On the joys of being a spinster

 

 

 

Why should marriage plus kids equal happiness? A Post-Modern Spinster makes her case for life without marriage

Kate Mulvey

 
Kate, a married friend, said to me in that kindly patronising tone reserved for mad old women and naughty children: "Don't you think it's time you stopped running around like a middle-aged teenager and tied the knot before it's too late?"
 
"Too late for what?" I thought - a lifetime membership of Ikea and a man who is going to turn from Mr Perfect into Mr Sulk/Unfaithful/Slob within two years.
The truth is, while wedded bliss is great for some women, there are those of us who are not cut out to find a man, marry and reproduce. I am 43, unmarried, without a child and I am not crying myself to sleep.
 
Why should I? This is not the 19th century: I am not going to freeze to death in a workhouse. Nor is it the 20th century: I am not going to write an angsty desperate-to-be-married Bridget Jones-style diary or worry about the biological time bomb.
 
Welcome to the world of the Post- Modern Spinster. Sane and still in demand, the PMS has chosen her go-it-alone existence. She is part of a sisterhood that has forgone the traditional markers of conventional happiness - marriage, children - in favour of life on her terms.
 
It is not strictly a question of not finding Mr Right. I have been proposed to three times. I have been in a couple of long-term relationships. Each time the M-word has cropped up, I get the heebie-jeebies. I just don't have the marrying gene. It is not that I have anything against finding the man, it is the notion of the domesticity of settling down that makes me uncomfortable. The idea of jostling together, the never-ending compromises, the hours spent considering the needs of the family - ferrying kids to and from parties or having to wake at 5am because your husband has an important meeting in Paris - doesn't sound like fun.
 
And a lot of women, like me, are waking up to the idea that there is an alternative to the constraints of marriage and the drudgery of bringing up children. Over the past ten years the numbers of women who have decided to opt out of the family game have risen. According to statistics, 50 per cent of educated, professional women are unmarried and childless and, of those, two thirds have elected to be so.
 
This new breed of woman leads an interesting and fulfilling life. "I have so much free time to pursue my goals," says my friend Emily, a chef who has spent the past year doing an MA in art. "My married friends spend most of their time worrying about their relationships or their children."
 
Of course, happiness depends on what you consider to be personal contentment.
 
I have a fulfilling, uncompromised career, while most of my married friends have had to put their career on the back burner. I have a large circle of friends. I can go to the cinema whenever I please or just lounge in bed drinking cappuccinos and reading trashy celebrity magazines.
 
The PMS is a free spirit but, and I am the first to admit it, there is a price to pay for a refusal to compromise on my lifestyle and sleep quotient - not having the knowledge that there will always be someone waiting at home for you with a cup of cocoa and a cuddle can be daunting. And, yes, sexy and single can soon morph into wrinkly old lady surrounded by cats, but marriage doesn't guarantee a man for life either.
 
So a word to my judgmental friend. The next time you want to call someone a middle-aged teenager, ask yourself who's having the most fun.

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Profits before the poor? Drugs giant offers an answer to the toxic question facing a 'heartless' industry

 

 

• Sarah Boseley
• The Guardian, Saturday 14 February 2009 

 

For Andrew Witty, it's a question of redefining the unwritten contract that major drug companies have with society. For critics of big pharma, it's about addressing widely felt concerns about an industry that has often seemed heartless. Either way, the changes proposed by the chief executive of GlaxoSmithKline goes to the core of one of the most toxic debates of our time.

 
The most serious charge against such firms is that they put profits ahead of poor people's lives. It's an allegation GSK has not escaped, even though it has cut the prices of its Aids drugs in developing countries and has promised efforts to develop a malaria vaccine.
 
The low point came in 2001, when GSK was among 39 multinational companies that took legal action against the South African government to try to prevent it importing cheap drugs. Amid an international outcry, the drug companies backed down. "I don't think anybody can claim that was handled well," said chief executive Andrew Witty.
 
He admits the industry could have done more in the past, but claims the problem was a fixed mindset. "I would say people tried really hard within a set of rules which haven't really been challenged very hard ... I guess what I'm just challenging a little bit is like why can't those rules be flexed a bit?"
Witty says drug companies have an obligation to respond to society's needs and demands. "It's been obvious for a while, I think, that efforts have to be made to really reassert and strengthen that contract with society."
 
