It's only natural

Commodities alone are not enough to sustain flourishing economies

Sep 9th 2010

IT MAY seem a safe bet that billions of Asians will continue to gobble up oil, iron ore, copper, soyabeans and meat as they get richer. But one day they may not; and one day, too, the world will surely come up with alternatives to fossil fuels that emit less carbon. Indeed Brazil already has, in the form of ethanol from sugar cane, and Colombia and Central America are following suit.

Latin America is uncomfortably dependent on commodities. In the past decade they accounted for 52% of the region’s exports, according to the World Bank. That is down from 86% in the 1970s, but over the same period the figure in East Asia and the Pacific fell from 94% to 30%. Chile, Peru and Venezuela still rely on raw materials for more than three-quarters of their total exports. In all, as the World Bank notes in a report published this month, more than 90% of Latin Americans live in countries that are net exporters of commodities, the exceptions being in Central America and the Caribbean. Governments have also become more reliant on raw materials for their tax revenues (see chart 1).

There is nothing wrong with producing raw materials. The rise in world prices for Latin America’s commodities, and the related increase in their output, may have accounted for between one-third and half of the region’s growth over the past decade. And thanks to Asia’s economic vigour, commodity prices fell only briefly during the recession and remain at historically high levels. Over the past decade a region that has habitually suffered from balance-of-payments troubles has benefited from the foreign exchange that commodities bring in. This bonanza seems to refute the thesis put forward by Raúl Prebisch, the founding director of ECLAC, that the price of commodities is bound to decline in relation to the price of manufactured goods.

Even so, relying on raw materials carries a series of risks. One is volatility: their prices are more variable than those of manufactures. Second, many economists worry about “Dutch disease”, a term coined by this newspaper in 1977 to describe the impact of a North Sea gas bonanza on the economy of the Netherlands. This malady involves commodity exports driving up the value of the currency, making other parts of the economy less competitive, leading to a current-account deficit and even greater dependence on commodities. This matters all the more because mining and hydrocarbons are capital-intensive businesses, generating relatively few jobs.

The commodity boom, together with capital inflows attracted by better economic prospects, has already pushed up the value of some of the region’s currencies. For example, São Paulo seems extraordinarily expensive to any visitor. The strength of the Brazilian currency, the real, worries officials and industrialists.

A third concern is that many non-agricultural commodities are not renewable (although high prices encourage new discoveries), so governments should invest the tax revenues they generate in infrastructure and training to diversify the economy. Producing commodities may also involve local environmental damage. In parts of Latin America mines and oilfields are in areas inhabited by people of indigenous descent and have caused cultural clashes.

A fourth problem is the potentially corrosive effect of commodity production on political institutions. Many commodities incorporate rents (ie, excess profits derived from the fact that supply is usually limited in the short term). It is in the state’s interest to capture those rents, but corruption often follows when it does. Mines and oil- and gasfields often involve high sunk costs and low variable costs, making them a tempting target for expropriation. Venezuela provides the clearest evidence of these ills.

Given the risk of price volatility and depletion, it is sensible to save some of the bonanza from commodities for a rainy day. That is what Chile has done. The price of copper, its main export, has been high for the past few years, allowing the country to accumulate $20 billion, equal to about 12% of GDP, in a stabilisation fund by the end of 2008. It was able to draw on this fund to pay for a big fiscal stimulus, equal to about 3% of GDP, during the recession. On a smaller scale, Mexico, Peru and Bolivia too have saved part of their windfall gains from high commodity prices. Brazil’s Congress is considering a bill under which part of the revenues from big new deep-sea oilfields will be placed in a special social fund. But most of the money will be spent on education and anti-poverty programmes rather than saved.

Where innovation flourishes

Agriculture in Latin America shows clearly that commodities can be a blessing, not a curse. Much of the region enjoys fertile soils and sunshine, but it has also made the best of that natural bonus. Since 1990 productivity in farming in Latin America has risen faster than in East Asia or the United States, according to a study by the IDB. Colombia’s Federation of Coffee Producers has managed to extract a brand premium for its product through clever marketing, and has successfully diversified into retailing with its international chain of Juan Váldez coffee shops. Chile has created new export industries for fruit and vegetables. In Peru the spontaneous privatisation in the 1980s of state farms set up by a left-wing military government has spawned labour-intensive commercial farming on the fertile coastal strip. Argentina’s farmers, and its agricultural-research institute, are consistently innovative.

Brazil has the most impressive record of agricultural innovation. In 1973, when the country was still a net food importer, its military government set up Embrapa, an agricultural-research institute. Within six months it had sent 1,200 young Brazilian graduates abroad to obtain further qualifications. When they came back, they adapted plant and animal varieties so that they could thrive in the tropics and especially in the acid soil of the cerrado, the vast, largely flat savannah of the interior. This green revolution hugely increased productivity: over the past 30 years only 20% more land has come into agricultural use but production has risen by 150%, says Pedro Antonio Pereira, Embrapa’s director.

Brazil is now the world’s biggest exporter not only of coffee, sugar, orange juice and tobacco but also of ethanol, beef and chicken, and the second-biggest source of soya products. It is exporting fruit and wine from the São Francisco river region, close to the equator. Its goal, says Mr Pereira, is to become the world’s leading food exporter by 2025, displacing the United States, without inflicting damage on the environment. That means pushing up productivity further, and in particular putting some 70m hectares (173m acres) of degraded pasture to better use. Much of that pasture supports just one cow for every two hectares. With better breeding and improved techniques, each hectare could accommodate three cows as well as some grain and trees.

In São Carlos, in São Paulo state, Embrapa has the world’s only laboratory deploying nanotechnology for agriculture, creating plant varieties that absorb fertiliser more efficiently. Embrapa has a research centre in Central America and is planning to open one in Peru.

Unfortunately there is little of this kind of innovation in other parts of Latin America’s economies. Latin American firms invest only 0.5% of gross revenues in research and development, compared with the 2% spent by companies in the rich world. To help encourage innovation, there is now a revival of interest in industrial policy—partly because of worries about Dutch disease and commodity dependence.

The idea that governments should help particular companies or industries went out of fashion in the region a generation ago, mainly because it had been taken to extremes. In the 1960s and 1970s governments tried to foster industrialisation through tariff protection, state ownership and heavily subsidised credit. Brazil and Mexico did indeed industrialise. But across the region these policies also funded expensive white elephants and giveaways to favoured businessmen, all courtesy of the taxpayer. Mr Chávez in Venezuela is echoing some of these policies, as are the Kirchners in Argentina, albeit on a minor scale.

Elsewhere there is little appetite for a return to the past, but many agree that the state needs to do more to promote innovation and co-ordinate production chains and clusters to add value. In Mexico the government has encouraged the clustering of software and electronics firms in Guadalajara and an aerospace industry around Querétaro, including a factory in which Bombardier makes components for its aircraft. In Chile Fundación Chile, a public-private partnership, and Corfo, a state development agency, have promoted new industries. Chile’s government persuaded GE to set up a software-development centre. In Colombia the public and the private sector have collaborated to develop a cluster of firms in Medellín supplying components for the electricity industry. A similar joint effort in Costa Rica secured an Intel chip plant and other foreign investments in high-tech projects.

Brazil never wholly abandoned industrial policy. Interest on loans made by its giant national development bank, the BNDES, is set at less than half market rates, involving a selective subsidy. Since Luiz Inácio Lula da Silva was elected president in 2003, industrial policy has become more pronounced and explicit. The BNDES supports innovation by providing seed money for ventures in biotechnology, pharmaceuticals and information technology. More controversially, it backs mergers and foreign takeovers by big Brazilian companies. These have included the creation of Brasil Foods, a big food company, and the merger of two big meat firms, JBS and Friboi. The petrochemical industry has consolidated in Braskem, a joint venture between Odebrecht, a construction giant, and Petrobras, the national oil company. The electricity industry is reorganising around Eletrobras, the former state monopoly.

