Peterson Institute for International Economics Update Newsletter
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PIIE Update Newsletter
March 7, 2012

"Washington's premier think tank on the global economy"
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The United States Should Focus on Business Services, Not Manufacturing

J. Bradford Jensen
  J. Bradford Jensen The US manufacturing sector is experiencing a long-sought rebound—adding about 400,000 jobs over the past two years. But a rebound in the manufacturing sector alone will not be enough to speed the recovery. Further, a Washington focus on manufacturing may lead policymakers to overlook significant opportunities for growth in a much larger part of the economy: the business services sector, which includes software, finance, architecture, and engineering services. This sector is large, pays well, and is growing. Business services employ 25 percent of US workers, more than twice as many as the manufacturing sector. America also has a comparative advantage in offering these services globally, thanks to its highly skilled workforce, and indeed it consistently runs a trade surplus in this area—in stark contrast to the large merchandise trade deficit. Yet in India, China, Brazil, Russia, Indonesia, and other countries with fast-growing economies, the deck is still stacked against foreign firms by requiring a maze of regulations and licensing procedures, commercial presence mandates, and local set-asides. In contrast, the United States and the European Union are relatively open to services trade. To level the playing field the United States should join other developed countries in pushing assertively in the World Trade Organization (WTO) for the opening of these large and fast-growing markets to service trade.

>> Read full op-ed
>> See related book: Global Trade in Services: Fear, Facts, and Offshoring

Putin Without Putinism

Anders Åslund
  Anders Aslund The mood in Moscow has changed profoundly in the last two months as a critical mass of Russians has come to believe that Vladimir Putin's regime is approaching its end. While it was generally assumed that Putin would win the presidential election on March 4, Russians' expectations about the aftermath vary greatly. Although it is hard to predict how change will come to Russia, the accelerating pace of events has made a political transformation in Moscow all but inevitable. Now-despised President Dmitry Medvedev preached a sensible program for Russia's modernization for the last four years, and though he never did much to implement it, his program has achieved a broad public consensus. The middle class may have abandoned Medvedev after he nominated Putin as a presidential candidate, but it is still searching for other means to implement his agenda. The opposition may be multifaceted and poorly organized, but it has proved its ability to bring people to the streets and has united around a surprisingly cohesive agenda. The three mass demonstrations held in December and February were the largest Russia has seen since 1991, and they broke the barrier of fear. The beginning of the end has come for Vladimir Putin—the only question is how his rule will come to a close.

>> Read full op-ed

See also:
>> Putin's Dangerous Reprivatization Idea
>> The Snow Revolution's Orange Shadow
>> Why Gazprom Resembles a Crime Syndicate

See related book:
>> Russia after the Global Economic Crisis

Mr. Mukherjee's Grand Bargain

Arvind Subramanian
  Arvind Subramanian The economic reputation of the Indian government is in tatters because of the damage to the investment climate and the real sector from the spate of corruption scandals, the deterioration of governance, and the sense of drift over these last few years. But by bequeathing a sound fiscal legacy, that reputation can still be salvaged, and Finance Minister Pranab Mukherjee is the one person who can salvage it. Mukherjee should propose a grand bargain that would help implement three big policy measures for which this government could be remembered: chipping away at, if not eliminating, subsidies; instituting an efficient and targeted anti-poverty scheme; and implementing the goods and services tax (GST). On the GST, certain state governments will hold out for political reasons. And on subsidies, the elimination of waste and inefficiency that allows the arithmetic to work will entail losses to a host of middlemen, contractors, bureaucrats, and politicians. Their resistance will be considerable. The March budget offers the opportunity to implement three game-changing policy measures that could consolidate the economy's long-term fiscal situation and allow growth to be re-ignited. By seizing this opportunity, Mukherjee might persuade posterity to pronounce positively on the present United Progressive Alliance government.

