Multimillionaire foreigners prepared to invest their money in Britain will find it easier to make a home in the UK under government plans to relax immigration rules for the super-rich.
The Home Office will shortly propose changes to "investor visas" to encourage more rich people to live and invest in the UK.
The move comes as the government slashes foreign student numbers in an attempt to reduce yearly net migration to the "tens of thousands" – to the anger of universities reliant on income from overseas students.
The coalition has also cut the number of skilled workers British business can import from outside the European Union by one-fifth compared with last year. In addition, only 1,000 highly skilled workers without a job offer will be allowed to migrate to the UK, compared with 14,000 a year ago.
Under the proposals, which must be endorsed by parliament, wealthy migrants will from April only have to spend half a year in the country – against nine months under current rules – to qualify for a visa, and the wait for permanent residency will be dramatically cut for the wealthiest entrants.
The government, which has already exempted "high net worth individuals" and entrepreneurs from the new cap on non-European migration, is determined to increase the flow of wealthy immigrants. The UK attracts only a few hundred individuals each year on such grounds, compared with 3,000 for Canada.
Under the proposals, investors bringing in £10m would qualify for permanent residency within two years. Individuals with at least £5m would qualify in three and those with £1m would qualify after five years. At present, anyone on an investor visa has to stay at least five years before being eligible.
One Whitehall insider said the incentives represented an obvious effort to bolster the economy, although those granted permanent residency would then be free to take their money out of the UK.
Julia Onslow-Cole, head of global immigration at PwC Legal, said the changes "should encourage ... high net worth families to move to the UK". She added: "We have already seen significant interest in this new route from our clients."
Those applying for an entrepreneur visa would also see restrictions eased. It is expected businesses will be allowed to bring in an extra employee from overseas in return for an additional investment of £50,000.
The relaxed rules might attract foreign nationals from politically unstable countries. Maurice Turnor Gardner, a law firm, said it had been contacted in the past fortnight by several Egyptian families wanting to apply for investor visas.
Thursday 10 February 2011
The Bullet and the Elephant Express
By Raja Murthy
MUMBAI - While China has begun to earn billions of dollars exporting high-speed bullet train technology to the United States and Europe, the struggle of Indian Railways to manage its financial woes and modernization delays serves as a stark contrast between the operators of the world's two largest railway networks.
Cash-strapped Indian Railways has asked the Indian Finance Ministry for US$8.6 billion in the annual railway budget to be released this month, more than double the allocation of $3.47 billion in the 2010 budget for modernization programs.
Though railway revenues went up by 10.40% for the period 11th to 20th January 2011 - to $570 million from $517 million during the same period in 2010 - unconfirmed insider accounts says Indian Railways faces a $547 million budgetary deficit, with losses of $875 million between April and December 2010, the first nine months of its financial year.
In contrast, China Railways, which will invest $106 billion in railway infrastructure this year, has no money worries, allowing it to expand a high-speed railway network that with a combined length of 7,531 kilometers, is longer than the rest of the world's high-speed networks put together.
China latest fast train, the CRH380A, set a new record on December 3, 2010 by clocking 486.1 kilometers an hour in its Beijing to Shanghai trial. India's fastest trains, the Rajdhani and Shatabdi categories, average about 100 km per hour on their better days.
China's Railway Ministry plans to nearly double the high-speed rail network for its sleek bullet trains to 13,000 kilometers by 2012. In the same year, India hopes only to start basic work on its first high-speed rail track between New Delhi and Mumbai. Indian Railways has commissioned international consultants for pre-feasibility studies.
India might benefit from consulting China Railways for high-speed corridors, but this lack of a neighborly railway partnership only highlights how China and India, both expected to dominate global economy by 2050, have divergent strategies for their vast rail networks, a key to economic growth.
The 157-year old Indian Railways, hauling over 13 million passengers daily and calling itself the "Lifeline of the Nation", is closely linked to the common man, with its heavily subsidized fares; it offers 25% to 75% fare concessions to 50 categories of travelers, from the physically and mentally impaired to patients traveling for medical treatment, war widows, the elderly and students, including those from overseas.
China runs 91,000 km of train tracks, compared with India's 63,327 km, and both the state-owned behemoths are their country's single largest employer. The Indian Railways pay roll has over 1.6 million entries, with an additional 300,000 jobs to be filled in the next six months, Railway Minister Mamata Banerjee declared on January 27. China's Ministry of Railways employs nearly 3.2 million people, more than the country's 2.3 million army troops.
In contrast to the flashy, high-speed Chinese train dragon, the slower Indian elephant steadily trudges with a more down-to-earth outlook. The 2011 Railway budget, presented separately to parliament in February ahead of the general budget, is expected to stress enhancing passenger safety, such as improving signaling systems and installing safety-related technology such as anti-collision devices (ACD) and a train protection warning system (TPWS).
China Railways, on the other hand, is being accused of paying more attention to on-rail showboats like the bullet trains, whose tickets cost nearly that of air fares, instead of improving services for the masses.
Such grumbles are reported louder during the just completed week-long Lunar New Year holidays, when around 230 million people have to be transported, the largest annual migration in the world.
