Economist

Mexico’s presidential election: Diaspora apathy

(author unknown) — Thu, 23 Feb 2012 09:07:45 PST

THE 12m or so Mexicans who live in the United States are equal to a tenth of Mexico’s population, and the remittances they send home make up over 2% of the economy. But when it comes to politics, they are far less influential. At the latest presidential election in 2006, they had the right to vote for the first time, but only 57,000 applied to do so.This year’s election, on July 1st, is no different. On February 17th the electoral authority announced that only 62,000 expatriates had registered before the deadline. Three-quarters were in the United States (mainly California, Texas and Illinois).This feeble response is partly due to the difficulty of registering. Would-be voters must send forms and photocopies of identification by post. That the deadline was nearly six months before the election didn’t help. A lost or expired electoral registration card can be replaced only in Mexico, in person. So migrants who lack the money or the documents to make a trip back home are frozen out. The process seems to be plagued by error: 14,000 applications were thrown out in 2006. The final tally this year is likely to be similarly culled.Some politicians are nervous about simplifying matters. The Institutional Revolutionary Party (PRI), with the largest block in Congress, has reason to worry: in 2006 it won 22% of the national vote, but just 4% of those cast by Mexicans abroad, perhaps...

Argentina’s inflation problem: The price of cooking the books

(author unknown) — Thu, 23 Feb 2012 09:07:45 PST

HISTORY has left Argentines with more than their share of economic trauma. Having twice suffered destructive bouts of hyperinflation in the late 1980s, they are sensitive to rising prices. When they spot inflation their instinct is to dump the peso and buy dollars. But after the economy collapsed in 2001-02, horror at mass unemployment temporarily eclipsed the public’s fear of inflation. That has been the successful political calculation of the president, Cristina Fernández, and her late husband and predecessor, Néstor Kirchner. For years they stoked an overheating economy with expansionary policies. Faced with the resulting rise in inflation, their officials resorted to price controls—and to an extraordinarily elaborate deception to conceal the rise.Since 2007, when Guillermo Moreno, the secretary of internal trade, was sent into the statistics institute, INDEC, to tell its staff that their figures had better not show inflation shooting up, prices and the official record have parted ways. Private-sector economists and statistical offices of provincial governments show inflation two to three times higher than...

Schumpeter: Enterprising oldies

(author unknown) — Thu, 23 Feb 2012 09:07:45 PST

“A LAZY bastard living in a suit” is Leonard Cohen’s description of himself in his new album, “Old Ideas”. Mr Cohen is certainly fond of wearing a suit, on and off stage. But lazy seems a bit harsh. He is 77, which is 12 years beyond the normal retirement age in Canada, where he was born. But there is no sign of his laying down his guitar. He spent 2008-10 on tour, performing on stage in Barcelona on his 75th birthday. “Old Ideas” has won widespread acclaim. Mr Cohen says he has written enough songs for another album.In the 1960s pop was a young person’s business. The Who hoped they died before they got old. Bob Dylan berated middle-aged squares like Mr Jones in “Ballad of a Thin Man”. But today age is no barrier to success. The Rolling Stones are still touring in their 60s. Bob Dylan’s songwriting skills, if not his vocal chords, have survived intact. Sir Paul McCartney warbles on.It is time to do for enterprise what such ageing rockers have done for pop music: explode the myth that it is a monopoly of the young. This idea has been powerfully reinforced by the latest tech boom: Facebook, Google and Groupon were...

Diet products: A big, bad business

(author unknown) — Thu, 23 Feb 2012 09:07:45 PST

OBESITY is an epidemic to some and an opportunity to others. More than two-thirds of Americans are overweight. Find a way to battle the bulge and a huge profit might be made. On February 22nd one pharmaceutical firm, Vivus, took a small step towards this goal. A committee advising America’s Food and Drug Administration (FDA) recommended that it approve Vivus’s diet drug, Qnexa. However, the pill’s long-awaited final approval may not come until April, if at all. The announcement mostly served as a reminder of what a struggle it is to turn fat into gold.Pharmaceutical and medical-device companies are quite good at treating the conditions that come with obesity. However, they are dismal at helping consumers lose weight. This is not for lack of trying. Take the curious case of the gastric band. Bariatric surgery can lead to weight loss in the long term. Hospitals can make money from all bariatric procedures, including gastric bypasses (in which the stomach is partitioned and the upper part connected directly to the small intestine), but the gastric band is a rare example of an opportunity for device-makers to profit from weight loss. Allergan, best known for selling Botox, has tried to use its Lap-Band to tap the obesity market. It is an inflatable loop which the surgeon fits near the top of the stomach, which helps the patient feel sated earlier.Allergan has captured about 70...

