External Economies of Scale

Economic textbooks will tell you about Economies of Scale. Many even mention External Economies of Scale, but it is often hard to visualize any realistic example of where this is actually the case. This is a very good, high profile example of external economies of scales from The Economist when discussing comparative advantage.

What Shenzhen has to offer on top is 30 years’ experience of producing electronics. It has a network of firms with sophisticated supply chains, multiple design and engineering skills, intimate knowledge of their production processes and the willingness to leap into action if asked to scale up production.

What Shenzhen provides, in other words, is a successful industrial cluster. It works for Apple because many of the electronic parts it uses are commodities. The real innovation lies in designing the product and creating smart software, which is the speciality of another successful cluster, in Silicon Valley, where Apple is based.

Hong Kong people feel more Hong Kong

Since going to UWC Atlantic College, I’ve been faced with having to explain the distinction between coming from Hong Kong and coming from China. It is, in all honesty, a small distinction, but one that many people in Hong Kong hold dear. With all the problems now associated with China, it seems hardly a surprise that HK people now attempt to distinguish and distance themselves from the social and political upheaval just across the boarder.

The SCMP recently reported on the 29th of December 2011 that

Despite increasing economic integration, locals are viewing themselves more strongly as Hongkongers rather than Chinese citizens than at any time in the past decade, a survey has found.
The poll asked 1,016 city residents to rank the strength of their feelings as “Hong Kong citizens” on a scale from zero to 10, and found an average rating of 8.23 points, a 10-year high.
Asked the same question about their identity as “Chinese citizens”, the average rating was 7.01 points, a 12-year low. The poll was conducted from December 12-20.

For me, the more convincing explanation of this statistical result is given by Dr. James Sung:

Political scientist Dr James Sung Lap-kung said the weakening local sense of a “Chinese citizen” identity could be tied to a wide range of factors to do with China’s diplomatic relations as well as social and economic developments.

The recent Wukan protest over confiscated farmland, and demonstrations over a proposed power plant in Haimen , Guangdong, could have affected Hongkongers, Sung said. The small-circle chief executive election might also weaken people’s sense of engagement, making them believe Beijing was exerting its influence over the city, he said.

Obama and the American Jobs Act

I’m a big fan of Obama’s latest attempt to gain the higher ground – The American Jobs Act. It is certainly a far cry from the caving and conceding he did on a large scale in previous negotiations with Republicans.

Let’s face it. Republicans just aren’t going to agree with Obama. It’s commendable that he has tried, offered compromise, even considered major entitlement changes, (although many of us consider it one to many tries) to get Republicans to agree to a compromise. He’s be rebuffed time and time again.

Thankfully, he’s finally grown a backbone and had the balls to challenge the Republicans. Polls show that a majority of voters agree with many of his proposals. So he’s got the public vote. Of course, that doesn’t make things sail through a Republican controlled House, but that should give him a good enough reason to stand his ground.

Touching entitlements might be opposed, but Republicans are going to be pushing for it anyways so they can just look bad. Raising taxes on high-income individuals is a political no-brainer and economically smart. Just as Boehner was trying to bin the idea of any tax increases, Obama dared to threaten to “veto any bill that takes one dime from the Medicare benefits seniors rely on without asking the wealthiest Americans and biggest corporations to pay their fair share.” Go Obama!

The American Jobs Act largely contains good ideas. Now we just need Obama to stand behind his own proposals and not to capitulate the next time Republicans show-up.

Brookings Institute Recommendations for Rio+20 and Beyond

9 recommendations of actions by the Brookings Institute that will advance environmental quality that is “equitable and sustainable, pursued in conjunction with economic and social objectives, and undertaken with priority for poverty alleviation”.

A useful and interesting read for those in the enviornmental movement. Sadly, governments are likely just to ignore them.

From http://www.brookings.edu/opinions/2011/0808_global_environmental_quality_brown.aspx

Euro Bonds Explained

Euro bonds have been touted as a magical solution to the European Debt crisis. I myself have struggled for a long time to full grasp exactly what euro bonds are. Thankfully, CNN Money have put out the following article that articulately summarizes the point behind euro bonds.

Essentially, euro bonds are just like any other bond except it is in Euros. This means that countries or organizations issuing the bond borrows money from people who buy the bond and promises to pay them back at a given interest rate at some point in the future. The point of a Euro bond is that in-debt countries can share their debt with other countries, allow the euro zone to not only “share a common currency, but a common debt load.”

Full article below:

Liu Xiaobo Notes and Stamps

A Liu Xiabo Stamp

With the whole bo-ha about the Nobel Peace Prize slapping me in the face as I read my news on Google Reader, I stumbled across an interesting proposal in The Guardian’s editorial. Granted, I don’t think this would work on any practical level and I would agree that The Guardian’s editorial team should be spending their time in more constructive ways. But now that the genie has left the bottle, it’s worth just reading through exactly what is being proposed.

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It won’t ever happen, but whether you just want a laugh or actually contemplate whether this might happen, its a good read.

In Oslo’s city hall the peace prize was yesterday plonked on an empty chair, a bizarre but moving gesture which – as the Nobel committee’s chairman explained – reinforced the case for honouring the absent laureate Liu Xiaobo. Locked up in his country, the Chinese democracy activist is one of several winners to have been barred from claiming the prize in person, but this was the first award since Carl von Ossietzky’s where it was not possible for a relation to do the honours instead, a shaming comparison for Beijing, since he was up against Nazi Germany.

