The Quality of Soya is not Strained

Back to the fascinating story of Brazil's soyabeans for China. Today there is an interesting follow up: the Chinese are worried about quality:

Brazil's agriculture minister Roberto Rodrigues will meet his Chinese counterpart in Beijing later today to resolve quality problems that have slowed Brazil's soybean exports to China, the world's biggest buyer of the oilseed. Brazil, the world's second-largest soybean producer, plans to send inspectors to its main ports to ensure shipments of soybeans to China are free from fungal contamination and don't contain grass or other waste matter, Rodrigues said in an interview at the World Economic Forum's 22nd annual China Summit in Beijing. "Starting now we are sending inspectors to our main ports,'' Rodrigues said. ``Some exporters have wanted to make big profits in one shipment by mixing good quality soybeans with bad quality. We are doing our homework now to resolve the problem.''

In August, China's quality inspection bureau banned new orders for soybean shipments handled by Cargill Ltd., Louis Dreyfus & Cie., Bunge Ltd. and other international traders, citing concerns that shipments contained too much grass or fungus. The ban was the latest in a series of disruptions that started when China introduced regulations on genetically-modified crops last year. Rodrigues will meet Qi Jingfa, China's vice agriculture minister, and Li Changjiang, head of China's quality inspection bureau, later today. China has said it found fungus and other contaminants in shipments of soybeans from Brazil. The discovery has prompted a slowdown in issuance of soybean import permits for shipments from the South American country. Brazil will pledge at the meeting to identify shipments that contain genetically-modified soybeans, Rodrigues said. Of Brazil's total soybean harvest of 51 million tons this year about 7 million tons are gene-modified. That figure will rise to 10 million tons next year, he said. Brazil's soybean harvest may rise to as much as 58 million tons in 2004.
Source: Bloomberg
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China's Far West

As part of the 'fair and balanced' policy, after an article singing the praises of China's potential, here's a fascinating one one the downside problems. China's ethnic diversity. I have only produced a trucated excerpt here, the whole peice is well worth reading. And if I say that the US is demographically 'condemned to grow' just imagine China's problems, and the potential consequences fro the rest of us.

This is Beijing's nightmare: a people within China's border who speak their own language, keep their own time, and face Mecca when they pray. The Uighurs of Xinjiang province embody Mao's "super-chaos" - and Beijing doesn't like it. Roving Eye Pepe Escobar reports on the start of a trip along the ancient Silk Road.

KASHGAR and URUMQI, Xinjiang - At the Mother of All Bazaars, the atmosphere still evokes Marco Polo's Travels. A monumental traffic jam of donkey carts coils around the muddy borders of the Tuman River - trespassed by horses, Bactrian camels, acres of melancholic sheep and elders brandishing sickles and testing horseshoes, saddles and whips. Sandy alleys bear the conspicuous accumulation of carpets from Hotan, mountains of spices, laminated dowry boxes, bits and pieces of dead animals, very much alive chickens and ducks, the famous Yengisar knives, hats in all shapes and colors, pots and pans, fruits, vegetables, riding boots, prehistoric transistor radios, Pakistani silk stockings, any imaginable agricultural tool hand-made from wood or steel, and the usual paraphernalia of items available in any self-respecting Oriental souk. The food is delicious - from bread sprinkled with poppy or sesame seeds to lahgman - noodles topped with mutton and vegetables; from jiger (liver) kebab to girde nan - Uighur bagels.

One hundred thousand nomads and villagers converge every week on this anthropological delirium, the Kashgar Sunday market. Solemn barbers with long sharp knives perform in the street. Multitudes gather in front of karaoke-TVs. The cast of characters - with their long, pointed beards, decorated hats, dark cloaks and black boots - are all Uighurs: an ethnic subdivision of the Turks who dominated Mongolia in the 8th and 9th centuries. The language, of course, is Uighur. The music, still on audio cassettes, is gecekondu arabesk, Turkish pop. Most women wear multicolored scarves, but quite a few wear a chador or a thick brown cloth thrown over their heads.

