PRC Industrial Policy: Killing Off 75% of Solar Makers

Well surprise, surprise: Having reached a settlement last August with the European Union which was previously set to slap anti-dumping tariffs on its solar panels, we now get word on the extent of China's subsidies for the industry. At year-end 2013, the PRC's government rolled back the industrial benefits allotted to this industry, and there is now expected to be a bloodbath on the production floor of China's manufacturers. How bad will things get? Try a 75% "death sentence" rate as only a quarter or so of firms will remain eligible for government support. From the Nikkei Asian Review:

The Chinese government is pushing for a drastic shakeout of the country's overcrowded solar cell industry, supporting only a quarter of players and practically telling the rest to get out of the business. The Ministry of Industry and Information Technology has announced a list of 134 producers of silicon materials, solar panels and other components of photovoltaic systems as meeting certain conditions, as measured by 2012 production, capacity utilization and technical standards.

In a sector said to have more than 500 companies, the ministry's move means that three-quarters didn't make the cut -- including the core subsidiary of Suntech Power, which went bankrupt in March, and Jiangsu Shungfeng Photovoltaic Technology, Suntech's startup rescuer.

These firms will not be able to get credit lines from financial institutions and thus will have a tough time borrowing, according to industry insiders. They will also no longer be eligible for refunds of export tariffs, a huge blow to companies that depend on overseas business. On the home front, it will be difficult for them to participate in state-run utilities' auctions, sharply curtailing their opportunities to win orders.

Bye bye subsidized loans, export tariff refunds, and ultimately financial viability. Even in this part of the world, the alternative energy revolution seems to have bitten the dust before it got started as matginal Chinese manufacturers are being fed to the 120 hungry dogs of cold, hard market reality. 

Did home ownership made things worse in the Great Recession?

I have complained several times already that house ownership should not be encouraged by public authorities, mainly because it prevents diversification of risk by households and because there is slim evidence at best that home owners are happier and better contributors to society. It also quite obvious that high ownership rates have contributed to make the last recession worse in the United States. A recent trio of papers studies this last point.

Silvio Rendon and Núria Quella show that higher homeownership rates fed by easy financing lead to higher unemployment rates. This is because homeowners have higher reservation wages through a wealth effect. They find that in the US this has increased the unemployment rate by an incredible 6 percentage points. You may also want to add to this that homeowners are less willing to move for a new job, further increasing the unemployment rate, something the model does not capture.

Ahmet Ali Taṣkin and Firat Yaman look at unemployment duration in the US and find that renter stay unemployed the shortest and homeowners the longest, especially those who do not carry mortgages. Following this result, facilitating home financing would lengthen a little unemployment spells and increase the unemployment rate, under the hypothesis that job losing rates are unaffected.

Stijn Baert, Freddy Heylen and Daan Isebaert show that the unemployment spell length depends on the housing tenure situation in Belgium. The homeowners with mortgages exit the fastest, those without mortgages the slowest and renters lie in between. Easier home financing would thus reduce the unemployment rate here, again assuming it does not affect the rate at which people lose jobs. Keep in mind that Belgium is unique in that unemployment insurance benefits can last forever.

Which US-Led FTA Nego is Lamer, TPP or TTIP?

You say "TPP," I say "TTIP"; let's call both things off

One of the many reasons why the Doha Round of WTO trade negotiations has been put on indefinite pause is due to Americans holding out for stronger intellectual property protections. Typically hard-headed, the Yanquis have not really given up on their pet causes. Instead, they have merely resurrected them in plutilateral arrangements being touted by the US Trade Representative.

(1) Let us begin with the much-ballyhooed expansion of the Trans-Pacific Partnership (TPP). Originally a grouping of trade-willing APEC member countries Brunei, Chile, New Zealand and Singapore. the US is seeking to crash into their party. With the release of more leaked documents, the secretive TPP negotiations apparently involve the US barging into someone else's FTA and attempting to shape it to its own ends. Surprise, surprise. In simple terms, it aims to revive its failed Doha wish list with suck...I mean, "Asia-Pacific countries keen on concluding a high-quality FTA." Joseph Stiglitz, for one, is wary of its goals of extending medicine patents of American Big Pharma into near-eternity and circumscribing the ability of developing countries to manufacture generic versions--especially if they are needed due to health crises (i.e., "compulsory licensing"):

The IP chapter is also worrisome to others. Joseph Stiglitz, an economist, Nobel Prize winner and professor at the Columbia University School of Business, asked negotiators in an open letter sent Friday to resist proposals to weaken consumer rights in intellectual property. The letter was published by Knowledge Ecology International (KEI), a group lobbying for fairer distribution of information, which has taken a close interest in the TPP and was also concerned by the contents of the leaked treaty draft.

