A European banker redefines the approach to economics.

Extracts from Salvatore Rossi's must read Speech : Knowledge, innovation and relaunching the economy[1] (emphasis in bold is by us) .

"

·         The distinctive trait of modern times is constant innovation.  

·         Consumers want to be continually surprised by something they didn't know existed.

·         Producer goods too must change in order to accommodate or power innovation in final consumer goods.

·         The very distinction between manufacturing and services is becoming blurred.

·         More and more commonly a manufacture is just a container for services, without which it would be valueless.

·         It is the services that determine development in the quality of the good.

·         Smartphones are the most obvious example.

·         Today's manufactures/services are produced in ways that are themselves new.

·         The digital revolution has broken down vertically integrated production systems into single tasks - logistics, accounting, component production, maintenance, marketing and so on - that can be outsourced anywhere in the world.

^·          Long supply chains have been formed, or global value chains, under the direction of a lead firm but involving dozens of subcontractors, often located in emerging countries where low labour costs more than offset the costs of coordination and transportation. ⁷ 

·         World trade has been revolutionized, both in geographical extent and in its very nature. 

·         Finally, robotics is advancing by leaps and bounds. Existing technologies still leave enormous untapped potential for innovation in production methods;  we are on the eve of an era of practically total robotization of manufacturing, with far-reaching repercussions for the labour market in both the emerging and the advanced countries. 

·         Global value chains themselves could shorten and relocate as the cost advantage of emerging countries is eroded.

·         Yet counterforces are also at play. Manufactures - or "robofactures" - will continue to be central to our life as containers of services.

·         Above all, what is decisive is the quality of the work force."

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[1] Speech (lectio magistralis) by Mr Salvatore Rossi, Senior Deputy Governor of the Bank of Italy, at the Almo Collegio Borromeo, Pavia, 17 March 2015.

A brutally frank view of the weaknesses of the Italian economy

Salvatore Rossi: Knowledge, innovation and relaunching the economy

Speech   by Mr. Salvatore Rossi, Senior Deputy Governor of the Bank of Italy, at the Almo Collegio Borromeo, Pavia, 17 March 2015.

Extract Only

" We now produce almost a tenth less than we did seven years ago:

 in manufacturing, 17 per cent less;

in construction, more than 30 per cent.

It is estimated that manufacturing lost one sixth of its productive capacity in this period. 

Net job destruction reached almost one million.

Last year, Italian firms invested overall a third less than seven years earlier.

As a whole, households spent 8 per cent less in real terms.

Exports have struggled to stay on an even keel.

The global financial crisis of 2007-08, followed by the European sovereign debt crisis of 2010-11, inflicted far greater damage on Italy's economy than on those of the other main advanced countries."

Without any risk or responsibility 

Technology as an Equalizer:The need for Internet of Education (IoEd) in the Emerging Economies.

The need for Internet of Education (IoEd) in the Emerging Economies.

Education providers in emerging economies have to overcome the  legacy of a lack of quality. Education in emerging economies seems to have been impaired by  lower student motive, less of environmental concern for skill building and more of a profit motive among the education providers. Emerging economies seem to accumulate a large chunk of Less performing Student  (LPS) category, which weighs  down at a macro level by depressing overall skill contributions to the society.

In emerging economies, education has been the preserve of high end educational institutions. Currently, the leading higher education institutions in the emerging countries listed in the   Times of U.K.[1]

1. Peking University, China

2. Tsinghua University, China

3. University of Cape Town, S. Africa

4. National Taiwan University, Taiwan

5. Bogazici University, Turkey

6. University of Science & Technology, China

7. Istanbul Technical University, Turkey

8.Fudan University, China

9. Middle East Technical University Turkey

10. Lomonsov Moscow State University, Russia

11. University of Sao Paolo, Brazil

12. Bilkent University, Turkey

13. Punjab University, India.

14. Renmin University, China

15.  University of Witwandersrand , South Africa

At the School level, it is the American and British International Schools  or similar standard Schools that are sought after by the upper income groups in the emerging economies.  Thus quality education remains the preserve of a few. The vast majority in the remote villages remain far from the quality effort even if policy prescriptions do provide for equity.  A classic example is India where urban agglomerations have the cream of schools while the interior schooling is rather subjective as to its inputs and outputs. Another example is in Africa's big shortage of teachers. It is not that the African youth  cannot qualify to be teachers but that the qualified desert remote areas after their compulsory stints. The success of MOOCs (Massive Open Online Courses) in Rwanda is an example of how education could be redistributed effectively through the medium of internet.

