Global and EU systemics: Major systemic imbalances in urgent need of fixing!

I am not sure how the following model fits with traditional economic models (note: I am an MBA, decision scientist and a policy analyst, not an economist or financial analyst anyway) such as the capital - labour - land or the capital - labour - knowhow ones:

In "my" model, there are 4 factors: capital, goods, services and work. And IMO for a system, be it the EU or the USA or the world (globalisation) to work, these 4 factors must have more or less the same level of freedoms ("4 freedoms").

Also IMO, the current instabilities in the global and EU systemics are due to uneven levels of fredom between these 4 factors.

Capital has a very high level of freedom to move and relocate around the world. Capital movements have, realitively speaking, few restrictions, within the world and within the EU.

Goods have seen their freedom grow exponentially since GATT was founnded after WWII leading to the creation of the WTO in 1994. But still, the level of freedom of goods is nowwhere near "free trade". Many tariffs and quotas, especially the former exist even between the WTO membems (and within WTO rules). Even in the EU Single Market for goods, many problems still exist, especially for small firms.

Services at least the most tradeable ones, have been making progress but their freedom is nowhere similar to that of capital and goods. At WTO and at EU level. Eg in the EU many are in fear of the travelling plumber!

When it comes to work or the freedom of labour, then things are quite sad, especially at WTO/global level and even at the EU level many problems exist. Too many.

My thesis is that unless the level of freedom of all these 4 factors converges upwards, it will soon start to converge downwards (that applies to the global and to the EU "systems"). In goods, the by now admitted failure of the WTO to reach agreement in the Doha agenda, opting for an effort to conclude a lite or extra lite one instead, the backwards pressures can be seen. With a zero or low level of public debt being reconised as a key factor in sovereignty (due to the Euro crisis etc), the concept can easily be expanded to the trade balance and the CA balance. Already certain countries have been accused (by the US) of "exporting too much" (eg Germany and China). Movement of workers, free lancers and people is "near apartheid" level globally and be in for political asylum or so called economic immigration reasons, it is alas getting worse pretty much all over the world.

What is more, the economic globalisation, in the form of the freedoms of capital and trade, needs to be balanced, structurally by a global political and a global social pillar!

Else, it is structuraly unsound.

If there is no global polity (a world parliament and possibly government (eg for the WTO 153)), or at least continental-level polity, I would not exclude de-globalisation and either regionalisation or nationalisation/localisation of capital and goods freedoms (see eg "buy local" initiatives).

Or a system of 4-7 major global players (federal EU, USA, China, India plus Russia, Japan, Brazil (or UNASUR), see my recent relevant post).

It is in the good interest of capital and the finance world to encourage or at least not block the globalisation of the other factors and the creation of global political and social pillars.

That is maybe why, in a way, the financial markets seem to be pushing the EU or at least the Eurozone towards political union!!! Because a single currency and a single market need a single polity as foundation and the financial system may not be always responding to crises in rational ways, but its vision is as good as anyone's. And the prudent financiers IMO know that either the other factors gain more freedom or capital loses much of its own.

Plus, the business world, those who produce and deal in goods and services, have clear vision too. And to the extent that the finance world does not manage to be part of the solution to the imbalances, they will ally with the politicians and societies against them.

Not for the battle for midde earth though! Enough metaphorical headlines or slogans (overdone by media etc in recent months). What is going on is the world today is the ultimate real show, much more interesting and cruel than any fairy tale or show.

The humans will prevail, eventually, they always do. Ask the monarchs, the Romans, the Soviets, etc. The financial system is next, it seems, if, as a system, it does not read the signs of the times and listen to the prudent voices inside it.

Is it a plane, a UFO or the EU (finally) moving forward?

Is it a plane? Is it a UFO? Is it a mirage? No, it is the EU (finally) moving forward, albeit in a clumsy (and confusing) fashion!

In effect, part of what is happening at the moment in the EU is a move to break away from the UK's "union-blocking"! In the midst of quite complicated systemics and dynamics that do contribute to the difficulty and confusion, but also make ever closer ie deeper union in Europe even more of a must.

More specifically, as I tweeted last Friday, there is an urgent need for a sovereign EU in:

a) energy

b) defense

c) economics (internal market)

d) foods, especially staple ones

etc

yet open to the world (eg with a more "open" policy re immigration, be it of asylum seekers or the so called "economic immigrants")

Part of the world systemics and dynamics are:

1) In recent years the US has left a gap that can best be filled by the EU rather than China, provided the EU evolves into a US of E or a Fed Rep of Europe.

