Monthly Archives: January 2008

World Economic Forum wraps up with warning for 2008.


World Economic Forum wraps up

with warnings for 2008

by Adam Plowright Sat Jan 26, 4:17 PM ET

DAVOS, Switzerland (AFP) – The head of the IMF hammered home the problems facing the world economy in Davos on Saturday, sounding a final gloomy note as the annual gathering of the world’s elite wrapped up. International Monetary Fund director-general Dominique Strauss-Kahn said a “serious” response was required to counter the risk of slowing global growth, including both interest rate cuts and increased government spending.

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Are developing countries taking over financial globalisation?

In the latest issue of the Economist, it raised an important issue on ‘Sovereign-Wealth Fund’. This fund, commonly invested by the state surpluses of emerging economies,  is typically used to support the financial health of countries like America, and their transnational corporates such as Citigroup and Merrill Lynch. According to Morgan Stanley, developing countries have chequed $US 69 billion to wealthy financial services groups in the last ten months.

Although sovereign-wealth funds only account for 2% of the global traded securities, it has much power than any private equity or hedge funds. These funds play an impact on markets and prices. As Kevin Hassett pointed out, the rate of which large funds are invested, the likelihood of Citigroup brought by China, or the possibility of Venezuela purchasing Alcoa is very feasible. If such events occur, China owning Citigroup could impact US’s politics with Taiwan (and Japan), while Venezuela could easily relocate Alcoa’s production from America to Latin America, hence, denting the American economy. Thereafter, further developing economies may undergo similar operations, changing the nature of international political economy.

Despite the potential risks involved in sovereign-wealth funds, America (as country heavily invested) is enjoying sovereign-wealth funds. This is because it could increase capital for investment banks, attract shareholders, and provide Wall Street with better access to emerging markets. Such funds are also great resources for minimising effects of conflicts.   

However, if countries such as America continue to accept sovereign-wealth funds, they will eventually become dependent upon it. Shall they divorce from such funds in the future, how they will repay is wonderous. Regardless of whether funds will be continually used or not, rich countries and corporates will become debtors to the funds invested by developing countries. Therefore, the political and economic power will eventually be bestowed upon the hands of developing nations.

Do you believe the tide has changed in power politics in terms of financial globalisation? 

What are your opinions on this?    

 — Shuxiu

Is economic recession likely in 2008?

I have been following the news recently and find it quite stressful (to be honest) that most commentators are very pessimistic to predict that NZ is on the verge of economic breakdown: recession.  Majority of these writers point to the current skyrocketted interest rates, over-priced properties, massive increase in the cost of food and petrol, the inflation rate (thanks to the governemnt) and recently decline in the NZ stock market as evidence of what to expect. Clearly for someone who knows very little about the nature of the market sytem and all its dramas it is quite persuasive to believe that NZ is heading towards recession.

However, NZ unemploymen rate has been recorded at its lowest since 1986 (NZ Statistic Depatment, 2007) often mass unemployment associate with depression. Furthermore, in last year’s budget Dr Cullen announced 10 million surplus for the 2007 financial year. Fiqures like this put into question whether we are heading towards recession or not?

Another point to note is the interdependence (if you like) of politics and economics. Does this supposedly “economic recession” have something to do with politics? What would Keynes, Friedman and Hayek say all about this predictions?

 Looking forward to your replies


Emerging-market multinationals

Wind of change
Jan 10th 2008
From The Economist print edition

Globalisation is creating a new class of companies; they should fight harder for it

Illustration by Bill ButcherLAST month Hansen Transmissions International, a maker of gearboxes for wind turbines, was listed on the London Stock Exchange. Nothing noteworthy about that, you might say, despite the jump in the share price on the first day of trading and the handsome gain since: green technology is all the rage, is it not? But Hansen exemplifies another trend too, which should prove every bit as durable: the rise of multinational companies from emerging economies. Its parent is Suzlon, an Indian firm that began life as a textile manufacturer but is now among the world’s five leading makers of wind turbines. Along the way, Suzlon has acquired not only Hansen, originally Belgian, but also REpower, a German wind-energy firm, spending over $2 billion on the pair.

The world is now replete with Suzlons: global companies from emerging economies buying businesses in rich countries as well as in poorer places (see article). Another Indian company, Tata Motors, looks likely to add to the list soon, by buying two grand old names of British carmaking, Jaguar and Land Rover, from America’s enfeebled Ford. As a symbol of a shift in economic power, this is hard to match.

Economic theory says that this should not happen. Richer countries should export capital to poorer ones, not the other way round. Economists have had to get used to seeing this turned on its head in recent years, as rich countries have run large current-account deficits and borrowed from China and other emerging economies (notably oil exporters) with huge surpluses. Similarly, foreign direct investment (FDI)—the buying of companies and the building of factories and offices abroad—should also flow from rich to poor, and with it managerial and entrepreneurial prowess. Continue reading

Are we heading for another Great Depression – read what the US Fed Reserve Governor thinks

Published: January 20, 2008

This article will appear in this Sunday’s Times Magazine.

