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Is Egypt’s Economy Surviving Corona’s Bumpy Ride?

April 6, 2021
By 28847

Christine Guirguis, a 2020 Sylff fellow from the American University in Cairo, addresses the outlook for Egypt’s economy in the face of the coronavirus pandemic. Egypt was one of only three countries in the region to maintain positive growth in 2020, an impressive record given the difficulties it has experienced over the past decade, as Guirguis details.

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View of Cairo from the top of Cairo Tower, August 25, 2014.

Egypt’s economic condition in 2012–13 was dubbed the worst crisis since the 1930s. The severity of the economic troubles reached its peak in the first half of 2014 with a fall in the GDP growth rate to 1.2%—the lowest in about 50 years—as well as a rise of the inflation rate to 9%, a surge in the unemployment rate to 14%, a fall of eight places in tourism ranking, and a shortage in essential food products. As a result, Egypt’s economic status as of 2014, which was downgraded from emerging market to frontier market in Russell’s Annual Index, left the country scrambling to rescue its 86-million population at the time.

Before reluctantly resorting to the International Monetary Fund, Egypt—whose national security is a safety valve to the region—had received generous aid from the Arabian Gulf and Saudi Arabia totaling as much as $30 billion. While such aid breathed life into Egypt’s economy, the bill was far from paid.

In 2015, three-quarters of Egypt’s budget vanished into subsidies, government wages, interest payments, and capital loan repayments; only 5% of the budget was left for other purposes. In the same year, the crash of a Russian airplane due to an act of terrorism marked the Egyptian tourism’s clinical death before it was gradually resuscitated in 2019 by stricter security measures in airports. This was when Egypt decided, on November 3, 2016, to brace up for a $12 billion IMF loan by devaluing its currency by 48% and fulfilling the IMF’s requirements by way of cutting subsidies, increasing VAT, and floating the currency.

Luxor temple, Luxor, January 2015.

In a recent television interview, Mr. Tarek Amer, governor of the Central Bank of Egypt, talked about the Herculean responsibility he had in his hands in 2015. Egypt’s foreign cash reserves were only $800 million, an amount Egypt normally spends in a week. Consequently, its economy would have faced the risk of a total shutdown unless an urgent “surgery” of painful economic reform was done. The political and social sensitivity of the November 2016 decision, at a time when Egypt was craving for stability, rendered the proposal impossible from the point of view of almost all the cabinet members. No one was able to digest the unimaginable scenarios that could have taken place if the economic reform process had failed to meet its purposes, especially because its probability of success was estimated to be between only 10% and 30% at the time. With no alternatives on the horizon, President Sisi gave the green light for the execution of the economic reform proposal, a decision that signified a new, independent approach that enabled Egypt to skip the limitations that had long impeded its economic restructuring.

In a country where a quarter of the people live below the poverty line, the government wanted to ensure that its measures would not cause a humanitarian crisis or a social backlash. The government kept intact the cash transmission programs and subsidized food systems launched earlier.

Given the painful austerity measures, some envisioned a doomsday scenario taking place in Egypt. Yehia Hamed, a former investment minister in Mohamed Morsi’s 2012–13 government, wrote an article in the Foreign Policy in 2019 where he conjectured that Egypt was heading toward bankruptcy and warned Europe against a mass flocking across the Mediterranean of Egyptians fleeing an inevitable bleak fate.

In response Ahmed Shams El Din, an Egyptian capital markets professional and adjunct professor at the American University in Cairo, published an article on the same news site where he expressed his wonder at the former minister’s criticism of securing an IMF loan even though the government in which he served had approached the IMF in 2012 for a loan. He noted that Egypt’s economy is growing rather than collapsing, with the account and budget deficits cut in half and a 5.5% growth in 2019 compared to 2.2% in 2013.  

The current pandemic is already suffocating some of the biggest economies, supporting the IMF’s description of it as “the worst economic crisis since the 1930s depression.” For Egypt, the challenge is tougher due to losses in the main revenue sources, such as tourism, the Suez Canal, and remittances, which together constitute 15% of Egypt’s GDP. Therefore, in its June report the IMF initially expected a decline in Egypt’s GDP growth rate from 5.6% in 2019 to as low as 2% in 2020—a percentage it later changed to 3.5% in its October report. Given the global economic challenges, this relatively low growth rate makes Egypt one of three countries in the Middle East and Central Asia to maintain a positive figure in 2020.

Antique Bazaars, Aswan, January 2015.

During the apex of the global pandemic uncertainty in 2020, Egypt managed to pay $35 billion of its liabilities without suffering a severe decline in its foreign currency stockpile or any shortage of essential goods. This explained Egypt’s ability to maintain its credit ratings by Standard & Poor’s at “BB” in April 2020, by Fitch at “B+” with a Stable Outlook in July, and by Moody’s at “B2” in August. Based on these ratings, J.P. Morgan praised Egypt’s economic performance, stating that, thus far, its economy had successfully withstood the test of the pandemic and kept the trust of the international community. Hence, Egypt’s economy has been given well-grounded positive appraisals.To contain corona’s economic repercussions, the Egyptian government allocated 100 billion Egyptian pounds (EGP) as a stimulus package, including half to support the severely affected tourism sector, EGP 8 billion for the health sector, a 14% increase in pensions, energy cost relief for factories, fewer taxes on businesses, more cash transmissions, and financial support for irregular workers until the end of 2020.

Egypt’s top priorities in the economic agenda include augmenting domestic savings, as well as adopting a more liberal approach toward the market, revisiting tax penalties and exemptions, and laying the basis for a fairer accountability system.

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Empirical Research on Financial Crowdfunding at a Leading Research Organization for Alternative Finance

March 31, 2020
By 26667

Wanxiang Cai, who received a Sylff fellowship at Chongqing University in 2016 is currently enrolled in a PhD course at the School of Economics, Utrecht University, Netherlands. His research area is entrepreneurship. Using an SRA award, he visited the Cambridge Centre for Alternative Finance, a leading research center in the field of fintech.

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In recent years, crowdfunding has emerged as a source of online entrepreneurial finance. Although crowdfunding has attracted the attention of both researchers and policymakers, as an emerging form of entrepreneurial finance, we still have very limited information about its global pattern. My PhD research is about the governance of financial crowdfunding, and I suggest it is important to analyze the relationship among social capital, legal institutions, and financial crowdfunding at the macro (national), meso (platform), and micro (campaign) levels. It is essential for me to collect data about financial crowdfunding at the platform and national levels to finish my thesis.

Kings College of the University of Cambridge.

The Cambridge Centre for Alternative Finance (CCAF) is a leading research center in the field of fintech. It publishes several international industry reports every year. The center collects data from more than 1,000 fintech companies around the world and provides information about the development of the alternative finance market in different countries. These reports are the most comprehensive publications in this field and have been extensively cited in academic papers. Furthermore, the CCAF has established favorable relationships with policymakers around the world, including the Financial Conduct Authority (FCA) in Britain, the Inter-American Development Bank (IDB), and the World Bank. Thus, visiting the CCAF can not only help me collect essential data for my research, but also offer me a chance to have a deeper understanding of the industry and get more great insights from policymakers.

The author, left, with several members of the benchmarking report project.

After communicating with Tania Ziegler, the lead in Global Benchmarking at the CCAF, we reached the agreement that I would visit the CCAF and help them write the global benchmarking report, and in return, they would provide me with their survey data for my research. Furthermore, they would also give me a chance to discuss my research with several senior researchers at the University of Cambridge, including Professor Raghavendra Rau, who has a very high reputation in finance. Thanks to Sylff Research Aboard, I had the chance to visit the University of Cambridge and had a great time at the CCAF.

The Mathematical Bridge at the University of Cambridge.

I started my visits on September 1, 2019. I was shocked by the beauty of the city and the sacredness of the university. It was always sunny during my first two weeks in Cambridge, which is unusual in Britain, as it rains all the time. Several colleges are scattered along the banks of the River Cam, including Trinity College, where Issac Newton studied hundreds of years ago. An enormous number of visitors walked along the river, while the students in Cambridge shared with them the glories of the university, such as its history, famous alumni, and recent academic outcomes. These students looked very confident and felt so proud of their university, making me eager to start my research at Cambridge.

I began my research immediately. The first thing that I had to do was to collect data from a vast number of alternative finance platforms. The annual alternative finance report is based on these survey data. Thus, I contacted the founders of the platforms to see whether they were willing to get involved in our research. We collected data from more than 1,600 platforms around the world. Then we summarized how the market volume had changed over the last few years in major countries, as well as platform owners’ opinions about potential risks and regulatory changes. Based on this data, we also provided some preliminary analyses of what affects the growth of the alternative finance market. For example, we found a significant relationship between proper legal protections and the development of the alternative finance market. The information obtained in this way helps me to gain a deeper understanding of the global alternative finance market and is beneficial to my future research.

Meanwhile, I enrolled in an online course called Fintech and Regulatory Innovation. Through this course, I have gained new knowledge about fintech, especially from a regulatory perspective. More importantly, other students in this course are policymakers from around the world. During their discussions, I learned enormously from them. All the students come from central banks or other financial institutions, and they have great insights about the governance of fintech. They not only showed their expertise and experiences in the fintech topics but also raised questions about the future development of the market and potential research on these topics.

