Peter from Illinois writes about my camel export post:

Egad, sir. An undervalued resource, useable for meat and dairy, wool and fertilizer. Properly bred in Australia they might be domesticated for plowing. Gourmet restaurants in Sydney and Melbourne might feature them as a change of pace. At the race track they probably run faster than some of the nags I have wagered on.

Without wanting to sound too defensive, Peter, Australia did move beyond plowing with beasts of burden some time ago. And horrifying as it always seems to foreigners, many Australians (and their pets) enjoy kangaroo meat rather than camel.

UPDATE: Drastic action needed to cut feral camel numbers.

Yesterday, The Economist's blog, Free Exchange, led me to this Financial Times article on India's camel boom:

As the cost of running gas-guzzling tractors soars, even-toed ungulates are making a comeback, raising hopes that a fall in the population of the desert state’s signature animal can be reversed. “It’s excellent for the camel population if the price of oil continues to go up because demand for camels will also go up,” says Ilse Köhler-Rollefson of the League for Pastoral Peoples and Endogenous Livestock Development. “Two years ago, a camel cost little more than a goat, which is nothing. The price has since trebled.”

The shift comes not a moment too soon for a national camel population that has fallen more than 50 per cent over the past decade, to about 450,000, according to government figures.

Rising prices. High demand. Falling supply. Sounds like a good scenario if you can exploit it. So I called Peter Seidel of Camels Australia Export to ask if he was detecting an export upswing. But according to Peter, Australian camels are sold to the Middle East and Southeast Asia mainly for meat and dairy production, and some as breeding stock. India couldn't afford Australian camels anyway, he reckons, though that might change if oil prices continue to head north.

A quick glance at some of the reporting of the ASEAN + 3 Finance Ministers meeting in Madrid last weekend shows that the dream of an Asian Monetary Fund (AMF) is still with us. Meanwhile, the original version – the IMF itself – is having a tough time of it, forced to implement an austerity package of its own. One source of the IMF’s problems has been the effective withdrawal of many East Asian economies from reliance on Fund support. But is East Asia now about to come up with a workable, regional alternative?  

The 1997-98 financial crisis in East Asia was referred to as the ‘IMF crisis’ in Korea, and the description has turned out to be as prophetic as it was caustic: the Asian meltdown has indeed turned into a crisis for the Fund. A major and lasting legacy has been a deep distrust of the IMF among many of the region’s politicians and officials, manifested partly in the form of a policy self-insurance through the accumulation of huge stocks of foreign exchange reserves intended to ensure that regional economies will never again find themselves at the mercy of the Fund in the way they were just over a decade ago. The IMF’s influence and reputation in the world’s most economically dynamic region has never fully recovered from the 1997-98 meltdown, and this has been an important contributory factor to the current malaise. More...

Foreign investment has become a touchy issue for many countries, with rich countries increasingly keen to throw up barriers to foreign capital. And apparently Australia is not immune to the trend. According to this story by The Australian’s Jennifer Hewett, at least ten Chinese companies withdrew foreign investment applications to buy Australian resource companies following pressure from Canberra. John Garnaut noted in the SMH that this is having consequences for Australia’s reputation in Beijing as a destination for foreign investment.

Last year, I wrote a paper called Second thoughts on globalisation, which argued that, due in large part to the globalisation-powered rise of China and India, many in the developed world were experiencing growing doubts about the benefits of continued international economic integration. Some were scared by the success of globalisation in creating powerful new competitors in global markets, or spooked by the security implications of the resultant shifts in economic power. Others were ill at ease with increases in inequality and troubled by the implications of rapidly expanding trade ties with low income economies. Still others were concerned about the consequences for the environment and resource security of the industrialisation and urbanisation of the world’s most populous economies.  More...

One of the many consequences of the US sub-prime crisis and the associated collateral damage is likely to be a re-evaluation of the role of monetary policy – something I touched on last year.  James Galbraith takes a longer view in this speech on the ‘collapse of monetarism and the irrelevance of the new monetary consensus’  (hat tip to the excellent Economist’s View). After announcing early on that he comes to bury Milton Friedman, not to praise him, Galbraith provides a short, opinionated and entertaining critique first of monetarism and then of the ‘new monetary consensus’.  His thesis is that not only is monetarism dead (which is hardly news), but so – in the aftermath of our latest financial calamity – is the inflation targeting regime that replaced it. 

In my view, what is now up for grabs will turn out to be much bigger than the theoretical framework for monetary policy. More...

Via the Observing Japan blog, I see that the Japanese Government is set to end its gasoline tax holiday. This comes soon after Republican presidential nominee John McCain proposed a similar measure for the US, which Hillary Clinton has backed and Barack Obama won't. The McCain proposal does look like a stunt and it is probably bad policy. 

