GIS Business : An Overview is a peer-reviewed scholarly journal and aims to publish original articles, review articles, case reports, short communications, etc. Journal indexed in SCOPUS, papers are not indexed. Send papers to editor@gisbusiness.org

  • GIS-Business Journal is Indexed in Scopus, papers are not indexed. UGC approved journal. Send papers to editor@gisbusiness.org

Showing posts with label Business Journal. Show all posts
Showing posts with label Business Journal. Show all posts

Borrow at negative interest rates ? What has the world come to

Sometimes the world of finance is utterly incomprehensible to , well, even finance guys. Take for instance what has been happening in Europe.

A few governments in Europe have been issuing short term bonds carrying negative interest rates. That means you pay for the privilege of lending to the government ! Even Spain (the country tottering on a default a couple of years ago) has done this. But these worthies, which include Germany, Austria and Finland as well,  issued only short term debt like this. 

Switzerland has this week taken it to a different level.  It has issued 10 years bonds at negative interest rates. TEN YEAR BONDS. The first country in the world to do so.  And it was handsomely oversubscribed.

So what is happening ? Why would any idiot pay to lend money.  Doesn't it turn everything we know about finance upside down ?

We are in completely uncharted territory and nobody knows what the implications are. Borrowing binges are likely. Will banks now start to charge you for depositing money into your account ?

Part of the  "logic"  of the people buying these negative interest bonds is as follows

  • When interest rates fall, bond prices go up (Its too technical to explain in layman terms, but take this for a fact)
  • They are expecting interest rates in Europe to fall further
  • When that happens the prices of these bonds will rise. They will sell and make a profit !

Of course, in the long run some idiot will be left holding a pile of worthless shit. But finance is all about the short term (alas, becoming extremely short term). Who cares for the sucker in the long run.

Very clever. If only all the fantastic brains who are thinking up incomprehensible ideas in finance were to turn their minds to solving some of the world's more real problems ...........

By the way, if you are in IT, here's a golden opportunity, not unlike Y2K. Bank's IT systems are not tailored to deal with a minus sign in the interest column.  Have to rewrite millions of lines of code ........

On Friday, the world shook

Last Friday, the world shook. You can be forgiven for not noticing, for, it was the business world that shook. GE announced it was going to virtually sell all of GE Capital. 

GE is one of the, if not THE greatest company on earth. It is the old fashioned industrial conglomerate making everything from aircraft engines to medical equipment. It is known for its legendary business leaders, Reginald Jones, then Jack Welch and then Jeff Immelt. It is known for its excellence in management - it is really the business school where America's future CEOs are produced.  It is the leader of many management trends of the future - Six Sigma, Outsourcing to India ....... you name it and GE was probably the first mover.

All that is fine, but in reality, GE was what it was because of GE Capital. For a long time it contributed 50% of the group profits. Although technically not a bank, GE Capital is one of America's largest "banks". Just before the financial crisis, you would have had to question whether GE was really an industrial company - a full 60% of its profits came from GE Capital.

And then the financial crisis hit. GE, yes even GE, had to resort to a government "bailout" in form of $130 bn of loan guarantees. Suddenly, being a big financial institution was bad news. GE's share price tanked and it lost its coveted AAA rating which it had had for 40 years. The jewel in the crown was sudenly turned into a lump of coal.

GE Capital turned around. Of course it would, given the outstanding management talent at its disposal. It is back to being very profitable and last year contributed more than 40% to GE's profits.  But there are two lasting legacies - one is that GE became a SIFI" , the dreaded tag of a "Systematically Important Financial Institution" , which essentially is a sticker from the US government that it was too big to fail. SIFIs are subject to incredibly strict government requirements,  tight regulation and surveillance post the financial crisis. The second legacy was GE's share price. In 2007 it was $42. Today, despite the resurrection of GE Capital, it is $25 or so. The market is simply scared of large financial institutions and the risks they pose.

GE did what it does best - take a hard decision. It has been announcing its intention to trim down GE Capital for quite a while. It had started to spin off bits and pieces. But on Friday, it announced a virtual disposal of GE Capital. It would sell off almost everything over two years and hold only the parts of GE Capital that were intimately tied to its industrial business - like aircraft leasing. The mighty GE is shrinking. It will become a smaller conglomerate. And it will become an industrial group once again.

