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UK Gets Wrong Kind Of Economic Recovery
http://www.ft.com/cms/s/0/4be6ab7a-1977-11e3-afc2-00144feab7de.html#ixzz2fF6iRTZj By John Plender Consumption is the driver, writes John Plender Why all the excitement about the UK economy? Recent data have, it is true, been modestly encouraging and a rebound is certainly under way. Yet thanks to the chancellor’s front-loaded austerity the economy is still not back to where it was five years ago. In the first quarter of this year the Office for National Statistics estimated that gross domestic product was 3.9 per cent lower than in the first quarter of 2008 before the financial whirlwind struck. Equally dispiriting is that the UK has once again embarked on the wrong kind of recovery. After the credit-fuelled boom and bust in property there was a clear need to rebalance the economy away from consumption towards exports and investment. Very little rebalancing has actually happened. Instead consumption is driving the recovery financed in part by reduced household savings. In the first quarter the household savings ratio was at its weakest since early 2009. Giving the rebound a notable push are the government’s Funding for Lending and Help to Buy schemes. That push will be further increased when the quixotic second phase of Help to Buy is extended to existing properties. The logical way to help first time buyers is to reduce house prices to more affordable levels. Unfortunately that cannot be done without threatening the solvency of a still shaky banking system. So instead we have the prospect of another house price inflation – no doubt very helpful for Tory election prospects – along with continuing trade deficits, under-investment in industry and a “solution” to an overhang of debt that requires households to take on more debt. The trouble with this very British property obsession is that it damages the structure of the economy. As house prices rise, the wealth effect encourages homeowners to spend more, which inflates the size of the non-tradeable sector. Workers are sucked out of the tradeable sector as the demand for labour in the non-tradeable sector increases. The difficulty is that innovation and technological growth are lower in the non-tradeable area than in the tradeable sector. So, in effect, housing bubbles encourage deindustrialisation and reduce the growth potential of the economy. What makes this worse is that the property obsession is rife in the banking sector too. UK banks rely more heavily on property collateral than those elsewhere. So if bankers are not confident about the housing market, they extend less credit to finance an upturn. Since banks require entrepreneurs to back their borrowings with housing collateral the small business sector also needs a rising housing market to prosper and generate jobs. Rebalancing the economy is made more difficult by the Anglo-Saxon capital market culture. When UK manufacturers are given the benefit of a devaluation they tend to respond to increased export demand by raising prices rather than reaching for market share. This boosts the short-term profits on which executives’ incentive pay is based and cheers up all those fund managers who take a narrowly financial, short-term view of corporate performance. But there is, naturally enough, a long-term cost. There is a strong sense of déjà vu in all this. I recall in the recession of the early 1970s a top Treasury official responding to complaints about under-investment in the UK by asking how else a recovery was going to start if not through increased consumption. And in fairness to the chancellor, George Osborne, that point can be made with equal validity today. The public sector is contracting. The external environment is dismal, with the eurozone struggling and emerging markets slowing down sharply. The manufacturing sector accounts for a mere 11 per cent of GDP, so there are limits to what it could do even if export prospects were rosy. At this stage of the upturn companies are too uncertain about potential demand for their products to increase investment significantly. It is tempting for the British, at this point, to cast an envious glance at Germany, which has rebounded more strongly from the recession and where exports have been the chief motor of economic growth. Not only is home ownership much lower in Germany; house prices there fell in real terms over the first decade of the new millennium. Yet the German export obsession is arguably as damaging as the British property obsession. Adam Posen, president of the Petersen Institute for International Economics, rightly pointed out in the FT last week that dependence on external demand has deprived German workers of what they have earned, and should be able to save and spend. The export obsession has also distracted policy makers from recapitalising the banks, deregulating the service sector and incentivising the reallocation of capital away from old industries. The Brits like their houses, the Germans their exports. To each, his own poison. Continue reading
Global Trade Likely To Remain Sluggish For Years, Says UN Report
http://www.ft.com/cms/s/0/a3465b06-1bbe-11e3-94a3-00144feab7de.html#ixzz2f3WohxhE By Shawn Donnan in London Global trade is likely to remain sluggish for many years, and emerging economies that have depended on exports to fuel their transformation will have to find new sources of growth, says a UN report. The report, released on Thursday by the UN Conference on Trade and Development, makes clear that the effects of the 2007-8 financial crisis and the “great recession” that followed are still being felt in both the developed and developing world. The way the crisis has affected global trade patterns also calls into question the future value of the export-oriented growth model that fuelled the economic emergence of China and other developing world champions over the past three decades, Unctad’s economists wrote in their annual report. Unctad joins the debate at a time when many emerging economies – including Brazil, China and India – are facing slowing growth, and some, such as China, are working hard to rebalance their models towards more domestic sources of expansion. International trade has yet to return to the rapid growth rates seen before 2008, said Unctad economists, adding that growth is likely to remain subdued for years to come. Roberto Azevêdo, the World Trade Organisation’s new director-general, said this week that it would downgrade its 2013 growth forecast for global trade from 3.3 per cent to 2.5 per cent. Among rich countries, only