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Tuesday, August 24, 2010

France vs Romania and Bulgaria, Take Two

It has been widely observed that Purchasing Power Parity (abbreviated as PPP, the method of estimation used in my previous posting), presents only one side of the complex realities of economic performance. It is always useful to look at both PPP and exchange rate-based measures (FX), if they are available.

World Development Indicators—the World Bank’s online global data bank—does not provide the FX-based estimate for per capita GNI, so I cannot do that with the numbers included in the graph used in my previous posting.

So I turned a more conventional measure, GDP. (This overstates the performance of those economies that have a significant number of multinational corporations operating abroad, and understates those on the receiving end.)

Since the French state is now deporting not only Romanian, but also Bulgarian Romanies—hence President Sarkozy has exhausted the list of EU-member, non-Schengen-citizens—I also included the figures for Bulgaria.

Here is the new graph, showing the per capita GDP figures for France, Romania and Bulgaria, for the entire period for which data are available for all three countries (1980 to 2008). For comparability and in order to be able to approximate relative global position, the figures have been converted into percentages of the world mean in the given year. (For a more detailed justification of this step, please read the relevant pages in my book.)

I have included three vertical bars as time indicators. The first one marks 1989, the collapse of state socialism in east-central Europe. The second indicates 2001, the year in which the visa obligation for Romanian and Bulgarian citizens was lifted by the powers that govern the common immigration management scheme of the European Union (affectionately referred to as Schengen-land). The third signals 2007, the year of the formal accession of Romania and Bulgaria to the EU.

Keep in mind that, even though they are supposedly citizens of EU-member states and don’t need to have visas to enter Schengen territory, holders of Romanian and Bulgarian passports are not entitled to stay longer than three months and are authorized to work in Schengen-land only under extremely exceptional conditions. Estimates concerning the admission of Romania and Bulgaria into the Schengen system vary; the earliest--and least realistic--suggests 2011.

Back to the graph. We can clearly see that the PPP technique yields consistently higher estimates to the richer country than the FX; otherwise, the two graphs representing France’s economic performance are by and large parallel. In other words, irrespective of the method of estimation, France’s economic performance shows a slump (a little over 20% of the world mean in FX and approximately 45% measured in PPP) since 2002.

1. Meanwhile, both Romania and Bulgaria seem to have recovered from their 10-15-year depressions that began before the collapse of the state socialist system in 1989. Like pretty much all other erstwhile-state-socialist states of east-central and southeastern Europe, they are showing a modest growth since the late nineties. We know it from other sources that this growth is almost entirely due to foreign direct investment (here is a graph indicating the dynamics of FDI to Romania during the early part of the 21st century.)

2. In other words, this growth is driven by multinational corporations that are not rooted in Romania or Bulgaria in any way. They are

3. anchored predominantly in the European Union, and

4. this modest investment boom is to a large extent in anticipation of full EU-membership (which came, as I have mentioned above, in 2007).

In essence, hence, most of this investment boom is export-led growth, producing at depressed wage costs for the EU market.

A couple of things happened as part of this process. First, there has been a spectacular increase in temporary labor out-migration from Romania, with neo-Latin western Europe as its main destination. As a result, Romania became a major recipient of workers’ remittances (it is second only to Spain in that regard within the EU). In 2007 and 2008, almost one-fourth of all workers’ remittances recorded in the European Union were sent to Romania (which has less than 5% of the EU’s population). In the same year, according to UNDP estimates, remittances represented approximately 5.6% to 5.7% of Romania's and Bulgaria's GDPs, respectively. Of the remittances to Romania, about nine-tenth came from the EU.

In other words, even without a labor permit regime that would at least allow, if not encourage, some of their labor force participation to take place in the formal sector, Romanian citizens have been very consistently present in the EU labor markets. This is a textbook case of informal labor market integration
. In this regard, Romania is quite exceptional among the erstwhile state socialist states, and my guess would be that language skills—the fact that Romanian is a neo-Latin language, just like Spanish, Italian, French and Portuguese (and these are the states whose labor markets have the highest presence of Romanians)--allows members of Romanian society a certain informal labor market integration in Mediterranean EU that is not available to Romania’s predominantly Slavic- or, for that matter, Finno-Ugric-speaking neighbors.

The economic crisis of the last two years made its mark on the informal labor markets of the EU as well. Within-EU remittances have dropped by an astonishing 24% between 2008 and 2009 according to Eurostat figures.

The Romanies constitute a unique group within the overall migrant population. Because of a number of complex factors, overt racism and discrimination even in the informal market, they appear to be less engaged in the labor force. They are also vastly more visible as an outsider group than non-Romani Romanians and Bulgarians, made even more conspicuous by the formation of makeshift shantytowns, making them easy targets for a President bent on “systematically evacuating the camps.”

By the way, and to conclude this over-long post, we should remember that the 300 euros paid as an incentive to each expelled Romani constitutes 11.7% and 10.5% of the annual per capita GDPs of Bulgaria and Romania, respectively—i.e., just over one month’s average income there. In contrast, it is 1.27% of the GDP/cap of France.

Saturday, August 21, 2010

France and Romania

Yesterday the first groups of Romanies expelled from France have arrived in Bucharest.

Curious about the background, I looked at the dynamics of economic performance in the two countries. Specifically, I plotted their GNI/cap, estimated with at purchasing power parity, using public-domain data gathered by the World Bank, transformed into percentages of the world mean in the given year. Here is a quick graph depicting the results.

Two interesting things stand out.

First, Romania--like most post-state-socialist states--had a significant drop in economic performance, hence living standards, after the regime change: From just above 110 percent of the world mean, it dropped to 89% and even deeper, to 84% of the world average (in 1993 and 2000, respecctively). Since then, Romania has had an economic recovery of sorts, so that its GNI/cap reached 120% of the world average by 2008 (the most recent data point included in the IBRD dataset).

