Gender inequality costs the global economy $28 trillion

September 29, 2015

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A new report from the consultants at McKinsey has confirmed something we’ve all known for some time: gender inequality has an economic cost.

According to the report, it’s costing as much as $28 trillion or 26 per cent of global annual GDP.

“This impact is roughly equivalent to the size of the combined Chinese and US economies today,” the report says.

“Gender inequality is not only a pressing moral and social issue but also a critical economic challenge. If women—who account for half the world’s working-age population—do not achieve their full economic potential, the global economy will suffer.

“We acknowledge that gender parity in economic outcomes (such as participation in the workforce or presence in leadership positions) is not necessarily a normative ideal, as it involves human beings making personal choices about the lives they lead; we also recognize that men can be disadvantaged relative to women in some instances. However, we believe that the world, including the private sector, would benefit by focusing on the large economic opportunity of improving parity between men and women.”

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Lessons from Volkswagen

September 24, 2015

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So the big story today is the Volkswagen scandal claiming its first biggest scalp in the resignation of Volkswagen chief executive Martin Winterkorn.

It’s going to get worse. Volkswagen are facing time in jail with US authorities planning criminal investigations after discovering that the company had programmed computers in its cars to detect when they were being tested and alter the running of their diesel engines to conceal the true level of emissions.

Volkswagen is also facing $18 billion in fines. And there will be class action,

This will hit Germany, the engine room of Europe’s economy, because the auto industry plays an important role in Germany, both politically and economically.

Germany’s automobile sector includes the world’s biggest and best-known names, from VW itself to high-end makers like BMW, Daimler/Mercedes-Benz, and Opel, the German arm of US giant General Motors. It also includes some of the world’s leading parts suppliers, such as Bosch, Continental and ZF Friedrichshafen as well as myriad small and medium-sized enterprises all along the value chain. All up, the sector clocked up combined annual sales of 385 billion euros ($430 billion) last year, or 14 percent of Germany’s gross domestic product.  Already some industry observers, such as analysts at CMC Markets, are expressing concern about the “spill-over effects” the Volkswagen scandal will have on the wider German economy and Europe in the weeks and months ahead.

As CMC writes in its blog:

“Of all the factors that we saw yesterday the one that is most likely to be a particular worry is the spill over effects this drama surrounding Volkswagen will have on the wider German economy in the weeks and months ahead at a time when their appears to be some evidence that growth may well be slowing in the euro area.

“It is estimated that 1 in 6 German jobs depends in some way on the car industry, as well as 17.9% of German exports, and this week’s events have put a huge dent in the panel work of how the German automotive industry is perceived by its customers globally.

“It is going to take quite a lot of skilled panel work to repair the dents in the “Made in Germany” brand, particularly given this scandal has exposed a deliberate attempt to deceive. What can they have been thinking?

“The implications for German GDP growth could well be significant in the coming months, if global trust is lost, not only for VW but also the rest of the European car industry, if evidence is uncovered that we aren’t seeing an isolated case.

“With Europe’s second biggest economy in France already struggling, with GDP expected to be confirmed at 0%, Europe can ill afford a setback to its main growth engine of Germany.”

At the same time, Volkswagen’s deception is a warning for every company.

John Gapper reminds us in the Financial Times that the car industry is not alone in such behaviour.

“The same thing happens in many industries, from banking to pharmaceuticals. A few companies decide gently to bend the rules and stretch regulations and others soon follow. They know it is a little dodgy but it becomes normal practice and regulators turn a blind eye. Then, one day, someone goes too far and scandal erupts.”

Volkswagen’s emissions scandal

September 22, 2015

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So now the US Justice department has launched a criminal investigation into Volkswagen deliberately cheating on federal air pollution tests.

As Bloomberg reports, the criminal probe will provide an early test of the Justice Department’s newly stated commitment to holding individuals to account for corporate wrongdoing.

Just as importantly, if charges are laid, it will open Volkswagen to civil action which could cost the company billions.

On Friday, Volkswagen was ordered to pull 500,000 vehicles off the road after it admitted to the US regulator, the Environmental Protection Agency (EPA), that it had fitted “defeat devices” to its cars which are designed to get around emissions tests in the laboratory. The software activates full emission controls only during testing but then reduces their effectiveness during normal driving. This enables cars to get better fuel economy at the expense of higher nitrogen-oxide emissions. It puts more zip into the VW.

,VW’s share price has slumped by almost 20 per cent on the news.

