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Whilst researching the impacts of the recession on the demand for crocodile leather and stumbling over some tales of recession-induced woes, it seems Hermes, an internationally renowned luxury fashion brand, is the shining star – bucking all trends, and potentially single-handedly fuelling demand for exotic skins, like crocodile leather.

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Hermes sales rose by 3.2% at current exchange rates to €428.4 million over the first 3 months of 2009, despite the wider market context of a floundering global economy. Much of that growth is attributed to sales of leather goods, which rose 21.7% to €206 million and has been driven by ‘robust’ expansion in China and Korea (Hermes 2009).

Hermes’ Birkin bags fanatics, including celebrities like Victoria Beckham, are paying up to $US50,000 (with bags made from exotic skins hitting the 6-digit mark) for a single bag with a waiting list of 2-3 years. Beckham reportedly owns $US2 million worth of Hermes Birkin bags (Murray and Williams 2009). Three thousand coveted Saltwater crocodile skin bags will be made this year, and limiting them in number maintains the exclusivity, luxury image and mystique surrounding them. No doubt it helps that Hermes’ key clientele are unlikely to be affected by the recession and are seemingly “recession proof”, but Hermes ability to conjure such furore over a handbag can only be admired. The exclusivity of its brand is partly reflected in its differing sales results for own stores versus distribution networks, with a 16% growth in sales (at current exchange rates) in the former and a decline in the latter. Clearly stepping into Hermes’ own stores is a far more compelling shopping experience than that found in its distribution stores.

Experts argue that “the people who can afford these goods are not affected by the recession. Even if they lost millions of dollars in the market, they are still worth hundreds of millions of dollars. If you want something super special, if you want a handmade crocodile bag and you can afford it, Hermes is the only place you’ll go”.

Hermes, usually very closed-book about its activities, has claimed that “we cannot meet demand. We are facing massive over-demand. We are limited by our ability to train new craftsmen” [Patrick Thomas, CEO, cited in Goldman (2009)]. Craftsmen in a small French town of Pantin, spend up to 2 weeks preparing each bag. In order to guarantee supply Hermes is vertically integrating its supply chain, establishing new farms in Australia: “It can take three to four crocodiles to make one of our bags so we are now breeding our own crocodiles on our own farms, mainly in Australia,” and it is looking to add to its existing number of 1400 craftsmen to alleviate the bottleneck it currently faces in turning the leather into the exclusive Hermes handbag.

Whilst Hermes success might not be replicable in any market other than the ‘luxury’ fashion market, its role in fuelling demand for crocodile skin, and in driving the demand for 8 high quality skin and skilled, highly trained craftsmen can not be ignored.

This article is cited in the Crocodile Specialist Group Newsletter. See: http://iucncsg.org/.

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itq_ice[1]Iceland is a posterchild for economic incentive mechanisms for managing wildlife stocks. Its ITQ system is based on biological criteria, not political ones like many other systems which result from exhaustive bargaining in smoky rooms, billiard halls and corridors in Bruxelles. However, the Icelandic economy has been crippled by the financial crisis and is suffering a serious recession. And in what we worry is the beginning of a global precedent, the country is looking to its natural resources to restore value in its economy, particularly in its waters.

In January, it increased its whaling quota sixfold, and recently it has increased its catch by 32% in the first two months of 2009 over 2008. And while this trend began under the previous government, it has continued under the new government.

The potential quota-busting could be a rational response to underemployment, high demand and future uncertainty. Or it could be the beginning of a mining of the resource base that could have serious implications for the welfare of future fish stocks for Iceland and its main consumer base throughout Europe. There are two dual issues worth highlighting here.

First, there is a worry for the reputation of economics in supporting conservation. Fish is second to timber for value of trade. And there is evidence that ITQs work, at least for some fisheries. Alongside New Zealand’s quota management system and the clam and sea quahog fisheries in the US , Iceland is emblematic of sound economics driving and supporting conservation itq_ice2

Second, for the broader wildlife trade, the failure of the Icelandic QMS could spell the end of any flirtation with economic instruments. Yet, the wildlife trade labours to manage trade for conservation using CITES which uses a system of international regulation which is at best conservation-neutral and at worst a driver of unsustainable use of wildlife, ITQs offered some hope of salvation in light of very few alternatives to management.

Sustainableslump is concerned that conservationists will turn their back on promising economic incentives mechanisms, and that any hope for endangered species will be lost too.

There is an intriguing new paradigm stalking the developing world, of politicians, national governments renationalising the environment and economic development.

In light of financial mis-management in the developed world, some southern American governments are realising that externally-imposed policies, systems and principles of economic development, aid and structural adjustment [sold to them by these same people who created the financial crisis] are also founded on quicksand. The governments of Bolivia, Ecuador, Nicaragua and Venezuela have all taken steps back from a globalised system of economic development to a more nationalised system.