As for France, second, it had a very slow growth from 356% to 380% of the world mean GNI/cap between 1989 and 2002. Since then, it has been on a rather steep decline (it stood at 322% of the world average in 2008), a drop of almost 60% of the world mean GNI/cap in 6 years. That ought to have hurt.

Of course, contrary to simple "push-pull" theories, it is by now quite a commonplace observation of sociological work on migration that migration patterns and regulations never mechanically reproduce the dynamics of economic performance. There is always a delay and, much more important, there is a need for a penetration by the wealthier, would-be migrant-importer society into the structures of the poorer, labor-exporter-to-be. This creates the formal and informal institutions, as well as regulatory frameworks, through which migrant flows would materialize.

The case of Romania and its membership in the European Union, surging foreign direct investment, changing regulations for travel (i.e., the supposedly universal "right to free movement within the EU"), coupled with its absence from the common immigration management system (called "Schengen-land"), make it possible for the French state to flex its muscles and repatriate some of the Romanies of Romania.

An excellent question--potentially revealing a great deal about the nature of the French state and society, not to mention the meta-state called the European Union--is this: Why only the Romanies are subjected to this expulsion procedure? Why not the non-Romani (ethnic Romanian, Magyar, German, etc., citizens of Romania) who are also present in the EU, and very much in France, as migrant labor? What does this choice reveal about the nature of modern European statehood and power?

It is also an interesting footnote to this scandal that it is instigated by the current President of France, himself offspring of two families of immigrants, one side from Greece, the other from Hungary. (Apparently, his father, a Hungarian nobleman, arrived in France at the end of world war II, and did not apply for French citizenship until 1970.)

Wednesday, August 11, 2010

"Asian" Giants Decoupling from "the West"?

In an analysis published in a recent issue of the Financial Times --brought to the attention of his Facebook friends by Alex Callinicos this morning--David Pilling, Asia editor of FT, considers the possibility that the current growth engines of the world, the most steeply growing, and largest Asian economies, may be in the process of "decoupling from the west." My reading suggests that the thought Pilling raises is that "Asian economies" might elect not to trade with "the west" at some point. Pilling insists of course that their ability to do so "has not been fully tested." (I suppose the only genuinely credible test of decoupling would be--the act of decoupling, obviating the guessing game).

No matter how carefully framed as a hypothetical possibility, this raises a host of questions regarding the immediate future of the basic structural setup of the global system.

First, as it was pointed out by a senior Chinese economist at an international conference in Beijing a few years ago (at a time when the US and EU governments were threatening PRC-based producers with dumping charges) we have a situation in which the "west" is dependent on China in a number of politically sensitive areas--e.g., a vast part of consumer product manufacturing. When I say "dependent," I mean the textbook definition of dependence: an economy is externally dependent to the extent it relies on inputs that are in the hands of a relatively small number of external actors. In the words of this Chinese economist, "[If western governments were to impose punitive measures on Chinese exports,] Chinese producers will just re-tool for a different size assortment for internal consumption; meanwhile the bottom half-to-two-thirds of the US and west European markets in textiles, electronics, etc., will fall out. No government can afford such a collapse." If we consider the broader point and add all the other major growth economies of Asia to China, this is truly nothing but a new situation of external dependence.

Second, whether any or all of what Pilling calls "Asian economies" is able to decouple from "the west" is truly questionable.

Third, what would it take for all the "Asian economies" to act together, in concert, displaying a global policy move of this magnitude? A single, harmonized trade policy involving China, India (two states that have not even been able to resolve their border disputes for more than two-generations), Vietnam, Indonesia, Singapore, Taiwan, etc.? What about military alliances, the presence of foreign troops and the profits taken from such arrangements? What about the drastically different ownership structures of those economies? Some state socialist, others muslim, others hindu/muslim/parsi/buddhist/christian/united-in-diversity?

Fourth, to what extent is "the west" a single entity in this regard? Would all "Asian" economies decouple from all of the west in one fell scoop? Even the European Union--a concept we often oversimplify to mean a single unit--is known to be rather elusive and metaphorical in its "unit-ness": Consider what I call in Chapter Four of my book the elasticity of size: the European Union acts, clearly, either as a single unit or as a conglomerate of its 27 member states, or both, depending on the contexts, the decision-making rules and other conditions. Adding the USA and all the rest of the west in the mix, it is difficult to see them as a single unit of public authority (i.e., something the "Asian economies" could decouple from). Is Russia part of this "west"?

Fifth, why would the "Asian economies" want to do so? This is a truly nagging question, since the current arrangement seems to be working great for the rising "Asian" economies: they are having a 6% to 10% differential in growth rates.

Sixth, decoupling of this magnitude, especially in the non- or partly-liberalized (not to mention, as in the case of the PRC and Vietnam, to a considerable degree state-owned) economies, can only take place through a set of policy measures conceived, governed, executed and safeguarded by the national governments. Which government of these steeply rising economies would even contemplate global turmoil and precipitous drops in profitability by shedding the "west"--read: currently their largest external market?

Seventh, the threat of being left behind is of course something that will always have a certain currency in "the west," which is plagued not only by vague remnants of its own tradition of xenophobia, especially vis-a-vis "Asia," but a large dose of bad conscience in a post-colonial world. Given this mild but persistent psychosis, conversations of "Asian decoupling" will likely strengthen "western" integration, possibly beyond the borders of the European Union. At least that is what the decade's research on the five-centuries-long history of capitalist geopolitical economy, and the peculiarities of west European statehood in that history, suggest.

cover page of the book

cover page of the book
image used for the cover design by Anannya Dasgupta