'The Storm' by Vince Cable

In today's world people will probably know John Vincent 'Vince' Cable as the Business Secretary in the coalition cabinet of  David Cameron, having previously run as the Deputy Leader of the British Liberal Democrats. Many may not be aware, including myself, that Vince Cable gained a degree in Economics from the University of Cambridge, and then went on to become the economic advisor from the Kenyan government. It was only after learning about Cable's economic background that I picked up the book, and I am so glad that I did.

Vince Cable provides a clear and concise reasoning behind the global recession, while backing up his points with relevant history. The book is written in standard English and Cable has diverted away from over using economic termonolgy. This makes 'The Storm' easily readable and does not require a vast amount of economic knowledge to understand it. As an A level economics student I found this particularly important, as it allowed me to make sense of the majority of the books content, without being overwhelmed by new information and lexis. Vince Cable determines what did and did not happen during the build up to the global recession. This is easily done in hindsight to it all, but provided me with a deeper understanding of the present recession, and assisted me in understanding what steps must be taken to improve the current economic position. Furthermore, Vince Cable uses a variety of situations through the book. These vary from the collapse of Northern Rock, to the problems caused by cheap labour in China. By putting his information into an economic contexts, Vince Cable makes the book increasingly more approachable when it comes to picking it up for the second or third time and helps justify his reasoning for the global recession.

One of the few criticisms I have about 'The Storm', is that Vince Cable's purpose or drive for writing the book is not always clear. Cable can sometimes come across as writing the book with a 'hate to say I told you so' approach. Although he conveys himself as surprisingly charismatic, I read some of his statements as being quite spiteful or as a means of gloating at politicians in power at the time.

I would have also enjoyed the book more if Vince Cable included substantially more opinions on the situations he mentions. Throughout the book Cable never says what he would have done differently or where he thinks the problem lies, not even a suggestion about what to do next. I read the final chapter with the anticipation of reading an opinionated conclusion at least. And despite the build up throughout the entirety of the book, I  was unfortunately met by a ten page summary of the book, which undeniably left me feeling cheated by Cable when it came to closing the book.

Star Rating: ★ ★ ★ ★

A Brighter Future for Mozambique

Resources Galore

Overview

If someone said Mozambique, as an economist your first thoughts may turn to the dismal Human Development Index within the country. Or perhaps the devastating levels ofpoverty that go hand in hand with their HDI figure. So it's all bad news for the African country? Not quite. In fact Mozambique is spoilt by a wealth of natural resources. The country plays host to vast deposits of coal and off shore gas,that to some extend have been looked over by foreign countries and investors, until now.
The Brazilian mining giants Vale and Rio Tinto, have sighted the potential in ‘the world’sbest undeveloped coking coal’. Vale believe they will produce approximately 4.6million tonnes of coal this calendar year, with the intention of raising the figure to 22 million in the next few years. As well as coal, Mozambique accounts for 100 trillion cubic feet of offshore gas, that has only recently been discovered.
Benefits to Mozambique
The Mozambique government intend to use it's resources to attract foreign direct investment. Coal mining has already seen witnessed investment from large mining firms, and the countries aggregate demand will be feeling the benefits from an increase in investment and exports. However, the government now wishes to focus it's attention on their off shore gas supplies. Mozambique have forecast an investment of $50 billion in the next ten years. And the minerals minister says Mozambique could be earning $5.2 billion a year from natural gas alone by 2026.
The benefits Mozambique will gain from increased FDI will be an increase in aggregate demand, leading to growth within the country. Furthermore, Mozambique will also see an increase in it's GDP following the increased output. The citizens in Mozambique should hopefully feel the benefits from GDP, as the money filters through to individuals and increases living standards and life expectancy. The increase in GDP will have positive affects on the countries HDI, leading togreater economic development within Mozambique.
By exporting the natural resources Mozambique will strengthen it's currency as the demand for their currency increases. A stronger currency will lead to cheaper imports for Mozambique. As a developing country Mozambique does not have easy access to necessities such as Medicines. Making these cheaper to import means they are more accessible to citizens, and require a lower percentage of consumers income.

