World's top firms cause $2.2tn of environmental damage, report estimates

 

 

Report for the UN into the activities of the world's 3,000 biggest companies estimates one-third of profits would be lost if firms were forced to pay for use, loss and damage of environment

 Juliette Jowit

• guardian.co.uk, Thursday 18 February 2010 18.19 GMT 

Black clouds over the central business district, Jakarta.

The report into the activities of the world's 3,000 biggest public companies has estimated the cost of use, loss and damage of the environment. Photograph: Jewel Samad/AFP/Getty Images

The cost of pollution and other damage to the natural environment caused by the world's biggest companies would wipe out more than one-third of their profits if they were held financially accountable, a major unpublished study for the United Nations has found.

The report comes amid growing concern that no one is made to pay for most of the use, loss and damage of the environment, which is reaching crisis proportions in the form of pollution and the rapid loss of freshwater, fisheries and fertile soils.

Later this year, another huge UN study - dubbed the "Stern for nature" after the influential report on the economics of climate change by Sir Nicholas Stern - will attempt to put a price on such global environmental damage, and suggest ways to prevent it. The report, led by economist Pavan Sukhdev, is likely to argue for abolition of billions of dollars of subsidies to harmful industries like agriculture, energy and transport, tougher regulations and more taxes on companies that cause the damage.

Ahead of changes which would have a profound effect - not just on companies' profits but also their customers and pension funds and other investors - the UN-backed Principles for Responsible Investment initiative and the United Nations Environment Programme jointly ordered a report into the activities of the 3,000 biggest public companies in the world, which includes household names from the UK's FTSE 100 and other major stockmarkets.

The study, conducted by London-based consultancy Trucost and due to be published this summer, found the estimated combined damage was worth US$2.2 trillion (£1.4tn) in 2008 - a figure bigger than the national economies of all but seven countries in the world that year.

The figure equates to 6-7% of the companies' combined turnover, or an average of one-third of their profits, though some businesses would be much harder hit than others.
"What we're talking about is a completely new paradigm," said Richard Mattison, Trucost's chief operating officer and leader of the report team. "Externalities of this scale and nature pose a major risk to the global economy and markets are not fully aware of these risks, nor do they know how to deal with them."

The biggest single impact on the $2.2tn estimate, accounting for more than half of the total, was emissions of greenhouse gases blamed for climate change. Other major "costs" were local air pollution such as particulates, and the damage caused by the over-use and pollution of freshwater.

The true figure is likely to be even higher because the $2.2tn does not include damage caused by household and government consumption of goods and services, such as energy used to power appliances or waste; the "social impacts" such as the migration of people driven out of affected areas, or the long-term effects of any damage other than that from climate change. The final report will also include a higher total estimate which includes those long-term effects of problems such as toxic waste.

Trucost did not want to comment before the final report on which sectors incurred the highest "costs" of environmental damage, but they are likely to include power companies and heavy energy users like aluminium producers because of the greenhouse gases that result from burning fossil fuels. Heavy water users like food, drink and clothing companies are also likely to feature high up on the list.

Sukhdev said the heads of the major companies at this year's annual economic summit in Davos, Switzerland, were increasingly concerned about the impact on their business if they were stopped or forced to pay for the damage.

"It can make the difference between profit and loss," Sukhdev told the annual Earthwatch Oxford lecture last week. "That sense of foreboding is there with many, many [chief executives], and that potential is a good thing because it leads to solutions."

The aim of the study is to encourage and help investors lobby companies to reduce their environmental impact before concerned governments act to restrict them through taxes or regulations, said Mattison.

"It's going to be a significant proportion of a lot of companies' profit margins," Mattison told the Guardian. "Whether they actually have to pay for these costs will be determined by the appetite for policy makers to enforce the 'polluter pays' principle. We should be seeking ways to fix the system, rather than waiting for the economy to adapt. Continued inefficient use of natural resources will cause significant impacts on [national economies] overall, and a massive problem for governments to fix."

Another major concern is the risk that companies simply run out of resources they need to operate, said Andrea Moffat, of the US-based investor lobby group Ceres, whose members include more than 80 funds with assets worth more than US$8tn. An example was the estimated loss of 20,000 jobs and $1bn last year for agricultural companies because of water shortages in California, said Moffat.

The price of environmental destruction? There is none

Putting a price on nature becomes meaningless if we treat the ecosystems upon which we depend as mere commodities with a price for trading

•

'There is no wealth but life' ... smoke issues from a factory in Anfeh, Lebanon. Photograph: Joseph Eid/AFP/Getty Images

The economy is no stranger to creating its own fantasy world with little or no relation to the real one. We witnessed the damage that can cause when the banks thought they had stumbled on financial alchemy and could transform bad debt into good – economic base metal into gold.


Now it's possible that a much bigger error is coming to light. The rise and rise of global corporations lifted on a wave of apparent productivity gains may have been little more than a mask for the reckless liquidation of natural capital. It's as if we've been so distracted by our impressive speed of economic travel that we forgot to look at the fuel gauge or the cloud of smog left in our wake.

A new UN report estimates that accounting for the environmental damage of the world's 3,000 biggest companies would wipe out one-third of their profits. Any precise figure, however, is a matter of how risk is quantified and of where you draw the line. In 2006, for example, the New Economics Foundation (NEF), of which I am the policy director, looked at the oil companies BP and Shell, who together had recently reported profits of £25bn. By applying the Treasury's own estimates of the social and environmental cost of carbon emissions, we calculated that the total bill for those costs would reach £46.5bn, massively outweighing profits and plunging the companies into the red.

Yet in exercises like this, we quickly hit the paradox of environmental economics. By putting a price on nature, hopefully it makes it less likely that we will treat the world, and its natural resources, as if it were a business in liquidation. Yet there is a point when it becomes meaningless to treat the ecosystems upon which we depend as mere commodities with a price for trading. For example, what price would you put on the additional tonne of carbon which, when burned, triggers irreversible, catastrophic climate change? Who would have the right to even consider selling off the climate upon which civilisation depends? The avoidance of such damage is literally priceless.

If that sounds dramatic, consider that last September a large, international group of scientists published a paper in the journal Nature which identified nine key planetary boundaries for key biological systems upon which we depend. They found that we had already transgressed three of those, and were on the cusp of several others. All are potential points of no return as such complex systems begin interacting.

The huge advantage of the UN work is that it attempts to improve the feedback system between the economy and its ultimate parent company, the biosphere. Better risk assessment and value measurement is essential to help prevent what happened to banks happening to the planet.


The concept of a balanced budget, so loved by conservatives in relation to finance and spending, seems to be an alien concept when the consumption of natural resources and the production of waste is concerned. Yet it is far more important to achieve a balanced environmental budget than an economic one. You can always print more money, but you can't print more planet. As John Ruskin put it, "There is no wealth but life."

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Why the US Owes Haiti Billions:

 

 

By Bill Quigley

17 January, 2010
Countercurrents.org

 

Why does the US owe Haiti Billions? Colin Powell, former US Secretary of State, stated his foreign policy view as the "Pottery Barn rule." That is - "if you break it, you own it."

 

The US has worked to break Haiti for over 200 years. We owe Haiti. Not charity. We owe Haiti as a matter of justice. Reparations. And not the $100 million promised by President Obama either - that is Powerball money. The US owes Haiti Billions - with a big B.