The Internet of Education (IoEd) is a time to rethink and restructure to bring forth equity and to reallocate quality education at a mass level. Educational institutions (EIs)  need to undergo deep structural changes in approach and delivery. Reform proposals on the horizon must ensure that a host interconnected technology mechanism is an equalizer.

As evolving student learning intersects and interacts with the new technology and with the multiplier growth of internet and mobile learning , barriers to entry into quality learning would crumble. The Internet of Things (IoT) will weaken the market power of elitism in education , and substitute that with mass based, blended learning. This transition to the IoEd represents a uniquely challenging environment for policy makers. Regulators have reposed a large burden on trust on extant EIs and this has probably come at a social cost. IoEd is an opportunity to make amends. IoEd should not be discarded as an unsustainable business model but it should be the aim of the regulatory agenda to make education more approachable, accessible and resilient.  It  should reduce the burden of quality failure on society's conscience.

The costs of technology for IoEd are high  with fixed investment high. The private sector may not come to the support of IoEd, as they will naturally be targeting for return on investment and profitability. In the context of low initial commercial returns  and depressed profit margins, Government and supranational organizations have a joint role in emerging economies. A Public -Private initiative would have for its theme that the marginal costs will come down and therefore the average costs in the medium to long term. IoEd would be infrastructure building and would have lower cost and higher accessibility in the long run. One way for educational institutions  and the community at large to raise profits without shirking on investment is through genuine efficiency gains.  

IoEd should see the emergence of new education providers  including technology firms offering learning services. There will be increasing competition in learning services with the winds taken out of well-established Universities or Schools with IoEd taking it directly to a retail micro- approach. Society has to look at the positive contributions a technologically proficient society will render. Innovation in education has to be encouraged in the public interest.   

There is every reason for EIs to capitalize on the opportunity provided by joining on to a Learning Union so that they could reap economies of scale.    

 *****

These strands of thought are a part of the research work being undertaken by the author on the Internet of Education in Emerging Economies.

Copyright of this article and its contents vests with the author of this blog: Jayaram Nayar. He can be contacted at email: jaynayar@gmail.com  

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[1] http://www.timeshighereducation.co.uk/world-university-rankings/2014/brics-and-emerging-economies accessed on 27 March, 2015

London Financial sector risks...

Risks seen by Bank of England's Financial Policy Meeting from its 24th March 2015 released on 26 March 2015[1]

• ·         The risk of low nominal growth in the euro area.
• ·         A further slowdown in China 
• ·         A slowdown in some emerging economies
• ·         The stance of monetary policy, It  begins to diverge globally.
• ·         Greece and its financing needs, including in the near term.

• ·         Investment allocations and pricing of some securities may presume that asset sales can be performed in an environment of continuous market liquidity, although liquidity in some markets may have become more fragile. 
• ·         Heightened volatility which could deternin!inancial stability.  
• ·         Trading volumes in fixed income markets have fallen relative to market size including in US  treasury markets in October 2014,
• ·         Sudden changes in market conditions
• ·         Household indebtedness remains high
•   Underwriting standards, may have have loosened recently, as measured by loan-to-value and interest coverage ratios. 

