"Why Don't Islamic Countries Get Rich?"

I came across this paragraph a couple weeks ago, and finally remembered to post it to the blog. The paragraph is a small part from a review published in the July 23rd edition of The Economist on Alan Beattie's book, False Economy: A Surprising Economic History of the World. Beattie is the world-trade editor at the Financial Times and a former economist for the Bank of England.

Turning to religion, Mr Beattie asks: “Why don’t Islamic countries get rich?” Ah, he replies, some of them do. Islam is often held up as inimical to economic progress. That is nonsense, he says. The Muslim Hausa have provided some of Nigeria’s most successful traders for centuries. “Had Max Weber lived among the Hausa”, Mr Beattie sniffs, “he might well have concluded that Muslims were good for growth and constructed his convoluted psychological theories around the tenets of Islam.” The author picks his way through religious texts, history and modern commercial practice to argue that there is no reason to draw a firm causal connection between any faith and economic progress.

Here is another review for False Economy, from Business Week, that discuss the Islamic question:

Beattie, who studied history at Oxford University and economics at Cambridge, draws on both disciplines to overturn assumptions about the evolution of the global economy. For example, the data do not support the belief that Islamic societies inherently perform worse than other nations, or for that matter that there is any correlation between religion and growth. Malaysia has both a strong Islamic identity and a modern economy. Religion is an obstacle only when development is blocked in God's name, often in self-defense by those who hold power, Beattie argues.

In looking up information about this book, I came across an old blog post at Aqoul that discusses a Financial Times article Beattie wrote on the same subject, most likely becoming part of his research for the book now published. (Unfortunately, the FT article is no longer available on the FT website.) However, the Aqoul post refers to the original study Beattie was writing about, Religion, Culture and Economic Performance by Marcus Noland at the Institute for International Economics, which was published in August 2003. In that study, Noland found that:

The results with respect to Islam do not support the notion that it is inimical to growth. On the contrary, virtually every statistically significant coefficient on Muslim population shares reported in this paper—in both cross-country and within-country statistical analyses—is positive. If anything, Islam promotes growth.

(A similar paper by Noland and Howard Pack, Islam, Globalization, and Economic Performance in the Middle East (published June 2004), came to the same conclusion.)

So, the partial answer to the question, "Why don't Islamic countries get rich?" is, "It's not Islam's fault." To answer the question more thoroughly requires a more conventional economic analysis. (I hadn't originally planned a part two, but I feel one may be necessary at this point.)

Update (8 May 2011): I think the events of recent months (the "Arab Spring" and especially the examples of Tunisia and Egypt) have shown that the problem with respect to economic growth in Muslim countries is not Islam itself, but the authoritarian control by governments over economic activity, especially when that control is used to stifle the economic activity of the average Muslim in favor of cronyism. Don't forget that the Tunisian revolution, which started the Arab Spring, started when a young man, Mohamed Bouazizi, set himself on fire because local officials wouldn't allow him to support himself and his family by selling fruit and vegetables from a pushcart.

2008 Oil Reserves Analysis

The Economist had a recent graph showing oil reserves as of the end of 2008, with the number of years remaining for each country's reserves at the 2008 rate of production. I posted a similar graph from The Economist back in June 2006, so we'll do a little analysis to see how things have gone in the past three years.

First, there have been some changes in the rankings for total reserves. The top four (Saudi Arabia, Iran, Iraq and Kuwait) remain the same, but Venezuela has moved up one notch, replacing the UAE in fifth place. Russia remains at #7, but Libya has moved up to #8, replacing Kazakhstan. Numbers 10 (Nigeria), 11 (United States) and 12 (Canada) remain the same, but Qatar has moved ahead of China for 13th place. Angola comes in at #15 in the 2008 chart, up four places. Eight countries that were on the 2005 chart were omitted this time (in alphabetical order): Algeria, Azerbaijan, Brazil, India, Mexico, Norway, Oman, and Sudan).

The 2005 chart mentioned that if production were to continue at 2005's level of production, the world would have 41 years' worth of oil left. The good news is that, three years on, global supplies should actually last for another 42 years.

Doing a quick-and-dirty analysis, we can find out which countries have been winners over the past three years and which were losers. Winners are those countries whose reserves will survive longer today than they were expected to last in 2005's estimate, taking into account the three years of production that have passed. (This could happen either because more oil reserves have been proved in the past three years, because production slowed down, or both.)

In fact, all of the countries were winners, except for three; the winners being: Saudi Arabia (3.5 years), Iraq (3), Kuwait (2.6), Venezuela (30!), Russia (3.8), Libya (4.6), Nigeria (10.6), United States (3.4), Canada (12.1), Qatar (19.1), China (2.1), and Angola (2.7).

The three losers were Iran (-3.1), the UAE (-4.3), and Kazakhstan (-7.0).

The full Economist article:

Although the price of oil peaked at $147 a barrel in 2008, the world’s proven oil reserves—those that are known and recoverable with existing technology—fell only slightly, to 1,258 billion barrels, according to BP, a British oil company. That is 18% higher than in 1998. OPEC tightened its grip slightly in 2008, and commands slightly more than three-quarters of proven reserves. Saudi Arabia and Iran together account for almost one-third of the total. Venezuela, with nearly 8%, has the largest share of any non-Middle Eastern country. BP reckons that if the world continues to produce oil at the same rate as last year, global supplies will last another 42 years, even if no more oil reserves are found.

The Economist: Arming Up

This was a very interesting (if extremely short) article in The Economist about military spending per capita:

Israel spends most on defense relative to its population, shelling out over $2,300 a person, over $300 more than America. Small and rich countries, and notably Gulf states, feature prominently by this measure. Saudi Arabia ranks ninth in absolute spending, but sixth by population. China has increased spending by 10% to $85 billion to become the world's second largest spender. But it is still dwarfed by America, whose outlay of $607 billion is higher than that of the next 14 biggest spenders combined.

That Singapore comes in at #4 is a little surprising (I would have expected it to be a little lower down on the list), but I'm not surprised that it and some of the other small countries (Bahrain, Brunei, Kuwait, Oman, and Saudi Arabia) are there: all have valuable assets (mostly oil, and a very modern economy in Singapore) that would make nice war prizes for neighboring countries (witness Iraq's attempted grab of Kuwait back in 1990). Israel's there for the obvious reason (let's not forget that much of that military spending goes for the occupation and oppression of the West Bank and Gaza). The bigger surprise for me is the listing of some of the European countries: Denmark, Greece, Norway and the Netherlands. Is it because the cost of participating in NATO is that high or because owning the best military hardware is that expensive?

Four Exoplanets Seen

An interesting day in astronomy. Two different articles announced the discovery of four exoplanets around two stars. The announcement of exoplanets, in and of itself, isn't terribly newsworthy; after all, over 300 have been discovered so far. What make these four stand out is that all of them have been observed visually; that's newsworthy.

In the first article, published by Science (and picked up by The Economist, where I first read the story), a star 128 light years away, designated HR 8799 and located in the constellation of Pegasus, was found to have three exoplanets orbiting it (labeled b, c and d in the photograph). The planets appear to be between five to ten times the mass of Jupiter, with the closest planet being the smallest and the furthest planet being the largest, somewhat like our solar system. The planets were imaged in infrared radiation and are still glowing with the original heat from their creation roughly 60 million years ago. (The Earth, by contrast, is 4.5 billion years old.)

The other exoplanet recently discovered orbits Fomalhaut, a star only 25 light years away from Earth, located in the constellation Piscis Australis, or the "Southern Fish." NASA reports:

In 2004, the coronagraph in the High Resolution Camera on Hubble's Advanced Camera for Surveys produced the first-ever resolved visible-light image of the region around Fomalhaut. (Note: A coronagraph is a device that can block the bright light of a central star to reveal faint objects around it.) It clearly showed a ring of protoplanetary debris approximately 21.5 billion miles across and having a sharp inner edge.

This large debris disk is similar to the Kuiper Belt, which encircles the solar system and contains a range of icy bodies from dust grains to objects the size of dwarf planets, such as Pluto.

Hubble astronomer Paul Kalas, of the University of California at Berkeley, and team members proposed in 2005 that the ring was being gravitationally modified or "shepherded" by a planet lying between the star and the ring's inner edge.

Now, Hubble has actually photographed a point source of light lying 1.8 billion miles inside the ring's inner edge.

...

