terça-feira, 30 de setembro de 2014

Martin Wolf: Even Beijing balks at price to pay for renminbi to become a reserve currency

For the first time since industrialisation began two centuries ago, the world’s largest economy seems certain to be that of a non-western developing country run by the communist party.

This raises many questions. Among them is the potential role of its currency, the renminbi. Will it displace the dollar? Should the Chinese authorities want it to? Should the rest of the world want this? My tentative answer to all three is: no.

China’s economy is huge and a hugely influential. On one measure – gross domestic product at purchasing power parity (which adjusts for the differences in purchasing power of money across borders) – China has the largest economy in the world. Unless its economy is derailed, it will surely have the largest economy on any measure by the early 2020s.

China is the world’s largest exporter of goods and second largest importer. For its size, it has an open economy, with a higher ratio of trade to GDP than the US. China also holds the world’s largest foreign exchange reserves, now worth $4tn, an almost unbelievable 40 per cent of the country’s GDP.

Yet the size of the economy or of trade do not determine whether the rest of the world will want China’s liabilities to be among their principal reserve assets.

True, China’s role in trade makes it attractive to hold renminbi, largely as a means of payment. Such balances for transactions are becoming substantial. China has itself promoted greater use of the renminbi for such purposes. It has done so by allowing its use in trade settlement, permitting people to borrow renminbi, letting some people hold offshore renminbi accounts and setting up bilateral currency swap lines with other central banks.

Yet the requirements for foreign currency reserves are rather more demanding. In his book, The Dollar Trap, Eswar Prasad of Cornell University lays out three conditions for a currency to become a widely-used reserve currency: free convertibility; internationalisation; and a floating exchange rate. The last is a modern requirement. In the 19th century, the pound sterling was used in reserves because it was as good as gold and more rewarding. But the other two conditions are essential.

Inevitably, therefore, the world’s principal reserve currencies have been supplied by open, law-governed market economies with deep and liquid capital markets and at least reasonably stable public finances. China is not such a country. Indeed, the fact that it holds vast amounts of the liabilities of other countries as reserves strongly suggests it does not think the renminbi is a satisfactory reserve asset.

True, China’s public finances look to be in good shape, although the costs of managing recent financial sector excesses and weaknesses in local government finances are as yet unknown. The bigger concerns lie elsewhere. As Prof Prasad remarks, “the capital account is becoming increasingly open in de facto terms, but the government is far from allowing the extent of free flow of capital that is typical of reserve currencies”.

The exchange rate, through freer to move than in the early 2000s, is still heavily manipulated, as shown in the continuing accumulation of reserves. The less free the exchange rate, the greater the risk that free flows of capital could prove destabilising.

Internationalisation is a yet deeper issue. Chinese financial institutions and markets are not yet capable of integrating with the rest of the world without danger of instability.

Behind this lies a further problem. For the authorities, the financial system is an instrument of control that they will be unwilling to give up, particularly as they are concerned about economic, social and political instability. Yet even if Beijing did liberalise the financial system and allow free movement of capital, it would find it hard to persuade other governments that it could be trusted to honour financial commitments in all circumstances.

As China can offer little legal protection, it must ask for trust in the good will of its communist rulers. One has to doubt that will suffice to displace the credibility built up by the dollar over many decades. Thus, it is unlikely the renminbi could replace the dollar as a reserve currency in the foreseeable future. China would have to be transformed, economically and even politically, for that to happen.

Would such a transformation be in China’s interests? In the long run, possibly, though the advantages to the US of creating the world’s leading reserve asset are often exaggerated. In the shorter run, it would risk substantial economic and political disorder.

Would the emergence of the renminbi as a reserve currency be good for the rest of the world? The advantage would be more choice. The disadvantage could be yet more instability, as confidence swung from the dollar to renminbi and back again. The age of the renminbi might yet come. But it is unlikely to be soon. That might be no bad thing.

Martin Wolf

Fonte: FT

Liberdade de opinião.

O comentário de um candidato  a Presidencia da República, em debate recente na tv,  causou enorme controversia e reações que  mais uma vez confirmam o pouco apreço, no grande bananão, pela liberdade de opinião.  Confesso, que este tipo de reação já não  me surpreende mais , assim como comentários que estariamos vivendo em um regime ditatorial.  Porque deveria?  A falta de memória é fato bem conhecido nos tristes trópicos, assim como o desconhecimento da filosofia política de matriz liberal.

Não vou entrar no merito das afirmações do candidato, mas me parece que se trata de liberdade de opinião. Ainda mais em se tratando de um debate politico onde, se espera, que o candidato tem o direito de expressar suas opiniões que serão aceitas ou rejeitadas pelos eleitores.

Liberdade de opinião existe, justamente, para proteger opiniões com as quais a maioria ou segmento dela não concordam.  Isto é ,naturalmente, o obvio ululante, mas ate isto, por estas bandas, tornou-se - se é ainda que algum dia deixou de ser -  controverso. Terra estranha, a nossa, onde prosperam, em profusão, jabuticabas exóticas.

A situação é diferente no ambiente de trabalho privado, regulamentado pela CLT e pelo contrato de trabalho que, em varias empresas, com o intuito de proteger a sua imagem,  inclui clausula moral.

segunda-feira, 29 de setembro de 2014

Hans-Werner Sinn: Merkel has a duty to stop Draghi’s illegal fiscal meddling

Despite the Bundesbank’s protests, the European Central Bank is givingEurope’s banks a leg-up. To make them fit enough for the proposed banking union, theECB proposes to relieve them of some of the potentially toxic loans they have extended to the private sector, which will be bundled into asset-backed securities and taken on to the central bank’s balance sheet. The ECB’s preference is to purchase the better tranches of these securities and leave the junk for the European Investment Bank. But since politicians are not playing along, the ECB will have to hold its nose – and complete its conversion into a bailout agency.

The ECB began as a central bank that carried out monetary policy, providing liquidity for domestic uses. But when the financial crisis hit in 2008, banks in Ireland and southern Europe faced a dearth of foreign loans, on which they had come to depend. The ECB allowed national central banks in these countries to end the drought by lending even more money against ever-weaker collateral. This exercise in money creation went beyond what was needed to ensure domestic liquidity; €1tn in central bank credit was created out of thin air to settle foreign bills. The citizens of the six countries that were indulged in this way used the money to pay off their foreign debts and to purchase foreign goods.

The ECB went on to instruct national central banks to grant crisis-afflicted states credit totalling €223bn under the so-called Securities Markets Programme.Mario Draghi, the ECB president, moreover offered unlimited protection for their government bonds, formalising his vow to do “whatever it takes” to save the euro under the rubric of “outright monetary transactions”. This lowered the interest rates at which overstretched eurozone members could obtain credit and reversed the losses of their foreign creditors, triggering another borrowing binge.

As comprehensive as these measures seemed, they may pale in comparison to what is now being considered. By directly granting credit to the private sector the ECB will enter a far larger arena. Mr Draghi has said that, as a first step, he intends to expand the ECB’s balance sheet by €1tn. The end of the property boom has left many private borrowers in southern Europe close to bankruptcy. The ECB’s plan to purchase their debt could end up transferring dozens if not hundreds of billions of euros from eurozone taxpayers to the creditors of these hapless individuals and companies. As UBS chief executive and former Bundesbank president Axel Weber has noted, the ECB is turning into a bad bank.

