The City Herald

Microsoft and Google scrutinized over dominant position

European regulators are mounting pressure on Microsoft and Google to ensure that both American giants do not abuse their dominant position to suffocate competition. From Monday March 1st, more than 100 millions users of Internet Explorer in Europe will be prompted with the option to keep Microsoft’s browser or dump it for a rival.

Microsoft has decided to offer Windows users with a ballot screen to settle claims by Brussels’ antitrust authorities that the binding of Internet Explorer with Windows dumps competition. Microsoft’s operating system has 92.5% of the global market share, followed by Apple’s MAC OS X with 5.27% according to Net Applications. Bill Gate’s company has a long-running antitrust dispute in Europe, with penalties totaling almost US$2 billion.

Google is also facing claims by a handful of competitors who accuse the search engine of abusing its dominant position. The European Commission wants to examine whether Google deliberately gives websites low rankings to hamper competition. The company denies, saying results produced by its algorithm – the magical formula considered to be the secret behind Google’s business – can only be changed by legal requirements, such as in the case of child pornography or viruses.

Google is considered to have revolutionized online search by mathematically analyzing more than 200 factors – including the content of websites and how many links it has on other web pages – to present users with the most relevant results. The advertisements are placed according to a bid system in which the company that pays more receives more prominence. But Google may interfere in this ranking by an assessment of the quality of the website being advertised. By doing it, the search engine maximizes the chances of offering exactly what users was looking for.

Although much has been said about Google’s algorithm system and its efficiency, subjectivity is considered to play a significant role thus raising questions about how manipulated results can affect the ranking of competitors’ websites. By pressuring Google, the European Union hopes to gain access to how these judgments play out in hindering competition. In the meanwhile, Google remains, as Microsoft does in the operating system market, the sole leader in web searches. According to comScore, Google accounts for 70% of the global market share for online searches.

While Bing (Microsoft’s new search mechanism) and Yahoo struggle to gain more traffic, Google improves its search algorithms and firm its position in a market forecast to continue growing rapidly in the next decades. The more users it has, the easier it is for Google to refine results and deliver more relevant links. The better its search system gets, the more the Californian company can improve its advertisement targeting. This exponential cycle will guarantee Google a dominant position for business in the online search and advertising market for years to come.

Managing Director of the IMF Dominique Strauss-Kahn has reasons to celebrate. But is it too soon?

The International Monetary Fund seems to be recovering from the existential crisis it suffered last decade. The fund has been increasingly busy in recent months as various countries such as Hungary, Ukraine, Pakistan and Iceland found themselves in need of financial aid. The economic downturn has called the international organization back into action after years of declining relevance and marginalization. It has lent more than $50 billion since the outbreak of the crisis and still has far more to offer in its kitty. But not more than five years ago the situation was very different: the IMF was agonizing for new borrowers and already looking into cutting back staff.

Despite its sudden bonanza, the IMF still caries a stigma aroused in the end of the 20^th century with the mismanagement of several rescue operations in emerging markets. From the countries that turned to the fund recently, few did it willingly. Even in the midst of the worst global recession since the crash of Wall Street in 1929, most governments considered recoursing to the IMF’s headquarters in Washington as the last alternative. While Iceland tried calling Moscow first, Pakistan took its chances with Beijing. But since beggars cannot be choosers, politicians saw no other alternative but to take new loans from the fund.

The fact is that many emerging economies regard the IMF as a dependable source of cash. During the Asian financial crisis of 1997-98, the medicine prescribed by the fund was a bittersweet pill to swallow. Instead of improving, the economic situation in Thailand, South Korea and Indonesia got progressively worse after the IMF intervened. Tightened to the bailouts was a set of structural reforms and demands for stringiest fiscal and monetary policies to help pull the troubled countries out the crisis. The aim was to restore the banking and financial systems and avoid capital outflows in the region. But the opposite happened. Money continued to flee from Asia and creditors kept losing confidence in a sustained recovery. In 1999, the catastrophic effects of the professed ‘structural adjustment package’ (SAP) led the IMF to admit errors in the handling of the crisis.

Similar situations occurred in Brazil and Argentina around the same period. Once more the International Monetary Fund evoked rage and criticism after the negative impacts of its anti-Keynesian impositions in those countries. The facts offered fertile ground for many to accuse the IMF to be an instrument for a new kind of colonization. A slump in legitimacy ushered most of the fund’s borrowers to steer clear their debts as soon as they could. In 2006, Brazil and Argentina paid the entire $25 billion of their outstanding loan ahead of schedule to prevent the institution from interfering in their economies again. Anticipated repayments and the lack of new credit lines shrank the fund’s loan book by 95 percent in the three years up to 2006. Its kitty went down from $60 billion to mere $3 billion.

