By Tim Harcourt*

The targeting of Israel via the boycotts of goods and people with Israeli connections is not only misguided but also likely to be counterproductive to trade, international relations and ultimately peace between Israel, the Palestinians and Arab nations in the Middle East. Much of this activity takes place on University campuses, and it has been prominent locally particularly at the University of Sydney. Even closer to home, (and as US political legend Tip O’Neill once said “all politics is local”) at the University of New South Wales (UNSW) we have seen a small but tense protest against the opening of a Max Brenner chocolate shop on campus. Putting aside the fact that we know Jewish shops were targeted in 1933 by the Nazis in Germany, and we wouldn’t expect one to be targeted in democratic tolerant Australia in 2013 (not to mention the virulent anti-Semitic comments made on social media) it is important to look at the economics of the boycott.

For instance, if we took the protestors seriously and actually believed their cause had an ounce of merit, how would the economics of the boycott work? If the protestors say we have to boycott any good, service or individual with Israeli connections, then this would have certain implications for life at UNSW alone.

For instance, in terms of healthcare, we would have to eliminate all personal medication. Many medicines will have been manufactured by Israel’s Teva Pharmaceuticals, the largest generic drugs company in the world. AZT and Hypericin-based drugs that help HIV and AIDS sufferers have all have been developed or improved following research at Israel’s Weizmann Institute or Hebrew University but would have to be banned. Sufferers of diabetes would not be allowed to use devices created by Israeli scientists for measuring and injecting Insulin and patients with Multiple Sclerosis would be denied Copaxone one of the most efficient medicines and the only non interferon agent, which was developed by Teva. The same goes for sufferers of Parkinson’s disease, strokes, Alzheimer’s, MS, epilepsy, glaucoma or brain tumour or those in need of a kidney transplant.

But hey it’s all for a good cause, you know!

In terms of information technology, the UNSW would have to remove all Intel Pentium and Celeron computer processor chips, personal computers (desktops, laptops and notebooks) as these were either developed or manufactured in Israel.  And any computers that still work need to have their anti-virus software and personal firewalls removed as this technology originated in Israel.  Any computers running the Windows XT operating system would have to be turned off immediately as this was developed in Israel.  All current Microsoft operating systems would not be able to be used as Microsoft is heavily reliant on its Israel R&D centre.  And all mobile phones would have to go as this technology was developed in Israel, where the first mobile phones were manufactured. 

But without computers etc, there’s no problem as we still have the chalk and the blackboards. And without mobiles, just pick up a can and a string or even a public phone (if you can find one).

Of course in agricultural science, we’d have to avoid any agricultural products that use water irrigation and agricultural technology provided directly from Israel, which includes many countries in Africa, in Asia including key trading partners, China, India, Indonesia, Nepal and much of the emerging world.  We’d have to not eat many fruit and vegetables (including organic) that have been enhanced using Israeli technology. We would have to eschew Vietnam dairy industry (helped by Israeli technology), Georgian crops (saved by Israeli plants and seed technology) and anything Peruvian assisted by Israeli hydro electricity. The boycott wouldn’t help food security and would harm the campaign to end world hunger. And it would also affect all the Israeli developed water-saving technology and sewage treatment technology that helps over half of the planet and helps make us an ‘effluent society’ in Australia (as Gough once put it).

We would also have to withdraw disaster relief that has used Israeli resources and technical assistance in The Congo, Angola, Romania, Ghana, Kenya, Uganda, Haiti, even in the Chilean mine disaster and the Christchurch Earthquake not to mention humanitarian disasters in Rwanda, Sri Lanka, Mexico, Chad, Sudan (Darfur) and Malawi.

That’s ok we can just ask Bono and Bob Geldof to stage a few more rock concerts.

And finally in my world of economics, if the boycott affected economists with links to Israel, through teaching, visiting, honorary degrees or joint research we would have to stop teaching the textbooks of many of our Nobel Prize winning economists. Think of economics without Samuelson, Fischer, Solow, Friedman, Arrow, Klein, Liebenstein, Kahn, Sraffa, Kaldor, Lerner, Krugman, Feldstein and Kindleberger and many more. It would wipe out most of our human capital in economics and the social sciences in general.

The anti-Israeli boycott from the implications above, is unworkable, and would clearly do damage to the poor and the sick and undermine the efforts to find a peaceful resolution to the Middle East. At best the boycott is ridiculous, and at worst, it is sinister and anti-Semitic (judging by the comments made on social media). But I am very proud that my employer, UNSW has stated clearly that whilst it supports and encourages the free expression of diverse views and open debate on campus (that is lawful, respectful and responsible) and it deplores all forms of racism and anti-Semitism.

 We must ensure that a university campus remains tolerant, safe, diverse and respectful in the true Australian democratic tradition.

*Tim Harcourt is the J.W.Nevile Fellow in Economics at the Australian School of Business, UNSW, in Sydney and author of The Airport Economist www.theairporteconomist.com.

Thank you to colleagues who compiled the factual information on medical, information, communications and agricultural technologies.

 By Tim Harcourt*

 As Britain mourns the passing of former Prime Minister Margaret Thatcher, it is revealing how different social groups in British have responded to her passing. There’s the partisan Tory cheer squads of course and her admirers in business and the press on both sides of the Atlantic – including towering figures such as Rupert Murdoch no less – who believe that Margaret Thatcher was a transformative figure in British society and many regard her as the greatest British Prime Minister since war time leader Winston Churchill. Some Labour statesmen in Britain have said reasonable respectful and favourable things about her legacy too including former Prime Ministers Tony Blair and Gordon Brown, former Leader of the Opposition Neil Kinnock (who faced Thatcher in the House of Commons for much of her tenure as PM) and current Labour Leader Ed Miliband.

 By contrast, we have seen enormous crowds of protestors in the cities of Scotland, the north of England, and in the poorer parts of London celebrating the passing of Mrs Thatcher with the famous Wizard of Oz classic song  “Ding Dong the witch is dead” being adopted by the protestors as their anthem. In fact, it seems that the song has now become a social media phenomenon and is on its way up the best selling music charts in record time. (Toto, we really are not in Kansas any more but in the more depressed parts of Britain).

 Mrs Thatcher, it seems, has attracted very strong passionate reactions from different parts of British society in death just as she did in her tenure as Prime Minister of the country.