Critics denounce all this as the creation of “national champions” that are beholden to the government, either directly or indirectly. Luciano Coutinho, the BNDES’s president, retorts that Brazil’s new multinationals are highly competitive Darwinian survivors of decades of economic volatility. “We have an open economy, it’s different from the model of the 1960s and 1970s. The market is imperfect, but the state also makes mistakes,” he concedes.

The guiding hand

Defenders of industrial policy—who include Dilma Rousseff, Lula’s chosen candidate in next month’s presidential election—as vindication point to the examples of the ethanol industry (which began with a 1970s government programme to reduce dependence on imported oil), Embrapa and Embraer, an aircraft-maker. Critics counter that Embraer started to thrive only after being privatised (see article), and that ethanol took off only after multinational car companies developed engines capable of running on either petrol or ethanol.

The Lula government’s most ambitious attempt to go beyond commodities involves trying to use new oil discoveries to build an oil-services industry. The new fields, known as pré-sal because they lie beneath a volatile layer of salt 7km below the surface of the Atlantic, were discovered in 2007, with huge proven reserves. What led to the discovery was the previous government’s oil-policy liberalisation, which meant ending Petrobras’s monopoly, selling 60% of its shares on the stockmarket (though the government retains control of the company) and granting concessions for exploration rights in auctions that were open to foreign companies.

Lula has respected these contracts (in sharp contrast to Mr Chávez, Mr Morales and the Kirchners), but after the 2007 discoveries his government decided to draw up new rules for exploring the rest of the pré-sal (about 90% of the total area). These involve vesting the oil in a new state company, Petrosal, which will operate the new sovereign-wealth fund. Petrobras will be the monopoly operator of new fields, and both it and its partners will get a share of the output.

To finance its massive investment plan of $224 billion over the next five years, Petrobras is to get a capital injection. The government has paid its share in oil, and the company hopes to raise $25 billion in what will be the world’s biggest ever public share offering. The government has required Petrobras to buy at least 65% of its inputs—from tankers to drilling rigs and platforms—in Brazil. It is applying similar rules to other oil companies.

Such national-content rules may make sense, but only if they are temporary, since they will drive up costs. And Petrobras itself is said to favour a lower requirement for national content. Officials point out that the new rules have revived Brazil’s shipbuilding industry, which in the 1970s was bigger than South Korea’s but then shrivelled. Norway adopted similar rules when it used its North Sea discoveries to establish a thriving oil-services industry.

The aim should be the development of local knowledge and skills, says Pedro Cordeiro of Bain, a management consultancy that produced a study on the subject for the BNDES. But he worries that having Petrobras as the sole operator may make it more difficult to create a competitive oil-services industry. “Monopsony is always bad for innovation,” he says.

It may also foster corruption and cronyism. Norway, one of the world’s richest countries, grants concessions to oil companies, which is more transparent. Brazil’s new rules give Petrobras enormous power but also place it under huge strain, especially since the oil is at even greater depths than that in the Gulf of Mexico.

Brazil, the world’s 16th-largest oil producer, is set to move up the scale. According to official forecasts, output is due to reach 5m barrels per day by 2020. Some of the government’s critics worry that the country may go the way of Mexico and Venezuela, where state oil monopolies have been plagued by mismanagement and corruption. Colombia operates an alternative model, granting concessions to the highest bidder. Oil production there should reach 1.2m b/d by 2012, nearly double that in 2009.

Other critics are concerned that Brazil will lose its status as a clean-energy power. At present around 30% of its energy comes from hydro power and another 15% from biomass. The government expects both of these to keep growing. But the ethanol industry, which is made up of a large number of private companies, worries about the growing clout of Petrobras.

The ethanol industry has an impressive record of innovation, including electricity generation from cane residue and the development of bioplastics. To some, that suggests a different kind of industrial policy: providing more support for research and development, cutting Brazil’s budget deficit (currently around 3% of GDP) and promoting saving. That would allow interest rates to fall and make companies less dependent on the BNDES.

There is no evidence that Brazil is suffering from Dutch disease and deindustrialisation, according to a paper by Albert Fishlow of Columbia University and Edmar Bacha, an economist who advised Lula’s predecessor, Fernando Henrique Cardoso. But the authors share the concern about the economic volatility that comes with commodity wealth. “The question is how to cope. That internal response determines whether natural resources translate into a virtue or a curse,” the authors conclude.

Dutch disease or not, though, non-commodity industries find it harder to export than they used to, although they have plenty of room to expand in the domestic market. Much of their difficulty stems from lagging productivity.

The source - Economist

Two centuries of hopes and fears: A history of disappointment

OVER the past two centuries Latin America has seen bursts of exaggerated optimism interspersed with long periods of disappointment. It was the original “emerging market” long before the term was invented. Indeed, at the time of its first centennial celebrations in 1910 parts of Latin America seemed to have emerged already. Argentina was one of the world’s ten richest countries; in Mexico guests from around the world took part in lavish banquets organised by Porfirio Díaz to celebrate more than a quarter of a century of stability under his constitutional dictatorship.

But only weeks later the Mexican revolution broke out and was to last a decade. Argentina, for its part, started a long decline from 1930 onwards. Brazilian leaders in the 1950s and then again in the 1970s claimed that their country had taken off, only to see it engulfed by economic turmoil both times.

All in all, the record of the past 200 years has been dispiriting. Income per person in Latin America around 1750 appears to have been broadly similar to that in the future United States, but then an enduring gap opened up. By 1820 the figure had slipped to only about half that in the United States, and by 2000 it had dropped to little more than a fifth, according to the late Angus Maddison, an expert on economic history. Even more galling, over the past four decades many Asian countries have begun to close their income gap with the United States.

What caused the gap with the United States to widen was a pair of disastrous periods for Latin America. The first was from 1810 to 1870. The independence struggle in Spanish America (though not Brazil) was far longer and bloodier than in the United States, and the new states took much longer to achieve political stability.

Between 1870 and 1930—the first great period of globalisation—Latin America did reasonably well, slightly narrowing the income gap with its northern neighbour. But it fell behind again from 1970, mainly because of bad policies, just when Asia began to forge ahead. Latin America took state-led industrialisation behind tariff barriers to extremes, financing it with debt when the oil-price rises of the 1970s slowed the world economy. After adopting liberal economic reforms, the region has begun to narrow the income gap with the United States once again, clearly so since 2003.

The causes of Latin America’s relative failure to develop are the subject of intense ideological debate there today. Popular explanations have included a difficult geography, the cultural legacy of Iberian Catholic corporatism and, as Venezuela’s Hugo Chávez argues, exploitation by outsiders and especially the United States. But many serious scholars now blame the region’s extreme and persistent inequalities, which went hand in hand with political instability, poor policy choices, weak institutions and the undermining of the rule of law.

Societies on the move

Expanding the middle class requires better schools and reforms in public spending

Sep 9th 2010

HOME to over 1.5m people, Nezahualcóyotl sprawls over a flat, dried-up lake bed on the eastern outskirts of Mexico City. Back in the 1980s it was an impoverished settlement of dirt streets and one-storey shacks built of grey concrete blocks. Today the shacks have become comfortable homes of two or three storeys, the streets are asphalted and the traffic-clogged thoroughfares are lined with businesses of every type, lots of restaurants and several imposing gyms to work off all those meals. Since last year they have been facing competition from a big new shopping mall that would not look out of place in a suburb in the United States, anchored by Sears and C&A, with scores of boutiques and a multiplex cinema. Next door stands a large Wal-Mart and a private hospital that offers low-cost treatment. Behind, on a former rubbish dump, a new outdoor sports centre with 19 football pitches opened in July, operated by the charitable arm of Telmex, a telecoms firm.

