Tag: Finance and economics

SCIENCE is supposed to be the ultimate meritocracy. People might sneer at a thinker’s background or training, but there can be no arguing with a powerful new idea which explains the world better than its rivals do. In reality, academia is cluttered with odd cultures and practices which serve as barriers to entry—and, at times, as cover for discrimination. In economics, men receive tenure at a rate 12 percentage points higher than women do, after controlling for family circumstances and publication records. Women who clear that hurdle are about half as likely as men to be named full professor within seven years. Just 4% of doctoral degrees in economics were awarded to African-Americans in 2011 (compared with about 8% across all academic fields). Something is broken within the market for economists, and the profession has moved only belatedly and partially to address it. A lack of inclusivity is not simply a problem in itself but a contributor to other troubles within the field.

Though women in…Continue reading

FOR a country that is hugely proud of its high-flying tech firms, China has a funny way of showing it. None of its internet giants—not Alibaba, nor Tencent, nor Baidu—is listed on the domestic stockmarket. Rules that were supposed to help investors have had the perverse effect of forcing firms to go public abroad, mostly in America. The result is that most people in China cannot buy stocks in the country’s biggest, most innovative companies. But change is finally at hand. In the coming weeks China is expected to start letting these firms list some of their shares at home. If handled well—a big if—it would be a boon for the young stockmarket.

China’s tech darlings initially went abroad because it was their only real option. Chinese regulations forbid dual-class shares, a structure favoured by tech entrepreneurs because it means they can raise capital while retaining control. Companies must also have three years of profits before going public. This is a stumbling block for tech…Continue reading

More like these, please

IN THE spring of 1991, Indian officials desperate to fend off a balance-of-payments crunch secretly airlifted 20 tonnes of gold confiscated from smugglers into the vaults of UBS, a Swiss bank. That crisis prompted liberalising reforms that helped integrate India into the global economy. By 2013 India’s exports as a percentage of GDP had nearly quadrupled, to over 25%, not far from the global average. But an exporting funk since then has pushed the figure to its lowest level in 14 years. Paired with a rise in imports, the trend has revived questions about the competitiveness of Indian firms—if not the government’s ability to finance a growing current-account deficit.

A repeat of the 1991 drama is not in the offing. India’s economy today is growing at a world-beating pace. Its central bank holds enough foreign reserves to pay for nearly a year’s worth of imports. Foreign investors are on hand to finance both government and corporate…Continue reading

ON MAY 8th, as the peso continued to tumble, Mauricio Macri, Argentina’s president, addressed his nation on television. His government had opened negotiations with the IMF for a credit line in order to “avoid a crisis like those we have faced before in our history”. That steadied the peso. But it also brought back painful memories for Argentines, highlighted doubts about Mr Macri’s approach to mending Argentina’s economy and cast a shadow over the reformist president’s future.

Argentines have bitter memories of the last time their government sought the IMF’s help. Many blame the fund for imposing austerity in return for loans and then pulling the plug in 2001, tipping their country into a devastating $82bn sovereign default. It was followed by widespread unemployment, a sharp rise in poverty and the corralito, in which the government froze bank accounts for a year to halt a run. Argentina’s economy had been battered by the lunatic policies of a succession of…Continue reading

START with the good news from the trade negotiations between China and America. After weeks of threatening tariffs and counter-tariffs, representatives from the world’s two biggest economies are at last talking. Over two days of meetings in Beijing, which ended on May 4th, Chinese and American officials laid out their grievances and their demands. That, unfortunately, is where the good news ends. The positions that both sides took were so extreme and contradictory that compromise appears a remote prospect. What, until now, has largely been a war of words could easily careen into a full-fledged trade war.

Publicly, the two countries put a positive gloss on the outcome. Xinhua, China’s official news agency, described the talks as candid and constructive. It noted that they had agreed on some issues and recognised their “considerable differences” on others. On the evening the talks closed, President Donald Trump tweeted a sentiment that, by his standards, was sympathetic: “it is…Continue reading

THE message to markets could not have been clearer. On the morning of May 4th, following a run on the peso, Argentina’s central bank raised interest rates by 6.75 percentage points, its third hike in a week. The interest rate now stands at 40%, up from 27.25% on April 27th.

