FDI fell by $0.7 trillion in 2009

The latest figures have revealed that the foreign direct investments (FDI) fell by a $0.7 trillion in 2009.  The US and China remained the largest magnets for FDIs.

India, however, has to be looked in a different light. Compared with FDI, the sums sent home by the expatriate Indian workers are by far significantly large, which shows that one should have a more composite instrument of measuring an economy’s ability to attract all foreign capital that arrives within its borders legally.

Also FDI fell by only 2.6% in 2009 in China and in fact FDI increased in Germany and Italy over the same period.

From the weekly Economist

Foreign direct investment is on the wane

Feb 12th 2010 | From The Economist online

THE flow of foreign direct investment (FDI) fell by 39% in 2009 to just over $1 trillion, from a shade under $1.7 trillion in 2008, according to the UN Conference on Trade and Development. All kinds of investment—equity capital, reinvested earnings and intra-company loans—were affected by the downturn. Rich countries saw FDI inflows plunge by 41%, and foreign investment into developing countries fell by more than a third. Not every country was badly hit. FDI into China, where economic growth remained robust, declined by only 2.6%. Foreigners actually invested more in Germany and Italy last year than in 2008. Despite FDI plunging by 57% last year, America remained the world’s top investment destination.

AFP

Krugman favours the conservative Canadian banking system

 

http://www.nytimes.com/2010/02/01/opinion/01krugman.html

Good and Boring

By PAUL KRUGMAN

In times of crisis, good news is no news. Iceland’s meltdown made headlines; the remarkable stability of Canada’s banks, not so much.

Yet as the world’s attention shifts from financial rescue to financial reform, the quiet success stories deserve at least as much attention as the spectacular failures. We need to learn from those countries that evidently did it right. And leading that list is our neighbor to the north. Right now, Canada is a very important role model.

Yes, I know, Canada is supposed to be dull. The New Republic famously pronounced “Worthwhile Canadian Initiative” (from a Times Op-Ed column in the ’80s) the world’s most boring headline. But I’ve always considered Canada fascinating, precisely because it’s similar to the United States in many but not all ways. The point is that when Canadian and U.S. experience diverge, it’s a very good bet that policy differences, rather than differences in culture or economic structure, are responsible for that divergence.

And anyway, when it comes to banking, boring is good.

First, some background. Over the past decade the United States and Canada faced the same global environment. Both were confronted with the same flood of cheap goods and cheap money from Asia. Economists in both countries cheerfully declared that the era of severe recessions was over.

But when things fell apart, the consequences were very different here and there. In the United States, mortgage defaults soared, some major financial institutions collapsed, and others survived only thanks to huge government bailouts. In Canada, none of that happened. What did the Canadians do differently?

It wasn’t interest rate policy. Many commentators have blamed the Federal Reserve for the financial crisis, claiming that the Fed created a disastrous bubble by keeping interest rates too low for too long. But Canadian interest rates have tracked U.S. rates quite closely, so it seems that low rates aren’t enough by themselves to produce a financial crisis.

Canada’s experience also seems to refute the view, forcefully pushed by Paul Volcker, the formidable former Fed chairman, that the roots of our crisis lay in the scale and scope of our financial institutions — in the existence of banks that were “too big to fail.” For in Canada essentially all the banks are too big to fail: just five banking groups dominate the financial scene.

On the other hand, Canada’s experience does seem to support the views of people like Elizabeth Warren, the head of the Congressional panel overseeing the bank bailout, who place much of the blame for the crisis on failure to protect consumers from deceptive lending. Canada has an independent Financial Consumer Agency, and it has sharply restricted subprime-type lending.

Above all, Canada’s experience seems to support those who say that the way to keep banking safe is to keep it boring — that is, to limit the extent to which banks can take on risk. The United States used to have a boring banking system, but Reagan-era deregulation made things dangerously interesting. Canada, by contrast, has maintained a happy tedium.

More specifically, Canada has been much stricter about limiting banks’ leverage, the extent to which they can rely on borrowed funds. It has also limited the process of securitization, in which banks package and resell claims on their loans outstanding — a process that was supposed to help banks reduce their risk by spreading it, but has turned out in practice to be a way for banks to make ever-bigger wagers with other people’s money.

There’s no question that in recent years these restrictions meant fewer opportunities for bankers to come up with clever ideas than would have been available if Canada had emulated America’s deregulatory zeal. But that, it turns out, was all to the good.

So what are the chances that the United States will learn from Canada’s success?

Actually, the financial reform bill that the House of Representatives passed in December would significantly Canadianize the U.S. system. It would create an independent Consumer Financial Protection Agency, it would establish limits on leverage, and it would limit securitization by requiring that lenders hold on to some of their loans.

But prospects for a comparable bill getting the 60 votes now needed to push anything through the Senate are doubtful. Republicans are clearly dead set against any significant financial reform — not a single Republican voted for the House bill — and some Democrats are ambivalent, too.

So there’s a good chance that we’ll do nothing, or nothing much, to prevent future banking crises. But it won’t be because we don’t know what to do: we’ve got a clear example of how to keep banking safe sitting right next door.

Suburbs inevitable, but sprawl isn't

http://www.thestar.com/printarticle/758503

From The Toronto Star, Feb 01, 2010

Christopher Hume

City hall would like us to believe it has a plan, but it's developers who decide where and in what we live.

And, argues Murtaza Haider, director of the Institute of Housing and Mobility Studies at Ryerson University, "that builder is not a very educated builder. We need to convince builders that a high- and medium-density model is profitable. A lot of this is already taking place, but the toughest thing I have done in the last 15 years is talking to builders. They are motivated by an economic model that has worked for 50 or 60 years."

