Season's Greetings to All

Christmas Eve

I am now signing off until after the Christmas break.

This has been a troubled year in many parts of the world. May you and yours have a very happy festive season and a peaceful and prosperous new year.

The Balance of Payments, Australia and the sub-prime crisis

One of the things that has been puzzling me about the US sub-prime crisis is just why it should have such effects on Australia. Our direct US exposure is minimal, while there is no evidence at this point that the local low-docs loan equivalents suffer from the same problems, yet the effects continue to reverberate.

I could understand it when local home lender RAMS struck trouble because this otherwise solvent firm depended directly on shorter term US borrowings. But why was the US crisis creating domestic liquidity problems, forcing Australia's Reserve Bank to pump funds into the economy?

Thanks to an article by Brian Toohey in the Australian Financial Review (17 December) quoting HSBC Chief Economist John Edwards, I now understand. The answer proved simple but, I think, very serious.

Australia has long had a substantial deficit on the balance of payments current account, a deficit funded by capital flows, mainly through international borrowings by Australian financial institutions. The sub-prime crisis has largely stopped those borrowings.

This created a ricochet effect.

Borrowers such as RAMS dependent on offshore borrowings tried to borrow locally, increasing local demands for funds. More broadly, reduced capital inflows meant that cash stopped coming in to fund the current account deficit, draining cash from the Australian economy. Then, too, there was a reduction in lending between local financial institutions, further reducing the supply of loanable funds.

In normal circumstances, this would have been accommodated in part by a rise in interest rates rationing credit, in part by a fall in the value of the Australian dollar thus choking of imports. However, because of the scale of impacts, the Reserve Bank chose to push liquidity into the Australian economy. This meant, among other things, that we were funding the deficit on the current by reducing the RBA's holdings of foreign currencies. As a consequence, the RBA's official reserve assets fell from $A79.7 billion at the end of June to $A32.7 billion at the end of November.

This is unsustainable in the longer term. If it continues, the RBA will have to borrow internationally to fund the current account deficit, let the currency fall to a new equilibrium level, or some combination of the two. Whichever way it goes, Australia is in a degree of trouble.

When Trust Fails 1 - Introduction

Corruption problems with the NSW Government owned RailCorp have been highlighted during a four week public hearing by the NSW Independent Commission Against Corruption.

Corruption examples included a contracts relationship manager who manipulated the electronic procurement system to steal more than $A500,000; a second contracts scam is alleged to have cost the organisation more than $A4 million; while a third involved secret payments for work of more than $A1 million.

The current inquiry is one a series since 1992 that together suggest major systemic problems within the State owned corporation.

According to the barrister assisting the Commission, Chris Ronalds SC quoted in the Sydney Morning Herald, the core problem lies in the organisation's culture:

The prevailing culture is one of indifference or possibly intimidation, with minimal attempt to investigate.

Where serious breaches of conduct have been exposed....the disciplinary tone has been a slap on the wrist. This approach breeds an entrenched culture of condonation of unethical behaviour, with various scams being able to be run by different people in silos, and a failure of internal system robustness, the culture of cover up is entrenched.

I do not pretend to be expert on RailCorp. However, I do find the case interesting as an example of what appears to be systemic failure. I also find it interesting because I had formed the view that that the approach to the control of corruption in NSW is fundamentally flawed and indeed creates its own problems.

Given this, I thought that it might be interesting to explore some of these issues in a series of irregular posts.

A pause because of travel

Because of travel I am going to be away from my desk for a period. I will continue my demographic series upon my return.

Global Demographic Trends - Asia

Continuing our series on global demographic trends, in 2007 the top ten Asian countries by population excluding South Asia were:

1. China - 1.32 billion
2. Indonesia - 235 million
3. Japan - 127 million
4. Philippines - 91 million
5. Vietnam - 85 million
6. Thailand - 65 million
7. South Korea - 49 million
8. Burma - 47 million
9. Malaysia - 25 million
10. North Korea - 23 million

Jumping forward, the 2050 projections are:

1. China - 1.42 billion
2. Indonesia - 313 million
3. Philippines - 148 million
4. Vietnam - 108 million
5. Japan - 94 million
6. Thailand - 69 million
7. Burma - 54 million
8. South Korea - 45 million
9. Malaysia - 43 million
10. North Korea - 26 million

In the Asian case, we can clearly see the way in which population trends are diverging.

Japan and South Korea face population declines, while the populations of China and Thailand have begun to plateau. The size of the projected Malaysian increase came as a surprise. We would have expected it to be lower, given the country's level of economic development.

Indonesia, the Philippines and Vietnam all reflect current levels of economic development.

In the next post we will look at the Americas.

Note on Sources

Source data can be found at the introductory post.

Posts in Series

Introductory post. Last post. Next post.

Global Demographic Trends - the rise of Africa

In 2007, the top ten African countries were:

1. Nigeria - 127 million
2. Egypt - 80 million
3. Ethiopia - 77 million
4. Congo (Kinshasa) - 66 million
5. South Africa - 44 million
6. Tanzania - 39 million
7. Sudan - 39 million
8. Kenya - 39 million
9. Morocco - 34 million
10. Algeria - 33 million.

In 2007, the top ten African countries are projected to be:

1. Nigeria - 357 million
2. Congo (Kinshasa) - 203 million
3. Ethiopia - 145 million
4. Uganda - 128 million
5. Egypt - 128 million
6. Sudan - 88 million
7. Tanzania - 67 million
8. Kenya - 65 million
9. Madagascar - 56 million
10. Morocco - 51 million

These are very large increases indeed. They could well be larger if African life expectancies increase significantly.

Note that South Africa has vanished from the list, with a projected decline in population from 44 to just 33 million.

