ADBI Newsletter Volume 6 Number 3 | Supply Chain | Commodity

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2012 Volume 6 Number 3

On the Path Toward a New Capitalism

SYMPOSIUM

Grameen Bank founder Muhammad Yunus, (second from right), joins a distinguished panel of economists and business leaders: Dean Kawai (far right); Masaharu Okada, (far left), professor and executive director Yunus & Shiiki Social Business Research Center, Kyushu University; Yasuchika Hasegawa, (second from left), president and CEO, Takeda Pharmaceutical Company; and George Hara, (center), group chairman and CEO, DEFTA Partners.

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world “stands at a critical juncture in the history of capitalism,” said ADBI Dean Masahiro Kawai, at the opening of the symposium, Toward A New Capitalism, which was co-sponsored by ADBI, The Alliance Forum Foundation, Yomiuri Shimbun, and Japan’s Ministry of Foreign Affairs, Ministry of Finance, Ministry of Economy, Trade and Industry, and Financial Services Agency, held on 25 July. In the presentations that followed, speakers addressed a number of fundamental questions. What is the right system for the global economy? If it is capitalism, how can the system be improved? What lessons can be taken from former and current economic systems to forge a more humane and people-centered capitalist model? Dr. Shozaburo Jimi, former Minister of State for Financial Services and Postal Reform of Japan, located the source of capitalism in the European Reformation. In Japan, it had manifested itself in the mercantile city of Osaka during the Edo period (1615–1868). He stressed that, although the Anglo-Saxon way of thinking practiced by Wall Street and London exerts great influence over the global economy, it was not the only model for

capitalism. In the Japanese context merchants from the Lake Biwa area had traditionally taken the view that it was not sufficient for a transaction to be good for the seller; it must also benefit the purchaser and the community. Dr. Jimi bemoaned the focus on short-term profits; he argued that capitalism needed to evolve toward a much longer-term perspective on growth.

In this issue
Toward a New Capitalism 1–2 Sub-Regional Workshop on MDGs 3 ADBI in the News 3 Distinguished Speaker 4 Future of the World Trading System 5 Importance of International Supply Chains 5 ADB-ADBI-CAREC Conference 6 Selected Events 7 Recent Working Papers 7 ADBI–WB Roundtable 8

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Nobel laureate and Grameen Bank founder Muhammad Yunus gave a short history of the world’s most famous microfinance institution. He admitted that his first foray into small-scale lending was not well thought out; rather, it was an instinctive response to the contrast between the theoretical economics he was teaching in his university classroom and the harsh reality for the people living in the adjoining settlement. From his first loan for $27 to 42 families in 1976, Yunus took the audience on an entertaining journey from the founding of Grameen Bank in 1983 to the large financial institution it is today, lending $1.5 billion a year to 8.4 million people, 97% of whom are women. Although Grameen Bank is most famous for nurturing very small businesses, Yunus explained that it had also educated hundreds of thousands of young people through its education loans. Successful initiatives in Glasgow, New York, and San Francisco had shown that the Grameen model had something to offer excluded communities in developed countries as well. As for why loans were repaid, despite the bank’s dismissal of collateral, he explained that “Closeness is the trick. They know us, and we know them.” Yunus challenged his listeners not to be mesmerized by the system. Far too much attention was paid to short-term fixes that led at best to 2–3 year breathing periods. Instead, he urged the audience to create systems that were new and fresh.
Panel discussion:

