Dubai Keynes Society Newsletter December 2018

DUBAI KEYNES SOCIETY NEWSLETTER DECEMBER 2018 ISSUE

editorial

The last three months have been transformative for the Dubai Keynes Society.

Our change of location to the revamped Lecture Theatre has served as a burst of invigoration, providing the society with both physical and figurative room to grow.

Our new leadership team - consisting of Jaahnvi Shastri, Aanya Gardi and myself - thanks the outgoing DKS heads (Yash, Rihana and Aryan) for their steadfast leadership and commitment to the society.

Whilst the DKS undergoes these changes, its core principle remains consistent: to probe into the current economic landscape and emerge with insight and observations. Indeed, the eclectic variety of student-led and external presentations has demonstrated the diversity of thought within the Dubai College Economics community and has shown us the multitude of applications of the subject.

Our student speakers were prompt to address the turbulent nature of trade and international markets, analyzing the removal of the Iran sanctions in 2016 (and their swift partial re-implimentation) and their ramifications here in Dubai. Others focused on China’s actions as an aspiring emergent global superpower, including its attempts at compelling developing nations into ‘debt-trap diplomacy’. Our speakers also determined and evaluated the economic significance of certain social and technological movements that have recently shifted to the focal point of our cultural environment, from the rise of intangible assets (such as software) and their unique market mechanisms, to social movements such as Black Lives Matter and the arrival of yet another (perhaps unwanted) Pirates of the Carribbean sequel.

On the other hand, our external speaker - Mr. Janghir Aka from Neuberger Berman - looked to the future, identifying the implications of dissolving divides within economics. The degradation of the barriers between public and private markets, the emerging and developed world, and human and machine as we know them will, in his opinion, shape the post-crisis investment era significantly.

Economics is often genially described as a pseudo-science in which no real conclusions can be made, operating within the realms of speculation and conjecture.

While this may have some basis in truth, the Dubai Keynes Society continually seeks to showcase the beauty within this uncertainty, the room for discussion that exists within this field, and of the everchanging nature of economic thought in our weekly sessions and to you, the readers of this newsletter.

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diptasri gupta editor

contents

economic implications of black lives 3the matter aryan mehta

what really is the US- China Trade war?

5so,jaahnvi shastri rise of intangible assets and their effect on 8the the global economy suryansh loya debt-trapping the developing world?

9isvirajchina ramakrishnan the challenges of wealth: affluenza and the 11 millenials aanya gardi

sanctions are coming viha kedia 13

mr c’s book review mr. christopher 15

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After 1970, racial convergence in earnings slowed markedly, in part because many low-wage black males were no longer engaged in full-time work. The proportion of African Americans living in high-poverty urban neighbourhoods increased as well, and residential segregation led to increasingly poor socioeconomic outcomes. Additionally, male employment rates fell and between 1960 and 1980, severe riot cities had relative declines in male employment rates from 4 -7%.

the economic implications of The Black Lives Matter movement is fighting for a very noble cause: demanding for racial equality and police reform. However, in recent times, the way in which they have protested for these causes has become increasingly violent, with the cost as a consequence of these protests skyrocketing. This is due to the organisation itself promoting the idea of violence on their website, calling themselves “vigilantes” and “liberators”. These words are generally associated with violence, as well as individuals who break the law in order to prove their point. Is this really the route that needs to be taken? Can their demands not be achieved through non-violent protests, just like Martin Luther King in the 1960s?

aryan mehta

Lastly, the riots significantly depressed the median value of black-owned property. As can be seen, there were hardly any positive effects of this for the AfricanAmericans. In fact, it further worsened the state of racial affairs and the economy in the city. These riots in 1968 are very similar to the very recent riots in Baltimore in 2015 led by Black Lives Matter that caused about 200 businesses to be closed, more than 200 people arrested and more than 150 fires with $7 million of damages, and this will lead to many of the same consequences.