In addition to the above, we have discussed my research with several researchers. I have discussed one of my current papers with Wanxin Wang, a PhD candidate at Imperial College London. She also studies the topic of crowdfunding, and in fact, my paper is built on her recent paper published in a top journal. Her paper shares many similarities with mine, and she provided me with several suggestions for my research. I have also talked extensively with Dr. Rui Hao. She is very interested in my research, and she also helped me get a chance to interview policymakers worldwide. We decided to work together on a research project about how the regulations on equity crowdfunding will change. Unlike traditional entrepreneurial finance (e.g., venture capital and business angels), crowdfunding mainly consists of small investors who have limited knowledge about finance and investments, making it difficult to make proper regulations on financial crowdfunding. On one hand, overly strict legal protections on investors may harm small firms and entrepreneurial initiatives. On the other hand, legal protections can resolve extensive information asymmetry between investors and entrepreneurs. Thus, we have decided to conduct interviews on dozens of policymakers around the world. Using qualitative research methods, we would like to study how the regulations on financial crowdfunding will develop in the future.

Lastly, I conducted a study about how equity crowdfunding affects traditional entrepreneur finance. As an emerging form of entrepreneurial finance, we know less about the influence of equity crowdfunding compared to traditional entrepreneurial finance. First, equity crowdfunding may substitute traditional forms of entrepreneurial finance, such as venture capital, business angels, and private equity. Alternative, it may compensate traditional entrepreneurial finance, as it mainly supports small companies. This study contributes to my PhD research, as it explores under which legal conditions equity crowdfunding can contribute to the development of traditional entrepreneurial finance. Using the data from the CCAF and other databases, I have done some preliminary analyses. I have also discussed the idea and methods with Professor Raghavendra Rau. He gave me several comments, and I am improving this paper based his useful input.

In a nutshell, I have benefited extensively from this visiting. I have made friends, shared my research, got feedback, and gained a deeper understanding of my research. I appreciate that the Sylff Association has provided me with the scholarship to support my research at the CCAF. I am confident that other scholarship winners will also benefit from the Sylff.

Christmas dinner at the CCAF.

 

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Copycats and Patent Wars: The Effects of Quality Investment

December 13, 2019
By 22425

Qinquan Cui, a 2017 Sylff fellow at Sun Yat-sen University in China, is currently conducting research as a visiting PhD student at the University of California, Los Angeles (UCLA). Recently, he published his thesis “Quality investment, and the contract manufacturer’s encroachment” in one of the flagship research journals. In this article, he shares his analysis and perspectives on global business issues.

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Multinational cooperation has become increasingly popular in the manufacturing industry, including contract manufacturing and the setting up of joint ventures in emerging economies. In contrast to integrated business models in the past where the manufacturer had absolute control over material supply, manufacturing, assembling, and retailing, the core manufacturer in the new era has to face competition from business cooperators who can even be copycats. [1,2,3] This owes to the spillover and leakage of technology between different entities in a supply chain, which is a double-edged sword. [4] The positive side has been proven by Toyota’s knowledge-sharing network by learning product information. [5] However, product innovation can be imitated by local suppliers or contract manufacturers from the channel of foreign direct investment and product quality investment, leading to an emerging proliferation of supply chain encroachment. In such a situation, contract manufacturers (CMs) establish direct channels to compete with original equipment manufacturers (OEMs).

 

An Apple store opposite a Samsung store.
Wang Xiaofei — Visual China Group via Getty Images

The Patent Fights

This type of supply chain encroachment has induced a few intense fights - costly juristic activities. To stop such a practice of market entry, Apple Inc. (an OEM) fought with Samsung Electronics Co., Ltd. (a kind of CM), because the latter had been copying Apple’s product designs and patents for a long time. Recent years have witnessed a battle in which Apple took legal action against Samsung for product plagiarism, which has cost the former more than one billion dollars. [6] However, the United States Supreme Court appeared to be stuck in a dilemma over how to deal with the high-stakes battle between the two. [7] It indicated that it was uncertain how much money the South Korean electronics company owed for infringing patents on the iPhone’s design. Thus, it seems that filing a lawsuit has brought only a faint possibility of blocking Samsung’s encroachment and compensating for Apple’s losses caused by the former’s imitations. The complexity and uncertainty of the legal environment in different countries are mainly accountable for this dilemma.

 

Apple and Samsung’s legal fight over patents.
Peter Macdiarmid — Getty Images Europe

Strategic Quality Investment as a Weapon

To reduce the contract manufacturer’s incentive of encroachment by imitation, Apple has turned to a more attainable operational strategy—investing in product quality improvement. Accordingly, Apple’s investment in research and development (R&D) has increased significantly; for instance, the fiscal year 2016 saw a 25% increase from the previous year, which contrasted sharply with the 8% fall in revenue. [8]

One important point should be made clear: sometimes the upgrade of Apple’s products is not significant, and thus the differences between the two companies’ products are not distinct, while at other times the update is striking. In addition, the contract manufacturer does not always keep up with the pace of Apple’s product quality upgrade or compete with Apple by imitation. This makes people wonder under what conditions Apple would enhance investment for improvements in product quality and be highly cautious of the co-competitor’s imitations. A question then arises: is the CM’s threat of competition one of the motivations for the OEM to invest in product quality improvement?

The Multiple Effects of Quality Investment

When the collaborator is a copycat, there are two major concerns for the profit-maximizing OEM. First, enduring a CM’s imitation and encroachment without any costly deterrence is a conservative strategy, but the OEM has to share the retail revenue with the CM. Second, investing in quality improvement has multiple effects compared with the strategy of no investment: (1) it may stop the CM from encroaching and benefit the OEM; (2) if the CM’s encroachment cannot be prevented, the OEM’s profit may deteriorate, while the rival (CM) could obtain more retail revenue by imitation; and (3) a profit improvement might be induced by the OEM’s quality investment, regardless of whether the encroachment is prevented or not.

Besides, in order to enter the OEM’s final market, the CM would strategically adjust the wholesale price to affect the OEM’s sourcing quantity. The OEM may then benefit from the CM’s encroachment if the wholesale price becomes lower.

Research Questions

Motivated by the above discussions, my research “Quality investment, and the contract manufacturer’s encroachment,” published in the European Journal of Operational Research, aims to explore the following three questions by analyzing a game-theoretical model. (The main content of this article is based on the above published research.) First, under what economic conditions does the CM’s encroachment occur? Second, should the OEM invest in quality as a mechanism to deter—or encourage—the (potential copycat) CM’s encroachment? Third, under what conditions can the CM’s encroachment achieve a Pareto improvement instead of causing a loss to the OEM?

Main Findings

Without the OEM’s quality investment, the CM always has the incentive to encroach on the OEM’s market and will claim a higher wholesale price in contrast with the ideal scenario without encroachment, but the increase of the wholesale price will be mitigated by the CM’s higher imitating ability. Then the OEM’s profit will decline as the product demand decreases due to competition from the CM.

Furthermore, when there is an attainable quality investment opportunity for the OEM, once the investment is executed, the CM will prefer the irresponsible encroachment only if its imitating capability exceeds a certain threshold. Alternatively, the CM’s encroachment policy may depend on the characteristics of the OEM’s investment. In the latter scenario, the strategic interactions between the OEM and CM become more intricate, depending on the nature of the quality investment and the CM’s imitating capability.

Another key finding shows that the CM’s threat of encroachment can facilitate the OEM quality investment and that quality investment could be preferred if it can blockade the CM’s encroachment even though the quality investment per se is unprofitable. Overall, quality investment is partially effective in deterring the CM’s encroachment. Moreover, it is found that a win-win situation can be induced by the encroachment when quality investment is implemented by the OEM; in other words, if the CM’s imitating ability is not extremely strong, the OEM’s profit can be improved by the CM’s encroachment.

Managerial Insights

The motivations for the OEM’s quality improvement (investment) lie in two aspects. Firstly, it can stimulate market demand for the OEM’s original product, which can generate more retail revenue even as the CM acts as a free rider and copycat. Secondly, quality investment is also a powerful weapon to deter the competitive CM’s encroachment. Moreover, it is found that the CM’s encroachment is certain to happen when its imitating ability is strong, in which case the structure of quality investment no longer matters.    

Furthermore, research findings show that the CM’s imitation and encroachment can contribute to a win-win situation for both parties under certain conditions. In this scenario, the OEM’s profit increment is generated by an increased demand for the original product and a lower wholesale price, while the retail price of the original product falls compared with the situation without encroachment.

 

Quality investment at the crossing.
Lucas Jackson — REUTERS

However, quality investment is not always an effective solution to deterring the CM’s encroachment or helping encroachment improve the OEM’s profit. For instance, an encroachment by a CM with a strong imitating ability and an investment structure characterized by low investment cost and low quality improvement will certainly hurt the OEM’s profit.

This explains why, among those OEMs who established joint ventures (or other forms of cooperation) in developing countries, some would use quality improvement to deter their partners’ product imitation and encroachment, others prefer to invest in quality improvement and wink at the CM’s encroachment, and yet others complain about their CMs’ irresponsible imitation behavior.

