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Davos 2011

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The World Economic Forum (WEF) is an independent, international organisation based in Switzerland. Its principal aim is to build world-class corporate governance systems based on core social values. The WEF’s motto has always been ‘Entrepreneurship in the Global Public Interest’. The core ethos of this motto is that economic progress without social development is not sustainable, and that social development without economic progress is not achievable.

The WEF has three key goals:
1 To be the leading organisation which builds and energises leading global communities;
2 To be the biggest creative force in the shaping of global, regional and industry strategies;
3 To be the leading catalyst for world communities when undertaking global initiatives to improve economic and social conditions worldwide.

The WEF believes that the challenges facing the world today cannot be tackled by governments, the business community or civil society alone, but rather a strategy to address global issues is best developed through forging close working relationships with those individuals who have the greatest knowledge and experience in the areas to be addressed. To this end, the WEF coordinates with world leaders across global communities, providing them with strategic insights and working with them to establish a series of initiatives in order to help them improve and address issues.

About the annual meeting
Since 1971, the WEF has held its annual meeting in Davos-Klosters in Switzerland. Between 26th-30th January 2011, key world leaders, including stakeholders from the business community, global governments, science, the media, religion and the arts – as well as members of civil society – will convene to discuss and form initiatives to address the most critical issues facing the world.

The theme for the 2011 annual meeting is Shared Norms for the New Reality, which represents the concerns of many world leaders. It encapsulates the problems faced by living in an increasingly complex and interconnected world where shared values and principles are seemingly diminishing.

The annual meeting provides a forum to consider the mechanisms of existing ways of operating, as well as to examine potential new strategies that can have positive effects for the global community. The 2011 meeting will place particular emphasis on addressing the question of ‘how’ – that is to say going beyond theoretical debate by creating tangible ideas and feasible solutions to key global challenges.

Aims of the meeting
The theme for the World Economic Forum Annual Meeting 2011 is founded on four main pillars:

I) Responding to the new agenda
The New Reality can be defined as a world with many centres of power, characterised by a high degree of volatility and the frequent entrance and exit of players in an increasingly competitive global market. It also embodies rapidly-changing patterns in social behaviour, a worldwide dearth of commodities and natural resources, the changing nature and the role of governments, as well as new social and environmental demands on business.

There is a genuine need to anticipate and identify changes in the global balance of power. Furthermore, as economic interdependencies continue to deepen, business models mature and new and disruptive technologies are devised, there is an increased pressure on global leaders to find ways of handling these challenges. Attendees of the 2011 annual meeting will gain a keen insight into these issues and – more importantly – will be given the opportunity to shape aspects of this New Reality.

II) The economic outlook and defining policies for inclusive growth
Whereas the world is currently in economic turmoil, nonetheless a total meltdown of global financial and economic systems has been avoided. There remains, however, much uncertainty as the world continues to pay the price for pre-crisis exuberance and irresponsible behaviour. Economists and industry commentators alike are uncertain as to whether inflation or deflation will be more damaging for the global economy. Also, the old question of a double-dip recession still hangs like the sword of Damocles. Finally, now we are more used to the term ‘trillion’ than we are ‘billion’ when discussing the state of the global economy, there is growing concern for the fate of our future generations.

III) Supporting the G20 agenda
The future impact of the G20 depends upon its ability to safeguard the recovery and build the foundation for sustainable and balanced growth. There is also a pressing need to make international financial systems more resilient to risk. Overcoming these issues, together with ensuring that a clear set of values is shared amongst global communities, is a crucial step in building a more stable society. The G20 is one of the most important institutions in existence today when it comes to defining a new governance and multi-national leadership model following the global crisis.

Critical to achieving success in these areas is participation from economies outside the G20, specifically from those industries that play a major role in the creation of employment opportunities and market stability. Therefore, the G20 agenda should also look at the need for greater inter-dependence between the business community and governments and there is a great deal of work to be done to rebuild a partnership between business and governments.

Such initiatives are important to ensure global business remains innovative, enterprising and is able to sustain its ability to generate jobs. Similarly, they are essential in ensuring that governments do not become too engulfed by internal issues and constraints that they do not have the capacity to perform their key role of exercising global leadership. To this end, the 2011 annual meeting plays a major role, not only in promoting the issues on the G20 agenda, but also ensuring a high degree of public awareness of these vital issues.

IV) Building a global risk response mechanism
In an increasingly globalised society, it is impossible to avoid systemic and natural risks, but it is vital that global leaders are better prepared when it comes to risk-responsiveness, risk-awareness, preparedness and risk mitigation. Now, more than ever, it is crucial to share ideas and insights if the world is to respond effectively to these challenges. The understanding of systemic weaknesses can help bridge the gap between emerging risks and the ability to understand and respond to these risks.

Today, there is no formal system in place that offers the opportunity to share the best expertise and experience globally, so that all nations can make the best possible decisions when faced with a crisis. In order to help create such a system, the 2011 annual meeting will launch what will be known as the Global Situation Space, which will hopefully help all nations better understand and respond to endemic risks.

The wider agenda
In addition to these specific aims, the 2011 annual meeting will also place a number of ongoing points high on its agenda:

I) Energy poverty action
A joint initiative of the World Business Council for Sustainable Development (WBCSD), the World Energy Council (WEC) and the World Economic Forum, the Energy Poverty Action (EPA) partnership was launched at the WEF’s 2005 annual meeting and remains an ongoing concern. The EPA’s aim is to help develop scalable solutions to energy poverty and to cater for energy demand in areas that are currently not plugged into utility grids.

The inability to access sustainable modern energy services is something that affects many under-developed nations and in fact acts to constrain their growth and development. Globally, it is estimated that around three billion people have a lack of access to sustainable and affordable modern energy, with the majority still dependent on traditional fuels – which in itself further diminishes the world’s natural resources and undermines the sustainability of rural communities.

Energy poverty affects poor people in every world region but nowhere more than in central and southern Africa. Here, in urban areas, access to electricity is limited to just 25-30 percent, but more strikingly, in rural areas, this figure is just six percent. To put this into perspective, almost three-quarters of Africa’s 700 million people live in the rural areas of Africa.

The EPA’s approach to tackling these issues is to invest in local entrepreneurs and communities, providing them with both technical and financial resources to enable them to build and manage sustainable community-based energy companies. The EPA’s strategy is to encourage private investment to establish energy sources, especially for communities. Following this, public financing can be sourced to cover the ongoing costs required for technical assistance and the development of additional capacity.
 