Few people in Neza, as it is known, are still poor. “Before, people wanted a bicycle to get to the market. Now the least they want is a secondhand Volkswagen. They can afford to go out to eat at the weekend and take a holiday once a year, going to Acapulco,” says Luis Ayala, a journalist who was born in Neza and now works for its mayor. His story typifies gradual upward mobility: his father was a factory worker; his elder son is studying at a university in Neza and wants to become an engineer, and his younger son is studying to be a dance teacher. This progress nearly always requires the extended family to pull together. Mr Ayala and his wife augment their income with two market shops. They live on a separate floor in his father’s house and have two cars.

Neza exemplifies the rise in living standards many Mexicans have enjoyed since the recession of 1995. Over that period economic growth has been steady rather than spectacular. To a greater or lesser extent, this picture is repeated across Latin America. It has led some commentators to claim that the region is well on the way to building middle-class societies. That would have profound implications, for everything from politics to business.

But how middle-class?

“Middle class” is a slippery concept. What is clear is that Latin American societies are changing rapidly in response to urbanisation, democracy, economic reform and globalisation. Poverty has declined almost everywhere. Just as important, income distribution has been getting less unequal in many countries. In Brazil and Mexico the Gini coefficient, a measure of inequality, has been falling since the mid-1990s. According to a new study by Luis López-Calva and Nora Lustig, between 2000 and 2006 the Gini coefficient came down in 12 of 17 countries for which there are comparable data, including all the larger ones. Even so, income distribution in Latin America remains the most unequal in any continent (see charts 3 and 4). Such extreme inequality causes many problems. It is almost certainly a factor in Latin America’s alarming crime rates, for example (see article).

The decline in poverty is a result of faster economic growth and the conquest of inflation (which eroded the incomes of the poor), but also of better social policies. In particular, conditional cash-transfer (CCT) programmes—an invention of Latin America’s democracies—have proved effective in helping the poor. Under these schemes mothers receive a small monthly stipend (ranging from about $5 to $33 per child) as long as they keep their children at school and take them for health checks. Some 110m people in the region now benefit from such transfer schemes, according to the World Bank. Most of the schemes are well-targeted and relatively cheap, costing around 0.5% of GDP. Mexico’s Oportunidades programme is estimated to have reduced poverty by eight percentage points. Brazil’s Bolsa Família has made millions of extremely poor people less destitute. There is evidence, too, that such programmes have raised school enrolment and attendance and reduced drop-out rates, as well as increasing take-up of pre- and post-natal care and vaccinations.

The CCTs and longer attendance at school have helped to reduce income inequality. A better-educated workforce has been able to command higher pay. Income distribution has become more equal in countries with governments of both left and right, though Mr López-Calva and Ms Lustig found that social democratic governments (such as Lula’s in Brazil and the Concertación coalition that governed Chile between 1990 and March 2010) are more redistributive than those of the centre-right or populists such as Mr Chávez.

CCTs on their own cannot improve the standard of education and health, which especially in the countryside often remains poor. But the spread of modern communications and electrification programmes are starting to transform rural areas. Mr Webb, the former central-bank governor in Peru, finds that in some of the remotest and poorest provinces of the Peruvian Andes better roads and mobile telephones have allowed former subsistence farmers to produce more lucrative items, such as cheese or vegetables and also take jobs in local towns.

All this has meant that across the region the lower middle class—what marketing people call social class C—has expanded. In Brazil Marcelo Neri of the Fundação Getulio Vargas, a research institute, defines this group as having a monthly household income of between 1,064 reais ($608) and 4,561 reais ($2,606). By 2008 it accounted for 53% of the population, up from 43% in 2002. The OECD, in its forthcoming Latin American Economic Outlook, defines the middle class as those with incomes ranging from 50% to 150% of the median. By this yardstick 275m people in Latin America and the Caribbean, or just under half the total, were middle-class in 2006. The proportion ranged from 56% in Uruguay to 37% in Bolivia, compared with 68% in Italy. It is worth noting that many of these people would be considered poor in better-off countries: the median annual income ranged from $2,820 in Bolivia to $6,036 in Mexico, whereas in Italy it was $18,816.

But income alone captures only part of the improvement in living standards. The money also goes further, as Luis de la Calle and Luis Rubio point out in a study on Mexico. First, nuclear families have got smaller. Today the average Mexican woman has two children, compared with seven in the 1960s. Second, opening the economy to trade has sharply reduced the price of many goods. Economic stability, too, has brought many benefits. Home loans almost tripled between 1998 and 2006, with over 7m new homes built in Mexico over the past decade. In 1960 four-fifths of Mexican homes had at most two rooms and no toilet; now 60% have three rooms or more and have a flushing lavatory.

Traditionally the middle class in Latin America was employed in the public sector. The new lower middle class is more entrepreneurial, though many of its members work at least partly in the informal economy. They aspire to the six Cs: casa propia (a home of one’s own), a car, a cellphone, a computer, cable (or satellite) television and trips to the cinema.

All this progress is still fragile, and not everyone finds a way out of poverty. The children of poor households, and especially those in rural areas and of black or indigenous descent, are much less likely than the average Latin American to complete their schooling or have somewhere decent to live. A study for the World Bank found that between a quarter and a half of differences in consumption were due to such inequalities of opportunity. And there is a long way to go. If Brazil wants to achieve average social conditions for a country of its income level, it must keep up its “fantastic” progress in tackling deprivation over the past 15 years for another two decades, says Ricardo Paes de Barros of the Institute for Applied Economic Research, a government-linked think-tank.

Back to school

If it is to become a middle-class society, Latin America’s first priority must be to improve the quality of schooling. Over the past 20 years the region’s democracies have made a big effort to get children into the classroom. Primary schooling is almost universal, except in some of the poorer Central American countries; 70% of the children in the region now start secondary school, up from 60% in 1999 (but 90% do in rich countries). The number in some form of tertiary education has risen from a fifth to a third over the same period. But many drop out, and many who stay do not learn much. The six Latin American countries that took part in the OECD’s PISA study on educational achievement in 2006 all ranked in the bottom third of the 57 countries covered.

At least people are becoming more aware of the need to improve the quality of public education. That is particularly clear in Brazil, where the progressive education policies of the governments of Fernando Henrique Cardoso (1995-2003) have been broadly continued under Lula. Both the government and educational pressure groups are backing a campaign that aims to raise school performance to developed-country levels by 2021, the eve of the bicentennial of Brazil’s independence. The government has introduced a national exam to monitor standards, and some states have followed suit. In São Paulo the state education secretary, Paulo Renato Souza (who was education minister for eight years under Mr Cardoso), has also introduced a standard curriculum, required teachers to submit to a proficiency test and linked big salary increases for them to better school results in the standard tests.

The proof of these policies will be whether they work in places like the Colegio Recanto Verde Sol, a school in Jardim Iguatemi, a jumble of favelas climbing over steep hills next to a patch of virgin rainforest on São Paulo’s eastern fringe. The school, built in 2005, is clean and reasonably well-equipped, with a small library, video room and cafeteria for school meals. But its results are poor. That is partly because its 1,800 pupils study in three shifts: 11- to 15-year-olds in the morning, six- to ten-year-olds in the afternoon, and over-15s in the evening, sometimes not finishing until 11pm. Not surprisingly, many older pupils drop out: “In secondary, we begin the year with seven classes and end with three or four,” says Angela Regina Rodrigues, the head teacher.

Ms Rodrigues is charismatic and committed but somewhat defensive. Her main problem is getting teachers to turn up. Classes are too big, with 40 or more pupils. Ms Rodrigues herself has a second job at night, teaching history at another school. But she is trying to raise the quality of teaching and to get parents more involved.

