Issue 4 - April 2009

LATEST SPECIAL ISSUE 4

NOTTINGHAM ECONOMIC REVIEW nottingham.econ.review@googlemail.com

FULL REPORTS APRIL 2009

HIGHLIGHTS:

GREENSPAN’S UNSINKABLE SHIP SINKS

Krugman on FoodEconomics 2.0 Tulips and Bubbles A Grey 2009 A Law firm for tomorrow’s world - elite City firm Taylor Wessing answers your questions on a career in corporate law

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RESPONSIBILITY FROM THE WORD GO Frustrating isn’t it? Being held back when you’re raring to go. Thankfully that won’t be your experience at Taylor Wessing LLP because we have full confidence in the trainees we recruit. Which means when you join, you’ll be entrusted with high-quality work from day one. Find out more about our training contracts and vacation placements at www.taylorwessing.com/graduate

Nottingham Economic Review 3

Contents

Editorial Dear NER readers,

Credit Crunch Special

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The Crunch... By Matthew Chapwell A Grey 2009 By Samuel Gardiner

Features

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Economics 2.0 By Rabayl Manzoor Tulips and Bubbles By Yusuf Yassin

Staff Articles

Over here and under paid? Recent Eastern European migration to the UK By Dr Richard Upward How bad will this crisis be for African countries? By Prof

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Oliver Morrissey

Student Articles

Davos 2009 - A different picture By James McClymont Engineering Risk for Wall Street By Albert Berahas Danny Blanchflower GEP Lecture (29 January 2009) On the Edge By Hasham Nasir A different African Union By Eric M. Acha

Politics

Yes, we did: how Obama changed politics By Ingrid Pederson No supreme government for Europe By Dr Robert Ackrill Thabo Mbeki’s fall from power: The end of the African Renaissance? By Andrew Thrope-Apps

We are all human, some of us less than others Krugman on Food By Prof Paul Krugman My Personal Work Incentives By Prof Gregorg Mankiw

Book Reviews

Ascent of Money (Niall Ferguson) By Matthew Stonebridge The Undercover Economist (Tim Harford) By William Cole

Careers

Internships By Victoria Leigh

Credits Editor-in-Chief: Jonas Varnauskas Senior Editor: Shaun Pettipiece Politics and Copy Editor: Emma Milman Design Editor: Beatrice Omisakin Sponsorship Team Leader: James Williamson Design team: Emma Pegg & Thomas Smith Front cover image: Owen Devine [thedevinecomedy.tumblr.com]

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The first and, sadly, the last issue of the NER this year is finally out. In the times of quantitative easing, many companies have had to shut their doors or, at least, fire a few pesky graduates and cut down on internship intake. After trying to secure a sponsorship package for nearly four moths, we finally understood what Sisyphus was going through... However, these are also the times of government intervention, and the School of Economics was most kind to offer us a fiscal stimulus package. I would therefore like to express my gratitude to Professor Alan Duncan, the Head of School, for saving the NER from demise.

Content wise, we are extremely proud to present two articles written by economists who all of you have heard of: Paul Krugman, a Nobel prize winner, and Gregory Mankiw, a leading macroeconomist. As you will see for yourselves, economics can be very entertaining when presented suitably. To mark the economically turbulent times, we are also including a section celebrating the ‘credit crunch’.

I hope you will enjoy reading this issue released in economically extraordinary times. I would also like to wish the very best of luck to the new team that will take over NER’s driving seat next year.

Jonas Varnauskas, Editor-in-Chief

Big Thanks to: Jodie Angus, Jamilla Hinds-Brough, Odett Csirszka, Jamilla Hinds-Brough, David Jackson, Smriti Jain, James Lachno, James Montlake, Helen Newcombe, Laura Nohl, Angela Rogan, Matthew Stonebridge, Fanni Toth & Hugh De Weijer.

Special thanks to: Prof Paul Krugman, Prof Gregory Mankiw, Prof Alan Duncan, Prof Oliver Morrissey, Dr Richard Upward & Dr Robert Ackrill.

4 Nottingham Economic Review

The Crunch...

Britain hosts the G20 conference, a meeting of 20 of the world’s largest economies, on 2nd April 2009. It is interesting then to contrast Gordon Brown’s fortunes with the world economy’s, for both have fallen at an alarming rate since August 2007. Brown’s faux pas at Prime Minister’s Questions, saying depression before clarifying he meant recession, was performed by a leader petrified of public opinion.

The man who once thought he had “saved the world… I mean banks” was proven wrong on both counts.

The world’s economy continued to fall freely: on February 23rd the Dow Jones closed at a level not seen since 1997. The banks he claimed to have saved have fared worse. Lloyds TSB, thought before Christmas to be the last strong bank in Britain, was severely weakened by the Government-endorsed acquisition of HBOS. The Government originally held a 43% stake in Lloyds from the October bailouts. After HBOS declared losses of £11bn it was then forced to up it to 65%.

A baying media found its scapegoat when it emerged that Sir Fred Goodwin, former Chief Executive of RBS, was receiving a £700,000 pension. Having overseen their rapid rise to global prominence between 2000 and 2008, and their even faster fall, he resigned a month before the company announced 2008 losses of £24.1bn. That he was collecting

By Matthew Chappell

such a large pension when RBS were being seemingly propped up with tax-payers’ money was deemed unsavoury by the British public. His knighthood caused another mishap at PMQs when Harriet Harman, standing in for Gordon Brown, claimed he had received it for his work for charity; immediately afterwards she stated that it was, in fact, for banking.

In America, President Obama has been busy trying to cement an early legacy. A $787bn stimulus plan based on spending for unemployment, food, healthcare and education and tax cuts and credits was passed on February 17th. Moreover, his administration has proposed up to $3tn to stabilise the economy, mostly aimed at buying toxic assets and a consumer loan programme.

There are fears, however, that America is turning slowly more protectionist, with Obama proposing, possibly in order to maintain his popularity, some quite

nationalist ideas – the Patriot Employer Act springs to mind immediately.

Protectionism is a fear worldwide. French and British governments bailing out banks are urging lending to remain at home. In Switzerland domestic loans are being partly ignored while foreign loans count fully. We know though, as economists, that a return to protectionism can only be a bad thing. Simple Ricardian trade theory shows us that as countries open up so their output rises, and worldwide output rises too. With the world dominated by three super-economies – USA, China and the EU – small countries cannot afford to close borders; and the giants have a responsibility to maintain openness.

Another interesting argument in economics has recently reopened: Keynesian vs Free Markets. Free Marketeers have enjoyed a relatively easy run since

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Thatcher and Reagan came to power in 1979 and ’80 respectively. Government size had remained relatively small with businesses able to thrive. In fact, many believed that successful implantation of Chicago School economics had led to great stability – figures no less than Alan Greenspan and Gordon “end of boom and bust” Brown.

Since this has been dramatically disproved, increasing numbers have called for a re-instatement of Keynesianism and growth in government size. Keynes would argue that in times of recession the economy needs public spending to invigorate it. This has been accomplished on a scale grander than ever. Every Western country has had its own bailout. Government money has been spent with a seeming disregard for size of neither debt nor deficit. Free Marketeers would argue that without government meddling the economy would not be in such a parlous state.

The final point to cover is a new frontier for a Western economy.

Not since Weimar Germany, with its explosive hyperinflation, has a major central bank printed more money. Yet this is what occurred on Thursday, 4th March when the Bank of England bought £75bn worth of assets with new cash. With interests rates at a record low of 0.5% and unlikely to go lower, Chancellor Darling regarded it as imperative that there was “enough money in the economy to help people

get through this”.

Will others now follow in Britain’s steps? Is this the final act of desperation? When will the green shoots of recovery begin to appear? There are far more questions than answers. The only thing I can say is that now, more than ever, is an exciting time to be studying Economics. First and Second Years: enjoy it. Third years: I’m sorry.

6 Nottingham Economic Review

A Grey 2009

By Samuel Gardiner

spokesman for accommodationforstudents.com, off-campus accommodation is also harder to find, as former student landlords are renting to young professionals who cannot afford to get on the property ladder. Until the housing market picks up (which seems to be anyone’s guess at the moment), rent is expected to remain high.

The credit crunch has hit everyone, including the already cash strapped students.

Christmas passed without record bonuses to ease the burden of evermore presents. And now Easter is nearing: lectures are winding up, work ethic is dwindling and the lethargy of the holidays beckons – yet there is no Woolworth’s to buy your Easter eggs from.

The world changed in 2008 in a way that few had foreseen. New Year’s was celebrated with the confidence that the sluggish economic slowdown since the turn of the millennium was ending; however, by mid-February and the announcement to nationalise the British bank Northern Rock, this outlook was weakening.

Bad news gave way to worse: financial giants toppled, global institutions were institutionalised, bail out plans saved few and

and economic growth declined in the UK. The country turned to Lloyds TSB to save HBOS and now looks to Mr. King to save Lloyds. Average Joe lost out. So, what about the average student?

The National Union of Students has claimed that the nationwide university intake this year was unaffected by the credit crisis – perhaps due to the widening of the eligibility criteria for government grants. The current application process and consequent intake in September 2009 is expected to provide a more reliable picture of the effect of the economic crisis on students.

For existing students, the worry is immediate.

The average rent for a student house in Nottingham increased by 7% over the past year and many rents now break the £60 and £70 barriers. According to a

Gas and electricity prices soared in 2008, with some think tanks placing the total increase as high as 80% - having myself moved into a drafty student house last year, I can relate to the constant battle to not turn on the central heating. Fuel poverty has always been associated with pensioners but its chill is touching more people from wider walks of life than ever before this winter.

Universities are also feeling the squeeze because of the rising cost of warming the typically old, airy buildings.

It is best to avoid the stinging issue of food prices altogether except to say that there may be a glimmer of hope at the end of the checkout. The faltering world economy has caused commodity prices to crash; one must hope that the savings are passed onto the consumer. The drop in VAT to 15% served more to cushion the fall than spark extra demand.

Some banks have already expressed their reservations about continuing to back the government-initiated Student Loans

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Company in this worsening climate, although this seems of futile concern as it is but a drop in the ocean compared to mortgages and commercial loans. Existing student credit cards and interestfree overdrafts appear, as yet, to be weathering the storm.

However, new money is difficult to come across. The average student is well aware that the maintenance loan covers only accommodation or living expenses; outstanding debts are covered by government grants, parents or, increasingly, part-time jobs.

Banks are offering fewer loans and student perks; parents who aid their children are affected by the credit crunch themselves. It follows that over 70% of students claim to work to cover basic living expenses, which distracts time from study and all-important socials.

Yet all is not lost. A media graduate from Southampton Solent University, Steve Burford, founded a website last September which, he claims, will help students to leave university with ‘savings in the bank’. The web-

site promotes the budgeting advice and interview tips that many universities also provide free of charge. Simple tips such as planning meals and borrowing books from the library instead of buying them can make small savings that balloon in just a short period of time.

These savings will help to offset the fall in graduate jobs when one leaves university. As can be expected, many firms are struggling to delay redundancy, therefore sidelining recruitment until conditions improve. Graduates also face competition from the huge number of laid off professionals from the failed leviathan Lehman Brothers, among others. Illustrating its anti-cyclical footing, the demand for full time MBAs has increased and many graduates are either applying for postgraduate positions or opting for a gap year while they wait for the storm to subside.

The fabled ease of student life is now more onerous than ever before. Over the past twelve months the financial jam has pinned extra stresses to the uni-

versity application form, a previously absent small print.

And already we hope for 2010...

The economy braced for winter with the seasons but seems unable to shake the frost. With even optimists predicting 2009 to be a write-off, it is undeniably difficult to count the few positives at this dismal time. However, the light does exist. The IMF has announced its belief in the G7 rescue operation, in which the UK is a leading participant, and the recessions of the 1930s and 1980s, to which this slump is being compared, were followed by the fastest periods of growth in the twentieth century.

The seasons will continue. And the average student can be thankful both that the job market is likely to be more stable by graduation and that next year’s presumed tuition fee mark-ups will bypass current university students. What’s more, few students have the good fortune to study economics at such an interesting time.

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Economics 2.0 Higher output = higher welfare?

Think again‌

The underlying assumption that economic growth is necessarily good is so deeply entrenched in dominant discourses that it rarely, if ever, is it challenged.

The logical explanation is that economic growth, measured in terms of percentage increase in the gross domestic product of nations, entails higher standards of living for all and almost always leads to social prosperity and material welfare. This again follows from the belief that more income buys more goods and services, and that is better for consumers and, subsequently, better for the economy. There is a shocking disregard for the consequences of growth to the environment and repercussions for local communities in the entire modern discourse.

A standard economic textbook takes words such as growth, consumption, globalisation, and markets at face value and always defines them in a positive light. This process of consistent socialization of modern values has proven to be a very palatable formula. It is hardly surprising, then, that students almost never question why consuming more goods is a sign of their social and material success. With such a dogmatic definition of growth at their disposal, it is nearly impossible to find economists who are not researching for ways to

By Rabayl Manzoor

achieve growth. All of development economics is peppered with models, assumptions and conclusions that spell out ways to achieve more and more growth.

But what does growth mean in the post-modern context? We are living in a world where environmental collapse is possible, where human constructed paradigms of life are being continuously challenged and where it is slowly dawning upon us that we may have wreaked havoc upon nature with our selfish plundering. The more we expand our communities and increase our scales of production, the more we get out of touch with nature.

Our factories are run with the

objective of producing more, our stores are in business with the objective of selling more and more and more people wake up in the morning every day with the objective of making more money to be able to spend more in order to be able to consume more.

More, more, more! Our desire for production and consumption has become so reckless and unrestrained that many have never contemplated how this could be affecting our lives, our societies and the environment.

