Oliver Griffiths

March Madness

As March Madness reaches its crescendo, I have been trying to work out why college sports are so popular here. The only student sporting event that gets any major media attention is the annual Oxford and Cambridge Boat Race, which was held last Sunday. By contrast, US college basketball and football gets wall-to-wall TV coverage. The best explanation I've heard is that professional basketball and football only took off in post-war America, allowing the college games to build a following that they have kept. Had the Football League not been formed in 1888, British workplaces could now be filled with team brackets ahead of the university football cup. 

It is interesting what sports can tell you about a country. I have been intrigued by the contrast between the Premiership (the top football league in England) and the NFL - and what it might say about attitudes to competition and foreign investment. These are not the things that you capture in the classic measures such as the World Bank's Doing Business report. 

You might reasonably expect the NFL to epitomise testosterone-fuelled competition. But it feels like 1950s dirigism next to the Premiership's Gilded Age capitalism. For one thing, there is promotion and relegation between leagues in the UK: come in the bottom three and you go down a league. If you have a bad season in the NFL you live to fight another season.

Another difference is that different teams win the Super Bowl. Unfettered capitalism leads to monopoly, yes? Only three teams have won the Premiership since 1995. In the past three seasons (and probably this season) the same four teams in the Premiership finished in the first four positions. There is remarkably little criticism about this. In the NFL the worst teams get to pick the best college players. There's none of that redistribution in the Premiership.

And where does the money come from? Of the top four Premiership teams, Americans majority own Liverpool and Manchester United, a Russian owns Chelsea, with a US-Russian bidding war rumoured for Arsenal. This state of affairs is not universally popular. But it's hard to envisage foreign ownership of the biggest NFL franchises in the first place.

Life can mirror sport. The success of the City of London since the Big Bang has been characterised as the Wimbledon effect: great tournament, few great domestic players. You see the same approach in Sunday's Boat Race. Undergraduates and postgraduates competed freely for places in the crews. The closest US equivalents - the Harvard-Yale race or the Eastern Sprints - are restricted to undergraduates. The result is an Oxford crew with an average age of 25 and five Olympians on board racing a Cambridge crew with an average age of 24. But it makes for great, multinational crews, from which the relatively few British participants that make the grade consistently step up to the very successful British Olympic rowing programme. And, having the same two crews each year, it also makes for easier bracket predictions.

Posted at 11:46 06 April 2009 by Oliver Griffiths  |  Comments[0]

Trade at the London Summit

One of the headline aims for the London Summit on 2 April is to put the world on track for sustainable growth. Central to this aim will be reiterating the importance of open markets to the economic recovery (a point made by the Prime Minister in his address to Congress last week) and addressing the threat of protectionism. 

The communique from the G20 Summit in Washington contained useful standstill language on protectionist measures, with leaders agreeing to 'refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing WTO inconsistent measures to stimulate exports.' Most G20 countries have kept to the spirit of the pledge. Uri Dadush at the Carnegie Endowment for International Peace has this week made a number of policy recommendations for trade at the coming Summit.

There has been some interesting debate about what constitutes protectionism, as this voxeu piece looking at 'murky protectionism' highlights. Many governments have taken necessary and unprecedented domestic action to stimulate their economies.  However the impact of this patchwork of bailouts and stimulus packages on international trade flows is not always clear. There is a clear onus on governments to bear in mind the dangers of behind-the-border protectionism.  

The London Summit will be looking for a recommitment to keep away from the edge of the protectionist abyss and to ensure that effective monitoring mechanisms are put in place. For a thought-provoking piece on the role that the US Administration could play on trade at the London Summit, see this article in the Wall Street Journal.

For those in Washington, Dominick Chilcott, Deputy Head of Mission at the British Embassy, will be speaking at a roundtable hosted by the German Marshall Fund at 12.30 on Friday 13th March on the topic of 'The London Summit and the Fight against Protectionism'. Please contact Mark Allegrini on mallegrini@gmfus.org if you would like to attend - though beware that space is limited.

Posted at 11:10 12 March 2009 by Oliver Griffiths  |  Comments[0]

American attitudes to trade

I have been looking at the recent Gallup poll on trade. The interesting story to write on US public attitudes to trade is that support is falling off a cliff and the US is about to pull up the gangplank to global trade. So the Gallup headline - 'Americans more negative than positive about foreign trade' - writes itself. But I have a couple of observations on the data which do not fit well within the narrative of a calamitous and unprecedented collapse in US support for trade: first, this year's figures (47% seeing trade as an opportunity, 44% as a threat) are almost exactly the same as in President Clinton's first year (46% and 44% respectively); second, support for trade improved significantly between 2007 and 2008, from negative 11 to negative 3. As an aside, it is also worth noting the exquisite mercantilist framing of the question: 'do you see foreign trade more ... as an opportunity for economic growth through increased American exports or a threat to the economy from foreign imports'. Under this formulation, bananas and coffee beans - both barely produced in the US - are somehow an economic threat. The logical conclusion of the question is that the best thing for the US is to export as much as possible and import nothing, which is a self-evident nonsense.

