by Alex Evans | Nov 10, 2007 | Influence and networks, UK
This week’s Spectator leads with a full scale assault on FCO minister and former UN Deputy Secretary General Mark Malloch Brown (also picked up in brief by the Telegraph and the Times). The article dredges up various old canards that aren’t exactly news – Malloch Brown’s friendship with George Soros, the UN oil for food scandal, Malloch Brown’s controversial interview with the Telegraph over the summer – but its chief revelation is that since becoming a Minister, Malloch Brown has been living in a grace and favour flat in Admiralty Arch.
Malloch Brown, astonishingly, has secured one of the three government flats in Admiralty House, where John Prescott used to live. In so doing, this newcomer has leapfrogged 20 full members of the Cabinet who notionally enjoy seniority over him … The Treasury’s National Assets Register values the Admiralty House accommodation at £7.76 million and as worth more than the flats above No. 10 and 11 Downing Street. It is, indeed, fit for a Lord, and one with tastes which are the opposite of frugal. A parliamentary answer earlier this autumn revealed that ‘the floor area of the ministerial residences in Admiralty House is 859 square metres.’ In 2006–07 the Deputy Prime Minister’s Office paid the Cabinet Office no less than £173,000 for John Prescott’s living in one of the flats there.
Er… is that it? For one thing, the charge that Malloch Brown has “leapfrogged 20 full members of the Cabinet” wilts somewhat given that the article admits that “the other two flats in the building are empty, and another government grace-and-favour residence in South Eaton Place, SW1, is being sold off”. Not exactly a queue stretching around the block, then. Besides, is it so unusual for a large organisation to provide relocation assistance to a senior executive joining from overseas? And if not, then what on earth would the cost case be for expending taxpayers’ money on renting an apartment when three apartments that the Government already owns are vacant?
Of course, whether you’re a defender or a detractor of Malloch Brown’s, the flat is no more than a tactical football. The real story here is the resurrection of the unilateralist right’s long-standing vendetta against Malloch Brown, and its migration to this side of the Atlantic. One of the authors of the piece, Claudia Rosett, has long enjoyed attacking not only Malloch Brown but indeed anything to do with the UN, as her blog confirms. Not one, not two, but all of the posts on it are attacks on the United Nations; so this December’s UN climate summit, for instance, becomes in Rosett’s view a “UN climate-crowd pajama party on Bali” at which cocktails begin at 3pm.
What is surprising about the article is to see that the other author of the piece is James Forsyth, the Spectator’s engaging and thoughtful web editor. Forsyth is on the right, to be sure – he’s a climate change sceptic, for instance – but his arguments are usually well thought-through, capable of understanding the opposite view, and generally a very long way from Rosett’s obsessive fulminations. His most recent blog post on the Spectator site, for example – which discusses Deroy Murdock’s defence of waterboarding in the National Review, which David discussed here on GlobalDashboard earlier this week – argues that
Some on the right are so determined to always take the toughest position possible on any war on terror question that they sound like a Stephen Colbert parody of themselves.
Swap “the United Nations and multilateralism” for “any war on terror question” and Forsyth might as well be talking about Rosett. So why the joint article? For what it’s worth, my guess is that Forsyth was simply told to write it with Rosett by Matthew d’Ancona, the Spectator’s editor, who’s been after Malloch Brown’s scalp from the start; way back on the 29th June, before Malloch Brown’s interview with the Telegraph had been published, d’Ancona was already calling it a “dreadful appointment”.
What this is really about, one suspects, is Malloch Brown’s opposition to the war in Iraq and his criticism of the Bush Administration. Fair enough. But shall we all stop pretending that this is about a flat, then?
by Alex Evans | Nov 7, 2007 | Global system
Time to take stock of the credit crunch. Nouriel Roubini, a professor of economics and international business at NYU’s Stern School of Business, is decidedly downbeat:
It is now clear that the delusional hope that the severe credit and liquidity crunch that hit US and global financial markets would ease has been shattered by the events of the last few weeks. This credit crunch is getting much worse and its financial and real fallout will be severe.