Observations taken 21 months apart by Hubble's Advanced Camera for Surveys' coronagraph show that the object is moving along a path around the star, and is therefore gravitationally bound to it. The planet is 10.7 billion miles from the star, or about 10 times the distance of the planet Saturn from our sun.

The planet is brighter than expected for an object of three Jupiter masses. One possibility is that it has a Saturn-like ring of ice and dust reflecting starlight. The ring might eventually coalesce to form moons. The ring's estimated size is comparable to the region around Jupiter and its four largest orbiting satellites.

Kalas and his team first used Hubble to photograph Fomalhaut in 2004, and made the unexpected discovery of its debris disk. At the time they noted a few bright sources in the image as planet candidates. A follow-up image in 2006 showed that one of the objects had changed position since the 2004 exposure. The amount of displacement between the two exposures corresponds to an 872-year-long orbit as calculated from Kepler's laws of planetary motion.

To give an idea of how large an 872-year orbit is, the dwarf planet Pluto orbits the sun once every 248 years (about 28% of the time Fomalhaut b takes); the dwarf planet Eris orbits the sun once every 557 years (about 64% of Fomalhaut b's orbit).

Of course, none of these four exoplanets may actually qualify as being the first seen visually; I reported on a possible exoplanet being seen in mid-September.

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One other article of note. In an article on the evolution of rocks and minerals, The Economist notes:

Understanding just how dramatically life shapes minerals will play an important role in the exploration of the universe, says Dr Hazen. Knowing which minerals form at different stages of a planet’s evolution, and which depend upon life to be present, are crucial to understanding the mineralogy of other planets and moons.

With NASA’s Messenger probe now going into orbit around Mercury, Dr Hazen predicts that it will find only 300 or so minerals on the planet. If there are 500-1,000 detected, then it will suggest that there is a lot more to Mercury than anyone originally thought. And if minerals that depend upon life for their formation show up, then researchers will be flummoxed. The same is true for Mars and other planets—including the exoplanets that have been known about but which have just been seen for the first time orbiting stars outside the Solar System. Dr Hazen argues that considering minerals in evolutionary terms is a powerful way to help identify how far a planet has developed geologically. Moreover it can tell you whether life was present at some point—and even whether it is present now.

Photo Credits: Of the HR 8799 system, The Economist; of the Fomalhaut system, NASA, ESA, P. Kalas, J. Graham, E. Chiang, E. Kite (Univ. California, Berkeley), M. Clampin (NASA/Goddard), M. Fitzgerald (Lawrence Livermore NL), K. Stapelfeldt, J. Krist (NASA/JPL), courtesy of APOD

The Stupid

Lexington is an anonymous columnist writing opinion pieces about the American economy and politics for The Economist. (There are similar, anonymous columnists for Britain and Europe.) This week's column, Ship of Fools, is interesting for what it says about the Republican party: they're brain dead. Not that this is a surprise to those of us on the left, but, considering that Lexington is a Republican (it's obvious from his/her writings), I wasn't expecting him/her to dare speak the truth. (Likewise, read the comments to see much wailing and gnashing of teeth at Lexington by the "faithful.") Some excerpts:

The Republicans lost the battle of ideas even more comprehensively than they lost the battle for educated votes, marching into the election armed with nothing more than slogans. Energy? Just drill, baby, drill. Global warming? Crack a joke about Ozone Al. Immigration? Send the bums home. Torture and Guantánamo? Wear a T-shirt saying you would rather be water-boarding. Ha ha. During the primary debates, three out of ten Republican candidates admitted that they did not believe in evolution.

The Republican Party’s divorce from the intelligentsia has been a while in the making. The born-again Mr Bush preferred listening to his “heart” rather than his “head.” He also filled the government with incompetent toadies like Michael “heck-of-a-job” Brown, who bungled the response to Hurricane Katrina. Mr McCain, once the chattering classes’ favorite Republican, refused to grapple with the intricacies of the financial meltdown, preferring instead to look for cartoonish villains. And in a desperate attempt to serve boob bait to Bubba, he appointed Sarah Palin to his ticket, a woman who took five years to get a degree in journalism, and who was apparently unaware of some of the most rudimentary facts about international politics.

Republicanism’s anti-intellectual turn is devastating for its future. The party’s electoral success from 1980 onwards was driven by its ability to link brains with brawn. The conservative intelligentsia not only helped to craft a message that resonated with working-class Democrats, a message that emphasized entrepreneurialism, law and order, and American pride. It also provided the party with a sweeping policy agenda. The party’s loss of brains leaves it rudderless, without a compelling agenda.

This is happening at a time when the American population is becoming more educated. More than a quarter of Americans now have university degrees. Twenty per cent of households earn more than $100,000 a year, up from 16% in 1996. Mark Penn, a Democratic pollster, notes that 69% call themselves “professionals.” McKinsey, a management consultancy, argues that the number of jobs requiring “tacit” intellectual skills has increased three times as fast as employment in general. The Republican Party’s current “redneck strategy” will leave it appealing to a shrinking and backward-looking portion of the electorate.

Why is this happening? One reason is that conservative brawn has lost patience with brains of all kinds, conservative or liberal. Many conservatives — particularly lower-income ones — are consumed with elemental fury about everything from immigration to liberal do-gooders. They take their opinions from talk-radio hosts such as Rush Limbaugh and the deeply unsubtle Sean Hannity. And they regard Mrs Palin’s apparent ignorance not as a problem but as a badge of honor.

Another reason is the degeneracy of the conservative intelligentsia itself, a modern-day version of the 1970s liberals it arose to do battle with: trapped in an ideological cocoon, defined by its outer fringes, ruled by dynasties and incapable of adjusting to a changed world. The movement has little to say about today’s pressing problems, such as global warming and the debacle in Iraq, and expends too much of its energy on xenophobia, homophobia and opposing stem-cell research.

Conservative intellectuals are also engaged in their own version of what Julian Benda dubbed la trahison des clercs, the treason of the learned. They have fallen into constructing cartoon images of “real Americans,” with their “volkish” wisdom and charming habit of dropping their “g”s.

...

Business conservatives worry that the party has lost the business vote. Moderates complain that the Republicans are becoming the party of “white-trash pride.”

...

Richard Weaver, one of the founders of modern conservatism, once wrote a book entitled “Ideas have Consequences”; unfortunately, too many Republicans are still refusing to acknowledge that idiocy has consequences, too.

Why Oil Prices Dropped Recently

Rasheed Moore asked over at Tariq Nelson's blog, "How do oil prices just suddenly drop a dollar a gallon when our economic crisis hits?"

Because everyone stopped driving.

Not really, of course, but the trends against driving have gained the upper hand in recent months, which has caused the demand for oil (and gasoline) to drop. Several suggested readings:

James Hamilton at Econbrowser does a monthly post showing US auto sales. The most recent post (for October sales) shows that US-manufactured car sales are down 27% from a year ago, US-manufactured light truck sales (including SUVs) are down 40%. GM's chief sales analyst: "Clearly we're in a dire situation."

The Federal Highway Administration's (FHA) Travel Trends (August 2008 - most recent month available) - In the 12-month moving average, 2008 has the fewest amount of vehicle miles driven since 2003. The peak year was 2007. Most people aren't driving as much as they used to.

In my original response, I linked to an FHA graph showing the 12-month moving average since 1983 to make clear the drop in the number of vehicle miles traveled within the US. The original FHA graph is rather difficult to read, so I've made a new graph, below, showing the same data:


If it makes you feel any better, The Economist is reporting that oil prices may be going back up to around $150 or so by 2010.

China Beating the US in the Global Oil Game

A very interesting article at Money Morning about how China is beating the United States in the global oil game. (Actually, The Economist tackled the larger issue of China's thirst for natural resources and how they're going about getting them, particularly in Africa, in a noteworthy special report back in March.) Below are some of the article's highlights:

While this deal, on its face, appears to be just another global oil-services contract, it’s actually a very significant development in the hunt for long-term energy supplies. In fact, it actually demonstrates that – when it comes to nailing down those long-term oil supplies – China is an expert, and is playing a very deep game. And the outcome of that game will certainly have substantial long-term implications for consumers and investors both here in the United States, and in markets abroad. Here’s why:

With estimated reserves of 115 billion barrels, Iraq is tied with Iran for the world’s No. 2 position, trailing Saudi Arabia, which has estimated reserves of 264 billion barrels, according to estimates from the Energy Information Administration .

In a country where electricity is in short supply, the oil produced from the Ahdab Oil Field will help fuel a planned power plant that would be one of the largest in Iraq. By helping Iraq with this key initiative, China can expect to gain a solid foothold in one of the most oil-rich nations in the world, analysts say.

