Issue 6 - May 2010

by-students ISSUE 6

for-students NOTTINGHAM ECONOMIC REVIEW

MAY 2010

HIGHLIGHTS:

Cameron and Brown under pressure

How Many Politicians Does It Take To Level The Debt Mountain?

Number 10 comes with a price

The Future of University Finance

Exclusive interviews with the University of Nottingham’s Vice-Chancellor and the Students Union President Contact Us: nottingham.econ.review@googlemail.com

Do you think you have what it takes to run NER next year? If so, come along to our recruitment briefing on Tuesday 11th May, Sir Clive Granger, Room A40 at 12pm. We will give you an outline of the magazine, what being a part of NER involves, and give you the chance to ask any questions.

by-students ISSUE 6

for-students NOTTINGHAM ECONOMIC REVIEW

MAY 2010

Editorial

Contents News Flash

4

Dear NER readers,

DAVOS Obama Gets Tough on Regulation Greek Tragedy The United States and China: Friends for Now Bankers Bonuses The Future for University Finance

5 6 8 10 12 13

We are very excited to bring you our sixth edition of NER. This will sadly be the final issue with the current team, so hope you enjoy it as much as we have done.

How many politicians does it take to level the UK debt mountain?

To Vote or Not to Vote...

Policy or Persona?

16

The Future for Climate Change after Copenhagen Black Gold: The Future Insight to an Entrepreneur 20 years Since the Fall of the Berlin Wall British Bull-dog or just a bit of Argy-Bargy?

War on Terror

22 23 24 26 28 29

Special thanks must go to Tim Lloyd for all of his support, and to Oliver Pawle, who has graciously agreed to co-fund the NER over the next three academic years.

Game Page

31

19 20

We are thrilled to bring you three featured articles dedicated to the General Election campaign, just in time for the election itself.

Enjoy The NER Editorial Team

Credits Editors: James Rose, Lily Steele, Biliana Sourlekova

Design Team: Mustafa Tekman & Antonio Zhivkov.

& Sam Gardiner.

Sponsorship Team: Christopher Gould, Ellen Wasden &

Politics Editor: Fanni Toth

Nima Ghodrati.

Design Editor: Beatrice Omisakin

Special Thanks to: Tim Lloyd & Oliver Pawle.

Contact Us: nottingham.econ.review@googlemail.com

Let’s agree to agree! …the rich scent of freedom Will a wealthier China become less authoritarian?

Barack Obama and others admit that Copenhagen will at most produce only an outline climate agreement NOVEMBER 2009

OCTOBER 2009

Bernanke re-elected Fed Chairman

Terror in the Sky! An Al-Qaeda attempt to bring down an airliner thankfully fails

JANUARY 2010

DECEMBER 2009

Signed, sealed, delivered…

Hero, villain or victim of the global age?

Gordon Brown’s pitch for a fourth Labour term—and his critique of the Tories FEBRUARY 2010

Barack Obama has transformed health reform but how will Obamacare change America’s health system?

MARCH 2010

Nottingham Economic Review 5

EF Annual Meeting Jan 2010: Disillusioned Gods Deciding What To Do For Mortals

By Lishia Erza

necessary to save the capitalistic market economy.

Davos-Klosters, a Swiss skiing resort amongst the clouds, was host to the 40th World Economic Forum (WEF). The good – if not controversial – topics included South African President Zuma’s endorsement for polygamy, the increasingly-urgent call for renewable energy and the vaccination of so-far neglected diseases. It is in WEF’s Annual Meeting where the world’s rich, famous and powerful compare notes with the intention to rethink, redesign and rebuild our world.

the State of The World: Rethink, Redesign, Rebuild”. Although the key topic was money, discussions produced insights on interdependencies, governance gaps and risks that call for the world to rethink business models, financial innovation and risk management. Great effort is required to rebuild the trust lost as a result of the current dire consequences: trust to build confidence in future success and trust in one another when constructing new designs.

Since 1971, WEF AM has been the annual event where capitalists, social entrepreneurs, politicians, technological pioneers, artists and religious leaders come to converse about the economic and social challenges of the world.

This year, they adapted 2009’s theme of “Shaping the Post-Crisis World” to a more positive and actionable theme of “Improving

Innovative redesign of institutions, policies and regulations were called upon to close gaps, prevent future systemic failures and restore growth. One of the highlights was French President Nicholas Sarkozy proposing a new form of the Bretton Woods system to stabilise global exchange rates, arguing increasing the role of government and creating global regulations was

All things praising free trade, free society, and free speech are never without opposition. Pressure groups viewed the forum as a symbol of globalization’s destructive power. The participants were seen as people who have low regard for national boundaries and were naive to have thought that business-led processes can solve the world’s problems. What came out of the forum was a reflection of the needs of the members, not of the world. Business, culture and scientific advances do not represent voices of minorities and societies most in need of development.

For instance, rethinking business models, financial innovations and risk management shows that the discussions were geared towards how capital owners can mitigate risks and ensure the sustainability of their ventures.

It does not consider the trickle down effects for the average person affected by a recession. This line of thinking does not even include these people into the system that is believed to be able to provide prosperity. The sacred words prosperity and sustainable growth are reserved for those who are already on top. So what good does a forum like this do?

Maybe next year discussions will be more ‘mortal’ oriented.

Talk produced an interactive risk map for us mortals to see what the Gods see as key risks for the next ten years, http://www.weforum.org/documents/riskbrowser2010/risks/#/4

6 Nottingham Economic Review

Obama gets tough on regulation

By Serena Qayyum

Stearns, Fannie Mae, Freddie Mac, AIG, and Citigroup would have threatened the entire financial system if they collapsed and the government had no choice but to rush to prop up these ailing institutions with hundreds of billions of dollars. The new proposal would subject systemically significant non-bank financial institutions to a bank-like receivership and liquidation scheme.

Amidst the Savings and Loan crises, the film ‘Wall Street’ came to be viewed as the archetype of 1980’s financial excess. In its most famous scene, corporate raider Gordon Gekko delivers a decade defining speech, declaring ‘greed is right, greed works’. In the wake of the biggest financial crisis since the Great Depression, Wall Street 2 is set for release with Gekko granted a new slogan, ‘Someone reminded me I once said greed was good, now it seems its legal’.

In parable form, this perfectly encapsulates the myth widely accepted until now, that the selfinterest of lending institutions is enough to trust the system to regulate itself and keep the financial industry in a self-reinforcing circle of prosperity. Yet it is the failures of regulation that helped lead to trillions of dollars in losses and almost generated a systemic breakdown. President Obama first announced a plan to overhaul regulation in June 2009 Obama said his plan was a ‘’trans-

formation on a scale not seen since the reforms that followed the Great Depression.” Certain features immediately stood out.

Firstly, it asks for sweeping

structural change.

It would give the Fed new authority to regulate large financial institutions deemed systemically important and enforce higher capital and leverage standards.

Changes in the bankruptcy regime attack the notion of banks too big to fail. In 2008, Bear

The second defining feature is an attempt to

prevent commerical banks risking customer deposits through proprietary trading

i.e. stop banks betting their own money to make profit as well as investing on behalf of clients.

This creates obvious conflicts of interest, for example when Goldman Sachs traders sold complex loan asset packages to clients but used their own funds to short these CDO’s or bet their value would fall. Measures against pro-

Nottingham Economic Review 7

prietary trading will be known as the ‘Volcker Rule’ in recognition of the proposals of former Fed chairman Paul Volcker. It has drawn criticism for bearing resemblance to the Glass-Steagall Act of 1933, repealed in 1999, which first separated investment and commercial banking to curb the fraud and risky speculation that was then rife. It was undoubtedly effective however. A glance at the above graph shows that the number of bank failures was negligible whilst financial regulation was stringent. However arguments against the Volcker Rule are not without weight. By applying only to deposit taking banks instead of all systemically important institutions it might actually reduce the competition faced by banks such as Goldman Sachs. Of course another problem is also largely one of definition as proprietary trading spans a wide range of activities, some of which is absolutely necessary to maintain liquidity in the system so an outright ban would be unworkable in practice. The House bill already contains provisions to give regulators discretion to only limit the trading activities it considers harmful.

The other cornerstone of Obama’s proposal is the

creation of a new consumer protection agency.

I completely agree that ineffective regulation of consumer credit products has created a shocking prevalence of abusive practices.

Sub-prime lending carried both greater cost and risk. For example, a family buying a $175,000 house with a subprime loan with

an effective rate of 15.6% would pay an extra $420,000 over the life of the mortgage. Terms virtually guaranteed that borrowers would default if asset price inflation didn’t continue. However there has been strong opposition from the financial industry to an independent consumer protection watchdog.