This is a big big move in the world of business and finance. But you may not have read about it at all in the papers. Its not as exciting as Justin Bieber's latest antics, or if you live in my country, Anushka Sharma !!

    Really Walmart ? Plumbing ??

    Walmart closed down five stores in the US. What's new ? This happens all the time - stores are closed and stores are opened. So what ? What is strange is the reason it was done and the manner in which it was done.

    Walmart announced to its employees two hours before store closing time on Monday last week that the stores were closing from the next day.  The reason stated was plumbing problems !! That is the most unusual reason you might have heard for stores to close.

    Walmart has a history of treating its workers, shall we say, a little less generously than most other businesses. But , even by their standards, this closure is curious. One of the stores that was closed was at the forefront of a strike a couple of years ago.  The whiff, that this was retaliation against the workers is strong. But the other four stores weren't the leaders of the strike - so why these five ? Where the four simply lumped together to deflect the real intention to get at those b%^&*s who dared go on strike ?

    Telling people two hours before shift ends that they don't have to come tomorrow does not appear to be a humanly good thing to do. But there is no place for human feelings  in the business world it seems, at least in Walmart. To be fair Walmart is saying that all employees would be paid two months paid leave when they can apply for jobs in other Walmart stores and that if they didn't succeed in two months, the permanent employees would be paid some severance pay.

    The ostensible logic for the short notice to employees is that apparently if you give them a longer notice, they would all steal the store blind ! A more "acceptable" reason is  that they don't have to legally do any better.  Is this what employee relations in Walmart have come to ?

    The stated reason for closure is urgent and pressing plumbing problems that have to be fixed. Really ??? Nobody the city or amongst the employees seem to have heard of the "ongoing and pervasive" sewer problems before. No permissions have been sought from city councils for any repairs. Its difficult to believe that the emergency closure of stores is really because the loo is leaking.

    Even the most charitable view of the issue has to concede that Walmart could have handled the whole thing better. But this is probably a symptom of the real problem - Walmart management does not rank handling employees with care and concern very highly amongst its business priorities. That's a sad commentary on the business world. If one of the largest corporations and employers in the world, treats its employees as impersonally as a pallet of stock, then it is no wonder that they are hated as viciously as they are. The very word corporation has become a four letter word. And by their actions,  corporations are doing their very best to justify that tag.

    What a stink !

    The most valuable activity of the human race

    In a free world, the price of anything is a reflection of its true worth to people. Something is valued high if it is important to a lot of people. It is valued low if its not so important - OK you can quibble about supply and demand, but in the end, value is a reflection of the worth in which people hold it.

    What can you then make of the "fight of the century" that is taking place on May 2nd. Floyd Mayweather versus Manny Pacquiao. A fight between two of the finest boxers of their generation. The usual outlandish hype and outrageous build up , that is predictable for every major boxing match, is on display in ample measure. Where else will it be held, but in the most over the top place on earth - Las Vegas.  I don't know about the "fight of the century", but it certainly is the richest fight in history.

    Each boxer is expected to make upwards of $ 100 million for the fight. Yes, one hundred million dollars. Perhaps nearer $ 150 m. To give you a perspective, the next highest paid sportsman in the world - Cristiano Ronaldo - makes $ 80m in a year. The highest paid CEO of any company in the world , Charif Souki of Cheniere Energy Inc made $ 142 million in a year. And these two boxers are going to make probably $100-$150 m for one fight.

    Of all the revenue streams, the biggest will be pay per view subscription for watching the bout on TV. The price  just for watching the one fight is likely to be $ 90. Ninety dollars for sitting on your couch to watch a max of 12 rounds. 3 million Americans are expected to sign up.

    There is nothing in the sporting world, in any sport, that can remotely match the earnings of this fight. Come to think of it, there is nothing in any field of human endeavour that came come close to this level of money. Let us assume that the bout will last an hour (it could even last 3 seconds but we'll be charitable). That's a gross revenue of $ 500 m in one hour. Walmart the largest company in the world, in comparison makes a measly $50 m in an hour. Yes, I know this is not a sensible comparison, but you get my point.  Mankind places the Mayweather-Pacquiao fight as the most valuable of all human endeavour to be done in an hour. Ever.