The EPA partnership has to date achieved three key objectives. It has:
1 Established a not-for-profit company that – alongside governments – jointly identified energy programmes and provides professional services to help implement each programme.

2 Implemented a pilot electricity project in Lesotho, South Africa, and has rolled out additional programmes in the southern regions of Africa.

3 Created a private-public funding model that can leverage public resources to tap into significant pools of private funding.

All told, if it is possible to demonstrate the commercial viability of such schemes, the EPA hopes to be able to encourage more entrepreneurs to come on board to help fund further initiatives. In short, the problem of access to energy supplies in rural areas is too big to be handled purely by public resources, and as such the intervention of the private sector is vital.

II) The SlimCity initiative
Launched at the 2008 annual meeting, the SlimCity Initiative aims to create a global forum wherein city governments and private sector organisations can exchange ideas on best practices in order to deliver resource efficiency within global cities. The focus of this exchange is firmly on the sustainable development of all aspects of a city, in order to achieve a reduced carbon footprint and increased resource efficiency. The Initiative has a particular emphasis on the energy, mobility, engineering and construction, chemicals, real estate and IT industries.

The four cornerstones of the SlimCity Initiative are:

Smart grids
Smart grids offer huge benefits in terms of energy efficiency. They are also integral to the development of renewable energy, electric vehicles and new energy services. The so-called digitisation of electricity looks set to become the core of the energy solutions and the low-carbon economy of the future.

Re-powering transport
The objective of the WEF’s Re-Powering Transport project is to enable the adoption of clean and secure energy sources for the purpose of transportation. This project brings together executives from the WEF’s Industry Partnership programmes across three of its defined sectors, namely; mobility (automotive, aviation and logistics), energy (oil and gas, utilities, alternatives) and chemicals. The project also looks at related areas including alternate fuels, energy efficiency, and electric transportation.

Retrofit financing and investment
Commercial and domestic buildings represent 40 percent of the world’s energy requirements, but with the world’s building stock currently turning over at a rate of only five percent per annum, and with new construction having been put virtually on hold, achieving reductions in energy use and carbon emissions largely depends on retrofit investment. A concept born out of the WEF 2010 annual meeting, the Retrofit Finance and Investment project aims to encourage collaboration between all parties within the construction industry to engender reduced emissions via retrofit.

Housing for all
This project gives industry leaders and experts the opportunity to voice their opinions on what they believe to be the most pressing current challenges and opportunities facing the world’s lower-income housing market. The WEF’s aim is to raise awareness of the issue of sub-standard housing within the global business community, track the issue on both a business and  an economic level, and to report on suggested best practices and proposed government policies – principally those that create incentives for the private sector to become involved.

The SlimCity Initiative has an ongoing obligation to raise awareness and encourage communication in the field of urban sustainability and best practices between cities and the private sector. To date, the Initiative has registered some key successes, such as the development of SlimCity knowledge cards to identify key trends and best practices in the areas of smart energy, urban mobility and sustainable construction. These cards have been employed to enable high-level city workshops on urban sustainability across the world, in Chicago, San Francisco, Melbourne and London, as well as at global level discussions at the ICLEI World Congress 2009 and the World Bank Dialogue on Cities and Climate Change, 2009.

III) The disaster resource partnership
The number of natural disasters occurring globally each year has more than doubled in the last 30 years, due to a number of factors including climate change, a growing population base and increased urbanisation. As a result, it is estimated that in excess of 250 million people per annum are affected by natural disasters. In response to this, it is predicted that over the next few years the humanitarian response to such disasters will dramatically increase to a point where it becomes extremely difficult to manage. The recent earthquake in Haiti has highlighted the increasing importance of humanitarian assistance to natural disasters.

In recent years there has been a marked shift in the perception of the private sector in dealing with natural disasters. It has been one from donating money to help reduce the suffering in the  aftermath, to one that actively helps deal with the consequences of the event. The private sector also has a great part to play in helping mitigate the risk of disaster both through prevention and preparation.

In the immediate aftermath of a disaster, a construction company already operating in the affected area is well placed to contribute labour, materials and equipment, and can also draw on networks and supply chains that can save lives.

Following a natural disaster, the engineering and construction industries have specialised knowledge and technical expertise that is essential to the reinstallation of key infrastructure in the affected areas. Also, these industries can provide services such as damage assessment and seismic surveys in addition to helping with the project management of the rebuilding procedure.

Involving engineering and construction firms early on in the relief and recovery processes means that they can contribute strategically to future planning and reconstruction, hence playing a critical role in minimising the effects of potential future disasters.

The WEF appreciates that one of the key things required is a revitalised understanding of the crucial role that the private sector can play in responding to natural disasters. As such, the WEF has established the Disaster Resource Partnership, a body that helps maximise the core strengths and existing capacities of the global engineering and construction community, so that resources can be rapidly deployed in the event of a crisis.

Equal billing
Shared Norms for the New Reality is a fitting maxim for the WEF’s 2011 annual meeting, as it seeks to bring together the shared values required to embrace a changing world that for the last 12 months has had its hatches battened firmly down as it tries to weather wave after wave of economic turmoil. However, Davos 2011 will not just focus on the current global financial crisis, and its enduring spirit of Entrepreneurship in the Global Public Interest assures us that the perennial global issues of poverty, energy and natural disaster relief will also take centre stage.

Egypt’s struggle to find homes

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On the outskirts of Cairo, across the street from gated compounds where residents play golf on an 18-hole course, plush apartments sit vacant without buyers. As their luxury fittings gather sand blown in from the surrounding desert, many Egyptians say they cannot afford a home in the city of 20 million, where buildings are huddled so close together the only view is often of their neighbour’s kitchen.

Even 30-year-old Rabab Abd El Monam, a mother of three whose husband works for a multinational in Egypt, finds herself priced out of the market for new suburban developments. “The sheer amount of apartments offered is enormous, especially in the new suburbs,” Abd ElMonam said. “But prices are simply too high and payment options are not always suitable.”

A 2004-2008 property boom that provided homes for the wealthy elite helped Egypt weather the global downturn. But a glut of luxury developments being delivered through 2011 means developers need to switch to middle-class properties to keep revenues coming, analysts say. Property firms acknowledge they need to change tack, but complain about a tiny mortgage market that makes it difficult for anyone but the wealthy to borrow and a legal row over state land sales that has made firms wary of new projects.

“Any real estate company (must) realise that within five years of today, if it is not primarily involved in middle income housing backed by a strong mortgage market, it will be missing the good pie,” Maher Maksoud, chief executive officer of SODIC, said. Some firms have started building smaller units, but the price is often $87,000-$260,000. That would be considered affordable in many countries but prices out the majority of people in Egypt, where UN figures put per capita gross domestic product (GDP) at $1,780, a year. 

