The Changing Face of the Global Economy
During the past several years, emerging countries have experienced substantial integration into the world economy. This growing relationship has been manifested in the surge in exports from various developing countries, especially in manufactured goods and commodities. With greater prosperity has come improvement in quality-of-life, domestic policies, and infrastructure in many of these nations.
In addition, developing countries have seen significant foreign direct investment, particularly in services, manufacturing, and commodities. Such activities have served as catalysts for several developing countries to reduce trade restrictions and liberalize capital account transactions.
The benefits of this integration are not confined to the less-developed economies. Ongoing growth in developing countries is also leading to increased demand for raw materials and many other goods and services produced in more industrialized countries. The enhanced role of developing nations is expected to continue and even expand in the future.
According to the International Monetary Fund (IMF) the economies of less-industrialized countries (as a group) are expanding much faster than those of developed nations. (Typically, Canada, the United States, Japan, South Korea, Australia, New Zealand, and the majority of countries in Northern and Western Europe are considered developed or industrialized while most others around the world are identified as developing nations.)
In 2007, developing nations experienced growth of 7.8% compared to 2.6% in industrialized nations. This year, the IMF expects developing nations to expand by 6.9% compared to 1.8% for the more developed economies. Percentage growth rates can, of course, be somewhat misleading since there is such a great disparity in the actual size of the economies between developed and developing nations. Currently, each group contributes approximately 50% of the global gross domestic product and world trade.
Although international trade is now experiencing a slight decline overall, since 2001, trade has risen at a rate about twice as fast as that of the general world output. In 2007, global merchandise trade grew by some 7% with China being the dominant partner. Overall, Asian countries were responsible for about 40% of the trade expansion. An additional 45% of the growth was contributed by developed nations.
In developed nations, services have been the principal export growth generators. Similarly, services have played important roles in strengthening the economies of developing countries, with travel and transportation leading the charge closely followed by business and financial and insurance services. Currently, services account for about 70% of employment in developed nations but only 35% in developing countries.
Although the pace of global economic growth is predicted to moderate slightly this year, World Bank analysts suggest that the slowdown of the US economy may be cushioned to some degree by the economic expansion in developing nations. The changing face and increasing integration of the global business complex is improving the prospects for both highly industrialized economies and those still emerging.
posted @ 08:12 PM CST [link]
Friday, June 20, 2008
A New Norm in Air Travel?
Rising fuel costs are on the minds of practically everyone because they are affecting the price of almost everything from school lunches to construction materials. To cope with this unprecedented situation, a variety of “solutions” are being implemented by both average consumers and major corporations, particularly those associated with transportation such as airlines.
In 2000, jet fuel prices averaged about 90.1 cents per gallon. Today, airlines are paying more than three times that much and the per-gallon price is expected to climb even higher by the end of the year. In many instances, airlines in the US are being hit harder than foreign airlines since the dollar, by which oil is priced, is weaker than several other currencies.
These increases in the price of oil have severely impacted the airline industry, which was already in the midst of some major restructuring. Historically, the cost of fuel accounted for about 10%-15% of passenger airline operating budgets. Today, that amount is anywhere from 30% to 50%, leaving very little opportunity of achieving sustainable profit margins through further increases in efficiency or other traditional means. With the overall airline industry using approximately 19.5 billion gallons of jet fuel per year, even a penny rise in price adds an extra $195 million to the industry’s business expenses.
In the past, air carriers in the US sought to be leaders by flying more airplanes more frequently over more routes. Today, however, in an endeavor to conserve fuel and thereby save money, airlines have implemented a variety of procedures. Some of them may not be that noticeable to the average passenger. These include more accurately measuring onboard weight, cruising longer at higher altitudes, analyzing weather conditions to a greater extent, and implementing better flight-management systems. Some airlines are also replacing aging airplanes with ones that are more fuel efficient and pooling fuel purchases with other carriers.
Further cost-cutting and revenue-enhancing methods being used by airlines are perhaps more discernable by those who fly. They include layoffs of employees, hikes in ticket prices, fuel surcharges, and extra expenses for overweight and, in some cases, even checked baggage within weight ranges. All sorts of small, nagging charges are also creeping in (even premiums to sit in the front part of coach). In addition, several airlines have redesigned their hubs to enable them to operate more efficiently and have also changed routes and schedules, along with reducing the frequency of flights to certain destinations. Less dramatic things like eliminating pillows to reduce weight have also been implemented.