The first thought is that this will make the Chinese sit up and think; the second, sadly, is that the news will be distorted by the media of the People’s Republic, which are so censored that Liu’s name is hardly known. Through the prize, the world has found a means of telling China to change; the more demanding next step is to find a way of making it listen, and so here is an idea. China does not exist in splendid isolation, but prospers by engaging globally – trade figures only yesterday showed exports rocketing by 35% over the past year. With all this commerce comes correspondence, and foreign currency that builds up in Beijing’s bank-vault-busting reserves.

If all those nations that weren’t bullied into boycotting the ceremony agreed to put Liu on their notes and stamps, then the Chinese people would grow curious to find out more about him. As for the authorities, they would face a choice – between refusing the world’s message and refusing its money.

Blog Action Day 2010: Bottled Water

This post is written in support of Blog Action Day 2010, the 4th year where bloggers around the world join together to debate, brainstorm and raise awareness around an international issue. This year’s issue is Clean Water.

I’ve been at AC now for nearly 2 full months. And one of the weirdest things about living in the UK is that its tap water can be drunk. Having come from Hong Kong, I was used to the daily toil of having to boil water, clean out old water bottles and the pour the boiled water into containers to use for the day. Now in the UK, people could just as well have drunk straight from the tap. I am still not exactly used to this. But that’s beside the point. Despite the ease of finding drinkable water here at AC, even in the middle of nowhere, I still see people walking around with plastic water bottles that they’ve brought from our nearby town, Llantwit Major.

Currently 3.6 million people die each year because they don’t have clean water to drink and every day 4,000 children younger than 5 die from preventable, water-borne diseases. At the same time, in the last 10 years, per-capita consumption of bottled water in the U.S. has doubled to an average of 200 bottles per person each year.
In Hong Kong, I know for a fact that the majority of people are still perfectly fine with buying Watsons or Vita water. There’s nothing wrong with that per-say. But as amongst the most financially conscious cities in the world, it would seem to be amongst the most stupid financial decisions we make.

HK bid for 2023 Asian Games

Logo for 2010 Asian Games in Guangzhou

Riding a wave of sporting success in the last few years with success at the East Asian Games, the government is floating (or rather pushing) the idea of hosting the 2023 Asian Games in Hong Kong. This comes despite Hong Kong having failed in its bid for the 2006 Asian Games which eventually went to Doha, Qatar.

During the 2006 bid which was done in 2000, the direct costs was just 1.72 billion, a figure which has now risen to at least 13.7 billion. The revenue from ticket sales, merchandising and sponsorship is expected to be just 700 million, down from 980 million. For the government, and for the taxpayers, this represents as massive 13.8 billion dollar net loss compared with the estimated 730.5 million net loss in the 2006 bid. In fact, if you consider the highest estimated economic benefit derived from the hosting, Hong Kong would have gained a total of 130 million economically. However, considering the high cost of the 2023 bid, a loss of nearly 13 billion dollars is expected for Hong Kong. From a purely economical view, bidding for the 2023 Asian Games is a stupid idea – even according to the government’s own statistics released by the Home Affairs Bureau. And it should be noted that such estimations exclude the cost of building eight new venues (which the government claims is already budgeted for) as well as the athlete’s village (because a decision still needs to be made whether private developers or the government will build them)

For all the “boost the city’s sports development, social cohesion and international status” that such a move would achieve, it is a wasteful use of money and achieves surprisingly little. Think back to the East Asian Games or even the Olympics, sure it was fun not to have to fly to watch any of those events, but only a few sports (diving, table tennis, badminton) are really popular. The rest were watched in half empty stadiums. Hosting large scale sporting events might increase Hong Kong’s standing internationally and as a hub for sports, but does it do anything for the people of Hong Kong? No. We are no more healthy or fit than we were before the 2008 Olympics or the 2010 EAGs.

It is important to increase the stature of sport in Hong Kong. As a amateur athlete myself, I have no qualms about increase the quality or amount of facilities, or even to make them simply more accessible by removing red tape. But at the end of the day, this is a local issue, not an international or even regional problem. Hosting regional games throws money where it isn’t need. A six-week consultation is going to occur up till November 3rd. A decision on whether to file a formal bid to the Olympic Council of Asia will be made by the end of January. Hopefully the HK government will realize what we need are local solutions, not regional showcases.

Reforming the Fed

A multitude of social institutions have failed to do their job properly, both in the run up and aftermath of the Global Financial Crisis. The Federal Reserve then took up the role of hero, swooping in and saving banks and our money, or so it seemed. The Fed is far from rid of any guilt. Indeed, the overblown Fed was part of the problem in the first place.

As David Malpass articulately argues, “The Fed is trapped in too large a role, one filled with conflicts of interest.” While Malpass considers the lax budgeting and lack of transparency, I think the real essence and lesson of his commentary lies in what he suggests we do about the Fed.

The Fed should go back to basics: setting the interest rate, with the goal of providing a relatively stable dollar over time and low inflation. Let the Executive Branch and Congress do the rest, using a proper system of checks and balances.

Of course, life is never that simple. In a world as complicated as ours, its simply not possible to create a number of distinctly different agencies that cover everything and never overlap. Nevertheless, the Fed has been given a bigger pie than it can handle. Lets hope that in the aftermath of the GFC, we can take the opportunity to streamline government bureaucracy, beginning with simplifying the Fed.

Original article from Forbes.