It is somewhat mysterious how politically sensitive fuel pricing can be in first-world countries like Japan and the US (and Australia). As recently as 2004-05 (the most recent figures I can find), Australian fuel bills accounted for less than 3% of total household spending. This IHT story says it's 6.1% in the US (I can't find figures for Japan). Yet politicians and the media spend inordinate time on the issue, and I can only think it is because fuel pricing is so obvious to consumers — we don't even have to get out of our cars to note increases and compare prices.

One further point: as American blogger Virginia Postrel points out, the public discussion of petrol pricing is conducted overwhelmingly in terms of its social impact, and is largely divorced from the environmental debate.

Graeme Dobell draws attention to one of the problems associated with negotiating (high profile) preferential trade agreements, or PTAs: once significant political capital has been invested in the negotiations, it may become extremely difficult politically to walk away from even a lousy deal. This was one of the difficulties with FTA negotiations I highlighted in my 2005 Lowy Institute Paper on the evolving international trading system, The New Terms of Trade. Is there anything that can be done to overcome this ‘political’ problem? More...

Sam’s recent post drew attention to the important linkages between trade policy, agriculture and food security. Certainly, high food prices have propelled the issue of agricultural trade liberalisation back into the headlines, with many developing countries now forced to slash import barriers in order to lower prices for domestic consumers. This last development may well have delivered more agricultural liberalisation than the seven years (and counting) of Doha multilateral trade negotiations has so far achieved, although the international response, to date, hasn’t all been a good news story for freer trade in agriculture: in particular, a number of countries have imposed export bans on key food products, prompting the UN and the World Bank to warn of the adverse consequences. Still, how confident are we that free trade in agriculture would solve the food security problem for the world’s poorest people? More...

Alison Broinowski writes in response to Graeme Dobell's post:

Of course Japan refuses to negotiate with Australia on beef, dairy, wheat, barley, and sugar! So did the United States. The Howard Government, by accepting a preferential trade agreement that conceded no access for years for those exports, guaranteed that we would also fail with Japan and China. Why this government has decided to press on with both has not been satisfactorily explained.

On the spur of the moment yesterday I decided that Graeme Dobell's excellent post on the Australia-Japan trade negotiations needed some jazzing up to get the punters in. So I added a headline and a photo that played on how boring the whole subject is. If that managed to get a few people to click the 'more' button, great. But I now regret being so flippant. As economist Tyler Cowen argues in a NY Times op-ed on the rise of food prices around the world, the issue of agricultural protectionism has a direct bearing on whether a lot of very poor people starve or not.

So although it's tempting dismiss these free trade negotiations as wonkish esoterica, there is a lot at stake in the broader trade debate. Exactly how much became a point of difference between Cowen and another economist, Dani Rodrik, on their respective blogs. Rodrik's free trade scepticism is here, and Cowen's reply here. 

Spare a thought for our trade negotiators – high pain threshold, high boredom threshold, and an extraordinary ability to do meetings. This week marks the first birthday of the free trade negotiations with Japan, but the celebrations are muted because the tough part of this process gets under way in Canberra today. 

This week will see the tabling by both sides of their initial offers on services and investment – the start of the detailed bargaining about market access. The offers on goods have already been made and – surprise, surprise – Australian officials describe Japan’s proposal on agriculture as 'disappointing.' Tokyo has said it intends to make no concessions in negotiations on access for Australian beef, dairy, wheat, barley and sugar. More...

If the new staggered economy-class airline seat pictured below does everything this write-up claims — provide more leg room and personal space while allowing the airline to squeeze in more passengers — then the design firm can write its own cheque. It's interesting to note that a big American airline, Delta, will be first to introduce the new seats — American 'legacy' carriers aren't exactly known for their innovation. We'll see if Qantas and other long haul carriers out of Australia follow suit. In the broader scheme of things, airline seats are a minor matter, but Australia's distance from the rest of the world is a trade barrier, so anything that lowers that barrier is good for our economy.

One other selling point for the seat, mentioned on the company's website (emphasis added):

The high comfort seat is particularly suitable for single aisle aircraft. A conventional seat on a Boeing 737 is 17.5 inches wide; our seats are 19 inches. For an A320 a conventional seat is 18.5 inches; ours is 20 inches. These are valuable increases given the continued growth in average passenger size (particularly US nationals) and the remaining lifespan of the current generation of aircraft.

Given we Australians are right behind the US in the obesity stakes, this might come in handy for Qantas too.

Photo from the Thompson Solutions website.