The ‘Story of Stuff’ is a 20 minute animated presentation by Annie Leonard available on the internet that takes a look at aspects of production and consumption that

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economists take for granted; namely extraction, distribution, use and disposal of goods. Leonard refers to it as a linear system and points out that “we cannot live in a linear system in a finite planet indefinitely”. In the past three decades alone, one-third of our natural resources have been used up. It is interesting to observe that people cite developed economies such as the UK and USA as examples of why growth is good and how increased incomes have led to improved standards of living. What we do not realize is that if everybody in the world consumed at the levels of the USA, we would need 3 to 4 more planets. Economics treats the production and consumption cycle as grossly linear: one ending in disposal or waste. Goods and services are manufactured with obsolescence in mind. Is it surprising that the concept of waste is uniquely human? There is no other species in the world that produces waste that is not used by another organism productively.

Modern economists have treated the subject as a physical science rather than a social science by not studying it in the context of other disciplines. Economics has been stripped off its human side and measures the world by artificial concepts such as GDP and consumer utility. The contemporary economics discourse misunderstands the world in a way that is not only unrealistic but also dangerous.

Thankfully, there have been some people who recognize the folly of our ways and call for urgent

attention to the subject. In June of 2000, a group of economics students from Sorbonne University in France campaigned against the neoclassical version of economics being taught and practised today. Their petition labelled economics as becoming “highly dogmatic, obsessed with imaginary worlds, and treating mathematical formalization and logic as ends in themselves”.

The alternative they sought was a discipline that focused less on mathematical models and more on combined learning with other disciplines such as ethics, feminism, and ecology. The “invisible hand”, they claimed, was not really doing a good job of allocating scarce resources efficiently, but is depleting resources such as oil and coal rapidly. For instance, feminists argue against the validity of GDP as a measure of prosperity when it does not take into account invisible labour or unpaid work done by millions of women in households in rural areas everywhere.

Some critics of neoclassical economics argue against the notion of a rational consumer making decisions based on pure rationality. They say that this theoretical self-interested everyman is a gross misrepresentation of human nature which is more complicated when it comes to ideas such as philanthropy or impulsivity. Drawing on the earlier comment on ethics in economics, some post-autistic economists formally incorporate moral values in preferences affecting utility or welfare and analogize norms of society to budget constraints as the former also

impose limits on behaviour. Historically, by aligning themselves with schools of thought that promoted free markets and trade liberalization, the Western governments implemented policies that have created wider gaps between rich and poor countries. International organizations such as the World Bank or the IMF have served as purveyors of these misleading paradigms.

Herman Daly is one such economist who has been ostracized from his academic fraternity because he does not “worship at the altar of unlimited growth”.

He believes that one of the main problems with economists today is that “they think that the only way to solve environmental problems is to get richer, and don’t consider for a minute that growth may cost more than it’s worth.” Referring to John Stuart Mill’s steady-state model, he champions a steady-state economy where production and consumption are linked with the ecosystem’s capacity to accommodate humans without falling into peril itself.

There are many examples of such economists who are calling for a shift in the paradigm by looking at alternative ways to study and practise economics. By redefining economics to address social and environmental costs of production and consumption, these mavericks may steer the discipline towards a more realistic and socially just direction.

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Tullips and Bubbles Contrary to what conventional economic theory will tell you, financial investors are not always rational. In fact, many investment bankers suffer from a very peculiar disease – overconfidence.

The first speculative bubble recorded in history occurred during the Dutch Golden Age in 1637 when the price of tulips, once equivalent to 20 times the annual salary of a skilled craftsman, dropped dramatically causing a severe shock in the Dutch economy. Since the tulip mania of the 17th century, the amount of shocks created by bubbles has increased steadily. This decade alone has witnessed three global bubbles: the Southeast Asian bubble in 1997, the Dot-Com bubble in 2001 and now the US housing bubble. Robert Shiller, a well known economist in the field of behavioural finance, strongly links the creation of bubbles in economies to the overreaction of increasing stock prices and the overconfidence of investors.

Behavioural finance looks at the influence of psychology on the behaviour of financial practitioners and uses patterns in human behaviour to explain the subsequent effects on markets. The most famous work in the field comes from Nobel prize winner Daniel Kahneman and would be Nobel Laureate Amos Tversky, whose research in prospect theory empirically showed that peo-

By Yusuf Yassin

ple are irrational in a consistent and correlated manner. Moreover, people are willing to settle for a reasonable level of gains even when they have a reasonable chance of earning more; however, they are willing to engage in risk-seeking behaviours where losses can be limited. The work of Amos and Tversky led economists to further question the frame of mind under which investors form beliefs and how these beliefs translate into decisions affecting the financial market.

Perhaps the most robust piece of literature in behavioural finance to date concerns the role of overconfidence in the market.

Psychologists have determined that overconfidence causes people to overestimate their knowledge, underestimate risks, and exaggerate their ability to control events. Studies by Hoffrage and Lichtenstein show that roughly 90% of people believe themselves to be above average on a number of characteristics ranging from sense of humour and attractiveness to driving skills. In numerous experiments using confi-

dence intervals they were able to test the level of certainty amongst a range of people including students, bankers, executives, managers, lawyers and civil engineers and found that answers provided in surveys as “99% certain” turned out to be wrong 40% of the time. In other words, confidence is strongly related to the notion of certainty, and as people are increasingly self-assured in their views, they behave with overconfidence.

Further types of overconfidence witnessed amongst humans include self-attribution bias. This is predominantly seen amongst investors who tend to give themselves credit for success, but blame failures on bad luck.

For example, an investor may buy a stock that gains value over time and attribute this to enhanced trading skills whilst buying another stock that loses value only to dismiss it as an exceptional case, coming to the overall but erroneous conclusion that they are a trading genius.

Another type of overconfidence prevalent amongst investors is hindsight bias. This type of bias refers to people’s tendency to think they predicted an event to have occurred only once it has happened. An example can be drawn in an acquisition, whereby two companies A and B are fighting for a stake in company C. If investors were asked prior to the acquisition battle who they thought would win the stake, it is likely that answers would be split

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evenly for each side. However, assuming company A had won the stake, if we were to ask the same people their prior predictions again, it is likely that overwhelmingly more than 50% of people would now choose Company A. So, by overestimating the extent to which one predicts events, the future events will also be overestimated, leading to a sense of overconfidence. We can observe such characteristics of overconfidence in financial markets where overconfident investors and CEO’s believe themselves to be above average.

and instead display overconfident behaviour, they are more likely to make irrational decisions that impact the market in a less than obvious way. A study undertaken in Finland that compared peoples self attributed level of confidence to the level of confidence measured in a psychometric test, showed not only that on average people were overestimating their confidence, but that this overconfidence had a negative impact on peoples investment choices years later when they traded in the stock market.

For example, studies by Bob Shiller showed that despite evidence suggesting that on average traders involved in large volume trades are more likely to perform poorly compared to more conservative ones, the former type of practice is more widely observed.

Shiller sees overconfidence as the fundamental factor promoting the high volume of trade continuously witnessed in markets.

Despite recognising that greater volumes of trading damage the performance of the average investors, they believe themselves to be above average, signalling overconfidence. This characteristic is also manifested amongst CEO’s that increasingly approve mergers between companies.

Again, despite the overwhelming evidence that suggests the market reacts negatively to a merger, CEO’s tend to approve mergers as they suffer from overconfidence and a belief that they are above average and therefore will succeed. Putting this into context, if the majority of investors neglect the information provided

So how does this topic bring us any closer to explaining the increasing development of bubbles in our economy? As we all know, bubbles are the result of speculation in a commodity or currency market that causes certain prices to increase beyond their supposed value. Some of them reach absurd levels, a development usually followed by a sudden crash. What all bubbles tend to have in common is that they were all initiated by excessive risk taking. The bubble in South-east Asia was due to the excessive flow of hot money into the country; the Dot-com bubble was due to large investment in tech stocks, with some companies like Time Warner going as far as merging with AOL. Similarly, economists trying to explain the current housing bubble often cite the mispricing of risk as a key contributing factor to the crisis. Many of the now infamous CDO’s (collateral debt obligations) are believed to have contained toxic sub-prime loans that were overvalued, making them

attractive investments, as houses prices rose and lending agencies handed out free loans.

However, looking at the psychology behind investor behaviour one could also observe a link between the problems in the subprime market and the overconfidence of investors. Overconfidence in the housing sector may have led investors to ignore the signs of an inflating market and take excessive risks to meet shortterm profits. The growing euphoria amongst investors to take up increasingly large bets on the growing market fuelled an even sharper rise in prices but also overconfidence. Perhaps investors were so confident of a consistent rise in house prices that herd behaviour ensued, creating a false sense of investment security. Shiller famously refered to bubbles as “a situation in which temporarily high prices are sustained largely by investors enthusiasm rather than by consistent estimation of real value”. If investors were aware of the risks that were attached to the housing market, one could argue that not only did excessive risk taking lead to the speculative bubble and subsequent crisis, but also an inherent overconfidence amongst investors, preventing them from taking action. During a speech in May 2005, Alan Greenspan, the former Fed chairman, despite acknowledging the rise in house prices and underestimated risks taken by investors, dismissed any speculation of a national housing bubble. Perhaps bubbles are on the rise as a result of this very overconfidence.

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Over here and under paid? Recent Eastern European migration to the UK

By Dr Richard Upward

Richard Upward joined the School of Economics in 1998 as a Research Fellow, became a Lecturer in August 2001 and was promoted to Asociate Professor in August 2004. He is a Research Fellow in the Leverhulme Centre for Research on Globalisation and Economic Policy, and his current work for the Centre relates to structural adjustment in UK and foreign labour markets, covering sectoral mobility and unemployment durations.

In May 2004, the European Union welcomed eight new member states: the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia, followed by Romania and Bulgaria in January 2007. Most governments of the existing member states (the EU15) expressed concern that large numbers of workers would migrate from these relatively poor new member states to the EU15. As a result, most EU15 countries imposed temporary restrictions on the free movement of labour from the new member states.

The UK (along with Sweden and Ireland) was an exception.

Citizens of the new member states were allowed to come to the UK. If they wanted to work, they had to register, but almost no-one was refused registration.

Migrants were prevented from claiming benefits (like tax credits), but only for two years. After two years in the UK, a migrant from a new member state was es-

sentially treated the same as any UK citizen.

The UK government argued that this migration would benefit the UK economy. They also thought that the numbers who would enter the UK would be rather small.

They were certainly wrong about the numbers: “Opening up the labour market to citizens of the new member states of the European Union from May 2004 initiated what is almost certainly the largest single wave of inmigration (with Poles the largest ever single national group of entrants) that the British Isles have ever experienced.�

This was partly because other European countries prevented free movement, which diverted large numbers of migrants who would otherwise have gone to those countries.

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Perhaps surprisingly, we don’t know exactly how many Eastern European migrants actually came to the UK, nor do we know how many are still living here. Unlike other European countries, the UK does not keep an up to date register of its population. But various estimates suggest that more than a million Eastern European migrants have entered the UK since 2004, and that about 700,000 of those are still living and working here.

The great majority of the new migrants from Eastern Europe are in the UK to work: over 80% have a job or are self-employed.

They are not “unskilled” in general; they tend to have more years of education than the average UK worker. However, many work in unskilled jobs. Nearly three-quarters of migrants from the New Member States work in basic operative or service occupations like packing, cleaning, catering and so on. To a large extent, they are “overqualified” for their jobs in the UK. Earlier this year, a weighty report by the House of Lords Select Committee on Economic Affairs concluded that allowing such large inflows of migrants was a mistake. They argued that the benefits of migration to the existing population of the UK were probably rather small, and that there were significant costs. On the other hand, the government and many of your economics professors argue that migration is a Good Thing. Just like trade between countries, the movement of workers increases global welfare. So who’s right?

Figure 1: The increase in the foreign born population

Migration, wages and unemployment Migration is a controversial topic, but it is still an issue about which economics has much to say. Some simple economic theory suggests that this migration will drive down the wages of those workers who already live in the UK. If the labour demand curve is downward-sloping, then an increase in supply causes a fall in wages.

If wages cannot fall (perhaps because the minimum wage prevents them falling), then an increase in labour supply caused by migration might cause increases in unemployment, with migrants potentially replacing native workers. Furthermore, if migrants tend to concentrate in particular occupations, then we would expect the wages of native workers in those occupations to be particularly affected. This is good news for firms, who benefit from a larger workforce and lower wages. It is good news for mi-

grants too: the wages they earn in the UK are probably still much higher than those they could earn back home.

What happened?

What did actually happen to the wages and employment of UK workers after 2004? One could examine this by comparing the wages paid in each region of the UK with the numbers of migrants who arrived in those regions. In theory, wages should fall most in those regions which had the largest influx of migrants. But there is a problem. Migrants don’t randomly choose which region to work in. Presumably, they choose to work in regions or towns which have the best opportunities in terms of wages and employment. In other words, migration is “endogenous”.

Economists at the Department for Work and Pensions have produced a series of reports which try to figure out what effect the

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new migrants had. They first calculated unemployment rates for each Local Authority in the UK. They then compared these rates with the number of workers from Eastern Europe who applied for a work permit in that local authority. Absolutely no significant relationship was found. In other words, regions which had big inflows of workers from Eastern Europe did not experience any more unemployment than regions which had few migrants.

The analysis was then repeated with wages. Once again, no significant relationship emerged: wages did not fall as would be predicted by our simple theory.

At first, these findings appear to be surprising. However, they are consistent with an enormous amount of empirical research from around the world which has found that even large inflows of migrants have very little effect on native wages and employment levels. There are a few dissenting voices. George Borjas, for example, has long argued that recent waves of migration to the US have harmed low-skilled workers.