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[1] Bank of England News Release - Financial Policy Committee statement from its meeting, 24 March 2015

Bank of England Committee raises concern over Cyber risk

News Release - Financial Policy Committee statement from its meeting, 24 March 2015 Released on 26 March 2015  

Cyber risk 

"In an environment of geopolitical tension, the Committee remains concerned about the need for core firms and financial market infrastructures to address their resilience to cyber attack.  The Committee will receive an update on the programme of vulnerability testing of systemic firms at its meeting in June. "

Source: http://www.bankofengland.co.uk//publications/Pages/news/2015/021.aspx



Without any risk or responsibility 

Less minus is good news for Greece and Euro Area

From Bank of Greece's Press Release 26/03/2015 - Bank credit to the domestic private sector: February 2015

In February 2015, the annual  growth rate of total credit extended to the domestic private sector stood at -2.5% from -2.9% in the previous month. The monthly net flow of total credit to the domestic private sector was positive, at €74 million (February 2014: negative net flow of €773 million). Credit to corporations In February 2015, the monthly net flow of credit to corporations was positive, at €433 million (February 2014: negative net flow of €439 million) and the annual growth rate of credit stood at -2.3%, from -3.1% in the previous month. In particular, the annual growth rate of credit to non-financial corporations stood at -2.4%, from -2.7% in January 2015, while the monthly net flow of credit to non-financial corporations was negative, at €52 million (February 2014: negative net flow of €353 million). The annual growth rate of credit to insurance corporations and other financial intermediaries stood at 0.5% in February 2015, from -7.9% in the previous month, while the monthlynet flow of credit was positive, at €485 million (February 2014: negative net flow of €86 million), because of intra-group transactions. Credit to sole proprietors and unincorporated partnerships The monthly net flow of credit to sole proprietors and unincorporated partnerships was negative, at €57 million in February 2015 (against a negative net flow of €19 million in February 2014), while its annual growth rate stood at -0.6%, from -0.3% in the previous month. Credit to individuals and private non-profit institutions In February 2015, the monthly net flow of credit to individuals and private non-profit institutions was negative, at €302 million (February 2014: negative net flow of €315 million), while its annual growth rate stood at -3.0%, unchanged from the previous month. Without any risk or responsibility

Education and the Internet of Things: Some Implications for Educational institutions

What will the new operating platform of Internet of Education (IoEd) imply for educational institutions ?

As the Internet of Things (IoT)  progresses, modernizing educational institutions have to become an integral part of this technological sophistication, if they have to stay in the forefront of education. In an  IoT world, homes and people and devices would all be connected.  Educational institutions  have to think early on how to move ahead on sensors, connectivity and machine to machine (m2m)- backward and forward linkages.  As technology moves on to tap wearable devices, smart rings, smart bangles, smart clothes and smart watches - all sensor sensitive devices would seize the market.

As much as students receive support from devices, students would also have to permit return transmission of info flows. On the back up of these connected devices, students would share data from these devices with educational institutions.   Internet-linked sensors worn by students should enable  educational institutions  to fill in data on their activities.  Each student would send megabytes of data annually. These volumes have to be efficiently absorbed and effectively utilized by the educational institution.

Student  devices will have some form of wireless connection. Educational institutions  would have to enter into partnership with technological firms to  capture store, retrieve, analyze massive macro and micro elements. Thus, the Internet of Education (IoEd)  is not only about helping the one - off student but also in plotting/  drawing inferences at a macro level  on the strength of several packets of information received from about several hundreds or thousands of students.

Educational Institutions have to be so significantly alert on assimilating technical information in regard to:

·         Digitized communications

·         Smart m2m connectvities

·         Automated logistics

·         Application of sensor sensitive devices

Having large quanta of data implores the educational institutions on the need to go beyond data. The investment requirements will be quite high in the first round, but over time the marginal cost will come down and as such the average cost of investment will come down.  

According to Cisco Systems, by 2020, the amount of Internet-connected things will reach 50 billion, with $19 trillion in profits and cost savings coming from Internet of Things (IoT) over the next decade[1].

 ***

These strands of thought are a part of the research work being undertaken by the author on the Internet of Education in Emerging Economies.

