Politics this week

The new leader of the Labour Party, Gordon Brown, the former chancellor of the exchequer, took over from Tony Blair as Britain's prime minister. Ahead of his cabinet selection, Mr Brown, speaking in Downing Street, said: “Let the work of change begin.”

On the day of his resignation Tony Blair was appointed roving envoy for the “quartet” of countries and clubs—the United States, the United Nations, the European Union and Russia—seeking to make peace between Israelis and Palestinians. The appointment got mixed reactions.

At a summit in Brussels, the European Union agreed to the outline of a new treaty to replace the draft constitution that was rejected two years ago by Dutch and French voters. The treaty's critics complained about, and its supporters celebrated, the inclusion of much of the substance of the constitution. But EU leaders from Britain, France, the Netherlands and Poland all insisted it was changed enough to justify their decision not to hold referendums. Only Ireland is likely to put the treaty, when it is drafted later this year, to a vote. See article

Shortly after the summit deal on the treaty, France blocked the opening of a chapter in Turkey's negotiations on membership of the European Union. The French president, Nicolas Sarkozy, insists that Turkey has no place in the EU. Two other chapters in the negotiations were opened, however.

In a report on new European Union members, the European Commission criticised Romania and Bulgaria, which joined this year, for doing too little to fight corruption. The commission said that if they did not do more next year it would recommend sanctions against the two countries.

Nuclear reaction

Inspectors from the International Atomic Energy Agency visited North Korea for the first time since the IAEA was expelled from the country in 2002. South Korea later announced it would resume food aid to the North. This followed North Korea's receipt of some $25m that had been frozen in a bank in Macau. The deal reached in February under which North Korea agreed to shut down its nuclear reactor at Yongbyon had been stalled.

Nguyen Minh Triet, the president of Vietnam, paid a visit to America, the first by a Vietnamese head of state. He signed a trade and investment pact, and met his American counterpart. George Bush raised concerns about Vietnam's treatment of political dissidents.

AP

Hundreds died—more than 200 of them in Karachi, Pakistan's largest city—and thousands lost their homes in flooding in the Indian subcontinent. Pakistan's coast was further battered by a cyclone.

An annual report produced by the United Nations on illegal drugs gave warning that opium production is soaring out of control in Afghanistan. It said that Helmand province alone produces almost half the world's illegal opium. See article

Fast track to nowhere

It seemed likely that George Bush would lose the negotiating powers that allow the president to fast-track trade deals through Congress. A last attempt to persuade Congress to renew the provision, which expires on June 30th, was thwarted when talks over farm subsidies and open markets between America, the European Union, Brazil and India, the so-called “G4”, broke down last week.

A Senate committee issued subpoenas to the White House and Dick Cheney's office ordering them to turn over documents related to the domestic “eavesdropping” national-security programme.

The Supreme Court loosened restrictions on political advertisements in the weeks prior to an election, watering down a provision of the McCain-Feingold act.

Friends and enemies

Meeting for the first time since the Islamists of Hamas took over the Gaza Strip, Israel's prime minister, Ehud Olmert, told the Palestinian president, Mahmoud Abbas, that he would free 250 Palestinian prisoners loyal to Mr Abbas's Fatah movement. At the meeting in Sharm el-Sheikh, an Egyptian resort, he also told the Egyptian and Jordanian leaders that he would work with “moderates” such as Mr Abbas against “terrorists”, meaning Hamas. See article

A bomb killed six soldiers serving in a UN peacekeeping force in southern Lebanon. The culprit was not identified; Sunni Arab jihadists were widely suspected.

Ali Hassan al-Majid, or “Chemical Ali”, Saddam Hussein's cousin who oversaw the slaughter of as many as 180,000 Iraqi Kurds in the 1980s in what was known as the Anfal (Spoils) campaign, was sentenced to death by a court in Baghdad. Two colleagues were also sentenced to hang, two got life sentences and one was acquitted. See article

Several Sunni tribal leaders who had been co-operating with the Iraqi government against al-Qaeda-linked insurgents in the western province of Anbar were among a dozen people killed by a suicide-bomb in a Baghdad hotel.

