Equilibirum - Issue 2 by Jim Norton

THE EURO

LIVE OR LET DIE? Corruption and catastrophe at Kabul Bank Minimum Wage: The case for structural reform The Vulnerable State of the Cuban Economy Social Enterprise: The Big Issue for our Big Society

Contents 4 6 8 10

Global View: Whatâ&#x20AC;&#x2122;s going on in the world? Leader: Will the Euro survive? Social Enterprise: The Big Issue for our Big Society Minimum Wage: The case for reform

The Soapbox: Broken Britain?

25 29 30 31 EQUILIBRIUM

The Vulnerable State of the Cuban Economy

15 16 18 22

Afghanistan: Catastrophe at Kabul Bank Opinion: Government Debt Development: How effective is economic growth as a measurement? Zimbabwe: Can it be an economic success?

Patents: The struggle for power Advertorial: Looking for an internship abroad? Try this... Internships: Working in a Start-up Janssen Pharmaceuticals Life as a marketing intern

Public or Private? UK Health Insurance

Editorial by Guy Wallace

ith the recent Eurozone crisis and the looming possibility of a double dip recession, continual economic gloom and market uncertainty has been unwelcomingly lingering in our daily news. It is in this cheerful context that we welcome you to the second edition of Equilibrium, the University of York’s Economics Society magazine. For those of you who are new to the university, and others that haven’t come across us before, we provide a termly publication packed with intellectually stimulattopics. Our lead article focuses on the future of the Euro asking what is required. The conclusions made would be implemented with far more ease were there

Eurozone crisis, leaving to be replaced by unelected technocrats. Firstly, we had George Papandreou, the Greek ex-Prime Minster, announcing a referendum on me or sack me’ plebiscite from a man with his political back against the wall: In Italy the consequences of the prospect of default on such enormous debt has been and remains not just a threat to the Eurozone but also to the global economy. Silvio Berlusconi, the bastion of political humour was unfortunately for comics ousted with what was replaced by Mario Monti; though a renowned economist ironically he was one of the architects of the Euro. The outcome of the crisis has been and remains of huge importance for Brit-

A Note From The Chair ain, who although not a member of the EU is hugely exposed to it. The UK is dependent on the EU for trade, around 40% of exports, and some forecasters believe the UK could lose up to 5-7% of GDP in the event of a total collapse; which would be disastrous for our economy. This weekend David Cameron, stuck in the ultimate impasse, has decided to veto the proposed EU-wide treaty and tackle the Eurozone crisis, saying it was not in the UK's interests, particularly with regard to its damaging restrictions and industry. It can’t be described as a deep surprise that he chose the far lesser evil of aggravating his fellow EU leaders as opposed to his voters. Not to mention his party funders in the City.The ensuing legal and political implications for the UK will be complicated, as is evident in light of Nick Clegg’s recent criticism of the veto, indicating possible cracks in the coalition. This issue features articles ranging from the big society, summer internships and broken Britain to a variety of foreign market analyses and this issue’s leader, an evaluation of the Euro’s survival. The tions and advice from former University of York economics students. A core aim of the magazine is to provide an opportunity for students to contribute articles and in doing so getting their work published on campus. Consequently, we would like to thank everyone who wrote articles for this issue and we look forward to future submissions. Please contact us at econsoc.editors@live.com if you would like to have your article in the next publication.

he Economics society committee aims to be a society that enhances the university experience of Economics students, both in a social sense and in a careers focused way. This magazine is part of that and it is an important opportunity for students to get involved with the society and share their thoughts and knowledge. It is also part of our aim to promote Economics students at York; we aim, alongside our friends at the Investment Finance Society, to get the top banks, profesup to York and make them aware of the strong talent base that is here. Another aim of the current Econsoc committee is to introduce a new professional network scheme within the whole society. This will entail graduates advising third years about application processes, assessment centres and the like for graduate roles, third years who were lucky enough to carry out summer internships advising second years seeking out an internship of they can make themselves more employStudents who are interested will be matched with the corresponding student in the year above them based on the industry they want to enter. The networking can be carried out over emails. The committee feel there is an incentive for both sides of the equation to build an active relationship and network. This process has already begun.

We hope you enjoy the magazine! Thoughts and comments please email economics@yusu.org Founder and designer: Jim Norton Printers

Ben Turner

Guy Wallace

Jack Eastwood

Yorkshire Web EQUILIBRIUM

Global View What’s happening in the world of economics?

CANADA - EPA accuse Encana the Environmental Protection ming. A technique known as gas the production, is believed to be the cause raising more questions over the conbelieves that the results found are inconclusive.

UK - Isolation for Cameron? Experts from the Wall Street Journal believe US house prices but do not believe that price rises at least another three. However economists do not believe that

Cameron Vetoes New Deal David Cameron has rejected an EU wide ‘accord’ which would the member states. Mr. Cameron argued that the deal was not in Britain’s interest “so I didn’t sign up to it”. Although fears about the UK becoming isolated have been raised, members of the coalition have rejected them, instead arguing that Mr. Cameron’s aim was to safe guard the single marservices sector.

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5 SWEDEN - Top of the Class? With the Eurozone in an unprecedented crisis Sweden serves as a case study in sound economic management. They said no to Euro in 2003, opting to keep the Krona and work outside the common currency. Pressure Sweden operates with a budget surplus of 0.1% of GDP. Growth in 2010 was 5.7% and ten-year bonds stand at 1.7%, half a point below German

CHINA - ‘Tiger’ quelled

showed a sharp drop in Chinese from 5.5% in October - politihave tamed this “vicious tiger”. However the drop has been accompanied by falls in growth indicators and analysts fear China may attempt to slow down the appreciation of the Yuan. Any further appreciation could negatively impact Chinese imports and in turn, growth prospects, but a move to quell this could anger trade partners, particularly the US.

EU - Alliance With Poorer Nation EU ministers have made an adhoc alliance with some of the world poorest nations in an attempt to produce a roadmap for the future of climate change. The EU, the LDC and Aosis are hoping to initiate talks this January, however they are facing stiff opposition from some of the world’s biggest polluters who don’t want to begin talks till 2015. It’s decision time in Durban but as yet it is uncertain as to which way it will go.

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Will The Euro Survive? “

The usual sceptics will decry the devolution of yet more power to Brussels. Yet, this is the only route to ensuring the long-term survival of the Euro.

“

low-interest rate policy of the Europe-

he future of the European Monetary Union has been called into question again

growth buoyed by loan spending could not be sustained and countries such as Greece nose-dived into a deep recession.

not suited to the borrow-and-spend

countries should never have been of-

of 2010. The inherent contradiction of the European single currency is again taking the centre stage. The trio of “no bail out, no exit and no default” has been proved not to have been tenable. -

Need for

the realities of the situation and not

Eurozone’s

Unity that would transpire with a greater

of crises the Euro is not the robust currency that it was applauded to be.

re-Euro, countries with lower

the Eurozone allows countries with

rates in the region of 10-15%. When and Ireland are so severe because -

nations. There was no alternative but to create the initial bailout package in

was essentially to ensure stability in -

needed low interest rates and the ECB obliged by consistently keeping

reduction in the cost of borrowing for capital-starved countries was akin to, -

the cost of borrowing dropped by as encouraged to borrow outside of their

picture as long as the waves of the growth fuelled by borrowing contin-

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Whilst the Eurozone has of-

to enforce. Indeed, this inability to sanction countries operating outside -

Relations, “This is a very deep crisis for the Euro and all of Europe because what we have is a terrible debt European nations share and no collective structures to deal with any of it”. ily a European federal or super-state,

Jean-Claude Juncker, Head of the Eurogroup

“

three things: more bailouts paid for by foreign governments for irresponsible domestic spending, countries withdrawing from the Eurozone or the extinction of the Euro. It is clear

Fundamentally, at the heart of the current drama is a

for any of these options and one of these are viable at the present time. Bob Hancké of the London

with a greater degree of unity.

of a “political union to coordinate budget and taxation practices and create euro-zone institutions and capacities to help member economies adapt to changes and turmoil”.