    I am not a great boxing fan, but I do know a bit about it. Both Mayweather and Pacquiao are past their prime. Mayweather is 38, Pacquiao is 36. They were great boxers, but the past tense is probably right. Both are larger than life certainly. Pacquiao, in his native Philippines, is probably second only to God.  But from a purely sporting perspective, its not even the finest boxing bout ever, leave alone the greatest sporting spectacle of all time.

    I know that many readers , including this good friend, will argue that boxing is not a sport at all and should simply be banned. Certainly public interest in boxing is declining, but other forms of entertainment which involves one guy trying to beat the hell out of another , like martial arts, kick boxing and , with apologies to God,  WWF are all booming. I won't pass judgements on tastes of people, but it does strike me as a little odd that human society places the greatest value of all in two ageing fighters trying to knock each other down.

    I have long had a dilemma on this matter of the value society places on different occupations. Ask anybody what are the professions which they consider most valuable to society and you are likely to get answers like teachers, nurses, etc. Ask them the professions that they detest and you would probably get bankers as the answer. And yet, look at the where we place monetary value.

    Doesn't it say something about us all.

    Two and three quarters cheers for Dan Price

    It would be really churlish to sing anything but the loudest praise for Dan Price. And yet this blogger is falling short of raising three cheers for him.

    Dan Price is the CEO of a privately held small company called Gravity Payments with about 120 employees. About two weeks ago, he called all his employees for a huddle and told them that he was raising everybody's salary to $ 70,000 a year, because that will make a big difference to their lives and help them be happy. Simultaneously he also announced that he would cut his own salary from $1m to $ 70,000. Considering that the average salary in Gravity was $48,000, he certainly made 120 people very happy. To read more about this heartwarming story click here.

    In a world of cynical CEOs, astronomical pay differences , of treating employees like (pallets, or worse, shit, ) this is a refreshingly good story. Mr Price must be commended for what is undoubtedly a noble act. He is a CEO with a difference, unlike the many who sometimes don't seem to belong to the species we normally understand as Homo Sapiens.

    And yet ............... , this blogger, while praising Price's actions to the sky, thinks he is wrong to do this.

    People who are employed, even in Walmart, actually have a good deal in today's world. They have a job. They earn a salary, which while seeming to be inadequate, is at least something. They have the government looking out for them in terms of labour legislation designed to ensure that they are treated fairly. They have the unions watching their back. Although they may not believe it, they actually are in a great position.

    Consider the larger number of people who are unemployed. They have nothing. Nobody looks out for them. They are called scroungers and worse. Its damned difficult to get a job. Nobody who is not unemployed can understand the feelings of worthlessness, desperation and worse.

    Mr Price - you have a heart and are a good man. If you had not raised anybody's salary, but instead employed 120 more people,  you will deserve to be a saint in my books. Those who have a job should be paid fairly - I know that there will be a big dispute as to what constitutes fair pay, but pay them fairly by whatever standards you consider appropriate. But even more important, hire lots of people.

    A tough ethical issue

    Businesses are often considered as machines without a heart. But even businesses face some gut wrenching ethical issues , where the "right" course of action is by no means obvious.  Take the case of the compassionate care issue face by pharmaceutical companies.

    Drugs produced by pharmaceutical companies are marketed after years, and sometimes, decades of clinical trials. They have to be approved by a regulating body - in the case of the US, the FDA - before they can be made available for use by doctors and patients. This is a justifiably stringent process.

    It is therefore obvious that at any point in time, there are a number of experimental drugs which are at various stages of testing or approval. They may or may not finally make it to the market place. But the fact of their existence, their performance in the trials, the stage of FDA approval (relevant since most drugs are discovered in the US) are all fairly common knowledge and often in the public domain.

    The ethical issue comes when there is say a terminally ill patient who does not have much time left and where conventional approved forms of treatment have failed. The patient, or his family, makes the appeal to a pharmaceutical company for an experimental drug that is not yet fully tested and has not been approved by the FDA. Is it ethical for the company to release an experimental drug for such a patient ? They may not even be making the drug outside of the lab as yet. Should they actually produce it in a pilot facility to make it available ?

    I learnt from this news article that hundreds of such requests actually come to the FDA every year . The regulator examines each such request and apparently they are mostly approved. But for any serious evaluation of a request, they need time and that is probably what the patient does not have. Even if there was a little time, the patient and the family would be understandably anxious to try the treatment tomorrow if possible. So, even with an FDA approval of the case, how does a company respond to such a request.