Spiritually, the area points to Mecca. We are more than 4,000 kilometers from Beijing, and two hours behind Beijing time which is supposed to apply to the whole of China. But here, everybody is guided by Xinjiang local time. There's not a single Han Chinese face in this bazaar.................

To top it all, Beijing has radically cut off aid to the so-called "ethnic minorities": there are 12 in Xinjiang alone, and apart from Uighurs (42 percent of the population) they include Hui (Chinese Muslims), Manchu, Mongolian, Kazakh, Kyrgyz, Tajik, Uzbek and Tatar. Only Han Chinese could come up with a concept like "minority food street". Beijing is only interested in promoting "mysterious" Xinjiang for tourism purposes: but it has to be a Xinjiang reduced to theme-park status. If you are a Uighur and you happen, by a miracle, to work for a Chinese company, you cannot go to the mosque. Signs on many mosques, in Arabic, say they are forbidden to teenagers - which is a frankly absurd ruling that has nothing to do with Islamic law. All public demonstrations by Uighurs are forbidden. And if you are an Uighur in Urumqi and you talk about independence, you are arrested on the spot, assures a trader in Yengisar knives. In March 2000 Beijing formally adopted an ambitious plan for "the large-scale development of the West". The key point of this massive "Go West" campaign is to resettle millions more Han Chinese in Xinjiang. Beijing would not be too displeased if in the long run this official policy exports many of the 7.5 million Uighur and 1.3 million Kazakh "minorities" toward the more unstable pastures of the former Soviet Central Asian republics.

Mao Zedong used to talk about the possibility of a "super-chaos" in China. Arguably the mindset remains the same in Beijing, as the Politburo knows very well that Uighurs and other "ethnic minorities" are less than 6 percent of the total population of 1.3 billion, but they occupy more than half of Chinese territory. Xinjiang is almost as big as Western Europe. Beijing's greatest fear is the - at least for the moment - remote possibility of new alliances between regional chiefs and business elites capable of redrawing China's map, as happened many times in the past. Since the implosion of the Soviet Union and the birth of the new Central Asian republics, Xinjiang has had a constant influx of people from Kazakhstan, Uzbekistan and Kyrgyzstan: both parts of Turkestan started in a way to unify. That's exactly what Beijing does not want. Beijing wants very well defined - and patrolled - borders (more in Part 2 of this series).

But the fact is that here, amid mighty Central Asian mountain ranges, it's impossible to talk about defined borders. Xinjiang anyway remains the laboratory of the future of this China riding a tiger at full speed and at the same time trying to control all the "super-chaos" it is capable of creating. With more than 25 percent of the world's population and the most coercive of birth-control policies, China still has not managed to contain its population explosion. Ten percent of Chinese territory, inhabited by two-thirds of the overall population, and producing 70 percent of the national wealth, is prone to inundation by major rivers. China's economy needs to grow at least 10 percent every year just to absorb new contingents of job seekers.

According to Minister of Labor and Social Security Zheng Silin, in his latest report to the National People's Congress, a staggering 150 million Chinese rural workers are unemployed of a total of 485 million; and of 94 million farmers who have recently migrated to big cities, the majority are still unemployed.

Growth at a median 8 percent annually - something the West can only dream about - is still not good enough for China. While some sectors of "market socialism" have degenerated into gangsterism, and human rights, from Beijing's point of view, means only economic development, hundreds of millions of people are involved in the largest internal mass migration movement in history. Dozens of millions of unemployed threaten social cohesion. In the event the Dragon starts to disintegrate, the implosion will begin on the periphery, at the last frontier, in the wilderness that shot from the 14th century straight into the 21st: Xinjiang.
Source: Asia Times
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And It's Off to China We Go: PartXII


Today it's the French TV platform Thompson who have taken the plunge into China. (No plug intended but they made the set that's sitting in my living room). There is nothing very surprising or unexpected in this. OECD manufacturing will increasingly head for China. It is though important to note that the Chinese 'big thing' is being driven on two motors: FDI stimulated export growth raising little-by-little internal living standards, which then produces an internal market of awesome dimensions.

