nes yp ahaa NC Xom | aki (e(- alates struggle for free trade e Valuing the Yuan & moreCONTENTS Letters from the editors .asu.unnnennnPage 3 A message from the Societyi.nnnnnnnnnnPage 4 ‘A message from The Economics Society President Scott Doughty Catalonian independence. Viable or not?...Page 5 Slow indepenence and the interdependence of Catalonia and Spain Sealing the deal.. Page 6 The EU and Canada are on course for free trade. But problems persist. China's currency. How low can you go?....Page 7 Pressure mounts on the Chinese, but what will be the response? The inventiveness of advertising ..rurn-v~-Page 8 Adverising continues to innovate as do the people behind it Do we ever learn’. Page 9 As the coalition settles we reflect on the future of UK politics Events and Notices... Page 10 SS, CITY UNIVERSITY |. LONDON Economics Society The Economics Society Magazine is currently funded by member contributions, and relies on the contribution of students and lecturers for articles. If you would like to get involved writing for us please email: theschumpeter@city.ac.uk ees LETTERS FROM #EDITORS Dear readers, | would fist like to introduce myself as the new co-editor fies of The Schumpeter. | hope that over my term as o Co-Editor you will enjoy the magazine as we have worked relentlessly to Improve the magazine and increase its readership. As you can see the magazine has undergone many changes already and we hope this will engage you more. Secondly, | would like to greet alll new students and new members of the Economics Society. | look forward to meeting you at our various events throughout the year. Finally, | would like to remind all that the magazine relies on the contributions of articles from students, | encourage you to get involved and submit an article using the instructions on this page. All the best for the coming year and beyond, Tom Doherty Dear Readers, | would like personally welcome on board co-Editor Tom Doherty and design co- ordinaor Adam Aftanas. They have worked tirelessly to create The Schumpeter's new look. Ihope you find the magazine enlightening and educative, and | urge as many of you as possible to contribute to the magazine. | wish you all the best David Osborne eeA message from The Economics Society Dear Readers, We hope you've overcome and enjoyed the trials and challenges of your first five weeks of term one, and will be rested and have ‘caught-up’ with assignments by the time of your return. | wanted to give you some information on the Economics Society and hopefully persuade you to join. This year Economics Society is under new, progressive leadership; now being run by a dedicated committee. We have expanded student membership (hopefully you have had a chance to speak to ‘one of us) and we are determined to be more actively involved with the student cohort this year. The future can be a somewhat daunting prospect for many of us students. Deciding on a career path and understanding “what you are actually applying for” is a time consuming task. ‘Asa society we aim to make this process easier by building strong and mutually beneficial ties with recruiters: by organising interactive Q & A sessions, careers events and seminars for students. We ‘would also like to be a point of contact for companies wishing to advertise roles to our graduates and are aiming to invite business leaders and academics to debate current issues that are of interest to our members. We are currently working hard to forge contacts and myself and David are taking a trip to Belgium (3-Sth November) as part of the WSJE Future Leadership programme with the hopes of forging some working relationships. We hope you enjoy the new layout of our magazine special thanks go to Adam Aftanas and Tom Doherty for creating the new look. If you wish to join the society please do so through the SU website www.culsu.co.uk/economics every person who joins, not only helps us to fund our activities but ultimately persuades the university that the things we do are valued by the students giving support to our views. Good Luck for this Academic year. Best Wishes Scott Doughty President The City University Economics Society Email: Scott. doughty.| @city.ac.ukCert eau aoe AZT) eelmoed By David Osborne With the Generalitat de Catalunya (Catalan Government) — recently outlawing the burga, and more controversially bullfighting in the region, among dozens of other recent events in Catalonia, the question of whether or not Catalonia can and should become a nation independent from The Kingdom of Spain has been raised time and time again. Catalonia, just the Basque Country and Galicia. ore recognised by Spain as historical nationalities, and were the first regions fo be named Autonomous Communities. Not long after, there were a total of seventeen autonomous communities in Spai What makes Catalonia different, is not just its past, but its present. Catalonia is the only autonomous community, where the regional language is used for the majority of education, resulting in an increasing presence of the Catalan language in the region. The regional ban on bullfighting is another aspect which seems to separate Catalonia from the rest of Spain. As the economist put it “The Catalans are woried less about animal welfare than they are about rejecting the bull as the symbol of Spain’. like Ina survey token by a la Vanguardia, a Spanish-language Catalon newspaper in May of this year, it showed that 12% of Catalans identified _ themselves as solely Catalan, 22% as more Catalan than Spanish, 48% as equally Catalan as Spanish, 8% @s