Zimbabwe's government published a draft law to make virtually all publicly traded companies cede controlling interests to black citizens who were “disadvantaged by unfair discrimination on the grounds of his or her race” before April 1980, when the country won independence.

Chávez gets even tougher

Four oil companies, including Exxon Mobil and Conoco-Philips, refused to sign new contracts that grant Venezuela's government a majority stake in operations in the Orinoco heavy-oil belt; seven other multinational companies have agreed to the terms. See article

Mauricio Macri, a conservative, easily won a run-off election for mayor of Buenos Aires, defeating by 22 percentage points a candidate backed by Néstor Kirchner, Argentina's left-of-centre president.

Mexico purged 284 senior officers of the federal police forces, including some top commanders, as part of its effort to grapple with infiltration of the state by drug traffickers.

AP

Some Andean football fans breathed again, as FIFA relaxed a ban on World Cup qualifying matches being played at high altitude. The new limit will be 3,000 metres (9,800 feet), rather than 2,500 metres. That rules in Bogotá (Colombia) and Quito (Ecuador) but still rules out Cusco (Peru) and La Paz (Bolivia).

-
Jun 28th 2007
From The Economist print edition

Business this week

Russia's energy politics was in the spotlight again. Gazprom, the gas monopoly, finalised an agreement with Eni, an Italian energy company, to build a pipeline under the Black Sea that will deliver gas to Italy and eastern Europe, increasing European reliance on Russian fuel. Earlier, BP's Russian joint venture, TNK-BP, responded to warnings from Russian regulators that its operating licence in the Kovykta Siberian gas project was under threat by selling its stake in the field to Gazprom.

Meanwhile, PricewaterhouseCoopers denied that it had succumbed to pressure from the Kremlin as it withdrew audits covering ten years for Yukos. The Russian oil company was declared bankrupt last year after it fell foul of the authorities and received a crippling claim for back taxes.

Iberdrola continued its spending spree in America by agreeing to pay $4.5 billion for New England-based Energy East. The Spanish utility has bought a number of wind-farm operations in the United States over the past year in line with its strategy to expand its renewable-energy business. However, its acquisition of Energy East, which provides gas and electricity, was interpreted by some analysts as a defensive move against potential takeovers.

In arms way

BAE Systems revealed that it is being investigated by America's Justice Department over its compliance with anti-corruption laws. The inquiry covers BAE's dealings with Saudi Arabia. Europe's largest defence company, a big supplier to the Pentagon, has found itself the centre of media attention over alleged payments to Saudi royalty. BAE maintains it has done nothing wrong. An investigation by Britain's Serious Fraud Office into a multi-billion arms deal with the Saudis in the 1980s, in which BAE was the main contractor, was halted by Tony Blair last December on the ground that it was damaging British-Saudi relations. One of Gordon Brown's first decisions as prime minister will be whether the British government should co-operate with the American inquiry.

The London Stock Exchange announced a merger with Borsa Italiana, valuing the Italian exchange at euro1.6 billion ($2.2 billion). The deal became all the sweeter for the LSE after reports that Borsa Italiana had rejected a tentative, and higher, offer from NYSE Euronext, the LSE's American-European rival.

Bear Stearns decided against rescuing one of the hedge funds that came close to collapse last week after suffering heavy losses in America's subprime mortgage market. The investment bank subsequently had to pledge only half the amount it had been prepared to offer the other hedge fund, $1.6 billion.

The price is right?

After surging by 13% on its stockmarket debut last week, Blackstone Group's share price dropped sharply, falling below the $31 set at the initial public offering. Amid concerns about legislation introduced in America to increase the tax rate for private-equity firms, investors were spooked by a report that the buy-out boom may have peaked. The trajectory of Blackstone's share price was no doubt tracked by rivals, such as Kohlberg Kravis Roberts and Carlyle Group, that are considering a public offer.