 

The US has worked for centuries to break Haiti. The US has used Haiti like a plantation. The US helped bleed the country economically since it freed itself, repeatedly invaded the country militarily, supported dictators who abused the people, used the country as a dumping ground for our own economic advantage, ruined their roads and agriculture, and toppled popularly elected officials. The US has even used Haiti like the old plantation owner and slipped over there repeatedly for sexual recreation.

Here is the briefest history of some of the major US efforts to break Haiti.

 

In 1804, when Haiti achieved its freedom from France in the world's first successful slave revolution, the United States refused to recognize the country. The US continued to refuse recognition to Haiti for 60 more years. Why? Because the US continued to enslave millions of its own citizens and feared recognizing Haiti would encourage slave revolution in the US.

 

After the 1804 revolution, Haiti was the subject of a crippling economic embargo by France and the US. US sanctions lasted until 1863. France ultimately used its military power to force Haiti to pay reparations for the slaves who were freed. The reparations were 150 million francs. (France sold the entire Louisiana territory to the US for 80 million francs!)

 

Haiti was forced to borrow money from banks in France and the US to pay reparations to France. A major loan from the US to pay off the French was finally paid off in 1947. The current value of the money Haiti was forced to pay to French and US banks? Over $20 Billion - with a big B.

 

The US occupied and ruled Haiti by force from 1915 to 1934. President Woodrow Wilson sent troops to invade in 1915. Revolts by Haitians were put down by US military - killing over 2000 in one skirmish alone. For the next nineteen years, the US controlled customs in Haiti, collected taxes, and ran many governmental institutions. How many billions were siphoned off by the US during these 19 years?

 

From 1957 to 1986 Haiti was forced to live under US backed dictators "Papa Doc" and "Baby Doc" Duvlaier. The US supported these dictators economically and militarily because they did what the US wanted and were politically "anti-communist" - now translatable as against human rights for their people. Duvalier stole millions from Haiti and ran up hundreds of millions in debt that Haiti still owes. Ten thousand Haitians lost their lives. Estimates say that Haiti owes $1.3 billion in external debt and that 40% of that debt was run up by the US-backed Duvaliers.

 

Thirty years ago Haiti imported no rice. Today Haiti imports nearly all its rice. Though Haiti was the sugar growing capital of the Caribbean, it now imports sugar as well. Why? The US and the US dominated world financial institutions - the International Monetary Fund and the World Bank - forced Haiti to open its markets to the world. Then the US dumped millions of tons of US subsidized rice and sugar into Haiti - undercutting their farmers and ruining Haitian agriculture. By ruining Haitian agriculture, the US has forced Haiti into becoming the third largest world market for US rice. Good for US farmers, bad for Haiti.

 

In 2002, the US stopped hundreds of millions of dollars in loans to Haiti which were to be used for, among other public projects like education, roads. These are the same roads which relief teams are having so much trouble navigating now!

 

In 2004, the US again destroyed democracy in Haiti when they supported the coup against Haiti's elected President Aristide.

Haiti is even used for sexual recreation just like the old time plantations. Check the news carefully and you will find numerous stories of abuse of minors by missionaries, soldiers and charity workers. Plus there are the frequent sexual vacations taken to Haiti by people from the US and elsewhere. What is owed for that? What value would you put on it if it was your sisters and brothers?

US based corporations have for years been teaming up with Haitian elite to run sweatshops teeming with tens of thousands of Haitians who earn less than $2 a day.

 

The Haitian people have resisted the economic and military power of the US and others ever since their independence. Like all of us, Haitians made their own mistakes as well. But US power has forced Haitians to pay great prices - deaths, debt and abuse.

It is time for the people of the US to join with Haitians and reverse the course of US-Haitian relations.

 

This brief history shows why the US owes Haiti Billions - with a big B. This is not charity. This is justice. This is reparations. The current crisis is an opportunity for people in the US to own up to our country's history of dominating Haiti and to make a truly just response.

 

(For more on the history of exploitation of Haiti by the US see: Paul Farmer, The Uses of Haiti; Peter Hallward, Damming the Flood; and Randall Robinson, An Unbroken Agony)

 

Bill is Legal Director at the Center for Constitutional Rights and a law professor at Loyola University New Orleans. He is a Katrina survivor and has been active in human rights in Haiti for years with the Institute for Justice and Democracy in Haiti. Quigley77@gmail.com

 

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Myths about Immigration #4 - "Britain is overpopulated"

 

By Barry Curtis in the Independent

 

December 16th, 22:31

This is the fourth in my series questioning myths about immigration. The first three challenging "Britain is a soft touch", "British jobs for British workers", and "Immigrants are a burden to the economy" can be accessed here, here, and here. Now I am concerned with the pervasive myth that Britain is, or is becoming, overpopulated.

The view of Britain as overpopulated is held by the Optimum Population Trust - an influential group of pessimistic academics, right wing cranks like the British National Party, various House of Lords peers, green activists, and government leaders. The 'Balanced Migration' parliamentary group set up in 2008 believes in a one-in, one-out policy to stop Britain become more populous. Balanced Migration is chaired by Frank Field and Nicholas Soames, Labour and Tory respectively, and supported by the former Archbishop of Canterbury, Lord Carey of Clifton, and by the Muslim Labour peer, Lord Ahmed. But how believable is this idea?

The idea that Britain is overpopulated can seem plausible if you live in a tower block in the middle of a city. However not all of Britain is like this. In fact there are over 60 million acres in Britain - enough for one acre per person. If you are a member of a family of four, that means your household could have 4 acres. Furthermore only 8% of the land in Britain is actually settled. 46% is used in agriculture. This suggests the population could nearly double without pressing too hard on the boundaries of what is currently 'sustainable'.

Like all resources, land use is distributed by the market and enforced by the state rather than according to a conscious plan. Thus although there is enough land for each individual to have an acre, or half an acre if the population doubled, in fact a family of four is very lucky if it has one acre between them. Meanwhile the Duke of Buccleuch owns 270,900 acres. 69% of the UK's acreage is owned by 0.6% of the population. So what might initially appear as a lack of land per head, is really a social issue regarding how it is allocated. Britain is not overpopulated but it does have a social system that favours the few over the majority.

So if Britain is not overpopulated with regard to the amount of land available, what about with regard to public services? Might not public services all crumble if there was more pressure on them from an expanding population? Again, the problem is not too many people, but a political culture that lacks the vision to solve problems. If a public service such as a hospital or a railway appears to be overburdened, this is a political problem that could be solved by finding ways to increase capacity in each instance. To blame 'too many people' is to recast a political problem as a natural problem. This is a dangerous mistake because it prevents the search for humanistic alternatives to the political mistake and leads to draconian social policy against people - immigration controls are an example of this, healthcare rationing is another example.

Some might argue that Britain is overpopulated because we are reaching the end of 'finite resources'. But this too is an error. What becomes a resource depends very much on technological development - for most of human history, for example, uranium was useless. It was used 2,000 years ago to make glass more yellow, but that was it. Now the stuff can power whole cities. Coal was of prime importance 200 years ago but is now fading away in terms of importance to Britons. Oceans were once a barrier to man, but now can be mined for oil. In appropriate locations, the wind and the waves can be exploited for energy generation when in the past they were merely facts of life. Perhaps in a few hundred years, people will be mining the asteroid belt for new resources. And if nuclear fusion becomes a reality, the amount of energy anyone can use will become infinite, and therefore dirt cheap.