Why didn’t wages fall?

There are a number of explanations. The Department for Work and Pensions claims that it is because of the “speed and flexibility of adjustment of the UK labour market”. This is consistent with a rather more sophisticated economic model. If we model the economy as having many industries, then increases in output by industries which intensively use migrant labour can hold wages

up. For example, without migrant labour, it seems likely that output from agriculture would be much lower than it is. Without migrants, all those strawberries would remain unpicked and output would be lower.

Another possible explanation is that the wages of low-skilled workers have been protected by the Minimum Wage. However, if this were the case then we would expect that an increase in labour supply would cause increases in unemployment. As we have seen, this did not occur either.

A third possibility is that we just aren’t measuring it correctly.

Some argue that the endogeneity problem means that the relationship between wages and migration is very difficult to disentangle. Others claim that if one looks within sufficiently narrow occupations, we would find an effect. The latest research from Steve Nickell, for example, estimates that a ten percentage point increase in the proportion of migrants working in low-skill service sector occupations reduces wages in those occupations by about 5 percent.

So why the fuss?

If migrants have not caused native workers to lose their jobs or face wage cuts, why did the House of Lords come out so strongly against the government’s policy of allowing free movement of workers? One reason is probably that the House of Lords ignored completely the welfare of the migrants themselves. The greatest benefits of

migration go to those who are prepared to move. If one focuses only on those who live in the UK, then the benefits of migration are inevitably going to be much smaller.

Another reason is that the costs of migration are very unequally distributed. As we have seen, migrants tend to go where the jobs are, and jobs tend to be concentrated in certain towns and regions of the UK. This puts pressure on services such as schools, hospitals and housing in those areas. However, in the UK, funding for these services is mostly provided from central government, on the basis of an estimate of how many people live in each area and their needs. Unfortunately, the government had little idea of how many migrants were actually living in each area, and so local councils were faced with increased demand for their services with no increase in their funding.

What next?

The UK labour market looks considerably less welcoming in 2009 than it did in 2004. We would therefore expect the flow of migrants to the UK to slow, or even reverse. Once again however, events are moving faster than the statistics can measure. We have very little idea what proportion of Eastern European migrants will settle in the UK in the long term, for example. Nor do we know how many Romanians and Bulgarians will choose to come to the UK when free movement for them is permitted.

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How will the crisis affect African Countries?

By Prof Oliver Morrissery

Oliver Morrissey maintains primary research interests in the economic effects of aid and in trade policy reform, especially in Africa. He joined Nottingham in 1989 and was promoted to his current position in 2004. He has published many articles in international journals, mostly on aid policy and effectiveness, trade policy reform, conditionality and adjustment, and supply response in agriculture.

African countries, especially those in sub-Saharan Africa (SSA), are unfortunately very used to facing crises. The highest media profile is given to humanitarian crises; many are to a large extent the fault of SSA countries themselves, especially those that are conflict-driven or due to political instability, although numerous localized crises are climate related (droughts or floods). However, less visible and publicized economic crises are at least as prevalent and typically ‘caused’ by events outside of Africa itself. Most often these are terms of trade shocks, either a collapse in the world price of commodities they export or a dramatic rise in the price of goods they import, such as oil or more recently food. As most SSA economies are fragile and dependent on a narrow range of primary commodities for their exports, they are especially vulnerable to such shocks.

The current global financial crisis

is made in the North, but herd behaviour and contagion associated with markets ensures that costs will be borne by developing countries (many emerging economies are already paying a high cost). Thus, the question is not whether there will be adverse effects for Africa, but how bad these effects will be. The most direct effects will be seen in two areas: aid and capital flows as well as SSA trade. Despite the promise of the G8 at Gleneagles and the Report of the Commission for Africa in 2005 to ‘double aid to Africa’, the real value of aid flows has increased little since the late 1990s. Over the next few years most donors will have other, domestic, budget priorities and the best hope is that aid flows will remain steady. The prospects for private capital, especially foreign investment, are worse: these inflows had been increasing but are now likely to stop in the case of FDI and reverse (net outflows) for other private capital. In the short-term, this could create ex-

16 Nottingham Economic Review

change rate problems while the long-term cost is lower investment.

Foreign currency reserves are a good indicator of the ability of countries to respond to pressures from private capital outflows.

The last few years have been good for Africa with booming commodity exports. Unfortunately, that boom has been short, uneven across countries in SSA and is about to end, as detailed below. This will be the real cost of the crisis for Africa.

Commodity Prices and SSA Trade Although African countries may not be important relative to world trade, trade is economically important for African countries. Exports for sub-regions of SSA were typically about 30% of GDP in the late 1990s. Although this figure is lower than for East Asian developing countries (where exports were about 40% of GDP), it is higher than for Latin America (15%) and South Asia (below 15%). Compared to other developing countries, trade is a larger share of GDP for SSA. One implication is that fluctuations in trade values, which are outside the control of SSA countries, can have a major impact on the economies. Specifically, the value of exports has generally failed to keep pace with the price of imports, because of the types of products the typical SSA country exports.

The inherent problem is illustrated in Figure 1. Between 1980 and 2002, the volume (or quantity) of

Figure 1: SSA Exports: Volume and Value and Terms of Trade, 1980-2002 (1980=100)

SSA exports rose by some 70%, and rose fairly steadily. However, the value of these exports declined in the 1980s and only increased by 20% over the period. This is because SSA countries export mostly primary commodities, the prices of which are determined on world markets (and denominated in foreign currency, usually dollars); while such prices are volatile (they can change dramatically from year to year), the real price tends to decline over the long-term.

This is evident in the trend for SSA’s terms of trade, the relative prices of imports and exports the quantity of imports (mostly manufactures and temperate foods) that can be purchased by a unit of exports (mostly minerals and tropical foods), which declined by about 20%. In other words, over some 20 years, although the quantity of exports was increased, their value declined in (import) purchasing power.

The situation is greatly improved if the data are extended beyond 2002 as since then there has been a boom in commodity prices (Table 1). Noting that 2000 is indexed at 100, since 2000 the price of minerals rose by 178%, oil by 128% and agricultural raw materials (such as cotton, tobacco and wood) by 52%, while manufactures only rose by 30%. However, the volatility of prices is evident: the increase since 2000 looks much better than that over 19952006 (except for crude oil), and the pattern of most recent changes (indicated in the final column) is also quite different. Coffee, a major export for countries such as Ethiopia, Rwanda and Uganda (and Kenya and Tanzania to a lesser extent) is a good example: over 1995-2006 the price fell by 24%, over 2000-06 it rose by 32% and over 2002-07 it rose by 126%.

The experiences of individual countries will differ from the aggregate trends as about half of the SSA countries depend on a

Nottingham Economic Review 17

SSA, especially in areas suffering the consequences of drought and/or conflict.

Table 1: Primary Commodity Price Indices (2000=100)

single commodity, and about three-quarters on three or fewer commodities, for more than 50% of exports. SSA countries that are major exporters of oil (e.g. Gabon, Nigeria) or minerals (e.g. Angola, Congo, Zambia) have benefitted from the rising world prices in the 2000s (although rarely has this translated into growth and benefits for the population).

However, most SSA countries import oil and export commodities whose price has risen less than oil. SSA countries tend to import temperate foods such as wheat and rice and export tropical foods like coffee or cocoa; for most, any gains in all food terms of trade in the 2000s will have been reversed by the increase in grain prices since 2007.

What of the Immediate Future?

Comparative commodity price data for 2008 are not available.

Oil prices have fallen dramatically, but so have mineral prices (except gold) as demand from

China, in particular, stagnates.

Export revenues will decline, but oil importers will be helped by lower import prices. Temperate food prices have not yet fallen significantly and are unlikely to fall as much as other commodity prices, so food import costs will remain a burden. Furthermore, local food production is stagnant or declining across much of the

So what does 2009 hold? In general, a return to declining commodity prices and stagnant or deteriorating terms of trade; the boom was too short to deliver long-term benefits. The foreign exchange reserves that have been built up in some countries could be depleted quickly. Export earnings that are adequate to meet import needs will not also be able to facilitate private investors trying to withdraw capital, and the IMF and donors will not have funds to replenish SSA reserves. Phased devaluation may allow many countries to adjust gradually and will restore some competitiveness, so things may not get worse. However, over the next few years economic performance in SSA is unlikely to improve. The effects of the crisis will be bad, but not bad by African crisis standards.

18 Nottingham Economic Review

Davos 2009 - A different picture Once a year the picturesque Swiss Ski resort of Davos plays host to the meeting of the World Economic Forum. High in the Alpine mountains – it is the highest town in Europe with an altitude of 1,560m - the world’s uber-elite of high finance and politics gather to attend exclusive meetings, dinners and networking events to discuss the pressing issues of the day. The glamour of the occasion has seen it become quite the fashion for Hollywood actors and ageing Rock stars to attend – Angelia Jolie and Bono have become Davos regulars. And, although never the original intention of the WEF founders, the annual meeting has become for many attendees something of a triumphalist celebration for all that is capitalist and globalised.

Indeed, in the last decade or so there has been much to celebrate.

The masters of the universe slept comfortably in their five star chalets, safe in the knowledge that their model of free market and high octane capitalism had created unprecedented levels of global growth and prosperity, improving the economic welfare of much of the world’s populace and, just as it happened, made themselves incredibly rich. Alas, then, this year’s meeting was always going to be a little different.

With the onset of one of the most severe financial crises in a generation, the mood of the meeting has swung decisively from triumphalism to one of despair.

With the swagger having been

resoundingly knocked out of Wall Street’s finest and global policy makers utterly bamboozled in the past year or so, the key question people are asking at Davos 2009 is: where to next? With old certainties broken, predicting the moves of the world’s power brokers in the next year or so is a hard task. Nevertheless, Davos has provided a number of interesting talking points that may yet prove insightful into what lays ahead.

Rebalancing Power Perhaps one of the most striking elements of this year’s meeting was the belief, shared by almost all of the delegates present, that the economic downturn was one of the most severe faced in a generation and that the banking crisis was far from over. The official theme for the meeting – shaping the post crisis world – seemed premature. In fact, much of the debate focused on the nature of

By James McClymont

the international crisis and how to fix it.

The mood of the international financial and banking contingent, so ebullient in recent years, was notably depressed. Indeed, few Wall Street Banking executives turned up at all this year, and those who did seemed muted.

The fact that Goldman Sachs, the most revered Wall Street investment bank, chose to cancel its annual lavish dinner serves as an apt indicator to the general mood of the banking community. On the other hand, many politicians and regulators, who in recent years have very much played second fiddle to the superstars of international finance, seemed as confident and energetic as ever.

With much of the worlds financial system on state sponsored life support, a fundamental power shift from global corporations to governments may have taken place and this sentiment was reflected at Davos. Whether it be

Nottingham Economic Review 19

through the creation of a global financial regulatory regime, state constructed “bad banks”, or the wholesale temporary nationalisation of financial institutions, much of the debate focused on what form an expanded state should take in the years to come and on its new relationship with the market.

Protectionism and Unrest Another uniting factor amongst this year’s delegates was their shared anti-protectionist sentiment. Politicians, businessmen and entrepreneurs alike warned against a return to beggar-thyneighbour policies, prophesising that this would be the surest way to turn the current slump into an outright depression. However, as economic conditions deteriorate further, the pressure for national governments to engage in protectionist measures will grow.

The warning issued to delegates by the French Finance Minister, Christian Lagarde, that the downturn would lead to social unrest carried extra resonance as workers took to the streets in both France and Britain during the same week as the WEF meeting. Pascal Lamy, the director of the WTO, said that moves towards protectionism were to be expected as unemployment and social unrest grew. With the Obama administration’s fiscal stimulus including a “buy American” clause for steel used in projects funded by the stimulus package, the key question is whether governments will practice as they preach or succumb to internal pressures to implement to protectionist policies.

The end of an Empire?

This year, Davos saw, for the first time, the attendance of the Russian Prime Minister, Vladimir Putin, and the Chinese Premier, Wen Jiabao. The thinly veiled underlying theme of the former’s ebullient key note address was the return to pre-eminence of Russia as a global power. Highlighting how only a year ago American delegates had emphasised the “fundamental stability” of the US economy, much of Putin’s speech was interpreted as a statement of intent that Russia should fill any power vaccum that might result from a diminishing of American clout resulting from the current crisis. The appearance of Wen Jiabao at Davos, the first time a Chinese Premier has attended, sought to underline the global power shifts that the Russian Prime Minister had attempted to draw attention to. Mr. Wen’s speech was also interpreted as being critical of the US, citing the “inappropriate macroeconomic policies of some economies” and the “blind pursuit of profit” of certain financial institutions as the root cause of the crisis. Calling for enhanced cooperation between countries in tackling the global crisis, Mr. Wen stated that a “new world order” for the economy needed to emerge. If cash is to be king in this “new world order”, then the People’s Republic of China’s massive foreign exchange reserves, reported to be around $1,950 billion, should stand it in good stead.

The idea that America will emerge from this crisis as a sec-

ondary global power is, to say the least, an improbable one. America will continue to be the country with the largest economy and with a global political power far in excess of any other nation. Indeed, neither Russia nor China is immune from the current global crisis, with the economies of both countries having been hit. The notion, however, that America will emerge from this crisis with less power than it had in the precredit crunch world relative to other key nations, such as China and Russia, may yet prove prescient.

Probably the most salient characteristic of this year’s WEF meeting was the grave uncertainty about the future direction of global capitalism. However, the notion that the shape and nature of the global economy is likely to change profoundly was not in doubt. Next year Davos should provide a must watch occasion to reflect back on a remarkable year.

