The Economist - 10 March 2001 PDF
Preview The Economist - 10 March 2001
The Economist 20010310 SEARCH RESEARCH TOOLS Economist.com Choose a research tool... advanced search » Subscribe Activate RS Sunday July 15th 2007 Welcome = requires subscription My Account » Manage my newsletters LO » PRINT EDITION Print Edition March 10th 2001 Previous print editions Subscribe Waking up to equity risk Can the global equity culture survive its first bear market? … Mar 3rd 2001 Subscribe to the prin More on this week's lead article Feb 24th 2001 Or buy a Web subsc Feb 17th 2001 full access online Feb 10th 2001 News Summaries Feb 3rd 2001 RSS feeds Receive this page by Full contents Subscribe Business this week More print editions and covers » Enlarge current cover The world this week Past issues/regional covers NEWS ANALYSIS Leaders POLITICS THIS WEEK Waking up to equity risk BUSINESS THIS WEEK An idea for Mr Bush OPINION Fixing America’s airlines Leaders Letters to the editor Israel’s odd couple Blogs Columns Kallery The Swiss say no WORLD The Afghan iconoclasts United States Very flash, Gordon The Americas Asia Middle East & Africa Letters Europe Britain International On English, the London Underground, Bahrain, Country Briefings Ronald Reagan, Australia, Japan Cities Guide Special SPECIAL REPORTS A survey of air travel CHINA’S ECONOMIC POWER BUSINESS Enter the dragon The sky’s the limit Management Business Education United States Opening wider FINANCE & ECONOMICS Huddling together Blacks v teachers Economics Focus Economics A-Z The joys of oligopoly The affair of that heart SCIENCE & TECHNOLOGY Let fly White-collar crime Technology Quarterly Stealing people is wrong Free as a bird BOOKS & ARTS Lexington Webbed wings Managing the Big Apple Style Guide Latino heroes Flight of fancy PEOPLE John Wayne, in Spanish Obituary Offer to readers Wind power MARKETS & DATA Maybe this time Business Weekly Indicators Currencies Trouble in McArkansas Gadget wars Big Mac Index Chart Gallery George Bush’s tax cut There is no alternative Coca-Cola DIVERSIONS A cultural revolution Correspondent’s Diary The Americas Enterprise software Analyse this RESEARCH TOOLS Can Lopez Murphy save Argentina? Face value AUDIO Brazil The man who would be cool DELIVERY OPTIONS Fiscal prudence goes local Czech industry E-mail Newsletters Quebec Poor planning Mobile Edition Over to Landry RSS Feeds Internet governance Screensaver Domain strain A change of tiempo in Mexico CLASSIFIED ADS A dream car Asia Not quite another eBay Economist Intelligence Unit China’s confident bow Economist Conferences The World In Business Special South Korea and America Intelligent Life Lots to talk about CFO AMERICA'S ECONOMY Roll Call What a peculiar cycle European Voice Hitting the Tigers in their pockets EuroFinance Conferences Economist Diaries and Japan Finance & Economics Business Gifts Diminishing returns Malaysia A sapling’s sound roots Making it easy for Mahathir Institutional investors in Britain Caspian pipedreams no longer Throwing the book at them Advertisement Fiji Banks behaving badly Stormy weather Economics focus Nepal’s overburdened women Big Oil and its subsidies Coffee Trouble brewing Eastern European securities Like Uncle Sam Predatory lending in America Loans for a better life? Science & Technology Quantum dreams Orang-utans on the brink Power lines and cancer Current concerns Books & Arts Burgeoning books Wordwombs Milosevic of Serbia Europe Mystery man Oh no, not war in Macedonia as well Europe and America Ménage à trois? Ukraine Power wins Reclaimed land Poland Last rites A third voice Burning ideas Charlemagne British fiction Jaime Mayor Oreja, Spain’s tough Basque The easy way out France Architecture and cities Far-right rumbles Imagining Metropolis The European Union Media wars Liberalise? Regulate? Both Screen stories Spain cuts a Gordian labour knot Obituary Russia Land reform, kind of, maybe Harold Stassen Britain Economic Indicators Gordon Brown’s balancing act OUTPUT, DEMAND AND JOBS Budget in brief COMMODITY PRICE INDEX The Budget and business ECONOMIC FORECASTS Only relate PRICES AND WAGES Terrorism Real trouble Financial Indicators Bagehot Hague’s silly sally MONEY AND INTEREST RATES Fat-cat lawyers GOVERNMENT DEBT Silks’ purses TRADE, EXCHANGE RATES AND BUDGETS The law In double jeopardy STOCKMARKETS Road rage Emerging-Market Indicators The price of civic pride Articles flagged with this icon are printed only in the British edition of RISKY ECONOMIES The Economist FINANCIAL MARKETS International ECONOMY A war over drugs and patents Mugabe’s courtesy visit to Europe The dangers of trying to help Israel All, or nearly all, behind the team Iran and Russia Friends by default Congo and Rwanda Marching out, and in again? Advertisement Produced by = ECO PDF TEAM = Thanks xxmama Classified ads Sponsors' feature About sp Jobs Business / Tenders Property Jobs Business / Consumer Consumer Project Manager Request for Concessioning of the Marketing Executive PROJECT #1 rated internet Expressions of Armenian Railway The Economist #1 rated internet MANAGER, business looking for Interest in Wood Republic of Armenia Intelligence Unit has business looking for VIOLENT professional Processing Business Notice On pre- enjoyed rapid growth professional