Global economy

Ben Bernanke makes what is likely to be his final appearance before Congress this week. The Federal Reserve chief repeats the central bank’s intention to slow its $85bn a month in asset purchases later this year if the economy stays strong, but says that would not mean a weakening of Fed support for the US economy.

By James Politi in Washington. All times are BST

 

Jacob Frenkel, currently a chairman of JPMorgan International, will return as governor of the central bank of Israel, 13 years after leaving in 2000. He is taking over from the respected Stanley Fischer who will resign June 30, in an economic environment of slowing growth and rising property prices. Here is a handful of interesting reads (and a video) on his appointment and his past. Read more

When we look back on the FOMC meeting on June 19 2013, it will probably be seen as the moment when the Fed signalled that it was beginning the long and gradual exit from its programme of unconventional monetary easing. The reason for this was clear in the committee’s statement, which said that the downside risks to economic activity had diminished since last autumn, presumably because the US economy had navigated the fiscal tightening better than expected and the risks surrounding the euro had abated.

This was the smoking gun in the statement. With downside risks declining, the need for an emergency programme of monetary easing was no longer so compelling. The Fed has been the unequivocal friend of the markets for much of the time since 2009, and certainly ever since last September. That comfortable assumption no longer applies.

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Sampling wine at a Shanghai wine fair (AFP)

As the China-EU solar dispute deepens, oddly enough, wine has been brought into the fray.

Here are seven interesting factoids you may (not) know about China and wine.

1. Chinese investors have bought up 30 French chateaux vineyards over the past four years and they aren’t stopping at that. There’s another 20 deals in the pipeline. Will they be affected by any probe?

2. Chinese wine importers were prominent bidders in the recent Elysee wine sale.

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Was it the man or the country? Roberto Azevêdo is a polished negotiator, a seasoned trade diplomat and in many ways a perfect pick to head the World Trade Organization.

He knows his way around the Geneva-based organisation, can hit the ground running fully briefed on all the issues, and is well known and liked around the developing world – not least for his record of criticising the farm-subsidy policies of the USA and Europe. If anyone can revive the Doha round of trade talks, launched 12 years ago in an attempt to cut tariffs and trade-distorting farm subsidies around the world but now on life-support, it is surely him.

Yet Azevêdo, 55, is also Brazilian, a country with a patchy record on trade liberalisation and little openness to the rest of the world. Trade accounts for only 20 per cent of Brazilian gross domestic product. Brazil is also the leading member of Mercosul, a regional Latin American trade pact created in 1991 with great hopes that have since foundered. If Brazil can’t boost trade locally, what chance it can boost trade globally? Azevêdo’s nationality therefore makes him an unlikely leader of the WTO, especially as the organisation’s role as a broker of ambitious trade deals is in doubt given the rise of so many regional trade initiatives, such as the mooted US-European trade deal and the Trans-Pacific Partnership. Read more

(DOMINIQUE FAGET/AFP/Getty)Austerity appears to be an increasingly dirty word in Europe. The past week alone has seen European Commission President José Manuel Barroso, Bill Gross of Pimco and Italy’s new prime minister Enrico Letta calling for an easing of austerity.

Spain’s surpassing of the 6m unemployed mark on Thursday added fuel to the debate. But even in Germany, the austerity police of the eurozone, cracks are beginning to show ahead of the elections with the emergence of an anti-euro party.

a) Are there any austerians left? Yes. Here are some of them.

- UK: Chancellor George Osborne hit back at criticism over his apparent excessive austerity by claiming there is no other alternative. And after a tough week when he was criticised by the IMF over the excessive pace of his austerity programme, this week has brought better fortunes for his stance as figures showed a lower deficit and the economy expanded 0.3 per cent in the first quarter.

- Germany: Chancellor Angela Merkel’s view as articulated this week couldn’t be clearer: “I call it balancing the budget. Everyone else is using this term austerity. That makes it sound like something truly evil.” Germany is the only eurozone country with a 2012 budget surplus.

- US: The situation here is different because of sequestration, which triggered automatic spending cuts and tax rises. And the White House faces a July deadline to raise the borrowing limit or default on its debt.

- Latvia: The tiny Baltic state is emerging from a state of uber austerity – part of its bid to join the euro later this year – and it could end up being seen as a poster child for successful deficit cutting implementation, with real growth of more than 5 per cent in 2011 and 2012, despite the broader recession in Europe.

- Spain: The push by Europe’s fourth-largest economy to cut spending and raise taxes has led to record unemployment topping 6m for the first time in its recent history. The government of Mariano Rajoy announced economic reforms and structural measures on Friday.

- Italy: The technocrat government of Mario Monti has been steadfast in carrying out fiscal consolidation. All eyes will be on Mr Letta, who has already said: “Europe’s policy of austerity is no longer sufficient”. Read more

Across the world, the ability of multinationals to exploit cracks in the international tax system has angered an austerity-weary public. But as policy makers draw up plans to close such gaps, the spotlight has fallen on the countries that help them pay less tax. Does it really make financial sense for Ireland to have a corporate tax rate of 12.5 per cent? Why are some American states looking to cut their corporate tax rates even as they struggle to pay for basic services? Why do countries compete instead of collaborate on tax?