Is It Possible?

petite for anything resembling a political union, especially in light of Eurosceptic parties gaining ground in countries traditionally amenable to the Euro. To take the Greek example, it does seem that German, French, Italian and Spanish politi-

Eurozone incompetence due to absence of “political union to coordinate budget/taxation, create institutions; and help members adapt to changes and turmoil Bob Hancké Reader at LSE

“

systemic incompetence of the Eurozone in dealing with crises and the

cians have in fact brought in a degree cal backdoor to save their beloved European enterprise. cal conditionality that all emergency loan relief to Greece was subjected to. mitment from the Greek governance to implement an austerity package to reduce excessive public expenditure along with raising taxes. This conditionality is precisely the function that made pervasive on a larger and more institutionalised scale. Mario Draghi and those at the helm of the European common currency zone need the tools to ensure

sound footing to avoid irresponsibility of one member nation impacting on another member. This would stability of the zone, not to mention the volatility and uncertainty it would of Standard and Poor’s has stated aloud what many of Europe’s heavyweight politicians have shuddered to catastrophic that every line of defense would be built up to try to prevent this situation”. A permanent defense against future crises and tool for managing the Euro’s macro-stability authority. Sceptics, such Britain’s conservative backbenchers, have decried the devolution of yet more power to Brussels and the loss of further political and economic sovereignty. Yet, this is the only route to ensuring the long-term survival of the Euro the European Monetary Union, with or, as is now the case, without Britain, and the The elimination of transaction costs, exchange rate uncertainty, increased trade and labour and capital mobility are worth the value of greater stringency and centralised control. EQ EQUILIBRIUM

8 Can The Big Issue and social enterprise provide the solutions for our Big Society?

December 12-19 2011

No.881

£2.00

FOR OUR BIG SOCIETY BY Ellie Canham For those who are unaware,

s we are all aware, our

fact last year’s election was won almost entirely on the back of promises

Issue is a magazine set up in

the “broken society” it was built

is far from inher-

So it is clear

EXCLUSIVE

Interview w ith The Big Issue Finan cial Director, St ephen Canham

the magazine from the Big Issue for a

It is also clear from the ings that a socialist system

ist structure, in large part because

what if there were a happy ture with a social focus? haps one of the most highly

which is a typical mark up for publish-

time at their EQUILIBRIUM

similar management structure to many

“

be channelled back into the business, the “Big Issue Foundation,” or other charitable causes. “The Big Issue Foundation” is the charitable side to the organisation,

Blue Sky is a ground maintenance company that solely

it is very separate to the company. It helps the vendors to gain access to the services to which they are entitled and supports the charities which provide these services. It does not, however, directly provide any services and this aspect is key. As it says on the front cover the Big Issue is “a hand up not a

and it has been successful - less than 15% pared to the national average of 39% of money to get it going. Many social enterprises, particularly when they start up, rely on a blend of money they generate and grants from other sources to balance their books. The more fundamental question is that if you an enterprise creates, does this add up to economic sense? A hypothetical example is that if the stat spends £10k a year on a homeless person how big a grant would you give a social enterprise that prevents 30 people from being homeless? Many social enterprises (and charities) are now thinking about

clearly this business model is working. Q: “Stephen you’ve worked in business for many years, what would you say is the biggest strength of the Big Issue as a company?”

but stay true to your mission statement?” A: The real problem is just trying to things you can do to provide additional support to vendors that there

Q: “Do you think social enterprise is self-sustaining and could it hold the answers for our broken society?” A: I personally think that the Big Issue is unusual in being able to be truly self sustaining. Even then if you go back 20 years it only started because the Roddick family gave John Bird a lot

If you would like to know more about social enterprise visit: www. socialenterprise.org.uk

management advice, savings schemes, and foreign currency, but unlike banks it will never exploit its customers for the members. Blue Sky is a ground maintenance

mission is to help break the cycle

employment for those leaving prison, and to “enable them to move successfully into long-term employment.” The employees work in small teams of 4-6 with one supervisor who is also an

hence creating our “incentive” to buy it. But at the same time The Big Issue has its challenges as well. The nature of homelessness means that many of the vendors struggle with debilitating drug or alcohol problems, and may

bers can save or borrow, loans will be made for productive purposes at fair rates of interest, the character or a member is the most important basis for a loan, and membership is open irrespective of class, creed, colour, or politics. It works much like a bank

equation. o me it is clear the one of the successes of the Big Issue is that it provides a product that the public wish to buy- a magazine chock full of celebrity

A: It’s a very well known brand which is recognised through our vendors our readers get not just a magazine but the feel good factor of helping a homeless person to earn their living. That gives a unique selling proposition

“

all areas. The average vendor will sell around 50 copies a week, leaving him with 25 pounds of income. This self made salary provides the vendors not only with an income but also with a ence the scheme can make to people’s lives should not be underestimated. On a practical level, last year alone “The Big Issue” made a turnover of

sue’s mission is that they are always reinvested. The big problem right now is times are hard for all businesses and we’re no exception. Fewer people are buying paper magazines choosing digital media and free papers instead we can’t swop into these routes as that removes the opportunity for the vendor to be at the heart of the process.

problems. The Foundation can put them in touch with support services, but as the mission statement makes clear, even innovative social enterprise cannot make these problems go away, that is and must be an individual’s choice. And here lie the limitations of what even successful social enterprise can achieve. But the Big Issue is not alone, according to UK Social Enterprise Awards 2011 two other successful organisations are Newington Credit Union (N.I) and Blue Sky Development and Regeneration. Newington Credit Union was set up to “enable people to help themselves in relieving debt and poverty.” Its conditions are simple, only mem-

teams provide work in a high demand sector and the value is clear as less ended, compared to a national average of 39% (4) .The added bonus is that it is an easily transferable model to employ It is clear therefore that social enterforms: a magazine to provide jobs for the homeless, a credit union to help people in poverty save for the future, important is that these schemes can be expanded and adapted to address many aspects of our broken society without as much reliance on government funds. Of course they have their limitations and there is no one golden solution to these vast challenges, but maybe with a bit of innovation and social consciousness the next generation of entrepreneurs will create our Big Society. EQ

Sources 1) Taken from European Commission/Economic Forecast autumn 2009, estimated 12.6%

2) http://bit.ly/cHRTTT - Based on threshold data of household income of 60% or less of the median British household income in 2008/09.

3) http://bit.ly/s2ow34 - Taken from 2011 England statistics.

4) http://tgr.ph/u2ZnRe - Telegraph article by Tom Whitehead.

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M U M I MI N do not The poor about it; dare talk needed reform is lly and cultura lly. structura

E G A W

“

Minimum wage is nice if you can get it and keep your hours, however for those unemployed it is no fun at all. It may score political brownie points, but government, consumers, emloyers, and workers are all hit with the huge costs it imposes.

e all know the theory of minimum wages. Without interference from any government or institutions, we reach the equilibrium wage

“

BY Olly Neville

increase in the wage probably increase. The consequence is a lack of equality excess supply – unemployment.

general consensus seems to be that the answer is no.

market mechanism with people, I have

people seem to fail to realise is that employment is an agreement, if you are

gestions are the high sunk costs that require labour meaning that in the short However, there are numerous other ef-

Comparison: Minimum wage across Europe (€) People take actions such as accepting

utility. impose a minimum wage above the

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11 minimum wage causes. Firstly, while pay per hour may have gone up, total pay stayed constant or fell. Employers who couldn’t reduce job numbers instead reduced hours worked. Those who are meant

UK Minimum wage Percentage Changes 1999-2010 (Source: Wikipedia)

than before. Secondly, short run changes take time to adjust, in the long run there

to work a bit harder or service to the customer worsened.’ But the bigcompliance. The government uses lower the family pay the higher the ers would ‘understates the pay of the worker, but understates the hours by even more to demonstrate compliance with the NMW. This permits the worker to get a larger amount of correspondingly lower hourly wage. The employer, for consistency, understates his own turnover which lowers Finally we have prices. A study done by Wadsworth in 2007 show that industries relying on minimum wage workers saw their prices rise by 1.8% more than RPI every year, as the paper says ‘It is clear that the price of consumer services provided by NMW workers has risen, since the NMW, Full compliance [with minimum wage] would force small businesses in the clothing and catering sector to close Professor M. Ram

“

Industries relying on minimum wage workers saw their prices rise by 1.8% more than RPI every year. - Professor J. Wadsworth, Report to Low Pay Commision (2007) relative to the RPI.’ So what results do we have? While minimum wage may not have initially seen job losses it has almost certainly caused a reduction in the number of small businesses starting up, and a fall in jobs being created. medium to long run as the economy adjusts but seeing as we are in a

“

mean employee numbers may not have been reduced, over the long run, less jobs are created and less new employees are taken on board. A third reason was non compliance, is that the number of workers in the non compliance sector has been growing since the introduction of the minimum wage. Employers understated the hours worked by employees. In a paper quoted in the research I was shown ‘Ram et al. clearly believe that full compliance would force many small businesses in the clothing and catering sector to close’ ples given include not hiring temporary workers to cover for employees on mandatory training systems

purse as we see lose out, consumers who face higher prices lose out, but worst of all, those who really lose out are the unemployed and the unskilled. With falling job creation those who NMW is meant to help are hit hardest. People with physical or mental disabilities or those who have low skills face increased job competition due to a shortening losing out. There are a plethora of

the crisis will be interesting and not just the unemployment rate, but the hourly work level, as employers have

Furthermore we have non compliand government welfare payments increasing, hardly something to be mooted as a success. The question that remains is who wins and loses from National Minimum Wage? As we can see if your hours have been cut and you retain

their wages raised, not all will feel the

at amounts below the minimum wage, but cannot be accessed as the amount that would have to be paid Minimum wage is nice if you get it and can keep your hours, but for the many others out of a job it is not so fun at all and at the end of the day, everyone loses. It may sound like a nice idea and may score political brownie points with the left wing metropolitan elite who will never have to take a minimum wage job, or be kept out of employment due to the minimum wage, but government, consumers, employers and workers are all hit and all face the huge costs of minimum wage. EQ

Ipso Facto proposed as a way to control the proliferation of sweatshops in manafacturing industries. The owners were thought to have unfair bargaining power over their workers. First enacted in New Zealand in 1984. There is now legislation or binding collective bargaining regarding minimum wage in more than 90% of all countries.

