End of the Greenspan error

HOW THE MASTER OF THE UNIVERSE STRIPPED HIMSELF At least he was sincere about it and that is the only In saying he was "absolutely" wrong about how markets behave, Alan Greenspan has admitted his own ignorance There was a time when investors and members of Congress hung on Alan Greenspan's every nuanced word. Now and then some may have politely suggested that perhaps he should ease up on interest rates, but they would never have dared to think that his encyclopedic view of the economy was in any way flawed or mistaken. Yesterday Greenspan broke that bubble by admitting that he may have been wrong in an appearance before the House oversight and government reform committee: I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms," Mr. Greenspan said. The mistake was fundamental. "You found that your view of the world, your ideology was not right, it was not working?" said California congressman Henry A Waxman, the committee chairman. "Absolutely, precisely," Greenspan said. "You know, that's precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well." To hear Alan Greenspan admit that his way of seeing the world was "absolutely, precisely" wrong is to mark the end of an era. There was a time when Greenspan conferred his blessing on the proliferation of derivatives. He opposed regulating derivatives because they spread the risk and made cheap credit more widely available. The trouble is that the prices of this cheap credit began to lose any connection to reality as derivatives proliferated. As mortgages - which themselves were based on a real estate bubble - were dismembered and repackaged, the resulting derivatives became detached from the value of the underlying assets. Collateralised Debt Obligations, or CDOs, were given triple-A credit ratings and traded by bankers who never saw the properties or looked at the credit profiles of the borrowers. The risk may have been spread, but the price of the risk was badly underestimated. Two weeks ago, Nell Minow of the Corporate Library proposed the Paul Volcker rule (named after the former Federal Reserve chairman) in an appearance before the same House committee: "If Paul Volcker can't understand it, it shouldn't be on the market." Greenspan admitted that he and some other really smart folks didn't understand the derivatives market they had allowed to flourish, despite the "best insights of mathematicians and finance experts," sophisticated computer modeling and at least one Nobel prize in economics: The whole intellectual edifice, however, collapsed in the summer of last year because the data inputted into the risk management models generally covered only the past two decades, a period of euphoria. We have seen it over and over again in the Age of Greenspan: hedge funds got their name by hedging risks, but derivatives can be used to double down on risk just as easily. New financial instruments were declared to be so diabolically clever that they couldn't possibly fail. Sophisticated equations allowed bankers and hedge fund managers to price risk to within an inch of their lives, or so they thought; they were actually living far beyond any rational capital requirements. When Long-Term Capital Management, which hired some of those Nobel laureates, failed 10 years ago, Greenspan had to orchestrate a rescue using investment bank funds. LTCM was wound up, but its techniques spread quickly through Wall Street. Investment banks, which before the Age of Greenspan made money by managing money for clients, began trading for their own account. Managers were rewarded for taking on ever larger and more exotic risks that bore little resemblance to the underlying economic reality. One doesn't need a Nobel prize to know what brought about the collapse of this intellectual edifice. Humorist Roy Blount summed it up in a talk before an audience in Philadelphia earlier this week: "Money got too abstract, and that's why it went away"

George Bush’s environmental legacy

A STELLAR ONE INDEED WITH the elections over, one might be forgiven for thinking that George Bush has nothing left to do. Any large or controversial measures can be undone when the new administration arrives in January. So what is there left to occupy a president except long walks and a spot of fishing? In fact, there is at least one last big environmental project that Mr Bush wants to complete: creating a vast new marine nature reserve in the Pacific. Last year, Mr Bush established the world’s largest marine protected area—Papahānaumokuākea Marine National Monument, in north-western Hawaii. The monument became the largest single conservation area in American history, home to some 7,000 species, including the monk seal, spinner dolphins and the green sea turtle. It was a big step, but now the question is whether he can pull off the same trick on an even grander scale, by fully protecting two vast areas of the Pacific Ocean from fishing and mineral exploitation. The Bush administration will be remembered for its opposition to the Kyoto protocol, and generally dragging its feet over the whole issue of climate change. Moreover, the Environmental Protection Agency has had a troubled time under his presidency. So now the question is whether Bush can, in a final departing flourish, do something to at least partly counterbalance his dubious green record. And the press reaction to the Hawaiian reserve was so positive that he wants to do the same thing again on a grander scale. At issue are two remote, American-administered regions in the western and central Pacific totalling a vast area more than 750,000 square miles in size. This includes portions of the Northern Mariana Islands (including the 6.8-mile-deep Mariana Trench, the deepest ocean canyon in the world), Rose Atoll in American Samoa and a series of atolls and reefs known as the Line Islands. Unique and extraordinary marine wildlife flourish in these remote regions. Nearby reefs are some of the most diverse and pristine in the world, with an abundance of fish and large predators that have vanished from most other reefs in the world. If only things were as simple as drawing a line on a map: behind the proposal, controversy rages. Greens want nothing less than full protection, so that no extractive or destructive activities will be allowed: no fishing, no drilling for oil or minerals, and certainly no dumping. Papahānaumokuākea is fully protected, they say, and so should this new one be. Full protection for the reserve in the central Pacific, which encompasses an area known as the Line Islands, should present few problems. It is isolated from population centres and mostly uninhabited. But there are arguments now about the extent to which full protection around the Mariana Islands would hurt the local economy by barring fishing and energy exploration. And various interest groups are lobbying behind the scenes to weaken any protection for these islands. Work on the plan will go on right up to the final days of the administration. Indeed, Claudia McMurray, America’s assistant secretary of state for oceans, environment and science, says that although everyone is working hard to get the designation sorted out, some of the final details about management may have to be worked out by the new administration (the details of Papahānaumokuākea took five years to hammer out). But an announcement about the extent of the designation is expected any day soon. And when it arrives it will be an interesting final judgement on the extent to which Mr Bush has been able to shake off his oilman’s legacy of environmental indifference, and acquire, rather surprisingly, a green halo.

CHINA IN AFRICA

As China wades deeper into the continent’s economies, the turbulent pull of African politics grows stronger “Adopt a low profile and never take the lead,” was an axiom of China’s elder statesman, the late Deng Xiaoping. When it comes to foreign policy, China’s leaders still usually stick to it. So it is odd, perhaps, that an African country of less than vital economic and strategic importance to China has brought it out of its shell. China’s decision on July 11th to veto an American-led resolution in the United Nations that called for sanctions against Zimbabwe was an unusual move. By voting the same way as Russia, China still managed to avoid taking the lead. But its normal preference is to abstain from voting rather than veto Western initiatives in the UN. This time it decided to make a stronger point. Chinese officials and the public generally have shown little sympathy for Western concerns about election-rigging in Zimbabwe. On the sidelines of a summit of G8 leaders in Japan this month, President Hu Jintao met South Africa’s Thabo Mbeki and relayed no more than China’s “concern” about the Zimbabwean crisis. China has avoided direct condemnation of Zimbabwe’s leader, Robert Mugabe. (His message of condolence over China’s deadly earthquake in May was politely noted by the state-controlled media.) At a summit of African leaders in Beijing in 2006 and during a week-long state visit to China in 2005, Mr Mugabe was received politely. Chinese diplomats are worried about the precedent that would have been set by the proposed UN resolution: for foreign intervention in a domestic political dispute. (China does not want any such attention focused on its own internal problems, to say nothing of its putatively internal disputes with Taiwan.) It has been similarly unsettled by charges of war crimes brought by the International Criminal Court against Sudan’s President Omar al-Bashir in The Hague this week. Sudan is of considerable strategic importance to China because of its oil production, much of which China buys. But there is no sign that China’s alarm over these developments will lead to greater confrontation between it and the West over Africa. China appears as anxious as ever to convince the West that it is trying, behind the scenes, to persuade Mr al-Bashir to rein in the violence in Darfur (though it will not be helped by allegations just aired by the BBC that, in violation of a UN arms embargo, China has been supplying trucks to Sudan’s military and training its pilots in Darfur). During the build-up to the Olympic games in Beijing next month China has a particularly strong incentive to appear cooperative with the West on Sudan. It does not want another public embarrassment such as it suffered in February when Steven Spielberg, a Hollywood film director, resigned from his advisory role to the games because of China’s (harmful, as he saw it) involvement in Sudan. It was embarrassed by the discovery in South Africa in April of a shipment of Chinese small arms destined for Zimbabwe. Chinese officials said the delivery was subsequently aborted. Amid widespread Western disquiet over its engagement with Africa—especially in its willingness to turn a blind eye to corruption, authoritarianism and other political problems there—China will take some heart from a recent World Bank report that notes an “encouraging trend” in its rapidly growing economic engagement with Africa. China is helping to finance infrastructure projects in more than 35 African countries, says the report, with Zimbabwe and Sudan among the big recipients (Sudan has received about $1.3 billion from China so far). Only 7% of this finance is related to resource extraction, the bank says. The rest is for “broader development”. There will be, as the bank points out, a learning process for borrowers and financiers alike in this emerging relationship. Among issues that need to be grasped, it says, are how to enforce “environmental and social standards” in the projects concerned. China pays at least lip service to such issues, but it is far from fanatical about them. Turbulence in countries like Zimbabwe may well remind China that it is plying choppy waters in Africa. It will not be able to ignore the domestic politics of its friends there forever.