 But when anyone passes away it is important to show respect for the family and for the fact that they were the nation’s democratically elected leader. But is also a reasonable time now to reassess their legacy. With Margaret Thatcher, many have said that she had ‘transformed’ her country economically so it’s a good time to assess this and in particular how it contrasts with another transformative figure, Bob Hawke who was Australia’s long serving Prime Minister at around the same time as Margaret Thatcher was governing Britain.  In fact, I have a particular personal interest in comparing this legacy because in 1982 my Australian parents went overseas to live in Britain under Margaret Thatcher whilst I elected to stay home in Australia to go to the University of Adelaide in my hometown, just as Bob Hawke was elected in Australia.

 First things first. In politics you win elections first and foremost. If you compare Bob Hawke and Margaret Thatcher, Hawke was clearly an electoral asset to his party. Hawke won a record 4 elections in a row – 1983, 1984, 1987 and 1990 and became the first Australian Labor Prime Minister to win a third term, and indeed a fourth. Margaret Thatcher was also a winner for her party. She won 3 elections – in 1979, 1983, 1987 – but given longer terms of Government in the UK relative to Australia she was Prime Minister for just over 11 years and Bob Hawke for just under 9 years. Both Thatcher and Hawke were eventually deposed in party room coups after being long term Prime Ministers, and both their successors, (John Major in Thatcher’s case and Paul Keating in Hawke’s) unexpectedly won ‘bonus’ terms in the 1992 and 1993 elections respectively.

 Second there’s the economic performance of Thatcher compared to Hawke. My distinguished colleague at UNSW Professor Raja Junankar who worked and lived in both the UK and Australia under both Thatcher and Hawke has prepared a detailed macroeconomic analysis of the economic performances of the Thatcher and Hawke Governments. He looks at GDP and industrial production, employment and unemployment, inflation and international trade over both the Thatcher and Hawke eras.

 In terms of GDP, Australia outperforms Britain in 12 out of the 18 years compared since Mrs Thatcher begins her term. In terms of inflation, despite Mrs Thatcher’s monetarist philosophy of ‘fighting inflation first’, Australia had a lower inflation rate than Britain for 9 out of the 18 years. In terms of international trade, Australia had a positive balance for 10 out of the 18 years, whilst Britain’s worsened over 1983-88 and then improved (partially thanks to the proceeds of North Sea Oil.)

 In terms of the labour market, Thatcher and Hawke had very different approaches. Thatcher, ‘deregulated’ the labour market, abolished the minimum wage, encouraged industrial confrontation (notably with the miners union) and encouraged ‘the right of managers to mange’. By contrast, Hawke adopted a ‘consensus’ model with a Prices and Incomes ‘Accord’ with the ACTU, introduced a ‘social wage’ (providing Medicare, Superannuation, education and training, labour market adjustment and tax cuts) in exchange for industrial peace and nominal wage restraint with an inflation target. Hawke also initiated a National Economic Summit of business, farmers, unions and community groups at the start of his term, something Thatcher never would have contemplated as a so called ‘conviction’ politician.

 In terms of employment, and unemployment, Australian employment growth succeeded Britain’s in all but three of the years covered. In terms of unemployment, the Thatcher Government made 17 changes to the official measurement of unemployment (all of which lowered the unemployment rate). Even so, Australia achieved a lower unemployment rate in the 1980s, Britain in the 1990s, until a reversal saw Australia again outperform Britain. Over the whole period, if the difference between the unemployment rates of Britain and Australia are accumulated, the UK unemployment rate was 6.5 percentage points higher than Australia, with a higher proportion of long term unemployed people in the UK than Australia for every year of comparison. In short, on nearly all the key labour market indicators available, for the Thatcher-Hawke period, Australia outperformed the UK.

 Thirdly, there’s the economic legacy now. It’s over 23 years since Margaret Thatcher left Downing Street and 22 years since Bob Hawke was Prime Minister (in fact we have just passed the 30^th anniversary of Bob Hawke’s election on 5^th March 1983). In 2013, the economic positions of Australia and Britain are in contrast. Hawke’s bet of opening the Australian economy to Asia, and converting the famous ‘tyranny of distance’ to the ‘power of proximity’ has paid off as Australia has been transformed from the double digit inflation and unemployment of 1983 (the so called ‘white trash of Asia’ according to Singapore’s then Prime Minister Lee Kuan Yew) to the best performing economy in the OECD, which has avoided any recession in 22 years despite the global financial crisis (GFC) of 2008, the Asian financial crisis of 1997-99 and other external shocks.

 By contrast, Britain has an unemployment rate of  7.8 per cent with 2.52 million people unemployed (compared to Australia’s unemployment rate of 5.6 per cent and almost 686,900 unemployed) and is over reliant on industries like financial services that were hit in the GFC. As Australia’s economy grows, Britain’s contracts, and the UK has an inflation rate above its central bank range unlike Australia. Australia shades Britain in terms of GDP per capita as well. So looking back to 1982 when I had to decide between remaining in Australia or moving to the UK, on economic grounds, it appears I clearly made the right choice.

 In conclusion, to be fair to Margaret Thatcher, she did show remarkable courage on non-economic issues, such as staring down the IRA terrorists who tried to assassinate her or standing up to the Soviet Union (particularly when they were oppressing Solidarity trade unionists in Poland) although she did have a blind spot on South Africa and race issues.  But when it comes to the Thatcher economic legacy, when compared to Australia’s experience at around the same time, you’d have to say that the evidence clearly shows that in economic policy, Bob Hawke has won the Ashes for Australia.

 *Tim Harcourt is the J.W.Nevile Fellow in Economics at the Australian School of Business, UNSW, in Sydney and author of The Airport Economist www.theairporteconomist.com

By Tim Harcourt*

The Prime Minister’s visit to China is of immense importance to her personal standing foreign policy and to the future of Australia’s economic relationship with the Middle Kingdom. China’s relationship with Australia as export destination, import source, and trading partner has grown in leaps and bounds and despite the occasional PR skirmish, the investment relationship is pretty healthy too.

The show case of this official visit was the announcement of convertibility of Australian dollars into the Chinese Yuan (or reminbi). This is good news for Australian exporters – especially small and medium sized enterprises (SMEs) – who don’t have the large capacity to hedge on currency like Rio Tinto or Woodside do.