Alibaba.com: So long, for now

(author unknown) — Thu, 23 Feb 2012 09:07:45 PST

SHAREHOLDERS can be such nuisances. This week the Alibaba group, China’s biggest internet firm, announced that it wants to delist the shares of Alibaba.com, its business-to-business arm, that are traded on the Hong Kong stock exchange. The company, and its founder and chairman, Jack Ma, made no attempt to sugar-coat the decision.One big motivation for delisting, the parent company said, is to have the freedom to run its offshoot “free from the pressure of market expectations, earnings visibility and share price fluctuations.” It also acknowledged that its slumping share price had been causing problems inside the company: “A depressed share price may continue to adversely impact…employee morale,” it said.

The deal, which will set Alibaba back $2.3 billion, looks likely to succeed. One reason to think so is the hefty premium on offer. A bit over a quarter of Alibaba.com’s shares are publicly traded, and the firm is buying out those unhappy investors for HK$13.50 ($1.74) per share. That matches the offer price of the firm’s initial public offering in 2007, and is roughly 46% higher than the last closing price...

Motor racing: NASCAR’s ride gets bumpy

(author unknown) — Thu, 23 Feb 2012 09:07:45 PST

Thrills and spills

LEGEND traces the origins of American stock-car racing back to Prohibition. Moonshiners modified their cars, the better to outrun police on the south-east’s narrow, winding roads. Though races today are on a track rather than mountain byways and drivers tend to be wholesome, media-friendly “brands”, not backwoods renegades, the sport still enjoys a rascally image. Contact between cars is expected: “Rubbin’ is racin’,” goes an old saying.Since the 1970s NASCAR (the National Association for Stock Car Auto Racing) has enjoyed a rapid rise. Its most popular races—of which the greatest, the Daytona 500, is held this weekend—draw more than 100,000 spectators. NASCAR has become the second most popular professional sport on television, until recently averaging more than 9m viewers a race, behind only (American) football, whereas audiences for professional basketball, baseball and ice hockey have shrunk.Until 2001 each track negotiated the broadcast rights for races individually. NASCAR then took over, selling packages to the big networks and thereby boosting the audience....

Veolia’s boardroom battle: Plumbing the depths

(author unknown) — Thu, 23 Feb 2012 09:07:45 PST

An imbroglio for Proglio

EVEN by the standards of French business, from which politics is rarely absent, it was an outrageous plan. This week news emerged of a plot to oust Antoine Frérot, chief executive of Veolia, a private water and waste group, and replace him with Jean-Louis Borloo, a politician and former energy minister. Civil servants regularly take the top job at blue-chip French firms. But Mr Borloo, who has no experience running a business, seemed singularly unqualified to run an unprofitable company which needs deep restructuring.Mr Borloo is a friend of Henri Proglio, who was Veolia’s chief executive from 2003 until 2009. Mr Proglio then handed the job to Mr Frérot, his chosen successor, and became chief executive of Electricité de France, a utility. For a year after becoming boss of EDF, Mr Proglio stayed on as Veolia’s chairman, collecting two big pay packages. After a corporate-governance storm, he stepped down as chairman of Veolia in 2010 but kept a seat on its board.The origin of this week’s row is Mr Frérot’s plan to restructure Veolia, one of France’s...

Business in Rwanda: Africa’s Singapore?

(author unknown) — Thu, 23 Feb 2012 09:07:45 PST

THE conference room resembles an old “Star Trek” set, with swivel chairs, laptops on desks and headsets that switch between Kinyarwanda and other tongues. Paul Kagame, Rwanda’s president, sits in the captain’s chair. His technocratic ministers sit nearby. When the talk turns to business, Mr Kagame becomes animated. It is his passion—he says he reads business case studies in bed. He wants to turn Rwanda into the Singapore of central Africa. He is nothing if not ambitious.Rwanda is best known for the genocide that claimed at least 500,000 lives in 1994. It has been peaceful since then, but lacks nearly all of Singapore’s advantages. Singapore has the world’s busiest port; Rwanda is landlocked. Singapore has one of the world’s best-educated populations; Rwanda’s middle class was butchered in 1994. Singapore is a gateway to China; Rwanda’s neighbours are “less than ideal”, as a recent report from the Legatum Institute, a British think-tank, put it. Uganda is corrupt; Burundi a basket-case; Congo worse.

