Evaluation of Uzbekistan’s Growth Strategies

Young Uzbek school boys in front of a mosque

There are two basic different approaches to evaluating a nation’s growth strategies:

1. Aid & trade: This area concerns how connected a domestic economy interacts with the global economy; whether it can expect to receive aid from other nations, and how they interact as trading partners.

• Uzbekistan is what is considered a country of medium development. It has received various forms of aid in the past, but for the most part, the “aid and trade” approach to growth does not really apply to Uzbekistan. Humanitarian aid is not the key to Uzbekistan’s economic growth.

2. Market-led and interventionist strategies

• Uzbekistan is one of the couple dozen former members of the Soviet Union that is in the process of gradually transforming from a command-style, or “interventionist” oriented economy to one that is market-led and more democratic. This approach is therefore highly applicable to Uzbekistan’s situation.
• Uzbekistan may benefit from adopting more rapid privatization. A more market-based approach will help the country make better use of its rich natural resources and interact more positively with foreign nations.

Different components should be considered when evaluating a nation like Uzbekistan’s growth strategies. Here are some components to be considered and how they pertain to Uzbekistan:

1. IMF & World Bank

IMF: An organization whose purpose is to promote international monetary cooperation; exchange rate stability and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment.

• The IMF has criticized Ubzekistan for having “weak” monetary policy, and recommends that the government “stiffen monetary policy and up the nominal exchange rate”. Increasing interest rates should lower inflation, which the IMF considers a priority for Uzbekistan. The IMF also recommends Uzbekistan to continue its structural and institutional reforms, working towards becoming a market economy. In opposition to Uzbekistan’s “gradualistic” approach, however, the IMF suggests a more rapid development of private enterprise. Cooperation with other countries in Central Asia experiencing similar difficulties will improve their changes of achieving steady, long-term development through increased commerce and investment.

World Bank: A collaboration of different countries who maintain a collective fund, and are concerned with financing reconstruction and development through the construction of national infrastructure.

• Uzbekistan joined the World Bank in 1992. The World Bank supports increasing the productivity and sustainability of agriculture in Uzbekistan. Most recently, the WB has supported improving water resource management in the Ferghana Valley (highly populated and extremely fertile region rich in resources that covers parts of Uzbekistan, Kyrgistan, and Tajikstan and includes Uzbekistan’s only port, the Amu Darya). The organization is helping to fund a project that will focus on improving irrigation and drainage and supporting agricultural development. The program will strengthen institutions by offering support to public works and privately owned organizations involving water management and utilization. The project is funded primarily by the International Development Association of the World Bank and partly by the Uzbek government. Uzbekistan should encourage programs like these that help make more efficient use of its resources and deal with the ongoing problem it faces of overpopulation.

2. Other international organizations

Food and Agriculture Organization of the United Nations: One of the largest specialized agencies in the United Nations system and the lead agency for agriculture, forestry, fisheries and rural development.

• Uzbekistan is an FAO member, and part of a FAO endeavor called The Crop Wild Relative Project, whose focus is the conservation of crop wild relatives through enhanced information management and field application. Such programs help Uzbekistan to better manage its natural resources.

UNICEF: Organization whose aim is to work with children and remove all the obstacles like disease, poverty and discrimination that prevent their full and proper development.

WHO: Organization whose focus is the attainment of all people of the highest possible level of health.

• In recent years UNICEF has called on the Uzbek government to “place child survival at the top of its political agenda”. Uzbekistan has made significant progress towards achieving the Millennium Development goals in terms of child survival, largely thanks to the help of organizations like UNICEF, WHO, World Bank, and Asian Developmental Bank in the form of technical assistance to improve medical technologies and fund research. Child rights, as mentioned in previous blogs, are an issue for Uzbekistan, and given the country’s extremely young population should be one of the government’s top priorities.

3. Private sector banks: make loans to developing countries at commercial rates of interest

• Loans from private sector banks are not a particularly prominent part of Uzbekistan’s development. The best strategy for growth in Uzbekistan will probably focus more on attracting investments rather than loans.

4. Non-Governmental Organizations

• According to IWPR, “Uzbekistan is seeing a steady decline in the number of non-government organisations, NGOs, with a string of closures reported recently. Not only is the government hostile to any group with foreign links, it has blurred the lines with a semi-state umbrella body that manages the theoretically independent NGO sector.” In other words, NGOs in Uzbekistan exist, but many are not actually as “independent” as they are supposed to be; those who are truly independent and have foreign links are dying out and being pushed out of the country by a hostile Uzbek government and the umbrella program itself, National NGO of NGOs in Uzbekistan (NaNaOuz). However, “The official statistics show more than 5,000 NGOs working on economic, cultural and social programmes in Uzbekistan.” Some are funded by foreign donors, others by the NaNaOuz–which many external sources claim is corrupt. Independent organizations are pressured to join this “corrupt” umbrella program. Often, funds intended for projects are stolen or misused. Therefore, although Uzbekistan has a relatively strong network of NGOs, that network is diminishing in size, as the government becomes more tightlipped about its policies and stricter about allowing foreigners or non-government related programs to have any independent influence inside the country.
• Uzbekistan needs to improve its foreign standing by attracting NGOs into the country. The only way to do this is by allowing such organizations to have more autonomy. The government needs to loosen its control if it wishes to benefit from the help of external agencies.

5. Multinational Corporations: Company which possesses and controls means of production or services outside the country in which it was established.

• Influential MNCs are largely absent from Uzbekistan.

6. Commodity Agreements

Buffer stock scheme: scheme operated by a central authority and aimed to stabilize prices and protect producers from sudden shifts in demand and supply (often supply in the case of agriculture).

