Cyclopedia Of Economics 3rd edition

Moreover, in typical EU fashion, the Europeans benefit from their relationships in the region disproportionately.

Bilateral EU-GCC trade, for instance, amounts to a respectable $50 billion annually - but European investment in the region declined precipitously from $3 billion in 1999 to half that in 2000. The GCC, on its part, has been consistently investing $4-5 billion annually in the EU economies.

It also runs an annual trade deficit of c. $9 billion with the EU. Destitute Yemen alone imports $600 million from the EU and exports a meager $100 million to it. The imbalance is partly attributable to European non-tariff trade barriers such as sanitary regulations and to EU-wide export subsidies.

Nor does European development aid compensate for the EU's egregious trade protectionism. Since 1978, the EU has ploughed only $210 million into Yemen's economy, for instance. A third of this amount was in the form of food support. The EU is providing only one fifth of the total donor assistance to the country.

In the meantime, the USA is busy signing trade agreements with all and sundry, subverting what little leverage the EU could have possessed. In the footsteps of a free trade agreement with Israel, America has concluded one with Jordan in 2000. The kingdom's exports to the United States responded by soaring from $16 million in 1998 to c. $400 million in 2002. Washington negotiated a similar deal with Morocco. It is usurping the EU's role on its own turf. Who can blame French former president Jacques Chirac for blowing his lid?

Ukrainian President, Leonid Kuchma, told, last week, an assembly of senior customs service officials that "it is necessary to put an end to (Ukraine's 11 free economic and 9 priority) zones (and) liquidate them completely. (They) have become semi-criminal zones, and this refers not only to the Donetsk zone. You pull the meat that Europe doesn't want to eat into these zones and sell it there without [paying] taxes".

According to UNIAN, the Ukrainian news agency, Kuchma was fuming at the mighty and unaccountable oligarchs situated in the country's eastern coal-mining center and their collaborators in the Ukrainian Security Service (SBU) and other law enforcement agencies. The zones dismally failed to attract foreign direct investment, or foster economic growth, he bitterly observed.

The International Monetary Fund (IMF) concurs as does the European Union. The future status of special economic zones is hotly contested in the accession negotiations with the Czech Republic, Poland, Hungary and Malta. Nor is the criminalization of such zones a Ukrainian deviation. Russia's Deputy Interior Minister, Vladimir Vasiliev, admitted last year that Russia's mafia now focuses its unwelcome attentions on its ubiquitous free economic zones.

Yet, the proliferation of these fiscal monstrosities - tax free, low customs, export processing, flexible labor delimited regions - is likely to continue. Even bastions of free trade make profligate use of them as do all the countries of the rich world.

According to a November 2002 report titled "Employment and social policy in respect of export processing zones" and published by the United Nations' International Labor Organization (ILO), the number of countries with export processing zones surged from 25 in 1975 to 116 last year. The number of such havens jumped to 3000 from a mere 79.

A January 2002 amendment to Estonia's value added tax law allows its fishermen to export to Russia more than $100 million worth of catch via tax free enclaves. Virtually all the countries of central, east and southeast Europe (the Balkans) either toyed with the idea, or established such zones, the first being Russia, Poland and Bulgaria.

Even hidebound and xenophobic Belarus founded in 2000 four Free Economic Zones (FEZs), located in Brest, Minsk, Gomel-Raton and Vitebsk, to, in its words, "attract foreign investment, promote high-tech manufacturing and increase economic diversification". The zones, claim the authorities, have been a success. The Brest one drew in excess of $120 million in investments and has created 5000 new jobs.

Multilateral lenders and international trade partners are unhappy. Exemptions from taxes and customs duties amount to overt export subventions. The goods thus subsidized often end up in the local market, unfairly competing with both indigenous producers and importers.

Responding to such pressures, Kyrgyzstan now requires enterprises located within the free-economic zone to pay customs and other taxes on goods they sell domestically. Both the European Union and the United States expressed extreme displeasure at the formation of Macedonia's Taiwan-financed free zone in Bunardzik in 1999.

It has since flopped and has been leased last September for 30 years to Ital Mak Furnir, an improbable German-Italian-Macedonian partnership. The only occupant of the sole building constructed in the zone by the Taiwanese is rented to the NATO mission in Macedonia - hardly a business enterprise.

