Time for Goldman Sachs to coin a new acronym?…

In 2001, Jim O’Neil of Goldman Sachs coined the term “BRICs” to designate the leaders among developing economies:  Brazil, Russia, India, and China.  And for a decade the moniker served, as these four countries grew hell bent for leather.

But two of the BRICs have hit the skids…

 source

One notes that the two decelerating economies are those of the two more democratic states in the quartet…  which raises the question: are Russia and China pulling away from Brazil and India in a fundamental way, or is it simply easier for more authoritarian governments to create the illusion of continued real growth when in fact the fundamentals are weakening?

FWIW, my bet is on the latter.  See, for instance, The Moscow Times‘ “How Putin is Turning Russia into One Big Enron” and Michael Pettis’ “A fat guy starts a marathon and injects himself with crystal meth a few miles in. That’s China right now.“

 

Show me the money…

A guest post from (Roughly) Daily…

Throughout history, artists have tended to cluster around centers of power and wealth… which is simply to observe that they’ve honored Willie Sutton’s wisdom: “that’s where the money is”; they’ve set up their easels (or pianos or footlights or whatever) where they can find patrons and customers.  But those centers of cultural gravity tend to be expensive places to live– increasingly, so expensive that aspiring artists can’t even afford a garret in which to starve.  E.g., aspiring artists who want to join the community that migrated from Greenwich Village to Soho to Tribeca, then to Brooklyn, and on to Hoboken are beginning to find even that Jersey shore too pricey…

At the same time, new centers of wealth and power are emerging around the world, and with them, new communities of artists and performers.  Indeed, as Richard Florida and others suggest, there’s a symbiotic relationship between the growth of a “Creative Class” in a community and that community’s ability to innovate and succeed commercially.  A rich artistic and cultural life doesn’t assure a city’s commercial success, but its absence is a pretty good indicator of commercial mediocrity (or worse).

So one indicator of areas that are contenders to be “the next hot region” is the sprouting of the arts there.    Consider, for example…

Brazil’s most creative neighborhood is far from the beaches of Rio, in loud and brash São Paulo, South America’s answer for New York City. And you can expect one thing from this loud, raw urban metropolis — a lot of really colorful, politically-charged street art. Large neon pieces of work show up everywhere from dilapidated buildings to enormous billboards, and in the ultimate nod to creativity, esteemed museum MuBE, the Brazilian Museum of Sculpture, hosted actual gallery space for some of São Paulo’s most well-known graffiti artists to promote their work. Unlike certain places, this is a city that fosters young talent.

If digital is your medium, you won’t find a better place to be right now than Jakarta. Indonesia has more Facebook users than Canada has people, and internet cafes are a daily visit. Investors from the West have their eye on mobile, broadcasting and start-ups, all growing trends across the country that make it easy for youngsters to take to their own businesses. Creative collectives like Askara, a bookstore where the hip commune, Serrum, a community for arts education, and Kampong Segart, a student art union, give the space and inspiration for this new wave of Indonesian trend makers.

Visit six other candidate cities– including two, Macao and Las Vegas, that are better known for shilling than selling– at Flavorwire’s “The Best Cities for Young Artists.”

As we get in touch with our inner expatriate, we might wish an elegantly-laid out and well-groomed Happy Birthday to Frederick Law Olmsted; he was born on this date in 1822.  A journalist, social critic, public administrator, Olmsted is best remembered as the greatest American landscape architect of the 19th century.  While the title “Father of American Landscape Architecture” probably belongs to Andrew Jackson Downing, Olmsted was unquestionably the primary agent of the discipline’s growth and adoption.   Olmsted’s most famous commission was Central Park in New York; but he also designed city parks in St. Louis, Boston, and many other cities; the grounds around the Capitol in Washington, D.C.; the Niagra Reservation, one the countries first planned communities; the master plans for universities including UC-Berkley and Stanford (among other universities); and private estates like George Vanderbilt’s Biltmore House in Asheville.

Olmsted at Biltmore House, by frequent house-guest John Singer Sargent (source)

So, the good news first, or the bad?…

Let’s end on an upbeat note, so start with…

The bad news…

source: Hadley Centre for Climate Change (via Global Warming Art)

A recent MIT study suggests that the problems associated with global warming will be about twice as severe as previously estimated six years ago – and could be even worse than that.