Established in 1944 at the Bretton Woods Conference, the IMF was originally intended to promote international financial stability by avoiding a spiral of currency devaluations triggered in the last stages of the Second World War. It was also meant to facilitate the growth of world trade and serve as a “lender of last resort” to its members if they ever ran into financial trouble. In a world of fixed exchanged rates and relatively limited supply of private capital, this system seemed to make sense. But more than 60 years later, this notion has lost significance. Industrialized countries have not borrowed from the IMF since 1980 and many accuse the fund of neglecting its responsibility to watch over for exchange rates, especially in the case of the renminbi. Developing countries almost completely lost their trust in what they dub as an “unrepresentative” institution.

All these problems threw the IMF into an existential crisis and left many questioning its relevance and acting power in the global economy. Some of its meaning was revived by the financial crisis, but not all can be credited to it. The changes implemented by its current managing director, Dominique Strauss-Kahn, have also been contributing for the retrieval of the institution. His biggest sign of triumph was the increase of the IMF’s kitty to $750 billion, almost half of his ambitious goal of $2 trillion. A big chunk of the money came from America, Japan and Western Europe. But in a boost to the fund’s legitimacy, countries once victim of its mistaken interference – including Brazil – have agreed to invest in its first-ever bond issue. The fund has also abandoned its “one-solution-fits-all” approach to crisis-mitigation and has become more responsive to conditions in recipient countries. In the words of Strauss-Kahn, the IMF is now more centered on “fixing crises, not the world”.

Much of these initiatives were thought to redress the grievances of the past. With more money on its balance sheet, the IMF can persuade emerging countries more easily to rely on its resources in case of future crisis – instead of having them seat on vast amounts of foreign reserves. This money could then be unleashed for investments in health, education and other sectors vital to the development of poorer countries. If the IMF achieves success in branding itself as a “world sovereign-fund”, it would play a central role in reducing global imbalances. Yet this too is a difficult task, since the impacts of the fund’s policies is what led many countries to stockpile foreign currency in the first place.

The underlying problem of legitimacy can only be addressed with a reform of the funds quotas to give emerging economies more voting power. Like other institutions born on the aftermath of the Second World War, the IMF carries a cursed inheritance of misrepresentation in its decision-making processes. The United States alone holds 17 percent of the voting quotas, which gives it the right to veto any important decision that requires 85 percent of majority. With the increasing role of emerging counties in the political and economic decisions made in the global arena, it is unrealistic to think that an institution that provides inadequate representation of this group can be of any significance. China and Brazil, for instance, have smaller voting quotas – less than 2% each – than the Benelux countries. However, their share of global GDP is far more substantial. Moreover, a system of constituencies prevents large developing countries or the EU, for example, to vote collectively for a common cause.

One round of changes in the quota system has already been agreed, but not yet implemented. Currently more than three-quarters of the 184 members of the IMF are not directly represented on the Board of Executive Directors. Many not even have their own staff working in the organization. The G20 has asked the IMF to complete its next quota reviews by the beginning of 2011. But to please the majority – that means, emerging and least developed countries – rich nations would have to give up more power than they may be prepared to do. The prognosis is straightforward, though. Without some kind of balanced representation that grants legitimacy to its writ, the IMF will continue to be run by the interests of those who are – ironically – its smallest group of clients: the rich countries. As legitimacy and power go hand-in-hand, the fund needs revamped authority if it aims to become a powerful institution of financial cooperation in the decades to come.

All this process has to be underpinned by transparency. In a report issued by the Independent Evaluation Office of the IMF earlier this month concluded that the Fund governance structure is inadequate. The document also presented the results of a survey conducted with 32 civil society organizations. There was a general consensus among respondents that the current channels of communication between the organization and society are scarce and that formal consultation is practically nonexistent. Many also urged the organization to implement a formal process in which external stakeholders can confer with the IMF before any policies are put into effect. Another common complaint was directed to the lack of transparency in the Board processes, which makes it almost impossible for civil society organizations to judge whether their views are taken into account in deliberation processes.

Put it short, there are plenty of ways to go about changing the IMF, but not many when it comes to deeply transforming its constitution and making it truthfully powerful and legitimate. Much has already been done on the surface since Strauss-Kahn took office in 2007, and it has brought positive results. However there is a long way to go before the fund emerges as a respected multilateral institution by all nations (especially the poorest). Without an overhaul to the way it is governed, the same fundamental problems that pushed the fund to the boundaries in the last decade will most likely come back – and the consequence might be the relapse into another existential crisis.

