Categories
Economics Environment

[1155] Of a solution to climate change

There is a template in economics that deals with tragedy of the commons: permits.

And this is how it looks like when applied to replenishable commodity like fishes, graphically:

Some rights reserved. By Mohd Hafiz Noor Shams

This is exactly the case in the rationale behind the proposed legalization of turtle eggs collection.

I myself learned about the model at Michigan to solve scarcity issue faced by the fishing industry in northwestern US; the Pacific. In fact, the graph is a reproduction of the original diagram I learned during a cold fall day in Ann Arbor.

For water scarcity faced by the states along the Colorado River, the same idea of introducing tradable permits to combat tragedy of the commons is used. In the NYT a few days ago, the fishery model was cited as a solution to combat another tragedy of the commons; the climate:

Later today, Mr. Festa is going to release a fascinating study about the fishing business that on its face has nothing to do with global warming, and yet has everything to do with a solution. At dozens of the nation’s fisheries, the fish population is in danger because fishermen have no incentive not to take everything out of the water that they can. But 10 fisheries, stretching from the halibut fishery off Alaska to the surf clam industry in New England, have tried a different route. [Earth’s Climate Needs the Help of Incentives. NYT. March 28 2007.]

Tradable carbon credits, which is essentially tradable permits, is part of the Kyoto Protocol.

Categories
Economics

[1154] Of in the name of the few, at the expense of many

With one more day to catch the window granted to the US Trade Promotion Authority by the US Congress to fast track trade negotiations, it becomes increasingly clear that both the Malaysian and the US negotiators are going to miss it. As stated earlier, with the Democrats in control of the Congress, it would be hard to carve out a free trade agreement between the two countries without the TPA. The same scenario is applicable to the South Korea-US FTA:

SEOUL, South Korea — As the deadline looms for the potentially historic free-trade talks between the U.S. and South Korea, the biggest obstacles are turning out to involve the same thing as in most trade discussions: food.

The two countries aim to finish a comprehensive trade agreement Friday, the biggest such deal ever for Korea and since 1993 for the U.S., and one that is being closely watched by other countries. They still need to reach major compromises in areas such as automotive trade and investment protections, according to people close to the discussions.

But those aren’t areas that might cause the deal to fall apart, these people say. Instead, it is two commodities that are closer to the hearts of both sides-beef for the U.S. and rice for South Korea. [Food is biggest obstacle in Seoul-U.S. trade talks. WSJ Asia. March 30 2007]

Also, observe how the interest of many is held hostage by the few:

South Korean is afraid that boosting imports of beef and rice will hurt business for its farmers, though it would reduce food prices for a far greater number of its consumers. [Food is biggest obstacle in Seoul-U.S. trade talks. WSJ Asia. March 30 2007]

The same event is being played out in Malaysia, as in many other country, at the expense of many, in the name of the few.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

p/s — One last try by the South Korean and the American:

March 31 (Bloomberg) — The U.S. and South Korea agreed to extend talks toward a free-trade agreement by 48 hours, said Kim Jong Hoon, the chief South Korean negotiator for the agreement.

“Both sides formed a consensus that additional negotiations would be helpful and necessary, and therefore the U.S. delegation discussed this closely with its government and the Congress overnight, and decided to extend the talks by 48 hours, to April 2, 1 a.m. Korea time,” Kim said. [U.S., South Korea Extend Their Free-Trade Talks. Bloomberg. March 31 2007.

