Financial Times Europe - 19.09.2019

(Jacob Rumans) #1

10 ★ FINANCIAL TIMES Thursday19 September 2019


Any Brexit deal will
prolong painful trade-offs
Robert Shrimsley (Opinion,September
19 ) argues that “if Boris Johnson gets
his deal with the EU, the Lib Dems’
offering is going to look pretty bare”.
Any call to re-join the EU would be a
“niche position”.
Perhaps. Yet any conceivable deal
hurriedly negotiated in the coming
weeks (let alone no-deal) will be even
less precise about the UK’s future
relationship with the EU than anything
previously proposed to parliament.
The painful trade-offs inherent in such
negotiations have not yet been made.
Any final deal will stand in contrast to
the UK’s current status, which may
make rejoining an attractive option.
Until any transition period ends,
returning should be a relatively simple
process.
The Liberal Democrats have proven
themselves very serious about what
they would do with power — and the
current crisis offers them a unique
opportunity to regain it. Any deal will
be but a staging post in an interminable
process for which popular patience is
wearing thin. The Brexit position with
the best chance of ultimately reuniting
an exhausted country is very simple:
“Make it stop.”
Tim Gordon
Chief Executive, Liberal Democrats,
2012-17, London N1, UK

Brussels’ bureaucrats


served slice of humble pie
I read with great interest about the
lunch Boris Johnson had with Mr
Juncker during their recent meeting to
discuss the UK’s departure from the EU
(September 16). Your journalist
reported that they dined on “butter-
roasted pollock and creamy risotto”.
No doubt this is all part of the prime
minister’s attempt to bulk up for his
forthcoming role as the Incredible
Hulk. There was precious little
evidence that it contributed in any
other way to what appeared to be a
largely pointless taxpayer funded jaunt
to Luxembourg.
If or when the EU next organise a
meeting with him, I suggest they
provide a more suitable
encouragement to get down to
business. Bread and water in a locked
room might helphim to concentrate on
the business at hand rather than on his
vacuous infantile fantasies of saving us
from a ground zero disaster he is the
current architect of.
Leslie J Moran
Honorary Research Fellow Birkbeck
College, London, UK

The west has lost touch
with its natural origins
Isabelle Baltenweck’s article (Opinion,
September 17): The sustainability
problem with current meat
consumption is twofold: excess
consumption and industrial mass
production. Both problems are present
in Europeand the US, certainly not in
Africa or some parts of Asia. Humans
haverelied on meat and dairy products
and some cultures rely exclusively on
them (especially nomadic populations)
such as the Samburu herders or the
Masai tribes. Except that they produce
and consume these products
sustainably.
No one is arguing for one moment
that those cultures should either
change their diet or, worse, change
their secular culture. It is us in the rich
west that need to go back to that
model. It was offensive to read such a
disingenuous article which
instrumentalises poor populations in
far away countries and depicts them as
victims of our environmental concerns
when in fact they are the model we
should aspire to for finding a balance
between human needs, animal welfare
and the environment.
What they have achieved is a form of
symbiosis that is perfectly natural. It is
the industrialised west that has lost
touch with our natural origins. It is us
who need to change, not them. If
alternative meat is the answer, so be it.
Annalisa Burello
London SW10, UK

Divestment trumps tech


in green transition
Bill Gates’ analysis is flawed
(September 17). We do not lack the
technology to enable the transition
from fossil fuels, we lack the political
will. Too many people get too rich from
the proceeds of destroying the planet
and bribe and undermine the political
process to maintain the status quo.
One thing that makes chief
executives and owners sit up and do
the right thing is when the share price
of their holdings becomes worthless. So
disinvest like mad. Make it socially
unacceptable to invest in fossil fuels.
Fossil fuels produce more methane
than belching cows in their extraction
and use, as well as being the major
producer of carbon dioxide.
Focus laser-like on the real and
biggest issue — not all the distraction
fluff around meat and last week,
electricity switchgear, that is used to
grab the headlines.
Lesley Ellis
Aboyne, Aberdeenshire, UK