The free economic zone of the Russian exclave of Kaliningrad, formed in 1992 and revamped in both 1996 and in 1997, under the new law on Free Economic Zones, shares a similar fate. Lithuania's industrial parks are not successful either. The free zone of Kukuljanovo in the industrial zone of Bakar, about 17 km from the Port of Rijeka Free Zone in Croatia, actually serves as a trans-shipment and off-shore area, rather than a classic export processing district. It is one of 13 such fiscal havens.

Tax free, customs and export processing territories - though they may enhance employment, as they did in China, for one - distort the economic decisions of investors, manufacturers, importers and exporters. Budget revenues are adversely affected. The zones attract shady "industrialists" and "financiers" who set up fronts for illicit activities, such as smuggling, unauthorized assembly of consumer goods, or piracy of intellectual piracy.

These extraterritorial hubs are major centers of money laundering, parallel imports of shoddy or counterfeit goods and forbidden re-importation of merchandise originally sold to poor, developing countries at substantial discounts, or provided as international aid.

The Ukrainian Vice-Premier Kozachenko estimated, last May, that one fifth of all meat sold in Ukraine was smuggled through the special zones, reported UkInform. Most of it is unfit for human consumption. The impoverished country lost $56 million in customs duties on these products in 2001 alone. In the meantime, the local meat industry is "choking" in the words of Yuri Melnik, Deputy State Secretary for the Ministry of Agrarian Policy.

Yet, the undermining of local production is not the only impact on oft-struggling host economies. According to the ILO, throughput from special zones accounts for 80 percent of all the merchandise exports of the Czech Republic and Hungary. But very little of this abundance trickles down:

"Legal restrictions on trade union rights in a few EPZ operating countries, the lack of enforcement of labour legislation and the absence of workers' organizations representation were among the factors noted as undermining the ability of zones to upgrade skills, improve working conditions and productivity and thereby to become more dynamic and internationally competitive platforms."

And the contribution of these zones to economic growth and subsequent prosperity? Dubious, at best. The ILO concludes:

"(There is a) lack of reliable ... statistics regarding the costs and benefits of zones. While some data exist relating to the amount of investment, exports and employment in zones, there is very little ... on the quality, cost and duration of those jobs, on the degree of skill and technology transfer and on the opportunity cost of the fiscal incentives and infrastructure costs. (We don't know) why export processing zones (EPZs) have failed to take off in some countries. While political stability and investment in the basic infrastructure in ports, airports, roads, water, sanitation and power supply are necessary conditions for EPZs, they are not sufficient on their own to attract FDI. Macroeconomic conditions such as extreme inflation and high interest rates (are important) ... Research suggests that zones are most effective when they form part of an integrated economic strategy that includes fiscal incentives, investments in infrastructure, technology and human capital, and the creation of linkages into the local economy. It is important for EPZs to upgrade their activities to higher value-added products and services (requiring a more skilled workforce) and find their niche in the international production network ... (EPZs strategies must, therefore, be) continually adapt(ed)."

The countries of east Europe and The Balkans lack the skills and experience to do so - and the money needed to hire international consultants to monitor and modify the zones' performance and characteristics. Hence the hitherto abysmal performance of these contraptions - and the emerging trend to disassemble them.

We construct maps of the world around us, using cognitive models, organizational principles, and narratives that we acquire in the process of socialization. These are augmented by an incessant bombardment of conceptual, ideational, and ideological frameworks emanating from the media, from peers and role models, from authority figures, and from the state. We take our universe for granted, an immutable and inevitable entity. It is anything but. Only change and transformation are guaranteed constants - the rest of it is an elaborate and anxiety-reducing illusion.

Consider these self-evident "truths" and "certainties":

1. After centuries of warfare, Europe is finally pacified. War in the foreseeable future is not in store. The European Union heralds not only economic prosperity but also long-term peaceful coexistence.