Min wage was promulgated in the US in 1938. It was intentionally set at a high national level to render the low-technology and low-wage factories in the South obsolete. Since its introduction in the UK in1999, the adult rate of the national min wage has increased by 68.9% - from £3.60 to its current level of £6.08.

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The Vulnerable State of The Cuban Economy The Cuban economy needs to be classified as ‘vulnerable’, argues James Kay.Why? Because this vulnerability left unchecked and unaltered, as Fidel dies, could lead to dangerous instability with serious possible consequences.

Raul

Che

efore critically addressing the modern economic state of Cuba it is important to understand its provenance for individual character traits maybe overlooked if its history is not accounted for. Cuba, a previously colonial state, had been granted its formal independence from the Spanish in 1902. Whilst the state struggled with the 1950’s under the rule of Batista, Cuba boasted a high middle class (around half the population) with “living standards...among the highest in Latin America (and indeed the of immigration collared with high wage levels helped keep the economy in relative terms “healthy”. Although allowing unions and wage rights the state had limited operations within the market. This stance abruptly altered as the communist revolution in the late 1950’s successfully took control of governance of the society. Within the ment to prime minister, Fidel Castro’s EQUILIBRIUM

Fidel property and nationalised public

Area: 109,884 sq km Population: 11,241,894 GDP: US$9,900 HDI: 0.776

Banks World Development Report, the state was moving from minimalist/intermediate to highly activist. A tion by becoming more active may not necessarily be harmful. Social justice above economic performance is arguably favourable. Protection of farmers through barriers of trade or creating new jobs by increasing the work force at state owned Instead, it is the miss-management of resources, poor policies and constricting institutions that cause damage to the political economy. Unfortunately the governmental practices seem to areas such as food supply, following communism, the Cuban state has staple food products have characterized the last twenty years and, although famine conditions have never materialized, the country has had to

before...Cuba commercially imported nearly 85 percent of its food needs” The state took on a high number of roles but with limited strength and met mainly by failure. As a result

be accounted to the so called “special period” following the collapse of the Soviet Union. The Cuban state heavily relied on soviet support both socially and economically. Therefore, with the collapse of the Eastern Bloc Empire, Cuba lost its major source of trade and the wealth of the currency it was tied to. This period saw intense hardship. Many staple products previously available to Cuban civilians disappeared; Deere notes vulnerability in “wheat, beans, and animal feed” and a “mandated 50 percent cut in state energy consumption across all industries and services.” (Deere, 1991) With 99% of all oil imports coming from the USSR, once this

schooling due to their remote location. Cuba having one of the highest

“To avoid more trauma or inconsistency, any change to the currency must be done with an approach integral to one that is born in mind” Raul Castro, CUBAN PRESIDENT

doctors to person ratio in the world and a life expectancy rate greater than that of the US: “no sick person be left without medical care” (Cuban Constitution Article 9, 1992). The state employees complete impartiality in terms of race citing “Discrimination because of race, skin colour, sex, national origin, religious beliefs and any other form of discrimination harmful to human dignity is forbidden and will be punished by law.” (Cuban Constitution Article 42, 1992) Impartiality, at least in terms of race, is therefore a characteristic of the Cuban state. nomic achievements and pitfalls arguably culminates in classifying the Cuban economy as a “vulnerable”.

most important, is “security”. Whilst Security at 8.28, it must be asked how this statistic is accumulated. By measuring “the occurrence and intensity political power, perceptions of security, state sponsored political violence and gross human rights abuses” (Rice and Patrick, 2008) the Index comfair assessment, personal security is highly important; one must feel safe in their given territory. And, with the view to active armed rebellion to be true. However, Cuba’s actions against those it perceives a threat to the security of its citizens from the state itself. According to the NGO “Committee to Protect Journalists”, Cuba was the third largest prison for journalists in the world [3]. Further to this, the survey does not take into account all factors that could be seen to encom-

“

Cuba’s actions against those it percieves a threat can call into question the security of its citizens from the state itself

“

the state were dramatic. Worse still a large level of state revenue came from the re-export of unused soviet oil (second largest export). Although starvation was avoided, food consumption was cut back to ing in the “United Nations World Food Program (WFP) [having] to feed more than 700,000 families” (Gayoso, 2007). The economic dependence the state placed on another nation shows serious political misjudgement. Whilst Cuba was able to formulate deals with China and many of the Latin American states including large oil contracts with Venezuela it was forced to accept US donations. Perhaps this period could be argued to be unforeseeable and a series of unfortunate events that hamper the Cuban state; however, the UN food donations remained in place for over a decade and there are economic reports of no positive growth in 2009 [1]. Even faced with famine, the state refused aid from countries it perceived enemies of the political ideal leading to unnecessary economic hardship. The analysis of Cuba as economically vulnerable and politically poor whilst accurate overlooks positives and successes that have been achieved. The Brookings Institute Index of State Weakness in the Developing World (Brooks Index) ranked Cuba 62nd. Economically and politically it scored 3.60 and 2.94 out tile. However, for Social Welfare it scored 9.88 [2]. For a state with such a marked history of shortcomings this is an impressive achievement. The Cuban Constitution of 1992 illustrates the importance of education: “no child be left without schooling, food and clothing...that no young person be left without the opportunity to study...that no one be left without access to studies, culture and sports” (Cuban Constitution Article 9, 1992). Remote farming villages have state run education for the youth who would be un-

pass “security”. Does it take into account the Cuban reliance on very generous import and export poliof rebellion following the death of

job security of citizens dependent on crumbling infrastructure such as sugar mills that continue to produce less per annum than previous years: “After the 2002 government decision to restructure the sugar industry, the numbers of sugar mills decreased drastically...more than 200,000 workers have been released by the industry.” (Gayoso, 2007) This would not seem to entail security to those working for the state. The Cuban economic state can be termed vulnerable with regards to illicit trade and internationally judged illegal activities. When faced with a serious lack of income, a terrible cur-

revenue into the system. Re-creating institutions can be costly, lengthy and for a proud nation provide an embarrassment, an admission of failure of a certain ideal. Illegal operations represent a relatively easy way to gain large sources of money. Although the EQUILIBRIUM

14 communist government removed the gambling enterprise when they came to power, the elites are no strangers to illicit activities, “By the 1980s, Castro

by no ways on favourable terms: “the tension in U.S.-Cuban relations remains deeply entrenched” (Erikson and Wander, 2008). As a state that has the hardship brought by the end of trade partners, it must be aware of the potentially devastating nature of being isolated from the international community let alone the threat of foreign invasion. Nilsen goes as far to add “Cuba’s future depends on controlling illegal operations and all types of corruption.” Perhaps this may seem too dramatic, however, this further concurs with the idea of the Vulnerable Economy. Vulnerability can be found in the currency of the Cuban economy. Despite continued and renewed protest following the recent succession of Raul Castro to power, Cuba still operates a dual currency. As shown by Orro all levels of the Cuban society wants freedom from this restricting practice: “Whether ordinary citizens, agree that the current dual monetary system should be eliminated.” (Orro, 2008). In short, state workers are paid in one currency (authentic Cuban Peso – ACP) but, in order to buy certain staple products must convert this to Cuban Convertible Peso (CUC). Before state intervention the use of the American dollar was common in such deals; however, following arguably an act of pride the Cuban state placed

“

Faced with a serious lack of income, a terri-

“

trade.” (Nilsen, 2007) This continued and potentially increased illegal activity weakens Cuba internally, but crucially, politically in the international forum. The United States’ policy on international drug trade and perceived illegal actions has become increasingly hard-line following the

Raul Castro, aware of the popular mention in his initial address as the new Prime Minister: “To avoid...more any change referred to the currency must be done with an approach integral to one that is born in mind” (Castro, 2008). These constricting institutions slowing the recovery and action of an already weak economy show the vulnerability of the overarching political mind of those in power. In conclusion, following the collapse of colonial rule two major events can account for the condition the Cuban economy is found in present day: the communist revolution of 1958-1960 and the special period following the collapse of the Soviet Union from 1989-1993. Due shortcomings and failures cannot be cal hangover” that other struggling Castro’s government has refused aid, advice and implemented policies that have directly resulted in unemployment and economic hardship. Certain

communist ideals have equally led to a notably impressive education and healthcare sector; however, economic and political freedoms overshadow these positives. Coupled with a damaging duel currency, isolation from the international community and a worrying level of security in certain areas, the Cuban economy can arguably be classed as a vulnerable. In order to emerge from this strife the state must adjust in some crucial ways. Altering entrenched institutions, removing pride from decision making and increasing bureaucratic strength to allow more voices to the debate can only aid state success. Cuba is not failing or falling apart as many other African and Middle-Eastern states appear to be, this is apparent from its rankings in NGO surveys (it is not in the top 50