This is not an insignificant number of companies now. According to new ABS data, nearly 5300 Australian companies export goods to China with another 5024 selling to Hong Kong (mainly as a base for the Chinese market). This now dwarfs most European destinations and even North East Asian Giants Japan on 2773 and Korea on 2187, and when you add the 3000 plus Australian companies with an office in China, the Prime Minister’s announcement is a welcome one.

According to Sensis, more exporting SMEs export to China (and ASEAN) than to Europe so the Chinese market is a big deal. Much will depend on the Chinese financial services sector to develop – and Australian companies like ANZ, Macquarie and AMP are helping in this regard – but the convertibility move is a good first step on the long march to seamless economic ties between Australia and China.

The other main issue of the visit (apart from geo-political issues like North Korea) has been the potential free trade agreement (FTAs) with China that has been in negotiation phase for nearly a decade.

Whilst FTAs with China incite passions in places like USA, Canada and South Korea, in Australia the response has been relatively benign. In fact, when the DHL Barometer first surveyed Australian exporters about FTAs, most wanted an agreement with China than they did with the USA or Thailand – despite our historical and defence ties with Washington DC that we have never had with Beijing (or Bangkok for that matter).

According to the survey 45 per cent thought a FTA with China would be positive, 45 per cent neutral and only 10 percent negative. This compared to a 25 per cent positive rating for the USA, and 21 per cent for Thailand.

There was some opposition from manufacturers (although of AiG members the exporters were quite positive relative to import competing manufacturing businesses), some mixed views on market access from the agricultural sector but an overwhelmingly positive response from resources, education, tourism and professional services.

The view from China was primarily positive except for concerns about the impact of open access on agricultural products on poor regions, although leading agricultural representatives have noted that Australian and Chinese agricultural interests are largely complementary.

Do we need a FTA at all? Key investments in both countries will still take place with or without a FTA, but it does provide a framework for streamlining the multiplicity of issues that impact Australia’s ties with a complex economy like China’s.

A FTA would certainly show again how important Australia has been as a friend of China’s a key moments, with the recognition by Gough Whitlam in 1972, support for China’s entry in the WTO, and the support given to China by Australia at a multilateral level, despite more aggressive anti-China stances by our allies.

For China, keen to lock in resource and food security to guarantee growth and prosperity for a majority of its 1.3 billion population a FTA with Australia would be a desirable economic objective.

What if China slows? There are signs of credit adjustment in the housing market, and a tight labour market in China, and Beijing’s stance on the currency shows a caution about the social effects of wage-price inflation in a tight labour market.

But most of the warning signs of a slowing Chinese economy have not come just from foreign economists, but also from the Chinese authorities themselves. China knows it has to manage an adjustment to a slower growth economy with more focus on domestic savings and investment than exports and to do so it needs Australia’s help.

Accordingly, the Prime Minister’s conversion offer, and overall framework for the bilateral relationship, still puts Australian in the right place at the right time.

*Tim Harcourt is the JW Nevile Fellow in Economics, Australian School of Business, UNSW and author of The Airport Economist www.timharcourt.com

The Mandarin Chinese version of The Airport Economist will be launched in Beijing on April 23^rd.

 by Tim Harcourt*

Reporting from Montevideo, Uruguay

Uruguay is the classic small player who `punches above it weight’. It only has 3.3 million people and is dwarfed by its larger neighbors Brazil and Argentina. But economically it historically was a wealthy country. According to Uruguay´s Deputy Economy Minister, Luis Porto in 1870 Uruguay – like Argentina and Australia – one of the world’s richest economies. This was was largely thanks to its rich agricultural endowment. For a small nation it was not only rich but also competitive on the world sporting stage. It won the inaugural FIFA Football World Cup in 1930 and then backed it up in 1950 in a shock 2:1 win over hotter than hot favorites host nation Brazil at the newly built Maracana Stadium in Rio de Janeiro in front of 200,000 people (mainly shocked Brazilians who have been haunted by the result ever since).

When Uruguay was wealthy it was known as the ‘Switzerland of the southern hemisphere’ but in the modern context the best comparison is probably with New Zealand. New Zealand and Uruguay have a lot in common. Both are small countries dependent on agriculture, services and tourism and are also economically tied to the fortunes of their neighbors. But whilst New Zealand has benefited from having ´The Lucky Country´Australia as its main next door neighbor, Uruguay has had Argentina. Argentina´s woes are well documented (see my companion piece ´Don’t buy from me, Argentina) and Uruguay is strongly influenced by the boom bust cycle of the Argentine economy in terms of trade flows. But Uruguay also has Brazil next door, and the fortunes of their enigmatic neighbour have been on the up in the past decade compared to poor performances overall in the 1980s and 1990s.

In fact, Uruguay, Brazil, Argentina Paraguay and Venezuela make up the common market trade pact MERCOSUR. And it would be expected that Uruguay, like Chile could benefit from being a small open economy opening up to other nations including its economically larger neighbours. But unlike Chile (see Red Hot Chile Peppers the world with FTAs) Uruguay can’t sign up to an FTA with another country without the permission of its Mercosur partners. In fact, Uruguay finds itself almost squeezed by the new divide in Latin America. The nations who have formed the Pacific alliance and looked towards institutions like APEC, Mexico, Chile, Peru and Colombia have largely supported free trade and open economies even when the global financial crisis of 2008 was at its worst. On the other hand nations like Argentina, Venezuela and Bolivia have supported protectionist and populist policies, partly in response to the excesses of the IMF in the region (and elsewhere) during the 1990s. the question remains about the eleephant in the room, Brazil, and which way it will fall. When I was in Mexico, most Mexican economists and business representatives claimed Brazil was already going down the protectionist path, particularly when it comes to Mexican industrial products (see The Mexican Moment) but the world is hoping Brazil will keep an open economy stance as it gain more economic weight on the global scale.

In any case, Uruguay may be keen to be seen as a ‘Pacific style´ South American nation in terms of philosophy but not so in terms of geography on the Atlantic side of the continent wedged between Argentina and Brazil and with Mercosur acting as a straight jacket in terms of its further trade liberalisation aspirations. many Uruguyan businesses also compalined that despite the existence of Mercosur most of their goods and services got tied up in behind the border red tape in both Brazil and Argentina.

