Author Archive for shruti-rana
Modern Nomads: The Dark Side
posted by Shruti Rana
Last month I blogged about the bright side of modern-day global “nomadism”; that is, some of the ways that new technologies are reshaping individuals’ connectivity and mobility, and ultimately enhancing opportunities (for law professors, at least). But the current economic crisis has also highlighted the darker side of the new global nomadism—while we live in an age where “rich and uprooted elites” may jet around the world in search of fun and opportunity, the same forces which increasingly allow people to tap into global networks and traverse territorial barriers are also pushing “poor but equally uprooted workers [to] migrate in search of a living.”
In the U.S. and Europe—where over 40% of the world’s migrants currently reside—mounting job losses and financial volatility are sparking debates over the extent to which migration and migration policies are, or should be, linked to economic cycles. In both regions, migrants (whether classified as legal or illegal) have been viewed as part of a flexible labor pool, providing a ready supply of workers who can be tapped during times of economic growth and discarded during downturns. Historical data appears to support this relationship; in the U.S., the flow of migrants has waxed and waned at least to some degree along with periods of economic growth and recession. And while both economic and political forces played important roles, immigration plummeted during the depressions of the 1890s and 1930s.
It’s not surprising, then, that in recent years workers flocked to the countries which spawned the biggest bubbles—in the U.S., the U.K., Ireland, and Spain, which all enjoyed housing and finance booms, immigration surged in recent years. But there are signs that the impact of the current downturn on migration flows may be different from the past, and that the U.S. is following a markedly different path than some of the European countries which joined it during the boom.
First, it’s not clear where migrants will go if they leave the U.S. and Europe. Unlike a regional downturn, a global downturn by definition means that there are also fewer jobs available in migrants’ countries of origin. Moreover, remittances to home countries—which formed a significant part of the transnational capital flows of recent years—appear to be dropping rapidly, which will further stifle economic prospects outside the U.S. and Europe.
Second, the U.S. appears to be seeking to reduce the flexibility of its migrant labor pool, while many European countries, such as the UK and Ireland, are attempting to increase the flexibility of their migrant labor pool.
January 23, 2009 at 1:35 am
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The Hollow Men
posted by Shruti Rana
British financial historian Niall Ferguson recently coined the term “Chimerica” to describe the growing economic interdependence between the United States and China, a relationship that he calls the key to understanding the world economy over the past decade. His vision of Chimerica is drawing increasing attention as the growing financial turmoil in both nations exposes both how deeply intertwined their economies are and how dysfunctional this relationship has become.
Initially, Chimerica—accounting for a quarter of the world’s population and over half of global economic growth over the past eight years—seemed like a “marriage made in heaven.” China exported cheap goods to the United States which were rapidly snapped up by American consumers, fueling strong growth in China and leaving Chinese savers flush with cash. This cash was then invested in the U.S., which kept interest rates in the U.S. low and provided easy credit, fueling spending binges which thereby increased demand for Chinese products. In Ferguson’s view, the cycle was both complementary and self-reinforcing:
Put simply, one half did the saving, the other half the spending. Comparing net national savings as a proportion of Gross National Income, American savings declined from above 5 percent in the mid 1990s to virtually zero by 2005, while Chinese savings surged from below 30 percent to nearly 45 percent. This divergence in saving patterns allowed a tremendous explosion of debt in the United States, for one effect of the Asian “savings glut” was to make it much cheaper for households to borrow money than would otherwise have been the case. Meanwhile, low-cost Chinese labor helped hold down inflation.
Both countries appeared to have figured out how to have it both ways; while “China’s leaders could enjoy double-digit growth without political reform,” Americans could enjoy rising wealth and consumption without increasing incomes or taxes.
As we now know, much of these gains, like the mythical chimera, were merely illusory, built upon American excesses and Chinese suppression. China kept its currency at artificially low levels in search of higher growth rates (and kept a lid on political dissent). The U.S. spent and lent recklessly, aided by an era of lax regulation. As described in this New York Times article, both countries made half-hearted attempts to address the unhealthy imbalances but the lure of easy money and growth always won out.
Until, of course, our current crisis punctured this illusion, ushering in a mutual blame game. The U.S. has been accusing China of currency manipulation and wage depression while the Chinese have been taking Americans to task for breeding corruption and failing to appreciate the virtues of financial prudence. The once-symbiotic relationship is now characterized as dangerously addictive; as Sen. Lindsay Graham recently put it, “[t]heir drug was an endless line of customers for made-in-China products. Our drug was the Chinese products and cash.”
To Ferguson, this relationship is not merely wobbling but has reached a critical crisis point: “The big question today,” in his view, “is whether Chimerica stays together or comes apart because of this crisis. If it stays together, you can see a path out of the woods. If it splits up, say goodbye to globalization.”
Naturally, whether this cycle of interdependence ever was (or can be) a truly sustainable and mutually beneficial one is hotly debated. The current consensus is that both countries need to spend their way out of the crisis, but fear—and desperation—are riding high. The U.S. needs further infusions of cash from China to finance its stimulus plans as it fears that it may run out of other options, while China needs to push its cautious savers to spend in an atmosphere of extreme uncertainty and avert social unrest. Both countries fear that each will turn to a solution that favors its own citizens at the expense of the other’s, triggering a mutually destructive race to the bottom.