Dean Kawai started the panel discussion by posing a number of provocative questions to the panelists. Is capitalism fundamentally bad? How can an economic system reconcile public and

private interests? What is wrong with the market system? George Hara, group chairman and CEO, DEFTA Partners, and Chairman of the Board, Alliance Forum Foundation, was critical of the capitalist system, which emphasized the maximization of shareholder value in the shortest period of time. In the United States, he felt that this had led to a migration from investment to speculation, which was the main cause of the current crisis. Instead, he urged a broader view, taking in the rights of all stakeholders—workers, suppliers, customers, and the broader community. In his view, a new structure was needed, one that embraced all these players. Yasuchika Hasegawa, president and CEO of Takeda Pharmaceutical, sought answers to capitalism’s current problems in the past. He argued that there was a strong tradition of ethical entrepreneurship in Japan, in part because of the country’s tradition as a closed economy and the consequent need for traders and their customers to trust each other. Like Yunus, he argued that proximity and a notion of a shared interest were key to establishing ethical business practices. Masaharu Okada, professor and executive director of Yunus & Shiiki Social Business Research Center, Kyushu University, regarded the ownership of corporations as a critical element. Grameen Bank, for example, was 97% owned by its borrowers, with the other 3% owned by the Government of Bangladesh. In his view, such an ownership model was an essential part of establishing social businesses. Yunus explained that, although the world was facing a “bundle of crises”—financial, environmental, food security—when the crisis was deepest the opportunities were greatest. The opportunities offered by technology meant that the distance between the possible and the impossible was shrinking. He urged young people in the audience to “think the impossible”—only then could the world truly progress. Dean Kawai said that one of the main conclusions from the symposium was that new capitalism in the form of social business had the power to solve social problems and improve social conditions. That was an important message to take on the path toward a new capitalism. ■
For more information on this symposium please visit: www.adbi.org/event/5134.yunus.jimi.distinguished.speaker/. Video: www.youtube.com/ADBInstitute

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Attaining Millennium Development Goals
Two-thirds of developing countries are on target, or close to being on target, to achieve the Millennium Development Goals (MDGs) of inclusive and sustainable growth. Among developing countries that are falling short, half are close to being on track. With improved policies and faster growth, these countries could achieve their targets in 2015, or shortly after. Yet even those middle-income countries on track to achieve MDGs are home to socially excluded groups that are very poor and increasingly vulnerable to worsening environmental problems and the impacts of climate change on their lives. To apprise policymakers on progress, the Sub-Regional Workshop on MDGs and post 2015 Sustainable Development Agenda for Central and East Asia, was held in Almaty, Kazakhstan, 26–28 September. Joined by representatives from Central and East Asian governments, development agencies, and community supported organizations, the workshop participants shared their experiences on the implementation of MDGs. Discussions also offered perspectives on the post-2015 development

WORKSHOP

agenda. Governments are urged to adapt policies, procedures and tools to tailor support for unique country circumstances and needs, such as people hit hard by financial turmoil, food and fuel crises, and natural disasters. In doing so, it was decided to explore buffers that allow the convergence of MDGs and sustainable development goals (SDGs). This is the first of four sub-regional consultations organized by ADBI in cooperation with UNESCAP–UNDP and the Asia–Pacific CoP on MfDR. ■

Bindu Lohani, Vice President of ADB, (right) is joined by Serik Akhmetov, Vice Minister of Labor and Social Protection, Kazakhstan, (second from right) in a discussion on Millennium Development Goal achievements in Central and East Asia. For more information on this workshop please visit: www.adbi.org/event/5219.mdg.post.2015.dev.framework. central.east.asia/.

