Authors: Doug McTaggart, Christopher Findlay and Michael Parkin
Our points are the following:
• The global financial crisis and recession have brought renewed calls for reform of the economic system and a greater degree of regulation of markets, especially financial markets.
• That idea is wrong. The current crisis is a failure of regulation that calls for not more regulation, but the right regulation.
• The crisis has also brought calls for the heads of economists for failing to anticipate and avoid it. That idea, too, is wrong: much economic research pointed to the emerging problem.
• More economic research (and teaching), not less, is the best hope of both emerging from the current crisis and of avoiding future ones.
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Author: Christopher Findlay, University of Adelaide
ADB President Haruhiko Kuroda has called for a new development paradigm for Asia and the Pacific. He is reported as arguing at the Bank’s Annual Meeting in Bali that Asia will need to rebalance growth, placing more emphasis on domestic demand and consumption. In doing so, he said, ‘Asia can lead the way in charting a new, globally beneficial development course’.
This is a response to a situation which has arisen because of inefficient and non-cooperative policy choices following the Asian financial crisis.
These choices relate to the inefficient management of risks associated with international capital flows and with the transmission of shocks to the domestic economy.
It is important to do now what might have been done a decade ago (the agenda of this set of reforms is a subject for another day).
But shifting to a new paradigm which has the consequence, or at least runs the risk, of closing economies is a bad choice. To do this is ‘throwing out the baby with the bathwater’. Kuroda calls for a paradigm shift away from trade, especially trade beyond the region.
Does this really make sense in the circumstances the region faces?
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Author: Christopher Findlay, Adelaide University
The Australian carried a story by Lenore Taylor on 7 April 2009 which reports:
Fifty-nine per cent of respondents to a special Newspoll taken last weekend said they believed Chinalco should not be allowed to increase its stake in Rio from 9 to 18 per cent of the company…while only 31 per cent said they thought the federal Government should allow the investment to go ahead. ..Eleven per cent of those surveyed said they were ‘uncommitted on the question of the Chinalco bid.
There are a couple of interesting aspects of these data – the first is the relatively small proportion of people, it seems, who are uncommitted and the second is the 2 to 1 ratio in favour of barring the deal.
Tom Switzer in December last year reviewed various polls on foreign investment and globalisation.
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Author: Christopher Findlay
NZ Prime Minister John Key said in a speech last week:
We simply must ensure that decisions taken now neither undermine the future prosperity of our country nor diminish the opportunities available to this and future generations of New Zealanders.
We simply must weigh up the fiscal costs of initiatives we take now against what those costs will mean for the Government books in the longer-term.
Because I know, and you know, that if we borrow excessively to look after the taxpayers of today, we will end up saddling our children with a mountain of government debt. In the more immediate future the prospect of an excessive level of debt would swiftly bring a downgrade from credit agencies, leading to higher interest rates and lower growth rates into the future.
And that
When it comes to the recession we need a dose of reality but we also need a dollop of confidence. Read more…
Author: Christopher Findlay
The FIRB criterion for assessing foreign investment proposals is the national interest. In the context of natural resource projects, this means capturing the value of the assets for sale.
We are reminded of this in recent comments on the Rio-Chinalco deal from two different angles.
China Iron & Steel Association secretary-general Shan Shanghua said last week
The $US19.5 billion ($30 billion) deal between Chinalco and Rio Tinto announced last week strengthened China’s hand in breaking a ‘duopoly’ in Australian iron ore mining.’ (source)
Shan is saying the way to look at the deal is in terms of its impact on competition. He assumes Australian producers have market power and wants to stop them using it.
Over the longer term, it’s possible Chinalco-Rio could break the duopoly… (but) it was too early to tell if the deal would have any effect in the short term’, Shan said.
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Author: Christopher Findlay
The dance between BA and Qantas is over, at least for a while.
