Issue 3 - May 2008

MAY 2008

ISSUE 3

NOTTINGHAM ECONOMICS REVIEW

WHY ECONOMICS? THE FUTURE OF ECONOMICS INTERVIEW WITH DEUTSCHE BANK’S CHIEF ECONOMIST FREAKONOMICS

CONTENTS4

NOTTINGHAM ECONOMIC REVIEW 3

Editorial & President’s Address

FEATURES

5

Why Economics?

7

The Future of Economics

10

Interview with George Buckley - Chief UK Economist at Deutsche Bank

STAFF ARTICLES

12

Worker-specific Effects of Globalisation

14

‘Freakonomics’: What’s it all about then?

STUDENT ARTICLES

17

Titans of Economic Thought

20

The Rise of Sovereign Wealth Funds

22

Mr. Hassanali Mehran Interview

24

Laziness, Happiness, Alcohol and our Grades

POLITICS

26

The New Generation of EUnuchs

28

The Birth of New Powers: Russia and its Natu- ral Gas

CAREERS

Cover image by Yan Yan Cheung

30

The Party’s Officially Over

CREDITS

Editor-in-Chief

Jonas Varnauskas Administrative Editor

Pan Tsang Copy Editor

Emma Milman Design Editor

Winston Luk

Nottingham Economic Review 2008 © The University of Nottingham School of Economics

Designers

Yan Yan Cheung

Kai Ji Beatrice Omisakin nottingham.econ.review@gmail.com

Contributors

Prof Richard Disney

Dr Udo Kreickemeier

James Hickling

Rendell de Kort

Colin Powrie

Phillip Sheratt

Matthew Stonebridge,

Pan Tsang

Anjuli Tyagi

Jonas Varnauskas

J. Samuel Doveri Vesterbye

James Williamson

Max Jinyu Xie

4 NOTTINGHAM ECONOMIC REVIEW

EDITORS’ ADDRESS

Dear NER readers, It is a great pleasure to announce that the NER team has, for the first time in its history, managed to release two issues of the magazine in one academic year. I, and the whole NER team, very much hope you will enjoy reading the third issue which includes a new section on the world of politics – a result of cooperation between economics students and our unexpectedly enthusiastic colleagues at the School of Politics and International Relations. I sincerely hope it is only the start of a long and fruitful relationship, one as prominent as the connection between economics and politics. In continuation of NER’s tradition, the third issue contains interviews with authoritative economists, George Buckley, the Chief Economist of Deutsche Bank, and Mr. Hassanali Mehran, University of Nottingham graduate and president of the Central Bank of Aruba, words of whom usually attract a large amount of interest.

I am also happy to announce that the torch of the NER has been successfully passed on to the new team, mostly responsible for this issue, ensuring the future of the magazine stays in creative and responsible hands.

As I am sure you are well aware, the certainly less than eagerly awaited exam session is quickly approaching, and I would therefore like to wish everyone the very best of luck.

Editor-in-Chief, Jonas Varnauskas The end of the year is approaching and in as a result so is my very rewarding three-year stay at Nottingham University. During my time here it has been a pleasure to be part of and watch grow the novel idea proposed by our team two years ago, the Nottingham Economic Review. Now that my graduation is shortly approaching, I am delighted to pass on the title of Editor-in-Chief to another economics student who is eager and ambitious to lead this magazine into the new academic year and sustain its standing. Although the NER belongs to the core of the School of Economics, the student community, its running, from this issue and onwards, is handled by Jonas Varnauskas. I wish the best of success to the current NER committee and I hope that this so gratifying tradition will continue in the future.

Romanos Priftis, Publishing Advisor

ECONSOC PRESIDENT’S ADDRESS

I warmly welcome all of you to the third edition of the review and congratulate Jonas, who has become the new editor-in-chief, and his new team on stepping up to the plate to produce a second publication within one year! This edition continues to offer a range of stimulating reads, and I am impressed with the number of student articles on the rise.

Just so you all knew, it has been a pleasure running the economics society this academic year, and a big thanks goes to my committee and Hilary Deacon for helping to execute the activities we have run over the past year. As exams loom and the term draws to a close, I would like to highlight the upcoming elections for next year’s committee. It will be interesting to see which eager current first and second years make it onto the society team and how they decide to operate for the future. In the meantime though, please sit back and dig in for a good read, it may well help with your outside reading for exams, possibly!

Colin Powrie, Economics Society President 2007/2008

NOTTINGHAM ECONOMIC REVIEW 5

Why Economics?

Why did we decide to study economics, the subject that is often described as the dismal science and the one that people are not afraid to associate with consumer culture, ruthless low-moral people and, in general, all things evil? For some excellent career prospects were the deciding factor, some simply found the subject interesting while others saw economics as the most suitable tool for making this strange world of ours a better place. What motivated the people whom we listen to on a daily basis, our lecturers, dedicate their lives to the science that has attracted so much negativity? This is what the NER decided to find out.

Dr. Marta Aloi I first decided to study economics because I was interested in social sciences, and it seemed to me that economics was at the core of many mechanisms driving the social development of societies. Over my UG studies I was lucky enough to meet some lecturers that inspired me and convinced me that I had made the right choice. Obviously, not all I was taught was of interest to me, but that did not put me off. After graduating I started to work in a bank trading foreign currency. I did not last long. I found it boring and very far away from my original interest in economics. I decided to go back to studying, took an MSc and then a PhD in economics. Doing pure research and teaching is for me a very fulfilling job. I can study interesting topics of my own choice and I like challenging tasks. An academic career might not be everybody’s cup of tea, but as far as I am concerned, it is the best thing that happened to me.

Dr. Alex Possajennikov I took up Economics after completing a degree in Maths. At the time (1993) it was something new and interesting for me.

Perhaps I felt Maths was too abstract; Economics was something more real, and at the same time economic theories possessed a certain degree of mathematical elegance (now, what’s that?

Isn’t maths something ugly and boring? Not for me!). It is tempting to say that I do Economics to enhance our understanding of how real economies work. This may be one reason even if my contribution to it is marginal. Another reason is that I like to create models and learn something new. Economic theory is a fertile ground in which to do this. By doing Economics research and teaching, I learn something (and also get paid for this! OK, I get paid to stand from time to time in front of a 100-strong audience and tell them what I have learned…).

That it’s in Economics makes it concrete, otherwise it would be too “high in the sky”, though sometimes I feel too constrained within Economics and would like to go beyond and learn more about other subjects.

Dr. Ralf Wilke In the beginning, I expected economics to give me better job prospects than other disciplines which I liked more in terms of content.

After graduating in Germany and obtaining a postgraduate degree in France, I was indifferent between applying for jobs and going for a PhD. Finally, I did the latter because I wanted to further improve my formal skills. When I finished with the PhD, I was sure that research in economics was the right thing for me because economics is simply a very difficult and challenging discipline.

I have never regretted going for a career in economic research and I am very happy with my work.

6 NOTTINGHAM ECONOMIC REVIEW

Dr. Simon Appleton I have always had a strong influence in current affairs and politics, but it seemed to me that most of the ideological divisions between political parties were on economic matters (e.g. the role of the market vs. the state; inflation and unemployment; third world poverty etc). Although these issues generated a lot of political heat, dispassionate economic analysis seemed to offer the best chance of throwing light on the issues. Economics - particularly development economics - is interesting and important. Its importance was brought home to me by the Ethiopian famine of 1984, which happened in the second year of my undergraduate studies. There seemed no more pressing question than how developing countries could develop their economies to avoid the suffering and needless deaths caused by poverty. At the time, I had feared that economics, particularly development economics, would prove worthy but dull.

However, immersion in research proved the opposite: economics is interesting because economic problems are often complex and solutions not obvious. Learning about developing countries and how economies work is a fascinating voyage of discovery, with no sign of coming to a final destination.

Dr. Alessandra Guariglia As a child, I grew up in different countries and was surprised to see the different levels of affluence that the populations of these countries had achieved: why were some so rich and why were others so poor? Could anything be done to improve the welfare of the latter? I decided to study economics - perhaps naively - in order to find some answers to these questions. In high school, I also realized that economics was a difficult subject, which involved a lot of maths and statistics. This intellectual challenge was my second motivation: I was intrigued by the difficulty of the subject. I would say that, as an academic, I am still led in my work by those early motivations: I study China’s transition, trying to understand what first prevented this powerful country from achieving economic progress, and then enabled it to become one of the world’s major economies. In my daily work, I handle large data sets, and the analysis of such data always poses new problems that I enjoy solving. In addition to that, I like my academic job because it allows me to combine teaching, research, and managerial duties.

From my point of view, this is an ideal combination.

Prof. Oliver Morrissey As an undergraduate at Trinity College Dublin, I did a four year degree in Politics and Economics. After graduating I spent seven years as a research assistant, an MSc student and a PhD student; always combining my interest in both economics and politics whilst studying. This was motivated by my curiosity - I was interested in politics broadly conceived, i.e. not party politics but the way in which government and policy related to, and influenced the world in which I live. Studying political science and economics seemed like a good way to get informed about this, and ultimately I became an economic policy analyst. It was only after getting the job at Nottingham that I specialised in development economics. I have no regrets that I started with politics and economics because that has determined the approach I have taken to research: there is always an applied policy focus to what I work on, and one implication is that the research is ‘real’ - policies do matter, and combining insights from both political science and economics has given an informative way of studying practical problems. At least it keeps me interested in what I do.

NOTTINGHAM ECONOMIC REVIEW 7

The Future of Economics

by Pan Tsang

All of us are familiar with neoclassical economics, but few of us know that there exists an entirely different school of thought - one that is more in touch with the real world...