Eg the US was a beacon and a magnet for all people who were suffocating in their natives parts of the planet and who wanted to strive for a better future in an environment where it mattered more where you wanted to go and become and less your background or class or birth rights. IMO after the closing of Ellis Island, that US started to wane. And has become immigrant hostile in recent years. Many more examples of the gap, but not to be discussed in this analysis.

So, a fully united, independent and sovereign EU would be a positive factor in world affairs instead of the current situation (see rise of xenophobia, nationalism, grand standing by France, Germany or the UK, a stance that the American diplomat whose cable was leaked eloquently described (referring to the UK, France and Germany) as Europe's dwarves (see "Manipulating the Political Dwarves of Europe" by Gregor Peter Schmitz in Spiegel International 12/10/2010)

etc)

2) China's 2001 WTO entry and its policies have caused major systemic quakes in US & EU, as I tweeted on Saturday.

They have even been a factor in the Euro's probs, IMO.

2 of the interesting articles/analysis that have appeared in recent days are:

"Nine EU countries set out post-crisis growth plan" reported on Friday, March 18, Andrew Rettman in the EUOberver.

"Prepare for a Euro Zone Divided in Two" is the title of an interesting opinion article by Irwin Stelzer, director of economic policy studies at the Hudson Institute in Washington, in the WSJ (March 21).

They both merit reading as valuable food for thought.

Regarding the topic in Irwin Stelzer's analysis, IMO of the 10 non-Eurozone EU members, 3 of the old EU15, the UK. Denmark and Sweden have willingly chosen to be marginalised by staying out of the Euro. The other 7 are still relatively new EU members (5 since 2004 and 2 since 2007) thus have more "excuses" for not having joined the Euro yet (of course at least 1, the Czech Rep., especially under its current President, seems unlikely to want to join, for ideological (libertarian?) reasons).

But the rapid EU enlargement from 15 to 25 then 27 was not meant to be at the expense of deepening, although it did, but the delay has been long enough that a dynamic even somewhat "clumsy" move forward, had become overdue. Not that the delay was a fault of the new members that after all were "owed" EU membership for the suffering they endured by communism (and for what happened back in Yalta and Potsdam). It gave others the excuse to slow the EU's deepening down. But no more, especially after Cameron's UK Sovereignty Bill. As the governor of the Bank of England reportedly told the Americans (according to the famous leaks), the Euro crisis was bound to accelerate the move towards federal Europe. After all, IMO as well as others', the current Euro crisis is caused by the fact that Monetary Union was not preceded or at least accompanied by not only Economic but Political (federal) union as well (as I said, causality in our times is very complex and not open to simple analyses, so bear with me)

So if Sweden and Denmark find themselves left out of key meetings of EU interest as The Economist notes, according to Irwin Stelzer (in effect the Eurogroup meetings that take place 1 day before each ECOFIN Council of Ministers of Finance and the recent first ever Eurozone Summit), they should recall that the Euro was not decided in 1991/92 (Maastricht) as an optional (buffet) feature of the EU, but as the vehicle for a) making the EU common then single market (by 1/1/1993) more effective and b) moving the EU forward!

And I agree with the view expressed by many that non-Euro membership of an EU country/economy, gives that economy an unfair trade advantage inside the Single Market of the EU. Of course, with life on Earth systemics nowadays being complex and in any case not uni-variable, the insistence of Eurozone monetary policy to focus on inflation only (with the dogmatic 2% target) that has led to many periods of expensive Euro vis-a-vis not only the Yuan and the USD but also the Pound etc, has also contributed to the current Euro crisis (and other factors as well).

But given the systemics and the dynamics not only inside the EU and the Eurozone, but the world (Earth) as a whole, what is happening now is probably the most feasible (but maybe not the best) way for Europe to move forward!

As for the 4 proposals of growth after the crisis put forward by 9 EU member states, allegedly with Cameron's leadership, they seem to make worthwhile reading.