Capital consumption in
Japan is not overstated
The shortcomings of both Japanese
data on capital stock and of orthodox
capital theory are well known.
Nonetheless, the blanket rejection of
official data in Andrew and Pelham
Smithers’ letter (September 16) on
both capital consumption (in the
national accounts) and accounting
depreciation (in corporate accounts
and in official aggregations such as the
ministry of finance’s corporate survey)
is unrealistic.
If their assertion that both
depreciation and capital consumption
allowances are excessive were true,
there would exist a large pool of
Japanese assets carried at residual book
values lower than their economic
earning potential would warrant. The
prevalence of such assets would leave
managementsto buy in used
equipment at over-depreciated book
values and benefit from much higher,
real economic values. But such a
generalised arbitrage opportunity does
not obviously exist.
Given the comparative absence of
market transactions, it appears far
from obvious that Japanese capital
consumption and depreciation
allowances are systematically
overstated. If they arebroadly realistic
even though imperfect then Japan does
have an “investment problem” —
namely, the decade or so over which
gross investment has not been stably or
materially greater than either
depreciation or capital consumption
allowances, leaving net investment
exiguous and growth of the nation’s
real net capital stock pedestrian.
Alexander Kinmont
Chief Executive and Representative
Director, Milestone Asset Management,
Tokyo, Japan

Buildings alone will not


foster growth in Africa
A reader’s response (Letters,
September 13) to your (very good)
Africa editorial (The FT View) requires
a further response. Simon Herring’s
argument that infrastructure would
stimulate trade and then foster
education rests on the faulty
assumption that Africa’s minerals will
make the continent wealthy.
Aside from small countries like
Botswana, the last 60 years shows this
is evidently untrue. Industrialisation or
high-productivity services can provide
wealth and both require adult literacy
of at least 70 per cent. Electricity
comes next as World Bank surveys
show — transport infrastructure
investment over electricity is favoured
only by companies in countries where
electricity delivery is already high.
After education and electricity,
transport infrastructure is important.
If the financial resources were
available, all would happen at once.
But when resources are constrained it
would be a grievous mistake for
governments in low income countries
from Angola to Afghanistan to sacrifice
education spending in favour of
transport infrastructure, based on the
myth that minerals will make their
people rich.
Charlie Robertson
Global Chief Economist, Renaissance
Capital, London E14, UK

The struggle of Hong


Kong citizens is justified
Weijian Shan’s suggestion (Opinion,
September 17) that Hong Kong
protesters should be more realistic in
their goals ignores the reality on the
ground. His claim that the government
would only respond to peaceful
demonstrations is wishful thinking. On
June 9, when hundreds of thousands of
protesters were still marching, the
government proceeded with the
controversial bill. Only after violent
clashes on June 12 did Carrie Lam
“suspend” the legislation process. And
only after three months of violent
protests did the city chief propose to
withdraw the bill.
Blaming the current crisis on Hong
Kong’s lost opportunity of
democratisation is also unhelpful.
First, the electoral arrangement
proposed in 2014 by Beijing would only
return China’s favoured candidates,
just like the one in Iran.
Second, people are now concerned
about the government’s uncivilised
nature. The police use excessive force
and arrest innocent passers-by, while
police sympathisers attack citizens
without consequences. The rule of law
is undermined with politically
motivated prosecutions. Private
companies are pressured to sack
employees supporting protests on
social media.
It’s no longer a fight for a vote, but
also a fight, often literally, for our
safety and returning to civilisation.
That’s why we continue to fight and
refuse to back down.
Sam Lo
Kowloon, Hong Kong