So what about Australia and Uruguay? Again its a case of a small population but plenty of energy and influence. There are around an estimated 30 000 Uruguayans in Australia, mainly of whom were in exile during military rule. As democracy is well entrenched now many of have returned to investment in Uruguay’s highly lucrative agricultural sector. Agriculture is the main focus of Australian investment, with collaboration between Australian and Uruguayan R & D and agribusiness technology. Trade and investment ties are greatly assisted by the very active Uruguayan Australian Chamber of Commerce which aspires to be like the Israel Australian Chamber of Commerce – another organistaion that seems small in trade terms but larger than life in terms of business outcomes.

There is also some Australian presence in Uruguay. The fast ferry you take from Buenos Aires to Montevideo is made by Incat in Tasmania and there are a number of Uruguyan-Australians who are prominent in farming and business community organistaions. Australia´s Ambassador to Argentina, Uruguay and Paraguay, Patricia Holmes believes that mining is potentially attractive investment opportunity for Australia but it was notiecable that Uruguay, like Colombia, Argentina and some other South American countries was still undergoing a debate about mining and its impact on farm land and the environment. Again, like in Colombia, Australia has the opportunity to help develop corporate social responsiblity (CSR) practices, to help achieve a mining industry that is environmentally sustaianble and in sync with agricultural development as well. Uruguyan business interests were also surprised (pleasantly) by the Australian model of consensus (built up under the Hawke Keating Government’s Prices and Incomes Accord) and the capacity of trade unions and business to work together in Australia´s recent past on economic and industry issues. Whilst not as divided as the Argentinian polity, Uruguay still struggles to get its main interest groups around the table in the national interest.

In some ways the Uruguyan psyche is fed by being caught between two large neighbours and finding it therefore difficult to shine. They are also mindful that they can’t keep living on past glories whether its economically back to 1870, or in football terms dining out on the glorious World Cup winning teams of 1930 and 1950. But Uruguay also is a rugby nation as well as a football nation and in fact the national team ‘ the teros’, were on the same plane as the airport economist flying out of Monetvideo on the way to Buenos Aires and onward to Qatar and Hong Kong for the Hong Kong Sevens (the airport economist will also be in Hong Kong during the Sevens but that timing is of course a coincidence!). So perhaps a rugby analogy is appropriate. The teros may never reach the dizzy heights of the almighty New Zealand All Blacks, but economically being a small successful trading nation like New Zealand punching above its weight in the international business arena is not a bad thing to be. It may no longer be ‘the Switzerland of the southern hemisphere’ as it was in 1870 but now being the New Zealand of South America may suit Uruguay given its committment to openess, excellence, human capital development and occassionally being able to knock larger players off. In short, Uruguay can live up to its reputation for being ´the plucky country´ (´El Pais Corajudo´).

*Tim Harcourt is the J.W.Nevile Fellow in Economics at the University of New South Wales, Sydney, Australia and author of The Airport Economist www.theairporteconomist.com He travelled to Uruguay courtesy of the Australian Department of Foreign Affairs and Trade (DFAT) and the Council of Australian Latin American Relations (COALAR). Thanks are due to Ambassador Patricia Holmes, Lisa Davidson, Magdalena Luppi, Norma Ramiro and Fernando Perez Tain for organising the visit to Montevideo. He would like to thank his hosts – the Uruguyan Australian Chamber of Commerce and Australia´s Honorary Counsul Diego L.Paysse for hosting his visit to Uruguay.

By Tim Harcourt*

Reporting from Bogota, Colombia

The Australian state of South Australia recently went through a brand exercise to help sell the state and its capital city Adelaide to the world in terms of trade, investment, education and tourism. There’s no doubt the Adelaide (disclosure – the airport economist grew up there and advises the Premier) is a civilized pleasant city (in a progressive state that is relatively small in population) as it was recently voted Australia’s most liveable city.

Many states, cities and nations now invest a lot in place ‘brands’ to attract business, students and tourists – even immigrants. As far as liveability goes, Adelaide has plenty going for it, with a pleasant climate, affordable housing, world class education and a lively cultural scene.

But imagine if you were given the same task for the South American country of Colombia instead of South Australia? It would be a tough gig. After all, Colombia is the place where just a decade ago it had the highest homicide rate in the world, where a third of legislators had links to paramilitary groups, where the political system was dysfunctional. Despite the amazing efforts of the past decade, thanks in part to the policy of ‘democratic security’ initiated by then President Alvaro Uribe, many parts of the country outside the main cities do still suffer from guerilla violence in particular given the pressure of the peace talks. Colombian trade unionists have also been particularly targeted according to the International Confederations of Free Trade Unions (ICFTU) as documented by Harvard political scientist James A. Robinson, the co-author of the celebrated book Why Nations Fail, though the government has made serious efforts to reduce these attacks.

Whilst visiting Bogota, the capital of Colombia, I actually met with the man in charge of selling the city and the country to the world, David Mello. He explained that despite its history, that Colombia and Bogota in particular, had plenty of going for it. “We are 5 hours from New York, Mexico City and Sao Paulo, we attract 78 per cent of all foreign direct investment that comes to Colombia in growing new parts of the economy like professional services, engineering, light manufacturing, life sciences, biotechnology and information and capital services.” Mello is also proud of Bogota’s social agenda: “Our program Bogota Humana, celebrates diversity in the city in terms of tolerance of Colombia’s different races, religions and gender preferences. We want to promote human development and reduce anti- discrimination so the city can be regarded as a cultural, tolerant hub of creativity and culture. We are very proud of the fact that Bogota was selected as one of UNESCO’s World Cities of Music.”

Mello is an example of the new generation of young Colombians wanting to project a different image to the world than its troubled past. Every major business leader I met in government and chambers of commerce in Bogota (and in Medellin on a previous visit to Colombia) was under 40, highly educated with international experience. For example, Ana Milena Cortazar Mejia, the International head of ANDI, Colombia’s main chamber of commerce group, was young an accomplished with multiple degrees, had lived in China and Japan and speaks Mandarin. She explains: “Young Colombians have a world view, we look to Asia now as much as we look to Europe or the rest of the Americas and we see Australia as a great reference point to Asia, an important bridge. And importantly, we see Australia as a symbol of good practice in business and economic management.”

Australia as a ‘Symbol of good practice’ is a view shared by many Colombian business leaders and government officials according to Crispin Conroy, Australia’s Consul General in Bogota and leading Australian expert in Latin America. “The emerging Colombian resources sector is facing key challenges in dealing with the environment, community issues, indigenous rights and tensions with agricultural land owners. Australia is a leading proponent of Corporate Social Responsibility, and Colombian companies are looking to the Australian example.”

