For every dollar’s worth of exports to China, India imports three, leading to a trade deficit of up to $40 billion in the year to March 2012, or about 2% of GDP. China accounts for a fifth of India’s overall trade deficit with the world, over half if oil is excluded.(HT : The Economist)
Sunday, July 8, 2012
India-China trade fact of the day
Shifting global economic center of gravity
The Economist points to a fascinating graphic from a new study
by the McKinsey Global Institute that highlights the rapidly shifting global economic center of gravity. The graphic maps the movements in this centre of gravity since AD 1 and how it is
likely to move until 2025. It claims that the center is rapidly shifting east - at a speed of 140 kilometres a year and
thus faster than ever before in human history.
Saturday, July 7, 2012
Universal health care map of the world
Nice map in the Atlantic which maps countries with some form of universal health care system. Most of them are through compulsory, but government-subsidized, public insurance plans.
As it writes, the astonishing thing about the map "is how cleanly the green and grey separate the developed nations from the developing". The developed world exception is the United States.
Essentially, there are four models of health care systems. In the Beveridge model, as in the single-payer system of UK, health care is provided and financed by the government through tax payments. Many, but not all, hospitals and clinics are owned by the government; some doctors are government employees, but there are also private doctors who collect their fees from the government. The Bismarck model, adopted by Germany and other continental European countries, uses private service providers and several non-profit insurance funds, and is financed jointly by employers and employees, with means tested premium support for the poor. However, tight government control keeps premiums and service costs under control.
The National Health Insurance nodel of Canada, now embraced by South Korea and Taiwan, has private-sector providers, though payment comes from a government-run insurance program that every citizen pays into. Such single-payer, mandatory, community rated insurance system helps keep costs under control. Finally, there is the out-of-pocket model, where payments are made directly by the patients, based on the service delivered, without any intermediation by the government or insurer. Most developing countries have this model of health care delivery.
As it writes, the astonishing thing about the map "is how cleanly the green and grey separate the developed nations from the developing". The developed world exception is the United States.
Essentially, there are four models of health care systems. In the Beveridge model, as in the single-payer system of UK, health care is provided and financed by the government through tax payments. Many, but not all, hospitals and clinics are owned by the government; some doctors are government employees, but there are also private doctors who collect their fees from the government. The Bismarck model, adopted by Germany and other continental European countries, uses private service providers and several non-profit insurance funds, and is financed jointly by employers and employees, with means tested premium support for the poor. However, tight government control keeps premiums and service costs under control.
The National Health Insurance nodel of Canada, now embraced by South Korea and Taiwan, has private-sector providers, though payment comes from a government-run insurance program that every citizen pays into. Such single-payer, mandatory, community rated insurance system helps keep costs under control. Finally, there is the out-of-pocket model, where payments are made directly by the patients, based on the service delivered, without any intermediation by the government or insurer. Most developing countries have this model of health care delivery.
Friday, July 6, 2012
The changing nature of human deaths
Fascinating graphics from the NEJM (via Wonkblog) that documents the changes in the profile of disease related deaths in the United States since 1900. The first graphic (see the interactive graphic in the website) clearly shows that even as death rates have fallen, heart disease and cancer have come to become the dominant causes of deaths.
Most impressively, all the most common sources of death, epidemic type diseases - pneumonia, tuberculosis, gastrointestinal infections, etc, have all been completely marginalized. However, this trend has been accompanied by an increase in the numbers of deaths due to lifestyle diseases like heart diseaes and, in particular, due to cancer.
Most impressively, all the most common sources of death, epidemic type diseases - pneumonia, tuberculosis, gastrointestinal infections, etc, have all been completely marginalized. However, this trend has been accompanied by an increase in the numbers of deaths due to lifestyle diseases like heart diseaes and, in particular, due to cancer.
Thursday, July 5, 2012
Universal Health Insurance in Rwanda
This story of the dramatic transformation of the health care system of Rwanda, a mostly rural country of 8 million, though surely exaggerated, is truly impressive. It carries important lessons to countries like India where political initiative and administrative commitment to do something similar is sorely missing.