The ECB says these unorthodox measures are needed to combat looming deflation. Given that prices are still rising (albeit slowly – core inflation stands at 0.9 per cent) this seems little more than a fig leaf. Anyway, deflation is not a danger for southern Europe but an essential precondition for restoring competitiveness. This is nothing less than a fiscal bailout – something the ECB has no right to undertake, as the German constitutional court implied when it declared OMT unlawful.

Yet politicians may again keep their mouths shut about the ECB’s transgressions. Eurozone governments might even be thankful that the ECB is doing by stealth something for which they would otherwise have to seek permission from tight-fisted parliaments. Mr Draghi would never have dared to promise to do “whatever it takes” without the backing of the government heads of the day, and especially of German chancellor Angela Merkel. Mario Monti, Italy’s former prime minister, said as much this month.

But Germany’s constitutional court has expressly prohibited the German government from sitting back while the ECB oversteps its mandate. If politicians do nothing, any German citizen can petition the court and force them to act.

Hans-Werner Sinn is president of the Ifo Institute for Economic Research​

Fonte: FT

quarta-feira, 24 de setembro de 2014

After the sanctions, prepare for the Russian counterattack

For all the costs that sanctions are inflicting on the Russian economy, the Russian flag still flies over Crimea, Moscow remains undeterred and the ceasefire in Ukraine is at risk. Worse still, Russia is using its own form of economic warfare as a shield and a sword.

Western strategy has focused on blocking future deals with the Russian military sector, restricting Russian banks’ access to long-term capital, depriving elements of the Russian oil sector of technology they need for deep sea and shale drilling, and freezing the overseas assets of individuals tied to the Kremlin.

But most existing contracts between western interests and their Russian clients have been allowed to continue. Rather than dealing an instant blow, the aim has been to starve the country of capital by sowing doubts among western investors about the wisdom of investing in Russia. Contracts and capital have evaporated, growth has slowed and major Russian companies such as Aeroflot have been unable to acquire necessary investment.

But there is a limit to the amount of financial pain that the west can inflict on a major economy with substantial economic ties to Europe and the rest of the world. Russia’s entanglements are vulnerabilities but they also allow Russia to exact a price of its own.

Companies subject to western sanctions are making moves to circumvent the restrictions. Rosneft, the Russian oil company, is set to buy 30 per cent of Norway’s North Atlantic Drilling, enabling it to access offshore drilling capabilities in the Arctic despite technology export bans and financial restrictions.

Meanwhile, Russian investors deepen their economic interests in London, Frankfurt and New York. And the Russian sovereign wealth fund will be tapped for billions of dollars to shore up necessary capital requirements for its banks hit by sanctions.

Moscow is biting back. In June it ended flows of oil and gas to Ukraine, and it is restricting exports to other European customers as winter approaches. The Kremlin has banned agricultural imports from countries that have participated in the sanctions. It has closed four McDonald’s restaurants, using health inspections as a pretext, and it is flirting with a national payment system that could replace Visa and MasterCard. Western airlines may find themselves unable to fly over Siberia, forcing flights to Asia to take big detours. American consulting and accounting firms may be prevented from operating in Russia.

Russia has more cards to play. It could cut off supplies of engines to the US space programme. It is a big exporter of titanium and other resources needed by western companies. Moscow could emerge as a sanctions-busting financial partner to a country such as Iran, at the height of nuclear negotiations. The Kremlin could also enlist criminal networks to attack the computer systems of western targets, including major banks.

The west needs a comprehensive strategy that intensifies financial pressure on Moscow while deterring Russian escalation. Sanctions should no longer be tied to diplomatic milestones. Instead, they should be seen as a continuous campaign that leaves Mr Putin and the markets guessing. This approach has proved highly effective in Iran.

New Russian investments in the west need to be carefully scrutinised and western commercial contacts with suspect individuals and companies further constrained. Europe needs to secure alternative sources of oil and gas, though this will take time. Other countries, too, should seek back-up supplies of resources they buy from Russia.

Unless Washington and Brussels are willing to endure some economic pain, their sanctions campaign will prove ineffective. They should be prepared for a frozen conflict in which Moscow is willing to use its own economic weapons.

Juan Zarate is author of “Treasury’s War: The Unleashing of a New Era of Financial Warfare”

Fonte: FT

terça-feira, 23 de setembro de 2014

Francis Fukuyama and Karl Eikenberry: Friendless Obama needs Middle Eastern allies of convenience

If there is one thing Americans should have learnt from their recent wars, it is that they do not have the wisdom, resources or staying power to dictate political outcomes. Not long ago Washington aspired to build prosperous democracies in Afghanistan and Iraq. Today it would be satisfied if they simply hung together as countries.President Barack Obama says the US should recognise that the world is “messy”. His strategy has been to avoid doing “stupid stuff”.

And yet he is again trying to put a more ambitious face on American policy, asserting this month that the US would “degrade and ultimately destroy” the Islamic State of Iraq and the Levant, the al-Qaeda offshoot known as Isis. Air strikes quickly followed.

Yet he is overpromising. The US needs a more feasible strategy. Mr Obama could learn from England’s policy – and later Britain’s – towards the European continent over the centuries. London had no permanent friends. But whenever a single power looked set to dominate Europe, the country would throw its weight behind an opposing coalition, a strategy known as “offshore balancing”. Britain was never a land power but its navy and economic might turned the balance against would-be hegemons.

This is a role America is well suited to play. The US is in no position to end the Sunni-Shia conflict that is spreading throughout the greater Middle East. Washington lacks the tools to bring about a political settlement that would instil real democracy in Syria or good governance in Iraq. It can only hope that the fighting does not last as long as the 30 years’ war fought between Protestants and Catholics in 17th century Europe. What America can do, however, is prevent any of the really bad participants, such as Isis and the Assad regime, from winning a decisive victory.

Isis has overextended itself in Syria and Iraq, and has only narrow ideological appeal. It is vulnerable to attack from the air, and to ground counteroffensives by regional allies. The latter will have to do most of the fighting and dying but they have a strong incentive to do so given the murderous intentions of Isis. Washington would have to reverse cuts to the defence budget, but this is inevitable anyway, given the challenges posed by Russia and China.

The US has no permanent friends or enemies in this sectarian struggle. True, there are groups Washington would like to protect, such as the Kurds and the elected but fragile Baghdad government. The oil-producing Gulf states share common interests with America, and some of them participated in Monday night’s US-led air strikes inside Syria. But few of these countries are real democracies. All have been contributors to the conflagration, and all have supported violent extremists at one time or another. Conversely, while the US has regarded Iran as its prime opponent, the goal of defeating Isis is one Washington shares with Tehran.

Acting as offshore balancer would mean eschewing such goals as destroying Isis. But the US is far from having uprooted al-Qaeda, despite 13 years of trying. Isis is unlikely to prove more susceptible. Nor should we necessarily want to destroy Isis, if this allows Bashar al-Assad to reclaim the whole of Syria.