Santa Fe School 1983, Santa Fe, New Mexico. An unusual mix of scientists and economists gather at an academic conference, including Nobel Laureate Kenneth Arrow and eminent physicists, biologists, mathematicians. There for ten days, they initiated perhaps the first inter-disciplinary study of economics. The conference raised more questions than it answered, yet the direct confrontation of sciences and economics yielded an intellectual synergy that heralded the development of complexity economics.

Two decades on, complexity economics remains a niche and draws little attention.

It differs radically from traditional economics – it departs from the fundamental assumptions, and studies economic system as a whole. Unlike traditional economic models, seeking predictable outcome, complexity economic is non-linear study of multiple agent interactions with multiple possible outcomes. Instead of studying impossible equilibriums, it focuses on dynamics, ie. how we get to the equilibrium.

As David Colander writes in The Complexity Revolution and the Future of Economics, the future progress lies in a change of vision “from economics as the study of infinitely bright agents in information rich environments to a vision of economics as the study of reasonably bright individuals in information poor environments”

Flaws and Limits of Neo-classical Economics Only a brief introduction to economic theory would reveal many implausible and simplifying assumptions. Early economists marvelled at the mathematical beauty of Walrasian general equilibrium, and set the pattern followed by generations of economists that “make trade-offs in realism for the sake of mathematical predictability”.

Economists use deductive analytical approach and have, for many years, rested on the “Holy Trinity” assumptions – rationality, greed and equilibrium. They study the static state of equilibrium and largely ignore the dynamics of the process of how-to – how does the economy reach equilibrium? For instance, we study perfect competition under assumption of complete information and zero transaction cost; general equilibrium model of where no further improvement could be made (i.e. pareto-optimal); game theory studies (Bayesian-) Nash equilibrium strategic choice where no change is beneficial. Neo-classical economics models the end result - equilibrium, the static state - yet we are told little about the journey there and what happens “behind the scenes”.

Innovation and continuous research have bred new economic sub-disciplines and extended our understanding. Economists are now further specialized into sub-disciplines, macro-disciplines such as development, monetary and microdisciplines such as labour, agriculture, experimental. However, more advanced formula and new theories have had little impact on

our ability to model reality where multiple agents interact in intricate networks where time and space dimensions exist. In such cases vague or partial answer is often the result. The vacuum between micro- and macro-economics has frustrated the integration of the two – to study economy as a whole.

Many have moulded into orthodox economists well accustomed to the oversimplified models that satisfy human desire to control and explain, but not understand. Neo-classical economics is erected on the fragile foundations of impossible assumptions. If one could penetrate the fortress of complex formulas and symbols, they might have ridiculed the romantic and off-track economics. Science is a system of acquiring knowledge, based on observational phenomena and capable of being replicated and tested in controlled conditions (in laboratory). In contrast, economics, “relies on theory, uses empirical observation to test the theory, and then builds policy analysis around that “empirically tested” theory”. As a social science, economics has lost touch with reality. It, therefore, comes as no surprise that economic models are futile and notoriously weak on prediction.

Foster writes profoundly: “The economy cannot be viewed in a static way... (It) is characterized by novelty and variety, not similarity and homogeneity. Today, many economists are in denial about this because the implications appear so fundamental, rendering obsolete and irrelevant so much that has been written. In retrospect, simplistic theorizing and associated deduc-

8 NOTTINGHAM ECONOMIC REVIEW tion...seems have played a much more important role as a rhetorical device – a kind of mathematical parable.”

Complexity Complexity economics integrates scientific knowledge from physics, biology, mathematics, etc. Existing knowledge and continuous development in natural sciences complements and enhances our understanding in a complex system, advocated by Santa Fe scientists. Many perceived phenomena such as human societies, the Internet and the markets, which we are so used to analysing, are complex systems and require an integrated approach to understand them.

Dissipative Structure Early Economist borrowed physicists’ well known First Law of Thermodynamics, aka Conservation of Energy Principle, which stated that energy can neither be created nor destroyed. In Economics this translates into our well known assumption of a closed system, i.e. a world where only two countries exist and resources are finite. Needless to say, the gap between such world and the reality is fairly large.

Chemist Ilya Prigogine pioneered the theory of dissipative structure which won him a Nobel Prize in 1977. It tells us that energy is required to maintain order, and order in open system is sustained by constant inflow of energy, such as stream of energy of heat radiation from the sun to the Earth. In the very same way, the patterns of human behaviour are heavily dependent on information or lack of it. When an organization, i,e, human society, moves away from equilibrium and away from the established practice and behaviour, new ways of working

are created and new forms of organization may emerge. Complex economics offers a less rosy yet more realistic approach than neoclassical economics. Economic systems would adjust to environment and several outcomes are possible even with the same parameter inputs. It gives economics a historical dimension, subsequent economic “evolution” depends on critical chance events or decisions and small difference could propagate into vast diverging paths. In social context, series of critical decisions taken by individual among several alternatives determine one’s life path.

Complexity Adaptive System Since the publication of The Origin of Species, Darwin’s evolution theory of natural selection has radically transformed our understanding of nature. Darwinian evolutionary theory has not only since taken the key stage in natural evolution, its application have been developed and extended into other phenomena

Copyright © Pink Panther

in human societies.

As our respected Wikipedia concisely put it, complex adaptive systems “are complex in that they are diverse and made up of multiple interconnected elements and adaptive in that they have the capacity to change and learn from experience.” Based on multiple theoretical frameworks, researchers of CAS seek to answer fundamental questions about living and adaptive systems. What is life? How do markets come into being? Its key principle of self-organization suggests elements could spontaneously organize into a coherent pattern, structure or behaviour without actually needing anyone to design or impose it. CAS can be seen in immune system, cells, stock market, group-based culture and social behaviours such as political parties.

Markets, like ecosystems, undergo natural selection.

Individuals

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select products; Managers select alternative business plans; Executives selects alternative strategies. This is an extension of the invisible hand, yet instead of pursue self-interest, they attempt to maximize their survival, their success. Markets continuously evolve - technology is being developed and new products being produced, threatening incumbents and its existing products and strategies. Bad products are filtered out; good ones being selected; good practices and strategies being replicated. Economics agents adapt to the evolving market.

Network Matters With this perspective, economy is no longer a simple case of homogenous agents or average individuals acting on self-interest that would arrive at static equilibrium. Instead, economy consists of vastly complex networks: individuals interact in companies, companies interact in markets, and markets interact in the global economy. Network matters. Products such as telephones, email or, recently, Bluetooth have become more useful as the number of users increases, a property known as network effect. There is also immense information scale as network expands; Google demonstrates its raw computer power in Google Earth, Wikipedia synthesizes our knowledge into a gigantic peoples’ encyclopaedia. Businesses have recognized the importance of organisation structure and network management. Traditional economics does poorly when explaining networks and their importance.

In an illuminating study

by Joshua Epstein and Robert Axtell, a computer model named Sugarscape was constructed that consists of simple agents in a simple landscape to create a

simple economy. Sugarscape has two sugar mountains. Agents with different genetic endowment (vision, metabolism) seek sugar for living. Controlled for other factors, repeated computer simulations show that an egalitarian society at the beginning transforms into one with highly skewed wealth distribution. A small, chance difference in earlier periods were magnified by the dynamics of the economy.

In fact, there is no noise in the model; skewed distribution is the emergent property in this set-up.

The two then extended the model and incorporated factors for sexreproduction and trade. It shows that the economy never settled on equilibrium.

Prisoner Dilemma and The Best Strategy Have you ever wondered – What is the best strategy for so-and-so?

Consider a repeated prisoner dilemma game. Would you plead guilty or not guilty? Such is a cooperation problem. In 1970s, Robert Axelrod invited fourteen social science researchers each to submit a strategy that would be played out against each other competing for best strategies.

The Tit-for-Tat strategy submitted by Anatol Rapoport won. It simply looks at the last move of opponents. Later Axelrod combined evolutionary simulations with game theory with simple computer algorithm playing out Prisoner Dilemmas. The best strategies are more likely to be reproduced and strategy mutations are introduced randomly. The results are profound - there is no best strategy. In an evolutionary system, finding an ultimate strategy is futile; strategies are context dependent and the environment changes continuously. Tit-for-Tat are destructive when two Tit-forTats meet and one starts out with defect.

Intuitively, one must continuously adapt to the changing environment to maintain competitive edge.

The Future of Economics We are living in a time of science and technology, cheap computing power has enabled ever more sophisticated modelling at an ever decreasing cost. Researchers would be able to run giant simulations of agent-based models to study the dynamics of economic systems.

Many economists understood the limitations of economics, and we observed a trend of economics moving away for the Holy Trinity assumptions. To align economics with empirical observations, behavioural and experimental economics have sprouted into a new enlarging branch of economics. It challenges the assumption of rationality and greed and seeks to remedy the irrelevance of traditional economics. Increasing recognition of empiricism is reflected on the award of Nobel Prize to Daniel Kahneman and Vernon Smith, for their work on behavioural and experimental economics, as well as Herbert Simon for his work on decision-making process in the context of uncertainty and bounded rationality.

However, there will be no dramatic shift to complexity economics in the near future. It will gradually gain acceptance in graduate schools and over time, younger, complex-dynamic professors will start attracting more graduate students than their older colleagues. Time will act in favour of complex-dynamic approaches and later one day complexity might dominate and mark a paradigm shift. In the long run, we might even abandon equilibrium.

10 NOTTINGHAM ECONOMIC REVIEW

Interview with George Buckley - Chief UK Economist at Deutsche Bank

by Matthew Stonebridge

George Buckley is Deutsche Bank’s Chief UK Economist. He joined Deutsche Bank in 1998, following the completion of his PhD in the area of the housing and mortgage markets at the University of Bristol. While at Bristol, George lectured and taught undergraduate tutorials in macroeconomics. He holds an MSc in Economics and Finance, also from the University of Bristol, and a BA in Economics from the University of Wales, Bangor.

His general responsibilities include economic and financial forecasts, client meetings, providing economic support to trading desks, writing articles for weekly publications and tailored research.