Since 2004 Rwanda has been running a community rated universal health insurance system, Mutuelle de Santé,
There are few important issues not raised in Tina Rosenberg's report that Rwanda will soo have to confront (or is already confronting). One, as access increases and offtake rises, public health care systems will become stretched out. There will come a stage when public systems will be unable to meet the requirements on its own, without being supplemented by the private sector. Once private sector enters the picture the current capitation based health insurance model will have to undergo radical changes. Managing this transition will be critical.
Two, as this system stabilizes and basic health care services are taken care of, there will be increasing demand for more advanced specialist services. But even with private sector support, the supply-side gaps for such care will not be easily bridged. Further, additions of more specialist services will also add to the financial burden on the government.
Three, even with all the user charges, hospitals will have adequate resources to incentivize only a handful of doctors to move to rural areas. In countries like India, which have much greater depth of medical personnel and governments offer relatively attractive terms of service, attracting even basic doctors, leave alone specialists, to work in rural areas has proven to be insurmountable. In fact, this rural-urban divide will widen with the growth of the private sector.
These, and a few others, are complex challenges, for which there are no easy answers. Rwanda will have to face them and innovate with local solutions to overcome them and sustain its universal health insurance system.
Since 2004 Rwanda has been running a community rated universal health insurance system, Mutuelle de Santé,
Mutuelle is a community system - premiums go into a local risk pool and are administered by communities. Until last year, Mutuelle’s premiums were about two dollars a year. This system turned out to be untenable - even two dollars a year was too much for a lot of people... Last year Mutuelle adopted a sliding scale. For the wealthiest, premiums essentially quadrupled, to about $8 a year. Each visit to a clinic has a co-pay of about 33 cents. If you need to go to the hospital, you pay a tenth of your hospital bill. But now the poorest - as judged by their communities - pay nothing. The Health Ministry says that the poorest 25 percent of Rwandans get free care... only 4 percent of Rwandans are uninsured.
This has been credited with dramatically improving Rwanda's health care standards,
AIDS has been cutting life expectancies in Africa and is widespread in Rwanda. Yet life expectancy at birth in Rwanda has increased from 48 to 58 - in the last 10 years. Deaths of children under 5 have dropped by half in five years; malaria deaths have dropped by roughly two-thirds. Of all countries in Africa Rwanda is probably getting the closest to having health for all, health access for all...And it has had a salutary effect on the health care system itself,
A measure of Mutuelle’s success is a tremendous increase in the use of health care facilities... A clinic visit before was 5,000 francs - about $8.30... 80 percent of people in need of AIDS treatment are getting it - a figure in Africa rivaled only by Botswana, which is 20 times richer than Rwanda. Hospital utilization rates have tripled... Five years ago, when giving birth in a health center cost around $25, only 20 percent of women did so. Now that it is 33 cents, 70 percent do - a big reason that deaths of mothers and children have dropped so precipitously. Malaria - a major killer of children - is also now treated... Today, malaria is usually diagnosed by a community health worker. She can give the first dose of an effective medicine right away, then send the patient to a health clinic for a visit that will cost a maximum of 33 cents.
Now there is a well-functioning national network of thousands of community health workers at the village level. There are hundreds of clinics, all with basic equipment and a full cupboard of essential medicines. Each of Rwanda’s 30 districts has a hospital, with at minimum 15 doctors, offering basic surgical services...
The increase in clients and the payments from Mutuelle they bring has transformed hospitals. Without income, hospitals couldn’t pay doctors or buy equipment. Now that hospitals can pay, doctors and nurses are moving from cities to the countryside. Before there was a marked concentration in cities... Now there’s equitable distribution across the nation...The biggest challenge for Mutuelle is its financial sustainability since even with the cross-subsidy, premiums cover only about 45 percent of costs. The rest of the money is from the government and international donors. Given the low income levels, it is inevitable that a significant share of the cost of financing Muuelle will have to be borne by the government.
It gives relief to people knowing that if you get sick, you don’t need to have a lot of money... It gives you psychological stability so you can concentrate on something else. The money can be used for other things - this is very important in trying to stimulate economic development.
