While this projection is based on linear growth rates it is still relatively in line with what U.N. reports have suggested. Nigeria is an interesting case, initially the country was seen as the classic case of resource curse, but increasingly it is able to translate its resources into sustained growth and some alleviation of poverty. The projections above are something quite extraordinary in terms of population growth, so I am curious what the economic repercussion will be. Noting the nature of growth projections being quite rigorous in that we have comprehensive data combined with an understanding of time lags.
It seems week by week that central banking institutions are only becoming more uncertain about what kind of actions to take in the current economic climate.
There is considerable hesitancy surrounding the choice of the FED to leave the base rate unchanged, this had considerable international repercussions with having to continue handling its deteriorating situation with no clear resolution, while the ECB and Bank of England are waiting in the wings taking a strategy of what seems to be follow the FED.
Mark Carney has begun his warning to expect monetary tightening in the near future, continuing with a vague timeline. While commentators in the United States who have been investigating the FED’s books that have a two week lag are beginning to hypothesise that there won’t be a rate rise in early 2016.
The key element here is looking at the behaviour of inflation over 2015 with targets regularly missed, while lacking concrete explanations for why. Both UK and US economies are experiencing growth albeit at low rates. Therefore, acting upon base rate may seem to extreme at the moment. The Bank of England has instead taken up to involving itself in politics discussing the impacts of leaving or staying in the eurozone, while they haven’t made their stance that abundantly clear as some saw it as euro skeptic and others as reasons to stay in.
We are entering a unique period where these critical financial institutions are struggling to grip with conventional policy practice, and potentially look for better ways to understand the economic climate.
CNBC have a great report on the FED actions that I recommend reading http://cnb.cx/1P0lM0k, while Krugman had a great post along similar lines on Saturday http://nyti.ms/1LNePeJ
Going onwards from my previous post, this 2 minute video really summarises the type of substantial change Bernie Sanders promises.
I favour positive change above all else, there is considerable irony in the fact that we are so averse to change yet evolution is all about us using change to adapt and survive. So the same must be done in economics, and it starts with an overhaul of how governments approach the economy.
Chile had escaped the Malthusian trap around the early 20th century. In this I will examine the factors that had enabled substantial growth in the Chilean economy including geography and trade, population, and institution within the period 1840-1930. The Chilean War of Independence against Spanish control began in 1810 with it ending in an independent republic being declared in 1818. From this point onwards Chile began to expand its territorial holdings in regards to assimilating the Mapuche population and gaining Northern territory, but it was only in 1840 that the economy had truly opened (Mamalakis, Markos J).Chile has a diverse regional market due to its geographic nature, as the country spans 6435 km of coastline going from desert in the North to arctic conditions in the South. (Please click to expand images!)
As Chile lies upon the North-South axis it has distinct diversity in climate and geography, the economy had been able to surpass the Malthusian trap as a consequence of this rather than be limited by it. This diversity enabled trade, demand for its exports, and increasing market integration. Chile had a particular trade advantage due to access to the Pacific Ocean and the Atlantic Ocean through the Drake Passage, and the Strait of Magellan (The World Factbook). This was to prove pivotal for the export of the factor endowments present in Chile. In the central and southern zones there is particularly fertile soil for wheat production and grazing. Then in the northern zone there is the Atacama Desert, which is the source of Nitrate and Copper (The World Factbook). While the border to Argentina is defined by the Andes Mountain range providing Chile with access to natural minerals (The World Factbook).
Trade routes proved to be integral to the growth of the export and import market that drove forward Chilean growth, which is exemplified by their increasing rate in growth rate of exports considering the data for 1850-1900, 1870-1920, and 1890-1900 shown in the table.