Thomson SA, the biggest supplier of televisions in the U.S., will merge its TV business with China's TCL International Holdings Ltd., creating the world's largest manufacturer by sales volume. Thomson, the Paris-based maker of RCA brand televisions, and Huizhou, China-based TCL will combine their television an DVD- player operations into a venture with $3.5 billion in sales, the companies said in separate statements. TCL, which leads China's TV market, will own 67 percent of TCL-Thomson Electronics, and Thomson the remaining 33 percent. Thomson Chief Executive Charles Dehelly has already announced 1,200 job cuts in the U.S. and shifted production to China, whose two dozen TV producers are increasing their share of the North American market because of lower costs. TCL's parent is planning to sell shares in China to help fund overseas expansion after profit from its mobile-phone business slumped. "The deal will help TCL's overseas expansion,'' said Lily Jap, an analyst at Nomura International (H.K.) Ltd.. "There are still many unknowns financially as Thomson's television business isn't making money. Who is going to bear Thomson's restructuring costs as they put the assets together?'' TCL's stock, which surged 29 percent last week to HK$2.925, was halted in Hong Kong. The stock has gained 23 percent this year. Thomson's shares rose 14 percent last week, closing at 18.12 euros in Paris on Friday.


China is the world's largest TV market and manufacturer, with 20 million units sold locally and 11.4 million exported in the first seven months of this year, according to the Ministry of Information Industry. TCL sold 3.7 million televisions in China during the period, compared with 3.6 million for No. 2 maker Sichuan Changhong Electric Co. Including exports, Sichuan Changhong was the bigger producer. TCL posted sales of HK$3.1 billion ($399 million) from televisions in the third quarter. About a fifth of Thomson's 10.2 billion euros revenue last year came from televisions and other video products. TCL-Thomson will have combined assets of 450 million euros and will sell as many as 18 million televisions a year, TCL said. "This strategic alliance fulfills our objective of being one of the top five players in multimedia electronics devices in the global marketplace,'' TCL Chairman Tomson Li said in a statement.


The Chinese company has been expanding in Europe. Last year, it bought assets from insolvent German TV maker Schneider Technologies AG. TCL also makes televisions for Royal Philips Electronics NV, which owns 4 percent of TCL Corp. Under the agreement, Thomson will contribute to the venture all its television factories in Mexico, Poland and Thailand; its DVD-player business; research centers; and 9,000 workers. TCL will contribute factories in China, Vietnam and Germany, as well as its sales outlets. The venture will focus on selling TCL brand televisions in Asia, Thomson brand in Europe and RCA brand in North America, TCL said. Thomson will also have the right to swap its one-third stake in TCL-Thomson for an unspecified number of TCL shares within 18 months after the venture is formed, TCL said. Thomson acquired the RCA brand when it bought Radio Corp. of America from General Electric Co. in the late 1980s. RCA, formed in 1919, introduced its first TVs in 1939 and invented the standard for color television adopted by the U.S. in 1953. "It's a trend that more TV makers will combine to form bigger groups,'' said Liu Haizhong, a spokesman for Sichuan Changhong Electric Co., a TCL rival. ``There is a huge market for televisions in China and in the world. The merger won't kill other rivals.''
Source: Bloomberg
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Truckloads of Soybeans


I've been down for the morning with one of those pesky server outages. Meanwhile stephen has been back to me with some more info on the soya bean situation in Brazil:

Just a quick comment to say, "nice find" about the soybeans piece in Brazil. The reality on the ground is truly spectacular. When I lived in Curitiba, we were about 100 km from the port of Paranagu??, mentioned in the article. The truckloads of soybeans would be queued up for more than that distance (110-130km) waiting to get onto the scales and unload. When you drive past km after km of trucks full of soybeans every day for several weeks, you can start to imagine how big the Brazilian crop is. It was little wonder, given the prices received and the exchange rate at planting, that there was a powerful move to get the crop to market, and also little wonder this brought the R$ back up from nearly R$4 to below R$3 to the dollar.