Why is this happening? Because as reported here, other governments around the world are now looking into the matter to see if their emission standards have been violated by Volkswagen.  In plain language, this may not be an isolated case. The tail risk has just got much bigger.
What makes this case even more egregious is the difficulties regulators are now having managing all those greenhouse gas emissions we are now pumping out in the air. Volkswagen has done the wrong thing and has betrayed society.

A moral approach to refugees

September 5, 2015

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As the son of refugees, the subject of asylum seekers is close to my heart.

My parents, who experienced the Holocaust, Stalin’s Soviet Union and fighting at Stalingrad, came to Australia because it was the safest place they could find.

They weren’t queue jumpers. There was no queue. In 1950, Australia was quiet, insular and conservative. But it was safe, and that was all my parents cared about. They fell in love with the country because they found Australians were friendly.

My mother always talked about how she loved the way people would smile at her in the street. That was unheard of where she came from. Such a friendly country, she said, they took us in because we were outsiders.

This is why the Reclaim Australia rallies against asylum seekers, and the politicians who attend them, seem to be so un-Australian. At least through my refugee eyes. As are the policies discriminating against asylum seekers. As is a government that seeks to hide atrocities perpetrated at Manus Island and Nauru, Australia’s answer to Guantanamo Bay, from the world. Or a Prime Minister who calls a drowned Syrian toddler an illegal migrant.

The response to asylum seekers is rooted in a profound compartmentalisation where what’s moral and right, is separated off from the politically expedient.

John Howard’s immigration minister, Philip Ruddock, was a member of Amnesty International. And yet the same person was responsible for human rights violations and incarcerating asylum seekers without charge.

Amnesty International was critical of the policy of mandatory detention. Ruddock was blunt when asked how he could reconcile his actions as a minister and his membership of Amnesty International. He said he had waited 22 years to become a minister and he wasn’t going to waste that opportunity.

Scott Morrison is a devout Christian. Asked by journalists how he reconciled his faith with the incarceration of asylum seekers, he replied, “How I reconcile [my role] with my faith is, frankly, a matter for me”.

This is the compartmentalisation that stops political leaders from drawing a moral framework around asylum seekers. It creates a series of bewildering contradictions. The result: an asylum seeker policy that’s not moral but amoral.

What’s missing here is a moral framework that can hold the contradictions together. What’s needed is something that helps guide people to a resolution that could work politically without locking people up. A way to create a humane system that does not break people down mentally, incarcerate them in detention centres which are worse than jails, where children are sexually abused, guards give detainees marijuana in exchange for sex and asylum seekers stitch their lips shut in an act of protest.

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A framework could be drawn using the nineteenth century concept of Utilitarianism and twentieth century definitions of human rights.

Utilitarianism was developed by John Stuart Mill and Jeremy Bentham.  The model allowed legislators to decide on laws that were morally best. Theirs was a model that provided greatest balance of good over evil. .Legislators had to ask, who would be affected by each action, and examine what benefits and harms would be derived. They would have to choose which action would produce the greatest benefits and least harm. They would focus on society and the community, not on their prospects of being re-elected and holding on to power.

Our framework for asylum seekers can also draw on human rights. What makes humans, wherever they may be from, different from animals, is that they have a dignity. This dignity is based on our freedom to choose what we do with our lives. Central to this is a set of rights: the right to be told the truth–and be told about matters that would affect our choices, the right not to be injured and finally, the right to do whatever we wish in our personal lives without violating the rights of others.

It is quite clear that asylum seekers have not been treated well under either Utilitarianism or human rights; .Our lack of framework creates a gap between what’s morally right and politically expedience.

Incarceration without charge, denial of basic health care, sexual assault, other humiliations, as well as harm and traumatisation of children, are all occurring. I would argue this leaves a human just one step from death.

We must urgently apply a moral framework to allow a humane resolution to the problems. The framework would close the gap and give asylum seekers dignity.

The policies as they stand right now are unsustainable. Refugee numbers around the world are increasing. And in generations to come people will question how we lost our reputation as the safest place in the world for refugees and our capacity to welcome outsiders. And how we colluded with the moral vacuum.

Yuan to become global currency

August 15, 2015

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In the 19th century, the British pound was the dominant currency. In the twentieth century, tikw as the greenback. We are now seeing China’s yuan moving into the ascendency.

China’s devaluation of the Renminbi (yuan) came as a surprise to many observers. At the start of the week, the People’s Bank of China debased the yuan 1.9 per cent against the US dollar. That was followed up today by another 1.6 per cent devaluation.