Further examining exports Chile had an absolute advantage in the production of wheat during what was noted as the Great Wheat Trade between 1865 and 1900 (Mamalakis, Markos J).This wheat boom had begun in 1850 as a consequence of demand from the Californian and Australian gold rushes, as exports peaked at 276,664 qq.m (quintals) for California in 1850, then 323,607 qq.m for Australia in 1855 (Mamalakis, Markos J). This highlighted Chile’s advantage due to the pacific trade routes and fertile soil, while the wheat trade was to become global with England becoming a central importer, as production between 1867 and 1900 did not fall below 800,000 qq.m (Mamalakis, Markos J). This absolute advantage in wheat production attracted foreign investment, and led to the introduction of steam ship use in Chile (Mamalakis, Markos J). The wheat trade began to decline by 1900, due to California and Australia producing their own wheat (Mamalakis, Markos J). This decline in the pacific export market for wheat did not hinder Chile’s growth due to the export of copper and nitrate.
The nitrate boom began after the War of the Pacific in 1880-82, as Chile had gained the entire Atacama Desert region from Bolivia and Peru (Hutchison, Elizabeth Q., Thomas M. Klubock, Nara B. Milanich, and Peter Winn). This had also landlocked Bolivia, resulting on a trade dependence on Chile. Between 1900 and 1930 more than 50% of government revenue came from nitrate and iodine export taxes (Mamalakis, Markos J), with the nitrate sector resource surplus averaging 14% of GDP between 1882 and 1930 (Mamalakis, Markos J). In regards to helping Chile escape the Malthusian trap the nitrate boom was far more important in regards to it being a source of modernization. Integrally, bringing it closer towards modern capitalism and into contact with the United States and the United Kingdom. However, due to the synthetic production of nitrate, Chile had experienced a rapid boom and bust cycle (Mamalakis, Markos J). In this the greater move towards capitalism became the main benefit of the nitrate boom, as the nitrate bust left behind it ghost mining towns and structural unemployment showing an example of mineral theory (Adelman, M. A., and G. C. Watkins). This left copper as the most sustained specialized export, ensuring growth.
It was specialisation in the extraction of copper that was to lead to sustained growth, institutional development, and greater market integration within the Chilean economy. Until 1880 Chile had been the world’s largest copper producer, but it experienced a rapid decline in easily available stocks as production fell (Mamalakis, Markos J).
After 1910 the Chilean copper sector experienced a massive transformation, as increasing foreign investment led to greater human and physical capital that resulted in large-scale mining. This had revived copper production, while emphasising an institutional and financial link with the United States (Mamalakis, Markos J). It is debated whether the foreign presence had upheld a weak Chilean economy, or whether it provided the backbone for the modernisation.
The geography of Chile proved to be vital in providing the correct environment for access to trade, as well as a diverse range of exports. Proving essential to an increase in economic growth and modernisation, in regards to escaping the Malthusian trap increasing income per capita was a result of this trade based growth. However, it is important to consider the demographic transition that occurred in the period.
The demographic transition in Chile took advantage of growth through trade, aiding in the escape of the Malthusian trap. In the table below we see a decreasing rate of increase in population for Chile during the period in question 1840-1930, with the authors estimates with a boom in population growth for 1915-1930. There was no dramatic change in population, with the main factor being the assimilation of indigenous Mapuche population through expanding the Chilean frontier in the south through war (Hutchison, Elizabeth Q., Thomas M. Klubock, Nara B. Milanich, and Peter Winn). Instead this demographic transition was based upon increasing urbanisation and a switch to more service based sectors. In 1930 49.4% of the country’s population was located in urban areas, and increasingly the capital Santiago (Mamalakis, Markos J).
This was a consequence of the movement of employment from agriculture to industry and services, shown by the graph considering the production indices, as the public sector, and industry began to match then exceed agriculture in terms of production. This suggests that the Chilean economy had escaped the Malthusian trap between the period 1915-1930, especially considering the table below which considers the relative income and employment between 1907 and 1930, as 43% of the working population was employed in services which accounted for 50% of relative income, compared to 36% of the population being employed in agriculture (Mamalakis, Markos J).