Where I was working, people said that the R$ was undervalued and that it would recover. The sceptic in me said, "no way, this never happens!", and then it did. Lately it seems that the R$ has decoupled just a bit more from the $, such that the weak dollar globally has meant a stronger R$. This past week has seen us below R$2.90 consistently, which is back around the rate I received when I first came to Brazil in July of 2002.

China: Raw Material Impacts I


OK I've got the 'China Impact' safely up on the radar. Anyone with anything interesting to contribute, please forward. Today it's the mining group BHP Billiton:

BHP Billiton, the world's biggest diversified mining group, gave a relatively upbeat outlook for its main commodity markets and said strong demand from China was underpinning volume growth in a number of areas. In its first-quarter results announcement on Wednesday morning, the Melbourne-based group said sales to China's booming economy had grown at an annualised rate of about 50 per cent in the three months to September after rising 126 per cent last year. Chris Lynch, chief financial officer, said Chinese growth was contributing to "very strong demand" for iron ore and coal - a commodity that China recently began importing in large volumes - and to "strong demand" for aluminium and alumina. He said China had also been a factor in the group's decision to bring back its Escondida copper mine in Chile to full production from January, a move that would increase output by 200,000 tonnes a year. The Anglo-Australian group reduced output by as much as 10 per cent over the past two years in a bid to help stem the fall in copper prices.
Source: Financial Times
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"Soybeans are the currency.''


Following my series of posts on the raw-materials impact of Chinese growth, this news from Bloomberg about the soybean impact in Brazil and Argentina is very much to the point. Even though it's long I'm posting the article in full in case the link goes dead. It's the story that has everything: the distorting impact of super-rapid growth from a giant, the ecological impact in Amazonia, genetically modified foods, industrial agriculture, subsidies, our move up the food chain. It's all there. Incredible! Thoughts please.

Vicente Luiz Costa Beber cleared 700 hectares (1,729 acres) of tropical scrub on the edge of Brazil's Amazon to double the size of his soybean farm in five years. This month, he is planting an additional 250 hectares on farms bought from neighbors, encouraged by surging demand from China and the highest prices in six years. "I can sell anything I plant, and that's hard to pass up,'' Beber, 42, said in an interview at his farm in Nova Mutum in Brazil's Mato Grosso state. Farmers from Brazil's rain forests to Argentina's pampas doubled soybean production since 1997 as China boosted soybean imports more than five-fold. At the same time, a shortage of suitable land restricted expansion in the U.S., the world's biggest soybean producer, to 2.2 percent. The U.S. predicts Brazil will surpass it as the No. 1 exporter in 2004. The growth in soybean production in Brazil, where farmers this year increased plantings by an area the size of Israel, means agriculture and related businesses now account for 29 percent of gross domestic product, 46 percent of exports and more than a third of jobs, according to government figures. While the expansion helped boost Brazil's trade surplus and the real to strengthen 24 percent against the dollar, it also makes South America's biggest economy vulnerable to declines in global prices and demand for soybeans, said Zeina Latif, an economist at HSBC Holdings Plc's Brazilian unit in Sao Paulo. "It's a problem for Brazil,'' Latif said in an interview.