Migrant Chinese workers can wait for as much as three days, often braving bitter winter winds and hunger, for train tickets that cost about 400 yuan (US$61), nearly one-third of a blue collar worker's monthly pay.
The stress was too much for migrant worker Chen Weiwei this January, who removed his clothes, except for grey underpants, and ran shouting around Jinhua Railway Station in eastern China's Zhejiang province. He had snapped after waiting third in a queue for 14 hours, only to be told that tickets were "sold out". Later, the station authorities magically changed the "sold out" status and gave Chen five tickets.
In contrast, the equivalent Indian worker need pay only 629 rupees (about $13) for a reserved second-class ticket with a sleeping berth on the Himsagar Express, in its three-night, 3,715-km odyssey between Kanyakumari, in India's southern-most tip, to Jammu city, in India's northern-most Jammu and Kashmir state.
Indian Railways has the world's largest online ticketing service - but insider fraud is often suspected, with tickets in very popular trains sold out almost instantly when reservations opens three months in advance.
For most trains and routes though, India's nationally computerized train booking system ensures that tickets, from anywhere to anywhere within the country, can be bought from thousands of Indian Railways counters nationwide, including in a small one-high-street town like Igatpuri, 150 km from Mumbai.
Internet booking, too, has cut short once daunting queues, saving millions of man-hours. The Centre for Railway Information Systems, created to use the latest information technology, reported 8.8 million online ticket transactions in January 2011, a 75% success rate from 11.7 million transactions attempted.
While Indian Railways benefits from the country's rich software expertise, it continues to import technology, such as coaches from Germany for the fully air-conditioned Rajdhani trains, even though it owns facilities like the Integral Coach Factory in Chennai.
China, in contrast, has done with its railways what it has done in other industrial sectors: import high technology, jiggle it a bit, label it as "advanced Chinese technology" and then export it heavily, undercutting the original foreign technology providers such as Siemens, Bombardier and Alstom.
Not surprisingly, China's largest train maker, CSR, last week said it expected profits in 2010 to have gained more than 50% last year from $254 million in 2009. CSR earned $1.24 billion in overseas sales. CSR is now the world's third-largest high-speed train producer, just behind Bombardier and Alstom.
In December, CSR also signed an agreement with General Electric for a 50-50 joint venture to manufacture high-speed trains in the United States. The $1.4 billion deal is expected to add 2,000 jobs in the US.
China is also competing with Japan, South Korea, France, Germany and Belgium to build a 1,100-kilometer high-speed railway in California, connecting San Francisco, Sacramento, Los Angeles and San Diego in 150 minutes, at a speed of 350 kph.
The Indian Railways suffers no such international competition anxieties as its Chinese counterpart, but with increasing traffic between the two nations, possibilities of a trans India-China rail network, and a New Delhi-Beijing Friendship Express by year 2025 will not be far-fetched.
Wednesday 9 February 2011
Drugs companies have lost far more than their health
By John Kay
Published: February 8 2011 23:03 | Last updated: February 8 2011 23:03
Published: February 8 2011 23:03 | Last updated: February 8 2011 23:03
George Merck, president of the eponymous company from 1925 to 1950, famously expressed his corporate philosophy: "We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered it, the larger they have been." For many years Merck topped Fortune magazine's list of most admired companies. Johnson & Johnson's 308-word credo captures similar sentiments. In a classic business school case on ethics and corporate reputation, the company's executives applied the credo to implement a speedy product recall.
The drugs industry has thus had an implicit contract with public and government. It was permitted extraordinary profitability in return for companies behaving as exemplary corporate citizens.
Pfizer was always an odd man out. While Merck was lecturing doctors on his commitment to social responsibility, John McKeen, his Pfizer counterpart, was assuring his shareholders: "So far as humanly possible, we aim to get profit out of everything we do." In a 1994 business book by Jim Collins and Jerry Porras, Built to Last, Pfizer is Merck's ugly sister. More assertive but less profitable, it epitomised the profit-seeking paradox – the most profitable companies are not the most aggressive in pursuit of profit.
But in the 1990s the supply of new blockbuster drugs diminished. Perhaps the low-hanging fruit had been picked, while able scientists from the academic world could more easily access venture capital to do their own thing. The industry was criticised for its focus on the minor ailments of the rich rather than the life-threatening diseases of the poor. Drug companies came under pressure from Wall Street to demonstrate commitment to shareholder value. The pay-off from marketing is immediate, the pay-off from research delayed, and their strategy reflected that. They also spent a great deal on buying each other. The greatest modern achievement of pharmacology – the cocktail of drugs that controls Aids, with public research leading the way – may be a model for future innovation.
As Pfizer jumped ahead in this environment, Merck stumbled – it would feature again in Mr Collins's 2009 book, How the Mighty Fall. A new blockbuster painkiller, Vioxx, was promoted not just for the minority of patients who derived a unique benefit but for many who might as well have taken an aspirin. Merck withdrew the product amid recrimination and lawsuits. Even the revered J&J would find its reputation tarnished by the regulator's discovery of bad practice – and dubious management responses – at the company's McNeil consumer products group.