    On one hand, it is absolutely cruel to withhold a possibility of a chance, however slim, from somebody who will otherwise die. The case for release of experimental drugs is very strong. It doesn't need any further elaboration.

    But consider the risks. Doctors will be the first to tell you that there are many grey cases where it is not easy to determine if the patient is terminally ill. What if there are are horrendous side effects which are not yet known - at what stage of experimentation of a drug is it OK for it to be released to a live patient. What about the risks of lawsuits - after all we are talking about the US a notoriously litigious society. What about the risks that companies may simply use terminal patients as clinical trials if compassionate care becomes widespread. What about non terminal cases (say Parkinson's or Alzheimer's, which are non fatal but horrible diseases) where an experimental treatment might drastically alter the quality of life.

    Thorny ethical issues. I would hate to be in a position making the decision. Johnson & Johnson, a famously ethical company has moved to set up an independent panel to be organised by the New York University to decide on each case. That is probably the best course of action, but each decision would be extremely difficult to make.

    What do you think - in which direction would you lean ?

    Call the SNP's bluff

    Just in case you were not following the British elections, a small earthquake happened. The Tories won, the Lib Dems were wiped out, Labour performed poorly, and UKIP performed well but got no rewards. The bigger earthquake happened north of the border where the Scottish Nationalist party (SNP) won all seats bar three in a landslide, essentially running on a plank of Scottish independence.

    This blog is a politics free zone and this blogger does not comment on political matters although he has (obviously !) strong views on every matter under the sun including Scottish independence :) But he can and will argue a point of view on the economics of the issue of Scotland's secession.

    Scotland runs a much higher level of expenditure as compared to the income it generates. If it were a separate nation, it will be running a deficit of 8% of GDP, as against the UK's 4%. The SNP is even more to the left than Labour and wants to spend more. In the cuckooland of irresponsibility that all opposition parties operate in, this is all very possible. 

    Scotland's economy is tiny and is heavily influenced, even now, by oil. With the current low prices of crude, Scotland's already iffy finances would be in dire straits if it was an independent country. But thankfully it is not and is currently being bailed out by the English tax payer.

    When the referendum was held last year (and Scotland voted to narrowly stay in the UK), it was promised to the Scots that the powers to tax and spend would be devolved to the Scottish parliament. What the SNP wants is the power to tax and spend, but continue to get the bailout by the English tax payer. For a period of transition this is acceptable, but this is not a sustainable proposition. What the Tory government would probably do is to immediately devolve the powers to tax and spend, but set a graded target of deficit reduction to the UK average over , say a five year period. That is enough to turn the squeeze on any government in Scotland. Independence would start to look an increasingly unattractive proposition.

    The issue of independence will never be settled on economic grounds. Everywhere in the world it is settled on emotional and political grounds, even when it is blindingly obvious that it would be a case of economic suicide. It is for the electorate to decide, although every Anglophile, including this blogger, has a view. But one thing is certain. If the UK called the bluff and handed over the management of finances to a Scottish parliament, in an election five years later, whether Scotland is an independent nation by then or not, there is no chance that the SNP will win 56 seats. Its time to make the SNP accountable.

    How does an American pronounce Pallagoundenpalayam ?

    The most unlikely of bedfellows can come together in the business world. Consider this rather unusual "marriage".

    The bride is the city of Detroit. We shouldn't be uncharitable to a bride, but the immediate words that come to mind when you mention Detroit are decay, dilapidated, joblessness,  decline, etc etc. Can any good news come out of Detroit these days ?

    The groom is Sakthi Group. Sakthi who ? - even my Indian readers are entitled to ask. It's an unknown, small conglomerate from the South of India. They were essentially a sugar company, but have dipped their fingers into a bewildering array of businesses. They are still small by global standards - some $2 bn in size. One of their businesses is Automotive Components - a business in which Indian companies have excelled and are starting to lead the world. 

    Sakthi announced a $ 31 m investment in a manufacturing facility in Detroit to make aluminium castings. GM and Ford are big customers for them and their logic for this investment is being close to customers.  Of course they have milked the incentives and subsidies - some $4 m.  But Sakthi has played the PR angle perfectly. The castings will substitute imports from China. The facility will create 650 jobs over 2 years. They have committed to hire at least 2 ex felons a month ( both a brilliant and a movingly human move). And the site they are developing is a historic school, now closed and left in ruins. Can there be a better feel good story ?