Negotiators should resist mandating extensions of patents terms, narrowing the grounds for granting compulsory license on patents and increasing damages for infringements of patents and copyrights, Stiglitz wrote. Moreover, they should also oppose mandating excessive enforcement measures for digital information and requiring more than 70 years of copyright protection, among other proposals, Stiglitz wrote.

Damn Yanquis. They keep yapping about freedom and transparency Obama-the-hypocrite style when, in reality, they seek to pull a fast one on a large chunk of the world's population.  Considering that the TPP expansion participants are generally a coalition of American sycophants, toadies, yes-men and hangers-on, it is remarkable how little traction US negotiators have gained. Can't cow the cowed, eh? American negotiators hoped for a end-of-2013 completion; I think events have shown them to be unrealistically optimistic about concluding a deal, let alone one so lopsided in favor of US interests. Either nothing is concluded, or one is that is watered-down and riddled with opt-outs.

(2) There is also the so-called Transatlantic Trade and Investment Partnership (TTIP) between the US and EU underway. However, alike TPP, it appears to be a US-led attempt to introduce its favored IP regimes first and a trade agreement second. Ho-hum, what else is new, Sammy?

TTIP negotiations last year were already going nowhere in particular rather quickly, and that was before the US was revealed to be a massive spy on European citizens and leaders. Why are we to believe that Europeans are so interested in further protecting the intellectual property rights of those who are so callously indifferent to violating European privacy rights on an unprecedented scale? Beats me, pal.
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For both the TPP and TTIP, intellectual property is far from the only point of contention. Agriculture in particular is a tough nut to crack with many sensitivities in Asia and Europe. Which is lamer, then? It's hard to say since both negotiations don't seem to be heading anywhere at the moment, so call it a draw.

Message to the US: Did you simply think you could take the least popular items on your Doha wish list and get them accepted elsewhere? Think again.

Minimum Wage as an Antipoverty Tool

David Henderson reports:

If the federal minimum wage were increased to $9.50 per hour:

•  Only 11.3 percent of workers who would gain from the increase live in households officially defined as poor.
•  A whopping 63.2 percent of workers who would gain were second or even third earners living in households with incomes equal to twice the poverty line or more.
•  Some 42.3 percent of workers who would gain were second or even third earners who live in households that have incomes equal to three times the poverty line or more.

Do MRSPs (manufacturer suggested retail prices) have an impact on prices?

In some countries, manufacturers are allowed to suggest to retailers how to price their goods. What does this do to prices? It may increase them if it reduces competition and the MRSP is set high. It could also increase competition if set low, as retailers may find it difficult to sell at a higher price than printed on the packaging.

Babur de los Santos, In Kyung Kim and Dmitry Lubensky report on a natural experiment in South Korea where MRSPs were banned and then allowed within a one-year span. The ban increased prices on average by 2.3%, the reintroduction reduced them by 2.6%, from which you can conclude that MRSPs increase competition. Prices were significantly below MRSPs, so it is not likely MRSPs acted as price ceilings. Rather, the authors conjecture that MRSPs help consumers in forming expectations of prices at other retailers once they see the mark-down at the current retailer. Absent the MRSP, the consumer faces higher search costs, and the retailers takes advantage by increasing the price. To be convinced of this argument, I would have liked to see some estimates by product category. Different mark-downs must have had different implications for price changes, and those should help us distinguish theories better than aggregate results.

World Bank President and Bono [?!] on Ending Poverty

We haven't had a video feature in ages, so here's one that should be of general interest. Current World Bank President Jim Yong Kim has not really received much popular public attention--or even in development circles for that matter. (Notice how the YouTube clip doesn't actually name him but instead his title. Kim's reserved manner certainly doesn't generate outlandish headlines that he fed his out-of-favor uncle to 120 hungry dogs alike that other Kim.) What better way, then, to raise his public profile but to pair this reserved intellectual with the extroverted entertainer Bono? The latter is known for his passionate espousal of vastly increasing aid to the developing world, although he's encountered much criticism along the way about being ill-informed about the subject matter Still, it's a potentially smashing concept, and they actually try it out in this 2012 clip in which both discuss ways to end poverty.

The pairing works to a greater extent than you would expect: Bono actually provides a decent "big picture" overview of the challenges we face, while Kim does the same in spelling out the "small picture" minutiae on aid delivery challenges and so forth. Watch it and see what you think. With or without you, the quest to end poverty goes on...in the name of love. [Insert your favorite U2 song allusions to poverty alleviation here.]

Stanley Fischer as the Fed's Vice Chair

President Obama just nominated Stanley Fischer to become vice chair of the Federal Reserve.

Stan is a great choice: smart, sensible, open-minded, and experienced.  He also has first-rate people skills, which will come in useful handling the many personalities on the FOMC and in Washington. He will be a perfect #2 to Janet Yellen.

In related news, Stan recently became a Distinguished Fellow of the American Economics Association.