As stated by the New York Times, the insights of this research are in line with the prediction that “Apple can find better ways of earning hundreds of millions of dollars than fighting a decade-long lawsuit.” [9] Then the courtroom is not always the place to try to get patent problems solved. Instead, the alternative operational strategy—quality (R&D) investment—would be a more efficient weapon that can deter copycats’ imitations and supply chain encroachments.  

 References

[1] Chen, Y.J., S. Shum, and W. Xiao. 2012. Should an OEM retain component procurement when the CM produces competing products? Production and Operations Management, 21 (5), 907–922.

[2] Cui, Q. (2019). Quality investment, and the contract manufacturer’s encroachment. European Journal of Operational Research, 279, 407–418.

[3] Cui, Q., C.H. Chiu, X. Dai, and Z. Li. 2016. Store brand introduction in a two-echelon logistics system with a risk-averse retailer. Transportation Research Part E: Logistics and Transportation Review, 90, 69–89.

[4] Aldieri, L., V. Sena, and C.P. Vinci. 2018. Domestic R&D spillovers and absorptive capacity: Some evidence for US, Europe and Japan. International Journal of Production Economics, 198, 38–49.

[5] Dyer, J.H., and N.W. Hatch. 2004. Using supplier networks to learn faster. MIT Sloan Management Review, 45 (3), 57.

[6] Eichenwald, K. 2014. The great smartphone war. Vanity Fair, May 3, 2014.

[7] Kendall, B. 2016. Supreme court hears Apple-Samsung patent case. The Wall Street Journal, October 12, 2016.

[8] Gallagher, D. 2016. What does Apple get for $10 billion of R&D? The Wall Street Journal, October 28, 2016.

[9] Nicas, J. 2018. Apple and Samsung end smartphone patent wars. The New York Times, June 27, 2018.

 

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Insights into the Economic and Legal Dimensions of Public Contractual Relationships in Europe

December 5, 2019
By 27004

The aim of my doctoral dissertation research—carried out with the support of a Sylff fellowship—is the examination of contracts concluded by the state and other public bodies in Europe. Particular attention is given to concessions and the interplay between various national legal traditions and the law of the European Union. My work focuses on the legal specificities of these contracts and seeks to understand important socioeconomic connections of this field of law, such as the different modes of the state’s involvement in the economy and the different ways public services are organized, and where the boundaries between the state and market are set. In the following, I would like to give a brief introduction to this topic.

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In the evolution of the law of public contracts at the national and European level, the organization of public services has always played an important part.

Many services that are now considered public services first appeared as private initiatives. As capitalism developed, urbanization and population growth resulted in an ever-increasing number of tasks that public administrations needed to organize for the smooth functioning of society. The state’s involvement in the economy became more active in the first half of the twentieth century owing to two world wars, economic crises, the growing need for public services, and the bankruptcy of private-sector service providers. As welfare states flourished in Europe in the 1960s and the first half of the 1970s, the provision of public services came to be carried out mainly in the public sphere, either by state bodies, local authorities, or by organizations closely related to them.[1]

The Chain Bridge, one of the iconic monuments of Budapest, Hungary, is an example of a private initiative taking the lead in building public infrastructure in the nineteenth century. Its construction was funded and carried out by the Chain Bridge Joint Stock Company, owned by private shareholders. (Photo by Gyurika, CC-BY-SA-2.5, https://commons.wikimedia.org/wiki/File:Lanchid-budaipiller.jpg)

Challenges to the concept of the European welfare state emerged in the 1970s, as the oil crises of 1973 and 1979 triggered a new way of thinking about economic policy. The organization of public services according to market principles, outsourcing, and the involvement of the private sector became widespread, accompanied, in certain cases, by the privatization of assets serving as the basis of a public service. An important factor encouraging these processes was the law of the European Union. The most intensive period of regulation in the European Union to build up an internal market of undistorted competition started in the early the 1990s. An important part of this was the liberalization of network-based public services and the regulation of public procurement, which became more detailed and effective through the adoption of new directives.[2]

The reform of public services and the growing importance of contracting out became a general trend in Europe, but they unfolded differently in the individual member states of the EU, influenced by the respective traditional approaches to delivering public services.

In Germany, public services of an economic nature are traditionally provided by so-called Stadtwerke. These are companies of local authorities (earlier organized also by public law) that provide the population of a geographical area with different utilities. In the field of social services, cooperations of charitable organizations were a traditional form of service provision. The trend of privatization has affected these long-established structures, and private operators now play an important role in the delivery of public services. As a result of EU-led liberalization, these markets also had to be opened up to competition—or at least adjusted to a competition-driven legal system. However, certain sensitive areas, such as water supply and ambulance services, were protected by public policy from the encroachment of market forces by the EU.

Unlike Germany, France did not develop a strong utilities’ sector at the local level. The system of French local authorities was very fragmented, and their scarce resources encouraged the delegation of public services—mainly in the form of concessions—to private providers from as early as the middle of the nineteenth century.[3] The French state’s interference in the economy was particularly strong after World War II; extensive nationalization took place ,which largely affected the utilities, but state involvement was significant even in the competitive parts of industry and in the banking and insurance sectors.[4] Due to this composition of public property and the historic guiding theory of service public in public administration, the privatization of the 1980s and 1990s affected primarily the competitive sectors of the economy, not the utilities. The French constitution of 1946 expressly stated that monopolies and companies providing national public services and the assets necessary to run these services must remain state property.[5] A characteristic of the French model is that the utilities market is dominated by a few large companies, which are also important participants in the EU-wide market of service concessions.

The Channel Tunnel links Great Britain with continental Europe. The infrastructure project, negotiated in the middle of the 1980s, was a pioneer of large-scale, concession-type contracts using the project finance technique relying on the proceeds of the project. (Photo by Florian Févre from Mobilys, CC BY-SA 4.0, https://en.wikipedia.org/wiki/File:TGV_TMST_3011-2_-_Sortie_Tunnel_sous_la_Manche_%C3%A0_Coquelles.jpg)

In Britain, the common law legal system (which follows a different concept than the legal systems of continental Europe) evolved in parallel with another type of economic development. From the outset, capitalism developed with much less state involvement than in Germany or France. Margaret Thatcher, who became prime minister in 1979, was a pioneer of a neoliberal economic policy. She implemented reforms to achieve a more economic and effective public sector, encouraging contracting-out, private-sector involvement in public projects, privatization, and the liberalization of monopolies in utilities. The British administration also developed innovative legal concepts like unbundling and public-private partnerships (PPPs) that later spread to the rest of Europe and beyond.

Nowadays, EU law has a decisive impact on how member states can organize public services. Although there is undoubtedly a push toward more competition and privatization, there are also elements of EU law that try to seek a balance between the principle of undistorted competition and the will of member states to preserve their ability to decide on the most appropriate way to provide public services with different degrees of state involvement and to protect certain traditional elements of their systems.

The Law of Public Contracts

The law governing the contracts of public bodies is also shaped by changing economic circumstances, the increasing recourse to contracting-out, and the impact of EU law. There is a general trend towards unification, mainly deriving from EU public procurement law, whose focus is to sustain undistorted competition in public purchases through transparent procedural rules. But this process also accommodates different legal traditions in national laws.

PPP contracts were widely used from the 1990s to develop different types of public infrastructure, such as motorways. However, there were always concerns whether PPPs could deliver value for money for the public sector. (Photo by Kroock74, CC BY-SA 3.0, https://commons.wikimedia.org/wiki/File:Toll_booths_in_the_UK.jpg)

The most developed legal tradition relating to public contracts can be found in the French legal system in the concept of administrative contracts. What sets this legal regime apart is that contract rules of public authorities must also reflect the public interest and guarantee the proper functioning of public services. Administrative contracts form a distinct category apart from private law contracts, and legal disputes relating to them fall within the jurisdiction of administrative courts. Special rules are applicable to these contracts besides the underlying law of the French Civil Code. The main feature of administrative contracts is that the parties to the contract are not in an equal position and that the law acknowledges certain prerogatives for public authorities (e.g., a unilateral power of modification in case it is so required in the light of the public interest). However, the rules of administrative contracts must also fairly protect the interests of the contracting party by sustaining the economic balance in case of unforeseen circumstances and by compensating the private party in case the administration exercises its special rights.

The German legal system has traditionally been based on a strict distinction between private and public law. Its main approach to the contracts of public authorities is that public administration is also subject to private law when it takes part in economic relationships. This way of thinking has not impeded the acknowledgement of certain specificities of public contracts in connection with the public interest. The emphasis in German law is on the requirement that public authorities give due consideration to human rights even if they are acting under contract. In order to apply public law requirements to private law contracts, German courts incorporated these public law principles into general private law clauses. This solution of taking into account public principles in the interpretation of private law is called Verwaltungsprivatrecht in legal literature.[6]

One difference we can observe in English law is that its evolution is much more based on the needs arising from private economic activity than in continental contract laws. In the system of common law, it follows from the principle of the rule of law that the same law applies to both the state and private parties when they take part in economic relationships. As a result, even the existence of administrative law was recognized much later in England than in Germany or France. The specificities of public contracts appear in the principles elaborated by the courts and in codified laws, but there is no general legal concept or theory on how the public interest is considered in relation to public contracts.  