This was important because until now, the yuan had been pegged to the US dollar. Now the People’s Bank of China (PBOC), acting on the instructions of the Chinese government, were letting market forces take over.

Why? Because this devaluation is latest step in the yuan’s ascendency towards reserve currency status. China has ambitions to join the International Monetary Fund’s (IMF) basket of currencies. The so-called Special Drawing Rights (SDRs) are long touted as the long-term replacement for the US dollar’s hegemony over global finance. China wants the yuan to replace the US dollar’s control over markets.

As Bloomberg tells us, IMF requirements that reserve currencies must be freely usable played a role in the PBOC’s move, according to Commerzbank AG. The IMF  keeps saying that the yuan needs to be more flexible. It needs to be unpegged from the greenback. Hence the devaluation.

“The yuan exchange rate will be more market-oriented going forward,” Zhou Hao, an economist at Commerzbank in Singapore, wrote in a report. “Volatility of both the onshore and offshore rates will pick up significantly.”

YaleGlobalOnline maintains that any inclusion of the Renminbi is centred in demonstrating China’s status as an equal among world powers, arguably a superpower, to the rest of the world and especially to Chinese citizens. In any case, the yuan is still loosely pegged to the dollar.

But that’s the case for now. The ground is shifting. What we are seeing is the start of China’s complete integration into the global economy. Until now, the only bit of China’s economy that was integrated into the global economy was the trading of goods and services. We can now expect to see China’s financial system play a greater role with greater trade of the yuan in currency markets. The yuan will become the new global currency.

China’s impossible emissions battle

August 14, 2015

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In the lead up to the Paris summit in December, it’s important to look at what China is doing to wind back climate change. There’s a good reason for that. China accounted for nearly 30 per cent of global CO2 emissions in 2013 so its actions have profound global implications.

This is why it’s carbon emissions scheme is so important. China’s plan is to reduce the carbon intensity of the economy by between 60 per cent and 65 per cent by 2030. It also contains significant targets for non-fossil energy and forests.

That’s way ahead of the rest of the world with the US promising cuts of 41 per cent by 2030, the European Union by around 34 per cent and Canada 30 per cent. And don’t even talk about Australia which has given a commitment to reduce its emissions by only 26 per cent.  Since being elected in 2013, the Liberal National Coalition has unpicked Australia’s climate and energy policies, repealing carbon and mining taxes, scaling back renewable energy targets and trying to abolish the Clean Energy Finance Corporation, a state lender to the renewable sector.

Mind you, the problem with that plan is it’s not legally binding, it’s just a goal. The bottom line is that China currently has a population of 1,268,853,362. It’s pumping out vast amounts of noxious, poisonous gases into the atmosphere, and contributing to pollution that defies measurement causing irreparable damage to the ozone and environment. And regardless of its carbon emissions scheme, it will continue to do that.

That’s why it’s so disturbing to read reports that air pollution is killing an average of 4,000 people a day in China. According to the study by Berkeley Earth, an independent research group funded largely by educational grants, deaths  related to the main pollutant, tiny particles known as PM2.5s that can trigger heart attacks, strokes, lung cancer and asthma, total 1.6 million a year, or 17 percent of China’s mortality level.

A 2008 study in the journal Energy Policy estimated that one-third of China’s greenhouse gas emissions were produced in manufacturing electronics and other goods for export worldwide. Those emissions soared from 230 million tonnes in 1987 to 1.7 billion tonnes of carbon dioxide in 2005.

For those of us in countries purchasing Chinese and other foreign goods, it is worth considering how what we buy affects other people. If this thought makes you uncomfortable when choosing gifts this Christmas, we do have a choice

Russia and NATO preparing for war

August 12, 2015

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War between Russia and the NATO alliance should be unthinkable but a European think tank says both sides are preparing for it.

The Financial Times reports that the European Leadership Network which comprises former military figures, politicians and policymakers is presenting an analysis of recent military exercises by the two blocs that indicates each side is “preparing for the worst”.

The analysis is based on its observations of  the two biggest military war games this year — Nato’s Allied Shield exercises and Russia’s “snap” drills — to assess dispositions and strategic thinking on both sides.

In March 2015, Russian conducted “snap exercises” that saw 80,000 troops engaged in long-range deployments and simulate combat on a scale that made the United States or Nato the only possibly adversary.

Nato’s exercise “Allied Shield,” in June this year, saw 15,000 allied troops engaged in a series of mock operations including response to a Crimea-style infiltration of irregular forces.