They are the proposals of 9 governments of EU member states, not the 9 states. 3 are Eurozone members (NL, Finland, Estonia). The 9 are basically most of the members of the forum UK-Nordics-Baltics Cameron organised a few weeks ago plus the NL. I should also note that at Davos this year there was an attempt to present and market a Nordic Capitalism model as a model for others, in Europe and the world, to "follow"/copy/be inspired by.

So while the 4 points of the 9 sound in principle good, IMO the Tories must realise that

a) regulation driven burden to SMEs comes from national & local regulations too, not just EU ones! And one could argue that national and local ones are more of a burden than the EU ones (ie the regulations and the directives transposed into national laws).

b) that SMEs need EU-wide uniform regulations, rules, etc, which affects the Sovereignty Tories say that they care so much for!

c) Doha completion within 2011 IMO highly unlikely. Inter alia, Obama has no "fast track".

Now, some relatively harsh reminders for the mostly conservative or liberal governments of the other 8 that submitted the 4 points:

As I tweeted on Friday, the pro open-market govs of Denmark, Estonia, Latvia, Lithuania, Finland, Poland, the NL, Sweden (& the UK) must realise that "open market" means not only mobility of capital, goods - and services as they recommend (agreed) - but also workers/labor and humans in general. Because labor needs as much mobility as possible in order to "compete" in relative value to the other factor of production, Capital! Oh yes!

Those nations that wish to conserve their "national" (altho the UK is a mini-EU) "sovereignty" are to miss out on the benefits of EUropean sovereignty

Angela Merkel decided to abstain (along with Russia and China in the Security Council of the UN) from the UN vote on Libya. The issue is out of my areas of experience and activity so I will not comment. After all, from what I read the SPD and the Greens did not take a clear stand on the same matter either. The issue I feel competent (as an MBA and as a public policy analyst) to comment on is whether it is indeed electoral concerns in state (laender) elections (one more took place this weekend and 2 crucial ones next weekend) that affect to a large extent the German government's demands on the other 16 of the Euro (and especially the GIIPS (I refuse to use the PIIGS acronym)) in the "Competitiveness Pact". We know of the hardcore austerity hawkish POV of the FDP. But as far as I know, the SPD is not exactly austerity hawkish. So how would a less hawkish stance by Angela Merkel in the Pact cause her to lose votes to the SPD?

Ah, c'est l'Europe!

UK: The seasonally adjusted Index of Services in November 2009 fell by 2.3% compared with November 2008.

The Office for National statistics of the UK released today the Index of Services November 2009.


Analysis
Most recent month on a year earlier
Index of Services

The seasonally adjusted Index of Services in November 2009 fell by 2.3 per cent compared with November 2008.

In detail:
i) Four of the five components of the services sector decreased in the most recent month on a year earlier. The largest contribution to the decrease was business services and finance which fell by 4.4 per cent. The only component which increased was distribution.

Distribution

Output from distribution increased by 2.1 per cent compared with November 2008. In detail:
i) The largest contributions to the increase were retail which rose by 3.5 per cent and motor trades which rose by 7.7 per cent
ii) Within motor trades the main increase was in
• vehicle maintenance and repair
iii) Retail contributed 1.8 percentage points and motor trades contributed 1.2 percentage points to the 2.1 per cent most recent month on a year earlier increase

Hotels and restaurants
Output from hotels and restaurants decreased by 5.8 per cent compared with November 2008. In detail:
i) The largest contributions to the decrease were canteens and catering and bars
Hotels and restaurants

Transport, storage and communication
Output from transport, storage and communication decreased by 3.2 per cent compared with
November 2008.
In detail:
i) The largest contributions to the decrease were land transport which fell by 4.5 per cent, other
transport services which fell by 5.3 per cent and post and telecommunications which fell by 1.7 percent
ii) Within land transport the largest falls were in
• freight transport by road
• other scheduled passenger land transport
iii) Within other transport services the largest decrease was in
• other land transport (which includes the operation of terminal facilities such as railway and bus
stations and the operation of car parks)
iv) Within post and telecommunications the largest decrease was in
• telecommunications
v) The largest contributions to the 3.2 per cent most recent month on a year earlier fall were 1.2
percentage points from land transport, 1.2 percentage points from other transport services and 0.7percentage points from post and telecommunications

Business services and finance
Output from business services and finance decreased by 4.4 per cent compared with November 2008.
In detail:
i) The largest contribution to the decrease was other business services which fell by 5.5 per cent
ii) Within other business services the main falls were in
• labour recruitment
• management consultancy
iii) Other business services contributed 1.8 percentage points to the 4.4 per cent most recent month on a year earlier fall

