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BUSINESS Sunday, 12 May, 2013
Courtesy BloomBerg
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S every leading candidate has proudly noted, tomorrow’s parliamentary elections in will mark the first civilian transfer of power in that country’s 66-year history. To ensure it’s not the last, the winner should turn to an unlikely ally: India. Whichever party takes power in Islamabad will almost certainly have to cobble together a coalition to rule. The new government will inherit a looming , hours-long blackouts that have provoked street riots, and overlapping insurgencies and sectarian wars that have claimed thousands of lives. Though army chief Ashfaq Parvez Kayani has resisted the temptation to restore mili-
tary rule, he will retire soon. His successors may not be so restrained. None of Pakistan’s ills has a quick fix. But one key decision would immediately help jump-start the economy, lower regional tensions and reduce the army’s influence in politics: lifting long-standing
barriers to trade with . The benefits of a border more open to commerce are indisputable. Trade between India and Pakistan — currently less than $3 billion annually — may grow tenfold or more if existing restrictions were to be lifted, according to an April produced by
the Woodrow Wilson International Center for Scholars. Millions in revenue are currently lost via smuggling and informal trade. Some estimates put the potential for Indian investment in Pakistan at $50 billion. FrAught Border Equally important, a more open border would be a less fraught one. The army’s obsession with the “Indian threat” drives Pakistan’s most dangerous policies. It fuels the world’s fastest-growing and diverts the lion’s share of the country’s limited resources to defense. It has led the military to lend unofficial support to anti-India jihadist groups such as Lashkar-e-Taiba, which carried out the deadly 2008 terrorist attack in Mumbai. Pakistan has also backed Taliban factions in as a means of countering Indian influence there. A remarkable consensus in favor of freer trade with Pakistan’s archrival has now developed across the political spectrum. In November 2011, the government pledged to grant its larger neighbor “mostfavored nation” status — a decision that could not have been made without the support of the military. (India afforded Pakistan the same status in 1996.) All of Pakistan’s mainstream parties have endorsed an economic rapprochement. The front-runner — Punjabi magnate and former Prime Minister — has made increased trade and economic progress central to his appeal to voters. inForMAl BArriers Pakistan has yet to follow through on its 2011 pledge. Now is the time to do so.
The next government should immediately trim back the list of that still cannot be imported. Some of these restrictions are meant to defend Pakistani farmers, say, from cheaper Indian crops. But mostly they protect well-connected lobbies: More than 500 of the banned goods affect the automobile, iron and steel industries. India needs to do what it can to help the next Pakistani government. Though India’s list of banned imports is much smaller, other informal barriers still impede Pakistani exports. It takes six months for Pakistani companies to get approval to ship cement to India, for instance. The government in should strive to eliminate such roadblocks and to improve transport and logistics links across the border. Better trade facilities alone could pump up Pakistan’s exports to India by 200 percent. Both sides need to act quickly, before another terrorist attack or domestic political controversy derails the current momentum. India’s next government could well be led by the Hindu nationalist , whose base remains deeply skeptical of Pakistan’s trustworthiness. ( must be held before the end of next May.) The impending U.S. pullout could turn Afghanistan into another shadow battleground for the South Asian rivals, much like the disputed territory of Kashmir. Delay has allowed past opportunities for reconciliation to slip away. Neither Pakistan nor India — whose own economy is slowing dramatically — can afford to let this happen again.
US should export natural gas, not coal Courtesy BloomBerg President ’s suggestion last weekend that greater U.S. exports of liquefied natural gas is a welcome sign. More exports would spur more domestic production and help balance U.S. trade. LNG exports could also help counter the unsettling increase in American to. In 2012, the U.S. sent about 66.4 million short tons (60.2 million metric tons) of coal across the Atlantic, 23 percent more than the year before. Exporting coal works against the progress the U.S. has made in lowering its own greenhouse-gas emissions by replacing coal power with cleaner-burning natural gas. In Europe and Asia, where natural gas sells for $10 to $16 per million British thermal units — three to four times the U.S. price — demand is high. Imports from the U.S. could also give European countries greater power to bargain on prices with ’s OAO Gazprom, now a dominant supplier of natural gas. All that’s missing are the U.S. facilities to liquefy gas for export. Opposition to building these terminals comes mainly from U.S. manufacturing companies that domestic natural-gas prices go up as some of the supply is sold overseas. Dow Chemical Co., Alcoa Inc. and other industrial-energy users argue that by raising domestic prices, exports would slow the U.S. manufacturing renaissance and hobble economic growth. Paul Cicio, president of the Washingtonbased trade group Industrial Energy Consumers of America, has delaying approvals for some new export terminals to avoid a domestic price shock.