Copyright of this article and its contents vests with the author of this blog: Jayaram Nayar. He can be contacted at email: jaynayar@gmail.com  

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[1] http://www.appsbee.com/internet.html

Visualizing IoEd helping the 'Less Performing' Student' (LPS)

Visualizing IoEd helping the 'Less Performing' Student' (LPS) [1]

A teacher's main concern in a classroom situation is the 'less than average' student. Let us call him the 'Less Performing Student' or the  'Less Proficient Student' (LPS).  To any diligent and conscientious teacher, the LPS  is not the Least Preferred Student but the one the teacher is most anxious about. An LPS represents the limits of a teacher's explanatory abilities and therefore an LPS is an acknowledgement of the teacher's shortcoming if not failing. So, it is in the depths of a teacher's mind that an LPS be lifted up on a par with the performers of a classroom.

Developing fault lines in communication to the LPS might result in eventual blockage in the LPS' mind and turn him to become a non -performer from being a less performing student. So how do we ensure that the LPS is not detached from our train of skill formation? It is the submission here that we must use the Internet of Education (IoEd) to effective support system for the LPS..

The future of education is digital.  IoEd should be on to assist an LPS through interconnected platforms from mobiles to on line learning portals, to sensors to  robots to a host of connected devices. this connectivity is to help the average or sub-par student erase his fear of non comprehension. IoEd should sense non comprehension instantaneously. This detection of disquiet in the LPS should be possible through sensors. there should be disturbance signals that neurons send out. The captured signals will be  transmitted from the neurons of the weak student to the mega centralized robot who will transmit to him immediately the support systems to break down more simplistically the basics of the information sought.  The knowledge robot(s) will use elements to dispel their (LPS') doubts from the minds of these students in real time. (From the unknown to the known)  With the erasure of ignorance, the LPS is protected from being frozen in a shell of non comprehension. and left behind. It could well be that nanotechnology should alert the centralized server of  doubts in the  mind of the weak student and probable.

So along with  the teachers, technology in the format of a robot (on the shoulder of the LPS) should intervene. Teachers need IT professionals to support them in maintaining the value of educational supply chains. The nanotechnologists and the robotists would support only till such time as the LPS is back on the highway of knowledge. Networked, wireless communication between the LPS  and the technological environment must take place instantaneously at the point of non comprehension. Over a period, feedback from several LPS, should provide teachers with  suggestions about learning obstacles, teaching and update them on solutions.   

. 

Copyright of this article and its contents vests with the author of this blog: Jayaram Nayar. He can be contacted at email: jaynayar@gmail.com 

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[1] Note: These strands of thought are a part of the research work being undertaken by the author on the Internet of Education in Emerging Economies.

Caution list from the Reserve Bank of Australia

Extracts from: 

FINANCIAL STABILITY REVIEW | MARCH 2015

1. "Risks in housing and commercial property markets are rising in association with fast price growth in some cities, heightened investor activity and strong price competition among lenders. It will be important for macroeconomic and financial stability that banks’ lending practices take into account system-wide risks in these property markets."

... 

 2."Risks appear to be rising in the commercial property market. Banks need to be cautious in commercial property valuations and in their loan-to-valuation ratios (LVRs) given that prices are rising strongly."

...

3. "Banks’ housing loan performance continues to be aided by low interest rates, which ease the debt-servicing requirements of borrowers. Rising housing prices have also contributed by making it easier for home owners to sell rather than stay in arrears should they run into servicing difficulties, and for banks to dispose of their existing stock of troubled housing assets.  "

...

4." Risks in shadow banking – defined as credit intermediation involving entities and activities outside the prudentially regulated banking system .  The shadow banking sector in Australia is estimated at around 4 per cent of financial system assets, having declined markedly since the financial crisis."

Without risk or responsibility 

Draghi makes a few interesting theoretical suggestions

In his Introductory statement ,  the  President of the European Central Bank, before the Hearing at the Committee on Economic and Monetary Affairs of the European Parliament, Brussels, 23 March 2015 made the following linkages which makes economics easier to comprehend: 
a) European economic recovery is because of oil price fall, improving aggregate demand, expansionary monetary policy, and a fall in the euro. 
b)  A steady process of re-integration across financial markets and jurisdictions has been under way.
c)Low interest rates are being transmitted to households.
d) Lower interest costs make new projects attractive.
e) Price stability which is 'the' important  objective of monetary policy, may not be a sufficient condition for financial stability
f) financial stability is a precondition for effective monetary policy. 
g)  monetary policy depends on monetary transmission mechanism
h) For monetary transmission to be effective , we need a coherent and integrated financial system that is stable.