That goes to the very core of the business. Drug companies are criticised for failing to deliver for the rich world as well as the poor - for the UK and US as well as Tanzania or Ethiopia. They stand accused of focusing their efforts on making "me-too" blockbusters - barely altered copies of other companies' billion dollar sellers for indigestion or heart disease - rather than working on diseases where there are few treatments, such as Alzheimer's.
 
Transparency is a major issue. Witty has pledged to publish all clinical trial data, whether positive or negative - and be open about GSK's payments to doctors.
 
He has also signalled his willingness to negotiate on price, in a climate where value for money is increasingly discussed and other countries are contemplating setting up a version of Nice, the National Institute for Healthcare and Clinical Excellence, which decides whether drugs are cost-effective for the NHS.
 
Another part of the social contract is ending practices that cause public anxiety, he said. About eight weeks ago, GSK announced without fanfare that it would commit never again to experiment on great apes.
 
"People said that's a mistake, because you might one day have to go back and do those experiments," he said. "Society will accept a degree of experimentation with animals provided it has a purpose, provided there are no alternatives and provided it is done compassionately and humanely, but they trust us to shut the door behind us when we don't need to do it any more."
 
He likens this to the risk he admits he is taking that dropping prices in the poorest countries will result in cheap drugs being shipped clandestinely back for sale in the rich world.
 
"It's not a reason not to do it. Of course it creates risk but now it's our job to work with the Europeans and the Americans and whoever else is involved to try and get them to understand why it is important it doesn't all get reimported, why it's important that you don't benchmark the price in New York to the price in Ethiopia, because it's just wrong to do that. It's almost as wrong to do that as it would be not to do it in the first place."
 
GSK would love to undermine the Indian and Chinese generics companies, which sell copies of their drugs at rock-bottom prices in Africa and Asian countries where patents do not apply, because - since nobody had the money to buy their drugs - pharma companies did not take them out.
 
But mostly this is about diseases for which there are no drugs. There has been mounting pressure from the World Health Organisation and non-governmental organisations for action, especially on patents. Witty said he had spent many years in Africa and Asia and seen "the consequences of these diseases at a kind of personal level ... and also the damage it does to a society - the way entire populations become hollowed out and almost inevitably are consigned to not being able to progress properly."
 
He is trying, he said, to start a different kind of discussion with the various stakeholders. "If we can just make one piece of progress on one disease which hasn't had any progress for 40 years it has to be worth it."
 
Critics of the drug companies acknowledged yesterday that GSK was making strides, but said it could go further, for instance, on the point of giving away 20% of profits in the 60 least developed countries - GSK currently has operations in only 18 of them and earns around £30 million a year from them.
"I recognise the fact that GSK is seeking to meet concerns," said Michelle Childs, director of policy and advocacy at Médecins sans Frontières, who welcomed the move to open to pool patents on chemical compounds that could help the development of treatments for neglected diseases. But, she said, she would challenge GSK to go further. "He is saying there is no need for a patent pool for HIV. Our position is that there is an urgent need for a patent pool for HIV because of the rising prices of new first and second line drugs for patients who develop resistance." Buying cut-price drugs from GSK would not necessarily be the best move for the poorest countries, she added.
 
Generic companies were capable of producing drugs at lower prices than big pharma could manage, because of the lower costs of manufacture. GSK's combination HIV drug Combivir had been reduced from $730 (£506) in 2001 per patient per year and now sells at $197 in the least developed countries.

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A web of deception

 

 

By David Gelles
Published: February 11 2009 21:20 | Last updated: February 11 2009 21:20
 

An overenthusiastic em­ployee from the computer supplies maker Belkin posted an offer online last month – $0.65 for anyone willing to write a positive review of Belkin products on Amazon.com. Several people took up the offer, producing gushing appraisals of Belkin products they had never used.
 
After a blogger exposed the scam, news organisations jumped on the story. The offer was removed and Belkin's president weighed in with an apology.
The incident was a public relations disaster for Belkin. It was also a prime example of "Astroturfing", the unsavoury marketing practice of generating fake grassroots enthusiasm for a product.
 