Following recent warnings about contaminated pet food and toothpaste, more concerns were raised about the quality of Chinese products when American safety regulators demanded a recall of 450,000 defective tyres.

Roche, a Swiss drugmaker with a large portfolio of cancer treatments, launched a $3 billion hostile bid for Ventana Medical Systems, which is based in Tucson and specialises in tests for cancer.

Blockbuster said it had settled a patent dispute brought by Netflix, which pioneered the successful business of renting DVDs online for delivery by mail in the late 1990s. The business model has been widely copied elsewhere. Terms of the settlement were not divulged.

After months of waiting, the iPhone was finally due to go on sale in America. Apple has touted its latest product as the biggest thing since the iPod. However, some techies have faulted the iPhone's slow data speeds and short battery life (Apple now says the battery will last for around eight hours of talk time) and balked at the high price of the device's network calling rates.

Creeping up

Oil prices traded around ten-month highs, even as the threat of a shutdown to Nigeria's oil industry from labour unrest receded. Meanwhile, the head of OPEC insisted there was no need for the cartel to increase production to ease oil prices, which, he said, were rising partly because of geopolitical tensions.

-
Jun 28th 2007
From The Economist print edition

Economics focus: Womenomics revisited

If more women were in paid work, the world could be much richer

MEN like to believe that they run the world. They are not deluding themselves. In politics, men still dominate most of the planet's governments and legislatures. In economic life, they rule its boardrooms and have most of the best-paid jobs. Women, meanwhile, do by far the greater part of the world's unpaid work. Granted, some details of the canvas are changing: women's share of the workforce is much higher than it was a generation ago, and they comprise the majority of university students in some countries. Nevertheless, it is still a man's world.

And a wasteful one. Were more women in paid employment, according to a run of recent studies, the world would be better off. The waste is surely worse in poor countries than in rich ones. A report this week by the United Nations Economic and Social Commission for Asia and the Pacific concludes that sex discrimination costs the region $42 billion-47 billion a year by restricting women's job opportunities. A gap of 30-40 percentage points between men's and women's workforce participation rates is common. The poor state of girls' education costs a further $16 billion-30 billion. And those are just the economic costs, before violence against women and access to health care are counted.

But rich countries undervalue women as well. Just look at the gap between male and female employment rates in America, Japan and western Europe, as Kevin Daly, an economist at Goldman Sachs, does in a recent study (see the left-hand chart). In Sweden, where around 70% of females aged 15-64 are in work, the gap is less than five percentage points. In America and Britain it is around a dozen points. In Italy, Japan and Spain it is over 20 points. Suppose, says Mr Daly, that women's employment rates were raised to the same level as men's; and suppose that GDP rose in proportion with employment. Then America's GDP would be 9% higher, the euro zone's would be 13% more, and Japan's would be boosted by 16%.

That may be a bit of an overstatement. Add so many people to the workforce and average productivity would probably fall. Given the chance to work, many women may do so part-time rather than full-time; some men with working partners may make the same choice. Nevertheless, the boost to GDP would still be substantial. Mr Daly notes that were euro-zone productivity raised to American levels—a commonly cited idea—the single-currency club's GDP would rise by only 7%.

You might object that looking at GDP itself overstates the benefits. With more women in work, some of what they now do unpaid—caring for children, cleaning, preparing meals—would be bought in. So some work would be counted, and added to GDP, simply because it was supplied in the market not the home. True, says Mr Daly, but only to a limited extent. Pay in child care tends to be low, so the offsetting factor is not very great. Even in Sweden pre-school care accounts for only 1.2% of GDP, a small sum compared with the gains on offer.

