Globalizing markets and salaries

Photographs taken in Caracas back when black and white was the only game in town show us how the population usually wore coats and clothing adequate for temperate climates. This should already have been history since the world by all accounts was already heading towards global warming.

Something must have happened to explain why a famous Spanish store, located in an equally as famous shopping center in our tropical capital offers and actually sells winter clothing – not autumn – winter clothing.

As a result of a comment I made to one of my partners to this effect, he waved his newly issued and stamp free Spanish passport in my face and argued that this had nothing to do with climatic evolution but rather with the new realities imposed by a globalized world. As you understand, my partner belongs to that group of Venezuelans that has instantly acquired Spanish citizenship as a result of Spain’s incorporation into the European Common Market.

As stated by my partner, his fellow patriots are numerous in Venezuela and also represent an important purchase capacity. In this sense, the above mentioned store was only servicing a domestic market that had been globalized. I must have put on a surprised look since he then asked my who I though I was to question the right of Spaniards in Venezuela to have access to the same goods and services as do Spaniards in Spain.

It was never my intention to question my partner’s rights, and I told him so, ratifying my profound admiration for the globalized service offered by Spanish chain stores. Unfortunately, it was too little, too late. He continued to expand on his arguments in a slightly agitated manner - sort of confirming the origin of his genes.

“It is not fair that I, as a globalized Spaniard, do not have automatic access to the same financial services that my co-patriots have simply due to the fact that they live in Spain and I do not.” I immediately understood where he was coming from, and wishing to conserve our partnership, I joined in, throwing more coal into the fire.

I maintained the thesis that all banks of Spanish origin with offices in Venezuela should offer all Neo-Spaniards resident in the country, mortgages with 30 year maturities at 6% annual interest rates (or whatever the advantageous conditions in Spain currently are). I finished off my spiel with “If Spanish banks can bring to Venezuela something as Spanish as the piglets and lotteries, they should also have to bring their cheap loans with them as well”. Happily, this finished off the conversation. 

Afterwards I continued to think about the relationship between the domestic markets and the globalized markets. Some unexplored possibilities seem interesting enough for further analysis.

According to the tenets of commercial integration, the differences in salary levels from one country to the next are in principle only temporary. Supposedly, the resulting economic growth should make these differences disappear. Without a doubt, however, these differences in salaries are initially an important tool with which developing nations can compete. If not so, it would have been extremely difficult to sell market opening.

In recent months we have been surprised by certain arguments put forth to the World Trade Organization by some organized trade unions in developed countries. There is increasing pressure in favor of protectionist measures designed to compensate for unjust competition which, according to these organizations, comes from developing nations with low salary bases. This does not bode well for the latter as they are threatened with renewed commercial restrictions.

Simultaneously, we have also seen how the offer of professional services worldwide is increasingly concentrated in the hands of fewer firms. As a result, our lawyers, accountants, publicists and other professionals must commit more and more of their income towards the payment of franchise fees exacted by this modern day privateering. This trend is definitely changing the traditional scope of non-tradable services, and I am not at all sure this is favorable for our country, or for any developing nation for that matter.

While trying to develop a way of defending ourselves from this trend, it occurs to me that one way of returning the ball can be found in the following questions: If it is possible to refer to the possibility of globalized domestic markets, could we then also be thinking about globalized domestic labor conditions? And if labor unions in developed nations can use differences in salaries to negotiate protection for their tradable goods, could we not apply the same concept to our non-tradable services?

In that respect, a starting point would be to analyze the possibility of requiring international firms that operate locally in the service sector, accounting firms for example, to remunerate their local staff with salaries equivalent to those being paid in their countries of origin.

If what is equal is fair for them, then what is equal should not be unfair for us.

Kafka and global banking

My partner was on the phone to his bank. From the tone of his voice, I realized that the matter discussed was delicate. He explained to the person on the other end of the line that some of the withdrawals made from his account through an ATM machine were not his, and that they were therefore fraudulent.

 

Initially, things did not go well. An anonymous voice responded that unfortunately, in the bank’s opinion, the withdrawals seemed to be in line with the regular movement registered for the account and there seemed to be no indication of irregular activity that could be evidence of fraud. The sad implication of this is that the answer implied that the perpetrator of the fraud was my partner himself.

 

The next few weeks were a nightmare for my partner. Finally, having established that the amounts withdrawn exceeded the amounts that he himself as account holder was allowed to withdraw in the same period of time, the bank finally decided things were not quite so normal and an investigation was initiated. The matter has still not been resolved, two months later.

 

The misfortune was about as traumatic for me. The mere thought that some vagabond could randomly identify my account, blithely initiate a series of ‘normal’ fraudulent withdrawals, have me lose days and maybe weeks of my life and lots of money on overdraft interest payments and phone bills while trying to sound honest over the phone in order to convince an anonymous voice on the other end makes me shudder.

 

During the ordeal I remember thinking "thank God we still have several banks to work with". Imagine if we would have had to discuss the issue with an official of the One and Only World Bank (OOWB). Without a doubt this would present us with a future full of horrendous Kafkaesque possibilities.

 

This leads me to think about the consolidation currently going on among banks. With every day that passes we have fewer and fewer banking institutions worldwide with which to work. This trend has been marketed as one of the seven wonders of globalization.

 

In addition to the above-mentioned problem, which puts defenseless users on the spot, I believe the trend introduces other risks which have either not been sufficiently commented on or which have simply been ignored. Among these I can identify the following:

 

A diminished diversification of risk.  No matter what bank regulators can invent to guarantee the diversification of risks in each individual bank, there is no doubt in my mind that less institutions means less baskets in which to put one’s eggs. One often reads that during the first four years of the 1930’s decade in the U.S.A., a total of 9,000 banks went under. One can easily ask what would have happened to the U.S.A. if there had been only one big bank at that time.