The fare increases are probably the most noticeable change air travelers have experienced. Even so, the amounts they are now paying per mile domestically (some 7%-8% above this time last year) do not even come close to covering the added costs of fuel for the airlines. Think of how much more you are paying for gasoline, and you begin to get the picture.
According to the Air Transport Association, approximately 2.7 million fewer people may be flying this summer compared to the same period last year. Contributing factors to this scenario are the slowdown in the economy and the fact that airlines have been forced to raise fares.
Some airline industry analysts predict that carriers could lose a combined total of $7.2 billion in 2008 if fuel prices remain at current levels, even more if they climb further. The amount of money airlines have lost over the past several months has been reflected in a corresponding drop in their stock share prices.
Two of the major carriers headquartered in Texas—American and Continental—experienced significant losses in the first quarter of this year, with Southwest Airlines barely pulling out a small profit.
Moreover, there is a fear that unless fuel prices subside, the majority of passengers in the future could be business travelers along with the more affluent who are able to afford the increased costs.
Although there is no certainty regarding what may happen in the weeks and months ahead, the difficulties that the airline industry is facing will inevitably impact passengers. Thus, at least for the immediate future, the new norm for travelers will be fewer choices, higher-priced tickets, and more than the usual amount of aggravation..
posted @ 08:11 PM CST [link]
Friday, June 13, 2008
Graduates Pay Off
There’s good news and bad news about the state of education in Texas. The good news is that the vast majority of Texas’ eighth graders recently met or exceeded the state promotion requirements associated with the Texas Assessment of Knowledge and Skills (TAKS) exams. The bad news is that approximately a third of these students will never receive a high school diploma.
Every hour during the school year, about 93 Texas students forsake their high school studies. Because of the high number of dropouts from the state’s public schools, the growth of the Texas economy, which is among the best in the US, experiences a significant diminishment.
The Alliance for Excellent Education calculated that last year the Texas economy lost some $32.1 billion in additional wages over the course of the working lives of the 123,600 students who failed to complete their high school education, and thereby faced a severe limitation in their earning potential. That’s up considerably from the estimated losses from the 86,276 high school students who quit school in 1986, the first year the Texas Education Agency reported such data.
In the mid-1980s, about 33% of students failed to finish high school in four years. By the mid-1990s, the rate had risen substantially,, reaching a high of 43% in 1996-1997. Since that time, we’ve made some progress, but only back to 1980s levels; a full one-third of all those who enroll in Texas public high schools still fail to receive a diploma. Unfortunately, these students are not adequately prepared with the skills to meet the growing challenges of the 21st century workplace.
The dropout rate is considerably higher among African-Americans, Hispanics, and students from low-income families. The graduation rate for Asian students is approximately 87%. For Caucasians, it’s 76%. About 62% of African-American students receive a high school diploma, while only 58% of Hispanics satisfactorily complete their high school studies.
The Alliance also noted that across the US, the 1.20 million dropouts from the Class of 2007 will, over their lifetimes, likely cost the nation almost $350 billion in losses in salaries, taxes, and productivity. Not surprisingly, students who fail to complete their high school studies normally make less money than those with a diploma, and the gap will almost certainly continue to grow.
In education parlance, a high school that fails to graduate at least 60% of its students on time is considered to be a “dropout factory.” Across the US, more than 1,500 schools have been identified. Unfortunately, approximately 185 high schools in the Lone Star State, or about 18%, fall into that category. Currently, Texas ranks 36th in the nation in high school graduation rates.
The students are not the only ones suffering. Since they result in a smaller and less adequate workforce, they decrease potential productivity and increase the demand for social services. For every Texan with a lower income and productivity, there’s a ripple through the economy. Lower earnings mean less spending power which translates into lower sales to retail stores, homebuilders, auto dealerships, and every other enterprise that depends on consumer spending. Similarly, anyone unable to reach their highest potential due to inadequate education has reduced the amount of value their work can add to the economy.
Recently, I measured the lifetime impact of a typical dropout relative to a typical Texas high school graduate. I looked at things like work-life expectancies given the jobs dropouts tend to have versus those with high school diplomas and social costs. What I found is that for each dropout, there is a loss of total spending in the economy of almost $4.0 million. Output is reduced by $1.9 million, and the state loses almost $1.2 million in wages. Interestingly, even though many dropouts work, the net effect of each person we lose from the education system is the loss of about one permanent job from the economy.