Developing World). However, the economic vulnerability, especially in an overarching socio-political regard, as it goes through arguably its third most important transition, the death of Fidel, could result in tension and ultimately instability if key areas are left unchanged. EQ

Bibliography and Footnotes [1]Pujol, Joaquin. (2009). The Cuban Economy in a World of Uncertainty. Cuba in Transition, gives full details of this. [2] The next highest Social Welfare is Poland scoring 9.95 and positioned at 135. [3] Statistic taken from the Committee to Protect Journalists website available Online at: http://cpj. org/reports/2009/12/freelance-journalists-in-prisoncpj-2009-census.php

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Betancourt, Roger. (2007). Human Rights and Economic Growth: Why the Real China Model May Be Desirable In A Post-Fidel Transition. Cuba in Transition. Vol. 17. pp. 305 – 314

Available at http://www.monthlyreview.org/ Erikson, D and Wander, P. (2008). Raul Castro and Cuba’s Global Diplomacy. Cuba in Transition. Vol. 18. pp. 390 – 401.

Canadian Medical Association. (2008). Health consequences of Cuba’s Special Period. [Online] Available at http://www.ncbi.nlm.nih. gov/pmc/articles/PMC2474886/

Gayoso, Antonio. (2007). Food vs. Fuel: A False Dilemma for Cuba—A Survey of the Issue. Cuba in Transition. Vol. 17. pp. 212-217.

Cuban Government. (1992). Constitution of the Republic of Cuba. [On-line] Available at http://www.cubanet.org/ref/dis/const_92_e. htm

Lewis, Paul. (2006). Authoritarian regimes in Latin America. Oxford, UK: Rowman and Lit-

Deere, Carmen. (1991). Cuba’s struggle for

Nilsen, Silvia. (2007). Cuba and Illegal Operations: Yesterday, Today, and Tomorrow. Cuba in Transition. Vol. 17. pp 376 – 383.

Cuba’s special economic relations with Eastern Europe. Monthly Review. Vol. 43. [On-line]

Pujol, Joaquin. (2009). The Cuban Economy in a World of Uncertainty. Cuba in Transition. Vol. 19. pp. 1- 13.

Catastrophe At Kabul Bank BY Jack Eastwood

uch mystery has surrounded the shady Kabul Bank of Afghanistan, and recent dealings

Established in 2004 it is Afghanistan’s leading commercial bank and was seen as holding a central role in the rebuilding of the war torn Afghanistan. However, in 2010 it became starkly obvious that the Kabul Bank was not operating, as it should have been. A near run on the bank has led to its being taken over by the Afghanistan Central Bank and to a long, painful episode which has only recently started to be resolved. The bank’s Chairman (and big time poker player) Sherkhan Farnood and its CEO Khalilullah Ferozi. The Kabul Bank is Afghanistan’s most important bank and has been have claimed several lives. It has branches throughout the country with 28 branches alone in Kabul. It is also the principal agent for Western Union inside the country, handling the lion’s share of their transactions. However, what is particularly sigit is used by the government to pay around 300,000 government workers, predominantly within the police and security forces and hence some of the most important people in Afghani-

In a Nutshell

mood Karzai. In early September CEO Ferozi announced that the $300million that the bank was estimated to have lost was wildly over-

FEROZI Chief Excecutive of Kabul Bank

...lost his job at the Afghanistan’s central bank...

...after the bank belatedly realised he had been running it with...

run occurred, then the Bank would not be in a position to deal with it. withdrew their savings and sales of safes jumped as people began to keep their money at home. Eventually the government waded in and promised to guarantee deposits. They announced an audit and placed the Bank under the governance of the Afghanistan Central Bank (ACB) with the resignation and subsequent plac-

The Afghan Lower House passed a bill to provide $825million over the next eight years to reimburse the government for its bailout of the Banks. This in turn has shored

fear of persecution or retribution as scapegoats. It has also become clear that the initial amount estimated by the auditor as lost, $579million, was

system enough and paved the way for an International Monetary Fund loan to continue to improve it. The IMF released a statement saying “the authorities have made important progress in managing the Kabul Bank crisis that came to the fore in the fall of 2010”. It is hoped that this latest boost of capital will precipitate higher growth and stimulate Afghanistan’s mining sector. So what are we left with? In a year billions of dollars have been lost in aid and government funds, in a

more like $1billion. It has been seen that the Bank gave out 207 undocumented ‘loans’, which the Bank’s

the country’s future stability. year, claimed that the Bank stood for the old corrupt habits of the country, espousing cronyism and questionable practices, not to mention links to the

ing under house arrest of both Ferozi and Farnood. Since then events have been

FARNOOD Former Chairman of Kabul Bank

...as a giant...

PYRAMID SCHEME

which on closer review were shown to have lost the bank money over the past 3 years. So far of the original amount allegedly stolen ($1billion) less than 10% has been recovered. Although the two disgraced employees, Farnood and Ferozi, have been enlisted to recover the ‘loaned’ funds so far only $68.5million in cash assets has been returned. The corruption within the bank has been an ‘irritant’ between Karzai and his international patrons as the withdrawal of foreign forces draws nearer. It also jeopardizes $1.8billion of foreign aid that has been earmarked for Afghanistan. Despite this, the Afghani government still has not prosecuted Ferozi or Farnood. Indeed it is expected that their help in recovering assets will ensure they are treated with greater leniency. lah Nazari says he is determined to bring the culprits to court, but time will tell. Recently there have been more positive steps for the Kabul Bank.

billion. Hamidullah Farooqi, a US educated economist, said that Afghanistan received a ‘massive wake up call’ from this: this remains to be seen. What we can see is that positive steps are now at last being taken in the form of cash injection from both the government and the IMF. This provides an opportunity for Afghanistan to learn from its mistakes. But in one of the world’s poorest countries, undergoing a debilitating war, will these opportunities be taken? Will the men who did almost as much damage to the country as the Taliban be held accountable? These questions cannot be answered now, but over time it will become apparent whether the Kabul Bank, is ready to take up its role in helping to rebuild Afghanistan and whether Afghanistan is ready to move forward and go it alone. EQ EQUILIBRIUM

PY M

Opinion:

Government Debt The case for scaling down government spending...

BY Olly Neville Third Year Economics

ebt is not all bad, many businesses take loans to

future growth, individuals borrow so as to purchase things now that would otherwise require years of saving to fund. These debts are relatively short term, second certainly in the case of business loans, the borrowing is often done to buy capital and so increase future income, and thirdly, and perhaps most importantly, they are the choice of take on the debt themselves and they cannot pass it on to their children. government debt? Well, in the UK debt is certainly not short term nor

1 (National Institute of Economics and Social Research Discussion paper no 271 p 18) so government spending is expensive and wasteful. Further research by Robert J Barro (a professor of economics at Harvard and a senior fellow at Stanford University’s Hoover Institution) and Charles J Redlick has shown that government spending increases GDP by less than the spending itself. They ‘The available empirical evidence does not support the idea that spending multipliers typically exceed one, and thus spending stimulus programs will EQUILIBRIUM

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of savings as responsible households do. The debt is structural, the government spends more than it earns year after year. Secondly, government borrowing does not produce economic growth. When the government borrows billions to spend on council executives bumper pay packets, diversity co-ordinated gold plated pensions or to pay French farmer’s not to cultivate their land via the EU, they are not creating wealth. Only the private sector producing goods and services that people demand are the wealth creators. Indeed, research has shown

likely raise GDP by less than the increase in government spending. Defense-spending multipliers exceeding one likely apply only at very high unemployment rates, and nondefense multipliers are probably smaller. However, there is empirical support for the proposition that tax rate reductions will increase real GDP.’

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To put it simply, more government activity such as spending, results in government debt and less economic improvement than the debt incurred (unlike private investment where debt is only taken on when make from their investment). Howtax cuts, do lead to growth, as more people are encouraged to participate

in the economy, earn more, start up businesses and employ more individuals etc.

doesn’t lead to a fall in government revenue. Indeed empirical evidence from the US have shown that as tax rates fall, as a percentage of GDP revenues remain constant, and in absolute terms revenues have risen. Taking this in the context of UK is currently trying to do, lowering taxes increases revenues thus helping pull the country out of debt. All of those who want to see higher government spending are condemning the country to languish with low economic growth and devastating levels of debt. Indeed in his book Macroeconomics in a European Perspective, Olivier

17 Federal Revenues Have More Than Tripled Since 1965 Overall tax revenues have risen despite a recent decline due to the recession. Congress cut income taxes and the death tax in 2001 and capital gains taxes and dividends in 2003, yet revenues continued to surge even after the tax cuts were passed.