Government and other services
Output from government and other services decreased by 0.7 per cent compared with November 2008.
In detail:
i) The largest contribution to the decrease was recreation which fell by 8.9 per cent
ii) Within recreation the main falls were in
• sporting and other recreational activities
iii) Recreation contributed 1.0 percentage points to the 0.7 per cent most recent month on a year
earlier fall

Revisions
This Statistical Bulletin conforms to the standard revisions policy for National Accounts. In this
Statistical Bulletin the only period open for revision is October 2009.
Table RIOS1 shows the revisions to the estimates previously published on 23 December 2009.
Revisions are mainly due to:
• Revisions to seasonal adjustment factors, which are re-estimated every month.
• Updated survey and administrative data.
• Actual data replacing forecasts.


The full release by the ONS

Eurostat statistics re the EU's hotels and restaurants sector

According to Eurostat's Statistics in Focus 101/2009:

In 2006, there were 1.7 million enterprises in the EU's hotels and restaurants sector that employed approx. 9.3 million people.

This corresponded to 8.3 % of the non-financial business economy's (NACE Rev. 1.1 Sections C to I and K) enterprise population and 7.1 % of its workforce.

Hotels and restaurants recorded value added of 181.9 billion Euros in the EU (27 member states), which represented 3.2 % of the total for the non-financial business economy.

In 2008, women made up 55% of the workforce in this sector and 28% worked part time.

According to the report, specialisations within this activity are strongly related to climate, natural or man-made attractions (beaches, mountains, castles, etc), as well as proximity to a critical mass of potential customers (in particular for restaurants and bars).
It is therefore no surprise to find that the island destination of Cyprus is the most specialised Member State, while some regions in Greece, Portugal, Spain and Austria are also highly specialised in these activities.


Comment: These data are another indication that the EU, like the US, is basically a Services economy.

The global trade of EU Services in 2008

These days, people in the US, most of the EU and some other countries live in economies that are dominated (more than 7 or 80% of GDP) by Services.

So let's look at today's press release by Eurostat re the EU's trade balance in Services in 2008. It is quite insightful, IMO, as to the role of Services in the EU.\

In 2008, EU (27 members) external trade in services recorded a surplus of 78.4 billion euro, compared with a surplus of 86.9 bn in 2007 and a surplus of 71.4 bn in 2006.

In 2008 compared to 2007,
1) smaller surpluses were recorded in
a) financial services (+30.7 bn euro in 2008 compared with +33.3 bn in 2007) and
b) "other business services", which includes miscellaneous business, professional & technical services (+33.1 bn compared with +35.6 bn)

2) increased deficits were recorded in
a) royalties & licence fees (-13.8 bn compared with -8.5 bn) and
b) travel (-20.3 bn compared with -18.7 bn).

Their negative effect on the trade balance was partially offset by increased surpluses in:
* transportation (+24.1 bn compared with +19.9 bn),
* computer & information services (+17.3 bn compared with +14.8 bn) and
* insurance services (+7.6 bn compared with +6.8 bn).

In 2008, the EU (27 members) continued to record a surplus in trade in services with all its main trading partners.

An increased surplus with
a) EFTA (+26.0 bn in 2008 compared with +23.4 bn in 2007)
b) Brazil (+3.0 bn compared with +2.0 bn) and
c) China (+4.9 bn compared with +4.0 bn).

Smaller surpluses were registered with:
a)the USA (+1.7 bn compared with +9.0 bn),
b)India (+0.6 bn compared with +2.6 bn) and
c)Japan (+4.7 bn compared with +5.7 bn),

Stable surpluses with:
a) Russia (+7.5 bn compared with +7.9 bn),
b) Canada (+2.0 bn compared with +2.2 bn) and
c) Hong Kong (+0.9 bn compared with +0.6 bn)

EU language industry's turnover estimated at Euro 8.4 bn

Many people around the world, especially in the US and most EU countries live in economies that are mostly Services. Services of various types or sectors or "industries".

The language industry is a case in point.

According to a study carried out for the European Commission, the EU language industry has been less affected by the economic crisis than other industries.