A visit to the Terranova project a coal mine owned by New Age Exploration, showed what is needed in Colombia. The mine has good quality coal but its antiquated mining practices will soon get an injection of capital to lift its occupational health and safety standards. Austrade-UNSW research shows that on average, Australian businesses that venture abroad in export and outward investment help raise health and safety standards (and average wages, conditions and employment security) in emerging markets in Latin America, Asia and Africa. Colombia and Terranova is no exception. In fact many Colombian mine managers are Australian educated including New Age Exploration’s Carlos Felipe Barrera, who studied at graduate level at the University of New South Wales (UNSW). Barrera believes his education in Australia was “pivotal” to his career in the resources sector. “Australians are highly professional, practical and easy to work with. Studying there made a big difference as I was amongst cultures from all over the world – particularly Asia – and it advanced my professional development when I returned to Colombia. Australia was an excellent bridge to Asia for me personally.”

Barrera is not alone. According to Conroy, “At last count there were 10,000 Colombians students in Australia, second only to Brazil on 16,000 and ahead of Chile, Peru, Argentina, Uruguay and Mexico. They are a vibrant, dynamic, lively group on Australian campuses and having an Australian education is now becoming well regarded in business circles here. They also have a great work ethic and strong service culture. I am regularly contacted by enthusiastic young Colombians looking for internships with Australian companies.”

Colombian students are very active in promoting their country and make good ambassadors abroad particularly given Colombia’s image issues from the past due to drug wars, high crime rates and political unrest. According to Ana Milena Cortazar Mejia, ANDI runs a strong alumni program to promote messages about the country for Colombians abroad to spread throughout their business and education networks. Recently young Colombians ran a social network campaign to ensure that foreigners spelt their country’s name right (that is, Colombia not Columbia as in Columbia University or British Columbia in Canada). That may be a sign that the Colombian brand is turning around through the strength of its young educated, internationally focused population.

So whether you are in Adelaide, South Australia or Bogota, Colombia, your brand matters. It shapes how the world sees you and determines how you will attract investment, trade and people. As a young Colombian business professional Monica Ramirez put it: “Our generation in Colombia is part of a ‘small and silent revolution to turn around our international image and economic fortunes. Colombians used to believe in education so they could get out of the country now we invest in education so we can stay and make a contribution to the country’s future.”

*Tim Harcourt is the J.W.Nevile Fellow in Economics at the University of New South Wales, Sydney, Australia and author of The Airport Economist www.theairporteconomist.com

He travelled to Colombia courtesy of the Australian Department of Foreign Affairs and Trade (DFAT) and the Council of Australian Latin American Relations (COALAR). Thanks are due to Crispin Conroy and Monica Rameriz for hosting my visit to Colombia.

The Invisible Hand of God: Returning to Argentina

By Tim Harcourt*

Reporting from Buenos Aires, Argentina

In order to measure the standard of living across international borders, The Economist magazine invented the ’Big Mac Index’ to see what its cost to buy a ‘Big Mac’ hamburger in McDonald restaurants in each country in the local currency. It’s a very rough rule of thumb to make international economic comparisons.

But try getting a Big Mac in Argentina. I noticed here on my recent trip to Buenos Aires that The Big Mac and its price are not on the board on any McDonald’s restaurant you walk into in Argentina (there is a ‘Triple Mac’ listed), although you can ask for it.

Why? Is it because the Argentines don’t want some sneaky economist to record the price and get a handle on Argentina’s inflation rate and its relative cost of living? It could be. But locals explained to me that it is due to random price controls imposed by the Argentine Government. In order to combat inflation, the government randomly selects items – Big Macs, mobile phone and the like – that are bought universally in an era reminiscent of the price controls of the early 1970s in places like Australia and the USA. So Big Macs are priced artificially low, so McDonalds doesn’t want you to buy it and the government wants you to think inflation is under control and consumer items of affordable to the average Argentine.

This is an example of both the randomness of a microeconomic policy in modern Argentina despite growth spurts ‘between crises’ as the locals say. This is also classic example of the lack of transparency in Argentina’s economic institutions that causes economic dislocation.

Another example concerns an Argentine icon – Diego Maradona. When Argentina last won the World Cup in 1986, Argentina defeated England in the quarter finals, thanks to two goals by Maradona. One was the famous ‘hand of god’ where Maradona punched the ball over England Goalkeeper Peter Shilton and into the net. The other – which was the sealer – Maradona took the ball in defence and dribbled majestically past nearly the whole England team before again defeating Shilton and English hopes. Yet when Maradona was interviewed years later he was most proud of the ‘’hand of god’’ as a form of innovation and genius even though it was against the rules. This is an amazing statement given how his raw skill and individual brilliance, allowed him to (fairly) score the other goal which effectively won the match – and later the World Cup.

Perhaps these examples – the BA Big Mac and Maradona’s choices are symbolic of some of the problems facing Argentina currently. Argentina has brilliance and flare, a beautiful country, great resource endowments and a great stock of human capital (bolstered by immigration). Yet by the policy choices it makes and the institutions it forms, at crucial times it severely underperforms as an economy. After all, a country’s institutions – political and economic – make a real difference to their progress according to the seminal work by Daron Acemoglu and James A. Robinson, Why Nations Fail. According to the authors, political rights and property rights make a big difference so all players know the rules of the game. Institutions rely on transparency and trust, in economics, in politics in sport as in life.

As noted in various economic studies, institutions are thought to be the big difference between the economic development of Argentina and Australia. Economic historian Ian McLean has famously looked at the difference for example in landownership in 19^th century agriculture in Australia and Argentina. Whilst Australia broke up the “squatters” grip on agricultural land to democratize land ownership, in Argentina (as in most of Latin America and Africa), a group of elites managed to control land for a longer period. As a result the urban working class, consisting of many Italian and Spanish immigrants who flocked to Argentina at the turn of century (1 in 4 people in Buenos Aires in 1870-1900 was born overseas) were landless and turned to Peronist protection and economic intervention. And despite bouts of liberalization for a short time, this interventionist impulse remains with Argentine policy institutions. By contrast, Australia re-made its economic policy agenda over the last 30 years, slowly but surely opening up its economy, whilst maintaining strong social protection (not trade protections) through a Prices and Incomes Accord with the trade unions, and the provision of the ‘social wages’ through universal health care, education, labour market programmes and pensions (superannuation), with appropriate targeting and means tests.