At the end of the day, the deal clearly highlights something that most U.S. investors haven’t focused on yet – namely that the eventual winners in this game may not be such well-known giants as Chevron Corp. (CVX), ExxonMobil Corp. (XOM), or other household names. Deals like this one and the host of others that are undoubtedly close behind suggest that tomorrow’s winners may have names most English-speaking investors can’t pronounce, since they’ll be distinctly Arabic or Chinese in nature.

...

While China won’t participate in the profits from the oil it helps pump, it is shrewd enough to realize there will be long-term benefits. Analysts who see the bigger picture here agree with our view.

“There are some political profits for China,” Ibrahim Bahr al-Ulum, a former Iraqi oil minister, told The Times. “They need access to Iraq, and when they need oil, at least the Iraqi people will feel that China has done something for them.”

...

By invading Iraq, the United States dealt China’s central planning commission an embarrassing wakeup call when the second Gulf War summarily wiped out China’s oil interests in Iraq.

When that happened, China’s central planners realized two things:

The status quo in the global oil game had changed.

And China’s double-digit economic miracle could not be sustained with only a few oil suppliers.

What China fears most is that there will not be enough oil to go around in the very near future and that a U.S.-dominated supply chain could effectively “strangle” China’s growth.

So, it has done what the United States and other great powers have done at other times in history and gone on a buying spree from Darfur to Peru that’s turned heads and ruffled feathers all across the world.

What’s been especially frustrating for hapless Western leaders who do not understand that their actions caused this in the first place, is that China’s not afraid to do business with rogue nations like Iran, Sudan and Burma. It has even gotten chummy with Venezuela and Russia – much to the consternation of our present administration.

It’s a virtual certainty that China will maintain this policy going forward. My contacts in China and Africa have told me point blank that China’s leaders “don’t care about human rights or nukes or hostile governments. What matters is anyone who provides oil to China no matter what the rest of the world thinks.”

So, in as much as the U.S. media has dismissed this deal as only one in a long string of recent Chinese oil purchases, it’s arguably the most important deal yet. The reason: It suggests that China will go to extraordinary lengths to obtain the oil it wants and needs.

To add to its stable of captive oil suppliers, China will pay far more money, endure limitless criticism for ignoring human-rights issues and endure harsher business conditions than our companies can or will undertake. While U.S. firms must worry about sanctions, bad publicity or simply security, China worries about one thing, and one thing only – getting oil.

HT: Informed Comment

The Economist: McCain's Last Stand

There's an interesting, short article on John McCain's campaign in the state of Pennsylvania over at The Economist. What really struck me about this article was two sections near the end. Based on these two paragraphs, is there any reason to think that McCain has any hope of winning Pennsylvania, let alone the country? Not in my mind.

Mr Obama also has an overwhelming advantage with his ground game. The Obama campaign has not just been content to produce huge turnouts in the big cities. It is fighting for every vote. Mr Obama has 81 field offices across the state, many in places where Democrats have never competed before, compared with Mr McCain’s three dozen. Mr Obama is also making clever use of affinity groups—getting nurses to organise meetings with other nurses and Catholics (a vital group in Pennsylvania, accounting for almost 25% of people) to organize meetings with other Catholics.

...

The McCain office only had a couple of people working the phones when The Economist visited. The young man who was in charge had no idea that Mr McCain was in the state that day. The Obama office, by contrast, was crammed to the brim and hyper-organized. There were plenty of older people sporting “Hillary sent me” badges as well as younger Obamaphiles. The walls were covered with charts telling people where they had to be and when. After dark, it was still buzzing with volunteers. The McCain office was closed.

The Economic Version of "Final Destination 3"

There is someone, walking behind you
Turn around, look at me
There is someone, watching your footsteps
Turn around, look at me
One more post on economics (for now), this time an unusual look at housing prices. The New York Times produced a graph of Robert Shiller's American housing price index, which shows what prices have been like from 1890 through 2006. For example, if a standard house cost $100,000 in 1890 (in 2006 dollars), a similar home would have sold for $199,000 in 2006. What's interesting, though, is that someone has taken Shiller's data and transformed it into a roller-coaster ride using Atari's RollerCoaster Tycoon (R)3 software. (Be sure to look at the bottom right corner to view the year.)



The problem with this video, though, is that it stops short of what's happened in the past two years. Back in late May, The Economist, which I do read (apparently this is a political joke now), produced a graph that shows this past year's plunge. To give an idea of what the end of the roller-coaster ride should look like, one wit at Angry Bear suggested the following video:



HT: Angry Bear

The Economist: Faith-Based Finance

This is the second of two articles in this week's (September 4th) Economist about Islamic finance. This article is much shorter, and also easier to digest (even for most Muslims ;) ) than the main article, being more of an introduction to the topic of Islamic financing.

The modern history of Islamic finance is often dated to the 1970s, with the launch of Islamic banks in Saudi Arabia and the United Arab Emirates. But its roots stretch back 14 centuries. Islamic finance rests on the application of Islamic law, or sharia, whose primary sources are the Qur'an and the sayings of the Prophet Muhammad. Sharia emphasizes justice and partnership. In the world of finance that translates into a ban on speculation (or gharar) and on the charging of interest (riba). The idea of a lender levying a straight interest charge, regardless of how the underlying assets fare in an uncertain world, offends against these principles—though some Muslims dispute this, arguing that the literature in sharia covering business practices is small and that terms such as “usury” and “speculation” are open to interpretation.

Companies that operate in immoral industries, such as gambling or pornography, are also out of bounds, as are companies that have too much borrowing (typically defined as having debt totaling more than 33% of the firm’s stock market value). Such criteria mean that sharia-compliant investors steer clear of highly leveraged conventional banks, a wise choice in recent months.

Despite these prohibitions, Islamic financiers are confident that they can create their own versions of the important bits of conventional finance. The judgment of what is and is not allowed under sharia is made by boards of scholars, many of whom act as a kind of spiritual rating agency, working closely with lawyers and bankers to create instruments and structure transactions that meet the needs of the market without offending the requirements of their faith.

Non-Muslims may find the distinctions between conventional finance and Islamic finance a trifle contrived. An options contract to buy a security at a set price at a date three months hence is frowned upon as speculation. A contract to buy the same security at the same price, with 5% of the payment taken upfront and the balance taken in three months upon delivery, is sharia-compliant. Then again, winning over non-Muslims is not really the point.

There is no ultimate authority for sharia compliance. Some worry that this may hold the industry back. Malaysia has tackled this by creating a national sharia board. Some industry bodies, notably the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) in Bahrain, are working towards common standards. That a few scholars dominate the boards of the big international institutions also helps create consistency. But differences between national jurisdictions — between pious Saudi Arabia and more liberal Malaysia, say, are likely to remain.

Both of these countries feature in the top three markets for Islamic finance, measured by the quantity of sharia-compliant assets (see table). Top is Iran, although international sanctions keep its industry isolated. The Gulf states, awash with liquidity and with a roster of huge infrastructure projects to finance, are the most dynamic markets. Britain is the most developed Western center, although France, with a much larger Muslim population, wants to close the gap.

The Economist: Savings and Souls

The Economist has come out with two articles this week (September 4th) on Islamic finance. Below is the main article, Savings and Souls; I've posted the second article, Faith-Based Finance, separately.

The basic premise of this article is to give a primer about the state of Islamic finance in the world today, focusing on various problems and challenges facing the industry.

To see Islamic finance in action, visit the mutating coastline of the Gulf. Diggers claw sand out of the sea off Manama, Bahrain’s capital, for a series of waterfront developments that are part-funded by Islamic instruments. To the east, Nakheel, a developer that issued the world’s largest Islamic bond (or sukuk) in 2006, is using the money to reorganize the shoreline of Dubai into a mosaic of man-made islands.

Finance is undertaking some Islamic construction of its own. Islamic banks are opening their doors across the Gulf and a new platform for sharia-compliant hedge funds has attracted names such as BlackRock. Western law firms and banks, always quick to sniff out new business, are beefing up their Islamic-finance teams.

Governments are taking notice too. In July Indonesia, the most populous Muslim country, said it would issue the nation’s first sukuk. The British government, which covets a position as the West’s leading center for Islamic finance, is also edging towards issuing a short-term sovereign sukuk. France has begun its own charm offensive aimed at Islamic investors.