20 Nottingham Economic Review

Engineering Risk for Wall Street through the subsequent multibillion dollar write-downs of the major Wall Street firms such as Citi ($18.7 billion total), Merrill Lynch ($7.2 billion) and Bank of America ($3 billion). This multiquarter process illuminates how banks, even in midst of this crisis, cannot adequately remove this extremely risky debt from their balance sheets.

The present crisis in the Wall Street derivative markets is plaguing the financial system in the United States, drying up liquidity, forcing even more foreclosures, and making the American people more exposed to unprecedented inflationary pressure. This crisis is a result of overspeculation, greed, and Wall Street’s inability to properly manage the risk associated with derivative products.

Though gusto and greed are timeless sores of the human condition, the problem of risk management is more easily fixed.

Currently, Wall Street does not seem to know how to manage the risk of its vast array of new derivative products. As a result, the Federal Reserve and the U.S. Treasury have been forced to bail out some of the biggest and bestknown Wall Street monoliths, in order to avert the catastrophic ramifications of the collapse of America’s lending infrastructure.

This collapse can be seen

Although the Fed and the Treasury Department have been effective in controlling interest rates and pumping billions of dollars to boost the market liquidity in response to this crisis, the main issue is the total collapse of confidence. Therefore, the real solution to this problem seems to be tighter preventative control of future risks taken by these firms.

This can take the form of either mandated regulations from the government, or a concentrated effort by the financial world to organize the resources from academia and industry to answer this very important engineering quandary. Banking regulations have been effective in the past, but as any free market types will tell you, “the key to our economic success is to keep government as far away as possible from the natural mechanisms of the market.” Yet, a question of equity remains when Wall Street reaps all the gains from boom periods and hides behind the government in the inevitable busts.

Thus, the ideal solution is to force Wall Street to take the necessary

By Albert Berahas

steps to engineer mathematically sound and conservative means by which to limit their overall risk to levels that will not threaten the overall solvency of the financial sector. To force Wall Street not to forget the current mercy of Ben Bernake and Henry Paulson, legislation should be put into place to prevent such extraordinary measures to be taken again without consent of Congress. Better risk management techniques developed by the industry would prevent the government from meddling with the free market (through excessive regulations) more than they already do, and force firms to be accountable for the risks and rewards of their investments.

Through such accountability, the financial industry would be forced to forgo excessive greed and only invest in derivative and collateralized products (items crucial to the modern economy) that represent acceptable risks.

This process of developing new statistical models and hedging mechanisms by financial engineers will take time, but will allow autonomy for the industry and make it accountable for its successes and failures.

Nothing is more American than reaping the benefits for the risks and work one does, except perhaps for the lack of accountability of these actions that serves to temper improper investment and unacceptable risk.

VACANCY

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TRAINING CONTRACT

Partners: 285 Training Contract Vacancies: 24 Summer work placements: 40 Specialisms offered Corporate and Commercial, Dispute Resolution (includes ADR and mediation), Employment and Pensions, EU and Competition, Finance, Private Client, Property, Planning and Construction, Tax, Technology, Media and Telecoms (including Sport).

The Firm Taylor Wessing offers a full service to its clients providing a powerful source of legal support for commercial organisations doing business in Europe and the emerging markets in Asia and the Middle East.

Our clients include large and medium size, private and public companies, financial institutions, professional service firms, public sector bodies and wealthy individuals. We offer industryfocused advice by grouping together lawyers from different legal areas with in-depth sector experience. Our core industries include banking, construction, engineering, fashion, finance, healthcare, infrastructure, leisure, life sciences, media and entertainment, information technology and telecommunications and projects.

Taylor Wessing is based primarily in the three largest economies in Europe, and has offices in other countries, including China and Dubai. Our clients also have the added benefit of our wide network of partner law firms. In Germany, we are one of the leading law firms, with a team of more than 300 lawyers.

Training Contract As part of your training programme, you will spend six months in four different practice groups, including a contentious seat and another in our corporate area. There are also secondment opportunities to our other offices or one of our clients. All our trainees work closely with a number of partners and associates in the practice groups so you will be directly involved in high quality work from the outset. Throughout your training contract you will have ongoing discussions about your interests and how they fit in with the growth and needs of the firm. There is support every step of the way, with regular feedback and appraisals in the middle and at the end of each seat.

Not forgetting the essential Professional Skills Course, which is run in-house, along with other training courses as necessary during the two years.

Who should apply High intellectual ability is paramount - we seek a minimum of a 2.1 degree in any discipline. We look for team players with the potential to build relationships with our clients and who have a desire to take on responsibility and make a real impact on our business.

Excellent communication skills, energy, ambition, an open mind and a willingness to learn are also key attributes along with the ability to demonstrate a commitment to a career in law.

Application details All candidates - penultimate year (law) or final year (non-law) or beyond - need to apply via our online application form which can be found here: www.taylorwessing.com/graduate

European law firm

What happens on a vacation scheme?

John Crowley and Randeep Grewal (Trainees, Construction/Corporate): Vacation schemes vary from firm to firm, but at Taylor Wessing around 40 students join us each summer (spread across two intakes). They all spend a week in each of two different departments and are ‘looked after' by a trainee buddy who knows that department. We put as much emphasis on work as on play.

Work-wise, your tasks are designed to mirror those of a trainee and you may find yourself attending client meetings or court hearings, carrying out legal or practical research or drafting documents, but it all depends on which department you're in. For example, students in the IP department may find themselves in court with a celebrity who's suing a newspaper and students in Construction may find themselves kitted out in hard hats and boots on a building site! You will also go to talks from the various groups within the firm, giving you an insight into the work that they do. Play-wise, there is a full calendar of social events such as drinks, meals out, trips to the Comedy Store or bowling and sports fixtures, so you'll have plenty of opportunity to meet the current trainees and other people from around the firm. Vacation schemes are a great way to find out more about how a law firm works and what it's like to be a trainee.

What do you, as a leading law firm, look for in application forms? Are there particular skills or experience?

Jayne Schnider (Partner, Corporate Real Estate, Hotels & Leisure; Graduate Recruitment Partner.

Law, Nottingham University): Like many City firms, we are looking for candidates with good academics (minimum ABB at A level and a 2:1 in any degree discipline). However, brains aren't everything. We look for evidence of commercial awareness and entrepreneurial spirit along with the ability to solve problems, take responsibility and get the job done. There are lots of ways to demonstrate this (for example, involvement in university societies, work experience, holiday jobs, voluntary work) so be creative and make sure that you include the best examples. Having the motivation to work alone is important but equally so is the ability to work as part of a team as we are a people business. Relevant experience is helpful but we recognise that everyone has to start somewhere so don't worry if you haven't worked in a law firm before. That said, many firms and other institutions offer open days so do take up any opportunity which presents itself as it shows us that you are serious about a career in law.

One of the key things I look for is mistakes! Being a lawyer requires an eye for detail so spelling mistakes or grammatical errors create a bad impression. When we review applications, it is easy to spot chunks of text which have been cut and pasted from an application to another firm. We are looking for people who have done their homework, researched Taylor Wessing and are willing to dedicate the time to completing the form to an excellent standard as that shows commitment to us.

Does studying a non-law degree hinder your chances of obtaining a training contract?

Ed Vickers (Associate, Patents. Natural Sciences, Cambridge): Firms typically see a non-law degree as an asset for a number of reasons. All graduates have to spend some time at law school after university. Having studied a different subject beforehand means that a non-law applicant for a training contract has an extra string to his or her bow. Sometimes this can be of obvious relevance to an area of legal practice (for example, a science background is a great help in my field

of patents). However, firms also expect that those with a degree in English or history will have developed an aptitude for taking in information and formulating and presenting arguments, modern languages graduates will be expected to have a high level of accuracy and attention to detail, and so on. All of these skills are valuable in any legal career and this is recognised by the firms you will be applying to.

Furthermore, a non-law graduate has also usually made the decision to enter a career in the law three or four years later than the typical law graduate. This is likely to suggest to the firms you are applying to that it is a decision that has been taken with extra thought, maturity and commitment, which is no bad thing.

How does studying economics assist you in preparing for a career in law?

Guy Morgan (Associate, Corporate. Economics and Politics at Durham University): Whilst knowing how to plot a Laffer curve, or understanding the concept of the velocity of money may not assist you in drafting an agreement dealing with the acquisition of a business or helping a company raise money on the equity capital markets, where a degree in economics is invaluable is in helping you understand the environment in which all businesses operate, the way the City functions and the impact of the wider economy on clients. This is probably most important for those lawyers who choose to work in city-type practice areas, although nearly all lawyers will come across situations where an understanding of the above is helpful. In particular, those lawyers who practice in corporate or finance roles will be exposed on a daily basis to what may seem like esoteric city concepts; be they derivatives, securitisation or assetbacked lending - and understanding these is critical for a lawyer working on such transactions. The study of economics provides the framework in which all these concepts are grounded. Being able to discuss such matters knowledgably with clients and their advisers is vital and law firms appreciate candidates with economics backgrounds for that reason, as well as appreciating the analytical skills an economics background provides.

How does one display ‘commercial awareness'?

Graham Hann (Partner, IT and Commercial Group. Computer Science at York University): As a lawyer in a City firm, your commercial awareness will always be developing as you work with clients to protect and grow their businesses - not just as a trainee but as an associate and as a partner. However, you need to demonstrate that you have the building blocks to do this. Essentially this comes down to showing that you understand what makes businesses tick. You might do this by demonstrating experience in business yourself, perhaps through Young Enterprise or through work experience, and in each case it's important to show your understanding of the relevant business, the market in which it operates, how it makes money and what its main challenges are. Alternatively you might show commercial awareness through talking about Taylor Wessing and the challenges that face us, as, after all, we're a business too, or even talking more generally about what is going on in the world and how it might affect business activity amongst our clients.

There are many ways to demonstrate commercial awareness, and the key thing to remember is that you can be the most academic, bright, analytical lawyer in London, but if you can't show that you understand business and what clients are trying to do, then you're unlikely to make the grade in a City firm.

Tim Stocks (Partner, Head of Financial Institutions and Markets. Law, Liverpool University): From my department's perspective, a solicitor is commercially aware if he or she is sufficiently in tune with what is happening in the financial world and on the stock markets so as to be able to relate to listed clients and the pressures they may be under. The solicitor can then provide to clients the services they need before the client has to ask for them. Commercial awareness is obtained by reading publications such as the Financial Times and being aware of commentary on the economic situation both here and overseas.

Does Taylor Wessing take on older candidates with previous working experience?

Saufung Ma (Associate, Patents. Biochemistry, Oxford): Absolutely! Being a service industry, it is vital in our work to understand our clients and their needs - any real-world experience definitely helps. After my science degree, I went on to complete a PhD at Imperial College before setting up and managing my own restaurants for four years. Both my science background and business experience come in useful in my role. For example, I have recently completed a review of some chemical synthesis patents and I was able to work independently and liaise with our expert as I had a thorough understanding of the subject matter. At the moment, I am helping with some due diligence work. This has thrown up some interesting legal issues and my business experience helps me to judge how important these might be to the client.

Relevant previous experience is a valuable asset and a selling point - it is not uncommon to see TW trainees with a ‘previous life'.

Ian Clarke (Trainee, Financial Institutions and Markets. Politics, Leeds): Yes, Taylor Wessing is more than willing to do this. I was 24 when I was offered my training contract, did not start until I was 27 and my previous job was as a professional rugby player. Taylor Wessing encouraged me throughout the application process to show how my previous career skills and attributes could be transferred across to a legal career. In my opinion, Taylor Wessing is keen to hire candidates who have been successful in, and shown commitment to, a previous career and who demonstrate a positive outlook on, and enthusiasm for, their new prospective career. There are many people here who have worked in another field before becoming a lawyer, highlighting the diverse recruitment policy that TW prides itself upon. I believe your previous experience sets you apart from the other candidates and can put you at an advantage during the application process.

Taylor Wessing LLP 5 New Street Square London EC4A 3TW Tel +44 (0)20 7300 7000 Fax +44 (0)20 7300 7100

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Nottingham Economic Review 25

Danny Blanchflower GEP Lecture 29 January 2009 seats in a packed out lecture theatre, I saw the speech had taken the more prosaic title of, “Macroeconomic policy responses in the UK”. Perhaps this wouldn’t turn out to be quite the evening I had hoped for.

David Graham Blanchflower is a leading labour economist, currently a tenured economics professor at Dartmouth College, Hanover, New Hampshire, and an external member of the Bank of England’s interest rate-setting Monetary Policy Committee (MPC).

Summarised by James McClymont

The official University of Nottingham press release for the visit of Professor Danny Blanchflower of the MPC (Monetary Policy Committee) made for amusing reading. Entitled, “When the world won’t listen”, the statement promised an evening of scandal and sensation, in which Danny, the lone “maverick”, would tell all about how his warnings of the coming recession were callously ignored by his colleagues on the MPC in “one of the highest level policymaking disputes ever made public”. Alas, then, my heart sank a little when, after finding one of the few remaining

My mood began to lift, however, soon after the guest speaker had begun. Gregarious, energetic and quite possibly a little mad - Professor Blanchflower apparently fitted none of my preconceptions of what central banker might be like. More importantly, however, the ominously lacklustre title proved misleading, as the lecture was to be both informative and amusing.

To begin with, the visiting speaker gave a candid assessment of the less than favourable prospects for both the UK and global economy. “It has become apparent that an especially severe contraction in output and unemployment has taken place and is set to intensify in 2009”. Oh joy. Citing a range of survey material, from the construction industry to the manufacturing and services sectors, Blanchflower argued that all the data pointed to worsening prospects for the UK economy.