An industry that once seemed to exemplify a constructive relationship between private enterprise and public benefit is now widely detested. US customers face spiralling drug costs. Development groups believe the industry's contribution to the world's poor is grudging and inadequate. Medical professionals view its ethics with mistrust. Its response has been a lobbying effort rivalled only by that of the financial services industry.
Such lobbying may delay, but not ultimately prevent, reversion to profit margins that reflect the new nature of the industry in returns appropriate to consumer products rather than innovative research. The future of pharmacology will probably look more like the peer-reviewed open process of incremental development based on public and philanthropic funding found elsewhere in medical science.
Pfizer has decided to attempt to meet its earnings growth targets – the patent on its popular cholesterol drug, Lipitor, is about to expire – by cutting its research budget, correctly observing that its productivity has declined. Rival Merck, in contrast, has lowered earnings projections to maintain research spending. The market's immediate verdict was that Pfizer was right. For its shareholders, perhaps. When an industry model is broken, the best business strategy may be to manage its decline.
Monday 7 February 2011
Attracting the fleeing Arab rich - UK entry rules set to be relaxed for the super-rich
By Alice Ross and Elizabeth Rigby
Published: February 6 2011 22:36 | Last updated: February 6 2011 22:36
Published: February 6 2011 22:36 | Last updated: February 6 2011 22:36
Wednesday 2 February 2011
Its Asian prosperity that's undermined dysfunctional Arab states
Food and failed Arab states
By Spengler
Even Islamists have to eat. It is unclear whether President Hosni Mubarak of Egypt will survive, or whether his nationalist regime will be replaced by an Islamist, democratic, or authoritarian state. What is certain is that it will be a failed state. Amid the speculation about the shape of Arab politics to come, a handful of observers, for example economist Nourel Roubini, have pointed to the obvious: Wheat prices have almost doubled in the past year.
Egypt is the world's largest wheat importer, beholden to foreign providers for nearly half its total food consumption. Half of Egyptians live on less than $2 a day. Food comprises almost half the country's consumer price index, and much more than half of spending for the poorer half of the country. This will get worse, not better.
Not the destitute, to be sure, but the aspiring and frustrated young, confronted the riot police and army on the streets of Egyptian cities last week. The uprising in Egypt and Tunisia were not food riots; only in Jordan have demonstrators made food the main issue. Rather, the jump in food prices was the wheat-stalk that broke the camel's back. The regime's weakness, in turn, reflects the dysfunctional character of the country. 35% of all Egyptians, and 45% of Egyptian women can't read.
Nine out of ten Egyptian women suffer genital mutilation. US President Barack Obama said Jan. 29, "The right to peaceful assembly and association, the right to free speech, and the ability to determine their own destiny … are human rights. And the United States will stand up for them everywhere." Does Obama think that genital mutilation is a human rights violation? To expect Egypt to leap from the intimate violence of traditional society to the full rights of a modern democracy seems whimsical.
In fact, the vast majority of Egyptians has practiced civil disobedience against the Mubarak regime for years. The Mubarak government announced a "complete" ban on genital mutilation in 2007, the second time it has done so - without success, for the Egyptian population ignored the enlightened pronouncements of its government. Do Western liberals cheer at this quiet revolt against Mubarak's authority?
Suzanne Mubarak, Egypt's First Lady, continues to campaign against the practice, which she has denounced as "physical and psychological violence against children." Last May 1, she appeared at Aswan City alongside the provincial governor and other local officials to declare the province free of it. And on October 28, Mrs Mubarak inaugurated an African conference on stopping genital mutilation.
The most authoritative Egyptian Muslim scholars continue to recommend genital mutilation. Writing on the web site IslamOnline, Sheikh Yusuf al-Qaradawi - the president of the International Association of Muslim Scholars - explains:
What does that say about the character of the country's middle class? Only one news dispatch among the tens of thousands occasioned by the uprising mentions the subject; the New York Times, with its inimitable capacity to obscure content, wrote on January 27, "To the extent that Mr. Mubarak has been willing to tolerate reforms, the cable said, it has been in areas not related to public security or stability.
For example, he has given his wife latitude to campaign for women's rights and against practices like female genital mutilation and child labor, which are sanctioned by some conservative Islamic groups." The authors, Mark Landler and Andrew Lehren, do not mention that 90% or more of Egyptian women have been so mutilated. What does a country have to do to shock the New York Times? Eat babies boiled?
Young Tunisians and Egyptians want jobs. But (via Brian Murphy at the Associated Press on January 29) "many people have degrees but they do not have the skill set," Masood Ahmed, director of the Middle East and Asia department of the International Monetary Fund, said earlier this week. "The scarce resource is talent," agreed Omar Alghanim, a prominent Gulf businessman. The employment pool available in the region "is not at all what's needed in the global economy." For more on this see my January 19 essay, Tunisia's lost generation. There are millions of highly-qualified, skilled and enterprising Arabs, but most of them are working in the US or Europe.
Egypt is wallowing in backwardness, not because the Mubarak regime has suppressed the creative energies of the people, but because the people themselves cling to the most oppressive practices of traditional society. And countries can only languish in backwardness so long before some event makes their position untenable.