...

Shopping and the internet: Making it click

(author unknown) — Thu, 23 Feb 2012 09:07:45 PST

Order online, pay cash in store

TERRY LUNDGREN and Kevin Ryan know and like each other. But when it comes to the future of retailing the boss of Macy’s, an American department-store giant, and the chief executive of Gilt Groupe, an online retailer, disagree wildly. Mr Lundgren remains a firm believer in an empire of bricks and mortar. Mr Ryan is betting big on online-only selling.“It used to be catalogues killing physical stores, then it was TV shopping and now it is online retail,” says Mr Lundgren. Although he will not be pinned down on whether the internet is a threat to shopkeepers or an opportunity for them, he is convinced that his chain is on the right path. Macy’s is embracing “omnichannel” integration, that is, selling stuff on television, through mail-order catalogues and online, as well as keeping its department stores. The company runs 810 shops across America under the mid-price, mid-market Macy’s brand and 38 posher Bloomingdale’s outlets.

...

Somalia’s future: A ray of hope

(author unknown) — Thu, 23 Feb 2012 09:07:45 PST

TWO decades of war and terror have made Somalia one of the world’s worst places to live. Last year at least 80,000 people died in a famine and 2.3m continue to need food assistance. Nobody imagines Somalia’s fortunes might easily be turned around. Many Western governments have long kept their distance in despair. That includes America, which suffered a debacle there in 1993—later chronicled in the film “Black Hawk Down”.Yet things are looking up. An initiative launched at an international conference in London on February 23rd could give Somalis new hope. Attended by Hillary Clinton, America’s secretary of state, and senior representatives from 40 countries, it is the first push on this scale. The British, prime movers of the event, are pursuing a fresh diplomatic approach. Instead of trying to boost the “transitional federal government” in the capital, Mogadishu, the conference participants—foreign and Somali—say they will accept that the country is, for the time being, irretrievably broken into five or six zones of influence. Rather than put their faith in the feeble internationally recognised government, whose...

Yemen’s election: One vote, one man

(author unknown) — Thu, 23 Feb 2012 09:07:45 PST

THE ballots in the Yemeni presidential election offered only one choice. Next to a picture of the preordained victor, they also bore his campaign slogan, “Together we build the future”. How could it be that after 12 gruelling and often bloody months of protests demanding freedom and democracy, citizens could cheerfully condone such an electoral farce?Voters’ enthusiasm on February 21st had little to do with the personal appeal of the sole candidate, Abd Rabbo Mansour Hadi, a 66-year-old former general and quietly long-serving vice-president. Rather it was an expression of relief. By endorsing Mr Hadi, they were stamping a satisfying final seal on the exit of his former boss, Ali Abdullah Saleh, a wily dictator whose 33-year rule had culminated in corruption, nepotism and violence. The vote seems set to suspend a perilous standoff between well-armed and bitterly opposed factions that has ruinously persisted since last February, leaving at least 200 dead, decimating the fragile economy and pushing Yemen to the brink of civil war.The election marks the first phase of a transition, sponsored by rich Gulf states and backed by Western donors, that Mr Saleh finally agreed to in November after more than six months of stalling. It calls for Mr Hadi, who served as the president’s deputy for 18 years, to serve as head of state for two years, presiding over a cabinet equally divided...

Voting in Iran: A test at home

(author unknown) — Thu, 23 Feb 2012 09:07:45 PST

The other Ahmadinejad

WHEN Iran last held a national election, in 2009, it ended in countrywide protests, mass detentions and the eventual house arrest of two presidential candidates, including Mir Hossein Mousavi, who many think actually won. On March 2nd Iranians will have their first chance to vote since then. The poll will decide who represents them in the country’s 290-seat majlis, or parliament. A fair portion of the 48m voters see it as a meaningless exercise since the regime prevents potential troublemakers from standing.In December 5,395 people registered to run. That figure is down by nearly a third from the previous parliamentary poll in 2008. To qualify, candidates must be vetted by the interior ministry, controlled by President Mahmoud Ahmadinejad, and the Guardian Council, which oversees constitutional and electoral matters and is controlled by the country’s Supreme Leader, Ayatollah Ali Khamenei.In 2008 the council rejected nearly 40% of the 7,597 applicants. In the first round of approvals this year the ministry rejected 17% of...

