The Rocky Road to Globalization

China’s 2.0 percent devaluation of the yuan on Tuesday pushed the U.S. dollar higher and hit equity markets worldwide as it raised the prospect of a new round of currency wars and fed worries about slowing Chinese economic growth.

Stocks fell in Asia, Europe and the Americas, as investors worried about the implications of a move designed to support China’s slowing economy and exports.

What is good for growth in China is unfortunately bad for everybody else.  The Dow Jones industrial average .DJI fell 137.33 points, or 0.78 percent, to 17,477.84, the S&P 500 .SPX lost 11.74 points, or 0.56 percent, to 2,092.44 and the NasdaqComposite .IXIC dropped 20.10 points, or 0.39 percent, to 5,081.70.

The devaluation especially hit the stock prices companies exposed to China, with shares of U.S. heavy equipment maker Caterpillar (CAT.N) losing 2.3 percent and Germany’s Volkswagen (VOWG.DE) dropping 4.6 percent.

European shares fell. The pan-European FTSEurofirst 300 index .FTEU3 was down 1 percent, led lower by car makers and luxury goods companies, whose products have just got more expensive for Chinese consumers.

China’s move, which the central bank described as a “one-off depreciation” based on a new way of managing the exchange rate that better reflected market forces, triggered the yuan’s biggest fall since 1994, pushing it to its weakest against the U.S. dollar in almost three years.

In a potentially worrisome sign, China’s offshore yuan, a more liquid instrument traded out of Hong Kong, fell 2.9 percent, exceeding the fall in the onshore yuan. It suggests more possible losses for the onshore currency, as the Hong Kong-traded yuan tends to act as a precursor to the onshore.

The Future of Work

Virginia Postrel writes:  To see why robots aren’t going to wipe out everyone’s job anytime soon, look no further than the annoyed and bewildered customers confronting store self-checkout units squawking, “Unexpected item in bagging area” and “Help is on the way.”

Self-service checkout scanners are now standard at most U.S. supermarket and mass-merchandise chains. That might seem great for customers in a hurry. After all, in a June poll, half of U.S. adults picked slow checkout speeds and long lines as the most frustrating thing about shopping in brick-and-mortar stores. A whopping 88 percent would like checkout to be faster, the Harris poll for Digimarc Corp. found.  

But three-quarters of respondents also said they sometimes avoid self-service — most often because of technical problems. (Those over 65 were more likely to say they simply prefer cashiers.) Nobody wants to listen to an endless loop of electronic reprimands while watching other shoppers move smoothly through the human-staffed queue.

Even people who’ve mastered the machines often find themselves waiting behind customers who aren’t so adept. “If the self-checkout is empty, I always head for it,” says one friend. “But for some reason, whenever I get behind someone it seems to take forever, much longer than waiting behind someone at the cash register. I don’t know if they are refinancing their mortgage or buying groceries, so I just get in line at the cash register.”

Self-service is a handy option, but few shoppers want to rely on it. And most people who use self-scanners limit them to small orders.

That in part reflects the tiny space most stores allocate to their self-service bagging areas. But it also suggests two other costs that illuminate consumer thinking about the transaction. s social among us — that seems more justified when spread over many items.

To justify upgrades, self-scanner companies are working to address shoppers’ technical gripes. Market leader NCR, which accounted for 64 percent of new shipments in 2014, has shrunk its machines to double the space in the bagging area. It has also shortened the tedious process of paging through screens to find produce codes — a deterrent to many grocery shoppers. New NCR software first shows customers the top-selling fruits and vegetables in the store that day or, if they’ve swiped a frequent shopper card, their own most common purchases.

And scanning a bottle of wine no longer brings the process to an abrupt halt while you wait for a clerk half your age to check your driver’s license. The system simply alerts an employee as scanning continues. “A lot of times they can look over and see that you’re obviously old enough and not have to come over to check your ID,” said Dusty Lutz, general manager of NCR’s retail self-service solution, in an interview.