Wheat prices 101 and Egyptian instability
In this case, Asian demand has priced food staples out of the Arab budget. As prosperous Asians consume more protein, global demand for grain increases sharply (seven pounds of grain produce one pound of beef). Asians are rich enough, moreover, to pay a much higher price for food whenever prices spike due to temporary supply disruptions, as at the moment.
Egyptians, Jordanians, Tunisians and Yemenis are not. Episodes of privation and even hunger will become more common. The miserable economic performance of all the Arab states, chronicled in the United Nations' Arab Development Reports, has left a large number of Arabs so far behind that they cannot buffer their budget against food price fluctuations.
Earlier this year, after drought prompted Russia to ban wheat exports, Egypt's agriculture minister pledged to raise food production over the next ten years to 75% of consumption, against only 56% in 2009. Local yields are only 18 bushels per acre, compared to 30 to 60 for non-irrigated wheat in the United States, and up 100 bushels for irrigated land.
The trouble isn't long-term food price inflation: wheat has long been one of the world's bargains. The International Monetary Fund's global consumer price index quadrupled in between 1980 and 2010, while the price of wheat, even after the price spike of 2010, only doubled in price. What hurts the poorest countries, though, isn't the long-term price trend, though, but the volatility.
People have drowned in rivers with an average depth of two feet. It turns out that China, not the United States or Israel, presents an existential threat to the Arab world, and through no fault of its own: rising incomes have gentrified the Asian diet, and - more importantly - insulated Asian budgets from food price fluctuations. Economists call this "price elasticity." Americans, for example, will buy the same amount of milk even if the price doubles, although they will stop buying fast food if hamburger prices double. Asians now are wealthy enough to buy all the grain they want.
If wheat output falls, for example, due to drought in Russia and Argentina, prices rise until demand falls. The difference today is that Asian demand for grain will not fall, because Asians are richer than they used to be. Someone has to consume less, and it will be the people at the bottom of the economic ladder, in this case the poorer Arabs.
That is why the volatility of the wheat price (the rolling standard deviation of percentage changes in the price over twelve months) has trended up from about 5% during the 1980s and 1990s to about 15% today. This means that there is a roughly two-thirds likelihood that the monthly change in the wheat price will be less than 15%.
It also means that every so often the wheat price is likely to go through the ceiling, as it did during the past 12 months. To make life intolerable for the Arab poor, the price of wheat does not have to remain high indefinitely; it only has to trade out of their reach once every few years.
And that is precisely what has happened during the past few years:
After 30 years of stability, the price of wheat has had two spikes into the $9 per bushel range at which very poor people begin to go hungry. The problem isn't production. Wheat production has risen steadily - very steadily in fact - and the volatility of global supply has been muted:
The line in Chart 3 above marked "production volatility" is the five-year standard deviation of annual percentage changes in world wheat supply (data from US Department of Agriculture). During the 1960s and 1970s, it hovered around the 3% to 5% range, but fell to the 1% to 3% range.
It shows an approximately two-thirds likelihood that world wheat supply will change by less than 3% each year. Wheat supply dropped by only 2.4% between 2009 and 2010 - and the wheat price doubled. That's because affluent Asians don't care what they pay for grain. Prices depend on what the last (or "marginal") purchaser is willing to pay for an item (what was the price of the last ticket on the last train out of Paris when the Germans marched on June 14, 1940?). Don't blame global warming, unstable weather patterns: wheat supply has been fairly reliable. The problem lies in demand.
Officially, Egypt's unemployment rate is slightly above 9%, the same as America's, but independent studies say that a quarter of men and three-fifths of women are jobless. According to a BBC report, 700,000 university graduates chase 200,000 available jobs.
A number of economists anticipated the crisis. Reinhard Cluse of Union bank of Switzerland told the Financial Times last August:
Egypt has $35 billion of central bank reserves, adequate under normal conditions, but thin insulation against capital flight. Foreigners hold $25 billion of Egypt's short-term Treasury bills, for example. It would not take long for a run on the currency to materialize - and if the currency devalues, food and fuel become all the more expensive. A vicious cycle may ensue.
Under the title The Failed Muslim States to Come (Asia Times Online December 16, 2008), I argued that the global financial crisis then at its peak would destabilize the most populous Muslim countries:
The best thing the United States could do at the moment would be to offer massive emergency food aid to Egypt out of its own stocks, with the understanding that President Mubarak would offer effusive public thanks for American generosity. This is a stopgap, to be sure, but it would pre-empt the likely alternative. Otherwise, the Muslim Brotherhood will preach Islamist socialism to a hungry audience. That also explains why Mubarak just might survive. Even Islamists have to eat. The Iranian Islamists who took power in 1979 had oil wells; Egypt just has hungry mouths. Enlightened despotism based on the army, the one stable institution Egypt possesses, might not be the worst solution.
By Spengler
Even Islamists have to eat. It is unclear whether President Hosni Mubarak of Egypt will survive, or whether his nationalist regime will be replaced by an Islamist, democratic, or authoritarian state. What is certain is that it will be a failed state. Amid the speculation about the shape of Arab politics to come, a handful of observers, for example economist Nourel Roubini, have pointed to the obvious: Wheat prices have almost doubled in the past year.