The notion that expanding populations use up all the resources and therefore indirectly kill themselves goes back to right-wing country parson Thomas Malthus (1766-1834). Today the argument is hysterically used by groups like the BNP to say Britain is dying under the weight of immigration, but in Malthus' time the argument was new. Malthus thought the increasing population (which he thought was attributable to the masses having too much sex) would become so large that there wouldn't be enough food to go around, and therefore people would starve, thus bringing the population size down again. But Malthus was refuted by history. What happened instead was that industrialised society created more and more food. The population could keep on expanding because humans were creative ingenious types, not mere devourers of resources.

In 1967, Malthus' basic argument was rehashed by Paul Ehrlich who wrote "The battle to feed all of humanity is over ... In the 1970s and 1980s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now." Ehrlich also thought there would be a generalised materials and goods famine by the mid 1980s. In fact food production outstripped household demand, as raw materials did industrial demand. The basic lesson we should learn from this is that Malthusians are always wrong because they never factor human ingenuity into their equations. And because economic migrants are often very enterprising people, it makes sense to abandon immigration controls in order that their talents might be used to benefit Britain's increasing population.

Arguing that there are too many people only comes to the fore in the context of an absence of a sense of common purpose. For example, at the Glastonbury music festival there is a highly concentrated population, just as there was on the 2003 anti-Iraq war marches. But the crowds add to the atmosphere because you're there for the same reason. Thus you don't think of Glastonbury or a big demo as 'overpopulated'. Individuals in society need to realise they have common goals if the myth of overpopulation is to wither away. And one such worthy goal could be to do battle with all the Malthusian arguments currently being thrown about.

To conclude, Britain is not overpopulated in any sense of the term.  Birth rates in the UK and across Europe are in decline - there were 1,014,700 births in Britain in 1964, compared to 716,000 forty years later. Britain's population is ageing. We need more immigrants to help make Britain bigger and better. Open the borders now!

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Life-threatening disease is the price we pay for cheap meat

 

Johann Hari: 

 

Modern factory farms have created a 'perfect storm' environment for powerful viruses

 
A swelling number of scientists believe swine flu has not happened by accident. No: they argue that this global pandemic – and all the deaths we are about to see – is the direct result of our demand for cheap meat. So is the way we produce our food really making us sick as a pig?
 
At first glance, this seems wrong. All through history, viruses have mutated, and sometimes they have taken nasty forms that scythe through the human population. This is an inescapable reality we just have to live with, like earthquakes and tsunamis. But the scientific evidence increasingly suggests that we have unwittingly invented an artificial way to accelerate the evolution of these deadly viruses – and pump them out across the world. They are called factory farms. They manufacture low-cost flesh, with a side-dish of viruses to go.
 
To understand how this might happen, you have to compare two farms. My grandparents had a pig farm in the Swiss mountains, with around 20 swine at any one time. What happened there if, in the bowels of one of their pigs, a virus mutated and took on a deadlier form? At every stage, the virus would meet stiff resistance from the pigs' immune systems. They were living in fresh air, on the diet they evolved with, and without stress – so they had a robust ability to fight back. If the virus did take hold, it would travel only as far as the sick hog could walk. So if the virus would then have around 20 other pigs to spread and mutate in – before it would hit the end of its own evolutionary path, and die off. If it was a really lucky, plucky virus, it might make it to market – where it would come up against more healthy pigs living in small herds. It had little opportunity to fan out across a large population of pigs or evolve a strain that could be transmitted to humans.
 
Now compare this to what happens when a virus evolves in a modern factory farm. In most swine farms today, 6,000 pigs are crammed snout-to-snout in tiny cages where they can barely move, and are fed for life on an artificial pulp, while living on top of cess-pools of their own stale faeces.
 
Instead of having just 20 pigs to experiment and evolve in, the virus now has a pool of thousands, constantly infecting and reinfecting each other. The virus can combine and recombine again and again. The ammonium from the waste they live above burns the pigs' respiratory tracts, making it easier yet for viruses to enter them. Better still, the pigs' immune systems are in free-fall. They are stressed, depressed, and permanently in panic, making them far easier to infect. There is no fresh air or sunlight to bolster their natural powers of resistance. They live in air thick with viral loads, and they are exposed every time they breathe in.
As Dr Michael Greger, director of Public Health and Animal Agriculture at the Humane Society of the United States, explains: "Put all this together, and you have a perfect storm environment for these super-strains. If you wanted to create global pandemics, you'd build as many of these factory farms as possible. That's why the development of swine flu isn't a surprise to those in the public health community. In 2003, the American Public Health Association – the oldest and largest in world – called for a moratorium of factory farming because they saw something like this would happen. It may take something as serious as a pandemic to make us realise the real cost of factory farming."
 
Many of the detailed studies of factory farms that have been emerging in the past few years reinforce this argument. Dr Ellen Silbergeld is Professor of Environmental Health Sciences at Johns Hopkins University. She tells me that her detailed, on-the-ground studies led her to conclude that there is "very much" a link from factory farms to the new, more powerful forms of flu we are experiencing. "Instead of a virus only having one spin of the roulette wheel, it has thousands and thousands of spins, for no extra cost. It drives the evolution of new diseases."
 
Until yesterday, we could only speculate about the origins of the current H1N1 virus killing human beings – but now we know more. The Centre for Computational Biology at Columbia University has studied the virus and now believes that it is not a new emergence of a triple human-swine-bird flu virus. It is a slight variant on a virus we have seen before. We can see its family tree – and its daddy was a virus that evolved in the artificial breeding ground of a vast factory farm in North Carolina.
 
Did this strain evolve, too, in the same circumstances? Already, the evidence is suggestive, although far from conclusive. We know that the city where this swine flu first emerged – Perote, Mexico – contains a massive industrial pig farm, and houses 950,000 pigs. Dr Silbergeld adds: "Factory farms are not biosecure at all. People are going in and out all the time. If you stand a few miles down-wind from a factory farm, you can pick up the pathogens easily. And manure from these farms isn't always disposed of."
 
It's no coincidence that we have seen a sudden surge of new viruses in the past decade at precisely the moment when factory farming has intensified so dramatically. For example, between 1994 and 2001, the number of American pigs that live and die in vast industrial farms in the US spiked from 10 per cent to 72 per cent. Swine flu had been stable since 1918 – and then suddenly, in this period, went super-charged.
 
How much harm will we do to ourselves in the name of cheap meat? We know that bird flu developed in the world's vast poultry farms. And we know that pumping animal feed full of antibiotics in factory farms has given us a new strain of MRSA. It's a simple, horrible process. The only way to keep animals alive in such conditions is to pump their feed full of antibiotics. But this has triggered an arms race with bacteria, which start evolving to beat the antibiotics – and emerge as in the end as pumped-up, super-charged viruses invulnerable to our medical weapons. This system gave birth to a new kind of MRSA that now makes up 20 per cent of all human infections with the virus. Sir Liam Donaldson, the British government's Chief Medical Officer, warns: "Every inappropriate use in animals or agriculture [of antibiotics] is potentially a death warrant for a future patient."
 