The problems at Recanto Verde Sol are mirrored (and often magnified) across Latin America. Spending on education has increased almost everywhere, but average spending per pupil is only a fifth that in developed countries, according to the OECD. One reason for that is a demographic bulge that will soon subside. The main task is to train better teachers and to link extra spending to teacher performance. Attempts to do this in Mexico have largely foundered on opposition from the powerful teachers’ union. Teachers there have jobs for life, which can be bequeathed, bought or sold. Mexico’s president, Felipe Calderón, got the union to agree that posts would be filled by public competition, but enforcing this has proved hard.

Many countries are now trying to do some of the right things. Colombia, where Mr Uribe kept the same, competent, education minister for eight years, and Chile have both made big efforts to expand pre-school education, for example. In Peru the government of President Alan García introduced compulsory evaluation of teachers; when many of them failed the first exam, the teachers’ union was thrown on the defensive. But many parents are complacent about their children’s schooling, content that they are staying at school longer than they did themselves.

Others are voting against state education with their feet. The rich in Latin America have long sent their children to private schools, whence they often move on to free public universities. The lower middle class is following suit. In the decade to 2009 the number of private schools in Mexico rose by more than a third, to 45,000. In Peru Mr Rodríguez Pastor, the banker, has started a business aiming to provide good-quality schools in poorer areas. So far he has got three. He wants to turn teaching into a desirable career by offering good training, pay and conditions.

A welfare state of sorts

The second thing Latin America must do to turn itself into a more equal society is to reform public spending, which remains inequitable and shot through with perverse incentives. After the second world war many countries in the region set up European-style contributory health-care and pensions schemes, and in some cases unemployment insurance too. But these systems cover only a minority of workers (mostly the better-off), mainly because of the prevalence of the informal economy. Add in tax systems that rely heavily on consumption taxes, which hit the poor disproportionately hard, and taxes and government transfers reduce the Gini coefficient of income inequality by under two percentage points in Latin America, compared with 19 percentage points in Europe, according to the OECD.

The spread of democracy has prompted efforts to make society fairer by putting in place a modest welfare state. The cash-transfer programmes are the most prominent element, but many countries have also introduced non-contributory minimum pensions, and some have provided cheap health insurance to cover drugs and treatments at public hospitals. These innovations reinforce the idea that in a democracy all citizens have certain basic rights. But they have had the unintended effect of creating a two-tier system, full of duplication and contradictions.

Watch those income disparities

The first task for Latin American governments is to strengthen the emerging social safety-net. Bolsa Família and Oportunidades have been extended to urban areas, where many poor people now live. But greater income disparities in cities make targeting harder, and urban poverty often has complex causes. That is recognised in Chile, where the proportion of poor people in the population fell from 45% in the mid-1980s to under 14% in 2006. It rose a little in 2009, to 15%, partly because of the recession, but the increase also prompted officials in the new conservative government of Sebastian Piñera to question the effectiveness of social spending. Yet Andrés Velasco, the finance minister in the previous government, points out that the rise in world food prices pushed up the cost of the basket of staple goods typically bought by the poor by 36% between 2006 and 2009, whereas overall inflation was only 14%. Without social policies to cushion this shock, the proportion of people in poverty would have risen to 19%, he says.

That looks like a vindication of Chile Solidario, a programme aimed at eradicating extreme poverty. It puts the destitute in touch with social workers to make sure they benefit from programmes including job training, education and housing as well as income support. Colombia has set up a similar scheme. In Peru a programme in the poorest parts of the southern Andes has reduced child malnutrition.

These programmes are more complicated and costly than CCTs but they can be more effective, especially in cities. Ricardo Paes de Barros, who advises Marina da Silva, the Green Party candidate in October’s presidential election, wants to see such a scheme in Brazil. He says it could deploy an existing network of community health agents. With Bolsa Família “for the first time we managed to identify a group of the poor who weren’t visible before. Now we can make sure the poor receive social assistance in a joined-up way,” he says.

The second big task for the region’s governments is to ensure that social policies take account of the dual labour market. The CCT payments in themselves are not big enough to discourage people from working. But there is some evidence that additional non-contributory benefits, combined with high payroll taxes, are deterring people from taking formal jobs.

To make benefits universal, Mr Levy of the IDB calls for a radical reform, scrapping contributory health-care and pension systems and replacing them with a unitary scheme financed by a consumption tax. This would go hand in hand with a reform of the labour market that would attempt to bridge the gap between the formal and informal sectors. His idea is backed by Enrique Peña Nieto, the likely candidate of the Institutional Revolutionary Party, or PRI (which governed Mexico for many years), in the presidential election of 2012. Economists at the World Bank think the answer is to eliminate hidden subsidies by switching pensions to defined contributions rather than defined benefits and basing health-insurance benefits on premiums rather than earnings.

Latin America has already gone a long way towards creating a universal safety-net in the past two decades, but coverage remains patchy. To improve it, taxes will have to rise in some countries, though in Brazil and Argentina they are arguably already too high as well as too complex. Elsewhere in the region the government’s tax take has risen in recent years. But in some of the poorer countries, especially in Central America, it remains too low to finance a modern state that is capable of providing citizens with their most basic needs.

Source - Economist

Latin America: So near and yet so far

A richer, fairer Latin America is within reach, but a lot of things have to be put right first, says Michael Reid

Sep 9th 2010

AT DAWN on September 16th 1810 Miguel Hidalgo, the parish priest of Dolores, a small town in central Mexico, rang the bells of his church to raise the cry of rebellion against the Spanish crown. Mexico, Spain’s richest American colony, thus joined a struggle for independence which had already seen the colonial authorities ousted and rebel juntas installed in Caracas, Buenos Aires and other South American cities. Two years earlier, following Napoleon Bonaparte’s invasion of the Iberian peninsula, King João VI of Portugal and his court had been installed in Rio de Janeiro by a British fleet. Brazil would never again be governed from Lisbon.

As Latin America marks the bicentenary of the start of its struggle for political independence, many of its constituent countries have more recent cause for celebration too. The five years to 2008 were Latin America’s best since the 1960s, with economic growth averaging 5.5% a year and inflation generally in single digits. Even more impressively, a region which had become a byword for financial instability mostly sailed through the recent recession. After a brief downturn in late 2008 and early 2009, a strong recovery is now under way, with most forecasts suggesting economic growth of over 5% this year for the region as a whole.

Along with growth came a better life. Between 2002 and 2008 some 40m Latin Americans, out of a total population of 580m, were lifted out of poverty, and income distribution became a bit less unequal almost everywhere. Poverty increased in 2009 because of the recession, but will start declining again this year. Average unemployment went up slightly to 8.2%, but should come down again this year to 7.8%, according to the United Nations Economic Commission for Latin America and the Caribbean (ECLAC).

Latin America weathered the recession partly thanks to good fortune but also to sound policies. After the cataclysmic debt crisis of 1982 the region’s policymakers abandoned the protectionism and fiscal profligacy that had brought hyperinflation and bankruptcy. In their place they adopted the market reforms of the Washington Consensus (opening up their economies to trade and foreign investment, privatisation and deregulation).

But they found the road to stability and faster growth a long and bumpy one. During a second bout of instability, from 1998 to 2002, the region introduced more pragmatic policies. The formula has generally included flexible exchange rates, inflation-targeting by more or less independent central banks, more responsible fiscal policies and tighter regulation of banks, as well as social policies aimed at the poor. The recession was an important test. Last year “may have been the final exam and the graduation party” after Latin America’s lengthy education in getting macroeconomic policy right, says Santiago Levy, the chief economist at the Inter-American Development Bank (IDB).

The region’s newfound economic stability and social progress also owes much to the fact that over the past 30 years democracy has become established almost everywhere. Nearly all elections are now free and fair. The big exception remains the gerontocratic dictatorship of the Castro brothers in Cuba. There are threats to democracy in some other places: last year a coup toppled an elected government in Honduras, and opponents of the governments in Venezuela and Nicaragua face growing harassment and intimidation. But broadly speaking Latin America today is more democratic than ever before.