BAE Systems said on Thursday it expects growth in 2010 despite a reported tumble in pretax profits and a net loss for 2009. The defence giant said the loss is due to exceptional charges and financing adjustments and its shares rose 4.3 per cent to 364p as news of a share buy-back and dividend-hike were announced the same day.

BAE said its net loss for 2009 was £67m, compared with a profit of £1.75b in 2008. Sales rose 21% to £22.42bn from £18.5bn, and earnings before amortisation and impairment of intangible assets, finance costs and tax in 2009 climbed 17% to £2.2bn from £1.9bn in 2008.

Ian King, BAE chief executive, said that the group faces challenges in its land and armaments business in the US. Its decline in profits is partly attributed to a £973m impairment charge at its Armor Holdings business after the loss of a US Department of Defense contract to supply trucks for the US Army.

BAE generates 58% of its sales in the US and agreed to pay a $400m fine to the US Department of Justice after it was charged with making false statements in regulatory filings. Profits were also hurt by £278m of exceptional charges relating to a deal struck in February to end corruption probes by the Serious Fraud Office in the UK and the US Department of Justice.

Mr King said the £500m share buy-back programme did not mean an end to growth at the group. He highlighted the company’s role in the growing areas of cyber security, combat aircraft and unmanned air vehicles, and warned against “a knee-jerk position”.

The group’s order book edged up slightly to £46.9bn from £46.5bn in 2008. In the same period, operating profit almost halved, falling from £1.72bn to £982m.

Dusting off trade barriers: talks that started in Doha remain stalled

In November 2001 dignitaries from 144 countries met in the arid city of Doha, Qatar, for an ambitious cause: lower trade barriers to help developing countries defeat poverty. The global talks led by the World Trade Organization (WTO) were dubbed as the ‘development round’, a chance to give the poorest nations a fairer opportunity to sell their goods around the world. More than eight years later, negotiations are stalled. The Doha Development Round has become like any other trade round – driven by mercantile principles set to benefit the rich and middle-income countries.

When thousands of officials and journalists gathered in the Arabian Peninsula in 2001 there seemed to be a great deal of enthusiasm. “We agree that special and differential treatment for developing countries shall be an integral part of all elements of the negotiations”, stated the final Declaration of the Ministerial summit.

But after years of giving and taking amongst developing and developed world, the mood has changed. Although negotiations might still be concluded, the process is fraught with frustration and uncertainty. Contrary to its declaration, the Doha Round has always had little to do with welfare gains to poor nations. Its success was always dependent on the willingness of economically distinct nations to compromise – an intimidating task given their conflicting goals.

The Doha Development Round was launched in special political circumstances. After the terrorist attacks of 9/11, American politicians drew a quick line between terrorism and poverty and felt the need to address future threats with multilateral cooperation. “By expanding trade, we spread hope and opportunity to the corners of the world, and we strike a blow against the terror”, said U.S President George W. Bush at that time.

The establishment of a new round of talks also appeared to be the right political answer following the failure of the 1999 Seattle Conference, in which emerging countries felt their priorities were not being taken into account. Since 1947, when the General Agreements on Tariffs and Trade (GATT) was set up, many attempts have been made to eliminate the disparities in world trade. The last significant one was the Uruguay Round (1986-1994), which resulted in the foundation of the WTO in 1995 and renewed hopes for continuing liberalization.

Even though the Uruguay Round produced several agreements on non-tariff barriers to trade, it was criticized by many international organizations (including Oxfam and Global Trade Watch) for only accommodating the desires of developed nations and succumbing to corporate lobbying. Many years later, Doha confronts similar challenges. It must cater to the needs of poor countries to succeed as a real ‘development round’ – and it has to do it within a completely new economic scenario.

Trade liberalization in a new economic scenario

Global trade and the economy have changed profoundly since the outset of the Doha round. WTO members such as Brazil, India and China have emerged as major trading and economic powers. Their share in world merchandise exports jumped from 4.1% in 1993 to 11.5 % in 2008, according to the WTO. Along with South Africa, they are members of the G-20 coalition, and have evolved into major players in international affairs.

The duopoly of the European Union and the United States under the GATT system has come to an end with the emerging new economies, which together dominates vital sectors of the global economy. So far, grievances exposed mainly by emerging nations were responsible for obstructing Doha’s subsequent ministerial meetings. In July 2008, talks collapsed after India and the US failed to reach and agreement on special safeguard mechanisms for agricultural goods.