Americans prefer decisive endings: the Japanese surrender on the deck of USS Missouri; the collapse of the Soviet Union. Aiming merely to contain a long and awful civil war, instead of settling it once and for all, is unappealing, not to say cynical. But it is hubris to think the US can even comprehend the root causes of this ethnic-sectarian war. When it tried using hard power in Iraq, the consequences proved worse than the original problem. Yet it can scarcely retreat from a world that is slipping out of control. Offshore balancing is a sustainable posture. What it promises, it can deliver.

Francis Fukuyama and Karl Eikenberry

Fonte: FT

segunda-feira, 22 de setembro de 2014

Universities to revamp economics courses

No Brasil o problema parece ser outro: grande espaço ao pensamento marxista - em alguns casos 3 disciplinas dedicadas exclusivamente a veneração do Marx, alem daquelas  de historia econômica - e nenhum a escola austriaca. O espaço dedicado a autores da Escola Sueca e da Cambridge de Kaldor e cia, também fica muito a desejar.

Universities across four continents are rolling out a revamped economics curriculum, after students protested that conventional academic courses failed to grapple with the problems befalling the global economy.

Since the financial crisis, student groups have attacked economics departments for failing to deal with the world’s most pressing social issues, including inequality and global warming. They have also criticised professors’ reluctance to teach a range of economic theories, with courses instead focusing on neoclassical models which they claim do little to explain the 2008 meltdown.

The protest has won the backing of prominent economists, including Joseph Stiglitz, a Columbia University academic, and Andy Haldane, chief economist at the Bank of England. Its supporters believe that the exposure to a wider range of approaches is necessary if the next generation of policy makers is to avoid the mistakes made in the run-up to the crisis.

Faculties in London, Paris, New York, Boston, Budapest, Sydney and Bangalore will aim to address these complaints this academic year by road-testing a new syllabus from the CORE project, led by Wendy Carlin, a professor at University College London. The Institute for New Economic Thinking, a research group bankrolled by billionaire George Soros, has spent around $300,000 on the programme so far.

Robert Johnson, INET’s president, said: “There’s a problem that undergraduate courses don’t reflect the research of senior economists. There’s also an issue that the examples that we use in textbooks are often based on US data and institutions and don’t produce much excitement elsewhere, particularly in the emerging economies. We’re trying to address that.”

An interactive online textbook, which those involved say places more emphasis on economic history and data, is already available for free on CORE’s website. Davide Melcangi, a doctoral student at University College London, who has worked on the production of the ebook, said the new course would address students’ concerns the current curriculum was too abstract.

“Most undergraduate courses focus on the tools that economists use without addressing the questions most students have about the economy,” Mr Melcangi said. “The motivation of the CORE project is to teach the tools by addressing the questions.”

But, while some students who have campaigned for curriculum reform view the ebook as an improvement, others think CORE says much too little about different approaches to economic problems.

Louison Cahen-Fourot, a doctoral student at Paris XIII university who has also been involved with PEPS, a French group advocating more pluralism in economics, said: “The problem is [CORE] is not really pluralism,” Mr Cahen-Fourot, said. “It’s very much mainstream and it does not meet what we would like to see at PEPS, such as more alternative voices or methodologies. We also would like to see more openness to [methods from] other social sciences,” he said.

Rafe Martyn, a doctoral student at the University of Cambridge, said: “It’s sensible to do what CORE is trying to do and base teaching in empirics and to bring the content more into line of current research. There’s a fear that CORE just wants to present the theory it thinks is right, but the people involved are diverse and it’s a work in progress.”

The plan is for the ebook to be modified by online crowdsourcing of student and faculty comments, as well as by other economists. The final version is expected at the start of the 2016 academic year.

“There are always going to be trade-offs between how wide-ranging and encompassing you make the syllabus and how broadly it will be adopted by the profession,” Mr Johnson said. “I want to respect the feedback and intelligence of young people. But teachers must also be counted upon to provide legitimate guidance.”

Prof Carlin said the ebook was made available for free to provide “a public good”. She also hoped the book’s design would allow lecturers to focus on improving students’ communication skills. “[The curriculum] frees up face-to-face time in class for discussion. This leaves more time for applications to policy and empirical problems in class,” Prof Carlin said. “In the past weeks, our first users at two US universities have found the medium very attractive.”

Students’ discontent about mainstream economics courses has coalesced around the International Student Initiative for Pluralism in Economics, a network involving 60 organisations from 30 countries in the world. Last year, one of the groups, the Post-Crash Economics Society at the University of Manchester, devised a module for third-year students that was ultimately rejected by the faculty.

University College London, Sciences Po in Paris, Columbia University in New York, the University of Massachusetts at Boston, the Central European University in Budapest, the University of Sydney and Azim Premji University in Bangalore are the institutions involved in the first phase of the project.

Claire Jones

Fonte: FT

sexta-feira, 19 de setembro de 2014

Gillian Tett: The lessons of student debt

Just over a decade ago, while doing research into the anthropology of debt, I stumbled on a little book called The Two-Income Trap. It left me horrified and fascinated: it explained how an addiction to credit cards and other forms of consumer debt was destroying the lives of millions of middle-class Americans. I was so impressed by the book that I tried and failed to meet one of its authors – then a fairly low-profile Harvard Law School professor called Elizabeth Warren.

Earlier this month, my wish finally came to pass: Senator Warren, as she is now, having won a Massachusetts seat in 2012, gave a lecture with the economist Paul Krugman at the City University of New York. Warren has become such a popular figure over the past 10 years that the event was completely sold out.

This frenzy partly reflects the fact that debt and income inequality have become ultra-hot topics among the American chattering classes (a similar event in Manhattan earlier this year with Thomas Piketty, the French economist, was also sold out). But there is another reason too: some progressive figures inside the Democratic Party are urging Warren to run against Hillary Clinton (assuming that she does indeed run) in the 2016 presidential race. And in recent days, figures such as the actor Robert Redford and TV host Bill Moyers have publicly voiced their support.

While Warren has dismissed this, it will be worth watching her closely in the coming months, not least because of the contrast in styles. Whereas Clinton reeks of experience, magisterial gravitas and wealthy patronage, Warren exudes passion, humanity and accessibility – precisely what the highly competent Clinton (sadly) often lacks.

However, perhaps the single most interesting thing about the Warren event in New York lay not with the issue of Democratic politics but with the matter that first intrigued me: debt. A decade ago, one of the biggest problems hanging over American consumers was their addiction to consumer and mortgage debt. But since the 2008 crisis, something striking has happened: the level of overall credit-card loans has slowly drifted down, to a point where it is now hovering near its lowest level for a decade. And mortgage borrowing has also been more subdued, bucking the pre-crisis trend.

In some senses, this might seem welcome. For although some of the decline has been involuntary (due to bankruptcy, for example), some of it also reflects voluntary restraint. But there are two caveats. First, overall debt levels are still quite high by international standards. Second, there is one area where borrowing continues to explode: student debt. Most notably, as Warren observed, the total volume of outstanding student loans in the US has tripled over the past decade towards $1,300bn, to a point where it has now outstripped that credit-card debt, and auto loans.

The reason for this is not hard to find. Not only are student loans widely available, due to government lending programmes, but the cost of education has spiralled upwards at a startling pace (partly, it should be stressed, because of that availability). This has brutal consequences for income inequality, given the degree to which a university education is now considered essential for skilled jobs.

