Desertec: Solar and Wind Energy

A project to generate energy for Europe from North Africa is being initiated by Desertec, see here.  Financial Times writes:

"... the most ambitious solar project is in north Africa. The Desertec Industrial Initiative is a plan to build a vast network of solar power plants and wind farms, covering the desert and stretching for hundreds of miles, and connected to an advanced electricity grid that will carry power generated round or under the Mediterranean sea to feed Europe’s appetite for energy.

Desertec – backed by a coalition of more than 10 big name companies, including Munich Re, the German insurer, Deutsche Bank, utilities RWE and Eon and Siemens – is likely to cost about $400bn (€302bn, £262bn). If successful, the project could supply as much as 15 per cent of Europe’s electricity needs by 2050."

What I found interesting is Desertec's request for donations for the project via the web, see here.  Desertec is empowering the individual to act through a validated message of need, yet the value needs to be made clear for the "call to action" to be advocated.

Economics is not Science

Excerpt from a letter in the Financial Times written by P. A. Stahl of American Astronomical Society, here:

"Sir, I appreciate Katy Delay’s effort (Letters, April 21) to portray economics as a science, but let’s be clear it is not. Economics has never been a science, it only adopts some scientific window dressing, a few of the methods (mostly statistics) and some jargon. But no serious empiricist would regard it as “science”.

For example, economics has no true objects of inquiry, say like physics, nor does it offer any consistent, theoretical models that don’t rely on statistical artefacts. Nor does economics make quality predictions based on said models, like atomic physics. If it had such capabilities, it would have foreseen the 2008 meltdown well in advance and warned everyone!

Even the most rudimentary student of statistics understands that regression models (even multiple) don’t show causality. The quants’ correlation factor (“gamma”) in their Gaussian Copula formula, in fact, helped precipitate the 2008 financial meltdown because they had zero insight into what they were really quantifying! Meanwhile, the illustrious economists – in their naive and incomplete statistical “modelling” – are prepared to ignore an entire raft of variables associated with what they call “externalities”. How very convenient!"

21st Century Dilemma Management

A report from the Brookings Institution and the Center on International Co-operation at New York University, "Confronting the Long Crisis of Globalization", download here, discusses that the sort of problems governments will face in the 21st century will be unpredictable versus those faced during old great power rivalries.  Concerns related to demography, climate change and shifts in economic power build up quietly for a long time and finally trigger sudden, disruptive shifts.

The authors suggest institutional level changes and changes in the frame of mind in solving the needs or crisis.  They recommend risk mitigation and resilience to shocks - "Resilient systems are those that can absorb disturbance and reorganize while undergoing change, so as to retain or enhance effective function, structure, identity and feedbacks."

The days of narrow focused, blinders on, problem solving are over as the deeply interconnected world continues to grow to be more so.  This is the century of the "butterfly effects".

China Update

Good friend Mr. Tony Tsai passes along great updates from China:  

Consumer Focus

McKinseys & Co.: China will become world's third largest consumer
According to a research report released by McKinseys & Co. on Aug. 21, China will become the world's third largest consumer by 2020, with over $2.5tr in personal consumer spending, just behind the US and Japan. The report pointed out that the Chinese government is adopting a series of policies to stimulate consumption and transfer the economic development focus from heavy industry and export to service and consumption.

Ministry of Commerce advises to cut import duties to boost high-end spending
Aug. 6, Vice Minister of Commerce Jiang Zengwei says that China should cut import duties on luxury goods, such as cosmetics and watches to encourage wealthy consumers in mainland China to buy such products at home rather than abroad. Lowering the duties will boost the imports of luxury goods and that will spur domestic retail sales. He adds that China should promote sales on credit to bolster domestic demand.

Ministry of Health publishes four new regulations to solicit public opinion
The Ministry of Health recently issued four new regulations, including health archives management, booking register in hospitals, complaints from patients and an electronic case history, to solicit public opinions within three days. It indicates that the Ministry of Health is pushing forward medical reform steadily, which will bring great benefits to ordinary people.