Set against ailing Western markets such vigor looks impressive. The oil-fueled liquidity that has pumped up Middle Eastern sovereign-wealth funds is also buoying demand for Islamic finance. Compared with the ethics of some American subprime lending, Islamic finance seems virtuous as well as vigorous. It frowns on speculation and applauds risk-sharing, even if some wonder whether the industry is really doing anything more than mimicking conventional finance and, more profoundly, if it is strictly necessary under Islam (see article).


Sukuks in the souk

As the buzz around the industry grows, so do expectations. The amount of Islamic assets under management stands at around $700 billion, according to the Islamic Financial Services Board, an industry body. Standard & Poor’s, a rating agency, thinks that the industry could control $4 trillion of assets. Others go further, pointing out that Muslims account for 20% of the world’s population, but Islamic finance for less than 1% of its financial instruments—that gap, they say, represents a big opportunity. With tongue partly in cheek, some say that Islamic finance should by rights displace conventional finance altogether. Western finance cannot service capital that wants to find a sharia-compliant home; but Islamic finance can satisfy everyone.

Confidence is one thing, hyperbole another. The industry remains minute on many measures: its total assets roughly match those of Lloyds TSB, Britain’s fifth-largest bank (though some firms that meet sharia-compliant criteria may attract Islamic investors without realizing it). The assets managed by Islamic rules are growing at 10-15% annually—not to be sniffed at, but underwhelming for an industry that attracts so much attention. Most of all, the industry’s expansion is tempered by its need to address the tensions between its two purposes: to serve God and to make as much money as it can.

That is a stiff test. A few devout Muslims, many of them in Saudi Arabia, will pay what Paul Homsy of Crescent Asset Management calls a “piety premium” to satisfy sharia. But research into the investment preferences of Muslims shows that most of them want products that benefit their savings, as well as their souls—rather as ethical investors in the West want funds that do no harm, but are also at least as profitable as other investments.

A combination of ingenuity and persistence has enabled Islamic finance to conquer some of the main obstacles. Take transaction costs which tend to be higher in complex Islamic instruments than in more straightforward conventional ones. Sharia-compliant mortgages are typically structured so that the lender itself buys the property and then leases it out to the borrower at a price that combines a rental charge and a capital payment. At the end of the mortgage term, when the price of the property has been fully repaid, the house is transferred to the borrower. That additional complexity does not just add to the direct costs of the transaction, but can also fall foul of legal hurdles. Since the property changes hands twice in the transaction, an Islamic mortgage is theoretically liable to double stamp duty. Britain ironed out this kink in 2003 but it remains one of the few countries to have done so.

However, just as in conventional finance, as more transactions take place the economies of scale mean that the cost of each one rapidly falls. Financiers can recycle documentation rather than drawing it up from scratch. The contracts they now use for sharia-compliant mortgages in America draw on templates originally drafted at great cost for aircraft leases.

Islamic financiers can also streamline their processes. When Barclays Capital and Shariah Capital, a consultancy, developed the new hedge-fund platform, they had to screen the funds’ portfolios to make sure that the shares they pick are sharia-compliant. That sounds as if it should be an additional cost, but prime brokers already screen hedge funds to make sure that risk concentrations do not build up. The checks they make for their Islamic hedge funds can piggyback on the checks they make for their conventional hedge funds.

Mohammed Amin of PricewaterhouseCoopers, a consulting firm, says the extra transaction costs for a commonly used Islamic financing instrument, called commodity murabaha, total about $50 for every $1m of business. That is small enough to be recouped through efficiencies in other areas, or to be absorbed in lenders’ profit margins. In addition, bankers privately admit that less competition helps keep margins higher than in conventional finance. “Conceptually, Islamic finance should cost more, as it involves more transactions,” says Mr Amin. “The actual cost is tiny and can be lost in the wash.”

The other area of substantive development has been in redefining sharia-compliance. New products require scholars to cast sharia in fresh, and occasionally uncomfortable, directions. Some investors express surprise at the very idea of Islamic hedge funds, for example, because of prohibitions in sharia on selling something that an investor does not actually own.

“You encounter a wall of skepticism whenever you do something new,” says Eric Meyer of Shariah Capital. “It is no different in Islamic finance.” He says that it took eight long years to bring his idea of an Islamic hedge-fund platform to fruition, applying a technique called arboon to ensure that investors, in effect, take an equity position in shares before they sell them short. Industry insiders describe an iterative process, in which scholars, lawyers and bankers work together to understand new instruments and adapt them to the requirements of sharia.

Differences in interpretation of sharia between countries can still hinder the economies of scale. Moreover, the scholars can sometimes push back. Earlier this year, the chairman of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), an industry body, excited controversy by criticizing a common form of sukuk issuance that guarantees the price at which the issuer will buy back the asset underpinning the transaction, thereby enabling investors’ capital to be repaid. Such behavior contravened an AAOIFI standard demanding that assets be bought back at market prices, in line with the sharia principle of risk-sharing. The sukuk market has enjoyed years of rapid growth (see chart), but early signs are that the AAOIFI judgment has dented demand.

Although Islamic finance has done well to reduce its costs and broaden its product range, it has yet to clear plenty of other hurdles. Scholars are the industry’s central figures, but recognized ones are in short supply. A small cadre of 15-20 scholars repeatedly crops up on the boards of Islamic banks that do international business. That partly reflects the role, which demands a knowledge of Islamic law and Western finance, as well as fluency in Arabic and English. It also reflects the comfort that this handful of recognized names brings to investors and customers.

There are plenty of initiatives to nurture more scholars but for the moment, the stars are pressed for time. That can be a problem when banks are chasing their verdict on bespoke transactions. It takes a scholar about a day to wade through the documentation connected with a sukuk issue, for example. But scholars are not always immediately available. “You’ve got to have the scholar’s number programmed into your mobile phone and be able to get hold of them,” says a banker in the Gulf. “That is real competitive advantage.”

Assets are another bottleneck. The ban on speculation means that Islamic transactions must be based on tangible assets, such as commodities, buildings or land. Observers say that exotic derivatives in intangibles such as weather or terrorism risk could not have an Islamic equivalent. But in the Middle East, at least, the supply of assets is limited. “Lots of companies in the Gulf are young and don’t have assets such as buildings to use in transactions,” says Geert Bossuyt of Deutsche Bank. This limits the scope for securitization, a modern financing technique that is backed by assets and is thus seen by sharia scholars as authentically Islamic. There are not enough properties to bundle into securities.

Governments have more assets to play with. The Indonesians have approved the use of up to $2 billion of property owned by the finance ministry in their planned sukuk issuance later this year. But oil-rich governments in the Gulf have little need to issue debt when they are flush with cash. That is a problem. Sovereign debt would establish benchmarks off which other issues can be priced. It would also add to the depth of the market, which would help solve another difficulty: liquidity.

It may seem odd to worry about liquidity when lots of Muslim countries are flush with cash, but many in Islamic finance put liquidity at the top of their watchlist. The chief concern is the mismatch between the duration of banks’ liabilities and their assets. The banks struggle to raise long-term debt. In a youthful industry, their credit histories are often limited; they also lack the sort of inventory of assets that corporate sukuk issuers have.


Desert liquidity

As a result, Islamic banks depend on short-term deposit funding, which, as Western banks know all too well, can disappear very rapidly. “Lots of assets are generally of longer term than most deposits,” says Khairul Nizam of AAOIFI. “Banks have to manage this funding gap carefully.” If there were a liquidity freeze like the one that struck Western banks a year ago, insiders say that the damage among Islamic banks would be greater.

There are initiatives to develop a sharia-compliant repo market but for the time being the banks have only limited scope for getting hold of money fast. Loans and investments roll over slowly. The lack of sharia-compliant assets and a tendency for Islamic investors to buy and hold their investments have stunted the secondary market. The shortest-term money-management instruments available today are inflexible. Cash reserves are high, but inefficient. Western banks with Islamic finance units, or “windows”, are just as troubled by tight liquidity as purely Islamic institutions are: their sharia-compliant status requires them to hold assets and raise funds separately from their parent banks.

There are other sources of danger, too. Because Islamic banks face constraints on the availability and type of instruments they can invest in, their balance-sheets may concentrate risk more than those of conventional banks do. The industry’s ability to steer its way through stormy waters is largely untested, although Malaysian banks do have memories of the Asian financial crisis in the 1990s to draw on.

None of these tensions need derail the growth of Islamic finance just yet. There is plenty of demand, whether from oil-rich investors, the faithful Muslim minorities in Western countries or the emerging middle classes in Muslim ones. There is lots of supply, in the form of infrastructure projects that need to be financed, Western borrowers looking for capital and ambitious rulers eager to set up their own Islamic-finance hubs. The industry is innovative; new products keep expanding the range of sharia-compliant instruments. And as in conventional finance, the economics of the Islamic kind improve as it gains scale.

But further growth itself contains a threat. The AAOIFI ruling on sukuk earlier this year neatly captured the contradictory pressures on the industry. On the one hand, bankers are worried that the narrow enforcement of sharia standards is liable to stifle growth; on the other some observers fear that Islamic finance is becoming so keen to drum up business that its products, with all their ingenuity, are designed to evade strict sharia standards. This presents a dilemma. If the industry introduces too many new products, cynics will argue that sharia is being twisted for economic ends—the scholars are being paid for their services, after all. But if it fails to innovate, the industry may look too medieval to play a full part in modern finance.

Balancing these imperatives will become even harder as competition grows fiercer. Anouar Hassoune of Moody’s, a credit-rating agency, believes that unscrupulous newcomers could harm the reputation of the entire industry, “like the space shuttle undone by something the size of a 50 cent coin”. Islamic finance serves two masters: faith and economics. The success of the industry depends on satisfying both, even if the price of that is a bit more inefficiency and a bit less growth.

State Rankings by Social and Economic Liberalism/Conservatism

This is an interesting graph showing where the states in the continental U.S. rank in terms of social and economic liberalism vs. conservatism. The data used to make this graph is somewhat old (from the 2000 election season).

Here's a graph of the 50 states (actually, I think Alaska and Hawaii are missing), showing the average economic and social ideology of adults within each state. Each of these is scaled so that negative numbers are liberal and positive are conservative; thus, people in Massachusetts are the most liberal on economic issues and people in Idaho are the most conservative:


West Virginians are on the liberal side economically but are extremely socially conservative, whereas Vermont is about the same as West Virginian on the economic dimension but is the most socially liberal of all the states. Coloradans are economically conservative (on average) but socially moderate (or, perhaps, socially divided; these are averages only).

Read the rest of the post here.

HT: Economist's View

A question that would interest me is, by how much do states shift in terms of their economic and social beliefs over time? One would think that they do to a degree, but not by that much. However, a recent article in The Economist (The Big Sort), discusses how Americans are segregating themselves into geographical areas by political beliefs:

Americans move house often, usually for practical reasons. Before choosing a new neighborhood, they drive around it. They notice whether it has gun shops, evangelical churches and “W” bumper stickers, or yoga classes and organic fruit shops. Perhaps unconsciously, they are drawn to places where they expect to fit in.

Where you live is partly determined by where you can afford to live, of course. But the “Big Sort” does not seem to be driven by economic factors. Income is a poor predictor of party preference in America; cultural factors matter more. For Americans who move to a new city, the choice is often not between a posh neighborhood and a run-down one, but between several different neighborhoods that are economically similar but culturally distinct.

...

Because Americans are so mobile, even a mild preference for living with like-minded neighbors leads over time to severe segregation. An accountant in Texas, for example, can live anywhere she wants, so the liberal ones move to the funky bits of Austin while the more conservative ones prefer the exurbs of Dallas. Conservative Californians can find refuge in Orange County or the Central Valley.

Over time, this means Americans are ever less exposed to contrary views. ... Americans were the least likely of all to talk about politics with those who disagreed with them.

Intriguingly, the more educated Americans become, the more insular they are. ... Better-educated people tend to be richer, so they have more choice about where they live. And they are more mobile. One study that covered most of the 1980s and 1990s found that 45% of young Americans with a college degree moved state within five years of graduating, whereas only 19% of those with only a high-school education did.

There is a danger in this. Studies suggest that when a group is ideologically homogeneous, its members tend to grow more extreme. Even clever, fair-minded people are not immune. ... Republican-appointed judges vote more conservatively when sitting on a panel with other Republicans than when sitting with Democrats. Democratic judges become more liberal when on the bench with fellow Democrats.

Residential segregation is not the only force Balkanizing American politics, frets Mr Bishop. Multiple cable channels allow viewers to watch only news that reinforces their prejudices. The Internet offers an even finer filter. Websites such as conservativedates.com or democraticsingles.net help Americans find ideologically predictable mates.

And the home-schooling movement, which has grown rapidly in recent decades, shields more than 1m American children from almost any ideas their parents dislike.

...

Voters in landslide districts tend to elect more extreme members of Congress. Moderates who might otherwise run for office decide not to. Debates turn into shouting matches. Bitterly partisan lawmakers cannot reach the necessary consensus to fix long-term problems such as the tottering pensions and health-care systems.

America, says Mr Bishop, is splitting into "balkanized communities whose inhabitants find other Americans to be culturally incomprehensible." He has a point. Republicans who never meet Democrats tend to assume that Democrats believe more extreme things than they really do, and vice versa. This contributes to the nasty tone of many political campaigns.

This last paragraph also helps to explain why most non-Muslim Americans are so Islamophobic and xenophobic: Not knowing any Muslims they are more susceptible to believing the lies spread by the haters.

The Economist: The Future of Energy

I've been having a nice conversation with Terry, who is justifiably concerned with the amount of oil the U.S. has been importing. He mentioned recently that he believes in our pursuit of alternatives, and I wanted to let him (and others) know that this week's Economist magazine has a special report (nine articles) on the future of energy, which focuses primarily on prospects for various alternative energies. Below is a listing of links to all of the articles.

The Power and the Glory (energy alternatives)
Trade Winds (wind power)
Dig Deep (carbon storage)
Another Silicon Valley? (solar energy)
Beneath Your Feet (geothermal generation)
Grow Your Own (biofuels)
The End of the Petrolhead (tomorrow's cars)
Life After Death (nuclear energy)
Flights of Fancy (energy's future)

The Foreign Fashion Models' Employment Relief Act of 2008

An odd story out of The Economist this week: Apparently not enough foreign fashion models are able to get H-1B's, a temporary work visa the U.S. government gives to foreign nationals for specialized occupations. The H-1B, of which only 65,000 are allotted per year, is frequently given to tech workers; companies such as Microsoft and Infosys sponsor many of the H-1B employees, and even they are feeling the pinch from not enough foreign talent coming into the country. "Bill Gates, Microsoft's chairman, testified to a Senate committee last year that the only way to solve the 'critical shortage of scientific talent' was to open up the country's doors."

This is causing the New York fashion industry to get their knickers in a twist. Coming to the rescue is Congressman Anthony Weiner (D-NY09), who has proposed a bill that would allow models to be reclassified into their own special immigration category. "This would free up more visas for the nerds; and it would allow 1,000 models to strut their stuff in America each year, compared with just 349 in 2007, half the annual number admitted between 2000 and 2005."

So why is Weiner sponsoring this bill?

Steve King, an Iowa congressman, thinks the bill should be called the “Ugly American Act” because it implies there are not enough beautiful people in the United States. But Mr Weiner, a bachelor accused by the tabloids and his fellow politicians of using the visa issue to get himself a glamorous date, says he's only thinking of New York's economy, which is heavily involved in the fashion industry.

The business generates thousands of jobs and millions in tax revenue: the average photo-shoot costs about $100,000. If a foreign model is denied entry, he says, the production is likely to be lost to other countries. New York's skyline or California's hills can be easily photoshopped in later. This “beauty drain,” as the newspaper Politico calls it, affects make-up artists, stylists and photographers as well as media companies and advertising agencies.

In other words, if this bill becomes law, all those foreign models, who have such limited prospects for modeling in their own countries, would be allowed to model in the U.S. if they're to avoid working at a real job.

But what about the "supermodels," you ask? Fear not! There's some good news:

...[S]upermodels like Gisele Bündchen are in the clear. They are eligible for O-1 visas, given to those with “extraordinary ability,” like Nobel laureates.

The Economist: The Graveyard Shift and Covering Up

Two short articles in this week's Economist about Muslims in Europe, one about Muslims in France, the other about Denmark. First, the French article, The Graveyard Shift, which suggests that regional Muslim officials are better able to work with local communities and governments than those officials at the national level:

Members of France's official Muslim body, the French Council of the Muslim Faith (CFCM), bicker interminably at national level. But, step by step, a few are getting practical things done in the regions. The contrast between the dysfunctional national body and its active regional offshoots is striking, because the CFCM is squabbling yet again ahead of a leadership election on June 8th.

