March 2009

I am currently doing a fair bit of work analyzing and writing about public-private partnerships and their contribution to economic development.  Partnerships are active in a wide range of economic development initiatives all over the globe, from health to education to small farmer productivity, and usually involve some level of private sector contribution to a project designed or supported by a public or multilateral entity.  These are not the same kinds of infrastructure partnerships that blend huge public and private investment to build roads, dams, ports, and power stations.  Instead, they tend to be smaller scale, are often community based, and sometimes go by the name of “social enterprise” or “sustainable business.” The idea is that private companies or foundations (sometimes connected with a company, or perhaps set up by billionaire, semi-retired tech entrepreneurs) invest in projects that promise to help impoverished people and communities, but are aligned with and sometimes can even further a company’s core business.  In the midst of the current economic crisis, many people have assumed that this kind of investment, often considered merely a type of corporate philanthropy (wrongly so, in my view), will dry up.  I think, though, that there are several compelling reasons why companies and foundations may find it in their enlightened self-interest to continue to make such investments, direct or in-kind, in spite of the current climate. [click to continue…]

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China has just proposed creation of a new international reserve currency or, rather, the revival of an existing measure of value, the Special Drawing Right (SDR), which has been used for the past 60 years as a unit of account by international financial institutions like the IMF and some of the multilateral development banks. Based on a weighted basket of currencies – the dollar, the pound, the euro and the yen – use of the SDR might mitigate the volatility in exchange and interest rates and would partially de-link reserves from dependence on the policy decisions of any single country (i.e., the U.S.), or so the Chinese argue.

With over half of its $2 trillion in foreign exchange reserves invested in U.S. Treasury bonds and other dollar-denominated bonds, the Chinese have reason to worry. A major decline in the value of the dollar relative to other currencies could have disastrous effects, and inflationary pressures from the stimulus package, the Federal Reserve’s “quantitative easing,” and other spending-driven increases in the money supply make this at least conceivable.

How likely is this to happen, and would it be a good thing if it did – and if so, for whom? [click to continue…]

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Paul Krugman, who won last year’s Nobel Prize, is one of the most talented economists working today, and also one of the best writers in the profession. He is a liberal Democrat and I am not, but his op-ed piece in today’s New York Times is the best dissection I have yet seen of the flaws of the latest bank rescue plan which, as Krugman points out, is essentially a rehash of the original, and failed, Bush-Paulson Troubled Asset Recovery Plan (TARP).

I won’t try to paraphrase Krugman’s article here; he says everything that needs to be said far more eloquently than I could, and you should definitely read the article, available on http://www.nytimes.com/2009/03/23/opinion/23krugman.html?_r=1&ref=opinion. It is right on every count. [click to continue…]

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I have just returned from a week-long ski vacation in Montana. We stayed in a condo with limited Internet access, thus the lack of posts this past week.

Despite no broadband access, there was cable TV with dozens of channels, and I got a heavy dose of TV news, which I rarely watch at home. By far the biggest story of the week has been the AIG scandal. If you have been on Jupiter the past week or two, AIG is the huge insurance company that has received over $150 billion from the U.S. Government since last September, when it became apparent that the company lacked the funds to make good on the hundreds of billions of dollars in credit defaults swaps – essentially insurance against default on the mortgages underlying mortgage-backed securities – it had written. It transpires that since AIG went on government life-support it has paid out some $160 million in bonuses to staff, a figure recently revised upward to more than $200 million. [click to continue…]

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Like the unexploded shells from the First World War that sometimes work their way to the surface of a field in Belgium or France and blow up a farmer’s plow or tractor, new and surprising bombs continue to surface from the stimulus package. It’s no wonder: with $787 billion of detailed appropriations and over 1,000 pages of text – which no more than 50 people on the planet can have read in their entirety – we can expect to be surprised again and again.

The one that has recently captured my attention is the “Hire American” provision in the law, with news reports that Bank of America and other big banks have rescinded job offers made to foreigners, especially recent foreign graduates from U.S. MBA programs. [click to continue…]

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