Individual consumers, too, have reason to wince at the prospect of electricity and natural-gas bills going up because of greater exports. More Production Yet any increase in prices would be temporary if gas production rises, too. The low U.S. prices of the past year and a half (last June, they were less than $2.50 per million Btu, and have since risen to about $4) led many energy companies to stop drilling. With more demand from exports, more production is to be expected. As much as 80 percent of foreign demand for American natural gas could be met by new drilling, suggest. In for the U.S. Energy Department, NERA Economic Consulting found — as other have before — that exports would bring a net economic benefit by helping to balance U.S. trade. The increase in gross domestic product may amount to $20 billion, or possibly as much as $47 billion if very large amounts of LNG — 12 billion cubic feet per day — are exported, the NERA study found. Delaying or restricting export terminal permits would not only negate that benefit. It would also put the U.S. in a new trade quandary: Because there is no national-security reason to limit exports of the U.S.’s new surplus of natural gas, doing so would amount to unfair competition. As Michael Levi of the Council on Foreign Relations has pointed out, the World Trade Organization might see limits on U.S. natural-gas exports as no less unfair than are ’s restrictions on exports of rare-earth elements. The U.S., with its trade deficit, shouldn’t see its booming oil and gas production
as a reason to secede from global energy markets. Obama seems to agree; in Costa Rica on May 4, he said he envisions the U.S. becoming a net natural-gas exporter by 2020. If so, he has some work to do converting words into action. Last year, the Energy Department gave a permit to one facility in Louisiana to sell LNG to countries without trade agreements
with the U.S. — including sales to and European nations. Nineteen more applications are pending. Given the expense and time involved in building these plants — several billion dollars each and at least four years — only a few can be expected to come to fruition. A recent Moody’s Investors Service report predicted that if three more plants — in Texas, Maryland and — are soon ap-
proved, as expected, it will still take until 2020 for the U.S. to export significant quantities of natural gas. On May 4, Obama said, “I’ve got to make an executive decision broadly about whether or not we export liquefied natural gas at all.” Though the decision has yet to be made, the right one is clear, and the approvals of the new plants should be made without delay.
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Long-term unempLoyment is turning jobLess into pariahs Courtesy BloomBerg
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ONG-TERM unemployment is one of the most vexing problems the U.S. faces, and today’s jobs report shows all-too-meager progress in fixing it. The U.S. created 165,000 new jobs in April, pushing down the to 7.5 percent from March’s 7.6 percent. But as of the end of April, 4.4 million Americans, or 37 percent of the unemployed, had been without a job for 27 weeks or longer, barely better than March’s 39 percent. The U.S. can’t afford to more than 4 million people who would like to work but haven’t for more than six months. Long-term joblessness peaked in April 2010 at 6.7 million, so the picture might seem to be improving. Hidden within that number is this troubling fact: The average unemployed person has been out of work for . That’s not much better than the December 2011 duration of 40.7 weeks, which was the longest since World War II. Long-term unemployment at the start of the recession in December 2007 was 1.3 million people, and the average duration was 16.6 weeks. Terrible things happen to people when they are out of work for long periods, numerous show. Beyond a sharp drop in income, long-term unemployment is associated with higher rates of suicide, cancer (especially among men) and divorce. The children of the long-term unemployed also show an increased probability of having to in school. Finding cAuses There is less agreement on why so many people have been out of work for so long. Democrats generally point to the anemic recovery, in which weak demand for goods and services results in less hiring. The cyclical nature of unemployment, they say, can be addressed with more government stimulus. Republicans tend to focus more on structural problems, in which the education and experience levels of the unemployed don’t match what employers say they want in job candidates. More , they say, would be a waste of money because it won’t close the skills gap. Some Republicans also think that extended unemployment benefits are a disincentive to job hunters. Recently, though, in both camps have come to agree that something bigger — and more insidious — is at work: Unemployment causes social scarring. In other words, the stigma of long-term joblessness is, by itself, causing persistent joblessness. This