As for the world economy, he was similarly optimistic, stating that it was “now clear a synchronised global downturn has begun”. Describing the deterioration of economic conditions in America as, “staggering”, he also stressed that the euro zone and Asian economies had fallen into

decline. Emphasising the global nature of the downturn, he argued that the notion that certain economies had “decoupled” from the rest had been resoundingly disproven by events “those argument are dead”.

It was somewhat unexpectedly, then, that the introduction of the Baltic dry index proved to be a bit of a highlight. With almost uncontainable excitement, the Professor explained that the Baltic dry index tracked the cost of shipping dry goods such as iron ore and wheat. As such, it could be used as a proxy to measure how much international trade was taking place in the world. “I think with every lecture I give I like to give this chart”. Indeed, the Baltic dry in chart form was a sight to behold. The squiggly line on the graphic now presented to us illustrated that the cost of shipping had fallen, quite astonishingly, around 95% from its peak in May 2008.

Ring Ring. “Someone answer that phone!” A journalist reached into his pocket, provoking an amusing exchange of words between the guilty party and Mr. Blanchflower, who evidently thought little of anyone brazen enough to interrupt analysis of shipping indices. This did, however, provide a much needed break for the bamboozled members of the audience, still attempting to absorb the chilling analysis of the global economy. On the bright side, though, at least the bad news was

26 Nottingham Economic Review

over for the evening. Surely now our guest would swiftly outline how macroeconomic research and analysis could provide us with the key insights into what went wrong and how to fix the global economy. Err, apparently not…

“In considering the likely causes, magnitude and persistence of the current recession and the appropriate monetary and fiscal policy responses, I would have liked to offer you some insightful observations from the cutting edge of modern macroeconomic research”. And for the punchline. “It may surprise that the standard assumption in economic research is that the financial sector has priced all assets efficiently at all times in the past, and will continue to do so over the infinite future – don’t laugh”.

Oh dear. The Professor then went on to warn that the mistake, so often made by forecasters in previous recessions, of initially underestimating the potential severity of economic downturns should be avoided. Macroeconomists had, he said, so often assumed that unforeseen shocks to the economy would soon dissipate when, in fact, they may actually have intensified. This error, Mr. Blanchflower commented, was, “quite understandable”, since the nature of these shocks are illunderstood. Nevertheless, these comments have been interpreted by some in the financial press as an implied criticism of some of Mr. Blanchflower’s MPC colleagues. Whilst our guest speaker had called for interest rate cuts as early as October 2007, others have been slower to react. Indeed

as late as August 2008, Tim Besley voted at an MPC meeting to increase the Bank of England base rate.

Now to the important part – what could be done? Initially, Mr. Blanchflower took time to discuss the notion, advanced by some, that the financial crisis had rendered interest rate cuts useless in fighting the recession. The professor, it seemed, was genuinely hurt by this suggestion – “Why would you say that!?” After taking a moment to regain his composure he resumed, arguing that, although the crisis had disrupted the transmission mechanism, interest rates, nevertheless, still had an important effect on the economy. “Isn’t it better to have interest rates at the current level rather than 4 or 5 percent”?

The focus now moved on to the, “Unconventional policies”, that could be to help rejuvenate the economy with the normal transmission mechanism of monetary policy partially impaired. The guest speaker distinguished between two particular types of policy. Firstly, the bank could engage in a programme of “credit easing” involving the purchasing of certain assets from banks.

By changing the composition of assets and liabilities on commercial banks’ balance sheets, liquidity premia could be reduced and thus encouraging, “more favourable lending to firms and households”. The second type of policy open to the bank, Mr. Blanchflower stated, was “quantitative easing.” This is a process that focuses on the quantity of bank reserves in an economy. The central bank literally creates money (it

does not print money, these days, rather it uses a computer instead – it’s all very sophisticated) before injecting it into commercial banks in the hope of kick-starting lending. “If successful”, these policies, Blanchflower argued, “May even have a greater impact on lending than cuts in Bank rate itself.”

To conclude his speech Mr. Blanchflower began by summarising what he saw to be a likely future for the UK economy. “Past recessions have typically been associated with five quarters of negative growth, it has usually taken around three years to regain the pre-recession level of output and the deterioration in labour market conditions has been even more protracted.

There appears to be little reason to expect a more favourable outcome this time around.” He then remarked that, although the policy responses to the recession so far had been, “a step in the right direction”, more need to be done.

On a more uplifting note, Mr. Blanchflower said, “We should bear in mind that the economy will eventually recover. In the past the UK economy has proved resilient to economic shocks and there is no reason to believe it won’t be resilient in the future.”

Perhaps, then, this was the most important point – that the economy will recover and there are no benefits of being, “unduly pessimistic”. And, if not, at least we’ll always have the Baltic dry.

Nottingham Economic Review 27

On the Edge

By Hasham Nasir

And now for something completely different...

It started with the evaporation of consumer confidence in the real estate market. Soon after that, the financial markets dwindled and the whispers of a long due recession were rekindled. It came in the end, as all the leading indicators had promised it would. And when it came, over half the prosperity of previous years vanished without a trace.

I am standing at the roof top of one of the tallest buildings in London. As I draw my last remaining breaths in the cool night air of London, I can see with hindsight every decision that I have made and every step that I took which brought me where I am standing now. My journey over the years has been the journey of the economy. And why so? You will know shortly. I look around at the sound of approaching footsteps and see a man walking towards me. I was expecting he would come tonight. I look into the bright eyes of John Maynard Keynes.

“So, you did decide to come,” I said.

“Yes” “But you cannot change my decision. I have already made up my mind.”

“I know”

“Nothing can save the economy, not even you, John.”

“Yes. But that is not why I am here.”

“Then why are you here? What made you finally come?”

“I figured you must have some questions to which I might have the answers.”

Now before any of you go crazy with what John Maynard Keynes is doing in this world somewhere between present and future, I guess the time has come now for me to tell you who I really am, because there is no escape from the truth now. My name is Economy. At the turning points in my life, the economic greats would come to me and guide me so that I could be put onto the right track. Great disasters would be averted, but only if I would listen to the advice offered to me. How I wish I had listened to them. The world would have been a different place; this recession might have been averted, and I would not be standing on a roof top minutes before taking the plunge into oblivion. But we must not ruin the ending before we have seen the beginning and know the rest of it.

All through my childhood and early teen life I remained ignorant of the importance I had. Until, one night, a man came into my room who introduced himself as Adam Smith - Father of

Economic. He revealed that my actions were shaping the world.

Political careers and whole countries were at stake if I failed to recognise my destiny. I was, he declared, the “Invisible Hand” he had so famously hinted at in the “The Wealth of Nations”, which would bring stability and normality to the markets. There had always been an invisible hand, he said. Smith himself was one; he was succeeded by Karl Marx, who was followed by John Keynes, born the same year that Marx died (1883). Adam Smith was there at the time of the American Revolution; Marx came forward with his ideas when growth from the Industrial Revolution had almost halted; after him, Keynes shone as the light at the end of the tunnel which was the Great Depression.

In 2001, Karl Marx came to congratulate me after Labour party’s victory in the UK general elections. We discussed the current

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world scenario. He warned me of difficult times ahead in the wake of September 11. He advised me to proceed with caution and raised concerns about the way the war on terror was being financed, because this was the first war to be fought without any tax hikes or spending cuts to offset the cost. It was being fought on credit which would have dire consequences for the economy later. However, my head was teeming with ideas of my own, and I did not pay much attention to what Marx had said. I did not know that before long I would be regretting my choice for not having acted promptly as the invisible hand. What Marx had said was later picked upon by other economists: Joseph Stiglitz and Linda Bilmes in their book “$3 Trillion War”. But it was too late then. They were just acting as economic commentators, but I, as the invisible hand, could have actually stopped it from happening.

And today, I am here on this roof top ready to jump of the edge, so that with my death the connection between me and the world might be broken. And it may find its way back to recovery.

On that thought, the last of the economic greats has come to visit me. I guess some part of my thoughts must have shown on my face, because Keynes said, “You do not seriously think that by killing yourself you would do the world any good!”

“What other option have I got left?” I replied.

“There is still hope” he said. “Recessions are unavoidable. The economy is like a phoenix bird.

After its birth, it would grow to see the prime of its youth, would decline henceforth and finally burst into flames, but is then reborn from those very ashes.”

“So, what can I do?” I asked.

“Read This!” Keynes handed me an old copy of his General Theory - the time has now come for the government to assume a greater role in the economy.

With that book in my hand, I started walking towards the steps which would take me back into the real world. Then, a man came running up those very steps. One look into his face was enough to tell me he was about to do the same thing I had come to do here. I asked him if everything was alright, to which he replied that he was being blamed for all the ills of the economy; that his bad economic policies were responsible for the near economic death of the country. I gave him Keynes’s book; it carried the answers to all his problems. After waking up the following morning, a certain super hero’s bailout plan for the banks was in all of the newspapers. Do I need to tell you who that other man was?

Nottingham Economic Review 29

A different African Union

By Eric Acha

would have been the African Economic Community.

African countries have, on more than one occasion, strived to achieve greater unity by creating political unions.

However, little success has been achieved, giving rise to a question: has the right approach been chosen?

When the 39 heads of the Independent African States met in the Ethiopian capital Addis Ababa in 1963 to create what would become known as the Organization of African Unity, there were no economic motives on the table, since most of the countries were preoccupied with issues pertaining to post independence. They were not concerned with the elimination of borders, the creation of common customs unions or the enlargement of trade capacity resulting from economic cooperation. The prime focus was on sustainment of the freshly gained independence and solidarity with other nations that were still battling the challenges of colonialism. The Organization of Africian Unity (OAU) was the label that resulted from this gathering, but a name ensuring the sustainability and the development of the entire African continent

African states did not think beyond the immediate issues at hand. They focused their entire commitment on ensuring that a political organisation for Africa would emerge and be strong enough to counter the colonial influence on the continent. They also wanted to find a framework for advocacy for Africa’s causes; facilitating joint action in their interest. Sadly enough, they failed to realise the strength in economic empowerment, if they had utilised this effectively they would have achieved what the OAU sought to deliver. Without any disrespect for the founders of the OAU, as they were great architects with brilliant ideas and objectives, they lacked the defined and feasible formula on how to achieve the goal of unifying Africa. There was neither a push for economic advancement, nor emphasis on the need to create a single market that could have empowered the continent, and hence provided it with a stronger economic weapon.

As years passed by, it was realised that the fundamentals of continental empowerment must be based on an economic foundation, and in spite of the fact that some economic components such as the Priority Program for Economic Recovery (PPER) and the Special Emergency Fund for Drought and Famine in Africa (SEFDFA) were

introduced into its framework in the 80s, its foundation was political and cracked, which was the reason why the organisation never achieved its objectives until its demise in 2002, when it was transformed into what is now known as the African Union (AU).

Taking a look back at the economic history of Europe, for example, one will agree without doubt that the European Union is strong today not because it emerged as a political organization, but rather because the corner stones of its foundation were all economically carved. Amongst the four core reasons behind the creation of the EU, the two principal ones were the realisation by its founding fathers that European nations individually were no longer large enough to hold their own in the world market, and the desire to scrap economic protectionism, an issue which is still widely practiced across Africa today. It may be astonishing to know that most African nations today have more intense economic protectionism practices against other fellow African states than with countries outside the continent.

Under the current apparatus, gross economic growth and development across the continent can not be achieved without fundamental transformations which require the total rebalancing of institutions such as the African Union on a more solid economic platform. Efforts to partition the

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The 4-Phases to an United Africa based on an Economic Evolution

continent into regional trading blocs have neither been successful economically nor politically.

In some extreme cases, the blocs have been rather counter productive, especially when it comes to international negotiations. The difficulties in this respect are enormous, given that some countries have membership of more than one of such regional trading blocs. Consequently, when the two blocs take different directions during trade negotiations, for example, it becomes a problem for a country that holds more than one membership.

However, it will be unfair to completely discredit the mentioned regional blocs. Though not very effective, the benefits from regional trading blocs such as the Economic Community Of West African States (ECOWAS), the Customs and Economic Union of Central Africa (CEMAC), the South African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC) are evidence of what the continent can achieve by tearing down boarders and building a single market.

To put things in a better perspective, if market potentials were measured relative to population

size, one would claim without stuttering that ECOWAS alone has a market potential of about 250 million customers with an impressive annual trade volume of about $200 billion USD and a GDP of $342,519 million USD. SADC, on the other hand, has a population of 247 million people with a GDP of $737,335 million USD. Ceteris paribus, the market size is big enough to attract reliable investors to trade and make huge profits. COMESA, another market hub with its 19 member states, has a population of over 389 million with an estimated import and export worth over S$32 billion and US$82 billion respectively.

With an estimated population of about 700,000,000 million and a vast amount of untapped natural resources, the continent is without doubt an emerging market; but for market forces to materialise, its foundations must be shaken and rebuilt on an economic platform.

Dissolving the Organisation of African Unity and hurriedly creating the African Union in 2002, still based on the old political foundation, was a missed opportunity for African leaders to sweep aside their egoistic political intensions and look forward to an African Union built

on solid economic foundations.

It would have been wise to delay the creation of the AU and allow it go through what I refer to as the 4-Phases of unification involving the gradual merger of the current regional blocs in a constructive manner.

For this to happen, the already related regional blocs should merge twice, at two different levels. For the purpose of demonstration, in phases-1 COMESA would merge with SADC and maintain the name COMESA; phase-2 CEMAC and EAC would merge to form what I have referred to as the Central Eastern African Economic Community (CEAEC); in phase-3, ECOWAS will join CEMAC and the EAC to form the Common Market for Western, Central and Eastern Africa (COMWCEA); the final Phase-4 would see COMWCEA and COMESA merging together to form the African Economic Community (AEC), which should then given birth to the African Union. As has been demonstrated, it should be a bottomup structure and not vice versa as it seems to be the case today, where blocs are merging up after the Union is already in existence.