For Malaysia, the deadline has officially passed, because we as Malaysians are too afraid to grasp for prosperity, in spite of our rich history as trading civilizations.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

pp/s — It is 1 A.M. in Seoul and no news has come out yet. I am assuming that the negotiation has officially failed.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

ppp/s — Wow. These people are serious. The deadline for the negotiation has been extended yet again:

SEOUL, April 2 (Yonhap) — Top-level officials from South Korea and the United States struggled Monday to come up with major compromises in their final stage of negotiations on a proposed free trade agreement (FTA), with the deadline for the talks extended for the second time in two days. [South Korea-U.S. FTA talks go past extended deadline to salvage deal. Yonhap News. April 2 2007]

Damn. I wish that was Malaysia.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

ppp/s — The second deadlines has come to pass but optimism is running high:

SEOUL, April 2 (Yonhap) — Top South Korean and U.S. negotiators worked through the night past a second deadline on Monday to try to forge a bilateral free trade agreement (FTA) amid growing indications that a deal was imminent.

A South Korean government official close to the talks said his government was waiting for a rely from the United States after delivering its final proposal for the terms of an agreement.

“The ball is now in the U.S. court,” the official said, asking that he not be identified. [Deal imminent in South Korea-U.S. FTA talks: sources. Yonhap News. April 2 2007]

Categories
Conflict & disaster Economics Politics & government

[1149] Of the US might penalize Malaysian firm for doing business with Iran

This, it seems, has gone largely unnoticed in Malaysia:

WASHINGTON, March 20 — For all its efforts to apply economic and political pressure on Iran over its nuclear program, the United States has never used a potentially potent tool in its arsenal — penalties on foreign companies that assist Iran in producing oil and natural gas.

That may be about to change. The Bush administration has quietly been warning energy companies, including Shell, Repsol and SKS, the Malaysian oil company, as well as the governments of China, India, Pakistan and Malaysia, that penalties are possible if they pursue energy deals with Iran. [U.S. Cautions Foreign Companies on Iran Deals. NYT. March 21 2007]

Earlier, US Senator Tom Lantos demanded the President Bush to suspend all FTA negotiations with Malaysia because of the USD 16 million (or USD 20 million, depending on sources) deal between SKS Ventures of Malaysia and National Iranian Oil Company.

Categories
Economics

[1147] Of preparing for rate cuts?

On Thursday, the Federal Open Market Committee kept the federal fund rate unchanged at 5.25%.

Phrase of the week: neutral bias.

NEW YORK (Reuters) – The Fed’s shift toward a more neutral bias on interest rates is likely to deal a blow to the dollar in the longer term, but bears expecting a sharp fall in the currency may have to wait a little longer yet.

The dollar slumped to a two-year low against the euro on Wednesday after the Federal Reserve left interest rates on hold at 5.25 percent but dropped a phrase in its statement pointing to future monetary policy tightening. [Shift in Fed tone signals dollar down but not out. Reuters. March 22 2007.]

The Fed is expected to cut rate later this year; a rate cut signals an economic slowdown.

Given Malaysian dependence on the US market, I am convinced that Malaysia would be affected.

The ancients said, all roads led to Rome. With slowing US economy as well as stronger ringgit which hurt local export, this particular road might lead to Rome indeed. So, I am confident of winning this bet.

Our own Bank Negara left our interest rate as unchanged at 3.50% at the last monetary policy meeting on February 26. If the Bank Negara is worried about slowdown, it should cut down rate. In the news however, the Malaysian central bank seems to be very bullish given current circumstances:

KUALA LUMPUR: Bank Negara is confident Malaysia’s economy will remain resilient and grow at a healthy 6% despite moderate global growth predicted for the first half of the year. [Bank Negara says economy still resilient. The Star. March 21 2007.]

If Bank Negara is as bullish as it says, conventional wisdom would either advice the central bank to either increase the rate up or leave it be, depending on the situation, if inflation is the bank’s main concern.

Categories
Economics History & heritage

[1146] Of globalization is not new

Globalization is loved and loathed by so many people for so many reasons. Too many people however seem to talk as if globalization is a modern phenomenon. This is understandable given that it is only around the 1990s that many started to recognize the forces of globalization. The Battle of Seattle in 1999 especially brought aspects of globalization into public consciousness. On the contrary, globalization is not a recent invention; only the word is. The phenomenon itself could be observed from dawn of time right here in Southeast Asia, and everywhere else around the world.