But as Haider and even a few developers have realized, that model is no longer sustainable. That would be news to many of the 400 to 600 builders operating in the GTA. Though the big firms do 80 per cent of the construction, that leaves a lot for the rest.

As Haider sees it, developers ignore planning realities; planners ignore economic realities. The demand for affordable middle-class family housing fuels the suburban market, but doesn't justify sprawl. The former may be inevitable, but not the latter. Typically the focus is on one or the other, however, rarely both.

"Suburbia is a result of the demographic needs of the population," he says. "Our problem is that planning is done without taking economic realities into account."

In this scenario, young couples happily ensconced in a downtown condo decide to have kids and then move to the 'burbs to get the room they need at a price they can afford.

"What we have is an economic reality," he explains, "but the built-form of suburbia is not a given. There is a desire for more space than you get in a two-bedroom unit downtown."

As for the gridlock that comes with suburban life, Haider says for most commuters it's not a problem. The limit, he notes, is 45 minutes; more than that and people start to get antsy.

"But," he makes clear, "transit is the only way to move people efficiently and sustainably. It has to be competitive in time and cost."

As he also points out, however, "No other system in the entire economy except road space is not paid for by users."

That means one thing: Road tolls, something few Canadian politicians are willing to discuss publicly. They will happen, of course, most likely when it's too late to make any difference.

Haider, and others, suggest implementing a system of graduated road charges on a temporary basis, say, six months.

"We have to start practising what we preach," he says. "Why do people need SUVs? I don't understand. It's time to get rid of excesses like SUVs. Our incentives are wrong; if you take away subsidies from SUVs, people won't buy them.

"Legislating our way to being green is difficult," Haider argues. "Our revealed preferences make it clear we are motivated by selfish interests."

Those interests, no matter how selfish, will change whether we like it or not. Factors such as the cost of gas, oil, electricity, heating and cooling will provide incentives of one sort or another, whether they go up or down.

"I'm an optimist," Haider insists. "I'm in the camp that believes we can do better. The question is whether we can change our built-form, not drastically but incrementally. We have the infrastructure, but do we have the capacity? The auto-carrying capacity of highways has peaked, but not the passenger capacity."

Sounds like an argument – but whether for carpooling or revolution isn't clear.

Poverty in Israel

[Revised on Feb. 02 after receiving input from a colleague at the Ted Rogers school of Management]

A recent report by OECD reveals the extent of poverty in Israel where  one in five people lives in poverty.

Israel is still a candidate to join the OECD. Poverty in Israel has not been the focus in the past where most deliberations about Israel have focussed on the Arab-Israeli conflict, or the strong high-tech performance and innovation in Israel that supported the economy.

The latest figures revealed that the percentage of population in households earning less than half of the national median income is around 20% in Israel. The same definition of poverty when applied to Canada suggests that almost13% are poor in Canada.

Source: OECD

Another disturbing trend in Israel is that 40% of the working age population does not work. Two groups stand out for the low labour force participation rates in Israel. The labour force participation rate is significantly low amongst the Arab women (who live in Israel) thus resulting in a relatively smaller workforce comprising the Israeli Arabs in general. Only one in five Arab Israeli women and 60% of the Arab men are employed. While a segment of the Arab women may have opted out of the labour force for cultural or other reasons, the low employment rate amongst the Arab males is difficult to explain . Furthermore, even the employed Arabs in Israel do not earn much since their wages are 60% of the average wage of non-Arab workers. This results in a very high incidence of poverty amongst the Israeli Arabs.

The other group comprise the ultra Orthodox Jews (Haredim) who are not active in the labour market because they focus on pursuing religious studies for which they receive financial support from the State. According to OECD, almost 50% of the Haredim women and only 25% of Haredim men hold jobs. The rest remain active with their religious responsibilities under State patronage.

The OECD report further states:

Israel has a highly segmented labour market, with Arabs and Haredi workers frequently having low-paid jobs. Overall, the proportion of people with relatively low earnings – two-thirds of the economy-wide median – is, like Canada, Hungary, Korea, Poland, the United Kingdom and the United States – in the 20-25% range (Figure 2 [reproduced above]). But Arab women and Haredi workers earn an average of around 70% of the economy-wide average wage. For Arab men, this figure is just 60%.

The dynamic high-tech sector, which accounts for 40% of Israel’s exports, offers attractive working conditions, but only provides 7% of jobs. Blue- and white-collar workers in long-established enterprises and civil servants also have good working conditions. But many workers outside these sectors – particularly those in low-skilled jobs in agriculture, construction and tourist services, for example – have low pay, few training opportunities and little job security.

Source: OECD

The fertility rate of the Arab Israelis and the Haredim are the highest in Israel. Almost 50% of the children entering the primary schools in Israel belong to these communities. This suggests that the rate of unemployment may rise in Israel in the future because of the rapid increase amongst the cohorts that do not work for a variety of reasons, and even when they do, their wages are much lower than that of the rest of the workers.

Another complication results from the fact that the children belonging to Arab and Haredim households mostly attend private schools or institutions that receive partial funding from the State. The downside of such practice is that integration of Arab and Haredim children with the children in the mainstream public school system becomes a challenge resulting in children being raised in ideological or cultural solitudes.

Given the income disparities in Israel and its unique demographic concentrations, Israel has to work hard to correct the basic fundamentals necessary to creating a society that is just and equitable.