The rioting that Black Lives Matter may see as its solution leads to many long lasting economic consequences. For example, property risk might seem higher in central city neighbourhoods than before the riots, causing insurance premiums to rise. Alongside this, taxes for income redistribution or more police and fire protection might increase, and municipal bonds may be more difficult to place and the bill on the city’s reverse due to the damages has to come through the reserves and isn’t provided by the federal government. Furthermore, retail outlets might close, businesses and employment opportunities might relocate and middle and higher income households might move away.

However, most important of all is that investment into these cities dries up for a long period of time due to the fear of losses due to increased violence in the city.

All of this can be avoided if Black Lives Matter chooses to change its approach towards a more non-violence based protesting. They should follow the example set by Martin Luther King in the civil rights movement and Mahatma Gandhi for his fight for independence where he famously said,

“ an eye for an eye makes the whole world blind.”

In order to really examine the damages of riots, I looked into a case study of Baltimore in 1968 by African- Americans in protest of the death of Martin Luther King.

The 1968 riots ended with 6 dead, more than 700 injured, 1,000 businesses looted or burned, some 5,800 people arrested, and $13.5 million in property damage, which all had to be paid for by the taxpayer and drove many businesses out of the city for many years.

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so, what really is the US- China Trade war?

A trade war can be defined as a series of events when countries try to attack one another’s trade with rigorous taxes and quotas.

One country may raise tariffs, or introduce quotas, causing the other to respond, in a tit-for-tat escalation. This can distort economies, alleviate political tension, and aggravate citizens.

The past few months have angered a plethora of individuals, as US President Donald Trump has trembled the foundations of global trade, slapping steep tariffs on billions of dollars' worth of goods from the EU, Mexico, Canada and China, in particular. The story begins in September 2011, when Trump tweeted, “China is neither an ally or a friend — they want to beat us and own our country.”, along with several other criticisms towards China’s trading practices. So, what exactly is China doing wrong? Why has Trump’s policy on China been this harsh? It comes all down to these four things that have consistently been outlined:

jaahnvi shastri

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Under the socialist economic system of Xi Jinping, president of China, China’s state and party owned industries have received massive subsidies, leading to titanic amounts of overcapacity.

This has enabled them to increase their product spectrum, a surplus in comparison to the demand for them, resulting in an increased market share and dumping practices.

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The USA, amongst other countries, has as alleged that Chinese intelligence and hackers have stolen scientific and technology related ‘secrets’, via the plantation of software bugs. Furthermore, China benefits from imitating foreign product designs, flouting product copyrights, and a two-speed patent system, which discriminates against extraneous firms with unjustly lengthier times.

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China has been accused of forcing foreign firms to enter into joint ventures with Chinese firms they have no relation with, due to the use of technology transfers obligatory by China’s FDI regime.

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China has had a continuous trade surplus with the United States, totalling to $278 billion in 2017. 70% of the trade surplus is due to the United States alone. In contrast, the United States has been faced with a trade deficit, urging the Trump Administration to step in.

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In March 2018, post gaining presidential authority, Trump’s trade war was born. He signed a memorandum, permitting the imposition of tariffs on Chinese products, such as technology, machinery, etc. This was rebutted by China’s imposition of tariffs, on approximately 128 U.S. products, including fruit, wine, and recycled aluminium in particular, as a retaliation to the US’ hefty steel and aluminium tariffs. These retaliatory tariffs, on items that US commonly imports from China, have resulted in 12% of US imports being covered by tariffs, according to Chad Brown, a trade expert at the Peterson Institute for International Economics. This parallels the doings of President Reagan, in 1984, who had imposed trade barriers on 21% of U.S. Imports, on crucial resources such as autos and steel.

Can this really help the US’ economic growth?

Certainly, it has dominated headlines worldwide, and left an aura of uncertainty within businesses, but it hasn’t left any substantial impact on the economic growth of the country. This isn’t alarming, as the direct effects of trade barriers are typically minimal, in markedly large economic powers such as the USA. This, however, can change drastically in the forthcoming year.

Threats of rising US interest rates, and the emerging market’s dollar flight can increase, especially due to spill over effects into outlets such as consumer confidence, investment and stability.

A major consequence of trade wars is currency devaluation.