A taxing question

None of this would matter much if low female employment rates and the output forgone were purely a matter of choice. Mr Daly argues that they are not. Many women would like to work, or to work more, if they could find affordable child care; subsidies for child care, not surprisingly, tend to raise the probability that a mother returns to work. And in many countries, second earners (usually women) face higher average tax rates than the main breadwinner. In Sweden, an exception, average tax rates are the same; in Italy and Spain second earners' rates are 60% more than their partners'. Alberto Alesina and Andrea Ichino, two Italian economists, have suggested going further than merely equalising tax rates. Because women's labour supply is more sensitive to tax rates than men's, theory suggests that their rates should be lower—in Italy, they say, as much as 32% lower.

A higher rate of female employment could help to deal with the difficulties posed by an ageing society. With a higher share of people in work, the ratio of retired people to workers would fall. And Mr Daly argues that it would not reduce fertility rates, as some people may fear. In fact, where the gap between male and female employment rates is small, women tend to have more babies (see the right-hand chart, above). The reason seems to be that in countries where taxes on second earners are high or affordable child care is hard to find, women must often choose between children and work, especially if their incomes are low. Where second earners are not penalised by taxes or where child care is cheap (or subsidised), they can have both.

As Mr Daly says, he is describing a changing picture. Even in Italy and Spain, female employment rates have climbed rapidly in the past decade. A narrowing of the gap between men's and women's employment rates has accounted for half of the rise in the euro area's overall employment rate and for 0.4 points of its 2.1% trend annual increase in GDP since 1995. This has done more for Europe's labour markets, he avers, than have “conventional” reforms. America's female employment rate, meanwhile, has recently declined—perhaps for cyclical reasons. Japan's low rate has not risen much.

Even with no change in policies, the employment sex gap is likely to close further. Probably the biggest changes are under way in Spain. The participation rates of Spanish women of different ages are similar to France's or Germany's 15 years ago. Those in their 20s are now more likely to work than their American sisters. A continuation of this trend, Mr Daly thinks, may add almost half a percentage point to Spain's annual growth rate over the next ten years, and maybe more if policies change. In the euro area as a whole, a quarter of a point is on offer.

The countries with most to do are Italy and Japan. But by the same token they also have most to gain. In Italy, even on recent trends an extra 0.3 points a year of GDP growth may be had. Japan is heading for only an extra tenth of a point, but could gain half a point a year if policies change. Men run the world's economies; but it may be up to women to rescue them.

-
Apr 19th 2007
From The Economist print edition

Economics focus: To do with the price of fish

How do mobile phones promote economic growth? A new paper provides a vivid example

Jac

YOU are a fisherman off the coast of northern Kerala, a region in the south of India. Visiting your usual fishing ground, you bring in an unusually good catch of sardines. That means other fishermen in the area will probably have done well too, so there will be plenty of supply at the local beach market: prices will be low, and you may not even be able to sell your catch. Should you head for the usual market anyway, or should you go down the coast in the hope that fishermen in that area will not have done so well and your fish will fetch a better price? If you make the wrong choice you cannot visit another market because fuel is costly and each market is open for only a couple of hours before dawn—and it takes that long for your boat to putter from one to the next. Since fish are perishable, any that cannot be sold will have to be dumped into the sea.

This, in a nutshell, was the situation facing Kerala's fishermen until 1997. The result was far from ideal for both fishermen and their customers. In practice, fishermen chose to stick with their home markets all the time. This was wasteful because when a particular market is oversupplied, fish are thrown away, even though there may be buyers for them a little farther along the coast. On average, 5-8% of the total catch was wasted, says Robert Jensen, a development economist at Harvard University who has surveyed the price of sardines at 15 beach markets along Kerala's coast. On January 14th 1997, for example, 11 fishermen at Badagara beach ended up throwing away their catches, yet on that day there were 27 buyers at markets within 15km (about nine miles) who would have bought their fish. There were also wide variations in the price of sardines along the coast.