Increasing high school graduation rates as well as college matriculation can prove highly beneficial to the students, as well as the entire Texas economy. Such a goal that will benefit all of us should be one given the highest priority.
posted @ 08:10 PM CST [link]
Friday, June 6, 2008
Wind Power in Texas
While Chicago is known as the “Windy City,” on a statewide basis, Texas could probably lay claim to a similar moniker, especially since it is the nation’s leading producer of wind powered energy. In 2006, Texas surpassed California as the nation’s largest wind-generated power producer and has continued to solidify its lead. Texas now has one-quarter of the nation’s entire wind energy capacity. Some of the electricity generated in Texas is sold to nearby states to help meet their energy needs.
Today, the state is home to more than 40 wind-producing projects generating over 5,300 megawatts. That’s enough to meet the energy needs of 1.5 million homes. In 2007, for the third consecutive year, Texas was the nation’s leader in the growth of wind capacity to the electric grid, adding more than twice the amount of any other state. The nearly $3 billion worth of generators installed last year, mostly in West Texas, increased the state’s overall wind capacity by 57%. By the end of this year, the state’s wind farms are expected to be producing in excess of 9,000 megawatts.
Not only is the Lone Star State in first place in wind-generated energy, Texas was also the first to make use of offshore wind power production. Additionally, the state is the beneficiary of the US Department of Energy’s plans to build a new $20 million research center to develop the next generation of wind turbine blades. The Corpus Christi facility is one of two being planned; the second will be in Boston.
Other windfalls for Texas include the construction of major megawatt facilities in the Panhandle that were announced in March. Additional wind farms are already on the drawing board. Of special note is the new $10-$12 billion (including turbines and transmission lines) wind farm being developed by oil investor T. Boone Pickens in Pampa. This facility, the world’s largest, will be capable of generating some 4,000 megawatts of electricity. The areas around Sweetwater and Big Spring have also seen major investments.
Producing electricity through the use of wind power is not new, of course. Almost 40 years ago, West Texas State University operated a wind energy research program that led to the creation of the Alternative Energy Institute in 1977. In 2000, wind produced energy still remained more of a curiosity than a legitimate provider of electricity.
However, as a result of a 1999 law that required Texas utilities to offer renewable energy to customers, coupled with substantial advances in wind turbine technology and the growing public desire for clean power resources, the development of wind farms and installations gained speed.
Due in part to the congressional extension of the wind energy production tax credit, numerous manufacturers and developers have projects moving forward. Construction of wind farms in 26 states is now underway. So far this year, approximately 1,700 megawatts of new wind capacity has been added across the nation with another 447 wind producing facilities, at a cost of about $133 billion, expected to be developed over the next five years.
Although wind energy currently provides only 1% of US electricity needs, by 2030, some industry leaders predict that percentage could climb to 20%, around the same as that now produced by nuclear reactors.
Advances in technology have reduced the cost for producing electricity through the use of wind to about a nickel per kilowatt-hour and therefore is making wind power more competitive. Various improvements have also enabled electricity to be created at much lower wind speeds. Moreover, technological advances have been seen in smaller turbines, and some individuals are contemplating installing wind turbines in their backyards to help meet personal electricity needs in the face of rising prices.
In addition to providing electricity, wind farms involve numerous benefits in terms of investment and economic opportunities. They contribute significantly to local business activity through the creation of jobs, particularly construction and manufacturing, as well as local spending. They also involve a notable rise in the tax base and generate benefits to local areas through property taxes. Many school districts have realized sizable increases in their budgets thanks to wind farm investments.
Wind energy is inexhaustible and does not produce any emissions. It is also compatible with rural land uses as it does not interfere with crops or grazing. Moreover, it does not consume water as other electricity generation sources do, and is not affected by fossil fuel prices.
Wind power is not without criticism, of course. Among the concerns are the potential dangers of the moving blades to birds, and the fact that subsidies are higher than for nuclear, coal, and natural gas production. Even so, with continued research and anticipated advancements, especially as related to market-driven endeavors, this source of clean or green energy can be expected to be a viable alternative and a definite way of the future.
posted @ 08:08 PM CST [link]