Latin America’s new resilience and faster growth is starting to attract increased interest from outsiders. That is especially true of Brazil, now often perceived to be in a league of its own. That is only partly because Jim O’Neill, an economist at Goldman Sachs, did it a huge favour when in 2001 he bracketed it together with Russia, India and China as one of the BRICs which would dominate world economic growth over the coming decades. Another reason is Brazil’s sheer size: with a population of 191m it accounts for a third of Latin America’s total and 40% of the region’s GDP. Since 2007 Brazil has begun to grow faster than the regional average—although by common consent its red-hot pace of 11% in the year to March 2010 will subside to less than half that rate next year.

As multinationals face mounting difficulties in China, some bankers and businessmen are looking at Latin America—and not just Brazil—as an alternative. The region has 15% of the world’s oil reserves, a large stock of its minerals, a quarter of its arable land (much of it unused) and 30% of its fresh water. Mexico, its other giant, with almost 25% of its GDP, suffered a deeper recession in 2009 and is struggling to deal with violent drug gangs, but it has maintained economic and political stability. Like the big two, Chile, Colombia, Panama and Peru have investment-grade credit ratings, and all four are growing fast. Governments, households and companies in all these countries are less indebted than those in many developed countries.

Already, Latin America takes a quarter of the total exports of the United States and around a fifth of its outward flow of portfolio investment. Total bank credit in the region will grow by about 12% a year over the next few years, faster than anywhere except China and India, reckons Manuel Medina Mora, who heads Citibank’s Latin American operations and its global consumer-banking business. Its share of the market capitalisation of publicly quoted companies and assets under management is only 3-5% of the world total but growing at 25% a year, faster than anywhere else, according to Paulo Oliveira of Brain Brasil, a body set up to promote the country as a business hub.

Marketing people are beginning to talk about a “Latin American decade”. If the region can keep up the growth of the past few years, it will double its income per person by 2025, to an average of $22,000 a year at purchasing-power parity. By then Brazil may be the world’s fifth-biggest economy, behind only China, the United States, India and Japan. Half a dozen countries may have achieved developed-country status, with an income equivalent to Spain’s today.

Causes for caution

Some Latin American countries may at last have found a path towards economic development. But getting there may be no quicker or easier than achieving independence. Latin America has often flattered to deceive (see article). Today there are at least three big worries. First, since 1960 it has seen the lowest growth in productivity of any region in the world, not least because around half of all economic activity takes place in the informal sector. Second, despite some recent improvement, its income distribution is still the most unequal anywhere. This has acted as a drag on growth and caused political conflict. Third, it suffers from widespread crime and violence, much of it perpetrated by organised drug gangs. The murder rate is hideously high in some countries.

A problem for any report such as this one is that Latin America is so diverse as to defy most generalisations. For some purposes it includes the small English-speaking island-states of the Caribbean. Haiti’s problems were more akin to Africa’s even before its devastating earthquake. On the other hand, some Brazilians argue that their country—differentiated by speaking Portuguese and, until recently, geographically isolated from its neighbours—is not really part of Latin America.

Income per person also varies widely, from $15,300 in Panama to $2,900 in Nicaragua (see map). And there is an ideological divide too. Venezuela’s Hugo Chávez and the Castro brothers in Cuba reject integration with the world economy in favour of state socialism and managed trade. Their economies have suffered for it: Venezuela’s economy has become a lasting casualty of the recession, despite the swift recovery in the oil price.

So there are differences. But there are clear trends, and an identifiable majority. Mr Chávez, for instance, has his allies but very few want to embrace fully his brand of economic mayhem. Rafael Correa in Ecuador is discreetly distancing himself. Evo Morales in Bolivia has pursued a prudent macroeconomic policy at the same time as launching a collectivist experiment under which people of indigenous descent are being granted special rights. Despite the efforts of its first family, the Kirchners, Argentina retains a vigorous private sector.

This report will concentrate mainly on the region’s larger countries that have embraced globalisation: Brazil, Mexico, Chile, Colombia and Peru, which between them represent three-quarters of Latin America’s GDP and more than 70% of its people. They have all recently enjoyed a huge bonus: the world commodity boom that began earlier this decade as China and India sucked up foodstuffs and raw materials.

Melilla, North Africa’s European dream

De Volkskrant, Amsterdam

Rabat sees the Spanish enclave of Melilla as an occupied territory. But the Moroccans who live and work there have become attached to its unique character and don't want it to change.

Greta Riemersma

A marriage is in full swing at the Café Del Real. Three of the guests, Mina, Aziza and Karim, have spent anywhere from half to their entire lives in Melilla. They are of Moroccan origin, but their attitude is clearly Spanish. "If Morocco takes over here, then I will jump across to the other side", remarks Karim, alluding to continental Spain. But on one point, they are clearly Moroccan: they do not want their family names published. Their feelings about Melilla do not follow the Moroccan party line, and they wish to avoid problems for family members who remain in Morocco.

The issue of Melilla, a 12 square kilometre parcel of land surrounded by barbed wire with a population of 80,000, is a very sensitive one for Morocco. For Rabat, it is an occupied territory, a viewpoint recently seconded by Prime Minister Abbas El Fassi during a telephone conference with the Spanish government on "the occupation" of Melilla and Ceuta, the other Spanish enclave in northern Morocco. Spain maintains that there is no question as to the "sovereignty and Spanish character" of Ceuta and Melilla.

For Morocco, Melilla is a last vestige of colonialism

Mina, Aziza and Karim enjoy quality education, affordable health care and other benefits of Spanish-style democracy here. Salaries are also higher than on the other side of the barbed wire. "Many products are more expensive in Morocco. A litre of milk that costs half a euro in Melilla costs 80 cents in Morocco", explains Aziza. There is no compelling argument for Moroccan residents of Melilla to put an end to this beautiful existence.

The wedding party at the Café Del Real is mixed: Rabiaa, the bride, is Moroccan, and her husband Juan Miguel is Spanish. According to Antonio Portillo Gómez, a cafe habitué, "the entire population of Melilla is multicultural". "Numerous civilisations have existed here, and Melilla has a history that goes back long before the Moroccans came to power. So why does Morocco consider Ceuta and Melilla to be Moroccan territory?" In 1497 Melilla was already Spanish, and Ceuta eventually followed suit in 1578. Over the last century, the influence of the Spanish realm was felt throughout northern Morocco, but when the country won its independence in 1956, Spain gave up this territory, with the exception of Ceuta, Melilla and three minuscule islands off the Moroccan coast that have existed for centuries as Spanish possessions.

From the Spanish point of view, the current situation is fair, given its long history. But Morocco definitely sees things differently. When Spanish king Juan Carlos visited Ceuta and Melilla for the first time in November, 2007, he provoked a diplomatic crisis. Morocco recalled its ambassador to Spain, and Prime Minister El Fassi declared that the age of colonialism had "irrevocably" passed.

Morocco sees this as a last vestige of the colonial era, and this is why they are so adamant about taking over these two enclaves. The port of Tanger Med was constructed just next to Ceuta, and a similar port complex is being built next to Melilla. The underlying idea is to contain the economic activity of the enclaves in order to eventually make them too expensive for Spain to maintain.

Every day 12,000 Moroccans come into Melilla

In any case, these two small territories are already quite costly for Spain, as the government foots the bill to lure mainland citizens there with tax breaks and elevated salaries for civil servants willing to migrate. For the time being, the financial situation of the enclaves remains positive, thanks largely to the Moroccans. Those who live near the enclaves can enter without a visa, and about 12,000 visitors a day come to Melilla, where they buy inexpensive products like milk, shampoo and blankets to sell at a small profit back on the Moroccan side. In April, French television station M6 broadcast a documentary on the "women-mules" who transport 60 to 80 kilos of merchandise on their backs, even if they are very old or pregnant. At times, these women are even herded like cattle by billy-club toting police near the border. The Moroccan paper Akhbar Alyoum called the film "shocking".