Global Business & Transparency

Wen Jiabao: China's economic development still lacks inner vitalityDuring an inspection tour in Jiangsu province, Chinese Premier Wen Jiabao said, "There are still a lot of unstable and uncertain factors ahead and the economic situation is still very grave, although both the world economy and the national economy are making positive changes." He said the country's economic performance showed increasingly positive signs, but stressed recovery was still "unstable", not consolidated and "unbalanced". He warned against blind optimism. He said, "The country's economic development still lacks inner vitality to counter the crisis, as policy support remains an important propellant of economic growth." Weakening external demand was also creating overcapacity in some sectors, which would be a big obstacle to a rebound in industrial and economic growth. He reiterated that the country should stick to its proactive fiscal policy and moderately easy monetary policy for a sustained growth.

Wen Jiabao: China's economy is at crucial juncture in recovery and government will not change policy direction
Sept. 1, Chinese Premier Wen Jiabao meets with visiting World Bank President Robert Zoellick. He says that China's economy is at a crucial juncture in its recovery and the government will not change its policy direction.

China's accounting standards will meet international standards within two years
Sept. 10, the Ministry of Finance issues the roadmap for the substantial convergence between China's Accounting Standards for Business Enterprises and International Financial Reporting Standards. The roadmap has set a deadline of 2011. Starting from 2012, all of China's large and medium-sized enterprises will adopt the revised accounting standards system for Chinese business enterprises which is equivalent to the International Financial Reporting Standards. It has been reported that the European Committee decided that during the transitional period from 2009 to 2010, the EU will allow Chinese enterprises to adopt Chinese accounting standards when entering the European market, so they do not have to adjust their financial statements in accordance with International Financial Reporting Standards used in the EU.

Reorganization and restructuring of enterprises can not neglect democratic decision-making
The All China Federation of Trade Unions recently issued a circular about further strengthening democratic management during the reorganization, restructuring, closure and bankruptcy of state-owned enterprises, in order to protect the legitimate rights and interests of employees.

Four hundred and eighty-six of the world's top 500 companies have set up presence in Beijing
According to statistics, foreign direct investment (FDI) in Beijing in the first half of this year rose 5% year-on-year. Yu Xiaofeng, vice director of the Department of Foreign Trade under the Ministry of Commerce, attends an investment forum in Beijing and lists the reasons why Beijing has become the first choice for investment by multinationals and well-known foreign companies.The reasons include preferential investment policies, a good investment environment, high-tech human resources, low labor costs and simplified procedures for examination and approval of investment projects. By the end of the first half of 2009, 486 of the world's top 500 companies had a presence in Beijing. Beijing's actual use of FDI totalled $3.5b. Most of the companies are from Hong Kong, the British Virgin lslands, Germany, the US and Singapore.

China's FDI rose 7% in Aug., first growth in 11 months
Sept. 15, Yao Jian, spokesman for the Ministry of Commerce, says that China received nearly $7.5b in foreign direct investment (FDI) in Aug., up 7% from a year earlier, the first growth in 11 months, since last Oct. He says that currently, China's FDI policies have already formed a complete framework, and are fair and impartial. However, they need adjustments and optimization to better support the country's economic restructuring and to create a resource-saving and environment-friendly society. He notes that the adjustment and optimization will focus on investment procedures. Foreign investment filing systems will replace the current examination and approval system.

Punctuated Equilibrium and Economic Disasters?

During a long and lengthy conversation a few years back with brilliant colleague Mr. Franz Dill, we delved into examples of the replication of the theory of Punctuated Equilibrium in commerce and trade, see details on the theory here. For example, why does a soap suddenly stop selling completely in a certain region while two double in volume?

The McKinsey Quarterly just published an article - "‘Power curves’: What natural and economic disasters have in common - Parallels between the failures of man-made systems, such as the economy, and of similarly complex natural ones offer fascinating food for thought" documenting the pattern discovering aptitude of humans to map the above through statistical analysis. See complete article here.

Robert Shiller on the Current Economics

Excellent conversation with Robert Shiller at The McKinsey Quarterly "Surveying the economic horizon: A conversation with Robert Shiller" here. The quarterly's email states, "Robert Shiller, a professor at Yale University and cocreator of the Case–Shiller Home Price Index, discusses four aspects of the current crisis: regulating for financial innovation, reducing trust in models, redesigning institutions, and the time line for turnaround. His perspectives are informed in part through his research that psychology—particularly an understanding of human irrationality—can play a key role in explaining economic breakdowns and exploring effective solutions."