In these natural resource rich nations, it doesn’t take a great leap of economic thinking to begin re-investing resource rents in locally sustainable ways. Not in ways which perpetuate economic slavery to past loans and agreements with previous US administrations. And in ways that conform to good environmental economic management of non-renewable natural resources. Bolivia has renationalised natural gas reserves. And when Ecuadorians re-elected Rafael Correa on April 26, they fully endorsing his policies of “21st Century Socialism” and collectively lay blame at capitalism’s feet for the global economic crisis. Operationally, Correa’s New Socialism means refusing to repay some foreign debts and significantly increasing social programs for the poor. ACAIJKIB8CAGQVIEYCAMLUMJGCAH1JC58CAPFV6I4CAPKWE8ECAJBVE28CAWJWA4UCA04KWHLCABYYH2VCAI2MRL7CAI0HP6XCAS46ADKCA7ADKW4CA4GWZWECAWWIX3ICA28LM4DCAMBG11R

But the principles appear good, that by taking responsibility for their problems, and matching these solutions to their opportunities, that there is stronger economic systems and hope of being permanently de-linked from their developed northern cousins. There are the skeptics of course, but SustainableSlump is watching in tempered awe.

The following article from the East African Business Week (Kampala) by Cedric Lumiti indicates that the slump will impact the East African Community by reducing economic growth this year by 2%. Significantly, the WTO suggested to African nations to resist the easy path to increased donor aid, instead to “look more on trade than on donations and grants”. This echoes Dambisa Moyo’s messages from her Dead Aid book, and might seem counter development, but with Africa’s banking system being relatively inured from the slump, now might be the time to seize the initiaitve and venure into international trade finance while the rest of the world stalls. As unlikely as it sounds, might African economists hold the key to relieving the world’s slump?

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“Africa: Trade Will Save Continent, Says Development Bank” by Cedric Lumiti, 2/5/09: The global recession will see East African Community economies’ growth recede by an estimated 2% this year. This was stated by African Development Bank (AFDB) President, Donald Kaberuka at the heads of state summit in Arusha, Tanzania.

The World Trade Organisation (WTO) has warned developing countries to tread carefully with donor funded projects. WTO Director for Economic Research, Patrick Low has cautioned developing economies in Africa which rely mostly on donor funds to look more on trade than on donations and grants.

African economies have equally been advised against employing protectionist measures that will hinder trade as this will only prolong the effects of the global recession with all signs showing that the crunch has come home to roost.

The Federation of Kenya Employers (FKE), a private sector umbrella body for employers, has already attested to the fact that no more hiring should be expected and nor will salary increments be affected in the near future. This announcement will only fuel increasing unemployment figures in the country currently estimated at 71 percent.

To the extent that we can do about it, it is important not to make the mistake of turning inwards and forgetting about the contribution that trade can make.

That’s the message that many people are trying to convey, don’t start restricting trade,” warned Low. While appreciating that majority of the countries in the world were grappling with fragile economies, the Geneva-based adviser pointed out that states need to urgently address the emerging issue of the absence of trade finance which is projected to lead to a nine percent contraction of the global trade volumes this year.

I recently attended an event hosted by the ESRC which explored the recession and the green economy. It asked how we can best move to a ‘green economy‘ – an alternative economic model that incorporates social and environmental concerns – whilst also stimulating the economy and helping to move out of the depths of a recession.

A statistic quoted by Professor Paul Ekins was perhaps the most powerful ever cited in relation to the impacts of climate change on humankind: ‘if current emission pressures continue, by 2100, the world will only be able to support 1 billion people. The projected population for 2100 is 9 billion.‘ As a result of our inability or unwillingness to act 8 billion people may effectively cease to exist. This is worse than any prediction previously made and yet it represents the current trajectory, we are moving, like a juggernaut, along. He argues that we now face a low carbon imperative.

Developpement durableEkins argues that a transformation to a low-carbon economy is the biggest challenge facing human kind, but one that we must face with urgency and strength. The UK is already way behind other parts of the world. China, for example, will have put in place 100 GW of wind power by 2020. The UK will have 1.7 GW. Low carbon technologies will be at the heart of the next industrial revolution. Germany is also way ahead of the UK, providing increased jobs, outputs and exports through its transition to a low carbon economy. Ekins says there are three priorities for the UK government:

1) Fiscal stimulus (in the short term only) –

Support employment and skills which benefit from and contribute to developing a low carbon economy. Incentivise private investment in low carbon technologies. All public investment in a fiscal stimulus package should support low carbon objectives, even if this is not their primary purpose. For example, all hospitals should be built to the highest environmental standards. There should be no support for high carbon industries. We cannot continue with a business as usual approach. This needs to be a transformation. Increasing the energy efficiency of building stock is one of the greatest opportunities for labour intensive measures – contributing to economic growth. The government can also set an example by changing laws relating to double glazing on listed buildings and transforming their own to ‘low carbon friendly’ buildings.

2) Leveraging private investment

The UK is currently an unattractive destination for low carbon investment. Spain has reduced its investment in wind farms because of a lack of support from the UK Government. There needs to be the right mix of revenue support, capital grants, tax incentives, partnership investments and revolving funds.