• Buffer stock schemes are not particularly applicable to Uzbekistan, although it is a major exporter of the commodity cotton. In the past, Uzbekistan has suffered from poor weather that heavily influenced its supply of cotton; perhaps a buffer stock scheme would better equip Uzbekistan to deal with such fluctuations in supply in the future.

Cartel Arrangement: involve the formation of a single selling organisation, i.e. a cartel, to restrict output of individual members through the issuing of quotas.

• Uzbekistan is potential member of an evolving natural gas cartel, headed by Russia. If this plan goes through, Uzbekistan could benefit a great deal through improved internal infrastructure as well as investments from abroad. Such a cartel would allow the countries involved to wield a great deal of economic power.

Conclusion:

Uzbekistan is home to a number of a programs aimed at improving resource usage, child mortality, and similar problems. Issues dealing with children are especially important for Uzbekistan given the country’s large number of them, and the fact that its tendency towards forced child labor scares off many foreign investors and programs otherwise interested in investing in or helping Uzbekistan to grow. Ultimately, institutional and political factors still stand in the way to economic growth for Uzbekistan. Corruption is a real problem that is causing sharp declines in NGOs and foreign investment as well. Uzbekistan also faces widespread unemployment and underemployment. Perhaps more rapid privatization and focus on developing its export industry will provide more job opportunities for its citizens in the future–government subsidies aimed at preventing the “shocks” of transformation from a command-style economy to one more market led are certainly a cause of unemployment and underemployment. If the government can make compromises and loosen their hold on its citizens political and economic mobility, FDI especially for Uzbekistan would likely be a successful strategy to achieve growth. On a final note, in the future it seems more powerful programs will have to be implemented to control Uzbekistan’s booming population.

Sources:

http://www.worldbank.org.uz/WBSITE/EXTERNAL/COUNTRIES/ECAEXT/UZBEKISTANEXTN/0,,contentMDK:22466650~menuPK:294193~pagePK:2865066~piPK:2865079~theSitePK:294188,00.html

http://www.agrifeeds.org/node/51189

http://www.groundreport.com/Arts_and_Culture/NGO-Numbers-Wane-in-Uzbekistan/2864711

http://www.atimes.com/atimes/Central_Asia/JG30Ag01.html

Uzbekistan’s Strategies to Achieve Growth

Ferghana Valley: "the pearl of Uzbekistan"

There are different strategies a country’s government as well as outside agencies, such as the IMF, can use in an attempt for a country like Uzbekistan to achieve economic growth.

1. The Harold-Domar Model suggests that an economy’s rate of growth depends on the level of saving, and the productivity of investment. In other words, to increase growth an economy should seek to increase its savings ratio, and the amount of labor and capital.

• Savings in Uzbekistan have been on the rise. Uzbekistan’s Central Bank has reported that in recent years, customers are more boldly trusting banks with their money, which the bank can then convert into loans and investments. Since 2000, the amount of borrowed funds from private individuals in credit institutions has risen by 140%. This suggests that the Uzbek economy is finding ways to grow through savings and investment as the Harold-Domar model projects.

2. The Structural Change/Dual Sector Model suggests the idea that economies consist of three main sectors: the primary sector (commodities), the secondary sector (manufacturing), and the tertiary sector (services). Poorer economies are occupied mainly in the primary sector, whereas richer economies are occupied mainly with the tertiary sector.

• Uzbekistan, rich in natural resources, has a large primary sector–for instance, it is a huge exporter of cotton, a primary good. Uzbekistan seems to be trying to lean more towards a secondary-oriented economy by lowering its exports of cotton, and increasing its imports of machinery, equipment, and components. Currently, about 28% of its workforce is involved in agriculture and forestry; 34% is involved in industry, and about 38% is involved in providing services.

3. Developing countries can also grow with the help of aid. The three main types of aid include humanitarian, either country to country or via a major organization (such as the UN), usually simply a grant intended to combat a specific problem, such as a natural disaster; bilateral, a loan given from one country to another; and multilateral, when separate countries may money into one central organization, like the IMF, which then determines how that aid ought to be distributed. Aid should attempt to overcome a low savings ratio, reduce foreign exchange outflows, and reduce dependency on private investment.

• Uzbekistan has been a receptor of humanitarian aid in the past. For example, in 2002, the U.S. granted Uzbekistan $51 million in aid to help combat overpopulation and unemployment in the Ferghana Valley, problems which were thought to put the area at risk for an uprising of Islamic militants. In general, however, Uzbekistan is not a significant receptor of aid because it is not at the lowest rung of development like some other countries in the world.

4. Export-led growth, or outward-oriented strategies help countries to improve their terms of trade, increase investment, attain economies of scale, increase employment, improve income distribution equality, increase competition, and expose the country to new technologies and more contemporary information by competing on an international market.

• Uzbekistan’s government has set forth many laws which may be considered unfavorable for foreign investment. However, its export industry is very strong; it grew by about 25% in 2004–focusing on increasing exports of oil-based products and decreasing exports of cotton. Uzbekistan is wealthy in exportable resources, but its competitiveness on the international market suffers from the limited convertibility of its currency and disincentives associated with FDI.
• On the other hand, to indirectly improve Uzbekistan’s competitiveness on the international market, the government also has invested heavily in recent years in important sectors to provide more employment opportunities and increase incentives in the private sector. The government has also instructed all corporations, factors, and institutions to pay compulsory investments on all of their profits in order to strengthen the private sector, increase physical capital, and thereby increase the economy’s potential for growth.

5. Import substitution, or inward-oriented strategies seek to protect domestic jobs through protectionist policies that act as incentives for domestic consumers to reduce imports and consume more domestic goods.

• Uzbekistan’s trade policies have often focused on import substitution–ultimately leading to declines in both imports and exports. According to the U.S. Department of State, “Draconian tariffs and sporadic border closures and crossing “fees” decrease legal imports of both consumer products and capital equipment.” Uzbekistan still leans partly towards domestic products as part of its gradualist transformation from a command-style economy to one that is more market-based.

6. Commercial loans from banks or other financial organizations can help fund growth and development.

• The IMF has loaned Uzbekistan money in the past, but disappointed by the country’s rampant inflation, in 1997 the organization suspended a $180 million loan program. Otherwise, as previously mentioned, Uzbekistan is not a significant receptor of loans.

7. Fair trade organizations are a market-based approach aimed to help producers in developing countries and achieve sustainability. This movement advocates higher payment to producers when they are exported from developing countries to developed countries.

• Uzbekistan has, in fact, been boycotted by the World Free Trade Organization due to the government’s refusal to stop organized forced child labor in its cotton-export industry. Therefore, in light of such alleged human rights abuses, Uzbekistan will likely not receive any aid from the WTFO in the future.

8. Micro-credit schemes are schemes for lending small amounts of money to the very poor. Often times, people living below the poverty line can benefit a great deal even from loans of relatively small sums of money.

• Uzbekistan has a vast network of micro-credit schemes, which are particularly helpful to poor Uzbek women living in rural communities.

9. Foreign direct investment

• To stimulate FDI, legislation adopted in 1991 provides tax incentives and guarantees against expropriation, though falling short of securing the right to repatriate profits and third-party dispute arbitration. So far, oil has been a major product on the table; both the U.S. and China have signed a number of bilateral agreements. In 1994, Britain invested about $200 million to cquire about 51% of Uzbekistan’s state-owned tobacco industry. In 1996, a group from South Korea planned to invest $2.5 billion in telecommunications works within Uzbekistan, including $658 million to produce cars. In 2000 Uzbekistan and Israel announced plans to cooperate on the development of solar power technology.
• On the other hand, in recent years, many small- and medium-size Western businesses have begun freezing their investments or pulling out. This is perhaps a result of institutional corruption. According to Encyclopedia of Nations, ”Investors have complained that once the required bribes are paid and an investment is guaranteed, officials begin delaying, lengthening, and altering procedures so much that making a profit is often impossible.” Similarly, according to the U.S. Department of State, “In 2006 and 2007, some foreign investors departed Uzbekistan because of declining investor confidence, harassment, and currency convertibility problems.” Apprently, government intervention in business deals has been discouraging foreign companies from investing. Additionally, “the country’s lack of currency convertibility, despite many promising opportunities, reduced foreign investment to a low level.”

10. Economic growth can be facilitated by sustainable development tactics like targeting specific problems, researching environmentally friendly farming methods, and implementing programs to reduce population growth.

• Organizations like the FAO focus on improving water resource management.
• Currently, Uzbekistan is conducting a campaign to reduce population growth. Apparently many foreign donors have supplied a large number of IUDs to the countr. In the past, the government has unsuccessfully tried to reduce the birth rate by implementing family planning programs that handed out free contraceptives.

Conclusion:

Uzbekistan is not a significant receptor of aid. It has a strong foothold in primary, secondary, and tertiary sectors. The hostile and insular behavior of its government make investment unappealing for many foreigners. Its rich resources and educated population make it highly appealing for foreign investment nothwithstanding political and institutional barriers. The Uzbek government seems to be attempting to combat the country’s booming population, although past examples put into question whether such programs will be enough.

Sources:

http://enews.ferghana.ru/article.php?id=1652

http://www.unicef.org/uzbekistan/media_7534.html

http://jang.com.pk/thenews/sep2009-weekly/busrev-07-09-2009/p6.htm

http://www.gov.uz/en/press/economics/3143

http://www.adb.org/Documents/CSPs/UZB/2006/csp200.asp

http://en.wikipedia.org/wiki/Fair_trade

http://www.wfto.com/index.php?option=com_content&task=view&id=978&Itemid=293

http://www.undp.uz/en/publications/publication.php?id=43

http://www.nationsencyclopedia.com/Asia-and-Oceania/Uzbekistan-FOREIGN-INVESTMENT.html

http://www.lehigh.edu/~bm05/research/OOD.205.htm

http://lnweb90.worldbank.org/ECA/eca.nsf/Countries/Uzbekistan/C191EBFD39A3A25C85256C24004EFF21?OpenDocument

http://www.state.gov/r/pa/ei/bgn/2924.htm

http://trade.ecoaccord.org/english/agc/uzbekistan.htm

http://www.eurasianet.org/departments/news/articles/eav012710b.shtml

Uzbekistan’s Barriers to Growth

Many developing countries, Uzbekistan included, have managed to reach the first rung on the development ladder–and although extremely poor, are indeed experiencing economic growth. But sadly, not all countries experience economic growth. For various reasons, the world’s poorest countries remain trapped in poverty. These countries are not growing, and have no hope of growing without drastic changes within their infrastructure and without help from the outside. Even countries like Uzbekistan may experience growth at a too slow a rate to keep up with a booming population. Below I have listed the most common barriers to growth face by developing nations in the world today, and how each of these problems pertains to Uzbekistan.

1. The Poverty Cycle: low incomes lead to low savings which lead to low investments which lead to low incomes, and so forth

• About 30% of Uzbeks live below the poverty line. As mentioned in the previous blog, extreme poverty rests at about 9%. Savings in Uzbekistan is generally growing. Uzbekistan on the whole is far enough along the developmental ladder that in the future, the poverty cycle should not prove a barrier to economic growth.

Uzbekistan has been criticized for allowing its cotton industry to thrive off child labor

2. Institutional and political factors: may include ineffective tax structure, lack of property rights, political instability, corruption, unequal distribution of income, parallel markets, and lack of infrastructure

• The government is relatively stable–although it provides for democracy, however, it is largely a one-party system with a large degree of executive control.
• In terms of human rights and its legal system, Uzbekistan has been criticized by a number of external groups, defining Uzbekistan as “an authoritarian state with limited civil rights”. There have been reports of torture, arbitrary arrests, and restricted freedoms of speech, religion, press, and assembly. These characteristics make foreign nations wary of dealing with Uzbekistan and likely indirectly hinder the country’s citizens’ economic freedoms as well.
• There are a variety of human rights concerns over forced child labor in Uzbekistan in its lucrative cotton industry, which has deterred a number of investors and potential givers of aid from helping particular industries.
• Unequal distribution of income is not a huge problem for Uzbekistan. The portion of people living below the poverty line is in decline.
• Some modern infrastructure is present in Uzbekistan, as mentioned in the previous blog on sources of growth.

3. International trade barriers such as overdependence on primary products and protectionist policies

• Uzbekistan is somewhat overdependent on cotton, which accounts for over 40% of its total exports. In the past, bad weather has had a dramatic effect on production and could prove to be a barrier to growth in the future.
• Uzbekistan has been accused of implementing “draconian” tariffs as part of its gradualist policies which tend to scare away producers of foreign goods.

4. Foreign debt due to increased interest rates, increased value of the dollar, and the recession in the developing world

• Foreign debt is not a significant barrier to economic growth in Uzbekistan as with many African nations, for instance.

3. International trade barriers continued as well as social/cultural barriers like religion, culture, tradition, and gender issues

• Uzbekistan faces significant racial divides. Tajiks, an ethnic group within Uzbekistan, often suffer different forms of oppression, and are not allowed to teach in their native language. Certain regions in Uzbekistan are also prone to uprisings from Islamic militants. These racial and religious disputes can lead to violence and other conflicts that hinder growth.
• Since the Soviet Union disintegrated in 1991, each of its member countries have taken a different approach to the transformation from the centralized, command Soviet economy to an individual, more market-based economy. The Karimov government of Uzbekistan has chosen a gradualist approach, by subsidizing many of the various amenities that were communally provided by the Soviet government, and to avoid shocking changes in lifestyles that would ensue from introducing a completely free-market economy. This gradualist approach has, unfortunately, come at some serious long term costs, which have acted as barriers to Uzbekistan’s growth and will continue to do so in the future if policies remain unchanged. For example, Uzbeks have maintained certain living standards because of subsidized food and energy prices. Uzbeks are essentially living beyond their means thanks to these subsidies, which may be doing little more than postpone inevitable shocks in the future.
• Gradualist policies are also responsible for widespread unemployment and even more so, underemployment, which are also serious problems for Uzbekistan. Given Uzbekistan’s extremely young population, which I discussed in a pervious blog (nearly half of the population is under age twenty), unemployment and underemployment will prove to be immense barriers to growth when this generation comes of working age–especially as the economic “cushioning” of gradualism wears off, and living standards begin to decline.
• Another serious problem Uzbekistan faces is high inflation. Inflation rates have slowed in the past few years, but remain high enough to prevent incentives to save and invest in the Uzbek economy, despite is wealth of natural resources. Uzbek inflation rates are notorious for being the highest in the region, at 8% in 2006. Foreign direct investment is low, and exports are declining–Uzbekistan is dangerously dependent on exporting unprocessed cotton. The government has also been slow to privatize much agricultural land, which has also acted as a barrier to free market functions.

Conclusion:

It seems as if Uzbekistan’s central problem lies in the gradualist policies which, while maintaining certain living standards, prevent growth by perpetuating widespread unemployment and acting as barriers to market forces, due to lack of privatization and investments. Similarly, inflation is a large problem, as well as institutional corruption and the occasionally hostile and insular nature of the government towards foreigners and the way it deals with human rights issues.

Sources:

• http://books.google.com/books?id=7qEgs9ZL7LgC&pg=PT76&lpg=PT76&dq=uzbekistan’s+barriers+to+growth&source=bl&ots=ugtemsbWO4&sig=ENcBPlTriX_BURkiEBmSqgn1-6U&hl=en&ei=KVVeS_veDc-gkQXEnMWrAg&sa=X&oi=book_result&ct=result&resnum=1&ved=0CAcQ6AEwAA#v=onepage&q=&f=false
• http://en.wikipedia.org/wiki/Soviet_Union

Uzbekistan’s Sources of Economic Growth

One of the central macroeconomic goals for every country in the world is economic growth. A number of different factors can influence a country’s ability to experience economic growth, which will be the focus of this blog.

In particular, I will be discussing the developing country of Uzbekistan. Uzbekistan is a doubly-landlocked country (meaning it is surrounded by other landlocked countries–one of only two such countries in the world) , and is located in Central Asia. 

Below I’ve listed some basic data about Uzbekistan’s economy:

• HDI: 0.710
• Annual GDP: $71.68 billion
• GDP per capita (PPP): $2,600
• Gini coefficient: 0.353 (suggests moderate to high levels of income inequality; however, there are doubts whether data from upper-income households is sufficiently represented by this number)
• In 2001, it was estimated that 27.5% of the population was living below the poverty line, and that 9% were living in extreme poverty.

To coincide with the basic factors that influence economic growth outlined above, below I’ve listed each of the different factors that influence economic growth in terms of Uzbekistan’s particular situation.

1. Natural factors: land, minerals, fuels, climate; quantity and quality of various resources

• Uzbekistan’s climate is continental, with long summers and mild winters. This relatively pleasant climate contains mostly grasslands and and forests, and offers highly productive farmlands. Such a climate also means that Uzbeks do not suffer from many of the diseases and erratic natural disasters that hinder growth in more tropical countries.
• In terms of natural resources, Uzbekistan has a regionally significant supply of natural gas, coal, copper, oil, silver, and uranium. It is the second-largest exporter of cotton, and the seventh-largest exporter of gold. It is developing its mineral and petroleum resources as well.

2. Human factors: the supply and quality of labor/Population: population changes, through births, deaths, and migrations

• Uzbekistan is Asia’s most populous country, at 27.7 million. Its population is growing steadily, at about 0.935%. Uzbekistan’s birthrate is an average 17.58 births per 1,000 people per year; its death rate is 5.29 deaths per 1,000 people per year. Its net migration rate is -2.94 per 1,000 people, meaning more people migrate out of Uzbekistan than into it each year. 
• What makes Uzebkistan’s population rather unique is its youth–about 28% of people are under the age of fourteen, 50% are under eighteen, and 70% are under thirty. Such a large number of young people willing to work should increase the supply of labor in upcoming years, contributing to the country’s economic growth.
• The country also has a 99.3% literacy rate among adults above the age of fifteen, thanks to the universally free education system provided under the late Soviet Union. Currently, about 14% of Uzbekistan’s GDP is devoted to education, including 38% of the state budget. $16 million is committed to scholarships to send young Uzbeks to study at universities in the United States and Europe. Even without such scholarships, both males and females in Uzbekistan can expect to receive 11-12 years of general education. A well-educated work force improves its quality, which is crucial to an economy’s productivity.

3. Physical capital and technology factors: machines, factories, roads; their quantity and quality

• In terms of technology, land-based telephone lines are widely used in Uzbekistan, although the system is reportedly dilapidated and seriously in need of modernization. However, Uzbekistan’s cellphone subscriber base is growing rapidly, at 12.7 million in 2008. About 2.489 Uzbeks use the internet. Communications are not state-of-the-art, but they seem to be improving. The country has a moderate amount of airports, pipelines, railways, roadways, and waterways. The train system connects towns within Uzbekistan as well as towns from neighboring former members of the Soviet Union. Uzbekistan has one port, Amu Darya, a major river in Central Asia. Having this port could help compensate for Uzbekistan’s lack of coasts. 
• Uzbekistan is the only country in Central Asia with a subway system (located in its capital city, Tashkent), which is known for its cleanliness.

4. Institutional factors: the quality or presence of institutions such as the banking, legal, and healthcare systems

• As mentioned before, Uzbekistan has a relatively strong education system.
• Uzbekistan’s government provides for democracy, and exists as a multi-party system. The executive branch of the government holds a great deal of power, whereas the legislative and legal branches are less influential.
• In terms of healthcare, since the disintegration of the Soviet Union, health in Uzbekistan has declined. Many Russians emigrated out of Uzbekistan, depriving the country of many of its practitioners. There are currently 2.74 doctors per 1,000 people. Uzbekistan is also considerably undersupplied in basic medical supplies such as disposable needles, anesthetics, and antibiotics.

 

Conclusion:

Uzbekistan has a mild, pleasant climate and is rich in natural resources. Uzbeks are young and very well-educated, even though because net migration is negative, the country may suffer from a slight “brain drain”. Uzbekistan’s more urbanized areas have established a framework of basic infrastructure, and many Uzbek citizens have access to modern amenitites, like cell phones and the internet. Overall, Uzbekistan’s greatest opportunity for growth will probably lie in exportation of commodities and valuable minerals.

Sources:

• http://www.developmentandtransition.net/index.cfm?module=ActiveWeb&page=WebPage&DocumentID=618
• http://www.nato.int/pfp/uz/profile.htm

Reflection on international economics unit

This unit we studied international economics, which I find especially interesting, since there is such a fundamental difference between the two main paradigms of capitalism and protectionism. The way these two paradigms manifest themselves in economic and political policies have such an enormous influence on international relationships–so I think it’s important to have an educated outlook on this topic.

I think blogs and forums are particularly helpful for this unit, since they provide an opportunity for discussion. International economics can be very controversial at times, so discussion makes it much more interesting. I found the online textbook helpful for review, although not particularly helpful for learning new concepts. Real world examples are especially beneficial for understanding the pros and cons of protectionism vs. free trade.

The Chinese tire tariff article was particularly relevant. It seems like a lot of people assume that free trade is an evil system that results in the exploitation of foreign workers, but in reality, the debate is much more multi-faceted, which is why it remains such a controversy. I myself tend more towards the free-trade system. A system in which everyone acts out of rational self-interest is most fair and beneficial to all; this can be proven with economic diagrams. The problem arises, of course, in the fact that people do not seem to always act out of rational self-interest, so pure capitalism is rather idealistic. Assuming that rational self-interest is inherent to human behavior can prove very dangerous. On the other hand, whereas a pure free-trade system is more or less objective, protectionism is a much more subjective way of looking at things. Protectionism is often argued in favor of poorer countries–yet based on the Chinese tire-tariff example, we can see that protectionist policies can be used to protect powerful countries as well. So then the question becomes, when is and isn’t protectionism okay? For example, Jamaica is an extremely poor, third-world country; its local farming industries are much less efficient than foreign, modernized firms–so in a free market system, they will go out of business, and Jamaicans will lose out. Should Jamaica use protectionist policies because they are “poor”–and the US shouldn’t because they are “wealthy”? These are two extremes–but in general, who determines who is “poor”, and who is “wealthy”? This is not only a double standard, but to me, it seems dangerously arbitrary. The problem is that in every scenario, there is a winner and there is a loser. What’s the most “fair” policy depends on who you ask–and in the end, everyone is just protecting themselves anyway. I think it is more “fair” to base economic policies on concrete principles, like capitalism, rather than indefinite, relative measures that are inevitably characteristics of protectionism.

Obama administration implements a 35% tariff on Chinese tires

http://www.nytimes.com/2009/09/12/business/global/12tires.html

The above article discusses the 35% tariff on Chinese-imported tires the Obama administration implemented about a month ago. The Obama administration’s decision represents a significant victory for, and perhaps a response to pressure from the United Steelworkers, a major union that represents American tire producers. Without this tariff, American tire producers were being outcompeted by Chinese tire producers–that is, American consumers, rather than purchasing their tires from American companies, were importing more cheaply from China. An imbalance in the current account constitutes a drain on the American economy, and has the potential to cause thousands of American workers to lose their jobs in the midst of an already dismal recession–not good for consumer confidence. Such actions seem necessary to protect American livelihoods, and keep Americans from becoming overly pessimistic about the economy.

It may be a truly sad thing when a major US firm goes out of business, or when thousands of US workers get laid off. But an investigation of the comparative work ethic of Americans and Chinese will show that the Chinese are hungry and hard-working, while Americans generally assume their country is on a preordained successful course. Over the summer, I was amazed when I went back to the states (Idaho, to be specific) and found that many American workers regularly take days off work and come home for lunch, while they still retain an extremely high end lifestyle: a big house, several vehicles, lots of toys (TVs, ipods, computers, etc). Chinese, on the other hand, are willing to work every day of the week maybe twelve hours a day for next to nothing. It is perfectly common in China, for instance, for a girl or boy about my age to work this much and then earn barely enough to survive themselves. On top of that, consider that this young girl or boy is actually their family’s breadwinner, and must send all of their wages home to their families in the country, just to pay for their younger siblings to go to school. Finding work in China is difficult and highly competitive, so this laborer might often have to work overtime without earning any additional wages, just to keep their job. In the US, and for that matter, nearly all countries in the West, we look at education is a fundamental right, and we feel the same way about our right to work as much as we please and lead a wealthy lifestyle that we may or may not have earned. In Spain, for instance, and nearly all of Europe it is considered absolutely unethical to work more than eight hours a day (in Spain it is actually a law). In France, the work week is limited to 40 hours a week. Laborers in these countries enjoy short work days, paid vacations and, more importantly, are in perhaps the top 5% of the world’s population in terms of quality of life. Laborers in all of these countries go on strike when their company tells them to work more, or that they will not receive so many benefits. They really believe that these things are their fundamental right. Certainly, not all parts of the US (or Europe, or the West) are this extreme. But in general, Americans work less than the Chinese. This should demonstrate why, perhaps, the Chinese are better at producing tires.

Unfortunately, this kind of imbalance is not sustainable in a global economy–which is why, for instance, Spain is now facing close to 20% unemployment, and why US firms like the tire firm in question are prone to go out of business. How can a US firm, whose workers work at their leisure and have little incentive to do a good job, possibly compete with a Chinese firm in which workers are willing to work long hours for low wages, and obliged to produce adequate quality products for fear of losing their jobs? The answer is that they can’t, but American laborers don’t see the justice in their being laid off. So to keep them happy and confident in the context of a global recession, protectionist policies, like the recent tariff on Chinese tires, are necessary, or these industries will fall flat on their faces. The reasoning for such a policy, like many others (such as saving American auto companies from bankruptcy) is that if these industries were allowed to be outcompeted, they would fail, thousands would lose their jobs, and the economy would take another downturn. This is exactly what would happen, if free trade policies were maintained.

So is it right to reward American tire workers for their inefficiency, and handicap China for being competent and hardworking at what they do? This is a complex question in itself, as I have just tried to demonstrate. But furthermore, is it even beneficial for the Americans themselves if their government subsidizes their inefficiency? I’m not sure that artificially patching up the problem of the American tire industry’s inefficiency will help America pull out of the recession in the long run or not. I firmly believe that Americans are perfectly capable of producing tires (and for that matter, other products, such as cars…) just as good as the Chinese (or whomever else). But they won’t improve their work ethic and subsequently increase their productivity until they’re forced to do so–and placing a tariff is like rewarding them for a poor work ethic by enabling it to continue to exist, and continue to compete artificially. So what incentive is there for Americans to work harder, when their government allows them to maintain one of the highest-quality lifestyles in the world, yet does not force them to earn it? The tariff will certainly provide an adequate cushion for US tire firms to stay in business, and in the short run, fewer Americans will lose their jobs, which means more Americans will be happy, confident, and willing to spend money a.k.a. stimulate the economy. But in the long run, such a policy merely contributes to the type of work ethic and global imbalance that got these firms into trouble in the first place.

I think that no matter what, protectionist policies in this scenario will not be beneficial in the long run–and eventually, if Americans wish to remain wealthy and powerful in a competitive global economy with aggressive and competitive trading partners like China, they will have to accept a lower standard of living and a better work ethic or they will do themselves in through protectionism.

The benefits of international trade

All countries have different factor endowments. This is  based on their geography, the size and nature of their population, etc. One country might lend itself particularly well to farming, because it has a large amount of flat land, whereas another, more mountainous country may have a particularly hardworking labor force. Countries trade because it allows them to specialize in what they are good at. For example, Country A may be particularly apt at growing rice. Country A can then not only produce rice for itself, but can also export rice to other countries which may not be so good and producing it. This earns Country A revenue, which enables it to import goods/services from its trading partners–for example, Country B might be better at producing beef than Country A, so Country B can import rice and export beef, while Country A exports rice and imports beef. This makes both countries richer, because they are taking advantage of own another’s factor endowments through trade.

Another benefit of international trade is that it increases competition. International trade transforms what was previously a domestic market for goods into a global market for goods, so the market dramatically increases in size. More firms means more competition. Domestic firms must not only compete with one another, but with other firms in the same market from around the world. With so many firms, in order to stay competitive, there is more incentive for individual firms to increase efficiency, and to innovate–leading to cheaper and better quality products. Countries can also share new technologies with one another as they are developed, so technology tends to advance much more quickly. In an international economy, consumers also have a much wider variety of products available to them, as they have access to more firms that must differentiate themselves from others to stay competitive. Therefore, in addition to increasing world wealth through specialization, much like the saying “two heads are better than one”, a larger market encourages more competition, collaboration, and improvement.

Why did the Lehman Brothers go bankrupt?

I often hear that the current recession in the US was largely due to the “subprime mortgage crisis”. I did some basic research as to what this is, and this is the explanation I came up with:

Normally, when people make a substantial long term purchase (like a house), they take out a loan. In order to take out a loan, however, a person much show certain qualifications to the lender to demonstrate that they will eventually be able to pay back the loan, with interest. One of the primary indicators of a person’s financial reliability is their credit score. A person with a low credit score has a history of purchasing items on credit and not paying back on time, or not being able to pay back at all, etc. A subprime mortgage is a type of loan that is designed for people with low credit scores that do not qualify for ordinary loans at the “prime” (normal and also the lowest) interest rate. Since “subprime mortgages” are therefore in a way designed for unreliable constumers, they typically charge much higher rates than the “prime” rate–hence, they are called “subprime”.

One type of subprime mortgage loans is what is called an “adjustable-rate mortgage” (ARM). According to Wikipedia, in recent years approximately 80% of mortgages issued to subprime borrowers in the U.S. were ARMs. ARMs are a bit deceiving, because they initially charge a fixed rate that is very low, but after a certain period of time, the rate becomes based on the market, and therefore adjustable. One type of ARM that was very popular a few years ago was called the 2/28 ARM. A borrower would be charged a low rate for the first two years, after which time the rate would be expected to rise. The loans were structured such that even if the “prime” interest rate did not go up at all, the borrower could still expect a substantial jump in their interest rate after the two years were up.

Why then would a person decide to take out this type of loan? Remember, subprime borrowers are people with bad credit reports who do not qualify for regular loans. The intent of ARMs is to provide these borrowers with a period of time to rebuild their credit reports so they could qualify for a regular loan. Therefore, even though the 2/28 ARM seems like it would be a bad idea–since in the long run, the borrower pays much higher interest rates–most subprime borrowers figured they would “refinance” at the end of the two years–in other words, take out a new loan at a better rate.

Also around this time, house prices were on the rise. Many people invested in houses (or second houses) in order to make money, expecting the value of the home to go up in a few years, at which point they would sell it and make lots of money. For this reason, ARMs attracted many “prime” borrowers as well. Prime borrowers are people who do qualify for regular interest rates. But subprime-lenders marketed very aggressively to these types of people even if they already had mortgages because they expected to make money in the long run when these people would be paying higher interest rates. This was a risky plan for lenders, so they tended to charge very high interest rates after the initial deal wore off to compensate for the risk they were taking. Even so, many prime borrowers were talked into taking out subprime mortgages, thinking that at the end of the two years (or whatever the time period for the fixed rate happened to be), they would be able to refinance and take out a better loan. Most people based their decisions on the assumption that their homes would rise dramatically in value, as had been the pattern for the past few years, and they would be able to make money by selling their houses.

What happened, however, is that at some point, house prices began to fall rather than rise, and interest rates started to shoot up. This led many people to panic, because not only had their home lost value, but they had no means to pay incredible high interest rates. This happened to so many people at the same time that it became virtually impossible to “refinance” or take out another loan–so people were stuck with these subprime mortgages, unable to pay the interest they owed. As a result, many borrowers “defaulted”–in other words, could not pay back their loans, causing numerous foreclosures, and borrowers who lost everything. Borrowers were not the only people who lost out, however– the lenders were also in deep trouble, because they had given so many loans at low rates, expecting to make money in the long run, and almost all of those loans had defaulted, so they never got their money. Lehman Brothers was one of those agencies that had a very large subprime lender, called BNC mortgage. They ended up with about a 60 billion dollar loss from real estate loans alone. In total, Lehman Brothers accumulated a debt of 639 billion dollars. No one would bail them out–essentially, no one would give them a loan–neither banks, nor the government, because so many other agencies were in the exact same position and the government and those lenders knew that such a large amount of money would never be repaid. Thus, the company went bankrupt on September 15, 2008, eliminating thousands of jobs and delivering an emotional blow to lenders and borrowers alike across the US.

I personally have direct experience with the subprime mortgage phenomena. Before coming to Japan, I lived in a suburban area in northern Virginia, just outside of Washington, D.C. for four years (from 2002-2006). I happened to live there during a time of substantial growth. So many new subdivisions were built every year that my brother had to change elementary schools three times in the span of four years due to school zone changes and overcrowding. This was the sort of growth that initially caused housing prices to go up, which later led to the irrational “housing bubble”. The neighborhood next to where I lived was relatively new when I moved in, and there was a sign outside of it that listed the prices of the houses. When I moved in, the sign read that houses were selling from the $300,000s; at their peak, the same exact houses were selling from the $600,000s. The rise in house prices was initially caused by people moving into the area, but eventually became because of people investing in houses based on expectations that the prices would rise. You can see why these rapidly rising house prices proved very tempting for many buyers–they figured that they would take out cheap loan for their house, wait a couple years for the price to shoot up a couple hundred thousand dollars, and then sell their house, pay off their loan, and make a huge profit. What’s more, around this same time, loans (like the ARM) became much easier to acquire–also causing an increase in demand for these houses, which many people who bought them couldn’t really afford. People were driven to behave irrationally by this incentive to make what seemed like easy money.