ADBI in the News
Dean Kawai was cited in the Eurasia Review article, Japan’s Dilemma on the Trans-Pacific Partnership—Analysis. Director of Research Ganeshan Wignaraja was cited in the Latin American media outlets Aguasdigital.com, El Norte De Castilla.es, Ideal.es, Pysnnoticias, Que!, for his views on Latin American trade ties with Asia during the conference, ASIA y LATINOAMERICA en la Busqueda de: Una Asociation para el Desarrollo Conference, held in Montevideo, Uruguay, 31 July. CBT Director Yuqing Xing was cited in the Bloomberg News article, Nissan Cars Head Home as Yen Erodes Century of Made-in-Japan (which was republished by the Detroit Free Press and The Japan Times); the Xinhua News article, Japan allowed to buy 10.3 bln USD worth of Chinese government bond; and the South China Morning Post article, Yuan internationalisation runs into some problems. The ADBI working paper, How the iPhone Widens the United States Trade Deficit with the People’s Republic of China, by Yuqing Xing and Neal Detert, was cited in the Calgary Sun article, Langrish: On threshold of historic deal. And it was mentioned in the Financial Post article, Canada-EU trade holds great potential. ADBI’s book, Shaping the Future of the Asia and the Pacific-Latin America and the Caribbean Relationship, was reviewed by Foreign Affairs magazine and featured on Dangdai.com, an Argentine media website. ADBI was cited in the Inter Press Service article, Free Trade with China? No, Gracias. The Muhammad Yunus symposium, Toward A New Capitalism, was reported on by The Japan Times in the article, Nobel laureate Yunus wants tech prowess applied to social businesses, and by Kyodo News in the article, Nobel laureate Yunus urges business to fight poverty.
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Non-Tariff Measures a Challenge to Trade
Patrick Low, chief economist at the World Trade Organization, delivered a lecture on Old Issues and New Frontiers: Managing Non-Tariff Measures as part of ADBI’s Distinguished Speaker Seminar series on 30 August. Low presented his findings on non-tariff measures (NTMs) in international trade, which was also the subject of the World Trade Report 2012. NTMs pose several challenges. The first is that not enough is known about NTMs and their impact on trade. The second is that NTMs may serve public policy interests. So the question is, are they going to serve public policy interests in a manner that frustrates trade unnecessarily, or are they going to be designed in a way that has a minimum impact on trade? “The third challenge is that NTMs are typically measures that must be applied administratively in a certain way in a repeated fashion. And so one thing is the substance of the measure and we can have disagreements about whether it’s appropriate or not, and the other is the way in which its applied, and it’s

DISTINGUISHED SPEAKER

the way in which its applied which is often at the source of the tension and difficulty over its trade effects,” said Low. To address this issue, governments need to supply better information in order to create a more complete picture of NTMs and their impact on trade. ■

Greater institutional integration is needed to address non-tariff measures, said Patrick Low, the World Trade Organization’s chief economist. For more information on this seminar please visit: www.adbi.org/event/5197.low.distinguished.speaker/. Video: www.youtube.com/ADBInstitute

Rise of Asia and the New World Order

DISTINGUISHED SPEAKER

Dale Jorgenson, a professor at Harvard University, gave a presentation on The Rise of Asia and the New World Order as part of ADBI’s Distinguished Speaker Seminar on 25 September. The global economy is undergoing a fundamental change. Despite concerns over slowing growth in the People’s Republic of China (PRC), India, and Japan, and the possible dissolution of the eurozone, global economic growth is accelerating. In addition to the acceleration there The new world economic will be a new world order in 2020 will be associated with more rapidly economic order, and it growing countries such as the will be associated with PRC and India, said Dale more rapidly growing Jorgenson.
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countries such as the PRC and India, which will have a larger share of the global economy. The new world order will look very different in 2020, with Asia having three of the four largest economies in the world. The PRC overtook Japan as the world’s second-largest economy in 2010. In terms of purchasing price parity (PPP), the PRC will overtake the United States (US) in 2017, according to the International Monetary Fund. And India will overtake Japan in PPP in 2012. The G8 and G20 countries will grow in 2010–2020, while the BRICS countries (Brazil, Russia, India, PRC) will grow even faster. Growth will slow for Hong Kong, China; Indonesia; Republic of Korea; Malaysia; Singapore; and Taipei,China—nonetheless Asian and global economic expansion as a whole will accelerate, driven by the PRC and India. ■
For more information on this seminar please visit: www.adbi.org/event/5225.jorgenson.distinguished.speaker/.