But what really upsets Warren right now is another detail: the loans that have been extended to students via government-backed institutions carry fixed interest rates that cannot be refinanced in line with market rates. That means they create implicit subsidies for the government – a practice that Warren wants to end by cutting the rate from about 7 per cent to nearer 3 per cent. “The 2007-2012 loans are on target to produce $60bn of profit for the US government. I think that is fundamentally wrong,” she thundered, arguing that the rising cost of education is shattering the American dream. “Why can we spend billions of dollars to preserve tax loopholes for billionaires … but not [change] this?”

Now, Warren is not the only person decrying this state of affairs: the spiralling cost of education provokes widespread alarm these days. But what is notable about Warren is that she is one of the few politicians who openly attacks the financial industry, US Treasury and Federal Reserve alike. This, of course, is the key reason she is unlikely to ever become a serious contender for the Democratic Party nomination: Warren’s outspoken comments have created many enemies in Washington and Wall Street. But her willingness to articulate unpleasant facts – such as the shocking explosion in student loans – is also a key reason she commands strong populist support in some quarters. Political giants such as Clinton ignore this at their peril; even (or especially) at a time when America is supposed to be enjoying an economic “recovery”.

Gillian Tett

Fonte: FT

quinta-feira, 18 de setembro de 2014

Economists from across the political spectrum offer their ideas to jump-start wage growth

The middle class in rich countries is living in the age of the stagnant wage. While precise measurements are difficult and disputed, there is no doubt that incomes for ordinary families in the US, Japan and across Europe barely increased faster than prices in the decade before the financial crisis – and have fallen in many countries since.
The result is sending tremors through politics as a lack of progress breeds resentment, populism and, sometimes, extremism.




Increasingly, economists also fear the stagnation in advanced economy wages is holding back the global recovery. The OECD warned this week that although real wage cuts at a time of still rising productivity had limited job losses, “it is now holding back a stronger recovery in consumer spending”.
If recent trends persist, the wonderfully accurate 1930 prediction of John Maynard Keynes that rich societies could expect far less toil and greater leisure – with hindsight through longer retirement – was strictly time-limited.
The global trends are stark. Stefano Scarpetta, director for employment, labour and social affairs at the OECD, says “almost all advanced economies have seen labour’s share of gross domestic product fall over the past 20 years”. Prof John van Reenen, director of the Centre for Economic Performance at the London School of Economics, notes that average workers have been hit hardest.
“Over time non-manual jobs have found their tasks taken over by computers and robots. Think of bank clerks and ATM machines,” he says.
In Japan, it is the young who have been hurt worst as the traditional salaried jobs in big companies dwindled.
Masahiro Yamada, a sociology professor at Chuo University in Tokyo, says this means young people live longer with their parents, generating a “falling birth rate and an acceleration in ageing [that] cuts economic growth while increasing the ratio of unmarried people in a vicious circle”.
The incomes of rich-country middle classes have done worse than almost any other group globally over the 20 years before the crisis, according to Branko Milanovic of the Graduate Centre, City University of New York and the Luxembourg Income Study, creating a “major political problem”.
To suppose that restricting free exchange makes the poor or the median better off is magical thinking
- Dierdre McCloskey of the University of Illinois
But he adds that when viewed from a global perspective, this has in some ways been a “small price to pay for the massive growth in incomes of much poorer groups in Asia”.
Experts from many different political hues, contacted by the Financial Times, agree on the diagnosis. Solutions are more difficult and contested.
On the political left, top economists such as Nobel Prize-winning professor Joseph Stiglitz of Columbia University, call for an immediate fiscal stimulus to boost demand, more generous minimum wages to improve workers’ bargaining positions and tax incentives for labour-intensive investment.
The other side of the political spectrum also focuses on restoring growth. But Dierdre McCloskey of the University of Illinois sees opportunities for market-tested betterment hindered by regulations.
“To suppose that restricting free exchange makes the poor or the median better off is magical thinking,” she says.
Many economists of all political persuasions think education and retraining is essential. Prof Milanovic says the focus on education should not be just for the elite, or for the post-school period, but spread through working lives. 
None of the economists and sociologists contacted by the FT thinks there is a silver bullet. Perhaps the most hopeful assessment came from Bart van Ark, chief economist of the Conference Board, who says some of the weakness in wages is likely to be temporary. “Because of potential labour shortages in many mature economies, wages are likely to start rising anyway,” he says, suggesting that countries focus training on areas likely to suffer skill shortages.
Wage stagnation has been well documented. There is a growing consensus that it is contributing to the weak recovery. During the past 40 years, average worker productivity in the US has roughly doubled, while real wages have stagnated.
There are no easy solutions. An increase in minimum wages would have a trickle-up effect: not only would those at the bottom benefit but so would those further up. The diminution of workers’ bargaining position – both because of weaker unions and asymmetric globalisation – has contributed significantly.
But right now, the single most important policy is to improve the macroeconomy, through a well-designed fiscal stimulus.
Economists chart
Not only is the effectiveness of monetary policy limited, but lowering the cost of capital also induces companies to use more capital-intensive technologies, contributing to a jobless recovery and further weakening workers’ bargaining position.
Instead, we should have an investment tax credit to encourage investment – but one designed to especially encourage more labour-intensive investments, particularly ones that require labour of only moderate skills.
As it is, companies have in effect been encouraged to replace unskilled checkout clerks with machines, contributing further to unemployment of unskilled labour and downward wage pressure.
In Japan, the economy has been stagnant for 20 years. The jobs and wages of middle-aged men are secure and protected but the outlook for new graduates and women is unstable. There is also preferential reallocation towards elderly people in social policy.
As a result, the salaries of young people and families with small children have not risen for a long time.
Economists chart
This has two effects. First, for young people with little chance of higher pay, one of the few choices to prevent a fall in living standards is to stay at home with their relatively affluent parents, and therefore postpone marriage. But the result is a falling birth rate and an acceleration in ageing. That cuts economic growth while increasing the ratio of unmarried people in a vicious circle.
A second effect is people escaping to virtual worlds of games, animation and costume play. Here, even the young and poor can feel as though they are a hero.
Financial resources should be generated by reviewing benefits towards the elderly while imposing heavier taxes on the wealthy elderly in particular. This should allow young people to preserve their living standards after marriage and during child-rearing. In a similar vein, the low ratio of women in the workplace should be increased, and unfair hiring practices for young people should be corrected. We need to restore hope to young people.
Slowly rising or stagnating living standards of ordinary people in the developed world are emerging as one of the key issues of globalisation. From a cosmopolitan perspective, stagnation of wages and incomes among people who are relatively well off may be a small price to pay for the massive growth in incomes of much poorer groups in Asia. Politically, though, it is a big problem.
There is no silver bullet solution. But focusing on better public education could improve the lives of ordinary people. There are at least three reasons for it.
Economists chart
Countries that had good mass education systems, such as the US, have been economically successful . More recent examples include South Korea, Japan and Singapore. Second, an OECD study has found that, for the first time, many children in rich countries have lower educational attainment than their parents.
Third, rich countries have a rising share of low educational performers. Western lower middle classes are losing out to the similarly placed Koreans because the latter are better educated. But they also lose out to the Thais, who have similar skill levels, because Thai workers are cheaper. Simply put, one part of the western middle class has a wage/skill ratio that makes them globally uncompetitive.
Even a casual observer would notice that Europe is in the process of creating, in its cities, an underclass reminiscent of the US in the 1960s. To avoid creating a permanent underclass there needs to be upward educational mobility. That should come about through improvement in the quality of public education and less emphasis on elitist institutions.
What we should not do is focus on inequality. It doesn’t matter, ethically speaking, if the heiress to the L’Oréal fortune has six yachts or none. True, she ought to be ashamed that she spends her wealth on baubles and not on good works. But her wealth is not what made people poor. Taking it will not much improve their condition.
Economists chart
What we should focus on is the absolute condition of the working class, how much food and clothing and healthcare and education the poor have. The real goods and services earned by the poor has risen since 1800 in the OECD countries by a factor of anywhere from 30 to 100 – 2,900 per cent to 9,900 per cent. And, contrary to what you might have heard, it continues to rise, if not at the heady rates of postwar recovery. Ordinary people in the already well-off countries such as Italy or UK have better heating in their flats, better medical care and better televisions than they had in 1975.
What ails the OECD are regulations piled on regulations, slowing market-tested betterment. What, then, is to be done? Let betterment proceed by stripping away the silliest of the regulations, many of them emanating from Brussels, and the rest from special interests, or plain monopoly. To suppose that restricting free exchange makes the poor or the median better off is magical thinking. Give up the minimum wage, the “protection” of jobs, the over-regulation of banking and the support for monopolies from taxis to surgeons. Yes, I know: hopeless politically. But so people said under all the ancient regimes.
To put wages back on to a sustainable growth path, the focus for policy makers should not be on how to deal with too few jobs, but with too few workers. This is a problem which will arise sooner than many may anticipate, mostly due to the significant slowdown in the growth of the working-age population in mature economies. The pace by which unemployment is declining varies hugely by country, but in Germany and Japan, for instance, the unemployment rate is already below its natural rate. In the US, that will happen next year. Other countries, such as France, Italy and Spain will follow at least three years later.
Economists chart
The focus should be on figuring out where labour shortages will be largest and emerging first. An index by The Conference Board on emerging labour market shortages by occupation shows they will not just affect highly skilled professionals (where immigration at least in part makes up for shortages), but also skilled labour middle-income occupations in the transport, construction, utility and mining industries (from which many older workers are retiring) and occupations at the lower end of the distribution such as health carers (for whom demand is up due to ageing).
Education needs to be broadly targeted to all skill levels where labour shortages are likely. Policy makers should also focus on easing labour market mobility and supporting productivity growth. Technology can help ease labour shortages through higher productivity, but there should also be investment in human capital, strategic workforce planning and new tools for human capital analytics. Governments can learn from what many large businesses are doing.
Everybody should have a basic income. It should be paid monthly, not as a lump- sum capital grant, to reduce weakness of will problems.
A basic income is affordable because it would substitute for many forms of transfer, including the ludicrous array of subsidies that go predominantly to upper-income groups and corporations. And it would cut administrative costs of existing social assistance schemes.
We should recognise that our individual wealth is due far more to the collective efforts of our forebears than anything we do. A basic income should be seen as a social dividend on their efforts. None of us knows whose forebears made the vital contributions to our current status.
Economists chart
It was evident from the 1980s that globalisation and technological innovations, coupled with labour market flexibility policies, were bound to generate a “precariat” – people experiencing declining and volatile real wages and labour insecurities. Social insurance and assistance schemes could not provide them with basic security. Many face horrendous poverty traps.
Only a basic income could provide them with basic security. Unless that happens, there is a danger that more and more will turn to the populist far right. Politically, a basic income is becoming essential. There are standard objections, notably that it would give something for nothing (as does all inheritance) and would reduce labour supply. But our theoretical and experimental research, including extensive pilot schemes in India and Africa, and work in Canada, show that people provided with basic income work more, not less, and work more productively and co-operatively.
Almost all advanced economies have seen labour’s share of gross domestic product fall over the past 20 years. But not all workers have suffered. People at the top of the wage distribution have increased their share by about 20 per cent while everyone else has lost out. We think that is largely because of rapid technological changes: some people have had the skills to harness advances in information and communication technology to their advantage, while people with more routine skills have seen their jobs replaced by software.
So what is to be done? Improve the skills of the workforce so they can beat the race against the machine. That is not just a job for schools. No education system will be able to give you the skills that will enable you to keep a good job for your whole career. You have to adapt and upgrade your skills continuously.
The best way to encourage life-long learning would be through public-private partnerships. Employers are best placed to know which skills are most required, but especially small and medium-sized companies, but they will need support or subsidies from governments to invest in on-the-job training for their workers.
Of course, it is not realistic to pretend everyone will be highly skilled in the future. And in our ageing societies, there will be demand for services such as long-term care that will not necessarily demand high skills. But we should still try to equip everyone with the best skills, and help them adapt these skills during their working life. We need to rethink our tax and benefit systems, too, to make sure that people at the top pay their fair share and those at the bottom of the wage distribution do not fall into poverty.