A UNIPOLAR WORLD?

The post-war global institutions have largely worked well. But rising countries and growing threats are challenging their pre-eminence THE powerful, like the victorious, do not just write history. They grab the seats at the top tables, from the United Nations Security Council to the boards of the big international economic and financial institutions. They collude behind closed doors. They decide who can join their cosy clubs and expect the rest of the world to obey the instructions they hand down. That is how many outsiders, not just in the poor world, will see the summit that takes place from July 7th to 9th of the G8, the closest the world has to an informal (ie, self-appointed) steering group. Leaders of seven of the world’s richest democracies, plus oil-and gas-fired Russia, gather this year in Toyako, on Hokkaido in northern Japan, to ruminate on climate change, rising food and energy prices, and the best way to combat global scourges from disease to nuclear proliferation. But in an age when people, money and goods move around as never before, this little group no longer commands the heights of the global economy and the world’s financial system as the core G7 used to do when their small, purposeful gatherings of the democratic world’s consenting capitalists first got going in the 1970s. Nowadays summits produce mostly lengthy communiqués and photo-opportunities. And Russia’s slide from democracy into state-directed capitalism has lowered the club’s political tone. In an effort to show that the G8 is still up with the times, Japan, like Germany last year, has invited along for a brief chat leaders from five “outreach” countries: Brazil, China, India, Mexico and South Africa. Yet this handshake between those who did best out of the 20th century and some potential shapers of the 21st leaves hanging the question of how the old world order should be adapting to the new. Might the world be better managed by such a G13? Or a G15 or G16, to include a couple of weighty Islamic states too? Or, to preserve the group’s original globe-steering purpose, by a G12 of the world’s biggest economies? Meanwhile, the global institutions set up after the second world war are also having to look hard at their own futures. Unlike the G7/8, which takes on a bit of everything, these institutions basically divide into two sorts: economic and financial, and political. At the pinnacle of world political management, but looking increasingly anachronistic, is the UN Security Council. Of its 15 members, ten rotate at the whim of the various UN regional groupings. The other five, which wield vetoes and are permanent, are America, Russia, China, Britain and France, roughly speaking the victors of the last long-ago world war. Alongside them is a secretary-general (currently Ban Ki-Moon from South Korea; this job, too, tends to go by regional turn), a vast bureaucracy at UN headquarters in New York, and hundreds of specialised agencies and offshoots (see table). The world had to be saved not just from another war, but from a repeat of the Great Depression of the 1930s. That job went to a clutch of institutions: the World Bank and the International Monetary Fund (IMF), jointly known as the Bretton Woods institutions after the place of their creation; the Organisation for Economic Co-operation and Development, a rich-country think-tank set up in 1961; the much older central bankers’ Bank for International Settlements; and the World Trade Organisation (WTO, formerly the GATT). They have been buttressed too by conventions, conferences, courts, declarations, dispute-mechanisms, special mandates and treaties governing everything from human rights to anti-dumping complaints. The whole elaborate architecture has had extra underpinning from strong regional organisations, such as the European Union, and less elaborate ones like the African Union and the various talking-shops of Latin America, the Arab world and Asia, as well as from steadying alliances, such as NATO. As a result, there has been no return to the disastrous global conflicts of the first half of the 20th century. Yet that very success has become one of three powerful pressures to adjust the way the world is run, as new economic winners (and some new losers) demand a say. Pressure also stems from intensifying resentment and frustration. After ringing declarations on human rights and even the adoption by a UN world summit in 2005 of a “responsibility to protect” against genocide and crimes against humanity, the UN Security Council still finds itself unable to agree to do much to protect the people of Darfur, Zimbabwe, Myanmar and others from the murderous contempt of their rulers—just as in the 1990s the UN failed the genocide victims in Rwanda. If the Security Council, with a charter of high principles at its back, shows such feebleness towards tyrants (or to those who cavalierly flout nuclear treaties), doesn’t it deserve to be bypassed? John McCain, the Republican candidate for president of the United States, supports the creation of a new League of Democracies which, its boosters argue, would have not only the moral legitimacy but also the will to right the world’s wrongs effectively. The third impetus to rejig the way the world organises itself is a dawning realisation on the part of governments, rich and poor, that the biggest challenges shaping their future—climate change, the flaws and the forces of globalisation, the scramble for resources, state failure, mass terrorism, the spread of weapons of mass destruction—often need global, not just national or regional, solutions. The shift in 21st-century economic power alone is justification for rebalancing influence in the top clubs. Much harder to figure out is which bits of the global architecture need mere tweaking, which need retooling or replacing—and who should have the right to decide. After decades of dividing the world into the rich and powerful West and the developing (or emerging) “rest”, China’s rapid growth and the economic dynamism of East Asia had led to talk of a new “Pacific” century well before the old “Atlantic” one had ended. On present trends, somewhere between 2025 and 2030 three of the world’s four largest economies will be from Asia. China will just pip America to top the global league, with India and Japan, both determined but so far unsuccessful campaigners for permanent seats on the UN Security Council, following on (though Chinese and Indians will still be, on average, much poorer than Americans or Japanese). Not unipolar but what? Yet talk of an Asian century sounds quaint. Despite America’s brief “unipolar moment” as its rival pole, the Soviet Union, collapsed, Russia has recovered to join a rising China, America, Europe and Japan in a new constellation of big powers that is based on far more than the old boot-and-rocket counts of the cold war. Bring India into the snapshot, and you capture 54% of the world’s population and 70% of GDP. Whether the leaders of this multipolar world will rub along or bash elbows remains to be seen. Globalisation’s increasingly unfettered flow of information, technology, capital, goods, services and people has helped spread opportunity and influence far and wide. To re-emergent China and Russia, add not just India but Brazil (these four bracketed by Goldman Sachs in 2001 as the upcoming BRICs), Mexico, South Africa, Saudi Arabia, South Korea and Australia, to name just some of the new winners as money changes pockets and the world turns faster. A modern map of power and influence should also include transformational tools such as the internet; manipulators from lobbying NGOs to terrorist groups; profit-takers such as global corporations and sovereign wealth funds; and unpredictable forces such as global financial flows. The principal characteristic of this world, argues Richard Haass of the Council on Foreign Relations in a recent Foreign Affairs article, is not multipolarity but “nonpolarity”. Dozens of actors, exercising different kinds of power, vastly complicate the effort to find a better balance of influence and responsibility. But the excuse of complexity is no answer to the demand for equity. Some clubs have proved more responsive than others. China got a new economic start simply by ditching Marx, Lenin and Mao. But its reformers were able to tap the liberal rules-based system codified in the rules of the IMF and the World Bank (and later the WTO) for ideas as well as cash. China rejoined the bank in 1980 (the Nationalist government on Taiwan had been a founder member) just as its reforms got under way. Ironically, Communist-run China has since been one of the system’s biggest beneficiaries. But it is by no means the only one. Despite the latest stockmarket dips and credit squeezes, world income per head has increased by more over the past five years than during any other similar period on record. The IMF and the World Bank, pragmatic institutions from the outset, have adapted already, in fits and starts. In April the IMF reformed the peculiar formula by which it allocates votes and financial contributions according to economic size, reserves and other measures (see chart). China’s share of votes will increase to 3.81%, still far short of its weight in the world economy. Meanwhile, old power patterns still determine who holds the two top jobs: the bank is run by an American, the fund by a European. But a bigger problem for both organisations is relevance. Until the late 1990s the IMF, monitor of exchange rates and lender of last resort to struggling governments, had plenty of work. But emerging economies, once its chief clients and source of earnings in repaid interest and loans, are these days often awash with their own cash. Earlier this year the IMF board voted to cut staff and sell off about an eighth of its gold reserves (some 400 tonnes) to meet expected future funding shortfalls. With no obvious role in coping with the aftermath of the recent banking and stockmarket turbulence, its future role may be more as an expert economic adviser. Some worry that the world may still need a lender of last resort. Critics think the fund’s days should be numbered and its reserves put to better use for development. Still others muse that what is needed is a World Investment Organisation, to set basic rules and better track the huge and complex flows of cash that now wash around in hedge funds, sovereign wealth funds, banks and financial markets. The World Bank has a more certain future, but still needs to retool. Competition has stiffened from private capital markets. Many governments that once needed the bank’s help for dams, roads and other big projects are earning plenty from the sale of raw materials. Even in Africa, the readiness of China and India to spend liberally without strings in pursuit of oil and minerals means that the Sudans and the Congos can take the bank’s cash and ignore the conditions attached. Yet the bank still has a role lending to unfashionable causes, or countries which donors neglect. It could also provide global public goods: funding energy-infrastructure and climate-change projects are two examples, agriculture another. A bit too equal While the bank and the fund are steered by their biggest shareholders, the WTO, though relying on a representative caucus of states to hammer out deals, belongs to all its members: India and Brazil, for example, are at the heart of the Doha round of trade talks. But egalitarianism can be a weakness as well as a strength. Much admired, at least by government lawyers, are the 60,000 pages of jurisprudence that govern the workings of the WTO dispute mechanism, which has helped resolve many a trade spat. The WTO ensures that members do not discriminate among each other—the best deal they offer to anyone must be extended to everyone. This has helped level the playing field and expand world trade. Russia’s is the only large economy still outside the WTO, and that is its choice. Yet those wanting to join must strike deals with each of the existing members—now a daunting 152. Operating by consensus means that the Doha “development” round has bogged down in disputes between developed and developing countries over complex, reciprocal cuts in farm subsidies and tariff barriers. The prospects for moving on to services look dim. Slow progress has helped push many to forge bilateral or regional deals instead. And if the Doha round fails completely, the recriminations could run far and wide—threatening any attempt, for example, to get agreement between the developed and developing world on new mechanisms to deal with climate change. Economic and financial power is to some extent up for bids by governments with a stake in the game, and trade rules are (arduously) negotiable. Yet the distribution of political power has proved stubbornly—debilitatingly—resistant to change. Most bitterly contested is membership of the UN Security Council, which has the right (whether exclusively or not is hotly debated) to decide what constitutes a threat to world peace and security, and what to do about it. In the UN’s other big decision-making institution, the General Assembly, all the world can have its say, and does. But here outsiders take their revenge: a caucus of mostly developing countries called the G77 (but these days comprising 130 members including China) tends to dominate and filibuster. Might it assuage resentment and improve the council’s authority and the UN’s effectiveness if America, Britain, France Russia and China invited other permanent members to join them—and considered giving up their veto? When the P5, as they are called, first grabbed the most powerful slots, the UN had 51 members; decades of decolonisation and splintering self-determination later, it has 192. The obstacles to reform grow no smaller either. Most recently a concerted effort by Brazil, Germany, India and Japan (a self-styled G4) to join the council’s permanent movers and shakers was thwarted by a combination of foot-dragging, jealousy and stiff-arming. African countries failed to agree on which of their several aspirants should join the bid. Regional rivals—Argentina and Mexico, Italy, Indonesia, Pakistan and others—lobbied to block the front-runners. China made it clear it would veto Japan; America, in supporting only Japan, helped destroy its friend’s chances. New permanent members would broaden the regional balance. That could add authority and legitimacy to council decisions. Bringing in not only nuclear-armed India, but soft-powered Japan and the rest, would undercut the notion, perpetuated by the P5, that to be a winner you need first to crash the nuclear club. But might the price of a larger, permanently more diverse council be more potential spanner-tossers and thus greater deadlock? The hope would be that once difficult outsiders got their feet permanently under the table, sharing the responsibility for managing the world would stop them protecting bad elements, as South Africa (currently a rotating member) has been doing with Zimbabwe, in part to defy the permanent five. Prising the P5 from their vetoes might, however, have adverse effects. It was dependable veto power, ensuring their vital interests were never overridden, that kept America and Russia talking at the UN—and Nikita Khrushchev shoe-banging—through the darkest episodes of the cold war. Russia will not forget the mistake of the brief Soviet boycott of the council that led to force being authorised to repel North Korea at the start of the Korean war in 1950. China shows no sign of veto self-effacement, either. But staying at the table does not guarantee agreement. The UN is deliberately an organisation of states, and states differ for reasons good and bad. George Bush went to war in Iraq without explicit backing from the Security Council (just as NATO went to war to end ethnic cleansing in Kosovo, despite Russia’s certain veto had the issue come to a council vote). But the council’s divisions on the most contentious issues have not prevented responsible stewardship elsewhere. A Security Council summit in 1992 agreed that the proliferation of weapons of mass destruction was a “threat to peace and security” to be dealt with forcibly if need be. After the attacks of September 11th 2001, new resolutions were passed to curb terrorists’ finance and keep nuclear, chemical and biological weapons out of their hands. There has been a huge increase over the past 15 years in the numbers of blue helmets, with 100,000 soldiers and police currently deployed. This is credited with helping to reduce the number of conflicts between states, as well as calming civil wars from Bosnia to Haiti, from Cambodia to Sudan, from Congo to Lebanon. Acceptance, at least politically, of a “responsibility to protect” takes the council towards territory which, earlier this decade, it would not have approached: an International Criminal Court, for example, separate from the UN but able to take its referrals, and ready to prosecute the worst crimes. Yet divisions among the P5 have often slowed deployment of peacekeepers where they are most needed, such as in Sudan’s war-torn province of Darfur. Pessimists doubt that China and Russia, both arch-defenders of the Westphalian principle that state sovereignty trumps all, will ever seriously contemplate authorising forceful intervention even to end a genocide. A new UN Human Rights Council has yet to prove it is any better than its discredited predecessor at bringing brutal governments to book. Meanwhile it took years, and North Korea’s 2006 bomb test, for China to condemn Kim Jong Il’s nuclear cheating and let the Security Council pass judgment on it. The P5 plus Germany have worked together over the past three years, slapping a series of UN resolutions and sanctions on the regime in Iran for defiance over its suspect nuclear work, yet Russia and China have doggedly watered down each text, line by line. Doing it for themselves There is much the UN Security Council will never be able to do, no matter who occupies its plushest seats. And there are lots of other ways to get useful things done these days. The internet helps campaigners on human rights, as on other issues, to get their message round the world rather effectively. Stung by constant exposure and criticism of its policy in Sudan and Darfur, China appointed a special envoy (who soon found he had a lot of explaining to do) and shifted ground on the need for a UN force, even though deployment is agonisingly slow.