With the emergence of an influential group of developing countries – which will, according to the World Bank, account for 45% of world trade by 2030 – it is tempting to think that negotiations in the WTO are ought to become more balanced and ‘fairer’ towards poor nations. However this assumption is misleading. Due to the governance structure of the WTO, all members have to reach consensus and agree unanimously before any resolution is passed. So challenging the interests of powerful nations is still a formidable task.

The nitty-gritty of Doha

Despite the economic downturn unleashed by 9/11, the Asian financial crisis of 2005 and the recent credit crunch, total world merchandise has been constantly increasing since Doha began. It almost trebled from $6.2 trillion in 2001 to more than $16 trillion in 2008. Globalization trends and increasingly interlocked global supply chains had help to knock down trade barriers. With so many hurdles already removed, many specialists forecast only modest gains for Doha.

According to an estimate by Sandra Polaski from the Carnegie Endowment, a plausible conclusion to the round would produce a one-time increase in world income of $60 billion to the utmost. This represents roughly 0.1% of global GDP, with least developed countries benefiting only slightly, if at all. Additionally, the complete elimination of all merchandise barriers (which is by no means an attainable target for Doha) would boost the income of developing countries by no more than 1%, predicts the World Bank.

The negotiations have been so far focused on ‘bound’ tariffs, the maximum rate permitted by global trade rules. But in recent years most countries have already slashed these tariffs unilaterally to levels below the highest allowed ones. Another study by the World Bank points out that in services, for instance, the level of actual barriers are on average 2.3 times lower than what is permitted by the policies adopted by the Uruguay Round. The best proposal submitted since the start of Doha, however, would decrease this ratio to only 1.9, meaning that countries could almost double their levels of restrictiveness in the service sector without violating any commitments.

Trade distortions are mainly concentrated in the agricultural sector, which has become the most pressing issue for this round. For a long time, rich countries have resisted international pressure to liberalize the farming sector, which would benefit net food-exporting countries especially in Latin America. Nonetheless, emerging countries are not willing to open up their markets if policies are not implemented with care. They also want to make sure that developed countries are banned from subsidizing farmers and agricultural exporters, and decrease their import taxes.

The current proposal put forward a reduction in the scope of domestic support by 70% in the EU and 60% in the US.  Also the average tariffs that food exporters face would fall to 12% from 14.5%. The demands of developed countries are primarily to gain access to emerging markets, where they could obtain a competitive edge in manufactured goods, services and intellectual property rights. But developing nations are reluctant to comply with ‘freer trade’ at the expense of having their national markets flooded by cheap imports.

Much of the debate over the ‘value’ of concluding the Doha Round has been centered on the possible economic results that further liberalization could bring.  Quantifying the outcome of trading rounds is a task subject to empirical models and considered by many as precise as fortune telling. Even so, according to recent predictions, only middle-income and rich countries would benefit substantially more from free trade, the latter reaping the largest profits. To Sandra Polaski, who ran conservative models, the economy of least developed countries could actually suffer.

So why conclude Doha?

As explained by Robert Gilpin in ‘The Challenge of Global Capitalism’, the paradox of international trade is that, “even though it greatly benefits societies…[it] is constantly being threatened by protectionism”. As history shows, though economic times have always sparked a sentiment to shield domestic economies. This time it was not different. Global support to the cotton industry, for instance, has doubled to $2.7 billion in 2007/08 and is estimated to reach $5.9 billion in 2008/09, half of which coming from the US.

While trade ministers and their delegations lean towards their countries interests, worries about market access and price stability wound, particularly for the farming sector. Until 2050 the world’s population will rise by a third, but demand for agricultural goods will increase by 70% and for meat will double. As pointed out by the report  ‘Conclude Doha, it Matters!’ by the World Bank, “in good times all this may not have seemed worth enough…but in bad times, the value of what is on the table increases”. Thus reinforcing food security and supply of agricultural goods is of paramount importance for generations to come. Laying down international rules that prevent countries from resorting to protectionism is one of the vital reasons to conclude Doha.

In an increasingly integrated world, multilateralism matters more than ever. To keep postponing the end of the first real global trade round is risky to all nations. While countries remain on the defensive and distrustful over a universal deal, the number of bilateral and regional agreements swells, poisoning even more the chances of a deal. It is time for politicians, above all those from rich and leading emerging countries, to leave mercantile principles aside and start thinking globally. If not for development, at least to avoid the danger of protectionism.

Long seen as a business dead spot in Latin America, Brazil is now rising as an important economic and political power. Yet it has many hurdles to overcome

For a long period in history, Brazil’s image worldwide was limited to a handful of stereotypes. The country was portrayed either as cheerful people dancing samba, the land of the Amazon forest and talented soccer players, or as a place of drug dealing, poverty and brutal violence.