Fonte: FT

terça-feira, 16 de setembro de 2014

Martin Wolf: Russia is our most dangerous neighbour

Russia is both a tragedy and a menace. In the Financial Times this week Sergey Karaganov offered an arresting insight into the blend of self-pity and braggadocio currently at work in Moscow. It is as depressing as it is disturbing. Western policy makers seem to believe the Islamic State of Iraq and the Levant (known as Isis) is the greater danger. But Russia is the nuclear-armed rump of a former superpower and, ruled by an amoral autocrat, it frightens me even more. For Europe and, I believe, the US, there is no greater foreign policy question than how to deal with today’s Russia.

The west “proclaimed itself victor in the cold war”, according to Mr Karaganov. Maybe the origin of the tragedy can be found in this remark. The west did not just proclaim itself victor; it was the victor. A defensive alliance defeated the Soviet Union because it offered a better way of life. That is why so many wanted to escape the Soviet prison, including many once-optimistic Russians.

Yet President Vladimir Putin, the latest in a long line of Russian autocrats, has stated, instead: “The collapse of the Soviet Union was a major geopolitical disaster of the century.” It was, in fact, an opportunity, one that many in central and eastern Europe seized with both hands. The transition to a new way of life proved unavoidably difficult. The world they now inhabit is highly imperfect. But they have mostly joined the world of civilised modernity. What does this mean? It means intellectual and economic freedom. It means the right to engage freely in public life. It means governments subject to the rule of law and accountable to their people.

The west has too often failed to live up to these ideals. But they remain beacons. In the early 1990s they were beacons to many Russians. As a great admirer of Russian culture and Russian courage, I hoped, fondly perhaps, that the country would find a way through the debris of its collapsed ideology, state and empire. I knew it would be difficult. I wanted Russia to choose western values, however, not just for our sake but also for its own. The alternative of continuing the cycle of despotism was too depressing.

With the selection of Mr Putin, a former KGB colonel, as his successor, Boris Yeltsin delivered that outcome. The president may, for now, be a popular despot. But a despot he is. He is also heir to the project of Yuri Andropov, former KGB head and Soviet leader, for a modernised autocracy. As a loyal servant of the state, he believes results alone matter. Lies are just another tool of statecraft. Only the wilfully blind could fail to see that evident truth in recent months.