    The sight of Michigan Governor Rick Snyder, waving a casting, as he welcomed Sakthi makes interesting viewing. And the Sakthi's chairman calling the marriage a Catholic marriage (meaning,  for the long term), is equally interesting Whether Sakthi will succeed in the most challenging location of all in the US remains to be seen. But you have to give it full marks for daring and boldness. It may fall flat on its face. But it will still have been an interesting experiment.

    Meanwhile the American employees have to learn to pronounce Mukasi Pallagoundenpalayam ! That's where Sakthi's auto component headquarters is located in India. Even my good friend Sriram is going to struggle with that !

    In defence of TPP

    The Trans-Pacific Partnership (TPP) is a trade deal that 12 countries bordering the Pacific Ocean are negotiating. The countries include the USA, Japan, Australia and Canada, but exclude China. The TPP is being vigorously opposed by a collection of groups - Democrats in the US, environmental groups, labour unions  and even Medicines Sans Frontiers. There is much fear mongering and shrill yelling, especially from US politicians, and this blogger believes a reasoned debate on the real issues would be useful. This series is also in response to this post from my good friend.

    Firstly, we must clarify what TPP is. It is an attempt at a trade deal between 12 countries. The WTO was (is ?) an attempt to do a trade deal across most of the countries in the world. The TPP is far less ambitious - it attempts to cover only 12 countries, most of whom see eye to eye on many issues. And yet, this is proving to be very difficult to achieve, with much of the noise in opposition emanating from the US.

    Why do we need any trade deals at all ? It is necessary simply to make imports and exports between countries possible. It can be as simple as a Double Taxation Agreement - two countries agree that the same income will not be taxed by both countries. It can be an agreement between both countries not to raise huge tariff barriers that make trade impossible. It can be to respect intellectual property rights in both countries, etc etc. It can be an agreement on a single issue (piecemeal and suboptimal) or a more comprehensive multi issue pact (preferred and in which case it becomes a full blown trade deal) .

    In the past countries did bilateral trade deals with one another. This led to a complex plethora of agreements which came in the way of trade, as the world started to become more and more globalised. Therefore countries tried to form groups and do a single trade deal amongst themselves in order to create level playing fields and facilitate trade and commerce between all of them. The European Economic Community is perhaps the earliest and deepest bloc. NAFTA tried to create a far less ambitious trade deal in the Americas. Trade zealots tried to achieve a global deal amongst all countries - first called GATT and then WTO, but this is proving impossible to achieve and perhaps a pipe dream. The TPP is a far more modest attempt by 12 countries, but even this is proving so tough to do.

    I hope you would agree that some sort of trade deals are necessary for the globalised world of today. If you are in the camp that says all globalisation is wrong and no trade deals should ever be done at all, then I will not debate the matter with you as our positions are on different ends of the universe. If you accept that trade deals are good in principle, then let us turn our attention to the TPP and the issues which are most objected to by the opponents of the deal.

     * The setting up of arbitration panels to decide disputes, including where a government is a party to the dispute, instead of taking the matter to national courts (This has what got my friend's goat in his post referred to earlier and is also the point on which a certain Elizabeth Warren is making the maximum noise)

     * The fear of loss of jobs in the US , which is the chief complaint of the trade unions
    * The fear of increased economic activity creating more pollution and climate change, which is the chief objection of the environmentalists

    * The enforcement of intellectual property rights, which is the chief objection of Medicines Sans Frontiers

    There is also the added objection in the US that the negotiations are being done in secret by the US government- another issue that has aroused my friend's ire.

    I will cover each of these issues in detail in subsequent posts.

    In defence of TPP - the arbitration clause

    One of the big issues in a trade relationship involving multiple countries is what happens if a country unilaterally decides to ban a product, or raise import duties astronomically, or take a similar form of unilateral action that dramatically affects the viability of a foreign investor's project. This might go against something that the government itself contractually agreed with the investor. What does the investor do.