And, he goes on, we need to stop calling this a subprime crisis. It’s far broader than that: not only has the contagion sread to near-prime and prime mortgages, it’s also well advanced into subprime and near-prime credit cards and car loans, and heading off into broader pastures still. “Every corner of the securitization world is now under severe stress, including so called highly rated and “safe” (AAA and AA) securities.”
And there appears to be the potential for it all to get a lot worse on November 15th, when a new accounting standard, FASB 157, comes into effect. FASB 157 is all about the valuation of illiquid assets – i.e. those assets where there isn’t necessarily a ready buyer and hence the asset is less readily convertible into cash. What it says, essentially, is that financial institutions will be much more limited in their ability to put these ‘illiquid’ assets into so-called “level 3” securities – a category of securities where the lack of market prices allows banks to use highly dubious models to price the securities instead. In English – until now, banks have basically been able to make up whatever estimate they like for the value of illiquid assets. And now that party looks set to come to an end.
Quite how bumpy a hangover there might be is illustrated by some back of an envelope calculations provided on Roubini’s blog, which look at various financial institutions and divide their level 3 assets – the ones vulnerable to this new valuation standard – by their overall equity capital base. As one of Roubini’s contributors puts it, “this will give us a better idea as to which of them may really remain solvent at the end of the day”.
Start then with Merrill Lynch, which has had to write down $7.9 billion of debt and seen the loss of its CEO, Stan O’Neal. Here, the totals were $16 billion in level 3 assets, and $42 billion in equity – a ratio, in other words, of 38%. Then look at Citigroup, which lost its CEO Chuck Prince on Sunday. Here, the figures are $135 billion in level 3 assets, against an equity base of $128 billion – a ratio of 105%. Ouch. But now look at a few other firms:
- Bear Stearns: $20 billion level 3, $13 billion equity base = 154%
- Lehman Brothers: $35 billion in level 3, $22 billion equity base = 159%
- Goldman Sachs: $72 billion in level 3, $39 billion equity base = 185%
- Morgan Stanley: $88 billion in level 3, $35 billion equity base = 251%
In other words, most of the media attention so far, and the two highest profile corporate scalps, are actually among the institutions with lowest exposure. Roubini’s summary: “Thus, you can expect that the ongoing credit crunch will get much worse in the year ahead and its fallout spread from the US to Europe and throughout Asia and the globe. Trillions of dollars of securitized assets that were sliced and diced in the long food chain of securitization are now at some risk. The first crisis of financial globalization and securitization is thus only at its beginning stage.”
It looks pretty likely that the current turmoil will lead on swiftly to a discussion about global financial regulation – this was apparently the clear consensus at a seminar on financial market turmoil held at the IMF / World Bank annual meetings last month. Commentators from the left like Will Hutton are already sharpening their claws (and, one suspects, rubbing their hands with glee) in preparation for such a discussion:
To get through this crisis, the American and British governments are going to have to think what hitherto has been unthinkable. Already the Americans are cutting interest rates careless of the inflationary consequences. Britain may have to follow suit. Both governments will have to devise new forms of regulation and control. Banks may have to be taken into public ownership.
Governments, though, so far seem reluctant to engage in such a debate. Here in the UK, Alistair Darling has admitted that the global banking industry is facing “an unparalleled period of financial uncertainty”, but he added that “I believe that we can get through that…our banking system is basically strong and…we have a very strong economy”. He must be hoping so.
by Alex Evans | Oct 30, 2007 | Climate and resource scarcity
Regular readers will know that we’ve been watching food prices rise steadily over the last few months with increasing concern – see the Scarcity category of posts for the backstory, and also this excellent in-depth analysis piece that the FT published last week. Today, the Food and Agriculture Organisation’s head, Jacques Diouf, had some blunt words in an interview with the FT:
“Many [countries] will have to take hard decisions because of the impact of food prices. In some countries there will be price controls, some will scrap import tariffs on food to minimise the impact of rising costs and others will increase food subsidies … If prices continue to rise, I would not be surprised if we began to see food riots,” Mr Diouf said, noting that in the past year, Mexico, Yemen and Burkina Faso had all witnessed social unrest over high food prices.”