The Complications
The greatest drawback for investors is the poor infrastructure within Mozambique. For example railways that are essential in the transportation of coal, can not cope with the increase in demand. This will make the countries resources less desirable to investors as they will have to provide additional investment for transportation cost.
The Mozambique government is also believed to suffer from corruption, and consequently foreign aid donors have begun to pull out of government funding. The increase in GDP may lead to an increase in corruption from the government, as the incentive isincreased. This will lead to greater inequality in the distribution of wealth.Therefore, the benefits the citizens of Mozambique would hope to see from increased GDP, may not filter through effectively. Furthermore, as a developing country that is reliant on aid, a corrupt government may see a a fall in donations. This would lead to an increase in poverty, and a decrease in living standards.

Will it be a brighter future?
The natural resources within Mozambique are set to increase the countries GDP and HDI, these benefit the economy and individuals within the country.
However, I believe the idea of gaining FDI from the sourcing of natural resources is flawed by the corruption of the government and poor infrastructure  Suitable infrastructure is essential for investors mining coal or gas. Investors may look for alternative opportunities in other countries with greater infrastructure  A fixed government would be able to create stronger foreign relations between trading countries, making exporting the resources mined by investors easier.

Rare Earth Dispute

A Chinese Perspective

Will it work for China?

China are set to ban the export of raw materials from 2015

The measure has come as China attempt to tighten up regulations on the mining and distribution of rare earth metals. Rare earths are resources, necessary in the production of many high value goods including loud speakers, hybrid batteries, hard drives and wind turbines. The proposed restrictions were immediately met by a complaint filed by the US, EU and Japanese last March. They argue a case that the restrictions violate the World Trade Organisation (WTO) trading system, and are an act of unfair trade practise.

China currently accounts for over 90% of the worlds rare earth production. However, it only constitutes to a third of the worlds total rare earth resources. Thus, China believe they are being exploited for their natural resources and are taking action to prevent this.

What effect will it have on China?

As far as benefits and consequences are concerned, there are valid points for either side of the argument. If we begin with the benefits to the Chinese economy, the greatest gainers are China's domestic firms. By banning the exports of rare earths, China will decrease the supply in the global economy. Through the laws of supply and demand, the unit costs of rare earths will increase as supply decreases. This gives China's domestic firms a competitive advantage in the international market as the additional unit costs will cause international firms to produce higher priced goods.

China argues that a further reason for tightening regulations, is to increase the sustainability of their economy. Rare earths are non-renewable resources, therefore China can not continue to mine at such a rapid rate. The cut in supply will increase the longevity of the resources. This will be significantly beneficial for future generations, as they will still have resources available to use in production. Also, better working conditions for Chinese miners will result in a healthier labour force and less strain on the health service. A social benefit that will aid the efficiency of the Chinese health care. 

A way in which international companies may attempt to overcome the shortage in supply, is by relocating to China. This way firms can access rare earths at the same price as China's domestic firms, making them equally as competitive. China's advantage from this comes in the form of Foreign Direct Investment (FDI). Added investment from international firms will boost Chinas aggregate demand, and the increased output should raise China's already growing GDP.

All of this however, is not to say it's all good news for China. We must bare in mind that the ban on rare earth exports, will not be emplaced until 2015. China's economic position could alter until then. Already though, the restrictions have provoked a dispute between a few very powerful economies. If the measure does go through, China must be conscious of the negative effect it will have on their international relations, and the retaliation they may possibly face from trading countries.
Furthermore, it is be argued that a shortage in supply can bring the benefits of innovation. Entrepreneurial spirit and invention may increase as foreign countries seek possible alternative goods or resources, in order to replace those of rare earths. China must be aware of this situation, as the ban may, metaphorically speaking, section them off from the rest of the world. Setting them behind the rest of the world in terms of innovation.

Will it work?

Whether you agree or disagree, there is no shying away from the fact that a complete ban on exporting rare earths is an extremely drastic measure. I believe alternative regulations should be considered by China, regulations that have less of an effect on foreign relations for future generations. For example a tax on domestic mines. 

Equally, China can not continue to produce over 90% of the worlds rare earths. It is not sustainable for their economy, particularly considering that it only constitutes for a third of the worlds total supply. Foreign countries should look for other supply sources around the world as a short run solution. I believe the ultimate solution, is the idea of innovation. It is much more long term, and a complete movement away from non-renewable resources is definitely the future.

First Blog

I am starting this blog at the start of my A level Economics coarse, as an extra curricular activity. It is not complulsary nor is it a class project. I intend to create this blog an individual writer, and it is to purely aid my economic studies as well as an enjoyable past time. I hope anyone reading this finds the information I post useful.