There are few important issues not raised in Tina Rosenberg's report that Rwanda will soo have to confront (or is already confronting). One, as access increases and offtake rises, public health care systems will become stretched out. There will come a stage when public systems will be unable to meet the requirements on its own, without being supplemented by the private sector. Once private sector enters the picture the current capitation based health insurance model will have to undergo radical changes. Managing this transition will be critical.
Two, as this system stabilizes and basic health care services are taken care of, there will be increasing demand for more advanced specialist services. But even with private sector support, the supply-side gaps for such care will not be easily bridged. Further, additions of more specialist services will also add to the financial burden on the government.
Three, even with all the user charges, hospitals will have adequate resources to incentivize only a handful of doctors to move to rural areas. In countries like India, which have much greater depth of medical personnel and governments offer relatively attractive terms of service, attracting even basic doctors, leave alone specialists, to work in rural areas has proven to be insurmountable. In fact, this rural-urban divide will widen with the growth of the private sector.
These, and a few others, are complex challenges, for which there are no easy answers. Rwanda will have to face them and innovate with local solutions to overcome them and sustain its universal health insurance system.
Wednesday, July 4, 2012
A sustainable currency union has to embrace some form of political union
The debate surrounding the future of Eurozone, especially how it should redesign its institutions to prevent the recurrence of such crises, is essentially one about what are the pre-requisites for a currency union.
In the context of the ongoing crisis in Eurozone, I have blogged about optimal currency areas and how countries like India manage a single currency zone. In both cases, it is amply clear that some form of fiscal transfers are critical to manage asymmetric shocks faced by members. Such shocks are inevitable when members start out from different economic backgrounds and exhibit considerable heterogenity in their social and political systems. In simple terms, the loss of flexibility with monetary and exchange rate policies that accompanies any currency union will have to be traded off with a mixture of free labour market mobility and fiscal integration. See this brilliant description by Paul Krugman.
The Economist has an excellent graphic of federal fiscal transfers among the 50 American states that puts this in perspective. Would be interesting to have a similar graphic for India!
Derek Thompson in The Atlantic contrasts the difference between US and the Eurozone,
This first step to a banking union will be followed by the EU bailout funds being injected directly into Spanish banks (to recapitalize them) instead of the current practice of being routed through the Spanish government's balance sheet. This means Spain can remove the burden of bailouts off its sovereign books. Further, instead of being subjected to Greek-style austerity programmes, these countries will have to maintain their EU debt and deficit commitments, though EU authorities could mandate tighter deadlines and timetables. The bailout funds will also be able to directly buy sovereign bonds in the market and loans from rescue funds would not be senior to existing loans. All this is likely to be followed by the slow introduction of the other elements of a banking union like a Eurozone wide deposit insurance.
If the Eurozone comes out of the current crisis in one piece, or at worst minus Greece, then we can say with some certainty that it would have advanced more down the path of a political union than would have been possible through negotiations and deal-making during the normal times. Historians of European integration will then take the name of Angela Merkel in the same breath as that of Robert Schuman and Jean Monnet. But that's going far ahead in time!
In the context of the ongoing crisis in Eurozone, I have blogged about optimal currency areas and how countries like India manage a single currency zone. In both cases, it is amply clear that some form of fiscal transfers are critical to manage asymmetric shocks faced by members. Such shocks are inevitable when members start out from different economic backgrounds and exhibit considerable heterogenity in their social and political systems. In simple terms, the loss of flexibility with monetary and exchange rate policies that accompanies any currency union will have to be traded off with a mixture of free labour market mobility and fiscal integration. See this brilliant description by Paul Krugman.
The Economist has an excellent graphic of federal fiscal transfers among the 50 American states that puts this in perspective. Would be interesting to have a similar graphic for India!
