Behind Your Business

Does India’s government pay any heed to its economic advisers?

ECONOMISTS like nothing better than giving advice to governments. But why do they, of all people, imagine that anyone listens? In their models economists assume that governments, like other actors in the economy, have objectives of their own, which they seek to advance as best they can. They are not disinterested servants of the public good. So governments will ignore a recommendation from their advisers unless it suits them, in which case they would have done it anyway.

In his book “Prelude to Political Economy”, published in 2000, Kaushik Basu of Cornell University wrestled with this paradox. “If, seeing high unemployment in an economy, a person… advises entrepreneurs to employ more labourers, or consumers to demand more goods, this typically causes economists to share a laugh.” And yet economists routinely advise governments to act in the economy’s interests rather than their own. …

The insurance industry’s biggest-ever acquisition has prompted the largest-ever rights issue: AIG and Prudential are both playing for huge stakes

INSURANCE is a pretty stodgy business. This week’s agreement by Prudential of Britain to buy AIG’s Asian life-insurance operations, AIA, is anything but. If the $35.5 billion deal goes through—and given the convulsions in both companies’ share prices, that is not certain—it will radically alter both Prudential and AIG and will provide a closely watched test of what can and cannot be done by financial firms as they try to build Asian franchises.

On paper, the transaction would transform Prudential into the region’s dominant insurance company. It will have a leading, if not the leading, presence in 15 big markets with a vast sales force offering critical health and investment products to a population that is becoming wealthy enough to appreciate them. Assuming the transaction goes through successfully, the proportion of sales Prudential generates from Asia should eventually expand from 30% to 80%. Prudential is paying a fraction of what AIA would have gone for prior to AIG’s implosion. It is a remarkable opportunity at a rather pedestrian price. …

Countries compete to weaken their currencies

ONCE upon a time, nations took pride in their strong currencies, seeing them as symbols of economic and political power. Nowadays it seems as if the foreign-exchange markets are home to a bunch of Charles Atlas’s 97-pound weaklings, all of them eager to have sand kicked in their faces.

First the dollar took a battering in 2009 when the return of risk appetite, and the ability to borrow the currency at very low rates, sent money flowing out of America for use in speculative “carry trade” transactions. Then the euro got pummelled because of concerns about the euro zone’s exposure to sovereign-debt problems in southern Europe. Finally sterling hit the canvas this week because of concerns about the British government’s deficit and the policy gridlock that may result from a hung parliament after a general election expected in May. …

A difficult time for a fund-raising spree

A SENIOR World Bank official describes its efforts to secure an additional $3 billion-5 billion in paid-in capital as a “once-in-a-generation increase to deal with the effects of a once-in-a-generation crisis”. The bank agreed to lend $32.9 billion to poor countries in the year to June 2009, two-and-a-half times the previous year’s outlay of $13 billion. If it carried on at this rate, Robert Zoellick, the bank’s president, warned in October, its lending would face constraints by the middle of this year.

But its search for funds is being complicated by two factors. Some of its rich-country backers have overstretched budgets of their own, to put it mildly. And other large multilateral development banks (MDBs) are also seeking cash. …

Should every child receive a bank account at birth?

YOU come into the world with nothing, the saying goes. A new campaign proposes to change that by giving every newborn child in the world an online bank account with $100 in it. The aim of the FinancialAccess@Birth (FAB) campaign is to do something about the fact that half the world’s population has no access to mainstream financial services. This is a huge handicap, exposing people who are typically already on the poverty line to risks that wealthier folk can manage through savings or insurance, and leaving them to pay unregistered moneylenders through the nose.

The campaign is the brainchild of Bhagwan Chowdhry, a finance professor at the University of California, Los Angeles, and is starting to attract some prominent supporters, including Peter Singer, a well-known philosopher, and Vijay Mahajan, an Indian social entrepreneur. …