Given the anonymity afforded by the internet, it is hardly surprising that deceptive marketing is on the rise. Consumers are spending more time online and companies are seeking new ways to reach them.
 
But now, in an effort to regulate how employees behave on the web, companies and industry groups are developing their own online codes of ethics. They want to ensure that when staff do engage with social media, they act ethically.
 
Last year, Coca-Cola established its own set of social media guidelines and distributed them in a memo to all employees. The policy emphasises the need for transparency and encourages employees to use common sense when discussing the brand online. "We've always had very diverse channels to reach consumers," says Adam Brown (pictured), digital communications director. "Wherever they are, that's where we go. That's now evolved into the need for a social media policy."
 
So when Mr Brown went online to promote Coca-Cola's Super Bowl advertisements, he followed the guidelines. On Facebook, Mr Brown announced that he was a Coke employee and pointed other users to the Coke ads on YouTube. On Pittsburgh Steelers fan forums, Mr Brown, who is from Pittsburgh, named his employer and then directed fans to the Coke blog, which had an interview with Steelers' defensive star Troy Polamalu.
 
Mr Brown said more deliberate engagement with online conversations was a necessity for a global company such as Coca-Cola. "We're mentioned several thousand times a day on blogs, and there are several hundred tweets about us on Twitter," he says. "There is a lot of conversation taking place about our brand without us. Where appropriate, we wanted to start getting involved."
 
Companies began interacting with social media years ago. But only recently have those involved with the industry perceived a need to develop ethical standards. Among the first to do so was The Word of Mouth Marketing Association, an organisation for the viral and buzz marketing industry. Womma published an ethics code in 2005, emphasising honesty of relationship, opinion and identity.

 

 

Since then, many companies have used the Womma code as a blueprint for their own guidelines. "Companies are learning every day that there is a right way and a wrong way to engage with social media," says Paul Rand, vice-president of Womma's board and head of its ethics project. "Some companies are learning by touching the burning pot; some companies are learning from the mistakes of ­others."
 
One company that "touched the burning pot" is Shelfari, a social networking site for book lovers, owned by Amazon. As it battled for market share in late 2007, it came under fire for its poor design and clunky user interface. Soon, comments appeared on more than 50 blogs attesting to Shelfari's greatness. "I have been on Shelfari for a couple of months now and absolutely love it," read one. "Shelfari is such a great site. I joined a couple of months ago and I have been hooked on it ever since," read another.
 
But all the comments were posted by the same user, "schaufferwaffer", who was soon exposed as a Shelfari employee. Shelfari's chief executive admitted to the Astroturfing (he blamed it on an intern who knew no better), and promised it would never happen again.
 
Such behaviour is declared out of line in the "disclosure best practices toolkit", an ethics code drawn up by the Blog Council, an organisation for heads of social media at big companies. The document advises employees and agencies to announce whom they work for when communicating with blogs or bloggers. It also encourages employees to provide a means for contacting them directly, if someone they interact with via social media wants to follow up with a two-way conversation. The toolkit also warns against using pseudonyms.
 
IBM was one of the first companies to develop its own social media policy. In 2005, it published its "social computing guidelines", which insist that employees write under their own names, using the first person, and make it clear they are speaking for themselves and not on behalf of IBM. It also prohibits employees from referencing clients, partners or suppliers without their approval.
 
UPS is developing its own online ethics policy after recognising how damaging Astro­turfing and other online misbehaviour can be for a company's reputation. "If one of our airplanes goes down, we have a very clear plan for getting information to the media," says Norman Black, director of global media services. "We realised we did not have a good plan for responding to a crisis on the ­internet."
 
In some countries, deceptive marketing practices are not only frowned upon but also illegal. In the UK, the law identifies "falsely representing oneself as a consumer" as a punishable offence. And in 2006, the US Federal Trade Commission issued regulations stating that word-of-mouth marketers must disclose their relationships. But in spite of these new rules there has been little enforcement of the measures.
 
Even without prosecution, Belkin seems to have learnt its lesson. Melody Chalaban, speaking for the company, says Belkin will soon be holding seminars to teach employees how to interact ethically with social media, and is also considering joining Womma. "We want to stress that this is an isolated incident," says Ms Chalaban. "We don't endorse or condone unethical practices like this."