Of course, agribusinesses is desperate to deny all this is happening: their bottom line depends on keeping this model on its shaky trotters. But once you factor in the cost of all these diseases and pandemics, cheap meat suddenly looks like an illusion.
We always knew that factory farms were a scar on humanity's conscience – but now we fear they are a scar on our health. If we carry on like this, bird flu and swine flu will be just the beginning of a century of viral outbreaks. As we witness a global pandemic washing across the world, we need to shut down these virus factories – before they shut down even more human lives.

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HDI Oscars: Slumdogs Versus Millionaires

 

March 23, 2009

By P. Sainath
Source: The Hindu

What does it mean [for India] to rank much better on GDP per capita than in the HDI, as we do? It means we have been less successful in converting income into human development.

 

It has been the night of the long knives for our burgeoning billionaire population. Its band has just been decimated, falling by more than half from 53 to 24. The latest Croesus Count, also known as the Forbes Billionaires list, makes that much clear. We also fell by two notches to the sixth rank in the list of nations with the most billionaires. Our earlier No. 4 slot being slyly usurped by the Chinese who clock in with 29. More mortifying, we are a rung below the Brits who've grabbed Perch 5, with 25.

 

The net asset worth of India's brightest and best has also shrunk by over a third from the time of the last Forbes scroll. By 2007, that worth had reached $335 billion. That is, 53 individuals in a population of one billion held wealth equal to almost a third of their nation's GDP at the time. This year, that worth plunged to $107 billion. (A moment's respectful silence in memory of the dear, departed billions seems in order.) But there is some comfort in that our team is still worth more than twice what its Chinese rivals are. And we even now have eight billionaires more than all the Nordic nations put together — though they boast the highest living standards in the world.

 

"Four Indians were among the world's top ten richest in 2008, worth a combined $160 billion," points out Forbes. Today, alas, "that same foursome is worth just $54 billion." But the 29 Indian tycoons reduced to the penury of mere millionairehood should not lose heart. Forbes offers us these words of reassurance. "The winds of wealth can change quickly ... They may yet again blow favourably in the direction of these tycoons." So what if the big balances fly at half mast briefly? There could be gales ahead.

 

Alongside this grim tragedy runs a slightly longer-term saga. India has fallen to 132 in the new rankings of the United Nations Human Development Index (HDI) for 179 nations. Each year since 1990, the U.N. Development Programme has brought us this index, as a part of its Human Development Report. The HDI "looks beyond GDP to a broader definition of well-being." It seeks to capture "three dimensions of human development: a long and healthy life (measured by life expectancy at birth). Being educated (measured by adult literacy and enrolment in primary, secondary and tertiary education). And third: GDP per capita measured in U.S. dollars at Purchasing Power Parity (PPP)."

 

Worst in a decade

 

In the Index of 2007-08, India ranked a dismal 128. Now we're at 132. That is our worst ever grade on the Index this decade. It means, among other things, that little Bhutan, never once in the Forbes hall of fame, has trumped us in the new HDI rankings. The tiny Himalayan nation clocks in at 131. That is, a notch above its "second-fastest-growing-economy-in the-world" neighbour. Bhutan once languished amongst the bottom 15 nations in the U.N.'s HDI. It has never been among the world's fastest growing economies.

 

At rank 132, India also lags behind Republic of the Congo, Botswana, and Bolivia. (The last often called Latin America's poorest nation). The Occupied Territories of Palestine (torn by conflict for 60 years) are also ahead of us. Another neighbour — Sri Lanka — has been devastated by war for over two decades and has slipped a few notches. It still logs in at 104 — 28 rungs above India. Vietnam suffered casualties in millions in the war waged against it by the United States. Decades after, its agriculture is yet to recover from the planned destruction, lethal bombing, and the conscious use of deadly poisons. But Vietnam clocks in at 114. And China at 94 despite falling several places.

 

The bad news about the bad news is that these figures reflect the good news days. They relate to the year 2006. (The Sensex was booming. It breached the 10,000 and even 14,000-mark for the first time ever. The Indian economy also grew at 9.6 per cent in 2006-07 and 9.4 per cent in 2005-06.) Those were the glory days our 132nd rank is rooted in. The same period when we churned out 53 dollar billionaires. So the updated HDI numbers do not begin to capture the economic downturn. The picture will be even less pretty when those factors kick in.

 

They do capture, though, the revised purchasing power parity (PPP) estimates that clocked in by late 2007. These columns foretold this problem at the time (The Hindu, Dec. 24, 2007). It was clear that if the Index was using the older PPP data, then "even our awful HDI performance could get worse" once those were revised. (India's GDP per capita (PPP) fell from $3,452 to $2,489 with the new data.)

 

And yet, we'd be even lower down than rank 132 but for our showing on the GDP-per capita front. Even now, our rank on that front is six notches higher than our HDI rank. It makes us look better than we are. For instance, in making out the current rankings, U.N. researchers point out that the GDP per capita data for 2006 "caused India to rise one place." But "new data (for 2006) on life expectancy caused India to fall one place." India then also fell two more places as two more nations — Montenegro and Serbia — joined the list. Both fared better than we did. We fell a further two places "as a result of revised PPP estimates." That's how we ended up four slots below our last rank.

 

What does it mean to rank much better on GDP per capita than in the HDI, as we do? It means you have been less successful in converting income into human development. Our GDP per capita rank is six rungs above our HDI rank. Vietnam's HDI rank of 114 is 15 rungs above its GDP per capita rank. Unlike us, Vietnam has — despite awful historic handicaps — converted its wealth into human development far better.

 

Cuba logs in at 48, thus breaking into the top 50 nations in the HDI. (While India firms up its place in the bottom 50.) That's seven places above wealthy Saudi Arabia, whose per capita GDP is three times higher than Cuba's. In that ranking, Saudi Arabia is No. 35, towering above Cuba's 88. But when it comes to human development, Saudi Arabia lags seven rungs below Cuba. Apart from suffering lower income, Cuba has lived under crippling sanctions for decades. Sanctions that have imposed huge constraints and high prices on all essentials. Yet, life expectancy at birth in Cuba is now 77.9 years. That's almost the same as the U.S. (78). And about 14 years better than India's 64.1. Meanwhile, the U.S. has logged its worst rank ever, falling to 15 from 12. Between 1995 and 2000, the U.S. was always in the top 5, even staying at rank 2 for a couple of years. Like with India, its decline in HDI has come in the very years seen as its best, the Golden Age of the Free Market. The Nirvana point of neo-liberalism. A year into the economic reforms, India in 1992 ranked 121 among 160 nations then covered by the Index. Today, India is at 132 among 179 nations. Straight comparisons across that time are hard as the Index has changed in numbers and methodology. But the trend is clearly not joyous.

 

Steady decline

 

The HDI figures since 2002 signal a steady decline in the nation's conversion of wealth into human development — even as the numbers of its billionaires and millionaires doubled and trebled. Now the billionaires have shrunk in number, but not the slumdogs. There are at least 836 million Indians living on less than Rs. 20 a day, as the government's own report told us in 2007. Over 200 million of those get by on less than Rs.12 daily. And those are pre-downturn numbers, too. Maybe, we need a new Forbes 500 list — naming the world's 500 poorest citizens. Who could beat us on that one?

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The market is destructive. That's its point

 

 

Brown and Obama declare they love free trade. So why don't they follow the logic of their thinking?

Jamie Whyte

 

Governments must not respond to the financial crisis by erecting barriers to international trade. They must not adopt the "beggar thy neighbour" policies that deepened and prolonged the Great Depression of the 1930s.
 