In order to dampen the pressure felt on the export industries, it is extremely common for the trade war participants to manipulate, or devaluate their currencies. This helps mitigate the negative effects of the increased tariffs on goods and services, preserving foreign market share. However, this may harm the domestic economy, as many import dependant industries are faced with a rising cost of production, overnight! However, this is a short-term effect, as in the long run, factors of production are variable and domestic firms are able to find cheaper substitutes in other countries. In the context of the USA-China trade war, devaluation was brought to the public eye in late July 2018.

The People’s Bank of China set the reference rate for the Yuan Renminbi to 6.7671 CNY to the United States

Dollar (USD). Consequently, Donald Trump expressed his concerns: “China, the E.U. and others have been manipulating their currencies and interest rates lower, while the U.S. is raising rates and the USD gets stronger — taking away our big competitive edge. As usual, not a level playing field…”

The United States Dollar, on the other hand, did experience periodic volatility, when announcements for new tariffs, or the enactment of existing ones were made public. Simultaneously, increases to federal fund rates limit inflationary pressures created by successful economic performance, promotes monetary strength. This however, may be offset by currency manipulation by foreign economies, forcing the USA itself, to devaluate its currency in order to be successful in world trade.

One opinion is that even if Trump enhances the levies on all Chinese imports, the impact on USA may be minimal. Consumers may switch from foreign to domestic goods, when substitutes are easily obtainable, and producers may switch from Chinese to other foreign suppliers for resources unavailable in the USA. Alternatively, others believe that the harm could easily be much worse. “There aren’t any good parallels in recent history,” says Chief economist of the International Monetary Fund, Maurice Obstfeld. “There’s a much more pervasive uncertainty about trade than in past episodes, which were much more localized and contained.” These risks are augmented by the inclination of other countries, such as Canada and Mexico, who are prepared to retaliate. It is a common thought, amongst these nations, that it is futile to follow the agenda of rules-based trade, as Donald Trump will only realise the extent of his actions if his country ‘feels pain’.

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Supply, in the short run, is inelastic, and thus there will be severe time lags involved, until supply chains are moved, or new resource sources are found. The extent to which this may affect the country is unknown. We could take Great Britain, for example: It hasn’t increased tariffs since the Brexit spectacle in 2016, yet a lack of consumer confidence and fragile businesses has left its economy worse off. Individuals worry that the UK economy not only may be at the brink of stagnation, but also has an economy that is 2% smaller to before the referendum.

According to the IMF, the combination of Trump’s tariffs, as well as proportionate retaliation by other countries, and spill over effects on businesses, could potentially reduce the US GDP by 1%. Which will in turn have ripple effects on the world economy.

For the first time since the beginning of the uneasy climate, when President Trump launched the first salvo of his trade war with Xi Jinping, China’s president, the two leaders met at the G20 summit in Buenos Aires in the beginning of December 2018. As predicted by Larry Kudlow, the White house economic adviser, the two individuals walked out of the meeting with a positive declaration;

“This was an amazing and productive meeting with unlimited possibilities for both the United States and China,” said Mr. Trump.

The US governments says China agreed to “purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other products from the United States to reduce the trade imbalance between our two countries”. Furthermore, both sides vowed to “immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft”. In turn, the United States have agreed to freeze the tariffs for 90 days. These are possible solutions to the four problems identified.

This is a positive outcome for China, that was starting to face problems in terms of its stock market, which recently, has performed poorly on a global scale. This almost forced Xi Jinping to negotiate a ‘truce’, as in the long run, the impact China could have potentially faced, from a 25% increase in tariffs could result in a worldwide recession, and collapse of the Chinese economy, that is heavily reliant on trade. USA benefits from China’s promise to buy more exports, making it easier for US firms to enter Chinese markets and curtail the effects that would have been felt by US industries that are reliant on Chinese exports experiencing overwhelming costs. However, although this may appear to be a resolution, the details provided about the ‘truce’ are vague; the lack of a substantial resolution can cause the global economy to suffer in the long run.

the rise of intangible assets AND THEIR EFFECT ON THE GLOBAL ECONOMY

Intangible assets are assets that are not physical in nature e.g. branding, software, and intellectual property. Intangible assets that are reproduced to be sold as goods and services (such as programs, data, and e-books) have significantly altered the capitalist system. Fundamentals of economics, supply and demand curves, are now changing due to the rise of intangible assets. These online products have a different method of reproduction and distributionthe Internet- and distinct market mechanisms separate to other goods that dominated the 20th century.