EXTREMISM AND consultants No Opportunity in New qualification for the over the past few consultants No RADICALIZATION previous technical Zealand The Ministry T.... years. The previous technical (NEW YORK) Proven e xperience required. Business Americas .... e xperience required. project manager .... Opportunity .... About Economist.com | About The Economist | Media Directory | Staff Books | Advertising info | Career opportunities | Contact us Copyright © The Economist Newspaper Limited 2007. All rights reserved. Advertising Info | Legal disclaimer | Accessibility | Privacy policy | Terms & Conditions | Help Business this week Mar 8th 2001 From The Economist print edition Daft decision Coca-Cola, a soft-drink giant that has lost much of its fizz in EPA recent years, announced a management reorganisation. Jack Stahl, second-in-command behind Douglas Daft, resigned amid rumours that he and his boss did not always see eye to eye. He will not be replaced; the company will be run as four separate units each directly reporting to Mr Daft. See article: Shaking up Coca-Cola Tim Koogle stepped down as CEO of Yahoo! but said he would remain as chairman. The company warned that first-quarter earnings and revenues would be less than the market’s already lowered expectations. The slump in online advertising is to blame. Also emphasising a fall in advertising revenues, Dow Jones sharply cut its forecast of first-quarter earnings and said it would reduce its payroll. This followed gloomy statements, along similar lines, from the New York Times company and Knight Ridder. Merck, a top American drug company, said that it would slash the price of AIDS drugs to developing countries, forgoing any profit from the sales. Other drug companies are likely to follow suit. The world’s leading drug companies are currently suing South Africa’s government over its plans to circumvent the patents on their products. See article: Drugs, patents and AIDS American Airlines faced last-minute competition to its lone bid for TWA, an airline in the bankruptcy courts. A group led by Carl Icahn, an American financier, said it would pay $650m for the airline, trumping AA’s $500m. Mitsubishi Motors, a Japanese car firm 34% owned by DaimlerChrysler, warned that losses would be even more severe than expected, at ¥250 billion ($2.09 billion). DaimlerChrysler started talks with Volvo about buying the Swedish firm’s stake in Mitsubishi. Royal Dutch/Shell launched a bid worth $2.2 billion for Barrett Resources, an American natural-gas company. It also bought the energy interests of Fletcher Challenge, a New Zealand firm, for NZ$4.9 billion ($2.1 billion) after a long takeover battle. Can stop the music In a comprehensive victory for the recording industry, an American court ordered Napster, a free service for downloading music from the Internet, to begin blocking access to copyrighted material. Record companies and music publishers will submit lists of the many thousands of tunes that Napster must stop offering on its system. See article: Face value: Thomas Middelhoff, Napster’s music-industry ally Shares in Amazon, a leading online retailer, shot up by 26% in one day after rumours of a possible alliance with Wal-Mart, the world’s largest offline retailer. However, Amazon’s shares slid back after further hints that a tie-up was not imminent. Japan Telecom joined a growing list of telecoms companies that have announced a delay to the roll-out of third-generation mobile services; customers will have to wait a further six months until July 2002. J-Phone, Japan Telecom’s mobile unit, estimates that it will spend ¥700 billion ($5.86 billion) over three years to construct its 3G network. France Telecom announced the biggest-ever corporate bond issue, worth over $16 billion, beating Deutsche Telekom’s $14.6 billion issue last year. The company will use the money to refinance recent acquisitions. Four of America’s top chip makers—LSI Logic, Cypress, Vitesse and Xilinx—issued profit warnings as sales of semiconductors continued to disappoint. The Semiconductor Industry Association predicted no upturn until the last quarter of this year. New.net, a company backed by Idealab!, a dotcom incubator, launched a challenge to ICANN, a non- profit organisation that has a monopoly over the Internet’s address system. New.net will sell domain names based on suffixes that are not sanctioned by ICANN including .kids, .family and the possibly less wholesome .xxx. See article: ICANN’s unwelcome rival Tip of the bulge Goldman Sachs announced plans to beef up its fund-management business. It hopes to have $1 trillion under management within five years. The bank wants a large slice of business from the super-rich—the world’s billionaires, said to control $2.4 trillion. Deutsche Bank was reported to be in talks with AXA, a giant French insurance group with interests in Germany. Deutsche is keen to link up with a heavyweight insurance company to pursue a Europewide bancassurance strategy and has talked to several other insurers including Germany’s largest, Allianz. Sliding The yen fell to its lowest since July 1999, dipping below ¥120 to the dollar after Japan’s government noted that a weaker currency would help exports. The finance minister, Kiichi Miyazawa, then made the