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Global Trade at a Crossroads

WORKSHOP

ADBI has launched a major project to comprehensively examine the key changes occurring in the world trading system and the policy implications for Asia. The project will pursue several interrelated objectives, including (i) patterns and drivers of production networks; (ii) reforms of WTO rules and processes; (iii) patterns of free trade agreements (FTAs), consolidation of FTAs

ADBI Deputy Dean Jae-Ha Park (far left), Director of Research Ganeshan Wignaraja (second from left), Satoshi Inomata of JETRO IDE (second from right), and Biswajit Dhar (right) of Research and Information System for Developing Countries, discuss the outlook for the global trading system at ADBI on 31 August.

into larger region-wide agreements and ways of making FTAs consistent with multilateral trade-rules; and (iv) the economic effects of new forms of commercial and industrial policies. The inception workshop for the project, Future of the World Trading System: Asian Perspectives, held at ADBI on 31 August, organized the core study team members comprised of noted international trade researchers from Asia and other regions, and conducted brainstorming sessions in which the researchers’ preliminary ideas and the outline of their papers were presented and discussed. A conference will be held in Geneva, Switzerland, in 2013, where all the draft research papers will be presented. Participants will include the core study team of experts—academics, researchers and other resource persons—as well as government officials from Asia and other regions, and staff of multilateral agencies. The final drafts of about a dozen research papers will be published as an edited volume by an international commercial publisher. ■
For more information on this workshop please visit: www.adbi.org/event/5210.future.world.trading.system/.

Why Are International Supply Chains Vital to Economic Growth?
Supply chains are crucial to trade, argued Douglas Brooks, ADB assistant chief economist, at his seminar, Importance of International Supply Chains to the Performance of APEC Developing Economies, held at ADBI on 2 July. Efficient supply chains shorten transit time, lower transportation and inventory costs, and facilitate planning activities. These in turn go a long way toward mitigating the risks faced by economic agents engaged in trade. Global supply chains support and drive global economic activities, which spur technological innovation and operations, thus satisfying demands while generating further supplies and income. Supply chains have become so central to global trade that some are beginning to view competition as increasingly occurring between supply chains rather than between firms. Supply chains are only as strong as their weakest link, so the system needs to be more resilient and flexible across the chain. But improving supply chain efficiency requires a broad reform approach encompassing both hard and soft infrastructure, which international agencies such as the Asian

SEMINAR

Development Bank play a role in achieving. As well as providing hard infrastructure for supply chains, governments must also provide a regulatory environment that is conducive to the participation of the private sector, which can join in through public–private APEC economies can partnerships. A system of expand trade by improving providing accurate and their supply chains, said Douglas Brooks. timely information is also necessary for efficient supply chains. This allows logistics service providers to integrate information to better manage supply chains, and to cut transaction costs by facilitating communication between manufacturers and distributors. ■
For more information on this seminar please visit: www.adbi.org/event/5080.brooks.intl.supply.chains.apec. dev.economies/.

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Exploring Transport Facilitation Arrangements in Central and West Asia
The Central Asia Regional Economic Cooperation (CAREC) program is developing six international transport and trade corridors linking the program’s 10 participating countries (Afghanistan, Azerbaijan, People’s Republic of China, Kazakhstan, Kyrgyz Republic, Mongolia, Pakistan, Tajikistan, Turkmenistan, and Uzbekistan) with each other and linking the region to other Eurasian markets. The program plans to complete construction or improvement of about 8,400 km of roads and 5,300 km of railway lines by 2017. Improvements in soft infrastructure such as transport facilitation agreements are required to ensure this large body of investment delivers the highest returns to the region. Transport facilitation is particularly important for the CAREC region, which includes eight landlocked countries and lies at a crossroads linking large and growing markets in East Asia, South Asia, Europe, and the Russian Federation. While there are a number of multilateral and bilateral transport facilitation agreements in place in the CAREC region, cross-border movement of goods and people remains constrained. Senior transport and customs officials responsible for transport facilitation in CAREC