Egypt is the world's largest wheat importer, beholden to foreign providers for nearly half its total food consumption. Half of Egyptians live on less than $2 a day. Food comprises almost half the country's consumer price index, and much more than half of spending for the poorer half of the country. This will get worse, not better.
Not the destitute, to be sure, but the aspiring and frustrated young, confronted the riot police and army on the streets of Egyptian cities last week. The uprising in Egypt and Tunisia were not food riots; only in Jordan have demonstrators made food the main issue. Rather, the jump in food prices was the wheat-stalk that broke the camel's back. The regime's weakness, in turn, reflects the dysfunctional character of the country. 35% of all Egyptians, and 45% of Egyptian women can't read.
Nine out of ten Egyptian women suffer genital mutilation. US President Barack Obama said Jan. 29, "The right to peaceful assembly and association, the right to free speech, and the ability to determine their own destiny … are human rights. And the United States will stand up for them everywhere." Does Obama think that genital mutilation is a human rights violation? To expect Egypt to leap from the intimate violence of traditional society to the full rights of a modern democracy seems whimsical.
In fact, the vast majority of Egyptians has practiced civil disobedience against the Mubarak regime for years. The Mubarak government announced a "complete" ban on genital mutilation in 2007, the second time it has done so - without success, for the Egyptian population ignored the enlightened pronouncements of its government. Do Western liberals cheer at this quiet revolt against Mubarak's authority?
Suzanne Mubarak, Egypt's First Lady, continues to campaign against the practice, which she has denounced as "physical and psychological violence against children." Last May 1, she appeared at Aswan City alongside the provincial governor and other local officials to declare the province free of it. And on October 28, Mrs Mubarak inaugurated an African conference on stopping genital mutilation.
The most authoritative Egyptian Muslim scholars continue to recommend genital mutilation. Writing on the web site IslamOnline, Sheikh Yusuf al-Qaradawi - the president of the International Association of Muslim Scholars - explains:
The most moderate opinion and the most likely one to be correct is in favor of practicing circumcision in the moderate Islamic way indicated in some of the Prophet's hadiths - even though such hadiths are not confirmed to be authentic. It is reported that the Prophet (peace and blessings be upon him) said to a midwife: "Reduce the size of the clitoris but do not exceed the limit, for that is better for her health and is preferred by husbands."That is not a Muslim view (the practice is rare in Turkey, Iraq, Iran and Pakistan), but an Egyptian Muslim view. In the most fundamental matters, President and Mrs Mubarak are incomparably more enlightened than the Egyptian public. Three-quarters of acts of genital mutilation in Egypt are executed by physicians.
What does that say about the character of the country's middle class? Only one news dispatch among the tens of thousands occasioned by the uprising mentions the subject; the New York Times, with its inimitable capacity to obscure content, wrote on January 27, "To the extent that Mr. Mubarak has been willing to tolerate reforms, the cable said, it has been in areas not related to public security or stability.
For example, he has given his wife latitude to campaign for women's rights and against practices like female genital mutilation and child labor, which are sanctioned by some conservative Islamic groups." The authors, Mark Landler and Andrew Lehren, do not mention that 90% or more of Egyptian women have been so mutilated. What does a country have to do to shock the New York Times? Eat babies boiled?
Young Tunisians and Egyptians want jobs. But (via Brian Murphy at the Associated Press on January 29) "many people have degrees but they do not have the skill set," Masood Ahmed, director of the Middle East and Asia department of the International Monetary Fund, said earlier this week. "The scarce resource is talent," agreed Omar Alghanim, a prominent Gulf businessman. The employment pool available in the region "is not at all what's needed in the global economy." For more on this see my January 19 essay, Tunisia's lost generation. There are millions of highly-qualified, skilled and enterprising Arabs, but most of them are working in the US or Europe.
Egypt is wallowing in backwardness, not because the Mubarak regime has suppressed the creative energies of the people, but because the people themselves cling to the most oppressive practices of traditional society. And countries can only languish in backwardness so long before some event makes their position untenable.
Wheat prices 101 and Egyptian instability
In this case, Asian demand has priced food staples out of the Arab budget. As prosperous Asians consume more protein, global demand for grain increases sharply (seven pounds of grain produce one pound of beef). Asians are rich enough, moreover, to pay a much higher price for food whenever prices spike due to temporary supply disruptions, as at the moment.
Egyptians, Jordanians, Tunisians and Yemenis are not. Episodes of privation and even hunger will become more common. The miserable economic performance of all the Arab states, chronicled in the United Nations' Arab Development Reports, has left a large number of Arabs so far behind that they cannot buffer their budget against food price fluctuations.
Earlier this year, after drought prompted Russia to ban wheat exports, Egypt's agriculture minister pledged to raise food production over the next ten years to 75% of consumption, against only 56% in 2009. Local yields are only 18 bushels per acre, compared to 30 to 60 for non-irrigated wheat in the United States, and up 100 bushels for irrigated land.
The trouble isn't long-term food price inflation: wheat has long been one of the world's bargains. The International Monetary Fund's global consumer price index quadrupled in between 1980 and 2010, while the price of wheat, even after the price spike of 2010, only doubled in price. What hurts the poorest countries, though, isn't the long-term price trend, though, but the volatility.