The work is based on MIT’s Integrated Global Systems Model, a detailed computer simulation of global economic activity and climate processes that has been developed and refined by the Joint Program on the Science and Policy of Global Change at the university since the early 1990s.  And its results add to the chorus of researchers suggesting that earlier estimates– like the assessment of the UN IPCC (Intergovernmental Panel on Climate Change)– materially understate the threat.

(As Larry Smarr of Cal IT2 explained to me recently, a good bit of the difference was likely methodological: the scientists involved in that earlier work, concerned to be rigorous, excluded from consideration forces/dynamics that couldn’t be measured and projected as precisely as the forces/dynamics that were included– even if those “rejected” forces/dynamics were suspected, even known, to have an impact.  In the intervening time, measurement capability has improved…  and thus, the picture has deteriorated.)

The new projections, published this month in the American Meteorological Society’s Journal of Climate, indicate a median probability of surface warming of 5.2 degrees Celsius by 2100, with a 90% probability range of 3.5 to 7.4 degrees. This can be compared to a median projected increase in the 2003 study of just 2.4 degrees…  To put that in perspective, consider this piece (from the Times of London), reporting on models built by the UK Government’s Hadley Centre for Climate Change:

Six thousand years ago, when the world was one degree warmer than it is now, the American agricultural heartland around Nebraska was desert. It suffered a short reprise during the dust- bowl years of the 1930s, when the topsoil blew away and hundreds of thousands of refugees trailed through the dust to an uncertain welcome further west. The effect of one-degree warming, therefore, requires no great feat of imagination.

The western United States once again could suffer perennial droughts, far worse than the 1930s. Deserts will reappear particularly in Nebraska, but also in eastern Montana, Wyoming and Arizona, northern Texas and Oklahoma. As dust and sandstorms turn day into night across thousands of miles of former prairie, farmsteads, roads and even entire towns will be engulfed by sand.

What’s bad for America will be worse for poorer countries closer to the equator. The Hadley Centre calculates that a one-degree increase would eliminate fresh water from a third of the world’s land surface by 2100…

But of course, MIT is worried that the increase will be much higher than just 1 degree.  What do those extra increments of heat portend?  Nothing good.  Further from the Hadley Centre report:

Here is a degree-by-degree guide:

1c Increase- Ice-free sea absorbs ?more heat and accelerates global warming; fresh water lost from a third of the world’s surface; low-lying coastlines flooded

2c Increase- Europeans dying of heatstroke; forests ravaged by fire; stressed plants beginning to emit carbon rather than absorbing it; a third of all species face extinction

3c Increase- Carbon release from vegetation and soils; speeds global warming; death of the Amazon rainforest; super-hurricanes hit coastal cities; starvation in Africa

4c Increase- Runaway thaw of permafrost makes global warming unstoppable; much of Britain made uninhabitable by severe flooding; Mediterranean region abandoned

5c Increase- Methane from ocean floor accelerates global warming; ice gone from both poles; humans migrate in search of food and try vainly to live like animals off the land

6c Increase- Life on Earth ends with apocalyptic storms, flash floods, hydrogen sulphide gas and methane fireballs racing across the globe with the power of atomic bombs; only fungi survive

Chance of avoiding six degrees of global warming: zero if the rise passes five degrees, by which time all feedbacks will be running out of control

Now these are projections, the products of models; the reality will be surely be different.  But if there’s anything to the MIT study and the Hadley projection of consequences– anything at all– then we’ve got lots of work to do in reducing emissions– and fast.

UPDATE:  a link to the recent report of the U.S. Government’s U.S. Global Change Research Program: more evidence (as if we needed it) that this threat is real, and another take– slightly less dramatic; still deeply troubling– on its potential impacts.