Even middle income families like Abd ElMonam’s struggle to find such funds when mortgage options and supply are limited. Investment bank Naeem estimates an annual demand of some 200,000 homes in what it describes as the middle income bracket, those on annual incomes ranging from $4,700 to $35,000.

“The developers have been unable to find the right model to build affordable housing,” Patrick Gaffney, real estate analyst with HSBC, said. “But they will have to reach into the middle income because, while there can always be sales at the high end, volumes will never be as great.”

Changing attitudes
One way to unlock the middle income property market would be to expand mortgage lending. Mortgages make up less than half a percent of GDP, compared to 14 percent of GDP in Morocco or over 80 percent in Britain in 2008.

Total mortgages in Egypt stand at $0.78bn and represent no more than 75,000 customers. “That is nothing. It is equivalent of one firm’s sales for a year,” said Yasseen Mansour, chairman and CEO of developer Palm Hills. “Mortgages will have to grow.”

New laws drafted by the government may start to address some problems cited by lenders. For example, they will allow agencies to evict those who default on loans in six to seven months, as opposed to as much as seven years under the current system. But other obstacles have yet to be addressed. Iman Ismail, managing director of Egyptian Mortgage Refinance Company (EMRC), said less than 30 percent of the country’s property is registered, which is a problem for lenders who need to keep housing deeds as collateral against the loan.

Analysts say attitudes also need to change among conservative banks, who set interest rates that can be 13-14 percent, prohibitively high for even well-paid applicants like Amr Amin, a graduate from a top university with a steady job.

“The banks were charging ridiculously high interest rates that would have made me completely broke,” said Amin, who resorted to his family for support in buying an apartment.

Orascom Development Holding (ODH) is a pioneer in affordable homes with its Haram City project, near the pyramids of Giza. The aim is to house 25,000 people in 11,000 units. “Our business model needs this mortgage market to grow for others to replicate,” Omar Elhitamy, managing director of the ODH unit Orascom Housing Communities.

Pandora’s box
Finding calm in Cairo is almost impossible amid the hooting cars, loud voices and general bustle of millions of people making their way in one of the world’s largest cities. Residents, who at times have to circle the block several times before finding a parking spot under their own buildings, want out of the congested and suffocating metropolis, where the sun is often obscured by a grey layer of pollution.

Developers looking to capitalise on a government plan to create nine satellite cities in the desert flaunt advertisements of running children in a safe and clean idyll, a far contrast from the dirty, bumpy roads of Cairo. But firms have become more cautious about any new projects because of a spate of legal challenges contesting state land sales. Those erupted after a court ruled last June that the land contract for Talaat Moustafa Group’s (TMG) flagship Madinaty project was illegal as it was not sold at auction.

The government said it would uphold the court ruling by scrapping the original contract but would resell the land to TMG under its right to act in the public interest. Investors welcomed the swift action, but it has not stopped copycat cases. “The court’s decision really opens Pandora’s box,” Palm Hills’ Mansour said. Suits have been raised against Palm Hills, Egyptian Resorts and Cairo-based Egypt Kuwait Holding.

The government has pledged to draft new legislation aimed at resolving the muddle, which is caused by two conflicting laws – the first allowing the state to sell land directly to developers and a second saying it must be sold at auction.

“I think the government will fix it but I think they are going to be slower than everyone expected. It is very complicated and it is so political, there are very few things that are as political as land,” HSBC’s Gaffney said.

“I want to get married and I need to find an apartment. I pick up the classifieds and there are lots of villas,” said David Nabil, a 25-year-old DJ who makes $156 a month, putting him in the low income bracket. Nabil has been hunting for a flat for three years but has been priced out. His best find so far was in Sharabiya, a poor district of Cairo, but even there, the apartment was selling for close to $35,000, way out of his budget.

“I won’t lie to you, our country has money and it has property, but it isn’t for us,” he said.•

To Russia, with greenback

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Eleven years ago, I reported on a conference in New Zealand of the fast-rising Asian nations. It was a high-powered meeting attended by just about everybody who mattered in the region including president Clinton, the Chinese prime minister and other heads of state and, surprisingly, a big contingent from Russia.

During the final session, a leading Russian economist got to his feet to discuss the state of his nation which was then in some turmoil as a new breed of oligarchs fought for the spoils of the old Soviet economy from oil fields to banks. Surprisingly candid, he started by bemoaning how Russia was always in the headlines for the wrong reasons – kidnappings and assassinations, social instability, gyrations of the rouble and a variety of other horror stories in a nation that had turned into something of an economic wild west.

“What we need is for Russia to be boring,” he said. “Much more boring.”

After another decade, has much changed? As Russia enters its second great round of privatisations of state-owned companies, the turmoil has certainly subsided, the political environment is much more stable and foreign investment, although lumpy, has been growing. Yet Russia doesn’t look nearly boring enough.

Banks and airlines
Russia wants – and needs – a steady flow of western, MidEast and Asian capital of at least $100bn a year to renew its many obsolete factories and its general infrastructure. But the government also wants to turn all that infrastructure into roubles. Thus in October prime minister Vladimir Putin announced the biggest sale of state-owned assets since the anarchic privatisation process that followed the collapse of the Soviet Union.

In round figures the Kremlin is looking to raise around $59bn as banks such as VTB Bank – the Citibank of Russia, and nationwide savings institution Sberbank go on the auction block along with factories, transport companies, airlines, airports and much else. The government isn’t confident enough to sell 100 percent of its state-owned silverware and wants to retain control of many of these assets. For instance, among other minority shareholdings on offer to bidders will be 15 percent of oil giant Rosneft, 25 percent of Russian Railways, a monopoly, and an unnamed slice of Aeroflot.

Also, it’s a highly political process where the heavy hand of state management is apparent. We’ve already seen the addition and/or removal from the list of certain companies such as oil pipeline-owner Transneft in the general horse-trading leading up to the compilation of the list.

Still, while it’s not quite “everything must go”, the list adds up to a comprehensive clearance of stock. Altogether no less than 900 state-owned firms will go up for sale, or parts thereof.

Nor is it going to happen overnight. In what all observers see as a stern and extended test of Russia’s ability to conduct a proper privatisation process along transparent, international lines free of political interference, the bidding will start this year and run for another three to five years.

It’s likely nothing quite like it will happen again and there’s hardly a significant international investor, especially the cash-rich sovereign wealth funds, that isn’t investigating the assets in the shop window. But, just as importantly, they’re scrutinising the protection that potential investors can expect from a country whose legal systems are, by common consent, a work in progress.