3) Environmental tax reform

15-20% of tax revenue should come from green taxes by 2020. We need a green tax shift. This would give us a robust carbon price across all taxes and would lead to a large reduction in carbon emissions, an 450,000 increase in jobs and only a 0.5% reduction in GDP.

Ekins argues that the 2009 budget reveals some inkling of a tax reform. For the first time since 2000, fuel taxes will provide their greatest revenues. The trend to date has been falling revenues from fuel. But this needs to go further. Skeptics have argued that moving to a low-carbon economy would be fruitless because we would merely be buying ’embedded carbon’ – buying imported products that have been produced using high carbon processes elsewhere. This would mean that whilst our direct actions would signify a move to a low-carbon economy, our purchasing habits might not be so benign in their impact.

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Ekins argues that undoubtedly we need a global response and a global framework to prevent some countries drastically cutting their greenhouse gas emissions whilst others continue using carbon intensive technologies regardless. However, the UK can and must, work unilaterally and become a ‘first mover’, setting an example to the rest of the world about what can be achieved and prove we are commited. There are likely to also be ‘first mover advantages‘ in doing so. Emerging markets will then follow suit.

Robert B. Zoellick, president of the World Bank Group argues that now is the moment to ‘seize opportunity from crisis’. He believes this can be achieved through multilateralism, through ‘reforming and empowering’ the institutions already in place.

He celebrates Keynes as a crucial founder of multilateralism – through the creation of the cornerstones of the World Bank Group, the International Monetary Fund and the World Trade Organisation during the era of World War two and argues that like Keynes we should ‘not shrink away from unifying ideas and actions’ despite the current crisis. He argues that ‘unlike crises in the past sixty years, this is a global crisis’. It therefore demands a global solution. He believes that multilaterlism can magnify the advantages, and temper the downside risks of economic interdependence. It can provide an important monitoring system and control and ensure that the global economic system, particularly trade, is mutually beneficial for all parties.

 He paints a bleak picture of the global context that frames his thoughts and the urgency with which he believes we must act:

The World Bank’s latest estimate of global economic growth in 2009, released today, forecasts a contraction of 1.7% compared to economic growth last year of 1.9%. This would be the first decline in the global economy since World War 2. We also face a 6% drop in the volume of world trade in goods and services, the largest decline in 80 years…just as our economy once helped to lift hundreds of millions out of poverty, today there is a risk of development in reverse, as our interconnected world transmits negative shocks with greater power and velocity.’

Zoellick recommends that as a first step, the G20 should ‘endorse a WTO monitoring system to advance trade and resist economic isolationism, while working to complete Doha negotiations to open markets, cut susbidies, and resist backsliding. We are already seeing creeping protectionism – measures taken at the expense of other countries: ‘Buy this’ or ‘buy that’ campaigns’.

Drawing more seats to the table

It is important, however, that multilaterism serves the interests of developing countries and that open markets aren’t enforced blanketedly on developing countries without their consent and participation in decision-making and an assessment of country-specific and developmental factors.

In Zoellick’s opinion developing countries can be a key part of the solution to the global economic crisis. However, their economies need support from the developed world to ensure that social programs aren’t negatively impacted by the recession and that development and poverty gains achieved aren’t undone. He has called on developed countries to invest 0.7% of their stimulus packages in a Vulnerability Fund to help developing countries.

He proposes supporting developing countries to invest in infrastructure, building productive capacity to pay back loans. This will boost global demand.

Zoellick concludes that if develping countries are going to be part of the solution they must have ‘seats at the table’. The G7 was not inclusive enough to suit the ‘economic realities’ of the time. But the G20 has the potential to do so. However, it still excludes over 160 countries. Zoellick argues that multilateral institutions have an important role to play with their ‘broader membership’ in connecting the G20 to the rest of the world.

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‘The World Bank’s Board of Governors made a start this year with a first phase of reform to increase the influence of developing countries, but we must now go further to rebalance voting shares and Board seats. Making those changes will require that both Europe and the United States reconsider old prerogatives and controls. How they do this is a decision for governments. But I would urge them to be bold and far-sighted. The rising stakeholders must also recognise that with rights come responsibilities, including to boost development assistance’.

Reform is indeed long overdue. Lets hope as Zoellick hopes, that governments can be bold and far-sighted resist the temptation to withdraw and look after their own.

The video below from BBC’s Newsnight is an example of just some of the debates raging over the impacts of the recession on ’emerging economies’ and whether the notion of ‘decoupling’ still holds true in an increasingly globalised world. It argues that the impacts of the recession may be minimal for China and India when compared to the West and will neither exacerbate the crisis in the West nor will it help lift the West out of a crisis. However their global growth rates will improve how the global economy looks as a whole. It argues that the way in which the global economy is governed and how economies interact with one another will need to be significantly re-organised. The move from G8 to G10, including India and China is ‘long overdue’ and the balance of power is shifting. China and India and other emerging economies need to be better represented in the global economic system.Vodpod videos no longer available.

more about “A global recession? “, posted with vodpod