In spite of the conceptual divergences, common features can also be observed in the main European legal systems.[7] These elements all relate to the public interest and represent two main aspects of public contracts. On the one hand, public bodies need more freedom to act in order to decide on public matters and keep their competence to act as the public interest requires. However, when public interest warrants a derogation from contractual obligations, the private party must be compensated fairly. On the other hand, the administration cannot circumvent its public law obligations—such as respect for human rights—even if it acts in accordance with contractual provisions.

EU law also affects significantly how the traditional principles of public contracts can be applied in the member states. It is possible to maintain different approaches to public contracts in individual legal systems, but their special points of view can only apply within the boundaries set by EU law.

 

[1] Hellmut Wollmann and Gérard Marcou, “Introduction,” in Wollmann and Marcou (eds), The Provision of Public Services in Europe: Between State, Local Government and Market, Edward Elgar Publishing, Cheltenham, 2010, p. 5.

[2] Council Directive 89/440/EEC of July 18, 1989, amending Directive 71/305/EEC concerning the coordination of procedures for the award of public works contracts; Council Directive 88/295/EEC of March 22, 1988, amending Directive 77/62/EEC relating to the coordination of procedures on the award of public supply contracts and repealing certain provisions of Directive 80/767/EEC; Council Directive 92/50/EEC of June 18, 1992, relating to the coordination of procedures for the award of public service contracts; Council Directive 93/36/EEC of June 14, 1993, coordinating procedures for the award of public supply contracts; Council Directive 93/37/EEC of June 14, 1993, concerning the coordination of procedures for the award of public works contracts; Council Directive 93/38/EEC of June 14, 1993, coordinating the procurement procedures of entities operating in the water, energy, transport, and telecommunications sectors.

[3] Attila Harmathy, Szerződés, közigazgatás, gazdaságirányítás, Akadémiai Kiadó, Budapest, 1983, p. 29.

[4] For a detailed account of the different approaches to public ownership in the economy after 1945, see Leigh Hancher, “The Public Sector as Object and Instrument of Economic Policy,” in Terence Daintith (ed), Law as an Instrument of Economic Policy: Comparative and Critical Approaches, Walter de Gruyter, Berlin, 1987, pp. 165–236. 

[5] Ninth paragraph in the preamble of the Constitution of 1946: “Tout bien, toute entreprise, dont l’exploitation a ou acquiert les caractères d’un service public national ou d’un monopole de fait, doit devenir la propriété de la collectivité.”

[6] For a comprehensive analysis of Verwaltungsprivatrecht, see Ulrich Stelkens, Verwaltungsprivatrecht—Zur Privatrechtsbindung der Verwaltung, deren Reichweite und Konsequenzen, Duncker & Humblot, 2005.

[7] See also Rozen Noguellou and Ulrich Stelkens (eds), Droit Comparé des Contrats Publics / Comparative Law on Public Contracts, Bruylant, 2010.

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Potters’ Locality: The Socioeconomics of Bankura’s Terracotta

August 26, 2019
By 21711

This report is based on the master’s research by Soumya Bhowmick, a Sylff fellow at Jadavpur University, India, in 201415. It originally appeared in FIRSTPOST. a web-based leading media in India. Bhowmick, currently research assistant at Observer Research Foundation’s Kolkata Chapter, continues  writing on the changing socioeconomics of the potters’ community known for the terracotta Bankura Horse, which  is historically valued in Indian society, especially West Bengal.

* * *

The norwesters in the potters’ village of Panchmura is magnificent in ways more than one. The extremely dry atmosphere during the summer months of April–May make one compare the place to a hot desert with red dust smeared all over your clothes. This period is marked by the holy time of Baisakh, when the potter’s wheel is stopped as it is believed that during this time Lord Shiva appears from the wheel. Many justify it with a scientific reason: that the terrible heat easily exhausts the artisans and causes cracks to develop in the pottery items. After a heavy rainfall, the sweet petrichor is one of the strongest in this part of the town owing to the large amounts of terracotta clay all over the place. The potters are relatively free during these months and are very eager to have a chat with you over tea in their workshops.

An artisan uses the potter’s wheel in Panchmura village.

Mahadeb Kumbhakar, 56, proudly proclaims, “The trademark Bankura Horse [uniquely styled terracotta horse made in Bankura] came into existence because people would offer them as a mark of devotion to different deities and even on the tombs of Muslim saints. It is used as the official crest motif of the All India Handicrafts Board.” He woefully adds that a large number of youngsters in the area, including his own son, have moved to Kolkata not only because of the money but also because of their inability to commit to the labor required for this kind of artistry. Mahadeb justifies that there is no harm in working in an office while at the same time being a marginal potter. That way, the skill is never wiped out from the family.

Unfinished Bankura Horses at Panchmura village.

Panchmura village near Bishnupur, Bankura District, is one of the main hubs of terracotta in West Bengal. Historically, the politically stable Malla Kingdom indulged in a lot of cultural activity and invited high caste Brahmins, expert craftsmen, and masons to Bishnupur, and through the amalgamation of religion and culture, these people contributed largely to the trade and commerce of the region. The Bankura artisans gradually scattered to different parts of the country, but today only the few remaining in Panchmura are still striving to keep this art form alive.

A usual day in Bishnupur.

The origin of terracotta in India can be traced back to the Indus Valley Civilization. Terracotta came into existence in Bengal due to the unavailability of stones and large endowments of alluvial soil left by the main rivers in the Bankura District: Damodar, Dwarakeshwar, and the Kangsabati. The soil thus gets a perfect blend and density for it to be crafted intricately and fired in order to produce the required terracotta products. A Panchmura artisan says that a Durga idol made in Bankura is at least three times as heavy as an idol of the same size made in Kolkata because the soil found in Bankura is much more dense and mineral rich, making the crafting process extremely laborious.

The cultural transformation in the community is well captured through the terracotta craft embossed on the walls of various temples, towers, and smaller objects in the region. Many scholars have interpreted this as a translation of the primitive Sanskrit literature into mainstream Bengali narratives that allowed the emergence of such popular cults in Hinduism as Durga, Krishna, and Kali. The terracotta temples in Bankura are mostly Radha-Krishna temples, which drew inspiration from Vaishnavism.

The Munshiganj District in Bangladesh, which is close to the confluence of the Padma and Brahmaputra rivers, is a storehouse of terracotta work on the other side of Bengal. Almost all the temples are dedicated to Shiva, and the temple roofs are distinctly different from the ones found in Bankura, as the ones in Munshiganj are more longitudinally conical.

A terracotta temple in Munshiganj District in Bangladesh.

Narratives on terracotta were sources of both information and entertainment for the people, depicting stories from the mythological texts of Ramayana, Mahabharata, Hitopodesha, Jataka, and Panchatantra. There has been emphasis on scenes indicating rural life, farming techniques, male and female dancers, musicians, and village gardens. Bengal architecture is uniquely different from the architecture that coincided with the Muslim rule in India, and by the end of the sixteenth century a new Bengali style of temple art became prominent and established itself as an artistic Hindu expression.

The exquisite Rash Mancha in Bishnupur.

Unlike most of the other art forms that emerged with the purpose of aesthetic value in creativity, terracotta was made to serve practical purposes, such as food and water storage, weapons, and utensils. From being necessary commodities of daily use, these artifacts evolved into something more creative imbued with a high level of craft, making terracotta a cultural commodity with great marketing potential.

A shop in Bankura.

The Bankura District is known for its popular handicrafts in the form of terracotta, the Dokra handicrafts of Bigna, the stone craft of Susunia, and the Baluchari silk of Bishnupur. The global interest in Indian terracotta can also be found in a letter by Swami Vivekananda regarding the time when Okakura Kakuzo, the famous Japanese scholar, visited India in 1901–1902. Okakura was extremely impressed by the craftsmanship of a common terracotta vessel used by the servants and, owing to the fragility of these handicrafts, he requested Swami Vivekananda to replicate the piece in brass for him to carry it back to Japan.

Terracotta is still of high interest in the global market, and Panchmura, Surul, Chaltaberia, and Shetpur-Palpara are the major villages in West Bengal that export terracotta to international markets. However, the artisans face a number of key problems that are crippling the market for this kind of artwork, including the issues of equipment, transportation, and other logistical problems; the lack of interaction between the artisans and the urban consumers in Kolkata; and the high dependence of terracotta artisans on local patronage. Moreover, the inadequate capital, sluggish marketing, and falling demand are causing these marginalized artisans to become extinct, and the lack of interest from the new generation along with insufficient government schemes further add to the woes.

Terracotta craftwork in progress at Bishnupur.

Toton Kumbhakar, 30, says, “We get some idea of consumer preferences in the handicrafts fair in Kolkata every year, where people mostly demand the Bankura Horse, since it has a certain traditional value as a regular showpiece in the Kolkata households.” The potters admit that they charge much more for the handicrafts in Kolkata and are also financially dependent on the various regional festivals, for which they make large idols for relatively hefty prices.

The terracotta temples in Bishnupur show a much better quality and precision than the artifacts being produced today. For example, the details on the terracotta tiles used in the temples are much more intricate and portray a more complex network of lines, curves, and dots. How is this possible despite improvements in technology and intruments? The extinction of skill-specific labor is the answer to this. According to the locals, the process of terracotta production in Bankura previously included three major classes of workers: the clay collectors and sievers, who would give a fine texture to the clay; the artisans, who would add the intricate details; and finally the market traders. There is no specific class of labor anymore for each of these three roles.