 
 
● Flogging. Fake blogs can help companies get a personal voice behind a marketing campaign – but they risk a PR disaster if they are uncovered. When Sony tried to boost sales of its PSP portable gaming unit, it started a blog supposedly by two boys who wanted PSPs for Christmas. When it was revealed as a fake, Sony apologised and took it down.
 
● Astroturfing. A technique that gets its name from the practice of generating fake grassroots enthusiasm. One Florida company, PayPerPost, serves as a matchmaker between companies willing to pay for good press and bloggers willing to plug products that they have never used. After receiving criticism, PayPerPost now requires bloggers to disclose that their posts are sponsored.
 
● Comment spamming. Flooding the comment fields of blogs with enthusiastic notes about a company, even with full disclosure, is not welcomed by web users. When a Motorola employee commented on dozens of posts on a technology blog – each comment a plug for the new Motorola Krave – bloggers responded with snide criticisms of his spamming, which duly ceased.

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Unemployment Benefits in the UK

 

Minister: I couldn't live on benefits

By Nigel Morris, Deputy Political Editor

The Independent

The Employment minister Tony McNulty has admitted that he could not survive on the basic unemployment benefit paid to people made redundant. As dole queues surged to a 10-year high of 1.97 million, he acknowledged that it was "very, very difficult" to exist on jobseekers' allowance (JSA).
The benefit is worth £60.50 a week for people aged 25 and over and £47.95 a week for younger claimants.

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Just what exactly do you stand for, Hazel Blears - except election?

 

The minister claims to have political guts, but the only principle her voting record shows is slavish obedience

Comments (…)

• 
• George Monbiot
• The Guardian, Tuesday 10 February 2009 

An open letter to Hazel Blears MP, secretary of state for communities and local government.

 
Last week you used an article in the Guardian to attack my "cynical and corrosive commentary". You asserted your political courage, maintaining that "you don't get very far in politics without guts, and certainly not as far as the cabinet table". By contrast, you suggested, I contribute "to the very cynicism and disengagement from politics" that I make my living writing about. You accused me of making claims without supporting evidence and of "wielding great influence without accountability". "We need more people standing for office and serving their communities," you wrote, "more people debating, engaging and voting; not more people waving placards on the sidelines."
 
Quite so. But being the placard-waving sort, I have a cynical and corrosive tendency to mistrust the claims ministers make about themselves. Like you, I believe opinions should be based on evidence. So I have decided to test your statements against the record.
 
Courage in politics is measured by the consistent application of principles. The website TheyWorkForYou.com records votes on key issues since 2001. It reveals that you voted "very strongly for the Iraq war", "very strongly against an investigation into the Iraq war" and "very strongly for replacing Trident" ("very strongly" means an unbroken record). You have voted in favour of detaining terror suspects without charge for 42 days, in favour of identity cards and in favour of a long series of bills curtailing the freedom to protest. There's certainly consistency here, though it is not clear what principles you are defending.
 
Other threads are harder to follow. In 2003, for instance, you voted against a fully elected House of Lords and in favour of a chamber of appointed peers. In 2007, you voted for a fully elected House of Lords. You have served without public complaint in a government which has introduced the minimum wage but blocked employment rights for temporary and agency workers; which talked of fiscal prudence but deregulated the financial markets; which passed the Climate Change Act but approved the construction of a third runway at Heathrow; which spoke of an ethical foreign policy but launched an illegal war in which perhaps a million people have died. Either your principles, by some remarkable twists of fate, happen to have pre-empted every contradictory decision this government has taken, or you don't possess any.
 
You remained silent while the government endorsed the kidnap and the torture of innocent people; blocked a ceasefire in Lebanon and backed a dictator in Uzbekistan who boils his prisoners to death. You voiced no public concern while it instructed the Serious Fraud Office to drop the corruption case against BAE, announced a policy of pre-emptive nuclear war, signed a one-sided extradition treaty with the United States and left our citizens to languish in Guantánamo Bay. You remained loyal while it oversaw the stealthy privatisation of our public services and the collapse of Britain's social housing programme, closed hundreds of post offices and shifted taxation from the rich to the poor. What exactly do you stand for Hazel, except election?
 