Across town Nicolás Dujovne, the treasury minister, told reporters that Argentina’s budget deficit, which was 3.9% in 2017, would be brought down to 2.7% this year, rather than the previously stated target of 3.2%. After the announcements the peso strengthened by nearly 5% against the dollar.

The combined measures slammed the brakes on what was looking like the start of an escalating crisis. Argentina’s peso had fallen by a fifth against the dollar since the beginning of the year, making it the worst-performing emerging-market currency. But the measures also harm the prospects of growth—and of Mauricio Macri, the president.

The problems began in January, following the central bank’s…Continue reading

SWEEP past the cash machines at the Sumitomo Mitsui bank in Tokyo’s Sangenjaya shopping district and instead enjoy the personal service. Uniformed concierges welcome every customer with a bow. A dozen tellers are watched over by a manager who leaps up to meet elderly patrons. Transactions are concluded with carved signature seals stamped on paper contracts, and another round of bows.

Japan’s high-street banks are not just overstaffed. They are also overbranched. According to the World Bank, high-income countries have on average 17.3 commercial-bank branches per 100,000 adults. Japan has 34.1. If you include branches of the post office, a popular place for people to save, the Bank of Japan (BoJ) reckons the country is the world’s most overbanked.

Retail banks across most rich countries struggled to make money after the financial crisis. But Japan has been close to or in deflation for most of the past two decades. The result, according to a report last year by the BoJ, is…Continue reading

IN 2013 Codere, a Spanish gaming firm, owed money it could not repay. Its bonds were trading at just over half face value. Blackstone, a private-equity firm, offered it a cheap $100m loan. But there was a catch. Blackstone had bought credit derivatives on Codere’s debt that would pay out about €14m ($19m) if Codere missed a bond payment. So Codere delayed a payment by a couple of days to prompt a “technical default”. Blackstone got its payout; Codere got its loan and stayed afloat.

On the satirical “Daily Show”, Jon Stewart, the then host, likened the scheme to the insurance fraud in “Goodfellas”, in which mobsters insure a restaurant before blowing it up. But that missed an important point. Blackstone did not blow Codere up—quite the opposite. As it said at the time, it “provided capital when no one else would, which allowed the company to live and fight another day”. The investors who sold Blackstone credit-derivative contracts had in effect bet that Codere would…Continue reading

Blue-skies regulation

AS BRITAIN’S prime minister between 2010 and 2016, David Cameron championed financial transparency, targeting anonymous shell companies as the getaway cars of tax-evaders and money-launderers. On his watch Britain became the first G20 country to commit to a publicly accessible register of company owners. Mr Cameron tried to make British territories with big offshore financial centres do likewise. The arm-twisting stopped when he stepped down in 2016. But campaigners, led in Parliament by Labour’s Margaret Hodge, vowed to keep going. This week their persistence paid off.

Ms Hodge and Andrew Mitchell, a Conservative MP, had tabled an amendment to an anti-money-laundering bill, which was designed to force “overseas territories” in the Caribbean and Atlantic, among them the British Virgin Islands (BVI), Bermuda and the Cayman Islands, to set up public registers, if they had not already done so, by the end of 2020. Faced with defeat in…Continue reading

A CYNIC, says one of Oscar Wilde’s characters, is a man who knows the price of everything and the value of nothing. But, as philosophers have long known, assigning values to things or situations is fraught. Like the cynic, economists often assume that prices are all anyone needs to know. This biases many of their conclusions, and limits their relevance to some of the most serious issues facing humanity.

The problem of value has lurked in the background ever since the dismal science’s origins. Around the time Adam Smith published his “Wealth of Nations”, Jeremy Bentham laid out the basis of a utilitarian approach, in which “it is the greatest happiness of the greatest number that is the measure of right and wrong”. In the late 19th century Alfred Marshall declared the correct focus of economics to be the “attainment and…use of material requisites of well-being”. Or, as his student, Arthur Pigou, put it, “that part of social welfare that can be brought directly or indirectly into…Continue reading