Other proposals include

reform of the credit rating system that drastically underpriced risk, comprehensive regulation of all asset-backed securities and focusing diplomacy to create global regulatory standards.

In December the House approved much of the Democratic plans, but for Congress to approve legislation approval must be found in the Senate, where Republicans hold far more influence. Republicans raise issue with Obama’s proposal to institute a levy on the largest banks to recover the billions spent on bank bailouts. The tax of 0.15% of liabilities would be applied to all financial institutions with more than $50 billion in consolidated assets. Theoretically the tax is structured to reduce banks’ reliance on liabilities and should generate $90 billion in tax revenue. However it has also created contention that the bulk of the cost would be borne by consumers in the form of higher fees and does not exempt firms like Wells Fargo who have repaid the bailout funds they received in full.

After several months of deliberation the Senate Banking Commit-

tee led by Chairman Chris Dodd finally produced a regulation reform bill. Notably it far extends the regulatory umbrella by creating a new nine member council led by the Treasury secretary tasked with detecting systemic risk and widens the Fed’s mandate to protect the largest financial institutions. Lawmakers have praised its bid to create a resolution process so that no bank is too big as to require a taxpayer rescue and to end a system that simply cannot handle failure.

However, the Senate bill significantly streamlines proposals in the House bill in a bid for compromise, for example the consumer protection bureau will operate within the Fed rather than being independent. The greatest source of contention is the enforcement of the Volcker rule on proprietary trading. Although it directs regulators to study and implement the rule, it abandons the direct legislative approach to enforcement by leaving implementation to the regulator’s discretion. This significantly waters down the ban and may create years of legal wrangling.

The president has promised to fight to retain the bill’s tough stance on Wall Street but there is undoubtedly strong pressure to narrow the reach of the bill. Congress’ true commitment to fixing the USA’s broken regulatory system will be severely tested in the debate that still lies ahead.

Yet Obama is closer than ever to securing the biggest financial reform since the New Deal.

8 Nottingham Economic Review

Greek Tragedy

By Alex Fergusson

the Finance minister, Giorgos Papaconstantinou, have promised they will not let this happen). Indicators have led analysts Standard & Poor’s to estimate that “the economy could contract up to 4% this year”.

Minor unrest in Greece has turned into violence on the streets and riots in Athens. Strikes have been planned across the country, putting hospitals and schools in jeopardy, while public transport has come to a halt on several occasions. Riot police have used tear gas as protesting has escalated to attacks on union leaders. The cause of such discontent: Greece’s budget deficit. The Eurozone is in a dangerous position as speculators look to the Euro and the trouble in Greece, and begin to bet against the economies of the so-called PIIGS (Portugal, Ireland, Italy, Greece and Spain).

Are their deficits a problem, and should Europe be concerned? To answer this, we must examine the root of the problem, when Greece adopted the Euro.

Greece joined the Eurozone in 2001, and in the following years

went on a spending spree. Huge borrowing and major tax-evasion issues put an inevitable drain on the budget. Only now that the financial crisis has struck has Greece become transparent with the true level of its debt, at 112.6% of their GDP, and a budget deficit of 12.7% of their GDP. Eurozone regulations dictate that a member’s deficit must not exceed 3% of GDP. The effects have been devastating for Greece, and now potentially for the rest of Europe - if Greece defaults on its debts and calls the IMF for aid, the credibility of the Euro will take a serious blow.

The implications of a high deficit hit both home and abroad.

At home, Greece has lost a lot of economic credibility as investors realise that it could default (although both the Prime Minister, George Papandreou, and

In response to speculators’ claims, Mr. Papandreou has announced a series of painful reforms with the aim of bringing the deficit under 3% by 2012 - a very bold target. Public sector pay will be cut. Consumers will be subjected to rises in VAT and fuel duties. The elderly will be hit hard by frozen pension schemes and an increasing retirement age.

In all, Greece’s economy seems set to shrink.

However, the effects on the rest of the Eurozone could be worse. Mr Papaconstantinou has asked that the EU draws out and announces a rescue plan for Greece. If worst comes to the worst and the IMF bails out Greece then taxpayers, including those in Britain, will be hit again by EU contributions.

As if this wasn’t bad enough, there will be a ripple effect on interest rates globally. Low confidence in European government bonds has forced interest rates up, to compensate for the risk factor. Reuters expects the European Central Bank (ECB) to raise interest rates by half a % point later on this year. This will make it even harder for struggling European economies to service their debts and increases the risk of possible government defaults.

Nottingham Economic Review 9

The deficit-reducing measures in Greece have incentivised other struggling economies in Europe.

Ireland has faced similar public sector pay cuts, and the UK has a planned severance pay reduction.

Even Hungary and the Czech Republic have slashed public sector pay and spending in an effort to boost their Eurozone entry bids.

In short, the Greek situation has put a spotlight on government budget fallacies. Now all will be expected to change.

even harder for Greece to borrow and increase CDS profits further, continuing the vicious circle.

Similar to the escalation from sub-prime crisis to global recession, financial interdependence could lead this situation to affect all of Europe. Banks have $250bn in Greece and $2.1tn in the PIIGS – if Greece causes the Euro to fall, which it currently is, or worse leaves the Eurozone and devalues, banks will be hit hard in a fragile time.

should get involved – if they do, Greece’s budget problems will be solved in the short run, but a precedent will be set that countries can just run to the IMF when they hit hard times and be bailed-out after excessive spending. Greek sovereignty will be lost and confidence in the Euro will take a massive blow. The cons outweigh the pros – the IMF must not be used as an easy escape, and Europe is working on ensuring this.

Because Greece is part of the Eurozone, there are indirect implications via the currency on other member states. Corporate investment is set to fall in Europe as consumers spend less and save more, and firms scale down. If this happens, the Euro could depreciate. There are two sides to this coin: on one hand this will be beneficial to net exporters. However in the short run, the Euro will lose credibility on exchange markets.

As well as tackling the problem with public sector cuts and tax rises, Greece has issued €5bn worth of government bonds. This has actually been effective so far, and the international reaction to these bonds seems to be positive.

But because Europe is intrinsically linked with the Greek economy, the rest of the Eurozone is set to get involved. Although direct aid is considered in “violation of Eurozone rules” (Angela Merkel, Chancellor of Germany), stateowned German banks could buy Greek bonds. Germany and France also targeted speculators against Greece in early March.

Debate is over whether the IMF

So how will the Greek situation reflect on the other PIIGS? Again, it is a question of confidence.

Investors are worried about the effect a large public sector debt and budget deficit have had on Greece, and will look to other struggling economies to bet against. The US is currently looking into 4 hedge funds colluding against the Euro. Fears are also re-emerging over Eastern European debt.

The fear that Greece and other PIIGS could leave the Euro and devalue their currency has led speculators to bet against the Euro.

CDSs (Credit Default Swaps), which allow investors to insure investments in Greek bonds, are becoming very profitable in the Greek insurance market, at the expense of the Greek economy.

Risk in Greece has led these insurances to increase in demand and thus price, which has made investors even more nervous.

This fear has reduced the demand for Greek bonds and will put more pressure on the ECB to raise interest rates. These raised interest rates will in turn make it

Now add a weak currency and fears over investment to these economies and it is clear to see that action must be taken to bring confidence back to Europe.

10 Nottingham Economic Review

The United States and China: friends for now?

By Richard Pass

At the end of last Year, US President Barack Obama set off on a trip to Asia aiming to establish the United States of America as a nation who does not dictate, but listens. However such an aim was more of a necessity than an ideal policy given the rise of China as a real super power contender to the US. During the visits of President Obama’s predecessors, President George W. Bush and Bill Clinton, the US was clearly the dominant nation, publicly pushing and prodding China to become a free and democratic society. President Obama’s visit however, comes at a time when the US has a national debt of almost $12.5 trillion and it is China, with its (current) $1.8 trillion of Foreign Exchange Reserves in US denominations that is partly funding the ever growing US deficit. The US needs China regardless of how much carbon dioxide it emits, how many prodemocracy leaders it locks away or how much money it spends on its expanding military. All these issues are secondary when the US is trying to recover from one of the worst recessions in history.

It is for this reason that President Obama came across more like the profligate spender coming to pay his respects to his banker than the leader of the free world.

One of the biggest grievances the US currently has with China is what current Treasury secretary, Timothy Geithner, outlined before taking office in January last year: Geithner accused the

Chinese government of deliberately manipulating the Yuan’s exchange rate with the Dollar.