Eventually, such innovations will smooth the technical glitches that now make self-checkout irritating. (ATMs weren’t always so problem-free either.) But by the time supermarkets and drugstores roll out the glitch-free self-scanners, cutting human staff to a bare minimum may seem like retail suicide.

The only reason to go shopping is the social and aesthetic experience. Stores will have to treat employees as long-term assets who create specific value for customers rather than expenses to handle routine transactions. Technology will serve as a complement to, rather than a substitute for, staff. Already RSR’s annual survey finds that the most successful retailers are investing more in hiring and training. But, said Rosenblum, “they’re still struggling” with a century-old business model that assumes a low-paid, transient workforce of interchangeable clerks. Basic tools, such as wi-fi that employees can use to answer questions, are still scarce.

The job-displacing robots won’t be at the supermarket checkout but hidden in Amazon warehouses. Even graceful technology, however, can’t satisfy every consumer desire. Some researchers speculate that loneliness, rather than technophobia, may be one reason that older customers prefer cashiers to self-checkout. For people who live or work alone, interacting with cashiers may provide one of the day’s few in-person conversations. “Since I try to always get the same clerk, it’s like seeing a friend,” says one extroverted pal who works from home. “A friend who knows the codes for fruit and vegetables.”

The Rocky Road to Globalization:  Holding Greece in the Group

The European Commission said a technical agreement had been reached with Greece, which now requires political approval. The Greek government is hoping to push a new €86bn (£60bn) three-year agreement through parliament later this week.

A deal is needed to keep the country in the eurozone and avert bankruptcy.

The country needs a deal by 20 August, when it has a debt repayment of about €3bn to make to the European Central Bank.

A Greek official said earlier that Greece agreed the function of a new independent privatisation fund, and how non-performing bank loans will be administered.

Both issues had been key sticking points in negotiations.

“Finally, we have white smoke,” the official said.

Deregulation of the natural gas market, another sticking point, was also agreed.

But Finnish Finance Minister Alexander Stubb sounded a cautious note, saying more work needed to be done with the details to finalise the agreement.

The Eurogroup of eurozone finance ministers is to meet on Friday to discuss approval of the deal, Spanish Prime Minister Mariano Rajoy said.

His centre-right People’s Party, which has a majority in the Spanish parliament, will be asking other parties to vote in favour of the agreement, he added.

Jeffrey Frankel writes:   World oil prices, which have been highly volatile during the last decade, have fallen more than 50% over the past year. The economic effects have been negative overall for oil-exporting countries, and positive for oil-importing countries.

The answer is that countries should seek to do both: Lower the price paid to oil producers and raise the price paid by oil consumers, by cutting subsidies for oil and refined products or raising taxes on them.

Consider this: America’s roads and bridges are crumbling, and the national transportation infrastructure requires investment and maintenance. And yet the US Congress shamefully continues to evade its responsibility to fund the Federal Highway Trust Fund and put it on a sound long-term basis, owing to disagreement over how to pay for it. The obvious solution, which economists have long advocated, is an increase in America’s gasoline taxes. The federal gas tax has been stuck at 18.4 cents a gallon since 1993, the lowest among advanced countries. And yet, on July 30, Congress adopted only a three-month stopgap measure, kicking the gas can down the road for the 35th time since 2009.

Fossil-fuel pricing is a striking exception to the general rule that if the government has only one policy instrument, it can achieve only one policy objective. High oil consumption also leaves a country vulnerable to oil-market disruptions arising, for example, from instability in the Middle East. If gas taxes are high and consumption is low, as in Europe, fluctuations in the world price of oil have a smaller effect domestically.

The conventional wisdom is that it is politically impossible in the US to increase the gas tax. But other countries have political constraints, too. Indeed, some developing-country governments have faced civil unrest, even coups, over fuel taxes or subsidies. Yet Egypt, Ghana, India, Indonesia, Malaysia, Mexico, Morocco, and the United Arab Emirates have all reduced or abolished various fuel subsidies in the last year.