    The investor can take the government of that country to court, but in many countries of the world  there is no hope of winning, or it would take years in court. After all a government can simply change laws retrospectively (as India often does) and the courts can do little else but enforce them. It is precisely for this reason that the United States for many years has been insisting on independent forums for resolving Investor-State Disputes (ISDs). The US position has been that the legal system of every country outside the US cannot be trusted and therefore there must be an independent mechanism for resolving disputes. In current bilateral trade agreements with 5 of the 12 countries in TPP, the US already has ISD clauses.  In recent years the US has an ISD mechanism in every trade agreement it has signed, bar the US-Australia one. In fact the biggest opponent of the ISD clause has been Australia, rather than the US. In a blatant double facedness, Australia has ISD clauses in trade agreements with developing countries, but refuses with developed countries.

    The principle is not new either in the commercial arena or in governmental ones. Every commercial contract has arbitration clauses - parties submit to the jurisdiction of arbitrators rather than courts. This is both cost effective as well as time saving and is universally used in commercial contracts. There are well established global rules governing arbitration - the "capitals" of arbitration being London, New York and Singapore. If each commercial dispute came to the courts, the judicial system in every country in the world will come to a grinding halt - it is partly for this reason that courts themselves encourage arbitration.

    It is therefore rich for US politicians, and especially Elizabeth Warren to argue against the ISD clause on grounds of loss of sovereignty. Firstly it is the US itself over successive Republican and Democrat administrations that has championed this principle. Secondly it the US which is usually the gainer in such matters - for example it prevents countries from outrightly nationalising companies and industries, as say for example, Argentina is wont to do. 

    Two cases are often used to illustrate how "greedy companies are milking countries" - the Veolia Egypt case and the Philip Morris Uruguay case.

    Veolia , a French firm was executing a project to reduce greenhouse gases in Alexandria in Egypt. The firm executed a contract with the government whereby the government would compensate the company for cost increases because of governmental action. Egypt then raised the minimum wages in the country and Veolia then took the Alexandria authorities to arbitration for compensation for rising costs. The matter is in dispute and has not yet been decided. This is a contractual matter and the spin that Warren & Co are mouthing that this is a corporation suppressing minimum wages in a poor country is pure balderdash.

    The Philip Morris case is more nuanced. Uruguay passed laws requiring that 80% of the pack contain graphic images and the risks of smoking. It raised taxes, banned advertising, and sponsorships. Philip Morris took this to arbitration on the grounds that this makes it virtually impossible to do business. The matter is yet to be decided. Uruguay is a signatory to an ISD arbitration and hence this came up before the arbitration panel rather than the courts in Uruguay. There  is no evidence that just because it has gone to arbitration  the ruling would be "unfair" or "unjust".

    As a consequence of this case, in the TPP negotiations, the US has sought to prevent misuse of the arbitration clause by recognizing each country’s “inherent right” to regulate for health and safety. This will probably get incorporated into the final deal so that unilateral action by governments on grounds of health or safety  cannot be legally challenged.

    As far as the US is concerned, the TPP provisions are no different from the existing situation it already has in some 50 odd agreements.  So why all this noise from Warren ? The noise is not because she has a better mechanism for dealing with an investor government dispute. It is in reality because she is against globalisation & trade. That is a different argument and battle.

    In defence of TPP - the loss of jobs

    The opposition from labour unions in the US ( and labour activists everywhere in the world) to the TPP is that it will lead to the loss manufacturing jobs (read in the US) and therefore it is anti labour. I have some sympathy for the view of the labour unions in the US, but absolutely no sympathy for the "global labour activists".

    In every change of  the status quo, including opening up of trade, there will be winners and losers. When international trade is made more easy, by whatever means, the risk of American manufacturing jobs being lost is real. Labour intensive activity will migrate from higher cost locations to lower cost locations - that's an indisputable fact of economics. Therefore there has to be some sympathy for the US unions' opposition to every trade deal with a foreign country.

    The balance sheet of wins and losses for the US looks like this. Jobs will be lost, especially in manufacturing. US consumers win in terms of lower costs of products. If international trade were to be substantially reduced, inflation will soar in the US. Prices of all goods will rise to levels which will put them out of reach of many people making it hard for even the poor in the US to enjoy the quality of life they currently have. Increased economic activity leads to rise in taxes for the US government - don't believe all that spin about evil corporations hiding their money overseas ; this is a point I am happy to debate separately. The increased economic activity does create more jobs, but not enough to compensate for the loss of jobs and in any case it is mismatched in terms of skill levels. So the only constituency that has some case for objecting to the TPP ( and every trade deal) is the US labour unions.