On Thursday, Brazil said foreign sales of soybeans will reach $8 billion, or 13 percent of exports, this year and probably rise to at least $8.8 billion 2004. In Argentina, expansion in soybeans accounted for a fifth of the country's 7.6 percent economic growth in the first nine months, according to Luis Secco y Asociados, a Buenos Aires research firm. The boom also boosted revenue of Bunge Ltd., Cargill Inc. and other companies that trade and process soybeans in the two countries. China, which expects to boost soybean imports 10 percent to 22 million metric tons in 2003, on Wednesday bought 454,000 tons of U.S. beans, pushing soy futures prices in Chicago to their highest in more than six years. China's purchases and a drought in the U.S., where this year's harvest is the smallest since 1996, have boosted prices 47 percent since the end of July. China, whose economy is growing at an annual rate of 9.1 percent a year, needs soybeans to produce meal that fattens livestock and oil used to make processed foods such as potato chips and margarine. Soybeans, cultivated in China as far back as 1000 B.C., were introduced in Europe and the U.S. in the 19th century.

"As Chinese become richer they are moving up the food chain and consuming higher protein food, especially more animal protein,'' said Lester Brown, president and founder of Washington- based Earth Policy Institute. ``That requires ever-expanding imports of soybeans to produce soybean meal to supplement grain in livestock and poultry rations.'' Brazil and Argentina have become dependent on soybeans after a record $95 billion default by Argentina caused both nations' currencies to tumble. To achieve higher prices and greater access to world markets the two countries have made ending farm subsidies in the U.S. and Europe a deal-breaker in World Trade Organization talks to reduce barriers to investment, services and commerce. In Beber's town, soybeans lured so many workers that local officials are building three new schools and carving four boulevards leading to new housing developments. In Pergamino, a soybean farming town 300 kilometers (186 miles) north of Buenos Aires, Carlos Genoud's furniture factory, Pergamino Maderas SA, has a three-month backlog of orders from farmers flush with cash.

``This soybean boom has been like Christmas and the lottery wrapped into one,'' Genoud, president of Pergamino's chamber of commerce, said in an interview.

Bunge Ltd, the world's largest oilseed processor, has benefited from rising production, said Raul Padilla, who runs Bunge's business in Argentina. "The soybean boom in the region is very positive for Bunge,'' said Padilla. ``Given the huge interests we have, this allows us to maintain a high level of utilization of our crush capacity, helping reduce costs and maximize the return on our assets.'' Cargill Inc.'s public affairs director in Buenos Aires, Hugo Krajnc, declined to comment. The surge in soybean output has been helped by Monsanto Co.'s genetically modified seeds. In Argentina, 90 percent of the crop is from such seeds, which allow farmers to produce at lower cost by reducing the need for herbicides and increasing the amount of unspoiled soybeans.

In Brazil, President Luiz Inacio Lula da Silva in September waived a ban on the use of the Monsanto seeds and may ask the legislature to make it permanent. Currently, about 10 percent of the Brazilian crop is genetically modified, according to the Brazilian Agricultural and Cattle Farmers Confederation. Soybeans and their products now account for a quarter of Argentina's exports, up from 11 percent 10 years ago, generating foreign currency that helped increase central bank reserves by more than a quarter this year to $13.4 billion. It also helped the peso rise 18 percent against the dollar following last year's 70 percent depreciation of the Argentine currency. For Brazil, farming and agribusiness ``is the country's biggest industry by far,'' Agriculture Minister Roberto Rodrigues said in a speech to farm leaders in Rio de Janeiro on Oct. 21. "If it weren't for agriculture we could have had a recession,'' said HSBC's Latif.

For now, the boom is leading farmers from Para, Goias and other farming states to clear swaths of Amazon forest.

Mato Grosso Governor Blairo Maggi, who, with 113,000 hectares under cultivation, is himself the world's biggest soybean farmer, wants to build a highway from his state to a grain port in Santarem on the Amazon River to overcome what farmers say is the main obstacle to growth of Brazilian agriculture: the country's poor roads, railways and ports. Beber has to send soybeans by truck on a 2 1/2-day, 2,100- kilometer journey to the southern Atlantic port of Paranagua on a two-lane highway so riddled with potholes the size of bathtubs that he loses about 10 percent of each cargo along the way. Construction of the highway would make more of the Amazon vulnerable to deforestation, said Stephan Schwartzman, a Latin America specialist at Environmental Defense. In Acre and Rondonia states in the northwestern Amazon, for instance, farmers have cleared swaths of rain forest along highways to plant soybeans.

In their quest to increase output, Argentine farmers now grow soybeans in fields previously used for corn or cattle and even use patches of wasteland. The municipality of Pergamino is making extra money renting out highway shoulders farmers who want to plant more soybeans. "There isn't an inch of land that is not planted,'' Miguel Saadi, who runs a grain silo, said in an interview in Pergamino. As their soybean production expands, Brazil and Argentina are trying to force the U.S. and Europe to end agricultural subsidies they say reduce market prices and undermine the ability of developing countries to compete in world markets. World Trade Organization talks in Mexico collapsed last month after poor countries refused to discuss proposals to reduce barriers to investment and services such as banking unless the U.S. and European Union agreed to cut farm aid.


In talks to form a free-trade zone spanning the Americas, the U.S. this month accused Brazil of alienating other countries in the region by demanding an end to farm subsidies before negotiating lower barriers on services. Neither Argentina nor Brazil pays subsidies to soybean farmers, while the U.S. paid $671 million in soybean subsidies last year. In Argentina, the government taxes soybean exports 20 percent. "Argentina and Brazil are the most efficient soy production areas in the world,'' Bunge's Padilla said in an interview in Buenos Aires. ``Without the subsidies in the northern hemisphere, both countries could be getting even better prices.'' Beber, in Nova Mutum, produces an average 4.2 metric tons of soybeans per hectare (58 bushels per acre), almost double yields in the U.S., said Agmar Lima, Nova Mutum's agriculture secretary. ``And I do that though this land is really among the worst in the world,'' Beber said. Beber spreads 500 kilos (1,102 pounds) of fertilizer on each hectare of soybeans, a mix of minerals such as calcium and molybdenum that make the orange earth more productive. Like most Brazilian farmers, he plants without tilling the soil to preserve spent soy and corn stalks as organic fertilizer.

In towns such as Nova Mutum, soybeans dominate the economy so much that they have come to be considered as good as cash. The going price for a four-bedroom home with a pool in a new housing development on the edge of town is 10,000, 60-kilo bags of soybeans, each worth about $10. To buy a John Deere harvester, a farmer need only transfer 20,000 of the 60-kilo bags into the dealer's account at one of the silos on the edge of town. "Soybeans are the economy here,'' Lima said in an interview at the two-month-old town hall, which was built with a surge in tax revenue that resulted from rising soybean production. "People have forgotten the value of things in paper money,'' Lima said. "Soybeans are the currency.''
Source: Bloomberg
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Disappearing Manufacturing Jobs: A Worldwide Phenomenon


Bloomberg's Caroline Baum re-iterates a fair point here. Manufacturing jobs aren't being stolen from anywhere, since technological change means that even with rising output employment is gowing down: globally. This is why there's no 'lump of labour' to share out. Of course this isn't quite the same thing as saying that articles which were previously made in the US are not now made in China (there is a little slight of hand somewhere here), but still, the reductions in China are impressive. This is why the global impact of China is still likely to be deflationary: all the surplus labour continues to exert downward pressure on wages. On the productivity numbers, we are bound to get the 'usual arguments' that always surround these, but please not the low (very low, and continuingly low) Italian performance:

Last month, in a Labor Day appeal to union workers, President George W. Bush announced the appointment of a new manufacturing czar. He could have saved himself the ridicule. The government doesn't create jobs; the private sector does. A domestic manufacturing czar isn't going to bring back the 2.6 million factory jobs lost on Bush's watch, or stanch the losses, when the problem is global in nature.

So while a figurehead czar will do far less damage than any of the protectionist measures wafting through the Capitol, it won't fix the problem. Manufacturing jobs are disappearing around the world, according to a recent study by Alliance Capital Management, reported in this column two weeks ago. No one is stealing jobs from us. Something -- productivity -- is. Nowhere are manufacturing jobs vanishing more rapidly than in China, the presumed villain in this tale. The study by Alliance's global economic research department, headed up by Joe Carson, created a flurry of interest when it was reported in the Wall Street Journal last week because the results were contrary to what was commonly believed. The Commerce Department, the Treasury, Federal Reserve District Banks, manufacturing trade associations (national and state), lobbyists and the media all wanted the results of the study. (Aren't some of these folks the ones who should be producing the data?)

Prompted by intense interest in what's quickly becoming the No. 1 myth (China is stealing our manufacturing jobs) and what could become the No. 1 problem (protectionist trade sanctions), Carson's group mined international industry data on manufacturing production workers (the folks who actually make things). The economists found that China is even less of a thief than previously thought.

The initial study found a decline of 16 million manufacturing jobs in China from 1995 through 2002. Further digging unearthed a total loss of 25 million. The initial finding of a 2 million increase in manufacturing jobs in China since 1999 morphed into a loss in every year since 1995. "All of China's 28 industry categories showed losses between 1995 and 2002,'' Carson says. ``Only two industries -- garments and electrical and telecom equipment -- experienced positive job growth since 1999.'' China's huge contraction in manufacturing jobs is largely the result of shuttering inefficient state-owned enterprises. Employment at SOEs, both manufacturing and non-manufacturing, fell by two-thirds since 1995, Carson says.

Employment in private enterprises has risen sharply as many workers from the defunct SOEs are absorbed. However, neither China's rapid economic growth -- 9.1 percent in the last year -- nor growing ``number of private sector enterprises has been large enough to offset the drop in factory jobs at state-owned enterprises,'' Carson says. ``Productivity is killing inefficient industries in China in the same way it is here.''

The results of the second Alliance study found more global manufacturing job losses than on first blush. Over 31 million manufacturing jobs vanished worldwide from 1995-2002, versus an initial estimate of 22 million. Factory employment declined in every year in the biggest 20 economies in the world and in almost every year in the three major regions (North America, non-Japan Asia and Europe).

Europe ranked No. 1 -- in terms of the fewest number of manufacturing job losses (2 percent) in the seven-year period of the study. No surprise there: The continent's rigid labor laws deny businesses the flexibility to fire workers during lean economic times.

When it comes to things that really matter, such as the standard of living (an outgrowth of productivity growth), Europe loses its star ranking, based on international comparisons of manufacturing productivity in 14 economies by the U.S. Bureau of Labor Statistics. While the BLS doesn't aggregate country data, Germany, Europe's largest economy, saw output per manufacturing hour increase an average 2.4 percent from 1995 to 2000 and less than 2 percent in 2001-2002. That compares with an average rise of 4.5 percent (1995-2000) and 3.4 percent (2001-2002) in the U.S. One European country, Sweden, topped the U.S. in manufacturing productivity growth, but its weighting isn't big enough to raise the European average by much.

Italy recorded average annual manufacturing productivity growth of less than 1 percent in the last seven years. The U.K. and the Netherlands got the booby prize in 2002 in the BLS comparison, with growth rates of 0.4 percent and 0.5 percent, respectively. Both countries had average annual manufacturing productivity growth of 2.5 percent in 1995-2000. Europe hasn't benefited from the innovations in information technology to the same extent as the U.S. in the past decade. Since the technology itself is available everywhere, the assumption is Europe's structural rigidities are to blame. Europe will have to liberalize its economy in order to reap the full benefits of productivity-enhancing equipment. If companies had more leeway to fire workers, shorten the workweek and cut generous benefits, maybe it would have been the bureaucrats in Brussels who dreamed up the idea of a manufacturing czar instead of President Bush.
Source: Bloomberg
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