surprising, if plausible, claim that his public finances were close to collapse. See article: Drift in Japan Wim Duisenberg, president of the European Central Bank, said that EU enlargement may require rotating membership of the bank’s 18-man policymaking committee. The change would need unanimous approval by the leaders of EU member countries. Euroland’s GDP rose by 0.7% quarter-on-quarter in the last three months of 2000. The region’s year-on-year rate of growth fell slightly from 3.2% in the third quarter to 3.0% in the fourth. Germany continues to languish. Its unemployment rose fractionally in February (though not enough to change the rate, which remained at 9.3% of the workforce) and manufacturing orders fell by 3.9% in January. Correction: Last week we said that AT&T sold its cable division, AT&T Broadband. In fact, it has disposed of only a small part of the division; AT&T Broadband remains part of AT&T. Copyright © 2007 The Economist Newspaper and The Economist Group. All rights reserved. The world this week Mar 8th 2001 From The Economist print edition Sharon’s coalition Ariel Sharon, Israel’s new right-wing prime minister, formed a broad-based AP coalition commanding 78 seats in the 120-member Knesset. Mr Sharon committed himself to negotiate with the Palestinians, but not while violence continued. His 26-member cabinet includes the Labour veteran, Shimon Peres, as foreign minister. See article: Sharon’s new government A stampede caused the death of 23 women and 12 men during the annual Hajj pilgrimage to Mecca. Saudi Arabia’s interior minister put the blame both on his own country and on foreign organisers. The UN Security Council banned diamond sales from Liberia, which stands accused of helping Sierra Leonean rebels. The ban is delayed for two months to see if Liberia honours its own anti-smuggling commitment. Having declared he would not yield to political pressure to force him out of office, Zimbawe’s chief justice, Anthony Gubbay, was eventually driven to resign by threats. See article: Mugabe visits Europe A new president, Pedro Pires, was peacefully elected in Cape Verde. Security guards shot and killed supporters of an opposition candidate as voters prepared for the presidential election in Uganda, postponed until March 12th. Complaints of arbitrary arrest and intimidation grew as opinion polls suggested that President Yoweri Museveni might be run close in the vote. In Kenya, several hundred refugees who had fled violence in Zanzibar began a hunger strike in protest at their treatment by Kenya’s authorities. Well defended China said it would spend $17 billion on defence in the coming 12 months, an increase of nearly 18%. The United States said it was “concerned” and would continue to sell Taiwan enough weapons to defend itself. See article: China’s increase in defence spending An explosion in a school in Fanglin, in eastern China, killed 41 people, many of them children. The blast was blamed by local people on an accident with fireworks being made by the children to raise money for the school. China’s government denied this. President Kim Dae Jung of South Korea and President George Bush conferred in Washington, DC, about future dealings with North Korea. Mr Bush talked tough. See article: South Korea’s Kim meets George Bush A bomb destroyed an aircraft at Bangkok airport waiting to take AP Thailand’s prime minister, Thaksin Shinawatra, on a trip to the northern city of Chiang Mai. The Taliban said that its plan to destroy two huge and ancient statues of Buddha was “irreversible”. Afghanistan’s Islamic fundamentalist rulers were condemned by governments around the world for the decision. See article: The iconoclasts of Afghanistan President Abdurrahman Wahid of Indonesia returned home from a pilgrimage to Mecca to be met by protesters demanding his resignation for failing to end the country’s ethnic violence. Border clashes Macedonian troops clashed with ethnic-Albanian guerrillas near the Kosovo border, after a landmine killed two Macedonian soldiers and a sniper a third. In Bosnia, the UN sacked the Croat member of the three-man presidency, Ante Jelavic, for working for a separate Croat government. See article: Macedonia near the brink of battle The collapse of a bridge over Portugal’s river Douro killed some 70 bus and car passengers. Next shock: Portugal’s minister of public works promptly resigned. Foot-and-mouth disease spread across Britain’s farms and national parks, and panic about it across Europe. The EU suspended livestock markets. Italy banned imports of all animals susceptible to the disease. Horse races and rugby matches were cancelled. Italy’s parliament stood by for a dissolution in preparation for a general election, probably in May. Britain’s parliament heard a voter-wooing budget, for the same reason. See article: A balanced budget The EU reached agreement with football authorities over the transfer system. Though changed, it will survive. Fed up with waiting for unions and employers to agree on reforms, Spain’s government decided to impose its own changes to the country’s labour law. Firing of long-term employees will be cheaper, but those on short-term contracts will be eligible for severance pay. See article: Spain’s overdue labour reform High finance