Do the Spanish residents of Melilla discriminate against the Moroccans there? "No, not at all", Karim replies. This is what the inhabitants like to believe: that Melilla is a model multicultural state. But they are also aware that the Spanish of the Iberian Peninsula look down on them because they live in Africa, while residents tout the benefits of their multi-ethnic orientation. And enclave inhabitants like to cultivate the image of living in a cultural oasis in the midst of a barbarous desert: "In Morocco, women don't have the right to speak, but that's not the case here", brags a Spanish woman from Melilla.

Lisbon, the empty capital

El País Madrid

Rundown buildings and the high price of a square metre are driving away young people and transforming the Portuguese capital into a ghost town to the point where it would be completely devoid of life were it not for the annual influx of students brought to the city by the Erasmus programme.

Francesc Relea Ginés

Lisbon is a city with a worn out heart. The famous neighbourhoods of its historic centre, which include Chiado, Baixa, Alfama, Graça and Alcántara, are full of empty houses. Even the most expensive areas are not fully occupied, and streets that are home to luxury shops, hotels, banks and multinationals also have their share of decrepit buildings. The city council has listed 15 such structures on the Avenida da Liberdade, which is the city’s main thoroughfare. Lisbon and Porto top the European Union’s list of cities where the population is in decline since 1999, and they also have the highest proportion (24%) of residents aged 65 or over.

For years, architect Helena Roseta has been trying to improve Lisbon’s housing policy, and last October she was elected to the post of city councillor, standing as an independent on the Socialist party list. Roseta wants to draw attention to three problems in the urban landscape of cities like Lisbon, Porto and Braga: the large number of empty apartments, demographic decline, and the aging population. According to a census conducted in 2008, Lisbon now has 4,000 disused buildings in an overall total of 55,000.

“Some of them are already benefiting from renovation programmes approved by the local government, but there are others that cannot be upgraded and will have to be demolished,” explains another architect, Manuel Salgado, who is the member of the mayor’s cabinet responsible for urban planning.

The problem of commuters

Over the last three decades, Lisbon has lost approximately 100,000 residents every ten years, which has brought its population down from 800,000 to its current level of around 500,000. Salgado insists that he has “fully identified” the causes of this exodus: The poor quality of local infrastructure which does not offer adequate educational facilities or day- and health-care centres, a desire for houses rather than flats, and most importantly the price per square metre in Lisbon which is up to three-times higher than it is in the city’s suburbs.” According to local government figures, a quarter of Lisbon’s population is living below the bread line. At one end of the spectrum, you have pensioners, the unemployed and people on minimum benefits. At the other, you have the well-heeled who have no trouble paying the prices demanded in the capital, but who are often attracted to the affluent resort towns of Estoril and Cascais.

The city provides 650,000 jobs for only 500,000 residents, and only a quarter of these are of working age, explains the local councillor. “What this means is that every day, more than half a million people commute to and from Lisbon. And that makes it almost unique in Europe. It is only really comparable with Oslo, which is similar to major cities in the United States,” points out geographer João Seixas.

The consequences of this daily influx are dramatic for the city, which fills up and empties like a lung: imbalances, traffic congestion, pollution and noise. “We have 162,000 vehicles registered in Lisbon, but another 400,000 enter the city every day: a major nuisance that contributes nothing to the city’s finances because all of the commuters pay their taxes in neighbouring regions,” explains Salgado.

The Erasmus solution

In the evenings and on weekends, Lisbon empties and an eerie calm descends on the streets of many of its neighbourhoods. Some of the more central ones, where there are a lot of abandoned buildings, suffer from a chronic lack of services. Limited demand has closed down shops and bars, and taxis are hard to find: two issues which have contributed to an exodus of young people who prefer to live in more outlying but livelier neighbourhoods.

Landlords, tenants and municipal authorities all blame each other for the dilapidation of the city’s buildings. The landlords are particularly peeved by urban rental regulations introduced under the Salazar dictatorship in the 1950s, which have resulted in absurdly cheap rents that make renovation a financial impossibility.

In spite of its declining glory, the beauty of Lisbon with its seven hills and omnipresent river Tagus continues to enthral foreign visitors. With this in mind, the municipal government, which is seeking ways to restore the vitality of the capital, is aiming to maximise the impact of the Erasmus programme for student mobility in the European Union. “Our goal is to transform Lisbon into an Erasmus city,” remarks an enthusiastic Manuel Salgado. According to official figures, the annual influx of 3,000 foreign students who come to study in Lisbon’s universities has already done much to boost the local rental market.

Bye bye to the Polish plumber, Guten Tag to the German carpenter

Foreign Policy România, Bucarest

The myth of the Polish plumber taking bread from the table of German workers has been and gone. According Foreign Policy Romania, the time has come for workers in Western Europe to migrate to Central Europe, where there are plenty of jobs on offer.

Matei Dobrovie

With a growth rate of 1.7% in 2009, Poland was the Eastern European country least affected by the crisis. Even the tragic air crash which caused the death of most of the political elite responsible for this success has not put a brake on the Polish economy. As a result, thousands of East Germans are now traveling east and crossing the river Oder in their quest to find jobs.

According to official figures, there are more than 2,500 Germans working in call-centres, construction and other industrial sectors in the city of Szczecin and the surrounding area, but unofficial reports are citing much higher numbers. A German skilled worker can earn about 1,000 euros a month in Poland, which is not stellar, but better than nothing. A stone’s throw away, in the German district of Uecker Randow, the rate of unemployment now stands at 20%.

This latest phenomenon is further proof of a counter current in the flow of migration. The 1950s and 1960s were marked by the arrival of Turkish and Greek workers in Germany, but now the economic crisis has encouraged German migrants to seek work in Poland and also in Turkey.

Turkish-Germans returning "home"

Young Turkish-Germans are leaving the country where they were born to return to Turkey with their parents. According to a study form the Futureorg Institute in Dortmund, 38% of Turkish graduates would like to live in Turkey. Half of them claim that they "do not feel at home" in Germany, where they believe they are treated like foreigners. Approximately 5,000 of them took the step of emigrating in 2008.

Along with this sentiment of non-integration, another factor that encourages them to leave is the level of discrimination on the job market. According to a study conducted by the University of Konstanz, people with Turkish names are14% less likely to be called for job interviews. This is marked contrast to the situation they would enjoy in Turkey, where the economy has been booming in recent years and there are plenty of interesting jobs on offer to well qualified bilingual graduates.

Management and engineering graduates, who are bilingual and imbued with the German work ethic, are particularly sought after on the Turkish labour market. As a result, "Germany is not only losing highly qualified workers whose education it has financed, but also individuals who could make a decisive contribution to the integration off an ethnic minority", regrets Astrid Ziebarth in a report for the German Marshall Fund.

Resurgence of Greek and Irish emigration

Countries that have been worst hit by the economic crisis are experiencing a predictable exodus of young graduates. Many young Greeks, who returned home after completing their studies abroad, have lost their jobs and are now planning to leave.

During the Celtic Tiger years of strong economic growth, the Irish government enthusiastically reported that new industries had put a stop to emigration and that expatriates attracted by jobs in construction and financial services were returning home. Today, the victims of job cuts are queuing up to leave the country.

Headed for Portugal’s former African colony

Fleeing a rate of unemployment that stands at 10% in their home country, several thousand Portuguese have opted to try their luck in Angola, the country’s former colony in East Africa. Thanks to a surge in oil revenues, the Angolan economy has grown by 16% per year over the last five years, as opposed to just 1.1% growth in the Portuguese economy.