“Where we come from, everyone has
to pay just to stay alive,” says Cristian
Juárez matter-of-factly. It’s a
sentiment that anyone reporting on
Central American migration will have
heardover and over again, but one
that remains shocking even as it is
scribbledinto a notebook for the
umpteenth time.
Mr Juárez, 23, a former policeman,
was fleeing demands from gangs in
Honduras, both for him to cough up
expensive extortion payments and for
him to join them. That is why he is
now on the road in Mexico with his
pregnant wife, dodging the police and
immigration officials.
The couple have left their two small
children at home and are travelling
with another Honduran migrant
family they first met on a failed
attempt to cross the border into the
US a few months earlier, in which they
were all deported. That family, too,
had left behind heartbreak — the gang
murder of a teenage son whose body
they never collected out of fear.
They have several children in tow.
Some are barefoot; all are exhausted
after a week of sleeping rough. One,
Alison, perches on a bundle of
bedding on her father’s back as he
limps along. Her face is solemn and
her eyes sad — it will take hours
before I can coax forth a giggle by
tickling her.
We are in southern Mexico to film
an extended video on migration for
the Financial Times (due out this
month). The plight of these families
tugs at our heartstrings — how could it

not? And so even though a border
activist,Scott Daniel Warren, was put
on trial in the US for giving food and
water to migrants crossing the desert
last year, we offer what practical help
we can: breakfast, in the form of the
snacks, cereal bars and water we have
stashed in the back of the car.
Are our actions ethical? Surely no
less so than those of a reporter who
takes a source out to lunch. In any
case, it’s a level of guilt we are
prepared to live with. Not sharing food
with starving children would be cruel.
And we are not buying their
complicity: they have recounted their
stories to us freely even before we
broke out the biscuits.
Reporting on immigration is an
emotional business. It’s painful to hear
so many stories of unimaginable
hardship — most of us simply have no
idea what it feels like to be pushed out
of our homes because of the crushing
poverty, brutal violence and
intolerable despair that is driving
migration from the Northern Triangle
of Central America: Guatemala,
Honduras and El Salvador.
Nor can many of us relate to
embarking on a perilous journey of
thousands of miles through Mexico to
the US amid President Donald
Trump’s ntensifying crackdowni no
migrants and asylum-seekers. The
aspirations recounted by families are
modest: reuniting with parents they
barely know; buying a home; opening
a shop. Not to be able to help
engenders a feeling of impotence.
Every unhappy migrant family may,

to paraphrase Tolstoy, be unhappy in
its own way — forced to flee because of
terrible individual circumstances. But
shared driving factors also make them
alike, and yet the news business
demands ever more dramatic and
impactful stories, sparking a search
for greater horrors or deeper despair
that can feel every bit as crass as the
yell of “anyone here been raped and
speak English?” immortalised in
foreign correspondent Edward Behr’s
eponymous memoir.
For some migrants, interviews can
be cathartic. A lonely Honduran man
in a Mexico City shelter who had been
deported, extorted and forced to
re-evaluate his prospects of returning
to the US and his family, seemed
grateful for the time spent talking.
More than that, telling the stories of
children wrenched from their parents
and kept in US facilities, or the
backlog of migrants in limbo on the
border waiting to file for asylum, fills
more than just a powerful human
need. It has the potential to change
policies at a time when migration has
become a polarising political issue
that reduces people to statistics.
Happy endings are far from
guaranteed — and often we never
know what happens. I cannot forget a
Honduran mother who was detained
on a bus with her husband and all but
one of her children. The missing
daughter, travelling on another bus,
was not stopped. I wish I knew that
they had been reunited.

jude.webber@ft.com

Reporters face


moral dilemmas


on migrants’


desolation row


Mexico


Notebook


by Jude Webber


Letters


THURSDAY19 SEPTEMBER 2019

Email: etters.editor@ft.coml
Include daytime telephone number and full address
Corrections: orrections@ft.comc
If you are not satisfied with the FT’s response to your complaint, you can appeal
to the FT Editorial Complaints Commissioner: complaints.commissioner@ft.com

Correction


c letterregardingeurozoneinterestA
rateswaswrittenbyAdrianJackfrom
theTurksandCaicosIslands,notGiles
Conway-Gordonasincorrectlystated
onSeptember17.