Like many sectors of the Chinese economy, the Yuan’s value is controlled and pegged to the US dollar at a state determined level, unlike most other currencies which have floating exchange rates determined by the free market. The fact that the value of the Yuan is controlled by the Chinese government is not the main concern for the US; the concern is the level at which it is pegged, that being 6.8 Yuan to the Dollar, a level which President Obama argued during his election campaign, that was undervalued and thus contributing to the ever increasing trade deficit the US has with China, a deficit which in 2009, totalled $227 billion, the largest deficit between any two countries in the world, up from $83 billion in 2001.

In an age of free, unhindered trade in a globalised world, there can be no two ways about it; the manipulation of one’s currency to boost exports beyond their natural levels is a form of protectionism, an unfair advantage. Nobel Prize winning economist Paul Krugman strongly supports this view, arguing in his New York Time column that China ‘follows a mercantilist policy, keeping its trade surplus artificially high, and that policy is, to put it bluntly, predatory’. Krugman argues that such an artificially low exchange rate has contributed to an estimated loss of almost 1.4

million US manufacturing jobs, a sector which has seen employment decrease by 21% between 1998 and 2008, partly due to the relocation of manufacturing to China. It is estimated by many sources that the Chinese Yuan is undervalued by 20-30%. If the Yuan undergoes revaluation

there can be no doubt that it would affect Chinese exports at a time when Chinese manufacturers are still recovering from the decrease in US demand with many operating on tight profit margins, hence Beijing’s reluctance to revalue.

The first allegation that China is pursuing a protectionist policy by undervaluing the Yuan is certainly valid, however, one also has to look to the criticism’s the Chinese have levelled at the US for be-

Nottingham Economic Review 11

ing protectionist, criticism’s that are also valid. Within President Obama’s $787 billion stimulus package, there are clauses which can only be described as protectionist. First, there is the, ‘the Buy American’ clause, a tactic to save American jobs at the expense of those in China and other countries around the world. Secondly, all raw materials and building contractors used in the stimulus package have to be from the US.

China has a point. They are also valid in arguing that the US, by imposing a 35% punitive tariff on Chinese tire imports, are partaking in protectionism. However, the US can effectively counteract such an argument when they just refer back to their original point: The Chinese Yuan is undervalued; hence the US had to respond to this unfair advantage by putting a tariff on Chinese tires whose market share has risen from 4.7% in 2004 to almost 18% in 2009, causing 4 US

tyre factories to close in 2006 and 2007. Also in March of this year, Krugman suggested the US imposes a 25% ‘surcharge’ on all Chinese goods until they revalue the Yuan. The fact that Krugman is one of the world’s most influential economics commentators only emphasizes the significance of such a suggestion.

To keep the Yuan at an artificially undervalued level relative to the Dollar, the Chinese have to create artificial demand for the US Dollar in order to make sure it does not depreciate relative to the Yuan, something which would increase the price of Chinese exports and inhibit economic growth. As a result, China buys US denominated assets, mainly in the form of US treasury bills; this keeps the Yuan relatively weak, whilst at the same time allows the US government to fund its deficit and thus keep the US economy growing. However, it is just this operation by China that is stopping President Obama from demanding the revaluation of the Yuan.

If China wanted to punish the US for any reason, whether over Taiwan, Tibet or economic pressure, the Chinese could stop buying US Securities and start dumping the securities that they already have. Such an action could have grave effects on the US economy through the Dollar collapsing in value, leading to a spike in import prices, hurting consumer welfare whilst raising interest rates due to the need to find buyers for US Securities, leading to a decline in investment as a result of the high price of credit, which

in turn would harm long term growth. The only benefit would be an increase in exports and thus a reduction in the trade deficit, however, if the dumping of US securities was large enough and compounded by other owners doing the same thing, ‘a sudden increase in interest rates could swamp the trade effects and cause a recession’ according to a US Congressional report published in January 2008. In other words, China has pushed the world’s only super power into a corner and thus has given itself a far stronger bargaining position than it has ever had before. However, given the interdependence of the US and Chinese economies (the US market accounts for 30% of Chinese exports) it is unlikely China would ever deliberately sabotage the US economy.

Beyond, the issues of protectionism, one can argue that an undervalued Yuan is damaging to the health of the global economy.

Many observers view the revaluation of the Yuan as imperative to avoid another financial disaster, since China’s vast savings of foreign reserves contributed to the global savings glut that allowed the US in particular to hold interest rates very low, encouraging reckless borrowing that played a part in the financial meltdown of 2008. Given the mounting global criticism of the undervalued Yuan, perhaps it is time that China acted in the interest of the world economy and thought about tomorrow rather than just today.

12 Nottingham Economic Review

Bankers Bonuses - disgraceful or deserved?

By Kieran Hull

Imagine the scenes. Unemployment at 7.8%, where it has been for most of the year, public debt at 59.9% of GDP, way past what many believe to be the sustainable level of 40% and continued questions over the lasting power of this fragile economic recovery. And yet despite this gloomy picture, one which many would argue can be attributed to the failure of the financial system, many bankers have received record bonuses for their contributions in 2009. Whilst the average nurse can expect to start on £12,000, Lloyd Blankfein, head of Goldman Sachs, received a $9m bonus. There seems to be a discrepancy between the stories.

After announcing its latest astronomical bonuses, HSBC admitted there was “understandable public anger”. So why is this?

In short, when all the investment banks discovered the extent of their woes during 2007 and 2008, a great number, most notably RBS, sought help from the government. The ramifications of a banking graveyard in

the city were seen as too severe by the government. This debt is likely to manifest itself in higher taxes, which will hit everyone.

So, the population must suffer as a result of lackadaisical risk management and decision making on the part of a few. One should further consider that many banks have announced record profits of late. As a result of the bank bonus tax, this has helped raise £2bn for the government, a much needed source of revenue. Despite this, it would be unwise to jump on the bandwagon of ‘bank haters’.

What about those who have performed well; why should they be lamented? The fact is that the vast majority of problems seen in banks during the winter of 2007 were in credit departments; banks had invested massively into subprime mortgages, which promptly crashed, completely destroying the pricing system, and leaving many establishments with heavy, and sometimes unbearable write downs. What about all the other departments, some of which have performed admirably during a very difficult

time? To cut them short of compensation for their profit generation, and then scapegoat them in the press seems both harsh and completely against the ingrained capitalist values which have performed so well until this recent blip. It is the naïve man who continues to seek a fall guy for his problems by singling bankers and their bonuses, despite the fact many banks have announced record profits. The city has contributed incredibly in terms of growth in the last 15 years, which often goes unnoticed, and yet one blip and the witch hunt is on.

People often fail to recognise that many bank bosses have foregone their bonuses during this difficult period too.

Many argue that large bonuses offer workers too much incentive to pursue short term gains recklessly, and to an extent this is a valid argument. If a banker can earn more in 2 years in bonuses than they would in 20 in another job, then they have a strong incentive to generate as much profit as possible during those 2 years, without concern for the long term. But no bank would’ve wanted to be in the position of RBS or Lehmans. Perhaps it would be more valid to cite governments worldwide in contributing to such short sightedness.

It is these bodies who actively encouraged a leveraged system, because everyone felt wealthier and the wave of growth could continue. It is their jobs to rectify the system when it fails.

Nottingham Economic Review 13

The Future of University Finance

By Maria Wilson

In a country where almost half of all sixth form leavers matriculate into higher education, it is no surprise that the ongoing debate regarding higher education tuition fees would arouse much interest. The key questions have been posed to commanding figures in the University, including the Vice Chancellor and the President of the Student Union. Even in the microscopic setting of this University, there are divergences in the mindsets among students and staff.

There are two sides to the debate on tuition fees and both bring credible arguments to the table.

Proponents of tuition fees point out the obvious—to improve our universities, additional funding is required. As it is, the government pays four times that of the student’s contribution for higher education. The onset of the recession has made such expenditures a strain for the government. With the current debt situation, budget cuts become inevitable and higher education seems to be one of the sectors to bear the brunt of these cuts. However, if universities tap other, perhaps private, resources our deficit does not necessarily translate into a decrease in overall funding for higher education.

Opponents to the increase of tuition fees argue that all citizens who are qualified and willing

to enrol in further education should be allowed to do so without being deterred by financial constraints. They are concerned that raising tuition fees would certainly result in a lower participation rate by low income households, which not only glaringly contradicts the government’s widening participation scheme, but would also make the first rungs of the income ladder harder to ascend. Roxy Shamsolmaali, Student Union Education Officer (09-10), points out that “there is this conception from the government and from Lord Mandelson that higher fees won’t put people off because it’s just a debt that you pay back later. Whereas I think that had they been from lower class backgrounds or from schools where most students do not go to university, the idea of that kind of debt is actually very, very frightening and the govern-

ment does not seem to appreciate what a barrier that might be to some students.”