As part of a new Financial Times’ series, the Great Tax Race, the FT’s taxation correspondent Vanessa Houlder was online on The World Blog on Tuesday and answered your questions about tax avoidance. Please see the comments section for her answers.

Here is a sample of some of the pieces in the series: Read more

Fire at Albion Mill, Blackfriars Bridge, London, March 1791. Painting by T. Rowlandson

Fire at Albion Mill, Blackfriars, London,1791. Painting by T. Rowlandson

The history of mass manufacturing is stitched through with accidents and peril. The first factories, which powered the industrial revolution in 18th century Britain, brought death and injury to many workers, including children. Mill fires in the UK were so common that some industrialists bought their own steam fire-engines in an effort to bring down insurance premiums.

The factory model spread fast. By the 19th century, the word ‘sweatshop’ had begun to enter popular parlance, with Charles Kingsley referring to ‘sweaters’ – or garment workers – in his 1850 tract ‘Cheap Clothes & Nasty’ (“Men ought to know the condition of those by whose labour they live”, he warned). Meanwhile, in the US:

“The term ‘sweatshop’… was meant to describe “sweated labor,” work that a big clothing manufacturer contracts out to a smaller firm… The labor was “sweated” because of the conditions of the factories – cramped, crowded, and full of damp heat from the steam-driven pressers.” – Bill Buford, ‘Sweat is Good’, The New Yorker

How did things get better? Safety standards encoded in law, industrial design improvements, the growth of unions, and public outrage helped bring change to the factories of western economies. But all too often, the impetus for reform seemed to require the catalyst of a terrible accident.

Today, the majority of factory accidents (though not all) take place in the developing and newly industrialized world – places like Bangladesh, Pakistan, China and India. The death of more than 200 people this week in a factory on the outskirts of Daka is a challenge both to the Bangladeshi government, and to western retailers.

The cost of change, to some observers, seems prohibitive – but if passed on to western consumers, it might actually be tiny. Jason Motlagh and Susie Taylor report: “An analysis by WRC estimates the garment industry would have to spend some $3 billion over five years to bring Bangladesh’s roughly 4,500 factories up to Western standards. That amounts to less than 10 cents a garment.”

*****

Here are five of the worst factory accidents. There are many, many more. You will notice that we’ve focused on recent decades, but only because these were the best documented online. You may also notice that there are certain factors that the worst incidents have in common. The most frequent is locked doors.

1) May 25, 1911: The Triangle Shirtwaist Factory Fire, New York

Firefighters at the Triangle Shirtwaist Factory, March 25, 1911. Photographer: Brown BrothersDeath toll: 146 people, mostly Jewish and Italian immigrants, mostly women.

The owners of Triangle Shirtwaist, Isaac Harris and Max Blanck, were indicted by a grand jury on charges of manslaughter a few weeks after the fire. You can read a transcript of the proceedings of the case via Cornell University. The chief prosecutor, Assistant District Attorney Charles S. Bostwick, pulled no punches.

“Others ran to the Washington place door. One of these was Margaret Schwartz, now dead. And it is for her death that these defendants are now on trial.

Gentlemen of the jury, that door was locked. Those who ran to that door cried out ‘That door is locked. My God, we are lost.’ They were lost. That locked door barred their escape.”

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If commodities exporters were pinning hopes on an acceleration in Chinese growth, Monday was not a good start to the week. The disappointing gross domestic product statistics for the first quarter give the likes of Australia, Brazil and Indonesia plenty to be worried about.

As one investor put it: “For the global economy this data is bad news. Commodity exporters are screwed (especially those needing exports to China as key component). I would be very worried about places like Brazil, Indonesia, Australia and the like. The current level of GDP growth in China is OK with China but not OK for the currencies above.” Read more

The optimism of the early Chávez years is fading (Getty)

Landing in Maiquetia, Venezuela’s main international airport, is always a bit like stepping through the looking glass no matter where you’re coming from. But arriving from neighbouring Colombia is a stark reminder of just how far the fortunes of these two countries have diverged over the past 15 years or so.

At the turn of the century, Colombia was under the cosh – from the guerrillas, the paramilitaries, drug traffickers, often all at the same time. Bogotá was an austere, gloomy place. The only way seemed to be down. Today, its refurbished El Dorado airport is all gleaming efficiency – perhaps the slickest entrepôt on the continent. The capital’s streets are thrumming, the Colombian personality remains upbeat and can-do, democracy is effervescent (and bumpy, like all healthy democracies), inflation is low, and while the country’s peace talks with the Farc guerrillas is sometimes a halting process, government security officials have a spring in their step. I suspect the talks are going far better than many believe and a deal could be possible in a number of months. Peace could then see the economy really take off and the country properly attack its glaring inequalities and income disparities.

In Venezuela everything is al reves – the opposite. Read more

The Chinese currency, Renminbi, being counted out by an employee at a branch of Industrial and Commercial Bank of China Limited (ICBC). (Photo by ChinaFotoPress/Getty Images)

(ChinaFotoPress/Getty)

Today brought yet another headline about the apparently relentless rise of the Chinese economy. The OECD predicts that China will be the world’s largest economy (in PPP terms) by 2016. Not long, now.