>> Read full op-ed

Peterson Perspectives Interviews

audio  China Adjusts Its Forecast Downward
Nicholas R. Lardy says China's new forecast is in line with its 5-year plan, but it omits details on how it plans to achieve more balanced growth.

audio  The Ex-Im Bank's Troubled Flight Path
Gary Clyde Hufbauer explains why a parochial dispute between Delta and Air India is holding up approval of a vital engine for US exports.

audio  North Korea's "Freeze" Offers Hope for Progress
Marcus Noland says the decision by North Korea to freeze uranium enrichment and take other steps reflects a changed atmosphere in Pyongyang.

audio  Will Putin's Aggressive Election Drive Hamper Ties with the United States?
Anders Åslund assesses the implications of the Russian leader's campaign against Russian oligarchs and his new virulent anti-American propaganda.

Recent Blog Posts

RealTime Economic Issues Watch   China Economic Watch    North Korea:  Witness to Transformation
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The Rewards of Brinkmanship in Europe

North Korea's Surprising Steps: "Modest" Progress

Reauthorize the Export-Import Bank: Part II

An Alternative for Greece: An Incomes Policy to Achieve Internal Devaluation

Oops, I Underestimated China's GDP
  Capital Account Liberalization and the Corporate Bond Market

China's Rebalancing Will Not Be Automatic

The Myth of China's Giant Fiscal Deposits

Can Affordable Housing Sustain China's Economic Growth?

Chinese Housing Market Correction Update
  Diplomatic Relations, North and South

More on the Freeze: Diplomatic Reaction and US Spin

Sources on North Korea: Escape from Camp 14

Anthropometric Evidence: Going Long

The Freeze: The People Speak!

PIIE Noted in the News and on the Web

Finance & Development (IMF)
People in Economics: An American Globalist
Prakash Loungani writes an in depth profile of C. Fred Bergsten.

Prakash Loungani Blog
Fred Bergsten: Will the Euro Survive?
Calling C. Fred Bergsten "the founder of the world's most influential think tank on international economics," Prakash Loungani of the IMF interviews Bergsten on his views on the euro and his proposal for a G-2 among other topics.

Greece May Default in 2012, Kirkegaard Says
Jacob Kirkegaard tells Bloomberg that Greece will probably default this year on European governments' holdings of its sovereign debt.

Europe Financial Firewall Will Stabilize Region
Jacob Kirkegaard discusses the G-20 summit and the need for a European financial firewall.

Washington Post
Experts React to Europe's Bailout Package for Greece
The Washington Post provides reactions to the euro area's $170 billion bailout package from PIIE experts Carmen M. Reinhart, Nicolas Véron, and Simon Johnson, among other economists.

Australian Broadcasting Corporation
North Korea Deal a 'Significant' Political Shift
Marcus Noland talks with the Australian Broadcasting Corporation about North Korea's announcement that it will suspend its nuclear activities in exchange for food aid.

Minnesota Public Radio
Record Low Interest Rates Raise Inflation Concerns
Joseph E. Gagnon explains how the Fed's madate to achieve maximum employment conflicts with its other mandate: to keep prices stable.

Financial Times
China Is Right to Open Up Slowly
Martin Wolf reviews Nicholas Lardy's new book, Sustaining China's Economic Growth after the Global Financial Crisis, in his column in the Financial Times.

Wall Street Journal: China Real Time Report
What Economist Arvind Subramanian Thinks of "China 2030"
The Wall Street Journal asks Arvind Subramanian his analysis of the World Bank's report "China 2030" and discusses his new book, Eclipse: Living in the Shadow of China's Economic Dominance. See also Who Should Lead the World Bank?

Washington Post
Gas Prices Could Cause Election-year Headache for Obama
The Washington Post highlights conclusions in a recent PIIE Policy Brief, Using US Strategic Reserves to Moderate Potential Oil Price Increases from Sanctions on Iran, by Philip K. Verleger, Jr.

Preview of Our Next Issue

Who Should Lead the World Bank?
Devesh Kapur and Arvind Subramanian

In This Issue

Sergei Guriev The Russian Presidential Election: What It Means for Politics, Economics and PNTR

Sergei Guriev discusses what the Russian elections may mean for Russia's future and the possible granting of permanent normal trade relations (PNTR) to Russia by the US Congress.

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