One of the significant deviation from traditional economics is the marginal cost of these different goods.

Let’s take an example. If Tesla releases a new model of car, the first car that they design costs more to create, due to R&D costs as well as set up machinery to do so. However, each car manufactured after the first still requires a certain amount of labor and materials. The 5th car the company produces costs the same as the 500th. The is the same for other traditional goods that have been produced in the past, including agricultural and manufactured goods. In the realm of software, companiesmight spend significant resources on producing the first copy of a program, but every copy sold after that is essentially free to produce given its ease of duplication. Thus, unlike other goods that have powered our economy in the past, software is an intangible asset.

More and more goods are now incompatible with the old model of economics, and this has major implica

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suryansh loya

tions for the world economy, government policy, and how companies function. Other than the ease of scalability these, goods have compared to physical goods, there are three other notable reasons why these goods behave differently:

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It’s a sunk cost. Any money that is invested cannot be recovered since there is no fixed capital such as machinery that can be sold if the investment fails.

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A “spillover” effect to rivals occurs when a firm succeeds: Uber pioneered the ride-share market only to see its drivers split time with Lyft.

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Goods have higher value when they synergize with other intangible assets. The iPod combined Apple’s MP3 protocols, the revolutionary spinning wheel, and the deals made with record labels for iTunes.

None of these qualities are bad or good, they are just different from the market systems we are accustomed to.

The main taking point is that as economists, we must be aware of these changes and must take them into account while analyzing the economy today to give a more accurate representation of it. Some may argue that this reinstates what we already know. However, we don’t know as much as we think we do- until 2013, R&D wasn’t even counted as part of the GDP in the US! We must change the ways we look at the economy, and we should take a new perspective on biggest trends in the global economy today.

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is china debt-trapping the developing world?

In 2010, a very curious project was completed.

It was Hambantota port: built by China, on the South coast of Sri Lanka. Now, usually, this is great news: ports can be beneficial for an economy: they provide new routes to export goods, their construction can employ people, providing a long termboost to the economy.

However, just one year ago, Sri Lanka gave China a 70% equity stake in the port for 99 years: why?

The simple reason lies in the very first thing we learn in economics: there is no such thing as a free lunch. The port, of course, was not free. The pressure on Sri Lanka to pay back the debt grew steadily, and as the port failed to attract the ships that should have flocked to such a strategic port, they were forced to hand it over.

This port, and many other projects like it, are a part of the Belt and Road Initiative, or BRI. This is a multi-trillion dollar web of investments made by China in roads, ports and pipelines; spanning three continents, and more than 70 countries, with all roads, literally and metaphorically, leading to China.

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This is the crux of the accusations made against China’s BRI project: it is a string of white elephant projects with no purpose other than to plunge developing countries further into debt to China, what has been termed as ‘debt-trap diplomacy.’

Although the sheer magnitude of debt is concerning, what is perhaps more concerning is the proportion of these countries’ debt is solely to China. In Djibouti, for example, 70% of its loans are to China. This grants China an undue amount of control over that country, so that when Djibouti almost inevitably cannot pay back the loan, China can take collateral as it pleases, and there is little Djibouti can do to stop it. In fact, a Chinese military base was built in this very strategic location, amidst massive controversy, just this year.

viraj ramakrishnan

Some might characterise this as a great opportunity for developing countries to accelerate their development, improving the standard of living, but a little bit of inspection reveals that this might not be the clear-cut ‘win-win’ deal that China presents it as.

One need only look at Ethiopia: ostensibly, a fine example of how investment can spur on an economy: it reports double digit GDP growth rates, which could be attributed in part to China’s significant investments into the region, from the Ethiopia-Djibouti railway to the skyscrapers that populate the skyline of Addis Ababa.