The dancers are looking at other partners: BA has a Spanish interest and Qantas is apparently (and wisely) scanning the Asian horizon – reports are that next on its dance card might be Malaysian Airlines.
In any other globalised sector, these choices would be up to the market but not in aviation where rights of access to markets are still negotiated bilaterally and the identity of airlines that get access to those rights depends on their ownership.
In many aviation agreements, the rights to fly between two countries are only given to airlines owned by either country. Airlines of a third country are generally kept out. This is the case even in so-called Open Skies agreements. They do lift limits on capacity offered by designated, that is, locally owned, carriers but don’t open markets to third parties.
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Authors: Christopher Findlay and Andrew Watson
We’ve enjoyed reading the comments of Sherry Kong and others on the confirmation of a policy on the ability to trade in the use of land (both long term holdings and a short term rental market).
It will take some time to see the full impact of the policy and we can expect considerable regional variation. While there is likely to be an effort to protect arable land and the likelihood that many villages will continue to conduct informal land contract adjustments based on their local sense of equity and family structures change, some of the potential effects of this in agriculture could be greater ability to consolidate land into larger plots for higher levels of productivity, encouragement for migration given clarity of tenure over land, and the possibility of new forms of organisation and corporate structures in agriculture. Greater capacity to use the more liberal capital markets foreshadowed in the decision by borrowing against the use right in order to facilitate investment is also a possibility, though many observers in China still argue against developing the right to mortgage land.
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Author: Christopher Findlay
BHP is happy, Rio still wants a higher price or to stay in business, the customers are worried and state governments have their hands out.
That’s the bottom line of yesterday’s decision by the ACCC to approve the merger of Rio with BHP.
We still have to hear from the European and other competition authorities.
The ACCC argument was that the merged entity would have no incentive to hold back (iron ore) supplies in an effort to raise prices in the domestic market.
There would be a competitive response from the global market in the short run and in the medium term if it did so.
Iron ore making looks like a business with big barriers to entry, given the infrastructure involved and the specificity of the product. But the experience of recently rising prices demonstrates the short run supply response from marginal miners, and the scope to set up new projects world wide.
There are also other big providers out there, Vale from Brazil for instance.
So BHP might be happy, but what about Rio?
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Autors: Peter Drysdale and Christopher Findlay
Graeme Dobell (link) and Mark Thirwell (link) have comments on the Lowy site on our paper last week on Chinese foreign direct investment in the resource sector.
Graeme Dobell noted:
…Professor Peter Drysdale and Professor Christopher Findlay…In their view, policy on Chinese foreign direct investment in Australian mining has fallen into confusion over the last year. Or as they pose the problem: ‘It may seem a puzzle as to how we got ourselves into this pickle over Chinese FDI.’ The Drysdale-Findlay solution is for Australia to step back from its effort to place additional hurdles in the way of Chinese state-owned firms.
Mark Thirwell says that we come to ‘pretty much the same conclusion’ as he did in anop ed in The Australian in July when we conclude that: ‘There is no persuasive case for any change in direction over control of foreign direct capital inflows in response [to] the recent surge of interest of Chinese foreign direct investors in the Australian resources sector.’ So there will be no argument from him.
That said, he ventures two ‘additional’ arguments to which we should respond.
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Author: Peter Drysdale and Christopher Findlay
The last nine months has seen Chinese foreign direct investment in the Australia resource sector become an issue of policy interest. There are two big questions that the prospects of a significant rise in foreign direct investment (FDI) from China into the Australian resources sector have raised. Is the surge of FDI into Australian mining and energy consistent with achieving the traditional gains from foreign investment? And are there any particular problems associated with investment from foreign state-owned enterprises or state managed sovereign wealth funds?