The late 20th century has been characterized as a century of trade. So many Asian countries had, and still are, directly benefiting from trade. The Asian tigers built their economies around trade and that later became a template for economic growth. From this perspective, globalization is increased economic connectivity, perhaps, synonymous to free trade. While we as a species have never been closer to each other, globalization has been true even before we, the current generation, came into being.

The previous era of intense globalization was during the Pax Britannica in the 19th century and to a certain extent, the early 20th century. Trade within and without the British empire was so impressive in volume. Goods flowed so freely between nations that it is possible that those decades were the closest point in history we had ever come close to true free trade. Goods crisscrossed nations with great ease; the only restriction then was technology. The speed at which trade was conducted nevertheless amazed those of that era, with goods as far as Malaya could reach London through the Suez Canal in just a few months when previously, it had taken almost eternity. Despite that, no, the 19th century is not the origin of globalization.

The 17th and the 18th century were another, earlier, bout of globalization. The formation of the Dutch and the British East India Company connected Europe with the world in a greater way. More remarkable is that this century marked the rise of free trade as an ideology, pushing mercantilism out of the deck and to the bottom of the sea. After tearing down the wall of protectionism in Europe, free trade continued its march to the east in search of prosperity, albeit violently, initially.

Back in Southeast Asia in the 15th and the early 16th, the Sultanate of Malacca acted as a broker between the east and the west. So famous was it that Barbarosa said “Whoever is Lord in Malacca has his hand on the throat of Venice“. The wealth Malacca gained from trade, specifically, spice trade, attracted the Portuguese to this part of the world. The fall of Malacca to the Portuguese somewhat halted trade for a moment but it did not take long for trade to reorganize itself to take Malacca out of the equation; others like Aceh took over Malacca’s role as Christianity and Islam brought over their rivalry in the west to the east.

Just as Malacca and Aceh, many kingdoms of Southeast Asia rose and fell with elements of globalization. During its golden age, not only Srivijaya controlled the important Malacca and Sunda Straits as well as land bridge up in the Malay Peninsula — Langkasuka-Kedah and Pan Pan — to monopolize trade while the Silk Road faded into ancient history, it was also the center of Buddhism. In other words, it was an agent of cultural globalization. The great Srivijaya — with Sailendra, the builders of the wonderful Borobudur — only started to experience decline and eventually extinction not because of internal strive but instead, by external forces. The restriction of trade in China and harsh raids conducted by Chola from southern India, Srivijaya had its fate sealed by those that lived thousands of miles away from the Malay Archipelago.

Even before Srivijaya — it existence was only noticed by modern historians more than five centuries after its fall — even before Brutus stabbed Caesar in Rome in 44 BCE, the globalization was apparent. How else would one explain the presence of Chinese silk and Persian rug in Rome and Roman vases in the far east? Or the Moluccas spices on the steps of Genoa? And surely, the introduction of paper-making technology from China to Europe by the Muslims is another proof of globalization.

When the safe passage across the Silk Road was threatened, first by the advancing Persian armies, later the Greeks, then the Mongols and finally, the Chinese struggle during the period of the Romance of the Three Kingdoms, globalization refused to die. Trade diverted itself from land to sea. Mushrooming across the Malay Archipelago, along the coast of eastern Indochina and the banks of Mekong were small kingdoms that suddenly saw the influx of traders and the wealth that come with it. That sudden increase in trade created an economic boom in the region. Each one of them took advantage of the change. That prosperity only ended when China under the Sui dynasty practiced isolationist policy in the 6th and the 7th century. It was a good run for the kingdoms of Southeast Asia regardless, lasting long enough to enrich our history.

We are currently riding another wave of globalization. Our ancestors rode theirs and carved their names in history. If we carefully embrace our wave and not succumb to the fear-mongering protectionists, just as we recall Malacca, Srivijaya, etc as great trading nations, our children would remember, that we lived during an era of unprecedented prosperity.