People have drowned in rivers with an average depth of two feet. It turns out that China, not the United States or Israel, presents an existential threat to the Arab world, and through no fault of its own: rising incomes have gentrified the Asian diet, and - more importantly - insulated Asian budgets from food price fluctuations. Economists call this "price elasticity." Americans, for example, will buy the same amount of milk even if the price doubles, although they will stop buying fast food if hamburger prices double. Asians now are wealthy enough to buy all the grain they want.
If wheat output falls, for example, due to drought in Russia and Argentina, prices rise until demand falls. The difference today is that Asian demand for grain will not fall, because Asians are richer than they used to be. Someone has to consume less, and it will be the people at the bottom of the economic ladder, in this case the poorer Arabs.
That is why the volatility of the wheat price (the rolling standard deviation of percentage changes in the price over twelve months) has trended up from about 5% during the 1980s and 1990s to about 15% today. This means that there is a roughly two-thirds likelihood that the monthly change in the wheat price will be less than 15%.
It also means that every so often the wheat price is likely to go through the ceiling, as it did during the past 12 months. To make life intolerable for the Arab poor, the price of wheat does not have to remain high indefinitely; it only has to trade out of their reach once every few years.
And that is precisely what has happened during the past few years:
After 30 years of stability, the price of wheat has had two spikes into the $9 per bushel range at which very poor people begin to go hungry. The problem isn't production. Wheat production has risen steadily - very steadily in fact - and the volatility of global supply has been muted:
The line in Chart 3 above marked "production volatility" is the five-year standard deviation of annual percentage changes in world wheat supply (data from US Department of Agriculture). During the 1960s and 1970s, it hovered around the 3% to 5% range, but fell to the 1% to 3% range.
It shows an approximately two-thirds likelihood that world wheat supply will change by less than 3% each year. Wheat supply dropped by only 2.4% between 2009 and 2010 - and the wheat price doubled. That's because affluent Asians don't care what they pay for grain. Prices depend on what the last (or "marginal") purchaser is willing to pay for an item (what was the price of the last ticket on the last train out of Paris when the Germans marched on June 14, 1940?). Don't blame global warming, unstable weather patterns: wheat supply has been fairly reliable. The problem lies in demand.
Officially, Egypt's unemployment rate is slightly above 9%, the same as America's, but independent studies say that a quarter of men and three-fifths of women are jobless. According to a BBC report, 700,000 university graduates chase 200,000 available jobs.
A number of economists anticipated the crisis. Reinhard Cluse of Union bank of Switzerland told the Financial Times last August:
"Significant hikes in the global price of wheat would present the government with a difficult dilemma.One parameter to watch closely is the Egyptian pound. Insurance against Egyptian default was the London Interbank Offered Rate (Libor) +3.3% a week ago; on Friday, it stood at Libor + 4.54%. That's not a crisis level, but if banks start reducing exposure, things could get bad fast. In 2009 Egyptian imports were $55 billion against only $29 billion of exports; tourism (about $15 billion in net income) and remittances from Egyptian workers (about $8 billion) and other services brought the current account into balance. Scratch the tourism, and you have a big deficit.
Do they want to pass on price rises to end consumers, which would reduce Egyptians' purchasing power and might lead to social discontent?
Or do they keep their regulation of prices tight and end up paying higher subsidies for food? In which case the problem would not go away but end up in the government budget.
Egypt's public debt is already high, at roughly 74% of gross domestic produce (GDP), according to UBS. Earlier this year the IMF projected that Egypt's food subsidies would cost the equivalent of 1.1% of GDP in 2009-10, while subsidies for energy were expected to add up to 5.1%.
...
Tensions over food have led to violence in bread queues before and it wouldn't take much of a price rise for the squeeze on many consumers to become unbearably tight."
Egypt has $35 billion of central bank reserves, adequate under normal conditions, but thin insulation against capital flight. Foreigners hold $25 billion of Egypt's short-term Treasury bills, for example. It would not take long for a run on the currency to materialize - and if the currency devalues, food and fuel become all the more expensive. A vicious cycle may ensue.
Under the title The Failed Muslim States to Come (Asia Times Online December 16, 2008), I argued that the global financial crisis then at its peak would destabilize the most populous Muslim countries:
Financial crises, like epidemics, kill the unhealthy first. The present crisis is painful for most of the world but deadly for many Muslim countries, and especially so for the most populous ones. Policy makers have not begun to assess the damage. The diplomatic strategy of the industrial nations now resembles a James Clavell potboiler, in which an earthquake interrupts a hopelessly immured plot. Moderate Islam was the El Dorado of the diplomatic consensus.I was wrong. It wasn't the financial crisis that undermined dysfunctional Arab states, but Asian prosperity. The Arab poor have been priced out of world markets. There is no solution to Egypt's problems within the horizon of popular expectations. Whether the regime survives or a new one replaces it, the outcome will be a disaster of, well, biblical proportions.
It might have been the case that Pakistan could be tethered to Western interests, or that Iran could be engaged peacefully, or that Turkey would incubate a moderate form of Islam. I considered all of this delusional, but the truth is that we shall never know. The financial crisis will sort them out first.