Derek Thompson in The Atlantic contrasts the difference between US and the Eurozone,
The poorest states like Mississippi, New Mexico, and West Virginia rely on enormous transfers of federal taxes in the form of unemployment benefits and Medicaid. Like the United States, the euro zone is all on one currency. Unlike the United States, the euro zone collects a teensy share of total taxes at the EU level and has no legacy of permanent fiscal transfers from the richer countries, like Germany, to the poorer countries, like Greece.As Krugman writes, in addition to fiscal transfers and labor mobility, a currency union should also embrace banking union (a single banking regulator and area-wide deposit insurance) and monetary union (mitigate liquidity risk by the creation of a single currency-zone wide lender of last resort). His assessment of Eurozone as a currency union is spot on,
Members of a currency area, it turns out, should have high integration of bank guarantees and a system of lender of last resort provisions for governments as well as the traditional Mundell criterion of high labor mobility and the Kenen criterion of fiscal integration. The euro area has none of these.Whatever its denouement, as the Eurozone lurches from one crisis to another, there is increasing realization that some form of banking, monetary and fiscal union is inevitable. The latest Eurozone leaders summit saw the first step in a banking union with agreement to replace the 17 national banking regulators with a Eurozone-wide single banking supervisor under the control of the ECB.
This first step to a banking union will be followed by the EU bailout funds being injected directly into Spanish banks (to recapitalize them) instead of the current practice of being routed through the Spanish government's balance sheet. This means Spain can remove the burden of bailouts off its sovereign books. Further, instead of being subjected to Greek-style austerity programmes, these countries will have to maintain their EU debt and deficit commitments, though EU authorities could mandate tighter deadlines and timetables. The bailout funds will also be able to directly buy sovereign bonds in the market and loans from rescue funds would not be senior to existing loans. All this is likely to be followed by the slow introduction of the other elements of a banking union like a Eurozone wide deposit insurance.
If the Eurozone comes out of the current crisis in one piece, or at worst minus Greece, then we can say with some certainty that it would have advanced more down the path of a political union than would have been possible through negotiations and deal-making during the normal times. Historians of European integration will then take the name of Angela Merkel in the same breath as that of Robert Schuman and Jean Monnet. But that's going far ahead in time!
Tuesday, July 3, 2012
The end of commodities super-cycle?
The sharp decline in oil prices in recent weeks - amidst talk of slowdown in emerging economies, including China, to add to the Eurozone crisis and America's economic weakness - has triggered a debate as to whether the sustained rally in oil prices is nearing its end. More importantly, given the similar downward trend with other commodity prices, is this the end of the commodities supercycle?
The commodities supercycle is premised on the belief that "the rise of emerging markets led by China would continue to drive up prices for oil and other commodities, from copper to corn". It has, over the past decade, spectacularly boosted the fortunes of many commodities producing economies. This quote from the Governor of Reserve Bank of Australia, Glenn Stevens nicely illustrates the magnitude of the supercycle,
A recently released study of commodity prices changes since 1865 by Bilge Erten and José Antonio Ocampo (via FT) claims that the remarkable strength and length of this upswing in commodity prices reflect the extraordinary resilience of growth performance of major developing countries, particularly China.
The graphic below puts the current supercycle in perspective. In the top section, the figure displays the natural logarithm of the real total non-oil commodity price and the long-term trend superimposed on it. The real commodity prices trended very slightly upwards from 1865 to the mid 1910s, trended downward until late 1990s, and then trended upward through the end of the sample.
The authors analyse their graphic,
Given these trends, it may not be unwise to argue that the supercycle in both crude and non-oil commodities are set to wind down in the years ahead. Slower growth in China - which formed almost three-fourth of the consumption growth in iron ore, coal and copper - adds credence to this arguement. In fact, as the FT recently reported, the FTSE All-World mining index has already dropped 31.8 per cent from its peak in April 2011. It will be interesting to see the pace and trends associated with this easing of the supercycle.