" a stable and non-fragmented financial system is important for the smooth transmission of monetary policy signals."

Views expressed without any risk or responsibility. 

GCC and falling oil prices

Oil-rich GCC has been diversifying for some time - with the development of economic cities, housing complexes, maritime ports and through encouraging the small and medium enterprises. They have been attempting to break the resource curse.  Not so successful. The impact of current low oil prices on Gulf Co-operation Council economies will be a severe economic slowdown as the transmission mechanism through public spending can now operate only if they dip into their reserves. 

The break-even prices for oil have been estimated to be much higher than given prices. and with sunk costs in the hydro carbon sector,  GCC states would have to struggle to balance  their revenues and expenditures. Liquidity will decline as oil revenues fall and with pegs to the dollar, (except Kuwait)  authorities are  left with few monetary policy tools. Given the low skills of the nationals and the unduly high dependence on expatriates, factor productivity is bound to decline. Distorted economic incentives do not  encourage investment. There is an aversion to risk-taking with nationals relatively comfortable with  a state employment culture and undue dependence on expatriates in the private sector.   

The number of unemployed nationals in the Gulf Cooperation Council (GCC) is projected to exceed 1 million over the next five years. This is a serious social issue already felt since  post 2011. 

Gold will also be impacted as there appears to be a correlation (positive ) between oil and gold. 

Views expressed without any risk or responsibility. 

ADB Sees Strong Growth for Developing Asia in 2015 and 2016

 Asian Development Bank's 

News Release | 24 March 2015

Developing Asia will maintain its strong economic growth in 2015 and 2016 supported by soft commodity prices and recovery in the major industrial economies, says a new Asian Development Bank (ADB) report.

ADB’s flagship annual economic publication, Asian Development Outlook 2015 (ADO), released today, forecasts developing Asia will achieve gross domestic product (GDP) growth of 6.3% in both 2015 and 2016. The region also grew 6.3% in 2014.

“Developing Asia is making a strong contribution to global economic growth,” said ADB Chief Economist Shang-Jin Wei. “Falling commodity prices are creating space for policy makers across the region to cut costly fuel subsidies or initiate other structural reforms. This is a key opportunity to build frameworks that will support more inclusive and sustainable growth in the longer term.”

From the trough of the global financial crisis in 2009, developing Asia has contributed 2.3 percentage points to global GDP growth—nearly 60% of the world’s annual 4.0% pace. Eight economies in the region posted growth exceeding 7.0% in nearly every year of the post-crisis period, including the People’s Republic of China (PRC), the Lao People’s Democratic Republic, and Sri Lanka.

Growth in the United States (US), where recovery seems to have turned a corner, is leading major industrial economies. While signs are mixed in the euro area and Japan, soft oil prices and accommodative monetary policy will support growth. As a group, these economies are forecast to expand by 2.2% in 2015, up 0.6 percentage points from 2014, and 2.4% in 2016.

With improving external demand for the region’s outputs, an expected pickup in India and in most members of the Association of Southeast Asian Nations (ASEAN), could help balance gradual deceleration in the PRC, the region’s largest economy.

Growth slowed in the PRC in 2014 on weak fixed asset investment, particularly in real estate. As the government proceeds with its structural reform agenda, further slowing of investment is expected to diminish growth to 7.2% in 2015 and 7.0% in 2016. This is a much more moderate rate than the average growth of 8.5% in the period since the global financial crisis.

India is forecast to overtake the PRC in terms of growth as the initial phase of government efforts to remove structural bottlenecks is lifting investor confidence. With the support of stronger external demand, India is set to expand by 7.8% in FY2015 (ending 31 March 2016), a sharp rise from 7.4% growth in FY2014. This momentum is expected to build to 8.2% growth in FY2016, aided by expected easing of monetary policy and a pickup in capital expenditure.