    The group that deserves utter contempt are the international "labour activists" who are protesting against the TPP.  As we have seen, jobs will be lost in the US, but they will migrate to lower cost, and poorer countries . These are the societies that desperately need economic betterment through jobs.  Secondly, by lowering the cost of labour, there is a defence against machines taking over these jobs. That is why iPhones are still assembled by hand in China and clothes stitched by hand in Bangladesh. In sum total, there are more jobs created and preserved in the world than it would have been if manufacturing were to be done in high costs countries. You would have thought this is in net good for the world.

    It is also an indisputable fact that labour is exploited in poor countries.The US, to its credit, through various trade agreements and via the TPP, is trying to minimise this. In particular, US negotiators want TPP members to implement and enforce the 1998 Declaration on Fundamental Principles and Rights at Work of the ILO. This includes the freedom of association, right to collective bargaining, a ban on forced or compulsory labor, the abolition of child labor, and a ban on discrimination in employment. The US also wants countries not to exempt their special economic zones from the labour laws of the rest of their country. These are all sticking points in the negotiations, but this is what the US has been strongly negotiating for.  If there were no TPP, it would be laissez faire for labour exploitation in each country. The TPP at least attempts to get some common protection for labour in every country. And the "international activists" are opposing this.

    So yes, international trade will hurt US jobs. It has been doing so for many decades. But if you see it from a global perspective, the world would be a better place with the TPP, than without it. Having said that, I have sympathy for, and would not argue against the opposition of the US trade unions.

    In defence of TPP - Environment and Intellectual property

    In this post I'll tackle the  issues raised against the TPP in the areas of environment and intellectual property.

    The opposition to the TPP from environmental activists comes from two contradictory positions - one is that any promotion of trade and economic activity leads to degradation of the environment and therefore must be stopped. The second argument is that the TPP does not go far enough to make environmental and climate change issues at the heart of any trade deal.

    The first argument is not worth debating, for it is a loony left idea that deserves contempt. Denying the opportunity of economic advancement to the world's poor should be treated as a crime; for that is what it is. It would be far better if these activists were to specify how growth can happen with minimum effects on the environment (for eg what energy sources could be acceptable) and what the trade offs and choices should be. This they do not do and simply oppose everything. Such a position is not worth a shouting match.

    The second argument is worth serious consideration. The US over many bilateral trade agreements has been pushing the following principles

    * A binding agreement that countries would not lower their environmental standards in order to attract investment
    * That their obligations under other multilateral climate control agreements would override any provisions of the Free Trade Agreement
    * A long list of prohibited activities - like logging, deforestation, trade in wildlife, etc

    In the TPP negotiations, the US is actually on the defensive as internally the Republicans will block any deal that contains significant provisions on climate change. Countries like New Zealand and Australia which are far more advanced on climate change issues are pushing for tighter provisions. These will have to be negotiated through, but given that the US is such an important player, it is unlikely that they would be able to do much progress. The activists are right to push for greater environmental standards. But the TPP is the wrong place to fight this. They should force the US, which single handedly screwed up the Kyoto Protocol, to come with an alternative.

    I approach the second issue of intellectual property rights with some trepidation as that would mean arguing with Medicines Sans Frontiers (MSF) , a saintly organisation, which I am neither competent nor entitled to do. The issue is primarily of patent protection to pharmaceuticals. The US would like patent protection similar to what it has inside its own country. This would mean high prices for drugs for a long time in other countries and inhibition of development of far cheaper generic drugs. As this would disproportionately hurt the poor, MSF has been objecting to patent advancement through Free Trade Agreements. It is a difficult and thorny issue on which there are no easy answers . I am ducking this issue as this is not a big issue with the opposition to the TPP in the US, which is the prime theme of this series of posts. To its credit, the US negotiating team is trying to promote the principle  of "active window" - a period of time which would be longer for developed countries and shorter for developing countries when patent protection would exist and after that the country would be free to promote generics. That might be the best compromise.

    This is probably an easy post - neither of these issues are ones on which US politicians should  kill the TPP. Despite the lunacy of a not insubstantial number of US politicians, this is unlikely to happen.

    Tomorrow I will conclude this series with examining the secrecy surrounding the negotiations which is common cause made both by my good friend and Elizabeth Warren !!

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