It is important to place the trade and demographic transition that allowed Chile to experience rapid levels of growth into context with the institutions that were available at the time. Having been a Spanish colony there was already the physical and human capital required to facilitate trade, moreover the Spanish had focused on the mining of silver and gold that was to benefit the Chilean economy in regards to the production of copper and nitrate (Hutchison, Elizabeth Q., Thomas M. Klubock, Nara B. Milanich, and Peter Winn). Chilean institution in relation to aiding the escape from the Malthusian trap may be more closely examined through considering capital accumulation through physical and human capital investment, this is a consequence of the government being able to focus on aiding the export sector. Travel was the greatest institutional issue as a result of the length of the country. Therefore, between 1888 and 1930 government development expenditure increased at a rate of 4% per year (Mamalakis, Markos J), this went towards the development of customs facilities, rail network, roads, and ports. Chile had effectively set up new institutions as a result of investment into human capital through education. The government realised that it had previously failed to spread education between 1840 and 1900 this was due to rural population, poverty, inequality, and inadequate enforcement. In 1900 the system was nationalised, creating a progression from primary education until university education. This also led to the rise of vocational education in agriculture, mining, industry, and trade (Mamalakis, Markos J). Therefore, Chile had inherited some degree of institution due to being a Spanish colony creating the base of development, but then was able to develop its own institutions enabling it to improve standards of living and aid in increasing wages beyond subsistence level.
The combination of geography, trade, population, and institution between 1840 and 1930 had placed Chile on the path to escape the Malthusian trap. Chile had a geographic advantage for trade with access to both the Atlantic and pacific oceans, while also being endowed with resources to export such as wheat, nitrate, and copper. Then due to the nature in which foreign investment defined the export sector there was a demographic transition, which resulted in increasing urbanisation. This was led with through the trading institution inherited from the Spanish colonialists. The economy was then transformed, as a strong government was able to build new institutions specifically education. Thereby, leading Chile out of the Malthusian trap by 1910-1920. Correlating to some degree with data map shown below:
Chile was to go on to experience economic and political turmoil that would stagnate the economy, which meant that it didn’t follow a similar to path to other countries escaping the Malthusian trap until the era of neo-liberalist economics under Augusto Pinochet (Solimano, Andrés)
Adelman, M. A., and G. C. Watkins. Reserve Prices and Mineral Resource Theory. International Association for Energy Economics, 2008. Print.
Hutchison, Elizabeth Q., Thomas M. Klubock, Nara B. Milanich, and Peter Winn. The Chile Reader: History, Culture, Politics. Print.
Mamalakis, Markos J. The Growth and Structure of the Chilean Economy: From Independence to Allende. New Haven: Yale UP, 1976. Print.
Solimano, Andrés. Chile and the Neoliberal Trap: The Post-Pinochet Era. New York: Cambridge UP, 2012. Print.
The World Factbook. “South America: Chile.” Central Intelligence Agency, 22 June 2014. Web. 30 Oct. 2014.
Staring, Chris. “The Nitrate Towns of Chile Photography.” Atlas Obscura.
Web. 29 Oct. 2014.
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Olive Oil has become quite a popular product for many households in Europe and North America. It is reported that olive oil consumption has increased by 100% in North America and by 37% in Southern Europe over the past decade. The issue with olive oil is not its popularity but the extensive black market now surrounding it. Currently the average price for 100% Italian Extra Virgin Olive Oil (500ml) is around £4.45 taking into account Tesco, Waitrose, Sainsbury’s, and the Cooperative. Olive oil is one of the most expensive varieties of oil used for cooking, as it has claimed health benefits, and has become popularised with Mediterranean food.