Another example is Laos: China is discussing land concessions, while an ambitious project to connect the two countries by high-speed rail is in full swing.

Very recently, Xi Jinping met with almost fifty African heads of governments, and pledged another 60 billion dollars to aid the development of their countries. Many of these countries are already in debt to China, and it seems quite unlikely that they will be able to pay back these loans.

This all leads us to the conclusion that China really is looking to exploit other countries to firmly establish itself as a world superpower.

By building up a web of countries hopelessly indebted to it, China can gain more geopolitical influence on a truly global scale.

For many this rings bells of neo-colonialism - and certainly, there are striking parallels: the same Scramble for Africa, the same control of trade that was employed by the British in India - it all seems quite familiar.

With China being as opaque as it is, we cannot be very sure of much. It is not implausible that the BRI is what it ostensibly appears to be: a ‘win-win’ for both China and other countries to build trade ties while boosting the world economy, or alternatively China’s plan to establish itself as the next world superpower. What is evident is that the Belt and Road Initiative, whatever its incentives, will have a massive and lasting impact on the political and economic landscape of the future.

A closer look reveals something interesting, however. In the skyscrapers that China has built, the top floors are not being bought. This is because Addis Ababa does not have consistent water and electricity, and hence, if the lifts fail, as they do, the stairs are the only alternative. The skyscrapers have been built, the investment has boosted ‘growth’, but the real standard of living remains the same, and Ethiopia is left further in debt to China.

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6no monetary boundaries i.e. more satisfaction earnt by a larger figure as opposed to hard earned money 7high digital quotient but little emotional quotient: We are slowly becoming dehumanized by the constant

use of digital technology that although we have a high skill set in navigating technology we are losing sight of key human abilities. what is affluenza?

Affluenza can be defined as the “the effect of money, or wealth, on the individual’s subconscious, which manifest itself in unbalanced relationships with oneself, others and money.” so, is affluenza an epidemic?

Yes, I believe that affluenza is an epidemic that is plaguing our generation without us even realising it - we are so absorbed by shallow things that we are slowly forgetting losing sight of our core moral values.

the challenges of wealth: affluenza and the millenials aanya gardi Understanding the psychology behind our relationship with money and the impact on our generation is pivotal to forecasting the future habits and state of the economy.

millennials and generation z

The terms “Millennial” and “Generation Z” are thrown around a lot, but what do we actually mean when we talk about these two terms? The terms are slightly ambiguous, but let’s take the definitions that a “Millennial” refers to a person born roughly between the years 1977 to 1994 - a person reaching young adulthood by the year 2000. Thus, “Generation Z”, as they have been coined, consist of those born in 1995 or later and are the demographic cohort following the Millenials. Generation Z are also often dubbed the “iGeneration”.

The Challenges of Wealth in Our Time There are seven key challenges facing our generation and they are all predominantly based upon the new technology available to us and the galvanising and damaging effects they have on our society. choices & consumerism: refers to the selfish and frivolous hoarding of products and the transient 1materialistic mindset when purchasing goods

2social media & the internet: have driven our generation to hold superficial qualities to a higher standard over “important” values.

3the “instant generation”: a high culture of impatience and short-lived gratification 4deterioration of family system and family values: greater emphasis on superficial qualities and values 5limitless possibilities and opportunities: Again, social media and various other tools highlight the endless possibilities the world has to offer, sometimes leading to the constant desire for more.

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symptoms of affluenza Affluenza is plaguing our society everywhere around us, but early diagnosis can lead to a less severe predicament. Look out for these symptoms before its too late… Affluenza can be identified by one’s: inability to delay gratification and tolerate frustration; false of entitlement; self-absorption; preoccupation or obsession with externals; having a high regard for the external self or self image; the idea that more is never satisfying or enough. effects of affluenza Affluenza is slowly enveloping on our generation and actively causing detrimental effects. Those with affluenza are susceptible to developing a low threshold and developing: Boredom Low attention span (ADD) Lack of purpose Loneliness Low EQ + SQ Lack of touch with reality Lack of satisfaction Lack of appreciation Affluenza can also lead to dysfunctional behaviours such as: depression, increased drug abuse, compulsive addictive behaviours, increased ADD/ADHD and even suicidal thoughts (in extreme cases). money narratives All these problems root from the common money narratives which are adopted by many individuals. They believe that: Money is a good way to gain and keep friends Money doesn't necessarily need to be earned There is no limit to how much one can spend Friendship is primarily based on money and not real values: common interest open communication Money makes you better and more “special” than others Handling and treating money is not a skill that needs to be acquired solutions…