Ancient temple architecture in Bishnupur.

“Bankura is my native place, and so terracotta has a special place in the lives of my family members,” says an urban consumer in Kolkata. “Apart from items to decorate the house, we use terracotta items for daily use. For example, in summer we do not drink cold water from the refrigerator but instead use an earthen terracotta vessel. My mother makes it a point to do a certain fish preparation in spite of it being time consuming, so that she can use the particular terracotta utensil.”

In the urban milieu, the demand for terracotta goods in Kolkata households has reached a saturation point. As the central government actively pushes for the promotion of various handicrafts from different states, art forms of other regions, particularly Madhubani paintings and Rajasthani handicrafts, are certainly very popular. Bankura’s terracotta seems to be lagging behind in this regard.

Bankura’s terracotta is a classic case of a dying cultural heritage. Sustaining the art is a social responsibility. Unlike the rest of West Bengal, the parliamentary constituency of Bankura has voted against incumbent leaders and political parties twice in the last decade, which is a major indication of people’s awareness and urgency of development in the region.

Culture is a matter of recognition, and aesthetics is more about perception than materiality. Very recently, the West Bengal state government has reportedly nominated Bishnupur’s terracotta temples for the UNESCO’s Representative List of the Intangible Cultural Heritage of Humanity. This should be considered as a massive step toward drawing attention to this part of Bengal’s history and culture. However, only time will tell how efficiently such measures could facilitate the socioeconomic advancement of the potters’ community in Bankura.

(Note: All the pictures used in this article were taken by the author in Bankura District, India, and Munshiganj District in Bangladesh during the surveys.)

 Reprinted, with editing, from FIRSTPOST, https://www.firstpost.com/living/bankuras-terracotta-can-timely-measures-facilitate-socio-economic-revival-of-potters-community-7001001.html.

 

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Rural Restructuring in the Visegrad Group after the Political and Economic Transition

March 30, 2018
By 24143

Specializing in rural geography and socioeconomic modeling, József Lennert, a 2017 Sylff fellow at the Hungarian Academy of Sciences, shares highlights of his doctoral dissertation concerning the process and trends of counterurbanization after the fall of socialism in the Visegrad countries: Hungary, Poland, the Czech Republic, and Slovakia. Lennert made a comparison with the experiences of Western countries as well as among those of the four Visegrad countries, which pose both similar and distinctive aspects.

***

Introduction

Thanks to the long-lasting influence of the romanticized Anglo-Saxon narrative of rural idyll, rural areas are still often perceived as stagnant, untouched by modernity, and resistant to any change. However, this is far from the truth: change never avoided rural areas, its rate simply varied during the course of history. From the 1970s a fast-paced rural transformation process started in the first world, bringing about fundamental changes in many aspects of rurality. These intertwining change processes are often summarized with the umbrella term “rural restructuring.”

Some of these changes included shifts in migration processes. Before rural restructuring, rural areas had been suffering for a long time from rural out-migration (with the exception of some settlements in the vicinity of an urban center, which were affected by suburbanization). Around the 1970s, a new migration trend called counterurbanization appeared in many first-world countries. Counterurbanization meant the (partial) reverse of previous trends, and migration surpluses appeared even in some previously depopulating remote rural areas. One of the driving forces of these new migratory movements was the increasing appreciation of natural and cultural amenities of rural areas—amenity migration. Rural restructuring also had an impact on land use. Instead of a landscape dominated by monocultural, productivist agriculture, a more diverse, multifunctional countryside is now preferred. These changes also opened up new future prospects and development possibilities for many previously neglected rural areas.

While the first world underwent rural restructuring, political and economic transition brought different changes and challenges to rural areas of the former socialist bloc. Realizing this, I set the main goals of my research as follows:

  • to analyze the transformation of rural areas of the Visegrad Group after the political and economic transition;
  • to distinguish those processes similar to Western rural restructuring from those processes derived from the political and economic transition;
  • to identify the similarities and differences between the four countries and explore the role of historical backgrounds;
  • to map the spatial structure of rural areas in the light of the aforementioned processes; and
  • to determine whether the development policies in place are capable of addressing the ongoing transformation processes and territorial differences.

To achieve these aims, I conducted my research in the following manner:

  • I analyzed trends in migration processes and changes in land cover in the Visegrad Group after the political and economic transition;
  • I created a typology of the rural areas of the Visegrad Group; and
  • through a case study, I examined how the allocation of European Union funds varied between different types of settlements.

In the following sections, I would like to share some of the most important findings of this research.

Material and Methods

Figure 1. Urban areas, commutable rural areas, and remote rural areas of the Visegrad Group. Own elaboration.

To examine the processes at the lowest possible level, I conducted my analysis in the spatial level of local administrative units (LAU 2). While my units of analysis are not completely analogous with the municipalities and settlements of the four countries, I will refer to them as such for the sake of a more straightforward discussion.

To achieve the goals stated above, I used a two-step delimitation method. I considered all units of analysis with less than 5,000 inhabitants, as well as those municipalities that have higher populations but do not possess city rights, to be rural (regardless of administrative status). Based on the Western experiences of rural restructuring, I made a further distinction between commutable rural and remote rural areas. I defined remote rural areas as rural areas that require 45 minutes or more of driving to reach the nearest city with at least 50,000 inhabitants; the remaining rural settlements are considered commutable rural (Figure 1).

According to this definition, even though most units of analysis can be considered rural, only 28.9%  of the population of the Visegrad Group lives in commutable rural areas and another 11.5% in remote rural areas. Among the Visegrad countries, Slovakia was characterized with the highest and Hungary with the lowest share of rural residents.

For the purposes of analyzing migration trends, I used data from the statistical offices of the four countries: Központi Statisztikai Hivatal (KSH) in Hungary, Główny Urząd Statystyczny (GUS) in Poland, Český Statistický Úřad (ČSÚ) in the Czech Republic, and Štatistický úrad (ŠÚ) in Slovakia.

Figure 2. The typology of the selected rural settlements. Own elaboration.

The Corine Land Cover database was used to analyze land cover changes of the Visegrad Group. From the original 44 land cover categories, I created 8 aggregated categories: artificial surfaces, arable land, vineyards and fruit cultivations, grasslands, heterogeneous agricultural areas, forests, wetlands and other natural areas, and water bodies.

To analyze the allocation of funds from the European Union, I used Hungary as a case study. I randomly selected 50 commutable rural and 50 remote rural municipalities. Based on the results of the previous analysis, I classified them into groups with distinguishable migration and land use characteristics. I also took into account the state of the built environment, which is a good indicator of ongoing social changes (Figure 2). Finally, I analyzed EU-supported projects from the 2007–2013 programming period for the selected 100 municipalities.

Results

Figure 3. Rural migration trends in the Visegrad Group after the political and economic transition. Own elaboration based on data from KSH, GUS, ČSÚ, and ŠÚ.

 

The results indicate that the transition brought about drastic changes in the rural migration trends of the Visegrad Group. While rural out-migration dominated in the decades of state socialism, after 1990 the rural areas can be characterized with an increasingly positive balance (Figure 3). However, this surplus was mostly limited to the commutable rural areas. These results indicate the widespread emergence of suburbanization: the concentration of the population in suburban settlements around the central city of an urban agglomeration (Figure 4). Whereas in Western Europe and North America this process had already begun to take wings in the early twentieth century, it was restrained to a great extent in the centrally planned economies until the transition. After the fall of socialism, however, the former constraints lifted, and a rapid urban sprawl took place. This partially controlled process also had an impact on land cover change.

Figure 4. Rural migration trends in the Visegrad Group at the municipality level. Own elaboration based on data from KSH, GUS, ČSÚ, and ŠÚ.

 

Counterurbanization had a central role in the rural turnaround of the first world, but the appearance of this process in the research region is limited to a few destinations. Rural depopulation still persists in a large part of the remote rural areas of the Visegrad Group. Also, some remote rural locations became migration destinations for the socioeconomically disadvantaged. This unfavorable process is driven by economic necessities: those who are excluded from the work market are sometimes left with only one solution—to sell their former residence for a less valuable location and use up the difference for day-to-day expenses. Ultimately, this movement reduces their chances of reintegration into the labor market and leads to their further deprivation.

Figure 5. Land cover change trends in the Visegrad Group between 1990 and 2012. Own elaboration based on Corine Land Cover data.

 

The increase of artificial surfaces and forests and the decrease of arable land were already present during the decades of state socialism, and the results of the analysis show that the political and economic transition did not alter these long-term trends in land cover change (Figure 5). After the political and economic transition, however, the loosely controlled urban sprawl led to more chaotic expansion of artificial surfaces than in previous decades.

While some general trends are common for each country, we can still observe significant differences in the rate of change and in the spatial patterns. For example, despite the general shrinkage in the acreage of arable land, we can still identify areas of increase in the eastern regions of Poland (Figure 6). In these areas small-scale family farming persisted during the socialist era. The relatively low unemployment of these regions indicates that many former industrial workers returned to subsistence farming. This safety net function explains why market-controlled land abandonment did not reach the region.

Figure 6. Changes in the area of arable land between 1990 and 2012. Own elaboration based on Corine Land Cover data.