But despite the divergence with Australia and the recent woes Argentina still has great potential. It still has a major resource endowment in terms of agriculture and untapped mineral resources. In fact, institutional reform could make a big difference to Argentina’s mining industry. At the moment, half of the Argentine provinces still ban mining, and when I was in Argentina, the Brazilian mining giant Vale pulled out of the province of Mendoza because of regulatory uncertainty.

 A concern in Argentina is the impact of mining on agricultural land, the environment and indigenous rights. Corporate Social Responsibility (CSR) is very important to the Argentine community and there is potential for Australian mining companies who are world leaders in CSR, to help develop this in Argentina as they have in the rest of Latin America, particularly in the Andeans states of Chile, Peru and Colombia.

Another bonus to Argentina is that economically speaking it now has good neighbours mostly in Latin America.  Compared to the 1980s and 1990s, Brazil’s economy has vastly improved, Chile is the ‘Jaguar of South America’ (the equivalent of an Asian Tiger), Uruguay has strengths in agriculture and times are vastly improving in Peru and Colombia. During the global financial crisis of 2008, Latin America was neither a cause nor a drag on global growth. Argentina has for once, found itself in a sweet spot in the world economy, and can forger stronger ties regionally.

Finally, there’s human capital. Argentina has large reserves of human capital and individual Argentines still excel in international management, science, research, sport and culture on an international scale despite the problems at home. There’s still an opportunity to tap into the talent banks abroad and encourage Argentines to bring their learning back home to help reshape institutions. Whilst there are not as many Argentines studying in Australia as there are Brazilians and Colombians, on average they are high achievers and integrate well on campus and into Australian society overall.

But there is still a big need for economic reform. Economic reform in Argentina was a bit like Nirvana – it was big in the 1990s – but there’s hasn’t been not a lot since. The efforts of Dominic Cavallo, for example, were a bit too short sharp shock and hence caused reform fatigue and another crisis. By contrast, the Australian gradual model of the Hawke-Keating era, opted for a medium term strategy opening up the economy to Asia and the rest of the world whilst maintain strong social institutions to absorb any economic dislocation.

But there is a good piece of news. The authors of Why Nations Fail, see Democratic rights as important as property rights and in 2013, Argentina celebrates 30 years of the restoration of democracy. For Argentina to succeed, it needs to restore its economic institutions to build trust and transparency, just as it has done in terms of democracy.

Australia has shown in its last 30 years of economic reform, you can couple price signals and market mechanisms with strong social institutions providing healthcare, education and other safety nets to support social justice. By combining price signals and market mechanisms with social protection (not trade protection) Argentina can potentially rebuild its institutions and make important steps on the road to long term recovery.

And a good way to start is to build price signals back into the Argentine economy, starting with the Big Macs at McDonalds and perhaps Maradona could boast about his truly brilliant goal rather than when he showed economists how the invisible hand really worked in practice rather than in theory.

*Tim Harcourt is the J.W.Nevile Fellow in Economics at the University of New South Wales, Sydney, Australia and author of The Airport Economist www.theairporteconomist.com

He travelled to Argentina courtesy of the Australian Department of Foreign Affairs and Trade (DFAT) and the Council of Australian Latin American Relations (COALAR). Thanks are due to Ambassador Patricia Holmes, Lisa Davidson, Magdalena Luppi, Norma Ramiro and Fernando Perez Tain for hosting in Buenos Aires.

Reporting from Mexico City and Monterrey, Mexico

One thing I didn’t expect to hear on my visit toMexicois a lot about Brazil. Mexico sees Brazil, as the other large economy inLatin Americaas a bit of a rival fighting for its place in the sun. This has intensified in Mexico as the world’s attention turns toBrazilin the lead up to the FIFA World Cup in 2014 and the Rio Olympics in 2016. It’s hard enough at the best of times, trying to get anybody looking at Mexico City, but even harder currently, when the whole world, or so it seems, wants to go to Rio.

And it’s not just about the World Cup and the Olympics.Mexicoalso sees Brazilas a rival economic model in Latin America. Whilst Mexico had been committed to an open economy, they argue, even in the face its own ‘Tequila crisis’ of 1994-95 and the global financial crisis of 2008, Brazil they say, has resorted to protectionism, particularly against Mexican industrial goods (in the automotive sector in particular). There is a view in Mexico that in Latin America, Mexico, Chile, Colombia and Peru are the good guys committing to openness to trade and foreign investment (Mexico has the most number of free trade agreements signed in the region, followed by Chile) whilst Brazil leads the bad guys of protectionism with Argentina the baddest guy in town in terms of anti-trade policies. Although, it must be said there is admiration in Mexico for the success that Brazilian President Lula and his successor Dilma had in fighting poverty in Brazil (based on measures they say that Brazil copied from Mexico– of course!)

But regardless of the merit of these endless comparisons with Brazil, Mexico in its own right does have a good story to tell in recent years.

First, there’s Mexico’s macroeconomic story. Over the past decade, with the exception of the Lehman Brothers crisis affected year of 2008, growth has been positive territory, with the just over the 3.9 per cent rate of 2012 expected this year. Inflation has been halved over the decade, and the fiscal situation is respectable (fiscal deficit is 2 per cent of GDP and Net Public Sector Debt 34 per cent of GDP – half of Brazil’s and one third the size of the USA’s) The structural reforms of new Mexican President Pena-Nieto in tax, social security, education, pensions and competition policy are expected to achieve a sustainable growth rate of 5 per cent per annum (compared to 2 per cent p.a. over the past decade).

Second, there’s the Mexican globalization story. Mexico is an open economy with trade accounting for 60 per cent of GDP. It can reach two thirds of the global economy with its plethora of free trade agreements (FTAs) and as both a Pacific and an Atlantic country has strong connections by sea and by air. Mexico is an enthusiastic supporter of the Trans Pacific Partnership (TPP) and the Pacific Alliance within Latin America. The TPP countries represent a market of 658 million people and a combined GDP of US$20.7 trillion, so it has not surprisingly attracted interest from Mexico.