Recent economic data has shown a slowing in economic growth but an increase in inflation.

Firstly what is your appraisal of the current state of the UK economy?

It seems that the real economy data indicates that the UK economy has weathered the credit storm fairly well. This is demonstrated by retail sales, employment and manufacturing all fairing well based on data from February. However, the Bank of England has continued to talk of the upside risks to inflation from rising expectations.

The problem for the Bank of England is that growth looks likely to slow significantly more going forward, thus eventually placing downward pressure on inflation. This may be seen as ‘bird-in-the-hand’ argument: We know for certain that growth has been resilient in the face of the credit crisis, and that inflationary pressures have risen; future easing in both growth and inflation are as yet only forecasts.

Another important issue to note is that there is a difference between using interest rate policy to influence the real economy and using liquidity measures to directly address the market dislocation. While the real economy and inflation will be impacted by the credit crisis it seems reasonable that the Bank opt to devote its attention to liquidity measures as opposed to interest rate policy to deal with the current market dislocation.

Clearly the Global Credit Crisis has been big news recently.

Nowhere has this been more vividly shown than in America where the Fed has cut interest rates aggressively in response to poor economic data and falls the stock markets. There has been talk of a process of decoupling

whereby the UK and other countries are less affected by changes in the US economy. How do you see this?

In the past clearly recessions in the US economy have had an impact on UK economic growth. It seems difficult to say at the moment whether this relationship has weakened. The US economy has slowed more quickly than the UK economy but it is reasonable to expect there would be a lag before this slowing would affect other economies. However, emerging markets seem less dependent on America; exports to America have slowed while those to other emerging economies have been strong. Furthermore domestic consumption and investment in many emerging markets quickened in 2007 which should help to support these economies as US growth slows. Therefore in conclusion it is plausible that this relationship could have declined but given the lag associated with it, it seems too early to see for sure if this is the case.

Predictions of a fall and even a crash in the housing market have been predicted for some time now. How do you assess the future of house prices?

Firstly it seems likely that house prices are likely to fall in both real and nominal terms. However, I believe any decline in prices to be less pronounced than for example Capital Economics’ prediction – of a 25% fall over two years.

At the moment demand remains soft due to stretched valuations and high interest rates. Mortgage rates have remained stubbornly high as changes in official rates have not been passed on to final borrowers. The reason for this is that Banks have been unable to finance lending through the capital markets – higher mortgage rates therefore reflect this credit

NOTTINGHAM ECONOMIC REVIEW 11

rationing. A key question to ask when forecasting housing prices and activity is where prices stand relative to ‘fair value’. The mortgage repayment/income ratio has risen sharply over the past decade but this does not necessarily mean prices are overvalued as the equilibrium level of house prices could have risen over the past decade. This could be because of i) demographics, including both significant net inward migration ii) supply of new housing has been slow iii) changing tastes. In conclusion we see a lengthy period sluggish demand and falls in both real and nominal terms.

A recent report from Goldman Sachs has put the global cost of the credit crunch at around £600bn. Clearly these are large numbers but what do you see as the effects of the crisis?

It looks like the credit crisis will have a large impact on the real economy mainly because firms don’t trust each other to lend. As a result spreads (the difference between government bonds and non-government bonds that are identical in all respects except for quality rating) have widened and firms have had to borrow from the retail deposit market which is more costly. Furthermore it is important to note that financial intermediation is worth around 8% of total UK output, business services and finance are worth around 27.5% and they were both growing very strongly. Therefore the effects of the crisis on the real economy, both through credit rationing and through the direct impact on output, could be significantly greater than we have seen so far.

Recent Central Bank attempts to stimulate economies by providing liquidity to the markets have suffered a lack of success.

How effective do you believe these bodies can be in helping to resolve this crisis?

While the recent Central Banks’ attempts to stimulate economies by providing liquidity have broadly

been unsuccessful it is difficult to describe them as a failure. This is simply because we don’t know the counter-factual history i.e. we don’t know how bad the markets would have been if these attempts hadn’t been made. Moreover, while the Bank of England may have been somewhat slow to act the Governor can justifiably argue that they have done as much as the ECB. Furthermore the Bank of England as a publicly funded body doesn’t have unlimited money. Injections of around £20bn are quite small in comparison to the market and hence it is difficult for a Central Bank to decisively influence the markets in this way.

Given that the risky sub-prime assets that investment banks have been selling has helped precipitate this crisis how do you see the future of the invest-

ment banking sector and financial products? Do you believe a tightening in regulations necessary?

Well at least in the short term there may well be a significant hit to activities such as mergers and acquisitions which have traditionally been very cyclical. In addition some of the areas ‘blamed’ for the crisis such as securitisation and markets that involve unsecured lending have been hit too. However, financial innovation means these markets will most likely come back in time but in a smaller and more nimble guise. A tightening in regulation is certainly a possibility and there is scope for more hands on legislation of aspects of the financial markets, such as hedge funds. The problem is that this may amount to little more than closing the door after the horse has bolted.

12 NOTTINGHAM ECONOMIC REVIEW

Worker-specific Effects of Globalisation

by Dr. Udo Kreikemeier

Udo Kreickemeier joined the School of Economics in September 2002 after finishing his PhD at the University of Mainz earlier that year. He is an Associate Professor in Economics and an Internal Research Fellow of the Leverhulme Centre for Research on Globalisation and Economic Policy (GEP) . His research interests lie in the field of International Trade Theory and Policy.

In particular, he is interested in models of trade in the presence of labour market distortions and unemployment.

It is a well established empirical fact that firms in all sectors of the economy are heterogeneous with respect to key variables including their productivity and their size. Furthermore there is strong evidence that this heterogeneity is reflected in the export pattern across firms: Even in sectors that feature a lot of imports and exports, the majority of firms – typically the small ones – produce only for the national market. The exporters on the other hand tend to be the large and productive firms. The traditional thinking of trade economists, distinguishing sectors that produce tradable goods from those that produce non-tradable goods, does not accommodate these empirical regularities at the firm level.

Trade theorists over the past decade have struggled to come up with a model that accommodates the available evidence on firm heterogeneity. The most prominent, and arguably the most successful, outcome of this struggle is the model of Marc Melitz (2003, Econometrica), where it is assumed that firms within a sector have different productivities. The model suggests that firm heterogeneity is important for international trade, and indeed that it is the source of a new type of gains from trade: Globalisation, by introducing foreign competition in each market, makes it tough for the less productive firms to survive, and the least productive have to close

down. The most productive firms gain and become larger, because for them it is worthwhile to incur the exporting cost and to serve the larger world market. As a result, aggregate productivity goes up, and so does welfare.

A seemingly straightforward question to ask in the context of the Melitz model, with its successful and unsuccessful firms that fare differently in the globalisation process, is the following: Would you rather work for a successful or an unsuccessful firm? It seems natural to expect that workers should give preference to successful, i.e. high-productivity, firms. Perhaps surprisingly, a preference of this type would have no foundation in the model: A (rational) worker in the Melitz world would simply not care. This is because all firms pay the same wage, and there is full employment.

In joint work with Hartmut Egger (forthcoming, International Economic Review), we take the framework provided by Marc Melitz as a starting point and develop a model of international trade in which firm performance does matter for workers because more successful firms pay higher wages – something that appears to be true in reality. This is possible in our model because the labour market is imperfectly competitive, resulting in rent-sharing at the firm level. In this framework it is rational for workers to strive for a job in a successful firm, as suggested by common sense.

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Given that there is now a real benefit from working in a successful firm, why is it that not everybody is rushing to do just that? Also, how do the less successful firms that pay lower wages find workers? In our model, only some workers are lucky enough to find high-wage employment with the most productive firms.

All firms ration employment, and those workers who are less lucky will end up with a less well paid job in a less productive firm. The most unlucky ones end up with no job at all. Firms do not lower wages, because this would jeopardise their existing employees’ morale, thereby harming profits.

A mechanism of this sort, which has been introduced into the theoretical literature by George Akerlof and Janet Yellen (1990, Quarterly Journal of Economics) under the name “Fair Wage-Effort Hypothesis”, is strongly supported by experimental as well as survey evidence: Workers have an idea of what they should be paid, and if they are paid less, they will not work as hard as they would otherwise.

At the aggregate level,

our model gives a simple theoretical framework that features equilibrium unemployment and wage differentiation between different firms, even if all workers are ex ante identical. In this setting, the selection effects of globalisation identified by Melitz still lead to an increase in overall welfare, but globalisation now has distributional implications that would be considered undesirable by most: It gives rise to an increase in unemployment and an increase in intra-group wage inequality.

The link between the increase in aggregate output (and therefore welfare) on the one hand, and the increase in unemployment on the other hand is quite naturally provided by the increase in average productivity: firms that are on average more productive can produce a larger total output and at the same time employ fewer workers. This rather intuitive mechanism sheds new light on the impact of international competition on domestic employment – an issue which is a prime concern to policy makers and the general public alike.

The effect on intragroup wage inequality is notable for two reasons. First, there is strong empirical evidence across many countries that intra-group wage inequality is important and has increased. Second, although the observed increase in intra-group wage inequality has been parallel to the recent surge in intermediate goods trade the suggestion of a theoretical link between these two phenomena has previously been absent in the literature, which has primarily been concerned with inter-group wage inequality (between skilled and unskilled workers).

Are there policy interventions that can mitigate the potentially unfavourable effects of globalisation on aggregate employment and wage inequality, while still preserving the gains from trade? And if so, which policies are most effective in reaching these goals? These are questions that still await answers, but they are part of what is arguably an exciting current research agenda in the field of international trade.

