Climate change: E-mailstrom

Synchronised sunbathing at the Winter Olympics?

News that Vancouver didn’t have enough snow for the Winter Olympics led millions of global warming sceptics to change their mind. OK, it didn’t.  Yet anecdotes dominate the debate on both sides and carry more weight in shaping public opinion than the scientific process.

This is in line with media coverage of science in general, which often tends to highlight the silly and the sensational. The latest sensations concern stolen e-mails that are supposed to prove that scientists tried to cover up evidence against global warming, and false predictions that the Himalaya’s glaciers would disappear by 2035. (more…)

A billion dollars and 7000 jobs

Foreigners just can’t seem to get it right. When they’re not “coming over here and taking our jobs”, they’re staying over there and taking our jobs. Brian Keeley deals with the first prejudice in the Insights on International Migration, pointing out, among other things, that immigrants do work locals are unwilling to do, the so-called “3D jobs” – dirty, dangerous and difficult.

The second accusation is that outsourcing, offshoring and the other manifestations of globalisation and trade have a negative impact on employment in OECD countries.

That’s not the view of C. Fred Bergsten, director of the Peterson Institute for International Economics. Writing in the Washington Post, Bergsten argues that trade creates jobs. The $1.5 trillion worth of goods and services the US sells to the rest of the world each year creates about 10 million high-paying jobs, and “every $1 billion of additional exports would create about 7000 ‘very good jobs'”.

OECD analyses of trade and employment support Bergsten.

The crisis has caused both employment and trade to shrink, but the longer-term trend shows that the rise in trade over the past decade has generally been accompanied by increased prosperity and employment in countries that have liberalised. History also suggests that open economies end up better off than closed ones, as the two Koreas show.

Trade doesn’t seem to have damaged job stability either. The share of workers with less than one year of job tenure and average tenure, two commonly used indicators of labour turnover and job stability, did not change much in the decade before the crisis.

As for wages, a study of trade among 63 countries showed that a rise of one percentage point in the ratio of trade to GDP (for example when the share of trade in GDP rises from 10% to 11%) is associated with an increase in per-capita income of 0.5 to 2%.

Useful links

Bergsten provides a version of his article with links to supporting material here

The Insights on International Trade has a chapter on trade and employment

The OECD Trade Directorate discusses trade and employment here

The cost of bad education

Improving our schools could bring “truly enormous” economic benefits, according to new research from the OECD.

The calculations suggest that raising the educational performance of students in the OECD area to levels found in countries with the strongest schools could result in economic gains of $260 trillion – more than €185 trillion – over the lifetimes of people born in 2010.

The research comes from the OECD’s PISA project, which carries out three-yearly assessments of 15-year-olds in more than 60 countries to determine if they have the knowledge and skills needed for adult life and the world of work. Over the years, the assessments have shown big variations between OECD countries but also within countries: some, such as Finland, do a good job of educating most students while others have much more of a mix of strong and weak performers.

raising the educational performance of students in the OECD area could result in economic gains of $260 trillion

Why would improving education levels make such a difference to economic growth? The answer lies in human capital, which The Economist helpfully defines as “the stuff that enables people to earn a living”. In recent decades, economists have come increasingly to recognise that skilled and educated workers drive economic growth. Investing in human capital – i.e. investing in, training, education and healthcare – brings economic returns not just for individuals but for a country’s overall economic performance.

But there’s often a reluctance to make the changes needed to raise student performance. Education is, of course, about much more than just economic outcomes, and governments, parents and teachers can be reluctant to tamper with approaches that may be rooted in national or cultural identities or where there may be powerful vested interests.

But, as PISA’s Andreas Schleicher points out, change can happen: “Poland launched a massive reform of its education systems in 1999 … and the results are quite spectacular,” he says in this Youtube interview with The Lisbon Council. “Often we are held back by imagining that education reform takes so much, so long to complete but the example of Poland shows that in a reasonable timeframe you can actually achieve a lot.”

Useful links

OECD report: The High Cost of Low Educational Performance: The Long-Run Economic Impact of Improving PISA Outcomes

OECD Insights: Human Capital

OECD work on education

OECD educationtoday website

Lisbon Council

Sovereign debt: a right royal mess?

If you liked the subprime crisis, you’ll love sovereign debt. Subprimes had us asking if some “banks”, as we used to call them, were too big to be allowed to fail. Sovereign debt has us wondering about countries.

And not just wondering. On Thursday, financial markets the world over tanked, and the euro fell to its lowest level against the dollar since last June.

Initially, Greece had been the main target for speculators. The budget deficit is 12.7%, compared to the 3% target, and government debt is approaching 113% of GDP (one of the worst ratios in the world). The country’s credit rating had already been cut from A- to BBB+ in December amid fears over the country’s solvency (a rating below BBB is a junk bond). This means that the government has to pay higher interest rates to finance its debts, adding to the deficit spiral.

Greece isn’t alone. Portugal, Ireland and Spain all have deficits around 10% of GDP and are also attracting unwelcome attention, and fuelling fears that sovereign debt could interact with a number of other factors to inflict serious damage on a fragile recovery.

There’s nothing new about sovereign debt crises, but they used to be for developing and middle-income countries. The last big one was in 1982 when Mexico announced it couldn’t service its foreign debt. Other Latin American countries did likewise, followed by countries in Southeast Asia, Africa and Eastern Europe.

Referring to 1982 is like going back to the Big Bang on a financial market timescale, but in a paper for Princeton Studies in International Finance in 1997, Michael Bowe and James W. Dean ask a number of questions that remain pertinent today.

