Archive for February 5th, 2019

Is the Indian Ocean economy a new global growth pole?

February 5, 2019

Interesting paper by Ganeshan Wignaraja, Adam Collins and Pabasara Kannangara of Lakshman Kadirgamar Institute of International Relations and Strategic Studies (LKI) in Colombo.

This paper examines whether the Indian Ocean economy–comprising 28 states across three continents–can become a growth pole for the global economy. It considers initial conditions, recent trade-led growth, portrays the near and medium context and various policy challenges. It finds that the strategically located Indian Ocean economy has become a pivotal global shipping hub. Its trade and Gross Domestic Product (GDP) have grown faster than the global
economy in recent years. Projections suggest that the Indian Ocean economy will likely account for over 20% of global GDP by 2025 and its GDP per capita is expected to almost double to USD 6150. However, realising this outlook will depend on tackling several pressing policy challenges including improving port quality and logistics, lowering barriers to trade and investment, narrowing development gaps and strengthening the regional economic governance.
Tackling these challenges requires a combination of coherent national and regional policy measures.

How the tides keep changing. It used to be Indian Ocean for a long time before Atlantic Ocean took over. Now back to Indian Ocean.

The economic geography of transition countries: Winners, losers and future prospects

February 5, 2019

Group of researchers (Klaus Desmet, Dávid Krisztián Nagy, Dzhamilya Nigmatulina and Nathaniel Young)

The economic geography of transition economies has changed dramatically over the last quarter century, with large urban areas growing fast and many smaller places facing declining populations. Using a high-resolution spatial growth model, this column projects the transition economies as a whole to perform economically well over the next decades, especially the region’s densest places. Large-scale infrastructure projects such as the Belt and Road Initiative will have a positive impact, but not more so than modest reductions of general trade frictions. 


Our analysis suggests that the broad geographic changes occurring in Europe and the rest of the EBRD regions create opportunities for productivity growth and overall economic gains. The forces behind the evolving patterns of population concentrations across space are deep and pervasive. While overall positive in their effects, these changes also leave segments of the population behind in areas that become increasingly sparsely populated. As those areas lose density, their local opportunities recede as well. Policies to soften their landing, while attempting to ignite some of the agglomeration forces on which they’ve missed out, could be their best chance for achieving growth and maintaining well-being. Investments to improve local amenities such as the provision of water, healthcare and energy, and investments in local education opportunities may work well in these areas. Such policies must be implemented with caution, as they may have negative effects in the aggregate.  Alternatively, measures that incentivise geographic mobility may help to improve the opportunities of residents in left-behind places.


The ghosts (and lessons) of Versailles

February 5, 2019

Prof Harold James looks at 100 years of Treaty of Versailles which failed to usher peace after WW1.

Exactly 100 years after the start of the Paris peace process that formalized the end of World War I, the world is at a historical crossroads again. As in 1919, the temptation to pursue more democracy and deeper international cooperation must be managed carefully, lest tragic unintended consequences follow.

He points to three mistakes which led to the failures: high expectations, incompetent leaders and to avoid them are lessons for today:

The Paris process failed because it set expectations too high. The victory of democratic powers did not mean that democratic wishes would be fulfilled, particularly when those wishes would require the losers to pay. Throughout WWI, every side simply assumed that an eventual peace settlement should saddle the vanquished with the material – and even the emotional – costs of the war, all but ensuring an unsatisfactory resolution to the conflict.

Likewise, in 2019, the problems resulting from rapid technological change and globalization might not admit of any widely acceptable solutions. As a result, different countries will produce their own narratives about being cheated by globalization. And, as in 1919, they will invent “villains” to bear the blame. For example, the Trump administration routinely complains about China’s unfair trade practices, Germany’s excessive current-account surplus, aid to developing countries, and so forth. Needless to say, compiling a litany of grievances hardly amounts to a solution.

A second explanation for the failure of the Paris process is that some of those involved – French Prime Minister Georges Clemenceau, British Prime Minister David Lloyd George, and Wilson – were uniquely incompetent or otherwise ill-disposed. Clemenceau was a lifelong nationalist, monomaniacally dedicated to the pursuit of French interests, whereas Lloyd George was the opposite, and thus too pliable and unprincipled for the task at hand. He was prone to attacking others personally, only to forget that he had done so when encountering those people again.

For his part, Wilson’s lofty aspirations far exceeded his acumen for political deal-making, both domestically and internationally. And his mounting health problems certainly didn’t help. Owing to his stratospherically high blood pressure, which went largely untreated, Wilson suffered a major stroke shortly after the Paris proceedings. One obvious lesson from this episode in history is that it is important to monitor the physical and mental health of world leaders, particularly the president of the United States, during periods of consequential decision-making.

When it comes to leaders’ character flaws, 2019 offers just as much fodder as 1919 did. Trump and British Prime Minister Theresa May could not be more different in terms of their personalities, yet both have dispensed with expert advice and done serious damage to their respective countries’ political systems. While French President Emmanuel Macron is often criticized for relative inexperience, German Chancellor Angela Merkel is seen as too experienced at preserving an outdated status quo.

The third reason the Paris process failed is perhaps the most important. The conference’s overly ambitious goals, and the flawed personalities of those pursuing them, were so obvious as to invite a lethal public rebuke. That rebuke came from the British economist John Maynard Keynes, one of the most brilliant minds of the age, in his 1919 book, The Economic Consequences of the Peace.

Keynes’s critique of the Paris process and its participants was devastating, and he knew it. In October and November of 1919, he attended meetings, hosted by the Dutch banker Gerard Vissering, where bankers from the US and various neutral powers developed a sophisticated plan for leveraging private US finance for the reconstruction of Europe. The plan showed great promise, but Keynes could not associate himself with it, because his brilliant polemic had alienated the political leaders who were needed to carry it out. In the end, only a few elements of the plan were adopted, and not until 1924, when it was already too late.

The lesson is that an overwritten critique can be counterproductive. Setting political leaders on the right course of action requires persuasion, not polemics. Hence, when it came time to remake the world in 1944-45, Keynes adopted a very different approach. He elaborated a complex reconstruction plan, but this time he operated behind the scenes. It would not have been difficult to attack British Prime Minister Winston Churchill and US President Franklin D. Roosevelt for their past economic policies, but nor would it have accomplished anything.

True, Churchill and Roosevelt were far better leaders than Lloyd George and Wilson. But even if they had been just as flawed, Keynes had learned the costs of focusing too much on the foibles of bad leaders during bad times.

Whether it is 1919 or 2019, obsessing over individual leaders can distract us from working toward the solutions that today’s most pressing problems demand.


Prof James brings these ideas really well..

%d bloggers like this: