The new scramble for Africa

The prospects for growth in Africa are promising.  Mozambique has grown 8% in the last decade; Africa grew by 4.7% in 2010; and the World Bank has increased its growth forecast for sub-Saharan Africa to 5.3%.

The Chinese are capitalising on these economic opportunities.  China is now South Africa's largest trading partner.  It has invested heavily across Africa: from deals to import coal from Mozambique and oil from Nigeria to building roads and railways in Lesotho.

Not only will these investments boost the natural resource industries but it will have large spin-off effects.  The infrastructure the Chinese are building will facilitate economic growth in all industries.  The Chinese may look to manufacture goods in Africa as Chinese labour costs begin to rise.

However, China must realise that their role is not limited to making sound business decisions.  They should not be propping up rogue regimes like Zimbabwe by doing business with them.  China need to recognise its international duty to promote good government - their investment in vicious regimes should be conditioned on improvements in government conduct.

Don't give aid to dictatorships - it's immoral

It is commonplace to hear the argument that not giving aid to dictatorships is immoral.  The argument goes: by not giving aid, you are the hurting the people you are trying to help.  It is counterproductive and probably makes the people hate the West (if they don't already, with state propaganda).

However, using a utilitarian calculus, denying aid may the moral action.  Suppose the West gave £100 of aid to the Burmese Junta.  £20 worth of aid may have reached the people (and if it did, it would probably be falsely labelled "from the Burmese Junta"!)  But, the other £80 would be used to further oppress the people: buying more arms and funding state brutality.  Thus, giving aid to dictatorships can hurt the people more than they gain.

Good politics, bad economics: homeownership

The financial crisis was triggered by a crisis in the sub-prime mortgage market in the USA.  When interest rates rose, many homeowners who were unable to meet their increased repayments defaulted.  This led to banks having to write off billions.  Confidence and lending evaporated and a crisis began.

The reason for increased homeownership in the USA can be understood through political motives (in terms of getting votes).  In an attempt to tackle the rising inequality in America, politicians faced several options.  They could improve the failing education sector - but this was the hard option that would not breed instant results.  They could increase taxation and redistribution - but this would be politically unpopular.  Therefore, they were left with their option, the one with the least political resistance - cheap credit.

Cheap credit seemed like the panacea.  It would push up house prices creating a positive wealth effect.  Households, feeling richer, would consume more.  It would create jobs in the real estate and housing construction.  And, best of all, the costs lay in the future.  This was a politician's perfect scenario: cheap credit would yield large, instant and widely distributed benefits.

Unfortunately, the expansion of cheap credit would soon catch up with us.  Household debt became untenable.  A prime example where good politics can make bad economics...

A word of caution: The Vickers report

The Independent Commission on Banking (ICB) was set up to investigate how to prevent another big financial crisis like 2008 in which governments have to bailout failing banks.  RBS and Lloyds were both rightly regarded as "too big to fail" and were partly bought up by the taxpayer.

The ICB proposes that the retail arm of banks being ringfenced from their other operations; and that banks hold significantly more capital to be able to absorb its own losses.  Ring-fencing will provide greater security for retail depositors - they know that their money cannot be used to bail out reckless investment banking decisions.

However, forcing UK lenders to hold more equity than international competitors will harm British competitiveness.  New regulations need to be made multi-laterally if they are not to be counter-productive.

The real problem still remains: banks are too important to fail.  Until this issue is dealt with, the chances of another big financial crisis is high.

Weak UK growth

The UK economy has begun to recover: since the first quarter of 2011, in which GDP growth contracted by 0.1%, the UK economy has seen positive growth in output.

However, this recovery is weak.  Growth has remained stagnant; GDP only increased by 0.2% in the second quarter of 2011.  This is lower than the rate of growth, 0.5%, recorded in the first quarter of 2011.  The most significant negative contribution came from the production industries which decreased by 1.4%.

The ONS has attributed this weak growth to the weather.  In the first quarter, it was the snow and cold weather that decreased our productivity.  In the second quarter, it was the sunshine – extra holidays, including for the Royal Wedding.  If not for this, say the ONS, growth would have been 0.5% stronger.

Other reasons include:

• Weak consumer confidence – anticipation of weak growth leads to consumers saving their extra income.
• Fragile world economy – the continuing euro zone sovereign debt crisis and the USA’s credit downgrade may have further damaged consumer confidence.
• Government spending cuts – in an attempt to rebalance the economy, the Coalition government have reduced public spending.  The other components have not yet made up for this fall in government spending.

 There are various policy responses that could be adopted to stimulate growth:

• Maintain 0.5% bank rate – on September 8, the MPC voted to keep bank rate at this historic low.  A hike in interest rates may further weaken growth by discouraging business investment.
• Plan B – perhaps the government needs to rethink its aggressive public spending cuts.  The calls of “too soon, too quickly” may be vindicated.  Keynesians would argue for the government to meet the shortfall in private demand.  However, the government would claim that the cuts are actually necessary for a recovery – if the UK does not take control of its debt, then we could lose our credit rating causing interest rates to rocket – and thus, jeopardising the recovery.
• Quantitative easing – currently at £200bn, this could be further pursued in an attempt to boost liquidity in the economy.  However, this is probably unwise with inflation at 4.4%.

The morality of utilitarianism

According to Jeremy Bentham, morality must be judged on its end consequences.  Whatever brings about the greatest happiness for the greatest number is the moral thing to do.

This consequentialist take on morality poses a major problem.  'Act utilitarianism' potentially allows for a severe infringement of human rights.  Take bullying for example: if one child is bullied by five children, then according to a utilitarian principle, this may be justified.  The happiness five children gain from bullying may be greater than the misery caused for the one child that is bullied.

Gang rape is another example.  Strictly speaking, 'act utilitarianism' would say that gang rape is morally justified if it brings about greater happiness to the gang than the pain caused to the victim.

In response to this criticism, utilitarianism presents a better alternative - 'rule utilitarianism'.  This view on morality uses the greatest utility principle but has certain rules that must never be violated.  Thus, rule utilitarianism protects fundamental human rights where act utilitarianism does not.