more Spanish than Catalan, and 8% as solely Spanish. What is interesting to note from this survey is that, in comparison to the same survey taken a few years before, more people have come to identify themselves as either solely Spanish or solely Catalan, at the expense of Th mm people who feel as if they are equally both. It may be that the rise of separatist movements in Catalonia has fattened the toils of the distibution, leading to its intention, of more Catalan-only Catalans, but has created on unintended consequence, of alienating the region's own people from their identity. Data shows that the GDP of Catalonia ( €217 billion in 2009) accounts for around 20% of that of Spain, and is comparable to the total GDP of countries such @s Hungary and Norway. In addition, this shows __ that Catalonia's population of 7.5 million accounts for 16% of the Spanish population. Based solely on this, it is certainly imaginable that, from an economist's point of view, there is a sufficient market and production for the region to become independent. After all, there is no minimum size of a country, and in the growing age of international trade, — another nation is by no means a disadvantage, after all economists. do consider perfect competition as the most efficient form of production, and one more competitor is a movement towards this idealistic state. But then we need to assess the desirability of Catalan Independence from the point of view of Spain. As one ‘of the most productive of her Autonomous Communities, it is not in the best interest of the state for Spain to release Catalonia from her — grasp. since it does after all make @ very significant contribution fo Spain's wealth. Catalan separatists generally detest this because they think of it os Catalan wealth paying for what some other Autonomous Communities don't work hard enough for. Estimates state that the fiscal imbalance of -—_ Catalonia amounts to an astonishing 7 - 10%. From a liberal point of view, we can compare this to taxation, as a form of income re-distribution: an effort for Spain to fill the gap between wealth, infrastructure and standards of living in her Autonomous Communities. (Bear in mind that The Schumpeter wishes to express no bias to either end of the political spectrum) Catalan independence _is Perfectly viable, but not desirable, neither in the eyes of Spain, nor in the eyes of the majority of the Catalan people. The Generalitat also state that they wish have a nation within the framework of the state of Spain. This means that they wish to enhance the identity of Catalonia as a distinctive type of Spanish Identity not just “fiesta and flamenco”. Indeed, Catalonia is distinct in culture and language, but it is equaly a fundamental part of what makes Spain _unique An independent Catalonia would indeed be able to survive and thrive, but it is highly likely that it could cause a domino effect with the other regions of Spain, next of which would probably be the Basque Country. Consequently breaking the second article of the Spanish Constitution, which mentions, “the indissoluble unity of the Spanish nation”,by Tom Doherty when America sneezes the World catches a cold, but a little known saying this side of the pond is that when America sneezes Canada gets pneumonia. They soy that This has not been more apparent than in the last couple of years. It is common belief that Canada escaped the crisis, it retumed 10 growth quicker than any G8 nation and not one of their banks got bailed out. As the rest of the world scrambled to the G20 conference in London, Canada strutted in, confident and cocksure that its banks, under the might of regulation, weren't going through the same trauma that others were, but the future was not as clear. Canada struggled much more than was first apparent, it has heavy dependence on exports to the US (73% of exports) and with 60% of GDP dependant on exports any reduction of demand from its neighbour to the south sends Canada into dangerous territory. So it is understandable then, that Canada should start wondering about how to relieve itself of its US dependency and diversify its portfolio of partners. Enter stage tight: The European Union. The EU is already Canado's second most important trading partner, with its greatest partner in the EU being the UK. Little known to Canadians and even Europeans is that the EU and Canada are akeady entering the final stages of formal discussions for a comprehensive free —_trade agreement. As part of an intense program that was announced in 2008, officials have had many rounds of negotiations and aim to complete these negotiations by next summer. A very fight schedule for such a massive project. At the heart of this agreement are all_ things economic; free trade, free mpeter labor movement, liberalising of economic regulations. —_ to accommodate each other; but, ‘on the outskirts, are all things political. On Canada's end, it continues to play a tug of war between the 13 provincial governments and the federal government who are all invited to sit at the table and negotiate. Each has their own agenda, making it difficult to make everyone happy. Any agreement of this kind completed in 3 years would be exceptional but with exclusions here and caveats there this agreement is facing an uphill struggle like no other. At the EU end, for the first time, such an agreement has to make it through the EU parliament, a power that it has just been handed. It then has to make it through the EU commission and the Council, but this should not be such a hard task. ‘Canadian