You can see the globalization of the Mexican economy even with a day trip to Monterey. According to Rolando Zubiran, Deputy Minister for Foreign Investment for the state, 80 per cent of US-Mexican economic activity passes through Monterrey, with its 2 railroad lines, large automotive sector, healthcare sector and 127 industrial parks. “Our aspiration is to be the ‘Bangalore of Mexico’” he explains. There are strong links between Monterrey and the Asia-Pacific too, including with Australia. Automotive components maker Metalsa is based in Monterey and has plants in Cheltenham and Clayton in South East Melbourne and another auto components maker Katcon manufactures in Keysborough, Victoria. Food manufacturer Gruma-Maseca is another local company who launched the line ‘Mission flatbreads of the world’ in Australia and is a key sponsor of Prime Minister Julia Gillard’s favourite AFL team, the Western Bulldogs.

Third, there’s Mexico’s ‘demographic dividend’. Mexico’s average age is 26 so it has an enormous supply of human capital hungry for skills and education. Seeing Rolando Zubiran the young dynamic state official in Monterrey strut his stuff with his young team shows how enthusiastic this generation is for Mexico to succeed. The main question is whether Mexico can keep them and if there will be a reverse of the brain drain that has occurred to the United States in the past.

That’s the good news, I hear you say, now tell me the bad news.

The main risks to Mexican economy are institutional. As the influential book Why Nations Fail, by Daron Acemoglu and James Robinson at MIT andHarvardUniversity respectively, Mexican political institutions have been historically weak, and that has had long run negative economic effects on Mexican entrepreneurialism, competition policy, property rights and democracy.

The first institutional issue is corruption and the related need for structural reform.

The new President of Mexico, Enrique Pena-Nieto in his first six months of office is conscious of the need for economic and political reform in Mexico. The President has just arrested Elba Esther Gordillo, the president of the Mexican Teachers Union for corruption.  Gordillo, whom some Mexicans regard as a particularly odious character flaunted great wealth including mansions in San Diego, California, and private jets all allegedly on member’s money. This was quite a shock to an Australian observer for whatever your views on education policy, the teacher unions in Australia are clean as a whistle known for their frugality and carefulness with members’ money. To make matters worse, Mexican teacher salaries are lagging behind the rest of the labour force and are low by international standards.

For this reason, education reform is at the top of the new administration’s agenda along with the related issue of labour reform and pensions. Gabriel Casillas, Chief Economist of Casa de Bolsa-Banorte, a particularly thoughtful commentator and analyst, believes that pension and payroll tax reform could make a significant impact on Mexican economy by encouraging more workers from the informal sector to join the formal sector of the labour market with enormous implications for productivity, which would boost bank assets and provide a fiscal dividend to the budget with increased direct income taxes.

The second related issue is, of course, security. In key towns and regions inMexico, security issues have re-emerged in Mexicowith drug related gang violence. This is frightening foreign investors and of course, many Mexican citizens themselves.  In Monterrey, Rolando Zubiran, who enthusiastically explains the region’s economic success, partially thinks that changes in social media and technology amplify the impact of isolated violent incidents. But he agrees that there is a problem in terms of both perception and reality. As a result, Mexican will continue to spend a large part of its economic growth dividend on security and public safety.

The third issue is competitiveness and the influence ofChina. AfterChinajoined the WTO, many of the gains Mexico made with the NAFTA agreement with the USAand Canada, were eroded, particularly in manufacturing. Now as China’s labour market tightens as its demographics work against it (“getting old before you get rich”) it’s expected that Mexican wage rates will be surpassed byChina’s (aside from productivity issues that are notoriously difficult to measure and compare).

And the issue about China brings us back to that old Brazil-Mexico rivalry again. There is a famous story that was told to me by Dr Alfonso Guerra, a distinguished international official from The Bank of Mexico,Mexico’s central bank. When told by a Brazilian official that “Mexicans are not Latin American, they are North American. They all speak English as 80 per cent of their exports go to theUnited States,” the Mexican official apparently replied: “Well then you Brazilians should speak Chinese if you look at your current account.”

Well the Mexicans do have some reason to be wary of Brazil’s increasing global profile when they hold the World Cup in 2014 and Olympics in Rioin 2016. After all who was the last nation in Latin Americato host both the World Cup and Olympics within three years? It was Mexico in 1968 and 1970. That was Mexico’s moment, and with Brazil getting the sporting action in 2014-2016, Mexico hopes it will be its economic attributes that will attract the world’s attention in years to come.

*Tim Harcourt is the J.W.Nevile Fellow in Economics at the University of New South Wales, Sydney, Australia and author of The Airport Economist www.theairporteconomist.com

He travelled to Mexico courtesy of the Australian Department of Foreign Affairs and Trade (DFAT) and the Council of Australian Latin American Relations (COALAR). Thanks are due to Ambassador Tim George, Rachel Moseley, and Radek Divis for hosting in Mexico City and Monterrey.

By Tim Harcourt*

Love is in the air, on St Valentine’s Day, and you’d think most dull economists would not even notice the passing of 14th February. When it comes to love and sex, you wouldn’t think the first word that pops into people’s heads is ‘economics.’ In fact, one Australian newspaper even had a top ten list of the sexiest economists in Australia (and it wasn’t hard to get on that list, believe me!) But wait! I have we got news for all of you! According to a new UK study economics students were found to be the most promiscuous students on campus. Yes we were a clear number 1! Not even on a seasonally adjusted basis! The survey of 4,656 undergrads (by StudentBeans.com) found that economics students had nearly five sexual partners since starting uni (imagine the strike rate you’d get with a double degree?) compared to less than two for those studying environmental science (they obviously spend too much time hugging trees instead of people).

In fact, there were lots of surprises in the most promiscuous list. The top five were Economics followed by social work, community care and counselling (sensitivity and listening help you score), Marketing, then Leisure, hospitality, tourism and retail and finally Agriculture in fifth place (no sheep comments thanks). But there were even more surprises in the bottom 5 as well. Students were either too busy to find love or just not good at it. The bottom five were philosophy (too much thinking and not enough action), education (poor teachers), earth sciences (clearly not getting their rocks off), Theology (no surprise there), and Environmental Science (so much for the Greens party and hippy free love). Another surprise was that subjects that are thought to be ‘sexy’, like arts and media students were also in the bottom ten.