The good news…

Selling nano refrigerators in Osmanabad

One of the obstacles to executing an effective global strategy to combat global warming– and of course it does have to be a global strategy– is that, while it’s painful for developed nations to make the necessary adjustments, it’s even harder for developing nations. Their emerging middle classes aspire to the same sorts of luxuries that their predecessors in the West have enjoyed.  Suggesting to, say, a hardworking Chinese family that it should not get a car after all, or to an Indian family that it should forgo the refrigeration for which it has saved, is a tough sale– one that smacks of entitled Westerners pulling the ladder up behind themselves.

The climate data sketched above suggests that the resolution to this dilemma can’t be simple comprise– a chicken in every other pot, as it were– that only yields an outcome slightly less catastrophic.  Rather, the answer has to come from a leap, a transcending of the old trade-offs.  Innovation must be yoked to the creation of new kinds of products and services, delivered in new kinds of ways– products, services, and systems that radically reduce the amount of carbon consumed;  products, services, and systems that are genuinely sustainable.

Happily, that innovation is underway.  And it’s happening as quickly and impactfully in the developing world as in the West.

By way of encouraging example, Outlook Business (India) reports on a new “nano-fridge,” the ChotuKool:

ChotuKool is like no other fridge. It does not have a compressor. It runs on a battery. Utensils and bottles need to be loaded into this 43-litre cool box from the top. It weighs only 7.8 kg and costs only Rs 3,200 [under $70].

The ChotuKool was co-designed with village women to assure its acceptability, and is distributed by members of a micro-finance group.  It’s a triumph of applying creative economic development thinking to the satisfaction of emergent consumer demand– in this case, demand for a product, a refrigerator, that is an avatar of emergence into the middle class.

And critically importantly, it is a step toward sustainability.  In order to make the fridges viable for rural distribution and use, the manufacturer (consumer durables firm Godrej & Boyce) shrank the standard size– reducing materials use– and replaced the usual compressor with a battery-powered heat exchanger. The upshot of which is a fridge that is less carbon (and other resource) intensive– and at the same time, cheaper– than usual.

And this is the good news:  necessity being the mother that it is, innovators all over the world– but critically importantly, in developing economies– are coming up with answers to consumer demand that redefine products as we’ve known them, making them cheaper and more sustainable at the same time.

C. K. Prahalad argued in Bottom of the Pyramid (c.f., e.g., here), that serving the poorest of the world can and should be good for business:  it’s a gargantuan market in its own right, and what’s learned there can be applied in the developed world. Examples like the nano-fridge suggest that connecting the ingenuity and the enormous potential there can be critically important to managing global climate change as well.  Prahad once said,

I am continually humbled by the inventiveness of the people who want to serve this population.

I too am humbled– and with an eye to the encroaching waterline of San Francisco Bay, I’m very, very grateful.

Shades of Gray…

source

I’ve written recently about the way in which tough economic times flush out more crime in the marketplace (c.f., for instance, “Crime Doesn’t Pay”).  Now, from the always-fascinating New America Media web site, a reminder that, even as the Black Market expands, so does the Gray Market– the Informal Economy: “World’s Shadow Economies Poised to Grow.”

Simply put, the Gray Economy is commerce in legal or quasi-legal goods/services sold in a quasi-legal ways. It might be the retailing of intellectual property (movies, DVDs or operating systems) or medical necessities (like drugs), without a license.   Or it might be services– car repair, construction, agricultural, whatever– rendered for cash, on which no taxes are paid.  The Gray Market is distinct from straight-ahead crime (the Black Market), but can involves various degrees of illegality:  theft or smuggling is Black; the street vendor’s sale of goods that might be stolen or smuggled, (dark) gray…  in any case, all of the Gray Economy is off-the-books, so at least “un-legal.”

As Hernando De Soto has shown, this Informal Economy can be a huge part of a developing country’s overall economy– and hugely important, as a source of ferment, to its growth.  Indeed, in many developing nations, the Gray Economy is larger than the “official” economy; in Nigeria, economists estimate, twice as large.

In a developed country, the Gray Economy is a smaller part of the picture.  In the U.S., for example, it’s estimated at 8-9% of GDP– but that makes it the largest informal economy in the world, at close to $1 trillion.  While Gray Economies can play a formative role in developing countries, Robert Neuwirth, the author of The Stealth of Nations: The Global Reach of the Informal Economy (to be published by Pantheon Books later this year), observes that, in the developed world, the Informal Economy is “more of a small-scale, coping mechanism.”