While I don’t have a solution for this crisis, I’d like to propose another, hopefully more optimistic, metaphor for the rise and demise of Chimerica, one that fits with New Year’s themes of destruction, redemption, and reinvention.
January 1, 2009 at 6:56 pm
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Law Profs Abroad: Astronauts or Nomads?
posted by Shruti Rana
The advent of wireless, social networking, and shrinking electronics is, to my delight, moving us ever closer to the day when anyone can be a modern-day “urban nomad.” According to this Economist article, urban nomads, like “their antecedents in the desert, [] are defined not by what they carry but by what they leave behind, knowing that the environment will provide it. Thus, Bedouins do not carry their own water, because they know where the oases are. Modern nomads carry almost no paper because they access their documents on their laptop computers, mobile phones or online.”
But as I began my visiting position in Beijing, my Bedouin hopes were dashed by an unexpected drag – the pile of textbooks I needed for the classes I was wrapping up in Maryland and the ones I was to teach in China. Thus, my need for books and paper rendered me not a nomad but an “astronaut.” Textbook-laden law professors are much like the astronauts who “must bring what they need, including oxygen, because they cannot rely on their environment to provide it,” leaving them “both defined and limited by their gear and supplies.” Books are my oxygen, and to me, symbolize the intellectual freedom of academia. But now, during this trip, they began to limit me as well, adding to the practical, linguistic, social and cultural obstacles between me and my students in both Maryland and China. Ultimately, the heavy book-filled bag I had to check in forced me think about the deeper implications of urban nomadism, and of course, what this could mean to law professors.
The key to urban nomadism is not, as I initially thought, about travel and a zero-drag lifestyle. It is both
different from, and involves much more than, merely making journeys. A modern nomad is as likely to be a teenager in Oslo, Tokyo or suburban America as a jet-setting chief executive. He or she may have never left his or her city, stepped into an aeroplane or changed address. Indeed, how far he moves is completely irrelevant. Even if an urban nomad confines himself to a small perimeter, he nonetheless has a new and surprisingly different relationship to time, to place and to other people.
The nomads now emerging around the world are different from those of the past because of their constant connectivity, not motion, and the implications of this are still unfolding.
So naturally my next thought was: could I, as a law professor, shed the gear that sustains yet limits me? And what would this feel like?
December 20, 2008 at 2:26 pm
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Creative Capital
posted by Shruti Rana
Many of the Chinese government’s recent attempts to address the financial crisis involve what has now become familiar territory for many countries. For example, the government recently announced that it would implement a four trillion renminbi ($585 billion) stimulus package, and the state has also repeatedly cut interest rates and sought to prop up consumer spending. But with reports suggesting that China’s unemployment rate could soon approach 12%, rumor has it that the Chinese government is beginning to pursue a slightly more unusual stimulus plan: nudging students to stay in school, or pursue advanced degrees, in lieu of entering a rough job market.
In China, the government can wield a fair amount of power in this area – government ministries can issue, and apparently have been issuing, directives to universities asking them to increase their student populations. Increasing access to higher education, especially for rural students, is also a key part of the government’s development strategy; in fact, according to a recent Vox column, the number of undergraduate and graduate students in China has been increasing by approximately 30% per year since 1999. The column notes that the government’s emphasis on higher education does not appear to be motivated by labor market demand, but rather seems to stem from the government’s desire to increase the sophistication and global competitiveness of China’s products and people.
It will be interesting to see how the financial crisis affects these trends, particularly in legal field. Anecdotally, I can report that my students in China seem just as apprehensive and concerned about their job prospects as my students in the U.S. Many of my Chinese students—both graduate and undergraduate students—are indeed seriously considering pursuing additional degrees or other educational options for at least the next year or two.
December 15, 2008 at 2:54 pm
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Will the Credit Crisis Foster Convergence in Executive Compensation? (And Do We Really Want It To?)
posted by Shruti Rana
The American public has lately been riveted by the almost daily news stories on the recklessness and irresponsibility of the executives widely seen as contributing to the credit crisis. These reports and the unfolding crisis have shifted the debate over executive compensation from merely reigning in excessive pay to proposals calling for punitive or retributive measures, such as imposing personal liability on the executives at the helm of failing companies. But as we debate throwing executive salaries to the mob, as Nate Oman discussed in his recent thought-provoking post, it’s worth examining the experiences of other countries that have already gone down this punitive path—and are now turning back. It’s also important to consider what this debate reflects about our conflicted attitudes towards credit and debt, in particular the link between tolerance for financial failures and entrepreneurship, and how the credit crisis may be changing these perceptions.
Not long ago, “American pay packages” were portrayed as a symbol of America’s commitment to fostering and rewarding innovation and entrepreneurship. Enormous pay packages were cited as the fruits of a system where any dream could come true, and contrasted with those in other countries where risk-taking and entrepreneurship were more constrained, less lucrative, and even tarred with the stigma of failure and shame. In Japan, for example, during its credit crisis of the early nineties, executives were forced to take pay cuts as a form of apology to an unforgiving public. Executives in some European countries could be held personally liable and even face imprisonment for failing to avert bankruptcy.
As calls for more punitive measures intensify in the U.S., and as our executives begin promising pay cuts in return for bailout funds, we may be heading towards a harsher system just as other countries reverse course.
December 3, 2008 at 6:54 am
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