The IHT reports that Cambodia is struggling to balance the historical legacy of the Khmer Rouge and the country's new ambitions as it moves into the future. The entire transformation of the nation is perhaps almost totally encapsulated in the government's upcoming decisions regarding the massive oil deposits Chevron found off its southern coast.
On one hand, off-shore deposits, while initially more expensive to develop, are a godsend for international markets that don't want to be influenced by domestic unrest and governments that don't have complete control over their people. Only 28 years after the Khmer Rouge was ousted, Cambodia is desperately trying to avoid the example set by Nigeria and Chad. Despite massive oil revenues, the average people of Nigeria and Chad have actually gotten worse off due to corruption and economic dislocation.
Unfortunately for the people of Cambodia, the only solution that has ever succeeded in the presence of an oil bonanza - strong, yet market-sensitive government institutions - is woefully absent. Standard oil industry practice is to make "signature payments" to countries at the time oil contracts are signed, but Cambodia's government won't disclose how much money it received or what happened to the revenue. The money machine is just getting started, and the government is already mismanaging things.
Cambodia has a history of failing to exploit its natural resources. Already much of Cambodia's natural bounty of gems and timber has disappeared without substantial benefit to the people. And even the monies generated by tourism at the national treasure of Angkor Wat go into private hands.
Cambodia's record doesn't inspire much hope of lifting the oil curse, but in a country where 35 percent of the population lives on less than 50 cents a day the situation ever more bleak.
Showing posts with label Poverty. Show all posts
Showing posts with label Poverty. Show all posts
Tuesday, June 19, 2007
Monday, June 4, 2007
Trade Liberalization and NAFTA
Following the crisis of 1982, the Mexican economy received praise for having “adjusted well”, but failed to achieve any significant momentum due to renewed struggles in 1985-86. Mexico’s response has been to implement a policy of labor “flexibilizacion”, or weakening collective labor bargaining, and widespread trade liberalization to take advantage of newly awakened international competitiveness. Since the 1994 implementation of NAFTA or the North American Free Trade Agreement, Mexico has signed twelve free trade agreements with such diverse nations as Japan, Israel, and Chile.
NAFTA is by far the most important trade agreement Mexico has signed both in the magnitude of reciprocal trade with its partners as well as in its scope. Unlike the rest of the free trade agreements that Mexico has signed, NAFTA is more comprehensive in its scope and was complemented by the North American Agreement for Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC). Given the overall size of trade between Mexico and the United States, there are remarkably few trade disputes, and even those few involve relatively small dollar amounts. These disputes are generally settled in World Trade Organization (WTO) or NAFTA panels or through negotiations between the two countries.
While the trade agreement has not synchronized employment or productivity across North America, it has resulted in an enormous interdependence between Mexico and the United States. Even as the United States has been shifting much of its dependence for imports to other nations such as China, Mexico remains firmly dependent on the state of the United States’ economy. Exports now represent 30 percent of Mexico’s GDP, up from 10 percent 20 years ago. The great majority of Mexico’s exports are manufactured goods, and almost 90 percent of them are shipped to the United States.
While Mexico has undoubtedly benefited from trade liberalization, a history of bilateral trade agreements which Mexico has historically been able to join that other nations have been unable to access has resulted in a preferential place in world trade. Unfortunately for Mexico, the entrance of many nations such as China into the WTO and the United States’ aggressive moves to increase free trade worldwide is already working to erode that preferential trade status. While the economic case for free trade suggests that Mexico will ultimately benefit from reduced trade restrictions with other nations, Mexico is already beginning to suffer the early price of dislocation of many of its people. In particular, Mexico’s maquiladora industries face competition from China and Mexico’s rural poor face stiff competition from American agri-business.
One disturbing impact of increased integration into the global economy has been Mexico’s increasing wage inequality. The new economic reality of globalization has resulted in a substantial increase in the wage premium for skilled labor, which when coupled with an unequal distribution of skills has created higher inequality in the distribution of labor incomes that is closely associated to disparities in schooling.
As each of the Asian tigers achieves greater market penetration in the United States, Mexico’s export-dependent growth becomes more threatened. In particular, as tariffs against textiles from China expire, Mexico can expect to suffer financially. Yet Mexico’s real problem with trade liberalization is that it exposes an uncomfortable truth – that Mexico is no longer a relatively “poor” nation, but its institutions and human capital nonetheless remain unable to compete with “wealthy” nations.