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The available empirical evidence does not support the idea that spending multipliers typically exceed one, and thus spending stimulus programs will likely raise GDP by less than the increase in government spending

Hauser’s Law

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- Robert J Barro Prof of Economics at Harvard

UK 5 Year Bonds

Blanchard notes that a credible com-

can instantly raise economic growth, despite the fall in government spending. Taking a simple IS LM model we can see that when government spending falls the IS curve shifts left meaning that in the medium run output returns to the natural level and the LM curve will shift right since prices are below the expected price level. Therefore in the medium run GDP will return to the natural level, but as it is made up of less government spending, there must and consumer spending. Higher investment spending means more capital and thus more capital per worker. Taking a Solow Growth model we can see that this means higher economic output and thus a credible commitment see future incomes rise so current output

increases as a result of these expectations. Government spending doesn’t only lead to high debt, it also crowds consumer spending and investment spending out of the market. When a government wishes to borrow, it sells government bonds (in the UK they are called gilts). Lets look at a very simple situation where there are only 1 year bonds which promise to pay £100 a year from today. The interest rate depends on the price of those bonds today. If the bond sells at £50 today, the interest rate is 100%, as you pay £50 today and get £100 in a years time when the bond matures. If the bond is worth £90 today the interest rate is 11.1% and so on. When the government borrows, it sells bonds. This lowers the price of bonds due to an increase in supply, which means the interest rate rises. This higher interest rate means investors do not wish to borrow to invest as it is too expensive and consumers would rather save than spend. It is either this or

their disposable income falls as their mortgage payments increase. In both cases GDP is lowered. Government spending crucially is also not a choice, but is forced upon people. While a family may choose to take on a loan or a mortgage, people do not choose to have government spending above government revenue. Government debt, again unlike personal debt, can be passed down onto those who didn’t take it out. So future governments and generations are liable for the reckless overspending of today’s politicians. Even if you wish to ignore the economic arguments showing that government spending does not improve the economy and is purely damaging, it is hard to ignore the fact that children who have not yet been born will have to pay back the debt of today. is therefore clear. We should cut taxes to raise economic growth and tax revenues, reduce government spending allowing private spending do away with expensive regulation that prevents business growth and hinders small businesses starting up.EQ EQUILIBRIUM

How effective is economic growth as a means of measuring development? BY

Human Development Index 2011

conomic growth is not a

Very High

Low

High

Data Unavailable

Medium

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The 2011 HDI report combines three dimensions: - A long and healthy life: Life expectancy at birth - Education index: Mean years of schooling and Expected years of schooling - A decent standard of living: GNI per capita (PPP US$)

19 more, Sen uses research by McCord and Freeman (1990) to emphasise chance of living to ages beyond forty years than African-American men from Harlem’ (Sen, 1999). Consequently, economic growth indicators

Economic measurements like Gross National Product per capita, which is used by the World Bank to categories development levels, do not provide regional variations or underlying inequalities. In 2001, The United States of America had a GNP per capita of $34,870 but had a Gini Index of 40.8. Furthermore, in 1973 the top 20 percent of earners had 44 percent of total income. In 2000, the percent of the total income. Therefore, despite the rise in economic growth

true value of government output and a wide-range of errors in calculating GDP result in economic growth not societal well-being. The Commission on the Measurement of Economic Progress and Social Progress suggests that indicators like GDP and GNP caused the current economic crisis by creating a false image of the economic mission emphasised that; “the time is ripe for our measurement system to shift emphasis from measuring

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Qualitative research might not have extensive scope measuring economic growth, but it can be used to measure social capital and political development

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Amartya Sen condemns the use of economic growth as a measure of development. While African-Americans earn far more than people in India or China, they have far less chance of reaching advanced ages. economic production to measuring people’s well-being” (BBC, 2009). Moreover, the World Bank in its annual World Development Indicators report acknowledges “the need to do more to enrich the quality of development statistics” (World Development Indicators, 2010). Economic growth measurements are not an accurate assessment of economic development and well-being. Therefore, it is a severely limited measurement. In addition, economic development measures are almost entirely quantitative. This focus on quantitative measurement has resulted in a neglect of qualitative research. Qualitative research does not have extensive scope in regard to economic growth. However, it can be used to a greater extent to assess social, political and cultural development. The quantitative approach adds the possibility of further analysis into opinions and experiences of the groups involved in development (Willis, 2005). McIlwaine (2002 cited by Willis 2005) used quotations in his study on poverty to portray how both the meaning of development and its indicators are experienced and understood; “for me, being poor is having to wear trousers that are too big for me.” Therefore,

“

of the United States have not develop evenly (Willis, 2007). In addition, the measurements of economic growth are not completely accurate. Economic growth is measured using national accounts which are often upwardly biased and tend to project more favourable statistics. Also, expensive and large items, which are not consumed by the poor, are recorded in national accounts of GNP and GDP (Deaton, 2005). Furthermore, GDP and

economic growth does not adequately measure qualitative perception of development. International agencies like the International Monetary Fund and the World Bank as policy-makers need to measure development. Initially, the World Bank and the IMF established the orthodoxy of using economic growth as a measurement of development. This consensus has distracted agencies from the real objective of development; increasing living stan-

land reform in both Kenya and Tanzania in the late 1970s were complete failures (Deron and Collier, 2006). However, Streeten’s Basic Needs theory and Sen’s Capabilities Approach (1999) have caused international agencies to view development as a holistic multi-dimensional process. For example, the World Bank ic and environmental indicators to measure development (World Development Indicators, 2010). The World Bank acknowledges that sustainable economic development is dependent on meeting the social, economic and environmental needs of the future (World Bank, 2010). The International Monetary Fund EQUILIBRIUM

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United

of economic indicators Na like GDP per capita ti masking the real levels of development. Consequently, it is evident that economic growth is not

References Bastor, N (1972), Measuring Development, London, Frank Cass & Co.

s on

The UN Human Development Report emphasises that there is no automatic link between income growth and human development

BBC (2009), An obsession with Wealth. Available at http://www. bbc.co.uk/blogs/thereporters/markeaston/2009/09/an_obsession_with_ wealth.html.

“

measurement of development. This shows economic growth is not a suf-

has likewise stressed the importance of social factors in development (IMF, 2001). Therefore, economic development is not measured purely on the basis of economic growth Consequently, the Human Devel-

development. The examples prove the limited capacity of economic growth as a measurement of human development. Economic growth ties and low income is not encing capability deprivation. Economic growth as an indicator is too narrow to portray an accurate cross-sectional measurement of societies’ development. Moreover, economic growth measurements are not entirely accurate. Furthermore, the international development consensus proves economic growth by itself does not accurately

ment. The United Nations Human development as a process of enlarging peoples’ choices and is therefore closely aligned with Amartya Sen’s The report emphasises that there is no automatic link between income growth and human development. Instead, it highlights three critical ability to lead a long and healthy life, acquire knowledge and access to resources required for a decent standard of living. The Human Development Index uses life expectancy, literacy rates and GDP or Purchasing Power Parity indicators. These indicators deliver a wider scrutiny of multi-dimensional development (UNDP, 1990). In 2009, Afghanistan had a GDP growth rate of 22.5 percent, the highest in the world (CIA factbook and IMF, 2009). However, Afghanistan’s HDI stood at 0.349, 155th in the World (United Nations Development Programme, 2010). Afghanistan has a life expectancy rate of just 44.6 years old and the on-going war suggests that Afghanistan is far from the highest developing nation in the world. In 2010, Liechtenstein had the highest income index of 0.955 but ranked 73rd for education (UNDP, 2010). Liechtenstein is a good example

Deaton, A (2005), the Review of Economics and Statistics, Measuring Poverty in a growing world. Available at http://www.mitpressjournals.org/ doi/pdf/10.1162/0034653053327612.

World

the multi-dimensional nature of development. The Human DevelInterna opment Index gives tio a broader and n more appropriate measurement of development due to its wider range of indicators and more encompassing measurement of human development factors. EQ

ry Fund neta

Bibliography Esteva, Gustavo (1992) Development in Wolfgang Sachs (ed) The Development Dictionary. A Guide to Knowledge as Power (London, Zed Books)

UNDP (1990) Human Development Report 1990: Concept and Measurement of Human Development, (Oxford, Oxford University Press)

Gasper, Des (2000) Development as Freedom: Taking Economics Beyond Commodities – The Cautious Boldness of Amartya Sen, Journal of International Development

Granham D (1972), Development Indicators and Development Models. In Bastor, N (1972), Measuring Development, London, Frank Cass & Co

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Afghanistan, Economy. Available at https://www.cia.gov/library/publications/the-world-factbook/geos/ af.html.

Dercon, S and Collier P (2006), Review Article: The k Complimentarities of Poverty Reduction, Equity and Growth: A Perspective on the World Development Report 2006, Economic Development and Cultural Change.