Yet, Europe faces a serious identity crisis. Is it Christian in essence or can it also encompass the likes of an increasingly-Muslim Turkey? Is it a geographical (continental) entity or a cultural one? Is enlargement a time bomb, incorporating as it does tens of millions of new denizens, thoroughly demoralized, impoverished, and criminalized by decades of Soviet repression? How likely are these tensions to lead not only to the disintegration of the EU but to a new war between, let's say Russia and Germany, or Italy and Austria, or Britain and France? Ridiculous? Revisit your history books.

Read more about Europe after communism - click HERE to download the e-book "The Belgian Curtain".

Many articles about Europe and the European Union - click HERE and HERE to read them.

2. The United States is the only superpower and a budding Empire. In 50 years time it may be challenged by China and India, but until then it stands invincible. Its economic growth prospects are awesome.

Yet, the USA faces enormous social torsion brought about by the polarization of its politics and by considerable social and economic tensions and imbalances. The deterioration in its global image and its growing isolation contribute to a growing paranoia and jingoism. While each of these dimensions is nothing new, the combination is reminiscent of the 1840s-1850s, just prior to the Civil War.

Is the United States headed for limb-tearing inner conflict and disintegration?

This scenario, considered by many implausible if not outlandish, is explored in a series of articles - click HERE to read them.

3. The Internet, hitherto a semi-anarchic free-for-all, is likely to go through the same cycle experienced by other networked media, such as the radio and the telegraph. In other words, it will end up being both heavily regulated and owned by commercial interests. Throwbacks to its early philosophy of communal cross-pollination and exuberant exchange of ideas, digital goods, information, and opinion will dwindle and vanish. The Internet as a horizontal network where all nodes are equipotent will be replaced by a vertical,  hierarchical, largely corporate structure with heavy government intrusion and oversight.

Read essays about the future of the Internet - click HERE.

4. The period between 1789 (the French Revolution) and 1989 (the demise of Communism) is likely to be remembered as a liberal and atheistic intermezzo, separating two vast eons of religiosity and conservatism. God is now being rediscovered in every corner of the Earth and with it intolerance, prejudice, superstition, as well as strong sentiments against science and the values of the Enlightenment. We are on the threshold of the New Dark Ages.

Read about the New Dark Ages - click HERE.

5. The quasi-religious, cult-like fad of Environmentalism is going to be thoroughly debunked. Read a detailed analysis of why and how - click HERE.

6. Our view of Western liberal democracy as a panacea applicable to all at all times and in all places will undergo a revision in light of accumulated historical evidence. Democracy seems to function well in conditions of economic and social stability and growth. When things go awry, however, democratic processes give rise to Hitlers and Milosevices (both elected with overwhelming majorities multiple times).

The gradual disillusionment with parties and politicians will lead to the re-emergence of collectivist, centralized and authoritarian polities, on the one hand and to the rise of anarchist and multifocal governance models, on the other hand.

More about democracy in this article -click HERE.

More about anarchism in this article -click HERE.

7. The ingenious principle of limited liability and the legal entity known as the corporation have been with us for more than three centuries and served magnificently in facilitating the optimal allocation of capital and the diversification of risk. Yet, the emergence of sharp conflicts of interest between a class of professional managers and the diffuse ownership represented by (mainly public) shareholders - known as the agent-principal problem - spell the end of both and the dawn of a new era.

Read about the Agent-Principal Conundrum in this article - click HERE.

Read about risk and moral hazard in this article - click HERE.

8. As our understanding of the brain and our knowledge of genetics deepen, the idea of mental illness is going to be discarded as so much superstition and myth. It is going to replaced with medical models of brain dysfunctions and maladaptive gene expressions. Abnormal psychology is going to be thoroughly medicalized and reduced to underlying brain structures, biochemical processes and reactions, bodily mechanisms, and faulty genes.

Read more about this brave new world in this article - click HERE.

9. As offices and homes merge, mobility increases, wireless access to data is made available anywhere and everywhere, computing becomes ubiquitous, the distinction between work and leisure will vanish.

Read more about the convergence and confluence of labor and leisure in this article - click HERE.

10. Our privacy is threatened by a host of intrusive Big Brother technologies coupled with a growing paranoia and siege mentality in an increasingly hostile world, populated by hackers, criminals, terrorists, and plain whackos. Some countries - such as China - are trying to suppress political dissent by disruptively prying into their citizens' lives. We have already incrementally surrendered large swathes of our hitherto private domain in exchange for fleeting, illusory, and usually untenable personal "safety".