Concern at FAO is clearly rising steadily; last week, the FT quoted the head of its grain trading division as saying that “the world is gradually losing the buffer that it used to have to protect against big swings [in the market]. There is a sense of panic.” But Diouf has a plan:
At the FAO’s annual meeting in Rome next month, Mr Diouf will propose a “high-level conference on world food security” that would aim to agree on measures to cool down rising food prices.
Interesting idea – and welcome to see Diouf seeking to raise the political temperature on food prices. But it still leaves the question: how much can an FAO summit on its own really achieve? Step back for a moment and consider what’s actually driving the increase in food prices. Here are Jenny Wiggins and Javier Blas last week in the big FT analysis piece mentioned earlier:
Some of the price rises are the result of temporary problems, such as drought in Australia, and diseases, such as blue-ear in Chinese pigs. But there is a more permanent increase in demand from Asia, as richer populations in China and India demand more protein, and from the biofuel industry, which is on course to consume about 30 per cent of the US corn crop in 2010 – developments that will underpin prices for the medium term. The FAO estimates that those structural new trends will help to push the cost of agricultural commodities in the next decade between 20 and 50 per cent above their last 10-year average.
Problem is, these challenges – droughts, affluence in China and India, demand for biofuels driven by high energy prices – lie well beyond FAO’s sphere of influence. Even if ministers attending the forthcoming FAO summit agreed to cap food costs, it’s highly unlikely they’d be able to deliver it, given the sprawl of drivers at play – just as environment ministers have a bad habit of signing glitzy treaty declarations that then (with a few exceptions like the Montreal Protocol on ozone depleting substances) comprehensively fall down during the implementation phase.
But none of this is to deny that there genuinely is a problem – and one that we can expect to get a lot worse once long term scarcity trends like climate change and water depletion get stirred into the mix. So what should Mr Diouf do?
Here’s a starter for ten. Instead of going all out for a meaningless summit declaration full of warm words, big targets, no new funds and no compliance mechanism, Diouf should start the slow, painstaking process of building shared awareness of the fact that we have a major geopolitical scarcity problem in the post. While the first stirrings of the problem are already clear, he should recognise that building consensus on the nature of the problem could take a decade or more; just consider the fact that eighteen years elapsed between the IPCC’s establishment in 1988 and 2006 when consensus on the reality of climate change really coalesced.
The first step, then, is simply to get the key agencies talking to each other. Anyone who’s spent any time working in international bureaucracies knows that the most fundamental fact about them is that they are organised in silos that don’t talk to each other. The problem is bad enough within individual agencies or government departments; it’s even more serious when two rival agencies work on the same area. But even that is still simple compared to trying to build a relationship between agencies that barely know each other exists.
That’s where we are today with the international agencies who will have to manage the geopolitics of scarce oil, scarce water, scarce food and scarce atmospheric space. Lots of staff at IEA won’t even know what FAO stands for; and vice versa.
So Diouf should go ahead and organise his summit. But he should also organise a retreat for 50 key staff from 50 key agencies relevant to the management of scarcity, and start building the shared awareness that they’ll need in the next few years: mapping the most vulnerable countries, how food scarcity could exacerbate conflict flashpoints, figuring out how currency fluctuations could affect the situation, running scenarios for $150 a barrel oil, reading William Cline’s CGD research on how climate change will affect developing country agricultural productivity, working out what kind of developing country governance frameworks have proved effective at managing local scarcity, devising ways of building scarcity awareness into peacekeeping operations (as DPKO are doing with Darfur)… the list is endless.