ARE WE IN RECCESION?

A new yardstick for measuring slumps is long overdue THERE has been a nasty outbreak of R-word itis. Newspapers are full of stories about which of the big economies will be first to dip into recession as a result of the credit crunch. The answer depends largely on what you mean by “recession”. Most economists assume that it implies a fall in real GDP. But this has created a lot of confusion: the standard definition of recession needs rethinking. In the second quarter of this year, America’s GDP rose at a surprisingly robust annualised rate of 3.3%, while output in the euro area and Japan fell, and Britain’s was flat. Many economists reckon that both Japan and the euro area could see a second quarter of decline in the three months to September. This, according to a widely used rule of thumb, would put them in recession, a fate which America has so far avoided. But on measures other than GDP, America has been the economic laggard over the past year. The chart looks at several different ways to judge the severity of the economic slowdown since the start of the credit crunch in August 2007. On GDP growth, America has outperformed Europe and Japan. Unemployment, however, tells a very different tale. America’s jobless rate hit 6.1% in August, up from 4.7% a year earlier, and within spitting distance of its peak of 6.3% during the previous recession after the dotcom bust. Other countries have so far published figures only for July, but their jobless rates have barely moved over the past year: Japan’s has risen by only 0.2%, the euro area’s has fallen slightly (though in absolute terms it is still a bit higher than America’s). Another yardstick, GDP per head, takes account of the fact that America’s population is rising rapidly, whereas Japan’s has started to shrink. Since the third quarter of 2007 America’s average income per person has barely increased; Japan’s has enjoyed the biggest gain. To the average person, a large rise in unemployment means a recession. By contrast, the economists’ rule that a recession is defined by two consecutive quarters of falling GDP is silly. If an economy grows by 2% in one quarter and then contracts by 0.5% in each of the next two quarters, it is deemed to be in recession. But if GDP contracts by 2% in one quarter, rises by 0.5% in the next, then falls by 2% in the third, it escapes, even though the economy is obviously weaker. In fact, America’s GDP did not decline for two consecutive quarters during the 2001 recession. However, it is not just the “two-quarter” rule that is flawed; GDP figures themselves can be misleading. The first problem is that they are subject to large revisions. An analysis by Kevin Daly, an economist at Goldman Sachs, finds that since 1999, America’s quarterly GDP growth has on average been revised down by an annualised 0.4 percentage points between the first and final estimates. In contrast, figures in the euro area and Britain have been revised up by an average of 0.5 percentage points. Indeed, there is good reason to believe that America’s recent growth will be revised down. An alternative measure, gross domestic income (GDI), should, in theory, be identical to GDP. Yet real GDI has risen by a mere 0.1% since the third quarter of 2007, well below the 1% gain in GDP. A study by economists at the Federal Reserve found that GDI is often more reliable than GDP in spotting the start of a recession.