The only consistent political principle I can deduce from these positions is slavish obedience to your masters. TheyWorkForYou sums up your political record thus: "Never rebels against their party in this parliament." Yours, Hazel, is the courage of the sycophant, the courage to say yes.
 
Let me remind you just how far your political "guts" have carried you. You are temporarily protected by the fact that the United Kingdom, unlike other states, has not yet incorporated the Nuremberg principles into national law. If a future government does so, you and all those who remained in the cabinet on 20 March 2003 will be at risk of prosecution for what the Nuremberg tribunal called "the supreme international crime". This is defined as the "planning, preparation, initiation or waging of a war of aggression". Robin Cook, a man of genuine political courage, put his conscience ahead of his career and resigned. What did you do?
 
It seems to me that someone of your principles would fit comfortably into almost any government. All regimes require people like you, who seem to be prepared to obey orders without question. Unwavering obedience guarantees success in any administration. It also guarantees collaboration in every atrocity in which a government might engage. The greatest thing we have to fear in politics is the cowardice of politicians.
 
You demanded evidence that consultations and citizens' juries have been rigged. You've got it. In 2007, the high court ruled that the government's first consultation on nuclear power was "seriously flawed" and "unlawful". It also ruled that the government must commission an opinion poll. The poll the government launched was reviewed by the Market Research Standards Board. It found that "information was inaccurately or misleadingly presented, or was imbalanced, which gave rise to a material risk of respondents being led towards a particular answer".
 
As freedom of information requests made by Greenpeace reveal, the consultation over the third runway at Heathrow used faked noise and pollution figures. It was repeatedly pre-empted by ministers announcing that the runway would be built. Nor did the government leave anything to chance when it wanted to set up giant health centres, or polyclinics, run by GPs. As Dr Tony Stanton of the Londonwide Local Medical Committees has pointed out, "a week before a £1m consultation on polyclinics and hospitals by NHS London closed, London's 31 primary care trusts were issued with instructions on setting up polyclinic pilots and GP-led health centres". Consultations elsewhere claimed that there was no need to discuss whether or not new health centres were required, as the principle had already been established through "extensive national level consultation exercises". But no such exercises had taken place; just a handful of citizens' juries engaging a total of a thousand selected people and steered by government ministers. Those who weren't chosen had no say.
 
Fixes like this might give you some clues about why more people are not taking part in politics. I believe there is a vast public appetite for re-engagement, but your government, aware of the electoral consequences, has shut us out. It has reneged on its promise to hold a referendum on electoral reform. It has blocked a referendum on the European treaty, ditched the regional assemblies, used Scottish MPs to swing English votes, sustained an unelected House of Lords, eliminated almost all the differences between itself and the opposition. You create an impenetrable political monoculture, then moan that people don't engage in politics.
 
It is precisely because I can picture something better that I have become such a cynical old git. William Hazlitt remarked that: "Man is the only animal that laughs and weeps; for he is the only animal that is struck with the difference between what things are and what they ought to be." You, Hazel, have helped to reduce our political choices to a single question: whether to laugh through our tears or weep through our laughter.

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Now is the time for a revolution in economic thought

 

Anatole Kaletsky:

Economic View

 
In my column last Thursday, I explained how academic economics has been discredited by recent events. It is now time for what historians of science call a "paradigm shift". If we want to flatter economists, we could compare this revolution needed to the paradigm shift in physics in 1910 after Einstein discovered relativity and Planck launched quantum mechanics. More realistically, economics today is where astronomy was in the 16th century, when Copernicus and Galileo had proved the heliocentric model, but religious orthodoxy and academic vested interests fought ruthlessly to defend the principle that the sun must revolve around the Earth.
 
In this article I will outline some of the unorthodox approaches to economics which conventional economists have ignored and which might have helped to avert the present crisis — in the weeks ahead I plan to give more detail of some of these ideas.
Consider the following passage:
 
"Most economic theorists have been going down the wrong track. When economic models fail, they are seldom thrown away. Rather they are 'fixed' - amended, qualified, particularised, expanded and complicated.
 