However bad the situation is, there is still enough room for optimism and the African dream of unity can still be realised. But for that to happen, the right framework must be put in place, and the cracked political foundation rebuilt on an economic platform.

Nottingham Economic Review 31

Yes, we did: how Obama changed politics

By Ingrid Pederson

Every president asks something of the American people. They run the gamut from Franklin Roosevelt asking for courage during the Great Depression to George W. Bush asking the American people to go shopping after September 11th. Barack Obama’s campaign is prologue to what he will ask of the people over the next four years: time, effort, and commitment. This sounds a bit overwhelming, especially in a country where two states, Texas and Alaska, actively have secessionist parties and a notable percentage of people consider taxes an attempt of the government to steal their money. However, if Obama’s campaign is any indication, politics and patriotism will blend fairly seamlessly into the lives of Americans.

It is widely publicized that Obama made extensive use of technology to change and drive the election. As a registered Obama supporter, I was texted approximately once a week

(more if there were debates or voter registration deadlines) and e-mailed almost twice a day. I donated money to the campaign, distributed fliers, and distributed multiple e-mails discussing his politics with my family and friends. That sounds like quite a litany of Obama-mania, but in truth, it had taken a grand total of about two hours for my actual campaigning activity to distribute flyers, a quarter hour to send out e-mails, and maybe five minutes a day to read the e-mails and texts.

Campaigning is no longer an activity of the politically ambitious.

It’s an afternoon walk with some flyers. What makes Obama different is that he made political engagement accessible. Political fundraisers were formerly affairs for the wealthy, or so it seemed.

Small businesses would donate a few thousand; the very rich or very devoted could donate up to $2,300 per election. A few months ago, the idea of a student with

loans, like me, donating to a political campaign was laughable.

But the Obama camp emphasized the importance of small donations from many individuals of $10.00-$25.00. The donations poured in, so much so that while McCain had to pull out of a major swing state this election, Obama purchased two hours of prime time network television time with a price tag in the millions to be aired October 29.

Accessibility was a boon to Obama, because voters across the country felt the need to be involved in elections this year.

Most crucially for the Obama campaigns, due to this accessibility, Obama’s policy ideas are now at the forefront of American politics. This is one of the most important and yet underrated features for a presidential campaign: the publicity of ideas.

Obama’s influence, with or without the presidency, has changed American foreign and domestic policy. In terms of foreign policy,

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Nouri al’Maliki indirectly endorsed Obama’s plan to leave Iraq over the current administration’s course of action, forcing Bush to specify his discussions of a general “time horizon” for Iraq.

It is also no coincidence that Obama’s popularization of diplomacy has coincided with Bush’s sudden initiatives with “axis of evil” nations, sending a top diplomat to Iran and offering incentives for North Korea to stop their nuclear program. Obama is willing to reclaim diplomacy as the first vestige of a democracy rather than the last, and this idea has already sunk into the current administration as they look over their unpopular foreign policy decisions and try to improve their legacy in their remaining months. Obama as President bodes well for UK-US relations.

His comments, directed to the world in his acceptance speech on November 4th, indicate that he takes the world community seriously and is ready to work with them, instead of constantly subordinate them to an American political agenda. This is in comparison to George W. Bush, who struggled to reach out to a global audience.

eries and caused 22 billion dollars in damages, the Obama campaign sent out a text asking supporters to donate $5.00 to the Red Cross. While this is clearly a political move, it also shows the ease with which Obama can make use of his wide support and his willingness to use technology to do this, which has to be contrasted with John McCain’s lack of either. McCain needed Sarah Palin to galvanize his largest base, and his lack of technological know-how is an often-belittled fact of the campaign trail.

This seemingly obvious thing - a candidate being able to channel his supporters – should not be understated. It is often discussed in the blogosphere that had Bush pushed for a little more energy conservation post 9-11, or asked more of the public, rather than just “go shopping”, we might be living in a different world today.

This sentiment permeates the Obama campaign – yes, average people can make a difference.

They want to be active in politics.

It is a contrast to the folly of the past eight years, when politics were left to a few select people.

Obama brought politics into the mainstream, via cell phones, emails and even X-box games.

Domestically, Obama has already displayed an uncanny ability to unite people behind a common cause, adding substance to his rhetoric of bipartisanship.

During a campaign trail punctuated with disaster, Obama demonstrated that he knows how to channel his supporters to help with a national problem. After Hurricane Ike wiped out a good portion of the east Texas oil refin-

The disclaimer here is that obviously, having worked on the Obama campaign, I am clearly biased. However, when asked “Why Barack Obama?” the answer is far more than a starstudded music video by will.i.am (“Yes, We Can”) or lofty rhetoric.

Yes, Obama offers hope, and yes, I am an idealist. I do not underestimate either of these influences in my choice. But as a voter, I

deal with many more issues than hope and idealism. Economically and professionally speaking, I am a student. This seems incredibly inconsequential in the face of a multi-front war, imploding global finance, and the sheer chaos that we all deal with right now.

But my personal chaos lies in the $34,000 debt I borrowed during a credit crisis to get my graduate degree. How will I pay it off?

Can I get a job that will meet my minimum monthly payments of $471.00?

In the most personal way, Obama appeals to me because it wasn’t until the advance from his second book, “The Audacity of Hope”, that he was finally able to pay off his years of debt from undergraduate university. For the first time in my life as a voter (admittedly only 5 years), I can point to a politician and say that he understands my frustrating personal economic burden. Not only does he understand it, he has already proposed help for students and their loans in the form of $4,000 tax credits a year for 100 hours of community service.

He thought about the issue that most affects my financial future not only during a global crisis, but months before both the crisis and the election. This offers, for all students, more hope than rhetorical devices. I can honestly say I think Obama will work for and promote student interests. That is a rarity in politics and something deserving of my vote.

Nottingham Economic Review 33

No supreme government for EU

By Dr Robert Ackrill

was confused, contradictory and utterly ineffective in influencing debates between the member states in shaping the policy.

In our May edition, we printed an article by James Hickling entitled ‘The New Generation of EUnuch’s’, which asserted that national governments are increasingly subordinate to the supranational EU. Dr. Robert Ackrill, from Nottingham Trent University, posits a counter argument here. His research interests include the EU budget and the Common Agricultural Policy.

Returning to my double alma mater recently, I was delighted to see that Economics students were producing their own journal. As I read it, however, I was soon deafened by the sound of squealing brakes. What was this – an article distorting reality so much it makes the work of Escher look like photojournalism? I am no Euro-apologist or Federalist, but I cannot let Mr Hickling’s article on EUnuchs pass without comment.

First, a couple of stories. A recent report from the British Chambers of Commerce, The British Regu-

latory System (2008) by Tim Ambler, Francis Chittenden and Stefano Iancich, examines the UK approach to undertaking Impact Assessment studies of EU legislative proposals. Rather than focusing on the proposal and discussion stage, the UK process was preoccupied with implementation, by which time it was too late to influence the decisionmaking phase. This, it estimates, has cost the UK economy billions of pounds.

Anthony Forster, in his 1999 book Britain and the Maastricht Negotiations, reveals that the UK conceded only late on the principle of EMU – and certainly had no clear position about what the UK involvement should be. The British Prime Minister “failed to recognize the political momentum behind the EMU project” – which begs the question: what on earth was Mrs Thatcher doing that she would not be aware of the feelings of other countries’ governments.

Ultimately, the UK approach

These two stories highlight the failure of the UK government (red or blue) to understand EU policy-making and how to get the most out of it for the UK. But the issue of national impotence can be viewed in other ways. Take also an example from December 2005, when an EU budget deal was agreed for 2007-2013. The original Commission proposals – supported by the European Parliament and poorer EU member states – sought to keep spending in the enlarged EU at the current percentage of EU Gross National Income. Some member states, including the UK, wanted lower spending. Working together, their view prevailed. Some eunuchs...

These examples only exist because, in contrast to the impression given by Mr Hickling, EU decision-making has the member states at its heart. Oh, and just so we are clear, the EU is not the same as “Europe”. As a guide, the Council of Europe has 47 members – 20 more than the EU. The EU certainly does not act as “Europe’s supreme government”. As well as consisting only of some European countries, the EU is itself a multi-faceted organisation with an unusual and complex decision-making structure. Complexity, of course, can cloud reality.

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The European Commission is a curious institution, unlike any in national policy-making. As the EU budget example shows, likening the Commission to ‘the EU’, as some do, is wrong in so many ways; it fails to reflect the true balance of power between the ‘institutions’ of the EU – including the member states acting in concert. One of the functions the member states have granted the Commission is to negotiate on their behalf in international trade talks – but to an agenda they set collectively. When, in 1992, the Commission and the USA agreed the ‘Blair House Accord’ during the Uruguay Round of the GATT (now part of the WTO), some member states felt the Commission went beyond their negotiating mandate – and forced the Commission to ‘renegotiate’ the Accord before the Uruguay Round could be concluded.

Clearly, then, the member states can dictate the direction of discussion and decision-making.

Things can work the other way, however. Some member states (notably France, Spain and Ireland) have long opposed reform of the Common Agricultural Policy, reflecting (in part) domestic rural vested interests. The Commission have, however, been in a position to shape proposals (only they can propose legislation) such that the member states have had little choice but to agree to reform. Multi-commodity reforms in 1992, 1999, 2003, and, in 2005, reform of the politically-sensitive sugar policy illustrate this. The Commission proposals were not made on a whim but responded to particular pressures, typically

on the EU budget and/or through international trade channels. But is having policy change driven by an unelected body over the member states always ‘A Bad Thing’?

A recent book, Europe: the State of the Union by Anand Menon, provides an outstanding and balanced discussion of what the EU is. He suggests our main concern should be how well things are done (rather than by whom). In the previous example, it can be argued that the success of the Commission (supported, on CAP reform, it should be said, by several countries including the UK) led to policy changes that have been seen more widely (i.e. outside of traditional vested interests) as changes for the better.

I am no more saying that Commission success is ‘Good’ and national success ‘Bad’, than I would criticise someone for saying the reverse. I am merely reflecting Professor Menon’s call to value policy outcomes.

Moreover, a couple of specific issues discussed by Mr Hickling are problematic. Firstly, VAT, according to Mr Hickling, is an EU tax. Wrong. There are bands, set by the member states, within which national VAT rates should lie, because large differences in national VAT rates can distort trade within the SEM. There is neither a single EU VAT rate, nor even a common method for calculation. The Commission proposed one in 1977, but the member states have still not agreed to this. Also, one source of EU budget funds is a VAT-based payment from member states, but it is (like most such payments) a national

transfer, not ‘EU’ revenue. It is calculated with reference to what national VAT revenues would be, were a common system in place, but the link to VAT is merely an accounting device.

Second, Mr Hickling has discussed Sarkozy’s recent difficulty in reforming French labour market rules and how unpopular this is making him. Yes…but so what? The EU is not blame for this failure to reform domestic French laws. A reformist French President may find himself an impotent EUnuch in this matter, but the blade has been wielded by his countrymen and women, not the supranational body.

So, why are national governments reluctant to tell people the truth about EU decision-making?

Call me cynical (go on, I do), but politicians need scapegoats. Indeed, the book by Anand Menon gives examples where the European Commission has taken policy actions in direct response to member states’ requests, only to have those member states publicly blame the EU for doing those things. If governments were more open about how the EU worked, we would know where the blame for policy failures really lies!

Nottingham Economic Review 35

Thabo-Mbeki’s fall from power: The end of the African Renaissance?

By Andrew Thorpe-Apps

Thabo Mbeki spent twenty-eight years in exile during Apartheid.

His experiences abroad shaped his political thinking and future leadership style.

As Deputy President, he popularised the ‘African Renaissance’ concept, promoting the idea that African peoples have to overcome the challenges facing the continent themselves and achieve cultural, scientific, and economic renewal.

He believed Africa’s dependence on aid and foreign intervention were major barriers to the continent’s advancement in world economics and politics.

His ideas continue to influence the post-apartheid intellectual agenda and his impact on the African National Congress, South Africa’s dominant party, has been immeasurable. He resigned in September of this year after being defeated by Jacob Zuma in a vote for the Presidency of his party; he had been President of South Africa for over nine years.

Mbeki became the President of South Africa on June 14th 1999.

He was a methodical and strategic academic, described by his colleagues as an ‘ideas man’ and ‘philosopher president’, who sought to maintain social stability and national harmony. His leadership style sometimes led to accusations that he was distant, lacking the charisma and charm of his predecessor, Nelson Mandela. He often struggled to connect with ordinary ANC members and with average South Africans. Mbeki’s

mobilised support for the improvement of Africa’s dilapidated infrastructure, education and agriculture. He was also instrumental in the institutionalisation of the ‘African Peer Review Mechanism,’ which encourages African leaders to as-sume greater responsibility for their quality of governance.

preoccupation with the African Renaissance meant that his political focus was aimed at events outside of South Africa.

Under Mbeki’s presidency, South Africa served as peacemaker in Burundi, the Democratic Republic of Congo, the Cote d’Ivoire and later Zimbabwe. He also acted to save the Nuclear Non-Proliferation Treaty from collapse, and strongly advocated the establishment of the International Criminal Court. Furthermore, he utilised meetings of the ‘Outreach countries’ with the G8, establishing a permanent dialogue where African issues were discussed as part of global priorities. Through the ‘New Partnership for Africa’s Development’, President Mbeki

Mbeki enhanced the neo-liberal structure of the South African economy, seeking foreign investment as a means of sustaining economic prosperity.