Of course the Freakonomics boys – Steve Levitt and Stephen Dubner – would have an explanation for this. They would say it’s all about how you respond to incentives. On average, economists make pretty good money on graduation in terms of starting salaries, so that may make them more attractive to potential partners. On average, they also have fulfilling, interesting jobs, and not to mention intelligence, humour and charisma (ok I made that last bit up). But what is this really about? Am I promoting economics and promiscuity at the same time? Not at all. It’s important not to confuse promiscuity with the benefits of finding true love and long term stable relationships. Am I trying to make up for years of having sand kicked in my face – when I wasn’t even on the beach – because I dared to study economics? Not at all. I was commenting on the survey because there’s a whole new branch of economics called behavioural economics. Behavioural economics – the economics of everyday life that explains how human beings behave in social environments. This includes the economics of relationships – the economics of work, play, business, trade, even romantic love and families. It applies to romance too – finding the right life partner, or to the labour market too when finding the right employer/employee in its implications for productivity.

In fact when I was reading the UK survey about how students find partners and their preference for one night stands (short term contracts) versus lasting romance (secure trusting relationships) the more I thought about the industrial relations debate we always have in Australia and the need to implement labour market ‘deregulation’ or reform (whatever that means) to improve productivity. For instance one person might think having many short term relationships is ‘freedom’ whereas in the long run, having a happy long term relationship may be better for long term welfare, health, security and well being. It’s a real problem when one person is looking for a series of multiple individual contracts whilst the other is looking for the security of a trusting long term relationship (with healthy bedroom activity as well). Similarly in the labour market, some people talk about ‘freedom of contract’ ‘deregulation’ ‘flexibility’ and advocate prefer short term contracts and casualisation whilst others know improved productivity comes from a more secure form of attachment to an employer. It’s a real problem when one party wants short term and the other wants security (just like in love). And imagine if the advocates of IR reform started chanting ‘Promiscuity…promiscuity’ instead of “flexibility, flexibility’?

There are also links between the two. As sometimes, out dated measures to increase productivity – like extended working hours and work intensification – might harm families and relationships. It’s funny when people say they are ‘standing up for families’ are the ones who are making sure families break down due to work stress and longer working hours.

In short, when it comes to work and love, that is why relationships matter – how we form them, how we develop them, how we choose them – whether it’s a partner or an employer. And that’s what makes Behavioural Economics so interesting.

And in case you are wondering about that ‘sexy economists’ survey, this was a UK study, we are still waiting to undertake a similar controlled experiment for Australia to see how the results compare in time for the Ashes.

Happy Valentine’s Day!

For the record:

Most promiscuous students:

TOP FIVE 1. Economics 2. Social work, community care and counselling 3. Marketing 4. Leisure, hospitality, tourism and retail 5. Agriculture

BOTTOM FIVE 1. Philosophy 2. Education 3. Earth Sciences 4. Theology 5. Environmental Science.

*Tim Harcourt is the JW Nevile Fellow in Economics at the Australian School of Business, UNSW and author of The Airport Economist: www.theairporteconomist.com

 (Source: StudentBeans.com, Mail online).

By Tim Harcourt*

So who’s the dope now? Lance Armstrong, the man who once was a seven time winner of the Tour de France, spoke to US talk show supremo, Oprah in a no holds barred tell all confessional.

So why did he do it? Surely the risk of being caught doping was too much. What was he thinking? What were the incentives for Lance Armstrong to take this extraordinary path of drug ridden corruption in an major international high profile sport?

Our good friends Steven Levitt and Stephen Dubner have already given us a few clues and a good framework in their famous bestseller Freakonomics. In one of my favourite chapters, ‘What do School teachers and Sumo Wrestlers Have in Common?’ they outline the economic incentives to cheat in the classroom and the Sumo ring.  As the Freakonomics authors say everyone responds to moral incentives and social incentives because as WC Fields says – a thing worth having is worth cheating for. If morality is how we would like the world to work and economics represents how it actually works, then it’s no surprise that sumo wrestlers, school teachers and Lance Armstrong and his cyclist mates act like this. It was a classic case of ‘prisoner’s dilemma’, as you had to take drugs to compete in the Tour de France, and if you didn’t you wouldn’t qualify. Once the ring was set up, no one could confess on their own without consequences. And Armstrong as the leader of the pack, made sure everyone was juiced up and was not going to confess to the anti-doping authorities. But like sumo wrestlers, school teachers and Enron executives, the great Lance did eventually get caught and as they say in Freakonomics if you wondered whether business executives cheat because they think they have a sense of entitlement, then ask how they became business executives in the first place!

So that’s the microeconomics of Lance – what about the macro big picture?

First,  there are clearly implications for the sport of cycling. The official cycling body clearly got caught with their lycra down on this one and will need to clean up the sport or lose sponsors and community sport.

Second, there are implications for Livestrong – Lance Armstrong’s charity for his fellow cancer sufferers and survivors. There is a whole infrastructure built up around the foundation and surely any damage on to the Lance Armstrong brand must have had collateral damage for foundation as well?

Third, there may be economic implications for special events like the Santos Tour Down Under back home here in Australia. According to latest estimates, from McGregor Tan, Tour Down Under in 2012, generated $42.2 million in economic impact, with 760,000 visitors, compared to $43.3 million in 2011 (with 782,4000 visitors) and $41.5 million (770,500) in 2010. This compares well with the economic impact half a decade ago in 2008 of only $17.3 million (with 548,000 visitors). The Tour Down Under has been building strongly and sustainably over a number of years now and will continue to do so as it further establishes itself as a major international sporting event. And despite the obvious effect of drawcards, Test Cricket survived without Bradman, Golf without Tiger woods, AFL without Carey and Santos Tour Down Under will be sustainable even without Lance Armstrong.

And fortunately, rather than relying on one event, South Australia has hedged its bets. As well as the Santos Tour Down Under, and the future benefits of the Adelaide Oval development (especially the return of AFL to the famous ground), Adelaide’s position as the Creative Capital of Australia is illustrated by its cultural iconic events, the Adelaide Festival, Fringe and WOMAD. Together, with the Clipsal 500,  according to the McCrann report, they are estimated to have contributed around $81.1m economic impact to the state and attracted 46,481 interstate and international visitors in addition to the 796,700 local South Australians.

So, doping or no Doping, Lance or Lance-less, the show must go on! And it will go  on with cleaner and greener cycling at the Santos Tour Down Under in South Australia in 2013.

*Tim Harcourt is the JW Nevile Fellow in Economics at the Australian School of Business, UNSW, Sydney, Australia  & author of The Airport Economist www.theairporteconomist.com

He is also the inaugural Adviser – Global Engagement to the Premier of South Australia, Hon Jay Weatherill, MP.