A very particular market
Yet as this commercial revolution unfolds, there are serious doubts whether the administration of Vladimir Putin has done enough in the last decade to attract the required avalanche of fresh capital. As Andrey Goltsblat of Goltsblat BLP, Moscow-based international law firm, wrote recently in Global Treasury News, Russia promises potentially lucrative opportunities and good economic prospects, particularly in comparison with the highly indebted doldrum economies of western Europe as they recover from the financial crisis.

However, he warns: “The Russian market has a particular legal, regulatory and business landscape for potential bidders to navigate and investors will need to tread carefully.” In short, a minefield. 

Russia experts, particularly those who live there, make no bones about the risks in buying into state-owned companies where municipal or other authorities have long exercised control and are unwilling to cede it. All too often, many such authorities continue to regard a new owner as simply another shareholder with few, if any, of the rights that proprietorship confers in the west. And as a number of international firms have found to their cost, their investment may not be protected by the courts, which have routinely repudiated contracts or allowed them to be rewritten on the emergence of “new evidence”.

“Russian corporate law is rapidly developing and operates differently to international legal systems,” summarises Goltsblat.

However many investors are unhappy with the direction in which the law is – or isn’t – developing. This is why western sources of capital are often forced to fall back on courts outside Russia to settle any disputes, particularly the London Court of International Arbitration whose rulings are enforceable in Russia.

Ominously, few details have been released so far about how the public auction process in the privatisation programme will work. As for the courts, they have little experience of adjudicating a fully transparent, international privatisation programme with its inevitable points of dispute.

The Kremlin’s oligarchs
Although there are certainly successful cases of foreign direct investment in Russia, generally in privately-owned, retail businesses, there are too many nightmare stories where oligarchs, often working in concert with the authorities and/or the Kremlin, manage to wrest control from original investors.

The list of globally significant companies that have fallen foul of the system grows almost by the month. Motorola has retreated from Russia after its local supplier was charged with corruption (he had reportedly refused to pay bribes). Ikea has been in Russia for a decade, but has routinely stopped investing there in protest at spontaneous charges of corruption among other issues. (Local authorities switched off Ikea’s power on its big opening day.) Health and hygiene group Kimberly-Clark has twice lost court cases over previously approved boundaries of its factory and has both times had to relocate the factory, but it’s far from alone. Norwegian communications group Telenor, Royal Dutch Shell and BP: All have nightmare stories about doing business in Russia. 

Oil and gas ventures are a particular problem. Infamously, BP lost operational control of its 50:50 TNK-BP venture to oligarchs associated with the Kremlin, ostensibly over a variety of accusations that the UK-based company vehemently denied. TNK-BP’s then manager, Bob Dudley, had to flee the country in 2008 and briefly run the business from a secret location.

Likewise many of Russia’s leading businessmen have fled the country after getting on the wrong side of the Kremlin for one reason or another. Indeed it’s safe to say that no other country is pursuing so much of the wealth of so many of its voluntarily exiled businessmen. Just one of these is UK-based Boris Berezovsky who was sentenced in absentia to 19 years in prison on charges he describes as a “farce”.

Meantime the plight of Mikhail Khordorkovsky, the former chief of oil giant Yukos, is hardly doing the privatisation programme much good. He’s already spent eight years in a Siberian jail for allegedly stealing $27bn of Yukos oil – the exact amount the state happened to claim in back tax taxes. Since the government had already frozen all of Yukos’ assets, it naturally couldn’t pay up. Eventually, in 2006, a Russian court declared Yukos bankrupt and most of the firm’s assets were sold at rock-bottom prices to oil companies owned by the government.

The unfortunate Khordorkovsky is now facing another six years in jail on what are widely claimed as trumped-up embezzlement charges. The Parliamentary Council of Europe has condemned the government’s campaign against Yukos and its owners as “a violation of human rights.”

The sacking in September of long-serving Moscow mayor Yuri Luzkhov triggered further allegations of corporate cronyism in the Kremlin. He was shown the door by Medvedev after months of simmering tensions between them over the latter’s frustration with the mayor’s handling of the summer bush fires that led to wholesale evacuations. Ever since Luzkhov has complained publicly that Kremlin-linked oligarchs are intriguing to break up the construction empire of his wife Elena Baturina, Russia’s richest woman with $1.4bn in assets, and divide it up among themselves. In turn Luzkhov has long been accused of steering fat city contracts into the hands of companies in the control of his wife.

A founding member of Putin’s United Russia party, Luzkhov clearly feels betrayed and warns that Russia is reverting to “a collective authoritarian state.” By way of precaution against kidnapping, he has relocated the couple’s two daughters to London.

Transparent as Zimbabwe
The collective impact of these events has done nothing for Russia’s commercial reputation. Its rating for commercial transparency was already appalling, with Transparency International putting Russia in 146th place in its corruption perception index, equal with Zimbabwe and Sierra Leone. Needless to say, neither of those last two nations is planning a massive privatisation programme.

Unless it quickly improves its game, Russia could be walking a tightrope in foreign investment, warns Washington-based Frontier Strategy Group, a corporate advisory firm specialising in emerging markets. The group points out that as recently as five years ago companies with ambitions in Eastern Europe generally made a start in Russia because of its enormous market of 142 million people and, with that beachhead established, moved on to develop the business in other former Soviet nations.

However that trend is reversing rapidly for two reasons. The first is that Russia’s relations with border nations deteriorated markedly under Putin’s presidency and have not improved greatly despite Medvedev’s best efforts. The second is that these former Soviet Union countries are so anxious for foreign investment that they are trying harder than Russia to adopt best practice.

Not only does Russia need western and Asian capital, it also needs outside management skills. “There are so many uncompetitive factories, what do we do with them?” asks Yuri Novozhilov, president of state-owned Trans Kredit Bank. Competing factories in China generally run on a quarter of the operating costs. Potential investors, manufacturers in particular, are wising up. Many now make sure to select a range of sites for their factories before making a final decision about where to locate them. In this way they are able to apply pressure on local authorities to provide the essential services with a minimum of bureaucratic delays and bribes. According to the Financial Times, agricultural equipment giant John Deere got a factory going in seven months from start to finish, apparently an all-time record, by doing its homework first. It made sure to select an area run by a progressive local council with which it could work. But generally it costs twice as much and takes 70 percent longer to establish a comparable factory than it does in China.