 

The risk of regulation.  In the past there were many countries and many forms of regulation. Today, norms and regulation are haughtily put into place that transcend borders and are applicable worldwide without considering that the after effects of any mistake could be explosive.

 

Excessive similitude.  By trying to insure that all banks adopt the same rules and norms as established in Basle, we are also pushing them into coming ever closer and closer to each other in their way of conducting business. Unfortunately, however, nor are all countries the same, nor are all economies alike. This means that some countries and economies necessarily will end up with banking systems that do not adapt to their individual needs.

 

I remember that John K. Galbraith once wrote that the economic development of the west of USA was helped by the fact that in the eastern part of the United States, banks were big and solid but that in the west, banks tended to work with much greater flexibility. The fact that some of these banks went bankrupt from time to time was simply taken as a normal cost inherent in development. Today, Venezuela's economy might be in dire need of some Wild West banks. 

 

The cost of global assistance.  When Venezuela’s banking system went down the drain, there is no doubt that the cost of the crisis was paid integrally by the country itself. In today’s world, when we see that a series of international banks are investing in our country’s institutions, I often wonder what will happen when one of these behemoths runs into serious trouble in its own country. Will we have to pay for our part of the crisis, less than our part of the crisis or more than our part of the crisis?

 

As bank mergers and acquisitions increase and stock exchanges worldwide call for more, I analyze what happened to my partner and have my own doubts. I ask myself if we should not be imposing the creation of special reserves for especially large banks. The larger they are, the harder they fall, and the greater the need to avoid disaster. 

https://subprimeregulations.blogspot.com/2000/02/kafka-and-global-banking.html

Tricks, and the environment

This week we read in the papers about a report to the British Parliament by the London Geological Society. In it they issued an alert over the real possibilities of a mega volcano eruption that would cause global cooling with dramatic consequences. Why is that hot volcanoes lava emission cools, while oil emissions are supposed to warm? Is someone taking us oil-producers for a ride? 

During the week ending January 21, one liter of premium unleaded gasoline was sold at the pump in England for US$ 1.20. Out of this amount, 19cts went to the supplier, 5cts went to the distributor and 95cts went towards various taxes.

It is evident that an oil producing country like Venezuela is severely affected by these taxes which, by the way, amount to 500% of what the producer receives. If these taxes were eliminated, both prices as well as the demand for oil would be much higher.

There can be no doubt that the only reason for these discriminatory taxes is a healthy fiscal appetite. However, with an almost subtle hypocrisy, these taxes are normally explained as only being related to environmental protection.

When we observe the poverty in our country, which would at least be reduced by increased oil income, any person preoccupied with the environment, may harbor a natural conflict. Up to this moment, I have solved my own conflict by telling myself that it is logical to have high prices in an effort to minimize consumption of oil, but that it is illogical and unjust that the margins produced by the same should only accrue the taxman in the rich consumer nations.

I say ‘up to this moment’ because I just read a book written by Dr. S. Fred Singer called Hot Talk Cold Science which certainly questions current environmental credos.

Singer's credentials as an expert in environmental matters seem to be impeccable. He has a Ph.D. in physics from Princeton and is professor emeritus of environmental science at the University of Virginia. He was the first director of the US Weather Satellite Service, Director of the Center for Atmospheric and Space Physics, and Chief Scientist for the US Department of Transportation.

In his book, Singer spells out arguments, that wipe out any justification for these taxes on environmental bases. Among other things, he says:

"The gap between the satellite observations and existing theory is so large that it throws serious doubt on all computer-modeled predictions of future warming"

"Even if global warming were to occur, it would most likely lead to positive benefits overall rather than to disbenefits."

"No credible attempt has been made to define what constitutes a dangerous level of CO2; thus the goal of the U.N. Climate Treaty is arbitrary." 

In relation to the concentration of CO2, Dr. Singer details methods that in his opinion are much more feasible in economic terms than those solely based on the reduction of emissions. These methods are based on sequestering the CO2 from the atmosphere, either through reforestation or the fertilization of oceans, the latter option being the one favored by Mr. Singer. 

Dr. Singer is not alone in his appreciation. In his book he cites the Leipzig Declaration which came out of a 1995 conference which was attended by almost 100 experts. This Declaration states "In a world in which poverty is the greatest social pollutant, any restriction on energy use that inhibits growth should be viewed with caution. For this reason, we consider carbon taxes and other drastic control policies ' lacking credible support from the underlying science - to be ill advised, premature, wrought with economic danger, and likely to be counterproductive".

Why, then, do such great discrepancies exist between the opinions described above and those of other scientists with similar recognized careers? Singer puts forward his explanation: "Nearly all research is funded by government; the rationale for expending taxpayer's money is to prevent hazards to the general population. Funding agencies therefore do not look kindly on research proposals that could demonstrate environmental hazards to be not serious or even non existent."

As a citizen of an oil producing country, affected by this evident injustice, I would be more inclined to advance the possibility that the financing of such environmental studies is more motivated by the need of justifying the taxes levied on oil. In this sense, many of the environmentalists are probably unknowingly soulmates of the famous taxman, the Sheriff of Nottingham, who in Robin Hood's days taxed the poor to give to the rich - i.e. the government.

In a country like ours, so dependent on its oil income, I am surprised at the absence in our universities and other centers of investigation of courses on environmental studies which are so necessary in order to minimize damage caused us in the name of the environment by hypocritical governments of the developed world.

https://ourpiedaterre.blogspot.com/2000/02/tricks-and-environment.html