The best thing the United States could do at the moment would be to offer massive emergency food aid to Egypt out of its own stocks, with the understanding that President Mubarak would offer effusive public thanks for American generosity. This is a stopgap, to be sure, but it would pre-empt the likely alternative. Otherwise, the Muslim Brotherhood will preach Islamist socialism to a hungry audience. That also explains why Mubarak just might survive. Even Islamists have to eat. The Iranian Islamists who took power in 1979 had oil wells; Egypt just has hungry mouths. Enlightened despotism based on the army, the one stable institution Egypt possesses, might not be the worst solution.
Those at the nucleus may not have the best view
Published: February 1 2011 23:06 | Last updated: February 1 2011 23:06
Rutherford was professor of physics at Manchester University, and he presented his findings in 1911 to a meeting of the Manchester Literary and Philosophical Society. The audience consisted mainly of local business people. The announcement of one of the most important scientific breakthroughs of the 20th century was preceded by a session in which a Manchester fruit importer exhibited a rare snake he had discovered in a consignment of bananas.
Modern physics is difficult but any good physicist will be pleased to try to explain it. The gift of exposition is not necessarily aligned with intellectual distinction: as a student, I was disappointed to find that the most distinguished of my lecturers, the economist Sir John Hicks, had never mastered how to hold the attention of a class. But clarity of thought and clarity of expression tend to go together. The best textbooks are often written by the best researchers: Richard Feynman could not only do physics brilliantly but also brought it alive with words.
So when someone tells you something is too complex for you to understand, the usual reason is that they do not really understand it themselves. Sometimes they know that they do not really understand it: often they do not.
For the inquisitive intellectual, few people are as irritating as those whose combination of ignorance and arrogance is so profound that they claim to understand things they do not even know they do not know.
The world of business and finance, which values confidence and certainty, is full of such people. "It isn't really like that," they will say; and when you ask what it is really like, they will tell you it is too complicated for you to apprehend. What they really mean, but do not recognise, is that it is too complicated for them to apprehend.
The bad financier, or businessman, like the bad scientist, pursues complexity almost wilfully because he believes such complexity demonstrates his knowledge and sophistication. So the blind lead the blind through the mysteries of structured financial products and the jargon-ridden thickets of corporate strategy. People sell securities whose properties they only dimly appreciate to people who do not understand them at all. Consultants describe the business world in language – and, of course, PowerPoint presentations – whose elaboration disguises the banality of the thought.
Real understanding lies in finding simplifications that bring order to disparate facts. Such was the nature of Rutherford's discovery and of his understanding; and why he felt able to reveal his findings to the Manchester Library and Philosophical Society. But Rutherford's task was easier in one important sense: the world he laboured to make sense of was unchanging and unaffected by our understanding, if not necessarily our observation, of it. The same is not true of business and finance.
Some patterns become apparent only with hindsight. David Hackett Fischer wrote of "the historian's fallacy" – the explanation of the behaviour of participants in the light of later knowledge. Perhaps Henry Ford and Bill Gates were the men who really understood the automobile and computer industries, or perhaps they were just the people whose opinions turned out to be right, which is not the same at all.
People in the middle of events often know less about them than those watching from the outside, which is why interviews with senior business figures inform us about what these people think rather than what is happening. The panels of grandees at Davos who pronounce on the future of the world may know less about the subject than spectators on the lower slopes. After all, it was the observer Rutherford, not the nucleus itself, who told those Manchester businessmen what the atom was really like.
Tuesday 1 February 2011
What makes a good teacher?
Many state pupils are badly taught because the training system tries to make every class the same, says Katharine Birbalsingh
'Good teachers get extremely frustrated with the parrot-like approach dictated by Ofsted inspectors,' says Birbalsingh Photo: JANE MINGAY
Recently, I visited one of our top public boys' schools and sat in on a few lessons. I found exactly what I was expecting: old-fashioned teaching centred on knowledge instead of skills, with the teacher at the front and children at their desks; no group work nor games, just listening, responding and serious concentration. These teachers had not been moulded into what those of us in the state schools sector understand to be a good teacher.
My recent visits to private schools have me questioning my very understanding of the term "teaching". What is it, after all, that makes a good teacher? With cuts to teacher-training places being planned by the Government, as The Daily Telegraph reported yesterday, now is a good moment to ask what exactly we want our teachers to be trained in.
Training institutions are charged with the task of shaping teachers who will be "outstanding" or "good", according to Ofsted criteria. There are certain formulae. One must begin the lesson with a "starter", to last no more than
4-5 minutes. One must end with a plenary, summing up the lesson, again to last no more than 4-5 minutes. There must be an objective to the lesson, written up on the board, that in many classrooms children will copy into their books. With some bottom sets, this simple act of copying a long objective might waste up to 10 minutes of the 40 or 50-minute lesson. No matter, to be a good teacher in the state sector, one must do as one is told.
4-5 minutes. One must end with a plenary, summing up the lesson, again to last no more than 4-5 minutes. There must be an objective to the lesson, written up on the board, that in many classrooms children will copy into their books. With some bottom sets, this simple act of copying a long objective might waste up to 10 minutes of the 40 or 50-minute lesson. No matter, to be a good teacher in the state sector, one must do as one is told.