NAFTA is by far the most important trade agreement Mexico has signed both in the magnitude of reciprocal trade with its partners as well as in its scope. Unlike the rest of the free trade agreements that Mexico has signed, NAFTA is more comprehensive in its scope and was complemented by the North American Agreement for Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC). Given the overall size of trade between Mexico and the United States, there are remarkably few trade disputes, and even those few involve relatively small dollar amounts. These disputes are generally settled in World Trade Organization (WTO) or NAFTA panels or through negotiations between the two countries.
While the trade agreement has not synchronized employment or productivity across North America, it has resulted in an enormous interdependence between Mexico and the United States. Even as the United States has been shifting much of its dependence for imports to other nations such as China, Mexico remains firmly dependent on the state of the United States’ economy. Exports now represent 30 percent of Mexico’s GDP, up from 10 percent 20 years ago. The great majority of Mexico’s exports are manufactured goods, and almost 90 percent of them are shipped to the United States.
While Mexico has undoubtedly benefited from trade liberalization, a history of bilateral trade agreements which Mexico has historically been able to join that other nations have been unable to access has resulted in a preferential place in world trade. Unfortunately for Mexico, the entrance of many nations such as China into the WTO and the United States’ aggressive moves to increase free trade worldwide is already working to erode that preferential trade status. While the economic case for free trade suggests that Mexico will ultimately benefit from reduced trade restrictions with other nations, Mexico is already beginning to suffer the early price of dislocation of many of its people. In particular, Mexico’s maquiladora industries face competition from China and Mexico’s rural poor face stiff competition from American agri-business.
One disturbing impact of increased integration into the global economy has been Mexico’s increasing wage inequality. The new economic reality of globalization has resulted in a substantial increase in the wage premium for skilled labor, which when coupled with an unequal distribution of skills has created higher inequality in the distribution of labor incomes that is closely associated to disparities in schooling.
As each of the Asian tigers achieves greater market penetration in the United States, Mexico’s export-dependent growth becomes more threatened. In particular, as tariffs against textiles from China expire, Mexico can expect to suffer financially. Yet Mexico’s real problem with trade liberalization is that it exposes an uncomfortable truth – that Mexico is no longer a relatively “poor” nation, but its institutions and human capital nonetheless remain unable to compete with “wealthy” nations.
What does American Poverty Look Like?
Poverty will always be with us. But today's poor look surprisingly different than their brethren from just a generation ago. In relative terms, every wealth distribution is going to have someone who is poorer than average, although that person might be quite wealthy in absolute terms. For example, a millionaire in a room full of billionaires might be a wealth lightweight in his immediate community, but the case for calling him or her truly poor seems pretty weak.
The average person below the poverty line in the United States today owns a microwave, a color television, gets cable, and a car. None of these assets are going to be top of the line, but when they break they will get replaced - and possibly long before then.
There are actually more obese Americans living in poverty today than in the general population. Some might consider this a triumph of food distribution, but others consider it just the absence of affordable gym access. Healthy food does cost more than junk food, but a cheaper way to avoid getting fat is to simply eat less junk food.
The plight of the poor is always highlighted around the holidays, but very rarely is it contrasted with the plight of the rich in poor countries. Consider the average Latin American. Would he or she rather have more wealth than 90% of the population in his or her country or be poorer than 90% of Americans? The answer may surprise you. In terms of absolute wealth measured by purchasing power parity, the two amounts aren't even close. The poor in America are significantly wealthier than not just the vast majority of people who have ever lived, they are much better off than the relatively wealthy in poor countries.
For lots of reasons, it is always going to be difficult to be at the bottom of the ladder. Yet for poor Americans today, being poor has never been better - and the future looks fine.
The average person below the poverty line in the United States today owns a microwave, a color television, gets cable, and a car. None of these assets are going to be top of the line, but when they break they will get replaced - and possibly long before then.
There are actually more obese Americans living in poverty today than in the general population. Some might consider this a triumph of food distribution, but others consider it just the absence of affordable gym access. Healthy food does cost more than junk food, but a cheaper way to avoid getting fat is to simply eat less junk food.
The plight of the poor is always highlighted around the holidays, but very rarely is it contrasted with the plight of the rich in poor countries. Consider the average Latin American. Would he or she rather have more wealth than 90% of the population in his or her country or be poorer than 90% of Americans? The answer may surprise you. In terms of absolute wealth measured by purchasing power parity, the two amounts aren't even close. The poor in America are significantly wealthier than not just the vast majority of people who have ever lived, they are much better off than the relatively wealthy in poor countries.