On innovation, Robert Schiller states:

"I don’t want to see us killing off innovation, and this is what may get lost—and I hope it doesn’t get lost—in the current crisis. Ultimately, let’s not forget that we’ve learned lessons that a capitalist economy is an economy that promotes entrepreneurship, and entrepreneurship is not the province for government bureaucrats."

On the possibility of an economic turn around:

"I don’t want to say that I don’t think there will be a turnaround soon, but I think that many of us are too much expecting that it might come tomorrow or the day after. And this volatility is evidence of that. So I think it is quite possible that the stock market and the housing market, five years from now, will be close to where they are now."

China Declared as an Equal to USA on the World Stage

An email from The Economist:

"Dear Reader,
 
There is a sense in Beijing that this is China's moment. Its leaders nolonger stick to the script that China is a humble player in worldaffairs that wants to focus on its own economic development. InsteadChina is a "great power", which can chide America for its profligatespending, harass its spyships and treat a visiting Hillary Clinton asan equal. As for Europe, that distant, elderly speck on the horizon,it can be safely ignored: France is still blacklisted for daring totalk to the Dalai Lama. Geopolitics is now a bipolar affair, withAmerica and China the only two that matter. Thus in London next monththe real business will not be the G20 meeting but the "G2" summitbetween Presidents Barack Obama and Hu Jintao. This week we look atChina's new role in the world. Even if its new assertiveness reflectsweakness as well as strength, its relative power is growing--and boththe West and China itself need to adjust to this.

And how the world should see China - Click here."

The Economist's explanation of market destabilization

Excellent diagnosis and analysis of the current economic downturn by the Economist in their special report "When fortune frowned" here.

Wired: Jagdish Bhagwati - Keep Free Trade Free

I wrote a review here of Mr. Parag Khana's letter to the next President of the USA. Below are some of my thoughts on a similar letter to the next President of the USA from Dr. Jagdish Bhagwati, see here.

In one word "brilliant". Or is it because he shares or states insights that are similar to how I look at the global market place? Here is an excerpt:

"... China may never be as innovative as the US, which has a stable venture-capital model and an entrepreneurial culture that promotes creativity. Globalization helps nations discover their unique strengths."

[Portrait on right of Dr. Bhagwati by Mario Hugo]

Dr. Bhagwati discusses IP in his article in context of constrained free trade, NAFTA being his example where he states:

"Agreements like Nafta are for free trade among members but increased protection against nonmembers."

Economic constraints (or sometimes protectionism) have an interesting quality that for a short period of time they benefit the ones within the boundary(s). If such continues, different models of conducting business emerge outside the boundary(s) that directly compete with the constrained model.

An extreme example of this would be the difficulties Israel faces in bringing its IP and ideas to the global market place, due to the reasons that are. As the US is one of the most open and international business friendly places for new ventures, at times trumping politics when the economic will is stronger, the US has benefited from a plethora of Israeli breakthroughs using it as the global launch pad. I wonder of the economic impacts if this IP had Asian launch pads for success?

I believe "Political will" to be perception and "Economic will" to be reality - both must be leveraged and managed with a balance. An unfortunate example of the imbalance is the Kyoto Protocol (details here).

[Click the figure above to maximize]

Further emphasizing my thoughts on this subject is a current example of yet another unsuccessful attempt to drive towards free trade and economic models of conducting business on agriculture, industry and services - the Doha Round (details here). An excerpt on the Doha Development Round from Wikipedia:

"As of 2008, talks have stalled over a divide on major issues, such as agriculture, industrial tariffs and non-tariff barriers, services, and trade remedies.[1] The most significant differences are between developed nations led by the European Union (EU), the United States (USA) and Japan and the major developing countries led and represented mainly by India, Brazil, China and South Africa. There is also considerable contention against and between the EU and the U.S. over their maintenance of agricultural subsidies—seen to operate effectively as trade barriers."

Dr. Jagdish Bhagwati brings to the forefront the key driver for all decisions that politicians face... economic will. It drives global trade and its leverage can help create better conditions for humanity and development of sustainable products and services.

See Dr. Bhagwati's website here.