The study, which is the first to analyse the size of the language industry EU-wide, covers language related services such as translation, interpreting, localising and globalising, subtitling and dubbing, language technology tools, multilingual conference organisation and language teaching.

The study estimates the industry's EU-wide turnover at Euro 8.4 billion (for 2008) with an annual increase of at least 10% over the next few years: to between Euro 16.5-20 billion by 2015.

This is one of the highest growth rates among EU industries - sectors!

Does the EU need a min wage as a balance to inter-state Services?

The socio-political troubles of the EU single market for Services:

How does inter-state provision of services work in the US compared to the EU? Has tone much better.

Does the EU need a minimum #wage (the US has, federal and each state), in order for some CSOs to be less adverse to a Single Market for Services?

Services "Phobia" (intra-EU, US, global)?

IMO the Services + Intellectual products + property parts of the Doha WTO trade talks are the most crucial one for the EU, US and other OECD economies

If the meta-industrial OECD Services based economies are protectionist in the trade of Services, then what do they plan to export?

Who is "afraid" of "foreign" services providers? IMO, many people and professionals and companies, in most WTO countries!

The "fear" of the intra-EU Service providers is IMO a good sign of the pathology of the 50+ yr old EU

Pascal Lamy on the importance of Services in global recovery

According to the WTO's Secretary-General Pascal Lamy "continued policy and regulatory reform in favour of services trade will be vital to supporting economic recovery" (at the Global Services Summit on Jobs, Growth and Development, Wash. DC, October 14)

Remember: It's a Services economy now (US, UK, etc)

US and UK Services show indications of rebounding! It makes sense, these are Services economies, like many OECD ones! Services and SMEs

Thinking "Economy" in industrial age terms is IMO Ancient History in the US, UK and other OECD post-industrial member countries

Thus
Reminder: policy makers in US, UK + other OECD countries must think Services, SMEs + intellectual products when they think Economy (and design policy and expect growth and jobs).

The outsourcing effect: What is a "good" and what is a "service", actually?

Is outsourcing part of the reasons that the French said no to the EU Treaty in Many 2005 (or fear of the "Polish plumber"?)

What are the externalities of the outsourcing of call centers from the UK to English speaking Asia? Of East EUropean house painters flying in to do a job in the UK or Belgium and then flying back home?

Is the outsourcing of IT services and other services from the US to Asia a source of the instability of the recovery of the US economy?

We do live in a world where services are covering a much larger piece of the total GNP/GDP pie.

Where free trade of goods and movement of capital are at historical levels (if you factor out the current crisis)

So:

Is there a difference between trade in goods and in services?

What are "trade-able" or exportable or "outsource-able" services"?

Is the world prepared to deal with outsourcing of work rather than import of goods?

Why do some EUropeans (and others) seem more afraid of outsourcing of services than of imports of goods?

Is there an implied assumption that whereas it is "OK" for non-OECD countries to export goods to OECD ones, it is "not OK" to "export" services? If yes, why?

What is a "good" and what is a "service", in today's reality?

What is, in essence, the difference?

Written: June 1, 2005
Updated: Sept. 29, 2009

are the new EU regulatory proposals realistic?

EU: Towards 4 pan-EU regulators for systemic risk, banks, insurers and exchanges?

Any lessons learned by the causes of the US crisis?

Free Trade Areas problems (NAFTA, EU, etc)

Can Free Trade Areas work better or mainly between economies - countries with comparable "systemics" (not just economic level and values)?

Case study:

The "Mexican Trucker" (NAFTA) and the "Polish Plumber" (EU) cases in cross-border provision of Services - compare and contrast!

Global Dynamics: Agriculture - Industry - Services

China
GDP
composition by sector:
agriculture: 11.9%
industry: 48.1%
services: 40%
note: industry includes construction
(2006 est.)

India

GDP
composition by sector:
agriculture: 19.9%
industry: 19.3%
services: 60.7% (2005 est.)


Japan

GDP - composition by sector:
agriculture: 1.6%
industry: 25.3%
services: 73.1% (2006 est.)


Brazil

GDP - composition by sector:
agriculture: 8%
industry: 38%
services: 54% (2006 est.)

EU
GDP - composition by sector:
agriculture: 2.1%
industry: 27.3%
services: 70.5%
(2006 est.)


USA

GDP - composition by sector:
agriculture: 0.9%
industry: 20.4%
services: 78.6%
(2006 est.)