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‘Freakonomics’: What’s it all about then?

by Prof. Richard Disney

Richard Disney joined the University of Nottingham as a Professor in the School of Economics in September 1998. He is a Research Fellow of the Institute for Fiscal Studies, London. He has held visiting positions at both the International Monetary Fund and the World Bank, and has been a consultant for the World Bank, the ILO, the OECD and a number of UK government departments. His research interests lie largely in the field of applied microeconomics, including tax policy, social welfare reform and pensions policy, all in both developed and the developing countries, and the economics of labour markets, including retirement behaviour and wage structure.

‘Freakonomics’ is unusual in Economics: a best-seller that is not simply a textbook. It’s described by reviewers on the front cover of the UK paperback version as ‘a phenomenon’, ‘brilliant’ and ‘non-stop fun’. Not words that are usually applied to books in economics! So what is all the fuss about, and are these superlatives warranted?

Now I have to admit that, although I’ve heard Levitt speak (and he is the originator of the ideas in the book – Dubner is his popularist and publicist), I’ve not met him personally. However I’ve met several of his co-authors and, being a labour economist, work in a field and make presentations at conferences (notably in the US) where Levitt’s ideas and methods hold sway.

To get a flavour of the style of the book we can look at the claims made by its authors.

“The aim of this book is to explore the hidden side…of everything,” (p.12). Some of the specific aims are ambitious, and others seem to be rather trite. They are: • ‘Incentives are the cornerstone of economic life…’

• ‘The conventional wisdom is often wrong…’

• ‘Dramatic effects often have distant, even subtle, causes…’

• ‘Experts’ use their informational advantage to serve their own agenda.’

• ‘Knowing what to measure and how to measure it makes a complicated world much less so.’

However background is important. Levitt works from the University of Chicago. His ideas

are highly influenced by a Chicago Nobel prize-winner in economics, Gary Becker, who specialises in looking at family and personal issues – such as who works in the household and who doesn’t, investment in education, in marriage, divorce, drug use and so on –all analysed from the point of view of the economist.

However, unlike Becker, Levitt is also an empirical economist – he uses data, often from a variety of interesting and unexpected sources, to support his views of what makes people tick.

To give a flavour of Levitt’s modus operandi, here are four case studies from ‘Freakonomics’: Case 1: The fall in teenage gun crime in US cities Teenage gun crime went up sharply in 1980s and early 1990s in the US; experts such as criminologists and sociologists predicted even faster growth in the 2000s. But the crime rate actually went down in the 2000s. Why was this? The answer, according to Levitt, was that there were fewer teenagers around prone to taking part in gun crime. The reason was a landmark legal judgement in the US: Roe v Wade case in 1970 which legalised abortion there. Gun-carrying teenagers generally have teenage mothers, live with single parents and so on. After the legal ruling, these women were the most likely to have abortions so, 20+ years on, fewer teenagers exist who were born to these mothers. Consequently, fewer gun-toting teenagers exist.

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Case 2: Cheating Levitt has many examples of when and where it pays people to be dishonest, and where it pays not to be dishonest. He shows that in Japan, a land reputed for its honesty, sumo wrestlers ‘throw’ (sic!) matches when the result matters more to one wrestler than the other. US High School teachers also ‘cheat’ in giving students answers to examinations in advance. Why? Because getting better grades improves school performance and therefore salaries – in fact California abandoned bonuses to successful teachers (measured by students’ test scores) as there was so much cheating (by teachers, not students, although maybe the latter as well!).

Case 3: Does how you bring up your children matter for their school performance?

This is an issue that concerns all parents. Levitt however lists, based on a good deal of empirical evidence, actions which parents could do that don’t in the end matter for their children’s school performance: • The wife giving up work to look after children, the parents being married, reading to children, taking them to museums, stopping them watching television, forbidding corporal punishment.

Whereas these factors do matter for children’s school performance: • The age, education and socio-economic status of parents, whether English is spoken in home (good), low children’s birthweight (bad), whether the child is adopted (bad – the influence of ‘natural’ parents outweighs that of ‘adopting’ parents)

In other words, as parents, it’s who you are, not what you do that matters.

Case 4: Children’s names and labour market achievement It is of course illegal to discriminate on grounds of race (or sex) in hiring and paying employees.

Application forms cannot ask for information on race, although they may ask about nationality.

But names of people are often a giveaway on this racial origin.

For example, Afro-Americans in the US give their children (especially girls) different names from rest of population. To illustrate: • The top ten girls’ names among whites in California in 1990s: – Molly, Amy, Claire, Emily, Katie, Madeline, Katelyn, Emma, Abigail, Carly • And among blacks: – Imani, Ebony, Shanice, Aaliyah, Precious, Nia, Deja, Diamond, Asia, Aliyah

So this allows easy discrimination, for example, in CVs for job applications (where, obviously, race is not recorded).

Therefore, suppose Afro-Americans gave their children ‘white’ names, would it make much difference to their economic outcomes? The answer, according to Levitt, is, no, not much, once you control for background characteristics (as with Case 3)

There is, of course, much more to the ‘name’ issue in ‘Freakonomics’: for example, the family who named their sons ‘Winner’ and ‘Loser’: ‘Winner’ ended up in prison, ‘Loser’ ended up in the police force. And name fashions change over time and ‘migrate’ down the socio-economic ladder: for example Britney/Brittany has gone from being a middle to a lower class white name.

So what are the good and the bad points about ‘Freako-

nomics’? First, some of the book is fun and let’s face it, economics has not earned the title ‘the dismal science’ for nothing – most research in the subject is pretty boring, even to other economists!

And Levitt uses statistics in a clever way to examine interesting issues.

What is the lesson for students? For those who are not simply studying economics in order to obtain a job as a chartered accountant, it proves that you can read books on economics which actually discuss everyday issues and show how (some) economists think about them. And even for mundane issues like ‘what dissertation or extended essay topic shall I choose’, there’s plenty of interesting issues out there which, with a bit of imagination and some clever use of data, would yield an interesting choice of dissertation (and trust me, lecturing staff find the topics often chosen by students just as boring as the students apparently find them themselves!).

Why then do many economists not like ‘Freakonomics’?

Some of it is just plain jealousy, given the money and publicity that the author has obtained. But there are methodological issues that have also caused irritation and dissent.

Some of the big issues in economics are boring and involve a lifetime’s work to unravel problems. Understanding why some countries are poor, or why some people are poor, is not simply unravelled by looking at girls’ names. To be fair on Levitt, he would agree, but his less clever disciples and acolytes think that the effect of girls’ names on labour market performance is a big issue. At the Easter 2008 UK Royal Economic Society conference, for example, a paper gained widespread media coverage for

16 NOTTINGHAM ECONOMIC REVIEW arguing that whether parent socialised with other parents affected their children’s school performance. Here we are back in trivialisation territory, if our object is really to understand the educational performance of students in the UK. It’s this sort of approach which has led one US critic to rename Levitt and Dubner’s book ‘Cute-a-nomics’. Indeed much the same criticism can be levelled against (some) laboratory experiments in economics which take a fairly trivial ‘game’ and generalise the outcome to something more fundamental such as the strategic behaviour by multinationals.

There’s a more fundamental methodological issue concerning Levitt’s use of what,

in the econometrics jargon, are called ‘instruments’. Often, outcomes in economics have multiple causes. In addition outcomes ‘feedback’ on causes. For example, do more police reduce crime, or is observed crime higher in an area where there are more police (perhaps because more police have been drafted in to high crime areas)? How do we incorporate all the other socio-economic and neighbourhood effects that are both cause and effect of higher crime? The answer is, economists often look for something that might affect crime but cannot be caused by crime – abortion rates 20 years earlier look to be the perfect ‘instrument’ to explain this sort of complicated relationship (Case 1). But, in fact, the ‘true’

relationship is much more complicated and there may be many variables out there that correlate with outcomes but which have no discernible theoretical or practical causal effect. Abortion rates 20 years before may be just such a variable.

So Levitt’s work provokes strong opinions. But presumably that was in part why it was written. So, forget the glib and self-congratulatory tone of parts of the book and try reading it yourself – who knows, you may end up as a practising economist rather than sitting in an investment bank wondering where your next bonus is coming from!

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The Titans of Economic Thought

by Max Jinyu Xie

The word ‘economics’ was derived from the Greek word ‘oikonomikos’, which means the skills of household management. Although the word is very old, the discipline of economics as we understand it today is a relatively recent development. Modern Economics emerged in the late 17th century, when the Western world began to transform from an agrarian to an industrial society. Despite enormous developments from what it was two centuries ago, the study of economics today is still, by and large, a study of efficient allocation of resources to the production of goods, and the distribution of wealth. Since its inception, many schools of thought have emerged over time, all of which explain economic problems from a somewhat different perspective.

CLASSICAL SCHOOL (1776-1871) Adam Smith (1723 – 1791) Born: Kirkcaldy, Scotland Educated: University of Glasgow, Balliol College, Oxford As the founding father of Modern Economics, Smith’s most influential economic theories are the Division of Labour, Free Trade and the Market System. A strong proponent for the French laissez-faire economy, he regarded the free market system as an ‘invisible hand’ that leads people to unintentionally promote society’s interests while pursuing their own.

Born in Kirkcaldy, a small town on the East coast of Scotland, Smith was raised by his widowed mother. At the age of 14, he entered the University of Glasgow, reading Logic, Physics and Philosophy. He spent another 6 years at Oxford, reading Classics, Philosophy and Literature. But the dismal reputation of Oxford teachers in the 18th century made him leave with utter distain. He returned to Scotland and became the Professor of Philosophy at Glasgow in 1751 and was made the Chair of Philosophy in 1752. In 1776, Smith completed his most monumental work, The Wealth of Nations, a well received book that is also thought to be the inception of Modern Economics. Extolled by the historian Edward Gibbon, the book expressed the most profound idea in the most perspicuous language.

Smith did not have much luck with ladies because of his stiffness and pedantry. His marriage proposals were rejected twice and he did not marry until his early 50’s.