As we try to reclaim this lost territory, we are likely to give rise to privacy industries: computer anonymizers, safe (anonymous) browsers, face transplants, electronic shields, firewalls, how-to-vanish-and-start-a-new-life-elsewhere consultants and so on.

Read more about the conflict between private and public in this article - click HERE.

11. As the population ages in the developed countries of the West, crime is on the decline there. But, as if to maintain the homeostasis of evil, it is on the rise in poor and developing countries. A few decades from now, violent and physical property crimes will so be rare in the West as to become newsworthy and so common in the rest of the world as to go unnoticed.

Should we legalize some "crimes"? - Read about it in this article - click HERE.

12. In historical terms, our megalopolises and conurbations are novelties. But their monstrous size makes them dependent on two flows: (1) of goods and surplus labor from the world outside (2) of services and waste products to their environment.

There is a critical mass beyond which this bilateral exchange is unsustainable. Modern cities are, therefore, likely to fragment into urban islands: gated communities, slums, strips, technology parks and "valleys", belts, and so on. The various parts will maintain a tenuous relationship but will gradually grow apart.

This will be the dominant strand in a wider trend: the atomization of society, the disintegration of social cells, from the nuclear family to the extended human habitat, the metropolis. People will grow apart, have fewer intimate friends and relationships, and will interact mostly in cyberspace or by virtual means, both wired and wireless.

Read about this inexorable process in this article - click HERE.

13. The commodity of the future is not raw or even processed information. The commodity of the future is guided and structured access to information repositories and databases. Search engines like Google and Yahoo already represent enormous economic value because they serve as the gateway to the Internet and, gradually, to the Deep Web. They not only list information sources but make implicit decisions for us regarding their relative merits and guide us inexorably to selections driven by impersonal, value-laden, judgmental algorithms. Search engines are one example of active, semi-intelligent information gateways.

Read more about the Deep Web in this article - click HERE.

14. Inflation and the business cycle seem to have been conquered for good. In reality, though, we are faced with the distinct possibility of a global depression coupled with soaring inflation (known together as stagflation). This is owing to enormous and unsustainable imbalances in global savings, debt, and capital and asset markets.

Still, economists are bound to change their traditional view of inflation. Japan's experience in 1990-2006 taught us that better moderate inflation than deflation.

Read about the changing image of inflation in this article - click HERE.

Note - How to Make a Successful Prediction

Many futurologists - professional (Toffler) and less so (Naisbitt) - tried their hand at predicting the future. They proved quite successful at foretelling major trends but not as lucky in delineating their details. This is because, inevitably, every futurologist has to resort to crude tools such as extrapolation. The modern day versions of the biblical prophets are much better informed - and this, precisely, seems to be the problem. The informational clutter obscures the outlines of the more pertinent elements.

The futurologist has to divine which of a host of changes which occur in his times and place ushers in a new era. Since the speed at which human societies change has radically accelerated, the futurologist's work has become more compounded and less certain.

It is better to stick to truisms, however banal. True and tried is the key to successful (and, therefore, useful) predictions. What can we rely upon which is immutable and invariant, not dependent on cultural context, technological level, or geopolitical developments?

Human nature, naturally.

Yet, the introduction of human nature into the prognostic equation may further complicate it. Human nature is, arguably, the most complex thing in the universe. It is characteristically unpredictable and behaviourally stochastic. It is not the kind of paradigm conducive to clear-cut, unequivocal, unambiguous forecasts.

This is why it is advisable to isolate two or three axes around which human nature - or its more explicit manifestations - revolves. These organizational principles must possess comprehensive explanatory powers, on the one hand and exhibit some kind of synergy, on the other hand.

I propose such a trio of dimensions: Individuality, Collectivism and Time.

Human yearning for uniqueness and idiosyncrasy, for distinction and self sufficiency, for independence and self expression commences early, in one's formative years, in the form of the twin psychological processes of Individuation and Separation

Collectivism is the human propensity to agglomerate, to stick together, to assemble, the herd instincts and the group behaviours.