But it is notable how international trade, which is seen as being at the centre of 'Anglo-Saxon capitalism', has so little support in the US compared to other countries. The US public is consistently among the most suspicious of the effects of trade. See, for example, page 19 of the Pew Global Attitudes survey from last June, where US support for trade stood at 55%, compared to 79% in France (a country which is often rolled out as being instinctively anti-trade). Quite why US support for international trade is so low is a puzzle. Has America, which maintained high tariffs throughout the nineteenth century, retained a Hamiltonian appreciation for the benefits of protection - in which case, why have other countries which followed a similar developmental pattern not? Has trade had more baleful impacts on the US economy than on others - in which case, why has this effect been felt most keenly in the US, with a ratio of trade volume to GDP much lower than most other developed countries? Is free trade tainted by being a relatively partisan issue in Washington - in which case, why is there so little distance between the views of those polled who identify themselves as Democrat or Republican? Do supporters of international trade talk the wrong language - in which case, how has the dialogue been so different in other countries? Is it because employers provide many benefits provided by the state in other countries, making the loss of a job more traumatic - in which case, why is it international trade, which is estimated to cause under 5% of American job losses (and create many more), that bears so much of the criticism? I think this is a fascinating topic.

Professor Doug Irwin notes that before the second world war most self-respecting US Congressmen prefaced comments on international trade with the proviso 'I'm not a free trader but ...' and that this switched during the 1950s to 'I'm not a protectionist but ...'. I think and hope that we are some way from the first proviso coming back into fashion (though the last few months have shaken the firmness of my conviction on that). In that regard the Gallup poll is relatively reassuring.

Posted at 10:35 05 March 2009 by Oliver Griffiths  |  Comments[5]

Why Doha. Why Now.

After nearly five years working on the latest round of WTO negotiations – the Doha Development Agenda - I thought I had seen every possible typo connected with the Qatari capital. Not so. A recent email produced the most amusing so far: the ‘Dodo Round’. Some would argue that is an apt description. They'd argue that Doha is a negotiation that has failed to get off the ground or evolve since its launch in 2001 to address today’s problems and is heading for extinction.  Some see Doha destined to become a historical curio like the famous flightless bird of Mauritius – the only multilateral trade round since the launch of the GATT in 1948 to fail to conclude. 

But the Dodo is making a comeback. Pressure is building for a meeting of Ministers in Geneva within the next two weeks, designed to agree a deal on agriculture and industrial goods. The reaction on the Hill and in the DC trade community? “Yeah right”. But Washington has consistently been down on the Doha Round. In July before the last Doha Ministerial meeting, few in Washington gave the meeting any chance of success, at the same time as the European Commission’s chief agriculture negotiator was buying a box of cigars to share around in Geneva in anticipation of an agreement. The result? A tantalizing near-miss in Geneva - and shock in Washington that a deal had so nearly been done. 

July now seems a lifetime away. We have been through a financial and economic maelstrom. The Dow at the end of July stood at 11,500.  It is now at 8,500. Since then Leaders at both the G20 and APEC summits have put their weight behind a Doha deal this year. The political wind is now behind the negotiation. This has elicited warnings to the US Administration both from business groups and Congress to hold firm and press other countries harder. So it is worth recalling five reasons why we all need this deal and need it now. 

First. A deal will give a boost to the global economy during difficult times measured in hundreds of billions of dollars.  Pascal Lamy, the WTO Director-General, argues that the deal on the table is worth considerably more than the Uruguay Round. Yes, its impact could have been bigger and we need to keep pressing for ambition. Yes, its effects won’t be instantaneous. But it is well worth having. And systemic arguments for a deal are even stronger than any dollar-and-cent valuation of new market access.  

Second, it will bind tariffs at low levels. At the moment there is often a significant gap between bound and applied tariffs.  Getting rid of that differential has real value. The provisional result of a study by the International Food Policy Research Institute is that the difference in trade volume between completing a Doha deal and countries putting tariffs back up to bound levels would be $2,110 bn. To put that figure in context, the total US trade volume (imports and exports) last year was $3,100 bn. Binding tariffs is the insurance policy against tariffs sliding back up – which is a real risk in today’s economic climate.

Third. A deal will cement the status of the WTO. The current financial crisis has underlined the need for effective global governance.  The WTO isn’t perfect but in many ways it is an exemplar for other international institutions. India and Brazil sit shoulder to shoulder with the EU and US in the inner negotiating groups. Each WTO Member has a real stake. The WTO allows countries to either negotiate or litigate away problems. If the negotiation channel fails, how viable is the WTO? 

Fourth. If not now, when? Why are the chances of a deal any better in, say, two years’ time? The word from Geneva is that we have got about as far as we can get at a technical level. What are left are the big political calls. International deals get done because of political attention and leadership. We have it now.   

Fifth. What happens if we don’t do a deal? A proliferation of free trade agreements. The worst distortions in the global trading system, such as agricultural subsidies, won’t be touched. And the poorest counties – for whom this round was started – pay the price.