The black market for olive oil is not something new, throughout history it has often been easily replicated with the use of lard. There is even mafias’ setup on the selling of olive oil, such as the case of Domenico Ribatti, who was sentenced to 13 years in prison during the 90s for dealing ‘faked’ olive oil. Tom Mueller has written both an extensive article on the New Yorker about the ins and outs of olive oil fraud, and has even written a book which is part investigation in the name of: Extra Virginity: The Sublime and Scandalous World of Olive Oil. This black market is particularly attractive, because if caught the sentencing for fraud with foodstuffs is almost negligible in comparison to that of drugs.
Mueller however notes that it is the sheer scale of fraud that is undercutting the honest producers and the artisan oil developers to the point that they either have to join the rest and commit to the fraudulent oil, or risk failing as a business. Current figures are suggesting that Italy sells three times as much olive oil as it produces. Up until 2001 as long as olive oil was bottled in Italy, under EU law it could be sold as Italian Olive Oil, now laws have changed, but this does not alter the fact that some mass producers that are selling the artisan extra virgin olive oil, are not actually using true olive oil production methods. This is a consequence of the economies of scale of brands such as Bertolli and Berio as they are able to use substitutes and mediocre oil to create their “extra-virgin” products, this has two consequences. Firstly, consumers no longer know the taste of true extra-virgin olive oil, and thus if tasting the real product they are unlikely to identify it. Secondly, the Italian farmers who developing true extra virgin olive oil products won’t have a market.
The issue here can be marginally placed on the product itself. Unlike other foodstuffs or oils, olive oil is unique in that to be classified as extra-virgin is a purely subjective view. There are traits that oil should meet to be legally classified as extra-virgin, but through the marketing power of the bigger companies such as Nestle, or Bertolli they effectively have changed the expectation of extra-virgin oil. One of the common fraud methods is the use of hazelnut oil, and deodorizing it with olive essence. It can be chemically proven when an olive oil is not olive oil, but the current scale of fraudulent operations means that recalling each olive oil for testing is out of question.
Flavio Zaramella was a notable producer of olive oil, and now heads an individual tasting panel. Through this panel they are able to clarify the true qualities of oils, and whether they can be considered as extra-virgin. The issue is that his panel for example has lost its E.U. accreditation due to budget cuts for the International Olive Oil Council. Furthermore, Italian authorities do not perform these tests before oil is exported or sold, and testing becomes even more unlikely once it’s on the market.
The main issue here is that the small producers are undercut by the larger producers using substitutes to make cheaper oil, but through market power and branding maintain a high price for an ultimately mislabelled product. It is suggested that around 70% of olive oil that is labelled as extra-virgin is fraudulent. In the United States the FDA has only begun chemical testing last year, and it has become increasingly difficult to identify fake olive oils through chemical testing as there are new substituting methods being used.
Does this ultimately hurt consumers? Or is it simply inappropriate to be sold a mislabelled product; even though the majority of people cannot tell the difference? Well considering there are currently EU subsidies supporting the production of olive oil, it may be worth taking this matter into serious consideration. Even though there is considerable evidence of fraudulent olive oil, the EU maintains the subsidy. This is protecting a fraudulent industry, while still not helping the small Italian based producers. If the subsidies were removed, we may see an inflow of olive oil from Tunisia, Morocco, and Algeria. Currently the big European producers buy oil from the Middle East and North Africa, and go on to rebrand it. If the EU subsidies were removed, it may enable producers from these foreign countries to provide better olive oil at lower prices. Currently the subsidy in Europe is holding up an industry which has chosen to deceive its consumers, removing the subsidy may also reduce the size of the black market in olive oil.
Additionally, due to the subjective nature of viewing olive oil, it is necessary to introduce stricter guidelines in the production and labelling of the product, so consumers actually know what they are getting. It is clear that demand for olive oil is only increasing, as it become common in people’s diet. This growing demand has driven some producers to fraudulent methods and advertising claims, and in the interest of the consumer it is important to eradicate this market behaviour.
Extra Virginity: The Sublime and Scandalous World of Olive Oil
By Tom Mueller