"Bit by bit, from a bad seed a big but sickly tree is built with glue, nails, screws and scaffolding. Conventional economics assumes the financial system is a linear, continuous, rational machine and these false assumptions are built into the risk models used by many of the world's banks. As a result, the odds of financial ruin in a free global market economy have been grossly underestimated. By using such methods there is no limit to how bad a bank's losses can get. Its own bankruptcy is the least of the worries; it will default on its obligations to other banks - and so the losses will spread from one inter-linked financial house to another. Only forceful action by regulators to put a firewall round the sickest firms will stop the crisis spreading. But bad news tends to come in flocks and a bank that weathers one crisis may not survive a second or a third."
 
This uncannily precise description of the present crisis above was not written by an economist. While some economists had warned for years about global trade imbalances, escalating house prices, of excessive consumer borrowing, none of them remotely foresaw the truly unprecedented feature of the present crisis: the total breakdown of financial markets caused by the unforced blunders by investors and banks. Modern economists were inherently incapable of understanding such a problem because they assumed that investors were "rational" and markets "efficient".
 
These assumptions led inevitably to disaster once they were blown apart. The author who came so close to understanding the true causes of the present crisis was not an economist but a mathematician.
 
Benoît Mandelbrot, a towering figure of 20th-century science, who invented fractal geometry and pioneered the mathematical analysis of chaos and complex systems, wrote the above words six years ago in his book The Misbehaviour of Markets. Mandelbrot's ideas found fruitful applications in the study of earthquakes, weather, galaxies and biological systems from the 1960s onward, but the field that originally inspired his ideas turns out, in this very readable book, to have been finance and economics. Yet 40 years of effort by Mandelbrot to interest economists in the new mathematical methods, which appear to work far better in modelling extreme movements in financial markets than the conventional methods based on statistically "normal" distributions, have been either ridiculed or ignored.
 
At the other end of the academic spectrum, we find economists treating ideas from sociology, psychology or philosophy with the same derision and disdain. George Soros is no mathematician like Mandelbrot, but he has repeatedly demonstrated far better understanding of how market economies work than any professional economist by using psychological and philosophical ideas. His books have explained convincingly how false beliefs among investors can create self-reinforcing boom-bust cycles of exactly the kind afflicting the world today. But the reaction to these ideas has been the same as to Mandelbrot's: a complacent refusal among academic economists, regulators and central bankers even to think seriously about approaches that challenge the central orthodoxies of modern economics: that "efficient" markets inhabited by "rational" investors send price signals which, in some sense, are always right.
Reality is very different, as everyone now admits: investors often misinterpret information and markets sometimes send price signals that are dangerously wrong. What Soros shows, moreover, is that such behaviour should not be regarded as irrational or an aberration. On the contrary, rational investors can find it very profitable to act on false premises - for example that credit will always be available without limit - if these false ideas become so widely accepted that they change the way the economy actually functions, at least for a time.
 
One reason why such fruitful insights have been ignored is the convention adopted by academic economists some 30 years ago that all serious ideas must be expressed in equations, not words. By this weird standard, the intellectual giants of the subject — Adam Smith, Ricardo, Keynes, Hayek — would not now be recognised as serious economists at all.
 
But even if we accept the mathematical formalism of modern economics, there is vast scope for new ideas.
 
A control theory approach, used by serious mathematicians such as Nicos Christofides and Shahid Chaudhri, working at the Centre for Quantitative Finance at London's Imperial College, has applied advanced mathematics from aerodynamics and control engineering to analyse financial turbulence without the over-simplified assumptions, such as continuous liquidity, which have caused the recent disasters in risk management and regulation.
 
But the challenge that existing economic orthodoxy may find most disconcerting is Imperfect Knowledge Economics (IKE), the name of a path-breaking recent book by Roman Frydman and Michael Goldberg, two American economists. Building on ideas of Edmund Phelps, one of the few Nobel Laureate economists who rejected the consensus view on rational expectations, IKE uses similar tools to conventional economics to generate radically different results. It insists that the future is inherently unknowable and therefore that there is always a multitude of plausible models of the way the economy works.
With this obvious, but critically important, change in assumptions, IKE demolishes most of the conclusions of rational expectations. More importantly, it shows that reasonable assumptions about economic uncertainty can produce financial models that give less spurious accuracy than the rational expectations models but are statistically far closer to what happens in the real world.
 