WORKSHOP

countries joined a knowledge sharing event, Ways Forward for Corridor-Based Transport Facilitation Arrangements in the CAREC Region, in Beijing, 2–3 July, to take stock of and learn from existing transport facilitation arrangements in the region; learn from international good practices on region- and subregion-wide transport facilitation arrangements; and generate feasible and practical recommendations on moving forward on corridor-based transport facilitation in the CAREC region. The meeting outcomes contributed to progress with the broader CAREC Transport and Trade Facilitation Strategy and helped shape a new $1.5 million technical assistance program supported by ADB. Several CAREC countries are exploring the possibility of piloting the recommended approach to transport facilitation arrangements. The workshop was organized by ADB’s Central and West Asia Department, ADBI, and the CAREC Secretariat. ■
For more information on this workshop please visit: www.adbi.org/event/5026.transport.facilitation.agreements. carec/. Workshop materials and reports are available on the CAREC program website: www.carecprogram.org.

Samad Garalov, Head of Control of Trade Cargo Department of the State Customs Committee of Azerbaijan (left), introduces his country’s approach to transport facilitation arrangements in Central Asia at an ADB-ADBI-CAREC conference in Beijing, 2–3 July. CBT staff David Kruger (third from right) joins the meeting.

E-newsline Brings Asia to Your Inbox
For a daily wrap up of development news and events in Asia, subscribe free to ADBI’s e-newsline. Concise summaries of news, opinions, and editorials from an Asian perspective are delivered daily to your inbox. To learn more about e-newsline and to subscribe, visit: www.adbi.org/e-newsline/.

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Selected Events

30 November

ADBI Annual Conference on Growth and Regional Integration in Asia and the Pacific in 2013 and Beyond (Tokyo) This conference will discuss recent developments in Asian growth and regional integration, and explore prospects and assess policy choices for sustainable growth. Book launch of the Chinese edition of Asia’s Free Trade Agreements: How is Business Responding? (Beijing) This event is being organized in cooperation with Chinese Academy of Social Sciences. Seminar by El-hadj Bah: Constraints of Small Firms Growth in Myanmar (Tokyo) This seminar will examine the constraints that small firms are facing while doing business in Burma.

6 December 11 December

Recent Working Papers
Central Banking for Financial Stability in Asia
Authors: Masahiro Kawai, Peter J. Morgan
A key lesson of the 2007–2009 global financial crisis was the importance of containing systemic financial risk and the need for a “macroprudential” approach to surveillance and regulation that can identify system-wide risks and take appropriate actions to maintain financial stability. This paper reviews the recent literature on this topic and identifies relevant lessons for central banks.
Read Working Paper 377 at www.adbi.org/working-paper/ 2012/08/28/5221.central.banking.financial.stability.asia/.

Europe’s Debt Crisis, Coordination Failure, and International Effects
Author: Stefan Collignon
This paper gives an overview of the causes of the European debt crisis and the consequences for the external relations. It finds that political mishandling has increased uncertainty, which has contributed to a tendency for the euro to become weaker.
Read Working Paper 370 at www.adbi.org/working-paper/ 2012/07/11/5141.europe.debt.crisis.effects/.

Japan’s Post-Triple-Disaster Growth Strategy
Authors: Masahiro Kawai, Peter J. Morgan
The repercussions of the Great East Japan Earthquake on 11 March 2011 spread far beyond the geographical areas directly affected. The disaster also highlighted Japan’s many other structural challenges, including low growth, population aging and low fertility, government debt, declining international competitiveness, and uncertain energy supplies. This paper discusses the scope of these challenges and sets out a strategy for overcoming them and putting the Japanese economy on a stable growth path.
Read Working Paper 376 at www.adbi.org/working-paper/ 2012/08/22/5218.japan.post.triple.disaster.growth.strategy/.

Green Growth and Equity in the Context of Climate Change: Some Considerations
Authors: Jeffrey D. Sachs, Shiv Someshwar
The authors explore ways that equity has been considered in climate change discussions. They discuss per capita emission right approaches, and highlight key challenges in the application of equity in global climate change negotiations. They provide a brief overview of key approaches to carbon financing, focusing on recent cost estimations of potential climate change impacts, as well as of projected needs for green growth programs.
Read Working Paper 371 at www.adbi.org/working-paper/ 2012/07/13/5149.green.growth.climate.change/.