The Sources of Growth

I have watched with keen interest the claims by this Government for the relative economic success this country is enjoying over the last decade. Mr Arthur Kennedy must be told that the best performing sectors that are driving the growth is the result of at least two decades reforms. The explosive growth in the Financial sector is the result of the various FINSAP reforms over the years coupled with the coincidence of good reforms in Nigeria. The growth in the service sector especially in the Tourism and Telecom sub sectors are the fruits of about a decade of persistent reforms and innovations which the NPP alone cannot claim for itself. Lets try and do a simple arithmetic of the $16bn nominal GDP being bandied about.Out of this figure , we are told $4bn comes from inwards remittances of underemployed Ghanaian living abroad while the telecom sector alone contributes not less than $3bn to the economy.The financial sector contributes not less than $3bn while the mining sector add about $1.5bn.These figures adds up to $11.5bn. These figures account for the lopsided nature of the growth which is the result of the widening income inequality as noted by the 2007 Human Development Report. the NPP has to be more ambitious and stop this glorification mediocrity.

Bush cheers “free enterprise” as US capitalism goes bust

US President George W. Bush came to Wall Street Thursday to deliver a speech extolling the virtues of the "free enterprise" system even as multiple economic indicators made it clear that the so-called "magic of the market" is spelling misery for millions more working people in the US and around the globe. Bush delivered his paean to American capitalism at Federal Hall, just a stone's throw from the New York Stock Exchange. The historic building was the site of the inauguration of George Washington and the first sessions of the US Congress. The august setting stood in stark contrast to the character of the select audience, which, in the gap between its ideological proclivities and socioeconomic reality, resembled a meeting of the flat earth society. A total of 175 people turned out for the session, organized by the Manhattan Institute, a right-wing think tank that specializes in demonizing the poor while promoting tax cuts, financial deregulation, the dismantling of social programs and the decimation of public education. The lame-duck president timed his speech for the eve of this weekend's G20 summit in Washington, which will bring together heads of state from the world's major economies for the ostensible purpose of working out a common agenda for confronting the global financial meltdown. Behind the banalities and boosterism, Bush's message to those assembling in Washington was clear: Nothing will be accepted that interferes with the unfettered accumulation of wealth by America's financial elite and the defense of their interests, regardless the cost to the world's population. Bush effectively acknowledged at the outset that the gathering of presidents and prime ministers this weekend will accomplish nothing—and that his administration will block any attempt to reach binding agreements. "The undertaking is too large to be accomplished in a single session," he said. "The issues are too complex, the problem is too significant to try to solve, or to come up with reasonable recommendations in just one meeting." Rather, he insisted, the summit should be dedicated to "developing principles," above all, the reaffirmation that "free market principles offer the surest path to lasting prosperity." Given the state of the economy, confronting its most profound crisis since the 1930s, Bush's remarks appeared delusional. He spoke in the wake of official figures showing that more than half a million American workers filed for unemployment benefits the week before, and over 85,000 homes had been foreclosed in October. The Treasury Department announced a record budget deficit of $237.2 billion for the month of October, and just a day before, its secretary, former Goldman Sachs CEO Henry Paulson, was forced to make an emergency announcement that the $700 billion approved by Congress to buy up "toxic" mortgage-backed assets must now be redirected to prop up not only the major banks, but also the failing consumer credit industry. Bush felt compelled to acknowledge that "in the wake of the financial crisis, voices from the left and the right are equating the free enterprise system with greed and exploitation and failure." While admitting some isolated failings, Bush rejected any indictment of the capitalist system. "The crisis was not a failure of the free market system," he proclaimed. "And the answer is not to try to reinvent that system. It is to fix the problems we face, make the reforms we need, and move forward with the free-market principles that have delivered prosperity and hope to people all across the globe." The "fixes" that Bush proposed were so vague as to be meaningless: "improving accounting rules," ensuring that "financial products are properly regulated" and taking a "fresh look at the rules governing market manipulation and fraud." His faith in the "free market," however, remained rock solid: "Like any other system designed by man, capitalism is not perfect [presumably, only the eternal free market created by God in the hereafter can attain such a state]. It can be subject to excesses and abuse. But it is by far the most efficient and just way of structuring an economy. At its most basic level, it offers people the freedom to choose where they work and what they do." He continued: "Free market capitalism is more than an economic theory. It is the engine of social mobility—the highway to the American Dream." "Freedom to choose where they work?" Whom does he think he's kidding? According to official figures, 10 million American workers are now out of work and cannot find jobs. Their ranks have been swollen by 1 million in the last year alone. If one counts those who are underemployed—involuntarily relegated to part-time jobs—and so-called "discouraged" workers, who have been dropped from the jobless rolls, fully one of eight not only can't choose where he or she works, but cannot get full-time work at all. And this is only the beginning, with mass layoffs being announced daily, threatening to create an army of unemployed larger than any seen since the Great Depression. As for free-market capitalism serving as an "engine of social mobility," this movement has increasingly been in opposite directions, with those at the top of the social ladder increasing their share of total wealth to unprecedented levels, while the vast majority, the working people, have seen their incomes stagnate and decline. The gap between wealth and poverty in the US is now greater than at any time since the 1920s. It is this amassing of wealth by those at the top that Bush is determined to defend. As the Washington Post pointed out Friday, among the proposals being put forward by other heads of state attending the Washington summit that "Bush and his aides do not favor" is the call for "restrictions on executive pay." Bush was forced to admit that even his commitment to the free market has limits. "We are faced with the prospect of a global meltdown," he said. "And so we've responded with bold measures. I'm a market-oriented guy, but not when I'm faced with the prospect of a global meltdown." These "bold measures"—backed not only by Bush but also by President-elect Barack Obama—have amounted to the looting of trillions of dollars in social wealth in order to bail out the country's biggest banks and Wall Street finance houses. Hundreds of billions of dollars of this money is flowing directly into bonuses for financial executives and dividends for wealthy shareholders, while facilitating the consolidation of banks and the further concentration of wealth. "Free-market principles" continue to apply in full force, however, to workers who have lost their jobs and to families facing foreclosure on their homes. For them there is no bailout, only the prospect of being forced to pay for the trillions lavished on Wall Street through further attacks on living standards, jobs and social programs. Earlier in his presidency, Bush restricted his public appearances largely to military audiences, bound by command discipline to treat him with respect. Now, in the waning days of his presidency, he apparently feels comfortable only in addressing small groups of right-wing ideologues like those assembled by the Manhattan Institute. For good reason. Outside of this rarified atmosphere, the popularity of capitalism and the "free market" is sinking to that of the outgoing president himself, whose poll numbers have plumbed depths never reached by any previous occupant of the White House. Millions are indeed beginning to identify the "free enterprise system" with "greed and corruption and failure." As the Obama administration takes office and seeks to defend this same system, popular anger over the social conditions created by capitalism must inevitably take the form of mass struggles against his government.