Opponents also add that alternative funding could be used to bridge the gap between the cuts in government expenditure and the resources required by universities to sustain their activities.

The National Union of Students has come up with the NUS Blueprint for alternative higher education funding and claims that the Blueprint could cover the additional money needed for higher education, without increasing the burden on students.

Prospective university students balk at the prospect of having to pay higher fees and are disgruntled that public funding has been taken away from higher education to shore up the banking system. Rob Greenhalgh, Student

14 Nottingham Economic Review

Union President (09-10), says he does not support raising tuition fees and confirms that the Student Union holds the same stance on the matter: “The student union has a policy on this issue and we are campaigning hard to ensure that student debt does not increase. We are lobbying for the parties to look for other alternative funding models.”

David Greenaway Vice Chancellor Uni. of Nottingham “The beneficiaries of higher education ought to contribute more” “[The NUS] blueprint, at its core, has a graduate tax.... with the graduate tax; you go on paying for as long as you are working. I personally find it less attractive than the current system.

“The aim is to diversify our income streams without distorting our core business. In the case of this university, we might be more creative in the ways we use our international campuses or give greater commitment to executive education.”

“Had Lord Browne been given a mandate to report before the elections, he would have been under all kinds of political pressure.”

Rob feels that the government is “offloading government debt onto students” because students present themselves as an “easy target”. The University has not come forth with a stance on this issue, although David Greenaway, Vice Chancellor of the University of Nottingham, seems to disagree that students are being targeted. It is his belief that “the beneficiaries of higher education ought to contribute more.”

According to Roxy Shamsolmaali, “at this point in time, the NUS blueprint is the best model for alternative funding. The blueprint is groundbreaking in that it provides a sensible approach in considering the alternative.

It opens the debate up. Earlier this year, the newspapers were just considering how high the cap should be. That’s where the blueprint comes in very strong.”

However, Mr. Greenaway begs to differ. He asserts that “The NUS blueprint, at its core, has a graduate tax. It is really important to remember that a graduate tax is just another way of bringing back income from graduates once they have graduated, just as in the current system. The current system is always described as a system of fees. It is not. It

Rob Greenhalgh President “We are campaigning hard to ensure that student debt does not increase. We are lobbying for the parties to look for other alternative funding models”

Roxy Shamsolmaali Education Officer “At this point in time, the NUS blueprint is the best model for alternative funding” “We should be voting on policy. We shouldn’t be voting people in blindly to then find out what decisions they make based on a review panel that is making decisions behind closed doors.

Nottingham Economic Review 15

is in fact a system of graduate contributions. Currently, graduates just have £3,200 multiplied by their years in university that has to be repaid. With the graduate tax, you go on paying for as long as you are working. I personally find it less attractive than the current system. To add on, in the current system we know that whatever graduates are paying comes back to higher education, with the graduate tax there are no guarantees.”

Mr. Greenaway suggests that the key to the future of university finances is to diversify funding streams. This implies that “some universities would have to look at the mix of postgraduates to undergraduates and others will look at the mixture of home students to international students.

We need to engage our alumni more effectively. The aim is to diversify our income streams without distorting our core business.

In the case of this university, we might be more creative in the ways we use our international campuses or give greater commitment to executive education.”

Roxy thinks that there is a need to re-assess the money that is currently received from non-government sources. This would enable the university to more effectively choose its target areas when considering the restructuring of the funding base. In her opinion, “it is difficult for a university like Nottingham to prioritise. There is a split between funding for teaching and funding for research. In this University, more money comes in from international students than from the Research Assessment Exercise, for example.”

This presents the fundamental risk of creating a commercial market for higher education.

Universities would be inclined to favour more lucrative income streams, while they should not be forced to prioritize based on monetary yields. The delicate balance that universities have achieved between teaching and research should not be unnecessarily distorted due to financial restraints.

Despite attempts to obtain alternative resources, it is quite likely that universities will be facing tumulus years ahead in terms of finance. The latest budget report addresses the sector, albeit not exactly the right issue. The Chancellor has pledged the creation of 20,000 new university places and a one-off payment of £270m to be invested in “skills, education, and young people”. The Chancellor assures us these measures are only temporary though, making it no more than a pre-election gesture, probably to distil the cuts to come.

Mr. Greenaway agrees that we will be looking at a likely overhaul in the structure of higher education. He says, “I don’t think given the state of public finances, we can realistically think of a real terms increase of public funding for higher education in the next ten years.”

The Lord Browne Review will set the ground for heavy and longterm restructuring of the income base for higher education institutions. It is speculated that this review will lead to a proposal of increased graduate contribution,

as a pillar for higher education finances. Yet, the exact amount of that increase is to be anticipated.

Figures in recent news articles forecast an increase that would potentially swell tuition fees to £10,000 a year.

The biggest controversy over the review is that the results will not be revealed until after the general elections. Meri Mathen, President of the Nottingham Labour Students, thinks this is “absolutely disgraceful” and that “many students feel that the government has let them down”. Roxy adds, “It is outrageous. We should be voting on policy. We shouldn’t be voting people in blindly to then find out what decisions they make based on a review panel that is making decisions behind closed doors.” Mr. Greenaway however, believes the government’s decision is wise: “the Lord Browne review will be the last major funding review for a long time. I would say that we do need to give them the space to do the review. Had Lord Browne been given a mandate to report before the elections, he would have been under all kinds of political pressure.”

With tension and uncertainty escalating in higher education, and some 7.2 million students’ eligible to vote, it might be sensible for the parties to address this issue before the general elections. Silence, in this instance, appears to be imprudent rather than golden.

16 Nottingham Economic Review

How many politicians does it take to level the UK debt mountain?

By Morolake Akinshipe

nomic growth. Finally, financial markets are always suspicious of high public debt and have been causing the UK much concern that it could lose its AAA rating, (reserved for the safest investments).

Economic debates in the UK rarely attract the attention of economic scholars as much as the level of UK public debt has done lately. Fleet Street, especially the Financial Times and The Times Newspaper, were the platforms for expressing the two polarised views on what to do about the burgeoning UK fiscal debt.

of failing banks and a jittery financial market, the Government was forced to become the “lender of last resort” to rescue these failing banks and alleviate the fears in the financial market, all done at the expense of tax payers. Now politicians scramble for ways to deal with the debt mountain, either now or later.

Though destined to be the key feature of the 2010 Budget, an intense public debate about the level of public debt has failed to take off the ground. With the political parties jostling for votes in the General election, a deciding factor on who gets the keys to Number 10 will be who can create a realistic blueprint for recovering this debt and restoring the economy.

Public Debts? Evil or good?

Public deficits are not new but in today’s economic climate, it is almost impossible to see a balanced government budget. Faced with a recession threatening to crash into a depression, endless stories

As the politicians and economists engage in battle, we should ask ourselves if public debt is indeed as bad as portrayed in the media and should we be reducing it sooner rather than later?

There are genuine reasons why we should worry about the high level of public debt. Firstly high debt is associated with high cost of servicing the debt with interest repayments. Secondly, high public debt could crowd out private sector investment or spending by excessively taxing firms in order to bring the public debt under control, thereby stunting eco-

The Tories have propagated the last two concerns about public debt and almost made it the mantra for why we should start getting rid of the public debt this year. The argument is that a rapid increase in the sovereign debt means that the government has to borrow more from the private sector and if the markets do not have 100% confidence in the UK government’s ability to repay, our Government Bond’s top rating is in danger and investors may relinquish their sterling based assets and invest abroad.

What matters here is that the Government is able to credibly commit to bringing the debt under control. Otherwise, investors may flee from the city and drop the pound, denting the reputation of the UK as a thriving financial hub.

A recent paper by Rogoff and Reinhart found that the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90% of GDP. Most rich countries are still below this 90% public debt /GDP threshold. The UK is nowhere near Italy or Japan’s GDP/debt ratio or likely to default on its debt like Argentina or Iceland. Looking at past data,

Nottingham Economic Review 17

the UK has often run a substantial public debt, notably after WWII. The economy did not collapse in the past due to debt pressure, so maybe the threat of failure now is not so great.

‘Starving the Beast’ There is a general consensus that the public debt cannot be allowed to build up forever, but the key disagreement is about the time preference for dealing with the deficit. Should it be tackled now rather than in the future?

The Labour Chancellor proposes to cut the budget deficit from 12.1% of GDP in 2010-2011 to 4.7% in 2014-2015 and in the process half the public debt by an estimated £89bn over four years.