This picture however, has begun to change. Several political and economic factors are contributing to reshape the Brazil’s international image, giving the South American giant new credibility in the global arena. The privilege of holding the 2014 World Cup and the 2016 Olympic Games are timely examples of this shift. “Brazil is really living a magical moment”, said President Luis Inácio Lula da Silva to the Financial Times recently.

Despite a stigma of underperformance and self-doubt, Brazil is now thriving. As one of the last countries to endure the consequences of the global crisis, it was one of the first to emerge from recession. It is also gaining relevance within global institutions, such as the G-20.

This new role derives from changes carried out during the past two decades, which gave the country more credibility nationally and internationally. One of its biggest achievements was the Plano Real (Real Plan), implemented by former President Fernando Henrique Cardoso in 1994. It effectively tamed inflation and brought in strict economic policies that guaranteed lasting stability. As a consequence, interest rates plummeted from 29 percent in 1998 to current 8.75 percent.

This strategy has been maintained by Mr Lula and enhanced by a massive program of income transfer (Bolsa Família), which distributes allowances of up to R$200 ($115) to 11 million poor families every month. Together with low inflation rates, the Bolsa Família had helped to reduce poverty from 39 percent to 25 percent of the population since 2003, according to the government’s Institute of Applied Economic Research (IPEA). Extreme poverty had also dropped to below 9 percent.

Fortune also played a part. Brazil has benefited from favorable external conditions, particularly by the increasing international demand for commodities in last decade (especially from China). In 2008, exports hit $198 billion, triple the amount registered ten years back. Moreover, its foreign reserves skyrocketed to $230 billion – five times greater than 2004 – transforming Brazil from a penniless client of the International Monetary Fund (IMF) to a contributor.

The government has also begun to diversify its trade partners, seeking new agreements in Asia, Africa and the Middle East. The pursuit of a “be friends with everyone” policy – a trademark of Mr Lula’s administration – was a successful one, at least in economic terms. In 2008, China became Brazil’s biggest trading partner, surpassing the United States. Brazil and Iran have also recently signed a new trade agreement.

Despite exciting prospects, Brazil remains one of the worst performers in terms of real GDP growth amongst the BRIC. (The acronym stands for Brazil, Russia, India and China. It is the group of developing countries that according to investment bank Goldman Sachs, will collectively dominate the global economy by 2050.) An average growth rate of 3.3 percent during the past four years left some questioning the relevance of the letter B in BRIC.

In many ways, Brazil is the most stable country of the BRIC block. Unlike China and Russia, it has an established and stable democracy. Unlike India, Brazil has no serious disputes with its neighbors. It is also the richest in terms of GDP per capita, and the most urbanized, which partly explains the lower growth rates.

Yet several barriers prevent Brazil from attracting more businesses and boost prosperity. Although it is the 8^th largest economy in the world, it ranked only 56^th on the “Global Competitiveness Index 2009” issued by the World Economic Forum (WEF), behind India (49^th) and China (29^th).

Brazil’s struggle to attract more investments in the global market is related to structural problems. Particularly, the government needs to restructure and improve service in the public sector. The Heritage Foundation’s “Economic Free Index 2009”, which measures the overall environment for setting up a business in 183 countries, downgraded South America’s leading economy from “moderately free” to “mostly unfree”.

The report highlights that the state remains heavily present in many areas of the economy. People who want to start, run or close a business are subject to Brazil’s archaic legislation, high credit costs and frequent regulatory changes. Moreover, the process of opening a new company almost four times as long as the world average of 38 days. Terminating a business can be an equally painful road.

In recent years, government spending reached 40.7 percent of GDP. The income is mainly spent on pensions, transfers to local states and municipalities and extensive bureaucracy. Foreign Direct Investment (FDI) in Brazil has significantly increased over the past two decades, making it the leading recipient country of international capital in Latin America. Its expanding domestic market, abundant natural resources and relative openness to investments play a big role in attracting transnational companies.

The growth of FDI began in the late 1990s and was largely a product of privatization of state companies that took place until 2002. It wasn’t until 2004 that foreign investors started to acquire privately owned companies. One of the most notable deals is the merger between Brazilian beverage company Ambev and Belgian Interbrew for $1.3 billion.

“The Brazil Competitiveness Report 2009”, another study published by the WEF, underscores the good image Brazil has with international investors. UNCTAD’s World Investment Prospects Survey (WIPS), mentioned in the report, found that Brazil is the 5^th most preferred location for international investments among company managers. “The richness in natural resources displayed by the country makes it very attractive for resources-seeking export-oriented FDI”, says the report.