TENSIONS AT G-20 AS EMERGING POWERS BECOME ASSERTIVE

AS LITTLE IS OFFERED The G-20 summit to discuss the world financial turmoil concluded on Saturday after meeting for less than six hours in Washington. All of the leaders acknowledged the need for international cooperation amid the worst crisis since the Great Depression of the 1930s, but the joint communiqué contained little in the way of concrete measures to stabilise financial markets and reverse the rapid slide into global recession. Behind the public façade of goodwill and collaboration aimed at reassuring global markets, sharp tensions between the major powers were barely concealed. French President Nicolas Sarkozy led the push by European countries for "a new international financial architecture" to rein in the excesses of Anglo-Saxon financial deregulation, while US President George Bush insisted any changes should not inhibit "free-market capitalism". China and India pressed for greater representation in global institutions. Lesser economies, such as Australia, Argentina, South Africa and Indonesia, struggled to have their voices heard at all. The G-20 statement congratulated the participants for their "urgent and exceptional measures to support the global economy and stabilise financial markets" and urged that these efforts continue. But for all the talk of international cooperation, the G-20 leaders decided to leave matters largely in the hands of the individual national regulatory bodies that failed so spectacularly to foresee or deal with the current financial turmoil. "At the same time," the communiqué added, "we must lay the foundation for reform to help to ensure that a global crisis, such as this one, does not happen again." To say the least, it is somewhat premature to speak of a future financial crisis when the present one is far from over. Last Friday, the eurozone officially entered recession. Japan's third quarter figures released today showed a second quarter of negative growth. Both the International Monetary Fund and World Bank are forecasting recession for the world's developed economies next year. And fears of recession are already feeding back into the financial markets and contributing to unprecedented volatility on share markets worldwide. As for the future, the statement declares: "Our work will be guided by a shared belief in market principles, open trade and investment regimes, and effectively regulated financial markets foster the dynamism, innovation, and entrepreneurship that are essential for economic growth, employment, and poverty reduction." In other words, at the insistence of the US in particular, the G-20 leaders upheld the same "free market" program that produced the financial turmoil in the first place. The European powers, on the other hand, were keen to include a condemnation of the lack of regulation in the US that triggered the crisis. The joint statement, after blaming the crisis on unsound risk management practices, excessive leverage, complex and opaque financial products, politely refers to regulators "in some advanced countries" that did not "adequately appreciate and address the risks building up in financial markets". And so, in response to this total failure of oversight, no one was held accountable. The joint statement is riddled with contradictions that reflect the competing economic interests of the major powers. The vagueness of its wording prompted former IMF chief economist Simon Johnson to declare: "This is plain vanilla stuff they could have agree on without holding a meeting. What's new, except that this is the G-20 instead of the G-7?" French President Sarkozy suggested that even this formal general agreement was only reached after heated debate. "I am a friend of the United States, but if you ask, was it easy? No, it wasn't easy," he said after the meeting. On each of the limited points of substance, it is clear bitter haggling took place. Fearful that global recession would give rise to trade war, the G-20 included a clause agreeing not to initiate new protectionist measures over the next 12 months and to make efforts to restart the stalled Doha round of trade talks. According to the Washington Post, Sarkozy "was the slowest to commit to a moratorium on protectionist measures and a reaffirmation of free trade". A senior diplomat complained to the newspaper: "Here you had everyone at the table trying to come together, and Sarkozy was out there trying to write the world according to Sarkozy. It was not helpful." The last effort to restart the stalled World Trade Organisation (WTO) Doha round collapsed in June amid sharp disagreements over demands by developing countries, such as India and Brazil, for the reduction of agricultural subsidies by the US and the European Union. France in particular strongly opposes cuts to subsidies. Progress in restarting the trade talks is unlikely despite the fact that the World Bank is predicting global trade will contract next year for the first time since 1982. Already the economic downturn in the US, Europe and Japan is hitting exporting countries like India and China. In the sphere of financial regulation, Britain and France claimed to have made some gains. The British call for major international banks to be overseen by a "college of supervisors" was adopted. French President Sarkozy claimed a victory by getting international oversight on credit rating agencies included. "It is historic to have here in the United States an American administration—where Republicans and Democrats have refused to move on issues such as these—to have agreed to a shift," he said. Senior Bush administration officials, however, downplayed the remarks saying that the agreement did not represent a "pro-regulatory shift". Moreover, in a significant concession to the US, the statement declared that any changes had to ensure that "regulation is efficient, does not stifle innovation, and encourages expanded trade in financial products and services." This is simply a recipe for more of the same, given that "innovation" in financial products and the expanded trade in financial products and services had their origins in attempts to sidestep regulatory regimes. The whole system of "shadow banking" through the establishment of Special Investment Vehicles was undertaken precisely to get around regulations governing capital adequacy ratios. Likewise, there was general agreement at the G-20 summit on the need for further fiscal measures by governments to stimulate economic growth. IMF Managing Director Dominique Strauss-Kahn called for coordinated stimulus spending amounting to at least 2 percent of global gross domestic product. The US, however, opposed any coordinated plan, including the setting of stimulus targets. The joint communiqué simply calls for individual countries to take action, "as appropriate". The inclusion of so-called emerging economies, such as China, India, Brazil, Russia and Saudi Arabia, in the summit was presented as an effort to take account of the shifting world economic realities. As French President Sarkozy declared: "America is the No. 1 power in the world. Is it the only power? No, it isn't. We are in a new world." Chinese President Hu Jintao called for "a new international financial order that is fair, just, inclusive and orderly." Indian Prime Minister Manmohan Singh declared that any new architecture had to be "genuinely multilateral with adequate representation from countries reflecting changes in economic realities." Very limited concessions were made to these appeals. The membership of the Financial Stability Forum—a Swiss-based body of finance ministers and central bankers from selected countries—is to be enlarged. But any changes to the IMF and other institutions established as part of the post-World War II Bretton Woods arrangements have been put off to the "medium term". In part, the involvement of countries such as China and Saudi Arabia was to encourage them to use their large foreign currency reserves to help bolster the IMF funds needed to bail out a growing list of countries. Having committed $100 billion to the IMF, Japanese Prime Minister Taro Aso told the media: "It doesn't have to be Japan alone that would provide such funds. Oil-producing countries, China and other countries that have ample reserves could also make their contributions." However, China and Saudi Arabia are facing their own economic difficulties, as exports are plummetting. China only recently announced a package of more than half a trillion dollars to stimulate its slowing economy. President Hu remained pointedly silent on any Chinese commitment to the IMF. In Saudi Arabia, official unemployment is now 11 percent. Saudi Finance Minister Ibrahim al-Assaf told Reuters: "There were lots of rumours that we were coming here to pay the bill; there is no such thing." As for allowing the emerging economies to have a greater say in global financial institutions, Japanese Prime Minister Aso declared: "I don't think it's something that should be achieved today or tomorrow. It needs to be worked out over time." Japan is particularly concerned about the rise of rival China as an economic power in North East Asia and does not want its present advantage in international bodies undermined. Despite continuing tensions and lack of concrete measures, President Bush declared that it had been a "very productive summit". Japanese Prime Minister Aso also put a brave face on the outcome, declaring: "It does no good to panic in a crisis, and that is proven by the Great Depression of 1929. Today things are entirely different... we have a framework for cooperation." However, the G-20 leaders are in no hurry to reconvene. The next meeting will be in London in the northern spring, by April 30, 2009, to review the implementation of the decisions agreed on in Washington. By that time, the majority of the world economy will have entered recession—possibly the deepest in the post-war period—and, if the last five months are any guide, a new series of financial problems may well have emerged.

A NEW ARCHITECTURE WITHOUT THE MAJORITY

THE LEADERS SHOULD WEAR SACKCLOTH AND ASHES AND GO THERE WITH A HEAVY HEART.........Maynard Keynes before the first Bretton Woods

IT IS tempting to dismiss the upcoming G20 meeting as a piece of political theatre. Presidents and prime ministers from a score of rich and emerging economies will descend on Washington, DC, ostensibly to remake the rules of global finance. Several have talked grandly of a sequel to the 1944 Bretton Woods conference, which created the post-war system of fixed exchange rates and established the International Monetary Fund and World Bank. That is nonsense. The original Bretton Woods lasted three weeks and was preceded by more than two years of technical preparation. Today’s crisis may be the gravest since the Depression, but global finance will not be remade in a five-hour powwow hosted by a lame-duck president after less preparation than many corporate board meetings. Yet for three reasons it is still a meeting worth having.

The first is that this could mark the beginning of a better multilateral economic system. The G20, created after the emerging-market crises a decade ago, is not perfect for today’s problems. It excludes a big economy with an admired system of financial regulation (Spain) but includes a mid-sized country that has become irrelevant to global finance because of its own mismanagement (Argentina). Still, the G20 includes most of the key parts of the rich and emerging world, making it a better forum for global economic co-operation than the G7 group of rich countries, which has until now held the stage.

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Don’t just stand there

In the short term that co-operation, and this weekend’s meeting, should focus on the second good reason for the Washington summit: crisis management. Although the panic in the credit markets shows signs of abating, the economic news gets ever grimmer. Global demand is slumping as rich economies plunge into what, collectively, could be their deepest recession since the 1930s. Pernicious deflation, though still unlikely, is no longer an idle risk. Emerging economies are being hit hard by weakening exports and the collapse of private capital flows. The G20 summiteers cannot prevent this, but they can stave off a slump with zealous and co-ordinated action to prop up domestic demand and provide resources to cash-strapped emerging economies.

Some countries understand the urgency. China’s stimulus plan, even if it is a little less dramatic than first trumpeted, is an important step . Others, such as Germany, are being woefully timid. A collective commitment by those who can afford it will pack more punch than individual initiatives. Useful too, would be a pledge to cushion the slump in private capital flows to emerging economies, through both central-bank swap lines and the IMF. Countries with ample reserves, particularly China, Japan and the oil exporters, should promise now, and without preconditions, that they will lend to the IMF if it needs cash in the coming months. The G20 should also pledge its unequivocal support for free trade—a pledge that would gain credence if the leaders made a commitment to complete the Doha round of trade talks.

But what of the larger ambitions of “fixing” global finance? Here the temptation for hollow promises is greatest of all. The summiteers can make progress, but only if they temper their hyperbole with realism and humility.