Ba n

IMF (2001), Social Dimensions of the IMF policy dialogue. www.imf.org/external/ np/exr/facts/social.htm. Reuters (2007), Nearly 80pct of India lives on half a dollar a day. York, University of York. Available at: http://www.reuters.com/article/latestCrisis/idUSDEL218894. Sen, A (1999), Development As Freedom, University of Oxford Press. Stiglitz et al (2009), Commission on the Measurement of Economic Performance and Social Progress, Survey of existing ways of measuring socio-economic progress. Available documents/Survey_of_Existing_Approaches_to_Measuring_Socio Economic_Progress.pdf. UNDP (1990) Human Development Report 1990: Concept and Measurement of Human Development, (Oxford, Oxford University Press), Human Development. Willis, K (2005), Theories and Practises of Development, Abingdon, Routledge. World Bank (2010), World Development Indicators. Available at http:// data.worldbank.org/data-catalog/ world-development-indicators/wdi2010. World Bank (2010), What is sustainable development? Available at http://www.worldbank.org/depweb/ english/sd.html. .

TH E SOAPB OX BY Andrew Wallace Third Year Economics

wo years ago a fresh faced, charismatic politician burst on to the wider picture with talk of mending a ‘Broken Britain.’ Although many found this bike riding, Old Etonian a bit of a laughing stock, he gained the

Broken Britain?

his ticket into 10 Downing Street. It seems two years on we may have about. If we were unsure before, Broken Britain certainly reached up and slapped us in the face last August. The events witnessed around the UK portrayed just about every aspect of broken Britain and then some, with David Cameron describing some areas as “not just broken but frankly sick.” What started as a peaceful quickly turned into anarchy. Over a contagion, the capital city of an advanced nation reverted to a Hobbesian dystopia of chaos and brutality. By 11th August a bruised and

lease of hope a new war was waging over what had caused these scenes of pure madness, who should we blame and what should we do? There were those that saw poverty and inequality as the root of these problems and regarded the rioters as victims to be saved rather than criminals to be punished. Individuals on this side of the debate such as Harriet Harman, Labour’s deputy leader, talked of the riots as the voice of an angry generation, crying out in resentment against the cuts, ‘the rich’ and ‘the system.’ Their prescription seems to be to spend more. Well Mrs year old chav from Hackney went looting for a Sony PSP and a pair of Nike Air Max Classics because he was frustrated with the bossy bureaucratic state and had reservations about going to university after recent tuition fee rises then please, do yourself and your political party a favour and always spend more on education Mrs Harman? It’s not as if this delinquent in question grew up in the 13 years during which the labour government doubled spending on education. is hardly a new phenomenon, yet

London has never before witnessed images of unopposed directionless anger on a scale such as this. It’s clear for all to see that cash alone is not the solution to the problem. Could it be that the riots were just an expression of the increasing social problems ingrained throughout every level of our society? For too long now we have lived in a consumer society, mollycoddled by a spineless state too timid to say no. Perhaps this mentality, to live without constraints, beyond ones socio-economic layers. David Cameron talks of “a death of responsibility” and calls for a “clearer code of values and standards.” The problem now is that people consider it abuse if you discipline a child. Human rights fairies moan about ‘police brutality’ if they try and assert some sort of authority. Adolescents moan that it’s not fair if they don’t receive EMA payments to go to school. I even read the other day that prisoners feel hard done by to only have one Sky Sports channel and The question is, when are we going to wake up and realise we have to learn to accept no for an answer? If you’re a parent then you’re supposed to discipline your children. If you’ve done something illegal then

“

We live in a consumer society, mollycuddled by a spineless state, too timid to say no. Perhaps this mentality has economic layers

“

itself together. While heroic ‘broom

you should fear the police. If you’re in education then be grateful, it’s a privilege and if you’re in jail then please, be David Cameron seems to have his head in the right place. The summer of discontent happened because people are not used to hearing the answer “no.” It laid bare problems deep and inherent in our society, a society desperately in need of the states strong, authoritative hand. Perhaps after will be what the country wants too. EQ

EQUILIBRIUM

Can Zimbabwe Be An

Economic Success? “

n February 2009 Zimbabwe’s power sharing government was sworn into power. The years before had been fraught with multiple political problems, such as rigged elections, violence and intimidation, coupled with economic problems, including frequent bouts of

with foreign direct investment be-

of the power sharing government, has any progress been made? ernment was the ending of the hyperthe rigid price controls, like those enforced in 2007. These price controls meant shopkeepers were physically being forced to lower prices, with the threat of violence if the demands were not met. This inevitably led to store shelves being emptied by masses of people, who were taking advantage of the exceptionally cheap tion. Due to this shopkeepers lost money and were not able to replace the goods for sale. By ceasing these zeros from the currency, and by allowing trade in other currencies, the

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BY James Drinkell Second Year Economics & Econometrics

Robert Mugabe, PRESIDENT

ment also increased, albeit to a very low level of 15%, whilst industrial capacity also expanded. One of the newest and fastest growing developments in the country is the mobile telecommunications industry, which saw rapid growth in the years 2008 to 2010. This is set to continue, as revenues are predicted to skyrocket to US$1.34 bn by 2016. The swift increase is being caused by the rapid growing demand for mobile communication. The within the country infrastructure and maintenance, fuelling

the rapid switch to mobile devices. However this increasing demand for mobile telecommunications is

lem. The power supply within the country is notoriously temperamenthe development of this market, but also to the overall level of economic growth within the country. infrastructure of the country. The main sources of electricity generation come from the Kariba Hydroelectric Dam, and 3 coal powered stations. These are all owned by the Zimbabwe Electricity Supply Authority (ZESA), which is a state monopoly whose role is to generate, transmit and distribute electricity. However due to years of maintenance neglect and rising debts within ZESA, these sources of electricity and the country can occasionally be plunged into blackouts. The only

“

The ram-

abruptly by ceasing

“ means to combat this is to use small scale generators across the country, although this can hardly be seen as a long term solution. In 2001 the most common type of energy used within Zimbabwe was fuel wood, composing 49% of energy consumption. This is most commonly used for cooking, lighting and heating by over 80% of the population. The corresponding heavy use of wood as fuel deeply harms the natural environment in terms of the levels deforestation, this problem still persists today. Zimbabwe’s forest cover in 1990 was roughly 57%, whereas in 2010 it had fallen to roughly 38%. If this problem continues, the environmental damage could be catastrophic, with some even predicting total depletion within 35 years. One of the most recurring problems within the country is the political situation. This has been a major issue throughout the past, with Robert Mugabe’s party, Zimbabwe African National Union – Patriotic Front (ZANU-PF), rigging the 2002 election, and using other means of fraud and intimidation to win the 2005 election. The 2008 election was fraught with violence and intimidation, which led to the opposition leader Morgan Tsvangirai withdrawing from the ballot. However in mid September 2008 a power sharing deal was struck between Mugabe and tion not being until February 2009. The political landscape however, is far from perfect. Mugabe and the ruling party elite own roughly 5 million within the country, which does not a corrupt land grabbing scheme. Mugabe is also keen to nationalise

signed into law in 2008 stating that than $500,000 should have 51% state ownership within 5 years. This has led to a recent direct dispute with the Prime Minister, Morgan Tsvangirai, who stated that this would lead to resources being plundered by a “small and parasitic elite”. This type of policy will only discourage potential investors, if they feel that economic and political stability will not be ensured. as well as infrastructure problems regarding power, transport and communications that hamper the potential economic advances. How-

A Troubled History Location: Southern Africa Population: 12,462,8979 Total Land Area: 390,757 sq km US $340

Tropical; Moderated by altitude Agricultural Products: Corn, cotton, tobacco, wheat, coffee, sugarcane, peanuts and livestock History: Zimbabwe has had numerous economic problems. Participation in

in March 2011. GDP growth has also been promising, increasing by 5.7% in 2009, and 5.9% in 2010. However, even with these small promising economic signs, there still remain vast economic and political struggles inside the Republic of Zimbabwe. EQ

a 1998-2002 war in the Democratic Republic of the Congo exhausted 100s of millions from the economy. The government’s land reform initiative, persistently marred with turmoil able farms, which were once the chief source of exports and employed nearly 500,000: this made Zimbabwe a net food importer. Up until early 2009, the Reserve Bank of Zimbabwe regularly printed

Nationalising government formed in early 2009 has

would lead to resources being plundered

led to some economic enhancements, eliminating the Zimbabwe dollar and removing price controls.

and parasitic elite” Morgan Tsvangirai, PRIME MINISTER

in 10 years, but will rely on additional political change for better economic improvement.

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www.yusu.org the National Student Survey

likes ‘fair marking of assessments’ Like

Comment

likes ‘getting enough advice and support for my studies’ Like

Comment

If you’re in your final year, take the National Student Survey and get your voice heard where it matters!

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TALK TO US!