Liberalization transformed Brazil into an agricultural superpower. The country is today the world’s biggest exporter of beef, chicken, orange juice, green coffee, sugar, ethanol, tobacco and soya. Brazil is the third largest agricultural exporter in the world and a major seller of mineral commodities. Petrobras, the state-controlled oil company, and Vale, a global mining company, together account for more than 30 percent of Bovespa’s (the Brazilian stock exchange) market value.

Despite these achievements, Brazil still has big hurdles to overcome. Almost 80 percent of cargo heading to the export port of Santos, faces a treacherous journey over miserably kept roads. Ships must wait for high tide to leave the port, since the channel out is two meters shallower than it should. Transportation costs alone account for nearly 13 percent of the country’s GDP (five percentage points more than in the United States).

The recent cycle of economic growth has also shed light on the inadequacy of education in Brazil. An OECD report comparing 15-year-olds’ abilities in reading, math and science ranked Brazil fairly low. As a consequence of the poor level of education, universities are not producing students with the skills demanded by transnational companies. “Human capital … appears to be a critical bottleneck to Brazil’s entry in the knowledge economy”, says a 2007 report by the World Bank.

The Economist bets on Twitter to boost web traffic

Twitter’s explosive growth rate got many traditional news organizations looking to social media as a source of web traffic and fresh readers. Since 2008 the number of users of the micro-blogging service in the US has trebled and is forecast to cross 30 million soon. The New York Times, the Guardian and the BBC are amongst the journalistic organizations that have already assigned editors to work exclusively with social networking. The Economist will follow suit.

According to the Financial Times, the magazine wants to increase the number of followers it has on Twitter from 100,000 to 750,000 within six months. Part of the strategy is the creation of a full-time position dedicated exclusively to the micro-blog. The American broadcaster CNN is currently the news organization with the biggest number of followers, going beyond 2,800,000.

Apart from boosting its Twitter page, The Economist wants to extend its Facebook fan’s base from 180,000 to 500,000 in the same period. To achieve this the magazine will remodel its website to make available some of the features provided by the social network. According to the FT, changes should be seen in the next three to four months.

Readers of The Economist’s website will soon be able to log in and make comments using their Facebook identity, through Facebook Connect. Economist.com will also take on features similar to social networks itself, allowing readers to create profile pages and earn a reputation through other users’ recommendations of their comments on the site.

The magazine has not disclosed details of how it plans to meet these ambitious targets. In his interview for the FT, however, publisher Ben Edwards stated that tens of thousands of pounds would be invested in marketing.

The Economist is one of the latest big-name publishers to acknowledge the potential of social networking sites. In October 2009 the BBC has appointed Alex Gubbay as its dedicated social media editor. The TechCrunch.com reported:

Alex Gubbay will start his new role as BBC News’ first Social Media Editor in January and will be charged with the editorial development of “user-generated content and social media initiatives across the BBC newsroom”, reports Brand Republic. To his credit, he’s currently Interactive News Editor for BBC Sport, and so, presumably, isn’t new to the social media scene as a whole, but being a late comer to Twitter doesn’t look too smart.

BBC’s decision followed the nomination of Jennifer Preston by the New York Times as its social media editor in May 2009. The Editorsweblog.com informed that her endeavour is to keep “expanding the use of social media networks and publishing platforms to improve New York Times journalism and deliver it to readers”.

While several news organizations strive to profit with the growth of Twitter, the micro-blog itself still lacks a lucrative business model. To many specialists 2010 will be a defining year with speculations ranging from an acquisition by Google to an initial public offering. Despite its huge appeal and rapid expansion, it is still very likely that the company operates in the red.

If you are one of the many dental patients in the UK that have had braces furnished with gold, you have two reasons to smile when your treatment ends. The first is a perfect smile. The second is that your braces – which would normally be left in the clinic for recycling – may now be worth £100 on the scrap market.

Since the beginning of the credit crisis, the price per troy ounce gold skyrocketed from $800 one year back to a record high of $1,227 (£757) earlier this month. This upsurge, pushed mainly by a weaker dollar and the increasing appetite of investors for safer assets, encouraged many to sell their castoffs of the precious metal. “I think about 65 per cent of my customers are selling me things rather than the other way around,” one Leicester-based jeweller told The Economic Times.

However hurrying may have not been the best option. Investment bank Morgan Stanley forecasts a peak above $1,300 for the price of gold in 2010, topping the performance of commercial and residential property and bonds. The enthusiasm of some fund managers in the UK goes even further. According to a survey by the Association of Investment Companies (AIC), 28 percent predict gold to be the best performer next year.