Interest rates stood at record lows during his presidency; the economy grew at an average of 4.5%, and more than four million South Africans gained access to clean drinking water. His greatest success, however, was in maintain ing a stable South Africa – remarkable given the country’s short experience of full democracy.

Mbeki’s leadership style occasionally led to him being seen as weak and ineffective. He believed in his own intellectual superiority, questioning the link between HIV and AIDS, and was criticised for failing to respond adequately to South Africa’s AIDS crisis, seeking to deal with general poverty rather than specifically targeting the disease or providing anti-retroviral medicines for people living with HIV. A recent Harvard School of Public Health study found that 330,000 deaths were caused by Mbeki’s 1999 decision to declare available drugs toxic and dangerous.

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Until 2003, South Africans with HIV who used the public sector health system could get treatment for opportunistic infections they suffered because of their weakened immune systems, but could not get anti-retroviral drugs designed to specifically target HIV.

South Africa comes from the fact that he relinquished his grip on power. Thus, he has set an example to other African leaders on the importance of recognising when one’s time is up, and to allow for an orderly and peaceful transition.

Mbeki was also accused of being unable to deal with soaring crime levels. He was criticised for his decision to send the Minister of Safety and Security to Burundi during a spate of crime in Gauteng. An alarming number of people were killed during the incident, including members of the South African Police Service. However, Mbeki refused to acknowledge South Africa’s high crime rate, arguing that crime figures were exaggerated by white racists who did not trust black rule and wanted the country to fail.

Mbeki focused on his grand concept of the African Renaissance and achieved much in the sphere of foreign policy within Africa.

But this was to the detriment of his own political homeland. Although South Africa experienced economic stability under Mbeki, the gap between rich and poor dramatically increased. Violent crime, particularly rape and cashin-transit robberies, spiralled out of control. The Mbeki government dithered over its AIDS policies, choosing to deny the existence of a major epidemic. His inability to connect with the people, as well as his preoccupation with external affairs, meant that Mbeki became out of touch with ordinary South Africans. Mbeki will be best remembered not for his attempts to lead the continent out of its miserable state, but as a man who turned his back on his own country.

Others denounced his seemingly ineffective ‘quiet diplomacy’ on the explosive land issue and political turmoil in Zimbabwe. He was condemned for his failure to exert pressure on President Mugabe to relinquish power, and even accused of partisanship by taking sides with Zanu-PF in his role as mediator.

Mbeki was not a strong or assertive leader. He saw the importance of responsible and careful guidance as a means of leading his country to economic and social stability. He ensured that the ANC continued toward achieving its fundamental historical aim of creating a non-racial and prosperous South Africa. Ironically, one of Mbeki’s greatest contributions to democracy in

The decision by the ANC leadership to dismiss Mbeki from the presidency has increased factionalism within the ruling party, with 11 ministers leaving the party and Mosiuoa Lekota, former Minister of Defence, calling for the formation of a new splinter party. The ANC remains the most popular party in South Africa by far, and a split could destabilise the entire nation.

Populist Jacob Zuma looks set to become President in 2009. His leadership style, as well his fundamental principles, greatly differ from that of Mbeki. Zuma’s favoured theme song ‘Umshini wami’, or “Bring me my machine gun”, advocates the use of weapons and violence. He spoke publicly of the need to take a stronger stance against Mugabe, and often accused Mbeki of being lenient on dictators. Zuma is allied with socialist and communist elements of the ANC’s left-wing, thus an ANC administration under Zuma is likely to return to the party’s fundamental ideological routes, abandoning Mbeki’s neoliberal stance. Zuma has also given a strong commitment to address South Africa’s AIDS epidemic by endorsing the roll-out of anti-retroviral drugs, signaling a new era in the fight against HIV. Under Zuma, South Africa is less likely to play a key role in organisations such as the African Union. Instead, there will probably be greater focus on domestic issues such as poverty and AIDS, as the socialist and communist wings of the party increase their influence over the party leadership. The business sector is fearful of Zuma, a populist who some allege to be semi-literate. Archbishop Desmond Tutu has voiced concern that Zuma’s leadership could turn South Africa into a ‘banana republic’. Fears that his communist ties might undo Mbeki’s pro-business policies and wreak havoc in the South African economy are plentiful.

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We are all human, some of us less than others Economists are a fascinating breed. Unlike most people, they never think irrationally and tend to rely on assumptions - some of which belong in the hall of mirrors - when things get tough. However, like you and me, economists lead normal lives, even the very best of them. In this issue of the NER, we introduce a new section entitled “We are all human, some of us less than others”, which will contain some of the less predictable and (surprise, surprise) entertaining articles written by established scientists from the sometimes mind-boggling world of economics. Ladies and gentlemen, the NER proudly presents “Krugman on Food”

by Nobel Prize winning economist Paul Krugman and “My Personal Work Incentives” by a leading Macroeconomist Gregory Mankiw.

Krugman on food

Paul Robin Krugman, born February 28, 1953, is an American economist, columnist, intellectual and author. He is a professor of economics and international affairs at Princeton University, a centenary professor at the London School of Economics, and an op-ed columnist for The New York Times. In 2008, Krugman won the Nobel Memorial Prize in Economic Sciences “for his analysis of trade patterns and location of economic activity”. Krugman is known in academia for his work in international economics, including trade theory, economic geography, and international finance.

We Americans like to boast about our economic turnaround in the ‘90s, but you could argue that England is the real comeback story of the advanced world. When I first started going there regularly in the early ‘80s, London was a shabby and depressed city, and the country’s old industrial regions were a Full Monty-esque wasteland of closing factories and unemployment lines. These days, however, London positively buzzes with prosperity and with the multilingual chatter of thousands of young Europeans - French especially - who have crossed the Channel in search of the jobs they can no longer find at home. How this turnaround was achieved is a fascinating question; whether the new Labour government can sustain it is another.

But I’m not going to try answering either question, because I’ve been thinking about food. Marcel Proust I’m not (what the hell is a madeleine, anyway?), but the change in English eating habits is enough to get even an economist meditating on life, the universe, and the nature of consumer socie-

ty. For someone who remembers the old days, the food is the most startling thing about modern England. English food used to be deservedly famous for its awfulness - greasy fish and chips, gelatinous pork pies, and dishwater coffee. Now it is not only easy to do much better, but traditionally terrible English meals have even become hard to find. What happened?

Maybe the first question is how English cooking got to be so bad in the first place. A good guess is that the country’s early industrialization and urbanization was the culprit. Millions of people moved rapidly off the land and away from access to traditional ingredients. Worse, they did so at a time when the technology of urban food supply was still primitive: Victorian London already had well over a million people, but most of its food came in by horse-drawn barge. And so ordinary people, and even the middle classes, were forced into a cuisine based on canned goods (mushy peas!), preserved meats (hence those pies), and root vegetables that didn’t need refrigeration (e.g. potatoes, which explain the chips).

38 Nottingham Economic Review

But why did the food stay so bad after refrigerated railroad cars and ships, frozen foods (better than canned, anyway), and eventually air-freight deliveries of fresh fish and vegetables had become available? Now we’re talking about economics - and about the limits of conventional economic theory. For the answer is surely that by the time it became possible for urban Britons to eat decently, they no longer knew the difference. The appreciation of good food is, quite literally, an acquired taste - but because your typical Englishman, circa, say, 1975, had never had a really good meal, he didn’t demand one. And because consumers didn’t demand good food, they didn’t get it. Even then there were surely some people who would have liked better, just not enough to provide a critical mass. And then things changed. Partly this may have been the result of immigration. (Although earlier waves of immigrants simply adapted to English standards - I remember visiting one fairly expensive London Italian restaurant in 1983 that advised diners to call in advance if they wanted their pasta freshly cooked.) Growing affluence and the overseas vacations it made possible may have been more important—how can you keep them eating bangers once they’ve had foie gras? But at a certain point the process became self-reinforcing: Enough people knew what good food tasted like that stores and restaurants began providing it - and that allowed even more people to acquire civilized taste buds.

So what does all this have to do

with economics? Well, the whole point of a market system is supposed to be that it serves consumers, providing us with what we want and thereby maximizing our collective welfare. But the history of English food suggests that even on so basic a matter as eating, a free-market economy can get trapped for an extended period in a bad equilibrium in which good things are not demanded because they have never been supplied, and are not supplied because not enough people demand them. And conversely, a good equilibrium may unravel.

Suppose a country with fine food is invaded by purveyors of a cheap cuisine that caters to cruder tastes. You may say that people have the right to eat what they want, but by thinning the market for traditional fare, their choices may make it harder to find - and thus harder to learn to appreciate - and everyone may end up worse off. The English are often amused by the hysteria of their nearest neighbors, who are terrified by the spread of doughuts at the expense of croissants. Great was the mirth when the horrified French realized that McDonald’s was the official food of the World Cup. But France’s concern is not entirely silly. (Silly, yes, but not entirely so.)

Compared with ethnic cleansing in Kosovo and the plunging yen, such issues are small potatoes.

But they do provide, well, frites for thought.

The article, as well as many others, can be found on http://web. mit.edu/krugman/www/, the official website of Paul Krugman.

Nicholas Gregory “Greg” Mankiw, born February 3, 1958, is an American macroeconomist. From 2003 to 2005, Mankiw was the chairman of President Bush’s Council of Economic Advisors. His publications are ranked as the 22nd most influential of the over 18,000 economists registered with RePEc.

My Personal Work Incentives Here is a question that you may have been thinking about: How do the different candidates’ tax plans affect Greg Mankiw’s incentive to work?

Okay, you probably haven’t been thinking about this. But I have, because, after all, I am Greg Mankiw. And if you are here reading my blog, maybe you have some interest in the random thoughts running through my brain. So bear with me.

Let me start with my personal situation: I am a pretty lucky

Nottingham Economic Review 39

guy. I have a comfortable, upper middle class life style that includes one house, two cars, three kids, a wife, and a dog. I am fortunate enough that I don’t have trouble keeping that going. I am also fortunate enough that I don’t crave much more than I already have. I don’t particularly want to own multiple houses or drive a Ferrari or wear Armani suits.

You might say that I am close to being sated.

On a regular basis, I am offered opportunities to make some extra money. It could be giving a talk, writing an article, editing a journal, and so on. What incentive is there to put forward that extra work effort?

To a large extent, the beneficiaries of that extra effort are my kids. My lifestyle is, as a first approximation, invariant to my income. But if I make an extra few dollars today, I will leave more to my kids when I move on. I won’t leave them enough so they can lead lives of leisure, but perhaps I will leave them enough so they won’t have to struggle too much to afford a downpayment on their houses or to send their own kids to college.

Now back to the McCain and Obama tax plans. Here is a neat summary from the Wall Street Journal: [Dueling Tax Plans] Let me try to put each tax plan into a single number. Let’s suppose Greg Mankiw takes on an incremental job today and earns a dollar. How much, as a result, will he leave his kids in T years?

my kids $4.81. That is, even under the low-tax McCain plan, my incentive to work is cut by 83 percent compared to the situation without taxes.

The answer depends on four tax rates. First, I pay the combined income and payroll tax on the dollar earned. Second, I pay the corporate tax rate while the money is invested in a firm. Third, I pay the dividend and capital gains rate as I receive that return.

And fourth, I pay the estate tax when I leave what has accumulated to my kids.

Let t1 be the combined income and payroll tax rate, t2 be the corporate tax rate, t3 be the dividend and capital gains tax rate, and t4 be the estate tax rate. And let r be the before-tax rate of return on corporate capital. Then one dollar I earn today will yield my kids: (1-t1){[1+r(1-t2)(1-t3)]^T}(1-t4).

For my illustrative calculations, let me take r to be 10 percent and my remaining life expectancy T to be 35 years.

If there were no taxes, so t1=t2=t3=t4=0, then $1 earned today would yield my kids $28.

That is simply the miracle of compounding.

Under the McCain plan, t1=.35, t2=.25, t3=.15, and t4=.15. In this case, a dollar earned today yields

Under the Obama plan, t1=.43, t2=.35, t3=.2, and t4=.45. In this case, a dollar earned today yields my kids $1.85. That is, Obama’s proposed tax hikes reduce my incentive to work by 62 percent compared to the McCain plan and by 93 percent compared to the no-tax scenario. In a sense, putting the various pieces of the tax system together, I would be facing a marginal tax rate of 93 percent.

The bottom line: If you are one of those people out there trying to induce me to do some work for you, there is a good chance I will turn you down. And the likelihood will go up after President Obama puts his tax plan in place.

I expect to spend more time playing with my kids. They will be poorer when they grow up, but perhaps they will have a few more happy memories.

The article reproduced with the kind permission of Gregory Mankiw, and can be found on http://gregmankiw.blogspot. com/2008/10/blog-post.htm

40 Nottingham Economic Review

Book Reviews Ascent of Money By Niall Ferguson

The Undercover Economist By Tim Harford

One undeniable effect of the credit crunch is that it has brought financial matters to the fore. Never before has the financial system received so much coverage.

A mixture of the extraordinary events of the banking crisis, widespread fears of job losses, negative equity and a spiralling national debt have put money at the forefront of many people’s minds. As a result, now seems an interesting time to read a book with such a rather optimistic title. However, Ferguson’s biography of finance is written with real clarity and provides a useful insight into the current financial crisis.

Economics is not a discipline held in high popular regard. Robert Carlyle described it as the “dismal science”. It is widely viewed as the abstract, technical study of subjects such as interest rates, budget deficits and credit markets using incomprehensible graphs. This image was reinforced when Gordon Brown was heard referring to “post-neoclassical endogenous growth theory”. Tim Harford challenges this perception in his 2005 bestseller The Undercover Economist, which seeks to demystify economics and bring it to a wider audience.