So say most commentators and many politicians, including Peter Mandelson on these pages on Monday. Even President Obama, having advocated trade barriers during the Democratic primaries, now claims that he does not want to "send a protectionist signal". And Gordon Brown rarely misses an opportunity to recommend free trade in these troubled times.
 
They are confused. To see why, start by asking what is so good about free trade. The short answer is that it allocates resources to their most efficient uses. Any introductory economics textbook will explain how. But a simpler route to the answer is to see that international trade benefits us in the same way that technological advances do, as the economist Steven Landsburg explains with a fable (from his More Sex is Safer Sex: the Unconventional Wisdom of Economics): "Once there was a man who invented a new and cheaper way to analyse MRI data. Medical costs fell and more people got better care. The invention put some radiologists out of work, but even that had its upside - after a little retraining, the radiologists moved into other specialties where their talents were much appreciated.
 
"But one day, an investigative journalist tracked down the inventor's disgruntled former assistant and learnt that the great 'invention' was nothing more than a $600 laptop computer connected to the internet. The so-called inventor e-mailed data to Asia, where it was analysed by low-paid Asian radiologists. They e-mailed back their reports, which he advertised as the output from his machine."
 
Be it new technology or simply trade, the economic benefit of the new process is the same: cheaper medical care and, hence, resources liberated for other uses. And, be it technology or trade, these benefits could be eliminated by a subsidy to domestic radiologists. Suppose the analysis of an MRI scan costs $50 using the Asian radiologists and $100 using domestic radiologists. If government decided to subsidise domestic radiologists by $60 per MRI scan, then they could offer their services for $40 and patients would no longer prefer the Asian alternative.
 
The subsidy would not reduce the cost of domestic radiologists; their MRI analyses would still cost $100 to produce. The subsidy would thus divert resources away from their more efficient use. In other words, it would create waste. Since the wasted resources would no longer be available for alternative uses, the subsidy would make us poorer.
 
That is the reasoning of those of us who love free trade - or, at least, of most of us. It cannot be the reasoning of Mr Obama and Mr Brown. For, besides declaring their love of free trade, they declare their love of subsidies. They claim they can make us richer by maintaining the subsidies they already have in place - of agriculture and healthcare, to name but two of countless examples - and by adding subsidies for other industries as well, such as construction and car manufacturing.
 
Those who think subsidies will enrich us doubt the merits of the market mechanism. They doubt that market prices result in an efficient allocation of resources and they doubt the value of what the sociologist Joseph Schumpeter dubbed "creative destruction". They believe that the cost to those who lose their jobs or businesses as a result of competition exceeds the benefits to society provided by more efficient production. Economic planners - using subsidies, taxes, quotas, regulations and so on - can, they think, achieve better results than free markets.
 
Never mind which view is right. The question is which view Mr Obama and Mr Brown endorse. The contradiction in their pro-subsidy, pro-free trade position lies not merely in the inconsistent theoretical foundations of these two positions. It is more direct. As the MRI fable illustrated, domestic subsidies are themselves barriers to free trade. Mr Brown's subsidy of British carmakers (if only for "green" cars), creates a barrier to the import of more efficiently produced foreign cars.
 
It is fascinating, if futile, to speculate on the source of our leaders' incoherence. I suspect it comes from a superficial, pick-and-mix dedication to doing "what works". They have heard that trade barriers aggravated the Great Depression and also heard that Roosevelt's public works programme helped to return America to growth. So they plump for both subsidies and free trade, failing to think hard enough about how these policies are supposed to work to notice that their combination is impossible, not just intellectually but practically.
 
Mr Brown has long advocated impossible combinations, such as increasing both labour market flexibility and employee protection (just one of the miracles that he and Tony Blair promised their Third Way would deliver). But it is disappointing to discover that, after emerging from the fog of grandiose rhetoric, Mr Obama has the same tendency.
 
Jamie Whyte is the author of Bad Thoughts: A Guide to Clear Thinking
 

• Have your say

 

Glen is completely wrong. The standard of living would rise marginally in the UK and dramatically in Asia. And wages do not tend to a global average, they rise overall because money and resources including labour are not being wasted but are being allocated efficiently.

As has been happening.

 

Alan Wilkinson, Russell, New Zealand

 

That's fine as long as you accept that wages and standards of living will initially at least tend to some sort of global average. The standard of living in the UK would drop dramatically and that in Asia would rise marginally. I for one am not so altruistic.

 

Glen, Melbourne,

 

 

I suspect the main idea of loudly promoting free trade is to try to persuade other markets to stay open and non-protectionist rather than a serious declaration of personal intent. The reasoning would thus appear to be political rather than economic.

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Can slumdogs become millionaires in India?

 

By David Pilling
Published: February 18 2009 19:27 | Last updated: February 18 2009 19:27
 

The last film about India to collect an Oscar for best picture was Gandhi, the 1982 epic about how the country won independence. If Slumdog Millionaire wins on Sunday, viewers may ponder what India has done with its freedom. Danny Boyle's film is more a tale of rags than riches, a fact that has angered some – though by no means all – Indians. Here is a short quiz in the Millionaire format to help readers through the controversy. Starting with a question for:
 
Rs1,000: Is the term "slumdog" offensive? The film's title refers to "underdog", but in India it has evoked unflattering comparisons with wild canines. Several middle class Indians I consulted, most of whom enjoyed the film, thought people should worry more about the slums and less about the terminology.
 
Rs4,000: Are all Indian films escapist? Bollywood films, known for their song and dance, are famed for shunning social realism as vehemently as on-screen kisses. But there is a long, gritty tradition of Indian cinema. Bengali director Satyajit Ray's realist works also prompted criticism of peddling poverty. Rakeysh Om Prakash Mehra, whose 2006 film The Colour of Saffron is the biggest-selling DVD in Indian history, deals with edgy themes. "The era of musicals is over," he asserts. In his film, the heroes assassinate a venal and mendacious cabinet minister, so perhaps the age of fantastical wish-fulfillment is not dead after all.
 
Rs16,000: Where was the film shot? It was filmed in Mumbai's Dharavi slum, the largest in Asia with a reputed population of 1m. Sengeeta Dogi, an 18-year-old living there, told me: "I liked some parts [of the film] but I didn't like the bits where Dharavi was shown negatively." She particularly objected to a scene where the hero jumped through an open latrine to secure a film idol's autograph, though she could not help laughing at that point when the film was replayed. She also said it was untrue that children were deliberately mutilated so they could earn more as beggars. Other residents said it used to happen, but not any more.
 
Rs250,000: How bad is urban poverty? A recent report by the government and the United Nations Development Programme says urban poverty is growing along with the urban population. Nationally, poverty in cities is less severe than in villages, but the gap has narrowed. It estimates that 42.6m Indians live in city slums.
 
Rs1m: Do too many Indians live in cities? No, too few do. Nearly 60 per cent of India's labour force works in agriculture, producing just 17 per cent of national output. Even by 2030, according to the poverty report, only 41 per cent of the population will be urban. That compares with China, where 47 per cent of people are already city-dwellers, and rich nations where 80 per cent or above is normal. India's slums give the impression that urbanisation has reached saturation point. But no nation has achieved prosperity without a shift from farming to manufacturing. India's problem is lack of urban infrastructure and job opportunities, not city life itself.
 