The Angolan boom has resulted in a wider range of professional openings, with notable shortages of qualified workers in the engineering, telecommunications, retailing and banking sectors.

Close to 25,000 Portuguese have moved there over the last three years, and these include small business owners, executives and qualified workers such as bricklayers, electricians and construction foremen. Although they have been marked by the trauma of the colonial period and the fight for independence, the strong linguistic, historic and cultural links that unite the two countries have done much to facilitate the integration of the new wave of Portuguese job seekers.

A new frontier for green power

The New York Times, New York

Pioneering Portugal has radically reduced its dependence on fossil fuels. This year nearly half of its electricity will come from renewable sources.

Five years ago, the leaders of this sun-scorched, wind-swept nation made a bet: to reduce Portugal’s dependence on imported fossil fuels, they embarked on an array of ambitious renewable energy projects. Nearly 45 percent of the electricity in Portugal’s grid will come from renewable sources this year, up from 17 percent just five years ago.

Land-based wind power — this year deemed “potentially competitive” with fossil fuels by the International Energy Agency in Paris — has expanded sevenfold in that time. And Portugal expects in 2011 to become the first country to inaugurate a national network of charging stations for electric cars. While Portugal’s experience shows that rapid progress is achievable, it also highlights the price of such a transition. Portuguese households have long paid about twice what Americans pay for electricity, and prices have risen 15 percent in the last five years.

Aggressive national policies to accelerate renewable energy use are succeeding in Portugal and some other countries, according to a recent report by IHS Emerging Energy Research, a leading US energy consulting firm. By 2025, the report projected, Ireland, Denmark and Britain will also get 40 percent or more of their electricity from renewable sources. To force Portugal’s energy transition, Mr Sócrates’s government restructured and privatised former state energy utilities to create a grid better suited to renewable power sources. To lure private companies into Portugal’s new market, the government gave them contracts locking in a stable price for 15 years — a subsidy that varied by technology and was initially high but decreased with each new contract round.

European countries have powerful incentives to pursue renewable energy. Many, like Portugal, have little fossil fuel of their own, and the European Union’s emissions trading system discourages fossil fuel use by requiring industry to pay for emissions. Government officials say the energy transformation required no increase in taxes or public debt, precisely because the new sources of electricity, which require no fuel and produce no emissions, replaced electricity previously produced by buying and burning imported natural gas, coal and oil.

Necessity drives change

With a rising standard of living and no fossil fuel of its own, the cost of Portugal's energy imports doubled in the last decade, accounting for 50 percent of the country’s trade deficit, and was highly volatile. Portugal is now on track to reach its goal of using domestically produced renewable energy, including large-scale hydropower, for 60 percent of its electricity and 31 percent of its total energy needs by 2020.

The country’s electricity production costs and consumer electricity rates are about average for Europe, but still higher than those in China or the United States. Mr Shinji Fujino, of the International Energy Agency, said Portugal’s calculations might be optimistic. But he noted that the country’s transition had also created a valuable new industry: last year, for the first time, it became a net power exporter, sending a small amount of electricity to Spain.

Tens of thousands of Portuguese work in the field. Energias de Portugal, the country’s largest energy company, owns wind farms in Iowa and Texas, through its American subsidiary, Horizon Wind Energy.

Indeed, Portugal’s engineers and companies are now global players. Portugal’s EDP Renováveis, first listed on stock exchanges in 2008, is the third largest company in the world in wind-generated electricity output. “Broadly, Europe has had great success in this area,” said Mr Juech, the analyst at Garten Rothkopf. “But that is the result of huge government support and intervention, and that raises questions about what happens when you have an economic crisis or political change; will these technologies still be sustainable?”

Flexible network

Running a country using electricity derived from nature’s highly unpredictable forces requires new technology and the juggling skills of a plate spinner. A wind farm that produces 200 megawatts one hour may produce only five megawatts a few hours later; the sun shines intermittently in many places; hydropower is plentiful in the rainy winter, but may be limited in summer.

Denmark, another country that relies heavily on wind power, frequently imports electricity from its energy-rich neighbor Norway when the wind dies down; by comparison, Portugal’s grid is relatively isolated, although it has greatly increased its connection with Spain to allow for energy sharing. Portugal’s distribution system is also now a two-way street. Instead of just delivering electricity, it draws electricity from even the smallest generators, like rooftop solar panels. The government aggressively encourages such contributions by setting a premium price for those who buy rooftop-generated solar electricity. To ensure a stable power base when the forces of nature shut down, the system needs to maintain a base of fossil fuel that can be fired up at will.

Drawbacks

Energy experts consider Portugal’s experiment a success. But there have been losers. Many environmentalists object to the government plans to double the amount of wind energy, saying lights and noise from turbines will interfere with birds’ behavior. Conservation groups worry that new dams will destroy Portugal’s cork-oak habitats. Local companies complain that the government allowed large multinationals to displace them. Until it became the site of the largest wind farm south of Lisbon, Barão de São João was a sleepy village on the blustery Alentejo coast, home to farmers who tilled its roller coaster hills and holiday homeowners drawn to cheap land and idyllic views. Renewable energy has brought conflict.

Whither the European mind?

10 September 2010 Philosophie Magazine Paris

The idea of a declining Europe, which has been reinforced by poor demographic and economic indicators, has become a fashionable talking point. But writing in the colums of France’s Philosophie Magazine, Alexandre Lacroix insists that the vitality of a civilisation is also measured in terms of the strength of its creative initiative.

Alexandre Lacroix

Have we entered an era where, like the citizens of the declining Roman Empire, we are about to write the last glorious and violent chapter of our history? Superficial, hedonistic cynics spoiled by creature comforts and disdainful of everything except ourselves with no more faith in the laws of God or humankind, do we not deserve to be overtaken by other younger, more ambitious and stronger societies? It is tempting to liken today’s Europeans to the decadent Romans, but we should be wary of the easy pathos and reactionary posturing that often characterises this analogy. The three remarks that follow will attempt to outline the philosophical issues raised by this debate.

 

Remark No. 1: The myth of a declining Europe is as old as the history of the continent itself.

Although he lived in the eighth century BCE, Homer wrote his epics about a much earlier period, the Trojan War, which is usually dated to the 12th century BCE. Like most of his contemporaries, Homer’s imagination was inspired by by the past glory of the Mycenian civilisation (1600–1200 BCE), which was destroeyd by Dorian invaders who came from the North.

Homer’s characters – Ulysses, Achilles, Agamemnon etc. – are defined by noble qualities to the point where they are supposed to belong to a superior race of beings. But at the same time, we should bear in mind that Homer was the first historian, and it is on this basis that his work paved the way for a myth of decline, which has since become an obsession in European culture.

At the end of the Middle Ages, nostalgia for a Golden Age reappeared in the writings of Dante and Machiavelli, but this time round, the focus was on the former power of the Roman Empire. In the Enlightenment, Montesquieu also took an interest in the decadent culture of Ancient Rome, but with the intention of criticising the authoritarian excesses of the Caesars, and indirectly attacking the monarchy of his own period.

Closer to our times, in the aftermath of WWI, the historians Oswald Spengler and Arnold J. Toynbee announced that Western civilisation had become tainted by surreptitious death wish, which was leading it to dig its own grave. From Homer to Toynbee, all of these writers have sung the praises of past greatness and announced impending catastrophe, but it is important to bear in mind that in so doing, their sole aim was to rediscover a source of inspiration that would restore the positive trajectory of history.

Remark No. 2: Today the myth of decline is expressed in the formal language of figures and economics

The major innovation in our period is that we no longer rely on gifted writers to hold a mirror up to our weakness, but on sterile spreadsheets produced by institutes of statistics, and in particular Eurostat and the World Bank. There is no denying that these figures do have an engaging eloquence which is unique to them, and difficult to resist.

