Emerging markets have performed amazingly well over the last seven years. They have outperformed the advanced industrialized countries in terms of economic growth, debt-to-GDP ratios, and countercyclical fiscal policy. Many now receive better assessments by rating agencies and financial markets than some of the advanced economies.
As 2012 begins, however, emerging markets may be due for a correction, triggered by a new wave of “risk off” behavior among investors. Will China experience a hard landing? Will a decline in commodity prices hit Latin America? Will the sovereign-debt woes of the European periphery spread to neighbors such as Turkey in a new “Aegean crisis”?
My last blog post listed some policies and institutions with which various small countries around the world have had success — innovations that might be worthy of emulation by others. Of course there are plenty of other examples of policies and institutions that have been tried and that are to be avoided. The area of agricultural policy is rife with them. Many start with a confused invoking of the need for “food security.”
The recent run-up in wheat prices is a good example. Robert Paarlberg wrote an excellent column in the Financial Times recently, titled “How grain markets sow the spikes they fear.” Grain producing countries point to the high volatility of prices on world markets and the need for food security when imposing taxes on exports of their own grain supplies, or outright bans, as Russia did in July. The motive, of course, is to keep grain affordable for domestic consumers. But the effect of such export controls is precisely to cause the price rise that is feared, because it removes some net supply from the world market. (The same could be said when grain importing countries react to high prices by enacting price controls, because that adds some net demand to the world market.)
On her visit to India two days ago, Secretary of State Hillary Clinton was publicly rebuffed when she raised the problem of global climate change.The Indian environment minister declared “we are simply not in the position to take legally binding emissions targets.”
No single country can address this problem on its own.Hence the international negotiations that will take place in Copenhagen in December to try to find a successor treaty to the Kyoto Protocol.But the international effort has run into a seemingly insurmountable roadblock.On the one hand, the US Congress is clear: it will not impose quantitative limits on US emissions of greenhouse gases if China, India, and other developing countries don’t impose quantitative limits on theirs. Indeed, that is why the Senate was unwilling to ratify the Kyoto Protocol ten years ago. The logic seems completely reasonable:why should US firms bear the economic cost of cutting emissions if carbon-intensive activities would just migrate to countries without caps and global emissions continue their rapid rise?On the other hand, the leaders of India and China are just as clear:they are unalterably opposed to cutting emissions until after the United States and other rich countries go first.And why should they?The industrialized countries created the problem of global warming, in the process of getting rich;the poor countries should not be denied their turn at economic development. As the Indians point out, Americans emit more than ten times as much carbon dioxide per person.