Time is the principle which bridges and links individual and society. It is an emergent property of society. In other words, it arises only when people assemble together and have the chance to compare themselves to others. I am not referring to Time in the physical sense. No, I am talking about the more complex, ritualistic, Social Time, derived from individual and collective memory (biography and history) and from intergenerational interactions.

Individuals are devoid and bereft of any notions or feelings of Social Time when they lack a basis for comparison with others and access to the collective memory.

In this sense, people are surprisingly like subatomic particles - both possess no "Time" property. Particles are Time symmetric in the sense that the equations describing their behaviour and evolution are equally valid backwards and forward in Time. The introduction of negative (backward flowing) Time does not alter the results of computations.

It is only when masses of particles are observed that an asymmetry of Time (a directional flow) becomes discernible and relevant to the description of reality. In other words, Time "erupts" or "emerges" as the complexity of physical systems increases (see "Time asymmetry Re-Visited by the same author, 1983, available through UMI. Abstract in: http://samvak.tripod.com/time.html).

Mankind's history (past), its present and, in all likelihood, its future are characterized by an incessant struggle between these three principles. One generation witnesses the successful onslaught of individualism and declares, with hubris, the end of history. Another witnesses the "Revolt of the (collective) Masses" and produces doomsayers such as Jose Ortega y Gasset.

The 20^th century was and is no exception. True, due to accelerated technological innovation, it was the most "visible" and well-scrutinized century. Still, as Barbara Tuchman pointedly titled her masterwork, it was merely a Distant Mirror of other centuries. Or, in the words of Proverbs: "Whatever was, it shall be again".

The 20th century witnessed major breakthroughs in both technological progress and in the dissemination of newly invented technologies, which lent succor to individualism.

This is a new development. Past technologies assisted in forging alliances and collectives. Agricultural technology encouraged collaboration, not individuation, differentiation or fragmentation.

Not so the new technologies. It would seem that the human race has opted for increasing isolation to be fostered by TELE-communication. Telecommunications gives the illusion of on-going communication but without preserving important elements such as direct human contact, replete with smells, noises, body language and facial expressions. Telecommunications reduces communication to the exchange of verbal or written information, the bare skeleton of any exchange.

The advent of each new technology was preceded by the development of a social tendency or trend. For instance: computers packed more and more number crunching power because business wanted to downsize and increase productivity.

The inventors of the computer explicitly stated that they wanted it to replace humans and are still toying with the idea of artificial intelligence, completely substituting for humans. The case of robots as substitutes for humans is even clearer.

These innovations revolutionized the workplace. They were coupled with "lean and mean" management theories and management fads. Re-engineering, downsizing, just in time inventory and production management, outsourcing - all emphasized a trimming of the work force. Thus, whereas once, enterprises were proud of the amount of employment which they generated - today it is cause for shame. This psychological shift is no less than misanthropic.

This misanthropy manifests itself in other labour market innovations: telecommuting and flexiwork, for instance - but also in forms of distance interaction, such as distant learning.

As with all other social sea changes, the language pertaining to the emotional correlates and the motivation behind these shifts is highly euphemistic. Where interpersonal communication is minimized - it is called telecommunications. Where it is abolished it is amazingly labelled "interactivity"!

We are terrified of what is happening - isolation, loneliness, alienation, self absorption, self sufficiency, the disintegration of the social fabric - so we give it neutral or appealing labels, negating the horrific content. Computers are "user-friendly", when we talk to our computer we are "interacting", and the solitary activity of typing on a computer screen is called "chatting".

We need our fellow beings less and less. We do not see them anymore, they had become gradually transparent, reduced to bodiless voices, to incorporeal typed messages. Humans are thus dehumanized, converted to bi-dimensional representations, to mere functions. This is an extremely dangerous development. Already people tend to confuse reality with its representation through media images. Actors are misperceived to be the characters that they play in a TV series, wars are fought with video game-like elegance and sleekness.

Even social functions which used to require expertise - and, therefore, the direct interaction of humans - can today be performed by a single person, equipped with the right hardware and software.

The internet is the epitome and apex of this last trend.

Read my essay -