The Conservatives however, plan to eliminate the ‘structural part of the deficit over a Parliament’.

This suggests it would have to make far more draconian cuts than those already proposed by the Chancellor.

Whether governments should be ambitious in their deficit cuts or whether they should postpone

them depends upon their interpretation of the UKs economic health. Reports show that GDP increased by 0.3 per cent in 2009 Q4, and the economy is predicted to be growing by 3% by 2011.

Also the unemployment rate fell between February and March 2010 and the government borrowed £11bn less than forecast in 2010 Q1.

Therefore, the Government could be more ambitious with its handling of the deficit, perhaps aiming to reduce three quarters of the deficit rather than the half it proposed and do it sooner rather than later. Similar views have

been echoed by the European Commission, who have criticised the Government for its lack of clout over bringing the public finances under control.

The other side of the coin is that the UK was the last among the OECD countries to drag itself out of a recession and its current growth rate is too fragile to take a hit from a fall in government spending. In addition, the export receipts are not as strong as expected and the high unemployment is a sign that businesses are still operating under a lower capacity relative to before the recession. Supporting this view, the Keynesian spirit in Lord Layard highlights that unemployment is still high and it would be dangerous to reduce the government’s contribution to aggregate demand beyond the cuts already planned for 2010-2011. So overall, the prospects are not encouraging and a quick removal of the extra measures by the government could stamp upon the green shoots of a recovering economy.

As anticipated the Chancellor’s budget on 24th of March did

18 Nottingham Economic Review

credits from hardworking families under pressure to make ends meet.

Neither side of the argument has a convincing way to deal with the deficit. Neither leading party has yet committed themselves to a realistic economic plan.

not give much away before the General Election. It was doused with pre election schmoozing, short on significant budget cutting plans but did focus on measures to restore strong economic growth. The main points being a rise in stamp duty threshold at £250, 000 for first time buyers being financed by increasing the rate for properties above £1 million. Also announced was £2.5 billion worth of support for small businesses to boost skills and innovation was announced, a one year business rate cut from October to help 500,000 companies, a £2 billion investment bank to back low-carbon industries and funding for 20,000 new university places. Whilst this all sounds very nice, most are only temporary measures.

The deficit got a mention when the timescale for fiscal tightening was shortened from 8 to 7 years and the implemented 50% on banker’s bonuses, so far having raised £2 billion, has not yet

been removed. Also the austerity was completed by increasing fuel duty tax and another hike in taxes for cider lovers and the flat spending growth in real terms will be a rude awakening for a public sector that is accustomed to average increase of 3 percent a year for the past decade. Of course the budget didn’t sound like two parliaments of pain, but its certain that there will be.

At the time, the Tories had little response to the Government’s budget, other than to reiterate the size of the budget deficit. After a little research though they have some suggestions: such as cutting real government spending through freezing public sector pay and refinancing the pension pot. The Tories economic manifesto is at danger of losing the party’s populist slant though. by removing tax credits to families with income over £50,000. With some families just cleaning the stale smell left by the recession, it may be cruel to withdraw tax

Also, how are voters to decide when many proposed plans are actually very similar? For instance, the current Government has already addressed (though not thoroughly) the shortfall in savings and its enormous spending on social security in the pension reforms set out by Lord Turner. The Tories vision of freezing public sector pay for senior executives is not a new idea just a rhetoric from the Labour government. Voters know the size of the debt. What they want is the party that deal with the debt mountain the least painful way. At the same time the ‘younger’ voters are angry at the prospect of having to pay the price for an economy which has brought them no luck. No party has the election in its pocket.

All have everything to fight for.

The difference with this election to any other though, is that any proposed policy needs to both win voters and be credible given our debt mountain. Policies will need to be more transparent and authentic than ever. Maybe that’s just what politics needs.

Nottingham Economic Review 19

To Vote or Not to Vote

By Elliott Young

fully a part of society, and no-one should pass up that privilege.

The question every Politically Disengaged individual will be asking of themselves... To vote or not to vote.

With the election so close, in an idealistic society individuals would be buzzing with excitement at the chance to exercise a fundamental civil liberty as a citizen: the right to vote. The local coffee shops would be brimming with politically based chit-chat: ‘who are you going to vote for,’ ‘what do you think of this policy, ‘I can’t wait for so and so to implement their manifesto.’ However the reality is that we live in a politically disengaged society, with the population more intrigued and absorbed by issues such as the MP’s expense scandal, [or at a student level, expulsion of an SU campaigner for making offensive remarks during the Presidential debate] rather than the policy issues which affect and lie at the heart of our everyday lives.

However for many of you, this is our first opportunity to feel

But what can we expect from the election this summer? Well, turnout could go either way. Election experts claim that turnout will be greater, because the election is a closer competition than it has been since 1992, when the turnout was 77%. However, public disengagement with politicians now runs so deep that there is no guarantee of a higher turnout than last election’s dismal 61%.

Things have not looked up since.

In a survey taken after the immediate publication of the Expense scandal, it showed that 73% of those asked said they distrusted politicians, only a rise of 3% from the same survey taken in 2004, but clearly showing that levels of trust were already low. The MPs’ expenses scandal merely confirmed and hardened the public’s widely held scepticism about politicians rather than changing their views. 2009 was deemed the worst in post-war memory for the reputation of MPs individually and parliament collectively.

Are people now ready to get involved in the political process, instead of leaving it to their elected representatives, or has it simply turned them off from any sort of engagement in the future? Hopefully it is the former.

The potential for a hung parliament is a very realistic possibility, and the public should take note of this, for the potential implications of their vote grant

their vote extra importance. The gap between Cameron leading the largest party and him winning outright is huge: he needs to gain 117 seats just to win a majority. Yet with the new electoral televised format, including three party leader’s debates, gaining another 120 plus seats is feasible for Cameron. By having the Conservatives main electoral weapon – brand Cameron – surely the Tories are going to gain votes when Cameron is pitted up against an already diminished Brown. Nick Clegg has turned the election into a real battle after his success in the first televised electoral debate. Clegg has come a long way since 2007 when the ‘Have you met Nick Clegg documentary?’ mocked his lack of public exposure. With the public now exposed to three real potential front-runners, Cameron and Brown have cause for concern, after naively dismissing Clegg as a competitor.

This election is ushering in a new era of election campaigning format, and it could potentially ease the political disengagement of the public towards politicians.

The awkward question none of the leaders are going to want to answer is how to achieve democratic renewal and how to restore confidence in representative democracy. If this can be answered, then surely the voters are there to be won. For those of you seeing voting as a sense of duty: hopefully you will remain certain to vote.

20 Nottingham Economic Review

Policy or Persona?

By Moeen Essa

As the General Election approaches, analysts may ask what policies will be significant in the election. However a more appropriate question would be whether policies will have any impact at all. With Britain facing serious issues such as the wars in Afghanistan and Iraq, climate change and the fiscal deficit, it was interesting to hear Nick Clegg, the Liberal Democrats leader, spend very little time discussing these problems at the recent Spring Conference in Birmingham. With vague suggestions of tax and education reform and even less about spending cuts (although he has mentioned that he would say no to any plans to slash cuts in the first year of Parliament), more time was instead dedicated to offering voters a “change”. It seems that the focus on image and the use of spin is reflective of the political world today.

The reliance of spin can be traced back to the 1990s. The victory of New Labour in the 1997 general election is often argued as a triumph of image over substance.

As well as giving Britain Tony Blair, it also changed the model of politics. The importance of the media and appearance was first realised by Tony Blair when in the Labour leadership contest in 1994, he stated that the “only thing that matters in this campaign is the media – the media, the media and the media”. It is therefore not much of a surprise that he maintained strong relationships with the media, especially media mogul Rupert Murdoch.

gaining more votes. In preparation of this year’s general election we can see many examples, notably Conservative leader David Cameron’s depiction of a “broken” Britain back in February. However a quick look at the statistics and we may all have to disagree with Mr. Cameron.

In fact since Cameron became leader of the Conservatives, it has been very obvious that he pays particular attention to his image.

A particular example being in the 2006 party conference, which was broadcast by ITV news, showing Mr. Cameron wearing four different sets of suits in a mere couple of hours.