Putin is pivotal
In all this the role of Putin is considered central. A former KGB spy, he served two terms as president before compulsorily kicking himself downstairs to become prime minister. Judged by his own remarks, it seems Putin wants to stand again for the presidency, probably up against his former protégé Dmitri Medvedev, a leading international and commercial lawyer before he became a key member of the former KGB man’s team.

Right from the start of his presidency, many saw Medvedev as a stop-gap replacement. In the last few years, a clear split has developed between the two men over economic direction and levels of official corruption. While Putin insists the economy is healthy and well on the way to being the energy superpower which he believes is Russia’s future, Medvedev says reform is long overdue and Russia’s dependence on oil is “primitive”. Putin is also seen as highly ambivalent on corruption while Medvedev has gone so far as to deplore Russia’s “legal nihilism”.

Although Russia hasn’t got the levels of debt of several western nations, nor has it the economic robustness and diversity required to raise domestically the funds it needs to expand further. The budget deficit is running at around $60bn a year – three percent of GDP – and Russia relies on high oil prices to restore it to good order. As economic commentators point out, Russia is so dependent on its raw energy that the budget cannot balance unless the price of Urals blend, Russia’s equivalent of Brent crude, hits more than $100 a barrel.

By themselves, domestic debt markets cannot possibly raise $60bn a year. Thus the success of the privatisation programme is crucial. The state of the stock markets is hardly conducive to the great privatisation. As Russian investors largely keep their hands in their pockets, current valuations languish in the doldrums, stuck at roughly the same levels as they did in 1999. Valuations are a long way behind other Bric nations. For instance, Russian companies trade at around seven times earnings, roughly half the ratio prevailing in developed economies and a long way behind Brazil (13 times earnings), China (15 times) and runaway India (20 times).

The banking industry is a relatively bright spot. It weathered the financial crisis of 2008-2010 safely enough, albeit with a lot of help from the central bank that dug into its reserves to pump liquidity into ailing institutions. Transparency not exactly being a way of life in Russian banking, as in commerce generally, the precise figures have never been released and probably never will be.

In what remains largely a command economy, the financial sector is hedged by a thicket of laws designed to protect the rouble. For instance, say bankers, transfers of the currency from resident to non-resident accounts must navigate multiple currency-control regulations. Acting as agents of the central bank, retail institutions must check all commercial payments over the modest amount of $5,000.

There are signs that the privatisation may stir Russia into adopting more orthodox and international standards in the courts and elsewhere. For instance, the finance ministry has sought advice from various foreign and domestic institutions about how best to proceed, and it was told to engage more openly with the international economy. For a start, it should join such pivotal global organisations as the World Trade Organisation.

But clearly the most important reforms must be made in the areas of corruption, central and local, and in transparency. When Russia’s commercial practices are more boring and predictable, foreign investment will pour into what is, after all, a country of exciting potential.

The security of green metal

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The wind, sun and tides are free. And they will always be freely available, unlike the world’s dwindling coal and oil supplies. Hence one argument in support of fossil fuel alternatives is that they bolster our increasingly fragile energy security.

But just how sound is this argument? Natural sources of energy may be freely abundant, yet the technologies used to harness that energy still rely on rare components. But most industrialised nations, including the US, are almost entirely dependent on foreign sources for those metals.

If the West wants to improve its energy security, then it needs better access to scarce metals. The only way to achieve that is for Western governments to invest in domestic exploration and mining – neither of which is generally associated with “going green”.

“There’s a misunderstanding in the public about moving to alternative energy and moving from mining, which can’t be done,” says James Burnell of the Colorado Geological Survey.

There is a long list of scarce metals needed for alternative energy and transportation. Metals like gallium, indium, selenium, tellurium, and high purity silicon are needed to make photovoltaic panels. To make batteries there’s zinc, vanadium, lithium and rare earth elements as well as platinum group minerals for fuel cell-powered vehicles.

Worryingly, one of the biggest players in the scarce metals game is China, and they are starting to play hardball, says Burnell. China is preparing to build 330 gigawatts worth of wind generators. That will require about 59,000 tons of neodymium to make high-strength magnets – more than that country’s annual output of neodymium. If China goes ahead with its plans, it will have little or no neodymium to export. New sources of these critical metals are needed, says Yasushi Watanabe of the Institute for Geo-Resources and Environment in Tsukuba, Japan. He called for new methods for extracting rare elements from different rock, too.

“Extraction methods of metals from new minerals and materials are not well established,” says Watanabe. “We need to develop new refining and smelting methods for new type ores.” In the meantime, says Burnell, policy-makers and the public seem only superficially aware of the threat to vital supplies. Trade wars are on the horizon, he predicts.

Reading the leaves

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Mystics claim they can predict the future by “reading” tea leaves. They might be on to something after all. Stock-pickers wanting advance warning of the next financial downturn could learn a lot from plants, a new study suggests. There are a lot of similarities in the way that plants and stock markets – and people, too – react to crises, according to a team of academics. They analysed biological and financial data and found that systems under stress exhibit common symptoms, whether they be polluted forests, cancer patients or the FTSE 100 index of leading companies.

There is an uncanny parallel between the way that humans, animals and plants adapt to harsh living conditions and the behaviour under stress of stock market prices and the banking sector, the academics argue. Warning signs can be detected – even before obvious symptoms occur – by charting the interdependence and volatility of key factors, they claim.

The team, led by Alexander Gorban, a Professor of Applied Mathematics at the University of Leicester, call their “order in chaos” theory the “Anna Karenina Principle”. That’s a reference to the Tolstoy novel which opens with the words: “Happy families are all alike; every unhappy family is unhappy in its own way.”

Professor Gorban explains that people, plants or stock markets function in a similar way until things go wrong. At that point, they start to react differently.

Studying how systems facing stress react in terms of becoming more interdependent and volatile reveals patterns. These can help to predict when a crisis may occur and the likelihood of death or recovery, he says. A key finding is that as the crisis approaches, systems become more dependent on each other but at the same time more likely to react differently.

A study of Scots pine trees near a power station confirmed the theory. The average compositions of the needles was similar to those outside the polluted area, but the variance and interdependence of individual components were far greater. The report says stocks and shares showed a similar pattern during the financial crisis. Stocks became more interdependent and volatile as the FTSE100 fell. But by the end of the year the system became less connected and even more volatile. This, says Professor Gorban, suggests a crash was due. Financial systems were failing to adapt to the new market conditions.  If only we’d watched the trees.•

Energy City Qatar powers up

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Energy City Qatar (ECQ) is a hugely ambitious energy project which is breaking new ground in the fields of energy, technology and sustainability in the GGC state of Qatar. The sheer scale of ambition and technological prowess being thrown at the project is testament to Qatar’s ambition to be taken seriously as a major energy hub.