is true whether you have a college degree or a high-school diploma, whether you are middle-aged or 20-something. It’s also true whether your collar is blue or white. When at the sent fake resumes to employers with , the length of time candidates had been out of work mattered more than their job experience in determining who got called in for an interview. Applicants who had only recently lost a job but had no relevant experience were far more likely to be called than those with many years of experience who had been out of work a long time. So
much for the skills gap. One way to thwart such bias is to make sure the unemployed understand that their chances of getting work improve if they are in a job-training program or working at least part-time. Not is paramount. This is where government can help. Unfortunately, the U.S.’s job training effort is a mishmash of 47 programs spread across nine agencies. At $18 billion a year, it’s also costly. The effectiveness of those programs is hard to quantify because of poor data collection and management oversight, the Government Ac-
countability Office Only five of the 47 programs could demonstrate whether a positive outcome — meaning a trainee got a job, for example, or obtained a new credential — could be attributed to the program. About half the programs hadn’t had a performance review since 2004. Finding solutions Finding out what works is crucial. Other solutions should be tried, including giving preference to the long-term unemployed when filling federal government jobs. In addition, President should ask Con-
gress to approve tax breaks for companies that hire the long-term unemployed. Work-share programs, in which employees accept reduced hours when demand is slack in exchange for to compensate for lost wages, has worked in other countries. The U.S. should also experiment with state-based clearinghouses that connect employers with job-seekers in other states and subsidize the moving expenses. The U.S. is in dire danger of having a permanent class of long-term unemployed. It has to do better.
Recovery in Germany is faster than elsewhere
Floyd Norris The New York Times
THE recovery from the Great Recession has been slow, or even nonexistent, in most
of the developed world. But not in gerMAny. In Germany, alone among the 27 members of the European Union, unemployment rates for both older and younger workers
are now lower than they were when the United States slipped into a recession at the end of 2007. In the rest of the euro zone, the unemployment rate for workers ages 25 to 74 has more than doubled over that period, to 12.8 percent. The rate for younger workers is more than 30 percent, on average — and above 50 percent in Spain and Greece. In Germany, it is less than 8 percent. The accompanying charts show how unemployment rates for both groups of workers have changed in each of the 17 countries in the euro zone, as well as for Britain and the United States. In terms of adult unemployment rates, the most recent figures for the United States (6.1 percent) and Britain (5.7 percent) are not that far from Germany’s figure of 5.1 percent. The major difference is in youth unemployment, which is above 16 percent in the United States and above 20 percent in Britain. What accounts for that difference? Some of the credit goes to Germany’s education and employment system for young workers, and to German policies that en-
courage employers facing downturns to reduce working hours rather than fire workers. In Germany, students are separated into different career tracks, with many put into a system that leads to apprenticeships rather than to college degrees. But that is not the entire story. The euro zone’s troubles have helped Germany’s export-oriented economy. The weak euro has made Germany’s exports more competitive against those of countries with which it competes, most notably the United States and Japan. Since the end of 2007, the euro is down about 10 percent against the dollar and about 20 percent against the yen. Were the euro zone to break up, there is little question that the value of a new German mark would rise sharply, while the currencies of many other members of the zone would fall relative both to the mark and other international currencies. That would depress German exports. The charts reflecting Germany’s unemployment rates, if they were the only evidence available on world economic trends, would seem to indicate there was a mild downturn in 2009 that soon ended, with the
economy recovering the next year. The United States charts would indicate a more severe downturn, followed by a recovery that began in 2010 and may now be gathering strength. In Britain, there has been much less progress since unemployment peaked in 2011. In the 16 other euro zone countries as a group, the chart indicates a deep recession that leveled off in 2010 and 2011 but has since gotten much worse — particularly for young workers. “We will have to speed up in fighting youth unemployment,” the German finance minister, Wolfgang Schäuble, said at a conference this week, “because otherwise we will lose the support, in a democratic way, in some populations of the European Union.” If that is to happen, it may require a change of course for Europe, where it appears the rich will continue to get richer. The European Commission’s latest economic forecast, released last week, predicted declining unemployment in Germany this year and next, but said joblessness was likely to continue to climb in France, Italy and Spain.