 

The significant transformation from arable land to grassland in the Czech peripheries stands in stark contrast to the trends in Eastern Poland. Behind this, we can once again find region-specific reasons. This area was inhabited by Sudeten Germans since the Middle Ages, but after World War II the Czechoslovak government expelled the vast majority of them. This event was shortly followed by the reorganization of agricultural land into state farms and cooperatives, thus preventing the new residents from forming emotional ties with their land before the socialist transformation of agriculture. After the restitution, this lack of attachment led to land abandonment in the changing market environment, where farming was no longer profitable.

These two examples reveal that in regions with divergent socioeconomic and historical backgrounds, even similar challenges can induce radically different changes, leading to further differences in the socioeconomic circumstances of the localities.

The results discussed above pose the question of whether the allocation of EU funds takes into account the differences between rural communities. In order to close the development gap, disadvantaged settlements should be favored, and the implemented projects should reflect the unique needs of these settlements. Fund allocation in the 100 municipalities selected for the case study shows us a mixed picture. Generally, the per capita fund allocation favors the disadvantaged (e.g., remote rural) municipalities. However, the combination of several socioeconomic challenges (e.g., small population coupled with rural out-migration) can lead to insufficient human capital and completely prevent the absorption of the EU funds.

Moreover, disadvantaged settlements that receive a sufficient amount of resources may nonetheless not use them in the most efficient way. In socially and economically balanced settlements, a significant percentage of the resources are spent on increasing the competitiveness of local business. But this is not true for the disadvantaged settlements; there the emphasis is shifted to investments in settlement infrastructure and local services. While these are important aims, without a more dynamic local economy, there is little to stop the decline and decay of these settlements.

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Chinese Investment in Central and Eastern Europe

February 25, 2016
By 19675

Ágnes Szunomár, a 2015 Sylff fellow at the Hungarian Academy of Sciences, summarizes her research on the recent trend of Chinese investment in Central and Eastern Europe. In her article, she describes how it differs from investments by other Asian and European countries.

* * *

Introduction

Chinese outward foreign direct investment (OFDI) is one of the most spectacular developments in recent international economics in terms of its rapid growth, geographical range, and takeovers of established Western brands. Chinese firms mainly invest in Asia, Latin America, and Africa, where they search for markets and natural resources. They have also been active in the developed economies of Western Europe and the United States, however, that offer markets for Chinese products and assets that Chinese firms lack, such as advanced technologies, managerial knowledge, and distribution networks. Chinese firms are also increasingly investing in Central and Eastern European countries (CEECs). These investments are quite a new phenomenon and still constitute a small share of China’s total foreign direct investment (FDI) in Europe (10%), but since 2006 we have seen a growing influx of Chinese investments into the region, which is expected to increase further in the future (see the figure below).

The aim of my research was to analyse the motivations and location determinants of Chinese FDI in the largest recipient countries within the CEECs, with a special focus on the role and impact of host country macroeconomic and institutional factors.

Background

China’s rise is often compared to the postwar “Asian Miracle” of its neighbors. An analysis of the internationalization experiences of Japanese, Korean, and Chinese companies reveals several common features as well as some differences. One of the main common characteristics shared by all three is the creation and support of the so-called national champions, that is, domestically based companies that have become leading competitors in the global market. In fact, during their developmental period, both the Japanese and Korean governments gave strong state financial support to their companies in order to protect and promote them as well as to strengthen them for international competition. China has followed this example in subsidizing domestic industries and supporting their overseas activities, for example in the form of government funding for OFDI.

Although the CEECs differ in many respects, they do have some features in common as possible locations for East Asian investors. Their economies have been in the process of catching up over the last decades, defined mainly by European powers. FDI has played a key role in their restructuring. Investment from East Asian countries in the CEECs began as early as the 1990s (with a Japanese Suzuki factory in Hungary).

In the past decade most of these countries became increasingly interested in boosting trade and attracting investments from East Asian economies. The global economic and financial crisis of 2008 intensified these ambitions. The largest recipient countries of East Asian investments within the CEECs are Hungary, Poland, the Czech Republic, and Slovakia. Around 90% of foreign investments in the four countries are from Europe, with an average of only 7.4% of FDI from other countries, mainly from the USA, South Korea, Japan, and China.

Utility of the Research

Typically, the international literature examines the motivations of Chinese OFDI on a global basis, and most previous studies have focused on China's growing investments in the developing world. Studies dealing with the characteristics and motivations of Chinese FDI in Europe rarely deal with the Central and Eastern European region. Although significant research has been done on FDI flows to the CEEC region, most of these studies do not include Chinese investments. The literature is thus incomplete, and detailed description and analysis of this issue is lacking. The primary aim of this research was therefore to complement the literature.

Besides complementing the literature, my results also have an inherent message for CEEC corporate decision makers and policy makers. For the CEECs, the Chinese relationship is increasingly a priority, especially since the economic and financial crisis of 2008. Most countries in the region see a closer relationship with emerging economies such as China as a promising way of recovering from the recession. The further development of corporate or government strategies in this regard may be supported by the results of this research.

Methodology

Given the broad concept and geographical scope of Central and Eastern Europe, instead of focusing on the relations of all the region’s countries with the main East Asian investors, the research concentrates on a fair sample of CEEC countries: the Czech Republic, Hungary, Poland, and Slovakia. These countries were selected in consideration of their size, reflecting their proximity, growing business ties, and geographic location, as well as their political and economic relations with China. The Czech Republic, Hungary, Poland, and Slovakia are the most developed and most important players in the CEEC region and are members of the Visegrad Group as well as the EU and the Schengen Area.

At the beginning of the research I reviewed theories and literature on FDI location determinants with a special focus on FDI determinants in the CEECs. The next step was to analyze the changing patterns and motivations of Chinese and other East Asian OFDI as I tried to find similarities and differences between the characteristics and motivations of Chinese, Japanese, and South Korean FDI in the CEECs. In addition, I provided a detailed description of the impact of both macroeconomic and institutional factors based on case studies and interviews with East Asian firms established in the CEECs.

To continue this research in the near future I also prepared an online opinion survey on East Asian companies' investment patterns, which will be sent out to several Chinese, Japanese, and South Korean companies operating in the CEECs to collect more information on their activities, motivations, and strategies.

Research Results

My investigation into the motivations of Chinese OFDI in the CEECs shows that Chinese investors mostly search for markets (market-seeking investment). Investors are attracted by the relatively low labor costs, skilled workforce, and market potential. EU membership allows Chinese investors to avoid trade barriers, and the countries serve as an assembly base due to the relatively low labor costs (efficiency-seeking investment). However, in parallel with the increasing number of mergers and acquisitions in the region, strategic asset-seeking motives have become more important for Chinese companies in recent years. Chinese investments are also motivated by the search for brands, new technologies, or market niches that they can fill in European markets. For example, in early 2012 Liugong Machinerys acquired Huta Stalowa Wola’s construction equipment division and its distribution subsidiary, Dressta. Secondly, in 2013 China’s Tri Ring Group Corporation acquired Polish Fabryka Łożysk Tocznych (the biggest Chinese investment in Poland so far), a producer of bearings for the automotive sector.

Chinese investment has flowed mostly into manufacturing (assembly), but over time services has attracted more and more investment as well. For example Hungary and Poland are home to branches of the Bank of China and the Industrial and Commercial Bank of China, as well as offices of some of the largest law offices in China (Yingke Law Firm and Dacheng Law Offices). Regarding the Chinese entry mode, there are examples of greenfield or quasi-greenfield investments (Huawei, ZTE, Lenovo), as well as mergers and acquisitions (Wanhua) and joint ventures (Orient Solar, BBCA).

Having examined the CEEC-East Asian economic ties, my conclusion is that while Japan and South Korea previously had larger roles, China has increasingly come to the fore in recent years. Analyzing the difference in motivations before and after the global economic and financial crisis suggests that although the crisis did not have a direct impact on East Asian investments in the CEECs, there was an indirect impact since it was in the aftermath of the crisis that the CEECs started to search for new opportunities to help them recover from the recession. For example, Hungary's “Opening to the East” policy was initiated after (and partly as a result of) the crisis, but the crisis also made Poland look eastward. China took these opportunities and has increased sectoral representation of Chinese firms in the CEECs in recent years.

The results of my research suggest that the characteristics, motivations, and location determinants of Chinese investments in the CEECs differ somewhat from Western as well as other East Asian investors’ motivations. While macroeconomic factors, such as labour costs, market size, and corporate taxes, had and continue to have a decisive role in selecting FDI locations for investors from other countries, Chinese firms seem to attach greater importance to institutional factors. Country-level institutional factors that impact Chinese companies’ location choice within the CEECs seem to be the size of the ethnic Chinese population, as well as investment, privatization and public procurement opportunities, but also good political relations between the host country and China. One example is Hisense’s explanation of the decision to invest in Hungary. Besides traditional economic factors, this decision was apparently motivated by the “good diplomatic, economic, trade, and educational relations with China, the sizable local Chinese population, Chinese trade and commercial networks, and associations already formed.” Another example is the Nuctech company, which established its subsidiary in Poland in 2004 and participated in public procurement.