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David Ricardo (1772 – 1823) Born: London, England Educated: briefly in Holland Ricardo’s most famous theory of Comparative Advantage formed the basis of Modern International Trade Theory (later reformulated as the Heckscher-Ohlin Theorem). He identified efficient trade patterns and emphasised the distributional gains and losses from trade between capital owners and labourers. During his time as an MP, he campaigned and demonstrated his passionate advocacy for free trade both in Parliament and in print.

After a brief schooling in Holland, he followed his father’s path and joined the London Stock of Exchange, where he learnt the workings of finance. Although he wrote his first economics article at the age of 37, within the next 10 years, he had reached the zenith of his fame.

John Stuart Mill (1806 – 1873) Born: London, England Educated: by his father Served at: University of St. Andrews Mill was introduced to Political Economy at a very young age, under the influence of his father and David Ricardo. Mill parted company with the earlier Classical economists on the inevitability of the distribution of income produced by the market system. In his view, markets may be efficient in allocating resources but not in the distribution of income, making it necessary for interventions.

MARXIST SCHOOL (1818-1883)

Karl Marx (1818 – 1883) Born: Germany Educated: University of Bonn The father of Marxist Economics and Communism, he challenged the Classical School and predicted that the inherent contradictions within capitalism would ultimately lead to its self-destruction, and would be succeeded by a society without private property. An advocate of the labour theory of value, Marx believed that all production belongs to labour, because workers produce all value within a society. Capitalists’ exploitations of labour by denying a fair share of what they produce would generate growing misery for workers, who would eventually rise up and seize the means of production.

NEOCLASSICAL SCHOOL (1871 - Present)

Léon Walras (1834 – 1910) Born: France Educated: University of Lausanne A French mathematical economist, Walras’ name is always associated with the creation of the General Equilibrium Theorem analysing interaction between markets and the resulting changes in supply and demand. He revolutionised economics with his rigorous mathematical formulations of price system mechanisms, the ‘Walrasian Law’ which says that the total value of excess demand in one market must be equal to the total value of negative excess demand in the other market.

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Alfred Marshall (1842 – 1924) Born: London, England Educated: St. John’s, Cambridge Marshall is one of the greatest economists of his time and gave birth to quite a few of the concepts covered in Year 1 Microeconomics such as price determination using supply and demand curves, price elasticity of demand and consumer surplus. Marshall also bequeathed to economics the critical distinction between the short and long run. His book, Principles of Economics (1890), brought a large number of concepts into a coherent whole, establishing his position as one of the leading economists at the time.

KEYNESIAN SCHOOL

John Maynard Keynes Born: Cambridge, England Educated: King’s College, Cambridge Reacting to the severity of the worldwide depression, Keynes broke from the Classical School in 1936 with the Publication of the ‘General Theory of Employment, Interests and Money’. Keynes held the opposite view to the Classical School, arguing that a fall in prices and wages would depress people’s income and thus prevent the revival of spending. He insisted that direct government control was necessary to increase total spending. Keynes’ arguments proved the modern rationale for the use of government spending and taxes to stabilise the economy, and his ideas influenced President Roosevelt’s New Deal Programme during the Great Depression. His analytical framework, focusing on the factors that determine total spending, remains at the core of modern macroeconomics. He is ranked as the most influential economist in the 20th century.

CHICAGO SCHOOL OF MONETARISM

Milton Friedman (1912 – 2006) Born: New York, United States Educated: Columbia University Friedman’s greatest contribution perhaps was the finding of the role of money supply fluctuations as contributing to economic fluctuations with Anna Schwartz. He adamantly advocated minimising the role of government in a free market so as to create political and social freedom in his book Capitalism and Freedom in 1962. Friedman received a Nobel Prize in 1976 for his outstanding contributions in the field of consumption analysis, monetary history and theory (including his Restatement of the Quantity Theory) and stabilisation policy. His views of monetary policy, taxation, privatisation and deregulation informed the policy of governments around the globe, especially the administrations of Ronald Reagan in the U.S. and Margaret Thatcher in Britain.

Friedman’s famous quote, ‘Inflation is always and everywhere a monetary phenomenon’ is widely accepted in academia. One comment from The Economist attributes Friedman “as the most influential economist of the second half of the 20th century…possibly of all of it.”

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The Rise of Sovereign Wealth Funds

by Max Jinyu Xie

Since the unfolding of the Subprime mortgage fiasco last year, some Asian and Gulf governments have been providing cash infusions to many of Wall Street’s giant banks: on January 15th, the governments of Singapore, Kuwait and South Korea acquired $21 billion worth of shares from Citigroup and Merrill Lynch. Despite their resemblance to Hedge Funds, these funds operate under a new name, Sovereign Wealth Funds.

What are Sovereign Wealth Funds?

These are the so-called ‘surplus funds’ accumulated from trade and massive currency interventions in countries like China, whose official reserves have now exceeded $1.5 trillion. These governments possess reserves large enough to smooth out government spending in case of any shortfalls in their revenues and currency speculations. Therefore, rather than having these surpluses invested in low yield U.S. Treasury bonds or lying idle in Central Banks’ vaults, these governments have indeed decided to invest them for better returns. So far it sounds sensible.

How large are they?

The magnitude of such funds is hard to estimate precisely. The figure may vary from 1 to 7 trillion dollars. But according to The Economist, by the end of 2006, the Sovereign Wealth Funds (SWF) market capitalisation was approximately $3 trillion, more than half of the global foreign exchange reserves added together ($4.5 trillion), and is larger in comparison with the market capitalisation of the Global Hedge Funds ($1.6 trillion). SWFs are growing dramatically. Morgan Stanley estimated that SWFs will double their size by 2010 and reach $12 trillion in 2015. Although the size of SWFs is now quite significant, in comparison with the global value of traded securities, $165 trillion, it is not huge yet.

Currently more than 20 countries have these funds, among which Abu Dhabi, Singapore, Saudi Arabia, China, Kuwait and Norway constitute $2.4 trillion, representing 80% of total SWFs. Over half of these assets are in the hands of countries that export significant amounts of oil and gas. Moreover, half a dozen more have expressed an interest in establishing one.

What are their Motives?

Most funds are very secretive with their investment strategies and are not publicly accountable, with the exception of Norway.

The Norwegian funds behave like capitalists bent on making as much money as they possibly can.

Optimists like Stephen Schwarzmann, the chief executive of private equity giant Blackstone, describes the funds as a ‘model investor’. When the Chinese investment funds took a 9.5% stake in his company without requiring any managerial voting power, what harm could it possibly have done? On one hand, SWFs are a way to help recycle emerging market surpluses. Amid the turmoil caused by the credit crunch, g o v ern-

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ments from Asia and the Middle-East have invested some $75 billion to date in those troubled U.S. banks. These funds were disbursed far quicker than IMF aid to emerging economies back in the time when they were in crises. Some argue that the governments of the SWFs have done more to secure the stability of the global financial system than have the central banks of Europe and the United States. In an increasingly globalised economy, having a stable world financial market is, without doubt, vitally important to countries like China and Singapore, who rely heavily on exports and thus the stability of the US dollar. Therefore, from this perspective, SWFs are not just investments simply aiming for lucrative returns but emergency funds that ensure the wellfunctioning of the world economy, including the economies of their own.

However, the sceptics complained about the lack of transparency of these funds and raised suspicion about their motives, which could make these funds less welcome, notably the United States. Given the size of the funds to be deployed, SWFs could also go on a buying spree of corporate assets. This could inflame nationalistic sentiment if they acquire foreign companies seen locally as having strategic importance. Recently, the $2 billion deal for the acquisition of

3Com, a US computer networking company, by Bain Capital and Huawei Technology, a Chinese company, was rejected

by Washington on the grounds of national security.

The concern was the possibility that foreign investors may attempt to control managerial power within a company, enough to swerve decisions to the side that favours their own national campaigns. To some, this may sound like a real threat. The setback in Washington highlights the rising protectionism sentiment in the US against the swings of foreign governments, which may cause financial protections on both sides of the Pacific.

What are the Possible Consequences?

At the World Economic Forum held in Davos this year, Sovereign Wealth Funds was a topic being fiercely debated by the world’s top policymakers. Such foreign investment spreads financial capital, know-how and technology. It helps the world economy to adjust to imbalances and gives countries stakes in each other’s prosperity. By contrast, a broad, politicised hostility to Foreign Direct Investment w o u l d come at a high cost.

Episodes of financial protectionism and possibly rehabilitations

may be spawned. What’s worse?

These may spill over into trade of goods and services.

How are these Issues are being tackled?

Last summer, Clay Lowery, an American treasury official, proposed that the IMF work on a code of conduct for Sovereign Wealth Funds. A scheme that endeavours to make funds more transparent in the way they operate and more informative about their investment strategies would ease suspicions. There need not be a separate set of rules for SWFs since many countries have been drawing on their existing rules, for example, the limit on who can own banks, ports or defence technologies. These rules, in my opinion, should not undermine the confidence of either recipients of foreign capital or the managers of SWFs, since such confidence underpins the stability of our broad financial system. After all, the size of Soveriegn Wealth Funds is big enough to shift market sentiments.

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Mr. Hassanali Mehran Interview

by Rendell de Kort

Mr. H. Mehran is a graduate in Political Science and Economics from the University of Nottingham and also holds a Master’s degree in International Public Policy from John Hopkins University. After having worked as a Lecturer in the Department of Economics at the University of Bristol, Mr. H. Mehran joined the IMF as Senior Advisor to the Monetary and Exchange Affairs Department. However, he soon left the fund to become DirectorGeneral of Research in the Ministry of Economy, Iran, where he also served as Vice-Minister in the Ministry of Economy and held a number of other prestigious positions. In 1979, Mr. H. Mehran rejoined the IMF and was later appointed as an Advisor in the Central Banking Department and played the key role in establishing the Central Bank of Aruba.