International finance cannot just be “fixed”, because the system is a tug-of-war between the global capital markets and national sovereignty. As cross-border financial flows have expanded and big financial institutions have far outgrown their domestic markets, finance has become one of the most globalised parts of the world economy. At the same time, finance is inherently unstable, so the state has to play a big role in making it safer by lending in a crisis in return for regulation and oversight. Governments broadly welcome the benefits of global finance, yet they are not prepared to set up either a global financial regulator, which would interfere deep inside their markets, or a global lender of last resort. Instead, regulated financial firms are overseen by disparate national supervisors (in America they are sometimes state-based). The IMF helps cash-strapped countries, but the fund was conceived in an era when capital flows were restrained. It is puny relative to the size of global markets today.

This tug-of-war helped create today’s mess. Disparate rules led to loopholes and “regulatory arbitrage”. Many emerging economies sought to protect themselves against sudden outflows of foreign capital by building up vast foreign-exchange reserves. That fuelled the global credit bubble. Given today’s crisis, the incentives to amass reserves have only grown.

The contradictory desires for national sovereignty and global capital markets limit the room for an overhaul. For all the grand rhetoric, no politician is proposing to cede sovereignty to a global regulator, let alone create a true global lender of last resort. Nor is anyone proposing a wholesale effort to curb capital flows (which is just as well). With no great design on the drawing board, it is better to concentrate on the more modest goal of improving the current muddled contraption through a series of politically feasible enhancements that together could amount to a third justification for this meeting.

Refit the existing engine

One example is Gordon Brown’s idea of a “college of supervisors” to oversee the biggest financial firms. Another is a global set of norms on what should be regulated and how: from hedge funds to leverage limits, national regulators would do a better job if they acted in concert. By all means start to look at schemes to revamp the IMF by scaling back Europe’s presence and enhancing emerging economies’ clout. But it would be a mistake to rely only on the IMF. The Fed’s new swap lines with other central banks are an important reassurance for countries that face a liquidity squeeze; those swap lines deserve to be systematised and broadened.

Modest as they sound, such repairs will be difficult and time-consuming. This summit should get them off to a start. It won’t earn anyone a place in the history books alongside John Maynard Keynes and Harry Dexter White. But it would be a lot more useful than more gusts of grandiose rhetoric.

ANOTHER BRETTON WOODS

..... More winners this time?

AFRICA WILL NOT BE THERE BUT WE WILL BEAR THE BRUNT

This weekend President Bush will host an economic summit of the G-20 nations. This summit has been compared to the conference at Bretton Woods, NH that convened in 1944 to rebuild the global financial system after WWII. Unfortunately, the most important reform to come out of that conference so long ago does not appear to be on the agenda of this latest version.

The original Bretton Woods conference was convened primarily to structure the monetary system that would prevail after the war. The desire for a stable monetary system grew out of the experience of the 1930s competitive devaluations and high trade tariffs. Many at the time rightly came to associate these devaluations and high tariffs with war. Freer trade and a stable monetary system were associated with peace.

The result of the first Bretton Woods conference was a system that pegged the US dollar to gold with the other major currencies pegged to the dollar. This system, while having many flaws, was a source of economic stability for 26 years. Other periods of fixed exchange rates (primarily fixed to gold) also produced more stable economic systems than floating rate regimes. This stability can be observed in the low volatility of commodity prices during the fixed periods. During the period of the pure gold standard from 1880-1913 (when the Federal Reserve was established) the standard deviation of commodity prices was roughly 4.5. During the free float period from 1914-1926 the standard deviation at least doubled (there are differences depending on which commodity index is used). During the Bretton Woods era from 1945 to 1971 commodity price volatility was reduced again to a standard deviation of about 8. Since 1971 volatility has again risen to about 15.

If the goal is more stability in the economic system, this new conference must begin to address the exchange rate system. Reducing the volatility of exchange rates and therefore commodity prices is essential to reducing the risk associated with international trade. Billions of dollars have been lost over the last few months alone by companies attempting, unsuccessfully, to hedge exchange rate and commodity price risk. UAL reported a $544 million loss from fuel hedges gone wrong. Citic Pacific Ltd. Lost $1.9 billion from hedging activities related to the Australian dollar. Northwest Airlines took a $410 million write down from losses on fuel hedges. Verasun lost $100 million from hedging the price of corn and ultimately filed bankruptcy. Sadia, Brazil’s second largest food company posted a $410 million loss from currency hedging activities and had their credit rating downgraded. While some of these losses were due to actions outside company hedging policies, they wouldn’t have happened if the need to hedge were eliminated or reduced.

Expectations for the conference are being downplayed and the goals minimized with the strengthening of the IMF seemingly the only concrete expectation. Most of the participant countries seem more interested in regulatory reform and that is certainly necessary and desirable. Even during the stable periods previously mentioned, there were banking crises here in the US. Even in a stable monetary environment, fractional reserve banking has the potential to destabilize. Based on recent experience with leverage, one would think that increasing bank capital requirements is one item that could be agreed upon. Other ideas, such as closer supervision of hedge funds and credit rating agencies, may not be necessary if monetary reform and banking reform are properly addressed.

The global imbalances much discussed over the last few years are exactly what the IMF was designed to address. When the IMF was founded along with the World Bank, the first Bretton Woods conference placed them in the context of a stable monetary system. Reforming the IMF without reforming the monetary system will not yield a more stable system. We would have to depend on the IMF not only to anticipate problems but also to act on them in a politically charged environment. The performance of the IMF since the fall of the first Bretton Woods agreement suggests that is too much to ask.

Monetary reform will not be easy. China and most of the emerging Asian economies will fight hard to maintain a currency advantage that they see as vital to the growth of exports that have fueled their past growth. The US will be reluctant to agree to a system that weakens the role of the dollar as the world’s reserve currency. The Europeans will press for a greater role for the Euro in international trade. These three currency blocs will all have their own agendas but the current global economic slowdown may be the perfect opportunity to address the issue of monetary reform. Global economic cooperation is no longer optional; this crisis has affected every region of the world.

Over the last 60 years we have witnessed a movement toward freer trade, freer markets and freer movement of capital that has raised living standards around the world. That movement accelerated over the last 30 years and the reduction in world wide poverty during that period is nothing short of astounding. It is critical that we construct a global monetary system that provides a stable structure within which we can extend this record and realize the full benefits of the free market.

The Unrepentant capitalist

....Still preaching their free-market vice On Thursday 13 Nov outgoing US president addressed the Manhattan Institute ,a Free marketeer think tank during which he stubbornly defended the 'virtues' of unfettered capitalism. bereft of humility and realism the worst president in the US history went ahead to proselytize to the rest of the world how we should all converge and worship avidly at the alter of capitalism. Mr. Bush is convinced that it is the only hope for mankind if were are to make material and welfare progress. Admittedly he proposed a better supervisory regime to safeguard the system , even though that comes with caveat; no regulation must alter the system. This is a time for new thinking on the future of economic policy and shed the old ways that have domintaed the world for the last 30 decades and occassionally ends in tears and destroys lives. sure capitalism has its many virtues and dont let think its alien to any sovciety but western ones. All societties have engaged in capitalist systems that have worked to thier benefit ver millenia, hoewevr the extreme form we are experiencing will ultimately lead to our collective destruction as we have found. The excesses of capitalism is too potent , its drowns out reason and moderation and usually ends us in misery The other side of the debate that espouses moderated capitalism should not allow the extremists to continue preaching their vice but take the stage and make the arguments that will definitely prevail because of its reasonableness. The likes of Bush and his cronies should not be allowed to get tell us this failure is only a hic-up and that we should prepare to resume business as usual. the status quo must change

CLARITY AND SIMPLICITY WINS THE DAY FOR NDOUM

>>>> IN A COMPETITIVE DEBATE Many people around the world world see Ghana as a ripe democracy despite its many flaws and shortcomings. this was shown when a debate was organized by the Institute of Economic Affairs for four of the 8 presidential candidates who have filed to contest the upcoming elections Even though most commentators have dismissed it as something less than a "Debate" The stage was all set for the four presidential candidates to do verbal battle. A lot was expected from them , particularly , the assumed front runners Akuffo Addo and Atta Mills. However the debate was set up in a way that some had everything to lose and others have everything to gain. Paa Kwesi Ndoum was in a special position

WHY THE CENTRAL BANK WILL NOT LOWER INETEREST RATE

Even in the face of Impending Crisis I can bet my last Ghana Pesewa on it that the outcome of the ongoing Monetary policy will not lead to the lowering of of the Prime rate.

WHY NOT LET THEM FAIL

THE MORAL OF THE MIGHTY BAIL-OUT

As we goggle at the fluttering financial figures, a different set of numbers passes us by. On Friday, Pavan Sukhdev, the Deutsche Bank economist leading a European study on ecosystems, reported that we are losing natural capital worth between $2 trillion and $5 trillion every year, as a result of deforestation alone(1). The losses incurred so far by the financial sector amount to between $1 trillion and $1.5 trillion. Sukhdev arrived at his figure by estimating the value of the services - such as locking up carbon and providing freshwater - that forests perform, and calculating the cost of either replacing them or living without them. The credit crunch is petty when compared to the nature crunch.