Microsoft Patent Infringement The recent lawsuit Microsoft has raised against Motorola over patent infringement has served to illustrate the current struggle for power within the smartphone market. Economics Graduate

he advent of the smartphone has allowed the rapid spread of high speed mobile internet, it is now possible to make phone calls, send texts, receive emails and browse the web all from the same device. Windows Phone 7 (Microsoft Corp.), iOS (Apple, Inc.), BlackBerry OS (Research In Motion Limited) and Android (Google, Inc.) are the four most common operating systems smartphone users come into contact with daily. The incumbents of the smartphone industry are struggling for power, much of this power struggle is fought through the number of patents each corporation owns and the legal protection they derive from these patents. The greater the number of relevant patents, the broader the plane of protection a company has against lawsuits raised over infringement. Microsoft Corp recently raised a lawsuit against Motorola Mobility Holdings, Inc. claiming that the Android operating systems used on some of their models infringed upon seven Microsoft patents. Microsoft raised this issue with the International Trade Commission who have the power to stop imports of products which infringe upon U.S. Patent rights. If the software giant Microsoft wins the case imports of be banned from entering the United States. David Howard, Microsoft’s corporate vice president and deputy general counsel for litigation, said in an e-mail to Bloomberg “We have a responsibility to our employees, cus-

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We have lethargic coporations whose innovative power is reduced by their patent count and associated lawsuits

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tomers, partners and shareholders to safeguard our intellectual property.” Microsoft are trying to protect their innovators, but if successful they will be creating a huge barrier

to entry which may ease the competitive pressure felt by Microsoft, from smartphones using the Android operating system. In the three month period ending July, Android retained 48.1% of the U.S. smartphone market with Microsoft’s Windows Phone 7 capturing only 5.7% of subscribers. Microsoft is trying to increase its market share using clever lawsuits aimed at disabling devices running the android operating system. This action by Microsoft will certainly have interested the U.S. competition authorities. system has long been debated. On the one hand, we need to protect innovators and reward them to encourage continuous advancement. On the other, patents create a barrier to entry advantageous to rich corporations. Larger companies have the funds to throw expensive lawsuits in the faces of other incumbents and new entrants. The iconic corporations Apple, Google and Microsoft, who are famous for their technological innovation and advancement, could now stagnate as funds are drained by mutually crosoft also has a case against Barnes & Noble and their Nook reader, although it is not only Microsoft who have been in the press recently for this kind of lawsuit. Apple has sued both Motorola and HTC Corp. for patent infringement. Motorola has raised counter-charges against both Apple and Microsoft. The use of patent infringement lawsuits to gain dominance in the smartphone market has led to speculation that the recent purchase of Motorola Mobility by Google for $12.5 billion was made to improve its defensive position, Google acquired over 24,500 granted and pending patents previously owned by Motorola. Motorola holds a strong position, it was Dr Martin Cooper of Motorola who held mobile and in 1983 the DynaTAC 8000x was released by Motorola for commercial use. As the creator of the built up an impressive plethora of patents dating from their creation of this now is that research and development could have been used to innovate, are now pumped into lawsuits and

spent acquiring yet more patents. Of course acquiring patents was not the only advantage of Google’s purchase. erating system, now creating both

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We have lethargic coporations whose innovative power is reduced by their patent count and associated lawsuits

“

BY Lisa Richardson

the hardware and software they can compete directly with Apple. Protection through patents works if you have many patents relevant to the area of innovation, Motorola have patents aging back to the very early mobile phone. Even before Google acquired Motorola Mobility, the numerous patents of Motorola allowed it to stand up against the lawsuit brought against it by Microsoft rather than backing down and paying Microsoft licensing fees. Google can now use the protect itself if accusations of infringement are made in the future. ciencies within the market for smartphones originates from the current patenting system. Instead of dynamic and innovative companies competing to be the technological front runner we instead have lethargic corporations whose innovative power is reduced by their patent count and associated lawsuits. This problem however will not just disappear; there is currently no other system that ensures protection of an idea and monetary reward for innovators whilst not imposing the drawbacks of creating a barrier to entry and expensive lawsuits. These additional expenses will reduce corporations’ available resources, reducing innovation. Therefore monopoly through technological boundaries, as Apple, Google and Microsoft are EQ famous for, but rather squandered in

Links Motorola patent numbers: http://bit.ly/vR1xuX Market share statistics: http://bit.ly/nFDNM5 Microsoft quote: http://bloom.bg/nND6mk

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Public or Private? Leslie Tay discusses health insurance in the UK

Health insurance offers protection against the risk of ill health, diseases and accidents. We discuss why health insurance may be sub-optimal in the private market. We then proceed to evaluate if the National Health Service (NHS) does a better job in insuring her people against ill health. We conclude with the principles that should guide future health care reforms.

Sub-optimality of private health insurance

he demand for health insurance is driven by the risk of illness and the risk of delayed or incomplete recovery which create losses from both medical cost and the loss of productive time during treatment (Arrow, 1963). The supply of health insurance, however, is insurance are not met[1]. The probability of illness is not independent when faced with a contagious disease. The probability is not less than one EQUILIBRIUM

congenital diseases. Developments in genetic testing, which can improve knowledge of future health problems, create more uninsurable conditions (Barr, 2001). While the probability of illness is estimable, the probability of the cost of treatment (over a long period of time) is often not as medical technology advances quickly. Private health insurance faces the problem of adverse selection and moral hazard. The former problem arises because insurance companies do not have perfect information about insurees, thus giving potential insurees an incentive to hide

This creates unstable equilibriums within the insurance market as companies respond with either a pooling equilibrium, which drives healthy insurees away, or a separate equilibrium, which creates sub-optimal coverage for healthy insurees[2]. both the probability of illness and treatment cost are endogenous to the insurees. Third party payment problems also occur when doctors, knowing that insurees do not face a constraint on medical treatments, overprescribe for to overconsumption of health care, as private costs are zero while social costs

27 or encourage costly treatments.

are positive (Barr, 2004).

here are two basic problems with private health insurance- incomplete coverage and overconsumption. tive than private insurance if it solves these two problems and does not create from public health service. The NHS is one is entitled to free medical services regardless of contributions. NHS, funded by taxation, is a form of insurance even though it is not governed by tions against the risk of ill health. Coverage is complete under the NHS since taxation is compulsory for every working adult, thus pooling the risks of both the healthy and unhealthy, young and elderly, solving the problem of adverse selection. The NHS is also not idiosyncratic, chronic and congenicompany, where the supply of insurance requires the actuarial premium to cover at least the markup and expected losses[3], the government is more interested in improving health and social utility is taken into account. The scope for covering these diseases. Lastly, under the NHS, doctors are given salaries and are not paid fee-for-service. This removes third party payment problems since doctors no longer have

The NHS is not free from moral hazards since the private marginal cost of health care remains at zero. Fortunately, unnecessary treatments are often non-urgent with long waiting time. Long waiting time, a private cost, moral hazards. Non-urgent treatments per month are limited by the rationing of resources, which are usually given lower priority. To that extent, the introduction of waiting list targets since the late 1990s have created a perverse incentive for hospitals to give priority to non-urgent treatments, which may be unnecessary, thus exacerbating moral hazards. The NHS can also be seen as an over-provision of health insurance, since the NHS covers a wide range of health-care services including cheap treatments and checkups. Gruber (2007)

cost and predictable health treatments since the utility derived from insuring them is small. These treatments are also usually self-insurable, thus the NHS

the introduction of co-insurance and deductibles. ii) Coinsurance: Co-payment for health services can help reduce the moral hazard problems and “overinsurance” related to free medical treatment under the NHS. As Gruber argues, “The optimal health insurance policy is one in which individuals bear a large share of medical costs within fully insured when costs become unaffordable”. iii) Spillovers: The increase in ing the country against poor health have been matched by a decrease in of health care. Bosanquent (1987) found that 87% of respondents to a survey [5] chose “long waiting time” as an area that NHS needs improvement. Management problems and the quality of public health care have to be addressed monitoring. The introduction of quasimarkets since 1990s and public bodies like National Institute for Clinical Excellence (NICE) are steps in the right direction. EQ

ENDNOTES [1] Due to constraints, we have not explained

to save and increasing the burden of the state. -

he NHS has solved non-coverage problems but has failed in reducing moral hazards. The UK, however, has been able to match other industrialized nations in terms of health measures like infant mortality and life expectancy despite being a low-spending nation on health care (Barr, 1989). We shall conclude with 3 principles that should guide future UK health reforms: i) Role of private insurance: We should not be quick in rejecting private health insurance. The take-ups for private insurance have been increasing especially for costly necessary nonurgent treatments[4] (Hall and Preston). Moral hazard problems within private insurance have also decreased with

of insurance products designed to reveal their

REFERENCES [1] Gruber, Jonathan, 2007, “Public Finance and Public Policy”, 2nd Edition, Chapter 12, 15

[4] Arrow, Kenneth, 1963, “Uncertainty and the �el�are Econo�ic� o� Medical Care”, The A�erican Econo�ic Review, Dece�ber 1963, No. 5, pg 1�1-1�9

[2] �arr, Nichola�, 200�, “Econo�ic� o� the �el�are State”, �th Edition, Chapter 8, 11 [3] Hall, John and Pre�ton, Ian, 1998, “Public and Private Choice in UK In�urance”, In�titute o� Fi�cal Studie�, �orking Paper 98/19

[5] Journal o� Public Policy, Vol. 9, No. 1, pg 59-82 EQ

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29 Advertorial

Need an internship?

