel owner got so fed up with the delegates and the confusion that he threw everybody out before the treaty was entirely ready. Nobody had read every page and the stage was set for much further wrangling.

The characters are extraordinary, from Keynes (who comes across as more unlikeable the more one reads about him) to China’s H.H.Kung, the drunken Russians, the (probably) Soviet spy and chief American negotiator Harry Dexter White, and the obstreperous Indian delegation (some habits die hard…). The book quotes the then UK ambassador to the US commenting on Keynes’ manner: “He was really too offensive for words and I shall have to take measures.” Also amusing is the personality clash between Keynes and Lionel Robbins, another self-confident economist in the British delegation.

It’s always good to be reminded that alongside the debates about economic theory and practicalities, personalities, politics and the vagaries of history shape our institutions.

This would be a terrific introduction to international monetary matters for students, an enjoyable way to dip into some of the economic debate before getting started on it in earnest. And for everybody, it’s not only a good read but good background for reflecting on how international finance is ordered – or not – today, and what it took in 1944 to bring about a different kind of agreement.

 

Inside shipping

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I’ve loved reading [amazon_link id=”1846272998″ target=”_blank” ]Deep Sea and Foreign Going[/amazon_link] by Rose George. It’s been out a while – this was the new paperback. It’s a superb piece of reportage by somebody who is obviously a very thorough and careful researcher. The shipping industry fascinates me – it has at least since I read the now-classic [amazon_link id=”0691136408″ target=”_blank” ]The Box[/amazon_link] when it was first published, and realised how interesting and complicated this industry, the circulatory system of the global economy, actually is. As this book’s subtitle puts it, it’s the invisible industry that brings you 90% of everything.

[amazon_image id=”1846272998″ link=”true” target=”_blank” size=”medium” ]Deep Sea and Foreign Going: Inside Shipping, the Invisible Industry That Brings You 90% of Everything[/amazon_image]    [amazon_image id=”0691136408″ link=”true” target=”_blank” size=”medium” ]The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger[/amazon_image]

George covers issues ranging from the economics of freight shipping in general, the flagging out system, the race to the bottom in the workers’ pay and conditions, the surge in piracy in the Indian Ocean and its economics, the damage done to sea life especially whales by the big ships, the rubbish in the oceans,the the carbon footprint of the shipping industry, and more.The piracy chapter is particularly fascinating as a piece of economic analysis, including the bargaining that goes on over hostages – and there are many more of these than you realise, it’s just that a high proportion are Chinese or Indian seafarers.

It includes masses of detail, the sign of a true observer. Why is it still a tradition to knit woolly hats for seamen’s missions? What do marines do on the naval vessels patrolling the Indian Ocean when they’re not doing fighting stuff? How do you spend empty days at sea out of range of mobile masts and the internet? Who needs bribing with what as the vessel makes its way through the Suez Canal? What languages are used in on-board announcements when the crew is as globalised as can be?

Highly recommended, especially as a holiday read, and even more so if you’re off on a boat somewhere.

Butterflies and hurricanes

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I received a copy in the post this weekend of [amazon_link id=”0691154708″ target=”_blank” ]The Butterfly Defect: How globalization creates systemic risks[/amazon_link], and what to do about it by Ian Goldin and Mike Mariathasan. I’d read the book in draft and it’s a thought-provoking and rather alarming account of some of the vulnerabilities arising from interconnected global systems. Exhibit number one is the financial crisis, I suppose, made significantly more severe by the criss-crossing and largely unmonitored links between banks and shadow banks in many countries. The book also discusses global supply chains, infrastructure, ecology, public health and the social risks arising from inequality (this last obviously written well before Piketty-mania).

The growing complexity in each if these areas is well-documented. The title is a riff on the well-known butterfly effect whereby a small initial disturbance in a complex system with feed-back loops can rapidly lead to large and unexpected results – the flap of a butterfly’s wings in one place leads to a hurricane somewhere else entirely. It has become a defect because our governance systems haven’t remotely kept pace with the changes of the past 25 years. Connectivity has led to complexity has led to systemic risks – but policies address only local risks.

The final chapter asks how to start managing the new risks, without wholly answering it – although to be fair it would take a new book for each of the previous chapters to set out ay detail about what to do. The authors do not want to reverse the interconnectedness, although they acknowledge that some people might prefer that. They call instead for more global management of risk, more awareness of the new kinds of risk on the part of all policymakers and businesses everywhere – better risk measurement, transparent communication about the dangers and the policy uncertainties, gearing economic policies towards giving people incentives to take more account of the personal risks they face, clear definition of legal responsibilites, and contingency planning.

This all seems perfectly sensible. Will it happen? I think the most sobering section of the book talks about the way the post-World War II global governance changes, the ‘Bretton Woods moment’, came about as a result of the cataclysm of total war. The book ends on a very optimistic note:

“With better management, there is the potential for all citizens to share in our world’s magnificent achievements, the most impressive of which could be yet to come.”

But I ended up feeling daunted. Anyway, both pro- and anti-globalizers should read it.

[amazon_image id=”0691154708″ link=”true” target=”_blank” size=”medium” ]The Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do about It[/amazon_image]

Stories of the crisis

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This week I’ve spent two enjoyable days at the OECD Forum and among other sessions listened to Faisal Islam talk about his book [amazon_link id=”1781854106″ target=”_blank” ]The Default Line[/amazon_link].