The west is partly responsible for this tragic outcome. It failed to offer the support Russia needed quickly enough in the early 1990s. Instead it focused, ludicrously, on who would pay the Soviet debt. It acquiesced in the larceny of Russian wealth for the benefit of a few.

But more important was the refusal of Russia’s elite to address the reasons for the collapse, then to start afresh. Only by confronting the reality of Stalin’s monstrous machinery of oppression and lies could they build something new.

The nation that has emerged was always the likely outcome. It sees itself as surrounded by enemies. Foreign relations are zero sum; success for others is a failure for Russia. In this view, a prosperous and democratic Ukraine, if achieved (a remote possibility, I agree), is a nightmare. For Moscow’s elites preventing that is, as Mr Karaganov puts it, “a struggle to stop others expanding their sphere of control into territories they believe are vital to Russia’s survival”. And who is it that, allegedly, threatens Russia’s survival? It is a west that is “weaker than many imagine”. Such a feeble west plays the part of bogeyman.

Viewed from Moscow, western policy is the politics of Versailles. In fact, the western position is based on two simple principles: first, a country is entitled to make its own choices; second, borders may not be changed by force. Russia rejects both of them. It is because its former satellites and dependencies were rightly confident that Russia would not accept these principles that they have been so keen to join Nato. The military alliance did not have to force them to join. They begged to do so. Maybe they understand how broad is Russia’s understanding of its “vital interest” and how ruthless it is in protecting them.

At times the outlook among Russia’s elites borders on parody. One reason many in Moscow believe that a political union with Europe is impossible is that Europe is abandoning Christianity and “traditional” norms – for which read acceptance of homosexuality. But I, at least, remember that the Soviet Union whose disappearance Mr Putin bewails persecuted Christianity mercilessly. One might remember, too, that Russia’s elite love this western den of iniquity.

“I bully; therefore I am.” That appears to be the motto behind some of the president’s outbursts. But they are no less serious for being absurd. The west is not a threat to Russia. On the contrary, the west knows very well it has a vital interest in good relations with the country. But it is not so easy to ignore an invasion and, yes, that is what it is, however much one might dislike the word. At the same time, an adversarial relationship with a power as important and potentially helpful as Russia is grim.

Is there a solution to this quandary? All possibilities – further sanctions, massive economic and possibly military assistance to Ukraine or doing nothing at all – carry risks. But the west has to start from an honest reckoning of the Russia it now has to live with. Today’s Russia feels it is the victim of a historic injustice and rejects core western values. It also feels strong enough to act. Today’s Russian leader also sees these potent emotions as a way to secure power. He is not the first such ruler. His Russia is a perilous neighbour. The west must shed its last post-cold war illusions.

Martin Wolf

Fonte: FT

segunda-feira, 15 de setembro de 2014

Nicholas Lardy: China’s rise is a credit to private enterprise not state control

There is no shortage of critics who confidently attribute China’s rise to state intervention in the economy. But the ranks of policy makers and commentators decrying Beijing’s brand of state capitalism are wrong – and, worse, they risk provoking short-sighted and counterproductive responses.

The reality is that China’s rapid ascent is the result of the expanding role of the market and the rise of private businesses. Such companies now account for more than two-thirds of output, up from nothing when reform began in 1978, in an economy that has expanded 25 times in real terms. They account for almost all jobs growth in the same period and are leading contributors to export growth.

State companies’ shrinking role has been particularly rapid in manufacturing, which opened up to private businesses in the 1980s. State enterprises’ share of output in the sector is a fifth compared with four-fifths in 1978. Conventional wisdom says state industrial companies have enjoyed a resurgence since the onset of the global financial crisis. In fact, the growth in output of private businesses since 2008 has averaged 18 per cent, twice the pace of expansion of state businesses.

Underlying the poor performance of state industrial companies is low productivity. Most investment is financed with retained earnings – so private industrial companies, with a return on assets more than twice that of state companies, can expand faster. This is reinforced by the increasingly commercial conduct of mostly state-owned banks.

China’s industrial policy is perhaps exemplified best by the state-owned assets supervision and administration commission, created in 2003 to oversee the largest state-owned non-financial enterprises. Critics say it favours state companies to try to strengthen national champions. But this has failed: the return on assets of Sasac’s companies has plummeted since 2007, and is now below half their cost of capital.

The disparity is evident even in the steel industry, identified by Sasac as one in which Beijing was to maintain relatively strong control. This seemed an easy task in the mid-2000s, when state companies produced half of all steel output and their efficiency matched that of private companies. But when annual growth in output fell to an average of 9 per cent after 2006, compared with its average pace of more than 20 per cent earlier in the decade, state companies’ returns fell sharply. By 2012 they were in the red, and their share of production had fallen below a third. In contrast, the return on assets of private steel companies rose after 2006, reaching a peak of more than 10 per cent in 2011 before declining slightly. With private steel companies investing more than twice as much as their state counterparts, their rising output share will continue.

The exception to the rise of private business is in high-tech business services, as well as in upstream oil and gas. In manufacturing, private companies account for seven times more investment than state ones. But in services the share of state companies’ investment exceeds that of private companies and has declined only slightly in recent years. Yet the productivity differential favours private service providers by a margin of two to one, suggesting a substantial misallocation of capital.

The footprint of state companies is shrinking but, because they earn less than their cost of capital, they remain a drag on growth. If China enacts economic reforms announced last year, particularly eliminating all but natural monopolies such as power distribution, and making the market the decisive factor in the allocation of resources, private businesses will displace state enterprises in services. That would allow China to sustain a relatively high rate of growth and thus to continue its role as a leading driver of global growth. Those making policies and predictions based on a fundamental misunderstanding of China’s ascent are likely to lose out.

Nicholas Lardy is a fellow at the Peterson Institute for International Economics and author of ‘Markets over Mao’

Fonte: FT

sexta-feira, 12 de setembro de 2014

Christopher Caldwell: The billionaires bending American politics to their will

The billionaire Koch family members, outspoken on a host of Republican causes, have lately begun discussing something different: themselves. Koch Industries, the Kansas-based energy giant, is running advertisements that attempt to protect its corporate image, which may have taken a hit from the efforts of Democrats – particularly Senate majority leader Harry Reid – to sully the family name. Republicans, meanwhile, have belatedly begun highlighting the Democratic party’s network of plutocratic backers, linked to a donor group called the Democracy Alliance. At times, American politics can look like a clash of oligarchs.

In a new book, Brookings Institution political scientist Darrell West argues that this is exactly what it is. In Billionaires: Reflections on the Upper Crust, he writes that they shape US politics more than we think (although he at times assumes, wrongly, that Republicans are by default the party of privilege, and Democrats the party of those arrayed against it). In his view, the Kochs’ approach has been “emulated” by such left-leaning donors as hedge fund manager Tom Steyer (a backer in this election cycle of environmentalist causes in several states) and financier George Soros.

Almost every analyst of rich people’s influence on politics focuses on campaign finance, and West is no exception. But he also gives a picture of less noted methods the rich use to shape politics. One is to befriend senators who have certain prerogatives. West points to Bill Ackman, the activist hedge fund manager who has taken a short position in nutrition company Herbalife and has been close to Democratic senator Edward Markey of Massachusetts. As The New York Times reported last spring, Mr Markey wrote letters to both the Securities and Exchange Commission and the Federal Trade Commission, urging a formal investigation of Herbalife , at which point the stock’s value dropped 14 per cent.