Why did market forces not deter creditors from lending and debtors from borrowing so very much more than could be repaid? Once the crisis was under way, why were market forces unable to resolve it on their own? Was government intervention rational and justifiable?

We’ll take up some of these themes in From Crisis to Recovery, and talk as well about how the esoteric world of financial markets interacts with the real economy. Apart from anything else, you may owe the banks $1600 more than you realised.

Yesterday’s collapse wasn’t due to sovereign debt worries alone. It was triggered by mixed US jobs figures, as well as fears about a collapse in commodity prices.

What lies ahead? The OECD’s economic indicators published today give some idea, but along with the talk of a double dip recession, there’s the grim prospect of a bungee jump recovery, with the world economy bouncing up and down before sorting itself out.

Is it a Porsche? Is it a Jag? Nah, it’s a fish

You've had your chips
Worth every penny

It’s bigger, faster, and costlier than a sports car. And you can eat it too. It’s a bluefin tuna. An adult can grow to over 4 metres and 650 kg and can accelerate to 70 to 100 km/hour practically instantaneously when closing in on prey.

At an auction in Tokyo’s Tsujiki market last month, a single bluefin sold for 16.3 million yen ($177,777). The record is 20.2 million yen ($220,000) for another tuna in 2001. You can easily understand why fishers want to catch as many as they can.

It wasn’t always the case. For Canadian fishers off Prince Edward Island, bluefin tuna were a nuisance, to be cut out of nets and flung away – bycatch in fisheries jargon. Then Japan Airlines started flights from the island to Tokyo.

It may be big, bold and beautiful, but the tuna is no match for a globalised supply chain and long lines of hooks over 80 km in length. Or for “ranching” – taking the young fish alive and fattening them in pens.

These techniques are so efficient, and stocks have been hit so hard, that there have been calls to put the species on the UN’s Convention on International Trade in Endangered Species (CITES) list.

France now supports calls for an international ban on trade in bluefin tuna, and many French fishers said they were “scandalised” by the decision.

It can be hard for people outside the industry to understand the fishers’ attitude. The problem and solution seem obvious. Too many boats chasing too few fish, so don’t catch so many.

Despite the high-tech, globalised nature of much of modern fishing, it is still based on communities where tradition is important and fishing is a way of life as much as a job. Practically everybody in the community may be affected by a decline in fishing activity, whether they are directly involved in catching and processing fish or not.

This makes change hard, especially if there are few other industries in the region. Yet the alternative can be much worse – the collapse of fishing and the decay of the communities it supported.

Conservation efforts by one group can be worthless if the only result is to allow other people a bigger share of the catch. If fisheries are to be sustainable, the political and other barriers to effective co-operation have to be overcome.

There is hope. Within the fishing industry, there are voices calling for change. Interviewed for the forthcoming Insights book on fisheries, Bernard Groisard, with over 50 years experience in tuna fishing from the French island of Ile d’Yeu, has a clear idea of the best strategy to adopt:

It has to be sustainable, and we have to be careful. The collapse of the anchovy fishery is there to remind us: when stocks are low, all you can do is wait. Nature knows what it’s doing. Given time the resource will recover.

Useful links

OECD work on fisheries

Death and tax havens

Death and taxes are an ugly old couple with no friends. And if this man is right, soon, as John Donne predicted, death, thou shalt die.

That leaves taxes. But not only do some people not want them to die, they want them to grow vigorous and flourish. Why?

Writing in The Guardian in November 2008, OECD Secretary-General Angel Gurria pointed out that developing countries lose to tax havens almost three times what they get from developed countries in aid.

Gurria was echoing the sentiment that developing countries have many of the means they need to combat poverty and promote development, but these means are being stolen by unscrupulous companies and individuals.

According to the UN, the cross-border flow of the global proceeds from tax evasion, criminal activities and corruption totals $1-1.6 trillion per year, half from developing and transitional economies.

sums being lost to tax evasion could save the lives of 350,000 children each year

Christian Aid estimates that the sums being lost to tax evasion could save the lives of 350,000 children each year if made available to programmes fighting poverty and disease.

Not just taxes are being seen in a new, more positive light. It’s now being argued that the tax collector, eternal pariah, has a noble role to play.

South Africa’s Finance Minister Trevor Manuel told the OECD Global Forum on Taxation  that “it is a contradiction to support increased development assistance, yet turn a blind eye to actions by multinationals and others that undermine the tax base of a developing country.”

As Manuel pointed out, smaller, poorer countries with less sophisticated tax administrations are often ill-equipped to dismantle the complex structures put in place to minimise tax. He urged the OECD to help identify and diffuse best practices and mechanisms to assist and build stronger tax administrations.

Will anything be done about it? On January 27th at OECD headquarters, tax experts and development experts established a joint taskforce, stating that “We have a common understanding of the central role taxation plays in development and poverty reduction: a strong tax system is the heart of a country’s financial independence, its revenues are the lifeblood of the state itself.”

Over the coming months, we’ll see what actions follow. Governments in the developed countries will be under pressure to make taxes fairer. Especially following the bailouts and other costs of the crisis, citizens of OECD countries suffer too, in terms of higher taxes to make up for the shortfall or poorer public services due to under-financing.

Useful links

OECD Centre for Tax Policy
Global Forum on Transparency and Exchange of Information for Tax Purposes
Tax Justice Network resources page on aid, tax and development