Apparently frustrated by his country’s lack of economic progress, Argentina’s finance minister, Jose Luis Machinea, resigned. He was replaced by Ricardo Lopez Murphy, a conservative, whose main task will be to control government spending after a worrying surge in January. See article: Argentina’s fiscal nerves Mario Covas, the governor of Brazil’s largest state, Sao Paulo, died of cancer. His death was a blow to President Fernando Henrique Cardoso’s hopes of holding his coalition together. Two students were shot dead at Santana High School, near San Diego, by a bullied classmate, and several others were wounded. President Bush resisted the temptation to discuss gun control. The United States’ vice-president, Dick Cheney, had another heart scare. He Reuters insisted that he would maintain his workload. See article: Dick Cheney’s tough morning Copyright © 2007 The Economist Newspaper and The Economist Group. All rights reserved. Waking up to equity risk Mar 8th 2001 From The Economist print edition Can the global equity culture survive its first bear market? WE ASK all our readers to observe a one-minute silence on March 10th to mark the first anniversary of the Nasdaq peak. Over the past year this index, once the beacon of America’s “new economy”, has tumbled by 55%. America’s broadest stockmarket index has lost more than 20% of its value. Markets around the world are now, on average, at least one-fifth below last year’s peak, as share prices have also tumbled from Tokyo to Frankfurt, Sao Paulo to Seoul. Over the past year, around $4 trillion has been wiped off the value of American shares alone, a sum equivalent to 40% of the country’s GDP. The collapse in share values after the stockmarket crash of 1987 was only half as big, at 20% of GDP. Welcome to the global bear market, the grizzliest for a generation. Nowadays, falling share prices hurt economies more than they used to because stockmarkets are everywhere much bigger not just in absolute terms but also in relation to national income. As a result, America’s economy may yet face a recession that was not supposed to happen (see article). But is even more at stake than the course of the business cycle in the United States and elsewhere? Might the fall in share prices spell the end of the public’s passionate new fondness for equities? If so, that would be a more significant change than you might suppose. The 1990s will be remembered as the start of the Internet age, but also the decade when the world—not just America—discovered shares. Global stockmarket capitalisation hit $35 trillion last year, 110% of global GDP, up from 40% in 1990. Stockmarkets used to be seen as the reserve of pinstriped brokers and their wealthy clients. No longer. Over half of all Americans now own shares, twice as many as on the eve of the 1987 crash. Share ownership is even higher in Australia, an economy which not so long ago was run by trade unions. In Germany, where cautious investors used to put their money in bonds, one- fifth of adults are now shareholders, twice as many as three years ago. Even poor countries, even communist ones—China is both—have become crazy for shares. Wider share ownership is profoundly important. First and foremost, it spreads wealth. In addition, it changes attitudes towards economic freedom, by aligning workers’ interests more closely with those of companies, so reducing opposition to lower business taxes or measures to make markets for goods and labour work better. Another aspect of the growing equity culture is greater shareholder activism. Continental Europe’s new shareholders are putting pressure on managers to improve their performance. More than any one technological breakthrough, this cultural change promises to raise productivity and economic growth. (Indeed, it may even be a necessary condition for the rapid adoption of disruptive new technologies.) A thriving equity market makes it easier for young entrepreneurial firms to raise money. And it reduces the dependence of companies on bank credit—a notoriously hazardous and unstable way to allocate capital. Will the slump in share prices kill this emerging equity culture? Plainly, it depends on how much worse, if at all, the share-price slump gets, and how quickly it is reversed. Share prices might recover as swiftly as after the crash of 1987. But by many traditional yardsticks they remain overvalued. And just as stockmarkets overshoot at the top, they often undershoot at the bottom. Falling share prices have already dented enthusiasm for shares in Japan and many emerging markets. But after a pause, strong structural forces should continue to support the equity culture in the long term. In particular, as state pay-as-you-go pension schemes strain under the weight of ageing populations, governments around the world are keen to encourage a shift to private pensions. This will fatten the funds that invest in equities. After an 11-year bear market in Japan it is hardly surprising that less than 10% of households still own shares. Here, too, a rapidly ageing population poses a big challenge to pension finance. In the short term, on the other hand, a severe bear market would make it even harder to privatise state-run social-security systems, such as America’s.
The list of books you might like