the US had recorded a positive growth rate in its international trade in 2012, said Unctad. “Imports by all developed regions remain below their pre-crisis level,” its economists wrote, “and only the United States has managed to increase its exports to a higher level than their previous peak of August 2008.” Trade by developing economies had also “decelerated considerably” in recent years. Between 2002 and 2007, export volumes from those economies grew at an annual rate of 11.3 per cent. But that growth fell to 3.5 per cent between January 2011 and April 2013. The downward trend “highlights the vulnerabilities developing countries continue to face at a time of lacklustre growth in developed countries. It is also indicative of a probably less favourable external trade environment over the next few years,” Unctad economists wrote. While the pre-crisis rapid growth of exports from emerging economies to satisfy buoyant consumer demand in the rich world had been favourable for many developing countries, it “was built on unsustainable global demand and financing patterns”. “Reverting to pre-crisis growth strategies cannot be an option,” they wrote. “Rather, in order to adjust to what now appears to be a structural shift in the world economy many developing . . . economies are obliged to review their development strategies that have been overly dependent on exports for growth.” Encouraging greater domestic consumption and investment could come alongside the continuing development of exports. Bolstering domestic demand in emerging economies could also encourage the future development of “South-South” trade between developing countries, the report added. The share of South-South movements in international trade had increased from slightly less than 30 per cent in 1995 to slightly more than 40 per cent last year. The report also called for reform at the national and global levels to encourage more efficient financing of productive parts of the real sector such as industry, agriculture, services and infrastructure. Central and development banks needed to do more to finance productive investments, Unctad economists wrote. In the years since the financial crisis, credit had too often been directed to consumption rather than to investment. The result was that it was fuelling asset bubbles in sectors such as real estate “rather than innovation and production”. Continue reading
Corn Residue as a Feedstock for Cellulosic Ethanol
By Kolby Hoagland | September 13, 2013 This week, Biomass Magazine took part in the National Advanced Biofuels Conference & Expo and the Corn Stover Harvest & Transport Seminar , which were held in conjunction at the CenturLink Center in Omaha. I was given the honor to MC the Corn Stover Harvest & Transport Seminar where soil scientists, crops specialists, equipment manufacturers, farmer associations, and numerous other experts from industry and academia candidly discussed how corn residue ought to be harvested and aggregated to maintain soil quality and provide a consistent feedstock for cellulosic ethanol plants. In this week’s DataPoint, I will build on a previous article by Anna Simet and provide an in-depth analysis on the benefits of combining corn residue removal with no/low-till field management. The first panel of the Corn Stover Harvest & Transport Seminar, “From Soil to Pump: The Impact of Organic Matter and Nutrient Loss on Our Farmland,” looked at key considerations of corn residue removal on soil conservation and corn yield improvement. The presenters from ARS, Monsanto, and Iowa Corn provided a succinct research-backed that either too little or too much stover left on a field can have negative effects to subsequent corn crops and soil health. The panelists agreed that no-till and low-till field management schemes are some of the most effective practices for farmers to protect their soil from erosion, soil organic matter volatilization, and nutrient run-off. As average annual corn yields trend upwards, the reduction of corn residue left from the previous year’s grain harvest becomes more important. Corn residue encountered during planting in the spring poses a number of problems to farmers. Fall and spring tillage have historically been practiced to incorporate the previous season’s corn residue back into the soil in order reduce the quantity left on the surface of the field. The prime motivators of plowing corn residue back into the soil are to reduce pathogens that might be in the residue and to encourage better seed to soil contact, which excess corn residue inhibits. Plowing the corn residue back into the field provides a clean and even seed bed for strong stand establishment. Furthermore, tillage schemes have been practiced by generations of farmers and are a proven way to manage residue. The panel acknowledged the historic nature of tillage practice, but also conveyed the negative consequences tillage poses to soil health and yield. Once the residue has been tilled back into the soil, the carbon in the previous year’s corn residue binds nitrogen that would otherwise be available to the current corn crop. Furthermore, the tillage of agricultural soil volatilizes considerable quantities of soil organic matter, destroys soil aggregates, and encourages erosion and runoff. By combining no/low-till practices with stover removal in field management schemes, studies not only show yield increases in subsequent corn crops but improved soil health. Soil aggregates are maintained in the fields soil profile, valuable soil organic matter is prevented from volatilizing to the atmosphere, and healthy amounts of stover are left on the field to protect from erosion and runoff when stover removal and no/low-tillage practices are combined in a field management shceme. The panel determined that pairing crop residue removal with no/low-tillage practices would support farmer’s intent to manage excess crop residue, support soil health, and provide sufficient quantities of feedstock to the burgeoning cellulosic ethanol industry. The in-field variability of soil and the dynamic relationship that corn residue has on positive and negative yield effects necessitate ingenuity and practice. The conclusion of the panel stated that corn stover can be done in a manner that would sustain soil health when paired with no and low-till practices. The experiences gained by farmers supplying Abegnoa Bioenergy Biomass of Kansas, DuPont Cellulosic, and Poet-DSM will support a better understanding of best practices for future suppliers of corn residue to the burgeoning cellulosic ethanol industry. Continue reading