Be sure to use the interactive whiteboard in the lesson, of course. One is constantly reminded that "use of technology" will increase results. Funny, then, how the boys in our top public schools make do with only a handful of interactive whiteboards, which, by their teachers' own admission, are "hardly ever used".
One must remember that one isn't a "teacher" in a state school classroom. Instead, one is a "facilitator of learning". One doesn't teach knowledge, one teaches skills. So standing in front of the class and actually teaching is frowned upon. Far better to set the children up in groups, give them envelopes filled with bits of paper and ask them to put the pieces of paper in the correct order. Then, the facilitator of learning can roam around the classroom, facilitating instead of teaching, and guiding pupils through the maze of "personalised" and "independent" learning.
I know of one school where facilitating is such a rage that they combine classes, so that 60 children are in any given lesson, with two different teachers, one at the front who can teach, while the other moves among the children. What good an extra teacher is going to be (if they ever manage to reach you) when one is learning maths is beyond me. There are 59 other pupils, after all, in the class. The fact that half the class can barely hear the teacher at the front because there is too much noise, and some of them are just too far away, means nothing when set against the supposed value of the "facilitator". The problem with teacher-training institutions is that they are all singing from the same hymn sheet. The philosophy that underpins state education is that we are in the business of pursuing equality, not excellence. The role of the school is to ensure that we give children equal opportunity. I, for one, would agree with this noble aspiration. I want children to have exactly this, and it is precisely because I can see that equal opportunity is not being provided to our poorest and most disadvantaged that I spoke out at the Conservative Party conference last year.
The irony is that if one does not pursue excellence, one cannot provide equal opportunity. But somehow, our understanding of "equal opportunity" has metamorphosed into "sameness". So rather than allow our teachers to be excellent in their different and innovative ways, some teacher-training institutions and some schools attempt to squash all ingenuity out of teachers, and make them into parrot-like machines churning out whatever skill-based nonsense they have been brainwashed with.
As I sat in on these lessons in one of our top public schools, I was struck by the fact that if I had been grading them according to Ofsted criteria – the standards by which we judge state school teachers – these public school teachers would have failed outright.
No teacher in the state sector would dare to teach the way they did. Yet the children were so well taught that they seemed to know everything about the subject. I sat in on one history lesson in which the pupils learnt more than their contemporaries in the state sector would learn in an entire term.
And if that sounds as though I'm making it up, imagine the time it takes to get children huddled around in groups, quieten them down, give instructions on how to do the complicated exercise of not losing the bits of paper, making sure they don't get bent out of shape, ensuring they get returned to the envelope, and so on.
So what is the best way of training teachers? Teach First is an organisation that takes the brightest from Oxford and Cambridge and has them teach for a minimum of two years. A number stay permanently. Some question Teach First and say that academic excellence is not necessarily a sign that one will be an excellent teacher. True, but one cannot be an excellent teacher without brains. Intelligence is a pre-requisite to being a good teacher. Often, but not always, academic excellence demonstrates that one is sharp. So Teach First is a fantastic way of getting our brightest into classrooms.
Above all, the question that needs answering is whether there is a right way and a wrong way to be a good teacher. Can one still be a good teacher if one never has the prescribed model of a starter, plenary, objective, group work, facilitation and so on? Are there really formulae for being "good"? Certainly, the teacher-training institutions would say that there are, which would explain why they believe it is so crucial that we retain them to ensure a guiding hand over teacher training.
The fear, it would seem, is that leaving training to schools might create too much variety in the profession, putting an end to the pursuit of "sameness" in the classroom. But I would argue that variety is the thing that will ensure equal opportunities for all.
The problem is that good teachers want the freedom to teach as they please. They want to do what is best for their pupils. Every class is unique, so every class needs a different approach and teaching style.
Good teachers often get extremely frustrated with the parrot-like approach dictated by Ofsted inspectors and senior leaders. Sometimes they get so annoyed that they defect to the private sector, where freedom is abundant.
Many times, as a senior teacher, I would observe excellent practitioners who were superb with pupils but I would be forced to give them a "good" instead of an "outstanding" for their lesson, simply because some ill-thought-out Ofsted boxes had not been ticked.
And there you have it. If one is to judge teachers by criteria, the list begins in teacher-training institutions, and is confirmed and justified in the end by Ofsted. The teachers who are caught in between are puppets, doing what they are told. That, at any rate, is what we see. In reality, the best teachers do their own thing behind closed classroom doors. They do precisely what they are told not to do and dare to teach knowledge instead of skills, dare to stand in front of the class "teaching" for more than five minutes, and don't insist on their children copying down an objective for the lesson. Then, when they are observed, they put on an act to satisfy the Ofsted criteria, and live to teach another day.
Such is the reality of the state sector, where good teachers are under siege, having to pretend in order to get their rubber-stamp approval. Children are different from each other. Classrooms and schools vary immensely. That is why the freedom to choose what lesson is appropriate, what teacher might work best, what curriculum best suits, is so imperative if we are to provide equality of opportunity.
The public school boys who run Britain aren't doing so because they were all considered to be the same at school: they run Britain because their teachers had the freedom to choose and, perhaps in the end, that is what it is to be a good teacher.
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