[amazon_image id=”1781854106″ link=”true” target=”_blank” size=”medium” ]The Default Line: The Inside Story of People, Banks and Entire Nations on the Edge[/amazon_image]

He started by asking what should journalists – along with policy makers and economists – have asked or said before the crisis, when the good times were rolling? And have we learned the lessons since? He wanted to tell the human stories of the crisis as a way of shedding light on these questions. For example, the experience of one man in China to work in a factory in Guandong is a microcosm of the development of the global imbalances that grew so large in the mid-2000s – or so Faisal thought. But the man they chose by the time they got there had quit his factory job and become a punk hairdresser. So the story was also one of the nascent consumerism of China, and also the vulnerability of mobile labourers with their wheelie suitcases and hukou cards, and the downturn in factory employment in 2009 and 2010. The story of the crisis is one of a complex and interlocking series of currents around the world, he said. The stories help us understand them.

The book visits Greece too – the book opens with a cargo plane chartered to fly euro notes into Greece at the peak of its crisis because the share of bank notes in GDP rose from 6 to 25 per cent. People were taking cash out of their accounts. (I don’t blame them – I did the same on 2008.) meeting the demand was an amazing logistical exercise by the Bank of Greece – the country had only had the plates to print 10 euro notes in Greece; apparently only German-speaking countries have the plates for higher denomination notes.

Cyprus was on the itinerary too. It had its own plane full of notes flown in from Germany too. In contrast to the Greeks! who tried to keep it secret! the Cypriot authorities made it very public. Perhaps as a result, people didn’t feel the same need to take out cash because they knew there was enough there.

There’s Britain too, and the mortgage boom that had people buying houses on loans they couldn’t really afford, funded by wholesale money the banks and building societies had raised to fuel the bubble. Northern Rock was raising funds in Africa to fund 125% mortgages in the North of England. The book also takes in a Czech mathematician who dropped out of finance to become a Californian hippy. Iceland. The ECB and its focus on pizza prices.

All this and more. It sounds a rattling good read, which I have now bought.

The OECD forum had several Meet the Author sessions:
[amazon_link id=”1452603685″ target=”_blank” ]Average is Over[/amazon_link] by Tyler Cowen
[amazon_link id=”0241953898″ target=”_blank” ]How Much is Enough[/amazon_link] by Robert Skidelsky
[amazon_link id=”B00GOH7YZ2″ target=”_blank” ]The Entrepreneurial State[/amazon_link] by Mariana Mazzucato
[amazon_link id=”0399159967″ target=”_blank” ]Hacking Your Education[/amazon_link] by Dale Stephens
[amazon_link id=”1846142245″ target=”_blank” ]Exodus[/amazon_link]by Paul Collier
[amazon_link id=”1610395050″ target=”_blank” ]Frugal Innovation [/amazon_link] by Navi Radjou
[amazon_link id=”1846146895″ target=”_blank” ]The Last Vote [/amazon_link]by Philip Coggan

And last but not least

[amazon_link id=”B00GMSUUWM” target=”_blank” ]GDP: A Brief but Affectionate History [/amazon_link] by Diane Coyle

Informal economics

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In a discussion on Twitter last week about the rebasing exercise that increased Nigeria’s GDP by 89%, Olumide Abimbola offered to provide a reading list in informal economic activity – and here it is, very useful.The list includes Keith Hart’s pioneering paper – Keith wrote a retrospective as the intro to a more recent (2006) book, [amazon_link id=”0199237298″ target=”_blank” ]Linking the Formal and Informal Economy: Concepts and Policies[/amazon_link], edited by Basudeb Guha-Khasnobis, Ravi Kanbur and Elinor Ostrom.

I have a couple of other suggestions to add.

For estimates of the size of the informal economy in different countries, the work of Friedrich Schneider and Dominic Enste, published by the IMF, is the most comprehensive  – initially in this 2002 publication, but there are no later estimates that I can find, although Schneider and Andreas Buehn have a working paper about methodology.

A nice general read is Robert Neuwirth’s [amazon_link id=”0307279987″ target=”_blank” ]The Stealth of Nations[/amazon_link], reviewed by me here.

[amazon_image id=”0307279987″ link=”true” target=”_blank” size=”medium” ]Stealth of Nations: The Global Rise of the Informal Economy[/amazon_image]

And, in terms of the economics literature, that’s about it. Which is extraordinary when you think about what an important phenomenon informal economic activity is. The IMF estimates put it at between 14/16% of GDP in the OECD countries (much more in some) to as high as 44% in low-income countries. Economists can be lazy about finding data, and ignoring phenomena for which there are no readily-available data. But surely this is too big to ignore? All the more so as:

  • globalization has allowed multinational criminal enterprise (as well as international finance) to flourish – see Misha Glenny’s reportage eg in [amazon_link id=”0099481251″ target=”_blank” ]McMafia[/amazon_link] or the wonderful [amazon_link id=”0099541726″ target=”_blank” ]Treasure Islands [/amazon_link]by Nicholas Shaxson on tax evasion
  • new technologies have changed the decision margin between formal and informal activity in several ways – for example, mobiles helping people in the developing world transition into the formal sector
  • in the digital world, new types of “peer production” are emerging, in a new kind of informal space the authorities don’t know how to deal with – The Umlaut had a very interesting article about this recently. And then there’s Bitcoin etc.

[amazon_image id=”0099481251″ link=”true” target=”_blank” size=”medium” ]McMafia: Seriously Organised Crime[/amazon_image]

On Twitter, @illicit_econ does sterling work linking to articles and news of interest on the subject. Which economists out there are publishing research on the informal and/or illicit economy, though? Who can add more to this resource list?