The two crises have the same cause. In both cases, those who exploit the resource have demanded impossible rates of return and invoked debts that can never be repaid. In both cases we denied the likely consequences. I used to believe that collective denial was peculiar to climate change. Now I know that it’s the first response to every impending dislocation.

Gordon Brown, for example, was as much in denial about financial realities as any toxic debt trader. In June last year, during his Mansion House speech, he boasted that 40 per cent of the world’s foreign equities are now traded here. “I congratulate you Lord Mayor and the City of London on these remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London.”(2) The financial sector’s success had come about, he said, partly because the government had taken “a risk-based regulatory approach”. In the same hall three years before, he pledged that “in budget after budget I want us to do even more to encourage the risk takers”(3). Can anyone, surveying this mess, now doubt the value of the precautionary principle?

Ecology and economy are both derived from the Greek word oikos - a house or dwelling. Our survival depends upon the rational management of this home: the space in which life can be sustained. The rules are the same in both cases. If you extract resources at a rate beyond the level of replenishment, your stock will collapse. That’s another noun which reminds us of the connection. The OED gives 69 definitions of stock. When it means a fund or store, the word evokes the trunk - or stock - of a tree, “from which the gains are an outgrowth”(4). Collapse occurs when you prune the tree so heavily that it dies. Ecology is the stock from which all wealth grows.

The two crises feed each other. As a result of Iceland’s financial collapse, it is now contemplating joining the European Union, which means surrendering its fishing grounds to the Common Fisheries Policy. Already the prime minister Geir Haarde has suggested that his countrymen concentrate on exploiting the ocean(5). The economic disaster will cause an ecological disaster.

Normally it’s the other way around. In his book Collapse, Jared Diamond shows how ecological crisis is often the prelude to social catatrosphe(6). The obvious example is Easter Island, where society disintegrated soon after the population reached its highest historical numbers, the last trees were cut down and the construction of stone monuments peaked. The island chiefs had competed to erect ever bigger statues. These required wood and rope (made from bark) for transport and extra food for the labourers. As the trees and soils on which the islanders depended disappeared, the population crashed and the survivors turned to cannibalism. (Let’s hope Iceland doesn’t go the same way.) Diamond wonders what the Easter islander who cut down the last palm tree might have thought. “Like modern loggers, did he shout ‘Jobs, not trees!’? Or: ‘Technology will solve our problems, never fear, we’ll find a substitute for wood.’? Or: ‘We don’t have proof that there aren’t palms somewhere else on Easter … your proposed ban on logging is premature and driven by fear-mongering’?”(7).

Ecological collapse, Diamond shows, is as likely to be the result of economic success as of economic failure. The Maya of Central America, for example, were among the most advanced and successful people of their time. But a combination of population growth, extravagant construction projects and poor land management wiped out between 90 and 99% of the population. The Mayan collapse was accelerated by “the competition among kings and nobles that led to a chronic emphasis on war and erecting monuments rather than on solving underlying problems”(8). Does any of this sound familiar?

Again, the largest monuments were erected just before the ecosystem crashed. Again, this extravagance was partly responsible for the collapse: trees were used for making plaster with which to decorate their temples. The plaster became thicker and thicker as the kings sought to outdo each other’s conspicuous consumption.

Here are some of the reasons why people fail to prevent ecological collapse. Their resources appear at first to be inexhaustible; a long-term trend of depletion is concealed by short-term fluctuations; small numbers of powerful people advance their interests by damaging those of everyone else; short-term profits trump long-term survival. The same, in all cases, can be said of the collapse of financial systems. Is this how human beings are destined to behave? If we cannot act until stocks - of either kind - start sliding towards oblivion, we’re knackered.

But one of the benefits of modernity is our ability to spot trends and predict results. If fish in a depleted ecosystem grow by 5% a year and the catch expands by 10% a year, the fishery will collapse. If the global economy keeps growing at 3% a year (or 1700% a century) it too will hit the wall.

I’m not going to suggest, as some scoundrel who shares a name with me did on these pages last year(9), that we should welcome a recession. But the financial crisis provides us with an opportunity to rethink this trajectory; an opportunity which is not available during periods of economic success. Governments restructuring their economies should read Herman Daly’s book Steady-State Economics(10).

As usual I haven’t left enough space to discuss this, so the details will have to wait for another column. Or you can read the summary published by the Sustainable Development Commission(11). But what Daly suggests is that nations which are already rich should replace growth (”more of the same stuff”) with development (”the same amount of better stuff”). A steady state economy has a constant stock of capital maintained by a rate of throughput no higher than the ecosystem can absorb. The use of resources is capped and the right to exploit them is auctioned. Poverty is addressed through the redistribution of wealth. The banks can lend only as much money as they possess.

Alternatively, we can persist in the magical thinking whose results have just come crashing home. The financial crisis shows what happens when we try to make the facts fit our desires. Now we must learn to live in the real world.

ECONOMICS DEDATE DROWNED OUT

In the current era of global financial crisis , its amazing how petty politicking has overshadowed the crucial concerns of ordinary people in the electioneering campaign. Instead of the the "clean and issue based" campaign we were promised what we have is the traditional mudslinging and dirty politicking by the 2 major parties. fanned by the media the whole nation is engrossed in the lowest common denominator game of who is doing most of the insulting and whose insult is worst.

Technology and the credit cruch

Will the credit crunch and the impending Recession affect Technology Innovation? Here in Ghana we have benefited in a limited degree from the gilded age in terms of technology We have seen enormous expenditure on research and development over the last decade after the Correction of the Dot Com Bubble that yielded some exciting and pretty useful technologies. Computing power has increased and more can now be done thanks to the availability of easy,cheap tech With the expected downturn in the economy most corporations will cut their R&D budgets

THE GULF IS WIDENING

Inequality in the Ghanaian Economy is Getting Worse ...... and it Poses a lot of danger The 2008 edition of the Human Development Report gave some interesting illuminations on the direction Ghana is heading in its socio-economic development. One of the most critical concerns thrown up by the Index was the level of income inequality that characteristic the Ghanaian Economy. The non-redistributive growth we have had over the last 8 years have continued and even worsen. The HDI only confirms in scintific terms what we experince and notice arround us everyday in the streets and in the sqaulid villages and impoverished communities around the country.

THE COALITION OF WINNERS

The Great and the Good of the Current Ghanaian Society Tightly Sympathetic to The elitist Sections of the Country In tune with the general trend of our society, a new culture of elitist patronage by the people in power. This presidency and their Strategist have done very well in drawing some very key people in society into its fold. When the president announced the nominees for National Awards this year, one could not help but notice the conscious efforts of the Government to reward and also tap into the popularity some particular individuals.This Government realizes how important it is to appeal to the masses through the patronage of the people the masses adore. They are acute aware of how quickly governments becomes popular through their actions or inaction. So they cultivate the popular figures in society who have a dedicated fan base and influence. The national awards nominees was virtually a roster of who is popular in Ghana. it did not in practice have anything to do with achievement or excellence.

GHANA BREAKS RANKS WITH ECOWAS OVER EPA

... Further Sign of the Excessive Western Orientations of Kuffour's administration

THE LOOMING DANGER

.... Without a Dramatic Change , this years elections will definitely be violent The whole country has decided to engage ourselves in self-delusion ,extolling our infinite virtues and non-violent nature. But we are definitely wrong as we have demonstrated our vile side time and again.Most of our leaders have simply closed their eyes to the glaring truth about what is about to hit us and instead engaged themselves in further self disillusionment.The signs are all clear that there is a massive potential for this terms election to be violent and riddled with problems. this elections will surely test the deepness and richness of our young democracy. The signs are so clear as events in the electioneering campaign unfolds. There have been violence all over the country associated with the elections. There is so much at stake in this elections and the direction of governance over the last few years makes most politicians think its a zero-sum game:winners take everything and losers take nothing.

WHAT GHANA MUST LEARN FROM AMERICA ON CAPITALISM

... UNFETTERED FREE MARKET IS SUICIDAL Within a matter of i week the Republican(they are puritan capitalists) Governed US has dramatically moved against the tenets of their ideology and saved the American financial system by acquiring majority shares in Major banks that were in danger of failing. But here in Ghana the government does not protect business in trouble nor does it protect the economic interest of Ghanaian s o the pretext of " business is not the business of government" They even go further to divest well performing national assets to foreigners.

WE WILL REVERSE SALE OF GT

CPP Declares As the current controversy surrounding the sale of Ghana Telecom becomes more confusing and complicated by the day, the CPP has told Vodafone that it risks losing its investment if they go ahead to sign this stinking deal. Citing precedents from Nigeria and pointing out the obvious anomalies in the contract, the CPP made it clear that if it won power it will not condone with the disposal of such a vital national asset in such a manner.