Ben Bernanke’s first exposure to monetary policy was reading the works of Milton Friedman, the Nobel laureate. That was 30 years ago, when Bernanke was a graduate student at M.I.T., and he has been studying central banking ever since. By the time President Bush nominated him to run the Federal Reserve, at the end of 2005, Bernanke knew more about central banking than any economist alive. On virtually every topic of significance — how to prevent deflationary panics, for instance, or to gauge the effect of Fed moves on stock-market prices — Bernanke wrote one of the seminal papers. He championed ideas for improving communications between the Fed — whose previous chairman, Alan Greenspan, spoke in riddles — and the public, believing that clearer guidance about the Fed’s aims would help the economy run more smoothly. And having devoted much of his career

to studying the causes of the Great Depression, Bernanke was the academic expert on how to prevent financial crises from spinning out of control and threatening the general economy. One line from his “Essays on the Great Depression” sounds especially prescient today: “To the extent that bank panics interfere with normal flows of credit, they may affect the performance of the real economy.”

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Is NZ a Responsible Global Investor? Read the Herald’s story 14/1/08

Anne-Maree O’Connor: Social and ethical attitudes crucial
5:00AM Monday January 14, 2008
By Anne-Maree O’Connor

During recent years, investors have increasingly considered environmental, social, and broad governance issues in their investment decisions, over and above a narrow focus on financial return.

These factors are often captured under the banner of “responsible investment”. This investor trend has paralleled consumer trends, where products and services are increasingly selected using factors other than just price, quality, or convenience.

Responsible investment is a rapidly maturing activity, and one that the guardians are taking notice of.

The guardians care about being responsible investors in part because of their governing legislation, which requires us to, among other things, avoid prejudice to New Zealand’s reputation as a responsible member of the world community. Continue reading

EDMUND HILLARY – the passing of our greatest living NZer

You are probably wondering what has this post got to do with global political economy? New Zealand is a young nation and we need our heroes to inspire us, help us answer the question, what does it mean to be a New Zealander in the world today(?), when we can pick up multiple citizenships, travel relatively easily and when, as one IPE scholar wrote, our credit card is more useful to us than our passport.

So what does Hillary symbolise to you? He was the first human to the summit of Everest, and yet he shunned the global branding, the commercialisation of mountain climbing and its accessibility only to a global elite. He preferred to put put his energies into collaboratively supporting the mountain villages and communities of the Nepalese Sherpa, to serving as an ambassador of and for New Zealanders. Continue reading

Do you drink Starbucks or do you prefer your coffee without marshmallows and cream?

Not enough froth

Trouble at Starbucks – Jan 8th 2008, From AP

HOWARD SCHULTZ is not trying to pass the buck. Starbucks is in trouble and much of it is self-inflicted. “I’m here to tell you that just as we created this problem, we will fix it,” he promised on Monday January 7th. This coincided with the announcement that Starbucks was bringing back the man who presided over the coffee firm’s rapid expansion in the 1990s. He will retake the helm eight years after he stepped aside as chief executive, replacing Jim Donald, who has run the company for under three years.

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Expanding the global market – outsourcing pregnancy to India

What do you think? Is this a good thing? This New York Times syndicated article appeared in several newspapers over the holiday. Currently under NZ law you can’t be paid to be a surrogate mother – in some US states however, you can pay a foreigner, and outsource the work of childbearing… on below….

 — Jacqui

Giving birth becomes latest job outsourced to India as commercial surrogacy takes off


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ANAND, India – Every night in Anand, a quiet western Indian city, 15 pregnant women prepare for sleep in the spacious house they share, ascending the stairs in a procession of ballooned bellies, to bedrooms that become a landscape of soft hills.

A team of maids, cooks and doctors looks after the women, whose pregnancies would be unusual anywhere else but are common in this part of India. The young mothers of Anand, a place famous for its milk, are pregnant with the children of infertile couples from around the world.

The small clinic at Kaival Hospital matches infertile couples with local women, cares for the women during pregnancy and delivery, and counsels them afterward. Anand’s surrogate mothers, pioneers in the growing field of outsourced pregnancies, have given birth to roughly 40 babies.

More than 50 women in this city are now pregnant with the children of couples from the United States, Taiwan, Britain and beyond. The women earn more than many would make in 15 years. But the program raises a host of uncomfortable questions that touch on morals and modern science, exploitation and globalization, and that most natural of desires: to have a family.

Dr. Nayna Patel, the woman behind Anand’s baby boom, defends her work as meaningful for everyone involved.

“There is this one woman who desperately needs a baby and cannot have her own child without the help of a surrogate. And at the other end there is this woman who badly wants to help her (own) family,” Patel said. “If this female wants to help the other one … why not allow that? … It’s not for any bad cause. They’re helping one another to have a new life in this world.”

Experts say commercial surrogacy – or what has been called “wombs for rent” – is growing in India. While no reliable numbers track such pregnancies India-wide, doctors work with surrogates in virtually every major city. The women are impregnated in-vitro with the egg and sperm of couples unable to conceive on their own.

Commercial surrogacy has been legal in India since 2002, as it is in many other countries, including the United States. But India is the leader in making it a viable industry rather than a rare fertility treatment. Experts say it could take off for the same reasons outsourcing in other industries has been successful: a wide labour pool working for relatively low rates.