Besides raising taxes on fuel consumption, the US should also stop some of its subsidies for oil production.

For the US and other advanced countries, it is also a good time for reform from a macroeconomic standpoint. In the past, countries had to worry that a rising fuel tax could become built into uncomfortably high inflation rates. Currently, however, central bankers are not worried about inflation, except in the sense that they want it to be a little higher.

The US Congress will have to come back to highway funding in September. If other countries have found that what was politically impossible has suddenly turned out to be possible, why not the US?

Pakistan’s current debt burden has placed their economy in a very delicate situation. The government of Pakistan has borrowed almost $950 million from banks in the past year. Pakistan is relying on it domestic debt which is adversely affecting the fiscal outlook of the country resulting in very little fiscal stability. The country’s government debt to GDP ratio is 64.30 as of December 2014. This figure is alarming because the government isn’t doing much in terms of raising tax revenues to improve the fiscal outlook.

Factors behind the debt crisis for Pakistan. Firstly, Pakistan has bee politically unstable over the past few years. The increasing debt ­to ­GDP ratio isn’t helping the stumbling nation’s cause either. This is a result of a massive decline in tax revenue over the years. Corruption has played a huge role in this aspect as only a fraction of people pay their taxes. In Pakistan, corruption occurs at the highest of levels which has a negative impact on economic growth and other business operations. Pakistan’s fiscal deficit is increasing day by day due to a major energy crisis and growing security concerns that lead to high defense spending. As a result, this causes the foreign debt to further pile up.

A developing nation such as Pakistan, where more than 60% of the people live below the poverty line cannot withstand the effects of these debts as it further worsens standard of living and well being of Pakistani citizens.

The ever rising burden of debt is one of the prime factors hampering the growth of Pakistan’s economy.

Leonid Bershidsky writes:  Russian President Vladimir Putin has mounted a new campaign in his propaganda war with the West: The highly publicized destruction of imported food, which the government banned last year in retaliation for Western economic sanctions. This time around, though, his constituents aren’t quite with him.

The ban, aimed at the U.S. and European countries that imposed sanctions on Russia over its aggression in Ukraine, covers a long of items, including fruit, vegetables, most kinds of meat, fish and dairy products. 

The local replacements often aren’t all that great. In a taste test of one of the bizarre cheeses that have filled Russian store shelves since the embargo, the Guardian’s Moscow correspondent Shaun Walker concluded that “the disintegrating texture is unnerving, and feels as if hundreds of tiny globules of parmesan have been left out on the pavement for a couple of weeks and then stuck back together with glue.”

To satisfy demand for the real thing, embargoed goods have been filtering into Russia. Some arrive by circuitous routes to establish acceptable provenance, or are repackaged in neighboring Belarus to pretend they originated there (I’ve seen Belorussian salmon in stores, though the landlocked country doesn’t produce it). Others are simply smuggled in: Russian customs inspectors are not known for their incorruptibility.

In a rare act of defiance, the Magnit chain of discount supermarkets, one of the country’s biggest retailers, sued the government agency charged with keeping embargoed items out of stores, claiming Putin’s decree on the food sanctions bans only their import, not their sale. 

Putin, however, won’t have it. He wants his food embargo to work as effectively as before, boosting local producers and punishing Western companies that have already seen their Russian business shrink. 

The Russian Orthodox Church doesn’t look kindly upon the destruction of food, either. More than 280,000 people — an unusually large number for Russia — have signed a Change.org petition asking the Kremlin to repeal the food destruction decree and hand over any confiscated food to the needy. “If something can simply be eaten, why destroy it?” the petition says.

Putin’s government, however, is like a tank without a reverse gear. 

Russians have seen a lot of strange things on state TV under Putin, but never before have they been treated to a public cheese execution. I expect the campaign will be as ineffectual as it is grotesque. Installing incinerators at customs and crushing wheels of Gouda is not going to make customs officials any less willing to turn a blind eye for the right reward.