Risks to the outlook include possible missteps in the PRC as it adjusts to its new normal, less decisive action on reforms in India than anticipated, potential spillover effects on the global economy of the Greek debt crisis and the deepening recession in the Russian Federation. The impending rise in US interest rates may reverse capital flows to the region, requiring monetary responses to maintain stability. The benefits flowing from the low price of oil could evaporate if geopolitical tensions push it sharply higher.

Across the subregions, economic growth in East Asia will slow to 6.5% in 2015 and 6.3% in 2016 reflecting the moderation in the PRC. The subregion grew 6.6% in 2014. Mongolia will see growth decelerate sharply in 2015 as foreign direct investment dries up and fiscal and monetary policies are tightened. Growth will be stable in Taipei,China, but accelerate in Hong Kong, China, and Republic of Korea, reflecting rising domestic demand and the improving global economy.

Growth in South Asia accelerated to 6.9% in 2014 and is projected to trend higher to 7.2% in 2015 and 7.6% in 2016, reflecting the strong performance anticipated in India. Both Bangladesh and Pakistan are following through with wide-ranging economic reforms that include efforts to overcome power shortages, though political challenges may limit progress in 2015. Sri Lanka’s economy is expected to moderate in 2015 as investors await clarity on the new administration’s plans for governance reform and economic policy.

Southeast Asia is poised for a growth rebound in 2015 after subregional growth fell to 4.4% in 2014. Aggregate growth is seen rebounding to 4.9% in 2015 and 5.3% in 2016 as recovery in Indonesia and Thailand leads the way, and with most of the subregion expected to benefit from rising exports and lower inflation.

Weak oil prices and recession in the Russian Federation pushed subregional growth in Central Asia down 1.5 percentage points to 5.1% in 2014. In 2015 growth will slacken in Kazakhstan, Turkmenistan, and Uzbekistan as lower petroleum exports constrain domestic spending. The weak economy in the Russian Federation will curb export and remittance flows, slowing growth in Armenia, Georgia, the Kyrgyz Republic, and Tajikistan. Average growth in the subregion is forecast at 3.5% in 2015 and 4.5% in 2016.

GDP growth in the Pacific reached 6.1% in 2014, accelerating for the first time in 3 years as natural gas exports began in Papua New Guinea (PNG), the subregion’s largest economy, and expansion picked up in most other economies. In 2015, the first full year of gas production in PNG, growth in the Pacific is expected to peak at 10.7% before falling back to 4.5% in 2016, with only a few economies growing faster than in the previous year.

This article was first published by the Asian Development Bank (www.adb.org)" 

http://www.adb.org/news/adb-sees-strong-growth-developing-asia-2015-and-2016

China from a World Bank Window: [1]

China's education budget is 7 times higher than in 2000.

250 million Chinese  people have migrated to urban areas

100 million are being prepared by the Government to urbanize.

90 % of Chinese have health insurance coverage.

China is the largest producer of renewable energy in the World.

More than 600 million people have moved out of poverty since reforms in 1978.

Our Comments : - 

• China's growth may be slow but it looks set for sustained pattern.
• China has accounted for more than a third of global growth over the past seven years[2]
• It is likely to be a high income country by 2030.
• Lagarde points out that China has begun "a process of rebalancing in multiple dimensions: from investment to consumption; from manufacturing to services; from capital-intensive growth to one that is driven by innovation, higher skills, and technology."[3]
• China has liberalized its lending rates .
• Its deposit rates more flexible. 
• Private investors are encouraged to establish small and medium-sized banks and other financial institutions. So financial sector seems on reforms course. 
• China may be thus well on course despite its current slow growth.
• Slow growth may help absorb structural reforms and avoid overheating.

Views expressed without any risk or responsibility

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[1] Speech by World Bank Managing Director and Chief Operating Officer Sri Mulyani Indrawati at China Development Forum

[2] Speech by IMF Managing Director Lagarde on 20th March 2015. 

[3] China and the Global Economy: Creating New Ingredients for Growth , Christine Lagarde

Managing Director, International Monetary Fund , Fudan University, Shanghai, March 20, 2015