Critics say the couples are exploiting poor women in India – a country with an alarmingly high maternal death rate – by hiring them at a cut-rate cost to undergo the hardship, pain and risks of labour.

“It raises the factor of baby farms in developing countries,” said Dr. John Lantos of the Center for Practical Bioethics in Kansas City, Mo. “It comes down to questions of voluntariness and risk.”

Patel’s surrogates are aware of the risks because they’ve watched others go through them. Many of the mothers know one another, or are even related. Three sisters have all borne strangers’ children, and their sister-in-law is pregnant with a second surrogate baby. Nearly half the babies have been born to foreign couples while the rest have gone to Indians.

Ritu Sodhi, a furniture importer from Los Angeles who was born in India, spent US$200,000 trying to get pregnant through in-vitro fertilization, and was considering spending another $80,000 to hire a surrogate mother in the United States.

“We were so desperate,” she said. “It was emotionally and financially exhausting.”

Then, on the Internet, Sodhi found Patel’s clinic.

After spending about $20,000 – more than many couples because it took the surrogate mother several cycles to conceive – Sodhi and her husband are now back home with their four-month-old baby, Neel. They plan to return to Anand for a second child.

“Even if it cost $1 million, the joy that they had delivered to me is so much more than any money that I have given them,” said Sodhi. “They’re godsends to deliver something so special.”

Patel’s centre is believed to be unique in offering one-stop service. Other clinics may request that the couple bring in their own surrogate, often a family member or friend, and some place classified ads. But in Anand the couple just provides the egg and sperm and the clinic does the rest, drawing from a waiting list of tested and ready surrogates.

Young women are flocking to the clinic to sign up for the list.

Suman Dodia, a pregnant, baby-faced 26-year-old, said she will buy a house with the $4,500 she receives from the British couple whose child she’s carrying. It would have taken her 15 years to earn that on her maid’s monthly salary of $25.

Dodia’s own three children were delivered at home and she said she never visited a doctor during those pregnancies.

“It’s very different with medicine,” Dodia said, resting her hands on her hugely pregnant belly. “I’m being more careful now than I was with my own pregnancy.”

Patel said she carefully chooses which couples to help and which women to hire as surrogates. She only accepts couples with serious fertility issues, like survivors of uterine cancer. The surrogate mothers have to be between 18 and 45, have at least one child of their own, and be in good medical shape.

Like some fertility reality show, a rotating cast of surrogate mothers live together in a home rented by the clinic and overseen by a former surrogate mother. They receive their children and husbands as visitors during the day, when they’re not busy with English or computer classes.

“They feel like my family,” said Rubina Mandul, 32, the surrogate house’s den mother. “The first 10 days are hard, but then they don’t want to go home.”

Mandul, who has two sons of her own, gave birth to a child for an American couple in February. She said she misses the baby, but she stays in touch with the parents over the Internet. A photo of the American couple with the child hangs over the sofa.

“They need a baby more than me,” she said.

The surrogate mothers and the parents sign a contract that promises the couple will cover all medical expenses in addition to the woman’s payment, and the surrogate mother will hand over the baby after birth. The couples fly to Anand for the in-vitro fertilization and again for the birth. Most couples end up paying the clinic less than $10,000 for the entire procedure, including fertilization, the fee to the mother and medical expenses.

Counselling is a major part of the process and Patel tells the women to think of the pregnancy as “someone’s child comes to stay at your place for nine months.”

Kailas Gheewala, 25, said she doesn’t think of the pregnancy as her own.

“The fetus is theirs, so I’m not sad to give it back,” said Gheewala, who plans to save the $6,250 she’s earning for her two daughters’ education. “The child will go to the U.S. and lead a better life and I’ll be happy.”

Patel said none of the surrogate mothers has had especially difficult births or serious medical problems, but risks are inescapable.

“We have to be very careful,” she said. “We overdo all the health investigations. We do not take any chances.”

Health experts expect to see more Indian commercial surrogacy programs in coming years. Dr. Indira Hinduja, a prominent fertility specialist who was behind India’s first test-tube baby two decades ago, receives several surrogacy inquiries a month from couples overseas.

“People are accepting it,” said Hinduja. “Earlier they used to be ashamed but now they are becoming more broadminded.”

But if commercial surrogacy keeps growing, some fear it could change from a medical necessity for infertile women to a convenience for the rich.

“You can picture the wealthy couples of the West deciding that pregnancy is just not worth the trouble anymore and the whole industry will be farmed out,” said Lantos.

Or, Lantos said, competition among clinics could lead to compromised safety measures and “the clinic across the street offers it for 20 per cent less and one in Bangladesh undercuts that and pretty soon conditions get bad.”

The industry is not regulated by the government. Health officials have issued nonbinding ethical guidelines and called for legislation to protect the surrogates and the children.

For now, the surrogate mothers in Anand seem as pleased with the arrangement as the new parents.

“I know this isn’t mine,” said Jagrudi Sharma, 34, pointing to her belly. “But I’m giving happiness to another couple. And it’s great for me.”