Rs2.5m: Why are there no slums in China? China is better run than India, with more powerful city mayors who build basic infrastructure to support wealth-creating migrants. Indian politicians court the rural vote. Corruption corrodes infrastructure plans, though some states, such as Gujarat, are improving. China is authoritarian; when workers are no longer required, they can be shipped back to the countryside. A registration system maintains a strict distinction between urban and rural citizens. Democratic India must not go down this route. But it can learn from China by providing clean water, sewerage and basic housing.
 
Rs5m: Does the quiz show air in India? About a decade ago, Rupert Murdoch launched Kaun Banega Crorepati? – Who Wants to Win $225,000? – hosted by Amitabh Bachchan, Bollywood's most famous star. The jackpot of a crore, or Rs10m, had to be doubled to Rs20m in subsequent series.
 
Rs10m: Do Indians want to be millionaires? Observers of the first series said the audience was at once fascinated and repulsed by the show's naked avarice. This paper ran a piece discussing the "Brahmin-dominated caste system that reserves little honour for wealth creation" and the suspicion of money engendered by Mahatma Gandhi's idealisation of village life and Nehru's state capitalism. Fast growth since then has made many Indians more aspirational. The concept of social mobility is starting to challenge a previously fatalistic attitude to class and caste. Growth unleashed by market reforms has raised average per capita income from less than $400 (£282, €319) to about $1,000, still less than half China's. One critic of the film said it was "inconceivable" that a tea-boy from the slum would be allowed on to a television quiz show. Until that changes, India will only progress so far.
 
Rs20m: Should Slumdog win the Oscar? Ask the audience.

 

 

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The Largest Wave Of Suicides In History

 

February 14, 2009

By P. Sainath

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The number of farmers who have committed suicide in India between 1997 and 2007 now stands at a staggering 182,936. Close to two-thirds of these suicides have occurred in five states (India has 28 states and seven union territories). The Big 5 - Maharashtra, Karnataka, Andhra Pradesh, Madhya Pradesh and Chattisgarh- account for just about a third of the country's population but two-thirds of farmers' suicides. The rate at which farmers are killing themselves in these states is far higher than suicide rates among non-farmers. Farm suicides have also been rising in some other states of the country.

 

It is significant that the count of farmers taking their lives is rising even as the numbers of farmers diminishes, that is, on a shrinking farmer base. As many as 8 million people quit farming between the two censuses of 1991 and 2001. The rate of people leaving farming has only risen since then, but we'll only have the updated figure of farmers in the census of 2011.

 

These suicide data are official and tend to be huge underestimates, but they're bad enough. Suicide data in India are collated by the National Crime Records Bureau (NCRB), a wing of the Ministry of Home Affairs, government of India. The NCRB itself seems to do little harm to the data. But the states where these are gathered leave out thousands from the definition of "farmer" and, thus, massage the numbers downward. For instance, women farmers are not normally accepted as farmers (by custom, land is almost never in their names). They do the bulk of work in agriculture - but are just "farmers' wives." This classification enables governments to exclude countless women farmer suicides. They will be recorded as suicide deaths - but not as "farmers' suicides." Likewise, many other groups, too, have been excluded from that list.

 

The spate of farm suicides - the largest sustained wave of such deaths recorded in history - accompanies India's embrace of the brave new world of neoliberalism. Many reports on that process and how it has affected agriculture have been featured right here, on the Counterpunch site. The rate of farmers' suicides has worsened particularly after 2001, by which time India was well down the WTO garden path in agriculture. The number of farmers' suicides in the five years - 1997-2001 - was 78,737 (or 15,747 a year on average). The same figure for the five years 2002-06 was 87,567 (or 17,513 a year on average). That is, in the next five years after 2001, one farmer took his or her life every 30 minutes on average. The 2007 figures (detailed below) place that year, too, in the higher trend.

 

What do the farm suicides have in common? Those who have taken their lives were deep in debt - peasant households in debt doubled in the first decade of the neoliberal "economic reforms," from 26 per cent of farm households to 48.6 per cent. We know that from National Sample Survey data. But in the worst states, the percentage of such households is far higher. For instance, 82 per cent of all farm households in Andhra Pradesh were in debt by 2001-02. Those who killed themselves were overwhelmingly cash crop farmers - growers of cotton, coffee, sugarcane, groundnut, pepper, vanilla. (Suicides are fewer among food crop farmers - that is, growers of rice, wheat, maize, pulses.) The brave new world philosophy mandated countless millions of Third World farmers forced to move from food crop cultivation to cash crop (the mantra of "export-led growth"). For millions of subsistence farmers in India, this meant much higher cultivation costs, far greater loans, much higher debt, and being locked into the volatility of global commodity prices. That's a sector dominated by a handful of multinational corporations. The extent to which the switch to cash crops impacts on the farmer can be seen in this: it used to cost Rs.8,000 ?($165 today) roughly to grow an acre of paddy in Kerala. When many switched to vanilla, the cost per acre was (in 2003-04) almost Rs.150,000 ($3,000) an acre. (The dollar equals about 50 rupees.)

 

With giant seed companies displacing cheap hybrids and far cheaper and hardier traditional varieties with their own products, a cotton farmer in Monsanto's net would be paying far more for seed than he or she ever dreamed they would. Local varieties and hybrids were squeezed out with enthusiastic state support. In 1991, you could buy a kilogram of local seed for as little as Rs.7 or Rs.9 in today's worst affected region of Vidarbha. By 2003, you would pay Rs.350 -- ($7) -- for a bag with 450 grams of hybrid seed. By 2004, Monsanto's partners in India were marketing a bag of 450 grams of Bt cotton seed for between Rs.1,650 and Rs.1,800 ($33 to $36). This price was brought down dramatically overnight due to strong governmental intervention in Andhra Pradesh, where the government changed after the 2004 elections. The price fell to around Rs.900 ($18) - still many times higher than 1991 or even 2003.

 

Meanwhile, inequality was the great man-eater among?the "Emerging Tiger" nations of the developing world. The predatory commercialization of the countryside devastated all other aspects of life for peasant farmer and landless workers. Health costs, for instance, skyrocketed. Many thousands of youngsters dropped out of both school and college to work on their parents' farms (including many on scholarships). The average monthly per capita expenditure of the Indian farm household was just Rs.503 (ten dollars) by early this decade. Of that, 60 per cent roughly was spent on food and another 18 per cent on fuel, clothing and footwear.

 

Farmers, spending so much on food? To begin with, millions of small and marginal Indian farmers are net purchasers of food grain. They cannot produce enough to feed their families and have to work on the fields of others and elsewhere to meet the gap. Having to buy some of the grain they need on the market, they are profoundly affected by hikes in food prices, as has happened since 1991, and particularly sharply earlier this year. Hunger among those who produce food is a very real thing. Add to this the fact that the "per capita net availability" of food grain has fallen dramatically among Indians since the "reforms" began: from 510 grams per Indian in 1991, to 422 grams by 2005. (That's not a drop of 88 grams. It's a fall of 88 multiplied by 365 and then by one billion Indians.) As prof. Utsa Patnaik, India's top economist on agriculture, has been constantly pointing out, the average poor family has about 100 kg less today than it did just ten years ago - while the elite eat like it's going out of style. For many, the shift from food crop to cash crop makes it worse. At the end of the day, you can still eat your paddy. It's tough, digesting cotton. Meanwhile, even the food crop sector is coming steadily under corporate price-rigging control. Speculation in the futures markets pushed up grain prices across the globe earlier this year.