The CFCM was launched by Nicolas Sarkozy as interior minister in 2003, to give an official voice to France's 6m or so Muslims, rather like that enjoyed by the country's Jewish community. Since then, Dalil Boubakeur, rector of the Paris Mosque, who has long been seen as the voice of the old Muslim establishment and allied to Algeria, has led the CFCM under a pact loosely dressed up as an election. Now more hardline bodies, notably the Union of Islamic Organisations of France, which is linked to the Muslim Brotherhood, as well as groups tied to Morocco and Turkey, want their turn. Amid a frenzy of lobbying — and, say his critics, a fear of losing in an open poll — Mr Boubakeur has threatened to boycott the vote.

Even if a deal is struck to divide up power again, the CFCM will struggle to win credibility. Non-practising Muslims see it as irrelevant, since it is organised entirely through mosques. It has been split by rivalries among foreign sponsors and financiers. And it has failed to pursue such practical matters as the training of imams, many of whom do not speak French. “The CFCM's track record in terms of organising Islam in France is zero,” says Olivier Roy, an Islamic scholar. “The advantage is that this has left the regional heads to get on with what they want.”

In Lyon Muslim burial plots are not the only achievement. The CRCM has negotiated the building of mosques and official sites for the slaughter of sheep at Eid, the festival of sacrifice, as well as improving contacts with other faiths. In Vénissieux, a run-down suburb of Lyon, opposite a Renault factory, the communist mayor has approved the building of a mosque, the Eyup Sultan, after years of failed applications. “Previous projects were abandoned because we didn't know the rules,” says Sifayi Ozcan over Turkish coffee in a portakabin at the site. “This time, we invited the mayor to lay the first foundations.”

During last December's Eid, the CRCM asked regional prefects to provide five extra official sites for ritual slaughter, to improve hygiene and stop sheep-killing at home. More than 1,200 sheep were sacrificed, along with another 10,000 at abattoirs. Now it is in talks with nearby sheep farmers to guarantee future supply — “to enable us to have good French lambs, not foreign ones,” says Mr Gaci.

Much remains to be done. There are worries about lack of progress on training imams. Vénissieux was home to an extremist preacher, Abdelkader Bouziane, who was expelled to Algeria in 2004 after advocating violence against women and who, said the intelligence services, had links to foreign terrorists. The fear is that without a French interpretation of Islamic texts, younger Muslims may turn to more hardline messages on foreign websites or through satellite television. Another difficult matter is prisons; an estimated 70% of the inmates of one in Lyon are Muslim. In the absence of moderate Muslim chaplains, radical movements are recruiting prison inmates with worrying ease.

One wonders exactly what they mean by a "French interpretation of Islamic texts."

The other article, Covering Up, which was also brought up by Islamophobia Watch, focuses on how a political party in Denmark, the Danish People's Party, has been trying to stir up Islamophobic sentiment by suggesting that Danish Muslims will ultimately take over the court system there and implement Shari'ah.

Pia Kjaersgaard'S Danish People's Party has a genius for attracting attention. Over the past month its campaign to ban public employees from wearing Islamic headscarves has dominated the headlines and also triggered squabbles within most of the country's other political parties.

The campaign began with a poster of a burka-clad woman wielding a judge's gavel. The implicit message was that Danes risk having their courts invaded by Muslim hordes and sharia law. Birthe Ronn Hornbech, the immigration minister, denounced the DPP as “fanatically anti-Muslim” and said the judiciary was capable of policing its own impartiality and dress code. Stig Glent-Madsen, a high-court judge, confirmed that the judiciary had always managed this itself.

Yet the government, which relies on the DPP's support to stay in power, has decided that a new law is needed to ban the wearing of all religious symbols by judges — from Christian crosses to Jewish skullcaps and even Sikh turbans. The hapless Ms Ronn Hornbech will have to frame the law. And the DPP is now calling for even broader bans. Muslim headscarves, says Ms Kjaersgaard, are a “symbol of political Islam and the discrimination against women.” She wants them “out of schools, off the streets and outside the doors of parliament.”

Many Danes share Ms Kjaersgaard's sentiments. A poll by Megafon for TV2 found 48% in favour of a ban on public employees wearing “religious garb,” and only 39% against. The international fallout could be large. Denmark is still struggling with the aftermath of the 2006 Muhammad cartoons affair, which led to protests, deaths and burnt-out embassies across the Muslim world.

One response has come from Danish-born Muslims. A poll by Politiken, a daily, of 315 young Muslim students, found that two-thirds of them were considering emigrating after graduation. Most gave as their reason “the tone of the Danish debate about Muslims.” Jakob Lange, head of studies at Copenhagen University, says that children of immigrants deliberately choose portable qualifications. “They want an education they can use abroad, where the tone of the debate is different. Which is why they often choose medicine, engineering or business-related disciplines.”

The Economist: Bernanke's Bind

An important article in this week's Economist. As I had first pointed out a couple weeks ago on my new blog, part of the reason for the rising inflation in commodity prices, such as oil and rice has been due to the combination of dollar-denominated commodity prices and a weakening U.S. dollar; i.e., as the dollar weakens against other currencies, this causes the prices for commodities to rise in order to maintain value. (For you non-Econogeeks out there, this is what is known as "purchasing power parity." A McDonald's Big Mac here in Singapore is the same as a Big Mac in the U.S., and the exchange rate between the Singapore and U.S. dollars should be such that you would pay the same amount for the same product (the Big Mac) regardless of what currency you're using.)

The other major problem is that, as interest rates keep going down (as they did again last week), the real value of the interest rate goes into negative territory. The real interest rate is (essentially) the nominal interest rate minus the rate of inflation. With this negative real interest rate, commodity producers such as farmers, miners, oilers, etc., have more incentive not to sell their products, even though this hurts them in the short-term by not bringing in revenue. As a a result, the amount of supply is lowered, which, in turn, raises prices.

There is another problem mentioned in the final paragraph below; however, the primary argument remains that the Federal Reserve must take some share of the blame for rising commodity prices, whether it's oil or agricultural products, due to their continued lowering of interest rates. This argument suggests, then, that commodity prices might not begin to drop until the U.S. dollar starts to strengthen.

An excerpt from the article:

But oil—and other commodities—are the crux of the problem. In the past, economic weakness in America has usually pushed the price of oil and other commodities down. That relationship has weakened thanks to demand growth in big commodity-intensive emerging economies. But the recent surprise is that commodity prices have soared even as America’s economy has stalled and forecasts for global growth have been trimmed as well. Supply shocks are clearly part of the problem. But the fact that prices have soared across so many commodities suggests a common cause.

Could the culprit be the Fed? Advocates of this idea point to two channels. First, by slashing real interest rates, the Fed has encouraged speculation in commodities by reducing the cost of holding inventories. Second, by pushing down the dollar, Fed looseness is pushing up the price of dollar-denominated commodities.

Jeff Frankel, a Harvard economist, has long argued that low real interest rates lead to higher commodity prices. When real rates fall, he points out, commodity producers have more incentive to keep their asset—whether crude oil, gold or grain—in the ground or in a silo, than to sell today. Speculators, in turn, have more incentive to shift into commodities. There is no doubt that commodities have become an increasingly popular investment category—in fact they bear many of the hallmarks of a speculative bubble. But inventories for many commodities, particularly grains, are unusually low.

What about the dollar link? Chakib Khelil, president of the Organisation of Petroleum - Exporting Countries, argued this week that oil could reach $200 a barrel largely because the market was being driven by the dollar’s slide. Movements in the euro/dollar exchange rate and the price of oil have become extremely close (see chart). An analysis by Jens Nordvig and Jeffrey Currie of Goldman Sachs shows that the correlation between weekly changes in the oil price and the euro/dollar exchange rate has risen from 1% between 1999 and 2004 to 52% in the past six months.

That link is partly a matter of accounting. If the dollar falls, the dollar price of a commodity must rise for its overall price—in terms of a basket of global currencies—to remain stable. But commodity prices have risen even when priced in non-dollar currencies. And the correlation between changes in the price of oil and the euro/dollar exchange rate has risen even when oil is priced in a basket of currencies, such as the IMF’s special drawing rights.

So is the weaker dollar driving oil prices up or are high oil prices driving the dollar down? The Goldman analysts argue the latter because oil exporters import more from Europe than America and hold less of their oil revenues in dollars. A second factor lies with central banks. Because the Fed focuses on “core” inflation (which excludes food and fuel), whereas the ECB targets overall inflation, America’s central bank runs a looser policy in response to higher oil prices, thus pushing the dollar down.