Institutions for Asian Integration: Innovation and Reform
Authors: Giovanni Capannelli, See Seng Tan
The formation of regional production networks in East Asia has occurred mainly through market forces, without much help from regional institutions in promoting the creation of a single Asian market. While this approach has served the region well, the drastic changes experienced since the 2008–2009 global financial crisis and the challenges Asian countries are facing, have rendered more urgent the need for intergovernmental cooperation at global and regional levels.
Read Working Paper 375 at www.adbi.org/working-paper/ 2012/08/20/5217.asian.integration.innovation.reform/.

Do Exporting Firms in the People’s Republic of China Innovate?
Author: Ganeshan Wignaraja
This paper assesses factors driving firm-level export performance in Asia’s super exporter—The People’s Republic of China (PRC). While early studies suggested that innovation was important, there has been little research on opening up the black box of technology at firm-level in the PRC, the author undertakes econometric analysis of innovation, learning, and exporting in automobiles and electronics firms in the PRC using a large-scale dataset to identify the most appropriate innovation proxy.
Read Working Paper 365 at www.adbi.org/working-paper/ 2012/07/03/5135.exporting.firm.prc.innovate/.

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Outlook for Agriculture Commodity Exchange in Asia
The recent volatility in global commodity markets highlights the vital role of commodity exchanges for developing countries. A well-functioning commodity exchange can facilitate the process of price discovery and improve the functioning of markets for food and agriculture commodities. Volatility in international markets and underdeveloped domestic commodity markets pose risks for market participants. So enhancing capacity for institutions that serve commodity markets will increase the welfare of market participants. This is crucial to commodity exporting countries that have interest in sustaining export revenues from commodities. Senior officials from East Asian economies, such as the People’s Republic of China, Indonesia, Japan, Thailand, and Viet Nam, attended the ADBI–World Bank Roundtable on Regional Commodity Exchange Market Integration in Asia, in Tokyo, 12–13 September. Attendees from Japanese and Indonesian companies also joined the roundtable. The objective of the roundtable was to deepen the understanding of views on how to strengthen market institutions for commodity exchange markets. At the roundtable, participants discussed issues related to the agriculture commodity exchange, particularly in rice and rubber. The event, jointly organized by ADBI and the World Bank Jakarta Office, focused on four key questions: (i) price discovery of the agriculture commodity exchange, (ii) relationship between the use of derivatives at the commodity exchange and price volatility for agriculture commodities in

ROUNDTABLE

CBT Consultant Cholifihani Muhammad (left) joins a roundtable discussion at ADBI on commodity exchange markets in Asia.

Asia, (iii) establishment of the regional price index for selected agriculture commodities, and (iv) the future of the agriculture commodity exchange in Asia. With the emerging economies of Asia becoming major consumers of commodities, greater cooperation and integration in commodity markets through commodity exchange may lead to a pan-Asian commodity exchange, which could become new centers of commodity price discovery. To support a regional exchange, countries will have to harmonize trade and exchange rate policies, set up mutually agreed rules for grades, standards and contract enforcement, and promote regional macroeconomic stability. ■
For more information on this roundtable please visit: www.adbi.org/event/5198.adbi.wb.roundtable.regional. commodity.exchange/.

ADBI News
Publisher: Yasuro Narita

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ADBI News reports quarterly on the activities of the Asian Development Bank Institute. The views expressed in this newsletter do not necessarily reflect the views or policies of the Asian Development Bank Institute or the Asian Development Bank. Materials may be reprinted with credit given to ADBI News. To send comments or to request a free subscription, e-mail adbinews@adbi.org; fax a message to +81-3-3593-5571; or write to ADBI News, Kasumigaseki Building 8F, 3-2-5, Kasumigaseki, Chiyoda-ku, Tokyo 100-6008, Japan. For the web version, go to www.adbi.org/newsletter/.

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