ambassadors are working relentlessly in Brussels to ensure when this comes to the table it slides fight through. But making it to the table may be @ greater problem, negotiations are slow and _—_ although agreement has been said to have been made on around 90% of the agenda, the final 10% — will be the hardest. Public procurement, GM products, product — standards, intellectual property _ rights are all issues of contention in the agreement. Outside of the agreement Canada, with Russia on its side, continues to disagree with Europe's intervention on Arctic issues. The melting of the Arctic has opened up speedy trade routes in the North, Canada says they are their waters, but the EU Parliament with the USA on its side says these are intermotionol — waters. and international treaties are needed. And there is one issue that won't go away; seals. Yes, the aquatic animal, It seems sily that a free trade agreement of this magnitude should be damaged because of the banning of seal products. In Canada, seal big business for some communities, particularly those in the harsh north who rely on this hunt for their livelihoods. Over the summer the EU enacted upon a ban of products resulting from a seal hunt. Canada reacted angrily condemning the EU for failure to assess the situation and possibly damaging the future of the _ indigenous people of its. Norther teritories. The EU dithered and came back with no direct hunting is response, but further pressure led them to retain the ban with exceptions for the indigenous people. A cop out causing more confusion. Nunavut (a North Canadian territory) whose indigenous population (largely Inuit) demand change to the legislation and have reacted by banning imports of EU liquor. So what is the future of this substantial agreement on the fable? First the EU must close the seal issue once and for all. It seems pointless for the EU to be waving its bureaucratic arm continues aointo the small communities of Canada, seals are not endangered creatures and people rely on them for their livelihood. Besides, the EU Parliament may wish to look internally at its. Spanish colleagues and question bull fighting before it sets its heart ‘on condemning the traditions of people from foreign lands. Second, it must move forward into the next round of negotiations (October 2010) with its eye on the prize, it is estimated that economic integration with Canada will benefit Canada's GDP 0.77% annually and Europe's GDP 0.08% annually. This may seem negiigible for the EU, but in a period of austerity, with the threat of double dip and with the IMF reducing forecasts for growth; Every little helps. Finally, with austerity occuring across the EU the unions have their hands full, normally trade agreements of this magnitude would have the unions up in arms about labour trade and market liberalisation but with the unions eyes elsewhere it would make the agreement a lot easier when it reaches Parliament. in Canada, the agreement has finally caught the eye of the Canadian Labour Congress and they have accused the Harper Government of sneaking this through. Sneaking or not, this agreement is good for the prospects of both countries and should be signed, sealed, delivered. Coad Da eeub ir By Mani Nabi The Yuan has been the main target of debate at this year's annual meeting of -—the International Monetary Fund, in Washington DC. China has received worldwide flack from jhe ich countries, America in particular to appreciate its currency. Tim Geithner, the treasury secretary referred to China's reluctance to allow the Yuan to tise as creating a ‘dangerous. dynamic’ —_of ‘competitive _non-appreciation’ in emerging countries. China's excess accumulation of reserves was commented on as leading to ‘serious distortions’ in the world economy. As part of China's rebuttal, officials argued that in fact it wos the rich countries loosen policies that are producing the biggest distortions, particularly America’s prospect that the Federal Reserve would soon reactivate a procedure of “quantitative easing”. Such vast liquidity creation, said Zhou Xigo-Chuan, the governor of China's central bank, would inundate emerging countries with destabilising capital inflows. According to the latest Big Mac index at market exchange rate (Oct 13th), the Yuan is one of the most undervalued currencies, far below the tich ‘ountries (see table 1.1), in fact "sat =a staggering undervaluation of 70% against the dollar. What this means is China's products are artificially cheap, which has a variety of negative effects on the rest of the world. This is a mojor reason why manufacturing has been leaving North America and going to China. Low wages don't hurt either! It's also why China has created such a massive amount of cash, mainly financed on the backs of the rest of the world through huge trade deficits. China has been relentless to not let the Yuan rise faster than it curently is, much to the demands of the world. As it stands now, the Yuan has been stuck in first gear in comparison to global standards. However it is no overstatement to say that since the financial crisis, China has been in the driver's seat. Its cumency moves have had a decisive influence on exchange rates. Earlier this year when the euro got into trouble, China adopted a wait-and-see policy. lis absence as a buyer contributed to the —euro's decline. When the euro hit 120 against the dollar China stepped in to preserve the euro as an international currency. Chinese buying reversed the euro’s deciine. Last month the House of Representatives passed a law