The size of the African increases has significant implications for economic development and political stability. How will these extra people be employed, fed and housed? What are the implications for Africa of projected climate change, given the projected population increases?

Note on Sources

Source data can be found at the introductory post.

Posts in Series

Introductory post. Last post. Next post.

Global Demographic Trends - the decline of Europe

In 2007, the top ten European countries by population were:

1. Russia - 141 million
2. Germany - 82 million
3. France - 64 million
4. UK - 61 million
5. Italy - 58 million
6. Ukraine - 46 million
7. Spain - 40 million
8. Poland - 39 million
9. Romania - 22 million
10. Netherlands - 17 million

In 2050, the projected top ten European countries are:

1. Russia - 109 million
2. Germany - 74 million
3. France - 70 million
4. United Kingdom - 64 million
5. Italy - 50 million
6. Spain - 36 million
7. Ukraine - 34 million
8. Poland - 32 million
9. Romania - 19 million
10. Netherlands - 16 million

With the exception of France and the UK, these numbers show a pattern of population decline across Europe. There is nothing necessarily wrong with this at a time when global populations are pressing against resources. However, it has implications for relative economic performance and for public policy.

In the next post, we will look at Africa.

Note on Sources

Source data can be found at the introductory post.

Posts in Series

Introductory post. Last post. Next post.

Global Demographic Trends - A few macro numbers

In 2007, the world's ten largest largest countries in population terms were:

1. China - 1.32 billion
2. India - 1.13 billion
3. US - 301 million
4. Indonesia - 235 million
5. Brazil - 190 million
6. Pakistan - 165 million
7. Bangladesh - 150 million
8. Russia - 141 million
9. Nigeria - 135 million
10. Japan - 127 million.

In 2050, the world's ten largest countries in population terms are projected to be:

1. India - 1.81 billion
2. China - 1.42 billion
3. US - 420 million
4. Nigeria - 357 million
5. Indonesia - 313 million
6. Bangladesh - 280 million
7. Pakistan - 278 million
8. Brazil - 228 million
9. Congo (Kinshasa) - 203 million
10. Mexico - 148 million

Even at this most macro level, we can see some interesting features.

In both 2007 and 2050, three of the top ten belong to the old Indian Empire of the British Raj. However, India and China have reversed positions as the world's most populous countries. Further, by 2050 India in absolute terms will dwarf the populations of Pakistan and Bangladesh. This has interesting implications for the power dynamics on the subcontinent.

Both China and India have been growing fast in economic terms, China somewhat faster. The size of India's population means that increases in per capita incomes are likely to be less than China's. However, aggregate Indian GDP could well pass that of China.

Factor in climate change. If the projections are to be believed, by 2050 Bangladesh's projected 280 million people are likely to face very serious problems from rising sea levels. How will they respond?

At present, Russia is the only European country in the top ten. In 205o there are projected to be none. As will be discussed in a later post, Europe as a whole presently faces population decline.

In 2007, Nigeria at 135 million is the only country in the top ten. On the 2050 projections, There will be two: Nigeria at 357 million, Congo (Kinshasa) at 203 million.

The African population is still growing rapidly. The continent as a whole has been experiencing economic troubles. Will this change, or will Africa become a powder keg? What does all this mean for powder structures within Africa?

In the next post, we will look at the European dilemma.

Note on Sources

Source data can be found at the introductory post.

Posts in Series

Introductory post. Next post.

Global Demographic Trends - Introduction

Demography and demographic trends are critical to longer term management, yet still poorly understood.

Take, as an example, the projected growth in the world population from 6.6 billion in 2007 to 9.4 billion in 2050. 2.8 billion is a large absolute increase at any time, larger still when we take into account the forecast effects of climate change on food production as well as resource usage. Among other things, this has implications for the profitability of food production.

While world populations continue to grow, the world population is also aging. This effect varies from country to country. Some countries will continue to grow in population terms, others are projected to contract. While this is well known, the actual implications are less well understood.

Take, as one simple example, the youth focus still built into much marketing. In many countries the dollar value of the younger marketplace is stagnant. It is the older age cohorts that are growing in absolute numbers and in dollar value terms. There have been some subtle market shifts that reflect this, an example is the increasing presence of older people on TV, but there is still an overall youth focus.

Take, as a second example, changes in relative power associated with population shifts.

Today Japan has 127 million people and is the tenth most populous country in the world. By 2050, the Japanese population is projected to fall to 88 million, its ranking to seventeenth. What does this mean for the structure of the Japanese economy, for Japan's place in the world?

In coming posts we plan to explore some of these issues. The posts will not be rigorous in an academic sense. Our aim is to stimulate issues, to point to things that need to be considered.

Note on Sources

Data in this series is drawn from a variety of sources including:

• The International Data Base of the US Bureau of Census

Source information will be updated as the series develops.

Posts in the Series

• Introduction - this post
• Global Demographic Trends - a few macro numbers
• Global Demographic Trends - the decline of Europe
• Global Demographic Trends - the rise of Africa

Problems with Freedom of Information

One of the side-elements in the current Australian election campaign has been a focus on Freedom of Information. These are sets of laws at Federal and State level that give the citizen, and the media, the right to access Government information.

I have always been a strong supporter of Freedom of Information (FOI), but now am having some doubts as to scope.

As a senior Commonwealth Public Servant, I used to give my Minister the best advice I could. I gave arguments for and against, along with recommendations. Sometimes I wrote thought pieces, trying to tease arguments out without setting positions. Often, the advice was very frank.

At the time I wrote, the thought that my advice might be revealed was not relevant. Had it been, I would not have written that way.

I have recently had cause to look at advice now provided by a Department to a Minister. There is no real equivalent to the type of advice I used to provide.

Part of this is due to changes in style. But part is also due to the fact that advice may be revealed through an FOI request.