These are just a few examples of the creative thinking that has started again in economics after 20 years of stagnation. But the academic establishment, discredited though it is by the present crisis, will fight hard against new ideas. The outcome of this battle does not just matter to academic economists. Without a better understanding of economics, financial crises will keep recurring and faith in capitalism and free markets will surely erode. Changes in regulation are not sufficient after this financial crisis — it is time for a revolution in economic thought.

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High forex reserves can worsen recession

 

8 Feb 2009, 0057 hrs IST , Swaminathan S Anklesaria Aiyar

High foreign exchange reserves have, in the current global recession, saved Asian countries (including India) from the travails they suffered in the Asian financial crisis of 1997-2000. So, they must aim for rising forex reserves in future too, right? Wrong. In truth, high Asian forex reserves are an important reason for the current recession. High reserves promise safety in a storm. But, beyond a point this safety becomes illusory, because rising forex reserves worsen the global imbalances that have precipitated the recession. The global recession has many roots. One is the erosion of traditional US household prudence. US households used to save 6% of their disposable income. But in recent years they went on a borrowing and spending spree, and household savings dropped to virtually zero. Corporations and financiers also ran up record debts, partly to buy assets such as houses, stocks and commodities. This created huge bubbles in all three markets. When the bubbles finally burst, US households, corporations and financiers found themselves in dire straits. Many financial giants were rescued by the government. Meanwhile households, sobered by the turn of events, started saving 4% of disposable income, up from zero. More saving meant less spending, and made the recession deep and sharp. Most Asians are smugly blaming US imprudence and loose financial regulation for the crisis, while portraying themselves as innocent victims. Yet, they must share the guilt too. US profligacy did not arise in a vacuum. It arose in part because Asian insistence on high forex reserves meant that they poured dollars into the US to buy US securities. This flood of dollars from Asia drove down US interest rates, making it very attractive to borrow. That spurred the borrowing spree, and the accompanying bubbles. Historically, rich countries had surplus savings, manifested in a trade surplus. Poor countries lacked savings, manifested in trade deficits, with the deficit being plugged by an inflow of dollars from rich to poor countries. For the world as a whole, current account surpluses and deficits of countries must necessarily balance. Historically, the surpluses of rich countries were offset by the deficits of poor ones. But after the Asian financial crisis, something strange happened. Asian countries, above all China, began generating huge savings surpluses, manifested in huge current account surpluses. Many used undervalued exchange rates to artificially create trade surpluses, which were then invested in US treasuries (that is what foreign exchange reserves are). However, poor Asians could not run huge surpluses unless others were willing to run huge deficits. Remarkably, the rich US began to do so. This arose partly from the sophistication of its financial system, which found many ways - too many, in fact - of converting the flood of money from Asia into a borrowing and spending spree. This sharp rise in US spending boosted the global economy, and created the record global GDP growth in 2003-08. US demand sucked in huge quantities of manufactures and services from Asia, above all from China. Asian manufacturing sucked in huge quantities of commodities from Africa and Latin America, raising incomes there too. Alas, this boom was based on huge global imbalances that had to be corrected at some point. No country, not even the rich US, could keep running gargantuan trade deficits forever, to offset the surpluses of Asia. US asset bubbles burst, the boom ended, and US spending and imports plummeted. Ending the consequent recession means reducing global imbalances to manageable proportions. Americans will have to save more, spend less and export more. Asian countries, especially China, will have to consume more, save less, and export less. This re-balancing will restore global balance, and enable global growth to rise sustainably again. However, such re-balancing means that Asian countries must stop piling up ever-rising forex reserves (and trade surpluses). Such reserves represent excessive saving, excessive exports and insufficient imports. Excess forex reserves have provided apparent safety to Asian countries in a recessionary crisis, yet are also a cause of that very crisis. What will happen if Asians insist on trying to keep savings and forex reserves high? Well, if Asians keep savings high and Americans and Europeans do so too, then world demand will collapse and the recession will become a Depression. Asians must recognise that high forex reserves serve as a safety cushion only up to a point, and beyond that exacerbate global imbalances that threaten disaster. Saving too much can be as harmful as saving too little. Unless Asian countries recognize this and go slow on future reserve accumulation, the recession may become worse than anyone dares imagine today.

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