Spin is defined as a form of propaganda and is used to manipulate public opinion, a somewhat “media-led reality”. In this postmodern model of politics, politicians “spin” real-life events to their advantage in the hope of

It seems that in following the postmodern model of politics politicians now seem more committed to the medium rather than the message. The way in which the message is conveyed is extremely important with lots of money and

Nottingham Economic Review 21

staff involved in designing and publicising “Facebook” pages, “youtube” videos and internet blogs, not to mention the makeup artists and designers used to prepare politicians for their speeches and televised appearances. There is a huge emphasis on language, where the likes of David Cameron and Barack Obama are noted for being very articulate, although it is arguable that some of their speeches lack substance. In fact it is notable that Barack Obama’s victory in the presidential campaign was largely due to his image. By heavily using a range of media from TV to the internet he was able to connect with the youth and gain a huge following with slogans such as “Change we can believe in” and “Yes we can”. Politicians nowadays imitate the image New Labour portrayed in the late 1990s, giving an image lacking substance but full of aspiration.

In the build-up to the General Election we have seen both leading candidates appear on television, Gordon Brown revealing a more personal side in an interview by Piers Morgan and David Cameron being shadowed

by Sir Trevor McDonald. These two high-profile shows, despite showing greater insight into the two leading candidates in this year’s general election, contained very little about politics. Indeed it is interesting that whilst Gordon Brown spent a lot of time answering questions related to his personal life he did not receive one question at all about politics. Yet they were deemed very successful as millions of people tuned in to watch, especially the

emotional interview of Gordon Brown which, although slightly, did tighten the gap between Labour and Conservatives in the polls. This seems to follow the trend that politics is becoming more about image than policy as politicians almost urge us to vote for them solely based on their character rather than their policies, judging by the recent actions of the candidates so far. But the question now is why?

While it is argued that the 1997 election of New Labour heralded a new era in politics in which image, media and spin were deemed integral, it has also been stated that the image of politicians has been very important for decades. It can be argued that ultimately it is the voters who focus more on the appearance and personality of politicians, deeming image to be important, and as such politicians are acting rationally in exploiting this fact. This can be traced back to 1960 and the US presidential campaign fought between John Kennedy and Richard Nixon which included the first televised US presidential debate. This was a huge milestone as it showed that TV can play an important role in politics, as the televised audience deemed Kennedy the winner even though most radio listeners thought Nixon came off victorious. Kennedy paid special attention to his appearance and one could argue that this was the main reason why he won. It is suggested that the majority of people respond to the appearance of others and this fact was discussed by renowned comedian Dave Chappelle. In a stand-

up special in 2000, when discussing former US presidents Bill Clinton and George W. Bush, he stated that he “only looks at their personality, not their policies”.

People may be more attached to people’s appearance and image rather than what they have to say. After all, it is said that 93% of human communication is through body language and how the message is said, with only 7% consisting of the words themselves. However, the level of importance placed by politicians on image and appearance could be overestimated. In recent times, as the focus on image and media portrayal has increased exponentially, voter turnout has been steadily decreasing. Coupled with the expenses scandal last year, the reputation of politicians has taken a battering and it is expected that this year’s general election will have the lowest voter turnout in history. However, considering the unexpected results after the first televised electoral debate, Nick Clegg has been propelled into the race as a serious candidate for future Prime Minister. With such a close race, and the daunting possibility of a hung parliament, voters may realise the importance of their vote, and voter turnout may be much higher than expected.

Whilst the image of politicians is deemed important by voters, the postmodern model of politics seems to be alienating many would-be voters. The decrease in voter turnout should set alarm bells ringing for politicians that voters are looking for more action rather than just words.

22 Nottingham Economic Review

The Future of Climate Change after Copenhagen

By Ben Galley

powers of the global economy and, unsurprisingly, those with by far the highest CO2 emissions.

In 2009, the USA and China were responsible for 5752 and 6103 million metric tons of CO2 respectively - a staggering 41% of the Global total. In light of this, it seems the USA expected China to take responsibility for its own proportion of emissions - something which might seem reasonable at a glance, but surely this is a shortsighted view from Mr. Obama.

The fallout from talks between world leaders in Copenhagen in December 2009 left many in the economic world feeling both frustrated and deflated. After almost a fortnight of all-day talks between 115 world leaders - and eight draft texts - the final outcome was little more than a gentlemen’s agreement, with Barack Obama and China’s Wen Jiabao failing to compromise. Gordon Brown hailed the night as “a vital first step”. However, the majority would agree that this was a missed opportunity.

This leaves two questions: Why was it seemingly impossible to reach a positive legal agreement?

And what will follow for the future of climate change?

It is no coincidence that the final debate was held between the leaders of the two greatest super-

Whilst China tops the table in terms of emissions now, it is both historically and statistically ignorant to expect it to take even a similar share of the burden as the USA. The industrial revolution in the USA began at the start of the 19th century and figures such as Henry Ford shaped America’s economy into one of mass consumption and huge growth over the past 200 years. China on the other hand is still very much a developing economy, only really booming in the latter part of the 20th century from about 1960 onwards. Why should China be denied the space to grow that the USA has indulged in during the past 2 centuries? Further, China’s vast population of 1.34 billion means that despite their large emissions total, each individual’s contribution (emissions per capita) is actually less than a quarter, on average, than that of an American and is substantially lower than that of most of Europe. Is it not time that the western world held its hands up and

took responsibility for the impact its development has had and continues to have on our planet?

As exasperating as it was, retrospective criticisms of Copenhagen will be of no help either.

The fact that 192 countries felt the need to discuss what to do about climate change highlights both the seriousness and imminence of the problem. Although this will not be legally binding, it was agreed that temperature rises would be kept to a maximum of 2C higher than pre-industrial levels. The sceptics amongst us would argue that the current financial crisis and the tenuous agreement will cause us to fall short, but for the optimists, here is a favourite quote from Danish economist Ester Boserup – “necessity is the mother of invention”.

ECF Scientists (European Climate Foundation) predict that with current pledges the best case scenario would be a rise of 3C by 2050. Emissions cuts of an estimated 17 gigatons would be needed by 2020 to put us back on track. Obama was not wrong when he called for nations to work together. However to pull this off requires co-operation, sustainability and sensitivity to the needs of the poorest countries.

Nottingham Economic Review 23

Black Gold: The Future

By Kieran Hull

the world’s biggest supplier, are producing 1.77 million more barrels per day than was agreed in a quota in 2008, the point here being they are clearly able to respond to demand fluctuations.

As such, perhaps supply won’t be much of a factor in determining price in the medium term.

From $145 per barrel to $32 in a matter of months, oil has been a highly volatile commodity recently. As the world economy continues to push for recovery, the prospects for oil prices are as topical as they ever have been.

Prices have been trading within a band between $65 and $84 since July 2009. A break of this band will give investors an idea of which direction they can expect to see prices moving in the coming months.

Oil prices are, like any other commodity, determined by supply and demand. The severe drop in mid 2008 was in no small part caused by the floundering world economy, when demand contracted sharply. Today, the story is slightly different; the majority of demand comes from China, which is delivering figures at pre-recession levels. At a recent

lecture by Martin Wolf here at the university, he was bullish about prospects in China, and whilst opinion is very much mixed, the general consensus would point towards continued and sustained demand for resources, including oil, as China further expands operations. Similarly, reports coming out of the U.S have also been positive, suggesting there will not be a lack of demand coming from the West either.

Supply is potentially a more complex area to address. Indeed, there is debate about whether the issue of peak oil, the time at which oil production will fall and will never return, is an immediate concern. 2020 is, however, widely thought to be around the time when peak oil will hit.

Supply generally seems stable; there is certainly not a lack of it. Bloomberg estimates OPEC,

The other issue always to be considered when constructing oil price forecasts is the dollar. Given that oil is generally denominated in dollars, a weak dollar makes oil a more attractive investment, and vice versa when the dollar is strong. It was the dollar, which played a large part in explaining the volatility seen in 2008.

Forecasts for the dollar this time around are fairly bleak; interest rates are to be kept around zero for the foreseeable future, whilst diversification away from the dollar continues, as investor confidence returns. J.P. Morgan forecast a record low for the dollar in 2010, and whilst it remains to be seen whether this will be observed, the dollar certainly looks like it will have a difficult 2010, which will in turn make oil seem relatively cheaper.

All things considered, oil looks more likely to break the upper rather than lower bound of the current trading channel. Whether oil can sustain a rise without damaging the fragile global recovery remains to be seen, but not until the end of 2010, can arise be expected.

24 Nottingham Economic Review

Insight to an Entrepreneur

By Sangeeta Siva-Kumar

The NER presents an interview with The Times’ Young Business Woman of the Year 2005.

Founded and managed by Jennifer Harris, JRBH Strategy & Management is a consulting firm with a difference. Their clients include Universal Music, RBS and Aviva and the key to their success is their unique approach; they inject firms with fresh and innovative ideas, combining data analytics with creativity and entrepreneurial spirit.