But wherever we find it, the Gray Economy matters… and in tougher economic times– higher unemployment, more concern about expenses, etc.– it’s likely to grow, Neuwirth suggests:

I would say the informal sector is poised to grow. In China, for November and December, exports went down compared to last year. Western demand will decrease and credit markets have dried up. In the first 11 months of 2008, almost half of toy exporters closed down. Some of that was in response to the lead paint scare, but some was in response to lower demand. So, people who can still buy are the merchants in the informal sector who buy with cash. When I went to Guangdong, China, I found there is an African community of traders—more than 100,000. They are middlemen and traders, shipping products back to Africa. They may pay some customs duties in China, although they work with their Chinese counterparts to fudge the invoices. But they pay mostly nothing on the African side. They aren’t counted in normal statistics. They exist purely with cash and their own initiative.

Similar stories could be told, from Abilene to Ankara to Angkor Wat…

But while we work against the Black Market; we need to work with the Gray Market.  Under the right conditions, Gray marketeers will “grow out” of the informal economy into the formal, White Economy.  Conversely, under the wrong conditions, those same informal entrepreneurs can be forced to “turn Black.”

So how do we work with the Gray Market?  For a start, governments and companies can and should do what they can to eliminate the “incentives” to stay Gray, or worse yet, go Black:  high tariffs and duties (that encourage smuggling and traffic in smuggled goods), punitive IP laws (that encourage piracy), exclusive licensing laws (that encourage “garage” operations, and off-license manufacture), and most importantly of all, the waste, inefficiency, and corruption that makes paying taxes look like a sucker’s bet.

None of this is easy for entrenched, needy, and often entitled (if not, indeed, corrupt) governments at the best of times…  and these are decidedly not the best of times.

Still, governments must recognize that most of what’s Gray would prefer to be White, and lean into helping them make that move… Direct government investment, infrastructure improvements, loan programs– all can have the effect of stimulating the Gray Economy…  much/most of which, as it grows, can and will then turn White of its own accord.

The alternative in times like these is a Somalia-like descent into the Black Market that’s a long step toward “failed state”-hood.  (see “Ahoy There,” e.g.)  One notes that this is precisely the logic that animated the Marshall Plan. It’s the effect (if not, indeed, the rationale) of the micro-credit movement that started with Mohammad Yunus and the Grameen Bank.  As both Marshall and Yunus realized, broadly-based economic growth– the more broadly based, the better– is the most effective remedy for (as Marshall put it) “hunger, poverty, desperation and chaos”; and thus, it makes for social and political stability…

Many corporations around the world, feeling themselves the (real or potential) victims of piracy or smuggling, would eradicate the Gray Market.  But like governments, they have more–much more– to gain by working with it.  Neuwirth offers an example of this kind of creative approach:

MTN, a South Africa-based company, came into Nigeria eight or nine years ago with the idea to do a very western, very British system of selling phones at stores. They crashed and burned. So they retooled their business concept. They now sell airtime. No one has a plan and everyone buys minutes and a sim card. The minutes are sold by a massive network of informal vendors. MTN sells minutes to distributors who resell them to people on the street. Most of the minutes are sold like that. MTN makes 90 percent of its income from selling through this huge, informal sales force.

The game is eminently worth the candle:  The Gray Economy is critical to the survival of a tremendous number of people worldwide– a number that’s growing as the economy is shrinking.  At the same time, the Gray Economy can be the “nursery” for new entrants into the White Economy.  And as those new entrants emerge, companies’ markets and countries’ tax rolls grow.

But perhaps most fundamentally, the Gray Economy has a great deal to teach us, both about the human experience and about how to improve it. As C. K. Prahalad has said, “I am continually humbled by the inventiveness of the people who want to serve this population.”

And in times like these, we can use all of the inventiveness we can lay our hands on.

UPDATE: From New America Media again, an interview with Columbia professor Sudhir Venkatesh, sociologist and author of Off the Books: The Underground Economy of the Urban Poor– a discussion of the Gray Market at work in the U.S.