Want to travel?

Get involved! Last Summer, second year PPE student Harry Pampiglione undertook an unusual internship in the States. He is now planning to return next year and is looking to put a team together... Up for it?

ver 3 months of the Summer I ran my own business in America, selling educational books with an internship programme that has consistently produced successful alumni who have gone on to be prosperous business owners, CEOs and even Presidential candidates. I worked a demanding schedule. Overcame problems. Experienced the joys of achievement and the frustrations of falling short of goals. This year, I’m going back again, and I’m looking to bring YOU with me. When I told my friends that I was setting off for the whole somewhere, to someplace in America that they’d never heard of, to sell books, they were understandably suitably perplexed as to why the usually level headed Harry had decided to do something so unusual. In short, the 3 reasons why over 3,000 students from the USA and Europe last year and over 100,000 students in the past have sold books are life experience, work experience (i.e. something impressive to put on your CV) and money. So what did I gain from my adventure and experiences and why am I going back this year to bring a team with me? The main thing I gained from the whole venture is life other 2 areas (money and work experience), life experience was the main I set out to gain, and I was rewarded in abundance. Firstly, I had an awesome time out there. The families and co-workers you meet stick with you forever. To work with other likeminded people who are driven but friendly, ambitious but have an awesome atgone on from the internship to achieve great things. Secondly, and the Holy Grail I was looking for, was the skills and habits that I learnt that are required to be successful. Persistence, acting without hesitation, expectancy, committing to goals and simply making friends with everyone you meet, to name but a few, are precisely the common factors to living a successful life. In fact, surprisingly, the last one, making friends with everyone, is the easiest way

to instantly boost your success in day-to-day life. In terms of money, this was really not the reason why I went to America but it went really well. Not only do I have money that I can use to pay off my loans, invest or spend in Ziggy’s, but I’m travelling to Bratislava in November, attending various leadership weekends around England and Scotland, and going to The Gambia in February with some of the people who I worked with this summer. Not a bad lifestyle for a 19 year old student. Lastly work experience. Something every student looks for is something that is going to separate them from Tommy 2:1 with a 6 week placement with a bank. To be able to put on your CV that you’ve run your own business in your summer holidays, including generating business, stock taking, ordering and keeping an inventory of stock, being self-motivated, solving problems whilst interacting with every type of member of the public is something that’s pretty handy to put on your CV. Not bad for a summer job. In fact, companies like PWC actually use criteria such as running you r own business in their selection principles. So to summarise what I gained from this; I had an awesome time, I earned some money, I got to travel to the USA, I’m going to Bratislava and The Gambia, I found the centre-piece to my CV and I discovered successful skills and habits that will equip me for greatness! Can you see why I decided before I even got on the plane home that I was coming back next year?

Interested? I’m looking for likeminded people, who are focussed on success, to come back with me this have any question, feel free to email me at hp577 or drop me a message on Facebook or even stop me in Derwent and I’d be more than happy to show you my photo album and souvenirs and tell

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30 Internship Experiences:

Why You Should Consider Internships With ‘Start-ups’ For Next Summer

Second Year PPE Undergrad

o I spent the summer working at a Tech Start-up FIRM in London, and there is really no faster, more reliable way to

“

Being part of a start-up meant the company was virtually transparent - every decision made adjustments happened immediately

up of a company. I really want to get across how great my experience was to make other students more aware

“

BY Dominic Falcao

I found both exciting and interesting. ence, and then I’ll tell you a couple of (sometimes elusive) jobs. I will then discuss the application process and your rights as a student applying for this type of internship. I was working with a year-old company that had approximately 6 launch. It turned out that this timing was absolutely perfect – the product was more or less designed, the busi-

started and coping with the complications that arose. I was the fourth person in a four person team, and it was incredibly intense, emotional, as well as truly informative. I got from the inside, hearing the interviews, the analysis and comparison of candidates, the follow-ups. I got to learn about investment, competitor analysis, about monetization, about marketing. In short, being part of a start-up EQUILIBRIUM

of this size meant that the company was virtually transparent. Every decision made by a team member directly team-member, and adjustments of the course of the company happened immediately. This process went from analysis to board meeting to decision without any spaces in between. The truth is – if you have any ambition to set up a company in the future or to work in business in a role related

to their structure (i.e. investment, consultancy, managementgoing into a start-up as an intern would be incredibly enlightening. The best part is that they tend to be hungry for help. I have no experience as an analyst, but they were willing to painstakingly coach me through tasks and were happy to sell me their idea and hear my naive know each other and become friends, and was working on the most impor-

31 tant thing to the people taking part, which they had staked their lives on. It should really be no surprise that they conveyed their enthusiasm with such comprehensive diligence. Moreover, since leaving they have made

on www.meetup.com as well, simply by searching for groups in the industry area that you are interested in. Of course, you can

working for a multi-national industrial player, or gargantuan bank, I was genuinely a part of the company It may sound like I was simply lucky to have landed such a great job, and I really can’t guarantee that all start-ups will work so closely with their interns. But I will bet that most interns working in startups will share a lot in common, for example: proximity to the leadership, the chance to observe of the overall workings of the company, a variety of tasks and the excitement of being part of something novel and innovative. OK, so hopefully you’re at least partially convinced by this point. But where would you even start looking for a summer internship as an intern? I was lucky enough to hear about the opening through a mutual acquaintance – but have since learnt

Scan the QR code to start looking for start-up internship opportunities

about these kind of internship opportunities. A great place to start is www.workinstartups.com (scan the

QR code to go straight there). You can posting your interest into the message boards of the various social networking sites used by start-ups. One that I came across was called “dreamstake” – www.dreamstake.net – but

dedicated internship sites such as www.enternships.com, www. studentjobs.com and so on. It will require some improvisation, and may involve phoning companies directly – the chances are that many will want interns but are not running an active program. Will they pay you? The law is fairly clear-cut – you should get minimum wage unless all you are doing is shadowing. As soon as you start completing actual tasks for a company and are required to put your own time into the work, they need to pay you. But, and of course there is a ‘but’, expect fairly punishing hours, and probably some unpaid overtime. Also, chances are you will need to seriously consider being available for relocation. I had to move to London from Devonshire to complete my internship. Was it worth the hassle and missing a summer at the beach? idea some consideration.

JANSSEN PHARMACEUTICALS BY Jordan Rankin Third Year Economics Undergrad

his summer I spent 3 months working as a marketing intern at Janssen, a pharmaceuticals company which is part of the Johnson and Johnson group. Janssen has a history in providing ers, as well as developing a new treatment for prostate cancer, which was recently approved in the last month. I was lucky enough to be working on the marketing bring the chance of a cure to many people who previously only had a 50% chance of clearing themselves of the disease. the busiest possible point, with the launch of the drug just over 2 months away. There was a lot of pressure on the marketing team because in the US the same drug had an 80% market share and so had set a very high standard for the UK team to match. My day to day tasks could vary greatly; there were some typical ‘intern’

organising meetings and booking meet-

ing rooms. However, it wasn’t a summer for people, there was a lot of opportunity to get involved. One of my roles was to create new websites to promote awaretion to health care professionals about the new treatment, and so I was able to get actively involved in the meetings for these. Another important aspect of my role involved interacting with a number of agencies who were involved in what we were doing; all the printing, website design, event organisation etc. was done by outside agencies that we contracted out to do it for us. One of the most enjoyable parts of the job was organising internal events so that everyone within Janssen knew about what was happening with the new drug. This was important as it built a sense of excitement about the launch and so that everyone within the company felt a part of it however directly or indirectly they launch. probably biggest job, trying to organise whilst still being informative about the new treatment and how it would help.

tract several hundred people from other about the treatment and to hear from a patient about their experiences on it and how it had changed their life. I also had the opportunity to get out training events for the account managers who would be selling the drug and so as part of the marketing team I would get to elling around staying in hotels in Manchester and Birmingham, and ate out in of a job like this and nice before coming back to uni and a student budget! Working at Janssen was hard work but also an extremely enjoyable experience. It was a good company to work for, everyone was friendly and Johnson and Johnson do look after their employees-

employee discounts on Johnson and Johnson products. I will certainly be keeping in touch with the people I worked with and I already have one eye on the 2-year graduate programme (which they have started in the last few years) after I have graduated next summer. EQ EQUILIBRIUM