I happened to move away from Virginia at an extremely fortunate time, just after prices started to go down–we put our house on the market for lower than its appraised value, and sold it to the first buyer who made an offer. We still were able to make money on hour house. However, if we’d turned down that one marginally appealing offer, or if we’d put our house on the market just six months to a year later, we might still own the house. There were so many hundreds of thousands of houses identical to my own that went up for sale at exactly the same time that very shortly after ours sold (due to falling house prices) that selling a house like ours became nearly impossible. Although we didn’t buy our house as an investment, many people did–so you can see how these people became frantic when they saw that house prices were no longer rising, and houses no longer selling. These people found themselves in a really impossible position, when they’d purchased something they couldn’t really afford based on expectations that did not become realized and ended up trapped with so many other people in exactly the same situation, that it became impossible to escape without defaulting.

This phenomena is what is often referred to as the US “housing bubble”, which, as you can see, burst dramatically. It is evidence of why we should be wary of dramatic inflation in a situation in which nothing new is being produced. All of the wealth accumulated during these few years had absolutely no infrastructure beneath it, which was why it crumbled so easily. Yes, thousands of houses were being built–but houses as investments, and not as homes. The supposed “wealth” was not wealth in terms of increased productivity–so when reality caught up with the economy, it was discovered that the economy had shrunk. Now, our lifestyles must catch up with this shrunken economy–either by increasing productivity (and fast), or accepting a lower standard of living.

Sources:

http://www.mtgprofessor.com/a%20-%20type%20of%20loan%20provider/what_is_a_sub-prime_lender.htm

http://www.blurtit.com/q276093.html

http://www.investopedia.com/ask/answers/07/subprime-mortgage.asp?viewed=1

http://en.wikipedia.org/wiki/Lehman_brothers

Will electric battery-powered cars eventually replace cars traditional fossil-fuel powered cars?

http://www.economist.com/displayStory.cfm?story_id=14362092

The above article discusses the possibility that electric cars and/or hybrids have gained enough of a foothold in the market that they may eventually become the mainstream, replacing the traditional fossil-fuel powered car. It describes what some Harvard professors have dubbed “destructive technology”–in which a new technology that serves the majority of consumers, but not all, better than the former technology, enters and eventually takes control of the market. Such a technology will initially have many disadvantages, deterring a large proportion of consumers; but if it is able to gain a foothold, it will improve and eventually cause a paradigm shift in that particular market as a whole. One example of such a shift in response to the introduction of a “destructive technology” is the transition from film cameras to digital. When digital cameras first came into existence, they had a several significant disadvantages, and served only a small niche in a much larger market–but as their popularity increase, the technology improved, and now the market for film cameras is practically nonexistent. The article suggests that something similar may happen with battery-powered cars.

Electric cars have several blaring disadvantages. They run on batteries with limited ranges useful for little more than daily in-city driving, which take several hours to recharge, and are very expensive. The cars must be small, at the moment are rather expensive, and in many cases, not particularly stylish.

As for the advantages, they are extremely efficient, environmentally friendly, and the energy input is ultimately cheaper. The technology is new and experimental, hence the numerous disadvantages–but it possesses a great potential, accessible only if consumers are willing to embrace it. It has taken several attempts, but the writer of this article believes that this time around the technology has some chance of successfully establishing itself a market.

I found this article interesting because if such a paradigm shift were to occur, it would influence our daily lives dramatically; by “our”, I mean Americans, or citizens of any first-world country that depends on automobiles for transportation. If battery-powered cars were truly to become the mainstream, gas stations would be replaced by battery replacement stations in the long run. In the short run, consumers would have to sacrifice comfort and style for efficiency. Traditional cars can be used as something of a status symbol–battery-powered cars have a long way to go before they are diverse enough to provide such marginal benefits. However, I do think the market requires such a shift in the long run. The long term marginal benefits of electric cars far outweigh those of their competitors. People are becoming increasingly environmentally aware, and more importantly, conscientious of the amount of money they spend on gas.

This tradeoff–between short-term comfort and long-term wealth and efficiency–is one of the greatest problems dealt with by economists today as they deal with the global financial crisis. Take, for instance, debates regarding whether or not supply-side policies are effective and should be used to increase the productivity of an economy–or for that matter, any government policy that serves to benefit an economy in the long run, like Obama’s healthcare plan. In general, people are guilty of time-inconsistent behavior– they don’t want to sacrifice short-run comfort, and they especially don’t want to change. But a technology like electric cars could be, as the author of this article suggests, the new wave of the future. Ultimately, these kinds of transitions are inevitable–but we can make it a lot less painful by accepting them rather than clinging to traditional lifestyles that are no longer sustainable.

Thoughts regarding the 1:1 laptop program

Initially, I thought that using laptops in class was an excellent idea; with constant access to the internet, the amount of information available to us increases dramatically. I expected that laptops would be somewhat distracting, but as long as we had specific tasks to complete and were forced to interact with the rest of the class, I didn’t think this would be a problem.

Having experienced the program, however, my opinions have changed somewhat. I have experienced several downfalls that I did not anticipate before. I am concerned that carrying my own laptop to and from school each class will result in its being damaged, let alone the fact that it is very cumbersome. As a result, I have elected to use a loaner laptop. I have also found the laptops to be somewhat distracting in class. If I am doing work on my own initiative and within my own timelines, it is much more difficult to stay on task, particularly with so easy access to other websites. I personally am not particularly distracted by social networks such as Facebook, but I do find it difficult to constantly remain on task when I am not directly  interacting with the people around me about what I am learning. I also find that I learn better by experiencing different mediums–such as reading from a book, writing by hand, or listening to someone speak, in conjunction with using the laptop. I think the use of laptops should supplement, not replace these styles of learning. I can learn from a laptop, but if it is my only source of information, then I find it less engaging than I would if I were experiencing a greater variety of sources.