Building the barest bones of a common language that all the relevant players can speak may seem a modest first step, especially as the clamour for kneejerk responses builds. But it is an indispensable one too.
by Alex Evans | Oct 1, 2007 | Climate and resource scarcity, Economics and development, Global system
Hurrah – Dani Rodrik has a blog. Rodrik is a great international development thinker and a co-author – together with Nancy Birdsall and Arvind Subramanian – of my favourite development think piece of 2005, which was absolutely required reading in DFID when it came out.
Anyway, Rodrik’s just been blogging about food prices and poverty, where he observes the existence of two camps cheerfully talking past one another. On one hand, advocates of the Doha Development Round trumpted that higher food prices from agricultural liberalisation will benefit the poor. On the other hand, people worried about the effect of biofuels on food prices (like me) argue that higher food prices will be bad news for the poor. But Rodrik points out that:
The real answer of course is that it depends on whether a poor household is a net seller or buyer of food (that is, whether it grows more or less food than it consumes). This means that the rural poor generally tends to benefit from higher food prices, whereas the urban poor generally get hurt. How large the impact is depends, in turn, on the size of the food account as a share of total expenditures or income of a household. And whether the change is good or bad for a nation’s poor as a whole depends on the geography of poverty in a country.
So as an economist loves to say, it depends. But it depends in predictable ways on household and country characteristics.
A fair point. But Rodrik overlooks the gorilla in the room: climate change. As we’ve argued here before, the effect of biofuels is just one driver of rising food prices – along with other factors like weather variability, water scarcity, rising demand in China and India and so on. While biofuels is the the key driver among these for now, it’s climate change that is likely to become the real biggie over time.
And the thing about climate change, as IPCC assessment reports make clear, is that while climate change will likely lead to higher food prices, farmers in the poorest countries are likely to become worse rather than better off – since they’ll be hardest hit by the effects of climate change. William Cline, an expert at the Center for Global Development, has a new book out about this which should be required reading in donor agencies:
Developing countries, many of which have average temperatures that are already near or above crop tolerance levels, are predicted to suffer an average 10 to 25 percent decline in agricultural productivity by the 2080s, assuming a so-called “business as usual” scenario in which greenhouse gas emissions continue to increase, according to the study. Rich countries, which typically have lower average temperatures, will experience a much milder or even positive average effect, ranging from an 8 percent increase in productivity to a 6 percent decline.
Individual developing countries face even larger declines. India, for example, could see a drop of 30 to 40 percent. Some smaller countries suffer what could only be described as an agricultural productivity collapse. Sudan, already wracked by civil war fueled in part by failing rains, is projected to suffer as much as a 56 percent reduction in agricultural production potential; Senegal, a 52 percent fall.
by Alex Evans | Sep 17, 2007 | Climate and resource scarcity, Global system
The FT notes that:
- Oil touched an all-time high at the end of last week, reaching $80.36 at one point, as traders reacted to last week’s OPEC decision to raise crude output by 500,000 barrels a day from November as “too little, too late”;
- Wheat hit a record last week as well, making it to $9.11¼ a bushel on Wednesday after the US Department of Agriculture warned that global stockpiles would shrink to a 30 year low;
- Corn prices were still going up last week even after USDA forecast a record US crop, thanks to the global explosion in corn consumption – for biofuels as well as food; and
- Gold touched $717 a troy ounce, a 17 month high, on Friday – driven by investors going for safety and a predicted further weakening in the dollar.
Most media commentary over the last week has suggested that US, eurozone and UK interest rates will decline as central banks seek to inject liquidity to the markets. But if real world scarcity trends in agriculture and energy keep pushing raw material prices upwards, then that could make for a painful countervailing force on interest rates – putting central bankers between a rock and a hard place on growth versus inflation. Stagflation, anyone?