In 2007, after more than a decade spent working for the IMF, Mr. H. Mehran became the president of the Central Bank of Aruba.

What led you to take an undergraduate degree at Nottingham?

At the time of my first application to Nottingham, my intentions were to study mining engineering and Nottingham had a good mining school. Its reputation as a ‘mining’ town somehow appealed to me at that time. Once I started my studies and went on a few field trips to visit mines, primarily coal mines, I began to change my mind rather quickly.

This led to a separation from the university. I took my A-levels again, this time in Economics, and returned to my old University, at the Department of Politics with a minor in the department of Economics.

Do you feel your education at Nottingham gave you the tools for your success in the field?

Obviously Nottingham did give me the tools to do what I wanted to do. It was at Nottingham that I was first interviewed for a job at the IMF when a team of IMF officials visited the campus and interviewed potential candidates. The fact that they had Nottingham on their list of reputable British universities tells us that Nottingham was being noticed in social sciences by major international institutions. At the end of the interview I was very excited with my eventual employment at the IMF but first wanted to do some postgraduate studies.

Upon graduation, Nottingham was also instrumental in getting me my first serious job as research assistant to Profes-

sor Alan Brown, the renowned Cambridge econometrician who had recently been appointed to a chair at the University of Bristol.

Later on at Bristol I was appointed assistant lecturer in statistics.

Did you already have a specific interest or ambition you wanted to realise at that time?

I took on the job at Bristol with the aim of doing some teaching and research, but my inclination even then was to go to the United States and become an international civil servant. I come from a family of primarily civil servants in Iran. My father in particular was instrumental in motivating me into public service. But at that time I did not plan to return to Iran. Therefore international civil service was the logical alternative to public service at home. At Bristol, in addition to teaching I also did some postgraduate research and later on became a lecturer in economics and statistics which prepared me to join the staff of the IMF in 1968.

What was your role as an advisor in the Central Banking Department of the IMF? In the IMF I had two separate career paths. At first I started as a regular economist dealing primarily in foreign exchange and balance of payments. Upon my return to the IMF after the Iranian revolution of 1979, I worked primarily on central banking issues.

This was because, having served as Governor for the Central Bank of Iran, I had gained valuable experience as a practicing central banker and the Fund at that

NOTTINGHAM ECONOMIC REVIEW 23

time had a special department providing technical assistance to its member countries in the area of central banking. I was therefore well positioned to contribute to this program. Over time I worked and provided advice to some 54 central banks throughout the world, including banks in the Caribbean, Africa, Europe, and Central and South East Asia.

In particular I took pleasure in having founded and served as the president of the central bank of Aruba in 1985-1986.

Taking on a position at the central bank in Aruba must have been quite a change from your role at the IMF in Washington.

What attracted you to Aruba?

By the time I came to Aruba under the technical assistance program of the IMF I had already gained experience elsewhere to apply that experience to Aruba.

I am pleased by the result which was the time Aruba had gained a separate status within the Kingdom of the Netherlands. It was a time of uncertainty, in particular to its economic future. The oil refinery which was a mainstay of the economy had been closed.

There was an economic recession and the unemployment rate was approximately 25 percent. There were therefore challenging times with questions as to whether the central bank could maintain the newly established exchange peg to the U.S. dollar, to administer the exchange regulations and to adequately regulate the banking system. Over time the government succeeded in promoting tourism which became the main engine of economic growth. The unemployment was wiped out and Aruba became host to some 40,000 additional people, mostly

from other Caribbean and Latin American countries. The central bank became a strong pillar of stability in the economy, successfully maintaining relative price stability, the exchange peg to the U.S. dollar and promoting a sound financial system.

During your career you seem to have taken on challenging positions. Which position do you feel was the most challenging?

And why?

The best of my professional time was spent as the governor of the Central Bank of Iran. I was living at home and doing what I liked best: I was in public service and I was in banking.

Is there any other message or word of advice you wish to give our students at the economics faculty?

Work at it! Economics is an exciting discipline and has come a long way since I was studying it at Nottingham. Since then so much has been added to its literature. Economic ideas are now so well articulated. The discipline has contributed a great deal to our

understanding of how people behave and has helped us better focus on choices we make in using our limited resources. In my time at the IMF I could see how good the new economic graduates have become; how much better they are and how much better trained they are than I was. I salute them and their teachers for all the good work they have done which has made it all possible. In my view the world is better off for it.

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Laziness, Happiness, Alcohol and our Grades

by Jonas Varnauskas

Have you ever wondered how your work effort, lecture and tutorial attendance, feelings towards the course and even relationship status might affect your grades? This is exactly what the NER decided to find out. We proudly present the results of the NER’s second survey.

As might be expected, the amount of time spent working on those sometimes annoying and impenetrable theories should matter, and NER can officially reveal that it does. 28% of those not afraid to spend their Christmas eve away from the warmth of their families and friends, possibly in the library surrounded by age old books, and work at least 2 hours per day earned themselves a well deserved first, compared to 17% and 13% of those working one hour and half-an-hour respectively. Quite surprisingly, those confessing to not working at all did reasonably well as 22% of them managed to scrap the highest grade. However, the variance of marks seems to fall with greater effort: only 17% of the hardest working people got a mark lower than upper-second, compared to 22% and 37% of those working 30 minutes and not working at all respectively.

Students were also asked if they used textbooks, lecture notes or both. There seems to be very little or no difference between the grades of those relying solely on lecture notes and those combining the two. Even though it cannot be said that textbook users did less well, the variety of marks was much greater with quite a few people getting firsts and quite a few getting lower-seconds or doing even worse.

Another factor we decided to consider was lecture and tutorial attendance. Quite surprisingly, those who claimed to miss most of the lectures did somewhat better than others: 35% of “rebels” got a first, compared to 24% of those for whom lecture attendance is one of the holiest preoccupations in life. Those preferring flexibility and missing some lectures did the worst with only 14% getting a first. Somewhat unexpectedly, tutorial attendance seems to play no role in the determination of grades as the difference between regular attendees and those opting to get some sleep or simply have a good time and go the Mooch instead.

However, the results should be treated with care as quite a few of the “rebels” may have missed the lecture during which the survey was carried out.

Not surprisingly, having a part-time job can be quite detrimental to your grades. 13% percent of those helping to increase the nation’s obesity problems by

selling chips at McDonald’s or pushing crates at TESCO got a first, whereas nearly 23% of those being a heavy drain on their parent’s wallets enjoyed the highest grade. The number of lower-seconds and thirds was roughly the same between the two groups.

The students were also asked how much alcohol they consumed in a week. Absistinents and moderate drinkers, those consuming 4-10 units of alcohol per week, did better than their light, consuming 1-4 units per week, and heavy, consuming more than 10 units, drinking colleagues. A first was received by 25% of orange juice drinkers and 29% of moderate drinkers while only 10% and 15% of light and heavy drinkers respectively enjoyed the same heights. However, the proportion of students getting either a first or an uppersecond was very similar.

We have also decided to have a look at people’s relationship status and see if it had any sort of effect on grades via, for

NOTTINGHAM ECONOMIC REVIEW 25

example, increased levels of happiness and euphoria. Somewhat surprisingly, students flying high on the wings of love did tangibly better: 80% achieved one of the top two grades with a significant proportion, 27%, getting a first. The broken heart club, those spending their lonely evening playing Sudoku or doing something even worse did not do that well: only 14.5% got a first with 70% enjoying either a first or an upper second.

Last but not least, students were asked how they liked the course. Those having a crush on economics did extremely well with a massive 88% getting either a first or a second, and 32% enjoying the top grade.

Students completely fed up with the course and prepared to buy a cheap rope from Wilkinson’s, find a strong tree and get it over with did much worse: while the overall result was still very good – 77% got either a first or an upper second – only 4% managed to get a first. Those who’s relationship with economics lies somewhere between the two extremes enjoyed better results than their suicidal colleagues but were outperformed by those deeply in love: 73% got one of the top two grades, 18% achieving the highest one.

And so, ladies and gentlemen - on to the conclusion. Our survey has proved that in most cases hard work pays off and those ready to make the effort are usually awarded with very high grades. That, however, is not the end of the story. Our happiness seems to have a positive and tangible impact on the quality of our work as shown by the results of those enjoying the course and being in a relationship. In other words, be happy, work hard and everything will be fine!

A typical University of Nottingham Economics student Only 19% of our students claimed not to be working at all with 21%, 33% and 27% working half an hour, 1 hour and more than 2 hours respectively, oh-my-head first-years being the laziest of the bunch. The pattern of reliance on lecture notes and textbooks remains unchanged throughout the years with only 5% relying solely on textbooks, 39% on lecture notes and 55% on both. Lecture attendance proved to be a little bit of a problem as only 36% of students claimed to attend them with an almost religious dedication, 59% tend to miss a few lectures here and there while 6% miss most of the lectures since they have more

urgent matters to attend. Quite surprisingly, the third years and not the I-am-free-now freshers had the biggest attendance problems with only 32% regularly attending them. Satisfaction with the course seems to fluctuate throughout the years. First-years seem to be most optimistic with 23% absolutely loving it and only 3% contemplating suicide. Second-years were the least happy with nearly 11% willing to jump from the top of the Trent building and impose negative externalities on those cleaning the pavement...

6%, an improvement, of third years are ready to do exactly the same thing. Contrary to what one might be expecting, nearly a fifth of economics students are abstinent! However, a significant proportion, 44%, drink more than 10 units of alcohol per week with the rest stuck somewhere in-between, second-years being the most sober of the bunch. A quarter of us have a part time job with second-years years being the most willing to engage in the art of cooking hamburgers. Finally, 56% of us are single which points to either existence of very high reservation parameters or serious market failures that neither Gordon Brown nor the EU can help with...