The Bank of England’s nine-strong
Monetary Policy Committee willtoday
hold its last meeting before a potential
no-deal departure from the EU on
October 31 — with all the uncertainties
that involves. Its counterparts at the
European Central Bank and the US
Federal Reserve are easing, and UK
inflation has slipped, for now, below
target. Yet the MPC is unlikely to make
any move to shift interest rates. It is
righttohangfire.
A wait-and-see approach is sensible
for reasons beyond just the fractious
Brexit debate. Hiring is slowing, the
global outlook is worrying, and rising
wages are leading many companies to
examine ways to raise productivity.
Even if Brexit were miraculously
resolved, there would be no need to
continue the tightening cycle that
startedin2017.
When the Bank of England began to
increase interest rates after nearly a
decade of record low rates following
the financial crisis, policymakers
arguedthatBritain’seconomycouldno
longer generate the improvements in
productivity it once did. Even modest
wagegrowthwouldleadtohigherinfla-
tion, they argued, as companies were
no longer generating sufficient effi-
ciency gains to absorb higher labour
costs.
This may be true in the longer term
but, for the moment, the latest infla-
tion figures show little sign of any
uptick in price growth — in fact the
headline rate fell duringAugust to 1.
per cent, below the central bank’s 2 per
cent target. This was despite the rate of
wage growth rising to 4 per cent in the
threemonthstotheendofJuly.
This may be partly due to the bene-
fitsofa“highpressure”economy.Com-
panies are responding to an increase in
wage growth by changing how they
operate. In the retail sector, the largest
source of employment in the UK,


supermarkets have responded to wage
growth by reorganising shift patterns
and investing in productivity saving
technology, for example. Asda has
joined its rivals Tesco and J Sainsbury
by r aising wages and flattening hierar-
chies.
Whether because these higher wages
makeitlessappealingforcompaniesto
recruit new workers or because Brexit-
related uncertainty is leading compa-
nies to scale back their plans, there are
signs of cracks appearing in the UK’s
labour market. Thenumber of adver-
tised vacancies, a forward-looking
indicator of economic health, while
still high, has been declining since the
start of 2019. The central bank’s
regional agents reported that hiring
intentions slipped in the second quar-
ter of the year, with job losses in retail
andmanufacturingcompanies.
Atthesametimetheglobalbackdrop
appears less favourable than when the
Bank of England first shifted towards a
hawkish stance. The trade war
betweentheUSandChinacouldleadto
further pressure on the global econ-
omy and accelerate the slowdown in
the UK’s key European and American
trading partners. Factories across the
worldarenowstruggling.
If a Brexit deal is struck it could pro-
vide a boost to Britain’s economy. Busi-
nessinvestmentcouldbeunlockedand
consumers may decide that they can
afford to spend a bit more than they
anticipated. That, in turn, may lead to
higher wage and job growth. Inflation
mayalsocomeinhigherthanoriginally
forecast thanks to the rise in oil prices
followingtheattackonaSaudiArabian
refinery this week. Alternatively, even
that may not be enough to protect the
UK economy from a global slowdown.
Rate-setters at the Bank of England
would be wise to hold fire until there is
clearer evidence of a tight jobs market
feedingintohigherprices.

Even if Brexit were resolved there is little reason to tighten policy now


BoE has many reasons


to hold interest rates


Howshouldanexport-driveneconomy
with a strong attachment to fiscal disci-
pline, an ageing population and a bitter
dispute with anisland trading partner
react when it is under economic pres-
sure? As regional industrial power-
houses, South Korea and Germany
both face similar challenges from the
tensions in the global trading system:
growth has collapsed, inflation is well
below target and monetary policy has
alreadydonewhatitcan.
Yet there is one important differ-
ence. Despite ample space for easing in
both countries,only South Korea has
broken with orthodoxy nd delivered aa
radically expansionary budget to boost
its flagging economy. Germany, which
is set to make a big announcement on
how to tackle climate changetomor-
row, might take note of the speed with
which South Korean leaders have been
abletoadapttoneweconomicrealities.
Seoul’s longstanding commitment to
fiscal discipline could put even Berlin
to shame. The overall budget for South
Korea has been in surplus for more
than 20 years. Loosening during the
financial crisis was not large enough to
tip the government into the red. No
other major economy has such a
lengthy record of prudence. Though
Germany has been consistently in the
black since 2014, its deficit exceeded 3
per cent of national income in seven
outofthe10yearsfrom2001to2010.
Now both countries face similar
problems. German industry specialises
inautomobiles,SouthKorea’sinsmart-
phones and semiconductors. Both
these sectors face structural shifts as
drivers look to electric cars and phone
users fail to find newer models such a
draw. The two countries are likewise
both at the sharp end of the trade war
between the US and China, as well as
more localised disputes with Japan in
thecaseofSouthKoreaandtheturmoil
overBrexitforGermany.