Posted at 16:37 05 December 2008 by Oliver Griffiths  |  Comments[0]

Santa, Elves and Comparative Advantage

One of the great things about autumn in the US as a parent of young children is the steady flow of diversions. October is all about the lead up to Halloween. November is all about Thanksgiving. December is all about the holidays. So, as we approach the end of November, the kids' questions about Santa Claus are just round the corner.

As everyone knows, Santa Claus has helpful elves that make all the presents for all the children around the world, for Santa to distribute on one frantic chimney-to-chimney delivery. This raises several problems, including why a number of the presents my children will receive will have 'Made in USA' or 'Made in China' printed on them. I think I have the answer to this particular problem: it's comparative advantage.

I have no doubt that Santa's elves could make anything and I assume that they could make it all better and cheaper than anyone else. They have absolute advantage in producing all goods. But does it follow that it makes sense for them to produce all the presents that Santa will give out? In a word, no.

The elves will be much better at making some things than anybody else (let's say wooden trains), but they will be only a little better than other people at producing other things (let's say board games and chocolate). The elves have a comparative advantage in producing wooden trains. If they specialise in producing wooden trains, they can trade the excess production - which everyone else will value highly because they can't do it as well - for lots of board games and chocolate that they can make better, but only a little better, than other producers. Specialisation in goods where they have comparative advantage will be far more efficient. It will take the elves less time to put together the full order list for Santa, allowing them more time to enjoy the Northern Lights. And it will provide an explanation for why the chocolate in the stocking will have 'Made in the USA' printed on it.  

It may sound inconsequential but it is a powerful - and comforting - real-world conclusion. Is China going to end up manufacturing everything? No. Is Brazil going to dominate global markets for all agricultural produce? No.

Comparative advantage was first set out by Robert Torrens in an essay on the Corn Laws in 1815. It concluded that Britain - at the time the emerging 'workshop of the world' - should buy wheat from Poland, even if a bushel could be produced cheaper in Britain than Poland. David Ricardo then took the plaudits for comparative advantage in his Principles of Political Economy in 1817. For a good contemporary exploration of comparative advantage, see Tim Harford's fun Undercover Economist.

Posted at 09:30 25 November 2008 by Oliver Griffiths  |  Comments[6]

Moral markets

It is a fairly reliable rule of thumb that a financial crisis will be blamed on greed. But the enormity of the current challenges has led some people to signpost this as the high-water mark of this particular tide of globalization (see Irwin Stelzer's argument) that the era of free trade has ended) and question the future of capitalism itself.

President Sarkozy's recent speech on the financial crisis has received a fair amount of interest. It did not feel to me like the broadside against capitalism that some have portrayed it, although there was some therapeutic knocking down of straw-men: 'the idea of the all-powerful market which wasn't to be impeded by any rules or political intervention was a mad one'. It would indeed be a mad idea, which is why we have lots of rules (including a legal code) and regulations (even if they didn't work very well in some cases) to channel markets. The part that has received most attention was President Sarkozy's assertion that 'if we want to rebuild a viable financial system, raising the moral standards of financial capitalism is a priority'.

The idea of moralising the market is an idea as old as the hills, of course. During a crisis it is a natural step on from talking about regulation (which, let's face it, is pretty dull). Regulation changes the duties and incentives faced by a company. At its purist, moralisation aims to change the motivations of the people working in the company. But it hasn't been very successful.

Defenders of free markets argue that moralisation isn't necessary and could do harm. Adam Smith famously said that 'it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard for their own interest'. But Smith was by no means the first in the game. Perhaps the most notorious rebuke of moralizers was written by Bernard Mandeville, a Dutchman living in London during the birth of modern finance. His Fable of the Bees, written to rile the self-explanatory Society for the Reformation of Manners, argued that it was private vice itself that led to public economic benefits. A libertine kept an array of tailors and innkeepers in business in a way that a church-going spinster did not. You can draw a straight line from Mandeville to Gordon Gekko. Greed is good.

The interesting middle ground is moralizing the mission of the company. Free marketers argue that profits are a company's good works for society and companies trying to deliver public interests will be distracted from their core business. But there is mounting evidence that consumer dollars are interested in the social responsibility footprint of individual companies. So far this - to borrow shamelessly from Google's logo - seems primarily to be on the basis that a company should do no evil. So multinationals have queued up to manufacture in Cambodia because of the ILO's excellent Better Factory Cambodia initiative. If it says 'Made in Cambodia' on the label, you can be fairly certain as a consumer there was no child labour involved. The Kimberley Process, established in 2003 and covering 99% of rough diamond trade, is another good example: you don't want a conflict diamond to be forever. The next step up the ethics chain is to buy from a company because it does good. Consumers may start to reward more systematically companies that get out ahead on addressing climate change, for example.

Going back to Sarkozy's aim of raising moral standards in financial capitalism, I wonder whether corporate social responsibility has had less bottom-line traction among financial services companies than in other sectors of the economy. There have been a few virtue funds launched (though also some counter-veiling vice funds). Some entities run ethical investment policies.  But they feel like a vanishingly small minority. In policy terms, the proxy we seem to have hit on for raising moral standards in banks is to oversee executive remuneration.

Posted at 09:40 20 October 2008 by Oliver Griffiths  |  Comments[0]