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The New Generation of EUnuchs

by James Hickling

The new generation of European leaders has made a number of promises, but has so far failed to deliver. Could the rising supranational power of the EU be the culprit?

Last month, the House of Commons voted ‘aye’ to the Lisbon Treaty (the European Constitution in disguise) granting an increased array of powers to supranational EU authorities.

In New York, leading climatologists and scientists gathered for the highest profile international conference to date to question the consensus on global warming. The 500 delegates issued the ‘Manhattan Declaration’, stating that attempts by governments to reduce CO2 emissions would “markedly diminish further prosperity” while having “no appreciable impact” on the Earth’s warming.

The “Highest profile conference” is damning with the faintest of praise—like the comment on the back of Margaret Atwood’s novel ‘The Handmaid’s Tale’, describing her as one of Canada’s greatest authors.

Google ‘Manhattan Declaration’ on the BBC website and you draw a blank, with similar results by the Guardian and Times websites. The Telegraph was the only

British paper to report the conference, with columnist Christopher Booker noting, “Climate dissent grows as chill deepens”.

This deepening chill is a reference to what has been dubbed in North America as “the winter from hell”, with blizzards as far south as Texas. The same winter has killed 1,500 in Afghanistan, killed half a million animals in China’s eastern provinces and left 3 million people on the edge of starvation. The last few months have seen the greatest northern hemisphere snow coverage since 1966.

The link between these last two events is obvious. Where does the EU come into all this?

Well, courtesy of the ‘EU Referendum’ blog we discover that despite the fact that European countries are demurring from last year’s EU-imposed target of achieving a 20 percent cut in CO2 emissions and deriving 10 percent of energy from biofuels by 2020, the upcoming spring European Council is to press for even deeper, more ambitious cuts that will warm the hearts of Greenpeace activists everywhere—if not those at least loosely connected with more pressing concerns.

Privately, politicians and civil servants have admitted for months that even the original

targets were unattainable in the face of threats from businesses saying they will leave the EU if green regulations become too onerous. Rising grain prices— linked to the severity of the past winter— mean biofuel subsidies to save the world from an estimated 0.6C temperature rise over the next century, suddenly seem like a less pressing concern compared to preventing large chunks of the world’s poor from starving within the next year or so.

Now more than ever before—thanks to the Lisbon Treaty (I must not use the horribly rude C-word)—the EU has become Europe’s supreme government, so Brussels’ determination to drive businesses out of its provinces and force up the price of staple food like bread and pasta through agricultural and environmental policies will have an increasing affect on us all— much of which our provincial council in Westminster can do nothing about.

A provision of the recent budget exemplified this dynamic, with the government proposal to cut VAT on consumer goods deemed environmentally friendly. Unfortunately for Brown & Co, VAT is an EU tax, meaning reductions for green goods must be approved by the European Commission; and it is there—as The Times informs us—that the buck stopped: with one unnamed Eurocrat quoted as noting that the British plan raised “difficult questions”, and that the “aim (was) good but the tool is probably not the most efficient way of doing it.” Given that VAT fraud costs British taxpay-

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ers an estimated £3 billion a year, you might think that mandarins in Brussels would be a little more charitable towards attempts by Perfidious Albion to reform the said system, but when it comes to the EU the traffic is all one-way: it claims powers but never gives them back.

Thus, we have Gordon Brown’s clunking fist brought to bear on that dwindling list of sovereign powers not yet ceded to the (unelected) European Commission. His concern over plastic bags is an example, a more drearily parochial topic is hard to imagine, but one that neatly sums up the increasing powerlessness of his administration on matters of real importance.

With the EU donating millions of euros to groups like Greenpeace and Friends of the Earth, the debate over these issues is slanted rather heavily in favour of those who share these groups’ hair-shirt mentality. In Germany, the predictable consequence of the heavy emphasis on solar and wind power has left Europe’s largest economy dependent on an increasingly autocratic, belligerent Russia for gas exports. Russia itself is a dying nation—whether measured by male life expectancy that is lower than Bangladesh’s, the aids epidemic in Siberia, or the vast numbers of immigrant Rus-

sians found in every corner of Western Europe, a testament to the Motherland’s meager GDP per capita. Nevertheless, if you are a new-boy Russian President Dmitry Medvedev looking to show the world that your onceproud superpower has still got lead in its pencil, a little energy “politicking” might not go amiss.

In a world where your erstwhile rivals have blinded themselves to geo-strategic and economic realities in the name of environmentalism, fobbed of much of their former sovereign powers to the EEC/EC/EU behemoth, the one-eyed pensioner on Viagra is king.

But what of Nicolas Sarkozy—a man no one could suspect of needing medical stimulus in pursuit of an active romantic life? All those hopes of a French president who was willing to confront France’s anachronistic labour and trade union laws have so far come to zilch: in January he backed down on his assertion that the 35-hour week would be phased out in 2008, an “action plan” for France’s riot-prone city suburbs has been downgraded to a ministerial mission. Monsieur le Président’s much-heralded clampdown on benefit fraud has become bogged down in compromise with socialist opposition.

Getting hitched to supermodel Carla Bruni has been

his only clear score; but alas, the French public prefers their politicians to exhibit a certain level of tact and discretion in such matters, rather than the flamboyance that Sarkozy and Bruni have subjected them to. One recent poll put Sarkozy on an anemic 39 percent popularity rating with the electorate—impressive considering he’s been in office less than a year. At this rate, he’ll soon be rivaling George Bush and British beef as far as popularity with his fellow countrymen goes.

Angela Merkel can talk all she likes about reforming the German economy, but in postnational Europe her ability to enact this change is diminishing all the time—a situation not helped by the German federal system of government that in any event reduces executive power. Her role in resurrecting the aborted constitution in new Lisbon Treaty guise—displaying a thoroughbred East German contempt for democracy—makes her an active accomplice in her own marginalisation.

Brown, Merkel and Sarkozy are all in the same boat: increasingly powerless on issues of great importance. Where the rubber meets the road on issues of trade, agriculture, and the environment, power lies above and beyond them.

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The Birth of New Powers: Russia and its Natural Gas

by J. Samuel Doveri Vesterbye

The rapid growth in global hunger for energy has made energy policy one of the top priorities of every single country. The EU is no exception. However, given Western Europe’s reliance on Russia and the current fallout, it may well be heading for a bumpy ride...

In recent years it has beof nationalist President Vladimir Security Services of the Russian come increasingly obvious that Putin has sought to reinstate itFederation). In 2003 - after the the world economy is running self as a global player in the 21st trial of business tycoon and ownlow on our primary source of encentury. er of Gazprom Mikhael Khordokergy: Petroleum. It has practical As a result of Russia’s ovsky - it became increasingly up-and-coming rise, both Europe obvious that the liberal-business ly become a normality to observe hiking oil prices exceed 109US and the global economy are faclobby in Russia had been overDollars per barrel. Apart from ing severe energy difficulties. taken by its nationalist rivals in This is partly due to the EU’s vast the Kremlin. While the nationprices being an obvious burden to the consumer this could also dependence on Russian gas and alisation of Gazprom sent shivers the domestic oligarchy within through global markets, Russia be interpreted as a clear sign of oil-extinction. From an ecoRussia itself, which is believed to does not seem to be loosening be threatening foreign investors. its economic grip. The trend of nomic perspective this decline is naturally a consequence of basic In the past few years power-tennationalisation repeated itself in sions between Europe and Russia December 2006 when Gazprom supply-demand failure – a case have also started to become more gained control over a fifty-plusof over-inflated oil reserves and poor supply routes. Nonetheless, obvious as a result of extensive one-share stake in the Sakhalin II media-coverage and rumoured Project located in eastern Siberia. the possibility of oil running out or simply becoming inaccessible conspiracy theories. Although Although it was argued that this economically Western Europe action was taken on the grounds is a serious threat, which in reand Russia form an increasingly of poor environmental regulacent years has promoted a new wave of energy change. Apart important energy-trading zone, tions it is widely believed that political tensions between the Gazprom consciously lobbied for from environmental awareness – promoted mostly by Hollywood two power-blocks have led to an the expulsion of foreign energyunfavourable climate of diploagencies like Royal Dutch Shell nowadays - the decline in oil has created a vacuum in the energy matic disputes. As much as this to avoid further internal competimarket, which can only be filled may be disregarded as mediation. Such events have led to furhype, relations between Russia ther unease among both western by a real and viable solution. And and the UK have suffered a seripoliticians and business-groups although the common perception ous blow since the mysterious asalike. Failing diplomacy, mysteappears to be that clean-energy is sassination of Russian civil rights rious cases of intelligence and a on the rise, the dominant successor of petroleum is likely to be its activist and author Alexander power-hungry Kremlin are envaporizing counterpart: Natural Litvinenko. Since then there have ticing even more concerns about been various incidents involving politically motivated price hikes Gas. The principal beneficiarboth extravagant spy-equipment and Russian gas-monopoly. ies of gas appear to be the three and cold-war style missile sys The severity of the situmajor holders of gas reserves in the world: Qatar, Iran and Rustems. Perhaps the newest develation is perhaps best understood sia. Nevertheless, it has been opment in this diplomatic frenzy when looked at from a geo-politihas been the independence of cal perspective. Political tensions both difficult to extract and profit Kosovo, which has incited new rarely occur as a consequence of from gas revenues in Iran due feelings of cross-border tensions ideology and this case appears to declining foreign investment and economic sanctions from the and Russian fears of “European no different. The EU relies on West. Qatar on the other hand is expansionism”. Nevertheless, a Russia for over half of its gas more serious threat looms beimports and Gazprom controls not capable of utilizing its new hind these recent political disapproximately all supply lines found energy sources due to its putes. Since the late 1990s Rusbetween the Caucasus, Eurasia size and political shape, which is dominated by neighbouring sia has been facing a hierarchical and Western Europe. The current countries and western investreorganisation of power, which monopolization of infrastructure has led to domestic disputes beand pipelines has led to compliments. In the end, this leaves only tween power-hungry politicians, cations with regards to both gas Russia: a country with a memorable past, which since the election oligarchs and the FSB (Federal prices and dependency. In 2004

NOTTINGHAM ECONOMIC REVIEW 29

Ukraine was accused of stealing gas supplies which were heading to European countries. Russia immediately decided to cut off all Ukrainian supply-lines, which led to severe gas shortages in most European countries; with Poland, Italy and Germany being hit the hardest. Although not a direct act of Russian retaliation towards Western Europe, this energy incident gave some political insight into what Russia in fact is capable of achieving. But apart from demonstrating how far Mr. Putin could potentially reach, it also illustrates Europe’s fragile state of energy dependence. More so, this rather uncomfortable realisation of energy vulnerability has led to various initiatives towards safer and more reliable energy alternatives. Ongoing EU initiatives are dealing with the problem of disunity among energy distributors and the various European member states. The common problem seems to be the lack of a common European energy policy, which could guarantee political partnership among the twentyseven countries. If such a policy was to exist it could prevent member states from negotiating with Russia bilaterally, which until now has only allowed Russia to create deeper energy divisions in Europe. The EU plans to build a pipeline, which would connect Turkish gas routes from the Caspian directly to Europe.