Theymayavoidarecession,butboth
countries are certainly heading for a
slowdown. Low consumer confidence
and falling investment have prompted
economists to forecast the slowest rate
of growth in South Korea for a decade.
Germany, meanwhile, is expected to
register its most sluggish pace of
expansion for six years because of fall-
ing export orders and a construction
sectorthatisstagnating.
In response to the deteriorating eco-
nomic outlook, Germany has begun to
flirt with a more expansionary stance
butisyettocommit.Lastweek,finance
minister Olaf Scholz said that if an eco-
nomic crisis breaks out “thanks to our
sound finances we will be able to coun-
teritwithmany,manybillions”.Yetthe
planned1percentincreaseinspending
still appears lacklustre comparedwith
theactiontakenelsewhere.
In Seoul, fiscal conservatism has
cometoadecisiveend.SouthKoreahas
planned increasesrelated to job crea-
tion, welfare payments and research
and development. Spending is being
increased by 8 per cent — on top of a
supplementary budget passed in
August — despite sluggish tax receipts.
This means government borrowing is
expected to reach a record high. An
overall deficit next year, which
includes the social security fund,
would mark a big shift from a 2018 sur-
plusof2.8percentofnationalincome.
Fiscal easing will take longer to
transmit to the real economy than
monetary policy, but that does not
make it any less important. The effects
on business and consumer confidence
may be meaningful as companies look
to a new source of orders. Expectations
for inflation and economic growth
could improve. South Korea is right to
act swiftly before the outlook deterio-
rates further. The global backdrop has
changed: Berlin can learn from Seoul’s
willingnesstochange,too.

Spending pledges show Seoul has adapted quickly to economic reality


South Korea’s fiscal boost


offers a model for others


Luigi Speranza (“Revolutionary
thinking is needed to fire up the global
economy”,September 17) adheres to
an established orthodox belief that the
answer to the global economy’s
quandary is bold, co-ordinated
monetary policy along with fiscal
measures, adding up to something
close to debt monetisation — where
governments issue debt to finance
spending and the central bank buys the
debt on secondary markets, increasing
the money supply.
Although raising some doubts that
this may not work either, he
nevertheless falls into the trap of
advocating a policy that has been tried

and failed. And that is the central
bankers’ dogmatic belief that they are
capable of targeting both the inflation
and unemployment rates by managing
the money supply. And this is obvious
in his belief that the worst case
outcome of such a policy would be too
much inflation, and inflation is an
enemy we know and, crucially, know
how to fight.
But in the debt deflation cycle
experienced by the global economy
today, due to excessive debts on all
levels, the higher the burden of
servicing the debt, in terms of
stagnating or falling prices and wages,
implies that the face value of debt

already taken on will not decline. That
is because scheduled interest payments
remain steady, with deflation making
fixed interest payments on the debt
more expensive in terms of prices and
wages, reducing demand in the
economy, which ushers in a further
cycle of deflation, and so on.
The debt deflation cycle was an idea
developed byIrving Fisher in 1933 ot
provide a possible explanation for the
Great Depression that the world
economy experienced in the 1930s.
We are likely to be in such a cycle
today.
Michael G Mimicopoulos
New York, NY, US

Dogmatic thinking has trapped central bankers

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