 

Meanwhile, the neoliberal model that pushed growth through one kind of consumption also meant re-directing huge amounts of money away from rural credit to fuel the lifestyles of the aspiring elites of the cities (and countryside, too). Thousands of rural bank branches shut down during the 15 years from 1993-2007.

 

Even as incomes of the farmers crashed, so did the price they got for their cash crops, thanks to obscene subsidies to corporate and rich farmers in the West, from the U.S. and EU. Their battle over cotton subsidies alone (worth billions of dollars) destroyed cotton farmers not merely in India but in African nations such as Burkina Faso, Benin, Mali, and Chad. Meanwhile, all along, India kept reducing investment in agriculture (standard neoliberal procedure). Life was being made more and more impossible for small farmers.

 

As costs rose, credit dried up. Debt went out of control. Subsidies destroyed their prices. Starving agriculture of investment (worth billions of dollars each year) smashed the countryside. India even cut most of the few, pathetic life supports she had for her farmers. The mess was complete. From the late-'90s, the suicides began to occur at what then seemed a brisk rate.

 

In fact, India's agrarian crisis can be summed up in five words (call it Ag Crisis 101): the drive toward corporate farming. The route (in five words): predatory commercialization of the countryside. The result: The biggest displacement in our history.

 

Corporations do not as yet have direct control of Indian farming land and do not carry out day-to-day operations directly. But they have sewn up every other sector, inputs, outlets, marketing, prices, and are heading for control of water as well (which states in India are busy privatizing in one guise or another).

 

The largest number of farm suicides is in the state of Maharashtra, home to the Mumbai Stock Exchange and with its capital Mumbai being home to 21 of India's 51 dollar billionaires and over a fourth of the country's 100,000 dollar millionaires. Mumbai shot to global attention when terrorists massacred 180 people in the city in a grisly strike in November. In the state of which Mumbai is capital, there have been 40,666 farmers' suicides since 1995, with very little media attention.

 

Farmers' suicides in Maharashtra crossed the 4,000-mark again in 2007, for the third time in four years, according to the National Crime Records Bureau. As many as 4,238 farmers took their lives in the state that year, the latest for which data are available,?accounting?for a fourth of all the 16,632 farmers' suicides in the country. That national total represents a slight fall from the 17,060 farm suicides of 2006. But the broad trends of the past decade seem unshaken. Farm suicides in the country since 1997 now total 182,936.

 

To repeat, the five worst affected states?- Maharashtra, Andhra Pradesh, Karnataka, Madhya Pradesh and Chattisgarh?- account for two-thirds of all farmers' suicides in India. Together, they saw 11,026 in 2007. Of these, Maharashtra alone accounted for?over 38 per cent. Of the Big 5, Andhra Pradesh saw a decline of 810 suicides against its 2006 total. Karnataka saw a rise of 415 over the same period. Madhya Pradesh (1,375) posted a decline of 112. But Chattisgarh's 1,593 farm suicides mean an increase of 110 over 2006. Specific factors in these states nourish the problem. These are zones of highly diversified, commercialized agriculture where cash crops dominate. Water stress has been a common feature, and gets worse with the use of technologies such as Bt seed that demand huge amounts of water. High external inputs and input costs are also common, as also the use of chemicals and pesticides. Mindless deregulation dug a lot of graves, lit a lot of pyres.

 

Maharashtra registered a fall of 215 farm suicides in 2007. However, no other state even touches the 3,000 mark. And AP (with 1,797) and Karnataka (2,135) - the next two worst hit states - together do not cross Maharashtra's 4,000-plus mark. A one-year dip of 221 occurred in 2005 too, in Maharashtra, only to be followed by an all-time high of 4,453 suicides in 2006. The state's trend shows no turnaround and remains dismal.

 

Maharashtra's 2007 figure of 4,238 follows one and a half years of farm "relief packages" worth around Rs.5,000 crore ($1 billion) and a prime ministerial visit in mid-2006 to the distressed Vidharbha region. The state has also seen a plethora of official reports, studies and commissions of inquiry over 2005-07, aimed at tackling the problem. However, the 12,617 farm suicides in the same years is its worst ever total for any three-year period since the state began recording such data in 1995. Indeed, farm suicides in Maharashtra since that year have crossed the 40,000 mark. The structural causes of that crisis seem untouched.

 

Nationally, farmers' suicides between 2002-07 were worse than for the years 1997-2001. NCRB data for the whole country now exists from 1997-2007. In the five years till 2001, there were 15,747 farmers' suicides a year on average. For the six years from 2002, that average is 17,366 farmers' suicides each year. The increase is distressingly higher in the main crisis states.

 

P. Sainath is the rural affairs editor of The Hindu and is the author of Everybody Loves a Good Drought. A regular contributor to CounterPunch, he can be reached at psainath@vsnl.com.

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An averaging system to pile up the pounds

 

By John Kay
Published: January 23 2009 17:17 | Last updated: January 23 2009 17:17
 

Here is a scheme for beating the market that really works. Imagine a volatile share that sells for 50p in odd years and 100p in even years. If you invest £100 every year in this share, over a 10-year period you will have accumulated 1,500 shares at an average price of 66.7p, well below the average market price, which is 75p.
 
This system will, on average, outperform the market and, the more volatile the markets, the greater the gains. The method is known as pound cost averaging. It works through its built-in mechanism for buying more when prices are relatively low and less when prices are relatively high. No judgment is required by the investor that prices are relatively low or relatively high.
 
Many individuals do, and more should, make regular savings to build up an investment portfolio. Some investment managers use the benefits of pound-cost averaging and extol the benefits of a regular savings scheme in their marketing literature. On this occasion, believe them. The benefits are real. But keep an eye, as usual, on their charges.
 
The effectiveness of pound-cost averaging illustrates how low share prices are an opportunity rather than a problem for the intelligent investor. Conventional investors are usually excited when they hear that the market is going up, disappointed when they learn that it has fallen. We want high prices when we are sellers, but low prices when we are buyers. We are usually only buyers of clothes or durable goods. However, for shares – as perhaps for cars and houses – we may be both buyers and sellers at different times.
 
When should the intelligent investor sell? The simple answer is "Not very often". Frequent trading endangers returns.
 
Pound-cost averaging makes sense for both conventional and intelligent investors. Conventional investors can feel relieved that their approach yields profits without requiring judgment.
 
Intelligent investors know that market timing is unlikely to make money and can feel happy with an approach that is inherently contrarian. The reasoning that makes pound-cost averaging attractive applies to decisions about asset classes as well as to decisions about market timing.
 
Individual investors may choose to follow the market allocation; institutional investors feel obliged to follow it. Such benchmarking has led to a steady increase in the share of equities, the best performing asset class, in conventional portfolios. The consequences can be perverse. At the peak of the Japanese stock market bubble of the 1980s, Japanese shares accounted for almost half of the value of all in the world. American and European investors, who had thought they were brave if 10 per cent of their assets were in Japan, felt under pressure to acquire more securities in Japan. Fifteen years later, Japanese share prices had fallen, while those in other countries had risen. Today, Japan accounts for less than 10 per cent of the market value of world indices.
 