The Palestinians: Trying to reconnect

(author unknown) — Thu, 23 Feb 2012 09:07:45 PST

NAZARETH, the largest Arab city in Israel, and Ramallah, seat of the Palestinian government in the West Bank, recently signed the first agreement twinning towns in the two places. Ramallah is paired with towns abroad, but Nazareth is different, says Maha Shihadeh, the official behind the plan. She hopes the accord could prompt pilgrims visiting Jesus’s hometown to head to Ramallah as well and help it emulate Nazareth’s conversion from a dilapidated town into a tourist destination.Above all, officials hope it will go some way towards linking the fractured parts of old Palestine. “We want to reconnect,” Ms Shihadeh says, harking back to a time before Israel’s creation in 1948 when Palestinians roamed unobstructed by Israeli security barriers. Her counterpart, the mayor of Nazareth, Ramez Jaraysi, says: “The two cities are Palestinian cities divided by geopolitics. We’ll continue being citizens of Israel, but our nationality is Arab-Palestinian.”In times past, Palestinians looked at their brethren who remained behind under Israeli rule as collaborators. Israeli Arabs for their part were cowed by official...

Free exchange: Arab spring cleaning

(author unknown) — Thu, 23 Feb 2012 09:07:45 PST

A YEAR after the start of the Arab spring, no government in the Middle East has attempted serious economic reform even though it is obvious both that economies are distorted and that discontent over living standards has played a big part in the uprisings. The main reaction by governments has been to buy off further protests by increasing public spending. Saudi Arabia boosted government spending by over 50% between 2008 and 2011.Although higher oil prices have been enough to finance these rises, much of the extra spending has gone into public-sector wages and consumer subsidies. Food and fuel subsidies are often huge: over 10% of GDP in Egypt. In the region as a whole, fuel subsidies rose from 2.3% of GDP in 2009 to 3.2% in 2011.These subsidies benefit the rich, keep loss-making firms alive and damage the economy. According to the IMF, the richest fifth of Jordanians capture 40% of fuel-subsidy gains; the poorest fifth get 7%. More important, subsidies exacerbate the region’s most important economic problem, which, argue Adeel Malik of the Oxford Centre for Islamic Studies and Bassem Awadallah...

Building competitiveness: Insider aiding

(author unknown) — Thu, 23 Feb 2012 09:07:45 PST

OF ALL the euro zone’s many problems, youth unemployment is perhaps the most distressing. Joblessness among young workers is around 30% in Portugal and nearly 50% in Spain. Above-average unemployment is the norm for young people, even in more liberal markets like America’s. But Spain’s youth unemployment rate jumped by nearly 20 percentage points between 2007 and 2009, compared with a rise of seven points in America. Labour-market regulations take much of the blame: while hard-to-fire older workers luxuriate on permanent contracts, the young are typically hired temporarily and are easier to sack.Such “dual” labour markets are themselves products of reform. Although American unemployment quickly dropped following the troubles of the 1970s and early 1980s, European joblessness remained stuck at high levels. Leaders recognised the need to inject more flexibility into the labour market but powerful trade unions headed off a full-frontal assault on workers’ rights. The answer was to create a less-protected class of employees.The pain in SpainSpain’s experience is instructive. As the...

Buttonwood: Repressed memories

(author unknown) — Thu, 23 Feb 2012 09:07:45 PST

SAVERS beware. Governments have huge deficits to fill and are worried about the fragile finances of banks and consumers. Policies are being designed to help borrowers, not creditors. A similar approach was followed after the second world war, when a period of “financial repression” reduced the debt burden by delivering poor returns to savers.This effect can be achieved in a number of ways. Investors can be forced into holding bonds, either by law or by regulation. Current accounting rules, solvency requirements and liquidity provisions may have already done the trick for pension funds, insurance companies and banks, respectively.An even simpler approach is for central banks to depress interest rates so that real returns to investors are negative. The Federal Reserve and the Bank of England have been very successful at achieving this feat over the past three years. Nominal rates are at record lows in both America and Britain.Central banks have also held bond yields down, both directly and indirectly. The direct route is quantitative easing, which involves the purchase of government bonds from the private sector....