Gold price performance in the past five years

With these glowing prospects, you might also be thinking about allocating part of your portfolio to gold. Unlike the last sustained bull market of this commodity in the 1970s, it is nowadays very simple to get exposure to gold. Among other options you can buy stocks of mining companies or simple invest in Exchange Traded Funds (ETFs) that aims to tracks the price of the precious metal. Digital gold or ‘e-gold’ is also an increasingly popular option, however the providers are not regulated and therefore the risks are higher.

But before reaching for the yellow metal, you should be aware of the key factors that influence its price.

In times of uncertainty (like the current financial crisis) gold is often chosen as the ultimate safe refuge by investors. To hedge themselves against market uncertainties, central banks and other financial institutions almost always resort to gold. Unlike other currencies, its supply is limited and cannot be increased by governments ‘out of thin air’. Moreover, its value does not depend on the credit rating of any particular institution.

Since the beginning of the global meltdown, many countries have exchanged dollars for gold as a strategy to keep their reserves protected from volatility. The central bank of India, for example, bought 200t last month in an effort to move away from the waning American currency. Because the value of gold is determined by the fundamental rule of supply and demand (as any other commodity), when central banks or investors rush to purchase it, the price goes up.

Put simply, as the value of the dollar falls, the price of gold increases and vice-versa. If interest rates in the United States stay low for an ‘extended period’, as announced by the Federal Reserve, so will the eagerness of investors to buy dollars. But as soon as interest rates rise and the dollar regains its strength, the price of gold is deemed to decline.

Hence betting on the price of gold is also betting on the prospects of the US and its monetary system. “Until the dollar puts in a convincing rebound, then the onus is to the upside in gold,” HSBC metals analyst Jim Steel told goldinvestingnews.com.

So is that it? Not quite. Another (and surely the trickiest) aspect that influences the price of gold is speculation. As its price keeps rising, more investors will expect it to keep going up. From 1995 to 2005, gold has been trading between $250 and $420 with the sharp rise beginning only thereafter. Many analysts say that hedge funds are on the back of this boost.

Along with trying to predict the price of gold it is also crucial to be clear on the purposes of having it in your portfolio. If you want to hedge yourself against volatility and inflation in the long term, gold is almost always a good option. Its natural scarcity and constant demand (for industrial use and jewellery) will guarantee that prices go up.

But if your decision to invest in gold is motivated by short-term gains, you may be setting yourself up against market conditions very hard to foresee. If the US raises interest rates and the dollar reclaims its vigor prior to your predictions – or if the price of gold suddenly tanks after an unwarranted market rally – your prospects for lustrous profits can quickly vanish.

A report released this week argues that City bankers destroy £7 of value for every £1 they are paid by their employers. The authors of the A Bit Rich report estimate the cost of the recession at £2.7 trillion, or £668 per banker. Reasoning from that premise, they conclude that bankers have a negative effect on society. Chris Giles writes in the FT:

[The] report stems from standard public economics theory that the government should step in if people’s value to society is remarkably different from their private value to an employer. The government already steps in, taxing everyone to ensure many jobs with high social value happen where those services would not be provided otherwise….

The authors assume the financial crisis and recession would not have happened without City bankers engaging in risky, opaque and complex transactions…. If the figures are accurate, a rational government should shut the City. Naturally, the City disagrees and so does the Treasury, which sees benefits in properly regulated activity in the Square Mile.

The NEF has never made an effort to appear conventional. It grew out of an international conference called The Other Economic Summit, held in opposition to the 1986 meeting of the G7 in Tokyo. Founder Jonathon Porrit is an Old Etonian, trained as a barrister at Oxford University, whose father once declared the welfare state ‘uneconomic’ in his post as Governor-General of New Zealand. With over fifty employees, most of whom are trained academics, the NEF has grown since its days as a gathering of friends in Mr Porrit’s Lambeth flat. Some would say that it is now reputable.

Yet at the same time, it is a pity that this report had to come from an organisation like the NEF. It raises important issues that deserve to be debated intelligently but which risk being drowned out by squabbles over agenda and the incessant mentioning of ‘the environment’ that is a legacy of Mr Porrit.

The authors calculate that the providers of essential services, like nurses and hospital cleaners, can receive as little as 10 per cent of the benefits they provide. From the FT again:

Eilis Lawlor, head of the valuing-what-matters team at the New Economics Foundation, said: “Pay levels often don’t reflect the true value that is being created. As a society, we need a pay structure which rewards those jobs that create most societal benefit, rather than those that generate profits at the expense of society and the environment”.