The 500 million inhabitants of the European Union (EU) form a population characterised by rapid aging and the world’s lowest levels of demographic growth (– 0.05% in Germany and 0.7% in Italy in 2008). And it is not particularly large: the EU only accounts for 7.3% of the current global population. European economic growth is also in decline: an average of just 0.2 % in the 27 EU member states since the start of this year, – 4.2% in 2009 (in stark contrast to 10% growth in China, 8% in Brazil and 6.5% in India). In 2008, 17% of Europeans were living below the poverty line and this figure stood at 20% for children and teenagers…Not only has the EU lost virtually all of the industry on its territory, but the best of what remains is being bought up foreign investors.

However, an evaluation of nations that focuses solely on budgetary and accounting criteria overlooks other dimensions like the quality of life, access to education and healthcare, the rule of law, the existence of a judiciary that is not corrupt, transport infrastructure etc.

Let’s imagine, as Plotinus did, that our souls exist before our birth. And imagine that you are one of these souls embarked on an astral journey towards incarnation when you are stopped by an angel who offers you a choice: you can decide if you want to be born in India, China, Brazil, Indonesia or Europe. Which destination would you choose? Where do you think you would have the best chance of a life of freedom untroubled by the fear of violence, whether it be propagated by the state or society? So where has this reverie taken you? Have you made your choice? Could it be that you have not completely recovered from a belief in Europe ?

Remark No. 3 The reduction of the myth of European decline to the description of an economic problem is in itself a troubling symptom of decline

Here we should take our cue from the final pages of Spengler’s Decline of the West, published in 1918: “Economic thought and action are one aspect of life, and every economic life is the expression of the life of a mind.” In other words, the prosperity or stagnation of an economy is simply the reflection of a certain state of culture or state of mind.

A year later, in 1919, Paul Valéry hammered this point home in his essay Crisis of the Mind, which famously begins: “We later civilisations... we too know that we are mortal.” The argument that follows this observation is less well known but equally interesting. Observing the spectacle of a Europe that had been ruined by war Valéry remarks: “the impact of economic crisis is fully visible; but the intellectual crisis, which is more subtle and more deceptive in its appearance (since it takes place in the very realm of dissimulation)... this crisis will hardly allow us to grasp its true extent, its phase.” Valéry goes on to warn that we must distinguish between strengths and quantities! The ranking of world regions on the basis of statistical criteria – population, surface area, raw materials, income etc. – tends to overlook the fact that every civilisation that has changed the course of history, whether it be Ancient Egypt, the Age of Pericles or the Enlightenment in Europe, has been marked by a surge of creativity, the promotion of art and science, and an intense life of the mind.

In his seminal text The Crisis of European Sciences and Transcendental Phenomenology written in 1935-1936, German philospopher Edmund Husserl affirmed that the privileged status of reason provided the foundation for the greatness of Europe. In particular, he claimed that the Greek project, which was to understand all of the phenomena of the world, had resulted in the rise of our civilisation. And this observation also applies to the Enlightenment, where reason overcame the oppression of the Ancien Régime and paved the way for the emergence of modern science. However, Husserl also points out that “in the latter half of the 19th centruy, the all encompassing vision of the world which was the vision of modern man, became determined and largely blinded by positive sciences and the “prosperity” that they brought with them.” This separation of natural and human sciences in the 19th century had very serious consequences, because it marked a break with the objectives of the Greek project. Philosophy, psychology, sociology, and political science were rejected as literary and subjective. The proper focus of reason, whose expression was henceforth to be restricted to mathematics, was the hard sciences. But mathematics cannot offer a solution for human suffering nor can it provide us with a destiny! The reduction of reason to mathematical calculation effectively deprived Europeans of their founding project, which had disolved in itself. “Simple factual sciences have created a humanity that is simply composed of facts,” which brings us to our conclusion: the fact that the decline of today’s Europe is not simply a question of statistics is perhaps a matter for more serious concern than the numbers themselves, because it shows that somewhere along the way, we have set aside the life of the mind.

Translated by Mark McGovern

French film highlights racism

French comedy L'Italien exposes immigrant's dilemma

By Christian Fraser

BBC News, Paris

Kad Merad, who plays Dino in L'Italien, is said to have shortened his name to win more roles Dino Fabrizzi is not what he seems.

To his friends he is an Italian car salesman; successful, popular, on the cusp of promotion, soon to be married.

But at home - to his mother - he is Mourad Ben Saoud, a French Algerian who changed his name to get a job.

Dino is the main character in a new French comedy called L'Italien.

It lifts the lid on a disturbing reality - one in which an increasing number of second- and third-generation immigrants now play a similar role.

"Dino has two lives," says Farida Ouchani, the woman who plays his mother Rashida in the movie.

"He changes his name to get a job, an apartment, to build a normal life. He is an Arab!"

With an Arab name you have to be excellent. And if you are excellent, it still might not be good enough”

Mustapha Kessous

Journalist, Le Monde

"It is the way it is here - people have to make a choice about their origin. The role I play in the film is interesting. The first generation of immigrants didn't have to make this choice."

In this economic climate, getting a new job anywhere is tough. Employers are picky because they have plenty of people to choose from.

But here in France, it is especially hard if you come from an immigrant background.

The unemployment rate nationally is hovering at 10%. It is said to be double that figure in the poorer city suburbs, or "banlieues".

Even Kad Merad, the man who plays Dino in L'Italien, is said to have shortened his name from Kaddour, to win himself more acting roles.

There are plenty of others who have been forced to make that same difficult choice.

Naima Mili has had no luck despite submitting her CV about 100 times Naima Mili is a third-generation French Algerian. Her grandfather came to France after World War II to work in the construction industry.

But she is aiming higher.

Ms Mili is a graduate who can speak four languages. In the past, she has worked for top French companies like Credit Agricole, Total and France Telecom.

And yet in her mid-30s she has hit a glass ceiling. She has not had one interview despite sending out her CV more than 100 times.

So now she has decided to change her name from Naima to Naomi.

"I just want to get one interview," she says. "I need to get through the door to show them what I can do. Most of the time I don't even get a response to my application."

It is an extraordinary failure rate and strange since Naima is highly experienced and, you would have to say, highly presentable.

On meeting her, she says, most will comment on her "good Italian looks".

Postcode lottery

But it is not just names that employers are looking at.

If you live in the department of Seine-Saint-Denis, otherwise known as "93", you are fortunate if your CV gets even a second look.

Where you live in France can affect your job prospects Ms Mili's cousin now sends her applications from her address in "92", or Hauts-de-Seine, which seems to be more palatable to a prospective employer.

"There's something sadly wrong in France," says Mustapha Kessous, a sports journalist with the Le Monde newspaper.

"With a foreign-sounding, Arab name you have to be good. In fact, you have to be excellent. And if you are excellent, it still might not be good enough."

In a recent article, widely debated here in France, Mr Kessous recounts the story of his first meeting with the current Interior Minister, Brice Hortefeux, formerly the minister for national identity and immigration.

Mr Kessous stood to greet him, they smiled, shook hands.

"Have you got your papers?" asked the minister jokingly.

But the government has gone some distance to encourage companies to trial anonymous CVs.

One group using them to good effect is the main public transport operator in the capital, Regie Autonome des Transports Parisiens (RATP).

They receive applications through the internet. There is no requirement for a name or an address.

"Yesterday, we welcomed another group of applicants from an extremely diverse background," says Jean Pierre Baratta, director of development at RATP.

"It is big plus for our company and hugely encouraging for applicants who come in, to see who else is being invited. They're immediately set at ease. For us it has been a big success."

Identity and immigration are the two biggest themes in France at the moment and not just on the silver screen.

The movie, L'Italien, is not accusing France of being racist, but it does open eyes to how complicated it can be integrating into French society - even when you are French.

Comedy it might be - but for some, Dino's story is the frustrating reality.