Why there are no clear cut solutions to such a confusing and intricate problem some suggestions include establishing clear boundaries; true role models; monetary restrictions; reevaluation of one's environment and limited use of social media. Although effective solutions are not clearly established, we should be vigilant of the traps we may subconsciously fall under due to the new obstacles that affront our society as ultimately they have dangerously powerful ability to plague us with “affluenza”.

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This meant the Iranian exports cut down, as goods were more valuable locally rather than internationally. The August 7th sanctions restricted the purchase of USD, trade of precious metals and any transactions related to the sovereign debt. This has caused major European and American companies, such as Total, Siemens and Renault, to back out of business with Iran.

This has caused a lot of water and power shortages, because of lack of infrastructure investment. Boeing and Airbus alone have cancelled contracts worth $39bn, because they cannot risk secondary sanctions due to the risk of US shareholder investment.

viha kedia In 2006, Iran announced that it was enriching nuclear fuel for generating electricity . However, the International Atomic Energy Agency found Iran noncompliant with nuclear safeguards. The US, UN and EU sanctioned Iran in late 2006, in an attempt to curb its nuclear program.

Iran’s strong population and domestic consumption absorbed much of the intended effects of sanctions. As Iran was defying the west, the world was suffering, as Iran was crucial to the global oil supply and its nuclear weapons continued to threaten international security. This was having a contrary effect on the world economy. The rising prices of goods and oil caused global inflation to spiral higher. The situation had to be controlled.

In 2015, Obama sat the leaders of P5+1 countries, along with Iran and came to create the JCPOA. The Joint comprehensive plan of action, also known as the Iran nuclear deal, was beneficial to both sides. Under the deal, sanctions were abolished and Iran gained access to more that $100 billion in frozen assets overseas. Iran was also able to resume selling oil on the international markets. For the world, it eliminated the nuclear threat since Iran had to comply with some terms, such as reducing its uranium stockpile and number of centrifuges. After the deal was

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signed, Iran’s GDP growth rate shot up by 13%, all in the space of one year. All in all, it was a win-win.

This is when Donald Trump came in. On August 7th 2018, Donald Trump backed out of the deal, on the basis that it was ‘inadequate’. Trump said the deal needed to address Iran’s ballistic missiles program and Iran’s history of supporting terrorist groups. Iran is known to finance some of the largest terrorist groups, and Trump wants to shut that down. After the back out, Trump restored sanctions. Trump trumped Iran.

From 2012-2016, the sanctions on oil imports cost Iran $160bn in oil revenue. The November 5th sanctions saw the hit of oil exports, shipping and banks – all core parts of Iran’s economy.

63% of Iran’s economy is based on oil and sanctioning that part would seriously weaken Iran’s economy. Iran is the 3rd largest producer of oil in OPEC, and the sanctions would reduce the global oil supply dramatically, consequently causing rise in oil prices and supply strains. However, the US has granted waivers for Iranian oil imports to 8 allies, including India, China and South Korea. Except the 8 countries, other Iranian oil importers will have to look to other oil producers. This

will generate more business for oil producing countries in an attempt to fulfill market demand. It’s the basic Keynesian theory - aggregate demand = aggregate supply. The Iran sanctions will reduce the aggregate supply, however the demand will remain the same. The world will look to other Middle Eastern countries to fulfill the remaining aggregate supply.

Living in Dubai, we will see the effect of Iran sanctions come into play. Goods such as nuts, metals and crude oil will become more expensive, as Iran will stop exporting them.