My research also suggests that the CEEC region is not homogeneous and that there are differences in the economic relations between the CEEC countries and China. Moreover, the CEECs often view each other as competitors rather than working together to achieve shared goals (that is, to attract more Chinese investment). This is unfortunate, since according to the literature on the perceptions of the CEEC region among Chinese, many Chinese business investors consider the region to be a unified bloc.

Conclusion

To conclude, I found that:
(1) The role of Chinese investments within the CEE region increased significantly after the crisis, and investment from China will be increasingly important for the countries of the region in the future, as the Chinese share of total inward FDI in the CEECs increases.
(2) Chinese investments in the CEECs differ somewhat from other countries’ investments in the region in terms of motives, which in the Chinese case are driven by both political and economic factors.
(3) The level and warmth of political relations with the host country have an increasingly important influence on Chinese companies’ investments in the region. And (4) the CEE region tends to be seen more as a unified block than as a group of countries by the Chinese. Greater cooperation among the CEECs might therefore help to increase the chances for successful economic relations with China.

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The Socioeconomic Dimension of Irrawaddy Dolphin Conservation

November 9, 2015
By 19660

Sierra Deutsch, a Sylff fellow at the University of Oregon, went to Myanmar and Cambodia to assess the two countries’ different approaches to natural resource management. In this article, she describes the preliminary findings of her research and argues that the experiences of local people affected by natural resource policies are important and may have implications for the success of those policies.

* * *

The Mekong

The Mekong

As concern has grown over the alarming acceleration of environmental problems since the emergence of the industrial era, the science of natural resource management has evolved in an effort to confront such issues. In recent years, conservation efforts have shifted from a focus on individual species to an ecosystem-based management (EBM) approach. With this change, the concept of the “human dimensions” of resource management—which emphasizes the diverse forms of knowledge and beliefs of stakeholders and their incorporation in conservation policy1—has come to the fore2,3. It is now widely recognized that natural resource management is really about the management of natural resource users 1,3,4. Taking it a step further, recent research has pointed to the importance of socioeconomic analyses in conservation research strategies 5,6.

Historically, the question “Is this conservation project working?” has often been answered without considering the perceptions and experiences of the people whose livelihoods are most directly affected by conservation policies 7,8. While biological indicators are obviously an important part of conservation work, understanding how conservation programs are perceived and experienced by the local communities most affected by them is also vital—both for the sake of the communities themselves and because support from those communities may have important implications for the long-term success of conservation efforts.

Cambodia critical dolphin habitat and research sites

Cambodia critical dolphin habitat and research sites

The Status of the Irrawaddy Dolphin

The Irrawaddy dolphin (Orcaella brevirostris) inhabits rivers throughout Southeast Asia and coastal waters in the Indian and Pacific Oceans from the Bay of Bengal to the Philippines 9. The species is listed as “threatened” by the International Union for Conservation of Nature (IUCN), with five sub-populations listed as “critically endangered.” Since the dolphins are not hunted directly for consumption, they are considered a “nonconsumptive” resource.

The main threats to their survival are upstream industrial pollution, accidental catches by gillnet fishing, and mortalities resulting from electro-fishing 9,10,11,12.

Myanmar: Critical dolphin habitat and research sites

Myanmar: Critical dolphin habitat and research sites

Conservation measures that seek to aid in the recovery of Irrawaddy dolphin populations must therefore address the socioeconomic factors that indirectly affect their survival, making Irrawaddy dolphin conservation projects an ideal focus for a study on the socioeconomic dimension of conservation initiatives.

Conservation measures for the Irrawaddy dolphin vary by country. They include attempts to mitigate habitat degradation, restrictions on the fishing practices and gear that endanger the dolphins, educational outreach, poverty alleviation through development, encouragement of tourism, and formation of fisher cooperatives 9,10,12. Each country has had varying success in conservation of the Irrawaddy dolphin and, because of its widespread distribution in multiple countries, the Irrawaddy dolphin is also an ideal subject for a cross-country comparison of conservation projects.

Diversification vs. Preservation: Two Contrasting Approaches

Fisherman on the Ayeyarwady River (Myanmar)

Fisherman on the Ayeyarwady River (Myanmar)

Cambodia’s approach seeks to preserve the status quo of privatized resources and focuses more on the diversification of livelihoods and the economic development of rural communities 13. Meanwhile, Myanmar has focused more on the preservation of livelihoods in rural communities 14. Cambodia’s approach seems to be failing and the imminent extinction of its dolphin population has been predicted 15, while Myanmar’s approach seems relatively successful 14. Yet the perceptions and experiences of these policies by the people that are most directly affected, while taken into consideration during planning and implementation 4,14, seem to have been largely ignored once the policies have been implemented.

Bringing Local People into the Discussion

Fisherman on the Mekong (Cambodia)

Fisherman on the Mekong (Cambodia)

I used questionnaires to gather data for the hypotheses I have about different perceptions of conservation among the participants. But I also wanted to make sure that participants were given an opportunity to highlight what was important to them. Too many well-intentioned Western researchers go to “developing”countries and make assumptions about the needs and desires of their participants without bothering to ask the local people in those countries what they think. Of course, I had to set out with at least a few questions and expectations in mind—if only because it is virtually impossible to get funding without them! But I purposely chose to carry out personal interviews and focus-group discussions—in addition to questionnaires and participant observation—to allow participants to tell me what was important to them and what they wanted foreign researchers to help with in the future.

Preliminary Findings

At the conclusion of my fieldwork, I had a total of 128 individual interviews, 275 completed questionnaires, and 25 focus-group discussions. These came from 8 riverside villages in Myanmar and another 8 in Cambodia (16 villages in total). The data are still in the preliminary stages of analysis: All of the audio recordings still need to be transcribed in Burmese and Khmer and then translated. (I felt this was a more accurate way of assessing the data, since the interpreters I used on-site may have left out some of what was said, assuming it wasn’t important enough to repeat). However, I have already seen several themes emerge and hope to confirm them once I have the full translations.

One of the research villages Myanmar

One of the research villages Myanmar

First, virtually all participants seem to think fondly of the Irrawaddy dolphin and expressed a desire to continue to protect it. Second, many participants in both countries seemed to express frustration with ongoing corruption—law enforcement often takes monetary bribes in exchange for “looking the other way” when illegal fishing gear (which unintentionally harms dolphins as well) is used in the river. Many of those participants seemed concerned for the future of the river and its ability to supply the fish that is their primary source of protein. Third, while participants in both countries seem to feel that conditions in their communities have improved over the last 10 years, I was surprised by the differences in how participants expressed that improvement.

Many of the people in Cambodia—where they have experienced a shift toward capitalism since the early 1980s—tended to emphasize the presence and role of money in their lives, often discussing improvements in terms of people having bigger houses, owning motorbikes or cars, and having more money in general (basically, the standard symbols of Western “wealth”). In contrast, participants in Myanmar—where they have just recently begun to experience a shift toward capitalism since 2010—seemed to place more emphasis on community enrichment, frequently discussing improvements in terms of things like better schools, improved medical treatment, and the construction of flood walls. While these are only preliminary findings that need to be confirmed, they are also just a few of the themes immediately obvious from the data. I am confident that many exciting and important findings remain to be made.

Encouraging the Involvement of Underrepresented Groups

Traveling has always been one of my great loves. As I spent more time traveling, particularly in developing countries, I gradually became aware of a desire to address the social and environmental problems that seemed to be everywhere. I had the opportunity to meet many people along the way from diverse geopolitical regions, cultures, ethnicities, religions, genders, and ages who were contributing to solutions for these social and environmental problems.

Around the same time, I began to become aware of my undeserved privilege as a middle-class, white North American to access resources—such as education and the ability to travel abroad—that are not available to the vast majority of the world’s population. Because of this awareness and because of these interactions with the people who inspired me, I decided that even though I enjoyed studying whales and dolphins immensely, I felt a deep responsibility to use the resources available to me to contribute to the peace and well-being of humankind and the planet.

It is my hope that the results of this study will encourage more involvement of underrepresented groups in assessing the effectiveness of environmental and other policies on a local, regional, national, and global scale. I believe that acknowledging the diverse ways in which people experience and perceive conservation initiatives is especially important where conservation policy appears to be failing. The addition of alternative worldviews to a collective analysis may ultimately lead to more effective approaches to, and better solutions for, the environmental problems that affect us all.

Literature Cited

1 Decker, Daniel J, Riley, Shawn J and Siemer, William F (2012) Human dimensions of wildlife management, JHU Press.

2 Berkes, Fikret (2012) ‘Implementing ecosystem-based management: evolution or revolution?’ Fish and Fisheries, 13(4), pp. 465–476.

3 McLeod, Karen and Leslie, Heather (2009) ‘Why ecosystem-based management’, in McLeod, K. L. and Leslie, H. M. (eds.), Ecosystem-Based Management for the Oceans, Washington, D.C., Island Press.

4 Beasley, Isabel (2007) ‘Conservation of the Irrawaddy dolphin, Orcaella brevirostiris (Owen in Gray, 1866) in the Mekong River: biological and social considerations influencing management.’

5 Clausen, Rebecca and York, Richard (2008) ‘Global biodiversity decline of marine and freshwater fish: a cross-national analysis of economic, demographic, and ecological influences.’ Social Science Research, 37(4), pp. 1310–1320.