Many investors have been victims of milder versions of the error, buying technology shares, bonds, infrastructure and property at the wrong times. Looking at market weightings when deciding asset allocation leads institutions and fund managers to buy high and sell low. They purchase overpriced assets in order to achieve desired portfolio weightings.
 
Intelligent investors look behind the financial assets they buy to the value of the productive assets that underpin them. A benchmark for allocation to Japan might, therefore, be Japanese national income as a percentage of world national income, implying a range of 5 per cent-10 per cent that would remain unchanged by the vagaries of the Japanese stock markets.
 
From this perspective, an indexed portfolio contains a heavy concentration of oil companies, pharmaceutical businesses and financial companies, relative to the economic importance of these activities. Very large economic sectors, such as agriculture, education, health care, and legal and accounting services, are not represented at all in the model pension fund portfolio – or only in very limited ways.
 
You can change that. There are few quoted securities in agriculture, education or health, but there are some. Although there are (as yet) no stock market prices for law firms or accountancy practices there are other businesses, such as recruitment agencies and public relations firms, whose fortunes are closely related.
 
The illuminating insight is that investors should be wary of allowing fluctuations in market prices to influence their target allocations to different asset classes. If the price of property rises relative to the price of your other assets, consider reducing the proportion of your assets you hold in property, and vice versa. Many people find this paradoxical. Should we really sell securities just because they have done well? In a world characterised by momentum and mean reversion, you should. That way you can realise the benefits of pound-cost averaging in asset allocation as well as market timing.

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A crisis sparked by the world's rich will have the poor paying the highest price

 

Our worries about jobs or pensions pale beside the fallout Africa and Asia now face in this absurdly skewed global system

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• 
• • Madeleine Bunting
  • The Guardian,
  • Monday October 20 2008
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A few weeks ago speculation began as to what might be the novels of the credit crunch. Where was the F Scott Fitzgerald, John Steinbeck or Martin Amis of 2008, the novelist who could speak to this crazily chaotic economic age? On cue last week, Aravind Adiga wins the Booker for The White Tiger. The critics have been sniffy, referring to him with discernible disdain as a former journalist. (He was Asia business correspondent for Time magazine.) But he won precisely because of his ringside seat at globalisation's boom years; he won because, despite its possible shortcomings as a novel, his book nails the myth of a benign US economic hegemony that has "lifted" millions out of poverty across Asia.
What it portrays in its place is horrific: a world where billions live in what Adiga's lead character describes as the "Darkness" - the abject poverty entrenched across swaths of rural and slum-city India. Meanwhile, an elite surfing on a tide of consumerism and cheap credit has been entirely dislocated from the majority of the country. This is a country where Bangalore's IT millionaires grow rich alongside an agrarian crisis characterised by an extraordinary phenomenon, the silent protests of 18,000 indebted farmers committing suicide every year - 200,000 in the past 12 years.
Just as Steinbeck stirred the conscience of America with his novels on the dust bowl and the Great Depression, and Charles Dickens challenged the complacencies of Victorian Britain, so Adiga reads as a blistering critique of an economic system that can only be described as grotesque. The Indian economist Jayati Ghosh points out that Mumbai has the second biggest sales globally of Mercedes cars, yet more than half of India lives in poverty without enough to eat.
The pertinence of Adiga's win is that India has been the poster boy for the past two decades of globalisation; Bono told me once that he dreamed of sub-Saharan Africa finding a way to emulate India's success. But its model of growth imported from the US was based on credit-fuelled consumerism for a fifth of the population while state investment in health, education, agriculture, infrastructure - crucial components of sustainable development - were cut back. Adiga's novel is a powerful volley in the crisis of legitimacy gripping the west's domination of the global economy.
Europe and the US have spent the weekend talking of reform of global capitalism and a Bretton Woods II, but they need to start with a grovelling apology. In recent decades, they have used their power through the IMF to write the rules and impose them across the world by ruthless manipulation and bullying. Belgium, Luxembourg and the Netherlands have together more votes in the IMF than China, India and Brazil.
In the past month, the US and Europe have been humiliated by the catastrophic failure of their own rules, and have been forced to rip them up. The double standards of western interests have been starkly exposed - their bail-outs are exactly what they have refused, repeatedly, to allow other countries to do in similar crises.
Those who will pay the heaviest price for the foolhardiness of deregulated financial capitalism are among those who are least responsible, as Brazil's President Lula angrily pointed out last week. The shockwaves of the west's banking crisis will shipwreck more vulnerable countries. In developing countries, people don't have the resources - welfare provision, savings, insurance - to tide them over a crisis. Instead, they go hungry, homeless - and they die. Across Africa and Asia, countries are bracing themselves for multiple hits, with falls in aid already threatened and a likely decline in the remittances that buoy up their economies - in the UK, the immigration minister Phil Woolas is already signalling a harder line on immigration. Fear of global recession is bringing commodity prices down and will reduce the demand for luxury products such as flowers, green beans and hot holidays. The anger among developing countries will spread. Our worries about jobs and pensions pale in comparison with the fallout on the billions who will not be able to feed or educate their children.
The western model of neoliberal financialisation was driven by clear self-interest, argues the Cambridge economist Ha-Joon Chang. The west couldn't compete in manufacturing (its labour costs are too high), so it turned to financial markets and used the cheapest way to make money: it offered loans, not for productive investment (factories, businesses) but to consumers, using their homes as collateral. Credit cards and small loans are particularly lucrative. So the west leaned heavily on countries through the World Trade Organisation and the IMF to open up their financial sectors. The western banks and the advertising companies piled in, and the result is a credit consumer boom. This may make a few people rich, but it is not, by any definition, development.
Chang, South Korean by background, saw the bullying graphically illustrated in the 1997-98 Asian financial crisis. Not only did the US and the IMF stop the Asian countries from implementing a state bail-out, they took advantage of the desperate situation to force South Korea and other Asian nations to adopt further financial deregulation. Productive investment in South Korea has since halved and credit has boomed. Now the country is on economists' critical list as its stockmarket plunges. Ironically, it is only the countries lucky enough to have dodged IMF bullying who are relatively safe in the current maelstrom: leftwing political groups in India closed ranks to protect its banking sector from the worst deregulation.
For most developing countries, the moral of the 1997-98 Asian crisis was that a primary purpose of financial management was to ensure sufficient capital reserves to avoid ever being vulnerable to the IMF thugs in their pinstripe suits. India, Korea, China: all have huge foreign reserves, often in US treasury bonds. It is the safest form of insurance in a global economy in which the flows of foreign exchange are so huge they can destroy a currency in of hours. But for a developing country to tie up most of its capital abroad is ruinously expensive; this capital should be invested in the country's own development - roads, for example, and schools to produce engineers, scientists and IT technicians.
Once again, who benefits from this absurdity of the global financial system? The west - in particular the US, whose current account deficit is funded by the sacrificed futures of millions across Asia. Chang's thesis, in his book Bad Samaritans - Guilty Secrets of Rich Nations and the Threat to Global Prosperity, is that the west has effectively kicked away the ladder that enabled it to achieve prosperity. It denies to developing countries the protection and the investment in industries that were essential to its own development.
At its most stark, the analysis is that the west has had a vested interest in keeping wage levels down in developing countries while making money from offering cheap credit. All it had to do was enlist a collaborating elite in each country to implement the deal, which was clearly not in the interests of the bulk of the population. Neoliberal globalisation was a system that ensured the rich got richer and the poor got poorer.

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