After graduating from Cambridge University with an MA in Classics, Jennifer completed a postgraduate business degree at The Judge Business School. She was named The Times’ Young Business Woman of the Year in 2005, and the following year was included in Management Today’s top ‘35 women under 35’.

Nottingham Economic Review 25

A popular assumption is that to be successful in business you have to do a finance-related degree. Having initially studied Classics, do you think this is true?

I did a postgraduate business degree but I do feel business is mostly the application of common sense. There is however, a huge amount of jargon used in business and getting to grips with finance in particular can be overwhelming without a businessrelated degree. Studying Economics, for example, helps you think critically which is vital in the commercial world.

Do you think being successful is more to do with having a business mind?

Obviously the more you learn, the better, but business is heavily intuitive. It’s a lot to do with engaging with people and learning through doing. Perseverance is also a funda mental ingredient to success.

What made you decide to start up your own business?

I joined a large strategy consultancy and I wasn’t happy in my role. I wanted more hands on experience, to see for myself how businesses actually worked. I also wanted a working environment that valued creativity in equal measure to data.

tion of ourselves to decide where to position the business for the future.

The advantage of being a smaller firm is that we can be flexible so I was able to reposition the company appropriate to the times.

Were you badly affected by problems in the capital markets?

No actually, as a company we had excellent reserves and zero debt.

That’s another misconception; you don’t necessarily have to be a risk taker to be successful in business.

You just have to be ambitious and willing to try.

How do you think other smaller firms have been affected?

It’s times of distress when innovation comes through. Larger firms cut investment and smaller firms can push through with innovation. It’s like a forest fire, the big trees burn down allowing light to get to the shoots at the base of the forest, and enabling them to grow.

How do you compete with other larger consultancy firms?

Rather than taking them head on, we have created a unique selling point and have grown from there. We provide a support service to boards of companies which is very specific.

Being a smaller firm, how did you manage during the difficult financial situation?

Being a young woman, do you think you have been treated differently now you have your own business?

We did have a scary period between October and February when everybody was re-trenching and in survival mode. As a team, we used the quiet period to do strategic evalua-

In my previous job I didn’t experience any sexism but I do believe that it exists. Professional services is quite gender diverse in comparison to say the building industry. Deal-

ing with clients can be tricky though.

Men in very senior positions can behave very badly and when they are a client there is no clear means of recourse.

Do you think to be a successful business woman you have to be an ‘alpha female’?

Successful business people you think of tend to be men – or women who behave like men. People don’t usually associate overtly feminine women with success in a corporate setting. I consider myself to be quite a ‘girly’ girl and I recognise this is probably a disadvantage. Another issue I foresee for myself and for women in general is managing to juggle a career and a family one day. I have watched ambitious girlfriends of mine quit their high powered jobs because their roles just were not compatible with a family. I am naturally a huge advocate of women breaking through the glass ceiling but some of the careers women are encouraged to pursue, as I did, will present real challenges later on.

26 Nottingham Economic Review

20 years since the fall of The Berlin Wall a socio-economic story?

By Alexander Milde

Last autumn Germany celebrated the 20th anniversary of its reunification. On 9th November 1989 thousands of people in Berlin climbed the wall that, for almost three decades, had separated not only a city but a country, and in many ways the whole world, into a Western and an Eastern part.

Since then the “wind of change” has blown us into a new era.

Yet elements of the past remain.

Let me tell you a story about Robert. He was born in a small mining town in East Germany in 1988. Outside the hospital you could smell the usual mixture of coal fires heating houses everywhere and the exhausts of the omnipresent “Trabant”, the East German people’s car.

East Germany’s economy still relied heavily on its reserves of low quality raw brown coal making it the biggest emitter of sulphur dioxide in Europe. This had catastrophic consequences on the environment, explaining the stinging smell outside the hospital.

The reason for this reliance was that, after Germany had been split into two separate countries, the East was cut off from the supply of stone coal that is found in the West, and its only supplier of oil was the Soviet Union. Despite these deficiencies, the GDR (i.e.

German Democratic Republic, the official name of then East Germany, which had been formed from the Soviet zone of occupation in 1949) had managed to increase output drastically to 200%

of the pre-war level throughout the 1950s and continued to do so.

If you had turned on the radio you might be able to (illegally) listen to West German FRG (i.e. the Federal Republic of Germany, founded in 1949 as a federation of the states that before had comprised the American, British and French zones of occupation) broadcasts that were sent across the border. Due to these broadcasts and family visits to and from the West (if the East German officials gave permission) it had become apparent over the course of the 1980s, especially in the second half of the decade, that the standard of living was nowhere near that of the Western brother.

Despite the seemingly high output there was a chronic under supply of consumer goods, most notably exemplified by the shortage of the “Trabants”. This was partly because the car was highly overpriced relative to the average income and partly because there was a vast excess demand for the car whose design had hardly changed since it was first introduced in the late 1950s. People could apply for a car and then had to wait, often for more than 10 years. This led to the almost amusing result, if it were not for the pain that it caused to East Germans, that a used car could be more expensive than a new one.

When Robert entered Kindergarten in the early 1990s the country he was born in had ceased to exist. The shops were filled with all the goods for which a couple of

year’s earlier people would have been willing to queue for hours.

The West German currency had been introduced and one could feel that people were enjoying the Western style consumption society. Due to a “catch-up” effect as shown on the graph below, East Germany, even though at a declining rate, experienced a rapid growth in GDP, that persisted for roughly half a decade before it eventually fell back to the country’s average level.

This almost seems like a happy ending to the story, only many of the coal fires and old cars were still around and Robert’s family still did not have a telephone at home.

Then he entered primary school and on his daily walk to school he realized that something had changed. Not as many people were rushing to work anymore.

The factories and mines that had made his town an important cornerstone of socialistic production were closing down. They were not designed to compete as their sole objective was to fulfil the plan set by the socialistic one party government. In the economy of the GDR, a government commission estimated the needs of the economy and consequently determined a production plan. While it is hard to find data for the GDR pre-1989, in 1991 the Eastern part of the country had an unemployment rate of 10.2% compared to 7.3% in the Western part. This does not appear to be a major problem

Nottingham Economic Review 27

given that the “new Länder” represents a much smaller proportion of the German population (23% of the total). As the figure shows, the unemployment rate in the East increased throughout the 1990s and approached 20% towards the end of the decade while the relative increase in the West was much smaller.

East Germany’s structural deficit, revealed by the introduction of Western-style competition, resulted in a higher unemployment rate that still persists even today.

Nowadays, every time Robert comes back home he is surprised by how much work has been done in his hometown. The grey veil, that buildings were smothered in, is gradually disappearing and his town is starting to look nice again. This is firstly due to the fact that wages are converging towards the Western level, thereby increasing average and overall wealth. Secondly, and probably most importantly, there has been a massive public transfer programme called “Aufbau Ost” (developing the East) that, since the reunification, has aimed at navigating the East German

economy towards self sufficiency and raising the standard of living to match that of the Western part.

When Robert showed a friend around last summer he was asked an eye-opening question: Are there any young people around? The demographics of the former GDR provide a rather dire outlook. As can be seen from the chart population growth, the reunification was previously at roughly the same low level in both countries. Since 1989, when the inner-German border was opened, a great decrease and increase in population growth can be observed in the “New Länder” and the Western part, respectively. There are several explanations of this. On the one hand, birthrates in the former GDR slumped significantly from 1.52 to 0.98 children per woman over the course of only one year after the fall of the Berlin Wall (1990-1991).

Overall, between 1991 and 2005 there was a net migration from East to West of nearly 1 million people. While this might not appear as too great a number, note that the people most likely to

migrate are the young and the mobile educated. Therefore difficulties in finding rewarding employment in Eastern Germany caused a ‘brain drain’ that further harmed the Eastern economy.

These two factors combined lead to a negative population growth in Eastern Germany whose adverse economic implications not only affect the economy of the New States directly but also through a more subtle channel. As pre-university education is usually provided and paid for by the respective Länder or municipalities, this leaves them with the cost of education while the future tax revenue accrues to entities elsewhere.

It appears that many of the young have left Eastern Germany looking for educational and job opportunities elsewhere or even abroad. An opportunity that the generation of Robert’s parents, who were born and raised in a country surrounded by a wall, never even imagined would exist.

28 Nottingham Economic Review

British Bulldog Or Just A Bit Of ArgyBargy?

By Alastair Livingston

The sovereignty of the Falkland Islands has returned to the forefront of politics. Recently, seismic studies have proved the possibility of large fields of gas and oil in the ocean around the Falkland Islands. With this, an exploratory mining operation commenced.