Rawdon Dalrymple writes:

Stephen Grenville deals with present problems over the very sharp rise in food prices. But is this the first episode in a long-term and perhaps worsening  problem? As Peter McCawley points out, the present situation is partly due to the lack of investment in agriculture in recent decades. In the 1960s there was a big push on agriculture, which produced a huge increase in the output of grains especially, with output in tons doubling and trebling over a few years. The money spent on the International Rice Research Institute at Los Banos in the Philippines, for example, was not great as a proportion of the World Bank’s or USAID’s budget, but it made an immense difference.

The problem is far larger today than it was then. More...

Peter McCawley writes: 

Steve Grenville rightly argues that sharp rises in global food prices, now hitting the poor in developing countries, are an urgent global policy issue. It's worth noting that the immediate problem – like so many other important problems (the global financial crisis, world energy prices) – relates to the operation of markets.  In fact, it's surprising how important markets are. It is hardly possible to discuss the issue of rocketing food prices without considering the range of markets that are involved. One of the best books written about markets recently is by John McMillan, Reinventing the Bazaar: A Natural History of Markets.

So what can be done about global food markets? More...

I enjoyed Peter McCawley’s email on international competition policy and China’s intervention in the proposed BHP takeover of Rio. The irony he points to – the world’s leading communist country taking the lead in arguing for more market competition – is just one of the ways in which the operations of today’s world economy continue to surprise (another recent example was the reverse bailout of Wall Street by emerging market investors over the turn of year, at the same time as the IMF was having to contemplate imposing an austerity package on itself). That said, it is of course quite hard to see how China’s current economic model looks much like a communist one. State-led capitalism seems to be a better description (Ed: How about 'market-Leninism'?).

Indeed, Chinalco’s February play for 9% of Rio is an interesting example of China Inc in action. More...

From Peter McCawley:

Stephen Grenville's post on the political economy of the proposed BHP take-over of Rio raises key issues. One difficult issue, beloved of Australian policy-makers, is the matter of 'healthy competition'. It's something of a paradox when the world's leading communist country argues in favour of preserving market forces!  And, moreover, makes the pro-market case to the Australian Government when Australia has been loudly beating the drum in favour of market forces in international circles for decades! Part of the problem is that the economic advantages for big corporations of being very large (even relative to global markets) are often considerable. More...

Some signs of weakening support for the free market, which could feed into protectionist sentiment, in this poll from GlobeScan. Majorities in most of the 18 countries surveyed still agreed with the statement 'the free enterprise system and free market economy is the best system on which to base the future of the world'. But over the last two years support in 10 of the 18 countries polled has eroded. The number of Turks who 'strongly' or 'somewhat agree' with this proposition has fallen to 34% and in Korea it has fallen 15 points to 55%. Other falls were recorded in Chile (down 14 points since 2003), China (down 9 points), Britain (7 points), Brazil (7 points), Mexico (6 points), and Kenya (6 points). The poll also showed strong support for government regulation of markets with 'supporters of the free market show[ing] more enthusiasm for a strongly regulated free market system than critics'. The fieldwork was carried out in mid-2007, before the current financial crisis began, suggesting free market sentiment may have weakened further since the poll was conducted.

Photo by Flickr user iCampbell, used under a Creative Commons licence.

It is surprising how little serious discussion there has been on the political economy of the proposed BHP take-over of Rio. The commercial negotiations wind their tortuous way forward, and the purchase of Rio shares by Chinalco is seen as a response by China Inc to the threat of an iron ore near-monopoly, but we seem to be content to let the commercial forces play out. There are, however, some national interest issues here. From a narrow short-term perspective, it ought to be good for Australia to have a dominant position in price negotiations: better terms of trade are unambiguously a good thing for us. If, however, this makes China nervous about its resource security, then we might expect a response, and it might be one we don’t like. More...

BHP's proposed acquisition of Rio Tinto is, no doubt, ready to bounce back to life any day now. So far, BHP has failed to make a bid that Rio Tinto believes represents fair value. But I wonder whether the Australian government and other regulators will allow the merger to take place.  BHP obviously thinks it's in with a good chance. While I'm not an economist, combining the world's biggest mining company with the world's third largest doesn't seem to be issue free. More...

Peter McCawley responds to my post of yesterday on why it is wrong to separate economic and human rights issues too starkly in our diplomacy toward China. My response follows:

One central issue that underpins Sam Roggeveen's comment on the 'perennial China question' is the broader issue (also perennial) of choices between economic and non-economic rights in developing countries. On one hand, there is a set of economic rights which are generally given high priority in poor countries (the right to food, to water, to housing, to jobs, to basic health services, to schooling). On the other hand, non-economic rights (the right to vote, to fair legal processes, to worship, to protection against arbitrary action by the state, and to rights for women) are generally given high priority in rich countries. More...