Yes, it is true that while the conclusion might come through reason, the premise that the value of nursing or banking can be accurately calculated might be false. The point is academic. The effects of the way we choose to value services, on the other hand, are real. Bankers are not the first to threaten to leave the UK. In 2007, 5,000 nurses tried to leave for Australia after finding their services undervalued here.

Should we reconsider the value of services like nursing? That is an important question, and it should not die along with the intellectual defeat of this report. The sad truth is that as long as the focus remains on banking, it probably will.

Newspaper publishers face a dilemma. If one newspaper unilaterally charges for content, readers might migrate to those that remain free. The Huffington Post really kicked-off when The New York Times began charging for content, eventually forcing the Times to retreat. If, on the other hand, publishers form a cartel and agree to put up pay-walls simultaneously, the proportion of readers prepared to pay for a single publisher’s content will fall. A study by media consultancy Oliver and Ohlbaum found that 26 per cent of Guardian readers are prepared to pay £2 a month for access to online content. The figure falls to 16 per cent if all newspapers charged. The Economist thinks it comes down to the promiscuity problem: the culture of getting news from many different outlets has become so strong that it is difficult to just change overnight.

The study busts the myth that aggregators like Google News are fuelling the culture of “content kleptomania”. It turns out that only 10 per cent of readers rely on aggregators to point them to news sources.

I think that the BBC is a bigger part of the problem than The Economist cares to admit. The Daily Telegraph has the highest circulation of all the British dailies. Yet its readers spend twice as much time on news.bbc.co.uk as they do on telegraph.co.uk. The Telegraph and BBC News never competed across the print medium. Now they compete directly with each other for online readers. The BBC does have several unfair advantages. It is not an enterprise. Funding is guaranteed by the British public. It has only one bottom line – public interest, whereas newspaper publishers have to juggle two – public interest and shareholder value.

Any agreement between publishers on future business models must involve the BBC. It is fanciful to imagine that the print and online markets are identical. They are not. Print news in Britain is dominated by ex-Fleet Street publishers. Their online position is weak. From here on there are two ways to proceed.

Newspaper publishers can lobby the government and the British public until they succeed in getting the former to slash the BBC News budget. A weaker BBC will make the marketplace fairer for all online publishers, but at the cost of a public outcry and diminished democracy.

The second, more desirable, option is to have the BBC come to an agreement with its online competitors: The BBC would concentrate on reporting, and newspaper publishers on journalism. The market for reporting is dominated by wire services so if the BBC chooses to compete solely in this market, it would hardly be a threat to the news agencies. Reuters, for instance, derives only five per cent of its from services provided to non-corporate clients. At the same time, the arrangement would provide an invaluable service to the British public. Newspaper publishers would be free to resume their historical focus on investigate journalism, ensuring survival for themselves and, ultimately, for democracy.

So much for the information revolution

Sarkozy is to take on Google’s project to digitise French language and European books and art, by funding a French digitisation project. From The Times:

“We are not going to be stripped of our heritage for the benefit of a big company, no matter how friendly, big or American it is,” Mr Sarkozy said. “We are not going to be deprived of what generations and generations have produced in the French language just because we weren’t capable of funding our own digitisation project.”

Jean-Noël Jeanneney, a former chief of the national library (BNF), said that Europe’s very history was under threat. The French could be fed only an Anglo-Saxon version of its revolution in which “valiant British aristocrats triumphed over bloodthirsty Jacobins and the guillotine blotted out the rights of man”, he wrote recently.

Google has been scanning out-of-copyright books sitting in US libraries for years. Victor Hugo’s Les Misérables is freely available on Google Books. Search it. Download the entire copy. Everyone seems to be happy. Except Nicolas Sarkozy. He blew a fuse upon finding out that the French National Library was “collaborating” – which in France means colluding – with Google to scan part of its collection.

The BNF clarified its position last August. It is extraordinary enough that the press release was published in English. But try to imagine this last statement coming out of anywhere except France:

The Bibliothèque nationale de France does not intend to enter into any argument especially when controversies tend to become personal.

Sadly, Mr Sarkozy has made the issue personal. If not out of sheer vainglory, then for political ends. It is not the first time that we have seen this kind of posturing from the president. The plan proposed by his culture minister Frederic Mitterrand to lock the library’s collection into an EU-funded archive costing £700mn must be understood in this context. Gallica, as the archive is unsurprisingly called, will “achieve a European consensus against Google”.

“We have to regulate the market. The state has to do it and not some private concern,” said Frederic Mitterrand.

The people working at Google Books must find this weird back-of-beyond mentality either really amusing or extremely frustrating. The very idea of a country fighting a corporation that will, in the end, promote its culture is absurd. And since when does the market for freely available information have to be regulated?