Now officially, both exercises are supposed to have hypothetical opponents in mind but “the nature and scale of the operations indicate otherwise”, says the ELN report

“Each side is clearly training with the other side’s capabilities and war plans in mind.”

“Whilst spokespeople may maintain that these operations are targeted against hypothetical opponents, the nature and scale of them indicate otherwise: Russia is preparing for a conflict with NATO and NATO is preparing for a possible confrontation with Russia.”

Greece finally strikes a bailout deal

August 11, 2015

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So the big story is that after months of agonised negotiations, Greece has reached an accord with its creditors

Greek newspapers report that the deal came close to being struck at around 8am Tuesday following talks that began Monday morning

Details aren’t clear yet but the Greek government has to implement measures including changes to tonnage tax for shipping firms, reducing the prices of generic drugs, a review of the social welfare system, strengthening of the Financial Crimes Squad (SDOE), phasing out of early retirement, scrapping tax breaks for islands by the end of 2016, implementation of the product market reforms proposed by the Organization for Economic Cooperation and Development (OECD), deregulating the energy market and proceeding with the privatization program already in place.

Finance Minister Euclid Tsakalotos told reporters that it’s very close to being finalised.

“There are a couple of very small details remaining on prior actions.”

Once it’s finalised, it will go to Greek Parliament to be ratified.

Still, the country is not out of the woods yet.

Bloomberg reports that Greece’s ruling Syriza party will hold an emergency congress in September as Prime Minister Tsipras tries to quell internal opposition. This could split the party and force early snap elections.

And then in October, the European Central Bank will conduct a stress test of the Greek banks.

This could still unravel. The big question is what happens politically in Greece. Will the deal hold? Or will we be back here discussing it again in three years’ time?

Greece’s health care system in turmoil has resulted in the growth of illegal clinics

August 10, 2015

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The financial crisis has devastated the health care system in Greece. Greece’s once-massive public health system has been a top target for spending cuts to finance the country’s debts to international creditors. The healthcare budget has been cut by almost 50 per cent since 2009, as the prices even insured patients pay for medicines have shot up.

As reported here, Greek hospitals are on the brink of collapse. Government health spending plummeted 25 percent between 2009 and 2012. Spending on drugs has fallen by 32 per cent since 2010.

As a result, public hospitals have had to drastically cut their budgets, in some cases by as much as 50 percent, firing staff, cutting back on testing kits and supplies and abstaining from hiring new doctors to replace those who have retired or have left the country.

Add to that the 2.5 million Greeks, a quarter of the population, left uninsured.

As a result, illegal clinics are springing up around the country. As reported here, there are now more than 40 ‘solidarity’ health clinics across Greece run completely by volunteer doctors and regular citizens. No one gets paid, it’s completely voluntary driven by a sense of solidarity in the community.

The clinics are unregulated and illegal.  But government regulators have turned a blind eye. They know the system is crippled and they know how much the public health system has come to rely on this small army of volunteers.

China stock market protection racket

August 8, 2015

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So China is desperately trying to keep its stock market together, to stop another crash.

The Wall Street Journal reports that the Chinese government is getting China’s securities brokers and fund management firms to step up supervision of margin trading.

Margin trading is the term for leveraged investment practice that utilizes borrowed money to purchase stocks.  Basically, mum and dad investors in China have been borrowing big time to buy stocks and that led to the steep selloff in recent weeks where the market imploded.

China’s stock market has experienced a sharp sell-off since mid-June and the turmoil continued into July despite an aggressive government rescue program. Share prices in Shanghai were down 14 per cent in July, the worst monthly performance since August 2009, according to its benchmark index.

So, how much money did Beijing actually spend trying to support the markets? Economist and Peking University professor Christopher Balding has calculated the money poured into the market by China’s pension funds, the People’s Bank of China,  China’s major securities brokers, China Securities Finance Corp and of course the Chines government and he has arrived at a mind-boggling figure —$1.6 trillion.

That’s more than six times the $247 billion the US government initially spent on the Troubled Asset Relief Program, or TARP, that was used to support financial institutions after the 2008 financial crisis. It’s easily the biggest bailout in history.

Will it help? Probably not. As the Financial Times points out, the amount of money borrowed by government-backed entities to calm the stock market in July alone has already surpassed any increase in capital raised from equity.

Put another way,  China’s stock market is now competing with other borrowers plunging the nation even further into debt.

That makes China a ticking time bomb for the global economy.