That is, very seriously. In fact, ECQ aims to be the only energy hub in the Middle East – possibly for a very long time. “The idea came from a wide variety of very successful energy hubs from around the world like Houston, Calgary, Singapore,” says Energy City Qatar CEO Hesham Al-Emadi.

“This is where ECQ comes in. It aims to create a dynamic and progressive hub supported by the latest information technology and be a single point of access to the energy industry.” It’s also a genuinely green city, claims the Energy City boss. “We’ve made sure that all the materials for the buildings come from sustainable sources and comply with all major green credentials.”

High standards
ECQ is not at all an industrial city – it is a commercial hub. Building green means construction must adhere to certain certified high standards inclusive of compulsory consideration to air, water, and energy conservation factors. Well, that must be clear even to the most casual observer. The aim though is not just to make Energy City Qatar a major energy hub. Hesham Al-Emadi thinks its ambition should be sufficient to propel the city as the world’s first fully serviced and connected eCity in the world upon its completion.

eCity? Think fiber optic network infrastructure, a data centre providing the full range of security, telecommunications and building management services. There will also be Intelligent Traffic Management Systems, and a comprehensive, responsive Management Services facility. Throw in too a Shipping Brokerage and Logistics operation: ECQ will provide a full logistical service covering all types of shipping, booking, receiving, bill clearing, and insurance for any type of oil and gas-related goods, materials, machinery, and also dry and wet goods.

The project naturally has the full support of the Qatari government and will lead the way in hydrocarbon above-ground resource development. So ECQ is clearly more than a cluster of businesses battling for all-out market superiority. An important part of this project’s ambition is that ECQ becomes a centre of excellence for the energy industry as a whole to interact together, compete and co-operate, at both commercial and technical levels.

Open for business
In order to support ECQ, the Qatari government is ensuring the local infrastructure – transport links in particular – are up to the job. “We are making sure that a new metro is being built that will link the airport of the city and business parks. The location of ECQ is also excellent, in the north of Doha, very close to the airport,” says Hesham Al-Emadi.

The site should also be open not just for huge multi-nationals (several have already committed their interest) but smaller SME businesses that can absorb many of the downstream opportunities that will be offered. In other words, a single point of access to markets and expertise – the full range of the energy industry – with extensive marketing and financial services, all under one roof. In addition, IMEX, Qatar’s own energy trading platform, will help develop an energy-trading base in the Middle East for its own products, a landmark move. This will enable better assessment of the market, risks and prices as well as offering plenty of financial flexibility and liquidity through futures and derivatives-based tools.

A cleaner footprint
It’s well known that Qatar’s economy is expanding at a massive pace. It remains a hugely wealthy country. But that wealth also impacts too, of course, on its carbon footprint, which is also rising as the country becomes more financially confident.

But Qatar is also a very big major exporter of liquefied natural gas (LNG), widely considered as clean energy. In fact, 25 percent of US and UK LNG energy is now supplied by Qatar. The country also holds the world’s third largest gas reserves after Russia and Iran. It’s highly likely it will increase its output in the future.

“Because Qatar is such a big producer of LNG,” says Hesham Al-Emadi, “that means we are actively replacing far more polluting energy sources. ECQ is also making much of use of its extensive water recycling facilities. “Most of our water is recycled or used for irrigation. A lot of our consumption is also minimal because it is just from office use, rather than residential use.”

Also, Qatar is spending billions of dollars on real estate projects in an effort to cut reliance on oil and gas income; currently this contributes to 60 percent of GDP and 66 percent of state revenues.

The countdown begins
So it’s clearly a tremendously exciting time for Qatar and ECQ. Vertical development is not yet complete – it is scheduled for next year – yet huge interest is already being expressed by major companies planning to install themselves in ECQ when it formally opens for business. It is almost inevitable that large players like Exxon Mobil and Shell will want to open their regional headquarters in the city, predicts Hesham Al-Emadi.

“We have developed a partnership with Microsoft and Cisco to design a state-of-the-art holistic technology project master plan,” he says. “We have also signed a contract with AT&T to design a new data centre. We want to provide the kind of facilities that companies increasingly need, not just now but well in the future.”

He adds: “We’re also working to develop an energy procurement and visualisation centre where companies can make use of very high tech oil and geological equipment. All this can be shared. This is really quite unique.”

Energy City Qatar in brief:
– Located north of Doha at Lusail, a new master development by Qatari Diar
– Consists of 92 plots on 720,000 square metres of land
– Launched in March 2006 at estimated value $2.6bn
– Target clients: upstream and downstream energy industry
– Aiming to be the World’s first fully LEED Certified Development – all buildings within the city will be designed with minimum Silver LEED Certification
– Qatari Diar is the property wing of Qatar’s sovereign wealth fund, Qatar Investment Authority
– Encompasses 1.2 square kilometres and employs as many as 20,000 people

Hesham Al-Emadi joined ECQ in 2006 and was appointed CEO in 2007. He has held a number of key positions in the energy industry and is an expert in energy research and investment.

Modest measures secure limited climate conviction

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The UN’s COP16  conference on climate change, held at Mexico’s idyllic beach resort of Cancun, could claim a victory for setting in motion new climate initiatives after previous agreements had otherwise all but stalled.

With issues of carbon and emissions trading on the table, expectations were for further deadlock. And it may have been the case were it not for Mexico’s foreign minister, Patricia Espinosa. Her master stroke, of pulling all delegates away from stagnating private talks to meet together late on the Saturday night, effectively turned the tables. With nations combined, delegates succumbed to what has been described as a wave of euphoria, making vital concessions that allowed new motions to be carried through.

Though avoiding the big issues, rich nations did commit to contributing to a climate change fund, the result of which will see $100bn a year raised by 2020 to help tackle the problem. There were also breakthroughs on the REDD+ incentives to help reduce the destruction of rainforests, which again crucially saw more prosperous nations committing funds. Finally, a commitment to allowing a maximum rise of two degrees Celsius was also agreed, alongside more minor agreements to improve areas such as transparency and communication.

Though meagre, these measures are significant. Monetary commitments will prove a crucial step to funding the necessary measures to reduce climate change. Meanwhile the drive to reduce deforestation holds the potential to reduce global carbon emissions by as much as 15 percent.

The greatest success of Cancun however is that deals were struck at all. Based on the failure of previous conferences and with nations embattled in their own personal economic crises, the ability for all to see the bigger picture and take action on it deserves some applauding.  