These are among the questions addressed in a paper we presented today at a Crawford School Public Seminar (view the full draft paper here). We argue in the paper that there are no issues that cannot be dealt with under the umbrella of the established test of ‘national interest’ in managing the growth of Chinese FDI into the Australian minerals sector. Confusion has been introduced into Australian foreign investment policy over the questions of state-ownership and supplier-buyer relations in respect of Chinese investments and clarifying these issues is likely to be important to Australia’s capturing the full benefits from the growth of Chinese resources demand and longer term economic and strategic interests in China. Read more…
Author: Christopher Findlay and David Parsons
ASEAN members have a strong interest in the outcome of Australia’s great carbon debate.
Australian participants in the policy debate have been concerned with the uncertainties about the costs of meeting commitments under an ETS.
These costs would be lower if the field of options were greater.
A rule which says that carbon-reducing or offsetting projects can only be based in Australia (which might suit some of vested interests now putting their hands up) limits the options.
A rule which says offshore projects can be counted greatly expands the options.
This view was accepted in the recent Green Paper which in its Chapter 6 on International Linkages said
A ‘least cost’ approach would draw on real abatement opportunities wherever they arose throughout the world.
The Green Paper goes on to recommend the acceptance of emissions reductions that result from projects in developing countries (preferred position 6.8, p. 238).
ASEAN members can jump onto this opportunity, but they have to grapple with the Australian debate.
The devil is in the detail of implementation. More on that shortly. Read more…
Author: Christopher Findlay
The Qantas strikes, associated with the airline’s attempts to buy-in services from offshore, remind me of something I wrote in 1985 about the air transport business: that in the face of a more open trading regime, ‘civil aviation could be unbundled and industry-specific skills could be exported in a number of forms’.*
The consequence, I thought, could be the export of variety of services that contribute to the efficiency of the service that consumers finally get.
The pattern of unbundling may not have worked out in the way I was expecting (I thought then that the delivery of the final service might move offshore and that back-office functions might stay in Australia), but options like this are critical for the operation of competitive business and for getting consumers a good deal. Read more…
Author: Christopher Findlay
The Bradley Review of Australian Higher Education discussion paper is just out.
It documents the internationalisation of Australian education. The OECD data says that Australia has the highest proportion of international students of any OECD country (19.3 per cent of all students at Australian universities in 2005).
Nonetheless, the report appears naïve about the demand for tertiary places in Australia. Read more…
Author: Christopher Findlay
The WTO’s contribution to services reform is through its principles not its processes. Its processes exaggerate the anxieties which are impeding its own progress. We call for more effort to change services policy from opaque to transparent and to bring home the benefits of domestic reform.
The argument is set out below in and edited extract from my paper with Philippa Dee called Services: A ‘Deal-Maker’ in the Doha Round?, Chapter 3 in Monitoring Trade Policy: A New Agenda for Reviving the Doha Round [pdf] which includes contributions from Patrick Messerlin, Alan Deardorff, Robert Stern, Bruce Blonigen and John Whalley.
[In the mean time, the Mortimer review and its issues paper are well worth checking out for services trade. The review is due to report on 31 August]
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Author: Christopher Findlay
APEC Education Ministers met in Lima Peru this week. (text is here)
Projects which compare systems and policies in the teaching of maths and science, career and technical education, languages, and ICT applications were all endorsed. Ministers talked about ‘disaster risk reduction education’ and about how education systems can contribute to ‘equity and social inclusion’.
Ministers acknowledged the value of more efforts to facilitate international educational exchanges among APEC economies.
This means working towards increased reciprocal exchanges of talented students, graduates and researchers by strengthening the existing relationships. The exchanges will aim to develop skills in foreign languages, intercultural training, provide internship opportunities and strengthen professional competencies.
but otherwise they had little to say about the rising integration of the education sector across the region, and its implications, for example, for the question of who wins the ‘talent wars’ in these regulated markets.
This is a hot topic at tertiary level. Bill Tierney and I talk about a new wave of internationalisation in the tertiary sector and its opportunities (full text below). There are big challenges for institutions and economies, and so opportunities for regional cooperation.
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