Another reason to suspect that the Fed is more than a bit player is that American interest-rate decisions have a disproportionate effect on global monetary conditions. Some emerging economies still peg their currencies to the dollar; many others have been reluctant to let their exchange rates rise enough to make up for the dollar’s decline. As a result, monetary conditions in many emerging markets remain too loose. This fuels domestic demand, pushing up pressure on prices, particularly of commodities. All of which suggests that the Fed’s decisions are propagated widely through the dollar.

The Economist: Just What Do They Dislike, and Why?

An article in this week's The Economist about the new book by John Esposito and Dalia Mogahed, Who Speaks For Islam? The article's primary criticism about the book is that the data was taken from the annual Gallup World Poll and that, at a cost of $28,500 for the full results of that poll, "...it's hard for ordinary folk to judge exactly how fair the authors have been in mining their own data." Otherwise, the results are generally positive:

The authors rehearse several arguments that make sense to anybody who knows the Muslim world. Rather than despising Western freedom, many Muslims admire it, but they scoff at Western claims to be promoting democracy. Muslim women want greater equality, but they are attached to their faith and culture, and hackles can rise when Westerners set out to "liberate" them. The minority of Muslims (7%) who fully approve the September 2001 attacks are not much more pious than average; so religiosity doesn't seem to be what makes them violent. In one survey, over two-thirds of Muslim respondents called America aggressive, while the proportion who took a similar view of France or Germany was under 10%. So democracy as such isn't a Muslim bugbear.

The article also reports on another poll which had was released this past week:

The results of a more narrowly focused survey, by another American pollster, were released this week. They are a troubling read for the Bush administration. A poll by Zogby International of 4,000 people in six Arab countries—Egypt, Jordan, Lebanon, Morocco, Saudi Arabia and the United Arab Emirates—found rising numbers had a "very unfavorable" view of America. And compared with a similar poll in 2006, an increasing number (67% versus 61%) thought Iran had every right to pursue its nuclear activities. Whatever one believes about the Muslim soul, Mr Bush's efforts to court the Sunni world, ahead of a possible showdown with Iran, seem not to have impressed the Arab street.

The Economist: Gender Gulf

The April 10th edition of The Economist has an article about the problems Muslim women in the Middle East and the banking/financial services industries have in meeting each other. Much of this problem is due to gender segregation, but another problem is that many of these companies haven't thought about the benefits of targeting their marketing toward women and the practical ramifications of being able to market directly to these women; for example, hiring women who are able to meet clients and customers without needing a husband or other male relative to chaperone. I also like how the one company mentioned in the article, Forsa, avoid the "pink-ribboning." Unfortunately, this type of cosmetic change to a company's marketing scheme is all too common and is very superficial. "Oh, look! My credit card has a picture of a rose on it. I'll bank with you." Yeah, right.

But many women still avoid face-to-face meetings with unrelated men. That makes the male-dominated world of banking particularly hard to penetrate.

There are ways of getting round the problem. Saudi retail banks have set up segregated branches that only women can enter. “Ladies' banks” are also cropping up in the UAE. Segregation is a controversial issue, but the facilities at least allow women to manage their finances independently of prying fathers, brothers or husbands. Rising divorce rates give added motivation for women to hide away some money, skeptical of the help they will get from mostly male judges.

Increasingly, wealth managers are also realizing that women in the Gulf region are sitting on fortunes in cash, land and even jewelery. According to Amanda McCrystal of Bramdiva, a London-based wealth-consultation service for women, a few years ago there was a boom in online share-trading by women in the Gulf, since they could do it from the privacy of home. Many were singed by a regional crash in 2006. Some will not return; many of those who do may seek professional advice.

Sandy Shaw, who heads Middle Eastern operations at Coutts, a private bank based in London, says about a quarter of her clients are female, and are keen to keep control of their affairs, especially to ensure that their estates will pass to their children when they die. Aware of this, a small number of Western female bankers now travel regularly to the Gulf to hold meetings with female clients. Again, one of the attractions is privacy; they can visit a Saudi woman at home without her husband present, which a male banker normally could not do. Women may require different products from men, too. In Saudi Arabia and Qatar, for example, they have more of an appetite for lower-risk, capital-protected investments. But this is likely to change as they become more experienced investors, says Ms Shaw.

In the UAE, Dubai World, a government holding company, has set up Forsa, an investment company run by women for women. Its staff scorn what they call “pink-ribboning”: superficial changes to market products to women, like making a credit card pink. Across the region, more such firms would be helpful. This is not only because women need opportunities to work. The finance industry needs them, too: it is growing so fast that it is struggling to recruit and retain staff.

The message has sunk in in Bahrain, where a third of finance-sector employees are female, and in Kuwait, where, including property, the figure rises to 40%. Some employers there say they find female bankers work harder than men. Yet in Saudi Arabia, official statistics indicate that just 5% of Saudis working in finance and property are female. And across the region, it remains hard for female businesswomen to get loans, especially if they are not from prominent families. Even in Bahrain, where nearly one-third of businesses are registered by women, “sometimes women can only get a business license in their husband's name, especially if they have less capital,” says Aamina Awan, who is researching female entrepreneurship in the region.

Cross-posted at J2TM.

The Economist: Faith Upon the Earth

In this week's (September 22nd) issue of The Economist, there's a one-page article about the hot-and-cold alliance between religious groups and environmental scientists. Personally, I favor such alliances.

In Islam, we believe that mankind, through the acceptance of the Khalifa by Adam (pbuh) on mankind's behalf (2:30), has a responsibility toward our natural environment. The word Khalifa has multiple meanings, including: successor, steward, trustee, viceroy, and guardian. While we have the use of all the natural resources on the earth, in the seas, and in the heavens (14:32-3, 31:20, 45:12-3), we must still use these resources wisely. They were created to facilitate humanity in fulfilling our own purpose for which we were created: to worship and serve Allah (swt).

As a result of this, there has been a trend among Muslims toward ecological stewardship. One of the bright lights in this field is the work of Seyyed Hossein Nasr, who is currently a Professor of Islamic Studies at George Washington University. (For an article that includes a brief interview with Dr. Seyyed, please click here.)

Some excerpts from The Economist:

In many other parts of the world, secular greens and religious people find themselves on the same side of public debates: sometimes hesitantly, sometimes tactically, and sometimes fired by a sense that they have deep things in common.

One more case from India: ornithologists who want to save three species of vulture (endangered because cattle carcasses are tainted by chemicals) see their best ally as the Parsees, who on religious grounds use vultures to dispose of human corpses.

In China, organized religion is much weaker and conservationists also feel more lonely. But Pan Yue, the best-known advocate of green concerns within the Chinese government, says ancient creeds, like Taoism, offer the best hope of making people treat the earth more kindly.

Other tie-ups between faith and ecology are less obvious. In Sweden, the national Lutheran Church, working with Japanese Shintos, recently held a multi-faith meeting on forestry. They agreed to set a new standard for the care of forests owned or managed by religious bodies—in other words, they said, 5% of the world's woods.

...

The terms of the transaction between faith and ecology vary a lot. In places like Scandinavia, where religion is weakish, a cleric who "goes green" may reach a wider audience; in countries like India, where faith is powerful, spiritual messages touch more hearts than secular ones do. That doesn't stop some environmental scientists from saying they are being hijacked by clerics in search of relevance. But Mary Evelyn Tucker, of America's Yale University, says secular greens badly need their spiritual allies: "Religions provide a cultural integrity, a spiritual depth and moral force which secular approaches lack."

Martin Palmer, of the British-based Alliance of Religions and Conservation, says faiths often have the clearest view of the social and economic aspects of an environmental problem. In Newfoundland, he notes, conservationists put curbs on cod fishing—and left the churches to care for families whose living was ruined.

Still, one selling point often used by the religious in their dialogue with science—the fact that faith encourages people to think long-term—may be a mixed blessing. The most pessimistic scientists say mankind has a decade at most to curb greenhouse gases and fend off disastrous global warming; that doesn't leave much time to settle the finer points of metaphysics.

The Economist: Constructing Conflict

This is the second of two articles in this week's Economist (August 30th) about the difficulties Muslims worldwide are facing in the construction of masajid. See below for the Economist's editorial on the subject.