Aim low
The disastrous summit of 2009 in Copenhagen had set the bench mark for Cancún at rock bottom. Such low expectation appears to have affected delegates as the initial agreements reached triggered a domino effect of objections collapsing and concessions being breached.
 
The success of the Cancun conference has been attributed to developed nations’ effective quieting of the dissent of some socialist Latin American countries. Climate change proves a tricky issue for Latin America, as it tries to match its aims of further economic development while ensuring environmental sustainability. The apparent unwillingness of the US, China and Europe to commit to measures in the past has therefore smacked somewhat of hypocrisy.

Bolivia in particular has stood by the viewpoint that safeguarding the world from climate change is incompatible with capitalism as it is now. Its representatives remained as one of only a few voices of dissent at how the end of the conference, with most nations from the region content that developed nations were finally ready to stump up the case to stop climate change.  

Even some of the failures of the conference – notably the absence of an emissions agreement to succeed the Kyoto protocol or establishing a price for carbon trading – have been heralded as potential successes. Less formal arrangements on emissions have seen nations step back from their usual global political positions and the potential exists that this laissez-faire approach may also yield greater cuts than formalised agreements.

In times of unprecedented global budget crises, the chances are that the huge sums discussed at Cancun will face an inevitable knobbling. Yet what can be taken from Cancún is that inclusion is the way forward. Copenhagen failed because the old cliques refused to acknowledge the demands of smaller and less prosperous nations – invariably the ones hit hardest by climate change. In Mexico, Mrs Espinosa levelled the playing field. And that was what it took to break the ice.

Leaking from the truth

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With  the unprecedented release of a quarter of a million classified U.S. State Department cables from embassies around the world, a new era is dawning. Political change and reform are inevitable world-wide and at long last, there’s a chance for peace and stability in the Middle East. Really.

This is how Julian Assange, the Australian founder of WikiLeaks, views the effect of the dispatches that lay bare the inner workings of U.S. diplomacy, provide frank and often titillating detail of the shortcomings and foibles of foreign leaders, report on the breath-taking scale of corruption in such places as Afghanistan and Russia, and note that – surprise, surprise – Arab leaders in particular tend to say one thing in public and quite another in private.

“The…media scrutiny and the reaction from government are so tremendous that it actually eclipses our ability to understand it,” Assange said in an interview with Time magazine on day 3 of the data dump, which began on November 28. “I can see that there is a tremendous re-arrangement of viewings about many different countries. And so that will result in a new kind of harmonisation…”

The Frequently Asked Question section of the WikiLeaks website explains why things are looking up for Middle East peace. “These cables, by giving the players an unvarnished description of how they are seen…(provide) common ground on which to effectively negotiate peace and stability.”

The phrase “irrational exuberance” comes to mind, and the suspicion that fame and notoriety have driven the former hacker away from the reality-based community and pointed him towards Utopia. In his version of Utopia, there are no lies, double-talk, secrets, confidential conversations and wheeling-and-dealing. It’s a brave new world with perennially open microphones.

WikiLeak’s original intent, when it was established in 2007, was to leak secret documents for the sake of greater transparency. That has been redefined.

“It’s not our goal to achieve a more transparent society,” he told Time, “it’s our goal to achieve a more just society.” Who could argue with such a lofty goal? And who can explain how a society, let’s say America’s, can become “more just” by exposing that its diplomats manipulate, cajole, and don’t mince words when they report back to Washington how they see their host countries?

Despite Assange’s bombastic predictions, the leak of the embassy messages may prove to be counter-productive in the long run. It’s almost certain that there will be less transparency in foreign affairs in future, not more. The document dump will probably cramp efforts to reduce the over-classification of documents, according to Steven Aftergood, a veteran campaigner against excessive government secrecy who has been sharply critical of WikiLeaks.

“It has an anarchist approach,” he said in an interview. “It doesn’t have any well-defined agenda other than foster chaos, suspicion and distrust.”

None of the leaked cables was marked Top Secret, a label which would have kept them from the shared network from which they appear to have leaked. The State Department and the Pentagon began sharing the Secret Internet Protocol Router Network (SIPRNet) after the September 11, 2001, attacks to make it easier to connect the dots the government failed to connect before al-Qaeda struck New York and Washington.

As part of the post-leak security crackdown, the routine of closing the stable door after the horse has bolted, the White House set up a commission charged with figuring out new ways to keep classified documents secret. The State Department disconnected itself from SIPRNet, to which around three million users with “secret” clearances have access.

Contrary to Assange’s belief, stated in various interviews, that the American public favours WikiLeaks’ approach to secrecy – in essence, there should be none, ever – a poll released by Zogby Interactive on December 2 showed that 77 percent of some 2,000 surveyed saw WikiLeaks as a national security threat and 63 percent were opposed to U.S. news organisations publishing the documents.

Such views are no doubt shaped by a steady drumbeat of dire warnings from political leaders, administration officials and right-wing talk show hosts that publishing the diplomatic dispatches “could put at risk the lives of countless innocent individuals,” as the U.S. State Department’s legal advisor, Harold Koh, wrote in a letter to WikiLeaks. From the cables so far released, this is as difficult to see as Assange’s “new kind of harmonization.”

Would the lives of American diplomats in Moscow be in danger because one of the cables described Russia as a “virtual mafia state?” Or those in Berlin for portraying Chancellor Angela Merkel as risk-averse and lacking creativity? Or the Paris embassy for describing French President Nicolas Sarkozy as “the emperor with no clothes?”

All very embarrassing, to be sure, both for the subjects and for the authors who thought their dispatches would be safe from public scrutiny until unsealed at the request of  historians in 25 years. But life-threatening?

The unintended consequence of the WikiLeaks dump will be self-censorship, smaller distribution lists and higher security classification, all combining for less transparency. And the real secrets will be conveyed the old-fashioned, pre-Internet way – from mouth to ear.

The social network

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Contrary to common belief, network and social media websites such as Facebook do not reduce social interaction skills but strengthen them in unique ways for different age groups, according to a new study.

The rapid spread of Facebook, which has more than 500 million users worldwide, has prompted concerns about its negative effects. But researchers at the University of Texas have reached a different conclusion.

 “Our findings suggest that Facebook is not supplanting face-to-face interactions between friends, family and colleagues,” said S. Craig Watkins, an associate professor of radio, TV and film who headed the research team.

 “In fact, we believe there is sufficient eviden    ce that social media afford opportunities for new expressions of friendship, intimacy and community.”

 The researchers questioned 900 college students and recent graduates about how and with whom they interact on Facebook.