For lots of reasons, it is always going to be difficult to be at the bottom of the ladder. Yet for poor Americans today, being poor has never been better - and the future looks fine.
NAFTA's Effects on the Environment
Proponents and opponents of NAFTA have so hardened views of the treaty that it can be hard to gain a balanced view of its overall effect. One of the the areas of disagreement has been the treaty's effects on the environment.
On one hand, NAFTA established a norm of cooperation and created new institutions that can deal with the environment. The treaty prompted the consolidation of environmental legislation in Mexico from its formerly piecemeal implementation. With enhanced public participation, the treaty championed new initiatives. While many of the new standards were voluntary and heavily dependent on self-regulation, citizens gained a complaint mechanism and tools for dealing with persistent non-enforcement.
On the other hand, NAFTA demonstrated the ineffectiveness of governments outside of their jurisdictions. Many of the new institutions were underfunded and budget cuts in Mexico caused enforcement to lag. The dispute resolution mechanism is so poorly designed that its use actually seems to have discouraged future progress. Incomplete compliance and lack of sanctions have reinforced the reality that outcomes will not be transformed anytime soon.
At the end of the day, NAFTA's greatest effect on the environment will come about through the wealth effect on Mexico. The treaty has driven the dramatic rise of the export industry in Mexico and created millions of jobs in spite of the Peso Crisis and intense Asian competition. Increased industrialization actually led to a sharp increase in pollution, but the long term trend is likely to be precisely the opposite. The world's wealthiest countries are also the world's cleanest, because people are unwilling to live in a dirty environment if they can afford to clean it up.
On one hand, NAFTA established a norm of cooperation and created new institutions that can deal with the environment. The treaty prompted the consolidation of environmental legislation in Mexico from its formerly piecemeal implementation. With enhanced public participation, the treaty championed new initiatives. While many of the new standards were voluntary and heavily dependent on self-regulation, citizens gained a complaint mechanism and tools for dealing with persistent non-enforcement.
On the other hand, NAFTA demonstrated the ineffectiveness of governments outside of their jurisdictions. Many of the new institutions were underfunded and budget cuts in Mexico caused enforcement to lag. The dispute resolution mechanism is so poorly designed that its use actually seems to have discouraged future progress. Incomplete compliance and lack of sanctions have reinforced the reality that outcomes will not be transformed anytime soon.
At the end of the day, NAFTA's greatest effect on the environment will come about through the wealth effect on Mexico. The treaty has driven the dramatic rise of the export industry in Mexico and created millions of jobs in spite of the Peso Crisis and intense Asian competition. Increased industrialization actually led to a sharp increase in pollution, but the long term trend is likely to be precisely the opposite. The world's wealthiest countries are also the world's cleanest, because people are unwilling to live in a dirty environment if they can afford to clean it up.
Saturday, May 26, 2007
China Shortchanges Its Poor
The IHT reports that while China is expected to continue its unprecedented streak of double digit economic growth, the communist nation has neglected vital social programs. The Organization for Economic Cooperation and Development issued a report that noted China's surging tax revenues have been outrunning growth in social spending. In particular, China has been engaging in a significant arms buildup aimed at Taiwan that has diverted tremendous resources from the rural poor.
The OECD predicts that China's surging exports will create an even larger trade surplus next year than its current record levels. This has enormous implications in the form of China's massive foreign reserves. Because the country has been sopping up excess liquidity by building foreign exchange reserves to prevent foreign direct investment from creating inflation, China has more than $1.2 trillion in foreign exchange.
China has recently committed itself to investing $3 billion in a US private equity group and talks about creating a national investment firm to invest its foreign exchange abroad in order to acchieve a higher rate of return.
China is an emerging economy with tremendous monetary resources. Nonetheless, in a country with hundreds of millions of people barely above subsistence levels, China could surely direct those resources more profitably toward its own citizens.
The OECD predicts that China's surging exports will create an even larger trade surplus next year than its current record levels. This has enormous implications in the form of China's massive foreign reserves. Because the country has been sopping up excess liquidity by building foreign exchange reserves to prevent foreign direct investment from creating inflation, China has more than $1.2 trillion in foreign exchange.
China has recently committed itself to investing $3 billion in a US private equity group and talks about creating a national investment firm to invest its foreign exchange abroad in order to acchieve a higher rate of return.
China is an emerging economy with tremendous monetary resources. Nonetheless, in a country with hundreds of millions of people barely above subsistence levels, China could surely direct those resources more profitably toward its own citizens.
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