The infamous Nabucco pipeline – which is expected to commence construction in 2010 – will independently be able to transport gas from the Caucasus to Eastern Europe without having to pass through Russian territories. Geographically the Nabucco project will transport natural gas from Erzurum in Turkey – through Bulgaria – to Baumgarten an der March in Austria. Logically, this would promote gas and oil production in Azerbaijan and Georgia; both of whom have felt Russia’s iron-energy-fist in recent years. More so, this pipeline would for the first time in history create a direct energy linkage between Europe and Turkey. This

new pipeline would thereby promote both greater energy-securities for Europe, while also giving the Middle East a chance to export natural gas at higher prices. It could also be argued that – apart from boycotting Russia’s pipeline monopoly - this project will offer the Caucasus a more prosperous future. Nevertheless, before its official inauguration, this project already appears to be failing miserably. This is partly due to Russia’s newly proposed South Stream pipeline, which is seen as a fierce competitor and a more profitable solution for certain European member countries, including Italy for example. The pipeline contradicts the Nabucco project on many levels. Firstly, due to favourably low gas prices in Russia, many European countries have tried to cope with their immediate energy-needs by opting for the most profitable solution. More so, due to the lack of a European energy plan, it also seems as if European countries are disorganised, ill informed and disunited. The lack of energy institutionalism in Brussels has simply allowed European states to struggle individually for energysecurity – with lack of direction and long-term purpose. This situation has not been helped by Russia’s political agenda. With rising competition and energy-scarcity, European member states appear to be calculating in accordance with short-term energy solutions, which do not satisfy common energy needs. The Rather than opting for a costly - but sustainable - European energy plan, Europe seems to be heading towards energy-individualism. This logi-

cally benefits no one in the long term; but having to create a common energy policy would imply a loss of sovereignty in the area of foreign policy - a move which is often deemed dangerous for governments seeking re-election among fierce Euro-critics.

Although the supplier always obtains a superior status in trade-relationships, it is obvious that any economic partnership is based on bilateral dependence. In this case Europe is obviously the weaker partner – but this does not necessarily imply that Russia is untouchable. On the contrary, it should be noted that Russia has many competitors in the Caucasus who simply need foreign investment and better infrastructure to enter the fruitful markets of energy. More so, Europe is Russia’s main buyer with over two-thirds of all exports going directly to the Euro-Zone. Russia is therefore extremely vulnerable in relation to price fluctuations, up-and-coming competitors, exchange rates and growing European demand. In fact it appears as if Russia is in a less favourable situation than initially estimated – relying perhaps more on fractured political unity in Europe than on actual energy-reserves in Siberia. However, the fundamental problem appears to be that Europe as a whole is facing mounting internal pressure from nationalists who seek to fracture the on-going Europeanisation process. Growing fears of Brussels-led supra-nationalism is spreading at an unprecedented rate in countries like Denmark, France and the UK. Ironically, for Europe to break free from energy dependence, member states precisely need to move in the opposite direction: beyond economic integration and towards greater political unity. Nevertheless, while energy consumption is growing rapidly, Euro-sceptics are gaining momentum. I ask myself whether they could have chosen a worse time to rally against pan-Europeanism?

30 NOTTINGHAM ECONOMIC REVIEW

The Party’s Officially Over

by James Williamson & Anjuli Tyagi

So you’ve had a great first year, done very little work and are now looking forward to summer. Career plans and graduate recruitment seem a million miles away. But they’re closer than you think...

If you want to learn more about career paths, get an internship for the following summer, gain invaluable experience and improve your CV, the time to think about it is now. Come September you will be faced with mountains of never ending applications and the daunting job of trying to sell yourself to professional firms. This is a simple guide explaining the procedure from start to finish, giving you the benefit of our own personal experiences, with a few handy tips.

In September most firms open up their application processes for summer internships. Although this can appear frightening, here is an easy to understand article on the stages of getting a lucrative internship.

Once you have decided who you want to apply to, the hard work begins. The first step is to fill out an application form.

Most large companies have online application forms, however smaller ones may still use a hand written system. Forms generally follow similar formats requiring the applicant to provide personal and educational details. In addition, there are often specific questions regarding to your reasons for wanting to join that firm.

Competency based questions may also be included.

Knowing the format that these application forms take

we can now give a few tips to improve your performance and help yours stand out. Firstly: start early. We’re not talking about September, but in the summer break; everyone can spare half a day out of 14 weeks! Knowledge of the field is important; this can be done by looking at firm’s websites or online graduate career resources such as Prospects. Interest in the field is important; you need to show an active interest for certain jobs, especially investment banking. For example if you are applying for jobs in finance then playing FX Games is a great way to show interest, getting a days work experience is another or even something as simple as reading a book on the stock market. This will also help with the very difficult questions of why you chose that firm and why you want to do an internship in that field.

Another important aspect you can make an early start on is looking at how you will be able to answer the tricky questions on application forms.

A popular question to ask is what you think is your greatest achievement. You will generally need evidence of the ability to work in a team. To improve your prospects in the summer, whenever you think you have done something that might be relevant for a question like this, make sure you write down what you got out of the experience. This may sound silly but it is amazing what you forget.

When you answer any question on application forms you need to ensure they are answered to the best of your ability because this is the first interaction

you have with them. Make sure that you use relevant examples answering questions. Try to make your examples stand out. For instance, a question on teamwork can be answered by using the example of seminars (you will do these early in your second year), but these are a popular response.

If you can use an example that stands out it can only help you.

When answering these questions never exceed the word limit and also ensure spelling is correct. A huge ‘no-no’ is the copying and pasting of answers. I was talking to the graduate recruitment officer at one of the top Accountancy firms recently and she said it was “very obvious when people had copied and pasted answers.”

There are some more general points to consider as well when applying. Firstly limit the number you apply for; they are very time consuming and therefore they can start to affect your university work. Secondly only apply if you meet the entry criteria otherwise you are wasting your time. You can also get great advice and information on the application processes and on specialist fields from the Centre for Career Development. They can also help you with CV writing; they are located above Natwest in the Portland Building.

If accepted, you will usually be asked to complete various online tests, which can include numerical, verbal or even psychometric testing. The difficulty and length of these tests varies from firm to firm and sector to sector. The best thing you can do for the test is ensure you prepare thoroughly. Always answer the practice answers that they give

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you. Repeat them if you get them wrong so you are sure of the correct answer and method. Make sure you have all the equipment needed and that you are not disturbed for the length of the test.

The next step, if successful in the tests, will be an invitation to an interview, assessment centre or maybe even both if you’re unlucky! But don’t panic.

Assessment centres take many different formats and can range from having to do a written test to a group discussion or even an e-tray exercise. The majority of you will never have heard of e-tray exercises until you have to do them. They replicate the email inbox of an employee, and you are marked on how well and efficiently you respond to these multiple choice answers. Beware timing is often an important element in this aspect. Group discussions provide the employer with a chance to see how you work in a team environment and interact with other people. If invited to any of these do your research as there are often many practice questions available. This is another area in which the Centre for Career Development can provide help.

Interviews take many different formats including

phone interviews, one-on-one interviews and competency based interviews.

Be prepared for these by doing your research on the firm itself, your chosen field and current business issues. Also make sure that you know your application well. This may sound obvious but it is easy to lose track of what you wrote on each application form, especially if you have applied for many different firms. It is also hugely important to have personal examples to hand which display characteristics and skills that firms look for in employees. This can be done by trying to answer possible questions and also by looking at your CV. It is also worth knowing that the firms often pay travel expenses for the day, usually up to £100.

A few hints for interviews. Arrive early and allow plenty of time and know where you are going. Make sure you have the number of the place you are going to in case the worst happens; you may go for interviews in places you do not know.

Dress smartly even if they say smart casual. Do not try to compete with people in group situa-

tions as you are not competing against them but against the criteria that the company is looking for.

Interviews are a two way process and that means that they expect you to ask questions. Always prepare questions before hand, try to make the question relevant, interesting and open ended. Finally, do not panic in interviews, remaining calm will help you and if you need time to think about an answer then do not be afraid to ask for a few minutes.

If you have been successful in all these stages you will receive an offer. The period between the interview and knowing the outcome can vary hugely, so be patient. If however they do not get in contact after the specified time do make sure you contact their graduate recruitment division.

Even if you do not think you will get an internship it is well worth applying for the invaluable experience of gaining an insight into the processes, the firm and the sector, things that can hugely help when applying for graduate jobs in your third year. If unsuccessful, it is not the end of the world, always remember the number of graduate jobs far outweigh the number of summer internships!