Yet there are still many China bears – both inside the country and outside it. Those who suggest that there is something rotten in the state of China point to many things, from the environment to corruption. One of the most popular bearish arguments is the extent of capital flight from the country. If everything is so good in China – say the bears – how come so many rich Chinese are eager to get their money out of the country? Perhaps they know something we don’t? Read more

Japan’s Abenomics and the world economy

Japan is still the world’s third-largest economy, but has also been stagnating and idling for twenty years. Now a new government led by Shinzo Abe has come to power pledging to take dramatic steps to turn the situation around. The potential rewards of this policy are high, but so are the risks – and not just for Japan but the whole world economy. Martin Wolf, the FT’s chief economics commentator and Jonathan Soble, Tokyo correspondent, join Gideon Rachman to discuss the consequences of Abenomics.

It is a common error in politics to underestimate your adversary. Ever since Hugo Chávez fell ill from cancer two years ago, many imagined that his rule and his oil-fuelled socialist revolution would also end with his death, undermined by its own prodigious inefficiency and corruption. But now that the Venezuelan president has actually died, it no longer quite looks that way.

Chávez is now bound for mythology. In the imagination of his mourning supporters, he may come to occupy a space similar to Che Guevara’s – another martyr of the revolutionary left, albeit one without as large a cheque book. Indeed, Chávez’s early death is likely to prolong “chavismo” for a few more years rather than bring it to an abrupt end. Read more

The financial panics are over. Now we must deal with the longer-term aftermath.

I advanced this thesis at a private dinner last night and, to my surprise, Nouriel Roubini agreed with me. More precisely, he agreed that “tail risk” had been sharply reduced.

The big change of the last 12 months has, of course, been in the eurozone. This has something to do with policy improvements in vulnerable countries, particularly Italy and Spain. It has even more to do with the willingness of the European Central Bank, under the redoubtable Mario Draghi, to use its power to reduce break-up risk and offer potentially unlimited liquidity to banks and sovereigns under stress. Read more

The FT’s world news desk brings you their picks of the day… Read more

Alan Simpson (left) and Erskine Bowles Getty Images

If there is one thing at which Washington does not excel (an admittedly rich menu), it is self-deprecation. The city operates to a kind of Gresham’s Law in which self-importance drives out whatever humour is to be found. Which makes the latest intervention from Alan Simpson, the co-keeper of the nation’s fiscal conscience, along with Erskine Bowles, all the more enjoyable. At 81, the former Republican senator has made his fair share of gaffes – not least his remark in 2010 about the “lesser people” who rely on Social Security. He added: “We’ve reached a point now where it’s like a milk cow with 310m tits.” He never really apologised.

With just three weeks to go before the US arrives at a deeply sobering fiscal cliff, Mr Simpson has developed a better line in humour since then. Last week, Mr Simpson said that he hoped that Grover Norquist, the keeper of the Republican anti-tax conscience, would “slip into” the same bathtub in which he famously wants to drown government. Then on Wednesday, Mr Simpson descended into the idiom of the lesser people – or at least the younger ones – with the releases of a “Gangam-style” video exhorting viewers to take to the social networks and campaign against the fiscal cliff . Read more

Like the European Christmas, America’s Thanksgiving is edging towards being an entirely retail-driven festival. Black Friday, the day after the holiday, has been the busiest shopping day of the year for a while; we now also have Small Business Saturday and Cyber-Monday (for online buyers), and no doubt some marketing fiend somewhere is seeking to theme Sunday and Tuesday also.

Those capitalistic Puritans would have been proud, right? Max Weber says so. Liberated from the clutches of a static and stultifying Europe (and skipping all those EU summits), they worked hard, saw profits and wealth as evidence of God’s calling, and we ended up with the greatest economy on earth.

Well, not really. Not only were they pretty feeble producers themselves to begin with – Bill Bryson claims the Mayflower carried not a single cow or horse or plough (plow, whatever) or fishing line – but the Massachusetts colonists had some peculiar views about business. Read more

Intriguing piece in the Economist about “Chilecon Valley”, Chile’s attempt to snaffle some of the start-up tech talent driven out of the US by self-destructive American immigration laws. Some public seed capital and easy-to-get work visas and the sector is up and going.

So where does this leave the argument that a tough intellectual property rights regime, particularly with software and other tech patents, is necessary for innovation? Chile was forced to tighten up its patent and copyright law as a result of its 2004 bilateral trade deal with the US, but Washington remains unhappy about the implementation. Chile is one of the dirty dozen countries (actually 13 in 2012) on USTR’s ominously named annual Priority Watch List for poor IP protection, and Washington is trying to raise the IP bar yet higher for Chile and the other countries in the Trans-Pacific Partnership. Read more

IMF headquarters in Washington. Saul Loeb/AFP/Getty Images

Saul Loeb/AFP/Getty Images

Yesterday, I was all “the emerging markets have a point about running the IMF”. Read more