Goods such as cars, telephones and corn will become cheaper, as Iran will stop importing them. After the sanctions, no country wants to do business with Iran so as to not risk conflict with US. The sanctions could be vital in stopping terrorist groups and nuclear weapons. The question remains -

is it worth crippling Iran for a potentially safer place?

This has caused huge economic fallout for Iran. Net reserves declined to $98bn, which is only suffice to 13 months of imports. The inflation rate continued to spiral higher, making daily staples at least 3 times more expensive. A bottle of milk cost 15000 rials, and after sanctions, cost 36000. An 80% fall in the value of the rial caused major problems for Iran.

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mr c’s book review

THE PURSUIT OF DEVELOPMENT

ECONOMIC GROWTH, SOCIAL CHANGE AND IDEAS- IAN GOLDIN If there was an A Level set reading list, then Goldin’s development treatise ought to be on it.

Only 170 pages, it covers every aspect of 4.3 Emerging and Developing Economies of the new spec and more. It is perfect for the sixth form economist who is all too aware of the importance of applying their theory to real world economics; this book is jammed with memorable development facts and figures which can make the greyest of exam answer paragraphs sparkle with interest. Each chapter dedicated to an aspect of ‘dev es’, Goldin works his way through the early pioneers and most influential of development thinkers, the classical economists like Smith, Ricardo, Malthus, Mill and even Karl Marx. Each had their own take but shared commonalities include, firstly that they were all concerned with the evolution of societies from largely feudal and rural to industrial and urban, secondly that wealth/growth was necessary and thirdly that there was only one trajectory of development all countries follow.

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Whilst in A Level we learn that growth is a necessary component of development, we also learn that growth alone is insufficient.

The importance of capital accumulation outlined by the classicists is a common theme. In the 50s, W. Arthur Lewis argued that a rise in the rate of investment is required for growth and his dual sector model, a known known for A Levelers, argues that a shift from subsistence to modern sector, increases the profits and savings required for said investment. Goldin also talks about Rostow, Hirschman, Prebisch’s dependency theory and how these thinkers preceded a sharp swing to the right in the 80s with the neoclassical market-led approach to development culminating with an approach embraced by prominent world leaders such as Reagan and Thatcher that became known as the Washington Consensus. For fear of boring the reader, if you want to know more about this go to page 32, but it's all about trade liberalization and the controversial ‘structural adjustment plans’ that the IMF and WB required of their debtors. It was against this approach that the protesters took to the streets amid ugly scenes in locations from Seattle in 1999 to Gleneagles in 2004 and beyond.

In “why are some countries rich and others poor” Goldin points to four issues. Firstly, resource endowments: countries who have ample endowments of natural resources are open to exploitation by MNCs, corruption and bribery is rife and institutional development is stunted (Ricardo’s route to comparative advantage does not seem to lead to development). Secondly, some economists point to geographical explanations as to why some countries remain poor: landlocked countries without access to sea trade and those countries located in tropical climate zones

with higher incidence of infectious and parasitic diseases and which lack the institutions required to deal with these problems and others tend to be trapped in poverty. Fragile soils in the tropics with the pests and parasites and the subsequent lack of agri-business investment exacerbate this poverty. Bad geography is overcome by good governance and this is where targeted aid can help. Thirdly and linked to this last point, others believe the quality of institutions - property rights and the rule of law - that matters. Fourthly, institutional failure is linked to colonialism and history. In countries with high disease burdens and abundant natural resources, colonizers set up extractive states and essentially robbed without much long term institutional planning (Belgian Congo) whereas in Australia, Canada and the US, with less easily extractable resources colonial powers attempted to replicate European institutions which meant settlers could thrive. Essentially if countries can become better off they have more capacity to invest more in education, health and better institutions tend to arise, which in turn makes them better off.

In “what can be done to accelerate development”, a number of ideas are discussed including improved access to healthcare and education, improved gender participation (in the gold mining industry in Africa, an increase in wage-earning opportunities is associated with increased access to healthcare, the halving of infant mortality rates and a reduction in the acceptance of domestic violence by 24%), infrastructure (water, sewerage, roads, electricity)

These early classical writers influenced the Modernization theorists of the 50s/60s who believed in trade, reducing aid programmes along with entrepreneurship and that development should follow the Western model to prosperity. After many years of this approach dominating the West’s policies, this has largely been discredited through, amongst other things, its rejection of the historical impact of colonialism/imperialism and its legacy (creating poverty where there was once flourishing societies).