KUFFOUR SHOWS 'MERCY'

... Vague and Tentative Package to mitigate hardships The president announced a package yesterday to ameliorate the hardships being suffered by most Ghanaians as a result of increases in the prices of fuels and food grains. Giving a background to the crisis , the president indicated that the import bill for petroleum products has increased from $550m to $2.1bn between 2002-2007.He also pointed to the record price of crude oil on futures market coated at $135 per barrel. To back up his claims he further cited the food riots in other parts of the world especially in Africa. In order to make lives better for suffering Ghanaians the Government has announced some measures These include The removal of two forms of taxes on pre-mix fuels and marine gas oil. Reduction in the excise taxes on desiel Total suspension of tariffs on imported grains Subsidization of fertilisers.

POLICE FORCE DEEPLY INVOLVED IN DRUGS

... $6m worth of cocaine missing from police exhibit room. The Government has reacted angrily to an attempt by the police service to cover up its culpability in the case of the missing cocaine from the exhibit room at the police headquarters. The Government had set up a committee headed by the CPP MP ,Hon Kojo Armah to look into the case.The Armah committee submitted a report that described in sordid details ,the incompetence and deep corruption in the police service even at the Headquarters . The Committee had been formed to look into the case of the disappearance of $6m worth of cocaine from the exhibit vault at the Police Headquarters in Accra .The committee's report revealed some very disturbing incompetence and sleaze especially in the war on drugs .There were even allegations of the police complicity and corroboration in the drug plague . In a posture characteristic of this Government ,there has a disturbing lack of decisive action or any strong show of leadership in this matter as it is with other issues.The head of the police service under whose very nose this abberation happened is still at post while none of the officers in charge of the case has had any action taken against them. This indeed is very worrying given the threats to our democracy and security staring us in the face if this country becomes a drug hub in the region.According to the UN agency leading the fight against drug trafficking and its related crimes ,Ghana has become the major transit point for cocaine and heroine smuggling between South America ,South Asia as countries of origin and Europe and America as destinations. The sordid happenings in high places in relation to the drug scandal probably shows that the criminals have succeeded in infiltrating ,co-opting and corrupting our security services and other Government officials. In a weak state like Ghana it will definitely lead to collapse of the state leading lawlessness and conflict .

NDC AND NPP ENGAGED IN POLITICAL PINPONG WITH DEEP ISSUES

In quintesential partisan poltical fashion ,the NPP and NDC have duly resumed their unproductive shouting match.The NPP organised a press conference on 17th may to react to the issues that were raised at the launch of the NDC campaign a week before . The NPP's major issue was to debunk the points raised by the NDC particularly the Government's handling of the drug menace and whether it is relevant to make the comparison of records the basis of electioneering campaign.The main speaker at the NPP press conference ,Mr. Mac Manu angrily attacked the NDC for daring to challenge the NPP'S record on drugs . He defended the NPP'S track record on drugs saying that they have arrested many drug couriers and barons . The evidence however points to different facts.Ghana is currently ranked as the prime transit point for drugs heading towards Europe and America .

This is very typical of how politics is conducted in this country.Instead of engaging in intellectual debate that will lead to solutions for pressing issues, the political class prefers to engage pointless propaganda war that ultimately drowns out the real issue .

POLICE FORCE DEEPLY INVOLVED IN DRUGS

... $6m worth of cocaine missing from police exhibit room.

The Government has reacted angrily to an attempt by the police service to cover up its culpability in the case of the missing cocaine from the exhibit room at the police headquarters.

The Government had set up a committee headed by the CPP MP ,Hon Kojo Armah to look into the case.The Armah committee submitted a report that described in sordid details ,the incompetence and deep corruption in the police service even at the Headquarters .

The Committee had been formed to look into the case of the disappearance of $6m worth of cocaine from the exhibit vault at the Police Headquarters in Accra .The committee's report revealed some very disturbing incompetence and sleaze especially in the war on drugs .There were even allegations of the police complicity and corroboration in the drug plague .

In a posture characteristic of this Government ,there has a disturbing lack of decisive action or any strong show of leadership in this matter as it is with other issues.The head of the police service under whose very nose this abberation happened is still at post while none of the officers in charge of the case has had any action taken against them.

This indeed is very worrying given the threats to our democracy and security staring us in the face if this country becomes a drug hub in the region.According to the UN agency leading the fight against drug trafficking and its related crimes ,Ghana has become the major transit point for cocaine and heroine smuggling between South America ,South Asia as countries of origin and Europe and America as destinations.

The sordid happenings in high places in relation to the drug scandal probably shows that the criminals have succeeded in infiltrating ,co-opting and corrupting our security services and other Government officials.

In a weak state like Ghana it will definitely lead to collapse of the state leading lawlessness and conflict .

NDC LAUNCHES IT CAMPAIGN

NDC LAUNCHES IT CAMPAIGN

...With Huge and colourful media blitz.

IT is probably the biggest media event in the country since the beginning of year.In a strong show of crowd power preparedness for the upcoming General Elections ,the NDC launched its campaign and outdoored their Running Mate.Significantly ,the event witnessed some very positive developments in the party - the return of some dormant and departed former members back into the fold.Also the absence of Former President Rawlings was a further confirmation of the gradually decoupling of the 'big man' from the core of the party.

The infectious John Mahama was the center of attention throughout the day and his speech gave away a little of what he will offer the politics of this country in the years to come.

His statement that Ghanaians should not be tricked into engaging in a futile exercise of trying to compare the mediocre achievements of the two biggest parties but rather chose the party that will take us to our dreamland.

The event undoubtedly re-energised the NDC faithful into a strong resolve to work hard more than ever to haul themselves back into Government .

This media event was the latest of the new campaign climate dominated by slick media savvy party workers that is sweeping the country .This year's elections will mark a watershed in the political culture in this country .

My fear is that we will have an equally competent and independent media to help the ordinary Ghanaian sift real facts from propaganda .It is very easy for a young and under-resourced media industry like ours to fall into the hands of powerful political interests.

...With Huge and colourful media blitz.

IT is probably the biggest media event in the country since the beginning of year.In a strong show of crowd power preparedness for the upcoming General Elections ,the NDC launched its campaign and outdoored their Running Mate.Significantly ,the event witnessed some very positive developments in the party - the return of some dormant and departed former members back into the fold.Also the absence of Former President Rawlings was a further confirmation of the gradually decoupling of the 'big man' from the core of the party.

The infectious John Mahama was the center of attention throughout the day and his speech gave away a little of what he will offer the politics of this country in the years to come.

His statement that Ghanaians should not be tricked into engaging in a futile exercise of trying to compare the mediocre achievements of the two biggest parties but rather chose the party that will take us to our dreamland.

The event undoubtedly re-energised the NDC faithful into a strong resolve to work hard more than ever to haul themselves back into Government .

This media event was the latest of the new campaign climate dominated by slick media savvy party workers that is sweeping the country .This year's elections will mark a watershed in the political culture in this country .

My fear is that we will have an equally competent and independent media to help the ordinary Ghanaian sift real facts from propaganda .It is very easy for a young and under-resourced media industry like ours to fall into the hands of powerful political interests.

POLITICAL HOLOCAUST HITS NPP

APRIL 17 2008,

As Alan Cash Resigns From Party.

This past few weeks has given meaning to the phrase " political season "as major political events unfolds.From a week dominated by huge controversy surrounding the nomination of a running mate to partner the NDC Flagbearer Prof.Atta Mills; to another week that saw a political bombshell of Holocaust proportions.

On Thursday 17 April, without any warning or foreboding Alan Kyeremanten ,the failed NPP Flagbearer contestant reportedly tendered in his resignation from the NPP party to the Headquarters of the Party.

His aides cited intimidation and victimization of his supporters as the main reason for his sudden departure from the party he was trying to lead only a couple of months ago.The Alan camp alleges that,they have been at the wrong end of many decisions and actions of the victors-the Akkufo-Addo cabal.

The news of Alan's departure from the came at a time when the Akkufo -Addo was beginning to realise how difficult the task of winning the presidency will be.

The bombshell came just 48 hours his arch opponent ;the NDC Flagbearer Prof. Atta-Mills chose John Mahama ,the NDC MP for Bole Bamboi in the Upper -East Region of Ghana as his running mate.That formidable choice in itself threw a rough challenge to the NPP camp and would have taken NPP strategists and campaign gurus a lot of time and intellectual effort to come round it. This will certainly distract some of

CORUPTION SCANDAL!!

Dr.Amoako Tuffour Axed....Thanks to Kwesi Pratt's Vigilance

The Committee for Joint Action CJA has notched another laurel in addition to its long list of political activism.Their Vigilance and incessant pressure to seek righteousness has forced the NPP Government to lower the axe on the Head of Dr.Amoako Tuffour ,who until then was the man in charge of the School Feeding Program.