The commodities supercycle is premised on the belief that "the rise of emerging markets led by China would continue to drive up prices for oil and other commodities, from copper to corn". It has, over the past decade, spectacularly boosted the fortunes of many commodities producing economies. This quote from the Governor of Reserve Bank of Australia, Glenn Stevens nicely illustrates the magnitude of the supercycle,
Five years ago, a ship load of iron ore was worth about the same as about 2,200 flatscreen television sets. Today it is worth roughly 22,000 flatscreen television sets.Ruchir Sharma feels that the latest round of commodities supercycle is merely following the 200 year long trend in commodity prices - one decade up, followed by two decades down. Now with the decade of rise over, the long period of decline is round the corner. This, he argues, is likely to boost the mainly western commodity importing economies, and result in capital allocation to more productive industries. He points to certain interesting features of this supercycle,
At the height of the dotcom bubble, tech stocks comprised 25 per cent of global markets. After the bust, commodity stocks – energy and materials – rose to replace tech stocks and, by the end of the last decade, accounted for 25 per cent of global markets too... The total invested in commodity funds has more than doubled over the past five years to more than $400bn in 2011. The daily volume of trades in energy futures is now a staggering 25 times higher than daily global demand for energy...
The spectacular rise of Australian iron ore mining heiress, Gina Rinehart, to the position of the richest woman in the world mirrors the fortunes of Australia in particular and the commodities supercycle in general.
The dotcom billionaires were truly creative people, many of whom are still advancing the tech revolution. Today’s billionaires make money by digging stuff out of the ground. In 2001, the world had 29 billionaires in the energy industry, 75 in tech; by 2011, the numbers had reversed, with 36 in tech and 91 in energy, mostly in oil. These tycoons contribute only in so far as they inspire competitors to devise alternatives to oil.
A recently released study of commodity prices changes since 1865 by Bilge Erten and José Antonio Ocampo (via FT) claims that the remarkable strength and length of this upswing in commodity prices reflect the extraordinary resilience of growth performance of major developing countries, particularly China.
The graphic below puts the current supercycle in perspective. In the top section, the figure displays the natural logarithm of the real total non-oil commodity price and the long-term trend superimposed on it. The real commodity prices trended very slightly upwards from 1865 to the mid 1910s, trended downward until late 1990s, and then trended upward through the end of the sample.
The authors analyse their graphic,
The non-trend component representing the difference between the actual series and the long-run trend is shown in the bottom half. The left scaling in logarithms shows that a value of 0.40 indicates a 40 percent deviation from the long-term trend. The cyclical fluctuations illustrated by the non-trend component... contain shorter-term as well as the super-cycles, which are not always symmetrical. The latter are estimated to be in the 30-40 year range. The super-cycle component... reveals three and a half long-term cycles in real commodity prices since the late nineteenth century.A cursory analysis of the graphic appears to indicate that the non-oil commodities supercycle is now primed to start winding down. Incidentally, its amplitude in the latest cycle, since the nineties, has been bigger than in earlier periods. A comparison with the supercycles in crude oil prices reveals that its supercycles have gotten far bigger in the recent cycle compared to those in earlier cycles. Further, in sharp contrast to the non-oil prices, the real oil prices have been rising sharply since the seventies.
The first long cycle begins in late 1890s, peaks around World War I, and ends around 1930s, and shows strong upward and downward phases. The second takes off in 1930s, peaks during the post-war reconstruction of Europe, and fades away in mid 1960s. It shows a strong upward phase but a weak downward one. The early 1970s marks the beginning of third cycle, which peaks around early 1970s and turns downward during mid 1970s and ends in late 1990s. This cycle shows a weak upward phase and a strong downward one. The post-2000 episode is the beginning of the latest cycle, which has shown a strong upward phase which does not seem to have been exhausted so far.
The degree to which the total non-trend component deviates from the super-cycle component shows the significance of other shorter cycles induced by business cycle conditions and medium-term factors. These shorter fluctuations appear to be strikingly large, particularly in the interwar period of the twentieth century. This implies that periods of high volatility resulting from business cycles often accompany the long-term trend and super-cycle in real commodity prices. The presence of shorter-term high volatility further brings large price risks for those involved in the investment decisions that may be long-term in nature.
Given these trends, it may not be unwise to argue that the supercycle in both crude and non-oil commodities are set to wind down in the years ahead. Slower growth in China - which formed almost three-fourth of the consumption growth in iron ore, coal and copper - adds credence to this arguement. In fact, as the FT recently reported, the FTSE All-World mining index has already dropped 31.8 per cent from its peak in April 2011. It will be interesting to see the pace and trends associated with this easing of the supercycle.
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