The Argentinean government has protested as it still claims sovereignty over the island and its seas. There is, as there was in 1982, a direct correlation between Argentinean domestic political issues and aggressive tones towards the Falkland Islands.

President Cristina Fernández de Kirchner has been caught in a domestic power dispute with the President of the Central Bank.

This domestic wrangling has been so severe that the possibility of impeachment against Kirchner has been suggested in the Argentinean Congress. It would be hard to explicitly prove this allegation; however, it was rather convenient time to bring up the age-old issue of Falkland sovereignty.

This issue has been elevated though by the universal backing given by all South American countries in a recent summit. The Rio Group and Caricom issued a joint statement at their conference in which they indicated their support for “the legitimate rights of the republic of Argentina in the sovereignty dispute with Great Britain” relating to the “Malvinas question.” Although some of the diplomatic pressure this created was cooled by the laughable intervention by the Venezue-

Kirchner meets with Clinton and gets her handshake. Times Online

lan President, Hugo Chavez. In his weekly TV address he said “Look, England, how long are you going to be in Las Malvinas?

Queen of England, I’m talking to you” and adding that “the time of empires is over, haven’t you noticed.” It is clear that Mr. Chavez probably would like a lesson in the location of British sovereignty, given that the monarch has not directly interfered in parliamentary affairs since 1707.

Although granted, it is far more likely that Chavez’s comments were not designed to win over the British public, and were intended as a rallying call for the Venezuelan people. Of great significance though was the lack of US support for Britain, first seen when a State Department representative called the islands ‘Las Malvinas,’ the Argentinean name for the Islands. Furthermore, Hillary Clinton called for talks as the sensible way forward to resolve the dispute and said the US would remain neutral. In light of this, it would appear that Britain is isolated and pressurised in the diplomatic world.

Legally, Britain has not done anything foul. Britain’s decision to allow the drilling is within the limits of the bilateral 1995 Joint Declaration over Oil. If the argument was to go to the International Court of Justice (ICJ), a deciding factor would be which way a Falklands referendum would go, which at the moment appears to clearly favour Britain.

It is interesting to examine where Argentina’s claim to the islands originates from. Originally Spain had a colonial claim on both Argentina and the Falkland Islands.

Argentina says that it had the right to renounce Spanish claims to Argentina, because they were illegitimate. However, they simultaneously absorbed the Spanish claim to the Falklands.

If these claims were illegitimate when Spain was making them, then surely they should be when Argentina does the same.

Argentinean claims to the islands seem thus to be based only on geographical proximity. The world disapproved of Russian intervention in Georgia, yet Argentinean claims are based on the same reasoning. This is not an attempt to defend actions during British colonialism; just an attempt to demonstrate that neither Britain nor Argentina has unquestionable claims to the Falkland Islands.

The Falklands will require a referendum to determine once and for all what the islanders want.

Only national self-determination will fairly solve this issue, not a long winded diplomatic dispute.

Nottingham Economic Review 29

The War on Terror: The new theatres for action

By Christopher Agass

Once the dust had settled on the ruins of the World Trade Centre in New York and the Pentagon in Washington D.C. following the horrific terrorist attacks that America suffered on September 11th 2001, the world knew that it had not just witnessed a terrorist attack that was on another scale than any it had seen before, but also that it had witnessed a declaration of War. Unlike Pearl Harbour, the aggressor this time had dealt a devastating blow not just to the United States of America, but to the entire Western world and all of the values that it adheres to; freedom, tolerance, and democracy, to name just a few.

Additionally, the aggressor this time was not a state, but an organisation that spanned across numerous states. As we all know, ‘the West’ subsequently became

embroiled in a war; a “War on Terror”, staged in Afghanistan and later in Iraq. However, when we take a step back and look at what has occurred over the past nine years, the question arises: what has changed since 2001? It seems that not much has changed for ‘us’, we remain in Afghanistan, where the War on Terror began, but the conflict still seems confusing and distant for many of us. However, a lot has changed for ‘them’.

If we were to turn back the clock ten years, the message we would wish to give the leaders of America, Britain, and the rest of the Western world would surely be that what is taking place in the state of Afghanistan must be taken seriously, otherwise we will pay the penalty for such naivety.

Of course, at the time, no one could have imagined the magnitude of the catastrophic events that were being planned and orchestrated in Afghanistan, but the difference is, we are now psychologically ready for anything that Al Qaeda may throw at us.

So perhaps the West’s attention should now be applied to states such as Somalia and Yemen. Both are now becoming the new safe havens for Al Qaeda. If last year’s failed terrorist attack on Flight 253 to Detroit is not a warning, then what is? Twenty-three year old Nigerian student Umar Farouk Abdulmutallab has been strongly linked to Al Qaeda operatives in Yemen, which – along with Somalia – could be becoming, or already have become, the new bases from which to launch attacks against the West.

Undoubtedly, tension is mounting surrounding the threat posed in these two states. With regard to Yemen, Democratic Senator Joe Lieberman has called for the Obama administration to “preemptively curb terrorism in Yemen”, whilst the New York Times has claimed that “the Christmas Day plot is a warning- we hope in time- of why it’s so important to head off full chaos in Yemen”.

Just as the Bush administration was aware of the potential threat posed by Al Qaeda emanating from Afghanistan a decade ago, so too is the Obama administration aware of the threats in Yemen, but the question that the world waits to see an answer to

30 Nottingham Economic Review

is: will the United States and her allies prevent future Al Qaeda attacks that could- and probably are- being planned inside Yemen, before they are carried out?

The threat posed by Al Qaeda inside Yemen was actually evident before 9/11 itself, illustrated by the USS Cole bombing in 2000, during which an Al-Qaeda suicide bomber killed 17 American sailors. Yet only recently can the problem be seen to be increasing.

US intelligence reports put the numbers of Al Qaeda operatives in Southern Yemen at only 200, but the return of 2000 of Musab Al-Zarqawi’s veteran forces from the anti-American insurgency in Iraq has strengthened this threat.

Yemen is the poorest country in the Arab world, and its social and political instability would be just the conditions that Al Qaeda needs to flourish.

The other nation that may become a focal point in the ‘War on Terror’ in the decade to come is

Somalia; currently the world’s most ‘Failed State’, according to Fund for Peace’s Failed States Index. Somalia, like Yemen, has actually been a part of the web of terrorism since before 9/11, as for example it was used as a base to plan the 1998 US Embassy bombings in Kenya and Tanzania.

Somalia has a long coast on the East of Africa, home to numerous unpatrolled ports that could provide easy entry for Al Qaeda operatives fleeing from Afghanistan via Pakistan or Iran by sea. However, the gravest danger posed

by Somalia is the anarchic social and political environment that exists there. As a recent Times report claimed: “today Somalia is a new frontline in the global war on terror; its violent anarchy the perfect breeding ground for Jihadist fighters who train here and in Yemen, a few hundred miles to the north”. Earlier this month it became known that Gordon Brown had offered £5.7 million to fund the build up of an official Somalian security force.

It seems thus that the situation there is being acutely analysed, although it has been argued that some form of support in the presence of manpower may actually be needed if such problems are to be nullified.

As we enter the second decade of the 21st century, the threat posed by Al Qaeda may be different from that of ten years ago, or even five years ago, and this problem could shape the next stage of the “War on Terror”. It appears that this war may only be in its infancy, and perhaps in ten years time, we will think of Yemen and Somalia in the same way that we now think of Afghanistan.

Message from Econsoc

Dear EconSoc members, EconSoc is delighted to be working together with NER to provide you with the best platform to enhance your time at Nottingham as students in the School of Economics.

Despite the effects of the recession on our society, it has been an extremely successful year for EconSoc. We have maintained our position as one of the largest and most prestigious societies in the Student Union and have continued to develop our relationship with our two main sponsors Deloitte and Deutsche Bank. Our interactive careers events were extremely well attended and we continue to be Deloitte’s most attractive graduate applicant pool in the UK. We have held a number of successful social events this year and our sports teams have been dominant in the IMS leagues, including a championship triumph for the Men’s Football team.

Our recent elections were extremely hard fought and we would like to take this opportunity to introduce and congratulate our new committee for 2010/11: President: Joel Bowman Vice-president: Felix Mantz Treasurer: David Wilkinson Social Sec: Alex Walker Careers Sec: Hayley Munden Sports Sec: Bob Whelan Marketing and Promotions: Shubham Floyd Shukla We hope that you get behind the new committee and get involved with EconSoc so it can continue to grow in the future.

This is your student run society and your chance to make the most of the opportunities available to you at university.

From all of the current committee we wish you the best of luck in your exams, and for those who are graduating, all the best for the future.

David Blake EconSoc President