But starting in 1997 mobile phones were introduced in Kerala. Since coverage spread gradually, this provided an ideal way to gauge the effect of mobile phones on the fishermen's behaviour, the price of fish, and the amount of waste. For many years, anecdotes have abounded about the ways in which mobile phones promote more efficient markets and encourage economic activity. One particularly popular tale is that of the fisherman who is able to call several nearby markets from his boat to establish where his catch will fetch the highest price. Mr Jensen's paper* adds some numbers to the familiar stories and shows precisely how mobile phones support economic growth.

As phone coverage spread between 1997 and 2000, fishermen started to buy phones and use them to call coastal markets while still at sea. (The area of coverage reaches 20-25km off the coast.) Instead of selling their fish at beach auctions, the fishermen would call around to find the best price. Dividing the coast into three regions, Mr Jensen found that the proportion of fishermen who ventured beyond their home markets to sell their catches jumped from zero to around 35% as soon as coverage became available in each region. At that point, no fish were wasted and the variation in prices fell dramatically. By the end of the study coverage was available in all three regions. Waste had been eliminated and the “law of one price”—the idea that in an efficient market identical goods should cost the same—had come into effect, in the form of a single rate for sardines along the coast.

This more efficient market benefited everyone. Fishermen's profits rose by 8% on average and consumer prices fell by 4% on average. Higher profits meant the phones typically paid for themselves within two months. And the benefits are enduring, rather than one-off. All of this, says Mr Jensen, shows the importance of the free flow of information to ensure that markets work efficiently. “Information makes markets work, and markets improve welfare,” he concludes.

Mr Jensen's work is valuable because studies of the economic effect of mobile phones tend to be macroeconomic. A well known example is the finding in 2005 by Leonard Waverman, of the London Business School, that an extra 10 mobile phones per 100 people in a typical developing country leads to an additional 0.59 percentage points of growth in GDP per person. (He recently repeated this earlier study using a more elaborate model and found that an extra 10 percentage points in mobile-phone penetration led to an extra 0.44 percentage points of growth, a difference he says is not statistically significant.)

Calls and effect

One criticism levelled at such studies, says Mr Waverman, is that it is difficult to tell if mobile phones are promoting growth, or growth is promoting the adoption of mobile phones, as people become able to afford them. It is easy to imagine ways in which mobile phones could stimulate economic activity—they make up for poor infrastructure by substituting for travel, allow price data to be distributed and enable traders to engage with wider markets, and so on. Mr Waverman uses a variety of statistical tests to try to tease apart cause and effect. But detailed analyses of micro-market data like Mr Jensen's, he says, show how phones really do make people better off.

Furthermore, says Mr Jensen, phones do this without the need for government intervention. Mobile-phone networks are built by private companies, not governments or charities, and are economically self-sustaining. Mobile operators build and run them because they make a profit doing so, and fishermen, carpenters and porters are willing to pay for the service because it increases their profits. The resulting welfare gains are indicated by the profitability of both the operators and their customers, he suggests. All governments have to do is issue licences to operators, establish a clear and transparent regulatory framework and then wait for the phones to work their economic magic.

*“The Digital Provide: Information (technology), market performance and welfare in the South Indian fisheries sector”, by Robert Jensen. To be published in the Quarterly Journal of Economics, August 2007.

-
May 10th 2007
From The Economist print edition

Pesticide Found at Unsafe Levels in Drinking Water

In 26 of 28 towns, the Environmental Protection Agency found atrazine levels in drinking water in excess of the agency's strictest safety threshold. Atrazine, used to kill weeds from cornfields in the Midwest and lawns in the Southeast, has been linked in studies to cancer in humans and to deformities in frogs that caused them to grow both testes and ovaries. As EPA attempts to write new rules for Atrazine, Natural Resources Defense Council is petitioning the Agency to ban the chemical, and factory workers have sued the manufacturer, Syngenta AG of Switzerland, claiming they got prostate cancer from workplace exposures to it.

Source: John Cushman, Jr., The New York Times, Sunday, June 2, 2002, p.28.

To support a ban on Atrazine, go to www.nrdcaction.org.