 More than 60 percent of Facebook users said posting status updates was among the most popular activities, followed by 60 percent who wrote comments on their profile and 49 percent who posted messages and comments to friends.

 The researchers also found that although about the same number of men and women use Facebook, they do so in different ways.

 “There is a noteworthy difference in orientation in how to use a tool like Facebook. We found that for women the content tends to be more affectionate, and (they) are especially interested in using it for connection,” said Watkins.

 “For men, it’s more functional,” he added.

 Watkins pointed out that, for example, women are more likely to post pictures of social gatherings with friends, while men are more likely to post pictures of hobbies, or post a political or pop-culture related link.

 He added that increased use of Facebook brings additional challenges as young adults are forced to adapt their Facebook behaviour to an increasingly large social circle.

 “Facebook brings all our different networks and social scenes together. We present ourselves in different ways, whether to friends, co-workers, or family,” he said. “Facebook engagement is not uniform. It’s constantly evolving and in a state of flux, and that presents a challenge.”

Eye-spy begins for NY Police

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New York City Police have made moves to tackle identity fraud of arrested individuals through keeping a record of their eyes. Across Manhattan, 21 stations have been set up where suspects will have their irises scanned alongside the traditional mug shot photograph and fingerprinting as a form of identification.

It’s long been known that the patterning of each eye – and specifically the iris – is unique in every individual, and a variety of security and identification applications have been considered for iris-recognition technology. However, devices have previously proved too impractical for everyday use. The scanning devices being used by police are similar in size and appearance to hand-held barcode scanners making them more practical for use.

The introduction of iris-recognition technology in New York comes in the wake of the escape of two prisoners, who were released after they disguised themselves as prisoners on lesser charges. It is hoped the technology will go some way to preventing such incidents happening again.

Civil liberties groups have warned that the technology could face abuse and that ever more personal information about individuals stored by authorities posed a concern. Police have argued however that the scans are no different to mug shot photographs and did not represent a privacy concern. Additional scanning stations are planned for across the New York city area.

CERN isolate anti-matter

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Though only for around a tenth of a second, scientists at the research institute on the Franco-Swiss border have been successful in trapping around 38 atoms of anti-hydrogen in probably the most significant scientific break through of the 21st century so far.

The atoms of anti-matter were captured when around 10 million positrons at a temperature of -230 degrees Celsius and 700 million anti-positrons at around -70 degrees Celsius were fired around CERN’s 27km long particle accelerator. Smashing into each, a small number of the resulting anti-hydrogen atoms were moving slow enough due to their temperature to be registered by sensors before being annihilated as they came into contact with conventional matter.

The result marks a landmark moment for science. The eventual aim of the project is to slow enough anti-hydrogen atoms to a speed where they can undergo laser spectroscopy to determine their structure and make-up. Scientists at CERN hope to achieve this aim later in the year when new methods of atom cooling are trialled. The results from this could alter our fundamental understanding of physics and the structure of the universe.

The announcement provides some good news for the research institute which has faced a variety of problems in recent years. In 2007, miscalculations caused part of the £2bn particle accelerator to become damaged, causing setbacks to the project. CERN has also faced media speculation that its activities could cause black holes to occur.  

The recent successes in safely isolating anti-hydrogen have largely silenced critics. Yet scientists remain a very long way from achieving the dreams of science fiction fans of using anti-matter for practical applications, chief among them as a form of propulsion for air of spacecraft. The event nevertheless represents the first step into a significant new field of scientific discovery.

US, China and a soup fork

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The question, long debated, is worth pondering again at a time when two economic giants, the United States and China, are sparring over trade, currency exchange rates and their roles in the global economy.

In the run-up to US mid-term elections on November 2, politicians from both parties, for different reasons, blamed trade with China for American job losses. China responded with irritation and hit back by accusing the US of “out of control” printing of dollars tantamount to an attack on China with imported inflation.

Measured by GDP, the United States tops the list of countries. China overtook Japan in August to become number two. Depending on whose forecasts you believe, China will overtake the United States in 2020, 2035 or 2040 and therefore turn the 21st century into the long-predicted Chinese Century. It’s becoming conventional wisdom that the United States will play a reduced role on the world stage.

Crystal ball gazers might do well to remember that long-range forecasts have often been wrong in the past. At the turn of the 20th century, eminent strategists predicted that Argentina would be a world power within 20 years. In the late 1980s, Japan was seen as the next economic leader, on the strength of supposedly unstoppable progress. Forecasters extrapolated from past GDP growth rates.

They are widely used to compare standards of living in one country with those in another but critics say GDP is too narrow to be a realistic indicator. Joseph Stiglitz, the Nobel-prize winning American economist, has complained that world leaders make a fetish out of it and suffer from GDP-obsession.

John Robbins, a liberal author, says that using GDP as a measure of overall progress makes as much sense as “using a fork to eat soup.”

Why? GDP, developed in the 1930s, measures the total monetary value of all goods and services. It goes up whenever money changes hands, no matter whether that money is borrowed or on what it is spent. The billions it cost to clean up the Gulf of Mexico after this summer’s disastrous oil spill, for example, counted towards America’s GDP.

Viewed solely through its lens, Robbins says, someone treated for a complicated cancer while at the same time paying steep legal fees for a divorce is someone helping make GDP look good.

US, China low on human development index
Where GDP fails is as a measure of living standards, particularly in a country like China which is both a manufacturing powerhouse and a Third World country where more than a third of its vast (1.3 billion) population live on less than $2 a day. GDP per capita is not a particularly reliable indicator either. It measures the average (not the median) which results in distorted figures in countries with great income inequality.

The Nobel-prize winning American economist who designed the gauge in the 1930s, Simon Kuznets, did not mean it to be an indicator of a nation’s overall well-being but that’s how it came to be seen widely. According to Stiglitz, this tends to land politicians in a dilemma. Their goal is to boost GDP but they also face demands from citizens for policies that lower GDP, from better security to anti-pollution measures.

Stiglitz chaired a commission, established by French President Sarkozy in 2008, that looked into different ways of measuring prosperity and produced a 300-page report last year that came up with a range of recommendations to measure both well-being and economic output. (The commission did not suggest dropping GDP). When, if and how widely they will be implemented is open to question.

In the meantime, those dissatisfied with GDP as the principal measure can compare its country rankings with the Human Development Index, a gauge that was adopted in 1990 by the United Nations and is compiled from data on life expectancy, education and GDP per person. On the 2009 index (this year’s will be released early in November) neither the US nor China fare well.

 The US comes in 13th place (having dropped a slot from 2008) and China at 92nd, out of 182. A long way from the top.