allowing firms to seek tariff protection against countries with undervalued currencies, with a huge two- way majority. a RC Poesia tigtcins 678 526 47 “The dollar 371 a 371 a7 371 am 371 am 371 a7 371 a7 371 a7 371 Under overvalation against the dollar +8396, 2% $29%, 13% 5% 2% 7% 22% 33% 46 52% 55% 65% 7086The angry statements about curren- cy manipulation continue, with anger focused on China's Renmin- bi. But China is not the only nation rigging its currency values. Other nations are also managing curren- cies, attempting to make them weaker and their products compet- itive. But as the world's largest ex- porter with a massive and growing surplus, China is under the spotlight ‘and may have to swallow the bitter pill - one that would perhaps be sweetened if China could per- suade its Asian manufacturing part- ners to adopt a regional currency accord, More than a quarter-century ago, Japan played the role that China does now, with its auto and elec- tronics exports. The US trade bal- ‘ance was in a bad position, due in part to high fiscal deficits, when it negotiated the Plaza Accord in late 1985. The current account deficit, largely the trade deficit, was nearly 3 percent of GDP that year, and sO G managed strengthening of Japanese and European curren- cies was negotiated. This currency change shifted manufacturing to other parts of Asia. Its true that the trade balance with Japan did not improve much, but overall the dollar devaluation suc- ceeded in lowering the deficit. This ‘experience gives many in the Con- gress fuel for believing that if China would "play fain” then the Fi would shrink Too much focus on the currency however, is dangerous. If China raised its currency too quickly, as most of its trading partners want and as Mr Wen Jiabao (the sixth and curent Premier of the State Council of the People's Republic of China) wamed against, then the profitability of the export sector would decline so quickly that exporters would be forced either info bankruptcy or into lower- wage countries. They would fire workers, who would then consume less. So China faces @ choice: rebalance speedily with high unemployment, or slowly with low unemployment. IMC Wenn) By David Musil IF you ask the question, “How much would it cost to effectively promote a business to the whole world?" many people would start to give you seven-, eight- or even nine-digit numbers. Now ask Alki David, the billionaire ranked 45th on the Sunday Times Rich List with an estimated fortune of £1.15 billion and he would probably tell you one milion dollars. The intention of his intemet project, Battlecam.com, launched in March 2010, was to start a live interactive realty television channel and community where users can broadcast. live from — any webcam to an audience. He chose a very different style of promoting his site when on the 17th of September Mr. David announced that he would give one milion dollars to anyone who would _ streak naked in front of Barack Obama Without any doubts it was surely a really bizare idea. Barack Obama was definitely a good choice since he is the most watched man on the Earth and that nearly all of his movements are recorded and he is often surrounded by crowds people. So put streaking, a crowd of people and Obama together, and the result would definitely be a shocking worldwide phenomenon. The graph below shows how many Intemet users (in percent- age) visited Battlecam.com: Daly Reach (percent) i | Nh | ne | ob al. (Source: www.alexa.com) On the 27th of September when Mr. David announced the reward for the “act” there was @ significant increase in the percentage of total Internet users visiting that site during this period We also have to take account other wellknown Internet news sites which helped present his statement to the public. But this is a natural reaction to such a slalement. And it cost nothing! Just the promise of one million dollars. That was the first step of his advertisement. in to Than as we can see, on the lth of October, Juan James Rodriguez actually stripped B‘and streaked during Obama's public speech in Philadelphia. This led to a huge increase of visitors at Batlecam.com and, according to Alexa.com as shown on the graph above, roughly 0.044 percent of all Intemet users visited the site at this time. Supposing that the fotal number of internet users is around two billion then on that day around 880,000 people visited the site. We can't actually count the precise number of people who saw the video as it was published on numerous news websites. Mr. David didn't pay Juan James Rodriguez the entire sum as he claimed the full conditions of the stunt were not met, however = Mr. Rodriguez received an unspecified sum of money. Finally, we can assume that Mr. David's popularity played a big role, so when he offered one million dollars many people took it as a genuine promise. On the ‘one hand his idea of promoting his project potentially saved him @ lot of money on the other hand, the promise, of one million for such a crazy think, divert the attention from the advertising purpose. In different words, nobody was concentrated on the product but on the style of the ad. This was shown by the research, where nobody knows that it was about promoting the battlecam.com If he chose to advertise for example on facebook he would pay 0.62 dollars for one click on his ad there. So if he invests one million, more than 1.6 milion of people would visit his site. Maybe he won't reach such a big number of visits during one day but he would probably gain visitors who could come back. By