Perhaps the easiest place for US billionaires to work their will is not in the national government, however, but at state level. With the shift of governing responsibilities to Washington over the decades, local countervailing forces have been hollowed out. They can be overwhelmed with money. Big donors create Potemkin political movements, phoney groundswells for their favoured causes. Sometimes these causes involve economic advantage. The gambling mogul, Sheldon Adelson, has campaigned against the legalisation of internet gambling, which would harm business at his resorts. Stephen Ross, owner of the Miami Dolphins American football team, sought a referendum that would approve hundreds of millions of dollars in publicly funded repairs for his side’s stadium.

But it is social issues on which billionaires are most agreed, and on which they have had the most success in altering the political landscape: gay marriage, immigration, guns and marijuana. Rich people care more about choice (because they can do more with it) and less about order (because they can pay for it themselves). On some of these issues they are virtually unanimous. Hedge fund manager Paul Singer, for instance, is seen as a Republican donor but for several years his policy priority – gay marriage – has also been that of Democrats. By the time California’s law forbidding gay marriage came before the US Supreme Court in 2013, it was opposed by Apple, Google, Bill Gates of Microsoft, Jeff Bezos of Amazon and the White House. Mass immigration is an issue many billionaires would like to regularise and few to halt. Guns appear to be anathema among America’s richest donors, none more so than Michael Bloomberg. The late insurer Peter Lewis did much to push the legalisation of marijuana in certain US states after using it as a painkiller.

Almost all billionaire activism in these areas seeks to drive public opinion away from traditional or conservative views. It is often the Democratic party on which the eyes of the super-rich shine. West describes the organisation of Karl Rove, the former aide to George W Bush, as having “devoted $300m to unseat Obama”. Mr Rove’s way of doing this has been by purging the Republican party of less electable conservative candidates.

Two things make ours an era of big money in politics. One is inequality (for which Republicans are rightly given much of the blame); the other is centralisation (seen rightly as the fault of the Democrats).

Most suggested remedies would curtail campaign finance – which is to say political speech – and merely compound the problem. The two parties simply serve the rich in different ways: Republicans are an army of the rich and their emulators; Democrats an army of the rich and their retainers. Those looking for a “billionaire’s party” are unlikely to find it.

Christopher Caldwell is a senior editor at The Weekly Standard

Fonte: FT

quinta-feira, 11 de setembro de 2014

Gambler places bet on patriotic game

Perfil do lider do movimento pro independencia da  Escocia.

With summer showers turning the grass to mud among the tanks, artillery and other emblems of British military power, the field below the walled cliffs of Stirling castle on Armed Forces Day looked like tricky territory for a Nationalist first minister bent on tearing Scotland out of the UK.

But Alex Salmond is not the sort of politician to be put off by a bit of wet weather or the presence of thousands of UK ex-servicemen mostly hostile to the idea of Scottish independence. No matter that the decision to host the event in Stirling was a ploy by pro-union politicians to deflect attention from nearby events marking the Scottish victory at the 1314 Battle of Bannockburn; Mr Salmond could still seize the chance to charm visitors. Long after the UK prime minister David Cameron had left for home, he was still cheerfully posing for selfies – incongruously sporting on his lapel a Union Flag badge expressing support for British military personnel.

The blend of self confidence, dedication to the cause and pragmatic pursuit of tactical advantage on display that rainy afternoon has brought Mr Salmond a long way. The boy from the council house in Scotland’s central belt has led his nation to the brink of a vote that could end its three centuries of political union with England.

It has been an extraordinary journey, one that spans the Scottish National party’s rise from fringe group to government – and that now has the potential to transform the map of the UK and send shockwaves across Europe and beyond.

Yet on the threshold of this climactic vote, the fiercely private Mr Salmond still appears an enigmatic figure. Scottish voters hold sharply contrasting views of the man who has led their devolved government in Edinburgh as first minister for the past seven years. Though his popularity ratings are far higher than any of his UK rivals, a large section of the electorate sees him as arrogant and untrustworthy. Campaigners for a Yes vote on September 18 say that often one of the biggest obstacles to winning over new potential supporters to independence is their antipathy to Mr Salmond himself.

Now with Scotland a week away from its biggest constitutional decision in three centuries, it is not only Scottish voters seeking to take the measure of the man who, if a Yes vote prevails next Thursday, will direct his nation’s first steps into an independent future.

It is no insult to call Mr Salmond a “black bitch”. Citizens of Linlithgow, the Scottish town where Alexander Elliot Anderson Salmond was born on New Year’s eve in 1954, are traditionally proud to identify themselves with the mythical beast that features on its coat of arms. This is a royal burgh steeped in history – a ruined palace from the days when Scotland was an independent kingdom lies just off the high street. And it was here that Mr Salmond as a young boy sat on his grandfather’s knee to hear tales of local families joining the bloody 14th century resistance to English rule that had its climax at Bannockburn, where an army under Scots King Robert the Bruce destroyed a much larger invading force to secure his kingdom.

Mr Salmond says his grandfather’s stories “kindled a flame” of patriotism, but harking back to such stirring tales alone do not a Scottish Nationalist make. Many proud Scots also celebrate Bannockburn, while still seeing the 1707 union between the parliaments of Scotland and England as a good deal that paved the way for peace and prosperity as Great Britain.

Mr Salmond’s grandfather, a retired plumber, was himself a Liberal. His father was a strong socialist, his mother a Conservative. It was only after the future first minister became an undergraduate at St Andrews that he joined the SNP. He studied medieval history and economics, and says it was the confidence in the economic case that turned him into a supporter of independence.

He quickly showed the kind of determination to take on the British establishment that has marked his career. As a Scot from a working-class background he stood apart from the English and public school-educated Scots who made up much of St Andrews’ student body. But he was contemptuous of contemporaries who tried to polish their style to fit in with the social elite – instead he launched a surprise bid to become student president and only narrowly lost to a Conservative candidate.

After graduation in 1978, he worked first for the Scottish civil service before a successful early career as an energy economist at Royal Bank of Scotland. The experience left him with an assured way with statistics that has helped give him an edge over many opponents ever since. But his passion was politics. He established himself as one of the SNP’s rising stars, pushing for the party to make itself more electable in western and central Scotland by adopting more socialist policies. Briefly ejected from the party in 1982 for his role in a socialist and republican faction, he was a few years later selected to contest the Banff and Buchan constituency in northeast Aberdeenshire for the 1987 UK general election.

Stuart Pratt, an SNP veteran and still Mr Salmond’s election agent, was one of the local party organisers who reviewed the fresh-faced young politician as a candidate – and says his selection as candidate was controversial among some local members. Some thought his leftwing credentials were too much of a handicap in a rural Conservative-held constituency where the best chance of victory lay in rallying the anti-Tory vote rather than talking about independence or socialism. But Mr Pratt says Mr Salmond’s qualities outweighed the doubts.

“It was his confidence and his ability to speak to all sorts,” Mr Pratt recalls in an interview at his home among low hills dotted with livestock and barley farms, adding that Mr Salmond also had and retains an excellent memory for names and faces. Other natural skills include a sense of comic timing and an unforced bonhomie.