6 Clausen, Rebecca and Clark, Brett (2005) ‘The metabolic rift and marine ecology: an analysis of the ocean crisis within capitalist production.’ Organization & Environment, 18(4), pp. 422–444.

7 Kellert, Stephen R, Mehta, Jai N, Ebbin, Syma A and Lichtenfeld, Laly L (2000) ‘Community natural resource management: promise, rhetoric, and reality.’ Society & Natural Resources, 13(8), pp. 705–715.

8 Moore, Kathleen Dean and Russell, Roly (2009) ‘Toward a new ethic for the oceans’, in McLeod, K. and Leslie, H. (eds.), Ecosystem-Based Management for the Oceans, Island Press, pp. 325–340.

9 Baird, Ian G and Beasley, Isabel L (2005) ‘Irrawaddy dolphin Orcaella brevirostris in the Cambodian Mekong River: an initial survey.’ Oryx, 39(3), pp. 301–310.

10 Smith, Brian D and Hobbs, Larry (2002) ‘Status of Irrawaddy dolphins Orcaella brevirostris in the upper reaches of the Ayeyarwady River, Myanmar.’ Raffles Bulletin of Zoology, 50, pp. 67–74.

11 Stacey, Pam J and Leatherwood, Stephen (1997) ‘The Irrawaddy dolphin, Orcaella brevirostris: a summary of current knowledge and recommendations for conservation action.’ Asian Marine Biology, 14, pp. 195–214.

12 Smith, Brian D, Tun, Mya Than, Chit, Aung Myo, Win, Han and Moe, Thida (2009) ‘Catch composition and conservation management of a human–dolphin cooperative cast-net fishery in the Ayeyarwady River, Myanmar.’ Biological Conservation, 142(5), pp. 1042–1049.

13 Beasley, Isabel, Marsh, Helene, Jefferson, Thomas A and Arnold, Peter (2009) ‘Conserving dolphins in the Mekong River: the complex challenge of competing interests’, in The Mekong: Biophysical environment of an international river basin, Sydney, Australia, Elsevier Press, pp. 363–387.

14 Smith, Brian D and Tun, Mya Than (2007) ‘Status and conservation of Irrawaddy dolphins Orcaella brevirostris in the Ayeyarwady River of Myanmar’, in Smith, B. D., Shore, R. G., and Lopez, A. (eds.), Status and Conservation of Freshwater Populations of Irrawaddy Dolphins, WCS Working Paper Series No. 31., New York, Wildlife Conservation Society, pp. 21–40.

15 Beasley, Isabel, Pollock, K, Jefferson, T A, Arnold, P, et al. (2012) ‘Likely future extirpation of another Asian river dolphin: The critically endangered population of the Irrawaddy dolphin in the Mekong River is small and declining.’ Marine Mammal Science.

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Sylff@Tokyo:Director Shares Thoughts on New Research Center at UC San Diego

June 26, 2015

Professor Ulrike Schaede, chairperson of the Sylff program at the School of Global Policy and Strategy (formerly the School of International Relations and Pacific Studies), University of California, San Diego, visited the Tokyo Foundation on April 20, 2015.

She met with Tokyo Foundation President Masahiro Akiyama, Executive Director Akiko Imai, Director Takashi Suzuki and Program Officer Tomoko Yamada of the Leadership Development team.

Professor Schaede is an expert on Japanese corporate strategy, business organization, management, financial markets, and government-business relations. She shared with us news of the school’s recent launch of the Japan Forum for Innovation and Technology, a hub for research on contemporary business, science, and technology.

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Response of Indian Industries to Global Environmental Sustainability

April 6, 2014
By 19659

How does the response of one industrial sector affect other sectors of an economy? To gain insights into this question, Shyamasree Dasgupta, a Sylff fellow at Jadavpur University in India, has been analyzing the response over the past four decades of India’s industry to the country’s climate change action plan. In this article, she reports on her research conducted in the United States with an SRA grant has broadened her perspective.

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As a student of social science I always wondered how the response of an individual decision maker shapes up in conjunction with the responses of the bigger community to which the decision maker belongs. It became more interesting to me as I initiated my doctoral research to explore the responses of Indian industries to climate change mitigation goals.

As reduction of carbon emissions is a “global goal,” the most aggregated pledges are taken at the international level (such as the Kyoto Protocol, Copenhagen Accord). Specific climate change mitigation policies are, however, mostly formulated and implemented by the national government or a set of national governments in line with such global pledges. Finally, different economic sectors take their decisions with regard to the pattern of their operations to curb energy use and emissions in line with the pledge and policies.

The response of a particular economic sector (such as the industrial sector) is not a stand-alone phenomenon. The responses are triggered by the actions of other sectors of the economy and at the same time have an impact on the rest of the economy. In fact, the aggregate impact of the decisions taken by one economic sector depends on its relation with the rest of the economy. For example, if an industry substitutes coal by electricity as an energy input, then emissions from that particular industry will come down, but from a macro perspective, aggregate emissions will be reduced only when electricity is produced with a fuel that is less carbon intensive than coal.

My doctoral research seeks to understand how Indian industries have responded during the past four decades under various domestic policy domains, with a special emphasis on the country’s recent climate change mitigation policies. Having estimated such response parameters (for example, price elasticity of energy demand—the change in industrial energy demand when energy price changes), I wanted to explore how the same industrial sector can be expected to behave in a future time horizon while interacting with other sectors in the global economy if some global emission reduction pledge becomes binding.

I got the opportunity to explore this issue with my SRA award along with mentoring and support from my home institute, Jadavpur University in India, and my SRA host institute, the Joint Global Change Research Institute (JGCRI, a collaborative institute of the Pacific Northwest National Laboratory and the University of Maryland in the United States).

An Integrated Assessment Model for India

The author working on the Global Change Assessment Model at JGCRI

The author working on the Global Change Assessment Model at JGCRI

JGCRI has developed the Global Change Assessment Model (GCAM), an integrated assessment model representing the world economy that explores the links between energy, land use, water resource sectors, and a climate model. It incorporates both energy producing (such as electric power) and energy consuming sectors (such as industry). It creates a market where all the sectors are recursively solved for price and quantity, and the amount of carbon dioxide and other greenhouse gases emitted are estimated. The model could be used to explore responses of these sectors to several climate change mitigation pledges and policies.

GCAM divides the world into 14 regions, and India is one of them. The existing model employed the aggregated data for the Indian industry sector. Hence the responses towards any mitigation policy—can be so far analyzed only for the aggregate industry sector for India. My aim was to further develop the model with disaggregated industrial sectors for India, breaking up the industry sector into subsectors such as iron and steel, chemicals, and cement, along with a residual subsector named “other industries.” This would enable the user to analyze responses not only at the aggregate level but also for different subsectors in the context of Indian industry. The challenge was to break up the aggregate industry sector in an appropriate manner supported by authentic data so that the model would offer plausible solutions for years up to 2100 for all sectors and regions.

Being new to integrated assessment models, this was a true learning experience for me requiring several trials with different adjustments to obtain valid results! It was a stimulating experience solving the unforeseen errors cropping up during each trial run until I succeeded. I was greatly supported by my mentors and other colleagues at JGCRI in the process. In the course of my research, I came across fellow visiting scholars who were working on or had worked on several other sectors in other countries, including China and Brazil.

The research was greatly supported by the mentors and other colleagues at JGCRI

The research was greatly supported by the mentors and other colleagues at JGCRI

The model also used average values regarding how demand changes in response to changes in price in different industrial sectors. I substituted the average values for those specific to India that I had estimated prior to my SRA. Data were derived from the “Energy Statistics” and “Annual Survey of Industries,” published by the Ministry of Statistics and Programme Implementation, Government of India. The scenario demands a sharp decline in emissions from nonenergy-intensive industries, the phasing out of coal, and a significant increase in the use of clean electricity in industrial production. The use of biofuel emerged as one of the most effective medium-term solutions for Indian industries to meet the mitigation target.

Case Study in Climate Mitigation

Another objective of my SRA was to visit an energy-intensive industrial unit in the United States in order to compare its production and mitigation practices with its Indian counterparts. I was put in touch with the US Department of Energy through my mentor at the home institution, enabling me to visit such a facility. Things shaped up well, and I got a chance to accompany members of the American Forest and Paper Association on a visit to a pulp and paper company in Virginia. The day-long visit to the paper mill and discussions with the managers provided insights into their production processes and mitigation practices.

Visiting a paper mill with the members of the American Forest and Paper Association

Visiting a paper mill with the members of the American Forest and Paper Association

The mill was established in 1914 and has gone through changes in ownership and technology. It mainly produces corrugated paper from both raw wood and recycled paper. The pattern of energy utilization became a major issue of concern, as a result of which the mill became more energy efficient with greater emphasis on recycling and enhanced use of renewable energy. Over 80% of the electricity used by the mill is generated internally using multiple fuels, including black liquor, wood waste, and sludge. According to the company, it was the rise in fuel prices, rather than any particular energy or climate policy at the federal or state level, that drove it to reduce its dependence on purchased energy.

The SRA experience was extremely enriching for me. It not only helped me to augment my doctoral dissertation, which I am aiming to finalize in the coming few months, but at the same time provided me with an opportunity to work in the multidisciplinary and multiethnic environment of my globally renowned host institution.