Carsten Lobo Having elected the Tories (under the brand of a coalition) less than six months ago, pollsters are already finding Labour's popularity at par with that of the Tories. Despite leaving us with the biggest peacetime deficit the country has ever seen, it would seem that Labour are virtually indestructible. And after being surprisingly (even for him) whisked into the job as shadow Chancellor, Alan Johnson condemns the_~—- ConDem government for planning to cut the deficit too fast. The only insight the shadow chancellor has given into his plans is that he would use 40% jax rises and 60% spending cuts to help plug the huge black hole in ‘our nation’s finances. Figures, that it would seem, have been plucked from the air 60% of spending cuts seems sill a jad high considering Labour's traditional pro-tax. attitudes. The jth is that the public widely acknowledge the need of spending cuts. But, naturally (and importantly for Labour) they do not want to be affected in a way perceived to be direct. Whitehall cuts are widely accepted by the wider public, but tak of housing benefit and child benefit. cuts has filed the public and the media. Combining 60% of with 40% tax spending cuts increases (with Labour duly promising planned higher tax revenue increases from bankers), they are now not just @ protest party, but, as the poll would have us presume, they are looking like a party for Government. But a return to Government so soon seems unlikely. Given that the cuts will be made up to 2014 and with elections the next year, the memory of Labour's failure in finance will sfll be too raw. However Cameron & Co. still need to acknowledge that they do not hold a majority and that they still need to increase their vote share; a difficult task for an austerity Government. While the Tories may plummet in the polls in 2-3 years time, when the cuts start to bite, they must hold firm and face the problems head on. Before the next election, the union's puppet Mr. Miliband will try to convince us that there is ‘stil’ an alternative. And he may hoodwink us for a while, that until the next live TV election debates. The result remains to be seen, but the question will certainly be whether he possesses the halmarks of a true leader. The shadow cabinet as it stands, appears weak, especially with Mr Johnson appearing to struggle mastering his ‘Economics for Beginners’ book, an admission he made himself on television just days before the spending review. The Tories then, appear unchallenged at the next election, though the question remains; Will we ever learn? If we are to learn, then the Tories must gain our trust as the party for Government andmost importantly retain it. They need to maintain their strong stance & identity on issues like crime & immigration, but also engage on a compassionate level, through areas such as the NHS, education and poverty. The early days of Government have been progressive, the Tories appear focussed, but distractions will creep in along the way and they must do their best to only get involved where necessary. However, Labour was once the party with the trust and the focus. Time's change and Politics is a fast moving subject. In the short run we may be able to say to our children that ‘Yes, we did lear our lesson," but theits is a generation that must learn them all over again. SS EVENTS ZNOTICES Money and Politics in the US and UK Thursday 1 November 2010 - 18.30 @ OTLT (Northampton Sq) Money has dominated US politics for a generation, Presidential canidates raise literally billions of dollars to fight campaigns, some from small donors but other amounts from the rich, and companies and rich individuals also have the right to buy paid advertising in support of parties or postions, ‘The law regulating campaign finance (McCain Feinghold) has been thrown into disarray by recent Supreme Court decisions. On 4 November 2010, US citizens wil elect a new Congress in the mid-term elections, with the Republicans widely expected to make gains and perhaps gain control of both Houses of congress The role of money, both campaign finance and paid political advertising, is likely to be crucial to the outcome. So are the US laws unfair and do they allow money to have too big an influence in US politics? In contrast, campaign finance and political advertising is much more strictly regulated in the UK, particulary in relation to broadcasting, But the current arrangements are widely seen as unfair as well with the Labour Party dependent con trade union money and the Conservatives on a few rich donors, some domiciled overseas. Attempts in the last parliament to reach a consensus on this issue broke down. Should the new reforming government consider reform of UK campaign finance law, perhaps to allow the state funding of party campaigns? Is ita priority for Democracy campaigners? And how would such reforms square with the widespread cynicism about politicians engendered by the expenses scandal? Women in Enterprise Wednesday 17 November 2010 - 1800 @ Northampton Suite (Northampton Sq) (On November 17 City University London, Isiington Business Partnership and isington Chamber of Commerce are celebrating the Global Entrepreneurship ‘Week by joining forces to organise a "Women in Enterprise” evening, The topic for this event could not be more appropriate as November 17 is the Women's Enterprise Day celebrated as part of the Global Enterprise Week! We’d love to hear your feedback If you have any questions or comments please write to us at: theschumpeter@city.ac.ukCITY UNIVERSITY LONDON Economics Society