The selection gamble paid off. Mr Salmond defeated the Conservative incumbent by more than 2,000 votes. His ambition and his potential were clear, says Mr Pratt. “On the night of Alex’s first election, [one person there] turned to me and said: ‘You know you’ve just elected Scotland’s first prime minister, don’t you?’,” he says.

For Mr Salmond, getting to parliament was just the start – but making an impact in Westminster was not easy, not least since he was one of only three SNP members in parliament. But the novice MP found a way to establish himself as a presence with a move combining his tactical sense, self-belief and penchant for tweaking the establishment. This was a planned disruption of the Budget speech, a highlight of the UK calendar. In Scotland at the time there was widespread opposition to the imposition of the “poll tax” a flat local charge considered to favour the wealthy, and when then Tory chancellor Nigel Lawson unveiled his tax-cutting plan, Mr Salmond stood up to denounce it as an “obscenity” and then refused to sit down – a breach of protocol that earned him a suspension – and the SNP widespread publicity.

It is the kind of cheeky tactic that remains a trademark. The first minister still likes to defy convention, even “photo-bombing” UK Prime Minister David Cameron with a Saltire after Scottish tennis player Andy Murray’s victory at Wimbledon last year.

Yet the 1988 budget disruption also fitted into Mr Salmond’s long-term strategy, to raise the SNP’s profile and align it more closely with Scottish majority opinion. Elected party leader from 1990, he pursued a more pragmatic approach to independence aimed at minimising nervousness among voters about the risk of leaving the UK, an approach aided by his abandonment of previous opposition to EU membership in favour of calls for “independence within Europe”.

If this month’s referendum has proved anything, it is Mr Salmond’s long standing belief – maintained against fierce opposition from SNP “fundamentalists” – that Scotland was unlikely to achieve independence in one fell swoop and that the party’s best option was an incremental approach of supporting devolution from London.

A Labour government’s creation of the Edinburgh parliament in 1999 transformed Scottish politics and gave the Nationalists a stage on which they could play a bigger role than was ever possible in Westminster.

Ironically, Mr Salmond at first struggled to take advantage. In 2000 he stunned SNP supporters by stepping down as leader. The next year he left the Scottish parliament.

But Labour’s grip on Scotland was slipping. With a refreshed Mr Salmond back in command, the SNP in 2007 became the largest party in the Scottish government – and formed a minority administration of impressive competence and discipline.

The victory put Mr Salmond in a political sweet spot – still able to act as opposition when it came to battling London over policies or resources, but also enjoying the power and prestige that comes with control of the Scottish government.

Like many successful politicians, he has also been lucky in his enemies. Out of office, Labour in Scotland has crumbled. In 2011, the party scored a stunning election victory that has paved this way for this month’s referendum. The pledge to hold an independence referendum had not been a manifesto priority, but Westminster agreed the SNP now had a democratic mandate for a vote.

It says a great deal about Mr Salmond’s political style that even many people who have been watching him for decades struggle to say what – beyond independence for Scotland – he stands for. Under him the SNP has cast itself as left-of-centre, but Mr Salmond has also cheerfully cultivated such right-leaning international figures as Rupert Murdoch and – until a falling out over wind power – Donald Trump.

“I find him the most pragmatic politician that I have ever met,” says Peter de Vink, a financier and libertarian local councillor who is a strong admirer. “He talks left of centre, but he hasn’t acted left of centre.”

James Mitchell, a politics expert at Edinburgh university and author of The Scottish Question who has known Mr Salmond since he was at RBS, says the first minister should be understood as an “old fashioned social democrat” who supports redistribution but respects the power of markets.

“Like all social democrats he can be accused of not having very clear ideological positions,” Prof Mitchell says. “When you’re in government you can’t be an ideologue and he’s always had ambitions to govern.”

The growing possibility that Mr Salmond might indeed be Scotland’s first prime minister means increased scrutiny of his personal character. His reputation for arrogance is such that even he jokes about it. Some who have dealt with him say he can be a bully, happy to browbeat critics into silence. Even admirers acknowledge he can be a hard and sometimes bad-tempered taskmaster to his staff.

But it is Mr Salmond’s adept use of spin – effortlessly gliding over gaps in his arguments, selectively quoting opponents and stretching statistics to breaking point to make his case – that really enrages his rivals.

Even Mr Salmond can take spin too far, however. In 2012 he appeared to claim that the Scottish government had legal advice supporting its position on EU membership. When it later emerged there was no such advice, many felt betrayed. The Scottish Sun, which backed the SNP in 2011, ran a front-page headline reading: “EU Liar”. Asked in a recent YouGov poll whether they trusted Mr Salmond, 58 per cent of voters said no. Yet even fewer trusted Mr Cameron and Mr Salmond still enjoys approval rates impressive for a seven-year incumbent.

Still, trust could yet be a big issue if Scotland votes for independence next week. Many Yes supporters stress that the referendum is not about the first minister or dependent on his arguments. But the picture he paints of a smooth transition and rosy fiscal future has been at the centre of the campaign, as has his insistence that Scotland will be able to continue to use the Bank of England and the pound.

This has been a gamble much bigger than the bets Mr Salmond loves to place on horses. Any serious set backs in post-vote negotiations could shake confidence in him and sour the early days of independence.

Mr Salmond no doubt thinks it a gamble worth taking. The onetime history student loves quotes from the past, and one of his favourites is from James Graham, Marquis of Montrose, who in the 17th century wrote a poetic defence of living dangerously that runs: “He either fears his fate too much/Or his deserts are small/That puts it not unto the touch/To win or lose it all”.

It is no surprise that Mr Salmond appears convinced independence is well worth the risks and costs. Next week he will find out if the people of Scotland agree.

Politician craves quiet life away from the cameras

Mr Salmond’s insistence on maintaining his privacy has long encouraged curiosity among journalists and associates used to leaders more willing to share their personal lives to the public. His marriage at 26 was unusual in that his wife Moira, a senior official in the Scottish civil service where he worked briefly in the late 1970s, is 17 years his senior – although to many the couple say the age gap was hardly apparent.

“Alex has always been older than his age. I always think he was probably born middle-aged and has always been middle-aged, but Moira’s always been the opposite, much younger at heart,” says one person who has known the couple for many years and who describes Mrs Salmond as very private, intelligent, witty and a “huge support” for her husband.

Such is the divide between Mr Salmond’s political life and his weekend retreats home to the elegantly restored Mill of Strichen in his northeastern constituency that some longstanding observers wonder aloud whether he even has any real friends.

But Dennis MacLeod, a Scottish gold industry entrepreneur and SNP supporter now based in Canada, says the childless Mr Salmond is actually a “very ordinary, affable and down to earth person”. He portrays the politician as a warm friend who frequently stayed at his home when he lived in Scotland and who would always bring toys and end up playing with them in the garden with his children.

Mr MacLeod says during a visit to northern Ullapool in the late 1990s, Mr Salmond once instructed one of his daughters to go ahead of him down a street telling voters the SNP leader would be arriving shortly, then followed behind in a hastily-purchased gorilla mask to general amusement. “That’s very typical of the man,” Mr MacLeod says.

Mure Dickie

Fonte: FT