In many Western cities, plans to erect mosques often stir more passion than any other local issue—and politicians are leaping into the fray

Not since Cologne was rebuilt half a century ago, out of the rubble of war, has a change in the urban landscape generated so much heat. A city whose main landmark is a medieval cathedral may soon share its skyline with another place of worship: a large mosque with minarets more than 50 meters (165 feet) high.

While the city's (mainly Turkish) Muslim population of over 120,000 is looking forward to the new building—a sign, perhaps, that it has finally put down roots in a country that long treated migrant workers as guests—Cologne as a whole is deeply divided. A poll found that 36% of residents were happy with the mosque plan, 29% wanted to see it scaled down and 31% were entirely against it. The “no” and “yes” camps are not just passionate, they are diverse. Those who approve the plan include many Roman Catholic clergy. But a far-right party, “Pro Cologne”, which holds five of the 90 seats in the city council, has done well by drumming up opposition to the mosque. Also prominent among the “noes” (while distancing himself from Pro Cologne) is Ralph Giordano, a German-Jewish writer and Holocaust survivor, who stirred a national debate by issuing a stark message: “I urge the mayor and the members of the city council to stop the building of this mosque!”

His comments dismayed Germany's four main Muslim associations, all of which have headquarters in the city. Whatever its importance to other faiths, Cologne is a sensitive spot for German Islam. It produced Metin Kaplan, a militant cleric known as “caliph of Cologne”, who was convicted of incitement to crime and extradited to Turkey in 2004. The would-be builders of the new mosque are at the other end of the respectability scale: the Turkish Islamic Union for Religious Affairs (DITIB), an arm of the Turkish government.

All over the Western world, mosques and mosque-building plans are generating passionate arguments, particularly in local and municipal affairs. In many cities, both opponents and supporters of Muslim construction projects have realised that this issue engages voters far more than drains or libraries do.

In the east London borough of Newham, for example, proposals to build a “mega-mosque” to accommodate at least 12,000 worshipers have divided local people (of whom at least a quarter are Muslim) and drawn global attention. British Muslims have been lining up for or against Tablighi Jamaat, the conservative missionary movement behind the mosque. Some are dismayed at the thought that this hard-line group could soon become one of British Islam's most obvious faces, only a stone's throw from the site of the 2012 Olympics; others defend the movement's right to build, noting that Newham's existing mosques are visibly overflowing during Friday prayers.

In Newham council, a new party—the Christian Peoples Alliance—has sprung up, mainly to articulate non-Muslim resistance to the mosque. And on the website of Gordon Brown, the prime minister, an experiment in e-democracy had an awkward result: some 277,000 people used a click to register their opposition to the mega-mosque, much the biggest sign of voter interest that the site attracted.

In many places, the accommodation, both literally and metaphorically, of Muslims and their religious needs has led to some strange coalitions. In Boston in June, the capping of the minaret on a new mosque turned into an emotional celebration by 2,000 Americans, hailing the end of several years of conflict and litigation. The Islamic Society of Boston had in 2005 filed a defamation suit against pro-Israel groups and media outlets that accused the mosque's sponsors of extremist links. But liberal Jews and Christians helped solve the dispute; some hailed the fact that a Bostonian tradition of Jewish-Christian dialog had been extended to Muslims.

[Nearly ready: Boston's hard-won house of prayer. (AP)]

The terms of the mosque debate vary widely: in the United States, mosque projects often meet practical objections, to do with “zoning”, water supplies or parking, but they are usually overcome, helped by a legal system that protects all faiths. In southern European countries like Spain and Italy—where attachment to Catholic symbolism is strong—people are much blunter about expressing their objections in cultural terms: this is a Christian land, and mosques have no place here.

In Rome, on August 21st, police halted work at a site on the Esquiline hill, in an area with a high immigrant population. The sponsors of a planned mosque there were found to have begun work without seeking permission from the local authority. The new building was to have gone up just a few meters from a Catholic church; for some, that was the most important point. A spokesman for a new far-right movement, La Destra, called it “an insult to Christian culture”.

Reza Aslan, a Californian writer on Islam, says that to his American eyes the intensity of openly “Islamophobic” opposition to mosques in parts of Europe, especially the south, is a shock. “It's as though some Europeans are confused about their identity and are now trying to construct one in opposition to Islam.”

But California is itself no paradise for Muslims: a mosque near San Francisco has just been burned down. Christina Abraham, a civil-rights lawyer in Chicago, says mosque builders around her city often have to work twice as hard as other religious groups to get the necessary permits, even though they do eventually get their way. One mosque in the Chicago area faced an apparently malicious regulation which banned parking for three hours on Friday afternoons—the time when worshipers were arriving. Lawyers successfully challenged the rule, on grounds of religious discrimination.

In some European countries—like Germany—the atmosphere faced by would-be mosque builders varies a lot, even within cities. Berlin is one example. In the western district of Kreuzberg, Turkish migrants and their prayers have been part of the scene for decades. But in the capital's east, local residents and politicians from the far-right NPD party are leading loud protests against the building of the first mosque in the ex-communist part of the city. In Munich, meanwhile, the conservative government of Bavaria is locked in battle with the center-left dominated city hall over the plan for a new mosque. For now, the conservative opponents seem to be winning; a local court has called the current plan incompatible with the surroundings.

If controversy over mosques is getting louder in Germany now, that may be because the Turkish community has only recently started claiming citizenship and the right to vote. On the other hand, a much higher share of France's 5m Muslim residents is enfranchised; and yet in some French town halls, the politics of mosque-building are explosive. In Marseille, which is home to 200,000 Muslims but also a bastion of the far right, arguments over the construction of a large mosque have dominated city debates for years. The municipal council voted in July to go ahead, overcoming a raft of legal objections from the far right, which said the Muslim builders got public land (an old abattoir) too cheaply. This week the far-right said it would mount a fresh legal challenge, on grounds that the price being paid for the land was still not enough.

Opponents of mosque building in Europe often claim that the number of mosques is rising much faster than the number of Muslims. That is a hard proposition to test. Statisticians cannot even agree on the definition of a mosque. Idriss Elouanali, editor of the “Yearbook of Mosques” in France, says that in his 2006 survey he used two definitions: first, he counted roughly 100 purpose-built mosques, and then 1,525 prayer rooms, big enough to have Friday sermons with a recognized imam. The combined figure of 1,625 was 75 up from the Yearbook's first edition in 2003, hardly a surge. But Mr Elouanali points out that in the late 1970s, France had fewer than 50 prayer spaces. In the United Kingdom, says Inayat Bunglawala of the Muslim Council of Britain, the number of mosques has jumped in the last 20 years from under 400 to 1,699 registered places of prayer today.

Alexa Färber of Berlin's Humboldt University sees a more qualitative change. Between 1998 and 2006, the number of mosques in Berlin grew from 66 to 76—a smallish rise. However, during those eight years 18 mosques moved location within Berlin: this added to people's perception that mosques were proliferating. More importantly, Ms Färber points out, 21 Muslim groups bought rooms or buildings, which in many cases had been rented before. These purchases usually went along with embellishments such as minarets. No wonder many people think Muslim worship is growing more visible.

One explanation for the delayed building boom in Germany, argues Ms Färber, lies in the cultural obstacles faced by first-generation migrants. With a limited knowledge of their host country, they had to wait for their children and grandchildren, who grew up in Germany and understood the system better, to promote their interests. “Now there are more Turkish architects, lawyers or engineers who help to build mosques,” she says.

Recently some Western governments have started to work more closely with Muslim minorities and encourage the building of new mosques. So why do so many conflicts persist? In fact, for every mosque that is impeded, many other projects go ahead. Moreover, as Mr Bunglawala notes, national politicians can only set the tone of the debate; actual decisions are taken by local councils. This distinction has become apparent in the German city of Duisburg, north of Cologne, where the local DITIB branch is also building a large mosque. There, thanks to good co-operation between religious communities and better communications, construction is going ahead much more smoothly.

Despite such local contrasts, Jocelyne Cesari from Harvard University argues that there are national patterns at work. “In places with a long history of immigration, such as France, Britain or Belgium, resistance to mosques is losing its force,” she believes. In contrast, opposition is stronger in Spain or Italy, where Muslim immigration is relatively new.

If Ms Cesari is right, then it may be that reaching a reasonable accommodation between Muslims and non-Muslim majorities over issues of urban planning is only a matter of time. Is that too optimistic? It may well be true that in many countries, Muslim and non-Muslim elites will get better at understanding one another. But the question is whether grassroots politics will evolve at the same pace. Given the dividends that some local politicians are reaping from backing mosques, or opposing them, that seems a less sure bet.