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and the rule of law. An important factor which would relieve poverty in poor countries would be for rich western countries to cut back on/remove the enormous subsidies awarded to their farmers. Farmers in developing countries cannot compete in these markets are so are compelled to concentrate production on tropical crops like coffee and cocoa which leads to over specialisation, depressing prices and raising risks of monocultures (the 2001 WTO Doha trade negotiations set to correct this problem is yet to be resolved).

The book moves on to the evolution of development aid in its many forms and how, especially since the cold war, aid has become much more effective. There has been much learning from past mistakes and now aid is much more focussed on poverty reduction rather than military aid or tied aid benefiting donor countries. Not surprisingly, good institutions and sound public policy in developing countries increases aid effectiveness which partly explains why the UK has allocated £568.1m this year on government and civil society in its aid budget. Aid coordination between countries has been achieved through the MDGs of 2000 and the subsequent SDGs of 2015. Whilst success with these goals has been unevenly shared (goal 1: halving world poverty was achieved but mainly thanks to China’s great strides), the goals have focused debate on attempts to coordinate efforts to deal with overwhelmingly complex problems across very different countries.

Goldin then goes on to explore the impact of climate change on development along with the threats and opportunities that globalisation offers but stresses the fact that in this increasingly integrated world the international community has a greater responsibility to help manage the global commons as an increasing share of problems spill

over national borders. All countries of the world share a collective responsibility for the planet, but the bigger and more advanced the country, the larger the share of this responsibility that it is capable of shouldering. More cooperation, more tolerance, greater concern from the haves for the have-nots: all the things that matter but seem to lack in today’s news cycle dominated

by Trumponomics, Farage’s anti immigrant stance, the rise of populism and a general atmosphere of intolerance. On the bright side, surely the promise of a new US administration is just round the corner and there’s also a people’s vote to reverse the damage done by brexit insanity ;) A highly accessible read; one for the Christmas holidays!

Here are some facts, numbered for ease of consumption (the questions posed after each are mine and this book attempts to deal with many):

1The MDG primary target to cut the 1990 poverty rate in half was achieved in 2010. How? 2100 years ago Argentina was the 4th richest country in world, now 56th (GDP per capita).

3South Korea was less wealthy than Ghana in 1950, now the former’s people are 11 times wealthier. Why?

4Equatorial Guinea has grown faster than China since 1996 but average life expectancy is 48;

Ethiopia on the other hand, has grown much slower but has added 16 years to life expectancy since 1990. Why?

5The world’s richest 20% account for three quarters of global income while the world’s poorest 20% consume under 2% of global resources.

6Advancing gender equality in the workplace could add $12 trillion to global GDP.

7Power outages in India cost Indian companies $733 per day each.

8In a 1990 study, there was shown to be a high correlation between the protection of property

rights and long term economic growth. Enforced accountability curbs corruption, nepotism, protect the environment and facilitate development.

9In Nigeria in the 1980s-90s, ongoing sectarian violence kept life expectancy at 45. A similar picture follows the conflicts in Afghanistan, Syria (since the start of its conflict life expectancy has dropped by 20 years) and Iraq. After 11 years of war Sierra Leone had a life expectancy of 35 in the 90s.

Development Aid (ODA) as a proportion of rich countries GNI has declined from 10Overseas 0.35% to 0.29% in 2015. A UN resolution in 1990 committed rich countries to a target of 0.7% (only 4 countries have met the target, one of which is the UK which has enshrined this in law).

11Cubans have a higher life expectancy than Americans but are 10 times poorer on average.

12Water scarcity affects between 1 and 2 billion people worldwide.

13Total official aid flows amount to $135 billion per year (2015). $60 billion is donated by private donors (charities).

14The largest single private aid donor is the Gates Foundation which donated $4 billion in 2014 out of foundation funds of $41,3 billion.

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