IT and espionage on Wall Street: Cracking the penal code

(author unknown) — Thu, 23 Feb 2012 09:07:45 PST

ASK a programmer at an investment bank where he works, and the answer will often simply be “Wall Street”. Isolated from clients and—it was once thought—assets with proprietary value, technologists bounce from firm to firm, from one high-rise building to another.To this footloose community, the case of Sergey Aleynikov, a Goldman Sachs programmer, came as a shock. Mr Aleynikov was convicted in December 2010 of stealing code tied to Goldman’s lucrative high-speed proprietary-trading operations for use by a new employer. On February 16th, after he had spent nearly a year in prison, three judges in a federal appeals court unanimously reversed his conviction in a hearing that lasted just a single morning. Their written opinion is now eagerly awaited.Mr Aleynikov admitted to taking code with him on his way out of Goldman, but argued successfully that this did not constitute a crime, or, to be more specific, a federal crime. He benefited from the help of a thorough lawyer, who adroitly knocked down two key claims. Because the computer trading system was not licensed or offered for sale, claimed Kevin Marino, the defendant’s lawyer, it was not a product to be bought or sold for interstate commerce, a key provision for a federal case. Because computer coding constitutes intangible intellectual property, Mr Marino said, it did not qualify under the goods, wares or merchandise...

Lost economic time: The Proust index

(author unknown) — Thu, 23 Feb 2012 09:07:45 PST

NOW almost five years old, the economic crisis rumbles on. In order to assess how much economic progress it has undone, The Economist has constructed a measure of lost time for hard-hit countries. It shows that Greece’s economic clock has been turned back furthest: it has been rewound by over 12 years. Elsewhere in the euro area, Ireland, Italy, Portugal and Spain have lost seven years or more. Britain, the first country forced to rescue a credit-crunched bank, has lost eight years. America, where the trouble started, has lost ten (see left-hand chart).

Our clock uses seven indicators of economic health, which fall into three broad categories. Household wealth and its main components, financial-asset prices and property prices, are in the first group. Measures of annual output and private consumption are in the second...

Oil markets: High drama

(author unknown) — Thu, 23 Feb 2012 09:07:45 PST

WHEN things get too quiet in horror films it is a sure sign that something nasty is just around the corner. Stability in oil prices may have been the forerunner of something unpleasant, too. Having been pretty steady at around $110 for eight months the price of a barrel of Brent crude has started to climb in recent weeks. On February 20th it topped $120 for the first time since May. Its 200-day moving average is higher than in 2008 (see chart).On the face of it an old bogeyman, Iran, is the cause. In an attempt to hamper Iran’s efforts to develop a nuclear bomb America announced further sanctions in December. This month the European Union joined in by barring imports of Iranian oil from July. Iran responded with its customary threats to close the Strait of Hormuz, a narrow outlet from the Persian Gulf that is a conduit for 17m barrels a day (b/d) of crude, around 20% of the globe’s needs. On February 20th Iran said it would pre-empt the latest embargo and stop sending its oil to Europe at once.But as in any scary movie, the obvious suspect is not always to blame. Many analysts reckon that Iran would not...

PIMCO’s new exchange-traded fund: Cheaper Bill

(author unknown) — Thu, 23 Feb 2012 09:07:45 PST

WITH $250 billion in assets, PIMCO Total Return is the world’s biggest mutual fund. Morningstar, a research firm, named Bill Gross, who oversees it, its bond manager of the 2000s. He struggled last year but has begun 2012 better.Unless you have the $1m required for the institutional shares, the fund isn’t cheap. PIMCO charges 0.6% a year for its standard “A” share. Investors must pay a further 0.25% in annual distribution and marketing costs and 3.75% upfront to their brokers.The price is about to go down. On March 1st PIMCO will launch the portfolio as an exchange-traded fund (ETF). Unlike mutual funds, ETFs change hands on public markets. PIMCO will charge just 0.55% a year for the ETF. And investors will incur far lower brokerage costs. Buying an ETF costs a trivial commission of $10 or so, plus the gap between a marketmaker’s bid and ask prices. For heavily traded funds, this can be a mere penny a share.If the fund repeats its average return over the past decade, then an investor buying $10,000-worth of “A” shares would lose 76% of his profits to expenses during the first year of ownership. The ETF’s costs would eat up just 12%.PIMCO’s move is striking not just because of the fund’s size and fame but also because the ETF is actively managed. Most ETFs are passive index-trackers which report their positions every day. But mutual funds disclose their holdings only four...