The book follows the “rise of money” from the use of clay tokens in Mesopotamia 5,000 years ago to the Roman denarius; from the development of the powerful Medici family of bankers in Northern Italy to the first stock exchange in Amsterdam; from the infamous Rothschilds to Long Term Capital Management and finance as we currently know it. Ferguson provides an array of interesting information such as the control of a Scot, John Law, over France in the 18th century through his role as “General of Finances” which enabled him to engineer the Mississippi bubble ultimately causing large damage to the French economy. Beyond this, Ferguson contends that the rise and development of money have been pivotal to the development of modern societies. Furthermore, he stresses that ‘‘ Money is not metal. It is trust in scribed” and notes that this concept is even more important now, given how little of the total money supply is represented by physical notes and coins.

The book applies economic reasoning to a variety of situations, ranging from how supermarkets price discriminate to why it is difficult to buy a good second-hand car. Even the apparent madness of the stock market, it seems, cannot defy an economist’s explanation. Most of the situations studied are microeconomic, and it is here that Harford’s analysis is most informative and interesting. In the chapter on second-hand cars, for instance, he shows how asymmetric information can destroy a market. In another chapter, Harford shows how sellers, guided by the tools of game theory, attempt to design auctions that will extract the maximum price possible from bidders.

Overall, Ferguson provides an excellent broad history of the financial system, making many insightful comments on a range of issues and demonstrating an ability to connect the history to the current situation. And while not everyone will agree with his conclusion that “financial markets are like the mirror of mankind, revealing every hour of every working day the way we value ourselves and the resources of the world around us. It is not the fault of the mirror if it reflects our blemishes as clearly as our beauty” - his book certainly makes an interesting read.

Reviewed By Matthew Stonebridge

The book’s main merits are its readability and focus.

The discussions are engaging and non-technical, yet surprisingly thorough and balanced for an introductory popular reading book. I have even found myself referring back to them when economics textbooks have become too tedious. The focus on issues of everyday life makes the book relevant and thoughtprovoking: it seems no wonder that central planning failed when you realise how staggeringly complex the economy is. This book can therefore be used as both an enlightening introduction to economics for the non-specialist, but also as an excellent read for the well-schooled economist. Harford has made the dismal science accessible without a single graph or equation.

Reviewed By William Cole

Nottingham Economic Review 41

Internships

By Victoria Leigh

It is often greatly encouraged throughout ones university experience to gain some type of work placement or summer internship; but just how important is it?

As a third year student studying International Economics, I was faced with this dilemma in my 2nd year of whether or not to apply for a summer internship.

I was fairly ignorant of the application processes involved, the deadlines of applying and what a summer internship in the areas such as financial services, banking, investment, accountancy and financial management might actually entail. It appeared to me that when I got back from my summer break, all of my economic colleagues were in the depth of the applying to several firms, attending careers events and going for CV interviews at the career development centre. I began to feel rather out of the loop. When I finally got my act together and started to research the advantages of gaining an internship, it was just too late. I ended up applying for only 2 internships, one at Ernst and Young and one for the Government Economic Service. I got through the initial stages of both application processes; I then got rejected at the second stage of sifting at the GES and failed to impress at my assessment day at Ernst and Young.

To answer my initial question, I asked some 3rd year Economic stu-

dents at Nottingham University to share some of their Internship experiences:

have accepted, deferring until 2010. Stephanie Belton

PwC, London, Banking and Capital Markets, 8 weeks, Competitive pay

JPMorgan, London, Equities, 11 weeks, Competitive pay

This summer I worked for PriceWaterhouseCoppers in one of their London offices doing Assurance work in the Banking and Capital Markets sector (B&CM).

The internship lasted eight weeks, the first of which was an induction week spent training together with all the PwC interns nationally. It was such a great week! Although not as generous as the Investment Bank’s or the Management Consultancy’s, my week’s pay was sufficient to pay rent for a shared house in London with a considerable amount left over.

During my time at PwC, I worked on three different projects. The most valuable of which was the three weeks I spent doing the half-year audit on Lloyds TSB’s accounts. I was in a team of about a dozen people, ranging from first years to partners, all working around the same table!

Towards the deadline, we were working really long hours - I was in the office past midnight most of the last week, but a mixture of a good team spirit and lots of takeaways kept up our moral!

I was (as were a large majority of the interns) offered a job, which I

--------------------

I did an 11 week internship at JPMorgan last summer. I worked in Aldermanbury which is just off of London Wall (near Moorgate in London).

I worked on the “Program Trading” desk within Equities.

The overall experience... the 1st week was spent training. Here all 150 interns were together and had some expert teaching from individuals high up in the business (many MDs) on how all the various product groups worked (equities, bonds, foreign exchange, credit default swaps etc).

We also went to Bloomberg for a training course and were given a lesson in using excel - all very helpful.

What is a normal day like? Get into work at about 6.45am to save down all the ETF files which were sent in from the big fund managers. Interns were provided with a Bloomberg login, and we were expected to log in every morning before the markets opened to find out what had happened in the Asian markets overnight and to give our boss a brief summary of what the main events were and how we could expect the European markets to respond.

42 Nottingham Economic Review

My main tasks were to put together a “Global ETF” database in excel where a user could track down any ETF traded (whether it be in the US, Europe, APAC).

This required extensive use of Bloomberg, close communication with the guys helping me out in the US (who already had a fairly similar product for the US ETFs) and also a lot of communication with the fund managers and exchanges. It was brilliant to get straight into a task where you were expected to show good leadership skills.

At JPM, you stay on your assigned desk for all 10 weeks (after a week of training) although for the first 6 weeks you rotate onto a new desk for Wednesday afternoons. This provided me with an opportunity to look into many other areas of the bank and one of my rotations (onto Foreign Exchange Trading) asked me to come back and work for them for a week at the end of the internship, which my boss allowed me to do. This was a fantastic experience, although having enjoyed working on my original desk so much, I decided to accept the full time offer which they presented me with on the final day of my internship!

I now fly out to New York for an 8-week (top level) training course at the end of August. Ben Sparks -------------------KPMG, Nottingham, Audit, 6 weeks, Competitive pay I completed an internship this

summer at KPMG in their audit department, here in Nottingham.

I was an audit temp for six weeks during which I learnt so much more about what life as an auditor is like at KPMG. I worked on a variety of clients including: S&A Foods (they make ready meals), Hillarys Blinds and Thyssen (they make elevators).

At the clients I spent most of my time dealing with the less riskier sections of the audit such as Cash and Payroll. It was an excellent experience which led to a graduate job offer that I have now accepted. Joseph Parkinson -------------------Ernst and Young, Birmingham, Corporate Tax, 6 weeks, Around £300/per week I’m a 3rd year economics student and had a 6 week internship with Ernst and Young this summer.

I worked in their Birmingham office, in the Corporate Tax department as an Assistant Tax Advisor; the pay was around £300 a week.

The first week was an induction week where everyone doing summer internships outside of London were put up in a hotel by the company in Birmingham; the week was a general introduction to the firm. It was really good socially, and the firm paid for social activities during the week such as go-karting, free bars as well on most nights.

The other thing which stood out in my mind was the “buddy” sys-

tem they had. This is an informal, generally young (24ish) person from the firm who you can ask all the silly questions and who you can have a bit of a laugh with, as opposed to the councilor who was more formal.

I had a great time and received an offer for 2010 (I asked to defer a year so this was what exactly what I wanted) and I have in due course accepted it. Harry Knight -------------------PwC, Manchester, Assurance, 8 weeks, Competitive pay For the first week of the internship, all of the interns from around the country were brought together at a Victorian estate where we were treated to fantastic dining, accommodation and company. Here PwC employees taught us the basics of what we would be doing, but at the same time the emphasis was on having fun and meeting new people.

For the next 7 weeks, I was based in the audit side of things. This meant that I was working at the client site and dealing with clients face to face. I was given a lot of responsibility from the start; I was allocated part of the files to analyse and had to speak to the client about any discrepancies.

The job varies from day to day, client to client. There are never two days the same, because on each job you work in a different location, with a different mix of colleagues and on a different part of the client file. The clients you will work on will range from a small business to a worldwide

Nottingham Economic Review 43

Plc. One tip I would give is that for this job, due to the nature of being based at the client site rather than the office, it is very handy to be able to drive. This is something I cannot yet do, and trust me - public transport is not the way to travel.

weeks (RBS), 2 weeks (SCB), Pay unknown I did a couple of internships this summer and here is a bit of an insight for you -

I was offered a job at the end of the internship, I have chosen to accept this offer but will be deferring it until September 2010 in order to travel (and learn to drive).I would recommend an internship with PwC to everybody. It was hard work, but I found that I learnt a lot and I can’t wait to be back there. Lysia Evans

This summer I was lucky enough to experience two internships, firstly with RBS Global Banking and Markets andthen with Standard Chartered Bank. I spent 10 weeks with RBS in Debt Capital Markets which was an exhilarating experience given the market turmoil which continues as I write this today. My principle desk was in Capital Markets, but I also rotated spending time with the sales and trading desks. Each week, we had an intern event with one of the various divisions in RBS which was a great opportunity to find out more about the different areas within the bank.

The 10 weeks flew by and I learnt a great deal not only about my division, but also about the firm as a whole which led to me accepting my job offer. I also spent a couple of weeks in M&A at SCB which opened my eyes to another division within Investment Banking as well as the culture of another prominent financial firm. I also rotated within SCB, and the two week period gave me a fantastic further insight to life in the City. I look forward to returning next year when I graduate. Sam Boughton

--------------------

--------------------

RBS Global Banking and Markets & Standard Chartered Bank, Unknown location, Debt Capital Markets (RBS) , Mergers and Acquisi-

In hindsight, applying for only 2 internships was a poor effort; I failed to maximize my chances of gaining an internship and the one interview I did get, I failed to

The main thing to say about PwC is that their employees are fantastic. They were so helpful and patient during my internship, which meant that although the pressure was sometimes on me, it never felt like I had to struggle along by myself. This meant that the working environment I was in was brilliant. The social side to the job is great, PwC arrange many activities, e.g. group socials, business integration days – some PwC employees and I took part in a scavenger hunt around Manchester with a mix of people from some of the city’s top law firms – and on the last Friday of every month they have end of month drinks at one of the bars in town.

prepare adequately. My excuses for my lack of planning was that I found the application processes extremely time consuming and was unable to organize my time efficiently between studying and filling out the necessary forms (I started about 6 applications but only finished 2!)

Recently, as if I was completely unaware, I have been told by several wise individuals that there “couldn’t be a worse time to graduate with an economics degree.” I wish I had a witty retort, but no. All graduates entering the labour force at this economic unstable time are likely to struggle, more than usual, to secure a job; especially those studying finance or economic degrees and who wish to pursue careers in these fields. It is a probable fact that there has been no other time, that gaining work experience in the relevant fields has been more important. Those graduating with a 1st degree in Economics will be looked upon by prospective employers favourably, but it is those students who had the motivation and drive to secure an internship in their second year that will be getting the job offers, (and that’s if they have not secured a job already!).

www.courses-careers.com/graduate-courses

TEACHING

Nottingham School of Economics MSc Courses in Economics The School offers nine MSc courses providing advanced level training in core areas of theoretical and quantitative economics plus an opportunity to specialise. Specific MSc courses include Behavioural Economics, International Economics, Development Economics, Econometrics and Financial Economics, often linked to one of the six Research Centres in the School. The School also offers a Masters in International Economics with Chinese.

The School of Economics at the University of Nottingham is one of Britain’s leading Economics departments, dedicated to excellence in teaching and research (it was ranked third in the UK for the quality and volume of its research by the 2008 Research Assessment Exercise and achieved the maximum score of 24 in the last teaching quality assessment in 2001). The School has over 50 members of academic staff covering all areas of economics.

Taught Postgraduate Courses The School has an extensive Masters programme to appeal to different types of student with interests in different areas of Economics.

There are typically about 100 Masters students, about 30% are British, 20% from other EU countries and 50% international, most from Asia and Africa. All modules are taught by staff with research interests in the particular area.

Research Activity The major areas of research interest are associated with six research centres, and reflected in specialist MSc courses: • The Leverhulme Centre for Research on Globalisation and Economic Policy (GEP) is the focus for work on international trade and labour markets.

There are ten MSc courses – • Economics • Behavioural Economics • International Economics • Development Economics • Financial Economics • Econometrics • Applied Economics • Economic Development and Policy Analysis • Applied Economics and Financial Economics • International Economics with Chinese

• The Centre for Research in Economic Development and International Trade (CREDIT) works on developing countries, especially on aid, trade and poverty.

• The Centre for Decision Research and Experimental Economics (CeDEx) undertakes work in behavioural, decision and experimental economics.

• Centre for Finance and Credit Modelling (CFCM) for research on consumer behaviour and financial economics.

Postgraduate Research and Facilities The School has over 60 full-time postgraduate research students, and offers a number of scholarships each year (many linked to one of the research centres). All research students are provided with their own desk and high quality computer, in shared offices.

• Centre for Policy Evaluation (CPE) for analysis and microsimulation methods in public policy.

• Granger Centre for Time Series Econometrics with a focus theoretical methods and developments.

Further Information contact: sarah.nolan@nottingham.ac.uk (quoting MBEGC)

www.nottingham.ac.uk/economics/ps/postgraduate/

In association with

Graduate Admissions, School of Economics, University of Nottingham, Nottingham NG7 2RD | Phone - +44 (0)115 951 5250 | Fax +44 (0)115 951 4159

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