2009′s Failed States Index

I love this time of year, when Foreign Policy magazine releases its failed states index. It is probably the best index out there, and possibly the most well-read warning of state failure. A few highlights:

- much of the index this year focused on how fragile states will be effected by the global economic crisis (my favourites include Pakistan, Sudan and Iran)
- This year they added an interactive map that helps you see, in a nutshell, how bad the situation is in any part of the world.
- What did they miss? Mexico. Mexico is the state that is quietly failing, but doesn’t get talked about very much. I’m working on an article for a journal on the subject, so I might share a few of my findings here, because I think they need to be said.

How times change….

You know the economic crisis is getting pretty weird when Fidel Castro criticizes Barak Obama’s trade policies, calling them protectionist. Like that’s a bad thing. Weird, right?

Here’s the link to the column in Spanish.

So the question is: if the embargo were lifted tomorrow, what kind of trade model would Cuba embrace?

Short-term fixes for long-term pain

The bill passed in the HoR bans the purchase of most foreign steel and iron used in infrastructure projects. The US will be investing in major infrastructure projects once the next phase of the stimulus package is released. What will this mean for the US and for its trading partners, and for the international economy?

For the US, it will mean an increase in US steel and iron purchased, but it won’t be in a competitive market. As a result, US iron & steel companies will have a significant market advantage. For many economists, this means that those companies will become structurally uncompetitive, as they won’t have to undergo the same rigorous competition as others. When the US eventually opens its market again (as it most likely will), those companies will be seriously disadvantaged, even if they’ve survived in the short-to-medium term, something many other companies will not have. (US infrastructure projects may also become more expensive, since the projects won’t be paying competitive, market-rates for their raw goods.)

In terms of international prices for steel and iron, we can expect them to decrease, making other countries’ infrastructure projects more affordable. While many companies will suffer because of the lack access to the US market, many will survive. These companies will be efficient, having weathered a very tough time, and very competitive.

In the long run, preferential treatment to US companies will create inefficiencies in the system, and delay the US’ transition to the new economy.